MARINE INSURANCE Under the present law, must the subject of marine insurance be exposed to the perils of marine

e navigation? The present law has expanded the coverage of marine insurance so as to include risks that would, otherwise, have been classified as some other form of insurance . Thus, the present law includes within the coverage of marine insurance risks not connected with marine navigation such as insurance of aircraft, goods while being packed or assembled, injury to passengers, precious stones, jewels, jewelry whether in the course of transportation or not. (Sec. 99). Distinguish perils of the sea from the perils of the ship. Perils of the sea - all kinds of marine casualties and damages done to the ship or goods at sea by the violent action of the winds or waves, one that could not be foreseen and not attributable to the fault of anybody. Distinguish perils of the sea from the perils of the ship. Perils of the ship, on the other hand, are losses or damages from: (a) natural and inevitable action of the sea; (b) ordinary wear and tear of the ship; or (c) negligent failure of the ships owner to provide the vessel with proper equipment to convey the cargo under ordinary condition. (Go Tiaco y Hnos vs Union Ins. Society of Canton, 40 Phil. 40). Vessel was lying at anchor and was about to start upon her voyage. It became necessary to fill up her boilers. The vessel had a donkey engine with a donkey-pump on board, and the donkeyengine was set to pump up water from the sea into the boilers. Those in charge of the operation did not take the precaution of

making sure that the boiler was open. This valve happened to be closed. The result was that the water being unable to make its way into the boiler was forced back, split the air-chamber and disable the pump. Was the cause of the damage a peril of the sea? The damage was peril of the ship since the cause of the damage was attributable to the fault of man. (Thames and Morsey Marine Ins., Co. v. Hamilton Fraser & Co., 12 A.C. 484; cited in Go Tiaco y Hnos vs. Union Ins. Society of Canton, supra). Is rusting of steel pipes a peril of the sea? Cathay Ins., vs Court of Appeals 151 SCRA 710 Rusting of steel pipes in the course of a voyage is a peril of the sea in view of the toll on the cargo of wind, water and salt conditions. Are perils of the ship ordinarily covered by marine insurance? Go Tioco y Hnos. vs Union Ins. Society of Canton 40 Phil. 40 Unless otherwise stated in the policy, loss due to perils of the ship is not within the coverage of marine insurance. A marine policy in the usual form, therefore, includes only perils of the sea and not perils of the ship, and accordingly, a marine insurer upon a policy in the usual form is not liable for a loss caused by a peril of the ship. A policy of insurance upon a cargo of rice stipulated that the insurer should be liable for losses incident to the perils of the sea. During the voyage, sea water entered the compartment where the cargo was stored through a defective drain pipe, and damaged the rice. Was the insurer liable? Go Tioco y Hnos. vs Union Ins. Society of Canton 40 Phil. 40 The insurer is not liable for the cause of the loss was a peril of the ship and not peril of the sea. The defect in the pipe was the result

of the ordinary use of the ship that was lacking of necessary repairs. Roque vs Intermediate Appellate Court 139 SCRA 596 Insured improperly loaded logs covered by marine insurance on board a barge. The barge sank due to improper loading of the logs and leaks because the barge was not provided with necessary cover or tarpaulin so that ordinary splash of sea waves brought more water inside the barge. Was the cause of the damage a peril of the sea for which the insurer could be made liable? The cause of the loss was a peril of the ship; therefore, the insurer was not liable. A loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ships owners to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not peril of the sea. Who must check the seaworthiness of the vessel in marine insurance? Roque vs Intermediate Appeal Court, 139 SCRA 596 Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner or insured to look for a reliable common carrier which keeps its vessels in seaworthy condition. The insured may have no control over the vessel but has full control in the choice of the common carrier that will transport his goods. What perils are included in an All Risks Policy in marine insurance? Filipino Merchant Ins., Co., Inc. vs CA, 179 SCRA 638; ChoaTiek eng vs CA , 183 SCRA 223 A marine insurance policy providing that the insurance was against all risks must be construed as creating a special insurance and extending to other risks than are usually

contemplated, and covers all losses except such as may arise from the fraud of the insured, intentional misconduct on the part of the insured or, otherwise, excluded in the policy. It covers all losses during the voyage whether arising from a marine peril or not, including pilferage losses during war. ChoaTiekSeng vs CA, supra. Insured imported lactose crystals which he insured against all risks. Upon arrival of the cargo in Manila, out of 600 bags, 403 were in bad order due to spillage. The insured filed a claim with the insurer which refused to pay on the ground that the cause of the damage was not a peril of the sea but a peril of the ship . Insurer further claimed that a loss under an insurance against all risks will be covered by the policy only if caused by fortuitous event which did not occur in this case. Was the contention of the insurer correct? HELD: No. An insurance against all risks covers all losses during the voyage whether arising from a marine peril or not, including pilferage losses during war. The insurer can avoid coverage only upon demonstrating that a specific provision expressly excludes the loss by pilferage from coverage, otherwise, the insurer liable. Malayan Insurance Corp. vs. Court of Appeals 80 SCAD 898, 270 SCRA 243 The insured cargo was loaded on a vessel that was arrested and detained at an intermediate port by civil authorities because of a lawsuit on a question of ownership and possession of the ship. As a result, the insured cargo had to be sold at a loss because of its perishable nature. The policy included among the risks covered seizure, arrest, restraint or detainment. The insurer refused to pay the loss on the ground that the arrests covered by the policy were those arising from political or executive acts, and the arrest of the vessel by judicial authorities was excluded.

