Insurance Reviewer

San Beda College of Law
30
MEMORY AID
IN
COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. (Sec. 2, par. 2, IC)
DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE
BUSINESS (Sec. 2, par. 4)
1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of
suretyship as a vocation, not as a mere incident to any other
legitimate business of a surety;
3. Doing any insurance business, including a reinsurance business;
4. Doing or proposing to do any business in substance equivalent to
any of the foregoing
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance
Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. Consensual it is perfected by the meeting of the minds of the
parties.
2. Voluntary the parties may incorporate such terms and
conditions as they may deem convenient.
3. Aleatory it depends upon some contingent event.
4. Unilateral imposes 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.
6. Contract of indemnity Except life and accident insurance, a
contract of insurance is a contract of indemnity whereby the
insurer promises to make good only the loss of the insured.
7. Personal each party having in view the character, credit and

conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code
of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent
or unknown event, past or future and a duration for the risk
thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as premium.
5. Meeting of the minds of the parties.
5 CARDINAL PRINCIPLES IN INSURANCE
1. Insurable Interest
2. Principle of Utmost Good Faith
An insurance contract requires utmost good faith (uberrimae fidei)
between the parties. The applicant is enjoined to disclose any
material fact, which he knows or ought to know.
Reason: An insurance contract is an aleatory contract. The insurer
relies on the representation of the applicant, who is in the best
position to know the state of his health.
3. Contract of Indemnity
It is the basis of all property insurance. The insured who has
insurable interest over a property is only entitled to recover the
amount of actual loss sustained and the burden is upon him to
establish the amount of such loss (Reviewer on Commercial Law,
Professors Sundiang and Aquino)
Rules:
a. Applies only to property insurance except when the creditor
insures the life of his debtor.
COMMERCIAL LAW COMMITTEE

CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
31
MEMORY AID
b. Life insurance is not a contract of indemnity.

c. Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
Most of the terms of the contract do not result from mutual
negotiations between the parties as they are prescribed by the
insurer in final printed form to which the insured may adhere if
he chooses but which he cannot change. (Rizal Surety and Insurance
Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
It is a process of legal substitution where the insurer steps into the
shoes of the insured and he avails of the latters 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 does 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; see also Art. 2207, NCC)
Purposes: (The Insurance Code of the Philippines Annotated,
Hector de Leon, 2002 ed.)
1. To make the person who caused the loss legally responsible for
it.
2. To prevent the insured from receiving a double recovery from
the wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is
thus founded on considerations of public policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the
insured could have recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third
party liable for the loss or damage;
IN
COMMERCIAL LAW
b. Where the insurer pays the insured the value of the loss without
notifying the carrier who has in good faith settled the insureds
claim for loss;
c. 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)
d. In life insurance
e. For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly against the
insurer, and liberally in favor of the insured. However, if the terms
are clear, there is no room for interpretation. (Calanoc vs. Court of
Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of
pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated
perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual
losses among a large group or substantial number of persons
bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general
insurance fund.
A contract possessing only the first 3 elements above is a riskshifting device. If all the elements, it is a risk-distributing device.
(The Insurance Code of the Philippines Annotated, Hector de Leon,
2002 ed.)
IV. PERFECTION OF AN INSURANCE CONTRACT

32
MEMORY AID
IN
COMMERCIAL LAW
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)
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)
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.
POLICY OF INSURANCE
The written instrument in which a contract of insurance is set
forth. (Sec. 49)
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).
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.)
Endorsements
Any provision added to the contract altering its scope or
application. (Prof. De Leon, p.188)
Contents: (Sec. 51)

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.
Persons entitled to recover on the policy (sec. 53): The
insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or to whose benefit it is
made, unless otherwise specified in the policy.
Kinds:
1. OPEN POLICY value of thing insured is not agreed upon, but left
to be ascertained in case of loss. (Sec. 60)
The actual loss, as determined, will represent the total
indemnity due the insured from the insurer except only that the
total indemnity shall not exceed the face value of the policy.
(Development Insurance Corp. vs. IAC, 143 SCRA 62)

