INSURANCE LAW

The question of whether a contract of insurance is perfected is NOT governed by

the Insurance Code but by the New Civil Code (re: perfection of contracts). The
NCC applies in a suppletory character.
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another aga
inst loss, damage or liability arising from an unknown or contingent event.
Suretyship is different from an insurance contract because there are three parti
es in suretyship and when the surety pays, he is entitled to reimbursement. In
insurance, when the insurer pays, he is not entitled to reimbursement.
Underlying concept in insurance: it deals with a scheme of distribution of risk/
loss.
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 nam
e or form.
SECTION 4 prohibits insuring one s chance in a wagering contract, in any lottery o
r in gambling, whether or not gambling is permitted by law. What is prohibited
is not only a chance in lottery but all forms of gambling and wagering.
SECTION 25 declares that every policy executed by way of gambling or wagering is
void (2005 notes).
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 proceeds
will be paid to the mortgagee. But it is still the mortgagor who is the insure
d so he is the only one who can sue thereon.
Under the Civil Code, when the insurer pays, he is subrogated to the rights of t
he insured against the wrongdoer.
WHAT MAY BE INSURED AGAINST
1. Future Contingent Event Resulting in Loss (total or partial) or Damage
2. Past UNKNOWN Event (unknown to the parties at time of perfection of contract)
resulting in Loss or Damage
--This is illustrated in Marine insurance where at time policy is executed, the
vessel subject of insurance may have already sunk,but that fact was unknown to t
he parties at time of execution of policy.
3. Contingent Liability
--This is best illustrated in reinsurance where liability of the insurer is in
turn insured by him with a second insurer. This is also true in Workmen s compensa
tion insurance and Employer s Liability Insurance.
--2005 notes: The insurer is liable for fortuitous event since an insurance cont
ract is one involving an assumption of risk by the insurer and that since liabil
ity in insurance attaches on the happening of a contingent event and that event
should have happened without the intervention in any manner by the insured (like
in fortuitous event).
2006 notes: Retirement insurance is primarily intended for the benefit of the em
ployee-to provide for his old age or incapacity after rendering service in the g
ovt for a required number of years. If the employee reaches the age of retiremen
t, he gets the retirement benefit even to the exclusion of the beneficiaries nam
ed.
--the beneficiaries can only claim proceeds of the retirement insurance if the
employee dies before retirement. If employee failed to state beneficiary, his re
tirement benefits shall accrue to his estate and will be given to his legal heir
s.
--beneficiary in life insurance of employee does not automatically become benefi
ciary in retirement insurance unless the said person is so designated in the app
lication for retirement insurance.
LITIGATION OF CLAIMS
when any single claim does not exceed P100,000 (excluding cost, interest and at
torney s fees) concurrent jurisdiction of Insurance Commissioner and trial courts
2006 notes: if more than P100,000 Trial Courts
> Insurance Commissioner or Court makes a finding as to whether there was unreas
onable delay in payment of claims
> insurer must pay damages attorney s fees and other expenses and interest
UNFAIR SETTLEMENT PRACTICES (241)
Not attempting in good faith to effectuate prompt, fair and equitable settlement
of claims submitted in which liability has become reasonably clean; or
Compelling policyholders to institute suit to recover amounts due under its po
licies by offering without justifiable reason substantially less than the amount
s ultimately recovered in suits brought by them
> Knowingly misrepresenting to claimants pertinent facts or policy provisions re
lating to coverage at issue
> Failing to acknowledge with reasonable promptness pertinent communications wit
h respect to claims arising under its policies
Unfair Settlement Practices (241)
> Failing to adopt and implement reasonable standards for the prompt investigati
on of claims arising under its policies
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. 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 and binds only the parties to it and their assignees.
Contracts take effect only between parties ,except in some specific instances pr
ovided by law where contract contains stipulation pour autrui. Under this doctr
ine, a 3rd person is allowed to avail himself of a benefit granted to him by t
he terms of the contract, provided that the contracting parties have clearly and
deliberately conferred a favor upon such person. Consequently, a 3rd person not
a party to the contract, has no action against the parties thereto and cannot g
enerally demand the enforcement of the same (2006 notes).
If there is no condition in the policy that an action should be filed by the in
sured against the agent for his claim, the filing of such action has no legal ef
fect and serves no other purpose except that of notifying the agent of the clai
m. There is no law giving an effect to such action upon the principal and court
s cannot by interpretation extend the clear scope of the agreement beyond what i
s agreed upon by the parties.
An insurance contract provision for prior arbitration before resort to court act
ion applies only where the insurer disputes his liability not where it totally d
isclaims liability (2006 notes)
3. Voluntary it depends on the willingness of parties to enter into it
Under the new contract of compulsory insurance introduced by RA 4119 to the Workme
n s Compensation System., the insurance company is liable for compensation payment
s regardless of conditions incorporated in the policy limiting its coverage to c
ertain named locations, classes of employees, or specified operations, in view o
f the fact that we follow the full coverage rule in compulsory insurance. (2006
notes: this exist also in the motor vehicle liability insurance under sec373 of
the Code)
Where the insurance contract as a motor vehicle insurance provides for indemnity
against liability to a 3rd party, such party can directly sue the insurer. It h
as even been held that such a provision creates a contractual relation which inu
res to the benefit of any and every person who may be negligently injured by th
e named insured as if such injured person were specifically named in the policy
(2005 notes First v.Hernando)
In a 3rd party liability vehicle insurance, the insurer assumed the obligation o
f paying the injured 3rd party to whom the insured is liable. The insurer becom
es liable as soon as the liability of the insured to the injured 3rd person att
aches. Prior payment by the insured to the injured 3rd person is not necessary i
n order that the obligation of the insurer may arise. From the moment that insur
ed became liable to the 3rd person , the insured acquired an interest in the ins
urance contract, which interest may be garnished like any other credit card.
4. Executory- insurer merely promise s to pay when the risk attaches
5. Synallagmatic both parties have reciprocal obligations of equal value to eac
h other
6. It is a contract of perfect good faith for both parties(Uberrima Fides)
The contract of insurance is one of perfect good faith not for the insured alon
e, but equally so for the insurer, in fact, it is more so for the latter, since
its dominant bargaining position carries with it a stricter responsibility. (Fie
ldman v Vda de Songco)
7. Compensatory-actual loss or damage is compensated
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.
SEC. 176. The liability of the surety or sureties shall be joint and several wi
th the obligor 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 principa
l contract between the obligor and the obligee)
For instance, an accused applies for a bond with an insurance company. The obl
igee (the court) is not concerned if the premium is not paid. If the accused ab
sconds, the court will proceed against the insurance company.
A surety is solidarily liable with the principal. The Civil Code provisions on
guaranty are applicable to suretyship in a suppletory character. The liability
of the surety is, however, limited to the amount of the bond.
If the bond is not accepted, the principal is entitled to the return of the prem
iums paid. However, taxes (e.g., documentary stamp tax) cannot be refunded. In
some instances, the insurance company will charge a service fee because the ins
urance company took time to review the application for the bond. For instance,
the manager took time to go over the papers, the clerk took time to type the app
lication, etc.
But if the bond was denied because there was fault on the part of the insurance
company, the applicant is entitled to the return of the premiums paid AND the ta
xes paid. Example: Courts require insurance companies to get a clearance. The
bond which the accused applied for was not approved because the surety company
failed to get a clearance (because it had an outstanding obligation with the cou
rt because it failed to make good on a prior bond). In this case, the applicant
is entitled to the return of the premiums paid and the whatever taxes he has pa
id as well.
Continuing bonds (e.g., judicial bonds) remain in force until the case is finall
y terminated. The insurance company is entitled to charge premiums every year.
PARTIES TO AN INSURANCE CONTRACT
1.INSURER
Person who undertakes the indemnify another by a contract of insurance and may b
e a natural person,company or association who holds a certificate of authority
from the Insurance Commissioner. (2006 notes: Banks cannot be insurers)
No Domestic Insurance Company shall be given certificate of authority unless if
a corporation it has paid up capital of P2 Million and a contributed surplus of
P1 Million for life insurance companies and half million for non-life insurance
companies (Sec 188 Insurance Code) . In case of reinsurance companies, the paid
up capital required is P5 mil.
An insurance cooperative is issued a certificate of authority by the Insurance C
ommissioner upon recommendation of the proper supervisory office under PD 317. F
or a person to be called an Insurance agent, it is necessary that he should perf
orm the function for a compensation.
2.INSURED
Any person with capacity to contract and having an insurable interest in life or
property insured may be the insured.
Minors
They may be insured and can exercise all right rights and privileges of an owne
r under the policy. If a policy is taken by a person on life or health of minor
, the policy vests in the minor on the death of that person who procured the pol
icy (Sec3, Insurance Code)
A minor may contract for life, health and accident insurance under the following
conditions
-he must be at least 18 yrs of age
-insurance is on his life
-beneficiary is his estate, parents, spouse,children ,brothers or sisters
Married Woman
Under Sec 5 RA 7192, women ,single or married , now have same contractual rights
as men in entering into insurance contracts . Women may take insurance on her
life or on that of her children without need of her husband s consent.
Public Enemy
A public enemy is every citizen or subject of a nation at war with the Philippin
es. It does not include robbers, thieves, private depredators, or riotous mobs.
A local criminal (even the MILF or Abu Sayyaf members) can be insured if the
insurer is willing to take him as a good risk. The citizen of a country with wh
ich we do not have diplomatic relations is not a public enemy and can be insured
.
2005 Pointers: War prevents an insurance contract from being entered into betw
een citizens and juridical entities of warring estates. W/ respect to existing
insurance contracts involving Phil citizens and corporations on one hand and an
alien (natural or juridical) on the other, where Phil may be at war with their c
ountry, the rules accepted in the Phil are:
-Property Insurance: the Kentucky rule states that war abrogates the contract
-Life Insurance: US Rule states that war terminates the policy but the insured
is entitled to the equitable value of the policy arsing from the premiums actua
lly paid when commercial relations are resumed
3. BENEFICIARY
Insured who insures his own life may designate any person including his estate
as his beneficiary, whether or not the beneficiary has an insurable interest in
the life of the insured. The insured shall have the right to change his designa
tion of beneficiary unless he has expressly designated an irrevocable benefici
ary in his policy.
2006 notes: If policy is taken by insured on his own life, the beneficiary desi
gnated by him need not have an insurable interest in the life of the insured.
Where policy is taken by third person not the insured, on life of insured, and
said third person designates himself as beneficiary, he (3rd person) must have a
n insurable interest on the life of the insured, at the time the policy became
effective.
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 f
or the exception is that a life insurance policy is no different from a civil do
nation insofar as the beneficiary is concerned coz both are founded upon the sam
e consideration: liberality(so long as the person designated is not disqualified
to become a donee to him).
When you insure the life of another, the consent of that person must be obtained
and there must also be insurable interest over the life of that person.
2006 notes:order of distribution is relatives,estate then state (ALSO applicable
in non life).
SECTION 12 says that the interest of a beneficiary who is a principal, accomplic
e or accessory to the killing of the insured will go the estate of the insured (
intestacy). The beneficiary shall not benefit from his criminal act.
Death at hands of law:beneficiary of an insured who is executed for a crime he
committed cannot recover from the insurer for 2 reasons (1)death is caused throu
gh his connivance and (2) any stipulation to render the insurer liable under the
se circumstances would be contrary to public policy.
Killing of Insured by Beneficiary:Latter cannot recover due to contrary to publ
ic policy. The nearest relatives of the insured, if not disqualified shall rece
ive the proceeds. If no nearest relatives,then it shall inure to the estate, if
no estate, then it shall go to the State.
PERSONS DISQUALIFIED TO BE BENENEFICIARIES (ART 739):
1.between persons guilty of adultery or concubinage
2.persons found guilty of adultery or concubinage in consideration thereof
3.those made to a public officer,his wife, ascendants or descendants by reason o
f his office
2006 notes: A beneficiary in life insurance is like a donee, hence, the provisi
ons on the disqualifications of a donee under the Civil Code applies to a benef
iciary to the life insurance of the common law husband as she is disqualified u
nder Art 739 to be his donee.
VESTED RIGHT OF BENEFICIARY
The vested interest or right of beneficiaries in a life insurance policy should
be measured on its full face value and not on its cash surrender value, for, in
case of death, the beneficiaries may continue paying the same and they are entit
led to automatic extended term on paid up insurance option etc Said vested right
under the policy cannot be divisible at any given time.