 Was the contention of the insurer correct? HELD: Wrong. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the policies, there would have been no controversy with respect to the interpretation of the subject clauses. Exceptions to the general coverage are construed most strongly against the insurer. Since the term arrest did not exclude an arrest ordered by judicial authorities, then the policy must be construed so as to include the same within the coverage. What is the extent of the insurable interest of the owner of the ship is covered by a charter party? The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss; provided, that in this case, the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer. (Sec. 100). What is loan on bottomry or respondentia? Art. 719, Code of Commerce A loan in which under any condition whatever, the repayment of the sum loaned, and of the premium stipulated, depends upon the safe arrival in port of the goods on which it is made or of the price they may receive in case of accident. It is a loan on bottomry when the security is a vessel, and respondentia when the security is cargo. What is the insurable interest of the owner of a ship hypothecated by bottom? Only the excess of its value over the amount secured by bottomry is lost. (Sec. 101). The reason is that when the vessel hypothecated by bottomry is lost, the owner need not pay the loan on bottomry and, therefore, he is benefited to the extent of the amount of the loan

obtained and actually the loss he suffers is only the difference between the actual value of the vessel and the loan on bottomry. Does the lender have insurable interest over the vessel hypothecated by bottomry? Cassa Maritima v Phoenix Ins. Co., N.E. 962, 129 N.Y. 490 Yes, to the extent of the amount of the loan granted for the reason that the loss of the vessel or cargo hypothecated by way of bottomry or respondentia produces the extinguishment of the loan and therefore, the lender stands to suffer by the loss of the vessel or cargo. Distinguish concealment in marine insurance from concealment in other insurance. In ordinary insurance, opinion or belief of a third person or the own judgment of the insured is not material and need not be communicated (Sec. 35), while in marine insurance information of the belief or expectation of a third person in reference to a material fact, is material and must be communicated to the other party (Sec. 108); In ordinary insurance, causal connection between the fact concealed and the cause of the loss is not necessary to entitle the other party to rescind the contract. (Henson vs Phil. Am. Life Ins., Co., 56 O.G. 7328; Sec. 31)., while in marine insurance, concealment of any of the matters mentioned in Sec. 110 exonerates the insurer only if the loss resulted the risk concealed. What are the instances when concealment will not vitiate the entire contract but will only exonerate the insurer from a loss resulting from the risk concealed? Sec. 110 , Insurance Code The national character of the insured; The liability of the thing insured to capture and detention; The liability to seizure from breach of foreign laws of trade;

 The want of necessary documents; and The use of false and simulated papers. When may misrepresentation entitle the insurer to rescind a contract of marine insurance? If a representation by a person insured by a contract of marine insurance is intentionally false in any material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract. (Sec. 11). What warranties are implied in marine insurance? The ship is seaworthy; No improper deviation from the voyage will be made; The vessel will not engage in illegal venture; and Where nationality or neutrality of a ship or cargo expressly warranted, it is implied that the ship will carry the requested documents to show such nationality or neutrality and will not carry any document which cats reasonable suspicion thereon. (Secs. 113, 120, 123, and 125). When is a vessel seaworthy? A ship is seaworthy, when reasonable fit to perform the services, and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. (Sec. 114). What is the effect of violation of the implied warranty of seaworthiness? Richelieu & O. Nav. Co. v Boston M. Ins. Co., 136 U.S. 408, 10 Sup. Ct. Rep., 934 Whenever the vessel is unseaworthy, the insurer will not be liable for a loss occasioned thereby whether such fact was known or unknown to the insured. Philippine American General Insurance Co. vs. CA 83 SCAD 226, 273 SCRA 262 The insured loaded on board a vessel 7,500 cases of soft drink bottles to be transported from Zamboanga to Cebu City. Said

cargo was covered by marine insurance. The vessel was top-heavy as 2,500 cases of soft drink bottles were improperly stowed on deck. The inordinate loading of cargo on deck resulted in the decrease of the vessels metacentric height, thus, making it unstable. As a result, the vessel sank bringing down the entire cargo. The insurer refused to pay on the ground that the vessel was unseaworthy for purposes of carrying its cargo. The insured on the other hand, claimed that he had no control as to how his cargo would be loaded on the vessel. Was the insurer liable? Insurer not liable. In every marine insurance, the insured impliedly warrants to the insurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. It is the obligation of the cargo owner who insures his cargo to look for a reliable common carrier which keeps its vessel but he has full control in the selection of the common carrier that will transport his goods. Hence, the insurer can not be made liable unless there is a waiver of seaworthiness of the vessel. When must the vessel be seaworthy? As a general rule, seaworthiness of the vessel required only at the commencement of the risk, except in the following cases: a) When the insurance made for a specific period, in which case, the vessel must be seaworthy at the commencement of every voyage she may undertake during such period; b) When the insurance is upon cargo required to be transhipped at the intermediate port, in which case, each vessel upon which the cargo is shipped, or transhipped, must be seaworthy at the commencement of each particular voyage; and c) Where different portions of the voyage contemplated by the policy differ in respect to things to make the sip seaworthy, in

