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INSURANCE LAW 2010 COMMERCIAL LAW

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ICAL LAW
 INSURANCE LAW
APPLICABLE LAWS
1. Insurance Code of 1978 2. Making or proposing to make, as surety,
any contract of suretyship as a vocation
2. Civil Code, Art. 2011 and other related and not
articles as a mere incident to any other
3. Family Code (EO 209) legitimate business of a surety;
4. Other special laws. (Example: GSIS, 3. Doing any insurance business, including
SSS, Philhealth) a reinsurance business;
4. Doing or proposing to do any business
 If the Insurance Code or a special law does in substance equivalent to any of the
not specifically provide for a particular matter foregoing.
in question, the provisions of the Civil Code
on contracts shall govern suppletorily. Elements of Insurance:
(Villanueva, Commercial Law Review, 2002ed.,
page 277) 1. Insurable Interest
The insured must possess an interest
susceptible of pecuniary estimation, known
as “insurable interest”;
CONTRACT OF INSURANCE 2. Risk of Loss
The insured is subject to a risk of loss
An agreement whereby one undertakes through the destruction or impairment of that
for a consideration to indemnify another interest by
against loss, damage or liability arising from the happening of designated perils;
an unknown or contingent event. (Sec. 2, par. 2, 3. Assumption of Risk
Insurance Code of the Philippines [ICP] ) The insurer assumes that risk of loss;
4. Scheme to Distribute Losses
 The test to determine if a contract is an Such assumption is part of a general
insurance contract or not, depends on the scheme to distribute actual losses among a
nature of the promise, the act required to be large group of persons bearing somewhat
performed, and the exact nature of the
similar risks; and
agreement in the light of the occurrence,
contingency, or circumstances under which 5. Payment of Premium
the performance becomes requisite. It is not As consideration for the insurer’s promise,
by what it is called. (White Gold Marine Services the insured makes a ratable contribution
v. Pioneer Insurance, July 28, 2005) called premium, to a general insurance fund.

Requisites of a contract of insurance  The above elements are IN ADDITION


1. The subject matter in which the to the essential elements to an ordinary
insured has an insurable interest (Secs. contract.
12-14);
2. Event or peril insured against which Moral Hazard- an undesirable side effect of
may be any future contingent or unknown transfer of risk is a phenomenon on which the
event, past or future and a duration for existence of insurance could have the
the risk thereof (Sec. 51 [g]); perverse effect of the probability of loss.
3. There must be a promise to pay or (Over-insurance is an example which results
indemnify in a fixed or ascertainable to moral-hazard.)
amount (Sec. 2);
4. There must be a consideration Interpretation of Insurance Contracts:
known as “premium” (Sec. 77); General Rule: In case there is no doubt, the
5. There must be meeting of the minds provisions must be construed in their plain,
of the parties (Arts. 1318, 1319, NCC). ordinary and popular sense.
Exception: When the terms are ambiguous,
“Doing an insurance business or transacting uncertain or doubtful, the terms should be
an insurance business” (Sec 2, par. 4) interpreted strictly against the insurer and
1. Making or proposing to make, as liberally in favor of the insured because an
insurer, any insurance contract; insurance contract is a contract of adhesion.

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his signature or his “adhesion” thereto. (Gulf


Resorts, Inc v. Phil. Charter Ins. Corp, G.R. No. 156167,
May 16, 2005)
FIVE CARDINAL PRINCIPLES IN
INSURANCE This principle is the very reason why in
1. Insurable Interest every doubt or ambiguity in an insurance
2. Principle of Utmost Good Faith contract is resolved in favor of the insured
An insurance contract requires utmost good and against the insurer.
faith (uberrimae fidei) between the parties.
The applicant is enjoined to disclose any Void Insurance Contract Stipulations:
material fact, which he knows or ought to a. Stipulations for the payment of loss
know. The insurer relies on the regardless of whether the person injured
representation of the applicant, who is in the does or does not have any interest in the
best position to know the state of his health. subject matter of the insurance.
3. Contract of Indemnity b. Stipulation that the policy shall be
It is the basis of all property insurance. The received as proof of insurable interest.
insured who has insurable interest over a c. Policy executed by way of gaming or
property is only entitled to recover the wagering.
amount of actual loss sustained and the d. Stipulations within the proscription of
burden is upon him to establish the amount Article 739 of the New Civil Code.
of such loss (Sundiang and Aquino, Reviewer on e. Stipulations against public policy, public
Commercial Law 2004 ed., page 4) morals and public order.
Rules:
a. Applies only to property 5. Principle of Subrogation
insurance except when the creditor It is legal substitution where the insurer steps
insures the life of his debtor. into the shoes of the insured and he avails of
b. Life Insurance is not a contract the latter’s rights against the wrongdoer at
of indemnity but an investment, the time of the loss.
c. Insurance contracts are not
 Subrogation is a normal incident of
wagering contracts because they are
indemnity insurance as a legal effect of
not contract of chance and they are payment. It inures to the insurer without
not used for profit. (Sec.4, ICP) any formal assignment or any express
stipulations to that effect in the policy.
WAGERING CONTRACT OF Said right is not dependent upon nor
CONTRACT INSURANCE does it grow out of any private contract.
The parties The parties seek to Payment to the insured makes the
contemplate gain distribute the possible insurer a subrogee in equity. (Malayan
through mere chance. loss by reason of Insurance Co., v. CA, 165 SCRA 536)
mischance.
Gambler courts Insured seeks to avoid Purposes of Subrogation:
misfortune. misfortune. 1. To make the person who caused the loss
Tends to increase the Tends to equalize legally responsible for it;
inequality of fortune. fortune 2. To prevent the insured from receiving
Essence of gambling What one insured double recovery from the wrongdoer and
is that whatever one gains is not at the the insurer; and
wins from a wager is expense of another
3. To prevent the tortfeasors from being free
lost y the other insured.
wagering party. from liability and is thus founded on
As soon as the party The purchase of consideration of public policy.
makes a wager, he insurance does not
creates a risk of loss create a new and non- When the Right of Subrogation is
to himself where no existing risk of loss to INAPPLICABLE:
such risk exist the purchase. 1. Where the insured by his own act
previously. releases the wrongdoer/third person
liable for the loss.
4. Contract of Adhesion (Fine Print Rule) 2. Where the insurer pays the insured for a
loss or risk not covered by the policy (Pan
 A contract of adhesion is one wherein a party, Malayan Insurance v. CA, 184 SCRA 54).
usually a corporation, prepares the stipulations in 3. In life insurance because the value of
the contract, which the other party merely affixes human life is regarded as unlimited and

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no recovery from a third party can be 10. An Investment- measure of economic


deemed adequate to compensate the security for the insured during life, and
insured’s beneficiary. beneficiary after death. Financial assistance
4. For the recovery of loss in excess of during financial crisis. Liability of insurer is
insurance coverage. face value of the policy and not the earning
capacity of the insured at time of death.
 The insurer can be subrogated to only 11. Property – since an insurance is a
such rights as the insured may have. contract, as such, it is property in legal
Should the insured, after receiving contemplation.
payment from the insurer, released the
wrongdoer who caused the loss, the Requisites for Recovery Upon Insurance
insurer loses his rights against the latter.
a. The insured must have insurable
But in such a case, the insurer will be
entitled to recover from the insured interest in the subject matter;
whatever it has paid to the latter, unless b. That interest is covered by the policy;
the release was made with the consent c. There must be a loss; and
of the insurer (Manila Mahogany d. The loss must be proximately caused by
Manufacturing Corp. v. CA, 154 SCRA 650). the peril insured against.

Characteristics of Insurance:
1. Consensual – because it is TYPES OF
perfected by the meeting of the minds.
2. Voluntary – the parties may
INSURANCE
incorporate such terms and conditions as
they may deem convenient. 1. Life
3. Aleatory – one of the parties or both Insurance
reciprocally bind themselves to give or to a. Individual Life (Sec. 179-183,
do something in consideration of what 227) – insurance on human lives and
the other shall give or do upon the insurance appertaining thereto or
happening of an event which is connected therewith.
uncertain, or which is occur at an b. Group Life (Sec. 50) – a
indeterminate time. (Art. 010, Civil Code) blanket policy covering a number of
4. Executory- it is executory on the individuals.
part of the insurer in the sense that it is c. Industrial Life (Secs. 229-231)
not executed until payment for a loss. It – a form of life insurance under
is executed as to the insured after which the premiums are payable
payment of the premium. either monthly or oftener, if the face
5. Unilateral – imposes legal duties on amount of insurance provided in any
the insurer who promises to indemnify in policy is not more than 500 times
case of loss. than that of the current statutory
6. Conditional – because recovery is minimum daily wage in the City of
commensurate with the amount of loss Manila and if the words ‘”industrial”
suffered. However, Life Insurance is not policy are printed upon the policy as
a contract of indemnity except if one is part of the descriptive matter.
procured by a creditor on the life of the 2. Non-Life
debtor. Insurance
7. Personal – each party having in a. Marine (Secs. 99-166)
view the character, credit and conduct of b. Fire (Secs. 167-173)
the other. c. Casualty (Secs. 174)
8. Formal – a policy in writing is required
to be issued, and the premium must be paid. 3. Contract of Suretyship (Secs. 175-178)
9. Contract of Indemnity – Except life and  Health and accident insurance are
accident insurance where the result is death, either covered under life (Sec. 180); or
a contract of insurance is a contract of casualty insurance (Sec. 174);
indemnity whereby the insurer promises to  Marine, fire and the property aspect
make good only the loss of the insured. of casualty insurance are also
referred to as property insurance.

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PERFECTION OF damage, or liability, or to guarantee the


performance of or compliance with
CONTRACT OF contractual obligations or the payment
INSURANCE of debt of others. (Sec. 185, ICP)
 It must have sufficient capital
An insurance contract is a consensual and assets required under the
contract and is therefore perfected the Insurance Code and the pertinent
moment there is a meeting of minds with regulations issued by the
Commission (Sec. 186, ICP).
respect to the object and the cause or
consideration.  It must have a certificate of
authority to operate issued by the
Insurance Commission which
COGNITION THEORY should be renewed every year (Sec.
What is being followed in insurance 187, ICP).
contracts is what is known as the “cognition c. Foreign Insurance corporations
theory.” Thus, Article 1319 of the Civil Code may be authorized by the Commission to
provides that an acceptance of an offer by engage in insurance business in the
letter does not bind the offeror except from Philippines provided the following
the time it came to his knowledge (Enriquez v. requirements are met:
Sun Life Assurance Co. of Canada, 41 PHIL. 269). 1. The appointment of a resident
of the Philippines as a general agent
 If the binding receipt is conditioned upon on whom any notice or proof of loss
approval of the application and the may be served and on whom
application is rejected, there is no contract. summons and other processes may
(General Pacific Life Insurance Co. v. CA 89 SCRA be served;
543).[1979] 2. It must possess paid up
unimpaired assets or capital and
 Where the applicant died before he reserve not less than that the
received notice of the acceptance of his
required of domestic corporations;
application for the insurance, there is no
3. It must deposit for the benefit
perfected contract. (Perez v. Court of Appeals,
and security of policyholders,
323 SCRA 613) [ 2000] clear
securities satisfactory to the
Commission;
Binding Receipt- a mere acknowledgment on
4. Its investments should not
behalf of the company that its branch office had
exceed 20% of the net worth of
received from the applicant the insurance
foreign corporation or 20% of the
premium and had accepted the application
capital of the registered enterprise.
subject to processing by the head office.
2. Insured – party to
be indemnified upon the occurrence of
PARTIES TO THE the loss.
INSURANCE a. Capacitated to enter into a
CONTRACT contract;
b. Possess an insurable interest in the
subject of the insurance; and
1. Insurer – the person who
c. Not a “public enemy” (refers
undertakes to indemnify another. to a nation with which the Philippines is
a. Insurers may be at war and includes the citizens thereof).
individuals, partnerships, associations or (Sec. 7, ICP)
corporations who are duly authorized by
the Insurance Commission to engage in  A public enemy may not be
the insurance business. (Secs. 184-187, insured because the purpose of the war
ICP) is to cripple the power and exhaust the
b. Insurance resources of the enemy, and it is
Corporation – corporations formed or inconsistent that one country should
organized to save any person or destroy its enemy’s property and repay
persons or other corporations harmless in insurance the value of what has been
from loss, damage, or liability arising so destroyed, or that it should in such
from any unknown or future or manner increase the resources of the
contingent event, or to indemnify or to enemy or render it aid. However,
compensate any person or persons or elementary rules of justice require that
other corporations for any such loss, the premium paid by the insured public

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enemy from first payment up to the time insurable interest in the life of the
of its becoming public enemy, should be insured.
returned. Exception: Any person who is forbidden
 A member of the Moro Islamic from receiving any donation under Article
Liberation Front (MILF) or its breakaway 739 of the Civil Code cannot be named
group or the Abu Sayyaf may be insured
beneficiary of a life insurance policy by
with a company licensed to do business
under the ICP. The MILF or the Abu the person who cannot make any
Sayyaf is not a citizen or national of donation to him. (Art. 2012 NCC)
another country, but of the Philippines.
Prohibited Donations (Art. 739 NCC)
Effect of war: It abrogates the contract of a. Between persons guilty of
insurance; even if war terminates. It does not adultery or concubinage;
revive the contract. b. Between persons guilty of the
same criminal offense;
Nationality of the corporation is determined by c. Made to a public officer or his
the place of incorporation or where it is registered wife, descendants and ascendants,
(Incorporation Test); by reason of his office.
Exception: During wartime where the Philippines  The designation of common law wife
is involved, what is decisive is not its registration as beneficiary is void. This need
but is the nationality of the majority of its only be proved by preponderance of
stockholders (Control test). evidence; no previous conviction is
required. (Insular Life v. Ebrada, 80
 Insured may be regarded as the real party in SCRA 181)
interest under an insurance policy, although  The designation of adulterous
he has assigned the policy for the purpose of children by a married man is valid.
collection, or has assigned as collateral (Southern Luzon Emp. V. Golpeo, 96 Phil.
security any judgment he may obtain there 83)
from. (Great Pacific Life vs. CA, 316 SCRA 677) 2. A person who insures the life of
another person and names himself as
Insurance By A Married Woman the beneficiary must have an insurable
A married woman may take out an interest in such life. (Sec. 10, ICP)
insurance on her life or that of her
children without the consent of her 3. General Rule: designation of beneficiary
husband, or that of her husband, having is revocable (Sec. 11, ICP)
an insurable interest in the latter. Exception: When there is an express
However, while either spouse may stipulation in the policy that it shall be
exercise any legitimate profession, irrevocable (express waiver).
occupation, business or activity without Exception to the Exception: After the
the consent of the other, the latter may finality of the decree of legal separation,
object on valid, serious and moral the innocent spouse may revoke the
grounds. (Art.73, Family Code) donations made by him or by her in favor
of the offending spouse, as well as the
3. Beneficiary and Cestui Que Vie –
designation of the latter as beneficiary in
The beneficiary is the person designated
any insurance policy, even if such
to receive the proceeds of the policy
designation be stipulated as irrevocable.
when risk attaches while the cestui que (Art. 64, Family Code)
vie is the person on whose life the
insurance is written. Effects of Irrevocable Designation of
Beneficiary: The insured cannot:
1. Assign the policy;
RULES IN THE DESIGNATION OF THE 2. Take the cash
BENEFICIARY surrender value of the policy;
A. Life Insurance 3. Allow his creditors
1. Beneficiary of One Who Insures His to attach or execute on the policy;
4. Add new
Own Life beneficiary; or
General Rule: Any person may be a 5. Change the
beneficiary, whether or not he has an irrevocable designation to revocable,

