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(Group 5 – JDB)
Commercial Law Review

5. Insurance policies may be open, valued or running.
a) An open policy is one in which the value of the thing insured is not agreed upon, but
is left to be ascertained in case of loss.
b) A valued policy is one, which expresses on its face an agreement that the thing
insured shall be valued at a specified sum.
c) A running policy is one which contemplates successive insurances, and which
provides that the object of the policy may be from time to time defined, especially as
to the subjects of insurance, by additional statements or indorsements.

1. Yes. The owner may be able to collect on the insurance of the cargo, but only to its true
amount which is P150,000.00. When the insured insures a property for an amount greater
than the value of the property with the same insurance company, in case of loss, the insurer
is bound only to pay to the extent of the real value of the property lost and the insured is
entitled to recover the amount of premium corresponding to the excess value of the
property. (Sec. 83)
2. (2a.) Misrepresentation is a statement of something as a fact which is untrue and
material to the risk, and which the insured states, knowing it to be untrue in attempt
to deceive, or which he states positively as true without knowing it to be true and
which has a tendency to deceive. In the context of insurance, it is the act of providing a
false statement during an interview or an application for a policy. It may be minor enough
that insurer only needs to update or the policy or significant enough that it provides valid
grounds to void the contract.

(2b.) No. Section 46 of the Insurance Code states that: “If a representation is false in
a material point, whether affirmative or promissory, the injured party is entitled to
rescind the contract from the time when the representation becomes false.” In this
case, the ABC Insurance Company failed to inform Elsa of its discovery and instead
continued to accept her monthly premiums and the insurance policy lasted for 30
months or 2 years and 6 months. Despite her misrepresentation, the insurance
company is still obliged to inform her of their discovery. This would give them the
option to whether rescind the contract or otherwise. Section 48 provides an
insurance company the ample period to raise the issue of misrepresentation. It
states that, “After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two (2)
years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.” (Also known as
Incontestability Clause)

3. (3a.) The insurer is correct in denying the claim of Eric Talbot because he was guilty
of concealment of a material fact because he neglect to communicate that his son
was suffering from a congenital heart disease.
In the case of Great Pacific Insurance vs CA this Court is of the firm belief that
private respondent had deliberately concealed the state of health and physical
condition of his daughter Helen Go. Where private respondent supplied the required
essential data for the insurance application form, he was fully aware that his one-
year old daughter is typically a mongoloid child. Such a congenital physical defect
could never be ensconced nor disguised. Nonetheless, private respondent, in
apparent bad faith, withheld the fact material to the risk to be assumed by the
insurance company.
Therefore, where the person procuring the insurance concealed the fact that
his son was suffering a congenital heart disease and he neglect to communicate, the
concealment is material and gives the right of the insurer to rescind the contract
whether the concealment is intentional or not.

(3b.) The insurer is correct in rescinding the insurance contract. Eric Talbot was
guilty of concealment and the effect, it vitiates the contract and entitles the insurer
to rescind even if the death or loss is due to a cause not related to the concealed

In the case of Sun life vs CA the Supreme court ruled that the fact the matter
concealed had no bearing to the cause of death of the insured is not important
because it is not need that the insured not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries.

It is well settled in the case of Great Life Insurance vs CA that concealment exist
where the assured had knowledge of a fact material to the risk honesty, good faith
and fair dealings requires that he should communicate it but he designedly and
intentionally withholds the same.

Therefore, the insurer is correct in rescinding the insurance contract because it is

immaterial that there is no casual relationship between the fact concealed and the
loss sustained.

4. The insurer in a life insurance contract shall be liable in case of suicide when it is
committed after the policy has been in force for a period of two years from the date of its
issue or of its last reinstatement, when it is committed after a shorter period provided in
the policy although within the two year period, however the suicide committed in the state
of insanity shall be compensable regardless of the date of the commission. (Sec 180-A)
The insurer is not liable if it can show that the policy was obtained with the
intention to commit suicide.

