Insurance Law Reviewer

[REVIEWER IN INSURANCE] 2011
PUP COLLEGE OF LAW

2011 BAR REVIEWER
INSURANCE
I. INTRODUCTION
A. Principle behind insurance
Insurance is based upon the principle of aiding another from a loss caused by an
unfortunate event.
B. Laws Governing Insurance

1. Insurance Code of 1978 (PD 1460, as amended). The Insurance Code
primarily governs the different types of insurance contracts and those
engaged in insurance business in the Philippines.
2. Civil Code - The provisions of the Civil Code dealing on insurance are found
in articles 739 and 2012 (void donations), Article 2011 (appli-cability of the
Civil Code), Articles 2021-2027 (life annuity contracts), Article 2186
(compulsory motor vehicle liability insurance), and Arti-cle 2207 (right of
subrogation).
3. Special laws
a. Revised GSIS Act of 1977 (PD 1146, as amended)
b. Social Security Act of 1954 ( RA 1161, (as amended)
c. The Property Insurance Law ( RA 656, as amended by PD 245)
d. Republic Act No. 4898 (life, disability, and accident insurance
coverage to barangay officials)
e. EO 250; and
f. RA 3591 (PDIC)
C. Construing the provisions of the Insurance Code

Since our present IC is based mainly on the Insurance Act, which in turn was taken
verbatim from the law of California (except for Chapter V, which was taken from the
law of NY), the courts should follow in fundamental points, at least, the construction
placed by California Courts on California law (and the construction placed by the NY
Courts on NY law). This is in accordance with the well settled rule in statutory
construction that when a statute has been adopted from some other state or country,
and said statute has previously been construed by the courts of such state or
country, the statute is usually deemed to have been adopted with the construction so
given.
1. Where there is Ambiguity or Doubt

 General rule: contracts of insurance are to be construed liberally in favor of
the insured and strictly against the insurer resolving all ambiguities against
the latter, so as to effect its dominant purpose of indemnity or payment to the
insured, especially were a forfeiture is involved or liability on the part of the
insured

2. Where Terms are Clear
 The court is bound to adhere to the insurance contract as the authentic
expression of the intention of the parties, and it must be construed and
enforced according to the sense and meaning of the terms which the parties
themselves have used.
Leah P. Javier, Pup College Of Law | 1

3. Literal or Strict Interpretation
First Quezon City Insurance vs. CA

Held: The insurance company’s liability should be limited to P12,000 only. The
insurance policy clearly placed the maximum limit of First Quezon City’s liability for
damages arising from death or bodily at P12,000 per passenger and its maximum
liability per accident at P50,000. This means that the insurer’s maximum liability for
any single accident will not exceed 50K regardless of the number of the
passengers killed or injured.
Ty vs. First National

Held: The insurance company is not liable to indemnify Ty. We cannot go beyond
the clear and express conditions of the insurance policies, all of which define partial
disability as loss of either hand by “amputation through the bones of the wrist”
There was no amputation in this case. The agreement contained in the insurance
policies is the law between the parties. An interpretation that would include the
mere fracture or other temporary disability not covered by the policies would
certainly be unwarranted.
Misamis Lumber vs. Capital Inc.

Held: The insurance company is not liable for the payment of the repairs in excess
of P150. The insurance policy stipulated in paragraph 4 that if the insured
authorizes the repair, the liability of the insurer is limited to P150. The literal
meaning of this stipulation must control, it being the actual contract, expressly and
plainly provided for in the policy. The policy also drew out not only the limits of the
insurer’s liability but also the mechanics that the insured had to follow to be entitled
to full indemnity of repairs. The option to undertake the repairs is accorded to the
insurance company per paragraph 2. The said company was deprived of the option
because the insured took it upon itself to have the repairs made, and only notified
the insurer when the repairs were done. As a consequence, paragraph 4, which
limits the company’s liability to P150 applies.
Sun Insurance vs. CA

Held: The 12-month prescriptive period commenced upon receipt by Tan of the
rejection/denial of his claim by Sun Insurance and does not stop upon filing of the
motion for reconsideration. The words of the provisions in the insurance policy is
clear and free from any doubt or ambiguity whatsoever and thus must be taken and
understood in its plain, ordinary and popular sense.
Fortune Insurance vs. CA

Held: The insurance company is not liable. It is clear that insofar as Fortune is
concerned, it was its intention to exclude and exempt from protection and coverage
losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to the bank’s money or payroll. When it used the term
“employee,” it must have in mind any person who qualifies as such as generally
and equivocally understood, or jurisprudentially established in light of the
determination of the ER-EE relationship. It is settled that the terms of the policy
constitute the measure of the insurer’s liability. In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as

individuals to limit their liability and to impose whatever conditions they deem best
upon their obligations not inconsistent with public policy
4. Liberal Interpretation; Reasonable Expectations
Fieldman’s Inc. vs. Vda. De Songco

Held: Doctrine of estoppel applies. After leading Songco to believe that he could
qualify under the common carrier policy and to enter into the contract of insurance
paying the premiums due, Fieldmen’s cannot be permitted to change its stand.
Also, except for the fact that the victims were not fare-paying passengers, their
status as beneficiaries under the policy is recognized. Even assuming there was an
ambiguity, ambiguities or obscurities must be strictly interpreted against the party
that caused them. This rigid application of the rule of ambiguities has become
necessary in view of current business practices.
Western Guaranty vs. CA

Held: The Schedule of Indemnities does not purport to limit or exhaustively
enumerate the species of bodily injury to the list found in the Schedule of
Indemnities since an accident may result to an injury to internal organs not
necessarily to a loss of limb (amputation of the leg, arm, finger, hand) but such
injuries are certainly covered by the Master Plan since they constituted bodily
injuries. Also, the Schedule of Indemnities also does not purport to restrict the kind
of damages that may be paid by the insurer once liability has arisen, under the
Liability to Third Party clause, and does not say that the limit is subject to the list
indicated in the Schedule of Indemnities. All other types of damages may be
awarded against the insurer once liability is shown to have arisen. A contract of
insurance is a contract of adhesion and must be construed strictly against the party
which prepared the contract.
Qua Chee Gan vs. Law Union

Held: When the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather than to
have deceived the insured into thinking he is insured when in fact he is not, and to
have taken his money without consideration. The insurance company is liable on
the insurance contract.
Geagonia vs. CA
Held: It is a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person
claiming, will be avoided, if it is possible to construe the policy in a manner which
would permit recovery, as, for example, by finding a waiver for such forfeiture.
Provisions, conditions or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are
intended to operate.
Sun Insurance vs. CA

Held: The definition of an accident is “an event which happens without any human
agency or, if happening through human agency, an event which under the
circumstances, is unusual to and not expected by the person to whom it
happens…” Contrary to the contention of Sun Insurance, Lim did not intentionally
expose himself to danger, as testified by his secretary, he removed the magazine
of the gun to ensure that it

would not fire and pointed it to his temple in the belief that it is safe to do so.
Rizal Surety vs. CA

Held: The annex building and the contents are covered under the policy. The so
called “annex” formed an integral and inseparable part of the four-span building. It
was a permanent structure which adjoined the 4-storey building described in the
policy and consequently, the things stored therein were covered by the insurer.
Considering that the annex was already existing when the insurance policy was
contracted, Rizal should have specifically excluded it from the coverage of the fire
insurance if it wanted to but it did not. Doubt should be resolved against Rizal who
drafted the insurance policy contract. This is because the insured usually has no
voice in the selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest of the insurance
companies.
II. THE CONTRACT OF INSURANCE
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another
against loss, damages or liability arising from an unknown or contingent event
A. “Doing an Insurance Business”

  Making or proposing to make, as insurer, any insurance contract
 Making or proposing to make, as surety, any contract of surety ship as a
 vocation
 Doing any king of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business with the
 meaning of this Code
 Doing or proposing to do any business in substance equivalent to any of the
foregoing

B. Elements of an Insurance Contract (I-R-A-P-S)
1. Insurable interest
 In general, a person is deemed to have insurable interest in the subject
matter insured where he has a relation or connection with or concerning it
that he will derive pecuniary benefit or advantage from its preservation and
will suffer pecuniary loss or damage from its destruction, termination or injury
by the happening of the event insured against.


2. Risk of Loss or Damage / Designated Peril as Cause
 The happening of the designated events, either unknown or contingent, past
or future, will subject such interest to some loss, whether in the form of injury,
damage, or liability

3. Assumption of Risk
 The insurer assumes the risk to indemnify the insured in case of loss
3. Payment of Premium

 The insurer undertakes to assume the risk of such a loss for a

consideration called the premium to be paid by the insured
4. Risk-Distributing Scheme
 This assumption of risk is part of a general scheme to distribute the loss
among a large number of persons exposed to similar risks
III. CHARACTERISTICS OF INSURANCE CONTRACTS

1. Consensual
  Perfected by the meeting of the minds of the parties
 If an application for insurance has not been either accepted or
rejected, there is no contract as yet

2. Voluntary
 It is not compulsory and the parties may incorporate such terms and
conditions as they may deem convenient which will be binding provided they
do not contravene any provision of law and are not opposed to public policy

o Except if compulsory insurance coverage is required by law


3. Aleatory
  It depends upon some contingent event
  Each party must take a risk
o Insurer - being compelled upon the happening of the contingency, to
 pay the entire sum agreed upon
o Insured – parting with the amount required as premium without
receiving anything in case the contingency does not happen except what
is ordinarily termed “protection” which is itself is a valuable consideration


4. Executory (insurer) and executed (insured)
 Executory on the part of the insurer in the sense that it is not executed until
 payment for a loss
  It is executed as to the insured after payment of the premium
 It is a unilateral contract imposing legal duties only on the insurer who
promises to indemnify in case of loss

5. Conditional
 It is subject to conditions the principal one of which is the happening of the
 event insured against
 The contract usually includes many other conditions, such as payment of
premium or performance of some other act, which must be complied with as
precedent to the right of the insured to claim benefit under it