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even though the change is just and insured, he knowing and intending
reasonable. that his death shall be the result of
 If the designation of the beneficiary is irrevocable, his act (Sec 180-A).
the designation cannot be made revocable c. Death by accident- death
without his consent, as he has vested right. If the which is purely accidental, even
beneficiary is a minor child of the insured, the though due to the insured’s own
latter cannot give his consent because of conflict carelessness or negligence is not
of interest. (Phil. American Life Insurance Co. v. excluded from the coverage by the
Pineda, 175 SCRA 416)[1989]
word “self-destruction,” “death by his
4. Change of Beneficiary: own hand”, and the like which are
General Rule: The insured shall have the generally considered synonymous
right to change the beneficiary he with suicide.
designated in the policy. d. Death by suicide while
a. The beneficiary acquires no insane- the insurer is still liable since
vested right only expectancy of the insurer must have known that the
receiving the proceeds under the insured was insane and the unwitting
insurance. act of self-destruction is as much the
b. The right may be expected consequence of that disease.
in the manner provided in the policy. e. Death caused by the
c. The right ceases upon the beneficiary-
insured’s death. It may not be General Rule: the beneficiary cannot
exercised by his representatives. receive benefits
Exceptions:
Exceptions: 1. The beneficiary acted in self-
a. If the right to change the defense;
beneficiary is expressly waived in the 2. The insured’s death was not
policy then the insured has no power intentionally caused.
to make such change without the Note: Sec 12 provides in
consent of the beneficiary; and “willfully” bringing about the
b. When the designation of death.
beneficiary is irrevocable. f. Death caused by violation of
law- the insurer is still liable. To
Note: If the insured refuses to pay the avoid liability, the insurer must
premiums, the designated irrevocable
further establish that the commission
beneficiary may continue the policy by
paying the premiums that are due. of the felony or the violation of law
was the cause or had a causal
Exception to exception: Under Articles 43 connection with the accident
(4), 50 and 64 of the Family Code, the resulting in the death of the insured.
innocent spouse may revoke the
designation of the other spouse who 6. Effects when the
acted in bad faith as beneficiary in any beneficiary predeceased the insured:
insurance policy, even if such a. Where the beneficiary is
designation be stipulated as irrevocable. irrevocable, the legal representatives
of such beneficiary are entitled to the
5. Rules on liability of insurer proceeds of the insurance as assets
on death of insured: of his or her estate, unless the
a. Death at hands of law- the proceeds were made payable to the
insurer is liable. This is one of the beneficiary only “if living”.
risks assumed by the insurer in the b. Where the beneficiary is
absence of a valid policy exception. revocable, the estate or legal
b. Death by suicide/ Death by representatives of the former derive
“one’s own hand”- the insurer is not no interest from or through him, but
liable if suicide is intentional, with the proceeds passes to the estate of
whatever motive (from anger, pride, the insured.
jealousy) because death is still
Note: the reason for the different
caused by the voluntary act of the
effects between the irrevocable and

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revocable beneficiary is that in the 3. Rate of premium;


former, the beneficiary has a vested 4. Property or life insured;
interest in the policy while the latter 5. Interest of the insured in the property
does not. if he is not the absolute owner thereof;
c. In case of an insurance policy 6. Risk insured against;
taken out by an original owner on the 7. Period during which the insurance
life or health of a minor, all rights, shall continue.(Sec. 51, ICP) ausl
title and interest in the policy shall
automatically vest in the minor upon PAPERS ATTACHED TO THE POLICY
the death of the original owner, AND THEIR BINDING EFFECT
unless otherwise provided for in the 1. Riders
policy. Printed stipulations attached to an
insurance policy that modifies the
7. The interest of the conditions of the policy by expanding or
beneficiary in a life insurance policy shall restricting its benefits or excluding certain
be forfeited when the beneficiary is the conditions from the coverage because
principal, accomplice, or accessory in they constitute additional stipulations
willfully bringing about the death of the between the parties.
insured. In such event, the nearest
 Riders are permitted in a policy provided
relative of the insured shall receive the specific reference is made to them in the
proceeds of said insurance if not policy. (Sec. 50, ICP)
otherwise disqualified (Sec. 12, ICP).
Rules Regarding Riders
1. Riders,
B. Beneficiary of Property Insurance
together with other attachments to the
a. The beneficiary must policy like clause, warranty, or
have an insurable interest in the endorsements, are not binding on the
property. insured unless the descriptive title or
b. The designation is name thereof is mentioned and written
revocable unless the right to revoke on the blank spaces provided in the
is expressly waived in the policy (Sec. policy;
11, ICP) 2. Riders and
c. If the insured or the like shall be countersigned by the
beneficiary is a minor, and the insured or owner unless he was the one
amount involved does not exceed who applied for the rider, clause,
warranty, etc. (Sec. 50, ICP)
P20,000, the father, in the absence
3. When the
of a judicial guardian, or in his requirements for a rider are complied
absence or incapacity, the mother, with, it is considered part of the policy.
may exercise the minor’s rights
under the policy , without the need of 2. Warranties
a court authority. Warranty is a statement in the policy that
its breach bars recovery even though
such breach has nothing to do with the
THE POLICY OF INSURANCE loss. (Sec. 67 to 76, ICP)

Policy of Insurance is a written 3. Clause


An agreement between the insurer and the
instrument where the terms and conditions of insured on certain matter relating to the
the contract of insurance are set forth. No liability of the insurer in case of loss.
policy of insurance shall be issued or
delivered unless in the form previously 4. Endorsement
approved by the Insurance Commission (Sec. Any provision added to the contract altering
226, ICP). its scope or application.

Contents of Policy Kinds of Policy


1. Parties; 1. Open Policy - value of thing insured is
2. Amount of insurance, except in open not agreed upon, but left to be
or running policies; ascertained at the time of loss

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(Development Insurance vs. IAC 143 SCRA 62).
CONDITIONAL OR COVER NOTE OR
In case of loss, insured must prove two BINDING RECEIPT BINDING SLIP
things: Acknowledgment on A concise and
a. value of the property at the time of behalf of the company temporary written
loss; that their branch office contract issued by the
b. loss was due to a peril insured had received from insurer through its duly
against. applicant the insurance authorized agent
2. Valued Policy - definite valuation is premium and had embodying the
agreed by both parties, and written on accepted the principal terms of an
application subject to expected policy of
the face of the policy (Sec 61, ICP).
processing by the head insurance.
 In case of marine insurance, a valuation office.
in the policy is conclusive between the Purpose: It is
parties. (Sec. 156, ICP) It is that which intended to give
 In case of loss, there is no need to insurance agents issue temporary insurance
prove value but only that the loss was (since they do not have protection coverage to
due to a peril insured against. the authority to bind the applicant pending
immediately the the acceptance or
3. Running Policy - contemplates insurers they represent) rejection of his
successive insurances and which that makes the application. It shall be
provides that the subject of the policy coverage effective on valid and binding for
may, from time to time, be defined (Sec (1) date of the not more than 60 days
61, ICP). application, or on (2) unless a longer period
the date of medical is approved by the
examination, if the Insurance Commission
Cover Notes
insurer determines later (Sec 52, ICP).
This is not the same as conditional or binding that the applicant was
receipt. The distinctions are as follows: insurable on the date. It
is a conditional
acceptance by the
insurer.
Apply this term to life Apply this term
insurance. specifically, “cover
notes” treated under
Sec.52 to non-life
insurance (such as in
marine insurance)
pending investigation
of the vessel.

 Since a cover note is not a separate policy,


there is no need to pay a separate premium
from it. (Pacific Timber Export Corporation v. CA,
112 SCRA 199).
Rules on Cover Notes
1. Insurance companies doing business in
the Philippines may issue cover notes to
bind insurance temporarily, pending
issuance of the policy (Sec. 52 [1] ICP).
2. The cover note shall be valid and binding
not more than 60 days from the date of
its issuance;
3. No separate premium is required for the
cover note;
4. The cover note may be cancelled by
either party upon prior notice to the other
of at least seven (7) days;
5. The policy should be issued within 60
days after issuance of the cover note;

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6. The 60 day period may be extended delivered.


upon the written approval of the
Insurance Commission; and Importance of delivery:
7. Insurance companies may impose on 1. It becomes the evidence of the making of
cover notes a deposit premium a contract and of its terms;
equivalent to at least 25% of the 2. It is considered as communication of the
estimated premium of the intended insurer’s acceptance of the insured’s
insurance coverage but in no case less offer;
than P500. 3. It becomes the determination of policy
period;
Two Types of Conditional or Binding 4. It marks the end of insurer’s opportunity
Receipt: to decline coverage.
1. One that affords immediate
protection- insured is covered so long Delay in acceptance of application- in a
as he files his application and pays the situation where applicant submits application
premium. The prevailing trend now is the for insurance, but due to negligence of
use of this type, which is entirely fair to company, which takes an unreasonable long
both parties to the contract. time before processing the application, and
2. One that does not afford the applicant dies before the application is
immediate protection- there is no processed, thus the contract is not perfected.
coverage if anything happens to the Effect: The insurer is liable for damages
insured prior to favorable action on his under the Tort Theory, in the amount of the
application at the home office face value of the policy, which is given to the
estate of the deceased applicant. Reason: It
When a Policy Becomes Binding is not to be given to the beneficiary because
1. When all the conditions precedent stated the contract is not perfected. There is also no
in the offer have been satisfied; and contractual liability because there is no
2. When delivered. contract.

Requisites for a valid delivery: Tort Theory- the insurance business is


1. Intention of the insurer to give legal effect affected with public interest, thus, it is the
as a completed instrument; duty of the insurer to act with reasonable
2. Word or act by insurer putting the promptness in either rejecting or accepting
instrument beyond his legal, though not the application. In case of unreasonable
necessarily, physical control; delay and the applicant dies, applicant would
3. Insured must acquiesce in this intention. have been deprived of opportunity to secure
insurance from another source.
 Possession of the policy by
the insured raises the presumption of
delivery, while the possession by the Two Views when there is a failure of the
insurer is prima facie evidence of no insured to read the policy:
delivery. 1. Majority Rule- the insured’s acceptance
and retention of the policy unread is not such
Two Types of Delivery: laches as will defeat his right to reformation.
1. Actual- delivery to the person of the This is so because the insurance contracts
insured. are contracts of adhesion.
2. Constructive 2. Minority Rule- the insured has the duty to
By mail- if policy was mailed already and read the policy and is bound by his contract
premium was paid and nothing is left to as written whether he reads it or not. He may
be done by the insured, the policy is not thereafter be heard to say that he did not
considered constructively delivered if read the policy or knows its terms.
insured died before receiving the policy. Exception:
By agent- if delivered to the agent of the a. When the insured could not have
insurer, whose duty is ministerial, or discovered the erroneous statement
delivered to the agent of the insured, the by such reading (e.g. the copy
policy is considered constructively attached was illegible);

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b. He is induced by fraud of the address shown in the policy;


agent not to read the policy; d. Notice must state the
c. He is illiterate; and grounds relied upon in Section 64 of
d. When the contracts are long, the Insurance Code and upon request
complicated and difficult to of insured, to furnish facts on which
understand. cancellation is based.(Sec 65, ICP)

The Insurer has the duty to explain the Prescriptive Period (Sec. 63, ICP)
policy when the policy is ambiguous and The parties may expressly provide a
unclear. This, however, is subject to some stipulation as long as it is not less than 1 year
from the time the cause of action accrues. The
important caveats: reckoning period shall begin from the date the
1. Reasonable Expectations Doctrine- cause of action accrues. “Cause of action” is
insurer must explain to the insured what upon the denial of the claim not from the date of
is contained in the policy for the latter loss.
may have something in mind different
from what is contained in the policy. In the ABSENCE of a stipulation, the action
2. Insurer must explain the options shall prescribe in 10 years.
available to the insured.
3. Agents owe their customers a duty to  In CMVLI, any person having any claim
exercise the skill and care that a upon the policy issued shall, without any
unnecessary delay, present to the insurance
reasonable agent would exercise in the
company concerned a written notice of claim
circumstances. setting for the nature, extent and duration of
4. Insurer must take affirmative steps to the injuries sustained as certified by a duly
make sure that the insured is informed of licensed physician. Notice of claim must be
his remedial rights. filed within six months from date of accident.
Action or suit for recovery of damage due to
Cancellation of Non –Life Policy lose or injury must be brought with the
1. Grounds: commissioner or the courts within one year
Cancellation by the insurer of an from denial of the claim. (Sec. 384, ICP, As
amended by 101814, BP 874, Vda., de Gabriel v.
insurance policy, other than life, requires CA, GR 103883, 14 November 1996)
prior notice to the insured and any of the
following grounds:
a. Non-payment of premium; TRANSFER OF
b. Conviction of a crime arising
out of acts increasing the hazard POLICY
insured against;
Life Property Casualty
c. Fraud or material
insurance insurance insurance
misrepresentation;
d. Willful or reckless acts or Can be Cannot be Cannot be
omissions increasing the risk insured transferred transferred transferred
against; even if without the without the
e. Physical changes in property without consent of consent of
making the property uninsurable; consent of the insurer. the insurer
insurer (Sec.
f. Determination by the 181, ICP)
Insurance Commissioner that the
policy would violate the Insurance Reason: The Reason: The Reason: The
Code. (Sec. 64, ICP) policy does insurer moral
not represent approved the hazards are
personal policy based as great as
2. Requisites for Cancellation agreement on the that of
a. Prior notice of cancellation to between the personal property
insured; insurer and qualification insurance.
b. Notice must be based on the the insured. and insurable
occurrence after effective date of the interest of the
policy or one or more of the grounds insured.
mentioned;
c. Notice must be in writing,
mailed or delivered to the insured at

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where the insured has no interest in the thing


insured and can sustain no loss by the happening
INSURABLE INTEREST of the misfortune insured against.