33
MEMORY AID
2. VALUED POLICY definite valuation of the property insured is

agreed by both parties, and written on the face of policy. (Sec. 61)
In the absence of fraud or mistake, the agreed valuation will
be paid in case of total loss of the property, unless the
insurance is for a lower amount.
3. RUNNING POLICY contemplates successive insurances and which
provides that the object of the policy may from time to time be
defined (Sec. 62)
V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
a. Individual life (Secs. 179183, 227)
b. Group life (Secs. 50, last par., 228)
c. Industrial life (Secs. 229231)
2. Non-life insurance
a. Marine (Secs. 99166)
b. Fire (Secs. 167173)
c. Casualty (Sec. 174)
3. Contracts of bonding or suretyship (Secs. 175178)
Note:
1. Health and accident insurance are either covered under life (Sec.
180) or casualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect of casualty insurance are
also referred to as property insurance.
VI. PARTIES TO INSURANCE CONTRACT
1. Insurer - Person who undertakes to indemnify another.
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)
2. Insured - The party to be indemnified upon the occurrence of the
loss. He must have capacity to contract, must possess an insurable
interest in the subject of the insurance and must not be a public
enemy.
IN
COMMERCIAL LAW
A public enemy- a nation with whom the Philippines is at

war and it includes every citizen or subject of such nation.
3. Beneficiary - A person designated to receive proceeds of policy
when risk attaches.
Rules in the designation of the beneficiary:
a. LIFE
i. 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)
ii. 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)
iii. 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)
iv. 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)
b. PROPERTY
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).

34
MEMORY AID
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. (Vance, p. 665, cited in de
Leon, p. 101, 2002 ed.)
VII. INSURABLE INTEREST
A. In General
A person has an insurable interest in the subject matter if he is so
connected, so situated, so circumstanced, so related, that by the
preservation of the same he shall derive pecuniary benefit, and by
its destruction he shall suffer pecuniary loss, damage or prejudice.
B. Life
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:
IN
COMMERCIAL LAW
GENERAL RULE: There is no limit in the amount the insured can

insure his life.
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.
Note: 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. Property
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. (Sec. 17)
INSURABLE
INT
ER
ES
T
IN
LIF
E
Must exist only at the
time the policy takes
INSURABLE
INTEREST IN
PROPERTY
Must exist at the

time the policy

35
MEMORY AID
effect and need not

exist at the time of
loss
Unlimited except in
life
insurance
effected by creditor
on life of debtor.
The expectation of
benefit to be derived
from the continued
existence of life need
not have any legal
basis whatever. A
reasonable
probability
is
sufficient
without
more.
The beneficiary need
not have an insurable
interest over the life
of 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.
takes effect and

when the loss
occurs
Limited to actual
value of interest in
property insured.
An expectation of a
benefit
to
be
derived from the
continued
existence of the
property
insured
must have a legal
basis.
The
beneficiary
must
have
insurable interest
over
the
thing
insured.
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)
IN
COMMERCIAL LAW
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
Subsequent acts
of the mortgagor
cannot affect the
rights
of
the
assignee
OPEN OR LOSS
PAYABLE
MORTGAGE
CLAUSE
Acts
of
the
mortgagor affect
the mortgagee.
Reason:
Mortgagor does
not cease to be a
party
to
the
contract. (Secs. 8
and 9)
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.

36
MEMORY AID
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 such insurer. (Palileo vs. Cosio)
VIII. RISK
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
IX. PREMIUM PAYMENTS
Consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
Basis of the right of the insurer to collect premiums: Assumption of
risk.
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)
IN
COMMERCIAL LAW
EXCEPTIONS:
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)
Section 77 merely precludes the parties from stipulating that the
policy is valid even if the premiums are not paid. (Makati Tuscany
Condominium Corp. v. CA, 215 SCRA 462)
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

A. Whole:
1. If the thing insured was never exposed to the risks insured
against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation
of insurer or his agents; (Sec. 81)
3. If contract is voidable because of the existence of facts of
which the insured was ignorant without his fault; (Sec. 81)