2006 notes: A beneficiary designated in a GSIS life policy is governed in his ri
ghts by the GSIS law. While generally, a designated beneficiary is entitled to t
he whole proceeds of the insured s policy, in a GSIS policy, the law makes the pr
oceeds liable first for obligations with the GSIS to which the life was attach
ed
2006 notes:under the new contract of compulsory insurance introduced to the workme
n s compensation system, the insurance company is liable for compensation payments
regardless of conditions incorporated in the policy limiting its coverage to ce
rtain named location,classes of employees or specified operations in view of the
fact that we follow the full coverage rule in compulsory insurance.
-- if insurance policy issued by company entitles recovery to an indemnity after
having recovered compensation under Workmen s compensation law whereby such polic
y also contains the stipulation that COMPANY WILL INDEMNIFY ANY AUTHORIZED DRIV
ER PROVIDED THAT SUCH AUTHORIZED DRIVER IS NOT ENTITLED TO INDEMNITY UNDER ANY O
THER POLICY such condition is null and void since prior recovery under the Workmen s
compensation insurance is a recovery under a compulsory insurance and that the s
econd insurance being compulsory, recovery under it cannot be a limitation to an
y other insurance which may have been procured by an insured.
Is consent of the beneficiary necessary for the validity of an assignment of a l
ife insurance policy?
If the designation of the beneficiary is irrevocable, the consent of such benefi
ciary is necessary because he has a vested right on the policy that cannot be de
feated by an assignment or transfer without his consent. However, the consent o
f the beneficiary is not necessary where the designation is revocable because in
such case the beneficiary has no vested right.
2006 notes: While assignment is a prerogative belonging to the insured, in case
s however where the policy expressly provides that notice to the insurer must be
made by the insured, in case of assignments of the policy ,the failure of the
insured to notify the insurer of the said assignment will not bind the insurer.
The insurer therefore may pay to the heirs of insured as there is no beneficiar
y named in the policy.
IRREVOCABLE DESIGNATION
SECTION 11 says that the insured has the right to change beneficiary unless he h
as waived this right in the said policy. Remember that if the designation of th
e beneficiary is irrevocable, change of beneficiary can only be made with the co
nsent of the said beneficiary.
For the designation to be irrevocable , the insured should expressly state the i
rrevocable designation in the policy itself. As such the insured cannot:
-assign the policy
-take cash surrender value of the policy
-allow creditors to attach or execute on the policy
-add a new beneficiary
-change the irrevocable designation to revocable even though the change is just
and reasonable. (Since the irrevocably designated beneficiary and his heirs hav
e acquired from the date of policy the vested rights over the policy)
Bar: A took an insurance on his own life, appointing his wife B as beneficiary.
During battle of Manila, A died a few moments after B. Who are entitled to the
insurance proceeds(BAR)? The heirs of B ,the beneficiary wife, will be entitled
to proceeds. The designation here, being irrevocable, there being no reservatio
n to revoke by the insured of the designation, vested in B a right to the insur
ance from the time of issue of policy.
(4blue 95 notes: Under the New Insurance Code, the designation of beneficiary i
n a life policy is revocable unless the insured expressly provides that it is ir
revocable)
2006 notes: A creditor bank as attorney in fact of the insured and as irrevocab
le beneficiary of the insured had the obligation to collect from the insurer. I
f it failed to do so after the lapse of a considerable period of time, it is ba
rred from enforcing the obligation of the insured.
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.
LIFE INSURANCE
Classes of insurance are:
Life
Non life (fire, marine, casualty and suretyship)
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.
2006 notes:a person above 65 can still be covered by insurance, but such insuran
ce is considered only as an extended coverage since it is not anymore for a life
time for the fact that it has only a limited span of time as coverage since such
person is already ,generally, disqualified for insurance.
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 shall be con
sidered a life insurance contract for purposes of this Code.
In the absence of a judicial guardian, the father, or in the latter s absence or i
ncapacity, 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 P50, 000. Such right may include, but shall not be limited to,
obtaining a policy loan, surrendering the policy, receiving the proceeds of the
policy, and giving the minor s consent to any transaction on the policy.
4blue 95 Note: Parents don t have to give a bond or apply for guardianship procee
dings.
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 insuranc
e 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 still lia
ble. Thus, if Miriam commits suicide, the beneficiary can collect.
Who has the burden of proving suicide? The basic instinct of self-preservation
militates against the commission of suicide. Thus, it is incumbent upon the par
ty alleging suicide as a defense, especially in actions involving insurance poli
cies to prove it by clear and convincing proof.
In Sun Insurance v CA : The fact that insured removed the magazine from the hand
gun means that the insured did not willfully expose himself to needless peril.
At most, the insured is only guilty of negligence.
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 to his e
state or his legal representative or where the insured has reserved the right to
change the beneficiary. If the policy is payable to an irrevocably appointed b
eneficiary, the insured cannot assign it because that will prejudice the vested
interest of the irrevocable beneficiary.
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.
Kinds of Life Insurance:
1. Ordinary Life , general life or Old line policy
Insured pays a specific premium every year until he dies,the policy acquires a s
urrender value after 3 years.
2. Limited Payment policy
Insured pays premiums for a limited period. If he dies within the period, his b
eneficiary is paid; if he outlives the period , he does not get anything from th
e policy
3. Endowment Policy
Insured pays premiums for a specified period. If he outlives the period, the fac
e value of the policy is paid to him; if not ,his beneficiary receives the benef
it
4. Term Insurance
Insured pays once only, and he is insured for a specified period. If he dies wit
hin the period ,his beneficiary benefits. If he outlives the period, no person b
enefits from the insurance.
5. Industrial Life
Entitling the insured to pay premiums weekly. Or where premiums are payable mont
hly or more often (but not less than weekly), if the face value is P2000 or les
s, and the words industrial policy are printed upon the policy(these are for peddl
ers and low income brackets).
6. Variable Contract
Any policy or contract on either a group or individual basis issued by an insura
nce company providing for benefits or other contractual payments or values there
under to vary so as to reflect investment results of any segregated portfolio of
investment.
Amount of Insurance:
1.On one s life-no limit
2.On the life of another, over whom the person procuring the insurance has an i
nsurable interest- up to the extent of the insurable interest.
4blue 95 notes:In life insurance policies you at least have 30 days to pay the s
ubsequent premiums because at times you will delay announcements in newspapers t
hat because of a typhoon in that place the insurance company is giving the insur
e there 60 days.
4blue 95 notes: Prescription of the insurance is generally not less than 1 year
, but for industrial life(these are for low paying people like peddlers) it is n
ot shorter than 6 years.
GROUP INSURANCE
Essentially a single contract that provides coverage for many individuals. In i
ts original and most common form, group insurance provides life or health insura
nce coverage for the employees of one employer.
Contributory Plan:
The Coverage terms for group insurance are usually stated in a master agreement
or policy that is issued by the insurer to a representative of the group or to a
n administrator such as an employer. The latter acts as functionary in the colle
ction and payment of premiums and in performing related duties. Likewise, falli
ng within this topic is the disbursement of insurance payments by the employer t
o the employees. Most policies require an employee to pay a portion of the premi
um, which the employer deducts from wages while the remainder is paid by the emp
loyer. This is known as Contributory Plan (2005 notes: As compared to non-contri
butory plan where the premiums are solely paid by the employer).
Although the employer may be the titular or named insured, the insurance is actu
ally related to the life and health of the employee. Indeed, the employee is in
the position of a real party to the master policy, and even in a non-contribut
ory plan, the payment by the employer of the entire premium is a part of the t
otal compensation paid for the services of the employee. Put differently, the l
abor of the employees is the true source of the benefits, which are a form of ad
ditional compensation to them.
2000 Bar Question:
X company procured a group insurance from Y company. While policy was in effect,
5 of the covered employees perished at sea. The wives of latter designate P,an
executive of X, as authorized representative to enter into settlement with Y. P
misappropriate the settlement amount and the wives pursued their case against Y.
HELD: The suit against Y will prosper since X co. through its executive P acted
as agent of Y. the latter is thus bound by the misconduct of its agent. It is t
he usual practice in the group insurance business that the employer-policy holde
r is the agent of the insured.
PAYMENT OF PROCEEDS AND CLAIMS
LIFE INSURANCE
General Rule: Paid immediately upon maturity of the policy (death, survival, ces
sation or continuance of life)
Exceptions:
> proceeds are payable in installments
> annuity
> If maturity is due to death
Proceeds are paid within 60 days from presentation of the claim and proof of dea
th
2006 notes:Delay = interest unless due to fraudulent claim
Proof of death v. Notice of Death
What is required for payment of proceeds is proof of death and NOT merely notice
of death
Proof of death - death certificate
PAYMENT OF PROCEEDS IN LIFE INSURANCE
General rule: paid to designated beneficiaries
Exception: Facility of payment clause
(not applicable in individual life)
* Group Life if there is no designated beneficiary, pay not exceeding P500.00 to
any person equitably entitled for incurring funeral or other expenses incident
to the last illness or death of the insured
* Industrial life
A,if beneficiary does not surrender policy or
B.beneficiary is the estate of insured OR
C. legally incompetent
payment may be made to the executor or administrator of insured or any of insure
d s relative by blood as legal adoption or by marriage or any person who incurred
expenses for maintenance, medical attention or burial
NON LIFE (PROPERTY) INSURANCE
Sec. 243 General Rule: proceeds shall be paid within 30 days after proof of los
s is received by insurer and ascertainment of loss is made
Ascertainment of loss made either by agreement between parties or by arbitration
* If no ascertainment is made or can be had within 60 days from receipt of proof
of loss, insurer must pay within 90 days after receipt of proof
* Refusal to pay within period unless due to a fraudulent claim = interest
BAR:Nena presents proof of loss of car by theft and insurer ascertains amount of
loss on January 1, 2000.Proceeds must be paid 30 days after January 1, 2000. O
therwise, interest must be paid.
Nena presents proof of theft on January 1, 2000 but parties cannot agree on amou
nt of loss by March 1, 2000 (within 60 days).
Proceeds must be paid within 90 days from January 1, 2000. Otherwise, interest w
ill accrue.
INCONTESTABILITY CLAUSE IN LIFE INSURANCE
Section 48, 2nd par if life insurance has been in force during the lifetime of t
he insured for a period of 2 years from DATE OF ISSUE or LAST REINSTATEMENT; th
e insurer cannot prove that the policy is void ab initio or is rescindable by re
ason of fraudulent concealment or misrepresentation of the insured or his agent.
Illustration
A is issued a life insurance policy on April 2, 2000,He conceals the fact that h
e has tuberculosis,A dies on April 3, 2002.
Insurance company must pay. Although there was concealment, the policy has been
in force during the lifetime of A for 2 years from April 2, 2000 to April 2,200
2.
When Incontestability Clause DOES NOT apply
* Person has no insurable interest
* Cause of death is an excepted peril
* Premiums have not been paid
* Conditions of the policy relating to military or naval service have been viola
ted
* Fraud of a vicious type is present when policy was taken out
* Beneficiary failed to furnish proof of death or to comply with any condition i
mposed by the policy after the loss has happened
* That the action was not brought within time specified
INSURABLE INTEREST IN LIFE
A person may have an insurable interest in life of another in the following case
s:
1. any person of whom he depends wholly or in part for education or support
2.any person under legal obligation to him for payment of money or respecting pr
operty or service of which death or illness might delay /prevent performance (cr
editor insuring life of its gen manager)
3.any person upon whose life any estate or interest vested in him depends. (ex:
Legatee of a usufruct insuring life of usufructuary on whose death the usufruct
will be extinguished)
2006 NOTES: A corporation has an insurable interest in the lives of its officers
when the death or illness of said officers would materially affect the corpora
tion.
2006 notes: as long as the party has a factual interest on the party insured ,th
en ,that would tantamount to insurable interest, like the creditor and the emp
loyer with regard the employee
-A person does not have insurable interest in the life of another who is a mere
friend since friendship alone not falling under any one of the three categories
above stated.
BAR: L was the holder of an accident insurance policy effective Nov 1,1988 to Oc
t 31,1989. At a boxing contest held in January 1,1989 and sponsored by his emplo
yers, he slipped and was hit on the face by his opponent so he fell and his head
hit one of the posts of the ring.He was rendered unconscious and was dead on ar
rival at the hospital due to intracranial hemorrhage. Can his father who is the
beneficiary claim indemnity?
YES, a boxer entering a ring does not expect to die from his act. His slipping w
ith his head hitting one of the posts is accidental and therefore covered by his
accident insurance policy.