TWO CLASSES OF INSURABLE


A person has an insurable interest in the
INTEREST IN LIFE INSURANCE:
subject matter if he is so connected, so
1. On one’s life
situated, so circumstanced, so related that by
 The insured has unlimited interest.
the preservation of the same shall derive
pecuniary benefit, and by its destruction he  It is not necessary that the
beneficiary should have interest in the
shall suffer pecuniary loss, damage or
life of the insured.
prejudice.
2. Upon life of another
 Insurable interest in the life of
 The consignee, before delivery of imported
another must be pecuniary.
goods, has insurable interest because he
has equitable title. (Filipino Merchant Insurance  The assured must have an interest
Co. Inc. v. Court of Appeals, 179 SCRA 638) to preserve the life insured in spite of
the insurance, rather than destroy it
 A provision in a lease contract that should because of the insurance.
the lessee insure his goods against fire
without the consent of the lessor, the A. INSURABLE INTEREST IN LIFE
proceeds of the policy in case of loss will be Every person has an insurable interest in
assigned to the lessor is void, because the the life and health:
lessor has no insurable interest in the good. 1. Of Himself, of his spouse
(Cha v. CA, 277 SCRA 690)
and of his children;
 It is sufficient for the person to have
2. Of any person on whom he
insurable interest in property that he derives depends wholly or in part for
a benefit from its existence or would suffer Education or support, or in whom he
loss from its destruction. A seller retains an has a pecuniary interest;
insurable interest in the property so long as 3. Of any person under a Legal
he may have any interest therein or so long obligation to him for the payment of
as he would suffer by its destruction, as money, or respecting property or
where he has a vendor’s lien. Unlike the Civil services, of which death or illness
Code concept of res perit domino where title might delay or prevent the
or ownership is the basis for determining
who bears the risk of loss, in determining
performance; and
insurable interest, what counts is whether 4. Of any person upon whose
the insured has a substantial economic Life any estate or interest vested in
interest in the property insured, regardless of him depends (Sec. 10. ICP). In par(a) of
whether he has title. (Gaisano Cagayan v. Sec. 10, were relationship is
Insurance Co. of North America, G.R. No. 147839, sufficient while the rest (Par. b, c and
June 8, 2006)
d) required pecuniary interest.
Reason for the requirement of Insurable General Rule: In life insurance, there is
interest: no limit as to the amount of insurable
1. To avoid wagering policy (Sec. 4, ICP)-
interest the insured can insure his life.
As deterrence to the insured, the
Exception: In creditor-debtor relationship
requirement of an insurable interest to
support a contract of insurance is based where the creditor insures the debtor, the
upon considerations of public policy which limit of insurable interest is equal to the
render wager policies invalid. A wager policy amount of the debt.
is obviously contrary to public interest.
2. To measure the limit of recovery- if and General Rule: A general or unsecured
to the extent that any particular insurance creditor cannot insure specific property of
contract is a contract to pay indemnity, the his debtor who is alive, even though
insurable interest of the insured will be the destruction of such property would
measure of the upper limit of his provable render worthless any judgment he might
loss under the contract.
obtain.
Exceptions:
WAGERING POLICY - pretended insurance
a. When the debtor has died

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(all personal liability ceases with the SCRA 459). clear


death of the debtor);
b. When the unsecured creditor Extent of Insurable Interest in
obtains a judgment in his favor Property: Value of the loss or amount of
(becomes a judgment creditor); loss suffered.
c. An unsecured creditor may
insure the life of his debtor to the Insurable Interest in Property may
extent of the amount of the debt. Include (Sec. 14, ICP).
1. Existing interest which may be legal
When Insurable Interest Must Exist: title or equitable title;
General Rule: The insurable interest in Example of insurable interest arising
the life of another must exist only at the from legal title: mortgagor of the
time of perfection of the contract and property mortgaged
need not exist thereafter. Example of insurable interest arising
Exceptions: from equitable titile: purchaser of
1. When the creditor procures property before delivery or before he
insurance on life of his debtor, has performed the conditions of the
insurable interest must also exist at sale;
the time of loss. (Sec. 18, ICP) 2. Inchoate interest founded on an
existing interest(as owner or
Reason: the insurance in this case is mortgagee); or
considered as contract of indemnity. 3. Expectancy, coupled with an existing
interest in that out of which the
2. When the insurance is taken by the expectancy arises.
employer on the life of the employee.
Interest of a Stockholder/ Partner of a
 It is generally held that a corporation Firm- he has sufficient interest in the
has an insurable interest in the life of an property of the corporation. Interest is not
officer on whose services the measured by value of what is destroyed. But
corporation depends for its prosperity, the interest is to share in the distribution of
and whose death will be of a substantial the proceeds only after the payment of the
pecuniary loss to it. (Murray v. G.E. Higgins corporation’s debts. The stockholder or the
Co., 300 Pa.341) An employer partner must prove actual injury, otherwise
corporation has an insurable interest on cannot recover more than the nominal
its manager where the death of the
damages.
manager will be detrimental to the
corporation’s operations. (El Oriente
Fabrica de Tabacos v. Posada, 56 Phil. 147)  Insurable interest in property need not
be an existing interest. It may exist merely in
B. INSURABLE INTEREST IN PROPERTY an inchoate interest or as all expectancy.
INSURANCE However, the expectancy must be coupled
Every interest in property, whether real or with an existing interest in that out of which
personal, or any relation thereto, or such expectancy. (Sundiang & Aquino. Reviewer
on Commercial Law 2006 ed., p. 29)
liability in respect thereof, of such nature
 The insurable interest must exist in the
that a contemplated peril might directly same person both at the perfection of the
damnify the insured, is an insurable contract as well as at the time of loss. In
interest (Sec. 13, ICP). between, the effect of loss of insurable
interest is merely to suspend the policy. (Sec.
Test of Insurable Interest in the 19, ICP)
Property: A person has an insurable
interest in the property, if he derives What May Be Insured
pecuniary benefit or advantage from its Any contingent or unknown event, whether
preservation or would suffer pecuniary past or future, which may damnify a person
loss, damage or prejudice by its having an insurable interest, or create a
destruction whether he has or has no title liability against him. (Sec. 3, ICP).
in, or lien upon, or possession of the
property (Filipino Merchants Co. v. CA, 179 General Rule: A future event is the only event

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that can be covered by an insurance 1. Mortgagor – may insure the


contract. mortgaged property to the full value of
Exception: A past event may be covered by a such property.
marine insurance if the loss of the vessel in Reason: the loss or destruction of the
the past could not have been known by property insured will not extinguish the
ordinary means of communication. mortgage property.
2. Mortgagee – can insure the
 In Property Insurance, insurable interest mortgaged property only to the extent of
is measured in terms of possible the amount of his credit.
damage. (Sec. 17, ICP) Reason: the property relied on as
mortgaged is only a security. In insuring
Insurable Insurable the property, he insures his interest or
Interest in Interest in lien thereon.
Life Property
As to extent Standard / Union Mortgage Clause
Unlimited, except in Limited to the actual It creates the relation of insured and
life insurance effected value of the interest in insurer between the mortgagee and the
by a creditor on the property. insurer independent of the contract with the
life of the debtor. mortgagor. Hence, subsequent acts of the
As to time when insurable interest must exist mortgagor cannot affect the rights of the
Must exist at the time Must exist when the assignee.
the policy takes effect policy takes effect Open / Loss Payable Mortgage Clause
and need not exist at and when the loss Acts of the mortgagor affects the
the time of the loss. occurs mortgagee because the mortgagor does not
As to expectation of benefit to be derived cease to be a party to the contract (Secs. 8 and
9, ICP)
From the continued From the continued
existence of life, existence of the
Effects of Insurance procured by the
beneficiary need not property insured there
have any legal basis. must be legal basis.
mortgagor without assigning the loss to
the mortgagee
As to the beneficiary’s interest
 Only the mortgagor may recover
Beneficiary need not Beneficiary must have from the insurer since the policy taken by
have insurable insurable interest over the mortgagor shall be applied
interest over the life the thing insured in
exclusively to his interest.
of the insured if the property insurance.
insured himself  However, the mortgage constituted
secured the policy. shall extend to the proceeds of the
However, if the life indemnity paid by the insurer of the
insurance was mortgaged property upon occurrence of
obtained by the the loss and therefore, the mortgagee
beneficiary, the latter has a lien on the proceeds of the policy.
must have insurable
interest over the life Effects of Open or Loss Payable Clause
of the insured.
1.Insurance is still deemed to be upon
the interest of the mortgagor who does
SPECIAL CASES: not cease to be a party to the original
1. Insurable Interest Of A Carrier Or contract. If the policy is cancelled, notice
Depository is still given to the mortgagee.
A carrier or depository of any kind has an 2.Any act of the mortgagor, prior to the
insurable interest in a thing held by him loss, which would otherwise avoid the
as such, to the extent of his liability but insurance will have the same effect
not to exceed the value thereof. although the property is in the hands of
2. Insurable Interest In Case Of the mortgagee.
Mortgaged Property 3.Any act which, under the insurance
contract, is to be performed by the
Insurable Interest of Mortgagor and mortgagor, may be performed by the
Mortgagee over the Mortgaged Property mortgagee with the same effect as if it

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had been performed by the mortgagor; owner of the interest insured (Sec. 57, ICP);
4.Upon occurrence of the loss, 7. When there
mortgagee is entitled to recover to the is an express prohibition against
extent of his credit and the balance, if alienation in the policy, in case of
any, is payable to the mortgagor; alienation, the contract of insurance is
5. Upon recovery by the mortgagee to the not merely suspended but AVOIDED (Art.
extent of his credit from the insurer, the 1306, Civil Code).
mortgagor is released from his
RISK
indebtedness. (Sec. 8, ICP)
What may be insured against:
1. Future contingent event resulting in
Effect of transfer of the Thing Insured:
loss or damage;
The mere absolute transfer of the thing
2. Past unknown event resulting in loss
insured does not transfer the policy but
or damage
suspends it until the same person becomes
3. Contingent liability
the owner of both the policy and the thing
insured (Sec. 58, ICP).
PREMIUM
Effect of Change of Interest in Thing
Insured Unaccompanied by a Change of
Interest in Insurance The consideration paid to an insurer for
undertaking to indemnify the insured against
General Rule: It SUSPENDS the insurance to a specified peril.
an equivalent extent, until the thing and the Ratio for the Full Payment of Premium
interest in the insurance are vested in the To safeguard the interest of the insured, it
same person. (Sec 20, ICP) must not be ignored that the contract of
insurance is primarily a risk-distributing device, a
Exceptions: mechanism by which all members of a group
1. In life, exposed to a particular risk contribute premiums
health, and accident insurance (Sec. 20, to an insurer. From these contributory funds are
ICP); paid whatever losses occur due to exposure to
2. Change in the peril insured against. (Tibay v. CA, 257 SCRA
126)
interest in the thing insured after the
occurrence of an injury which results in a General Rule: Cash and Carry Rule- No
loss (Sec. 21, ICP); insurance policy issued or renewed is valid
3. Change in and binding until actual payment of the
interest in one or more several distinct premium. Any agreement to the contrary is
things separately insured by one policy void. However, there is no express
(Sec. 22, ICP); prohibition by Sec. 77 against an agreement
4. Change in granting credit extension of the premium due.
interest by will or succession on death of (Gabriel vs. Mateo, 91 Phil 497, 1941) (Sec. 77, ICP).
the insured does not avoid an insurance,
and his interest in the insurance passes  Unless the premium is paid, the
to the person taking his interest in the policy is not binding. (Arce v. Capital
thing insured (Sec. 23, ICP); Insurance, 117 SCRA 63)
5. Transfer of  Liability for premium on a bond ceases if
it is not renewed even if there is a
interest by one of several partners, joint
lawsuit to enforce liability. (Capital
owners, or owners in common, who are Insurance & Surety Co. v. Ronquillo Trading,
jointly insured, to the others, does not 123 SCRA 526)
avoid an insurance even though it has Exceptions:
been agreed that the insurance shall 1. In case of Life and Industrial Life
cease upon an alienation of the thing whenever the grace period provision
insured (Sec. 24, ICP); applies (Sec. 77).
6. When a 2. Where there is an Acknowledgement
policy is so framed that it will inure to the in the contract or policy of insurance
benefit of whomsoever, during the that the premium had already been
continuance of the risk, may become the paid (Sec 78).