37
MEMORY AID
4. When by any default of the insured other than actual fraud,

the insurer never incurred liability; (Sec. 81)
5. When rescission is granted due to the insurers breach of
contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a definite period and the insured
surrenders his policy before the termination thereof;
Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2. When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and
indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio
by the fraud of the insured.
4. When the contract is illegal and the parties are in pari
delicto.
PREMIUM
ASSESSMENT
Levied and paid to

meet
anticipated
losses.
Collected to meet
actual losses.
Payment
is
not
enforceable against
the insured.
Payment
is
enforceable once
levied
unless
otherwise
agreed
upon.
Not a debt.
It becomes a debt
IN
COMMERCIAL LAW
once properly levied

unless
otherwise
agreed.
X. TRANSFER OF POLICY
1. Life Insurance
It can be transferred even without the consent of the insurer
except when there is a stipulation requiring the consent of the
insurer before transfer. (Sec. 181)
Reason: The policy does not represent a personal agreement
between the insured and the insurer.
2. Property insurance
It cannot be transferred without the consent of the insurer.
Reason: The insurer approved the policy based on the personal
qualification and the insurable interest of the insured.
3. Casualty insurance
It cannot be transferred without the consent of the insurer.
(Paterson cited in de Leon p. 82)
Reason: The moral hazards are as great as those of property
insurance.
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. (Sec. 58)
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)

38
MEMORY AID
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).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A.
1.
2.
3.
4.
Four Primary Concerns of the Parties:

Correct estimation of the risk;
Precise delimitation of the risk;
Control of the risk;
Determining whether a loss occurred and if so, the amount of
such loss.
B. Devices used for ascertaining and controlling risk and loss:

1. Concealment A neglect to communicate that which a party
knows and ought to communicate (Sec. 26)
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.
IN
COMMERCIAL LAW
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
Effects: Entitles insurer to rescind, even if the death or loss is due
to a cause not related to the concealed matter (Sec. 27).
Note: Good Faith is not a defense in concealment. Sec. 27 clearly
provides that, the concealment whether intentional or
unintentional entitles the injured party to rescind the contract of
insurance.
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).
Exception to Sec. 31:
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. (Sunlife v. Sps. Bacani, 246 SCRA 268).
The right to information of material facts may be waived, either
by the terms of the insurance or by neglect to make inquiries as to
such facts where they are distinctly implied in other facts of which
information is communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceiver will not avoid the
policy even though they are untrue. Reason: The insurer cannot rely

39
MEMORY AID
on those statements. He must make further inquiry. (Philamcare

Health Systems vs. CA, G.R. No. 125678, March 18, 2002).
2. 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 of Misrepresentation: the injured party is entitled to rescind
from the time when the representation becomes false.
Test of Materiality: Same as that in concealment.
IN
COMMERCIAL LAW
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
Assur. Co. vs. Feliciano, 74 Phil. 469)
3. Warranties Statement or promise by the insured set forth in
the policy or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to
whether insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable by the insurer.
Purpose: To eliminate potentially increasing hazards which may
either be due to the acts of the insured or to the change to the
condition of the property.
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 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. (Sec. 74)
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. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.

40
MEMORY AID
EXCEPTION: When the policy expressly provides or declares that a

violation thereof will avoid it. (Sec. 75)
WARRANTY
Part of the contract
Written on the
policy, actually or by
reference
REPRESENTATION
Mere collateral
inducement
May be written in
the policy or may
be oral.
Presumed material
Must be proved to
be material
Must be strictly
complied with
Requires only
substantial truth
and compliance
4. 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
The insurer may also protect himself against fraudulent claims of
loss and this he attempts to do by inserting in the policy various
conditions which take the form of conditions precedent. For
instance, there are conditions requiring immediate notice of loss or
injury and detailed proofs of loss within a limited period.
5. Exceptions Provisions that may
makes more definite the coverage
description of the risk by excluding
otherwise would be included under the
the risks assumed.
specify excepted perils. It

indicated by the general
certain specified risk that
general language describing
IN
COMMERCIAL LAW
Effect: Limit the coverage of the contract.

RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. 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)
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)
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;

41
MEMORY AID
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.
XII. 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.
Incontestability only deprives the insurer of those defenses which
arise in connection with the formation and operation of the policy
prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)
BARRED
DEFENSES
OF THE INSURER
DEFENSES NOT
BARRED
1. Policy is void ab
initio
2. Policy
is
rescindable
by
reason
of
the
fraudulent
concealment
or
1. That the person

taking the insurance
lacked
insurable
interest as required
by law;
2. That the cause of
the death of the
misrepresentation of
the insured or his
agent
IN
COMMERCIAL LAW
insured
is
an
excepted risk;
3. That
the
premiums have not
been paid (Secs. 77,
227[b],
228[b],
230[b]);
4. That
the
conditions of the
policy relating to
military or naval
service have been
violated
(Secs.
227[b], 228[b]);
5. That the fraud is
of a particularly
vicious type;
6. That
the
beneficiary failed to
furnish
proof
of
death or to comply
with any condition
imposed
by
the
policy after the loss
has happened; or
7. That the action
was not brought
within
the
time
specified.
XIII.
A. OVER-INSURANCE results when the insured insures the same
property for an amount greater than the value of the property with
the same insurance company.
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value
of the property lost;