which case the ship must be seaworthy at the commencement of each portion with reference to that portions. (Secs. 115 and 117). Will the policy be avoided if the vessel becomes unseaworthy after the commencement of the voyage? As a general rule, seaworthiness of the vessel is necessary only at the commencement of the risk, and therefore, the insured does not warrant that the ship will be seaworthy during the entire voyage or throughout the life of the policy. Accordingly, if a vessel is seaworthy at the inception of the voyage, subsequent unseaworthiness does not avoid the policy. (9 Couch 2d., 242). What must be done if the ship becomes unseaworthy during the voyage? When a ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer from liability from any loss arising therefrom. (Sec. 118). At the commencement of the voyage, the vessel insured was seaworthy. During the voyage, the vessel broke its shaft and became unseaworthy. The vessel was towed to the Port of Detroit and thereafter towed to Lake Erie without being properly repaired. The vessel sprung a leak while at Lake Erie and sunk. Was the insurer liable? Since the particular defect that caused unseaworthiness was not the cause of the loss, the insurer was liable although there was a failure to repair the vessels defect. (Union Ins. Co. vs Smith, 124 U.S. 405, 8 Sup. Ct. Rep. 534; 9 Couch 2d., 242). May a vessel be seaworthy for the purpose of insurance upon the ship and yet unseaworthy for the purpose of insurance upon cargo? A ship is seaworthy for the purpose of an insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo be unseaworthy for the purpose of insurance upon the cargo. (Sec. 119)

 A cargo of wheat was laden upon a ship which had a port-hole insecurely fastened at the time of the leading. The port-hole was about one foot above the water line, and in the course of the voyage, sea water entered the compartment where the wheat was stored and damaged the cargo. Was the insurer of the cargo liable? The ship was unseaworthy with reference to the cargo and, therefore, the insurer of the cargo was not liable. (Steel vs State Line Steamship Co., L.R. A.C; cited in Go Tiaco vs Union Society of Canton, 40 Phil. 40). A cargo of jute was insured. During the voyage, the vessel encountered stormy weather as a consequence of which the cargo shifted its position and broke a pipe leading down through the hold from the water closet, with the result that the water entered the vessel and the jute was damaged. It was found that the cargo was improperly stowed and that the owners of the ship were chargeable with negligence for failure to protect the pipe by putting case over it. Was the insurer liable? The ship was unseaworthy for purposes of receiving cargo and therefore, the insurer was not liable. (Girley, Sons & Co., 18 A.C. 56; cited in Go Tiaco vs Union Society of Canton, 40 Phil. 40). What is the course of the voyage insured? When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending, the course of the voyage insured is: The one agreed upon by the parties; In the absence of agreement, the course of sailing is not fixed by mercantile usage; and If the course of sailing is not fixed by mercantile usage, one which to a master of ordinary skill and direction would seem the most natural, direct and advantageous. (Secs. 121 and 122). What is deviation? A departure from the course of the voyage insured;

 An unreasonable delay in pursuing the voyage; or The commencement of an entirely different voyage. (Sec 123). When is deviation proper? And when is it improper? a) When caused by circumstances over which neither the master nor the owner of the ship has any control; b) When necessary to comply with a warranty or avoid a peril , whether or not the peril is insured against; c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or d) When in good faith, for the purpose of saving human life, or relieving another vessel in distress. (Sec. 124). Every deviation not specified above is improper. (Sec. 125) What is the effect of improper deviation? An insurer is not liable for any loss happening to a thing insured subsequent to an improper deviation (Sec. 126), even if the risk has not increased or even it has been apparently diminished. A fishing vessel was insured from Plymouth for a fishing voyage to the banks of Newfoundland. In former seasons she had secured a supply of bait on the banks, but on this voyage no bait could be obtained there. The vessel sailed to a nearby port, St. Peters, to procure the necessary bait. After an absence of less than a week she returned to the banks and resumed fishing. Several days later a severe storm arose, in which the vessel floundered. Was the insurer liable? The insurer was not liable since the voyage to St. Peters port was an improper deviation which discharged the insurer, although it did not in any respect contribute to the loss. (Burgess vs Insurance Co., 126 Mass. 70, 30 Am. Rep. 634; cited in Vance, 2nd ed., 848). Kinds of losses in marine insurance. Total loss may either be: Actual total loss which is caused by: A total destruction of the thing insured;

