INSURANCE LAW (Philippine Insurance Code, PD 612, as amended)

The question of whether a contract of insurance is perfected is NOT gover

ned by the Insurance Code but by the New Civil Code (re: perfection of contracts
). The NCC applies in a suppletory character.
SECTION 2 defines a contract of insurance. Sec. 2 (1) says that a contra
ct of insurance is an agreement whereby one undertakes for a consideration to in
demnify another against loss, damage or liability arising from an unknown or con
tingent event.
Suretyship is different from an insurance contract because there are thre
e parties in suretyship and when the surety pays, he is entitled to reimbursemen
t. In insurance, when the insurer pays, he is not entitled to reimbursement.
Underlying concept in insurance: it deals with a scheme of distribution o
f risk/loss.
An insurance contract has the following elements:
1. Insurable interest the insured possesses an interest of some kind susceptible
of pecuniary estimation
2. Risk of loss the insured is subject to a risk of loss through the destruction
or impairment of the above insurable interest by the happening of designated pe
rils
3. Assumption of risk the insurer assumes the risk of loss mentioned above
4. Scheme to distribute losses the said assumption of risk is a part of a genera
l scheme (plan) to distribute actual losses among a large group of persons beari
ng somewhat similar risks; and
5. Payment of premiums as consideration for the insurer s promise to assume the ri
sk and pay the losses from such risk, the insured makes a ratable contribution,
called a premium, to a general insurance fund
If you only have insurable interest, risk of loss and assumption of risk
of loss, you do not have a contract of insurance. It is a mere risk-distributing
device. But if it has all of the five, it is a contract of insurance whatever
its name or form.
What if it involves services? Like Maxicare? (-- I did not get this par
t, sorry.)
The following are the characteristics of an insurance contract:
1. Aleatory it is an aleatory but not a wagering contract. By an aleatory contr
act, one of the parties or both reciprocally bind themselves to give or to do so
mething in consideration of what the other shall give or do upon the happening o
f an event which is uncertain, or which is to occur at an indeterminate time (Ar
t. 2010, NCC)
2. Unilateral a contract of insurance is wholly executed on the party of the ins
ured by the payment of the premium, and remains executory on the part of the ins
urer, subject to the condition of the happening of the event insured against.
3. Personal it is personal in the sense that each party to it, in entering into
the insurance contract, takes into account the character, credit and conduct of
the other.
4. Conditional the insurer s liability is based on the happening of the event insu
red against
5. Indemnity is the basis
The general scheme/outline of the law on insurance
1. First it talks of who are the parties to the contract of insurance, the requi
sites to a valid contract: object, consent, consideration (Sections 1 to 25)
a. Object insurable interest
b. Consent what vitiates consent (Sec. 26)
c. Consideration premium
2. Then it proceeds to the perfected contract of insurance
3. Then the obligations under the contract of insurance
4. It then speaks of other types of insurance contracts
SECTION 4 prohibits insuring one s chance in a wagering contract, in any lo
ttery or in gambling, whether or not gambling is permitted by law. What is proh
ibited is not only a chance in lottery but all forms of gambling and wagering.
See SECTION 25 which declares that every policy executed by way of gambling or w
agering is void.
SECTION 6 answers the question who may be an insurer?
SECTION 7 answers the question who may be insured? A public enemy is every
citizen or subject of a nation at war with the Philippines. It does not includ
e robbers, thieves, private depredators, or riotous mobs. A local criminal can
be insured if the insurer is willing to take him as a good risk. The citizen of
a country with which we do not have diplomatic relations is not a public enemy
and can be insured.
SECTION 8 speaks of a mortgage clause in an insurance contract. This is
common in car insurance. It may be provided therein that in case of loss, the p
roceeds will be paid to the mortgagee. But it is still the mortgagor who is the
insured so he is the only one who can sue thereon.
Under the Civil Code, when the insurer pays, he is subrogated to the righ
ts of the insured against the wrongdoer.
SECTION 10 speaks of insurable interest in life and health. The general
rule is that a person may designate anyone to be his beneficiary. The exception
is Art. 739 of the Civil Code in relation to Art. 2012 (prohibited donations).
See the case of Insular Life v. Ebrado, L-44059, Oct, 28, 1977 which says that
the reason for the exception is that a life insurance policy is no different fr
om a civil donation insofar as the beneficiary is concerned coz both are founded
upon the same consideration: liberality. Therefore the rule on prohibited dona
tions apply in cases life insurance.
When you insure the life of another, the consent of that person must be o
btained and there must also be insurable interest over the life of that person.
SECTION 11 says that the insured has the right to change beneficiary unle
ss he has waived this right in the said policy. Remember that if the designatio
n of the beneficiary is irrevocable, change of beneficiary can only be made with
the consent of the said beneficiary.
SECTION 12 says that the interest of a beneficiary who is a principal, ac
complice or accessory to the killing of the insured will go the estate of the in
sured (intestacy). The beneficiary shall not benefit from his criminal act.
(Yun lang nasa notes ko :) - January)
DECEMBER 17, 2001 Peachy Selda
ANSWERS TO THE QUIZ:
1. (a) The obligation to pay here is conditional - upon completion of the buildi
ng. He promised to pay upon completion of the building; that is conditional , t
hat s not unconditional.
(b) Then it contains the option to do something other than the payment of money
for the maker is given the option to pay either in check or cash. Well, check i
s not cash, not money, so there s an option to do something. So, that s not negotiab
le.
(c) There s an acceleration clause, well that s express provision of the law. That
is negotiable. The payee s alternative, the law allows that the sum is uncertain
because of the 18% interest in case of default Well, if a high penal interest i
s imposed in case of default the sum is uncertain- that s the penalty.
2. Guzman cannot recover from Estrera because he is not a holder in due course.
He was aware that the power of attorney had been revoked so he s not a holder in
due course. Therefore, Estrera can raise the defense that the check was filled
up without authority.
3. Sison entrusted to his employee a check in favor of Jalandoni. Ilagan forged
the endorsement and encashed the check. The bank state the amount, the bank ar
gue there is an estoppel, because Sison did not represent to the bank that Ilaga
n was authorized to indorse the check. There s no representation made; there s no e
stoppel.
4. Lopez issued a check payable to the order of Martin Martin indorsed in blank
to Noble Noble indorsed by special endorsement to Ocampo, Ocampo delivered it to
Paz. It turned out that the bank account of Lopez was closed, so Paz to Lopez
as drawer. Lopez argued he is not liable because Martin failed to deliver the
rice which was the consideration of the check. Can Martin invoke this defense?
Yes, because the check was originally payable to order it was endorsed in blank
, but then the next endorsement was a special endorsement so it was payable to o
rder again, it will only be payable to bearer if the last endorsement is an endo
rsement in blank. But the last endorsement is a special endorsement and therefo
re to negotiate it delivery is sufficient because Ocampo merely delivered it.
5. Reyes issued a check payable to Santos Trading, Torres, the cashier, was auth
orized to endorse check in his behalf. He endorsed the check to Conson to pay f
or his personal debt. The check was dishonored for lack of funds. When Conson a
sked Reyes to make for the check, Reyes argued that Santos Trading did not deliv
er the supplies he purchased. Conson argued that he is a holder in due course.
Well, he s not a holder in due course because the check was payable to Santos tra
ding and then pursued in order to pay for his personal debt. So we should know t
hat the title is defective. The check was payable to the corporation, therefore
any endorsement should be for the corporation. However here, he endorsed it to
pay for his personal debt.
BACK TO INSURANCE: (Note: jack did not go by sections in this lecture)
INSURABLE INTEREST IN PROPERTY
Sec. 13 deals with insurable interest in property.
Interest in property has the classic example, that is the ownership or an
y relation there to the trustee or liability, like the third party s liability ins
urance for motor vehicle, so there s an insurable interest.
An insurable interest in property may consist of an existing interest. A
gain the classic example is ownership with interest found in an existing interes
t, like stockholders can insure the properties of the corporation because they h
ave an existing interest as stockholders, and in quo with interest because in ca
se of dissolution of the corporation the assets will be distributed among the st
ockholders by way of liquidating dividends.
This is common. A foreign corporation sets up a domestic subsidiary and
usually there is one insurance company abroad with which they insure the assets
of their subsidiary here. They can do that, an expectancy coupled with an exist
ing interest in that out of which expectancy arise; in the same way as farmers c
an insure their future crops.
So, you have many examples of insurable interest.
Like the court said, the buyer of undelivered property in that Filipino M
erchants case, that the consignee of the goods that were stolen in the pier can
be claimed and the defense of the insurance company is the insurable terms of th
e buyer. He has equitable interest. The seller also has an insurable interest
because he still retains the legal title and unpaid salary with a lien on the pr
operty.
A mortgage insurable interest on the property mortgaged, for example: a c
ontractor who has not been paid under the Civil Code has a lien on the building
he constructed so he can insure that building. In fact the Civil Code also says
, until the construction is finished it is the contractor who bears the risk of
loss, so he can insure the building that he is constructing.
A lessor, a lessee can insure the premises he is leasing. There s an inter
est in its preservation. Or even mere possessory rights is sufficient- like the
case of a Jewish garment factory. They send textiles to garment factories to b
e converted into finished dresses. These factories also have insurable interest
over the garment packed. The court also ruled that if textiles are delivered to
be dyed, that fellow who was hired to dye the textile should have insurable int
erest on that.
The law provides that the carrier and the depository have insurable inter
est on the property entrusted to them because they will be liable in case of los
s.
On the other hand, a mere expectancy that is founded on the actual right
is not insurable, like the prospective heirs of somebody. Children cannot insu
re the properties of their parents, for there is a mere expectancy.
The Court of Appeals has ruled that where you have a simulated deed of sa
le, the buyer has no insurable interest because he is not actually the owner.
Here s the case of Chuck. There was this landlord who required his tenant
to insure his stocks in trade. It is still ok to require it to insure. Usually
it is the commercial centers part, in addition to the basic rent. They charge
5% of your gross sales, so they want to make sure you always have the stocks in
trade so that if they get burned, you can replace them. But then the contract p
rovided that in case of losses, the proceeds should be payable to the lessor. T
he court says that is void because there s no insurable interest in the stocks in
trade. So, a review on the loan agreement was required in a case where a bank w
as found to require the borrower to insure the building, but the building was no
t mortgaged. Moreover, a provision was placed that in case of loss, the proceed
s should be payable to the bank. That is void. You have no insurable interest
because you have no lien on the building. The building is insured, but it s not m
ortgaged to you.
The Court of Appeals ruled that smuggled properties couldn t be insured bec
ause smuggled properties are subject to forfeiture under the law. To allow ther
efore its insurance is against public policy.
Now, no contract of insurance shall be enforceable except for the benefit
of the person having an insurable interest in that property insured. Moreover,
in property insurance, the insurable interest must exist when the policy takes
effect and when the loss occurs, but it need not exist in the meanwhile.
If somebody insured his car and then sold it, but then it got lost, he ca
nnot recover because he no longer has any insurable interest. But if he redeeme
d it and the loss occurred after he has redeemed the car, he can still collect.
This (inaudible) case was asked in the bar exam. The owner of the buildi
ng insured the building. Now, the building was mortgaged and the mortgage was f
oreclosed, but he failed to redeem that. After the expiration of the period of
redemption, the building was burned. The court said he cannot collect. He had
no more insurable interest. But if he still has the right of redemption, he wil
l also have insurable interest.
Insurance is a personal contract because it is not attached to the thing.
That is why the law says change of interest on the thing insured will suspend
the insurance until interest in the insurance is based on same person.
As a general rule, when a car is insured and it is sold, the insurance po
licy does not automatically attach to the buyer unless you get the consent of th
e insurance company and it issues an endorsement saying the policy is being assi
gned to the buyer. There are however exceptions to that - in case of insurance
upon life, accident or health, then a change of interest inaudible the thing ins
ured after the loss has occurred. Again, somebody insured the building. The bu
ilding was burned. He then assigned the proceeds of the policy because at that
point in time, the right to collect the proceeds has already accrued. There is
now a chose in action which can be assigned or a change of interest in one or so
me of several things separately insured by one policy.
Here s a taxi company with a fleet of taxis, 20 units. The taxicabs were i
nsured. The owner sold 3 of them. The policy will remain subsisting. It would
remain with respect to the remaining 17 units of taxicabs.
A change of interest by succession because of death like, here s a father w
ho insured his house. When he died, his children inherited the house. The poli
cy will remain in force.
The transfer of interest by one of several partners or co-owners - like h
ere are brothers who inherited a building. They insured it. Then one of them b
ought out the other three, so he became the exclusive owner. The policy remains
in force so that if it is burned he can collect.
A stipulation for payment of loss whether or not the person insured havi
ng insurable interest is void.
The policy or provision that executes by way of gaining or wagering is vo
id.
In case the lessor requires the lessee to insure his stocks in trade and
to provide that in case of loss the proceeds be payable to him is of course void
because he has no insurable interest in stocks in trade.