5. When alteration will result in the rescission of the contract of insurance.

An alteration in the use or condition of a thing insured from that to which it is
limited in the policy made without the consent of the insurer, by means within the control
of the insure, and increasing the risk, entitles the insurer to rescind the contract. (Sec. 170)
In fire insurance the effect of an alteration in the use or condition of a thing insured
from that which it is limited by the policy is that the insurer may rescind a contract
provided the following requisites must be present:
a. The use or condition of the thing insured is specifically limited or
stipulated in the policy;
b. That there is an alteration in the said use or condition;
c. The alteration is without the consent of the insurer;
d. The alteration is made by means within the control of the insured;
e. The alteration increases the risk.
Therefore, the requisites must be present to constitute an alteration so as to allow
the insurer to rescind the fire insurance contract.
6. The non-default options in life insurance in order to prevent the forfeiture after
the payment of the premium. The insured may avail of the following:
a. Grace period in which the insured is entitled to a grace period of thirty days
within which to pay the succeeding premiums;
b. Cash surrender value, it is the amount the insurer agrees to pay to the holder of
the policy if he surrenders it and releases his claim upon it;
c. Extended insurance, it is where the insured is given a right, upon default, after
payment of at least three full annual premiums to have the policy continued in force from
the date of default for a time either stated or equal to the amount as the net value of the
policy taken as a single premium, will purchase.
d. Paid up insurance, it is where the insured is given a right, upon default, after
payment of at least three full annual premiums to have the policy continued in force from
the date of default for the whole period of the insurance without further payment of
e. Automatic loan clause, is a stipulation in the policy providing that upon default in
payment of premium the same shall be paid from the loan value of the policy until that
value is consumed.
f. Reinstatement of a lapsed policy of life insurance, the provision that the policy
holders in life insurance shall have the policy reinstated at any time within three years
from the date of default of premium of payment unless the cash surrender value has been
duly paid to the insurer or the extension period has expired. However, there must be proof
of insurability, and payment of overdue premiums and any indebtedness plus interest.

7. The materiality is determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in making his
inquiries or in fixing premium rate. (Sec. 31)
Therefore, the test of materiality in concealment and in representation is whether
knowledge of the true facts could have influenced a prudent insurer in determining
whether to accept the risk or in fixing the premiums.

5. Requisites of the cancellation of a policy. Grounds for cancellation of policy.
The Requisites for cancellation of policy:
a. Prior notice of cancellation to insured;
b. Notice must be based on the occurrence after effective date of the policy
of one or more of the grounds mentioned;
c. Notice must be in writing, mailed or delivered to the named insured at
the address shown in the policy, or to his broker, provided the broker is
authorized in writing by the policy owner to receive the notice of
cancellation on his behalf; and
d. Notice must state the grounds relied upon and upon request of insured, to
furnish facts on which cancellation is based.

The grounds for the cancellation of policy are the following: (Sec. 64)
a. Nonpayment of premium
b. Conviction of a crime arising out of acts increasing the hazard insured
c. Discovery of fraud or material misrepresentation
d. Discovery or willful or reckless acts or omissions increasing the hazard
insured against
e. Physical changes in the property insured which result in the property
being insurable
f. Determination by the insurance commissioner that a continuation of the
policy would place the insurer in violation of the code

5. Incontestability period in life insurance policies. (Sec. 48)
Incontestability clause is when after a policy of life insurance made payable on the
death of the insured shall have been in force during the lifetime of the insured for a period
of two years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void or is rescindable by reason of fraudulent concealment or
misrepresentation of the insured or his agent.
The period of two years may be shortened but it cannot be extended by stipulation.
5a. The defenses that are not barred by incontestability even after the
incontestability period are the following:
a. The non payment of premiums:
b. Lack of insurable interest of the insured;
c. That the cause of death was excepted or not covered by the terms of the policy;
d. That the fraud was of particular vicious type;
e. The violation of a condition in the policy relating to military or naval service in
time of war;
f. The necessary notice or proof of death was not given;
g. The action is not brought within time specified in the policy, which in no case
should be less that one year.
Therefore, the insurer may use the following defenses to defeat the application
of the insured of the so called incontestability period.
V. Case Digest

Facts: On July 1, 1977, Gregorio Tongko and Manufacturers Life Insurance Co. enter into a
contractual relationship under a Career Agent’s Agreement that provided: It is understood
and agreed that the Agent is an independent contractor and nothing contained herein shall
be construed or interpreted as creating an employer-employee relationship between the
Company and the Agent. Tongko agreed to comply with all regulations and
requirements of Manulife, and to maintain a standard of knowledge and competency in the
sale of Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the
new business, required by his Production Club membership.
In 1983 Tongko was named Unit Manager in Manulife’s Sales Agency Organization.
In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a
Regional Sales Manager. Sometime in 2001, De Dios, the president and executive officer of
the corporation addressed a letter to Tongko, regarding meetings wherein De Dios found
Tongko's views and comments to be unaligned with the directions the company was taking.
De Dios related his worries about Tongko's inability to push for company development and
De Dios subsequently sent Tongko a letter of termination in accordance with
Tongko's Agents Contract. Tongko filed a complaint with the NLRC against Manulife for
illegal dismissal, alleging that he had an employer-employee relationship with De Dios
instead of a revocable agency by pointing out that the latter exercised control over him
through directives regarding how to manage his area of responsibility and setting
objectives for him relating to the business. Tongko also claimed that his dismissal was
without basis and he was not afforded due process. The NLRC ruled that there was an
employer-employee relationship as evidenced by De Dios's letter which contained the
manner and means by which Tongko should do his work. The NLRC ruled in favor of
Tongko, affirming the existence of the employer-employee relationship.

