SY 2011-2012 THE INSURANCE LAW: CODE, CASES & COMMENTS (Course Outline) UP College of Law By Dean Bartolome S. Carale CHAPTER 1 - INTRODUCTION A. Course Coverage 1. More attention to substantive provisions of the Insurance Code as against the purely administrative and organizational provisions. 2. Topical instead of sequential treatment of provisions of the Insurance Code Students may consult (a) Insurance by Prof. Emeritus Ma. Clara L. Campos (1983) the format of which book inspired this course outline; (b) Insurance Code of the Philippines by Hector de Leon (2006 edition). Class discussions, however, will strictly follow this course outline, B. Origin and growth of insurance; relevance/significance Early maritime or marine insurance ( See VANCE, A Handbook on the Law of Insurance, 3% ed,, 1951, pp. 7-21) Read the following cases on the real and hypothecary nature of maritime law and the doctrine of limited liability: Philippine Shipping v. Garcia, 6 Phil. 281 (1906) Yangco v. Laserna, 73 Phil. 330 (1941) Manila Steamship v. Abdulhaman, 100 Phil, 38 (1956) Aboitiz Shipping v. New India Assurance, 488 SCRA 563 (2006) Development of insurance—from marine to present day varieties 3. The insurance business in the Philippines, beginnings and current status 4. Office of the Insurance Commission; Administrative & Adjudicatory Powers Secs. 414 to 416G PHILAM v. Arnaldo, 234 SCRA 505 (1994) Laws Governing Insurance (unless specified, all sections referred to in this Outline are of the Insurance Code) 1, The Insurance Code (PD 612 & 1460) as amended, (esp. B.P. 874). Antecedents: Insurance Law Act 2427 (December 11, 1914) which repealed the applicable provisions of the Code of Commerce. Act 2427 copied almost verbatim from the California Insurance Act. See: Gerclo v. Sunlife Assurance, 48 Phil, 53 Ang Giok Chip v. Springfield, 52 Phil. 375 Philippine Health Care Products v. Commissioner of Internal Revenue, 600 SCRA 413, at p. 427 and footnote 21 therein (September 18, 2009) 2, Civil Code, esp. Articles 739, 2011, 2012, 2021 to 2027 (dealing with life annuities), 2186 & 2207 (subrogation) 3. Special laws (e.g. GSIS Act, SSS Act, PDIC, crop Insurance and government property insurance, among others.) CHAPTER II - THE CONTRACT OF INSURANCE B. Definitions 1, “Contract of Insurance" (Sec. 2-1); and “Contract of Suretyship”, (Ibid; see also Sec. 175 and discussion infra. 2. “Doing an insurance business” (sec. 2.2) See, infra Philippine Health Care Providers v. Commissioner, 600 SCRA 413 Elements 1. insurable interest 2. risk of loss or damage 3. designated peril as cause 4. consideration: premium 5. risk distributing scheme Characteristics/Nature of insurance contracts (Review relevant provisions of the Civil Code on “Obligations and Contracts”) 1, Aleatory (Art. 2010, Civil Code) 2. Executory and conditional 3, Synallagmatic (See dissent of Vitug, J. in UCPB General Insurance vs. Masagana Telamart, 356 SCRA 307 (2001) 4. Consensual and voluntary (Arts. 1305, 1306, and 1308, Civil Code) 5. Contract of Adhesion (further discussed infra) 6. Personal and of highest degree of good