6. A contract of indemnity
 The promise of the insurer is to make good only the loss of the insured
o Except life insurance where the liability of insurer is the

face value of the policy and not the earning capacity of the insured at the
time of death

7. A personal contract
 Each party having in view the credit, character and conduct of another


8. A contract of Adhesion
 Policy is presented to the insured already in its printed form

9. Of highest degree of good faith (uberrimae fides contract)
 The contract of insurance is one of perfect good faith not for the insured
alone but equally so for the insurer. It requires the parties to the contract to
disclose conditions affecting the risk of which he is aware or material fact
which the applicant knows, and those which he ought to know.
IV. CLASSES OF INSURANCE CONTRACTS

1. Life - a mutual agreement by which a party agrees to pay a given sum on the
happening of a particular event contingent on the duration of human life, in
consideration of the payment of a smaller sum immediately, or in periodical
payments by the other party
a) Individual life - insurance on human lives and insurance appertaining

thereto or connected therewith.
b) Group Life – a blanket insurance covering a number of individuals
c) Industrial Life – a form of life insurance under which the premiums are
payable either monthly or oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of the current statutory
minimum daily wage in the City of Manila, and if the words "industrial policy"
are printed upon the policy as part of the descriptive matter.
Variations in Life Insurance Contracts
a) Whole life plan

 The terms of which the insured is required to pay a certain fixed premium
annually or at more frequent intervals throughout life and the beneficiary
is entitled to receive payment under the policy only after the death of the
insured

b) Limited payment plan
 The terms of which the premiums are payable only during a limited
period of years, usually ten, fifteen, or twenty

c) Term plan
 It is an insurance for a fixed or a specific term, such as two, five, or
 ten years
 If the insured dies within the period specified, the policy is paid to the
beneficiary; if he survives the period, the contract terminates


d) Pure endowment plan

 Insured pays premium for a specified period and should he survive

the period, the insurance company pays him the face value of the policy

 If he should die within the period the insurance company is released
from any liability and unless provided in the contract, need not reimburse
any part of the premiums paid

e) Endowment plan
 The terms of which the insurer binds himself to pay a fixed sum to
the insured if he survives for a specified period (maturity date stated in
the policy), or if he dies within such period, to some other person
 indicated
 The premium is higher because the cash values of the policy grow
more rapidly.
Mortgage Redemption Insurance

A life insurance taken pursuant to a group mortgage redemption scheme by the
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 mortgage indebtedness such that if the mortgagor dies, the proceeds of his
life insurance will be used to pay for his indebtedness to the lender assured and
the deceased’s heirs will thereby be relieved from paying the unpaid balance of
the loan. (Great Pacific Life Assurance Corp. vs. Court of Appeals,
2. Non-life – includes policies covering risks to which property may be exposed, as

well as those which cover the risk of liability to third persons. It covers a specified
period of time (not more than 1 year) and has a definite period of coverage.
a) Marine
 Ocean marine insurance – insurance against risk connected with
navigation, to which a ship, cargo, freightage, profits or other insurable
interest in movable property, may be exposed during a certain voyage or
a fixed period of time

 Inland marine insurance – covers primarily the land or over the land
transportation perils of property shipped by railroads, motor trucks,
airplanes, and other means of transportation. It also covers risks of lake,
river, or other inland waterway transportation and other waterborne perils
outside of those risks that fall definitely within the ocean marine category


b) Fire – insurance against loss by fire, lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension
to fire insurance policies or under separate policies
c) Casualty or Liability Insurance - insurance covering loss or liability arising

from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of other types
of insurance such as fire or marine
3) Suretyship – a contract of suretyship is an agreement whereby a party called

the surety guarantees the performance by another party called

the principal or obligor of an obligation or undertaking in favor of a third party

called the obligee.
V. INSURABLE INTEREST
A. Definition and Purpose
A person is said to have an insurable interest in the subject matter insured where
he has a relation or connection with, or concern in it that he will derive pecuniary
benefit or advantage from its preservation and will suffer pecuniary loss or
damage from its destruction, termination, or injury by the happening of the event
insured against.
  Essential element of an insurance contract.
  Not legally possible to waive requirement
  Developed to meet two objections:
1) That insurance is a wagering contract
2) That insurance creates the temptation of bringing about the event
insured against in order to collect the policy
B. Insurable Interest in Life and Health Insurance

 Every person has an insurable interest in the life and health: a. of
himself, of his spouse and of his children;
b. of any person on whom he depends wholly or in part for
education or support;
c. of any person under a legal obligation to him to pay money or respecting
property or services, of which death or illness might delay or prevent
performance; and
d. of any person upon whose life any estate or interest vested in him
depends. (Sec. 10)
 When it should exist: When the insurance takes effect; not thereafter
or when the loss occurs.

 Amount:
o GENERAL RULE: There is no limit in the amount the insured can
insure his life.
o EXCEPTION: 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.
 If at the time of the death of the debtor the whole debt has already
been paid, the creditor can no longer recover on the policy because the
principle of indemnity applies.

C. Insurable Interest in Property Insurance
 Every interest in property whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that the contemplated peril
might directly damnify the insured (Sec. 13), which may consist in:
1. an existing interest;
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with an existing interest in that out of which the
expectancy arises. (Sec. 14)

 When it should exist: When the insurance takes effect and when the loss occurs,
 but need not exist in the meantime.
 Amount: The measure of insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN

PROPERTY
Must exist only at the time the Must exist at the time the policy takes
policy takes effect and need not effect and when the loss occurs
exist at the time of loss
Unlimited except in life insurance Limited to actual value of interest in

effected by creditor on life of property insured.
debtor.
The expectation of benefit to be An expectation of a benefit to be

derived from the continued derived from the continued existence
existence of life need not have any of the property insured must have a
legal basis whatever. A reasonable legal basis.
probability is sufficient without
more.
The beneficiary need not have an The beneficiary must have insurable
insurable interest over the life of interest over the thing insured.
the insured if the insured himself
secured the policy. However, if the
life insurance was obtained by the
beneficiary, the latter must have
insurable interest over the life of the
insured.
D. Special Cases
1. In case of a carrier or depositary

A carrier or depository of any kind has an insurable interest in a thing held by him
as such, to the extent of his liability but not to exceed the value thereof (Sec. 15)
2. In case of a mortgaged property

The mortgagor and mortgagee each have an insurable interest in the property
mortgaged and this interest is separate and distinct from the other.
a. Mortgagor – 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.
b. Mortgagee – His interest is only up to the extent of the debt. Such interest
continues until the mortgage debt is extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee
over his merchandise, and the provision in the lease contract providing for such
automatic assignment is void for being contrary to law and public policy. (Cha vs.
Court of Appeals, 227 SCRA 690)
STANDARD OR UNION MORTGAGE CLAUSE OPEN OR LOSS PAYABLE MORTGAGE CLAUSE

Subsequent acts of the mortgagor cannot Acts of the mortgagor affect the mortgagee.
affect the rights of the assignee Reason: Mortgagor does not cease to be a
party to the contract.
 Effects of Loss Payable Clause

a. The contract is deemed to be upon the interest of the mortgagor; hence, he
does not cease to be a party to the contract.
b. Any act of the mortgagor prior to the loss, which would otherwise avoid the
insurance affects the mortgagee even if the property is in the hands of the
mortgagee.
c. Any act, which under the contract of insurance is to be performed by the
mortgagor, may be performed by the mortgagee with the same effect.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his
credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is
extinguished.
In case a mortgagee insures his own interest and a loss occurs, he is entitled to
the proceeds of the insurance but he is not allowed to retain his claim against
the mortgagor as the claim is discharged but it passes by subrogation to the
insurer to the extent of the money paid by
E. Several interests
DOUBLE INSURANCE
 Double insurance exists where the same person is insured by several
insurers separately in respect in the same subject and interest. 

  Effects of double insurance:
1. The insured, unless the policy otherwise provides, may claim
payment from the insurers in such order as he may select, up to the
amount for which the insurers are severally liable under their respective
contracts;
2. Where the policy under which the insured claims is a valued policy,
the insured must give credit as against the valuation for any sum received
by him under any other policy without regard to the actual value of the
subject matter insured;
3. Where the policy under which the insured claims is an unvalued

policy he must give credit, as against the full insurable value, for any sum
received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in

the case of valued policies, or of the insurable value in the case of
unvalued policies, he must hold such sum in trust for the insurers,
according to their right of contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers,

to contribute ratably to the loss in proportion to the amount for which he is
liable under his contract.
OVER INSURANCE
 Over Insurance exists when amount insured is over the value of the
property insured

o The insured may claim payment from the insurers in such order as
he may select, up to the amount for which the insurers are severally
liable under their respective contracts.
o Valued policy – the insured must give credit as against the valuation
for any sum received by him under any other policy without regard to the
actual value of the subject matter insured.
o Unvalued policy – he must give credit, as against the full insurable
value, for any sum received by him under any policy
o Insured receives any sum in excess – he must hold such sum in trust
for the insurers, according to their right of contribution among
themselves.
o Each insurer is bound as between himself and the other insurers, to
contribute RATABLY to the loss in proportion to the amount for which he
is liable under the contract.
o Cannot get above value of property minus that of proceeds from
other policies
o Cannot be more than loss because that would be wagering
When a policy contains a prohibition against additional insurance on the property

insured without the insurer’s consent, such provision being valid and reasonable,
a violation thereof by the insured avoids the policy. (Sta. Ana vs. Commercial
Union Assurance Co. 55 Phil 329).
REINSURANCE is a contract by which the insurer procures a third person to

insure him against loss or liability by reason of an original insurance (also known
as “Reinsurance Cession”).
In every reinsurance, the original contract of insurance and the contract of

reinsurance are covered by separate policies.
DOUBLE INSURANCE REINSURANCE
Involves the same interest Involves different interest
Insurer remains in such capacity Insurer becomes the insured in

relation to reinsurer
Insured is the party in interest in Original insured has no interest in the

the 2 reinsurance contract
contracts
Subject of insurance is property Subject of insurance is the original

insurer’s risk
Insured has to give his consent Insured’s consent not necessary
Reinsurance treaty – Merely an agreement between two insurance companies

whereby one agrees to cede and the other to accept reinsurance business
pursuant to provisions specified in the treaty.
(Prof. De Leon)
Automatic reinsurance – The reinsured is bound to cede and the reinsurer is

obligated to accept a fixed share of the risk which has to be reinsured under the
contract. (Prof. De Leon)