42
MEMORY AID
IN
COMMERCIAL LAW
2. The insured is entitled to recover the amount of premium

corresponding to the excess in value of the property;
in proportion to the amount for which he is liable under his

contract.
B. DOUBLE INSURANCE exists where same person is insured by

several insurers separately in respect to same subject and interest.
(Sec. 93)
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
Additional or Other Insurance Clause

A condition in the policy requiring the insured to inform the
insurer of any other insurance coverage of the property insured. It is
lawful and specifically allowed under Sec. 75 which provides that
(a) policy may declare that a violation of a specified provision
thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid it.
A stipulation against double insurance.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
To constitute a violation of the clause, there should have been
double insurance.
Effects: Where double insurance is allowed, but over insurance

results: (Sec. 94)
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
C. REINSURANCE 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). (Sec. 95)
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
Insurer remains in
such capacity
Involves
different
interest
Insurer becomes the
insured in relation
to reinsurer
Original insured has
no interest in the
reinsurance
contract.
Subject of insurance
Insured is the party

in interest in the 2
contracts
Subject
of

43
MEMORY AID
insurance
is
property
Insured has to give
his consent
is
the
original
insurers risk
Insureds
consent
not necessary
TERMS:
1. 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, p. 306)
2. 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, p. 305)
3. 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)
4. 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, p. 305)
XIV.
A. LOSS, IN INSURANCE
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)
Loss for which
insurer is liable
Loss for which

insurer is not
liable
1. Loss
the
proximate cause of
which is the peril
insured
against
(Sec. 84);
2. Loss
the
immediate cause of
which is the peril
insured
against
except
where
proximate cause is
an excepted peril;
3. Loss
through
negligence
of
insured
except
where there was
gross
negligence
amounting to willful
acts; and
4. Loss caused by
efforts to rescue the
thing from peril
insured against;
5. 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).
IN
COMMERCIAL LAW
1. Loss
by
insureds
willful
act;
2. Loss due to
connivance of the
insured (Sec. 87);
and
3. Loss where the
excepted peril is
the
proximate
cause.
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.

44
MEMORY AID
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
the right of the
insured to recover.
Failure
to
give
notice
will
not
exonerate
the
insurer,
unless
there
is
a
stipulation in the
policy requiring the
insured to do so.
B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
LIFE POLICIES
a.
Maturing
upon
the
expiration of the
term
The
proceeds
are
immediately
payable to the
insured,
unless
they are made
payable
in
installments or as
annuity, in which
case,
the
installments
or
annuities shall be
paid
as
they
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.
IN
COMMERCIAL LAW
NON-LIFE
POLICIES
The proceeds shall
be paid within 30
days
after
the
receipt
by
the
insurer of proof of
loss,
and
ascertainment
of
the loss or damage
by agreement of the
parties
or
by
arbitration but not
later than 90 days
from such receipt of
proof
of
loss
whether
or
not
ascertainment
is
had or made.
In case of an unreasonable delay in the payment of the insureds

claim by the insurer, the insured can recover: 1) attorneys fees; 2)
expenses incurred by reason of the unreasonable withholding; 3)

45
MEMORY AID
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)
XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384)
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
claimants right of action shall prescribe. (Sec. 384)
PARTICULAR KINDS OF INSURANCE CONTRACTS
XVI. 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. (Sec. 99)
Coverage:
A.
IN
COMMERCIAL LAW
1. Vessels, goods, freight, cargo, merchandise, profits, money,

valuable papers, bottomry and respondentia, and interest in
respect to all risks 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 whoever is insuring the cargo,
whether he be the shipowner or not. (Roque v. IAC, 139
SCRA 596)
B. Marine Protection and Indemnity Insurance
Classes of inland marine insurance: (Prof. De Leon, p. 325)
1. Property in transit provides protection to property
frequently exposed to loss while it is transportation form
one location to another.
2. Bailee liability - insurance for those who have temporary
custody of the goods.
3. 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.
4. Floater provides insurance to follow the insured property
wherever it may be located, subject always to the
territorial limits of the contract.
Insurable interest:
A.
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).