2006 notes: A life insurance policy is a valued policy. Unless the interest of
a person insured is susceptible of exact pecuniary measurement ,the measure of
indemnity under a policy of insurance upon life or health is the sum fixed in th
e policy.
2006 notes:A stipulation for payment of loss whether or not the person insured h
aving insurable interest is void.
2006 notes:in life, beneficiary need not have insurable interest in the insuranc
e except when you insure the life of another, the consent of that person must be
obtained and there must also be insurable interest over the life of that person
.
Estate of the Insured is beneficiary
Z during his marriage to Y obtained a life insurance policy for P10T payable to
his estate. Premiums were paid from his salary as a teacher. While policy was in
effect. Z died survived by Y and a child .
HELD: Proceeds of policy are conjugal, so it will be divided as follows: P5T or
to Y as conjugal share. Then of the other half or P1666.67 as Y s share being the
heir of Z and other half to the child.
2006 notes: even though proceeds in life insurance are payable to estate, said p
roceeds are conjugal if the premiums are paid (1)from salaries of the insured or
(2)from other conjugal funds or properties.
Specified person is beneficiary
BAR: A took out a P30000 life insurance policy and designated his wife B as sole
beneficiary. All the premiums in the policy were paid from his salaries. Spouse
s have 3 children .A died intestate. Divide the proceeds of the policy.
HELD: all proceeds go to B.source of premium here is immaterial.
Suppose A designated his child only as sole beneficiary, then all proceeds will
go to that child. Source of premium is immaterial.
Beneficiary on Life of another person
Where life insurance is procured by a person over the life of another, the forme
r must have an insurable interest in the life of the latter as specified by law
at the time policy was taken.
Wagering, well, I mentioned to you the case of this fellow who got an ordinary m
anual laborer earning minimum wage to insure his life with 6 insurance companies
for fantastic amounts and he named this person beneficiary and it was the perso
n paying for the premiums. The Court of Appeals disallowed the collection of th
e 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 beneficia
ry and this was this fellow paying for the premiums. The court said that this pe
rson is actually wagering on the life of that manual laborer. He chose his 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 wageri
ng on his life.
DIFFERENCE OF INSURANCE IN LIFE AND IN PROPERTY:
1.Insurable interest in Life exist only at the time policy is taken while in pro
perty, interest must exist at time policy is taken and at time loss occurs
2.In life it is taken on insured s life and beneficiary need not have insurable in
terest on his life while in property, beneficiary must have an insurable interes
t in property insured
3.life insurance over one s life, there is no limit to the amount of insurable int
erest. In property, limited to actual value of interest in property.
INSURABLE INTEREST IN NON-LIFE(PROPERTY)
INSURABLE INTEREST IN PROPERTY
Insurable interest in property is every interest in property whether real or per
sonal or any relation thereto, or liability in respect thereof, of such nature t
hat the contemplated peril might directly cause damage to the insured.
Interest in property has the classic example, that is the ownership or any relat
ion there to the trustee or liability, like the third party s liability insurance
for motor vehicle, so there s an insurable interest.
A change of interest by succession because of death like, here s a father who insu
red his house. When he died, his children inherited the house. The policy will
remain in force.
The transfer of interest by one of several partners or co-owners - like here are
brothers who inherited a building. They insured it. Then one of them bought o
ut the other three, so he became the exclusive owner. The policy remains in for
ce so that if it is burned he can collect.
The policy or provision that executes by way of gaining or wagering is void.
In case the lessor requires the lessee to insure his stocks in trade and to prov
ide that in case of loss the proceeds be payable to him is of course void becaus
e he has no insurable interest in stocks in trade.
Beneficiary of property insurance must have an insurable interest over the subj
ect matter existing at time policy was taken and at the time of loss take place.
Insurable interest in property may consist of :
1.Beneficiary must have an existing interest
like stockholders can insure the properties of the corporation because they have
an existing interest as stockholders, and in quo with interest because in case
of dissolution of the corporation the assets will be distributed among the stock
holders by way of liquidating dividends.
A foreign corporation sets up a domestic subsidiary and usually there is one ins
urance company abroad with which they insure the assets of their subsidiary here
. They can do that, an expectancy coupled with an existing interest in that out
of which expectancy arise; in the same way as farmers can insure their future c
rops.
Mortgage:
Mortgagor has insurable interest on his property as owner upto the full value of
his property irrespective of any mortgage on said property(the exception is mar
ine insurance) however, the mortgagee s insurable interest is upto the extent of h
is credit.
Each may take separate insurance over the same property upto extent of their ins
urable interest.Mortgagor may take insurance on the property and assign it to mo
rtgagee or constitute latter as beneficiary.Where mortgagor takes insurance on
property on his own right making loss payable to mortgagee,the insurance is on t
he mortgagor s interest and he continues to be party to the contract and any act w
hich would avoid policy will thus avoid policy.Any act also to be done by him bu
t done by mortgagee produces the same effect s if performed by him.
If mortgagor assigns policy to the mortgagee with the insurer s assent,but the lat
ter imposes new conditions on the assignee,the acts of the mortgagor will not af
fect the assignee s rights.
Where chattel mortgage does not authorize mortgagee to apply previous payment fo
r the car to the insurance, the mortgagee has to send notice to the mortgagor if
it decides to convert any of the installments made by latter for renewal of the
insurance.
2. inchoate interest founded on an existing interest
Like the court said, the buyer of undelivered property in that Filipino Merchant
s case, that the consignee of the goods that were stolen in the pier can be clai
med and the defense of the insurance company is the insurable terms of the 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 property.
A contractor who has not been paid under the Civil Code has a lien on the buildi
ng he constructed so he can insure that building. In fact the Civil Code also s
ays, 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 interest in
its preservation. Or even mere possessory rights is sufficient- like the case o
f a Jewish garment factory. They send textiles to garment factories to be conve
rted into finished dresses. These factories also have insurable interest over th
e garment packed. The court also ruled that if textiles are delivered to be dye
d, that fellow who was hired to dye the textile should have insurable interest o
n that.
The law provides that the carrier and the depository have insurable interest on
the property entrusted to them because they will be liable in case of loss.
2006 notes: insurable interest over a merchandise remains with the insured even
if the premises wherein said merchandise is placed is leased.The insurer cannot
be completed to pay the proceeds of the fire insurance policy to a person who ha
s no insurable interest in the property.
3.expectancy coupled with an existing interest in that out of which the expectan
cy arises.
The Court of Appeals ruled that smuggled properties couldn t be insured because sm
uggled properties are subject to forfeiture under the law. To allow therefore i
ts 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 pro
perty insurance, the insurable interest must exist when the policy takes effect
and when the loss occurs, but it need not exist in the meanwhile.
The owner of the building insured the building. Now, the building was mortgaged
and the mortgage was foreclosed, but he failed to redeem that. After the expir
ation of the period of redemption, the building was burned. The court said he c
annot collect. He had no more insurable interest. But if he still has the righ
t of redemption, he will also have insurable interest.
As a general rule, when a car is insured and it is sold, the insurance policy do
es not automatically attach to the buyer unless you get the consent of the insur
ance company and it issues an endorsement saying the policy is being assigned to
the buyer. There are however exceptions to that - in case of insurance upon li
fe, accident or health, then a change of interest inaudible the thing insured af
ter the loss has occurred. Again, somebody insured the building. The building
was burned. He then assigned the proceeds of the policy because at that point i
n time, the right to collect the proceeds has already accrued. There is now a c
hose in action which can be assigned or a change of interest in one or some of s
everal things separately insured by one policy. Here s a taxi company with a fleet
of taxis, 20 units. The taxicabs were insured. The owner sold 3 of them. The
policy will remain subsisting. It would remain with respect to the remaining 17
 units of taxicabs. If somebody insured his car and then sold it, but then it go
t lost, he cannot recover because he no longer has any insurable interest. But
if he redeemed it and the loss occurred after he has redeemed the car, he can st
ill collect.
WARRANTY
It may be express if it is stated in the policy. Implied, where there are implie
d warranties (applicable only in a marine insurance )
Warranties are different from representations
because warranties are part of the terms and conditions of the policy while repr
esentations 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 them.
PAST: Somebody applying for life insurance warrants that he was never hospitaliz
ed 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 th
e insured will not store inflammable materials.
The law says that the warranty must be contained in the policy or in another sta
tement signed by the insured and referred to in the policy (known as a rider). B
ut the SC has said that the rider is valid even if it was not signed by the insu
red if it is attached to the policy, because it is deemed to be contained in the
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 th
e future, a loss insured against occurs or becomes unlawful or performance becom
es 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 beyond the
control of the insured.
Waiver. Now if the insurance company was aware that there was a breach of warran
ty but despite that it continued the policy, it accepted the renewal premium, th
en it waives the violation.The law says a breach of warranty without fraud merel
y exempts the insurer from the time it occurred or when it is broken it prevents
to attach to the risk. So in other words, here is somebody insures his house a
gainst fire January 1st to December 31st and there is a warranty that he would n
ot store inflammable materials. September a fire broke out. Then on December 31s
t another fire broke out at that time there were fireworks stored in his house s
o the insurance company liable for the fire that occurred in December 31st but i
t will be liable for the fire that occurred in September because at that the tim
e there were no fireworks there was no breach of warranty at that time. When th
ere is a breach from the very beginning when the policy will not attach. If from
the very beginning there were inflammable materials there.
If fraud intervenes in the breach, the insurer is freed from liability from the
start, as the contract is void ab initio. If there is no fraud in the breach, t
he insurer is freed from the contract the moment the breach occurs and is entitl
ed to retain the premiums corresponding to the period up to the time of the brea
ch.
If there is breach of warranty, even if the loss was not due to the breach of th
e 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.
Breach of Warranty.
When there is breach of warranty, the insurance company can invoke that to avoid
liability and the fact that it is there in the policy will exempt insurance com
pany from liability. You don t discuss or argue anymore whether it is material or
not. The fact that it was there in the policy means the insurance company consid
ers it material.
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 warranty the presence of the prohibited material is
merely incidental to normal course of business it is understood that it is not c
overed by the prohibition.
For example, here is somebody who has a store that sells furniture. He insured h
is property against fire. There was a prohibition against inflammable materials
and he has there some alcohol that is used for retouching the varnish of the fur
niture so that is incidental. That Qua Chee Gan case where the warehouse that wa
s insured there was gasoline there but that was the consumption of motor vehicle
s of the warehouseman for two days. That is incidental to the business. Or a dru
gstore that was insure and among the articles in the drugstore were moth balls w
hich were highly inflammable but because it was a drugstore is selling pharmaceu
tical products so that is incidental to the business so there is no violation.
LOSS
Injury ,damage or liability sustained by the insured in consequence of the happe
ning of one or more of the perils against which the insurer in consideration of
the premium has undertaken to indemnify the insured.
2005 notes: The insured has an absolute right to transfer his claim against the
insurer after a loss has occurred. A stipulation which attempts to prohibit such
transfer of a policy is void
Sec.173 however prohibits the transfer of a policy of fire insurance to any pers
on or company who acts as an agent for or otherwise represents the issuing compa
ny and declares such transfer void insofar as it may affect other creditors of t
he insured. In reinsurance, loss refers to the reinsurer s share of the loss on ri
sks ceded either automatically or facultatively.
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 insuranc
e. The insurance company will ask police report, a photograph of the damaged po
rtion, and get estimates from an accredited shop. If the insurance company did
not tell the insured that he needs, for the example photographs, he cannot latte
r on say that the insured failed to substantiate the loss with a photograph.
Delay will also be excused is caused by a misrepresentation by the insurance age
nt that he will take care of everything.
Sec.92
He cannot obtain despite reasonable delays suffered to show that the reason why
he cannot produce such certificate because the certificate required by court not
available. For example fire insurance, the insurance company will ask report o
f investigator.
You have this case where the person insured his premises he was leasing it to a
restaurant, by new years eve, he and his cook went out to look at the fire works
, he neglected the gas range, and a fire broke out. He went to file a claim, th
e arson investigator conducted an investigation but never submitted his report.
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 was cause
d by arson but that the investigator immigrated.
In case of loss and the insurance company pays, it is subrogated to the rights o
f the insured and he can collect from the wrongdoer. But if the insured has don
e any act which prevents the insurance company from running after the wrongdoer,
then the insurance company will be relieved from liability because he will be p
rejudiced. For example the insured in a motor vehicle insurance settled with th
e wrongdoer by accepting P2,500 in settlement. Then he filed a claim with the i
nsurance company. The insurance company will be subrogated to his rights agains
t the wrongdoer. The wrongdoer can raise the defense against the insurance comp
any that there was a settlement. The insurance company therefore cannot be liab
le- in fact they can get the money from the insured on the theory of payment by
mistake. Also in one case, where an importer failed to file a claim in the Arr
astre operator on time. The court said that the is barred. The insurance compan
y may be exempt from liability.