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3. If the parties agreed to the payment authorized said agent to receive the premium
of the premium in Installments and in its behalf. The insurer is bound by its
partial payments have been made at agent’s acknowledgment of the receipt of
the time of the loss (Makati Tuscany v. payment of premium.
CA, 215 SCRA 462).
4. Where the Credit term was agreed Effect of Payment of Post-Dated Check:
upon. (UCPB General Insurance v. The payment of premium by a post-dated
Masagana Telamart, 308 SCRA 251). check at a stated maturity subsequent to the
5. Paries are barred by estoppel. loss is insufficient to put the insurance into
effect. Payment however, by means of a
 Sec. 77 merely percludes the parties check or note, accepted by the insurer,
from stipulating that the policy is valid
even if the premiums are not paid
bearing a date prior to the loss, assuming an
(Makati Tuscany Condominium v. CA, 215 availability of the funds thereof, would be
SCRA 462). sufficient even if it remains unencashed at
the time of the loss. The subsequent
 Premium is different from assessment encashment would retroact to the date of the
wherein premium is levied and paid to instrument and its acceptance by the creditor.
meet anticipated losses, while
assessment is collected to meet actual Effects of Non-Payment of Premium
losses. Also, while premium is not a 1. First premium – nonpayment of the 1st
debt, as assessment properly levied, premium unless waived, prevents the
unless otherwise expressly agreed, is a
contract from becoming binding
debt.
notwithstanding the acceptance of the
application nor the issuance of the policy.
Effect of Acknowledgment of Receipt of
But nonpayment of the balance of the
Premium in Policy:
premium due does not produce the
cancellation of the contract. (Phil. Phoenix
Conclusive evidence of its payment, in so Surety & Insurance Co v. Woodworks Inc, 20
far as to make the policy binding, SCRA 1270)
notwithstanding any stipulation therein that it 2. Subsequent premiums – Nonpayment
shall not be binding until the premium is of subsequent premiums does not affect
actually paid (Sec. 78). the validity of the contracts unless, by
Reason: When the policy contains such express stipulation, it is provided that the
written acknowledgment, it is presumed that policy shall in that event be suspended or
the insurer has waived the condition of shall lapse.
prepayment.
 Non-payment of BALANCE of
Note: The conclusive presumption premium does not cancel the policy.
extends only to the question on the binding
effect of the policy. As far as the payment of Instance when the insured is EXCUSED
the premium itself is concerned, the from paying premiums:
acknowledgment is only a prima facie 1. The insurer has become insolvent
evidence of the fact of such payment. The and has suspended business or has
insurer may still dispute its acknowledgment refused without justification a valid tender
but only for the purpose of receiving the of premiums.
premium due and unpaid (The Insurance Code of 2. Failure to pay was due to the
the Philippines Annotated, Hector de Leon, 2006 ed.).
wrongful conduct of the insurer.
3. The insurer has waived his right to
Effect of Acceptance of Premium: demand payment.
Acceptance of premium within the
stipulated period for payment thereof, INSTANCES WHEN INSURED IS
including the agreed period of grace, merely ENTITLED TO RETURN OF PREMIUMS
assures the continued effectivity of the A. WHOLE:
insurance policy in accordance with its terms. 1. If the thing insured was never
exposed to the risks insured against
Where an insurer authorizes an (Sec. 79); ICP
insurance agent or broker to deliver a policy 2. if the contract is voidable due to the
to the insured, it is deemed to have fraud or misrepresentation of the

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insurer or his agents (Sec. 81); ICP insurance originally contracted for is
3. if contract is voidable because of the continued for such period as the amount
existence of facts of which the available therefore will pay when it will
insured was ignorant without his fault terminate. In such a case, the insurance
(Sec. 81) ICP; will be for the same amount as the original
4. when any default of the insured other policy but for a period shorter than the
than actual fraud, the insurer never period in the original contract.
incurred liability (Sec. 81); ICP 4. Paid Up Insurance- no more payments
5. when rescission is granted due to the are required, and consists of insurance for
insurer’s breach of the contract (Sec. life in such an amount as the sum
74) ICP available therefore, considered as a single
and final premium, will purchase. It results
B. PRO RATA: to a reduction of the original amount of
1. When the insurance is for a insurance but for the same period
definite period and the insured originally stipulated.
surrenders his policy before the 5. Automatic Loan Clause- a stipulation in
termination thereof; the policy providing that upon default in
Exceptions:
payment of premium, the same shall be
a. Policy not made for a definite period
paid from the loan value of the policy until
of time;
b. Short period rate is agreed upon; that value is consumed. In such a case,
the policy is continued in force as fully and
c. Life insurance policy.
effectively as though the premiums had
2. When there is
been paid by the insured from funds
over – insurance.
derived from other sources.
a. In case of over- insurance by
6. Reinstatement- provision that the holder
double insurance- the insurer is
of the policy shall be entitled to
not liable for the total amount of
reinstatement of the contract at any time
insurance taken, his liability
within three years from the date of default
being limited to the property
in the payment of premium, unless the
insured. Hence, the insurer is not
cash surrender value has been paid or the
entitled to that portion of the
extension period expires upon production
premium corresponding to the
of evidence of insurability satisfactory to
excess of the insurance over the
the company and the payment of all
insurable interest of the insured.
overdue premiums and any indebtedness
b. In case of over-insurance by
to the company upon said policy
several insurers- the insured is
(Reviewer on Insurance, Insolvency and
entitled to a ratable return of the
Code of Commerce, Perez H., 2000ed).
premium, proportioned to the
amount which the aggregate
sum insured in all the policies
exceeds the insurable value of
ASCERTAINMENT
the thing at risk (Sec. 82, ICP). AND CONTROL
OF RISK AND
DEVICES USED TO PREVENT THE LOSS
FORFEITURE OF A LIFE INSURANCE
AFTER THE PAYMENT OF THE FIRST Kinds of Insurable Risks:
PREMIUM: 1. Personal risks (death involving the
1. Grace period- after the payment of the person, life and health risks);
first premium, the insured is entitled to a 2. Property risks (loss or damage to
grace period of thirty days within which to property);
pay the succeeding premiums. 3. Liability risks (those involving liability
2. Cash Surrender Value- the amount the for the injury/damage caused to third
insurer agrees to pay to the holder of the persons).
policy if he surrenders is and releases his
claim upon it. Four Primary Concerns of Insurer:
3. Extended Insurance- where the 1. Correct estimation of risk which

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enables insurer to determine if he will or in making his inquiries or in fixing the


approve the policy application and if so, premium rate (Sec. 31, ICP) Vda. De Canilang
at what premium rate; v. CA, 223 SCRA 443).[1993]
2. Delimitation of the risk;
3. Control of risk to guard against Exception to Sec. 31
increase of risk; a. Incontestability Clause
4. Determine if loss occurs and if b. Matters under Sec. 110 (marine
so, the amount thereof. insurance)
 The waiver of
DEVICES USED TO ASCERTAIN AND medical examination
CONTROL RISK AND LOSS (CREW-CO) in a non-medical
1. Concealment insurance contract
2. Representation renders even more
3. Warranties material the
4. Conditions information required
5. Exceptions of the applicant
6. Other Insurance concerning the
Clause previous conditions
of health and
 Concealment - diseases suffered
neglect to communicate that which a (Sunlife Assurance Co. of
party knows and ought to communicate Canada v. CA, 245
(Sec. 26, ICP). SCRA 268).
Rules on concealment are stricter
Requisites: because the insurer would have to
a. Party concealing must have depend almost entirely on the matters
knowledge of the fact concealed; communicated by the insured.
b. Such party concealing is duty
bound to disclose such fact to the In addition to material facts, each party
other; must disclose ALL the information he
c. Party concealing makes no possesses which are material to the
warranty as to the fact concealed; information of the belief or expectation of
d. The other party has no a third person, in reference to a material
means of ascertaining the fact fact.
concealed; and
e. Fact concealed must be
Matters that must be communicated
material to the risk.
even in the absence of inquiry (Sec.
Effects of Concealment 28):
It vitiates the contract and entitles the 1. Those material to the contract (Secs 31,
34, 35); ICP
insurer to rescind even if the death or 2. Those which the other has no means
loss is due to a cause not related to the of ascertaining (Secs 20, 32, 33); ICP
concealed matter (Sec 27, ICP). 3. Those as to which the party with the
duty to communicate makes no
Good faith is not a defense in warranty (Secs 67-76) ICP
concealment; the concealment, whether
intentional or unintentional, entitles the GENERAL RULE: Matters made subject
injured party to rescind a contract of of special inquiries under Sec. 30 must
insurance (Sec 27, ICP). be deemed material, even though
otherwise they might not be so regarded
Test of Materiality and the insured is required to make full
Materiality is determined not by the and true disclosure to questions asked.
event, but solely by the probable and
reasonable influence of the facts upon EXCEPTIONS:
the party to whom the communication is There is no duty to make a disclosure on
due, in forming his estimate of the the following instances:
disadvantages of the proposed contract 1. Those which the other knows;

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2. Those which, in the exercise of  Where the insured stated he


ordinary care, the other ought to was operated upon for tumor associated
know, and of which the former with ulcer of the stomach when he was
has no reason to suppose him actually operated upon for peptic ulcer
because he believed in good faith that it
ignorant;
was his ailment, there is no
3. Those of which the other waives concealment, because there was no
communication; fraudulent intent. The failure of the
4. Those which prove or tend to insurer to inquire further is waived under
prove the existence of a risk Sec. 32. (Ng Gan Zee v. Asian Crusaders
excluded by a warranty, and Life Corporation, 122 SCRA 461)
which are not otherwise material;
5. Those which relate to a risk  Where matters of opinion or
judgment are called for, answers made
excepted from the policy and
in good faith and without intent to
which are not otherwise material deceive will not avoid the policy even
(Sec. 30); though they are untrue.
6. Information of the nature or
amount of the interest of one Reason: The insurer cannot rely on
those statements. He must make further
need not be communicated
inquiry (Philamcare Health Systems v. CA,
unless in answer to an inquiry, G.R. No. 125678, March 18, 2002).
except as prescribed by Sec. 51
(Sec. 34). 2. Representation -
factual statements made by the insured
Ordinarily, the matters concealed need at the time of or prior to the issuance of
not be the cause of the loss. In Marine the policy to give information to the
Insurance, there are instances when insurer and otherwise induce him to enter
matters, although concealed, will not into the insurance contract. They are
vitiate the contract except when they considered an active form of
caused the loss (Sec. 110, ICP): concealment.
a. Nation character of the insured;
Requisites of False Representation:
b. Liability of the thing insured to and a. Insured stated a fact which is untrue;
detention; b. Such fact was stated with knowledge
c. The liability to seizure from breach of that it is untrue and with intent to
foreign laws of trade deceive or which he states positively
d. Want of necessary documents; and as true without knowing it to be true
e. The use of false and simulated and which has a tendency to mislead;
papers. c. Such fact in either case is material to
the risk.
 Where the insured authorized
the insurance company to investigate Characteristics:
his medical history, the insurance 1. It is not a part of the
company cannot avoid liability on the contract but merely a
ground that the insured concealed that
collateral inducement to
he had high blood pressure. (Philamcare
Health Systems, Inc. v. CA, 379 SCRA 356)
it;
 An insurance company 2. It may be oral or written;
cannot refuse to pay the proceeds of a 3. It is made at the time of,
group life insurance on the ground of or before issuing the
concealment by the insured that he had policy and not after;
hypertension where the widow of the 4. It may be altered or
insured merely stated that it was withdrawn before the
possible that the insured had insurance is effected but
hypertension and the attending not afterwards;
physician did not conduct an autopsy 5. It always refers to the
and merely stated in the death date the contract goes
certificate that hypertension was the into effect.
possible cause of his fatal cerebral
hemorrhage. (Great Pacific Life Assurance Kinds of Representation:
Corporation v. CA, 316 SCRA 677)
1. Affirmative - affirmation of a

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fact when the contract begins. Condition Subsequent.


2. Promissory - promise to be
performed after policy was issued. Limitations on the Right of the Insured to
Rescind Contract:
Test of Materiality: same as that of 1. In a NON-LIFE policy – such right
concealment. (Sec. 46, ICP) must be exercised prior to the
 Where the insured merely commencement of an action in the
signed the application form and made contract (Sec. 48).
the agent of the insurer fill the same for 2. In a LIFE insurance – defenses are
him, it was held that by doing so, the available only during the first two
insured made the agent of the insurer
years of a life insurance policy.
his own agent and he was responsible
for his acts for that purpose (Insular Life v.  The injured party is entitled to
Feliciano, 73 Phil 201). rescind the contract from the time when
 Where the insured stated he the representation becomes false. (Sec.
never had an application for insurance 45, ICP)
refused but his request for reinstatement
of a lapsed policy was initially denied Waiver of Right to Rescind
but was eventually approved, there is no Acceptance of premium payments
misrepresentation. (Ng Gan Zee v. Asian despite knowledge of the ground for
Crusaders Life Assurance Corporation, 123 rescission (Sec. 45, ICP)
SCRA 461)
 Where the insured died within
two years from the issuance of a life
insurance policy, the insurer can refuse
INCONTESTABILITY CLAUSE
to pay on the ground of
misrepresentation and concealment Clauses in life insurance policies, which
even if it did not rescind the policy are incontestable (after the requisites are
during his lifetime, for the phrase “during shown to exist), whereby the insurer shall be
his lifetime” in Section 48 means the barred from contesting the policy (i.e. policy
policy is no longer in force upon the
is void ab initio) or setting up a defense (i.e.
death of the insured. Otherwise, if the
insured dies right after taking a life fraudulent concealment, misrepresentation
insurance, his beneficiary will be entitled etc.) except when allowed by reason of public
to collect. (Tan v. Court of Appeals, 174 policy.
SCRA 403)
Requisites: (Sec. 48, ICP)
CONCEALMENT MISREPRESENTATION 1. The insurance is a life insurance
policy payable on the death of the
The insured The insured makes
insured.
withholds erroneous statements of
information of facts with the intent of
2. It has been in force during the
material facts from inducing the insurer to lifetime of the insured for at least 2
the insurer. enter into the insurance years from the date of its issue or its
contract. last reinstatement. The period of two
SAME rules apply to determine materiality years may be shortened but it cannot
be extended by stipulation.
BOTH grounds for rescission
 The insurer has two years from the date
Remedies Available In Case of of its issuance of the insurance contract
Concealment or False Representation or of its last reinstatement within which
1. Rescission to contest the policy, whether or not the
2. Incontestability Clause insured still lives within such period. The
phrase “during the lifetime” found in
RECISSION Section 48 simply means that the policy
is no longer considered in force after the
Grounds for Rescission:
insured has died. (Tan v. CA, 174 SCRA
1. Concealment / 403).[1989]
Misrepresentation;
2. Breach of Defenses available against
Warranty; and Incontestability Clause
3. Breach of a 1. That the person taking the

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Arellano University School of Law

insurance lacked insurable interest consent and knowledge, such taking


as required by law; constitutes theft, covered by the “theft
2. That the cause of the death clause” and not by the “authorized
of the insured is an excepted risk; driver” clause. (Perla Cia. De Seguros, Inc.
v. CA, 208 SCRA 487)
3. That the premiums have not
been paid; Effects of Breach of Warranty
4. That the conditions of the A. Material Provisions
policy relating to military or naval General Rule: It gives the insurer the
service have been violated; right to rescind. (Secs 74-76, ICP)
5. That the fraud is of a Exceptions:
particularly vicious type; a. Loss occurs before the
6. That the beneficiary failed to time of performance of the
furnish proof of death or to comply warranty;
with any condition imposed by the b. The performance
policy after the loss has happened; becomes unlawful;
7. That the action was not c. Performance becomes
brought within the time specified. impossible.
Barred Defenses of the Insurer
1. Policy is void ab initio;  Breach of
2. Policy is rescindable by warranty in insurance must be
reason of the fraudulent concealment proven to entitle insurer to rescind.
or misrepresentation of the insured (Prudential Guaranty v. Trans-Asia
or his agent. Shipping Lines, June 20, 2006)
B. Immaterial Provisions
3. Warranties - statements or promise by General Rule: It will not avoid the
the insured set forth in the policy itself or policy (Sec. 75, ICP).
incorporated in it by proper reference, the Exception: When the parties stipulate
untruth or non-fulfillment of which in any that violation of particular provisions,
respect and without reference to whether though normally immaterial, shall
the insurer was in fact prejudiced by such avoid the policy. In effect, the parties
untruth or non-fulfillment. The same may converted the immaterial provision in
be expressed, implied, affirmative or to a material one.
promissory.
 Where a policy provided that an
 It is the essence of warranty that its action must be filed within a
breach bars recovery even though specified period from receipt of
the breach has nothing to do with the denial of claim; a request for
loss. (Villanueva, Commercial Law Review, consideration or request to specify
2002ed, page 337) ground for denial, as the case may
be does not suspend the running of
Kinds: the period to file an action. (New Life
a. Express Enterprises v. Court of Appeals, 207
SCRA 669)
b. Implied - warranties that are
deemed included in the contract, Warranty vs. Representation
although not expressly mentioned.
WARRANTY REPRESENTATION
They are found only in marine
insurance. Part of the contract. Collateral
c. Affirmative - asserts the existence inducement.
of a fact or condition at the time it is Written on the policy Need not be written.
made. or in a valid rider or
d. Promissory - the insured stipulates attachment.
that certain facts or conditions shall Generally, it is Should be
exist or a thing shall be done or conclusively established to be
omitted. presumed to be material.
material.
 Where the car is admittedly Facts warranted must Requires only to be
unlawfully taken without the driver’s be strictly complied substantially true.