Facultative reinsurance – There is no obligation to cede or accept participation in

the risk each party having a free choice. But once the share is accepted, the
obligation is absolute and the liability thereunder can be discharged only by
payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4
SCRA 343)
Retrocession – A transaction whereby the reinsurer in turn, passes to another

insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance.
(Prof. De Leon)
F. Change of interest in the thing insured

 The mere (absolute) transfer of the thing insured does not transfer the policy,
but suspends it until the same person becomes the owner of both the policy
and the thing insured. (Reason: Insurance contract is personal)


 General rule: A change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance
suspends the insurance to an equivalent extent, until the interests in the thing
and the interest in the insurance are vested in the same person. (Sec. 20) 


 Exceptions:
1. In life, health and accident insurance.(Sec. 20);
2. Change in interest in the thing insured after occurrence of an injury which
results in a loss. (Sec. 21);
3. Change in interest in one or more of several distinct things separately
insured by one policy. (Sec. 22);
4. Change of interest, by will or succession, on the death of the insured.
(Sec. 23);
5. Transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to others. (Sec. 24);
6. When a policy is so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest
insured. (Sec. 57);
7. When there is an express prohibition against alienation in the policy, in
case of alienation, the contract of insurance is not merely suspended but
avoided. (Art. 1306, NCC).
VI. PERFECTION OF THE CONTRACT OF INSURANCE

An insurance contract is a consensual contract and is therefore perfected the
moment there is a meeting of minds with respect to the object and the cause or
consideration.
What is being followed in insurance contracts is what is known as the “cognition

theory”. Thus, “an acceptance made by letter shall not bind the person making the
offer except from the time it came to his knowledge”. (Enriquez vs. Sun Life
Assurance Co. of Canada, 41 Phil. 269)
A. Definitions
1. Policy of insurance - the written instrument in which a contract of insurance is
set forth.

2. Binding Receipt - a mere acknowledgment on behalf of the company that its

branch office had received from the applicant the insurance premium and had
accepted the application subject to processing by the head office.
3. Cover Note (Ad Interim) - a concise and temporary written contract issued to
the insurer through its duly authorized agent embodying the principal terms of an
expected policy of insurance.
 Purpose: It is intended to give temporary insurance protection coverage to
the applicant pending the acceptance or rejection of his application.

 Duration: Not exceeding 60 days unless a longer period is approved by
Insurance Commissioner (Sec. 52).
5. Riders - printed stipulations usually attached to the policy because they

constitute additional stipulations between the parties. (Ang Giok Chip vs.
Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the
rider prevails, as being a more deliberate expression of the agreement of the
contracting parties. (C. Alvendia, The Law of
Insurance in the Philippines, 1968 ed.)
  For the rider to be binding:

o Must be attached/pasted to the policy
o Descriptive title or name of the rider, clause, warranty, or
endorsement is mentioned and written on the blank spaces provided in
 the policy
o Countersigned by insured

 General Rule: Not necessary if rider attached to the policy when issued. 

Exception: Necessary when added AFTER policy is issued. REASON: To
prevent an insurer from adding or inserting provisions w/o the consent of the
insured.

6. Clauses - an agreement between the insurer and the insured on certain matter
relating to the liability of the insurer in case of loss. (Prof. De
Leon, p.188)
7. Endorsements - Any provision added to the contract altering its scope or

application.
B. Offer and Acceptance; consensuality

 Submission of application, even w/ payment is a mere offer on the part of the
 applicant, it does not bind the insurer.
 Approval of the application by the insurer is necessary to perfect contract. If
made:
o w/ payment of premium – policy becomes effective o w/o
payment – effective upon payment of premium

 Delay in Acceptance; Tort Theory
Situation where applicant submits application for insurance, but due to
negligence of company, w/c takes an unreasonably long time

before processing the application, the applicant dies before the application is
processed, thus, the contract is not perfected.
 Remedy: Insurer liable for damages (Tort Theory) in the amount of the
face value of the policy, w/c is given to the estate of the deceased
applicant. (not to beneficiary because contract not perfected. Also, no
contractual liability also because there is no contact) 


C. Basic contents of a policy
1. Parties
2. Amount of insurance, except in open or running policies;
3. Amount of premium;
4. Property or the life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. The period during which the insurance is to continue
D. Delivery of the Policy - the act of putting the insurance policy – the physical
document – into the possession of the insured.
 Constructive delivery is sufficient.
 WoN policy was delivered after its issuance depends not upon manual
possession by the insured but rather upon the intention of the parties as
manifested in their acts or agreements.
 Effect of Delivery:
1) Where delivery is conditional – Non-performance of Condition precedent
prevents contract from taking effect
2) Where delivery is unconditional – Delivery corresponding terms of
application consummates the contract and policy delivered becomes final
contract bet the parties
3) Where premium still unpaid after unconditional delivery – Policy will
lapse if premium unpaid at time and manner specified in the policy, in the
absence of any clear agreement that insurer will extend credit.
Perez v CA
Facts: Perez, already previously insured with BF Lifeman Insurance Co. applied for
additional coverage. He paid premium and was issued a receipt by the agent of BF
Lifeman. However, he died before his application papers were transmitted to the
head office of BF Lifeman. Was the insurance policy was perfected?
Held: No. There was no acceptance of the offer. The perfection of the contract was
conditioned upon compliance with the provision in the application form w/c stated that
perfection only lies when the applicant pays and the premium and receives and
accepts the policy while still in good health. Thus, the assent of BF Life was not given
when it merely received the application form of Perez in its provincial office. Also,
delivery to Perez would be impossible as he is already dead. So long as an
application for insurance has not been accepted or rejected by the insurer, it is
merely an offer or proposal to make a contract. The contract to be binding from date
of application must have been a completed contract that leaves nothing to be done,
passed upon or determined, before it shall take effect.
Vda. De Sindayen v Insular Life Assurance Co.

Facts: Sindayen partially paid his agent the first premium for a life insurance policy.
Agent and Sindayen agreed that policy, when and if issued, should be delivered to
Sindayen’s aunt who will complete the payment of the first annual premium. Jan. 16,
1933 – agent received approved policy and delivered it to Sindayen’s aunt on Jan.
18. However, before the policy was given to Sindayen himself, he died on Jan. 19.
Should Insular Life assume the risk covered by Sindayen’s policy
Held: YES. Delivery to the insured in person is not necessary, and may be made by
mail or duly constituted agent (in this case, Sindayen’s aunt). Insurance company is
bound by the acts of its agent. In this case, the agent is not a mere automaton and is
vested w/ some discretion in deciding WON the condition as to the health of the
applicant has been complied with. Once he decides that it has and delivers the
policy, then, in the absence of fraud, the insurance company is estopped from
claiming the policy has no effect.
Enriquez v Sun Life Assurance Co.

Facts: Herrer applied for insurance and paid the premium, however, he died before
he received the notice of acceptance (of his application) sent by Sun Life from its
Montreal head office. Was the insurance contract perfected w/o the notice of
acceptance coming to the knowledge of the applicant
Held: NO. Under the Civil Code, consent is shown by the concurrence of offer and
acceptance. An acceptance shall not bind the person making the offer except from
the time it came to his knowledge.
E. Contents of policy
1. Parties
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.
F. Form of policy
 The policy is different from the contract itself. The policy is not essential to
the validity of the contract as long as all the essential elements for the existence of
contract are present.

 The Insurance Code does not require a particular form for the validity of the
contract, but requires form for policy:
o Shall be in printed form but group insurance and group annuity
policies, however, may be typewritten and need not be in printed form 


 Warranty – inserted or attached to a policy to eliminate specific potential
increases of hazard during the policy term owing to: 1) actions of the insured
or 2) condition of the property.

 Clause – an agreement between the insurer and the insured on certain
matters relating to the liability of the insurer in case of loss. 

 Endorsement – any provision added to an insurance contract altering its

scope or application. Ex. Endorsements extending the perils covered. Most
times, they are merely typewritten additions to the contract, changing its
amount, rate, or term.

G. Kinds of Insurance Policy
1. Open or Unvalued Policy - one in which a certain agree sum is written
on the face of the policy not as the value of the property insured, but as the
maximum limit of the insurer’s liability (i.e. face value) in case of destruction
by the peril insured against.
2. Valued Policy – one in which the parties expressly agree on the value of
the subject matter of the insurance.
3. Running Policy - intended to provide indemnity for property w/c cannot

well be covered by a valued policy because of its frequent change of location
and quantity, or for property of such a nature as not to admit of a gross
valuation. Also denotes insurance over a class of property rather than any
particular thing. Ex. Insurance over constantly changing stock of goods
VII. PARTIES TO AN INSURANCE CONTRACT

Essential Requisites for a person to be a party in an insurance contract:
1. Must be COMPETENT to enter (has capacity)
2. Must possess INSURABLE INTEREST
3. Must NOT be a PUBLIC ENEMY
A. Insurer
 party who assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured or to pay him a certain sum on the
happening of a specified contingency or event
 For a person to be called an insurance agent, it is necessary that he should
perform the function for compensation. (Aisporna vs. CA, 113 SCRA 459)
B. Insured
 The party in whose favor the contract is operative and who is indemnified
against, or is to receive a certain sum upon the happening of a specified
contingency or event. He is the person whose loss is the occasion for the
payment of the proceeds by the insurer
 Must have capacity to contract
 Must possess an insurable interest in the subject of the insurance
 Must not be a public enemy.