 The irretrievable loss of the thing by sinking, being broken up; Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured. (Sec. 130). Constructive total loss is one which gives to a person insured a right to abandon. (Sec. 131). Partial loss which is a loss other than a total loss. (Sec. 128). Was there an actual total loss where a shipment of rice seeds or palay became wet and the seeds started to germinate or sprout? Pan Malayan Insurance Corporation 201 SCRA 282 There was actual total loss as the palay was rendered valueless to the owner. Where a cargo by the process of decomposition or other chemical agency no longer remains the same kind of thing as before, an actual total loss has been suffered. Constructive total loss or technical total loss. A constructive total loss is actually a partial loss. However, by making an abandonment in the cases provided by law, the loss is thereby converted to a total loss. Illustration: A vessel valued at P100 million was insured for the said amount. The vessel suffered damage amounting to P80 million. Although the loss was partial, upon making an abandonment, the insured was entitled to recover to recover the full value of the vessel, P100 million which was equivalent to a total loss. In such case, the insurer becomes the owner of whatever may remain of the vessel. But if no abandonment was made, the insured may recover only P80 million. How is constructive total loss determined where the cargo insured under one policy are loaded on different vessels? Oriental Assurance Corporation vs C A

200 SCRA 459 In case the contract of marine insurance covers a single shipment under one policy and one premium, the contract of insurance is one and indivisible, and the fact that the subject matter of insurance is loaded on board different vessels will not alter the situation. In such case, the constructive total loss will be determined loaded on one vessel alone. A shipment of 2,000 cubic meters of logs was insured under one policy and a single premium was paid. Said loges were loaded on two barges: (1) on barge PCT-7000, 610 pieces of logs with a volume of 1,000 cubic meters; and (b) on barge TPAC-1000, 598 pieces of logs, also with a volume of 1,00 cubic meters. During the voyage, rough seas and strong winds caused damage to barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. The insurer refused to pay the loss on the ground that the policy stipulated that the insurer was liable for total loss only. The insured claimed that since more than of the logs loaded n TPAC-1000 was lost, it had the right to abandon the shipment and therefore, there was a constructive total loss. Was there a constructive total loss considering that more than of the logs loaded on TPAC-1000 was lost although such loss was less than of the total shipment in the two barges? The logs involved, although places in two barges, were not separately valued by the policy, nor separately insured. Hence, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss was the totality of the shipment of logs. Of the total shipment of 1,208 pieces of logs, only 497 pieces were lost or 41.45 per centum of the total shipment, there was no right to abandon the shipment and consequently, there was no constructive total loss. Hence, there

can be no recovery against the insurer because the policy provided recovery for total loss only. (Oriental Assurance Corporation vs Court of Appeals, supra). Kind of averages. Simple or particular average includes all expenses and damages caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and her cargo (Sec. 809, Code of Commerce); or General or gross average includes all the damages and expenses which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from real and known risk. (Sec. 811, Code of Commerce). Must formal requirements be complied with to entitle a party to contribution arising from general or gross average? The right to contribution arising from a general or gross average could not be claimed unless the formal requirements of the law are complied with. (Art. 811, Code of Commerce). In order to incur the expenses and cause the damage corresponding to gross average, there must be a resolution of the captain, adopted after deliberation with the sailing mate and other officers of the vessels, and after hearing the persons interested in the cargo who may by present. The said resolution must be entered I the log book. (Secs. 813 [par. 1], 814 [par. 1]. Philippine Home Assurance Corp. vs CA 71 SCAD 199, 257 SCRA 468 Should the owners of the cargoes saved or their insurance contribute to the general average? HELD: NO. Since the formalities of the law were not complied with, there was no right to claim contribution for a general or gross average loss.

 What are the effects of a stipulation that the marine insurance shall be free from particular average? If the damage to the thing insured is a particular average, the insurer shall not be liable unless the loss suffered is total, i.e., the insured is deprived of the whole of such thing; If the damage to the thing insured is a general average, the insurer shall be liable whether the loss is partial or total or for the contribution of the insured for his proportion of all general average losses assessed upon the thing insured which was saved. (Secs. 136, 164 and 165). What is abandonment in marine insurance? Abandonment, in marine insurance is 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. (Sec. 138). What are the effects of abandonment? a partial loss becomes a total loss. (Sec. 131.); insured is surrendering to the insurer whatever is left of the property insured, and resorting to the policy for indemnity; and insurer then becomes the owner of whatever may remain of the insured thing and the insured may recover a total loss. (Sec. 139). Grounds of Abandonment more than of the value of the thing insured is actually lost; more than of the value of the thing insured would have to be expended to recover it from the peril; injured to such an extent as to reduce its value by more than ; Grounds of Abandonment If the thing insured a ship and the contemplated voyage cannot be lawfully performed without an expense to the insured of more than of the value of the thing abandoned; If the thing insured, is a ship and the contemplated voyage cannot be lawfully performed without incurring risk which a prudent man would not take under the circumstances;