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with. Over-insurance results when the insured


Falsity or non- Falsity renders the insures the same property with the same
fulfillment amounts to policy voidable on the insurance company for an amount beyond
breach of contract. ground of fraud. the value of the insured’s insurable interest.

4. Conditions - Events Effects of Over-insurance in case of Loss:


signifying in its broadest sense either an 1. The insurer is bound only to pay to the
occurrence or non-occurrence that alters extent of the real value of the property
the previously existing legal relations of lost;
the parties to the contract. They may be 2. The insured is entitled to recover the
conditions subsequent. amount of premium corresponding to the
excess in value of the property.
Effects of Breach of Conditions:
a. Condition precedent – Double Insurance
prevents the accrual of cause of Where the same person is insured by several
action. insurers separately in respect to the same
b. Condition Subsequent – subject and interest. It may be prohibited by
avoids the policy or entitles the an “other insurance clause.” (Sec. 93, ICP)
insurer to rescind.
CONDITION WARRANTY  Not prohibited by law but may in
Limitation to the Does not have that prohibited by “an” other insurance
attachment of the effect. clause” (Sundiang, Aquino reviewer on
risk. Commercial Law, 2006 ed., p. 46)

Non-performance Does not suspend or


of which, although defeat the operation  Double insurance is different from
in form executed of the contract. Double Indemnity where in the latter,
by the parties and after payment of extra-premium, when
delivered, does the insured dies of an accident, the face
not spring into life. value of the policy will double in amount
The occurrence of breach temporarily and such will be paid to the beneficiary.
renders the entire contract voidable. (Villanueva, Commercial Law Review 2000ed, p.
308)
5. Exception - It makes
more definite the coverage indicated by Requisites:
the general description of the risk by 1. The person insured is the same;
excluding certain specified risk that 2. There are two or more insurers insuring
otherwise would be included under the separately;
general language describing the risks 3. The subject matter is the same;
assumed. 4. The interest is also the same;
5. The risk or peril insured against is
Other Insurance Clause likewise the same.
A clause in the policy which provides that the
policy shall be void if the insured procures RULES OF PAYMENT WHERE THERE IS
additional insurance without the consent of OVER-INSURANCE BY DOUBLE
the insurer. The purpose is to prevent over- INSURANCE:
insurance and, thus, avert the possibility of
perpetration of fraud. Principle of Contribution is applied.
1. The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select, up
DOUBLE to the amount for with the insurers are
INSURANCE AND severally liable under their respective
OVER contracts;
2. Where the policy under which the insured
INSURANCE claims is a valued policy, the insured must
give credit as against the valuation for any
Over-insurance sum received by him under any other policy

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without regard to the actual value of the loss or liability by reason of such original
subject matter insured; insurance.
3. Where the policy under which the insured  It has also been referred to simply as “an
claims is an unvalued policy he must give
insurance of an insurance. (44
credit as against the full insurable value, for Am.Jur.2d.283)
any sum received by him under any policy;
4. Where the insured received any sum in
excess of the valuation in the case of valued Nature of Reinsurance
policies, or of the insurable value in the case 1. It is a contract of indemnity, not
of the unvalued policies, he must hold such merely against damage;
sum in trust for the insurers, according to 2. They are independent but related
their right of contribution among themselves; contracts; and
5. Each insurer is bound, as between himself 3. Contract is between insurer and
and the other insurers, to contribute ratably reinsurer.
to the loss in proportion to the amount for
which he is liable under his contract. (Sec. 94, Note: Reinsurance does not result to double
ICP)
 Where a fire insurance policy required the
insurance because there are different
insured to disclose other fire insurance policies insurable interests.
before the occurrence of any loss, the failure of
the insured to comply with such requirement bars  Where the reinsurer indemnified the insurer,
his claim for indemnity in case of loss, even if the the latter has no cause of action to sue for
insurance agent might have been aware of the reimbursement for a claim it paid. (Pioneer
other insurance policies. (New Life Enterprises v. Insurance & Surety Corporation v. Court of
Court of Appeals, 207 SCRA 669)[1992] Appeals, 175 SCRA 668) [1989]

Additional or Other Insurance Clause Limit of Single Risk


A condition in the policy requiring the No insurance company other than life,
insured to inform the insurer of any other shall retain ay risk on any one subject of
insurance coverage of the property insured. It insurance in an amount exceeding 20% of its
is lawful and specifically allowed under net worth (Sec. 215, ICP).
Sec.75 which provides that “(a) policy may
declare that a violation of a specified Double Insurance Reinsurance
provision thereof shall avoid it, otherwise the (Sec. 93) (Sec. 95)
breach of an immaterial provision does not Involves same Insurance of different
avoid it”. It is also a stipulation against double interest. interest.
insurance. Insurer remains in Insurer becomes
such capacity. insured in relation to
Purposes: reinsurer.
1. To prevent an increase in the moral Insured in the 1st Original insured has
hazard; contract is a party in no interest in
2. To prevent over-insurance and fraud; interest in the 2nd reinsurance contract.
contract.
DOUBLE Subject of insurance Subject of insurance
OVER-INSURANCE
INSURANCE is property. is the insurer’s risk.
When the amount of the There may be no
Insured has to give his Consent of original
insurance is beyond the over-insurance as
value of the insured’s when the sum total consent. insured not
necessary.
insurable interest. of the amounts of
the policies issued
does not exceed Terms:
the insurable 1. Reinsurance treaty – merely an agreement
interest of the between two insurance companies whereby
insured. one agrees to cede and the others to accept
There may only be one There are always reinsurance business pursuant to provisions
insurer involved. several insurers. specified in the treaty.
2. Automatic Reinsurance – reinsured is
REINSURANCE bound to cede and the reinsurer is obligated
It is a contract through which the insurer to accept a fixed share of the risk which has
procures a third person to insure him against to be reinsured under the contract.

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3. Facultative Reinsurance – there is no to whoever is insuring the cargo,


obligation to cede or accept participation in whether he be the shipowner or not
the risk each party having a free choice. But (Roque v. IAC, GR No. L-66935, Nov. 11,
once the share is accepted, the obligation is 1985).
absolute and the liability hereunder can be
discharged only by payment. 2. Marine Protection and Indemnity
Insurance
4. Retrocession – a transaction whereby the
reinsurer in turn, passes to another insurer a Measure of Indemnity:
portion of the risk reinsured. It is really the 1. Valued Policy- the parties are bound by
reinsurance of reinsurance (The ICP the valuation, if the insured had some
Annotated, Hector de Leon, 2002 ed.). interest at risk and there is no fraud (Sec.
156).
Duty of the Reinsured to Disclose Facts: 2. Open Policy- the following rules shall
Where an underwriter is seeking to insure apply in estimating a loss:
his risks, his duty to disclose all material facts is
a. Value of the ship- value at the beginning
no less than the similar duty imposed on a
person seeking an original insurance; the duty in of the risk;
both cases is one of the strictest good faith since b. Value of the cargo- actual cost when
the risk insured against in a contract of laden on board or market value at the time
reinsurance is the probability that the original and place of lading;
insurer may be compelled to indemnify for the c. Value of freightage- gross freightage
loss under the policy issued by him. Thus, a exclusive of primage;
policy may be avoided were the reinsured d. Cost of insurance- in each case, to be
conceals the fact that a loss has taken place or added to the estimated value (Sec. 161, ICP)
that the property is over-insured where he has
knowledge thereof. (De Leon, The Insurance Code of
the Philippines, 2006ed, pages 298-299) Major Divisions of Transportation
Insurance:
1. Ocean Marine Insurance
MARINE INSURANCE Scope:
a. ships and hulls;
Insurance against risks connected with b. goods and cargoes;
navigation to which a ship, cargo, freightage, c. earnings such as freight, passage,
profits, or other insurable interest in movable money, commissions or profit; and,
property may be exposed during a certain d. liability incurred by reason of
voyage or a fixed period of time. maritime perils

Scope of Marine Insurance: 2. Inland Marine Insurance


Coverage: Classes:
1. Insurance against loss or damage to: a. Property in transit- provides
a. Vessels, goods, freight, cargo, protection to property frequently
merchandise, profits, money, valuable exposed to loss while it is being
papers, bottomry and respondentia, and transported from one location to
interest in respect to all risks or perils of another.
navigation; b. Bailee liability- insurance for
b. Persons or property in connection with those who have temporary custody
marine insurance; of the goods.
c. Precious stones, jewels, jewelry and c. Fixed transportation
precious metals whether in the course of property- they are so insured
transportation or otherwise; and because they are held to be an
d. Bridges, tunnels, piers, docks and other essential part of the transportation
aids to navigation and transportation (Sec. system such as bridges, tunnels, etc.
99, ICP). d. Floater- provides an
 Cargo can be the subject of marine insurance to follow the insured
insurance and once it is entered into, property wherever it may be located,
the implied warranty of subject always to the territorial limits
seaworthiness immediately attaches of the contract.

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c. Latent defect of
Risk or Losses Covered in Marine machinery or hull.
Insurance 4. Sue and Labor Clause – a clause
1. Perils of the sea vs. perils of the ship wherein the insurer may become liable to
2. “All risks” in marine insurance policy pay the insured, in addition to the loss
actually suffered, such expenses as the
Perils of the Sea Perils of the Ship property against a peril for which the
insurer would have been liable. ausl
 Include only Loss which in the
those casualties ordinary course of
 The insured has the initial burden of proving
due to the unusual events, results:
that the cargo was in good condition when
violence or  From the the policy attached and the cargo was
extraordinary ordinary, natural damaged when unloaded from the vessel;
causes connected and inevitable thereafter, the burden then shifts to the
with navigation. action of the sea; insurer to show the exception to the
 It includes  From coverage (Choa Tiek Seng v. CA 183, SCRA 223)
only such losses ordinary wear and
as are of tear of the ship;
extraordinary and Insurable Interest in Marine Insurance:
nature or arise  From the a. Shipowner has insurable interest on
from some negligent failure of the vessel though it is under a charter
overwhelming the ship’s owner party. (Sec.100, ICP)
power which to provide the
cannot be guarded b. There is insurable interest on
vessel with the freightage which begins when the vessel
against by the proper equipment
ordinary exertion of breaks ground for voyage. (Secs. 102-104
to convey the ICP)
human skill or cargo under
prudence. c. The charterer has insurable interest
ordinary (Sec. 106,ICP)
conditions.
d. Insurable interest in profits (Sec. 105,
ICP) In loans on bottomry and
SPECIAL MARINE INSURANCE respondentia, repayment of the loan is
CONTRACTS AND CLAUSES subject to condition that the vessels or
1. All Risks Policy goods, respectively, given as security
Insurance against all causes of shall arrive safely at the port of
conceivable loss or damage except: destination.
a. As otherwise excluded in the
policy; or
INSURABLE INTEREST in Marine
b. Due to fraud or intentional
misconduct on the part of the insured. Insurance:
Burden of proof insurance company has A. Shipowner:
the burden of proving that the loss is 1. Over the value of the vessel.
caused by risk excepted and for want of Exceptions:
proof, the company is liable. a. If chartered and the charterer
2. Barratry Clause – a clause which agreed to pay the shipowner the
provides that there can be no recovery value of the vessel in case of loss,
on the policy in case any willful the insurer’s liability is only up to the
misconduct on the part of the master or amount not recoverable from the
crew in the pursuance of some unlawful charterer (Sec. 100, ICP);
or fraudulent purpose without consent of b. If hypothecated by a bottomry
owners, and to the prejudice of the loan, the insurable interest is only up
owner’s interest. to the excess of the value of the
3. Inchamaree Clause – a clause which vessel over the loan (Sec. 101, ICP).
makes the insurer liable for loss or 2. Over expected freightage
damage to the hull or machinery arising
from the: B. Freightage or Cargo
a. Negligence of the
captain, engineer, etc. C. Charterer
b. Explosions, 1. Over the vessel up to the extent of
breakage of shafts; and

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the amount he is liable to the misrepresented is material.


shipowner, if the ship is lost or
damaged during the voyage (Sec 106, Implied Warranties in Marine Insurance
ICP) 1. That the ship is seaworthy at the
2. Over his expected profits or inception of the insurance (Sec. 113, ICP);
freightage if he accepts cargoes from 2. That the ship will not deviate from agreed
other persons for a fee. voyage unless deviation is proper (Secs.
3. Over his own cargo or his client’s 123,124,125, ICP);
cargo. 3. That the ship will not engage in an illegal
venture;
D. In loans on bottomry and respondentia, 4. Warranty of neutrality : that the ship will
repayment of the loan is subject to the carry the requisite of documents of
condition that the vessels or goods, nationality or neutrality of the ship or
respectively, given as security, shall cargo where such nationality or neutrality
arrive safely at the port of destination. is expressly warranted (Sec. 120, ICP);
arellano law
5. Presence of insurable interest.
1. Owner/Debtor – difference
between the value of vessel or goods
and the amount of loans (Sec. 101,
ICP) SEAWORTHINESS
2. Creditor/Lender – amount of
the loan A ship is seaworthy when it is reasonably
fit to perform the service, and to encounter
 If the vessel is hypothecated by bottomry, the ordinary perils of the voyage,
only the excess is insurable, since a loan contemplated by the parties to the policy (Sec
on bottomry partakes of the nature of an 114, ICP).
insurance coverage to the extent of the
loan accommodation. The same rule A warranty of seaworthiness extends not
applies to the hypothecation of the cargo only to the condition of the structure of the
by respondentia. ship itself, but requires that it be properly
laden and provided with a competent master,
CONCEALMENT in Marine Insurance a sufficient number of appurtenances and
Definition: It is the failure to disclose any equipment, such as ballasts, cables and
material fact or circumstance which in fact or anchors, cordage and sails, food, water, fuel
in law is within, or which ought to be within and lights, and other necessary or proper
the knowledge of one party and which the stores and implements for the voyage (Sec.
other has no control or presumptive 116, ICP).
knowledge.
 Seaworthiness does not only mean that the
Matters Although Concealed Will Not ship will not leak, but rather that it is
equipped and manned for the purpose of the
Vitiate the Contract Except When They voyage it is to undertake, (Villanueva,
Caused the Loss (Sec. 110, ICP) Commercial Law Review, 2002ed, page 326)
1. National character of the insured;
2. Liability of the thing to capture or When Ship should be Seaworthy
detention; General Rule: An implied warranty of
3. Liability to seizure from breach of foreign seaworthiness is complied with if the ship be
laws; seaworthy at the time of the commencement
4. Want of necessary documents; and of the risk.
5. Use of false or simulated papers. Exceptions:
Effect: It merely exonerates insurer from 1. Time Policy- the ship must be
seaworthy at the commencement of
a loss resulting from the risk concealed. every voyage she may undertake
2. Cargo Policy- each vessel
Representations in Marine Insurance: upon which the cargo is shipped or
Effect of false representation by the insured: transshipped must be seaworthy at the
the insurance is avoided if: commencement of each particular
1. False representation is intentional voyage.
2. It is not intentional but the fact 3. Voyage Policy- contemplating