Wagering, well, I mentioned to you the case of this fellow who got an ord
inary manual laborer earning minimum wage to insure his life with 6 insurance co
mpanies for fantastic amounts and he named this person beneficiary and it was th
e person paying for the premiums. The Court of Appeals disallowed the collectio
n of the proceeds when that person died. This is a poor manual laborer earning
minimum wage. He was asked to insure his life with this well to do person as be
neficiary and this was this fellow paying for the premiums. The court said that
this person is actually wagering on the life of that manual laborer. He chose h
is life but the beneficiary is not his relative. This total stranger who asked
him to insure his life and was actually paying for the premiums, he was actually
wagering on his life.
After discussing the object of the contract, insurance next deals with co
nsent, in the scheme of the law. The law mentions what will vitiate consent conc
ealment and misrepresentation.
CONCEALMENT
Concealment is the neglect to communicate that which a party knows and ou
ght to communicate. It need not be intentional or fraudulent to entitle the ins
ured to rescind the policy. Originally, the law requires that concealment must
be intentional. But then Mambabatas Pambansa Hernando Perez amended that to eli
minate that requirement because the Supreme Court says it is very difficult to p
rove fraudulent intent. Even if the concealment was not made with fraudulent in
tent, the fact remains that the insurance company was misled into entering into
a contract, which it would have not entered into had it known the facts, or it w
ould have charged a higher premium.
To constitute concealment, there are four requisites:
1. The party making the concealment must have the knowledge of the fact conceale
d;
2. The fact concealed must be material to the policy;
3. The party making the concealment makes no warranty as to the fact concealed;
4. The other party does not have the means of ascertaining the fact concealed.
Concealment often happens in life insurance. Where the applicant for a l
ife insurance did not disclose that he was sick because he was not aware of it.
Thus, there s no concealment.
Now, when is the fact concealed material? The law said materiality is de
termined by the probable influence of a fact upon the party to whom the communic
ation is due, informing his estimate of the disadvantages of the proofs. The co
ntract makes inquiries. In other words, if the fact had been disclosed, would t
he insurance company have issued the policy or would have it willing, but for a
higher premium?
Time and again, the courts have said that the failure to disclose serious
ailments in life insurance would constitute concealment. This would usually in
volve cancer, tuberculosis, asthma, diabetes, high blood pressure, kidney ailmen
ts, liver disorders.
There was this Grepalife case where the parents insured the life of their
daughter. However, they did not disclose that their daughter was a mongoloid.
The court said that s concealment, so that is a material fact that the baby was a
mongoloid. (WARNING: this would be a result of late childbirth when the mother i
s in her late thirties or early forties when you have the risk to have mongoloid
baby because the quality of the ovum starts deteriorating after age 25. So it i
s advisable to get pregnant as early as possible!)
But the failure to disclose an ailment which is merely temporary and ligh
t is not material. That will not be concealment - like the failure to disclose
that the applicant for a life insurance has cough or sore throat, or say when he
was in high school he was playing basketball he broke his leg, or the failure t
o disclose that when he gets drunk he has stomach discomforts. That s minor and n
eed not be disclosed. Then the party may conceal and makes no warranty. Why? If
he makes a warranty, the defense of the insurance company will be breach of warr
anty not concealment. The insurance company will still escape liability but on
the ground of breach of warranty.
Lastly, when the other party has the means of ascertaining it - like if a
typical application for life insurance policy, there s a question there had you b
een by the way, there s that law on AIDS - there s a provision there that it is proh
ibited for an insurance company to refuse to insure the life of someone who suff
ered AIDS, provided that the applicant discloses that the suffered from AIDS. I
think that s quite questionable on constitutionality.
Now the last requirement - does the other party have the means of ascert
aining it? In the typical application, there s a question there: Have you been ho
spitalized? And the applicant mention there, yes, I was hospitalized, say at the
Makati Medical Center, and he gave the date, but then he did not disclose for w
hat ailment. In this case, there s no concealment because the insurer was already
informed that he was hospitalized in a particular hospital, and even the date wa
s mentioned. The application will usually require the waiver of the confidentia
lity of his hospital records. So with that lead, the insurance company could ha
ve inquired. If they did not do so, they could not complain that there was conc
ealment because they could have made inquiries based on that lead.
(Side B) Insurance agents are very aggressive. They always want to close
the deal. The Supreme Court said that if the insurance agent fills up the appl
ication for the insured and then the applicant signs it, he will bound if there s
any concealment because by allowing the agent to fill up for him, he makes the a
gent of the insurance company his own agent for purposes of filling out the insu
rance application. However, the law says, either party is required to disclose t
hat which the other party knows.
Now there s somebody applying for a fire insurance policy. So the insuranc
e company sent its inspectors to the place. They saw that it is located in the
slum area while the neighbors houses are made up of flimsy materials. Then they
issued a policy. They cannot claim that you did not disclose to us that your nei
ghbors are squatters that their houses are not made up of hollow blocks or conc
rete but are made up of plywood and cardboards which when your inspectors went t
here, you know; or which in exercise of ordinary care, the other ought to know o
r has no reason to suppose him ignorant.
Like during the gulf war, an insurance company insured an oil tanker the
re, which turned into a loss. You cannot say why did you not tell us that the g
ulf war was going on, you should know.
There was a case decided by the Court of Appeals, where a nurse was livin
g and residing in Pampanga. She obtained a personal accident insurance policy,
and the hospital where she was assigned was located also in Pampanga. Now the in
surance company was denying liability on the ground that there was concealment y
ou did not tell us that the peace and order situation in Pampanga is poor. The
court said (this was in the 60 s and 70 s) it s of public knowledge that Pampanga was
the hot bed of the dissident movements and you should know. There was no need f
or the insured to disclose that the Huk element were active in Pampanga.
And those in which the other waives communication or those which prove or
tend to prove the existence of a risk excluded or a risk excepted. For instanc
e, your fire insurance policy usually provides that it will not answer to loss d
ue to rebellion, sedition, coup de etat, riot. If the insured did not disclose t
hat there are members of the NPA roaming in the place, exacting revolutionary ta
xes from the establishments there, and burning the properties of those who refus
e to comply. The insurance cannot claim you did not disclose that to us, becaus
e loss was due to insurgency, rebellion would be excluded anyway in the policy.
 Now even if the loss was not due to a fact concealed, the insurance compa
ny is not liable - like somebody who applied for a life insurance policy. He di
d not disclose he had kidney ailment and he died in a plane crash. The insuranc
e company is not liable although the death was not due to kidney ailment. The f
act remains that the insurance company was misled into issuing a policy it would
not otherwise have issued because that risk was not acceptable.
Information as to the nature of interest need not be disclosed except in
property insurance, if the insured is not the owner. If somebody is insuring pro
perties of which he is not the owner, he must disclose why he has insurable inte
rest that would entitle him to insure it.
The party is not bound to communicate information of his own judgment. Do
you think you re in good health and you will live long? Even if he does not answe
r that, it is still not concealment.
MISREPRESENTATION
The other matter that would vitiate consent is misrepresentation. Misrep
resentation is a statement by an applicant about the subject matter being insure
d. In other words, these are statements made to induce the other party to enter
into a contract. They are not part of the terms and conditions of the contract
but rather, are statements to induce the party to enter into a contract.
The law says, a representation is presumed to refer to the date on which
the policy goes into effect. That somebody insure his vessel for a trip say fro
m Manila to Cebu on January 5 and he represents, my vessel is in Manila, when ac
tually the vessel is in Curimmao. There is no misrepresentation, provided on th
e date the policy takes effect, the vessel is actually in Manila. This is becau
se the representation should be deemed to refer to the date when the policy take
s effect.
The representation cannot qualify an express provision on the policy, but
may qualify an implied warranty. You have implied warranties in marine insuran
ce, which will be taken up later on.
Now, representation is false when the facts do not correspond with the as
sertion. You have this Ng Gan Zee case where a person applied for a life insuran
ce policy with a question: Have you ever applied for a life insurance policy or
asked for the reinstatement of a lapse insurance policy and your application was
denied? He said no. It turned out however, that there was one time where his
policy lapsed and he applied for its reinstatement. Initially, his application
was disapproved but eventually it was approved but with a higher premium. The co
urt said that there was no misrepresentation because although initially the appl
ication for reinstatement was disapproved, it was eventually approved.
The law says that if the insured has no personal knowledge of a fact, he
may repeat the information, which he has on the subject and which he believes to
be true. The explanation is based on the information of others.
In a typical application for a life insurance policy, there s a question th
ere asking whether your parents/brothers have tuberculosis, heart ailments, etc.
or if they died, or of what they died of. Like somebody whose parents died of
tuberculosis, they died when he was still a small child but then his aunts/uncle
s told him that his father was a soldier, was a hero who died in the line of dut
y and that was what he told. So there s no concealment, no misrepresentation.
You have the Ng Gan Zee case again, where the insured was operated for tu
mor associated with peptic ulcer. He was operated with peptic ulcer but then he
said he was operated for tumor associated with ulcer. The court said he s not gu
ilty of misrepresentation because he relied on what the physician told him.
In determining whether representation is material, the test is the same a
s in the case of concealment: would the insurance company have issued a policy h
ad it known the fact or would it have issued it and asked for a higher premium.
Example, a typical question: Have you ever consulted a physician? Said no, but
actually he s a regular patient of a physician, so there s misrepresentation.
A typical misrepresentation is the failure to disclose the applicant is s
uffering from a serious disease like tuberculosis, asthma, heart disease, kidney
disorders, high blood pressure.
 There s a case where the applicant was a drug addict, but in the applicatio
n is stated there that he never used morphine, cocaine or any prohibited drugs.
There is misrepresentation. Where the applicant knows he has tuberculosis and
he asked somebody else in good health to take his place during the examination.
That is misrepresentation. In big banks, they have this bankers blanket policy
to insure against loss due to defalcation by the tellers. In the application, t
he insurance would be interested to find out about their system of controls whet
her they have adequate systems control. In one case, a bank was asked and it st
ated that all transactions are pre-audited by an internal auditor. It turned ou
t to be false. That is misrepresentation.
But when somebody was asked Do you take alcoholic drinks? Said No, but he
would take small quantities of alcoholic drinks occasionally if there s party, we
ll that is not material. That is not misrepresentation.
Or there was a question: Have you ever consulted a physician? Said No. A
ctually, he underwent a test in the hospital, but the test showed that he was in
perfect health. There is no misrepresentation because he was in good health.
Thus, it would not have affected the decision of the insurance company to accept
the application.
In one case where the policy says it is good only up to age 60. The insu
red stated there his date of birth and obviously, if you compute that, he s over 6
0, but the insurance company accepted the application and accepted the premiums.
The Court said that the insurance company is deemed to have waived the misrepre
sentation. The law provides that if the insurance company is aware of the misr
epresentation and it accepted the policy, it will be deemed to have waived the m
isrepresentation.
Again, if there s a misrepresentation, even if the loss was not due to the
fact misrepresented, the insurance company will not be liable. Again, in the cas
e where a fellow misrepresented that he s in good health, but died in a plane cras
h, the insurance company was misled into issuing an insurance policy it would no
t have otherwise issued. Thus, it is not liable for the value of the insurance.

19 December 2001
Pepper
(Caveat: this is not a transcription of jack s lecture. We all thought we re having
a christmas party that day. This is a summary of our insurance reviewer and Agba
yani.)
REPRESENTATION
SECTION 36. A representation may be oral or written.
SECTION 37. A representation may be made at the time of, or before,
issuance of the policy.
Misrepresentation
* Statement as a fact of something which is untrue and which the insured states
with knowledge that it is untrue and with an intent to deceive, or which he stat
es positively as true without knowing it to be true and which has a tendency to
mislead, where such fact in either case is material to the risk.
SECTION 38. The language of a representation is to be interpreted by
the same rules as the language of contracts in general.
SECTION 39. A representation as to the future is to be deemed a prom
ise, unless it appears that it was merely a statement of belief or expectation.
SECTION 40. A representation cannot qualify an express provision in
a contract of insurance, but it may qualify an implied warranty.
SECTION 41. A representation may be altered or withdrawn before the
insurance is effected, but not afterwards.
SECTION 42. A representation must be presumed to refer to the date o
n which the contract goes into effect.
SECTION 43. When a person insured has no personal knowledge of a fac
t, he may nevertheless repeat information which he has upon the subject, and whi
ch he believes to be true, with the explanation that he does so on the informati
on of others; or he may submit the information, in its whole extent, to the insu
rer; and in neither case is he responsible for its truth, unless it proceeds fro
m an agent of the insured, whose duty it is to give the information.
Distinction between ordinary and marine insurance as to information from others
1. Ordinary Insurance it is within the discretion of the insured to transmit inf
ormation of a fact of which he has no personal knowledge. If he chooses to do so
, he shall not be responsible for its truth unless it proceeds from an agent of
the insured, whose duty it is to give the information
2. Marine Insurance information of the belief or expectation of a third person i
n reference to a material fact is material. The insured is not given the discret
ion to transmit or withhold information. He is required to give such information
whether the third person is his agent or not.