Public enemy - a nation with whom the Philippines is at war and it includes
every citizen or subject of such nation.
o a private corporation may be deemed an enemy corporation if
controlled by enemy aliens.

C. Beneficiaries
 Refer to the persons who are designated in a contract of insurance as
the one who is to receive the benefits which become payable, according to
the terms of the contract, upon the death of the insured.

 Chosen exclusively by insured who may designate anyone (irrespective
of lack of insurable interest) so long as s/he not disqualified by law.

 Proceeds of life insurance policy become the exclusive property of the
beneficiary upon the death of the insured.
  Cestui que vie
- Person on whose life the policy was taken.
- Must be a risk acceptable to the insurer
Art. 2012 (Civil Code) Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance policy by the
person who cannot make any donation to him, according to said article. (n)
D. Rules in the designation of the beneficiary:

1. Life
a) A person who insures his own life can designate any person as his
beneficiary, whether or not the beneficiary has an insurable interest in the life
of the insured subject to the limitations under Art. 739 and Art. 2012 of the
NCC.
 Reason: in essence, a life insurance policy is no different form a civil
donation insofar as the beneficiary is concerned. Both are founded on
the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA
181)

b) A person who insures the life of another person and name himself as
the beneficiary must have an insurable interest in such life. (Sec. 10)
c) As a general rule, the designation of a beneficiary is revocable

unless the insured expressly waived the right to revoke in the policy. (Sec.
11)
d) The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary is the principal accomplice or accessory in
willfully bringing about the death of the insured in which event, the nearest
relative of the insured shall receive the proceeds of said insurance if not
otherwise disqualified. (Sec. 12)
2. Property
a) The beneficiary of property insurance must have an insurable interest in such
property, which must exist not only at the time the policy takes effect but also
when the loss occurs. (Sec. 13 and 18).
F. Effects of Irrevocable Designation of beneficiary Insured

cannot:
1. Assign the policy
2. Take the cash surrender value of the policy
3. Allow his creditors to attach or execute on the policy;
4. Add new beneficiary; or

5. Change the irrevocable designation to revocable, even though the change is

just and reasonable.
 The insured does not even retain the power to destroy the contract
by refusing to pay the premiums for the beneficiary can protect his
interest by paying such premiums for he has an interest in the fulfillment
of the obligation.
Life Insurance is paid to whoever is named the beneficiary and may not
necessarily be the heir of the insured. Retirement benefits on the other hand, are
primarily intended for the benefit of the employee – to provide for his old age,
incapacity, etc. If the employee reaches the age retirement, he gets the benefits
even to the exclusion of the beneficiary named in the policy. The beneficiary of the
retirement insurance can only claim the proceeds of the retirement insurance if the
employee dies before retirement. IF there is no beneficiary designated in the
policy, benefits will accrue to the estate. (Vda. de Consuegra v GSIS)
If the premiums paid came from conjugal funds, the proceeds are considered
conjugal. If the beneficiary is other than the insured’s estate, the source of
premiums would not be relevant. (Del Val v. Del Val, 29
VIII. RISK
A. What may be insured against:
1. Future contingent event resulting in loss or damage – Ex. Possible future fire
2. Past unknown event resulting in loss or damage – Ex. Fact of past sinking of
a vessel unknown to the parties
3. Contingent liability – Ex. Reinsurance
B. Liability of insurer in certain causes of death of insured

1. Suicide
Insurer is liable in the following cases:
1. If committed after two years from the date of the policy’s issue or its
last reinstatement;
2. If committed in a state of insanity regardless of the date of the
commission unless suicide is an excepted peril. (Sec. 180-A)
3. If committed after a shorter period provided in the policy , any
stipulation extending the 2-year period is null and void.
2. At the hands of the law (E.g. by legal execution)

It is one of the risks assumed by the insurer under a life insurance policy in
the absence of a valid policy exception. (Vance,p.572 cited in de Leon, p.
107)
3. Killing by the beneficiary

GENERAL RULE: The interest of a beneficiary in a life insurance policy shall
be forfeited when the beneficiary is the principal accomplice or accessory in
willfully bringing about the death of the insured, in which event, the nearest
relative of the insured shall

receive the proceeds of said insurance if not otherwise disqualified.

(Sec. 12)
Exceptions:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured
IX. PREMIUM PAYMENTS
 Premium - consideration paid an insurer for undertaking to

 indemnify the insured against a specified peril.
 General rule: No policy issued by an insurance company is valid and
binding until actual payment of premium. Any agreement to the contrary is
 void. (Sec. 77)
 Except:
1. In case of life or industrial life insurance, when the grace periods applies;
(Sec. 77)
2. When the insurer makes a written acknowledgment of the receipt
premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the
premium in installments and partial payment has been made at the time
of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) 

4. Where a credit term has been agreed upon. (UCPB vs. Masagana
Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart,
356 SCRA 307)

 Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive
evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid. (Sec. 78)

 Entitlement of insured to return of premiums paid 
1. Whole:
a. If the thing insured was never exposed to the risks insured against; (Sec.
79)
b. If contract is voidable due to the fraud or misrepresentation of insurer or
his agents; (Sec. 81)
c. If contract is voidable because of the existence of facts of which the
insured was ignorant without his fault; (Sec. 81)
d. When by any default of the insured other than actual fraud, the insurer
never incurred liability; (Sec. 81)
e. When rescission is granted due to the insurer’s breach of
contract. (Sec. 74)
2. Pro rata:
a. When the insurance is for a definite period and the insured
surrenders his policy before the termination thereof, except:
opolicy not made for a definite period of time
oshort period rate is agreed upon
olife insurance policy
b. When there is over-insurance (Sec. 82);

3. Not recoverable:
a. When the risk has already attached and the risk is entire and
indivisible.
b. In life insurance.
c. When the contract is rescindable or rendered void ab initio by the fraud
of the insured.
d. When the contract is illegal and the parties are in pari delicto.
PREMIUM ASSESSMENT
Levied and paid to meet anticipated Collected to meet actual losses

losses
Payment is not enforceable against Payment is enforceable once
the insured levied unless otherwise agreed upon
Not a debt It becomes a debt once properly
levied unless otherwise agreed
Tibay v CA
Held: Since acceptance of partial payment is not mentioned among the exceptions
provided in Sec 77 and 78 of the Insurance Code, no policy of insurance can ever
pretend to be efficacious until premium has been fully paid. The policy contained a
condition w/c said that “The policy including any renewal thereof is not in force until
the premium has been fully paid x x x” Clearly, the Policy provides for payment of
premium in full.
Makati Tuscany v CA
Held: The policies are valid even if the premiums paid in installments because the
records clearly show that the two parties intended the policies to be binding and
effective notwithstanding the staggered payment of the premiums. The acceptance of
the installment payments over the period of 3 years speak loudly of intention of
insurer to honor the policies it issued to Makati Tuscany.
NOTE: Difference with Tibay case: In Tibay, there was an express stipulation w/c
said that payment shall be made in full. In this case, the policy was binding because
of the prior agreement to allow installment payments, hence full payment under
Sec.77 deemed waived.
UCPB Gen. Ins. v Masagana Telemart

Held There are exceptions to Sec 77:
a) The first is provided by Sec. 77 itself and that is, in case of a life or industrial
life policy whenever the grace period applies
b) Sec 78: An acknowledgment in a policy or contract of insurance of the receipt
of premium is conclusive evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid.
c) Sec. 77 may not apply if the parties have agreed to the payment in installments
of the premium and partial payment has been made at the time of the loss.
d) The insurer may grant credit extension for the payment of the premium
e) It would be unjust and inequitable if recovery on the policy would not be

permitted against UCPB, w/c consistently granted the 60-90 day

credit term for the payment of the premiums despite its full awareness of Sec.
77. Estoppel bars it from taking refuge under the action, since Masagana relied
on good faith on such a practice
C. Premium default in insurance; lapsed policy

1) Non-life
 Where contract covers a period of 1 year, there would normally be
 only one premium payment for the period.
 If parties agreed to pay in installments, and there is a failure to pay
any installment when it falls due insurer may:
- cancel policy after due notice
- compel the payment of installments
2) Life
 Contract not binding until first periodical premium payment. After first
payment, insured under no legal obligation to pay subsequent premium.
 Insurance Code grants grace period within which to pay subsequent

premiums. If policy becomes a claim during the grace period but before
overdue premium is paid, overdue may be deducted from proceeds of
policy
 Failure to pay w/in grace period = automatic
lapse
 Exception: Insured has paid three full annual
premiums. Entitled to the following options upon default:
1) Cash Surrender Value

 The amount the insured is entitled to receive if he surrenders
the policy and releases his claims upon it. It is the portion of reserve
on a life policy

2) Extended Insurance
 EFFECT: Policy continues in force from date of default, for a
period either stated or equal to the amount of the cash surrender
value, taken as a single premium, will purchase. Also called “term
 insurance.”
  Depends on availability of CSV.
 During extended period: If insured dies, beneficiary can
recover face amount of policy. Insured can also reinstate the policy
 w/in this period.
 Beyond extended period: If he survives No benefits. He
cannot even reinstate the policy by paying past premiums; has to
purchase new policy

3) Paid-up Insurance
 Amount of Insurance that the CSV, applied as a single
 premium, can purchase.
 EFFECT: Policy continues in force from date of default for
the whole period and under the same conditions of the original
contract w/o further payment of premiums. However, in case of death
of insured, he may recover only the “paid-up” value of the policy w/c
is much less than the original amount agreed upon. (In other words,
na-reduce yung original insurance contract to one with a lower value)

4) Automatic Premium Loan

 Upon default, insurer lends/ advances to the insured without
any need of application on his part, amount necessary to pay
overdue premium, but not to exceed the CSV of the policy.

 Only applies if requested in writing by the insured either in
the application or at any time before the expiration of the grace
 period.
 EFFECT: Insurance continues in force for period covered by
the payment. After period, if insured still does not resume paying his
premiums, policy lapses, unless there remains CSV.