 Grounds of Abandonment If the thing insured, being cargo or freightage, and the voyage cannot be performed nor another ship procured by the master, within reasonable time and with reasonable diligence, to forward the cargo, without incurring an expense of more than of the value of the thing or without incurring a risk which a prudent man would not under take under the circumstances. What may be recovered by the insured when abandonment is properly made? When abandonment is properly made, the insured may recover a total loss, and the insurer acquires all the interests of the insured in the thing with all chances of recovery and indemnity. But if the insured omits to abandon, he may recover only his actual loss. (Secs. 146 and 155). What is the effect of valuation in a policy of marine insurance? A valuation in a policy of marine insurance is conclusive between the parties thereto in the adjustment of either a partial or total loss, provided: (a) the insured has some interest at the risk and (b) there is no fraud on his part. In such case, the insured does not have to prove the value of the thing insured at the time of the loss except when it has been hypothecated by bottomry or respondentia before its insurance, and without the knowledge of the person actually procuring the insurance, in which case the real value thereof must be shown. (Sec. 156) Effect of Overvaluation. Co Teng vs Goodyear Ins. Co., CA-G.R. No. 37777-R, October 12, 1973

 If overvaluation is fraudulent, it entirely avoids the insurance whether done at the time of making the contract or at the time of submitting proof of loss. But the mere fact of overvaluation, even though great, is not alone sufficient proof of fraud. Effect of Overvaluation It must be alleged and clearly proved by the insurer that the insured, in overvaluing his property, did so knowingly and with fraudulent intent. Overvaluation may be due to a perfectly honest, though mistaken, estimate as to the real value of the property insured. (Vance on Insurance, 3rd ed., Hornbook Series, pp.838-839) Co-insurance. Co-insurance is a form of insurance in which the person who insures the property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance. (44 C.J.S.). In what kind of insurance does co-insurance exist? In marine insurance, there is always co-insurance (Sec. 157) while in fire insurance, there is no co-insurance unless expressly stipulated in the policy. (Secs. 171 and 172). In life insurance there is no co-insurance since the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. (Sec. 183). Effect of Co-insurance. Whenever co-insurance exists, the insurer is liable upon a partial loss only for such portion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. (Sec. 157). It results in a proportionate division of risk between the insured and the insurer with the following formula: Loss x Insurance = Liability of Insurer

Value Who has the burden of proving under-insurance so that the principle of co-insurance will apply? Development Insurance Corp. vs IAC 143 SCRA 62 In order that the principle of co-insurance can apply, the insurer must prove that the value of the property insured is more than the amount of the policy obtained or stated, otherwise, the property must be under-insured. In case the insurer should fail to do so, there can not be any pro rata sharing of the loss under the policy can not exceed the face value of the policy. The insured obtained a fire policy on its building for P2,500,000. The policy stipulated on the existence of co-insurance. The building was partially damaged to the extent of P508, 867. The insurer refused to pay the full amount of the loss and claimed that the value of the building was P5, 800,000 and therefore, the insured was considered as its own insurer for the difference between that amount and the face value of the policy and should share pro rata in the loss sustained. The insurer was not able to prove that the value of the property insured was P5,800,000. How much is the liability of the insurer? The insurer is liable for P508, 867 since that amount was proven to be actual loss suffered by the insured. Co-insurance can not apply as the insurer failed to prove that the amount of insurance taken was less than the value of the thing insured and there, a pro rata sharing of the loss can not apply. What is the meaning of Sue and Labor Clause in a marine policy? Sue and Labor Clause in marine policy is a distinct and independent contract having reference to charges not covered by the insurance, adopted for the purpose of permitting the insured to take every means for the recovery of property without waiving his right to abandon, and o bind the insurer to reimburse the insured for the reasonable amount of the expenses incurred.

(American Merchant Marine Ins. Co. of N.Y. vs Liberty Sand & Gravel Co., Inc. C..C.A N.J. 282 F. 514). Effect of Sue and Labor Clause. Whenever a marine policy includes a sue and labor clause, the insurer is liable for the expense incurred by the insured in recovering the property, which expense is in addition to a total loss, if that afterwards occurs. (Sec. 163). For what kind of fire is the insurer liable in fire insurance? Canson vs Phoenix Ins. Co.., 110 Ga. 583, 35 S.F. 775, 78 Am. SR. 124 The insured is entitled to recover the loss suffered where the cause of the damage is a hostile fire, that is, one which burns at a place where it is not intended to be, or breaks out from where the fire caused the loss is a friendly fire, that is, one which is confined within the place where it was intended to be and employed for the ordinary purpose of lighting, heating or manufactured, recovery cannot be had for loss or damaged caused thereby. hostile fire One which burns at a place where it is not intended to be, or breaks out from where the fire caused the loss is a friendly fire, that is, one which is confined within the place where it was intended to be and employed for the ordinary purpose of lighting, heating or manufactured, recovery cannot be had for loss or damaged caused thereby. Examples of damages caused by a friendly fire for which the insurer is not liable. Damages were caused by a fire that remained at the place where it was intended to be and accordingly, such fire was a friendly fire for which there was no recovery for the damage caused thereby; Damage caused by smoke from a lamp when no ignition occurred outside of the lamp; and Damage done to sugar by the heat of the usual fires employed for refining, being accumulated by the mismanagement of the insured, who inadvertently kept the top of their chimney closed

