DOUBLE INSURANCE

1. Defined
A double insurance exists where the same person is
insured by several insurers separately in respect to the
same subject and interest.
What is the nature of the liability of the several
insurers in double insurance?
Answer: The insurers are deemed co-insurers. Each
one is bound to contribute ratably to the loss in
proportion to the amount for which he is liable under his
contract.
The parties may validly provide that other
insurances taken by the insured without the consent of
the insurer will ipso facto avoid the contract. (Pioneer
vs. yap, 61 SCRA 426)
The rationale behind the incorporation of the other
insurance clause in fire policies is to prevent overinsurance and thus, avert the perpetration of fraud.
(Geagonia vs CA, 241 SCRA 152)

2. Differentiated from Reinsurance

Bar Question: What is the difference between
double insurance & reinsurance?

Answer: The difference between double insurance

and reinsurance are:
(a) Double insurance involves the SAME
INTEREST. Reinsurance is an insurance of
different interests;
(b) In double insurance, the insurer remains
in such capacity; in reinsurance, he
becomes an insured in relation to the
reinsurer; and
(c) In double insurance, the insured in the
first contract is a party in interest in the
second contract; in reinsurance the original
insured has no interest in the reinsurance
contract.
3. Effect of Double Insurance
The insured can insure with two or more companies
unless prohibited by prior policies. Where he is
allowed, but over-insurance results, he can claim, in
case of loss, only up to the agreed valuation (in
valued policies) or up to the full insurable value (in
open policies)
from any, some or all insurers,
without
prejudice
to
the
insurers
ratably
apportioning the payments.
The insured can also claim a ratable return of
the premiums on the over-insured amount.
Unrevealed other insurances, when required,
is a material concealment/misrepresentation, and

gives to the insurer the right to rescind. (Pacific vs.

CA., 168 SCRA 1)
Bar Question: A businessman in the grocery
business obtained from First Insurance an insurance
policy for five million pesos to fully cover his stocksin-trade from the risk of fire.
Three months thereafter, a fire of accidental
origin broke out and completely destroyed the
grocery including his stock-in-trade. This prompted
the businessman to file with First Insurance a claim
for five million pesos representing the full value of
his goods.
First Insurance denied the claim because it
discovered that at the time of the loss, the stocks-intrade were mortgaged to a creditor who likewise
obtained from Second Insurance Company fire
insurance coverage for the stocks at their full value
of five million pesos.
First Insurance refused to pay claiming
that double insurance is contrary to law. Is this
contention tenable?

B. Reinsurance
1. Defined
Reinsurance is a contract by which an insurer
procures a third person to insure him against loss or
liability by reason of such original insurance.

2. Distinguished from Co-insurance

If the insured procures insurance at less than the
value of the insured property, he is deemed to be a
co-insurer as to the deficiency. In case of loss, the
insurer and the insured will share the same pro rata.
In reinsurance, the insurer procures a third
person to insure him against loss or liability by
reason of such original insurance. In case of loss, the
reinsurer will pay the insurer for the risk reinsured.
3. Distinguished from Reinsurance Treaty

Answer: Double Insurance is not contrary to law. It

may be allowed if not prohibited in the policy. But in
the problem, there is no double insurance because
the insured are not the same (the businessman in
the insurance with First, and the creditor in the
insurance with Second) and because the interests of
the businessman and the creditor are not the same.

a. A reinsurance policy is a contract of indemnity

one insurer makes with another to protect the
first insurer from a risk it has already
assumed. In contradiction, a reinsurance
treaty is merely an agreement between two
insurance companies where one agrees to
cede and the other to accept reinsurance
business pursuant to provisions specified in
the treaty. Reinsurance treaties are contracts

for insurance; reinsurance policies or cessions

are contracts of insurance (Phil. Americal vs.
Auditor, 22 SCRA 135

policy of P1.5 million or 50% of the face value of

the fire policy between Gamma and Madam
Butterfly, pursuant to reinsurance treaty.

Bar Question:
Gamma Insurance Company
issued a P3 million fire policy covering Delta
Building owned by Madam Butterfly. Under a
reinsurance treaty, the British Reinsurance
Company accepted fifty percent reinsurance
coverage over the fire policy. A week later,
Madam Butterfly married Frederick Match, an exconvict for arson. All the members of the board of
directors of Gamma were invited guests at the
wedding and knew who Match was, but
completely ignored the matter as Madams
personal business. The matter was not even
discussed nor mentioned in Gammas board
meeting. One month after the wedding, the Delta
Building was completely burned down. The
finding of the police was that the fire was due to
faulty electric wiring. Gamma notified British
Reinsurance of the fire loss and demanded the
latters reinsurance liability. British Reinsurance
reinvestigated and learned for the first time
about Matchs previous convicted claim. Gamma
nevertheless paid Madam in full, and then
brought an action to recover from British
Reinsurance. Will this action prosper?

While an insurer obtaining reinsurance must

communicate all representations of the original
insured and all knowledge and information he
possesses whether previously or subsequently
acquired material to the risk, the fact of marriage
by the original material to the risk, especially it
being established that the fire was due to faulty
wiring.

Answer: Yes, Gamma can recover from British

Reinsurance the face value of its reinsurance

Bar Question: What is meant by facultative

reinsurance agreement?
Answer: A facultative reinsurance agreement is
a contract wherein the reinsurer may or may not
accept participation in the risk insured.
The term facultative is used in reinsurance
contracts and it is so used in this particular case
merely to define the right of the reinsurer to
accept or not to accept participation in the risk
insured. But once the share is accepted, the
obligation is absolute and the liability assumed
there under can be discharged by the one and
only way payment of the share of the losses.
There is no alternative nor substitute prestation.
4. Right of Reinsurer

A reinsurer is entitled to avail of every defense which

the reinsured may avail of against the original
insured. (Gibson vs. Revilla, 92 SCRA 219).