faithw FB ndenmnity (non-life oF property) Contracts for Contingent Services; Pre-need Plans and Similar Arrangements; Warranties covering goods sold or services rendered MW Cases on health care agreements: PHILANCARE Health Systems v. CA, G.R, 1256781, March 3, 2002; 379 SCRA 356 [2002] lve Cross Heaith Care v, Olivares, G.R. 169737, February 12, 2008) 544 SCRA 580 (2008) Phitgpine Health Care Providers v. Commission of Internal Revenue, G.R. 167330, June 2, 2008; 554 SCRA 411 (2008) and 600 SCRA 413 (September 18, 2009) resolution of Motion for reconsideration Pre:Need Code of the Philippines (R.A. 9829, Dec. 3, 2009) Note: Secs, 2, 4(b), (c), & (1), & 5 & first par. & 10. QUARE: Are pre-need contracts under the PRE-NEED CODE Contracts of insurance? Kinds/Classes of Insurance 1. 2 Under the Code (as defined/described in the sections Indicated): @& fe (Secs. 179 & 180; 228 for group life and 229 for industriat life) b. Marine (Sec, 99) c Fire (Sec. 167) d. Casualty (Sec. 174) or tlability insurance @, — Suretyship (Sec. 175) Other modes of classification of insurance contracts a, private (‘voluntary") and public or social insurance (compulsory) b, “first party Insurance” and “third party insurance” (See Sec, 174) cas to risks insured against : Construction/interpretation of insurance contracts (review Articles 1370 to 1379, Civil Code) a 2 Basis/rationale for interpretation, whether literal or liberal (review consensual and obligatory nature of an insurance contract Articles 1305, 1306, & 1308, Civil Code), as well as Articles 1370 to 1379 on interpretation. Some cases dealing with construction and interpretation. Discussion to be limited to contractual provision requiringinterpretation (how it arose and how it was resolved and basis for such resolution) 2. Strict Implementation of Terms: Cebu Shipyard v. William Lines, 306 SCRA 762 (1999) First Quezon City Insurance v. CA, 218 SCRA 526 ‘Sun Insurance v. CA, 195 SCRA 193 (1991) Fortune Ins. v. CA 244 SCRA 308 (1995) Liberal Interpretation of Terms: Malayan Ins. V. CA, 270 SCRA 242 (1997) Western Guaranty v. CA, 187 SCRA 652 Qua v. Law Union 96 Phil. 85 (1955) Geagonia v. CA 241 SCRA 152 (1995) c. _ CASES FOR OPTIONAL READING: New Life Enterprises v. CA, 207 SCRA 669 (1992) Ty v. First National, 1 SCRA 1324 (1961)* Misamis Lumber v. Capital Inc., 17 SCRA 228 (1966)* Perla v. CA, 185 SCRA 74* Oriental Assurance v. CA, 200 SCRA 459 (1991) Del Rosario v. Equitable Ins. 8 SCRA 343 (1963) ‘Sun Insurance v. CA 211 SCRA 554 (1992) Rizal Surety v. CA 336 SCRA 12 CHAPTER III - INSURABLE INTEREST Definition & purpose 1, Recall definition of an insurance contract (Sec. 2-1) 2. May not be waived (Sec. 25) 8. __Insurable interest in life/health Sec. 10 1, Insurable interest of the insured in his own life compared to that on the life of others. (cf. Sec. 10 a with Sec. 10b, c & d) 2. Insurable interest in health (see 2002 PHILAMCARE case, supra) C. _Insurable Interest in. property 1, Definition (Sec. 13); enforceability where no insurable interest (sec. 18) 2. oe it may consist of (Sec. 14); cf. expectancy (Section 16);Filipino