Issue: Whether or not Tongko is an insurance agent or an employee of the Manufacturers

Life Insurance.

Ruling: The Supreme court cannot consider the present case purely from a labor law
perspective, oblivious that the factual antecedents were set in the insurance industry so
that the Insurance Code primarily governs. The Insurance Code, of course, does not wholly
regulate the "agency" that it speaks of, as agency is a civil law matter governed by the Civil
Code. Thus, at the very least, three sets of laws namely, the Insurance Code, the Labor Code
and the Civil Code have to be considered in looking at the present case.
Under the general law on agency as applied to insurance, an agency must be express
in light of the need for a license and for the designation by the insurance company. In the
present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s
insurance agent. This agreement is supplemented by the company’s agency practices and
usages, duly accepted by the agent in carrying out the agency. By authority of the Insurance
Code, an insurance agency is for compensation, a matter the Civil Code Rules on Agency
presumes in the absence of proof to the contrary. Other than the compensation, the
principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for
the execution of the agency. By implication at least under Article 1994 of the Civil Code, the
principal can appoint two or more agents to carry out the same assigned tasks, based
necessarily on the specific instructions and directives given to them.
By the Agreement’s express terms, Tongko served as an "insurance agent" for
Manulife, not as an employee. Significantly, evidence shows that Tongko’s role as an
insurance agent never changed during his relationship with Manulife. If changes occurred
at all, the changes did not appear to be in the nature of their core relationship. Tongko
essentially remained an agent, but moved up in this role through Manulife’s recognition
that he could use other agents approved by Manulife, but operating under his guidance and
in whose commissions he had a share.
There is a difference between the Labor Code concept of “control” and the “control”
that must necessarily exist in a principal-agent relationship. The high court stated that “the
principal cannot but also have his or her say in directing the course of the principal-agent
relationship, especially in cases where the company-representative relationship in the
insurance industry is an agency.”

Therefore, the sufficiency of Tongko’s failure to comply with the guidelines of de

Dios letter, as a ground for termination of Tongko’s agency, is a matter that the labor
tribunals cannot rule upon in the absence of an employer-employee relationship.
Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency
and contracts.

VI. True or False

1. False PD 612
2. False A contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.

3. False Insurance contract is a nominate contract

4. True The insured is subject to a risk of loss through the destruction
or impairment of that interest by the happening of designated perils
5. False enforceable between the insurer and the insured
6. False It requires good faith between the parties.
7. False future contingent
8. True The insured who has insurable interest over a property is
entitled to recover the amount of actual loss sustained and the burden is upon him to
establish the amount of such loss
9. False He must have capacity to contract, must possess an insurable
interest in the subject of the insurance and must not be a public enemy.
10. False the mortgagor can insure the mortgaged property even if the
mortgagee has already insured the same
11. False the mortgage extends to the natural accessions, to the
improvements, growing fruits and the rents or income not yet received when the obligation
becomes due.
12. True As owner has an insurable interest therein to the extent of its
value, even though the mortgage debt equals such value. The reason is that the loss or
destruction of the property insured will not extinguish the mortgage debt.
13. False they are not obliged to support each other
14. True Must exist at the time the policy takes effect and exist at the
time of loss when the loss occurs.
15. True There is no limit in the amount the insured can insure his life
except in a creditor-debtor relationship where the creditor insures the life of his debtor,
the limit of insurable interest is equal to the amount of the debt.
16. False this the general rule however, there are certain exceptions
17. False insurance by way of gambling is void
18. False a neglect to communicate that which a party knows and ought
to communicate
19. True Sec. 27 clearly provides that, “the concealment whether
intentional or unintentional entitles the injured party to rescind the contract of insurance.”
20. True Sec. 27 clearly provides that, “the concealment whether
intentional or unintentional entitles the injured party to rescind the contract of insurance.”