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a voyage in different stages, the ship 4. To save human life or another distressed
must be seaworthy at the vessel. (Sec 124, ICP)
commencement of each stage of the
voyage. Effects of Proper Deviation: In case of loss,
the insurer is still liable.
Rule Where the Ship Becomes Effects of Improper Deviation:
Unseaworthy on the Course of the Voyage The insurer is not liable for any loss
Unreasonable delay in repairing the defect happening to the thing insured subsequent to
exonerates the insurer on ship or shipowner’s an improper deviation. (Sec. 126, ICP)
interest from liability from any loss arising  Just as a surety is discharged, if the creditor
therefrom. materially changes the contract with the
principal debtor, irrespective of actual injury to
Applicability of Implied Warranty of the surety, so as the marine underwriter is
Seaworthiness to Cargo Owners entitled to be discharged if the risk assumed
The fact that the seaworthiness of the is changed by a deviation from the voyage
insured. And the fact that the deviation did not
ship was unknown to insured is immaterial in
increase the risk, or in any wise contribute to
ordinary marine insurance and may not be the loss suffered, is wholly immaterial. (De
used by him as a defense in order to recover Leon, Insurance Code of the Philippines, Annotated,
on the marine insurance policy. 2002 Edition, page 353)

 It becomes the obligation of a cargo owner to


look for a reliable common carrier which
keeps its vessels in seaworthy conditions.
LOSS AND ABANDONMENT
The shipper may have no control over the
vessel but he has full control in the choice of Kinds of Loss
the common carrier that will transport his A. Total
goods. (Roque v. IAC, 139 SCRA 596). 1. Actual Total Loss
DEVIATION 2. Constructive total Loss
 A valuation in policy of marine insurance is
Departure of vessel from course of conclusive between the parties thereto in the
voyage or an unreasonable delay in pursuing adjustment of either a partial or total loss, if
voyage, to the commencement of an entirely the insured has some interest at risk, and
there is no fraud on his part. (Sec. 156, ICP)
different voyage (Sec. 123, ICP).
Actual Total Loss
Four Cases of Deviation in Marine
1. Total destruction;
Insurance:
2. Loss by sinking;
3. Damage rendering the thing valueless; or
1. Departure from the course of sailing 4. Other event which effectively deprives the
fixed by the mercantile usage between owner of possession, at the port of
the places of beginning and ending destination, of the thing insured. (Sec. 130,
specified in the policy (Sec. 121). ICP) clear
2. Departure from the most natural,
direct, and advantageous route between Constructive Total Loss (Sec. 131, in relation to
the places specified if the course of Sec 134, ICP)
sailing is not fixed by mercantile usage 1. Actual loss of more than three-fourths
(Sec 122). (3/4) of the value of the object;
3. Unreasonable delay in pursuing the 2. Damage reducing value by more than
voyage (Sec. 123) three-fourths (3/4) of the value of the
4. The commencement of an entirely vessel and of cargo; and
different voyage. 3. Expenses of transshipment exceed three-
fourths (3/4) of value of cargo.
When Deviation is Proper:  The logs having been insured as
1. Due to circumstances outside the control one inseparable unit, the correct basis for
of the ship captain or ship owner; determining the existence of constructive
2. To comply with a warranty; total loss is the totality of the shipment of
3. In good faith to avoid peril; the logs (Oriental Assurance Co. vs. CA, 200

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SCRA 459). [1991] necessary in order to recover as for a total


loss. (38 C.J. 1136)
In case of constructive total loss, insured
may: Effect of Transfer:
a. Abandon goods or vessel to the 1. Transfer of Interest- it is equivalent to a
insurer and claim for whole insured transfer by the insured of his interest to
value (Sec. 139, ICP) or the insurer with all the chances of
b. Without abandoning vessel, claim for recovery and indemnity (Sec 146, ICP)
partial actual loss (Sec. 155, ICP) 2. Transfer of agency- acts done in good
faith by those who were agents of the
B. PARTIAL LOSS- that which is not total insured in respect to the thing insured,
(Sec. 128, ICP)
subsequent to the loss, are at risk of the
A marine insurer is liable only for
insurer and for his benefit (Sec 148, ICP).
such proportion of the amount insured by
him as the loss bears to the value of the  If an insurer refuses to accept a valid
whole interest of the insured in the abandonment, he is liable upon actual
property insured. (Sec. 157, ICP) total loss, deducting from the amount any
proceeds of the thing insured which may
ABANDONMENT come to the hands of the insured (Sec. 154,
The act of the insured by which, after ICP).
constructive total loss, he declares the
relinquishment to the insurer of his interest in AVERAGE
the thing insured (Sec. 138, ICP). An extraordinary or accidental expense
incurred during the voyage for the
Requisites: preservation of the vessel, cargo, or both,
1. There must be an actual relinquishment and all damages to the vessel and cargo
by the person insured of his interest in from the time it is loaded and the voyage
the thing insured (Sec. 138, ICP); commenced until it ends and the cargo
2. There must be a constructive total loss unloaded.
(Sec. 139, ICP);
3. The abandonment be neither partial nor
Kinds of Average:
conditional (Sec. 140, ICP);
1. Particular
4. It must be within reasonable time after
2. General
receipt of reliable information of the loss
(Sec. 141, ICP);
5. It must be factual (Sec. 142, ICP); General Average Particular Average
6. It must be by giving notice thereof to the Loss Loss
insurer which may be done orally or in To whom inures
writing (Sec. 143, ICP); Includes all damages Includes all damages
7. The notice of abandonment must be and expenses caused and expenses caused
explicit and must specify the particular to the vessel or to her to the vessel or to her
cause of the abandonment (Sec. 144, ICP). cargo which have cargo which have not
inured to the common inured to the common
Notice of Abandonment benefit and profit of benefit and profit of all
General Rule: there is no particular form of all persons interested persons interested in
in the vessel and her the vessel and her
giving the notice of abandonment. It may be
cargo. cargo.
made orally unless the policy requires that it
be made in writing. Notice by telegraph may By whom borne
be sufficient. It is suffered and It is suffered by and
borne equally by all of borne alone by the
If notice is done orally, the insured must the interests owner of the cargo or
submit to the insurer a written notice within 7 concerned in the of the vessel, as the
days from the oral notice. venture. case may be (De
Leon, The Insurance
code of the Philippines.
 In cases of actual total loss, no abandonment 2006 page 136.)
is necessary; but if the loss is merely
constructively total, abandonment becomes Requisites:
1. There must be a

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common danger to
the vessel or cargo; There is co-insurance if the value of the
2. Part of the vessel insured’s interest exceeds the amount of
or cargo was
sacrificed
insurance; he is considered the co-insurer for
deliberately; an amount determined by the difference
3. The sacrifice between the insurance taken out and the
must be for the value of the property.
common safety or for Requisites of co-insurance:
the benefit of all;
1. The amount of insurance is less than the
4. It must be made
by the master or
insured’s insurable interest;
upon his authority; 2. The loss is partial.
5. It must not be
caused by any fault Formula to determine the amount
of the party asking recoverable:
the contribution;
6. It must be
successful, i.e., Partial loss
resulted in the saving --------------------- x Amount of = Amount of
of the vessel or
cargo; and Value of thing Insurance Recovery
insured
7. It must be
necessary.

Illustration:
Right of Insured in Case of General
If a vessel valued at P1M is insured for only
Average
P800, 000 and is damaged to the extent of
General Rule: The insured may either hold
P400, 000, the insurer will be required to pay
the insurer directly liable for the whole of the
only 80% of the loss suffered, or P320, 000;
insured value of the property sacrificed for
the other 20% or P80, 000 being borne by
the general benefit subrogating him to his
the insured himself.
own right of contribution or demand
contribution from the other interested parties
P400, 000 or 2/5 x P800, 000 = P320, 0000
as soon as the vessel arrives at her
P1M
destination. (Sec. 164, ICP)
Exceptions:
1. After the separation of interests liable The insured is considered a co-insurer as to
to contribution; the uninsured portion of P200, 000.
2. When the insured has neglected or
Note: If the loss is total, the insurer is liable
waived his right to contribution. (Sec. 164,
ICP) for the full amount if P800, 000. On the other
hand, if the property is insured to its full
FPA CLAUSE (Free from Particular Average) value, the insured is entitled to recover the
A clause agreed upon in a policy of full amount of the partial loss of P400, 000.
marine insurance in which it is stated that the
insurer shall not be liable for a particular  A marine insurer is liable upon a partial loss,
average, such insurer shall be free therefrom, only for such proportion of the amount insured
by him as the loss bears to the value of the
but he shall continue to be liable for his
whole interest of the insured in the property
proportion of all general average loss insured (Sec.157, ICP).
assessed upon the thing insured (Sec. 136,
ICP).
 The insured bears part of the loss when
property is insured for less than the value it
CO-INSURANCE really has. When there is partial loss on
A clause requiring the insured to marine insurance, there will always be co-
maintain insurance to an amount equal to the insurance even if there is full coverage.
value or specified percentage of the value of When there is partial loss, under Standard
the insured property under the penalty of Policy Stipulation, and there is
becoming co-insurer to the extent of such underinsurance, there will be co-insurance.
deficiency.
Rules:

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1. Co-insurance applies only to marine (Commentaries and Jurisprudence on the


Commercial Laws of the Philippines, Agbayani,
insurance.
1988 ed).
2. There cannot be co-insurance in life
insurance. Marine and Fire Insurance:
3. Co-insurance applies in fire Marine Insurance Fire Insurance
insurance when expressly provided for Rule on Constructive Does not apply
by the parties. Total Loss and
abandonment applies
In case of partial total Express stipulation of
FIRE INSURANCE loss, insured is co- co-insurance as
insurer of uninsured agreed by the parties.
It is a contract of indemnity by which the portion (Sec. 157, ICP) (Sec. 172, ICP)
insurer, for a consideration, agrees to
indemnify the insured against loss of, or Hostile Fire Friendly Fire
damage to, property by fire, but may include
Fire that escapes and Fire that burns in a
loss by lightning, windstorm, tornado or
burns in a place place where it is
earthquake and other allied risks, when such where it is not supposed to burn.
risks are covered by extension to fire supposed to be or a
insurance policies or under separate polices fire that started out to
(Sec 167, ICP). be a friendly fire but
escapes from its
Risk or loss covered: original place and
1. Direct losses becomes too strong
2. Indirect or Consequential losses: as it becomes out of
a. Physical damages control.
b. Loss of Earnings Insurer is liable. Insurer is not liable.
c. Extra Expenses
ALTERATION
Effect of Alteration in the thing insured:
Prerequisites to recovery:
Alteration in the use or condition of a thing
1. Notice of loss- must be immediately
insured from that to which it is limited by the
given, unless delay is waived expressly
policy made without the consent of the
or impliedly by the insurer; and
insurer, by means within the control of the
2. Proof of loss- according to best evidence
insured, and increasing the risks, entitles the
obtainable. Delay may also be waived
insurer to rescind a contract of fire insurance
expressly or impliedly by the insurer. (Sec. 168, ICP).

Measure of Indemnity Requisites of Rescission of Contract:


1. Open Policy - only the expense 1. The use or condition of the thing insured
necessary to replace the thing lost or is specially limited or stipulated in the
injured in the condition it was at the time policy;
of the injury. 2. Such use or condition is altered;
2. Valued Policy - the parties are 3. The alteration is made without the
bound by the valuation, in the absence of consent of the insurer;
fraud or mistake. 4. The alteration is made by means within
the control of the insured;
Note: It is very crucial to determine whether a 5. The alteration increases the risk;
marine vessel is covered by a marine 6. There must be a violation of a policy
insurance or fire insurance. The provision.
determination is important for 3 reasons:
1. Rules on constructive total loss and Alterations not Avoiding Policy:
abandonment- applies only to marine 1. Where risk of loss not increased. Such
insurance; as when a different use is made on
2. Rule on co-insurance- applies primarily insured premises which is no longer
to marine insurance; hazardous.
3. Rule on co-insurance applies to fire 2. When the articles insured are required by
insurance ONLY if express agreed upon the business of the insured.