Merchants Ins. Co. v. Court of Appeals, 179 SCRA 638 (1989) Gaisano Cagayan v. Insurance Co. of North America, 490 SCRA 286 (2006) 3. Measure of insurable interest in property Secs. 15 to 17 4. When should insurable interest exist; cf. life - (Sec. 19) 5. Change of interest in property; instances of automatic transfer of interest Secs. 20 to 24 study, also Secs. 53; & 57 Double insurance and over insurance Sections 93 & 94 Multiple or several interests on same property; special provisions on mortgagor & mortgagee - Sections 8 & 9 Geagonia v. Court of Appeals, 241 SCRA 152, (1995) Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366 (1988) CHAPTER IV - PERFECTION OF THE CONTRACT OF INSURANCE A. Offer and acceptance; consensuality 1. Delay in acceptance; “tort theory” See Article 2176, Civil Code 2. Delivery of policy Perez v. CA 323 SCRA 613 (2000) Vda de Sindayen v. Insular 62 Phil 51 (1935) Enriquez v. Sun Life 41 Phil, 269 (1920) Premium payment Sections 77 & 78; 64 & 66; 306 (no agents/brokers) Velasco v. Apostol, 173 SCRA 228 (1985) Valenzuela v. CA, 191 SCRA 1(1990) Tibay v. CA 257 SCRA 126 (see dissent) (1996) Makati Tuscany v. CA 215 SCRA 462 (1992) South Sea Surety v. CA 244 SCRA 744 (1995) Areola v. CA 236 SCRA 643 (1994) UCPB Gen. Ins. v. Masagana Telamart, June 15, 1999; 308 SCRA 259 (1999); 356 SCRA 307 (en banc; see dissents) (2001) ‘American Home Assurance v. Chua, 309 SCRA 250 (1999) Non-default options in life insurance (Sec. 227, f & h) 1. cashsurrender value, 2. extended insuranceD. gE 3. paid up insurance 4. automatic premium loan Read: Manufacturer's Life Insurance v. Meer, 89 Phil. 351 (1951) Reinstatement of a lapsed policy of life Insurance; Section 227 (J) Andres v. Crown Life Insurance, 102 Phil. 919 (1958) Refund of Premiums, Sections 79-82 CHAPTER V ~ THE POLICY, PARTIES THERETO, & RIGHTS THEREON A, 1: 2. 3. 4. Definition of a policy of insurance (Sec. 49) Form & contents (Secs. 50 & 51 a to g); Sec. 226; cf. group Insurance (Sec. 228) Riders and endorsements; rules on formalities & effectivity (Section 50,par. 2) Cover notes (Sec. 52) Lim v. Sun Life Assurance 41 Phil. 263 (1920) Great Pacific Life v. CA, 89 SCRA 543 (1979) Pacific Timber Export v. CA, 112 SCRA 199 (1982) Types of non-life insurance policies Sections 59, 60, 61 & 62 (cf. Sections 156, 161, 171) 1. Open 2. Valued 3. Running (floating) Development Insurance v. IAC, 143 SCRA 62 (1986) Harding v. Commercial Union Assurance, 38 Phil. 464 (1918) Parties 1, Insurer Sections 6, 184, 185 & 299 Cf: Agents and brokers: Secs. 300, 301, & 306 White Gold Marine Services v. Pioneer Insurance & the Steamship Mutual, 464 SCRA 448 (2005) Pandiman v. Marine Manning Management Corp. & Singhid, 460 SCRA 418 (2005) 2. The insured (cf. cestui que vie in life insurance) Sections 7, 54, 55, 56 & 57; RA 6809; Articles 110-111, Family Code; Article 1390, Civil Code Filipinas Cia de Seguros v. Christern Huenefeld, 89 Phil. 54 (1951)3. Beneficiaries (life insurance)s (a) Designation & right to change Section 11 (b) ‘Statutory limitations Articles 739, 2011 & 2012, Civil Code Insular v, Ebrado, 