 Effect of alteration in the use or condition of the thing insured Alteration in the use or condition of the thing insured will entitle the insurer to rescind the contract of insurance provided the following requisites are present, to wit: (a) there must be a violation of the provisions of the policy; (b) the alteration was made without the consent of the insurer; (c) the alteration was made by means within the control of the insured; and (d) the alteration increased the risk of loss. (Secs. 168 and 169). Is increase in the risk of loss alone sufficient to entitle the insurer to rescind the contract of insurance? No. There must be a corresponding violation of the provision of the policy otherwise there is no right to rescind the policy. A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which (act) does not violate its provisions, even though it increases the risk and is the cause of the loss. (Sec. 170). A insured his building against fire with B Co.. After the effectivity of the policy, the insured stored gasoline, paints and varnishes within the premises insured. The building was burned and the insurer refused to pay the loss on the ground that the risk of fire was increased by the storage of gasoline, paints and varnishes. Was the refusal correct? The insurer was liable as there was no provision in the policy the keeping of gasoline, paints and varnishes upon the premises insured. If the insurer intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy. (Bachrach vs British Assurance Co., 17 Phil. 555). A fire insurance policy was issued describing the building insured as unoccupied at the first floor. Said floor was later on occupied. Was there an alteration which avoided the policy? There was no alteration. The policy did not clearly and categorically require that the first floor of the house should

remain unoccupied for the duration of the policy. The change from unoccupied to occupied did not, therefore, violate an express limitation in the policy. The description of the house cannot be said to be a limitation to its use. (Hodges vs Capital Insurance & Surety Co., Inc., 60 O.G. 2227). Must alteration in the use or condition of the thing insured increase the risk of loss? Why? Young vs Midland Textile Ins., Co., 30 Phil. 617 The right of the insurer to rescind a contract of insurance is premised on the fact that an insured paid premium based upon the risk at the time the policy was issued, and when the insured does not pay premium upon the increased risk, the insurer is entitled to rescind the contract. The alteration in the use or condition of the thing insured in violation of the provision of the policy must increase the risk of loss, otherwise, the policy is not affected thereby. However, although increase in the risk of loss, as a rule is necessary, when the policy provides that a violation of specified provisions shall avoid it, increase in the risk of loss is not necessary to enable the insurer to escape liability. (Sec. 75) Must alteration be within the control of the insured? An alteration in the use or condition of the thing insured must be by means within the control of the insured so as to entitle the insurer to rescind the contract. Thus, where the alterations were made by a tenant of the insured without the consent of the insured, the policy was not thereby avoided. (Nebraska & I. Ins., Co. vs Christienson, 45 N.W. 924, 29 Neb. 572). But a material alteration made by a tenant with the knowledge of the insured will forfeit the policy. (Lyman vs State Mut. Fire Ins., Co., 14 Allen 329). What is the measure of indemnity in open or unvalued fire insurance policy, and in valued policy?

 In case of open or unvalued policy, the measure of indemnity in fire insurance is the expense it would be to the injured to replace the thing lost or insured in the condition in which it was not at the time of the injury. (Sec. 171). In case of valued policy, the valuation agreed upon shall be conclusive between the parties in the adjustment of the loss. (Sec. 156). When there is prima facie evidence of arson? 1) If the fire started simultaneously in more than one part of the building or establishment; 2) If substantial amount of flammable substance or materials are stored within the building not necessary in the business of the offender nor for household use; 3) If gasoline, kerosene, petroleum or other flammable or combustible substances or material soaked therewith or containers thereof, or any mechanical, electrical, chemical, or electric contrivance designed to start a fire, or ashes or traces of any of the foregoing are found in the ruins or premises of the insured building or property; When there is prima facie evidence of arson? If the building or property is insured for substantially more than its actual value at the time of the issuance of the policy; If during the lifetime of the corresponding fire insurance policy more than two fires have occurred in the same or other premises owned or under the control of the offender and/ or insured; When there is prima facie evidence of arson? If shortly before the fire, a substantial portion of the effects insured on a building or property had been withdrawn from the premises except in the ordinary course of business; and If a demand for money or other valuable consideration was made before the fire in exchange for the desistance of the offender or for the safety of the person or property of the victim.

 Casualty Insurance. is insurance covering the 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. (Sec. 174). Contract of Suretyship. A contract of suretyship is an agreement whereby a party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. (Sec. 175) Liability of the surety. The liability of the surety shall be joint and several with the obligor and shall be limited to the amount of the bond. (Sec. 176). Torrento purchased steel bars from Nassco on a 120- day credit. To secure the payment of the price., Torrento posted a surety bond issued by Mutual. Torrento did not pay within period agreed upon and Nassco filed an action against Torrento and Mutual. Torrento claimed that inasmuch as she paid the premium on the surety bond, the right of action, in case of her failure to pay, was exclusively against her surety. Was Torrentos contention correct? No. Torrentos bound herself together with the surety, solidarily for the payment of the obligation and therefore, the creditor may bring an action against anyone of them. The surety may be sued either alone or together with the principal debtor. Is a suretyship contract valid and binding where premium thereon has not been paid? Generally, payment of premium is a condition precedent for the validity of suretyship contract or bond and therefore unless and until the premium is pad, the suretyship contract or bond is not valid. However, when a bond or suretyship contact is issued and accepted by the oblige or creditor, said bond or suretyship contract shall be valid and binding notwithstanding the nonpayment of premium. (Sec. 177).