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3. Where insured property would be from the insurer.(Guingona v. Del Monte, 20


useless if questioned acts were SCRA 1043)
prohibited. 3. Liabilities arising out of acts of
4. At time of loss. (Sec. 76, ICP) negligence which are criminal are also
insurable on the ground that such acts
FALL-OF-BUILDING CLAUSE are accidental.
A clause in a fire insurance policy that if
the building or any part thereof falls, except Exception: Consequences of deliberate
as a result of fire, all insurance by the policy criminal acts are not insurable.
shall immediately cease.
OPTION TO REBUILD CLAUSE 4. Insurable interest is based on the interest of
the insured in the safety of persons, and
A clause giving the insurer the option to
their property, who may maintain an action
reinstate or replace the property damaged or against him in case of their injury or
destroyed or any part thereof, instead of destruction, respectively.
paying the amount of the loss or the damage. 5. In a third party liability (TPL) insurance
 The insurer, after electing to rebuild, cannot contract, the insurer assumes the obligation
be compelled to perform this undertaking by by paying the injured third party to whom the
specific performance because this is an insured is liable. Prior payment by the
obligation to do, not to give. Remedy: Article insured to the third person is not necessary
1167, Civil Code. in order that the obligation may arise. The
moment the insured becomes liable to third
persons, the insured acquires an interest in
CASUALTY INSURANCE the insurance contract which may be
garnished like any other credit (Perla
Compania de Seguros, Inc. v. Ramolete, GR No. L-
An insurance covering loss or liability 60887, November 13, 1991).
arising from accident of mishap excluding 6. Aside from compulsory motor vehicle
those falling under other types of insurance liability insurance, casualty insurance are
as fire or marine (Sec. 174, ICP). governed by the general provisions
applicable to all types of insurance, and
Classification: outside of such statutory provisions, the
1. Accident or health insurance- rights and obligations of the parties must
insurance against specified perils which be determined by their contract, taking
may affect the person and/or property of into consideration its purpose and always
the insured. (ie: Personal accident, in accordance with the general principles
robbery/theft insurance). of insurance law.
7. In burglary, robbery and theft insurance,
2. Third party liability insurance- the opportunity to defraud the insurer-
insurance against specified perils which the moral hazard- is so great that insurer
may give rise to liability on the part of the have found it necessary to fill up the
insured for claims for injuries to or policies with many restrictions designed
damage to property of others. (ie: third to reduce the hazard. Persons frequently
party liability insurance). excluded are those in the insured’s
service and employment. The purpose of
THIRD PARTY LIABILITY the exception is to guard against liability
1. Casualty insurance may provide for third should theft be committed by one having
party liability (stipulation pour atrui) in unrestricted access to the property
which case, the third party may directly (Fortune Insurance vs. CA, 244 SCRA 208).
sue the insurer upon the occurrence of 8. Right of a third party injured to sue the
the loss. (First Integrated Bonding and Ins. Co. v. insurer of party at fault depends on
Hernando, 199 SCRA 769) whether the contract of insurance is
2. If there is no stipulation in favor of a third intended to benefit third persons also or
person but the insurance is an insurance only the insured.
against liability to third persons, any third
person who might be injured may not sue Tests applied:
the insurer. Only the insured can recover

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1. Indemnity against third party liability- COMPULSORY


injured third party can directly cue the MOTOR VEHICLE
insurer.
Purpose: To protect injured person LIABILITY
against the insolvency of the insured who INSURANCE (CMVLI)
causes such injury.
2. Indemnity against actual loss or The Insurance Code makes it unlawful
payment- third party has no cause of for any land transportation operator or owner
action against the insurer. The third of a motor vehicle to operate the same in
person’s recourse is limited to the public highways unless there is an insurance
insured alone (Sec. 53, Bonifacio Bros. vs. or guaranty to indemnify the death or bodily
Mora, GR L-20853, May 29, 1967). injury of a third party or passenger arising
from the use thereof (Sec. 374, ICP).
Note: The insurer is NOT solidarily liable with
the insured. The insurer’s liability is based on  Registration of any vehicle will
contract; that of the insured is based on torts. not be made or renewed without complying
Furthermore, the insurer’s liability is limited with the requirement (Sec. 376, ICP).
by the amount of the insurance coverage (Pan Purpose: To give immediate financial
Malayan Insurance Corporation v. CA, GR No. 77397, assistance to victims of motor vehicle
184 SCRA 54, April 3, 1990).
accidents and/ or their dependents,
especially if they are poor regardless of the
INTENTIONAL vs. ACCIDENTAL
financial capability of motor vehicle owners or
‘Intentional’ as used in an accident policy
excepting intentional injuries inflicted by the operators responsible for the accident
insured or any other person implies the exercise sustained (Shafer v. Judge RTC, 167 SCRA 386
of the reasoning faculties, consciousness and [1988]; First Integrated Bonding and Ins. v. Hernando,
199 SCRA 746[1991]).
volition. Where a provision of the policy excludes
intentional injury, it is the intention of the person  Claimants/ victims may be a “passenger”
inflicting the injury that is controlling. If the injuries or a “3rd party”.
clearly resulted from the intentional act of a third  It applies to all vehicle whether pulic or
person, the insurer is relieved from liability as private vehicles.
stipulated (Biagtan v. The Insular Life Assurance Co.,
44 SCRA 58).[1972] Note: It is the only compulsory insurance
coverage under the Insurance Code.
The terms ‘accident’ and ‘accidental’ as Methods of Coverage:
used in insurance contracts, have not acquired 1. Insurance policy
any technical meaning. They are construed by 2. Surety bond
the courts in the ordinary and common 3. Cash Deposit
acceptation. Thus, the terms have been taken to
mean that which happens by chance or
Passenger
fortuitously, without intention or design, which is
Any fare paying person being transported
unexpected, unusual, and unforeseen (Pan
and conveyed in and by a motor vehicle for
Malayan Insurance Corp. v. CA, 184 SCRA 54).
transportation of passengers for compensation,
including persons expressly authorized by law or
NO ACTION CLAUSE by the vehicle’s operator or his agents to ride
A requirement in a policy of liability without fare. (Sec. 373,ICP)
insurance which provides that suit and final
Third-Party
judgment be first obtained against the Any person other than a passenger and shall
insured; that only thereafter can the person also exclude a member of the household, or a
injured recover on the policy (Guingona v. Del member of the family within the second degree of
Monte, 20 SCRA 1043). consanguinity or affinity, of a motor vehicle owner
A “no action clause” must yield to the or land transportation operator, as likewise
provisions of the Rules of Court regarding defined herein, or his employee in respect of
multiplicity of suits (Shafer v. RTC, GR No. 78848, death, bodily injury, or damage to property arising
167 SCRA 386, November 14, 1988). out of and in the course of employment. (Sec 373,
ICP as amended by PD 1814)

SPECIAL CLAUSES:

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A. “No-Fault” Clause
The injured third party or passenger is Time To File & Process Claim Under
given the option to file a claim for death Third Party Liability
or injury without the necessity of proving a. Period to File Notice- within six
fault or negligence of any kind under the (6) months from the date of the
following conditions: accident otherwise the claim is
1. The total indemnity in respect of any deemed waived (Sec. 384, ICP).
person shall be P15,000.00 per claim b. Prescriptive Period- within one
for all motor vehicle. As amended (1) year from the denial of the claim
IMC No. 4-2006, July 26, 2006 with the commissioner on the Courts
2. Proof of loss (Sec. 384, ICP)
 Police report of accident; c. If There is an Agreement- The
 Death certificate and insurance company concerned shall
evidence sufficient to establish forthwith ascertain the truth and
the proper payee; and extent of the claim and make
payment within 5 working days after
 Medical report and evidence
reaching an agreement (Sec 385, ICP).
of medical or hospital
d. If no agreement is reached, the
disbursement.
insurance company shall pay only
3. Claim may be made against 1 motor
the “no fault” indemnity without
vehicle only.
prejudice to the claimant from
pursuing his claim further, in which
From Whom Should the Injured
case, he shall not be required or
Recover:
compelled by the insurance company
1. In the case of an occupant of a
to execute any quit claim or
vehicle, claim shall lie against the
document releasing it from liability
insurer of the vehicle in which the
under the policy of insurance or
occupant is riding, mounting, or
surety bond issued (Sec. 385, ICP)
dismounting from.
2. If not an occupant, claim shall lie  If the policy provides for indemnity
against the insurer of the directly against liability, the insurer can be sued
offending vehicle. directly by a third person. However, if
3. In all cases, the right of the party the policy provides for reimbursement
paying the claim to recover against after actual payment by the insured
the owner of the vehicle responsible or for the indemnity against loss, a third
for the accident shall be maintained. person has no cause of action against
the insurer (Sec 53, ICP; Bonifacio Bros v.
Mora, 20 SCRA 26].
 This no-fault claim does NOT  While the insurer’s liability may be
apply to property damage. If the direct, it does not mean that the insurer
total indemnity exceeds can be held solidarily liable with the
P15,000.00 and there is insured. The insurer’s liability is based
controversy in respect thereto, the on contract; that of the insured is based
finding of fault may be availed of on torts. Furthermore, the insurer’s
by the insurer only as to the liability is limited to the amount of the
excess. The first P15, 000.00 shall insurance coverage (Pan Malayan v. CA
184 SCRA 54).
be paid without regard to fault.
 In third party liability insurance, the
 The essence of the no-fault insurer assumes the obligation of paying
indemnity insurance is to provide the injured party to whom the insured is
victims of vehicular accidents or liable. The insurer becomes liable as
their heirs’ immediate soon as the liability of the insured
compensation although in limited attaches. From the moment the insurer
amount, pending final becomes liable to the third person, the
determination of who is insured acquired interest in the
responsible for the accident and insurance contract, which interest may
be garnished just like any other credit.
liable for the victim’s injuries or (Perla Compania de Seguros, Inc. v. CA, GR
death. No. L-76884 May 28, 1990).

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Nature of liability of surety


B. Authorized Driver Clause - a clause 1. Solidary;
which aims to indemnify the insured 2. Limited to the amount of the bond;
owner against loss or damage to the car 3. It is determined strictly by the terms
but limits the use of the insured vehicle to of the contract of suretyship in relation to
the insured himself or any person who the principal contract between the obligor
drives on his order or with his permission and the oblige (Sec. 176, ICP).
(Villacorta v. Insurance Commissioner, 100 SCRA
467).
Types of Surety Bonds:
1. Contract Bonds- these are connected
▪ The requirement that the person with construction and supply contracts.
driving the insured vehicle is permitted They are for the protection of the owner
in accordance with the licensing laws against a possible default by the
or other laws or regulations to drive contractor or his possible failure to pay
the motor vehicle (licensed driver) is material men, laborers and sub-
applicable only if the person driving is contractors.
other than the insured. The position of surety, therefore, is to
▪ The insured need not prove that he answer for a failure of the principal to
has a driver’s license at the time of the perform in accordance with the terms
accident if he was the driver. and specifications of the contract.
 If the claimant was able to present a
There may be two kinds:
driver’s license, the same is presumed
to be genuine. Thus, even if it was a. Performance bond- one covering the
established that the driver does not faithful performance of the contract;
know how to read and write, the license and
will still be sustained in the absence of b. Payment bond- one covering the
proof that it was not validly issued (CCC payment of laborers and material
Insurance Corp. v. CA, 31 SCRA 264). men.
 A driver who holds an expired driver’s
license is not an authorized driver 2. Fidelity Bond- contract of insurance
(Gutierrez v. Capital Insurance Co., 130
SCRA 618). against loss from misconduct.
For purposes of underwriting, they are
C. Theft Clause - a clause which includes classified as:
theft as among the risks insured against. a. Industrial bond- one required by
private employers to cover loss
 Where the car is unlawfully and through dishonesty of employees;
wrongfully taken without the owner’s and
consent or knowledge, such taking b. Public official bond- one required of
constitutes theft, and thus, it is the “theft public officers for the faithful
clause” and not the “authorized river performances of their duties and as a
clause” that should apply (Palermo v.
Pyramids Insurance, 161 SCRA 677). condition of entertaining upon the
duties of their offices.
D. Cooperation Clause - a clause which
provides in essence that the insured shall 3. Judicial bonds- they are those which
give all such information and assistance are required in connection with judicial
as the insurer may require, usually proceedings.
requiring attendance at trials or hearings.
Fidelity Guaranty Insurance - contract
whereby one, for a consideration, agrees to
SURETYSHIP indemnify the assured against loss arising
from the want of integrity, fidelity or honesty
An agreement whereby the surety of employees or other persons holding
guarantees the performance by another of an positions of trusts.
undertaking or an obligation in favor of a 3rd
party called the obligee (Sec. 175, ICP). Suretyship Deemed to be an Insurance
Contract

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Suretyship is deemed to be an insurance 2. Group Life – Essentially a single


contract only if made by a surety who or insurance contract that provides
which, as such, is doing an insurance coverage for many individuals.
business, i.e., making or proposing to make, 3. Limited Payment Policy – Insured
as surety, any contract of suretyship as a pays premium for a limited period. If he
vocation and not merely incidental to any dies within the period, his beneficiary is
other legitimate business or activity of the paid; if he outlives the period, he does
surety. not get anything.
4. Endowment Policy – Pays premium
Distinction Between Suretyship and for specified period. If he outlives the
Property Insurance period, the face value of the policy is paid
Suretyship Property Insurance to him; if not, his beneficiaries receive the
Accessory contract Principal contract
benefit.
5. Term Insurance – Insurer pays once
There are 3 parties: Only 2 parties: insurer only and he is insured for a specified
surety, debtor, and and insured. period. If he dies within the period, he
creditor.
beneficiaries benefits. If he outlives the
A credit A contract of period, no person benefits from the
accommodation with indemnity. insurance.
insurer assuming 6. Industrial Life – life insurance entitling
primary liability.
the insured to pay premiums weekly, or
Insurer is entitled to No right of recovery where premiums are payable monthly or
reimbursement from for the loss the oftener (but not less than weekly), if the
principal and insurer may sustain.
face value is P2, 000.00 or less, and the
guarantors for the Exception: when
loss. there is right of
words “industrial policy” printed upon the
subrogation. policy
7. Variable Contract- policy or contract
Bond can be Contract may be
on either group/individual basis issued by
cancelled only with cancelled unilaterally.
the consent of oblige, an insurance company providing for
Commissioner or benefits or other contractual payments or
court. values thereunder to vary so as to reflect
investment results of any segregated
Acceptance of Acceptance of third
obligee is necessary party is unnecessary portfolio of investment (Bar Review Materials
in Commercial Law, Miravite, 2009 ed).
to be valid. to be valid.
It is a risk-shifting It is a risk-distributing MORTGAGE REDEMPTION INSURANCE
device; premium paid device; premium paid A life insurance taken pursuant to a
being in the nature of as a ratable
group mortgage redemption scheme by the
a service fee. contribution to a
common fund. lender of money on the life of a mortgagor
who, to secure the loan. Mortgages the
house constructed from the use of the
proceeds of the loan, to the extent of the
LIFE INSURANCE mortgage indebtedness such that if the
mortgagor dies, the proceeds of his life
Insurance on human life and insurance insurance will be used to pay for his
appertaining thereto or connected therewith indebtedness to the lender assured and the
which includes every contract or pledge for deceased’s heirs will thereby be relieved
the payment of endowments or annuities from paying the unpaid balance of the loan
(Sec. 179, ICP). (Great Pacific Life Assurance Corp. v. CA, 316 SCRA
677).
Kinds :
1. Ordinary Life, General Life or Old Effect of Death of Insured
Line Policy - Insured pays a fixed 1. Through Suicide:
premium every year until he dies. The insurer shall be liable for suicide by
Surrender value after three (3) years. the insured if:

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a. Suicide was committed after Must distinguish when the policy does not
the policy has been in force expressly state whether suicide is
for a period of two years excepted from the policy:
from the date of its issue or 1. If committed while insane – Insurer is
its last reinstatement, unless liable
the policy provides a shorter 2. If committed while sane – Insurer not
period. (Sec. 180-A, ICP) liable in the absence of an express
b. Suicide committed in a state stipulation, it is an implied exception and
of insanity regardless of the is against public policy.
date of the commission of
the suicide, unless suicide is Cash Surrender Value - As applied to a life
an excepted risk (Sec. 180-A, insurance policy, it is the amount the insured
ICP). in case of default, after the payment of at
c. If committed after a shorter least 3 full annual premiums, is entitled to
period provided in the policy. receive if he surrenders the policy and
 Any stipulation extending the 2-year releases upon it.
period is null and void.