80 SCRA 181(1977) Consuegra v. GSIS, 37 SCRA 315 (1971) SSS v. Davac, 17 SCRA 863 (1966) Del Val v. Del Val, 29 Phil, 534 (1915) Gercio v. Sun Life Assurance, 48 Phil. 53 (1925) Philippine American Life Insurance v. Pineda, 175 SCRA 416 (1989) (©) Forfeiture of benefits by the beneficiary Section 12 D. Rights of Insured Over a Life Insurance Policy . Right to assign (cf. change of beneficiary) (see GREPALIFE v. CA, 316 SCRA 677 (1999) Sections 181 & 182 ‘Sun Life Assurance of Canada v, Ingersoll, 41 Phil. 331 (1922) Great Pacific Life v. CA, 316 SCRA 677 (1999) on ‘mortgage redemption insurance.” 2. Right to borrow Section 227(9) 3. Right to dividends Section 227(e) CHAPTER VI - RESCISSION OF INSURANCE CONTRACTS: CONCEALMENT, MISREPRESENTATION, & BREACH OF WARRANTIES A, Basis/Rationale 1, Insurance is of utmost good faith (uberrimae fidel) 2. As risk management devices 3. AS grounds for rescission B. Concealment 1, Definition: Secs. 26, 27 (as amended by B.P. 874) 28 & 29 2. Matters which need not be disclosed Secs. 30, 32, 33, 34 & 35 3. Test of materiality: Sec. 31 MisrepresentationD. Fp 1, The active form of concealment 2. Secs. 36 to 47 (Sec. 45 as amended by BP 874): (a) form and when made (Secs. 36, 37, 41 & 42) (b) representation as to future (Sec, 39) (c) representation as to information (Sec. 43) (d) effect of misrepresentation (Secs. 44 & 45) (e) _ misrepresentation as to age (supra; Sec, 2274) (f) test of materiality (Sec. 46) Cases on concealment and misrepresentations Ng v. Asian Crusader 122 SCRA 461 (1983) Canilang v. CA 223 SCRA 443 (1993) Yu v. CA 105 Phil. 930 (1959) Great Pacific Life v. CA 89 SCRA 643 (1979) Pacific Banking v. CA 168 SCRA 1 (1988) Sunlife v. CA, 245 SCRA 268 (1995) Eguaras v. Great Eastern 33 Phil. 263 (1916) Qua v. Law Union Rock, 98 Phil. 85 (1955) Argente v. West Coast Life, 51 Phil. 725 (1928) Great Pacific Life v. CA, 316 SCRA 677 (1999) Edillon v. Manila Bankers Life, 117 SCRA 187 (1982) Harding v. Commercial Union, 38 Phil. 469 (1918) The “incontestable clause” in life insurance policies; defenses not barred Sections 48 and 227(b) Tan v. CA, 174 SCRA 403 (1989) (cf. Tan Chay v. West Coast Life, 51 Phil. 80 (1927) Warranties: Secs. 67 to 76 1. Kinds (a) Express (Secs. 67 & 71) (b) Implied (marine only) (c) Affirmative (Sec. 68) (d) Promissory (Sec. 72 & 73) 2. Materiality and fraud Secs. 74, 75 & 76 3. Warranties in fire insurance policies; standard clauses Secs. 168, 169, 170 storage of hazardous materials alteration in use or condition = sole ownership clause = “other insurance” clause 4, Cases:Pioneer v. Yap 61 SCRA 426 (1974) New Life Enterprises v. CA 207 SCRA 609 (1992) (cf. Pacific Banking v. CA, 168 SCRA 1) (1988) Qua Chee Gan v. Law Union 98 Phil. 85 (1955) Young v. Midland Textile Insurance 30 Phil. 617 (1915) Grounds & exercise of rights of rescission Sections 48, 63, 64, 65, 170, 227(b), 380 Tan v. CA, supra Areola v. CA, 236 SCRA 643, supra Tan Chay v. West Coast Life, 51 Phil. 80 (1927) supra Filipina Compania de Seguros v. Nava, 17 SCRA 210 (1965) CHAPTER VII. A RISKS AND COVERAGES In general: risks & causation ayNe 6. Insurable risks: Section 3 “Specified risks: & “all-risks” policies exceptions/exclusions Causes mentioned in the Code: “proximate,” “remote,” & “immediate” (Sections 84 & 86) Cf. other terms used, e.g. “legal,” “efficient,” “predominant,” etc. Meaning of “proximate cause” Vda de Bataclan v. Medina, 102 Phil. 181 (1957) Rescue from covered peril: Section 85 Loss due to negligence; (CF. willful act: Section 87) FGU v. CA, 454 SCRA 337 (2005) Life insurance Death or survival Sections 179 & 180 Suicide - Section 180-A; (Cf. Sec. 87, supra) Accidental death; cf. death by accidental means Finman v. CA, 213 SCRA 493 (1992) Calanoc v. CA, 98 Phil. 79 (1955) Biagtan v. Insular, 44 SCRA 58 (with dissenting opinion) (1972) Sun Insurance v. CA, 211 SCRA 554 (1992) De la Cruz v. Capital Insurance, 17 SCRA 559 (1966)Group life insurance (Sec. 50; 228, last par.) Pineda v. CA, supra Eternal Gardens vs. PHILAMLIFE, 551 SCRA 1 GREPALIFE v. CA, 316 SCRA 677 Industrial life (Sec. 229) Mutual Life Insurance companies (Sec. 262) Republic v. Sunlife, 473 SCRA 129 Fire Insurance 1 3. What “fire insurance” includes Section 167 “Hostile” fire and “friendly” fire Phil. Home Assurance v. CA, 257 SCRA 468 (1996) “Increase of risks” and “moral hazard” clauses Alteration of insured property Secs. 168, 169, 170 Measure of indemnity Secs. 171 and 172 Casualty & Liability Insurance Section 174 Fortune Insurance v. CA, 244 SCRA 309, supra, I-F ‘Suretyship Secs. 175 to 178 1. 2. Definition and extent of liability Secs. 175 & 176 Cases: National Power Corp. v. CA, 145 SCRA 529 (1986) Zaragoza v. Fidelino, 163 SCRA 443 (1988) Eastern Assurance V. IAC, 179 SCRA 561 (1989) Stronghold Insurance v. CA, 208 SCRA 336 (1992) Prudential v. Equinox, $33 SCRA 257 (2007) Intra-Strata v. Republic, 557 SCRA 363 Premium Payment Sec. 177 Reparations Commission v. Universal Deep Sea Fishing Corp., 83 SCRA 764 (1979) Philippine Pryce Assurance v. CA, 230 SCRA 164 (1994) 103. Applicability of the Civil Code Sec. 178 Motor Vehicle Insurance (limited discussion) 1, Compulsory Motor Vehicle Insurance Sections 373, 374 & 375 Perla Compania de Seguros v. CA & Lim 208 SCRA 487 (1992) Shafer v. Judge, 167 SCRA 386 (1988) Vda. de Maglana v. Consolacion, 212 SCRA 268 (1992) Far Eastern Surety v. Misa 25 SCRA 663 (1968) Peza v. Alikpala, 160 SCRA 31(1988) Western Guaranty v. CA, 187 SCRA 652 (supra) (1990) 2. The “no-fault” clause Section 378 Perla v. Ancheta, 164 SCRA 144 (1988) Reinsurance Sections 95 to 98 PHILAM v. Auditor, 22 SCRA 135 (1968) Fieldman v. Asian Surety, 34 SCRA 36 (1970) Equitable Insurance v. Rural Insurance, 4 SCRA 343 (1962) Artex Development Co. v. Wellington Ins, Co., 51 SCRA 352 (1973) CHAPTER VIII, MARINE INSURANCE A. Definition and risks covered Section 99 General and particular average Sec. 136 (optional: Article 811, Code of Commerce) ‘A. Magsaysay, Inc. v. Agan, 96 Phil. 504 (1955) Jarque v. Smith Bell & Co., 56 Phil. 758 (1930) Phil. Home Assurance v. CA, 257 SCRA 468, supra “Perils of the sea” and “perils of the ship” Cathay Insurance v. CA, 151 SCRA 710 (1987) Roque V. IAC, 