5) Reinstatement
  Requisites:
1. exercised w/in 3 years from default
2. insured must present evidence of insurability satisfactory to
the company
3. pay all back premiums and all his indebtedness to the
insurance company
4. CSV has not been duly paid nor the extension period expired
 Effect: Does not create a new contract, merely REVIVES the

old policy. Thus, insurer cannot require higher premium than amount
stipulated in the contract.
 Required by Insurance Code for every individual and industrial life

policy
 Not required that 3 annual premiums have been paid

6) Forfeiture – Absolute forfeiture of all insured rights. Generally not
favored. Due to liberal spirit in the conduct of life insurance, insurers
instead, give the insurer the benefit of the reserve value of the policy.
X. RESCISSION
A. Grounds for rescission
1. Concealment
2. Misrepresentation
3. Breach of material warranty
4. Breach of a condition subsequent
 Waiver of the right to rescind: Acceptance of premium payments despite the

knowledge of the ground for rescission. (Sec. 45)

B. Concealment – A neglect to communicate that which a party knows and ought to
communicate (Sec. 26)
a. Requisites:
a. A party knows a fact which he neglects to communicate or disclose
to the other.

b. Such party concealing is duty bound to disclose such fact to the

other.
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact
concealed.
e. Material
b. Effects: Entitles insurer to rescind, even if the death or loss is due to

a cause not related to the concealed matter (Sec. 27).
c. Good faith is not a defense in concealment.
d. Test of Materiality: Determined not by the event, but solely by the

probable and reasonable influence of the facts upon the party to whom
the communication is due, in forming his estimate of the advantages of
the proposed contract, or in making his inquiries (Sec. 31).
Exceptions
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders

even more material the information required of the applicant concerning the
previous conditions of health and diseases suffered.
Where matters of opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid the policy even though they are untrue.
Reason: The insurer cannot rely on those statements. He must make further
inquiry. (Philamcare Health
C. Representations – Factual statements made by the insured at the time of, or

prior to, the issuance of the policy to give information to the insurer and induce
him to enter into the insurance contract. They are considered an active form of
concealment.
  Requisites of a false representation (misrepresentation):

a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to
deceive or which he states positively as true without knowing it to be true
and which has a tendency to mislead.
c. Such fact in either case is material to the risk.
  Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written.

c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not

afterwards.
e. It always refers to the date the contract goes into effect.
  Kinds
a. affirmative – affirmation of a fact when the contract begins; and

b. promissory – promise to be performed after policy was issued.
 Effect: the injured party is entitled to rescind from the time when the
representation becomes false.

 Test of Materiality: Same as that in concealment.
Where the insured merely signed the application form and made the agent of the
insurer fill the same for him, it was held that by doing so, the insured made the
agent of the insurer his own agent and he was responsible for his acts for that
purpose. (Insular Life Assurance Co.
D. Warranties – Statement or promise by the insured set forth in the policy or by

reference incorporated therein, the untruth or non-fulfillment of which in any
respect, and without reference to whether insurer was in fact prejudiced by such
untruth or non-fulfillment, renders the policy voidable by the insurer.
 Kinds
a. express – an agreement expressed in a policy whereby the insured
stipulates that certain facts relating to the risk are or shall be true, or
certain acts relating to the same subject have been or shall be done.
b. implied - it is deemed included in the contract although not

expressly m mentioned. Example: In marine insurance, seaworthiness of
the vessel.
 Effects of breach of warranty: a.

 Material
General rule: Violation of material warranty or of a material provision of a
policy will entitle the other party to rescind the contract. 

 Exceptions:
a. Loss occurs before the time of performance of the warranty.
b. The performances becomes unlawful at the place of the contract.
c. Performance becomes impossible.
b. Immaterial
General rule: It will not avoid the policy.
Exception: When the policy expressly provides or declares that a
violation thereof will avoid it. (Sec. 75)
WARRANTY REPRESENTATION
Part of the contract Mere collateral inducement

Written on the policy, actually or by May be written in the policy or may be
reference oral.
Presumed material Must be proved to be material
Must be strictly complied with Requires only substantial truth and
compliance
E. Conditions – Events signifying in its broadest sense either an occurrence or a

non-occurrence that alters the previously existing legal

relations of the parties to the contract. They may be conditions precedent or

conditions subsequent.
 Effect of breach:
a. Condition precedent – prevents the accrual of cause of action
b. Condition subsequent – avoids the policy or entitles the insurer to
rescind
F. Exceptions – Provisions that may specify excepted perils. It makes more definite
the coverage indicated by the general description of the risk by excluding certain
specified risk that otherwise would be included under the general language
describing the risks assumed.
 Effect: Limit the coverage of the contract.
Ng v Asian Crusaders
Held: Concealment exists where the insured had knowledge of a fact material to the
risk, and honesty, good faith and fair dealing requires that he should communicate it
to the insurer, but he intentionally withhold the same. The insured informed the
medical examiner that the tumor he was operated on was associated with ulcer of the
stomach. In the absence of evidence that the insured had sufficient medical
knowledge as to enable him to distinguish between “peptic ulcer” and tumor” his
statement was an expression made in good faith of his belief as to the nature of his
ailment and operation. If the operation and ailment of the insured had such an
important bearing on the assumption of risk by the insurer, it should have made
further inquiries on the matter or required copies of the hospital records before
approving the application. As provided by Section 32 where the right to material
information may be waived “…by neglect to make inquiries as to such facts where
they are distinctly implied in other facts of which information is communicated”
Canilang v CA
Held: The information the insured failed to disclose was material to the ability of the
insurer to estimate the probable risk he presented as a subject of life insurance, had
he disclosed it, it may be reasonably assumed that the insurer would have made
further inquiries and would have probably refused to issue a non-medical insurance
policy or at the very least required a higher premium for the same coverage.
Materiality is the probable and reasonable influence of the facts upon the party
to whom the communication should have been made, in assessing the risk
involved, in making or omitting to make further inquires and in accepting the
application for insurance.
Yu v CA
Held: The insured is guilty of concealment as the fact which he failed to disclose to
the insurance company deprived the respondent of the opportunity to make the
necessary inquiry as to the nature of his past illness so that it may form its estimate
relative to the approval of his application. “A neglect to communicate that which a
party knows and ought to communicate, is called concealment” and “Whether
intentional or unintentional, the concealment entitles the insurer to rescind the
contract of insurance”. Insurer is relieved from liability.
Pacific Banking v CA

Held: By reason of the unrevealed co-insurances, the insured had been guilty of a
false declaration; a clear misrepresentation and a vital one because where the
insured had been asked to reveal but did not, that was deception. Had the insurer
known that there were many co-insurers, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud. The
insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such notices
nullifies the policy.
Eguaras v Great Eastern

Held: The insured permitted fraud to be committed against the insurance company in
the fact that he allowed a healthy and robust person to substitute in his place since
he knew that he was in bad health. It is immaterial the cause of death since at the
time he applied for the insurance on his life he was affected by a malady that would
have been sufficient cause for the rejection of his application by the insurance
company. The contract of insurance is null and void because it is false, fraudulent
and illegal.
Great Pacific Life v CA (1999)

Held: GrePaLife failed to establish that the insured concealed a material fact as the
medical findings were not conclusive since the doctor who gave the testimony did not
conduct an autopsy on the insured nor had he any knowledge of insured’s previous
hospital confinements. The death certificate only stated that hypertension as
“possible cause of death”. Concealment exist where the assured had knowledge of a
fact material to the risk, and honesty, good faith and fair dealing requires that he
should communicate it to the assurer, but he intentionally withholds the same.
Fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such defense rests upon the
insurer.
Edillon v Manila Bankers Life

Held: The insurer is deemed estopped from claiming that the insured is disqualified.
She did not conceal nor misrepresent her age and the insurance corporation has
been given sufficient information to know that the insured is over 60 years of age, yet
they continued to accept the premium payment and issued her the policy.
New Life Enterprise v Court of Appeals

Held: The terms of the contract are clear and unambiguous. The insured is
specifically required to disclose to the insurer any other insurance and its particulars
which he may have effected on the same subject. The excuse of the plaintiff that the
agent of the insurance company was aware of the other insurers or that he failed to
read the terms of the policies cannot be accepted when the words and language of
the documents are clear and plain or readily understandable by an ordinary reader.
There is absolute no room for interpretation or construction and the courts are not
allowed to make contracts for the parties. The parties must abide by the terms of the
contract because such terms constitute the measure of the insurer’s liability and
compliance therewith is a condition precedent to the insured’s right to recovery from
the insurer.
B. Limitations on the right of the insurer to rescind:

1. Non-life – such right must be exercised prior to the commencement of an

action on the contract;
2. Life – such right must be availed of during the first two years from
the date of issue of policy or its last reinstatement; prior to “incontestability.”
(Sec. 48)
C. Cancellation of non-life insurance policy

Right of the insurer to abandon the contract on the occurrence of certain grounds
after the effectivity date of a non-life policy.
 Grounds:
1. Non-payment of premium;
2. Conviction of a crime out of acts increasing the hazard insured against;
3. Discovery of fraud or material misrepresentation;

4. Discovery of willful or reckless acts of omissions increasing the hazard
insured against;
5. Physical changes in property making the property uninsurable; and
6. Determination by the Insurance Commissioner that the continuation of

the policy would violate the Insurance Code. (Sec. 64)
 Requirements:
1. Prior notice of cancellation to the insured;
2. Notice must be in writing, mailed or delivered to the named insured at the
address shown in the policy;
3. Notice must state which of the grounds set forth in Sec. 64 is relied upon
and upon request of the insured, the insurer must furnish facts on which
the cancellation is based;
4. Grounds should have existed after the effectivity date of the policy.
D. Incontestability clause
Clause in life insurance policy that stipulates that the policy shall be incontestable
after a stated period.
 Requisites:
1. Life insurance policy
2. Payable on the death of the insured
3. It has been in force during the lifetime of the insured for a period of at
least two years from the date of its issue or of its last reinstatement
Note: The period of 2 years may be shortened but it cannot be extended

by stipulation.
D. Defenses not barred by incontestability clause:

1. That the person taking the insurance lacked insurable interest as required by
law.
2. That the cause of the death of the insured is an excepted risk.
3. That the premiums have not been paid.
4. That the conditions of the policy relating to military or naval service have
been violated.