Where in the case of a shipping company where the liability in the bill of ladin
g stipulated a certain amount unless the owner declared a higher value, he can r
ecover a higher claim from the insurance company.
2005 notes: an insured is required to disclose the other insurances covering th
e subject matter of the insurance being applied for. She could not contend that
she did know that there was a requirement that other /additional insurance shou
ld be stated in the policy. As such, due to non disclosure ,she could not claim
from the policy.
INSURER NOT LIABLE
1)Losses caused by the connivance of insured.
Like he asks somebody to steal his car. Then he files a claim.
The insurer is not liable for loss caused by intentional act of insured or throu
gh his connivance. Policy is avoided. An example of which is when insured conspi
red or designed to destroy property insured . Property was burned before such co
nspiracy be carried out. Is insurer liable? Yes, loss was not result of connivan
ce with insured.
2)Loss caused by the willful act of the insured.
Arson. He set his house on fire so he could file a claim against his insurance p
olicy.
Gross Negligence(Relieve insurer from liability)
a.where insured ,on his own house, sues the burning coals in fireplace roll down
on his wooden floor and does not brush them up.
b.where insured sees a small fire start and makes no attempt to put it out.
c.building is voluntarily set on fire to save other buildings from the effect of
a conflagration and no efforts are taken to save personal property in the build
ing although there is ample time.
3)loss where excepted peril is the proximate cause
Proximate Cause
cause which is in a natural and continuous sequence unbroken by any new independ
ent cause, produces an event and without which would not have occurred. It is an
efficient cause (one that set others in motion to which loss is to be attritibu
ted).
Insurer is still liable even if proximate cause is not the peril insured against
if the immediate cause is the peril insured against if proximate cause is an exce
pted risk, insurer not liable. (Burder of Proof is on the insurer to show that h
e is not liable)
---even if fire results only after fall of building as a consequence of such ,ne
vertheless, the damage so far it is attributable to the fire and not merely fall
ing of building is a loss by fire(here, fire is the immediate cause).
---if fall of building ,although occurs after fire, is not result of the fire, l
oss is not covered by the policy (fire is just remote cause, insurer not liable)
.
---an accidental injury resulting in hernia which forced insured as a last resor
t to submit to a surgical operation which turns out to be unsuccessful , is the
proximate cause of death and not the surgical operation. (2005 notes: There mus
t be an unbroken chain of causation between the accident and death without inter
vention of any new and independent cause so that death is direct and natural con
sequence of accident.
Where Proximate Cause is an excepted peril
Insurer is not liable even if the immediate cause is a peril not excepted. In a
fire insurance policy which excludes loss through explosion, if an explosion oc
curs first and causes a fire which results in a loss, insurer is not liable. Pr
oximate cause of loss is explosion which is an excepted peril.---if fire occurs an
d causes an exception ,then fire is proximate cause and insurer is liable for loss
by the explosion not withstanding the exception. (4blue 95 notes: Insurer has
burden of proof).
INSURER IS LIABLE:
Depends upon whether insured suffered a loss and the extent of that loss. It may
be total , partial or constructive. It is satisfied by payment of the loss, rei
nstatement (repair or restoration) of the property lost or damage or its replace
ment (substitution with another similar property)
1.Loss is proximate cause of which is the peril insured against.
Like fire insurance policy, fire broke out in the house of the neighbor of the i
nsured. As a result of that a wall collapsed from his neighbor s house and damages
his property. So the proximate cause is the fire but immediate cause is the col
lapse of the wall. Or loss, the immediate cause of which is the peril insured a
gainst although the proximate cause may not be the peril insured against. Like f
aulty wiring caused fire. The proximate cause is the faulty wiring, the immediat
e cause is the fire so the insurance will be liable. The loss caused by the negl
igence of the insured. Common in motor vehicle insurance damage coverage. This
fellow was driving negligently and he bumped the car of another. So the insuranc
e company will be liable.
Insurer is liable where insured is permanently deprived of possession in whole o
r in part of the thing insured by a peril not insured against provided it is sh
own that property would have been lost by peril insured against had there been n
o attempt to rescue it (2005 notes:unless policy contains that it is exempting i
nsurer from liab for such loss)
2.Where loss is caused by efforts to rescue thing insured from a peril insured a
gainst (2005 notes: it is the effort to rescue that caused the loss)
a.Damage to goods by being trampled on a thrown boat in efforts to put out the
fire are covered by policy of fire insurance.
b.Insurer liable also for loss caused by preparing goods for removal from the pr
emises although they are not actually carried out if at time the work of remova
l begun, property is in danger of fire that a reasonably prudent man would attem
pt to protect it.
c.Damage to the insured property caused by water during attempt to save it from
fire is generally regarded as resulting from fire itself and makes the insurer l
iable--- but insured is bound to exercise a reasonable degree of care in removin
g the goods. The necessity of removal is to be determined not by result alone bu
t by the circumstances as they appear to the interested party at time of fire.
Ex: at about 10 in the evening, house caught fire and was partially destroyed .
Much of the furniture was carried out of the house, of which ,some of it were st
olen. Is insured entitled to recover? NO, loss did not take place in course of s
uch rescue nor caused by efforts to rescue furniture from a peril insured agains
t.
3.Loss is due to negligence of the insured (ordinary negligence)
Ordinary Negligence
Doctrine of Contributory negligence does not apply to rights under Contract of I
nsurance. Mere negligence on part of insured or his servants, directly causing o
r contributing to the loss, is one of the risks covered by insurance and does no
t relieve insurer from liability.
Ex: Where insured lighted some straw under the barn in order to smoke out bees,
and fire rapidly spread and destroyed property, it was held that insured could
recover for loss by fire of his barn and its contents.
Hostile and Friendly Fires:
Friendly Fire- Fire burns in a place where it was intended to burn and ought to
be ,it is to be regarded as merely an agency for the accomplishment of some purp
ose and not as a hostile peril.
Example: A fire burning in a furnace ,or a stove, or a lamp is considered a frie
ndly fire and damage that may be caused by such due to their negligent managemen
t is not considered to be within the terms of the policy.
Another example is a damage caused by smoke issuing from a lamp that is turned
up too high or from a stove pipe that is defective or by soot or smoke issuing f
rom a defective furnace is not directly caused by fire.
Hostile Fire- when it occurs outside of its usual confines. Begins as a friendly
fire and becomes hostile by escaping from place where it ought to be to some p
lace where it ought not to be.
Where fire in chimney ,due to ignition of soot there, caused soot and smoke to i
ssue from the stove so as to damage the property insured, such is due to hostile
fire since fire was intended to burn in the stove and not in chimney. Or when
flames escaped through a crack in a stove releasing a sprinkle head above, the i
nsurer was held liable for the issuing loss.
Even though fire may remain entirely within its proper place ,it may become host
ile if it ,by accident, becomes so excessive as to be beyond control, when oil l
eaked from furnace, the court held that fire was hostile
This principle is not construed to protect the insured from injury consequent up
on his negligent use of fire, so long as it is confined to the place where it ou
ght to be.
The falsity of invoices submitted by the insured to prove actual existence at t
he burned premises of the stocks mentioned in its inventory is evidence of a f
raudulent claim and will avoid the insurer s liability. The insured s inventory is n
ot binding on the insurer where it was prepared without their intervention (Yu B
an Chuan v Fieldman)
2006 notes:Failure of an insured to disclose any other insurance on the same pr
operty, inspite of the express provision of the policy even if with the knowl
edge of the insurer s agents prevents liability from attaching.
INSURANCE POLICY & PREMIUM
A Policy is a written instrument in which a contract of insurance is set forth.
It shall be in printed form and may contain blank spaces wherein shall be writte
n the word,phrase ,claue, mark or number necessary to complete the policy.
2005 notes: Any rider ,clause,warranty or endorsements purporting to be a part o
f the contract and pasted on the policy shall not bind the insured unless its ti
tle or name is mentioned and written on the blank spaces---if it is issued after
the original policy was in force shall not bind the insured, unless he counters
igned such clause or endorsements or unless he applied for it.
Contents:
-parties
-amount of insurance (except in open or running policies)
-rate of premium
-property of insured
-interest of insured in the property if he is not the owner
-risks insured against
-duration of the insurance
Cover notes (aka interim policies or binding slips)
may be issued to bind the parties temporarily pending issue of the policy. These
notes are good for 60 days only, unless renewed with the written approval of th
e insurance commissioner. Before the lapse of period or its renewal, a policy sh
all be issued by the insurer or the application rejected.
A premium deposit receipt issued to a life insurance applicant, containing the c
ondition that the receipt shall bind the company even before the medical examina
tion provided the company shall be satisfied that on said date, the applicant wa
s insurable, on standard rates, was not binding contract and at most was merely
a conditional acceptance subordinated to the act of company to approve or disapp
rove the application before the death of the insured.
A cover note issued in advance of the issuance of a marine policy is binding as
an insurance contract although no separate premium was paid therefore (2005 not
es).
Statutory Constructions
Contractual limitation prevail over statutory ones and that such contract of ins
urance is a contract of adhesion, thus any ambiguity should be resolve against t
he insurer.The court however recognizes instances when reliance on such contract
s cannot be favored especially where the facts and circumstances vis--vis the nat
ure of the provision sought to be enforced should be considered , bearing in min
d the principles of equity and fair play.
Any construction of a marine policy rendering it void should be avoided. Such p
olicies will be construed strictly against the company in order to avoid a forf
eiture unless no other result is possible from the language used.
Exception to the general coverage are construed most strongly against the compan
y. Even an express exception in a policy is to be construed against the underwr
iters by whom the policy is framed,and for whose benefit the exception is introd
uced.
When restrictive provisions are open to two interpretations, that which is most
favorable to the insured is adopted. If a marine insurance company desires to
limit or restrict the operation of the general provisions of its contract by s
pecial proviso,exception , it should express such limitation in clear and unmist
akable language.
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of insured where the c
ontract or policy is prepared by the insurer.
EFFECTIVITY OF POLICY:
No policy or contract of insurance issued by an insurance company is valid and b
inding until the premium thereof has been paid, except in the case of a life or
industrial life policy whenever the grace period applies.
Exceptions:
1.Life and Industrial Life Policy
2.Written Acknowledgment of the Receipt of Premium by Insurer
Any insurance company which delivers a policy or contract of insurance to an ins
urance agent shall be deemed to have authorized such agent to receive on its be
half payment of any premium which is due on such policy or contract of insurance
at the time of its issuance or delivery or which becomes due thereon. (2005 not
es: The best evidence of such authority is the fact that petitioner accepted ch
eck and issued the official receipt for the payment. It is bound by its agent s ac
knowledgment of receipt of payment)
3.Payment in Installments of the Premium and Partial Payment Made at time of los
s
Makati v CA ruled that policies are valid even if premiums were paid on installm
ents. The initial insurance contract entered into in 1982 was renewed in 1983 th
en in1984.In those 3 years, the insurer accepted all the installment payments.
Such acceptance, speaks loudly of the insurer s intention to honor the policies it
issued to petitioner.
While import of Section 77 is that prepayment of premiums is strictly required
as a condition to the validity of the contract. Section 78 in effect, however, p
rovides that it allows waiver by the insurer of the condition of prepayment by m
aking an acknowledgement in the insurance policy of receipt of premium as conclu
sive evidence of payment so far as to make the policy binding despite the fact t
hat premium is actually unpaid.
4.Credit Extension for Payment of the Premium
Insurer has granted the insured a credit term for payment of premium and loss oc
curs before the expiration of the term, recovery on the policy should be allowed
even though the premium is paid after the loss but within the credit term. (200
5 notes: it usually grants a 60-to-90-day credit term for the payment of premium
s)
5.Estoppel
It bars insurer from taking refuge under Section 77 ,since respondent relied in
good faith on such practice. Estoppel then is the fifth exception to section 77.
2005 notes: Acceptance by insurer of post dated promissory note is not a payment
. Hence, policy was not valid and binding at the time of loss.
2005 notes: Where a fire policy was issued without payment of premiums,but which
premiums five months later were paid to an authorized agent of the insurer, the
policy is valid and the insurer is liable for the loss taking place after said
payment.