Harding v Commercial Union Assurance Company
Harding bought a car worth P2,800. The agent of an insurance company appraised i
t and declared it s present value to be P3,000. Harding had the car insured. The c
ar was subsequently damaged because of fire. The insurer refused to pay saying t
hat the car s value is only P2,800 and not P3,000. Held: Insurer liable. Where it
appears that the proposal form, while signed by the insured was made out by the
agent of the insurer, the facts stated in the proposal even if incorrect will no
t be regarded as warranted by the insurer, in the absence of willful misstatemen
t. Under such circumstances, the proposal is to be regarded as the act of the in
surer.
SECTION 44. A representation is to be deemed false when the facts
fail to correspond with its assertions or stipulations.
Representations are not required to be literally true unlike warranties.
It is sufficient that they are substantially true.
Insular Life Co. v Pineda
It is not misrepresentation for the insured to state that he did not drink beer
or other intoxicants if he drank very seldom.
SECTION 45. If a representation is false in a material point, whet
her affirmative or promissory, the injured party is entitled to rescind the cont
ract from the time when the representation becomes false. The right to rescind g
ranted by this Code to the insurer is waived by the acceptance of premium paymen
ts despite knowledge of the ground for rescission.
Egueras v GREPALIFE
A sickly person filed an application for life insurance. During the medical exam
ination conducted by the insurer to determine the fitness of the applicant, a ro
bust and healthy person appeared pretending to be the applicant. Held: The cont
ract is avoided on the ground of fraudulent misrepresentation.
Musngi v West Coast Life Assurance Inc.
Garcia was insured by West Coast twice since 1931. In both policies, he answered
in the negative when asked if he consulted any doctor. It turned out that he ac
tually consulted a number of physicians for different ailments. When he died, th
e insurance company refused to pay. Held: Refusal to pay is justified. The conce
alment and false statements constituted fraud because the insurance company acce
pted the risk on the strength of such statements which it would otherwise have r
ejected.
Edillon v Manila Bankers Life Insurance Co.
In April 1969, Lapuz applied for insurance stating her date of birth to be July
11, 1904 (meaning 65 years old na siya). She died in a car accident. The insuran
ce company refused payment saying that the certificate of insurance contained a
provision excluding liability to pay claims to persons under 16 and over 60. Hel
d: Lapuz s age was not concealed. Her application form reveals her true age and th
e company had all the time to process the application form and notice that Lapuz
was already 64 years old.
Stokes v Malayan Insurance Co.
Adolfson had a subsisting insurance policy when his car collided with another ve
hicle. Stokes, an Irish citizen who had no Philippine driver s license, was the on
e driving the car. He had a valid Irish license but he had been in the Philippin
es for more than 90 days when the collision occurred. Adolfson claimed on the po
licy contending that Stokes was an authorized driver. Held: Insurance company no
t liable. When an insurer is called upon to pay in case of loss or damage, it ha
s the right to demand strict compliance with the contract. In this case, Stokes
may not be considered an authorized driver under the policy because authority mu
st come not only from the insured but also the law. Stokes is not authorized und
er the law to drive because he has no license.
Gonzales La O v Yek Tong Lin Fire Insurance
Gonzales was issued two fire insurance policies with provisions prohibiting Gonz
ales from entering into other insurance contracts. Fire broke out. Yek refused t
o pay because Gonzales violated the prohibition. Gonzales however was able to pr
ove that Yek knew of the violation long before the fire but did not make any eff
ort to rescind the policies and even collected premiums on the policies. Held: T
he action of the insurer constituted waiver of the right to annul the insurance
policies.
Tan Chay Heng v West Coast Life Insurance
Tan Caeng declared in his application that he was single, a merchant, healthy an
d not a drug user when he was actually marries, a laborer , suffering form tuber
culosis and addicted to drugs. Upon his death, the designated beneficiary tried
to collect from the insurer but the latter denied liability. The beneficiary con
tends that the insurer cannot now rescind the contract because an action for col
lection has already been filed. Held: Insurer s action is not for rescission and t
herefore not barred. Rescission contemplates the existence of a contract. What i
s involved in the case at bar is a contract which is void ab initio because the
defense was fraud in its execution.
*In marine insurance, the misrepresentation must be false.
SECTION 46. The materiality of a representation is determined by the sam
e rules as the materiality of a concealment.
Test of materiality
* Probable and reasonable influence of the facts upon the party of whom the repr
esentation is made in forming his estimate of the disadvantages of the proposed
contract or in making his inquiries
SECTION 47. The provisions of this chapter apply as well to a modifi
cation of a contract of insurance as to its original formation.
SECTION 48. Whenever a right to rescind a contract of insurance is g
iven to the insurer by any provision of this chapter, such right must be exercis
ed previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of two
years from the date of its issue or of its last reinstatement, the insurer cann
ot prove that the policy is void ab initio or is rescindible by reason of the fr
audulent concealment or misrepresentation of the insured or his agent.
* this provision applies to concealment, misrepresentation and falsity of warran
ties.
When insurer may exercise his right to rescind:
1. Non-life policy prior to the commencement of an action on the contract
2. Life policy a period of two years from the date of issue or last reinstatemen
t of the policy (aka incontestable clause)
Tan v CA
Tan was issued a policy by PHILAMLife in November 1973. He died in April 1975.
PHILAMLife refused payment and in September 1975 notified the beneficiaries that
it is rescinding the contract on the ground of misrepresentation. The beneficia
ries contend that rescission should be done during the lifetime of the insured . He
ld: PHILAMLife can still rescind. The phrase during the lifetime only means that t
he policy is no longer in force after the insured died. The key phrase is for a p
eriod of two years . Where the insured died less than 2 years after the date of is
sue or last reinstatement, the policy could never become incontestable.
Paulino v Capital Insurance Co.
There is a difference between termination by the insured and by the insurer. Ter
mination by the insured requires only a request of such termination. Termination
by the insurer requires the refund of the portion of the premium proportional t
o the unexpired term of the policy.
THE POLICY
SECTION 49. The written instrument in which a contract of insurance is s
et forth, is called a policy of insurance.
The Policy is the measure of insurer s liability
Ty v Filipina Compania
Where an insurance policy defines partial disability as loss of either hand by am
putation through the bones of the wrist , the insured cannot recover under the sam
e policy for temporary disability caused by fracturing of the hand. ( loss of legs
includes permanent paralysis of both legs, Panaton v Malayan Co. Inc)
Del Rosario v Equitable Insurance and Casualty Inc.
Equitable issued an accident policy on the life of the insured, binding itself t
o pay P1000 to P3000. The insured died. Held: Liable for P3000. Art 1377, Civil
Code: The interpretation of the obscure provisions of a contract should not favo
r the party that caused the obscurity.
Jarque v Union Fire Insurance
Types rider prevails over printed clause in case of inconsistency.
SECTION 50. The policy shall be in printed form which may contain bl
ank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number,
or word necessary to complete the contract of insurance shall be written on the
blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be part of the c
ontract of insurance and which is pasted or attached to said policy is not bindi
ng on the insured, unless the descriptive title or name of the rider, clause, wa
rranty or endorsement is also mentioned and written on the blank spaces provided
in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty o
r endorsement issued after the original policy shall be countersigned by the ins
ured or owner, which countersignature shall be taken as his agreement to the con
tents of such rider, clause, warranty or endorsement.
Group insurance and group annuity policies, however, may be typewritten a
nd need not be in printed form.
Rider a printed or typed stipulation contained on a slip of paper attached to th
e policy and forming an integral part thereof. They usually contain additional s
tipulations between the parties.
Warranties are inserted or attached to the policy to eliminate specific potentia
l increases of hazard during the policy term owing to actions of the insured or
conditions of property.
Clauses agreements between the insurer and the insured on certain matter relatin
g to the liability of the insurer in case of loss
Examples of Clauses:
1. Three-fourths clause where the insurer is liable only for of the loss or dama
ge
2. Loss payable clause where the loss, if any, is payable to the named party or
parties, as their interest may appear
3. Change of ownership clause where insurance will inure to the benefit of whoms
oever, during the continuance of the risk, may become the owner of the interest
insured
Enriquez v Sun Life Assurance of Canada
Herrer applied life annuity with SunLife. He paid the sum of P6,000 and was give
n a receipt. His application was approved. A letter notifying him of the approva
l was made but there was no proof that it was actually mailed or accepted by Her
rer. Herrer died. Held: SunLife not liable. The contract of insurance was not pe
rfected absent any showing that acceptance of the application ever came to the k
nowledge of the applicant.
Tang v CA
In September 1965, Lee Su Guat, an illiterate who spoke only Chinese, applied fo
r life insurance. The application was in English. Lee Su Guat declared that she
was of good health. The application was approved. A second application was filed
in November 1965 and subsequently accepted. Lee Su Guat died in April 1966 of l
ung cancer. The insurer denied liability. The beneficiary claims that since the
insured was illiterate and the policy was in English, the insurer must show that
it had fully explained the terms of the policy to the insured, otherwise, the i
nsurer will not be guilty of misrepresentation. Held: Insurer not liable. It was
under no obligation to prove that the terms of the insurance contract was fully
explained to the other party.
SECTION 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies
;
(c) The premium, or if the insurance is of a character where the exact premi
um is only determinable upon the termination of the contract, a statement of the
basis and rates upon which the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolu
te owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
SECTION 52. Cover notes may be issued to bind insurance temporarily
pending the issuance of the policy. Within sixty days after the issue of the co
ver note, a policy shall be issued in lieu thereof, including within its terms t
he identical insurance bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty days with the wr
itten approval of the Commissioner if he determines that such extension is not c
ontrary to and is not for the purpose of violating any provisions of this Code.
 The Commissioner may promulgate rules and regulations governing such extensions
for the purpose of preventing such violations and may by such rules and regulat
ions dispense with the requirement of written approval by him in the case of ext
ension in compliance with such rules and regulations.
GREPALIFE v CA
Ngo filed an application with GREPALIFE for a policy on the life of his 1-year o
ld daghter. He submitted an application form and gave the premium to the insurer s
agent for which a binding deposit receipt was issued to him. The application wa
s denied but the agent, instead of notifying Ngo wrote back the insurer, strongl
y recommending the acceptance of the application. The chils died in the meantime
. Ngo claimed on the binding deposit receipt saying that it constituted a tempor
ary contract of life insurance. Held: Insurer not liable. A binding deposit rec
eipt was merely an acknowledgement of receipt of the application for processing
by the insurance company. A binding receipt is manifestly merely conditional and
does not insure outright.
Pacific Timber Corp v CA
Pacific secured temporary insurance for the exportation of logs. A cover note wa
s issued securing the cargo. Marine policies were subsequently issued on the car
go but prior to such issuance, some of the logs were lost. Pacific now claims ag
ainst the insurer. The insurer denies liability contending that the loss may not
be considered as covered under the cover note because such became null and void
by virtue of the issuance of the marine policy because of lack of consideration
. Held: Insurer liable. Cover note issued for consideration. No separate premium
s are required on cover notes. (?)
SECTION 53. The insurance proceeds shall be applied exclusively to t
he proper interest of the person in whose name or for whose benefit it is made u
nless otherwise specified in the policy.
Exceptions:
1. Art 739, Civil Code
a. between persons guilty of adultery or concubinage
b. in favor of a public officer, his spouse or child, by reason of his office
c. between persons guilty of a crime in consideration thereof
2. Section 12, Insurance Code
When the beneficiary is the principal, accessory or accomplice in willfully brin
ging about the death of the insured
Bonifacio Brothers v Mora
Mora mortgaged his car to Reyes with thew condition that the former will insure
the car with the latter as beneficiary. Mora complied. The car figured in an acc
ident and was brought for repairs to Bonifacio Motors. Materials for the repair
were provided by Ayala Auto Parts. The car having been delivered to Mora without
the costs of repair being paid, Bonifacio and Ayala filed a complaint against t
he insurer for collection. Held: Payment must be made to Reyes. Bonifacio and ar
e not named beneficiaries. Their recourse is to collect from whoever brought the
car to them for repairs.
Coquia v Fieldman s Insurance Co. Inc.
Fieldman issued in favor of Manila Yellow Taxicab insurance policies in favor of
fare-paying passengers, drivers and/or conductors. A driver met an accident whi
le driving a cab. His heirs filed a claim against Fieldman. Fieldman refused to
pay on the ground that the heirs have no contractual relationship with the compa
ny. Held: Fieldman liable. Although in general only parties to a contract may br
ing an action based thereon, this rule is subject to exceptions. Article 1311, C
ivil Code (contracts pour atrui): If a contract shuold contain a stipulation in
favor of a third person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation.
Lampano v Jose
A is a building contractor of the house of B. A insured his interest in the hous
e for P7,800. His interest is actually only P7,000. The house is burned. Held: B
is not entitled to the P800 in excess of the interest of A.
SECTION 54. When an insurance contract is executed with an agent or trus
tee as the insured, the fact that his principal or beneficiary is the real party
in interest may be indicated by describing the insured as agent or trustee, or
by other general words in the policy.