 Life Insurance. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. (Sec. 179). Annuity. Is a contract to pay the insured, or a named person or persons, a sum periodically during life or a certain period. Distinctions: Annuity vs. Life Insurance. Annuity is payable during the lifetime of the annuitant while life insurance is usually payable upon the death of the insured; The annuitant pays a single premium while the insured in life insurance pays premiums by instalments; In annuity, the insurer undertakes to pay annuities until the death of the annuitant, while in life insurance, the insurer pays a lump sum upon the death of the insured. Is insurer liable when the insured suffered a violent death and assault or murder is excluded in the policy? In a life insurance policy where death by the insured by assault or murder, or intentional killing is excepted from its coverage, the mere fact that the insured suffered a violent death by the hands of another person will not necessarily relieve the insurer of liability. The insurers liability in such case will depend on whether the insureds death was intended or not. Kanapi vs Insular Life Assurance Co., Ltd., 94 Phil. 398; Biagtan vs Insular Life Assurance Co., Ltd., 44 SCRA 58 If the insured was killed by another person intentionally the insurer is not liable. Calanoc vs Court of Appeals 98 Phil 79 But where the insured was not an intended victim of a felonious assault, the insurer is still liable. Basilio, a security guard, had a life insurance policy with a supplementary contract covering death by accident. The policy

excepted death by assault or murder. Ojeda, whose house was a block away from Basilios workplace, asked for the latters help because Ojeda noticed something suspicious in house. Basilio refused because he was not a regular policeman. Calanoc vs Court of Appeals, 98 Phil 79 Ojeda then sought help from a policeman who prompted Basilio to come along. While they were standing in front of the main gate of Ojedas residence, a robber fired a shot that hit Basilios abdomen and caused his death. The insurer refused to pay proceeds of the policy on the ground that Basilios death was caused by murder or assault and therefore, excepted from the policy. Calanoc vs Court of Appeals 98 Phil 79 Was the insurer liable? Yes. There was no proof that Basilios death was caused by murder or assault nor can it be said that the killing was intentional for there was possibility that the robber fired the shot merely to scare away the people around and not necessarily to kill the victim. It cannot be pretended that the robber aimed at the deceased precisely because he wanted to take his life. The insured was covered by a personal accident insurance policy. While he and his cousin were waiting for a ride home after attending the celebration of the Maskarra annual festival, three unidentified men attacked them without provocation and warning. The insured died as a result of a stab wound inflicted by one of the attackers. The insurer refused to pay the beneficiaries on the ground that murder and assault were not within the scope of coverage of the personal accident insurance. Was the death of the insured covered by the policy? The death of the insured was covered by the policy. The cause of death was purely accidental insofar as the insured was concerned

there being no showing that the malefactor aimed at the insured precisely because the killer wanted to take the life of the insured. The insured died from an event that proceeded from an unusual effect of a known cause and therefore, not expected. Neither can it be said that there was a capricious desire on the part of the insured to expose his life to danger considering that he was just going home after attending a festival. Where death or injury is not the natural or probable result of the insureds voluntary act, of if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. (Finman General Assurance Corp. vs Court of Appeals, 213 SCRA 493). A Co. issued a life insurance policy on the life of B with an Accidental Death Benefit Clause, providing that an additional sum of P5,00 would be payable to the beneficiary if the death was due to accidental means but excepting death resulting from injury intentionally inflicted by a third party. The insured died from a bullet would inflicted, without provocation by C, who was found guilty of murder. Was A Co. liable under the Accidental Death Benefit Clause? The insurer was not liable because Bs death was due to murder which was undoubtedly intentionally inflicted by a third party and, therefore excepted by the policy. (Kanapi vs Insular Life Assur. Co., 94 Phil. 397. Bs life was insured and under a supplementary contract, an additional sum of P5,000 would be paid if the death of the insured resulted from an accident. However, death due to an injury intentionally inflicted by a third party was expressly excepted. Bs house was robbed. In committing the robbery, the robbers rushed towards the doors of the second room where they suddenly met a person near the door of one of the rooms who turned out to be B, the insured. B was stabbed nine times. Five of