5. That the fraud is of a particularly vicious type, as where the policy was taken
out in furtherance of a scheme to murder the insured, or where the insured
substitutes another person for the medical examination, or where the
beneficiary feloniously kills the insured.
6. That the beneficiary failed to furnish proof of death or to comply with any
conditions imposed by the policy after the loss has happened.
7. That the action was not brought within the time specified.
Argente v West Coast Life Ins. Co.

Held: Where any of the material representations are false, the insurer’s tender of the
premium and notice that the policy is cancelled, before the commencement of suit
thereon, operate to rescind the contract of insurance, and are a sufficient compliance
with the law.
XI. LOSS
A. Definition
Injury or damage sustained by the insured in consequence of the happening of
one or more of the accidents or misfortune against which the insurer, in
consideration of the premium, has undertaken to indemnify the insured.
(Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
B. Ascertainment and control of risk and loss Four

Primary Concerns of the Parties:
1. Correct estimation of the risk;
2. Precise delimitation of the risk;
3. Control of the risk;
4. Determining whether a loss occurred and if so, the amount of such loss.
Loss for which insurer is liable Loss for which insurer is not liable
Loss the proximate cause of Loss by insured’s willful

which is the peril insured against act
Loss the immediate cause of Loss due to connivance of the insured

which is the peril insured against
except where proximate cause is
an excepted peril
Loss through negligence of Loss where the excepted peril is the
insured except where there was proximate cause
gross negligence amounting to
willful acts
Loss caused by efforts to rescue
the thing from peril insured
against
If during the course of rescue, the
thing is exposed to a peril not
insured against, which
permanently deprives the insured
of its possession, in whole or in
part (Sec. 85).

Proximate Cause – An event that sets all other events in motion without any
intervening or independent case, without which the injury or loss would not have
occurred.
B. Requisites for recovery upon insurance

1. The insured must have insurable interest in the subject matter;
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused by the peril insured against.
 Notice of Loss
In fire insurance In other types of insurance
Required Not required
Failure to give notice will defeat Failure to give notice will not
the claim exonerate the insurer, unless there is
right of the insured to recover. a
stipulation in the policy requiring the
insured to do so.
XII. CLAIMS SETTLEMENT

Time for Payment of Claims
LIFE POLICIES NON LIFE POLICIES
a. Maturing upon the The proceeds shall be paid within 30

expiration of the term – days after the receipt by the insurer of
The proceeds are immediately proof of loss, and ascertainment of the
payable to the loss or damage by agreement of the
insured, unless they are made parties or by arbitration but not later
payable in installments or as than 90 days from such receipt of
annuity, in which case, the proof of loss whether or not
installments or annuities shall be ascertainment is had or
paid as they made.
become due.
b. Maturing at the death of

the insured, occurring prior to
the expiration of the term
stipulated – The proceeds are
payable to the beneficiaries within
60 days after presentation
and filing of proof of death.
Principle of Subrogation - A process of legal substitution where the insur-er steps

into the shoes of the insured and he avails of the latter’s rights against the wrongdoer
at the time of loss.
The principle of subrogation is a normal incident of indemnity insurance as a legal

effect of payment; it inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy. Said right is not dependent upon nor
dos it grow out of any private contract. Payment to the insured makes the insurer a
subrogee in equity (Malayan Insurance Co. Inc., v. CA, 165 SCRA 536)

 Purposes:
1. to make the person who caused the loss responsible for it
2. to prevent the insured from receiving double recovery from the wrongdoer
and the insurer
- it is a method of implementing the principle of indemnity
3. to prevent tortfeasors from being free from liability and is thus founded on
public policy.
 Rules:
1. Applicable only to property insurance.
Reason: the value of human life is regarded as unlimited and therefore no
recovery from a third party can be deemed adequate to compensate the
insured’s beneficiary
2. The insurer can only recover from the third person what the insured could
have recovered.
 No subrogation in the following instances:

1. Where the insured by his own act releases the wrongdoer or third party liable
for the loss or damage
2. Where the insurer pays the insured the value of the loss without no-tifying the
carrier who has in good faith settled the insured’s claim for loss
3. Where the insurer pays the insured for a loss or risk not covered by the
policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54)
4. in life insurance
5. for recovery of loss in excess of insurance coverage
 Should the insured, after receiving payment from the insurer, release
by his own act the wrongdoer or third party responsible for the loss or
damage from liability, the insurer loses his rights against the wrongdoer since
the insurer can only be subrogated to only such rights as the insured may
 have. (Manila Mahogany Mfg. Corp. v. 
 CA, 154 SRA 668)
 If the amount paid by the insurance company does not fully cover the
injury or loss, it is the aggrieved party, the insured, who is entitled to recover
the deficiency from the person responsible for the loss or injury.
In case of an unreasonable delay in the payment of the insured’s claim by the

insurer, the insured can recover: 1) attorney’s fees; 2) expenses incurred by
reason of the unreasonable withholding; 3) interest at double the legal interest
rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith
Insurance Corp. vs. CA, 185 SCRA 398)
XIII. PRESCRIPTIVE PERIOD

A. Rules:
1. In the absence of an express stipulation in the policy, it being based on a
written contract, the action prescribes in 10 years.

2. 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 accrues.
3. The cause of action accrues from the rejection of the claim of the insured and
not from the time of loss.
It shall commence from the denial of the claim, not from the resolution of the motion
for reconsideration, otherwise it can be used by the insured as a scheme or device to
waste time until the evidence which may be used against him is destroyed. (Sun
Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the date
of the accident otherwise the claim is deemed waived. The suit for damages
either with the proper court or with the Insurance Commissioner should be filed
within 1 year from the date of the denial of the claim by the insurer, otherwise
claimant’s right of action shall prescribe. (Sec. 384)
XIV. MARINE INSURANCE

Insurance against risks connected with navigation, to which a ship, cargo, freightage,
profits or other insurable interest in movable property, may be exposed during a
certain voyage or a fixed period of time.
A. Coverage:
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers,
bottomry and respondentia, and interest in respect to all
s or perils of navigation;
2. Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course
of transportation or otherwise; and
4. Bridges, tunnels, piers, docks and other aids to navigation and
transportation. (Sec. 99)
 Cargo can be the subject of marine insurance, and once it is entered into, the
implied warranty of seaworthiness immediately attaches to hoever is insuring
the cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA
596)

B. Marine Protection and Indemnity Insurance 1.
Classes of inland marine insurance
a. Property in transit – provides protection to property frequently exposed to
loss while it is transportation form one location to another.
b. Bailee liability -insurance for those who have temporary custody of the
goods.
c. Fixed transportation property – they are so insured because they are
held to be an essential part of the transportation system such as bridges,
tunnels, etc.
d. Floater – provides insurance to follow the insured property wherever it
may be located, subject always to the territorial limits of the contract.
C. Insurable Interest 1.
Shipowner

a. Over the vessel to the extent of its value, except that if chartered, the
insurance is only up to the amount not recoverable from the charterer.
(Sec. 100).
b. He also has an insurable interest on expected freightage. (Sec. 103).
c. No insurable interest if he will be compensated by charterer for the value

of the vessel, in case of loss.
2. Cargo owner
 Over the cargo and expected profits

3. Charterer
 Over the amount he is liable to the shipowner, if the ship is lost or
damaged during the voyage

D. Loans on bottomry and respondentia
 Repayment of the loan is subject to the condition that the vessel or goods,
respectively, given as a security, shall arrive safely at the port of destination.
1. Owner/Debtor
Difference between the value of vessel or goods and the amount of loan.
2. Creditor/lender
 Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since

a loan on bottomry partakes of the nature of an insurance coverage to the extent
of the loan accommodation. The same rule would apply to the hypothecation of
the cargo by respondentia.
  Perils of the sea perils of the ship

  Includes only those casualties due to the:
1. unusual violence; or
2. extraordinary action of wind and wave; or
3. Other extraordinary causes connected with navigation.
 A loss which in the ordinary course of events, results from the:

1. natural and inevitable action of the sea
2. ordinary wear and tear of the ship or
3. Negligent failure of the ship’s owner to provide the vessel with proper
equipment to convey the cargo under ordinary conditions.
 Only perils of the sea may be insured against unless perils of the ship is
covered by an all-risk policy.


  Special marine insurance contracts and clauses
 All Risks Policy – insurance against all causes of conceivable loss or
damage, except:
 1) as otherwise excluded in the policy; or 
2) due to fraud or intentional misconduct on the part of the insured.

The insured has the initial burden of proving that the cargo was in good condition
when the policy attached and that the cargo was damaged when unloaded from
the vessel; thereafter, the burden then shifts to the insurer to show the exception
to the coverage. (Filipinas Merchants
Insurance vs. Court of Appeals, 179 SCRA 638)
  Barratry Clause
A clause which provides that there can be no recovery on the policy in case
of any willful misconduct on the part of the master or crew in pursuance of
some unlawful or fraudulent purpose without consent of owners, and to the
prejudice of the owner’s interest. (Roque vs.
IAC, 139 SCRA 596)

 Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or
machinery arising from:
1. Negligence of the captain, engineers, etc.
2. Explosions, breakage of shafts; and
3. Latent defect of machinery or hull.
  Sue and Labor Clause

A clause under which the insurer may become liable to pay the insured, in
addition to the loss actually suffered, such expenses as he may have
incurred in his efforts to protect the property against a peril for which the
insurer would have been liable.