SECTION 55. To render an insurance effected by one partner or part
-owner, applicable to the interest of his co-partners or other part-owners, it i
s necessary that the terms of the policy should be such as are applicable to the
joint or common interest.
SECTION 56. When the description of the insured in a policy is so
general that it may comprehend any person or any class of persons, only he who c
an show that it was intended to include him can claim the benefit of the policy.
SECTION 57. A policy may be so framed that it will inure to the be
nefit of whomsoever, during the continuance of the risk, may become the owner of
the interest insured.
SECTION 58. The mere transfer of a 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.
Quimson says compare this with section 20.
SECTION 59. A policy is either open, valued or running.
SECTION 60. An open policy is one in which the value of the thing
insured is not agreed upon, but is left to be ascertained in case of loss.
SECTION 61. A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific sum.
SECTION 62. A running policy is one which contemplates successive
insurances, and which provides that the object of the policy may be from time to
time defined, especially as to the subjects of insurance, by additional stateme
nts or indorsements.
SECTION 63. A condition, stipulation, or agreement in any policy o
f insurance, limiting the time for commencing an action thereunder to a period o
f less than one year from the time when the cause of action accrues, is void.
SECTION 64. No policy of insurance other than life shall be cancelled by
the insurer except upon prior notice thereof to the insured, and no notice of c
ancellation shall be effective unless it is based on the occurrence, after the e
ffective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured
against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing the hazard
insured against;
(e) physical changes in the property insured which result in the property be
coming uninsurable; or
(f) a determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.
SECTION 65. All notices of cancellation mentioned in the preceding s
ection shall be in writing, mailed or delivered to the named insured at the addr
ess shown in the policy, and shall state (a) which of the grounds set forth in s
ection sixty-four is relied upon and (b) that, upon written request of the named
insured, the insurer will furnish the facts on which the cancellation is based.
Saura Import-Export Co. v Philippine International Surety
Actual notice of cancellation in a clear and equivocal manner, preferable in wri
ting, should be given by the insurer to the insured so that the latter may given
an opportunity to obtain another insurance for his protection. Notice should be
personal on the insured.
Malayan Insurance Co. v Cruz Arnaldo
Cancellation of policy requires:
1. prior notice of cancellation to the insured
2. cancellation based, on the occurrence after effective date of the policy, of
one or more of the ground mentioned
3. notice must be in writing, mailed or delivered to the insured at the address
stated in the policy
4. notice must state the ground/s for cancellation
SECTION 66. In case of insurance other than life, unless the insurer at
least forty-five days in advance of the end of the policy period mails or delive
rs to the named insured at the address shown in the policy notice of its intenti
on not to renew the policy or to condition its renewal upon reduction of limits
or elimination of coverages, the named insured shall be entitled to renew the po
licy upon payment of the premium due on the effective date of the renewal. Any
policy written for a term of less than one year shall be considered as if writte
n for a term of one year. Any policy written for a term longer than one year or
any policy with no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.
January 3, 2002
Kelly
WARRANTIES
* Warranties may either be express or implied. Express if it is stated in the po
licy. Implied, where there are implied warranties in a marine insurance for exam
ple, that the vessel that it would not deviate.
* Warranties are different from representations because warranties are part of t
he terms and conditions of the policy while representations are not part of the
policy but statements made to induce someone to enter into a contract.
* Warranty may relate to the past, present or the future or to any or all of the
m.
PAST: Somebody applying for life insurance warrants that he was never hos
pitalized for a heart ailment
PRESENT: warrants he is in good health
FUTURE: common in a fire insurance policy there will be a warranty there
that the insured will not store inflammable materials.
* The law says that the warranty must be contained in the policy or in another s
tatement signed by the insured and referred to in the policy (known as a rider).
But the SC has said that the rider is valid even if it was not signed by the in
sured if it is attached to the policy, because it is deemed to be contained in t
he policy because usually the rider, they just paste them in the policy.
* The law says if before the time for the performance of a warranty relating to
the future, a loss insured against occurs or becomes unlawful or performance bec
omes unlawful or impossible the omission will not avoid the policy.
a) Loss occurs. For instance, here s somebody applying for a fire insurance policy
. The insurance company sent their inspectors to the place and said you know thi
s is not a nice neighborhood. There are squatters in the vicinity, the houses ar
e made of plywood. Well ok we can insure your property but we have to take steps
to minimize risks so, we will insure provided you put up a firewall. We will gi
ve you 30 days to put up a firewall. Since he was given 30 days to put up a fire
wall, if fire occurs during the 30-day period, the insurance company will be lia
ble because the period for him to put up the firewall has not yet expired.
b) Performance becomes unlawful. When you insure the property and the insurer sa
ys too many occupants, this is risky. You better reduce the occupants. However,
before he could file a case to eject his tenants a house rental law was passed p
rohibiting the ejectment of tenants so failure to comply with the condition will
be excused.
c) Performance becomes impossible. Like when you were supposed to put up a fire
wall but then cement disappeared from the market, could not buy cement so that w
ill be excused.
As you will see, in all these things in the last two, the matters are bey
ond the control of the insured.
* Breach of Warranty. When there is breach of warranty, the insurance company ca
n invoke that to avoid liability and the fact that it is there in the policy wil
l exempt insurance company from liability. You don t discuss or argue anymore whet
her it is material or not. The fact that it was there in the policy means the in
surance company considers it material.
Example (Double Insurance): It s common in fire insurance policy that there will b
e a requirement there that if the insured obtain other fire insurance policies h
e must disclose. If he does not disclose the insurance company will not be liabl
e. And that obligation applies not only to policies already existing when he app
lied for the policy but even to policies he might obtain in the future. When som
ebody insures his building against fire, let s say with MGU Insurance, then six mo
nths later he insures it with Malayan if he does not disclose that then both of
them will avoid liability because both parties will invariably contain that prov
ision that you must disclose if you have other insurance policies.
Example (No Double Insurance): In one case where the insured are stocks in trade
but the stocks in trade insured with different companies were different. So the
re is no double insurance. So there is no breach of warranty even if he does not
disclose that he has obtained other insurance. Or if he insured the building an
d there is a provision there he must disclose if he had other insurance but then
he obtained other insurance let s say for the stocks in trade so there is no need
to disclose.
Example (No Double Insurance) For the court has said in the Geagonia case where
the owner of the stock in trade insured them. The policy provided that in case o
f loss the policy is payable to him but then he mortgaged them and because of th
at the mortgagee required him to insure the stocks in trade and to put in the po
licy that in case of loss the proceeds will be payable to the mortgagee. A fire
occurred so the one who insured the stocks first refused to pay. He said he obta
ined another insurance policy but he did not tell us. The court said, no! there
is no violation because the interest insured in the policy are different because
the first one in case of loss, the proceeds will be payable to the mortgagor. T
he second one the proceeds will be payable to the mortgagee. So since the intere
st are different there is no need to disclose.
* If there is breach of warranty, even if the loss was not due to the breach of
the warranty, the insurance company is not liable because the fact remains that
it was exposed to a risk which it was not willing to assume.
Example: In a fire insurance policy there is a provision there you will not stor
e inflammable materials and this fellow brought fireworks in his house on new ye
ar s eve then the cook who was in the kitchen was negligent and a fire started in
the kitchen. It has nothing to do with the fireworks. The insurance company will
not be liable because the fact remains that it was exposed to a risk it was not
willing to assume. That is no longer the risk which it agreed to insure so it w
ill not be liable.
Exception (Merely Incidental to the Business): However, even if there is a warra
nty the presence of the prohibited material is merely incidental to normal cours
e of business it is understood that it is not covered by the prohibition. For ex
ample, here is somebody who has a store that sells furniture. He insured his pro
perty against fire. There was a prohibition against inflammable materials and he
has there some alcohol that is used for retouching the varnish of the furniture
so that is incidental. That Qua Chee Gan case where the warehouse that was insu
red there was gasoline there but that was the consumption of motor vehicles of t
he warehouseman for two days. That is incidental to the business. Or a drugstore
that was insure and among the articles in the drugstore were moth balls which w
ere highly inflammable but because it was a drugstore is selling pharmaceutical
products so that is incidental to the business so there is no violation.
* Waiver. Now if the insurance company was aware that there was a breach of warr
anty but despite that it continued the policy, it accepted the renewal premium,
then it waives the violation.
* The law says a breach of warranty without fraud merely exempts the insurer fro
m the time it occurred or when it is broken it prevents the (?) to attach to the
risk. So in other words, here is somebody insures his house against fire Januar
y 1st to December 31st and there is a warranty that he would not store inflammab
le materials. September a fire broke out. Then on December 31st another fire bro
ke out at that time there were fireworks stored in his house so the insurance co
mpany liable for the fire that occurred in December 31st but it will be liable f
or the fire that occurred in September because at that the time there were no fi
reworks there was no breach of warranty at that time.
When there is a breach from the very beginning when the policy will not a
ttach. If from the very beginning there were inflammable materials there.
* Section 77 the insurer is entitled to the payment of the premium as soon as th
e thing insured is exposed to the peril and says notwithstanding any agreement t
o the contrary no policy or contract of insurance is valid and binding unless an
d until the premium has been paid except in case of life or industrial life poli
cy where grace period provision applies.
So the SC has said in a number of cases if the premium is not paid the p
olicy is not valid and binding because they said, you know insurance involve thi
s actuarial scheme that everybody chips in to a common pot and this is importan
t for calculating the risk because if everybody will delay the payment, the actu
arial computations will be the out of (?) because insurance company meanwhile in
vest the premiums so that s the rule.
The trouble is the decisions made many exceptions.
* Exceptions
First, under the Section 78 an acknowledgement in the policy that the premiu
m has been paid is conclusive evidence of payment to make the policy binding. So
, even if the premium was not actually paid there is a provision there in the po
licy that is saying that when payment is acknowledged, then that is binding for
purposes of making it effective but it is only for that purpose but for purposes
of actually collecting the premium that will not apply so if loss occurs the in
surance company will still be liable but it can still collect the premium. It ca
n deduct the premium from the proceeds of the policy.
Next, in that Makati Tuscany case where this condominium there was insured a
nd then where the insurance company agreed to give the insured time to pay in 12
equal monthly installments. The Makati Tuscany paid a few installments and then
it stopped. So the insurance company sued and the defense of Makati Tuscany is
that the policy is void under Section 77 because the premium has not been paid t
herefore you cannot sue us to recover the premium and you should refund the inst
allments we have paid. The courts said no! because you know insurance is becomin
g very competitive. I met Charlie Uy in a cocktail party and said you know everyb
ody is complaining that insurance is a cut throat competition business. What cut
throat competition are you talking about? It s not cut throat competition, it s kil
ling fields out there! So when you have a client like San Miguel Corporation, Fil
ipinas Shell, PLDT which pays more than 1 billion in premiums you will allow the
m to say we will let you pay in 12 installments. So, the court said it is not vo
id to stipulate that the premiums be paid in installments and if you have such a
stipulation then you can sue to collect installments which were not paid.
Third, Section 77 says also life and industrial life. The law provides and t
hat is incorporated in the policies that in subsequent premiums the insured is g
iven a grace period of at least 30 days. So, in life insurance policies you at l
east have 30 days to pay the subsequent premiums because at times you will annou
ncements in newspapers that because of a typhoon in that place the insurance com
pany is giving the insure there 60 days. So at least now in that Tibay case, Mal
ayan allowed payment of premiums in installment but there was an express provisi
on that the policy will not be binding until the premiums have been fully paid.
The court said, this is different from Makati Tuscany. Because here there is sti
pulation that while the premium will be paid in installments the policy will not
be binding until the premiums are fully paid. So the insurance company will not
liable for the loss that occurs before premium has been fully paid.
So based on Section 77, Makati Tuscany, Section 78, the court said that t
here are 3 exceptions to the rule that the policy is not binding until the premi
ums are fully paid.
First, in life and industrial life where a grace period is given.
Secondly, Section 78 when there s an admission in the policy that the premi
ums have been paid.
Then, Makati Tuscany which says that the parties can stipulate that the p
remiums be paid in installments.
* Then you have this UCPB General Insurance Corp v. Masagana Dela(?)mart. Masaga
na Delamart had been insuring its business with UCPB since 1988 and every year t
hey would give Masagana 60 to 90 days credit to pay and that is common. Now, 199
2 the problem was that a loss occurred within the usual 60-day period. A fire ra
ised the premises. The next day masagana paid the premium and UCPB accepted the
premium. The following day they filed a claim, you should now return the premium
. Now they were claiming that the premium was not paid when the loss occurred th
erefore they were not liable. In a decisions of the second division penned by Ju
stice Pardo reiterated Arce and another case, the premium was not yet paid and t
herefore the insurance was not binding, UCPB not liable. A motion for reconsider
ation was filed and the case was elevated to court en banc. In a split decision,
Chief Justice Davide reversed the decision. He said that heretofore there were
three exceptions when policy should be binding even if the premiums are not paid
: 1) life and industrial life insurance policy where a grace period is given; 2)
when there is an acknowledgement in the policy that the premiums were paid; 3)
Makati Tuscany, where there is an agreement that the premiums will be paid in in
stallments; and now, he said, there are now two additional exceptions:
First, if the insurance company agreed to grant credit. The courts said that sec
tion 77 does not say that the contract will be void and that it is not against t
he law, good customs, morals public policy for the parties to stipulate that cre
dit will be given. He said that is the 4th exception. That s why Justice Pardo dis
sented and also Justice Vitug, the commercial law expert, dissent, he believes i
t is not valid and binding. But that was the majority decision.