46
MEMORY AID
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 (Sec. 105).
3. Charterer
Over the amount he is liable to the shipowner, if the ship
is lost or damaged during the voyage (Sec. 106).
B.
In 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. (Sec. 101)
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. (Pandect of Commercial Law and Jurisprudence,
Justice Jose Vitug, 1997 ed.)
PERILS OF THE
PERILS OF THE
SEA
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.
IN
COMMERCIAL LAW
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 ships
owner to provide
the vessel with
proper equipment
to convey the cargo
under
ordinary
conditions.
Note: It is only perils of the sea which may be insured against unless
perils of the ship is covered by an all-risk policy.
SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
A. 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)
B. 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

47
MEMORY AID
consent of owners, and to the prejudice of the owners interest.

(Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the
hull or machinery arising from the:
1. Negligence of the captain, engineers, etc.
2. Explosions, breakage of shafts; and
3. Latent defect of machinery or hull. (Bar Review Materials in
Commercial Law, Jorge Miravite, 2002 ed.)
D. 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. (Sec. 163)
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE
CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS (Sec. 110)
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.
Note: This should be related to the general rule regarding material
concealment.
DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F.
Agbayani, 1988 ed.)
MARINE INSURANCE
OTHER
PROPERTY
INSURANCE
The information of the

belief or expectation
The information or
belief of a 3rd party
of 3rd persons is
material and must be
communicated
The concealment of
any fact in relation to
any of the matters
stated in Sec. 110
does not vitiate the
entire contract but
merely exonerates the
insurer from a risk
resulting from the fact
concealed
IN
COMMERCIAL LAW
is not material and

need
not
be
communicated
unless it proceeds
form an agent of
the insured whose
duty it is to give
information
Concealment of any
material fact will
vitiate the entire
contract, whether
or not the loss
results for the risk
concealed.
IMPLIED WARRANTIES
1. Seaworthiness of the ship at the inception of the insurance (Sec.
113);
2. Against improper deviation (Sec. 123, 124, 125);
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;
(Sec. 120)
5. Presence of insurable interest.
While the payment by the insurer for the insured value of the lost
cargo operates as a waiver of the insurers right to enforce the term
of the implied warranty against the assured under the marine
insurance policy, the same cannot be validly interpreted as an
automatic admission of the vessels seaworthiness by the insurer as
to foreclose recourse against the common carrier for any liability

48
MEMORY AID
under the contractual obligation as such common carrier. (Delsan

Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
A relative term depending upon the nature of the ship, voyage,
service and goods, denoting in general a ships 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
Applicability of implied warranty of seaworthiness to cargo
owners: It becomes the obligation of a cargo owner to look for a
reliable common carrier, which keeps its vessels in seaworthy
conditions. The shipper may have no control over the vessel but he
has control in the choice of the common carrier that will transport
his goods (Roque v. IAC, 139 SCRA 596).
Deviation
A departure from the course of the voyage insured, or an
unreasonable delay in pursuing the voyage or the commencement of
an entirely different voyage. (Sec.123)
IN
COMMERCIAL LAW
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. 121123)
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 (Sec. 124)
Effect: In case of loss, the insurer is still liable.
2. Improper - Every deviation not specified in Sec. 124 (Sec.
125).
Effect: In case of loss or damage, the insurer is not liable.
(Sec. 126)
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 of the value of the object;

49
MEMORY AID
ii. Damage reducing value by more than of the value of

the vessel and of cargo; and
iii. Expense of transshipment exceed of value of cargo.
(Sec. 131, in relation to Sec. 139)
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)
2. Partial: That which is not total (Sec. 128).
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
PARTICULAR
Has inured to the

common benefit and
profit of all persons
interested in the
vessel and cargo
To be borne equally
by all of the interests
concerned in the
venture.
Has not inured to the

common benefit and
profit of all persons
interested in the
vessel and her cargo.
To be borne alone by
the owner of the
cargo or the vessel,
as the case may be.
Requisites for the

right
to
claim
contribution:
1. Common
danger to the
vessel
or
cargo;
2. Part of the
IN
COMMERCIAL LAW
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
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 sacrificed
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:

50
MEMORY AID
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. (Sec. 136)
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. (Sec. 138)
Requisites for validity:
1. There must be an actual relinquishment by the person insured
of his interest in the thing insured (Sec. 138);
2. There must be a constructive total loss (Sec. 139);
3. The abandonment be neither partial nor conditional (Sec. 140);
4. It must be made within a reasonable time after receipt of
reliable information of the loss (Sec. 141);
5. It must be factual (Sec. 142);
6. It must be made by giving notice thereof to the insurer which
may be done orally or in writing (Sec. 143); and
7. The notice of abandonment must be explicit and must specify
the particular cause of the abandonment (Sec. 144).
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 (Transfer
of Interest)(Sec.146)
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
IN
COMMERCIAL LAW
the risk of the insurer and for his benefit. (Transfer Of Agency)
(Sec.148)
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. (Sec.154)
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.
(Sec. 157)
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 insured
property which the
insured himself
assumes to act as
insurer to the extent
Situation where the

insurer procures a 3rd
party called the
reinsurer to insure
him against liability
by reason of an

51
MEMORY AID
of the deficiency in
the insurance of the
insured property. In
case of loss or
damage, the insurer
will be liable only for
such proportion of
the loss or damage as
the amount of the
insurance bears to
the designated
percentage of the
full value of the
property insured.
(Bar Review
Materials in
Commercial Law,
Jorge Miravite, 2002
ed.)
original insurance.
Basically, reinsurance
is an insurance
against liability which
the original insurer
may incur in favor of
the original insured.
XVII. 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. (Sec.
167)
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
it
was
intended to burn
and ought to be.
Insurer is liable
One that burns in a

place where it was
intended to burn
and ought to be
IN
COMMERCIAL LAW
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
Note: It is very crucial to determine whether a marine vessel is
covered by a marine insurance or fire insurance. The determination
is important for 2 reasons:
1. Rules on constructive total loss and abandonment applies
only to marine insurance;
2. Rule on co-insurance applies primarily to marine
insurance;
3. Rule on co-insurance applies to fire insurance only if
expressly agreed upon. (Commercial Law Reviewer, Aguedo
Agbayani, 1988 ed.)
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. (Sec. 170)

52
MEMORY AID
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.
XVIII. 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. (Sec. 174)
Classifications:
1. Insurance against specified perils which may affect the person
and/or property of the insured. (accident or health insurance)
Examples: personal accident, robbery/theft 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.
Examples: workmens compensation, motor vehicle liability
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
IN
COMMERCIAL LAW
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)
Aside from compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance. Therefore, such casualty insurance are governed by the
general provisions applicable to all types of insurance, and outside
of such statutory provisions, the rights and obligations of the parties
must be determined by their contract, taking into consideration its
purpose and always in accordance with the general principles of
insurance law.
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 insureds service and employment. The purpose of the
exception is to guard against liability should theft be committed by
one having unrestricted access to the property. (Fortune Insurance
vs. CA, 244 SCRA 208)
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 (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurers
liability is based on contract; that of the insured is based on torts.
Furthermore, the insurers liability is limited by the amount of the
insurance coverage (Pan Malayan Insurance Corporation v. CA, 184
SCRA 54).

53
MEMORY AID
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)
XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)
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).
IN
COMMERCIAL LAW
Claimants/victims may be a passenger or a 3rd party

It applies to all vehicles whether public and private vehicles.
Note: It is 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 vehicles 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.

54
MEMORY AID
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)
This no-fault claim does not apply to property damage. If the
total indemnity claim exceeds P5,000 and there is controversy in
respect thereto, the finding of fault may be availed of by the
insurer only as to the excess. The first P5,000 shall be paid without
regard to fault. (Prof. De Leon, p. 716)
The essence of the no-fault indemnity insurance is to provide
victims of vehicular accidents or their heirs immediate
compensation although in limited amount, pending final
IN
COMMERCIAL LAW
determination of who is responsible for the accident and liable for

the victims injuries or death. (Ibid.)
SPECIAL CLAUSES
A. Authorized Driver Clause
A 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)
The requirement that the person driving the insured vehicle is
permitted in accordance with the licensing laws or other laws or
regulations to drive the motor vehicle (licensed driver) is applicable
only if the person driving is other than the insured.
B. Theft Clause
A clause which includes theft as among the risks insured against.
Where the car is unlawfully and wrongfully taken without the
owners consent or knowledge, such taking constitutes theft, and
thus, it is the theft clause and not the authorized driver clause
that should apply (Palermo v. Pyramids Ins., 161 SCRA 677).
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.
XX. SURETYSHIP
An agreement whereby a surety guarantees the performance by
the principal or obligor of an obligation or undertaking in favor of an
obligee. (Sec. 175)
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. 20