CANCELLATION AND RENEWAL OF NON-LIFE POLICIES
No insurance policy, except life, may be cancelled except upon prior notice to t
he insured and for any of the ff grounds:
-non payment of premium
-conviction of crime out of acts increasing the hazard insured against
-discovery of fraud or material misrepresentation
-discovery of willful or reckless acts or omissions increasing the risk insured
against
-physical changes in property making the property uninsurable
-determination by the Insurance Commissioner that policy would violate the code
In non life insurance, the named insured shall be entitled to renew the policy u
pon payment of the premium due, unless 45 days in advance before the end of the
original period , the insurer notifies the insured of its intention not to rene
w. The claim of the insurer that the policy was cancelled is without merit, it
not having been shown that written notice was received by the insured nor the r
equirements of a valid cancellation complied with by the insurer.
In 1965, J constructed a house worth P50T which he insured against fire for the
same amount. The insurance for the same amount was renewed every year. In 1974,
when the house was already worth P100,000 on account of inflationary prices (in
case of a rebuilding) ,1/5 of the house was destroyed by fire. Assuming that J w
as completely blameless and that there was nothing illegal about the contract, h
ow much can J successfully recover from the insurance company? If it is a valued
policy, and the face value is the agreed valuation between the parties, then J
is entitled to recover only P10,000. 1/5 of the face value of the policy ,said v
aluation being conclusive on the parties.
3 CLASSES OF POLICIES IN NON-LIFE POLICIES:
When policy states that liability of the insurer is the amount of the loss, whet
her total or partial, provided the loss is within the face value of the policy,
the policy is an open policy, and the insurer is liable for the loss if within t
he covered amount.
1.OPEN Policy-one in which the value of the thing insured is not agreed upon bu
t is left to be ascertained at the time of loss. A certain agreed sum may be wr
itten on the face of an open policy, not as the value of the property insured bu
t as the maximum limit of recovery in case of destruction due to the occurrence
of the peril insured against(FACE VALUE so maximum recoverable amount).
2.VALUED Policy-a definite valuation is by the agreement of both parties put up
on the subject matter of the insurance and written on the face of the policy. Th
e valuation in the absence of fraud or mistake is conclusive on the parties.
3.RUNNING Policy-one which contemplates successive insurances and which provides
that the subject of the policy may from time to time be defined.
Fortune owns a house valued at P600,000 and insured the same against fire with t
hree insurance companies as follows:
X P400,000
Y P200,000
Z P600,000
In absence of any stipulation in the policies, from which insurance company or c
ompanies may Fortune recover in case fire should destroy his house completely (1
st question)? He can collect from any one or some of the 3 insurers upto P600,00
0 only, without prejudice to those who have overpaid claiming from the other ins
urers the amount of their proportionate shares.
If each of the fire insurance policies obtained by Fortune is a valued policy an
d the value of house was fixed in each of the policies at P1 million,how much wo
uld Fortune recover from X, if he has already obtained full payment on the insur
ance policies insured by Y and Z? Recovery by Fortune from any one of the 3 of
P1million, will cut off his right to recover from the other two. He is entitled
to recover the P1 mil agreed valuation and nothing more irrespective of which i
nsurance company made the payment to Fortune. (2005 notes: This is without preju
dice to the paying insurer getting from the others their proportionate shares)
If each of the policies obtained is an open policy and it was immediately determ
ined after the fire that the value of his house was P2.4million? He can recover
from all three the face value of their respective policies, the total of the 3(
P1.2 mil) not exceeding the true value of the house determined at P2.4 million a
fter the fire.
What is the extent of the liability of the insurance companies among themselves
base on 1st question?As the house is valued at P600,000 but insured with 3 insur
ers for a total of P1,200,000 the share of each insurer is 50% of the face valu
e of their respective policies. Fortune, for example, if it collects all the P6
00,000 from Z would entitle Z to collect P200,000 from X (1/2 of P400T) and P100
T from Y (1/2 of P200T) ,the proportionate shares of X and Y.
In 1st question ,what is extent of liability of Fortune to collect from both Y a
nd Z? May he keep the entire amount he was able to collect from said 2 companies
? If Fortune collected from Y and Z a total of P800,000, the excess of P200,000
over the value of P600,000 will have to be returned by him. He cannot claim fr
om the 3 insurers more than the true value of P600,000.
PREMIUM
Consideration paid to an insurer for undertaking to indemnify the insured agains
t a specified peril. The premium, also called gross premium ,consist of 2 parts
: the net premium which is the sum paid periodically to meet the cost of the ins
urance and carry it from period to period, and the loading rate which answers fo
r administration, management, operating expenses and profits of the insurer.
2005 notes: Payment of premium is a condition precedent to and essential for the
efficaciousness of the contract of insurance.
In surety bonds, like that of an administrator , their continued effectivity is
not dependent on the payment of premiums.
In life policies, the contract is kept alive by payment of subsequent premiums w
ithin the statutory grace period of one month.
Failure of the office of the insured to collect and remit the premiums to GSIS,
since latter failed to inform the insured s office to do so will not prevent the p
olicy from being effective .The act of GSIS of paying dividends to the insured e
stops it from denying that the insured had an effective policy (Landicho v. GSIS
)
Non-payment of Premium
Non-payment does not merely suspend but puts an end to an insurance contract, si
nce the time of payment is peculiarly the essence of the contract. The rule is
that under policy provisions, upon failure to make payment of premium or assessm
ent at the time provided for, the policy shall become void or forfeited or the o
bligation of the insurer cease or words to like effect, since the contract so pr
escribes and because such stipulation is a material and essential part of the co
ntract.
2006 notes:in non life (no grace period), party may rescind or collection but in
life, no rescission since no debtor-creditor relationship but it has a grace pe
riod.
Due to non-payment, the heirs of the deceased cannot recover even if such non-pa
yment is due to war or that the insured was negligent. However, following the US
rule, the insured s beneficiary is entitled when normalcy returns to the equitab
le value of the policy arising from the premiums actually paid by the insurer wh
en the policy was in force.
Where the insurer gave to the insured a grace period to pay the premium , but no
payment was made during said grace period, the contract of insurance does not t
ake effect (Arce v Capital)
--acceptance of the insurer of premium payments does not stop it from interpos
ing a valid defense under the terms of the policy (Stokes v Malayan)
--acceptance by insurer of premium payments after he has knowledge of a ground f
or rescission will bar him from rescinding the policy
--an insurer which delivers to an insurance agent an insurance policy shall be d
eemed to have authorized such agent to receive any premium which is due on such
policy (South sea v CA)
--a rebate agreement between the insured and the insurer (represented by agent)
is a contract void ab ignition being in violation of Sec 361 of the Insurance Co
de and does not give rise to enforceable rights and obligations as between the p
arties (Lumibao v IAC)
Instances when an Insured is entitled to a return/refund of the premium paid (20
00 Bar question)
1.To the whole premium,if no part of his interest in the thing insured be expose
d to any of the perils insured against.
2.Where insurance is made for a definite period of time and the insured surrend
ers his policy, to such portion of the premium as corresponds with the unexpired
time at a pro rata rate, unless a short period rate has been agreed upon and ap
pears on the face of the policy, after deducting from the whole premium any clai
m for loss or damage under the policy which has previously accrued.
3.When the contract is voidable on account of the fraud or misrepresentation of
the insurer or of his agent or on account of facts the existence of which the in
sured was ignorant without his fault, or when, by any default of the insured oth
er than actual fraud, the insurer never incurred any liability under the policy.
4. In case of over insurance by several insurers, the insured is entitled to a r
atable return of the premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk
.
In rescission for breach of Warranty
A breach of warranty without fraud merely exonerates an insurer from the time it
occurs or where it is broken, prevents the policy from attaching to the risk.
Cash Surrender Value.
In connection with the life insurance policies. You have the cash surrender valu
e because if you insured your life from age 21 to age 60 you will be paying the
same premium every year. But 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 the risk the insurance company is assuming and that exc
ess is the cash surrender value. If you look at the life insurance policy there
is a table there indicating the cash surrender value so you can surrender the po
licy and get the cash surrender value or you can even get a policy loan cheap mon
ey you can borrow money with 6% interest. I used to borrow the cash surrender v
alue of my life insurance policy and pay 6% interest a year and then put the mon
ey in time deposit. I will get more and then I could claim the interest as a tax
deduction but now the insurance increased interest of 14% so it doesn t pay anymo
re.
Paid up insurance.
So, the insured defaulted. They can say, ok, the fellow stopped paying how much c
ash surrender value does he have? P6000. How much insurance can that buy up to t
he end of his policy? P20,000. Ok we will apply that. He is insured up to the en
d of the policy. Or extended insurance, they can say, he has cash P60,000 we wil
l apply that as premium. For how long can you extend the life insurance policy w
ith 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 insured can also apply for
reinstatement of the life insurance policy but they will require that he must un
dergo medical examination again to show that he is insurable and then he must pa
y the premiums in arrears.
DOUBLE INSURANCE
It exists where the same person is insured by several insurance separately with
respect to the same subject interest. (2005 notes: parties may validly provide t
hat other insurances taken by the insured without the consent of the insurer wil
l ipso facto avoid the contract.)
5 requisites of Double Insurance:
1. Person insured must be the same so if a lessor insured a building that he own
s, and the lessee insured it also there is no double insurance for the insurers
are different.
X mortgages his house to B. Insurance taken by X and another by B on same house
. Not double since not same person
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.
X insures his automobile against fire with Y co. and against theft with Z co. th
ere is no double insurance since automobile is not insured against same risk or
peril
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 insures the p
roperty more than what the property is worth. For example a building is worth P
20M and it was insured for P30M. Normally, as I said in insurance policies, the
y provide that the insured must disclose the existence of other insurance polici
es otherwise the insurance company will not be liable and that includes even pol
icies he may obtained in the future, that is, it is not limited to policies subs
isting when he was obtained the policy.
2006 notes: Double and Over insurance may exist at same time or neither may exi
st at all. In Over, 1 insurer is involved and amount of insurance is beyond val
ue of insurable interst, while in Double, there are several insurers and sum to
tal of policies does not exceed the insurable interest of insured.
Contract of Indemnity:
Insured can recover no more than the amount of his insurable interest whether i
nsurance is contained in one policy or in several policies.
Principle of Contribution:
Requires each insurer to contribute ratable to the loss or damage considering th
at several insurances cover the same subject matter and interest against the sam
e peril, it applies only where there is over insurance by double insurance.
And in case of over insurance Sec 94, relays down the different formulas for col
lecting indemnity. We see the common theme that the insured cannot collect 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 F
GU, P5M from Malayan, P5M from Pioneer. Now if he collected let say P5M from Ma
layan 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 return it
to them proportionately the over payment. Return P5M to FGU, P2.5M to Malayan
and P2.5M to Pioneer. Now if FGU paid him only because he only filed a claim wi
th FGU, FGU will be entitled to collect P2.5M from Malayan and P2.5M from Pionee
r.
Like in car insurance policies there is just a provision there that if the car i
s also insured with another, then the insurance company will only pay proportion
ately in case of loss. For instance, you have a car insured with 2 different in
surance companies and it was stolen. Let s say that it is worth P500T, I think yo
u can collect P250T from each insurance company.
1999 Bar Question:
A businessman in the grocery business obtained from First Insurance an insurance
policy for P5 mil to fully cover his stocks-in-trade from the risk of fire. 3
months thereafter, a fire accidental origin broke out and completely destroyed t
he grocery including his stocks-in-trade. This prompted the businessman to file
with First Insurance a claim for P5 mil representing the full value of the goods
. Latter denied claim since it discovered that at time of loss, the stocks-in-tr
ade were mortgaged to a creditor who likewise obtained from Second Insurance Com
pany fire insurance coverage at their full value of P5 mil.
HELD: Contention is untenable. There is no law providing that double insurance
is illegal per se. Moreover, in the problem , there is no double insurance since
the insured with the First Insurance is different from the insured in Second In
surance .The same is true with respect to the interests insured in the two polic
ies.
A policy w/c contains no stipulation against additional insurance is not invalid
ated by the procuring of such insurance. Policies of fire insurance contain a st
ipulation that they shall be avoided if additional insurance is procured on prop
erty without insurer s consent. Such is valid and reasonable and in absence of con
sent, waiver or estoppel on part of insurer ,a breach thereof will prevent a rec
overy on policy. Good or bad faith of insured is immaterial, insurance obtained
by 3rd person without the knowledge or consent of insured will not affect his r
ights under the policy in absence of ratification.
4blue 95 notes:Death is not insured if it is not a risk insured against( aka e
xcepted peril).