Then Chief Justice Davide said that there s a fifth exception Estoppel. For many yea
rs the insurance company had been granting credit to the insured. So it made the
m believe that they will always be given credit and so it is now in estoppel. Th
e court said that is the fifth exception.
* Cash Surrender Value. Your book mentions that there are some of the devices wh
ich will be made in order to temper the harshness of forfeiture in the policy be
cause the premium has not been paid. This is usually in connection with the life
insurance policies. You have the cash surrender value because if you insured yo
ur life from age 21 to age 60 you will be paying the same premium every year. Bu
t in the early years the risk of the insured dying is less compared if he is age
60. So at that point in time he is paying more than what would correspond to th
e risk the insurance company is assuming and that excess is the cash surrender v
alue. If you look at the life insurance policy there is a table there indicating
the cash surrender value so you can surrender the policy and get the cash surre
nder value or you can even get a policy loan cheap money you can borrow money wit
h 6% interest. I used to borrow the cash surrender value of my life insurance p
olicy and pay 6% interest a year and then put the money in time deposit. I will
get more and then I could claim the interest as a tax deduction but now the insu
rance increased interest of 14% so it doesn t pay anymore.
* Paid up insurance. So, the insured defaulted. They can say, ok, the fellow stop
ped paying how much cash surrender value does he have? P6000. How much insurance
can that buy up to the end of his policy? P20,000. Ok we will apply that. He is
 insured up to the end of the policy. Or extended insurance, they can say, he ha
s cash P60,000 we will apply that as premium. For how long can you extend the li
fe insurance policy with that P60,000? Good for 1 years. They will still insure
you for 1 years even though he stopped paying the premiums. And then the insure
d can also apply for reinstatement of the life insurance policy but they will re
quire that he must undergo medical examination again to show that he is insurabl
e and then he must pay the premiums in arrears.
* Refund of Premium. Section 79 deals with the refund of the premium. It says th
e insured is entitled to a return of the premium if no part of his interest was
exposed in the peril insure against. Like you insured a shipment of rice but the
rice was never shipped, so he is entitled to a refund on the premium. Or the in
surance made for a definite period and the insured surrenders his policy, he is
entitled to a partial refund as corresponds to his unexpired time after deductin
g any loss previously paid. If you look at your motor vehicle insurance policy t
here is a provision there that if you surrender the policy and ask that it be ca
ncelled you will given a refund but it will not be pro rated. In other words, if
you surrender in 6 months, you will not get 50% of the premium. You might proba
bly get less than 40%. There is a table there. And if there was a loss before, t
hey paid, that will be deducted first from your refund. If you are entitled to a
refund of 10,000 but then they previously paid 2,000 that will be deducted firs
t and you get only 8000. In life insurance that will not apply. In other words,
somebody paid a premium in one year, then after 3 months he changed his mind, h
e surrenders the policy, he cannot ask for partial refund because insurance on h
uman life is indivisible. The insurance company is already exposed to the risk o
f loss, it has already earned the premium. The law says if the peril insured aga
inst existed no mater how short the period, the insured is not entitled to retur
n on the premium. Here is somebody who insured his vessel for a trip from Manila
to Cebu then, while the vessel was near Romblon he decided to have the policy
cancelled. He cannot ask for a partial refund. He cannot say, well let us compu
te the distance from Manila to Cebu because the insurance company has already been
exposed to the risk of loss it has already earned the premium. In case the insu
red is entitled to refund, where the contract is voidable due to fraud of the in
surer then he will be entitled to the return of the entire premium. But if is it
the fault on the part of insured other than actual fraud, and insurer never inc
urred liability then the premium will be refunded. For instance, this fellow was
insuring his property against fire. The insurer s inspector says well your neighb
orhood is near the squatters area, we will insure it provided you build a fire w
all. They did not build a firewall and that was a condition precedent so he will
entitled to a refund. But if there was fraud on his part he is not entitled to
refund. That is the penalty the law imposes upon the insured for committing frau
d. Like he insured a building and they did not send inspectors, they relied good
faith and he misrepresented that his building has a fire sprinkler system. So t
hey said that is safe! In turned out it was not so, there is fraud and he is not
entitled to refund of the premium.
* Over Insurance. That case of over insurance, when insured is to be entitled to
a ratable return of the premium. Example here is building worth P10M. He insure
d with MGU insurance for 10M, Malayan for 5M and Pioneer for 5M, it is over ins
ured by 10M. Let s say that he paid 10T premium to MGU, 5T to Malayan and 5T to Pi
oneer. So he is entitled to a refund from of P5,000 from MGU, of P2,500 from Mal
ayan and P2,500 from Pioneer.
The agreement not to transfer the claim after the (?) is void because at
that time his liability has already accrued. That is now a chose in action.
* Now, the insurer is liable for loss the proximate cause of which is the peril
insured against even in the immediate cause if not the peril insured against. Li
ke fire insurance policy, fire broke out in the house of the neighbor of the ins
ured. As a result of that a wall collapsed from his neighbor s house and damages h
is property. So the proximate cause is the fire but immediate cause is the colla
pse of the wall. Or loss, the immediate cause of which is the peril insured aga
inst although the proximate cause may not be the peril insured against. Like fau
lty wiring caused fire. The proximate cause is the faulty wiring, the immediate
cause is the fire so the insurance will be liable. The loss caused by the neglig
ence of the insured. Common in motor vehicle insurance damage coverage. This fe
llow was driving negligently and he bumped the car of another. So the insurance
company will be liable.
Proximate cause in insurance has more or less the same meaning as Proxima
te cause in quasi-delict like in the Vda. de Bataclan case. And the insurer is l
iable for the thing insured is rescued from the peril insured against that would
otherwise have caused a loss if in the course of such rescue the thing is expos
ed to a peril not insured against that would deprived the owner possession in wh
ole or in part or is caused by the efforts to rescue the insured from the perils
insured against. Like somebody who insures his house and his appliances against
fire. The neighbor s house caught fire. He started bringing out his appliances an
d valuables to bring them to a safer place but the proverbial looters came and t
ook them so the insurance company will be liable. So the loss occurred because o
f efforts to save them from the fire or caused by efforts to rescue the thing in
sured from the peril insured against. So again, this fellow insured his house ag
ainst fire then his neighbor s house caught fire and then the firemen arrived and
then they pointed their hoses to his house to prevent the fire from spreading th
ere and some of his furniture were soiled living room set, the piano so he can c
ollect because they got soiled due to the efforts to prevent fire from spreading
to his house.
* Peril Especially Excepted. The loss which would have occurred on such peril ex
cepted although the immediate cause was a peril which was not excepted. Example,
fire insurance policies usually provide it will not cover loss due to riots, in
surgency rebellion. In 1989 where there was a coup d etat there was that store i
n the premises of Insular Life which was hit by shell and it burned and the peop
le there were claiming that their properties were damaged, xxx advised them to f
ile a claim with their insurance companies. It is not covered. So the immediate
cause was the fire but the proximate cause was the rebellion which is excepted f
rom policy so the insurance company will be not liable. The fire was caused by t
he rebellion. There was a case that was referred to me, the lawyer who handled i
t, he raised the defense that the NPAs were demanding revolutionary taxes and th
ey did not pay one day the problem occurred but how do you prove that it was the
NPAs who burned the property? The court said that was not sufficiently shown. B
ecause of you talk of rebellion you have to show that it is politically motivate
d, it is part of the scheme to overthrow the government and it s hard to prove tha
t because these people will not admit that they just arrived there one day and t
hey just burned the place. I said, the lawyer should have invoked instead riot.
Riot has a peculiar definition in insurance. In English jurisprudence, every phr
ase, every word in insurance is being interpreted by the English courts. For th
e American and English jurisprudence, riot does not mean labo-labo. It means an
y act of violence by a group of armed men, that s riot. They should invoked riot.
There was a rural bank in Compostela. One day the members of the NPA raided and
it forced the safe open. They got the money. They were trying to claim from the
insurance company. They said riot! So it is not liable.
* The insurer will not be liable for certain losses.
1) Losses caused by the connivance of insured. Like he asks somebody to steal hi
s car. Then he files a claim.
2) Loss caused by the willful act of the insured. Arson. He set his house on fir
e so he could file a claim against his insurance policy.
3) For negligence if it amounts to bad faith, in other words it is so gross, gro
ss negligence amounting to bad faith. American Jurisprudence will say negligence
is gross if it is something that would be obvious to a reasonable man. For exam
ple, here is somebody who insured his car for damage and he went to a gasoline s
tation to put gasoline. There was a big sign there no smoking and then he lit a ci
garette so his car caught fire that would be negligence amounting to bad faith b
ecause it is so obvious. Let s say he insured his house against fire and he watchi
ng a movie and smoking a cigarette when he fell asleep (walang ka storya storya
naman to pinapanood ko!) the cigarette fell and the rug caught fire that would b
e covered. There was a man, somebody imported some material/chemical that were q
uite inflammable. Then he arrived at the premises of the company then the was em
ployee was supposed to open the van little by little, let the fuse come out. And
then, it was early in the morning and he said ano ba to ang dilim dilim ah! so he
flicked his lighter and there was an explosion and he died. There was gross negl
igence. You should know na highly inflammable, nagsindi ka ng lighter. The loss,
the proximate cause of which is the excepted peril even though the immediate ca
use is a peril insured against. In the case of the rebellion which caused the fi
re. The proximate cause there is the rebellion but the immediate cause is the f
ire and that is not covered under the policy.
* Case: There was this case of this Fortune insurance company. The insured a pay
roll against robbery. They asked a security guard agency to transport the payro
ll. And so the security guard agency provided the armored car, driver and securi
ty guard. The payroll policy had a provision that insurance company will not be
liable if the loss was caused by an employee or authorized representative of the
insured. The one who stole the money was the driver of the armored car and the
security guard. The claim was filed. The insurance company rejected the claim th
ere was a litigation which reached the SC. The insured argued that the guard and
driver are not our employees. They were the employees of the security guard age
ncy. Neither were the are representatives because the security guards were inde
pendent contractors. They were not our employees, they were not our authorized r
epresentatives therefore we re not liable. The court said no! What is the purpose
of that provision? What the provision is saying is that the insurance company is
not willing to assume the risk of loss caused by the person who has immediate c
ustody and safekeeping of the money because the risk is too high. They had imme
diate access and custody of the money so the should be considered your represent
ative therefore the insurance company is NOT liable.
Jan 7, 2002 (Monday)
Che Bassig
Losses for which the insurance coverage includes:
Losses caused by the connivance of the seller and injury suffered by the neglige
nce that amounts to bad faith; the loss the proximate insured cause of which is
an accepted error; loss for which the risks insured against is the remote cause
of the loss. For instance you have this person who insured his house against fi
re, the neighbors house caught fire, the neighbors flock to his house and cause
damage, he cannot recover because the fire is the remote cause of the damage on
his house.
Sec. 91
The insured must give notice without unnecessary delay. If proof is required, h
e must bring with him the necessary proof whenever a loss is incurred. Usually
when you file a claim most people rely on the insurance agent.
If the insurance company has rejected the claim, but he did not invoke
delay in filing as a ground of objection or any other grounds, then it would be
waived as a defense in a case suit. This is normal for a claim of motor vehicle
insurance. The insurance company will ask police report, a photograph of the d
amaged portion, and get estimates from an accredited shop. If the insurance com
pany did not tell the insured that he needs, for the example photographs, he can
not latter on say that the insured failed to substantiate the loss with a photog
raph.
Delay will also be excused is caused by a misrepresentation by the insura
nce agent that he will take care of everything.
Sec.92
He cannot obtain despite reasonable delays suffered to show that the reas
on why he cannot produce such certificate because the certificate required by co
urt not available. For example fire insurance, the insurance company will ask r
eport of investigator.
You have this case where the person insured his premises he was leasing i
t to a restaurant, by new years eve, he and his cook went out to look at the fir
e works, he neglected the gas range, and a fire broke out. He went to file a cl
aim, the arson investigator conducted an investigation but never submitted his r
eport. The investigator immigrated to the US and his whereabouts unknown. It is
enough to show that they cannot submit report of arson, not because the fire wa
s caused by arson but that the investigator immigrated.