55
MEMORY AID
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
3 parties: surety,
obligor and oblige
Credit
accommodation
Surety can recover
from principal
Principal contract
2 parties: insurer and
insured
Contract
of
indemnity
Insurer has no such
right; only right of
subrogation
May be cancelled
unilaterally either by
insured or insurer on
grounds provided by
law
No need of
acceptance by any
third party
Bond can be
cancelled only with
consent of obligee,
Commissioner or
court
Requires
acceptance of
obligee to be valid
Risk-shifting device;
premium paid being
in the nature of a
service fee
Risk-distributing
device; premium paid
as a ratable
contribution to a
common fund
IN
COMMERCIAL LAW
XXI. LIFE INSURANCE

Insurance on human lives and insurance appertaining thereto or
connected therewith which includes every contract or pledge for
the payment of endowments or annuities. (Sec. 179)
Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite,
2002 ed.)
1. Ordinary Life, General Life or Old Line Policy - Insured pays a
fixed premium every year until he dies. Surrender value after 3
years.
2. Group Life Essentially a single insurance contract that provides
coverage for many individuals. Examples: In favor of employees,
mortgage redemption insurance.
3. Limited Payment Policy insured pays premium for a limited
period. If he dies within the period, his beneficiary is paid; if
he outlives the period, he does not get anything.
4. Endowment Policy pays premium for specified period. If he
outlives the period, the face value of the policy is paid to him;
if not, his beneficiaries receive the benefit.
5. Term Insurance insurer pays once only, and he is insured for a
specified period. If he dies within the period, his beneficiaries
benefits. If he outlives the period, no person benefits from the
insurance.
6. Industrial Life - life insurance entitling the insured to pay
premiums weekly, or where premiums are payable monthly or
oftener.
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

56
MEMORY AID
assured and the deceaseds heirs will thereby be relieved from

paying the unpaid balance of the loan. (Great Pacific Life Assurance
Corp. vs. Court of Appeals, 316 SCRA 677)
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 policys
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)
Note: Justice Vitug believes that death by suicide (if the insured is
sane) or at the hands of the law obviates against recovery as being
more in consonance with public policy and as being implicit under
Section 87, ICP. (Pandect of Commercial Law and Jurisprudence,
1997 ed. P. 191)
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
IN
COMMERCIAL LAW
If the premiums paid came from conjugal funds, the proceeds are
considered conjugal. If the beneficiary is other than the insureds
estate, the source of premiums would not be relevant. (Del Val v.
Del Val, 29 Phil 534)
The measure of indemnity in life or health insurance policy is the
sum fixed in the policy except when a creditor insures the life of his
debtor. (Sec. 183)
IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE
ASSIGNMENT OF A LIFE INSURANCE POLICY?
It depends. If the designation of the beneficiary is irrevocable, the
beneficiarys consent is essential because of his vested right. If the
designation is revocable, the policy may be assigned without such
consent because the beneficiary only has a mere expectancy to the
proceeds. (The Insurance Code of the Philippines Annotated, Hector
de Leon, 2002 ed.)
Cash Surrender Value
As applied to a life insurance policy, it is the amount the insured in
case of default, after the payment of at least 3 full annual
premiums, is entitled to receive if he surrenders the policy and
releases his claims upon it.
LIFE INSURANCE
FIRE INSURANCE
Contract
of
investment not of
indemnity
Valued policy
May be transferred
or assigned to any
person even if he
has no insurable
interest
Consent of insurer is
Contract of indemnity
Open or valued policy
The
insurable
interest
of
the
transferee
or
assignee is essential
Consent of insurer