Where Insured is Over Insured by Double Insurance:
1.Insured may claim payment from insurer in such order as he may select upto the
amount for which insurers are severally liable under their respective contracts
.
2.Where policy under which insured claims is a valued policy, insured must give
credit as against valuation for any sum received by him under any other policy w
ithout regard to the actual value of the subject matter insured.
3.Unvalued Policy-he must give credits as against full insurable value for any s
um received by him under any other policy(It is based on ACTUAL Loss).
4.Wher insured receives any sum in excess of valuation in case of valued policie
s or of insurable value in case of unvalued policies ,he must hold such sum in t
rust for insurers according to their right of contribution among themselves.
5.Each insurer is bound as between himself and other insurers to contribute rat
able to the loss in proportion to the amount for which he is liable under this c
ontract.
Illustration:
1.Several/Solidary liability of Insurer under their respective contracts
A owns a house valued at P180T and he insures same with 3 insurance companies as
follows:
X P60T
Y 180
Z 240
----
P480 total
If house is burned ,A may claim payment to each up to amount for which each is l
iable. But if A elects to claim payment first from Z co, A cannot recover more t
han P180T. A may collect P60T from each, or P180 T only from Y and nothing from
X and Z company.
2.Where Insured claims under a valued policy
If A has been fully indemnified for his loss by one insurer, he cannot file subs
equent claims against the others.
3.Where Insured claims under unvalued policy
Policies are unvalued/open, the value of loss must be uncertained. If actual los
s is estimated to be P150T, A may recover amount from insurers in such order as
he may select up to amount for which they are severally liable under their respe
ctive contracts.
If A collects from X P30T ,from Y P90T, he can still collect from Z the differen
ce of P30T to make up the loss of P150T.
4.Liability of each insurer to contribute ratably to the loss.
Each insurer is bound to contribute ratably to the loss in proportion to the amo
unt for which he is liable under his contract
Formula (ex:X Co.): (60T / Total insurance of P480) x Loss
So if A is able to recover amount of P180 from Y, X and Z are liable to reimburs
e Y for their respective shares. Where there is a pro rata clause --whereby each
of insurers is liable only for his ratable share of loss, A cannot exercise his
 right under Par. A for he may claim from each insurer only such amount correspo
nding to his ratable proportion of loss.
5.Where sum received by insured exceeds total insurance taken
A,after receiving P60T from X, succeeds in collecting sum of P120 from Y and P1
44 from Z. A must hold amount of P144 since it is in excess of insurable intere
st in house. Thus , 1/8 ( X) of P144 and etc .
REINSURANCE:
One by which an insurance procures a third person to insure him against loss for
liability for reasons of such original insurance. The re-insurer is nothing mo
re than liability insurers.
Original insurer reinsures risk of another insurance company. This can go in se
veral layers. You have 5 layers. First layer, you call it reinsurance, subsequ
ent layers you call it retro-cession. Now it could be automatic like if you hav
e 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 against th
e original insurer because his rights may be adequately protected by a separate
action, when the original insurer sues him, then he can raise whatever defenses
he can found in the original action.
Just like original insurance, the re-insurer s contract is of utmost good faith.
That is why the original insurer must communicate with the re-insurer all the im
portant representation of the original insured which are material to the risk.
Now this is very important like when somebody offers a reinsurance. You find ou
t oh what kind of policies are you going to issue and where will you issue these p
olicies. Like this French company who was ceding auto reinsurance here and in the
ir proposal they said we will not underwrite casualty policies. Then when the y
ear ends they will submit a report, here is the income, here is the output. This
are the losses paid as a result of the operation, here is your share in the pro
fits, then when you receive the notice katakot-takot na casualty or they will say
we will only insure buildings in New York solid as rock, but you receive claims t
o losses in Nigeria, which is notoriously corrupt or they will say they will not
insure long term risk.
The re-insurers is presumed as contracts of indemnity against liability and not
against damage. In other words if the original insurer does not pay, your re-in
surer will be liable to pay and they will be ordered to pay. For instance, the
original insurer was not able to pay because it was insolvent and the re-insurer
s will be liable. They will be required to pay it and the money they will pay w
ill be held as assets, amongst those to be paid to the creditors of the insuranc
e company. In other words the re-insurer agrees to rise and fall with the fortu
nes of the original insurer.
If there is a claim, you are creditor, litigate with the reinsurance, they say t
hat it will go through 5 layers. And these could be ceded for all the work. 3%
here, 2% there, there you can have hundreds of re-insurers. If the original in
surer paid, they are not going to litigate with every reinsurance. Sometimes yo
u have this clause, that they will abide with whatever results of the suit again
st the insurer to settle the claim. They will follow his fortune.
Original insurers of interest in a contract of re-insurance, this is a new provi
sion which codifies the case of Wellington Insurance Co, Artex Development Co. h
ad 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 reinsured a
broad, so it needed time to be able to collect, so the defense raised was that t
his reinsurance contracts have stipulations for the benefit of 3rd persons, ther
efore the original insurer should pursue the claim against the reinsurers. Cour
ts said no! Because there is no privity of contract, therefore the original insu
red has the right to run after the original insurer and not the reinsurer. Howev
er if the policy states a Cut Through Clause, then the original insured can run
after the reinsurer. There may be a provision there, the original insured can di
rectly proceed against the reinsurers and that may be done.
Nature of Contract of Reinsurance:
1. Contract is one of indemnity against liability
No means necessary that insurer shall first have paid a loss accruing, as a cond
ition preceding to his demanding payment of the reinsurance. Insolvency of Insur
er which does not in anyway affect the right of the insurer to demand payment in
full under policy of reinsurance.
2. Contract is separate from original insurance policy
Reinsurer pay the insurer even before latter has indemnified the original insure
d.
3. Contract is based on original policy
Reinsured risk must be the same as that covered by original insurance policy
4. Insurable interest requirement applicable
Primary insurer is not entitled to contract for reinsurance exceeding the limits
of the policy ceded for reinsurer
5. Rule on subrogation applicable
Reinsurer on payment of loss acquires same right by subrogation as are acquired
in similar cases where original insurer pays a loss
6. Insured has no interest in a contract of reinsurance unless provided in contr
act (reinsurer is not liable to insured either as surety or otherwise.)
Liability of Reinsurer to Reinsured:
Reinsurer is not liable to the reinsured if latter is not liable to orig insured
or for an amount more than the sum actually paid to the insured. The clause to
pay as may be paid thereon does not preclude the reinsurer from insisting upon pr
oper proof that a loss within the terms of the orig policy has taken place. It d
oes not enable the reinsured to recover from his reinsurer to an extent beyond t
he subscription of the latter under the contract of reinsurance.
Liability of Reinsurer to Original insured:
The original insured has absolutely no interest in the contract and is a total s
tranger to it unless reinsurance contract contains a stipulation assigning the r
ight of the insurer in favor of the insured, the latter ,not being a privy to th
e contract has no cause of action against the reinsurer but only against the in
surer
Co-insurance versus Re-insurance:
Co-insurance is the percentage in the value of the insured property which the in
sured himself assumes or undertakes to act as insurer to the extent of the defic
iency in the insurance of the insured property. In case of loss or damage ,the
insurer will be liable only for such proportion of the loss or damage as the am
ount of insurance bears to the designated percentage of the full value of the
property insured.
Reinsurance is where the insurer procures a 3rd party ,called the reinsurer ,to
insure him against liability by reason of such original insurance. Basically, a
reinsurance is an insurance against the liability which the original insurer may
incur in favor of the original injured.
2006 notes: Always based on the policy,thus, when policy names only one party as
the assured thereunder, the claim of another that it is co-assured is unfounded
.
X insurer issued fire policy covering a building owned by Y . Z co accepted rein
surance. Thereafter , Y married H ,an ex-convict of arson. All members of board
of directors of X were invited as guests at wedding and knew who H was. Subsequ
ently , bldg was destroyed by fire. May X recover from Z notwithstanding that X
did not disclose its previous conviction for arson? No, since as a general rule
, when a contract of insurance has been entered into, the insured cannot be char
ge with fraudulent concealment by reason of fact that he fails to disclose matte
rs material to the risk arising thereafter.
Sec96 covers knowledge possessed by insurer whether previously or subsequently a
cquired which are material to the risk. But if it was due to faulty wiring, the
arson ex-convict is not material to the risk.
Automatic and Facultative Effect of Reinsurance:
In actual practice, when any question of proper underwriting classification exi
sts, the insurer usually does not use its automatic facility but instead secures
the reinsurer s underwriting opinion by submitting case facultatively.
* Sec96 do not apply in automatic reinsurance which the ceding company (reinsure
r) is bound to cede(give off by way of reinsurance) and the reinsurer is obligat
ed to accept a fixed share of the risk which has to be renewed under the contrac
t; it avoids any delay in issuing its policy and by agreeing to accept automatic
ally, reinsurer is relying on the underwriting judgment of the insurer and is bo
und to accept a case even though it may not agree with the underwriting decision
.
* Facultative covers liability on individual risk ,there is no obligation either
to cede/accept participation in the risk insured, each party having a free cho
ice. But once share is accepted, obligations is absolute and liab assumed there
under can be discharged by 1 and only way Payment of share of the losses (there is
no alternative /substitute prestation); receives reinsurer s underwriting opinion
before the policy is issued. Reinsurer is protected by requirement that origina
l insurer retaining its full retention limit, which assures a measure of self in
terest
2006 notes: If contract of reinsurance has stipulation in favor of orig insured
,reinsurer will be liable to a suit by the original insured under the contract o
f reinsurance, the remedy of insured is both against the insurer and the reinsur
er.
2006 notes: If contract amount to novation of original contract, original insure
d may also maintain an action directly against the reinsurer making the contract
of reinsurance amount to a novation of original contract. It operates to discha
rge that contract of the orig insurer from all obligations thereunder ,orig insu
rer will be released only when insured agrees with the insurer and reinsurer to
the novation.
RESCISSION OF THE POLICY
I.CONCEALMENT
Concealment is the neglect to communicate that which a party knows and ought to
communicate. It need not be intentional or fraudulent to entitle the insured to
rescind the policy. Even if the concealment was not made with fraudulent inten
t, the fact remains that the insurance company was misled into entering into a c
ontract, which it would have not entered into had it known the facts, or it woul
d 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 life ins
urance did not disclose that he was sick because he was not aware of it. Thus, t
here s no concealment.
TEST OF MATERIALITY:
Time and again, the courts have said that the failure to disclose serious ailmen
ts in life insurance would constitute concealment. This would usually involve c
ancer, tuberculosis, asthma, diabetes, high blood pressure, kidney ailments, liv
er disorders.
But the failure to disclose an ailment which is merely temporary and light is no
t material. That will not be concealment - like the failure to disclose that th
e 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 to discl
ose that when he gets drunk he has stomach discomforts. That s minor and need not
 be disclosed. Then the party may conceal and makes no warranty. Why? If he make
s a warranty, the defense of the insurance company will be breach of warranty no
t concealment. The insurance company will still escape liability but on the gro
und of breach of warranty.
Lastly, when the other party has the means of ascertaining it - like if a typica
l application for life insurance policy, there s a question there had you been by
the way, there s that law on AIDS - there s a provision there that it is prohibited
for an insurance company to refuse to insure the life of someone who suffered AI
DS, provided that the applicant discloses that the suffered from AIDS.
Now the last requirement - does the other party have the means of ascertaining
it? In the typical application, there s a question there: Have you been hospitali
zed? 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 what ail
ment. In this case, there s no concealment because the insurer was already informe
d that he was hospitalized in a particular hospital, and even the date was menti
oned. The application will usually require the waiver of the confidentiality of
his hospital records. So with that lead, the insurance company could have inqu
ired. If they did not do so, they could not complain that there was concealment
because they could have made inquiries based on that lead.
The party is not bound to communicate information of his own judgment. Do you th
ink you re in good health and you will live long? Even if he does not answer that,
it is still not concealment.
CONSEQUENCE OF CONCEALMENT:
General Rule: Failure of the insured to reveal other insurances where required
by the policy is a material concealment and can prevent recovery. The contract
is void ab initio (2006 notes)
Concealment vitiates contract of insurance and entitles the insurer to rescind,
even if death or loss was due to a cause not at all related to the concealed ma
tter. This is the rule whether the concealment is intentional or not.
Now even if the loss was not due to a fact concealed, the insurance company is n
ot liable - like somebody who applied for a life insurance policy. He did not d
isclose he had kidney ailment and he died in a plane crash. The insurance compa
ny is not liable although the death was not due to kidney ailment. The fact rem
ains that the insurance company was misled into issuing a policy it would not ot
herwise have issued because that risk was not acceptable.