In case of loss and the insurance company pays, it is subrogated to the
rights of the insured and he can collect from the wrongdoer. But if the insured
has done any act which prevents the insurance company from running after the wr
ongdoer, then the insurance company will be relieved from liability because he w
ill be prejudiced. For example the insured in a motor vehicle insurance settled
with the wrongdoer by accepting P2,500 in settlement. Then he filed a claim wi
th the insurance company. The insurance company will be subrogated to his right
s against the wrongdoer. The wrongdoer can raise the defense against the insura
nce company that there was a settlement. The insurance company therefore cannot
be liable- in fact they can get the money from the insured on the theory of pay
ment by mistake. Also in one case, where an importer failed to file a claim in
the Arrastre operator on time. The court said that the is barred. The insuranc
e company may be exempt from liability.
Where in the case of a shipping company where the liability in the bill o
f lading stipulated a certain amount unless the owner declared a higher value, h
e can recover a higher claim from the insurance company.
Double Insurance
This double insurance It exists where the same person is insured by sever
al insurance separately with respect to the same subject interest.
So there are 5 requisites of double insurance.
1. Insured must be the same so if a lessor insured a building that he owns, and
the lessee insured it also there is no double insurance for the insurers are di
fferent.
2. There must be several insurers somebody insured his building with FGU insuran
ce and 6 months later on he takes another insurance from FGU, no double insuranc
e.
3. When the subject matter must be the same the insured let say insured his buil
ding and then he insured his stocks in trade, there is no double insurance for t
he subject matter is different.
4. The interest is the same where he insured his property and the proceeds payab
le to him and because he mortgaged it, he insured it again but the proceeds are
payable to the mortgagee this time there is no double insurance, the interest co
vered are different.
5. The risk must be the same if somebody let say insured his building against fi
re, then later on he obtained another insurance policy of course due to volcanic
eruption then there will be no double insurance.
Now double insurance is different from over insurance. The latter insure
s the property more than what the property is worth. For example a building is
worth P20M and it was insured for P30M. Normally, as I said in insurance polici
es, they provide that the insured must disclose the existence of other insurance
policies otherwise the insurance company will not be liable and that includes e
ven policies he may obtained in the future, that is, it is not limited to polici
es subsisting when he was obtained the policy.
And in case of over insurance Sec 94, relays down the different formulas
for collecting indemnity. We see the common theme that the insured cannot colle
ct more than what he lost. Here is somebody who has a building worth P10M. He
insured it with FGU Insurance for P10M with Malayan for P5M and Pioneer for P5M.
So he is over insured by P10M. So under the law he may decide to collect P10M
from FGU, P5M from Malayan, P5M from Pioneer. Now if he collected let say P5M
from Malayan and he is filing a claim with FGU he can only collect P5M from FGU.
Now if he collected from everybody, he is overpaid by P10M, so he must re
turn it to them proportionately the over payment. Return P5M to FGU, P2.5M to M
alayan and P2.5M to Pioneer. Now if FGU paid him only because he only filed a c
laim with FGU, FGU will be entitled to collect P2.5M from Malayan and P2.5M from
Pioneer.
Like in car insurance policies there is just a provision there that if th
e car is also insured with another, then the insurance company will only pay pro
portionately in case of loss. For instance, you have a car insured with 2 diffe
rent insurance companies and it was stolen. Let s say that it is worth P500T, I t
hink you can collect P250T from each insurance company.
Reinsurance:
Then you have reinsurance, the law defines it as, which is one by which a
n insurance procures a third person to insure him against loss for liability for
reasons of such original insurance. The re-insurer is nothing more than liabil
ity insurers. Original insurer reinsures risk of another insurance company. Th
is can go in several layers. You have 5 layers. First layer, you call it reins
urance, subsequent layers you call it retro-cession. Now it could be automatic
like if you have a treaty maybe 15% of whatever we insure it will automatically
be ceded.
Now the court has said a re-insurer cannot intervene in action filed aga
inst the original insurer because his rights may be adequately protected by a se
parate action, when the original insurer sues him, then he can raise whatever de
fenses he can found in the original action.
Just like original insurance, the re-insurer s contract is of utmost good f
aith. That is why the original insurer must communicate with the re-insurer all
the important representation of the original insured which are material to the
risk. Now this is very important like when somebody offers a reinsurance. You
find out oh what kind of policies are you going to issue and where will you issue
these policies. Like this French company who was ceding auto reinsurance here and
in their proposal they said we will not underwrite casualty policies. Then whe
n the year ends they will submit a report, here is the income, here is the outpu
t. This are the losses paid as a result of the operation, here is your share in
the profits, then when you receive the notice katakot-takot na casualty or they w
ill say we will only insure buildings in New York solid as rock, but you receive c
laims to losses in Nigeria, which is notoriously corrupt or they will say they w
ill not insure long term risk.
The re-insurers is presumed as contracts of indemnity against liability a
nd not against damage. In other words if the original insurer does not pay, you
r re-insurer will be liable to pay and they will be ordered to pay. For instanc
e, the original insurer was not able to pay because it was insolvent and the re-
insurers will be liable. They will be required to pay it and the money they wil
l pay will be held as assets, amongst those to be paid to the creditors of the i
nsurance company. In other words the re-insurer agrees to rise and fall with th
e fortunes of the original insurer.
If there is a claim, you are creditor, litigate with the reinsurance, the
y say that it will go through 5 layers. And these could be ceded for all the wo
rk. 3% here, 2% there, there you can have hundreds of re-insurers. If the orig
inal insurer paid, they are not going to litigate with every reinsurance. Somet
imes you have this clause, that they will abide with whatever results of the sui
t against the insurer to settle the claim. They will follow his fortune.
Original insurers of interest in a contract of re-insurance, this is a ne
w provision which codifies the case of Wellington Insurance Co, Artex Developmen
t Co. had a factory that was burned during the 60 s, the insurance policy is worth
P80M, a claim was filed, the insurance is not in the position to pay so it rein
sured abroad, so it needed time to be able to collect, so the defense raised was
that this reinsurance contracts have stipulations for the benefit of 3rd person
s, therefore the original insurer should pursue the claim against the reinsurers
. Courts said no! Because there is no privity of contract, therefore the origin
al insured has the right to run after the original insurer and not the reinsurer
. However if the policy states a Cut Through Clause, then the original insured c
an run after the reinsurer. There may be a provision there, the original insured
can directly proceed against the reinsurers and that may be done.
Special Types of Insurance
And the Law talks of special types of insurance. Take Marine Insurance.
Our insurance company use the Lloyds form for marine policies and because they u
se this form it s the Kingridge? jurisprudence that should be consulted in the int
erpretation of marine policies because every phrase or word has a meaning.
Now if the vessel is insured, it need not only cover the vessel but all
that is necessary for navigation. If the insurance is in cargo, it only refers
to articles loaded for commerce and not the provisions of the crew and passenger
s for they are not cargo. Usually goods stored on deck are not included because
they are riskier, they are first ones jettisoned.
If it is an all- risk policy, the court has said that all insured has to
prove that the property was lost. He does not have to prove the cause or that
it was due to fortuitous events. All he has to prove is that was lost and it up
to the insurance company to raise the defense. The only defense that they could
raise is that the loss was due to the misconduct of the insurer himself, like h
e planted a bomb with the cargo or it is one of the excepted risks under the pol
icy. So those would be the defenses available.
But if it is not an all-risk policy, that will only cover perils of the s
ea and there are 2 requisites for that: it must be due to unusual violence like
waves or wind or must be connected with navigation. In other words, the loss mu
st be due to a fortuitous event. If cause is ordinary typhoon, that is not peri
l of the sea. While I don t argue with the Cathay Ins. Case, where some pipes wer
e imported from Japan and when water seeped through the hull of the vessel, the
pipes became rusty. The court said the insurance company was liable because thi
s was peril of the sea. And no there was no unusual movement of the water and th
e sea. Now as we said, peril of the sea means there must be fortuitous event. A
nd if it is due to the fact that the ship is not sea worthy, that is not covered
but it is peril of the ship. The Roque case, where a barge ran a leak, the ins
urance company is not liable for the loss of the cargo because it is peril of th
e ship.
Now the policy also mentions Barratry. In that case, what happened is t
hat the captain of the ship decided to cut loose the barge and the insured was t
rying to argue that it was barratry. Of course, barratry means loss due to the m
isconduct of the master or the crew, but this is not misconduct. It is negligen
ce, error in judgment of the captain but not barratry.
And the policy also insures against arrest of the vessel. Now you have
this Malayan Ins. Case the Supreme Court through Justice Romero said that the ve
ssel was ordered to be arrested through court order. The court said the insuran
ce company is liable for that, but you see, the phrase arrest of the ship has a
well settled meaning in English jurisprudence, lasting for over 200 years which
means arrest due to an order of an administrative or executive official. But it
does not include arrest by order of the court. That is the interpretation of E
nglish courts for centuries. Our SC did not follow.
Now under Section 100, the owner of the vessel has insurable interest ev
en if he chartered it and the charterer agreed to pay in case of loss. But, the
insurance company is only liable for the amount he did not recover from the cha
rterer. The vessel for instance is worth P10M the charterer paid P5M then he can
only collect P5M form the insurer. Because again, insurance again is a contract
of indemnity the insured can only collect what he lost.
Freight refers to the benefits derived by the owner of a chartered vesse
l who carried goods and that can be insured. Now the owner of the property can
also insure not only the property but also the expected profits. Now the charte
rer has an insurable interest to the extent that can be indemnified for his loss
.
Now I chartered this vessel and agreed to pay P500T and I look around fo
r goods that I can transport. Now I will pay only if the vessel arrives safely
and I was able to solicit goods paying freight of P600T. So if the vessel sinks
, I need not pay the owner anymore, I only lost a profit of P100T. That is all
I can collect.
In marine insurance, the parties are bound to communicate all informatio
n material to the risk because usually the vessel is out there and cannot be ins
pected. That is why in one case, where the insured did not disclose that the ve
ssel had been recently involved in a collision, of course that was material. Fai
lure to disclose it amounts to concealment.
And in marine insurance the belief and expectation of 3rd persons is mat
erial and must be disclosed. If for instance surveyor inspected a vessel and ga
ve its certification that is it is not sea worthy that must be disclosed.
And insured is presumed to have knowledge of the loss if it might have b
een received in usual rate of communication. I am not a maritime lawyer but acc
ording to Professor Tessoro, Llyods can monitor every vessel in a given point in
time, anywhere in the world.
Now concealment in maritime insurance is different from ordinary policie
s. Despite the concealment, the insurance company would still be liable unless
the loss was due to the fact concealed. For example, the insured misrepresents t
hat the vessel is from Liberia when it was actually not.
Also where there is want of necessary document or loss of necessary pape
rs and this is concealed, then the vessel is lost by some other cause like it en
countered a perfect storm, then the insurance company must still be liable.
Representation as to expectation in the absence of fraud does not avoid
the maritime policy. Like somebody is insuring his vessel his trip from Manila
to Cebu. So the Insurance company will ask, when will you make the trip? And he
said April. So that was his expectation but the vessel became available only in
June. There is no misrepresentation when the delay is excusable.
And in marine insurance, there are 4 implied warranties namely:
1. Vessel is seaworthy
2. It will not deviate from the agreed voyage
3. It will not engage in illegal ventures
4. That its nationality, neutrality and its cargo is expressly warranted that th
e ship will carry the necessary documents to show these facts
However, there may be a waiver of warranty of seaworthiness. So, if there
is waiver, the insurance company will be liable even if the vessel is not seawor
thy. If there is no waiver, the insurance company will not be liable. The cour
t has said it also applies with the insurance of the cargo. The owner cannot sa
y that he did not know that the vessel was not seaworthy. The court said that i
t is the responsibility of the owner of the cargo to ensure that he is dealing w
ith a seaworthy vessel. So that case where a barge sprang a leak, then he was s
aying he was not liable because the barge was not seaworthy, the court said you
are responsible to see to it that the vessel is seaworthy.
Now a vessel is seaworthy when it is fit to perform the services and enc
ounter the perils of the voyage contemplated. And the implied worthiness is comp
lied with when the vessel is seaworthy, when it commences the voyage. However,
if the policy is for a specific length of time let us say a year, then the vesse
l must be seaworthy, every time it leaves for a voyage. If it is an insurance o
f the cargo with different ships, every vessel must be seaworthy. If you have eq
uipment from Japan which will be transported by a Japanese vessel from Tokyo to
Manila, and Manila to Cebu by a domestic vessel, all the vessels must be seawort
hy. Now the seaworthiness not only applies to the structure of the ship but it
must also be properly loaded. For example, the sides of vessels are painted in
two colors red and black, the dividing line means that the water cannot go beyon
d that line, if it goes beyond, it means it is overloaded. It must also be prov
ided with a competent master, one who is fully qualified and had passed all exam
inations. Then you must also have the requisite equipment, radar, radio etc. N
ow if there are different portions of the voyage, then the vessel must be seawor
thy for every portion. If the vessel becomes unseaworthy and there is unreasona
ble delay in making repairs, then the Insurance co. is exempted from liability.
The vessel must also be seaworthy for the type of cargo, e.g. if it is to trans
port fruits and vegetable the vessel must have refrigeration.