139 SCRA 596 (1985) La Razon v. Union Insurance, 40 Phil. 40 (1919) Malayan Insurance v. CA, 270 SCRA 242 (1997) Mayer Steel v. CA & Southsea Surety, 274 SCRA 432 Insurable interest in marine insurancea Parties with insurable interest (Sections 100, 101, 103, 104, 10S) Kinds of “charter parties” (Sec. 106) Coastwise v, CA, 245 SCRA 796 (1995) Lea Mer Industries v, Malayan Insurance, 471 SCRA 698, G.R. 161745, Sept. 30, 2005 Loadstar Shipping v. Pioneer, 479 SCRA 655 (2006) G.R. 157481, January 24, 2006 Cebu Saivage v. Phil, Home Assurance, 512 SCRA 667 (2007) Concealment and misrepresentation Sections 107 to 112; ef. Section 28 Implied warranties Sections 113 to 120; Sections 121 to 126 1 ‘Seaworthiness of the vessel Sec, 113 to 119 Roque v. Intermediate Appellate Court, 139 SCRA 596, supra Implied warranty against improper deviation Sec, 121 to 126 Implied warranty of proper documentation Sec. 120 Kinds of losses covered by marine insurance: total, partial, actual, constructive Sections 127, 128, 129, 130, 132 1 2 ‘Actual total loss Sec. 130 Constructive total loss Sec. 131 Concept of abandonment; requisites; conditions Secs. 138 to 155 Cases: Choa v. CA, 183 SCRA 223 (1990) Filipino Merchants v. CA, 178 SCRA 638 (1989) Oriental Assurance v. CA, 200 SCRA 459 (1991) Pan Malayan v. CA, 201 SCRA 382 (1991) Measure of indemnity; “open and “valued” policies Sections 156 to 166CHAPTER IX, CLAIMS SETTLEMENT & SUBROGATION A Notice and proof of loss; timeliness provisions by law and by contract Sections 88 to 92; 63; 241-244; 384 & 416; Art, 1144 Civil Code PHILAM v. CA, 344 SCRA 620 Aboitiz Shipping v. Insurance Company of North America, 561 SCRA 262 (2008) Unfair claims settlement; sanctions (Sec. 241-244) Londres v. National Life, 94 Phil. 627 (1984) Tio v. CA, 202 SCRA 119 (1991) Cathay v. CA, 174 SCRA 11 (1989) Noda v. Cruz-Arnaldo, 151 SCRA 227 (1967) Finman General v. CA, 361 SCRA 214 (2000) Delsan Transport v. CA,369 SCRA 24 (2004) Prescription of action Sections 63, 384 & 416 (for motor vehicle); Article 1144, Civil Code Ang v. Fulton, 2 SCRA 945 (1961) Travellers Insurance v. CA, 272 SCRA 536 (1997) Lopez v. Filipinas, 16 SCRA 855 (1966) Finman v. Inocencion, 179 SCRA 480 (1989) Eagle Star v. Chin Yu, 96 Phil, 696 (1955) ACCFA v. Alpha Ins., 24 SCRA 151 (1968) Travellers Insurance v. CA, 272 SCRA 536 (1997) Sun Insurance v. CA, 195 SCRA 193, supra (1991) ‘Mayer Steel case, supra Vda. De Gabriel v. CA, 264 SCRA 137 Subrogation Articles 1236 & 2207, Civil Code Coastwise v. CA, 245 SCRA 796 (supra) Magiana v. Consolacion, 212 SCRA 268 (1992) Cebu Shipyard v. William Lines, 306 SCRA 762 (1999) Pioneer Insurance v. CA, 175 SCRA 668 (1989) Manila Mahogany v. CA, 164 SCRA 652 (1957) Fireman's Fund v. Jamilla, 70 SCRA 323 (1976) PHILAMGEN v. CA, 273 SCRA 262 (1997) ‘St. Paul v. Macondray, 70 SCRA 122 (1976) ‘Malayan Insurance v. CA, 165 SCRA 536 (1988) FEDEX v. American Homes Assurance, 437 SCRA 50 (2004) Lorenzo Shipping v. Chubb & Sons, Inc, et.al., 431 SCRA 266 (2004) FGU v. CA, 454 SCRA 337 supra Aboitiz Shipping case (561 SCRA 262), supra BSC/alma 418 March 2013 3