57
MEMORY AID
not essential to
validity of
assignment
Contingency that is
contemplated is a
certain event, the
only uncertainty
being the time when
it will take place
A long-term
contract and cannot
be cancelled by the
insurer
Beneficiary is under
no obligation to
prove actual
financial loss
must be secured in the

absence of waiver
Contingency insured
against may or may
not occur
IN
COMMERCIAL LAW
b. Concurrent original jurisdiction (with the RTC) Where the

maximum amount involved in any single claim is P100,000 (Sec.
416), except in case of maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime
jurisdiction)
Where the amount exceeds P100,000, the RTC has
jurisdiction.
May be cancelled by
either party and is
usually for a term of
one year
Insured is required to
submit proof of his
actual pecuniary loss
as a condition
precedent to
collecting the
insurance.
XXII. VARIABLE CONTRACT

Any policy or contract on either a group or individual basis issued
by an insurance company providing for benefits or other contractual
payments or values thereunder to vary so as to reflect investment
results of any segregated portfolio of investment.
XXIII. INSURANCE COMMISSIONER
Main agency charged with the enforcement of the Insurance Code
and other related laws.
Functions:
1. ADJUDICATORY/QUASI-JUDICIAL
a. Exclusive original jurisdiction Any dispute in the
enforcement of any policy issued pursuant to Chapter VI (CMVLI).
(Sec. 385, par. 2)

58
MEMORY AID
IN
COMMERCIAL LAW
The Insurance Commissioner has no jurisdiction to decide the

legality of a contract of agency entered into between an insurance
company and its agent. The same is not covered by the term doing
or transacting insurance business under Sec 2, ICP, neither is it
covered by Sec. 416 of the same Code which grants the
Commissioner adjudicatory powers (Philippine American Life
Insurance Co. v. Ansaldo, 234 SCRA 509).
2. ADMINISTRATIVE/REGULATORY
a. Enforcement of insurance laws
b. Issuance, suspension or revocation of certificate of authority
c. Power to examine books and records, etc.
d. Rule-making authority
e. Punitive


Insurance Reviewer

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Insurance Reviewer

Transféré par

Droits d'auteur :

Formats disponibles

San Beda College of Law

7. Personal each party having in view the character, credit and

COMMERCIAL LAW COMMITTEE

San Beda College of Law

b. Life insurance is not a contract of indemnity.

COMMERCIAL LAW COMMITTEE

San Beda College of Law

An insurance contract is a consensual contract and is therefore

Cover Note (Ad Interim)

Contents: (Sec. 51)

COMMERCIAL LAW COMMITTEE

San Beda College of Law

2. VALUED POLICY definite valuation of the property insured is

A public enemy- a nation with whom the Philippines is at

COMMERCIAL LAW COMMITTEE

San Beda College of Law

Effects of Irrevocable Designation Of Beneficiary

GENERAL RULE: There is no limit in the amount the insured can

Must exist at the

COMMERCIAL LAW COMMITTEE

San Beda College of Law

effect and need not

takes effect and

2. In case of a mortgaged property

Effects of Loss Payable Clause

COMMERCIAL LAW COMMITTEE

San Beda College of Law

GENERAL RULE: No policy issued by an insurance company is valid

ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID

COMMERCIAL LAW COMMITTEE

San Beda College of Law

4. When by any default of the insured other than actual fraud,

Levied and paid to

once properly levied

COMMERCIAL LAW COMMITTEE

San Beda College of Law

Four Primary Concerns of the Parties:

B. Devices used for ascertaining and controlling risk and loss:

c. Such party concealing makes no warranty as to the fact

COMMERCIAL LAW COMMITTEE

San Beda College of Law

on those statements. He must make further inquiry. (Philamcare

COMMERCIAL LAW COMMITTEE

San Beda College of Law

EXCEPTION: When the policy expressly provides or declares that a

4. Conditions Events signifying in its broadest sense either an

specify excepted perils. It

Effect: Limit the coverage of the contract.

COMMERCIAL LAW COMMITTEE

San Beda College of Law

2. Notice must be in writing, mailed or delivered to the named

1. That the person

COMMERCIAL LAW COMMITTEE

San Beda College of Law

2. The insured is entitled to recover the amount of premium

in proportion to the amount for which he is liable under his

B. DOUBLE INSURANCE exists where same person is insured by

Additional or Other Insurance Clause

Effects: Where double insurance is allowed, but over insurance

C. REINSURANCE a contract by which the insurer procures a third

Involves the same

Insured is the party

COMMERCIAL LAW COMMITTEE