Exceptions:
1.Incontestability Clause
In life insurance, after a policy has been in force for at least 2 years, the in
surer cannot rescind the policy due to fraudulent concealment or misrepresentati
on of the insured. If insured died w/in 2 years from effectivity of policy,
rescission due to concealment or misrepresentation of material matters may sti
ll be invoked by the insurer, provided done w/in 2 years from effectivity (Tan v
. CA)
-- if insured left unanswered certain questions pertaining to material facts and
insurer w/o further inquiry issued policy, it must be deemed to have waived all
right to a disclosure. In absence of intentional suppression of fact, insure
r cannot rescind the contract or avoid liability.
Requisites:
-policy is a life insurance
-payable on death of insured
-in force during lifetime of insured for at least 2 years from date of issue or
last reinstatement (if died within 2 years, beneficiary cannot recover on policy
)
2006 notes: Pd of 2 years may be shortened but it cannot be extended by insurer.
During Lifetime means policy is no longer considered in force after insured has d
ied., the key phrase is for period of 2 years .
2.Concealment in Marine Insurance not violating contract
(EXPLAINED IN MARINE INSURANCE)
Grounds for rescission are:
Concealment
Misrepresentation
Breach of Warranty
Other Ground for Rescission (non life insurance)
1.non- payment of premium
2.conviction of a crime arising out of acts increasing the hazard insured again
st
3.discovery of fraud / material misrepresentation
4.discovery of willful or reckless acts or omissions increasing the hazard insur
ed against
5.physical changes in the property becoming uninsurable
6.determination by Insurance Commissioner that continuation of the policy would
violate or would place the insurer in violation of the Insurance Code
II. REPRESENTATION
Oral or written statement of a fact or condition, affecting the risk made by the
insured to the insurer tending to induce the insurer to assume the risk. Repre
sentation can also be affirmative or promissory.
* Affirmative when any allegation as to the existence or non existence of a fact
when the contract begins. Ex: Statement of insured that house is used for res
idential purpose is an affirmative representation
* Promissory when any promise to be fulfilled after the contract has come into e
xistence or any statement concerning what is to happen during existence of insur
ance.
Representation may be made at time of ,before, issuance of policy
-insurer must be induced by misrepresentation of insured to issue policy at a sp
ecified premium
-representation made after policy is issued could not have influenced either par
ty to enter into the contract
-representation may be performed after issuance of policy.
Representation refers only to the time of making the contract since statements p
romising of conditions to exist subsequent to the completion of the contract may
be conditions or warranties.
* hence, conditions represented as existing must be so existing during making of
contract but not necessary after wards and representations found to be untrue ,
may be withdrawn prior to the completion of contract but not afterwards.
* No false representation if it is true at time contract takes effect although f
alse at time it was made and vice versa
* There s false representation if it is true at time it was made but false at time
contract takes effect
* A representation, not being part of contract of insurance may be altered or wi
thdrawn before contract actually takes effect but not afterwards since insurer
has already been led by the representation in assuming risk contemplated in the
contract(sec41).
Sec.26-48 is also applied not only to formation of contract but also to modifica
tion of the same (with regards concealment and representation)
SECTION 38.The language of a representation is to be interpreted by the same rul
es as the language of contracts in general.
SECTION 39.A representation as to the future is to be deemed a promise, unless i
t appears that it was merely a statement of belief or expectation.
Representations cannot qualify an express provision in contract of insurance but
it may qualify as implied warranty (sec40)
If policy provides that house insured was used as warehouse, any representations
made by insured prior to issuance of policy to the effect that house was used o
nly as a residence is not a defense in the action for recovery of amount of insu
rance.
If insured makes representation that vessel insured was deficient for voyage sin
ce it was not duly manned ,such representation may qualify the implied warranty
that vessel is sea worthy
SECTION 42.A representation must be presumed to refer to the date on which the c
ontract goes into effect.
SECTION 43.When a person insured has no personal knowledge of a fact, he may nev
ertheless repeat information which he has upon the subject, and which he believe
s to be true, with the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the insurer; and in n
either case is he responsible for its truth, unless it proceeds from an agent of
the insured, whose duty it is to give the information.
Nature of Representation:
1.Information given concerning risk
2.It forms as basis of the contract
3.Intended as collateral inducements
Examples: Insurer who insured a vessel as a streamer cannot be required to pay l
oss of a sailing vessel. Not liable for loss of a ship when at time of underta
king it represented to be safe in port.Not liable if insured is brickhouse when
in truth it is a framed house.
Insurer may express opinion that his house is of certain value or that his body
is wholly free form a certain disease(insurer knows that insured s opinion may be
mistaken but fact that such opinion is honestly entertained may be of great vau
lue to him in estimating the risk). As such,the policy will not be avoided even
if opinion turns out to be erroneous.
An applicant for a motor vehicle insurance replied I am a very good driver , such s
tatement is not fraudulent since it is merely an expression of opinion. But if
applicant does not know how to drive, then it tantamounts to giving fraudulent m
isrepresentation.
In case insured stated that never had any illness ,it was held that this represent
ation was substantially true, despite fact that insured was discharge from army
for inflammation of eyes which however had been entirely cured before applicati
on for policy. Gastric discomfort cannot be considered a serious ailment but mer
ely a minor indisposition.
An applicant to fire insurance on building makes a promise contained in the poli
cy that it shall be occupied which promise induces insurer to issue policy at a
lower rate
* It is clear that promise is not representation at all but a term of contact ,t
he performance of which may be made a condition of insurer s liability
* However, if the insured made an oral promise that building shall be occupied a
nd the subsequent failure to fulfill promise if made in good faith will not avoi
d the policy even though risk be increased by the building s being unoccupied. (20
05 notes:But since oral, insurer may not be allowed to prove it by operation of
rule on evidence forbidding the admission of parol testimony to add prior or con
temporaneous terms to a written instrument. Promise may be proved for a differen
t purpose that is to prove insured no made the promise in bad faith)
For an insurer to avoid liability:
1.Insurer must prove both materiality of insured s opinion and latter s intent to de
ceive
2.If representation is one of fact, all the insurer need to prove is its falsit
y and materiality (intent to deceive is presumed)
Effect of Falsity of Representation
Fraud or intent to misrepresent facts is not essential to entitle the injured pa
rty to rescind a contract of insurance on the ground of false representation
To be deemed false, it is sufficient if representation fails to correspond with
the facts in material point.
It is misrepresentation for the insured to state that he did not drink beer or o
ther intoxicants if he drank but very seldom. Here, representation is false but
not in a material point
Whenever a master policy contained an exclusionary clause (ex: excluding employe
es working less than 30 hours from policy) and X filled up an enrollment card wh
ere his personal circumstances and working schedule of less than 30 hours was st
ated and the Company failed to exclude X and instead issued him a policy, then i
t is deemed a waiver by the Company of said exclusionary clause. Hence ,the bene
ficiary of X can recover under the policy.
TEST OF MATERIALITY:
Probable and reasonable influence of the facts upon the party of whom the repres
entation is made in forming his estimate of the disadvantages of the proposed co
ntract or in making his inquiries
In determining whether representation is material, the test is the same as in th
e case of concealment: would the insurance company have issued a policy had it k
nown the fact or would it have issued it and asked for a higher premium. Exampl
e, a typical question: Have you ever consulted a physician? Said no, but actuall
y he s a regular patient of a physician, so there s misrepresentation. A typical mis
representation is the failure to disclose the applicant is suffering from a seri
ous disease like tuberculosis, asthma, heart disease, kidney disorders, high blo
od pressure.
When Representation is false:
Where representation partly fails but is true or is complied with so far as is e
ssential to the risk insured against, the policy remains in force
* In marine insurance ,substantial truth of rep is not sufficient, insured is re
quired to state the exact and whole truth in relation to all matters that he rep
resents, or upon inquiry discloses or assumes to disclose
* Confinement in childbirth is not a personal ailment, with regards the rep of m
arried woman that she had not consulted a physician in regard to a personal ailm
ent during 7 years prior to her application
* A statement that applicant is in good health is held not to mean perfect healt
h.but that he is not aware of any disease serious in nature to impair his health
permanently
If representation is false on a material point ,the injured party is entitled t
o rescind from the time when the representation becomes false. The right to res
cind granted by Insurance code is waived by the acceptance of premium payment d
espited knowledge of ground of rescission.(2005 notes)
An insurer which issues a life policy and receives the full initial premiums but
4 months later informs the insured that the policy had never been in force ,com
mits a serious breach of contract entitling the insured not only to recover the
premiums paid with interest but also moral and other damages
BAR:An application for insurance issued on Jan 25,1963 states that the insured n
ever had malaria,whereas, the evidence shows that he had it for a long time befo
re the application for insurance. The insurer died on June 15,1965. defense to t
he action on the policy is fraud.
HELD: Insurer is liable under the policy. It is true that there was material mi
srepresentation at time the policy was procured, but under the incontestability
clause in the law on life insurance, the insurer cannot rescind on the ground of
fraud after lapse of 2 years from the time the policy took effect.
The insured applied on Jan 25 ,1963 and it is assumed that the policy was issued
to him a few days thereafter. Having died on June 15,1965, or more than 2 years
after issue of the policy to him, the problem is covered by the incontestabilit
y clause. Hence, beneficiary of the insured can recover.
EFFECT OF INFORMATION OBTAINED FROM THIRD PERSONS
* Insured has no personal knowledge of cause of death of parents, he may report
info obtained from friends, and relatives,expressly stating that he does not pos
sess knowledge personally but through others In this case, insured is not respon
sible for truth of info.
* Where party after wards receives info material to the risk, he ought to commu
nicate such fact to this agent as soon as it can be communicated, failure to do
so makes policy avoided.
Effect if obtained from agent
Agent of Insured
* A captain of ship is bound to communicate its loss to the owner and if latter
effects an insurance on the ship lost or not lost in ignorance of antecedent loss
due to fraud/negligence of captain, insured cannot recover from policy
Agent of Insurer
* If insurer would effect an insurance upon a vessel lost or not lost when his age
nt under duty of disclosing to the insurer ,knew that vessel had in fact arrived
safely, the insurance would be voided and insured would be entitled to a return
of premium.
Effect of Collusion or Fraud of Agent of Insurer
Collusion with Insured
* The agent thereby ceases to represent his principal and represents himself, so
the insurer is not estopped from avoiding policy
Principal of Agent
* Where insured merely signed application form and made the agent of insurer fil
led the same for him, the insured made the agent of insurer as his own agent.
* Where insurer required its medical examiner to put question and fill out the a
nswer in his own handwriting, insurer is liable when its agent writes a false an
swer to the application without knowledge of the insured.
BAR: A,agent of life insurance B induced C who had been suffering from advanced
tuberculosis to apply for P10,000 life insurance which C did and he (C) request
ed A to fill up the application form. Thru the connivance of the physician ,it
was made to appear in the application that C is in good health and the P10,000 l
ife insurance policy was issued by B to C. Is the policy issued to C valid? Po
licy is void, since it was issued on a misrepresentation through his connivance
with 2 agents of the insurer-the insurance agent and the insurance physician. It
is the participation of C in the misrepresentation which avoid the policy. C,b
y conniving with 2 agents of the insurer, A, the agent, and the physician of the
insurer, made the 2 of his agents and the misrepresentation of the 2 is equiva
lent to his own misrepresentation ,material enough to avoid the policy.
Is B bound by the acts of his agent A?B is normally bound by the acts of his age
nts, but in the problem above, the participation of the insured in the commissio
n of the misrepresentation avoids the policy and will not bind the insurer.
WHEN AN INSURER EXERCISES RIGHT TO RESCIND:
In Non-Life Policy
* Such right to rescind must be exercise prior to commencement of an action on t
he contract. Insurer is no longer entitled to rescind after insured has filled a
n action to collect amount of insurance.
In Life Policy
* After lapse of 2 years, from date of issue or last reinstatement (aka inconte
stable clause), the insurer cannot prove that policy is void ab initio by reason
of concealment or misrepresentation or that policy is rescissible by reason of
concealment or misrepresentation.
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 corresp
ond with its assertions or stipulations.
Representations are not required to be literally true unlike warranties. It is s
ufficient 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, whether affirmativ
e or promissory, the injured party is entitled to rescind the contract from the
time when the representation becomes false. The right to rescind granted by this
Code to the insurer is waived by the acceptance of premium payments despite kno
wledge of the ground for rescission.