2. At the hands of law (execution by LOSS AND CLAIM


lethal injection) SETTLEMENT
 It is one of the risks assumed by the
insurer under a life insurance policy  Loss- Injury or damage sustained by the
in the absence of a valid policy insured in consequence of the happening of
exception. one or more of the accidents or misfortune
 The beneficiary of the insured who is against which the insurer, in consideration of
executed for a crime cannot recover the premium, has undertaken to indemnify
from the insurer for 2 reasons: 1.) his the insured (Bonifacio Bros, Inc v. Mora, 20
SCRA 261).
death is caused through his
connivance, and 2.) any stipulation to  The insured can transfer HIS CLAIM
render the insurer liable under these AGAINST the insurer after a loss has
circumstances would be contrary to occurred because it is not the personal
public policy (Bar Review Materials in contract which is being assigned but a
Commercial Law, Miravite, 2009 ed). money claim under or a right of action on the
policy (Ocean Acci. & G. Corp. v. southwestern
3. Killing by the Beneficiary Bell Telephone Co., 122 A.L.R. 133). Any
General Rule: The interest of a beneficiary in stipulation to the contrary is void if made
a life insurance policy shall be forfeited when before the loss except as otherwise provided
in the case of life insurance (Sec. 83, ICP).
the beneficiary is the principal accomplice or
accessory in willfully bringing about the death  An insurance company which insured a
of the insured, in which event, the nearest payroll against robbery is not liable where
relative of the insured shall receive the the policy excluded loss caused by an
proceeds of said insurance if not otherwise authorized representative of the insured if
disqualified (Sec. 12, ICP). the armored car transporting the payroll was
robbed by the driver and the security guard
Exceptions: provided by an independent contractor, for
1. Accidental killing; they were entrusted with the custody of the
2. Self-defense; payroll and could be considered authorized
3. Insanity of the beneficiary at the time representatives of the insured. (Fortune
Insurance & Surety Co. Inc. v. Court of Appeals,
he killed the insured. 244 SCRA 308)
 If the premiums paid came
from the conjugal funds, the proceeds
Loss for which
are considered conjugal. If the Loss for which
Insurer is NOT
beneficiary is other than the insured’s Insurer is Liable
Liable
estate, the source of premiums would
not be relevant. Loss, the proximate Loss by insured’s
cause of which is the willful act or gross
peril insured against negligence.

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(Sec 84, ICP). 1. Writes to the insured that he


Loss, the immediate Loss where the considers the policy null and void as the
cause of which is the excepted peril is the furnishing of notice or proof of loss would
peril insured against proximate cause. be useless;
except where the 2. Recognizes his liability to pay the
proximate cause is an claim;
excepted peril. 3. Denies all liability under the policy;
Loss through Loss due to 4. Joins in the proceedings for
negligence of insured connivance of the determining the amount of the loss by
except where there insured (Sec. 87, ICP). arbitration, making no objections on
was gross negligence account of notice and preliminary proof;
amounting to willful or
act. 5. Makes objection on any ground other
Loss caused by efforts than the formal defect in the preliminary
to rescue the thing proof.
from peril insured
against- if during the
Claim Settlement
course of rescue, the
thing is exposed to a 1. Life Insurance (Sec. 242, ICP)
peril not insured a. The proceeds shall be paid
against, which immediately upon the maturity of the
permanently deprives policy if there is such a maturity date.
the insured of its b. If the policy matures by the death of
possession, in whole the insured, within 60 days after
or in part (Sec 85, ICP). presentation of the claim and filing of
the proof of the death of the insured.
Notice of Loss 2. Property Insurance (Sec. 243)
a. In fire insurance - notice of loss should a. Proceeds shall be paid
be given without unnecessary delay; within thirty (30) days after proof of
otherwise, the insurer is exonerated (Sec. loss is received by the insurer and
88, ICP). ascertainment of the loss or damage
b. In other types of insurance - Not is made either by agreement or by
required; failure to give will not exonerate arbitration.
the insurer; unless there is a stipulation b. If no ascertainment is made
in the policy requiring the insured to do within 60 days after receipt of proof
so. of loss shall be paid within 90 days
after such receipt.
Proof of loss- is the more or less formal
evidence given the company by the insured Effects of Delay
or claimant under a policy of the occurrence If the prescribed period for both life and
of the loss, the particulars thereof and the property insurance are not complied with, the
data necessary to enable the company to beneficiary is entitled to payment of:
determine its liability and the amount thereof. a. Interest for the duration of the delay at
the rate of twice the legal interest (ceiling
Purposes: prescribed by the Monetary Board);
a. To give the insurer information by which b. Attorney’s fees and other litigation
he may determine the extent of his expenses;
liability. c. Appropriate damages under the Civil
b. To afford the insurer a means of detecting Code like moral and exemplary damages
any fraud that may have been practiced when requisites are present (Sec. 244, ICP).
upon him.
c. To operate as a check upon extravagant  In case of any litigation for the enforcement of
claims. any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as
Instances when the defects in the notice the case may be, to make a finding as to
or proof of loss are considered waived: whether the payment of the claim of the
When the Insurer: insured has been unreasonably denied or

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2010 COMMERCIAL LAW
purple notes

withheld; and in the affirmative case, the accrues. The cause of action accrues from
insurance company shall be adjudged to pay the final rejection of the claim of the insured
damages which shall consist of attorney’s and not from the time of loss. (Sec 63, ICP)
fees an other expenses incurred by the
insured person by reason of such
 It shall commence from the denial of the
unreasonable denial or withholding of
claim, not from the resolution of the motion
payment plus interest of twice the ceiling
for reconsideration, otherwise it can be used
prescribed by the Monetary Board of the
by the insured as a scheme or device to
amount of the claim due the insured, from the
waste time until the evidence which may be
date following the time prescribed in Sec.242
used against him is destroyed (Sun Insurance
or Sec. 243 of the ICP.(Commonwealth Office Ltd v. CA, 195 SCRA 193).[1991]
Insurance Corp v. CA, G.R. No. 133194-95, January
29, 2004)

When Insurer Liable to Pay Damages and GOVERNMENT


Interest (Secs. 243 and 244): REGULATION OF
INSURANCE
 Sections 243 and 244 shall apply only BUSINESS
when the Court or Commissioner finds
that there was unreasonable delay or
Requisites Prior to Operation:
refusal by the insurer in the payment of
1. Certificate of authority and payment of
the claim. The legal rate is 6%, as
fees
provided under Article 2209, NCC. The
adjusted rate under CB Circular 416,
No insurance company, whether domestic or
pursuant to PD 116 refers only to loans
foreign, can transact any business in the
and forbearance of money, goods or
Philippines until after it shall have obtained a
credit and court judgments thereon (Tio
Kho Chio v. CA, 202 SCRA 119).
certificate of authority for that purpose from
the Insurance Commissioner upon
 The term “double interest” as used in application therefore and payment by the
Section 243 and 244 can only be company concerned of the fees prescribed
interpreted to mean twice 12% per annum by the Code (Sec 187, Insurance Code).
or 24% per annum interest thus: the The Insurance Commissioner has the
“ceiling prescribed by the Monetary discretion to refuse the issuance of a
Board” means the legal rate of interest of certificate of authority on the very broad
12% per centum per annum (12%) as ground that “such refusal will best promote
prescribed by the Monetary board in CB the interest of the people of this country.”
circular No. 416, pursuant to PD No. 116,
amending the Usury Law, so that when No certification can be granted until the
Section 242, 243 and 244 of the Commissioner is satisfied that:
Insurance Code provide that the insurer a. The applicant is qualified under Philippine
shall be liable to pay interest “twice the laws to transact business in the country;
ceiling prescribed by the Monetary b. The grant of such authority of the
Board”, it means twice 12% per annum or organizers and administrators, the financial
24% per annum interest on the proceeds organization and the amount of capital
of the insurance. (Prudential Guarantee and reasonably assure the safety and interests of
Assurance Inc. v. Trans-Asia Shipping Lines, Inc. the policy holders and the public.
491 SCRA 411, June 26, 2006)
2. Capital Requirements

PERIOD OF PRESCRIPTION

In the absence of an express stipulation


in the policy, it being based on a written
contract, the action prescribes in 10 years.
However, the parties may validly agree on a
shorter period, provided, it is not less than
one year from the time the cause of action

>>>>>> PURPLE NOTES COMMISSION 166


Arellano University School of Law

Except in case of In addition to the


reinsurers whose capital requirements imposed
requirements are higher, on domestic insurance
the paid up capital stock companies, the following
of a domestic insurance requirements must be
company must be at fulfilled by foreign
least 5 million pesos corporations:
(P5, 000,000.00). a. Secure a license from the SEC to do
business in the Philippines by following
The amount may be the requirements of the Corporation Code;
increased by the b. File a copy of the SEC certificate
Secretary of Finance showing that it is duly registered in
upon recommendation accordance with paragraph 1;
of the Commissioner c. If incorporated, it must file a certified
which would reasonably copy of its articles of incorporation and its
assure the safety of the by-laws, certified by the SEC as a copy of
interests of the that filed in its office;
policyholders and the d. If not incorporated, file a certificate
public. setting forth the nature and character of
the business, the location of its principal
The Commissioner may office, the names of the persons
require as a condition to composing the partnership or association,
licensing that its the amount of the capital employed and
stockholders pay in cash the names of the persons managing the
in proportion to their business. The certificate must be verified
subscription, a by the affidavit of the chief officer, or the
contributed surplus fund manager or the agent of the company
of not less than 1 million accompanied by a copy of the written
pesos in life insurance articles of said company, if any;
company or not less e. Must fulfill the same capital
than P500, 000.00 in requirements as domestic companies and
case of a non-life in addition, must deposit with the
insurance company. Commissioner securities for the benefit
and security of its policyholders and
3. Filing of Necessary creditors.
Documents
A certified copy if the  Security deposits shall be (1)
last annual statement answerable for all the obligations of the
showing the condition depositing insurer under its insurance
and affairs of such contracts; (2) at all times free from any liens
company. or encumbrance; and (3) exempt from levy by
any claimant (Republic v. del Monte Motors, GR
156956, October 9, 2006).
If incorporated under
Philippine laws, a copy The right to lay claim on the fund is
of the articles of dependent on the solvency of the insurer
incorporation and by- and is subject to all other obligations of
laws, and amendments the company arising from its insurance
thereto, certified by the contracts. Thus, claimant’s interest is
SEC to be a copy of that merely inchoate. Being a mere
which is filed in its office. expectancy, it has no attribute of property
(Ibid).
4. Additional
requirements for
foreign corporations

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2010 COMMERCIAL LAW
purple notes

f. Must set aside an


amount corresponding 2. Margin solvency
to the legal reserves of Margin of solvency is the
the policies written in the excess value of an
Philippines and invest Insurance company’s
the same only in such admitted assets
classes of Philippine exclusive of its paid up
securities as described capital, in case of a
by the Code which domestic company, or
securities cannot be an excess of the value
taken out of the country of its admitted assets in
without the written the Philippines,
consent of the exclusive of its security
Commissioner. deposits, in case of
g. File with the foreign company, over
Commissioner a written the amount of its
power of attorney liabilities, unearned
designating some premiums and
person who must be a reinsurance reserves in
resident of the the Philippines (Sec 194,
Philippines as its ICP).
general agent, on whom
any notice or summons
or legal processes may INSURANCE
be served. It must also COMMISSIONER
sign an agreement that
in case it shall be Main agency charged with the enforcement
without any agent, the of the Insurance Code and other related
service upon the laws.
Insurance
Commissioner shall Adjudicatory / Quasi-judicial Powers
have the same effect as a. Exclusive Original Jurisdiction -
if made on the company. Dispute in the enforcement of any policy
issued pursuant to Compulsory Motor
REQUISITES FOR Vehicle Insurance.
CONTINUANCE IN
BUSINESS
1. Reserve
Requirements
a. Every life insurance company must make b. Concurrent Original Jurisdiction (with
an annual valuation of its policies, unpaid RTC) - where the amount of loss
dividends and other obligations outstanding damage, or liability, excluding interests,
on December 31 of the preceding year. The cost and attorneys’ fees being claimed or
aggregate net value so ascertained of the sued upon any kind of insurance, bond,
policies of the company is deemed its reinsurance contract, or membership
reserve liability to provide for which it must certificate does not exceed in any single
hold funds to secure investments equal to claim P100,00.00.
such net value.
b. Every non-life insurance company must  Insurance Commission have no
jurisdiction to decide the legality of a
ascertain reserve for unearned premiums on
contract of agency entered into between
its outstanding policies equal to 40% of the an insurance company and its agent
gross premiums received on policies having since the same is not covered by the
not more than 1 year to run and pro rate on term “doing or transacting insurance
all gross premiums received on policies business” under Sec. 2 of the Insurance
having more than 1 year to run. Code, neither is it covered by Sec. 416
of the same Code which grants the

>>>>>> PURPLE NOTES COMMISSION 168


Arellano University School of Law

Commissioner adjudicatory powers.


(Philippine American Life Insurance v.
Ansaldo, 234 SCRA 509).[1994]

Circumstances when the Commissioner


may revoke or suspend the license of an
insurer:
1. If insurance company is in unsound
condition;
2. If it has failed to comply with the
provisions of law or regulations obligatory
upon it;
3. Its conditions or methods of business
ins such as to render its proceedings
hazardous to the public or to its
policyholders;
4. That its paid up capital stock, or its
available cash assets, or its security
deposits, as the case may be, is impaired
or deficient; and
5. That the margin of solvency required
of each company is deficient.

Administrative/Regulatory powers
1. Enforcement of Insurance Laws
2. Issuance, suspension, revocation of
certificate of authority
3. Power to examine books and records,
etc.
4. Rule-making authority
5. Punitive

169CENTER FOR LEGAL EDUCATION AND RESEARCH <<<<<<

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