 Matters although concealed, will not vitiate the contract except
when they caused the loss
 1. National character of the insured;
 2. Liability of the thing insured to capture or detention;
 3. Liability to seizure from breach of foreign laws;
 4. Want of necessary documents; and
5. Use of false or simulated papers.
MARINE INSURANCE OTHER PROPERTY INSURANCE

The information of the belief or The information or belief of a 3rd party
expectation of 3rd persons is material is not
and must be communicated material and need not be
communicated unless it proceeds form
an agent of the insured whose duty it is
to give information
The concealment of any fact in relation Concealment of any material fact will
to any of the matters stated in Sec. vitiate the entire contract, whether or
110 does not vitiate the entire contract not the loss results for the risk
but merely exonerates the insurer from concealed.
a risk resulting from the fact concealed
 Implied warranties
1. Seaworthiness of the ship at the inception of the insurance;
2. Against improper deviation
3. Against illegal venture;
4. Warranty of neutrality: the ship will carry the requisite documents of
nationality or neutrality of the ship or cargo where such nationality or
neutrality is expressly warranted
5. Presence of insurable interest.

 Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and
goods, denoting in general a ship’s fitness to perform the service and to
encounter the ordinary perils of the voyage, contemplated by the parties to the
policy (Sec. 114).
 General rule: The warranty of seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the risk. Prior or subsequent
unseaworthiness is not a breach of the warranty nor is it material that the
vessel arrives in safety at the end of her voyage. 

 Exceptions:
1. In the case of a time policy, the ship must be seaworthy at the
commencement of every voyage she may undertake
2. In the case of cargo policy, each vessel upon which the cargo is shipped
or transshipped, must be seaworthy at the commencement of each
particular voyage
3. In the case of a voyage policy contemplating a voyage in different
stages, the ship must be seaworthy at the commencement of each
portion
 Deviation
A departure from the course of the voyage insured, or an unreasonable delay in
pursuing the voyage or thecommencement of an entirely different voyage.
 Instances:
1. Departure of vessel from the course of the sailing fixed by
mercantile usage
2. Departure of vessel from the most natural, direct and
advantageous route if not fixed by mercantile usage
3. Unreasonable delay in pursuing voyage
4. Commencement of an entirely different voyage (Secs. 121-123)
 Kinds:
1. Proper
a. When caused by circumstances outside the control of the ship
captain or ship owner;
b. When necessary to comply with a warranty or to avoid a peril;
c. When made in good faith to avoid a peril;

d. When made in good faith to save human life or to relieve another
vessel in distress
o Effect - In case of loss, the insurer is still liable.
2. Improper -Every deviation not specified in Sec. 124 (Sec. 125).
o Effect - In case of loss or damage, the insurer is not liable.
 Loss
1. Total:
a. Actual
i. Total destruction;
ii. Irretrievable loss by sinking;
iii. Damage rendering the thing valueless; or

iv. Total deprivation of owner of possession of thing insured. (Sec. 130)
b. Constructive
i. Actual loss of more than ¾ of the value of the object;
ii. Damage reducing value by more than ¾ of the value of the vessel and of
cargo; and
iii. Expense of transshipment exceed ¾ of value of cargo.
 In case of constructive total loss, insured may:

1. Abandon goods or vessel to the insurer and claim for whole insured
value (Sec. 139), or
2. Without abandoning vessel, claim for partial actual loss. (Sec. 155)
1. Partial: That which is not total
 Average
Any extraordinary or accidental expense incurred during the voyage for the
preservation of the vessel, cargo, or both, and all damages to the vessel and
cargo from the time it is loaded and the voyage commenced until it ends and the
cargo unloaded.
GENERAL AVERAGE PARTICULAR AVERAGE

Has inured to the common benefit Has not inured to the common benefit
and profit of all and profit of all persons interested in
persons interested in the vessel the vessel and her cargo.
and cargo
To be borne equally by all of the To be borne alone by the owner of the

interests concerned in the cargo or the vessel, as the case may
venture be
 Requisites for the right to claim contribution:

1. Common danger to the vessel or cargo;
2. Part of the vessel or cargo was sacrificed deliberately;
3. Sacrifice must be for the common safety or for the benefit of all
4. Sacrifice must be made by the master or upon his authority;
5. It must be not be caused by any fault of the party asking the
contribution;
6. It must be successful, i.e. resulted in the saving of the vessel or cargo;
and
7. Necessary.
 Right of insured in case of general average

General rule: The insured may either hold the insurer directly liable for the whole
of the insured value of the property acrificed for the general benefit, subrogating
him to his own right of contribution or demand contribution from the other
interested parties as soon as the vessel arrives at her destination
Exceptions:
1. After the separation of interests liable to contribution
2. When the insured has neglected or waived his right to contribution
 FPA Clause (Free From Particular Average)

A clause agreed upon in a policy of marine insurance in which it is stated that the
insurer shall not be liable for a particular average, such insurer shall be free
therefrom, but he shall continue to be liable for his proportion of all general
average losses assessed upon the thing insured.
 Abandonment
The act of the insured by which, after a constructive total loss, he declared the
relinquishment to the insurer of his interest in the thing insured.
 Requisites for validity:

1. There must be an actual relinquishment by the person insured of his interest
in the thing insured
2. There must be a constructive total loss
3. The abandonment be neither partial nor conditional
4. It must be made within a reasonable time after receipt of reliable information
of the loss
5. It must be factual
6. It must be made by giving notice thereof to the insurer which may be done
orally or in writing, and
7. The notice of abandonment must be explicit and must specify the particular
cause of the abandonment
 Effects:
1. It is equivalent to a transfer by the insured of his interest to the insurer with
all the chances of recovery and indemnity
2. Acts done in good faith by those who were agents of the insured in respect to
the thing insured, subsequent to the loss, are at the risk of the insurer and for
his benefit.
 Effect of refusal to accept valid abandonment

If an insurer refuses to accept a valid abandonment, he is liable upon an actual
total loss, deducting form the amount any proceeds of the thing insured which
may have come to the hands of the insured.
  Co-insurance
 A marine insurer is liable upon a partial loss, only for such proportion of the
amount insured by him as the loss bears to the value of the whole interest of
 the insured in the property insured.
 When the property is insured for less than its value, the insured is considered
a co-insurer of the difference between the amount of insurance and the value
of the property.

  Requisites:
1. The loss is partial;
2. The amount of insurance is less than the value of the property
insured.
 Rules:
1. Co-insurance applies only to marine insurance
2. Logically, there cannot be co-insurance in life insurance.
3. Co-insurance applies in fire insurance when expressly provided for by
the parties.

CO-INSURANCE REINSURANCE
A percentage in the value of the Situation where the insurer
insured property which the insured procures a 3rd party called the
himself assumes to act as insurer to reinsurer to insure him against
the extent of the deficiency in the liability by reason of an original
insurance of the insured property. In insurance. Basically, reinsurance is
case of loss or damage, the insurer an insurance against liability which
will be liable only for such proportion the original insurer may incur in
of the loss or damage as the amount favor of the original insured.
of the insurance bears to the
designated percentage of the full
value of the property insured.
U. Abandonment - the act of the insured by which, after a constructive total loss,
he declares the relinquishment to the insurer of his interest in the thing insured.
1. Right to abandon is granted by law to the insured if peril insured against

causes a loss of more than ¾ the thing insured, or where its value is
reduced by more than ¾
2. Remember: 75% loss = Constructive Loss which entitles recovery of the full
amount in the policy. Does not mean that recovery is only up to 75%.
  When Constructive TOTAL loss exists: ¾ Rule (Sec. 139)

1. If more than ¾ thereof in value is actually lost, or would have to be
expended to recover from peril
2. If it is injured to such an extent as to reduce its value more than
¾
3. IF the thing insured is a ship, and the contemplated voyage can’t be
lawfully performed w/o incurring either an expense to the insured or more
than ¾ the value of the thing abandoned or a risk which a prudent man
would not take under the circumstances
4. If the thing insured, being cargo or freightage, and the voyage can’t be
performed, nor another ship procured by the master, within a reasonable
time and with reasonable diligence, to fowrwar4d the cargo, without
incurring the like expense or risk mentioned in the preceding sub-
paragraph. But freightage cannot in any case be abandoned unless the
ship is also abandoned.
  Requirements:
o There must be actual relinquishment by the person insured of his interest
 in the thing insured (138)
o There must be constructive total loss (139). Any particular portion of the
thing insured separately valued by the policy may be separately
 abandoned as it is deemed separately insured
o It must be total and absolute (140)
o It must be within a reasonable time after the receipt of reliable information
 of the loss (141)
o It must be factual (142)
o It must be made by giving notice thereof to the insurer which may be
 done orally or in writing (143)
o Notice must be explicit and must specify the particular cause of the
abandonment (144)

 Notice of Abandonment:
o May be done ORALLY but written notice must be submitted within 7
 days from such oral notice
o Must be explicit
o Specifies particular cause of abandonment, although it need state
only enough to show that there is probable cause therefor
XV. FIRE INSURANCE
A contract by which the insurer for a consideration agrees to indemnify the insured
against loss of, or
damage to, property by hostile fire, including loss by lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension to fire
insurance policies or under separate policies.
Prerequisites to recovery:
1. Notice of loss – must be immediately given, unless delay is waived expressly or
impliedly by the insurer
2. Proof of loss – according to best evidence obtainable. Delay may also be waived
expressly or impliedly by the insurer
HOSTILE FIRE FRIENDLY FIRE
One that escapes from the place where One that burns in a place where it was
it was intended to burn and ought to intended to burn and ought to be
be.
Insurer is liable Insurer is not liable
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in
the condition it was at the time of the injury
2. Valued policy: the parties are bound by the valuation, in the absence of fraud or
mistake
Alteration as a special ground for rescission by insurer

Requisites:
1. The use or condition of the thing is specifically limited or stipulated in the policy;
2. Such use or condition as limited by the policy is altered;

3. The alteration is made without the consent of the insurer;
4. The alteration is made by means within the control of the insured;
5. The alteration increases the risk; (Sec. 168) and
6. There must be a violation of a policy provision.
Fall-of-building clause