the wounds inflicted caused the death of B. The robbers were apprehended, charged and convicted of robbery with homicide. The insurer refused to pay the additional P5,000 under the accident benefit clause on the ground that the insureds death resulted from injuries intentionally inflicted by a third parties and therefore, not covered by the policy. Was the insurer liable? The insurer was not liable because the nine wounds inflicted on the insured were intentionally caused. This case was different from the Calanoc case where it was found that the victim was not intentionally killed for there was the possibility that the robber had fired the shot to scare the people around for his own protection and not necessarily to kill or hit the victim. While a single shot fired from a distance, and by a person who was not even seen aiming at the victim, could have been fired without the intent to kill or injure, nine wounds inflicted with blade weapons at close range cannot be considered as innocent insofar as such intent is concerned. (Biagtan vs Insular Life Assur., Co., Ltd., 44 SCRA 58). Can a life insurer be made liable where the insured was executed for a crime? Burt vs Union Cent. L. Ins. Co., 187 U.S. 362, 23 Sup. Ct. 139 A policy of life insurance does not insure against the legal execution of the insured for crime even though he may in fact have been innocent, and, therefore, unjustly convicted and executed. Is the insurer in a life insurance contract liable where the insured committed suicide? YES, but only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period; provided, however, that suicide committed in the state of insanity shall be compensable regardless of the date of commission. (Sec. 180-A).

 Who has the burden of proving suicide? Edralin vs Insular Life Co., Ltd., [CA] 73 O.G. 976 The basic instinct of self-preservation militates against the commission of suicide. Hence, it is incumbent upon a party alleging suicide as a defense, especially in actions involving insurance policies to prove it by clear and convincing proof. When are proceeds of a life insurance payable to the estate of the insured considered conjugal? Bank of P.I. vs Posadas, 56 Phil. 315 The proceeds of a life insurance policy payable to the insureds estate, on which the premium were paid by the conjugal property and belong one-half to the husband exclusively and the other half to the wife. If the premium were paid partly with paraphernal and party with conjugal funds, the proceeds are in the like proportion paraphernal and conjugal. Del Val vs. Del Val, 29 Phil. 334 However, where the proceeds are payable to an irrevocable beneficiary and not to the conjugal estate of the person whose life was insured although the premiums were paid out of conjugal funds. Industrial Life Insurance. That form of life insurance under which the premiums are payable weekly, or under which premiums are payable monthly or oftener, if the face amount of the insurance is not more than 500 times that of the current statutory daily wage in the City of Manila, and if the words industrial policy are printed on the policy. (Sec. 229, par. 1) Will an industrial life insurance lapse by non-payment of premiums where the insurer failed to send a collector of the premiums? Industrial life insurance shall not lapse for non-payment of premiums if such non-payment was due to failure of the insurer to send its representative or agent to the insured at the residence of the insured or some other place indicated by him for the purpose

of collecting such premium. However, this does not apply when the premium on the policy remains unpaid for a period of three months or twelve weeks after the grace period has expired. (Sec. 229, par.2). May a life or health insurance policy be transferred? A policy insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. (Sec. 181). Is notice to the insurer necessary for the transfer or bequest of the life insurance policy? Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life of health, unless thereby expressly required. (Sec. 182). Distinguish assignment of a policy from a change of beneficiary. Assignment rests on contract rather than merely on the exercise of a power of appointment. Being based on contract, assignment must be supported by a consideration while the change of being beneficiary need not be based on a valid consideration. (Carter vs Thornton C. C. A. Ark.,93 F. 2d., 529; Congregation Beth Abraham vs Peoples Sav. Bank, 113 A. 53, 120 Mo. 178). Assignment however, has the effect of a change of beneficiary when done with the consent of irrevocable beneficiary or even without the consent of a revocable beneficiary. (Vance, 2nd ed., 568). Is consent of the beneficiary necessary for the validity of an assignment of a life insurance policy? If the designation of the beneficiary is irrevocable, the consent of such beneficiary to the assignment of the policy must be obtained since the beneficiary in such case has a vested right on the policy that cannot be defeated by an assignment or transfer without his consent. (Morgan vs Penn. Mut. Life Ins., Co. 94 F. 2d., 129).

 On the other hand, the consent of the beneficiary to an assignment of the policy is not necessary where the beneficiary is revocable for such case the beneficiary has no vested right as the insured may still change him. (Aetna Life Ins., Co. vs Philipps, 39 F. 2d., 901; Sec. 11). Must the assignee of a life insurance policy have insurable interest in the life of the insured? He need not have. (Sec. 181). Bankers Reserve Life Co. vs Mathews, 39 F 2d., 528; Midland Nat. Bank of Minneapolis vs Dakota Life Ins. Co., 48 S. Ct. 532, 277 U.S. 346) However, assignment of a policy should not be used to circumvent the provision of the law prohibiting insurance without insurable interest. An assignment of a policy of life insurance to one without insurable interest on the life of the insured may invalidate the policy where the assignment is substantially contemporaneous with the issuance of the policy and made with intent to evade the rule against wagering contracts, but where the assignment is made in good faith, the fact that it is made its inception. What is the measure of indemnity in life insurance? Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. (Sec. 183). By reason of this rule it has been said that life insurance contract is a valued policy. (1 Joyce, 133). However, when the insurable interest is susceptible of pecuniary estimation, then the amount of the loss suffered should be the basis of payment as in the case of insurance procured by a creditor on the life of the debtor, for then, life insurance of such nature is a contract of indemnity. (1 Joyce, 134).

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