January 9, 2002 By: Maria Micaela Anna Tujan
Cayton Aka: Gorgeous
Secs. 121 126. The Voyage and Deviation
Secs. 121-123. For example, there was a case where the ship was supposed
to sail from Paris to New York, but it deviated to London first to pick up more
cargo (greedy kasi eh!!!). Then it sank before it could reach New York. The Cou
rt held it was deviation because it commenced an entirely different voyage. Henc
e the insurer is not liable.
Another case: some one in India chartered a ship, and started soliciting
cargoes but he still did not pay the ship owner for the charter. So the ship ow
ner sought to impound the ship to bar its departure. But knowing that India s gove
rnment authorities are very corrupt the charterer was able to leave after bribin
g customs authorities.
` Part of the cargo was soybeans to be brought to Manila. The charterer kn
ew that the ship owner might get an arrest order in Manila so he made the ship p
roceed to Singapore instead. However, he made the ship stay outside Singapore s ma
ritime zone. He told the cargo owners to pay the ship owner before they could ge
t their cargo, and if they won t, he will proceed to Vietnam and sell their cargo.
The cargo owner of the soybeans sought to recover the value from the insurance
policy but the Court held the voyage was a deviation and so he could not recove
r.
Section 124 enumerates instances when deviation is proper. An example of
(a) is when there is a typhoon. An example of (b) is when the ship suddenly has
engine trouble. An example of (c) is when the shipper receives reports of pirat
es waiting in ambush, so must deviate. And (d) is based on humanitarian consider
ations. Any other deviation relieves the insurance company. Just like that ship
that was supposed to sail from Paris to New York, once there was improper deviat
ion the insurer was relieved from liability.
Secs. 127-137. Loss
A loss may be either partial or total, and a total loss may be either ac
tual or constructive. Now, Sec. 130 enumerates what causes actual total loss. He
re are examples for each:
(a) ship burned;
(b) it sunk or was broken up, making it irretrievable;
(c) in a decided case, palay was shipped but it came into contact with water. It
arrived as seedlings. There was loss because it was different from the cargo sh
ipped and insured. Another example a race horse was shipped, but in the ship it
panicked, jumped and kicked around, breaking its legs. There is loss because the
race horse can no longer race with broken legs.
(d) for instance, it was ordered seized.
Section 133 says that if the vessel cannot continue but the cargo is transferred
, the
marine policy on the cargo remains. Sec. 134 makes marine insurer liable for the
cargo and for additional expenses, such as discharge of cargoes, storage in a w
arehouse, additional freight. This is because all this is done for account of th
e insurance company, under the principle of sue and labor expenses - insurer is lia
ble because the law presupposes that he is amenable for such expenses to be incu
rred, lest loss is suffered which makes him liable for general average.
But when actual loss is suffered, there is no need for abandonment and t
he insurer is liable for the actual loss. Sec. 136 says that the insurer is not
liable for particular average loss. But in London, the practice is that this can
be adjusted, the adjuster makes a statement of how much everyone contributed,
then he makes the shipper or insurer sign it before the cargo is released.
Sec. 138 155. Abandonment
Section 139 talks of constructive total loss, where the cargo owner can a
bandon and claim for loss, except when the loss is so extensive that it would be
 more practical to buy a new one.
Abandonment cannot be partial or conditional when one abandons, it must
be abandonment of the entire thing. It must be made within a reasonable time as
well (Sec. 141). The insured cannot be segurista!!
Now, Sec. 142 says that if the information relied upon is incorrect but a
bandonment was already made, renders the abandonment ineffectual. There was this
case where oranges from Israel were shipped. Then the ship bumped a wharf, and
the consignee of the cargo got information that the oranges were extensively dam
aged. He abandoned it but later on it was learned that the oranges were (natural
ly) ripening through the course of the voyage, prompting the captain to sell it.
Ineffectual abandonment!
Under 146-147, once interest is transferred, the insurer is entitled to t
he vessel salvaged or the proceeds of the salvage. An example of Sec. 148 is whe
n expenses are ordered by the captain to repair the vessel, then abandonment is
made, the order done in good faith are for the risk and benefit of the insurer.
Under Sec. 150, the acceptance of an abandonment may either be express or
implied. An example of implied acceptance is when the insurer does not expressl
y say he accepts abandonment but gives orders to the captain and crew.
Under Sec. 151 and 152, once abandonment is made, it is conclusive and ir
revocable, unless the ground relied upon is unfounded (as in the orange case, su
pra).
Now, an illustrative case of Sec. 153 is the Oriental Assurance case whic
h was asked in the bar. There was a shipment of logs, placed in two barges. One
of the barges sank. The value of the logs that sank is more than of the value of
the logs in the other barge that didn t sink. Abandonment was sought but the Cour
t held it cannot be done, because only one insurance policy covered both barges,
hence it is an indivisible contract. To compute the loss the value of all the l
ogs both barges must be added before subtracting the loss.
Under Sec. 154, if the insurer refuses to accept a valid abandonment, the
shipowner may sell the vessel for scrap value and can sue the company for the b
alance.
Sec. 156 166. Measure of Indemnity
A valuation in a marine insurance policy is conclusive and if it is a de
valued policy, where it is underinsured and partial loss occurs, the loss will b
e proportionately shared. The shipper is considered an insurer as to that part o
f the loss he must suffer due to the devalued policy. This is done in order to a
void pointing whose share was damaged.
Now, an example of Sec. 158: a shipment of sugar, expected profit is P100
thousand. 50% of the shipment was lost, can collect P50 thousand expected profi
t from the insurer, because profits were separately insured. But under Sec. 162,
if sugar worth P100 thousand if sold would ve made P120 thousand, but damaged val
ue was only P50 thousand, only half of the expected profits can be collected as
lost profits. Hence he can collect only P10 thousand.
Sec. 163 is another provision pursuant to sue and labor expenses, because i
t is assumed the insurer will be willing to incur such expenses to avoid loss. S
ec. 164 talks of general average loss, that goods jettisoned to save a vessel en
ables the owner of the jettisoned goods to recover from other cargo owners the g
eneral average.
FIRE INSURANCE
Sec. 167 173.
Section 168 talks of alteration. For example is this case where the Supre
me Court ruled that there was alteration, when the building is insured as a book
store, but it was converted into a restaurant, also because there is an increase
in risk. Another example is when one stores canvass in the premises (inflammabl
e), or when the place is insured as a residence but used to store leather and ot
her inflammables.
Section 169, for example is when a place is insured as a residential cond
ominium but is converted into an office condominium, there is no increased risk,
 and no alteration. Now this was asked in the bar: a policy answers only for hos
tile fire, not friendly fire. Friendly fire is one which burns where it is inten
ded to burn, like a gas range fire, or a bonfire. However, fire which was initia
lly friendly can convert into hostile fire.
There was a case where the restaurant was insured under a fire policy. Th
e restaurant sought to recover indemnity for soot on the wall caused by a gas ra
nge burner. This discoloration on the wall was caused over time because the gas
range was positioned in such a way that the fire was near the wall. Of course th
ey cannot collect, it was friendly fire! Kasalanan nila kung bakit nila nilagay
ang lutuan sa tabi ng pader! Bobo! Eng-eng!
Normally the insurance policy provides that insurer is not liable for los
s caused due to war or rebellion and the like. The Supreme Court held in a case
that insurance companies are not liable for buildings burned during World War II
because the Japanese ordered those to be burned. But if let s say that in the mid
st of those burning buildings done under the orders of the Japanese, another bui
lding was independently burned (read: nakisali; saling kit-kit) that one buildin
g may recover under the insurance policy.
Normally the policy has a proviso that if there is underinsurance, insure
d must share in the partial loss suffered. Unlike in marine insurance where the
law specifically says this, under fire insurance this is a standard provision pl
aced by insurance companies.
Under Sec. 171. For instance, if there is a loss, and the building cost P
250 million to build, the insurance won t pay the same amount if it is an old buil
ding. The value will be adjusted to reflect depreciation suffered by the buildin
g before it was burned. There was this case, where the San Miguel Corporation bu
ilding claimed indemnity for fire that occurred in 1983 during construction of t
he building. But at that time, that specific year, the value of construction mat
erials skyrocketed. The policy had a provision regarding underinsurance. San Mig
uel sought indemnity, computing its losses based on the latest, sky-high value o
f construction materials. San Miguel defended itself by saying that they are not
underinsured, and for this purpose used the old prices of construction material
s as basis of its computation. The Supreme Court held that San Miguel cannot use
this double standard, it must use the same standard of prices to determine if i
t underinsured the building and how much losses it suffered due to the fire.
A fire insurance policy has a stipulation that the insurer has the option
to rebuild instead of paying for the loss, much like motor vehicle insurance wh
ere insurer san opt to have the car repaired instead of paying. But when the ins
urer exercises this option, the contract of insurance is novated. It turns into
a contract for piece of work and insurer becomes liable for quality of the work
done.
For example, Jack handled this case where my client owned dam trailers. T
he hydraulic lift needed to be fixed. The insurer said they will have it fixed.
They bought an old cannon barrel to substitute the hoist of the thingamajig that
needed replacement. It did not work. Jack sued and the court ordered the insure
r to pay damages and profits. Insurer gave a defense that the insurance contract
had a proviso that the company is not liable for consequential damages. The Cou
rt ruled in favor of the argument Jack had, that it was a novated contract, and
that Jack s client were entitled to collect under the novated contract of piece of
work under the Civil Code.
CASUALTY INSURANCE
Section 174.
For example: personal accident insurance, third party liability insurance
, contractors all risk insurance (to indemnify for injury caused by falling debr
is from a construction area). In the 1950 s a loss of thumb would rake in P6 thous
and for the victim. Easy money! Ang daming nawawalan ng daliri noon! When the in
demnity was lowered, wala nang nawawalan ng daliri noon.
Now, Philippine insurance policies usually state that if the death is due
to a voluntary act, the insurer will indemnify only if it is due to an external
physical violent force. But in other countries this proviso does not appear in
the contract. In the USA, there was a case where this guy heard that restricting
the oxygen supply to the brain resulted in the total orgasmic experience!!! So
he put his head in a plastic bag and masturbated (doctrine of self help :) obvi
ously, solo flight, cause who d wanna hang out with a guy like that??!). Surpris
e surprise, he died. The US Courts ruled that his heirs could collect, because t
his was an accident. But the Courts in Canada ruled the heirs cannot collect in
this case because the person knew (or should ve known) that death was a foreseeabl
e risk! Moral of the story? Stick to the tried and tested modes of achieving an
orgasm
Well, a good example of a genuine accident is when there is a boxing cont
est and one of the boxers slipped in such a way that he died. The Courts ruled t
hat this is accidental because in a boxing match there is no intent to kill (nor
is there an intent to die :)).
There is this case Jack doesn t agree with A person showed off his gun to a
nother person and to prove it was empty, he aimed at his temple and pulled the t
rigger. Oops, booboo, may bullet pala. He died. Supreme Court held heirs can col
lect because it was a mistake. But Jack says it is common sense not to aim a gun
at anyone, even oneself, even though the gun is empty. Jack s viewpoint is more s
ensible, really!
An example of accident again: a seaman who jumped into the sea to save a
child who fell overboard. The seaman died. Seaman s heirs can collect under accide
ntal death, because he had no intent to die.
A usual accident policy says it won t answer for death or injury caused by
murder or assault. If desired for the policy to cover these instances, the insu
red must pay extra.
In this case of FinMan Insurance, the insurance policy did not contain th
e abovementioned clause. The insured was innocently waiting for public transport
ation along a sidewalk, when someone approaches him and stabs him just like that
. The Court ruled in favor of collection, and said that one must look at the vie
wpoint of the insured to determine if the injury caused was accidental. Since th
e bystander insured did not expect to be killed and because the policy did not c
ontain the clause mentioned above, the insurer is liable.
Another case: A group of policemen and a security guard were chasing a ro
bber. The robber fired killing the security guard. It was ruled as accidental de
ath, because the victim was chosen at random. Hence the guard s heirs can collect.
Another case: if a robber holds up a bus he was riding and before he leav
es shoots at one of the passengers. Accident.
Jack handled this case before where in this restaurant, a customer tried
to surreptitiously leave without paying. The waiters caught him but in the cours
e of the melee, he was able to momentarily leave the premises. One of the custom
ers wanted to avoid the fracas, so he paid for his order and left. He had just s
tepped out of the door, when the estafador customer saw him and thought he was o
ne of the waiters out to catch him. The estafador shot the inocente. The Court r
uled that the heirs of the inocente could collect because there was an error in
persona, making the death accidental. Even if the act is considered under the Re
vised Penal Code as homicide through reckless imprudence, under Insurance Law th
e death is considered accidental.
January 10
Lyn Torio
<Classmates, I m sorry I didn t bring a tape recorder so not all of this is a word-f
or-word transcription of Jack s lecture. I added some notes to make up. Sorry ul
it.>
SURETYSHIP
SEC. 175. A contract of suretyship is an agreement whereby a party called the s
urety guarantees the performance by another party called the principal or obligo
r of an obligation or undertaking in favor of a third party called the obligee.