A clause in a fire insurance policy that if the building or any part thereof falls, except
as a result of fire, all
insurance by the policy shall immediately cease.
Option to rebuild clause

A clause giving the insurer the option to reinstate or replace the property damaged or
destroyed or any part thereof, instead of paying the amount of the loss or the
damage. The insurer, after electing to rebuild, cannot be compelled to perform this
undertaking by specific performance because this is an obligation to do, not to give.
Remedy: Art. 1167, NCC.
XVI. CASUALTY OR ACCIDENT INSURANCE
Insurance covering loss or liability arising from accident or mishap, excluding those
falling under other types of insurance such as fire or marine.
Classifications:
1. Insurance against specified perils which may affect the person and/or property
of the insured. (accident or health insurance)
2. Insurance against specified perils which may give rise to liability on the part of
the insured for claims for injuries to or damage to property of others. (third party
liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and
their property, who may maintain an action against him in case of their injury or
destruction, respectively.
In a third party liability (TPL) insurance contract, the insurer assumes the
obligation by paying the injured third party to whom the insured is liable. Prior
payment by the insured to the third person is not necessary in order that the
obligation may arise. The moment the insured becomes liable to third persons,
the insured acquires an interest in the insurance contract which may be garnished
like any other credit. (Perla Comapnia de Seguro, Inc vs. Ramolete, 205 SCRA
487)
In burglary, robbery and theft insurance, the opportunity to defraud the insurer –
the moral hazard – is so great that insurer have found it necessary to fill up the
policies with many restrictions designed to reduce the hazard. Persons frequently
excluded are those in the insured’s service and employment. The purpose of the
exception is to guard against liability should theft be committed by one having
Right of a third party injured to sue the insurer

1. Indemnity against liability – A third party injured can directly sue the insurer.

2. Indemnity for actual loss or reimbursement after actual payment by the insured –
A third party has no cause of action against the insurer (Bonifacio Bros. v. Mora,
20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurer’s liability is based
on contract; that of the insured is based on torts. Furthermore, the insurer’s liability
is limited by the amount of the insurance coverage
(Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
“Intentional” vs. “accidental” as used in insurance policies
1. Intentional – Implies the exercise of the reasoning faculties,

consciousness and volition. Where a provision of the policy excludes intentional
injury, it is the intention of the person inflicting the injury that is controlling.
If the injuries suffered by the insured clearly resulted from the intentional act of the
third person, the insurer is relieve from liability as stipulated. (Biagtan v. the Insular
Life Assurance Co. Ltd., 44 SCRA 58, 1972)
2. Accidental – That which happens by chance or fortuitously, without intention or

design, which is unexpected, unusual and unforeseen.
No action clause
A requirement in a policy of liability insurance which provides that suit and final
judgment be first obtained
against the insured; that only thereafter can the person injured recover on the policy.
(Guingon vs. Del Monte, 20 SCRA 1043)
XVII . COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
A species of compulsory insurance that provides for protection coverage that will
answer for legal liability for losses and damages for bodily injuries or property
damage that may be sustained by another arising from the use and operation of
motor vehicle by its owner.
Purpose: To give immediate financial assistance to victims of motor vehicle

accidents and/or their dependents, especially if they are poor regardless of the
financial capability of motor vehicle owners or
operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA
386).
  Claimants/victims may be a “passenger” or a “3rd party” 

  It applies to all vehicles whether public and private vehicles. 
 The only compulsory insurance coverage under the Insurance Code. 
Method of coverage
1. Insurance policy
2. Surety bond
3. Cash deposit

Passenger – Any fare-paying person being transported and conveyed in and by a

motor vehicle for transportation of passengers for compensation, including persons
expressly authorized by law or by the vehicle’s operator or his agents to ride without
fare. (Sec. 373[b])
Third Party – Any person other than the passenger, excluding a member of the
household or a member of the family within the second degree of consanguinity or
affinity, of a motor vehicle owner or land transportation operator, or his employee in
respect of death or bodily injury arising out of and in the course of employment. (Sec.
373[c])
“No-Fault” Clause
A clause that allows the victim (injured person or heirs of the deceased) to an option
to file a claim for death or injury without the necessity of proving fault or negligence of
any kind.
Purpose:
To guarantee compensation or indemnity to injured persons in motor vehicle
accidents.
Rules:
1. Total indemnity -maximum of P5,000
2. Proofs of loss
a. Police report of accident;
b. Death certificate and evidence sufficient to establish proper payee;
c. Medical report and evidence of medical or hospital disbursement.

3. Claim may be made against one motor vehicle only
4. Proper insurer from which to claim
a. In case of an occupant: Insurer of the vehicle in which the occupant is
riding, mounting or dismounting from;
b. In any other case: Insurer of the directly offending vehicle. (Sec. 378)
The claimant is not free to choose from which insurer he will claim the “no fault
indemnity” as the law makes it mandatory that the claim shall lie against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting
from. That said vehicle might not be the one that caused the accident is of no
moment since the law itself provides that the party paying may recover against
the owner of the vehicle responsible for the accident. (Perla Compania de
Seguros, Inc. v.
Ancheta, 169 SCRA 144)
SPECIAL CLAUSES
A. Authorized Driver Clause
clause which aims to indemnify the insured owner against loss or damage to the
car but limits the use of the insured vehicle to the insured himself or any person
who drives on his order or with his permission (Villacorta v. Insurance
Commissioner)
B. Theft Clause
A clause which includes theft as among the risks insured against.

Where the car is unlawfully and wrongfully taken without the owner’s consent or
knowledge, such taking constitutes theft, and thus, it is the “theft clause” and not
the “authorized driver clause that should apply
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such
information and assistance as the insurer may require, usually requiring
attendance at trials or hearings.
XVIII. SURETYSHIP
 An agreement whereby a surety guarantees the performance by the principal

or obligor of an obligation or undertaking in favor of an obligee. 

 It is essentially a credit accommodation. 

 It is considered an insurance contract if it is executed by the surety as a
vocation, and not incidentally. (Sec.

 When the contract is primarily drawn up by 1 party, the benefit of doubt goes
to the other party (insured/obligee) in case of an ambiguity following the rule in
contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated
like non-life insurance in some respects.
Nature of liability of surety

1. Solidary;
2. Limited to the amount of the bond;
3. It is determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee. (Sec. 176)
SURETYSHIP PROPERTY INSURANCE
Accessory contract Principal contract
3 parties: surety, obligor and 2 parties: insurer and insured

oblige
Credit accommodation Contract of indemnity
Surety can recover from principal only right of subrogation

Insurer has no such right;
Bond can be cancelled only with May be cancelled unilaterally either by
consent of obligee, insured or insurer on grounds provided
Commissioner or court by law
Requires acceptance of obligee Risk-shifting device; premium paid

to be valid No need of being in the nature of a service fee
acceptance by any third party
Risk-distributing device premium paid as a ratable contribution to

a common fund


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[REVIEWER IN INSURANCE] 2011

PUP COLLEGE OF LAW

B. Laws Governing Insurance

C. Construing the provisions of the Insurance Code

1. Where there is Ambiguity or Doubt

Leah P. Javier, Pup College Of Law | 1

3. Literal or Strict Interpretation

First Quezon City Insurance vs. CA

Ty vs. First National

Misamis Lumber vs. Capital Inc.

Sun Insurance vs. CA

Fortune Insurance vs. CA

Leah P. Javier, Pup College Of Law | 2

4. Liberal Interpretation; Reasonable Expectations

Fieldman’s Inc. vs. Vda. De Songco

Western Guaranty vs. CA

Qua Chee Gan vs. Law Union

Sun Insurance vs. CA

Leah P. Javier, Pup College Of Law | 3

Rizal Surety vs. CA

II. THE CONTRACT OF INSURANCE

A. “Doing an Insurance Business”

Leah P. Javier, Pup College Of Law | 4

 The insurer undertakes to assume the risk of such a loss for a

III. CHARACTERISTICS OF INSURANCE CONTRACTS

o Except life insurance where the liability of insurer is the

Leah P. Javier, Pup College Of Law | 5

IV. CLASSES OF INSURANCE CONTRACTS

a) Individual life - insurance on human lives and insurance appertaining

b) Group Life – a blanket insurance covering a number of individuals

Variations in Life Insurance Contracts

a) Whole life plan

Leah P. Javier, Pup College Of Law | 6

 Insured pays premium for a specified period and should he survive

Mortgage Redemption Insurance

2. Non-life – includes policies covering risks to which property may be exposed, as

c) Casualty or Liability Insurance - insurance covering loss or liability arising

3) Suretyship – a contract of suretyship is an agreement whereby a party called

Leah P. Javier, Pup College Of Law | 7

the principal or obligor of an obligation or undertaking in favor of a third party

B. Insurable Interest in Life and Health Insurance

Leah P. Javier, Pup College Of Law | 8

INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN

Unlimited except in life insurance Limited to actual value of interest in

The expectation of benefit to be An expectation of a benefit to be

1. In case of a carrier or depositary

2. In case of a mortgaged property

a. Mortgagor – As owner, has an insurable interest therein to the extent of its

STANDARD OR UNION MORTGAGE CLAUSE OPEN OR LOSS PAYABLE MORTGAGE CLAUSE

 Effects of Loss Payable Clause

3. Where the policy under which the insured claims is an unvalued

4. Where the insured receives any sum in excess of the valuation in

5. Each insurer is bound, as between himself and the other insurers,

Leah P. Javier, Pup College Of Law | 10

When a policy contains a prohibition against additional insurance on the property

REINSURANCE is a contract by which the insurer procures a third person to

In every reinsurance, the original contract of insurance and the contract of

DOUBLE INSURANCE REINSURANCE

Involves the same interest Involves different interest

Insurer remains in such capacity Insurer becomes the insured in

Insured is the party in interest in Original insured has no interest in the

Subject of insurance is property Subject of insurance is the original

Insured has to give his consent Insured’s consent not necessary