It includes official recognizances, stipulations, bonds or undertakings issued
by any company by virtue of and under the provisions of Act. No. 536, as amended
by Act No. 2206.
A surety is solidarily liable with the principal. The Civil Code provisi
ons on guaranty are applicable to suretyship in a suppletory character. The lia
bility of the surety is, however, limited to the amount of the bond. (SEC. 176.
The liability of the surety or sureties shall be joint and several with the ob
ligor and shall be limited to the amount of the bond. It is determined strictly
by the terms of the contract of suretyship in relation to the principal contrac
t between the obligor and the obligee) For instance, an accused applies for a bo
nd with an insurance company. The obligee (the court) is not concerned if the p
remium is not paid. If the accused absconds, the court will proceed against the
insurance company.
If the bond is not accepted, the principal is entitled to the return of t
he premiums paid. However, taxes (e.g., documentary stamp tax) cannot be refund
ed. In some instances, the insurance company will charge a service fee because
the insurance company took time to review the application for the bond. For ins
tance, the manager took time to go over the papers, the clerk took time to type
the application, etc.
But if the bond was denied because there was fault on the part of the ins
urance company, the applicant is entitled to the return of the premiums paid AND
the taxes paid. Example: Courts require insurance companies to get a clearanc
e. The bond which the accused applied for was not approved because the surety c
ompany failed to get a clearance (because it had an outstanding obligation with
the court because it failed to make good on a prior bond). In this case, the ap
plicant is entitled to the return of the premiums paid and the whatever taxes he
has paid as well.
Continuing bonds (e.g., judicial bonds) remain in force until the case is
finally terminated. The insurance company is entitled to charge premiums every
year.
LIFE INSURANCE
SEC. 179. Life insurance is insurance on human lives and insurance appertaining
thereto or connected therewith.
3 Principal types:
1. Term for a fixed period (e.g., for 5 years, for 10 years, etc), after that it
expires. This is the least expensive type of insurance. It does not have any
cash surrender value.
2. Whole life the insured pays premiums up to a certain time and then he will be
insured up to a certain age or until he dies, whichever comes first. For examp
le, the policy states that the insured will pay premiums until he s 65. After tha
t he ll be insured until he s 96.
3. Endowments For example, the policy states that if the insured reaches 60, the
insurer will pay him annuities for life. This is the most expensive type of li
fe insurance.
SEC. 180. An insurance upon life may be made payable on the death of the person
, or on his surviving a specified period, or otherwise contingently on the conti
nuance or cessation of life.
Every contract or pledge for the payment of endowments or annuities shal
l be considered a life insurance contract for purposes of this Code.
In the absence of a judicial guardian, the father, or in the latter s abse
nce or incapacity, the mother, of any minor, who is an insured or a beneficiary
under a contract of life, health, or accident insurance, may exercise, in behalf
of said minor, any right under the policy, without necessity of court authority
or the giving of a bond, where the interest of the minor in the particular act
involved does not exceed P20, 000. Such right may include, but shall not be lim
ited to, obtaining a policy loan, surrendering the policy, receiving the proceed
s of the policy, and giving the minor s consent to any transaction on the policy.
Note: the P20, 000 has been amended by the Family Code. Now it s P50, 000. Pare
nts don t have to give a bond or apply for guardianship proceedings.
Go back to the Nario case.
Nario vs. Philamlife (L-22796, June 26, 1967) held that a father or mother or a
guardian cannot surrender a life insurance policy or obtain loan therefrom where
a minor child is an irrevocable beneficiary, without judicial authority. Becau
se of Section 180, the father (or in his absence or incapacity, the mother) is n
ow authorized to do acts of ownership (e.g., obtaining a policy loan, surrenderi
ng the policy) without judicial authority, so long as the interest of the minor
does not exceed P50, 000. The interest of the minor is based on the face value
of the policy and not on its cash surrender value.
SECTION 180-A. The insurer in a life insurance contract shall be liable in case
of suicide only when it is committed after the policy has been in force for a p
eriod of 2 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 commissi
on.
The insurance company is not liable because the presumption is that the i
nsurance was taken in contemplation of suicide. But if the suicide is committed
by the insured while he was in a state of insanity, the insurance company is st
ill liable. Thus, if Miriam commits suicide, the beneficiary can collect.
Who has the burden of proving suicide? The basic instinct of self-preser
vation militates against the commission of suicide. Thus, it is incumbent upon
the party alleging suicide as a defense, especially in actions involving insuran
ce policies to prove it by clear and convincing proof.
SEC. 181. A policy of insurance upon life or health may pass by transfer, will
or succession to any person, whether he has an insurable interest or not, and su
ch person may recover upon it whatever the insured might have recovered.
The insured may assign a life insurance policy if the policy is payable t
o his estate or his legal representative or where the insured has reserved the r
ight to change the beneficiary. If the policy is payable to an irrevocably appo
inted beneficiary, the insured cannot assign it because that will prejudice the
vested interest of the irrevocable beneficiary.
Q. When are the proceeds of a life insurance payable to the estate of the insure
d considered to be conjugal?
A. The proceeds of a life insurance policy payable to the insured s estate, on whi
ch the premiums were paid by the conjugal partnership, constitute conjugal prope
rty. Thus, half belongs to the husband exclusively and the other half belongs t
o the wife. If the premiums were paid partly with paraphernal and partly with c
onjugal funds, the proceeds are in the like proportion paraphernal and conjugal
(Bank of the P.I. vs Posadas 56 Phil 315). However, where the proceeds are paya
ble to an irrevocable beneficiary such proceeds belong exclusively to the benefi
ciary although the premiums were paid out of conjugal funds (Del Val vs Del Val
29 Phil 334)
SEC. 182. Notice to an insurer of a transfer or bequest thereof is not necessar
y to preserve the validity of a policy of insurance upon life or health, unless
hereby expressly required.
Q. Is consent of the beneficiary necessary for the validity of an assignment of
a life insurance policy?
A. If the designation of the beneficiary is irrevocable, the consent of such ben
eficiary is necessary because he has a vested right on the policy that cannot be
defeated by an assignment or transfer without his consent. However, the consen
t of the beneficiary is not necessary where the designation is revocable because
in such case the beneficiary has no vested right.
SEC. 183. Unless the interest of a person insured is susceptible of exact pecun
iary measurement, the measure of indemnity under a policy of insurance upon life
or health is the sum fixed in the policy.
LIABILITY INSURANCE
(My note: This is actually covered by Section 174. This is also related to com
pulsory motor vehicle insurance, which is Sections 373-389 and the provisions ar
e too long for me to reproduce here. Bahala na lang kayong magbasa. This is his
lecture and parts of the Perez reviewer.)
Whether or not a third party can sue the insurer depends upon the wording
of the contract. For instance, in third party liability insurance contracts (T
PL contracts are usually motor vehicle insurance contracts---you can t have your c
ar registered if you don t have TPL at the least), third parties can sue the insur
er directly. If the indemnity is against actual loss or payment, third parties
cannot sue.
The injured party for whom the contract of insurance is intended can dire
ctly sue the insurer. Thus, in a vehicular accident, a person injured by the mo
tor vehicle covered by third-party liability insurance may directly sue the insu
rer. The general purpose of statutes enabling an injured person to proceed dire
ctly against the insurer is to protect injured person against the insolvency of
the insured who causes such injury and to give such injured person a certain ben
eficial interest in the proceeds of the policy.
Where an insurance policy insures directly against liability, the insurer s
liability accrues immediately upon the occurrence of the injury upon which the
liability depends, and does not depend on the recovery of judgement by the injur
ed party against the insured.
Jack: Usually, these contracts contain a provision that in case of suit
against the insured, the insurance company will defend the case. For instance.
Their client is this construction company in Mindanao with an insurance contrac
t with X. This physician had a violent argument with a payloader belonging to t
he construction company. He filed an action court and was awarded P500, 000 in
moral damages because of a diminished sex drive. Plaintiff was able to levy on
the equipment belonging to the construction company and the sheriff sold the equ
ipment at very low prices. The construction company sued the insurance company.
The insurance company s defense was, wala pang final judgment. Under the contract
of insurance, the insurer had two obligations: indemnity and to defend the ins
ured. Jack said, We re not suing you under you first obligation. We re suing you be
cause of your negligence in defending the case.
THE BUSINESS OF INSURANCE
You need a certificate of authority from the Commissioner before you can
engage in the insurance business. A certificate of authority is valid for one
year. It s issued on 1 July of a given year and valid up to June 30 of the follow
ing year.
Q: What is the meaning of margin of solvency?
A: Margin of solvency is the excess of the value of an insurance company s admit
ted assets exclusive of its paid up capital, in case of a domestic company, or a
n excess of the value of its admitted assets in the Philippines, exclusive of it
s security deposits, in case of a foreign company, over the amount of its liabil
ities, unearned premiums and reinsurance reserves in the Philippines (Section 19
4)
Q: What is the margin of solvency required of insurance company? (Just try to
look for it in the Insurance Code, coz there was something wrong with Lyn s file.
File contained weird characters!)
Note also that Jack Discussed Sec. 241 and 242. (As to Claims Settlement)
AGENTS AND BROKERS: Must be licensed.. Soliciting for compensation without a l
icense: criminally liable. Rebate of premiums is also prohibited. Agreements r
egarding kickbacks can t be enforced because they are illegal.
SECTION 309.
It s unlawful for any person to insure abroad if the risk is located in the Philip
pines because the Commissioner has no jurisdiction over foreign insurers, but if
the arrangement is CIF, it s valid because the risk occurs abroad.
Rating organizations they give a range of premiums and say that anyone who does
not prescribe the premiums prescribed by us, we re not doing business with you. I
t s a valid exercise of police power recognized in the US because if the premiums
are no longer viable, the business collapses, and the public is prejudiced. Als
o, there is no suppression of business.
Here, it covers only 2 instances: fire insurance and motor vehicle insurance.
MOTOR VEHICLE INSURANCE: SECTIONS 373-389
Every vehicle must have compulsory insurance, otherwise you can t drive it
on the road.
Even if the policy provides that final judgment is needed before liabilit
y attaches, it s a void provision.
Who can file a claim: Jack: Lawyer goes to a conference and his secretar
y is with him to take down notes. If they have an accident she can t file a claim
because her presence in the vehicle arises out of the course of employment. Bu
t if they re out on a date she can file. If the lawyer is married I doubt if she ll
file a claim.
NO FAULT INDEMNITY PROVISION
Q: How can the insurer be held liable under the no fault indemnity clause in a m
otor vehicle third party liability insurance?
A: An insurer may be held liable under the no fault indemnity provision without
the necessity or proving fault or negligence of any kind, provided the following
requisites are present:
1. The claim is for death or injury to any passenger or third party;
2. The total indemnity in respect of any one person does not exceed P 5, 000; an
d
3. The necessary proof of loss under oath to substantiate the claim must be subm
itted
(Note: Heherson of 4 blue 95 said that in case of death, you submit the death c
ertificate. In case of injury, you submit a medical report. In ALL cases, howe
ver, you have to submit a police report)
Q: Which insurer is liable under the no fault indemnity provision?
A: A claim under the no fault indemnity provision may be made against the insure
r of one motor vehicle only. Such claim may be made directly by the injured par
ty against the insurer as follows:
1. In case of an occupant of a vehicle, claim shall lie against the insurer of t
he vehicle in which the occupant is riding, mounting, or dismounting from;
2. In any other case, claim shall lie against the insurer of the directly offend
ing vehicle.
Q: What right does the insurer paying no fault indemnity have?
A: In all cases, the right of the party paying the claim to recover against th
e owner of the vehicle responsible for the accident shall be maintained (Section
378). It is of no moment that that the vehicle insured is not the one that cau
sed the accident since the law provides that the insurer paying the claim may re
cover from the owner of the vehicle responsible for the accident (Perla Compania
de Seguros case)
Jack: The no fault indemnity clause is without prejudice to the claimant s gettin
g more. For instance, the claim is for 15, 000. Under the no fault indemnity c
lause, he gets 5, 000. But this doesn t mean that the 10, 000 is barred. Only th
at the claimant has to prove that there was negligence. It s void for the insuran
ce company to require the claimant to waive his other claims as a condition prec
edent to the release of the P5, 000 (which the claimant is entitled to as a matt
er of right anyway. And kapal naman ng insurance company kung ganun, di ba?)
Two periods: you have to file the claim with the insurance company within 6 mon
ths from the time of the accident, otherwise it s deemed waived. Then you have to
go to court within one year from the denial of the claim, otherwise your claim
will be barred. (See Section 384)
Importance of a license:
If the insured himself is the driver, he has the right to recover damages even i
f his license has expired. If the driver is merely authorized by the owner (e.g
, your chauffer or your friend or your boyfriend), then the authorized driver must
have a valid license (i.e, hindi expired), otherwise the claim is barred.
??
??
??
??

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