Rescission must be exercised
? Before the commencement of any action on the contract
? If motor vehicle liability insurance , then the notice of cancellation must be
sent to the land transportation owner/operator and the LTO at least 15 days bef
ore date of effectivity rescind it.
Cases:
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.
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.
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.
MARINE INSURANCE
Insurance against Loss or Damage to:
1.Vessels, goods, freight, cargo, merchandise, profits ,money, valuable papers,
bottomry and respondents and interests in respect to all risks or perils of navi
gation.
2.Persons or property in connection with marine insurance
3.Precious stones, jewels and precious metals whether in the course of transport
ation or otherwise
4.Bridges, tunnels , piers,docks and other aids to navigation and transportation
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 artic
les loaded for commerce and not the provisions of the crew and passengers for th
ey are not cargo. Usually goods stored on deck are not included because they ar
e riskier, they are first ones jettisoned.
Art 587 provides that the ship agent is liable for the negligent acts of the cap
tain in the care of the goods loaded on the vessel. This liability however can b
e limited through abandonement of the vessel ,its equipment and freightage. How
ever, there are exceptions wherein the ship agent could still be held answerable
despite the abandonement , as where the loss or injury was due to the fault of
the shipowner and the captain. It must be stressed that Art 587 speaks only
of situations where the fault or negligence is committed solely by the captain .
Where the shipowner is likewise to be blamed, this Article will not apply. And
such situation will be coverede by the provisions of the Civil Code on common c
arriers.
PERILS OF THE SEA
extend only to losses caused by sea damage, or by violence of the elements and d
oes not embrace all losses happening at sea. They insure against losses from ext
raordinary occurrences only, such as stress of the weather ,winds and waves ,li
ghtning tempest ,rocks and the like. They are said to include only such losses a
s are of extraordinary nature, or arise from some overwhelming power which canno
t be guarded against by the ordinary exertion of human skill and prudence.
But if it is not an all-risk policy, that will only cover perils of the sea and
there are 2 requisites for that: it must be due to unusual violence like waves o
r wind or must be connected with navigation. In other words, the loss must be d
ue to a fortuitous event. If cause is ordinary typhoon, that is not peril of th
e sea.
If it is an all- risk policy, the court has said that all insured has to prove t
hat the property was lost. He does not have to prove the cause or that it was d
ue 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 i
s that the loss was due to the misconduct of the insurer himself, like he plante
d a bomb with the cargo or it is one of the excepted risks under the policy. So
those would be the defenses available.
2006 notes: The rustling of steel pipes in the course of the voyage is a peril
of the sea in view of the effect on the cargo of wind,water and salt conditions
(Cathay v CA)
Roque case, where a barge ran a leak, the insurance company is not liable for th
e loss of the cargo because it is peril of the ship.
PERILS OF THE SHIP
The insurer is not liable for damages to the cargo caused by sea water entering
the cargo compartment due to a defective drain pipe. In marine insurance, the ri
sk unless expressly specified, must be connected with navigation or with the per
ils of the sea. The damage in the problem is a consequence of the PERILS OF THE
SHIP hence,insurer is not liable. As such it does not include losses due to fau
lt or negligence of the members of the crew, like the failure to secure one of t
he portholes of the vessels.
2006 notes: The initial burden is on the insured to show that the goods were loa
ded in good condition. If on unloading, the cargo is damaged, the burden shifts
to the insurer to show that the loss was due to an excepted risks.
2006 notes: A cover note issued in advance of the issuance of a marine policy i
s binding as an insurance contract although no separate premium was paid therefo
re.
And the policy also insures against arrest of the vessel. Now you have this Mal
ayan Ins. Case the Supreme Court through Justice Romero said that the vessel was
ordered to be arrested through court order. The court said the insurance compa
ny is liable for that, but you see, the phrase arrest of the ship has a well set
tled meaning in English jurisprudence, lasting for over 200 years which means ar
rest due to an order of an administrative or executive official. But it does no
t include arrest by order of the court. That is the interpretation of English c
ourts for centuries. Our SC did not follow.
Another case is when the ship carrying the sugar shipment sank at sea due to a f
ire of unknown origin. May the shipper-consignee recover on the policy? No, an o
rdinary marine insurance policy is an insurance against loss or damage arising f
rom the perils of the sea. The fire which burned the cargo of sugar is not a pe
ril of the sea.
General Principles
* The cause of the loss must be perils of the sea and not perils of the ship
* Freightage all benefits derived by the owner either from chartering the ship o
r its employment for the carriage of his own goods or those of others (102)
* Charterer of the ship has insurable interest on the ship to the extent that he
is damnified by the loss (106)
* 2006 notes: In case there is a bottomry, insurable interest of the ship owner
is limited to excess of its value over the amount secured by bottomry. (101)
INCHAMAREE CLAUSE: clause covers loss or damage to the hull or machinery throug
h
(1) negligence of captain, engineers etc
(2) explosions ,breakage of shafts and
(3) latent defect of machinery or hull.
WARRANTIES:
Express- if provided for on the face of the contract or by reference to another
document.
Implied- 3 implied warranties:
1. Vessel is seaworthy
SEAWORTHYwhen it is fit to perform the services and encounter the perils of the
voyage contemplated. And the implied worthiness is complied with when the vessel
is seaworthy, when it commences the voyage. However, if the policy is for a sp
ecific length of time let us say a year, then the vessel must be seaworthy, ever
y time it leaves for a voyage. If it is an insurance of the cargo with differen
t ships, every vessel must be seaworthy. If you have equipment from Japan which
will be transported by a Japanese vessel from Tokyo to Manila, and Manila to Ceb
u by a domestic vessel, all the vessels must be seaworthy. Now the seaworthines
s not only applies to the structure of the ship but it must also be properly loa
ded It must also be provided with a competent master, one who is fully qualified
and had passed all examinations. Then you must also have the requisite equipme
nt, radar, radio etc. Now if there are different portions of the voyage, then t
he vessel must be seaworthy for every portion. If the vessel becomes unseaworth
y and there is unreasonable delay in making repairs, then the Insurance co. is e
xempted from liability. The vessel must also be seaworthy for the type of cargo
, e.g. if it is to transport fruits and vegetable the vessel must have refrigera
tion.
It is the obligation of the cargo owner to look for a reliable common carrier wh
ich keeps its vessels in seaworthy condition. The shipper of the cargo may have
no control over the vessel, but he has full control in the choice of the common
carrier that will transport his goods.
However, there may be a waiver of warranty of seaworthiness. So, if there is wa
iver, the insurance company will be liable even if the vessel is not seaworthy.
If there is no waiver, the insurance company will not be liable. The court has
said it also applies with the insurance of the cargo. The owner cannot say tha
t he did not know that the vessel was not seaworthy. The court said that it is
the responsibility of the owner of the cargo to ensure that he is dealing with a
seaworthy vessel. So that case where a barge sprang a leak, then he was saying
he was not liable because the barge was not seaworthy, the court said you are r
esponsible to see to it that the vessel is seaworthy.
2. It will not deviate from the agreed voyage
Deviation- departure of the vessel from the course of the voyage or an unreasona
ble delay in pursuing the voyage or the commencement of an entirely different v
oyage
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 .
Then it sank before it could reach New York. The Court held it was deviation be
cause it commenced an entirely different voyage. Hence 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 owner soug
ht to impound the ship to bar its departure. But knowing that India s government a
uthorities are very corrupt the charterer was able to leave after bribing custom
s authorities.
`Part of the cargo was soybeans to be brought to Manila. The charterer knew that
the ship owner might get an arrest order in Manila so he made the ship proceed
to Singapore instead. However, he made the ship stay outside Singapore s maritime
zone. He told the cargo owners to pay the ship owner before they could get their
cargo, and if they won t, he will proceed to Vietnam and sell their cargo. The c
argo 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 recover.
2006 notes:Instances when deviation is proper. An example of (a) is when there i
s 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 pirates waiting in ambush
, so must deviate. And (d) is based on humanitarian considerations. Any other de
viation relieves the insurance company. Just like that ship that was supposed to
sail from Paris to New York, once there was improper deviation the insurer was
relieved from liability.
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
General Principles
* If ship is prevented at an intermediate port from completing the voyage due to
an insured peril, the liability of the marine insurer continues after reshipmen
t
* In case of reshipment, the insurer of goods is liable for damages, expenses of
discharging, storage, reshipment and other expenses
Barratry : any willful misconduct on the part of master or crew in pursuance of
some unlawful or fraudulent purpose without the consent of the owners and to the
prejudiced of the owner s interest..
In that case, what happened is that the captain of the ship decided to cut loose
the barge and the insured was trying to argue that it was barratry. Of course,
barratry means loss due to the misconduct of the master or the crew, but this is
not misconduct. It is negligence, error in judgment of the captain but not bar
ratry.
ACTUAL LOSS
Loss may either be Total (actual or constructive) or Partial
examples of total loss:
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 a
rrived as seedlings. There was loss because it was different from the cargo ship
ped and insured. Another example a race horse was shipped, but in the ship it pa
nicked, jumped and kicked around, breaking its legs. There is loss because the r
ace horse can no longer race with broken legs.
d. for instance, it was ordered seized.
Actual Loss(BAR), involving total destruction, loss by sinking damage rendering
the thing valueless, or total deprivation of the owner of possession or part of
the destruction. Actual loss may be presumed from the continued absence of a sh
ip without being heard of .
Constructive Loss(BAR), involving actual loss of more than of the object cargo;
damage reducing the value by more than of the value of the vessel and if cargo
,the expense to transship exceeds if the value of the cargo(TECHNICAL TOTAL LOS
S)
How to estimate loss in open policy (161)
* Value of the ship value at the beginning of risk including articles which adds
to its value or to prepare it for the voyage
* Value of the cargo actual cost to insured when laden on board OR market value
at the time and place of lading
How to estimate loss in case of open policy (161)
* Value of the freightage is the gross freightage, exclusive of primage
* Cost of insurance shall be added to the estimated value
2006 notes: The logs having been insured as one separable unit, the basis for de
termining the existence of constructive total loss is the totality of the shipme
nt of the logs even if the shipment was carried in 2 barges, one of which total
ly sank in the course of the voyage. (Oriental v CA)
2006 notes: when policy is taken for total loss only, there can be no recovery o
n the ground of constructive total loss . the insured shipment of 1000 pcs of ca
rgo ,although carried in 2 barges, was insured under one policy only, as a cons
tructive loss would involve a loss at least , the loss of 325 out of 1000 pcs wou
ld not be a constructive total loss. Hence , there can be no recovery.
But when actual loss is suffered, there is no need for abandonment and the insur
er is liable for the actual loss. Sec. 136 says that the insurer is not liable f
or particular average loss. But in London, the practice is that this can be adju
sted, the adjuster makes a statement of how much everyone contributed, then he
makes the shipper or insurer sign it before the cargo is released.
2006 notes:Marine insurer is liable for partial loss only for such proportion of
the amount insured by him as the loss bears to the value of the whole interest.
Bar Question: An interisland vessel insured for P2M against total constructive
total loss, sank in 150 ft of water one mile off Paranaque during typhoon. Afte
r typhoon, the ship owner gave written notice of abandonement of his interest in
the entire sunken ship to the insurance company. Refusing to accept the offer o
f abandonement, the insurer hired sailors to refloat the vessel at a total cost
of P40000. because the refloated vessel needed repair, the insurer issued invit
ations of bid for repairs. Several firms submitted separate sealed bids ranging
from P1.2 M to P1.3M for the complete refurbishing and or restoration of the v
essel to its original condition. On basis of such facts, the insurance company
rejected the claim of the ship owner for payment of total loss on the ground th
at here was no constructive total loss. Was notice of abandonement given by the
owner properly made? Although sinking of vessel generally amounts to total loss
, the vessel may be easily salvaged as in the problem above where sinking is jus
t one mile from Paranaque and in 150 ft of water only. This ,for the owner, is n
ot a total actual loss, but it could amount to a total constructive loss. The no
tice of abandonement given by the owner on his assumption that the loss was a to
tal constructive loss ,being a unilateral act of the shipowner ,was properly ma
de.Is position of the insurance company as to the absence of constructive total
loss well-taken? Yes, circumstance of sinking within 1 mile and in 150 ft making
its refloating and repair easy, can prevent the loss from being a total actual
loss.
2006 notes: Perils of the sea extend only to losses caused by sea damage, or by
violence of the elements and does not embrace all losses. And the loss, not bei
ng a total actual loss, abandonement by the owner will only be proper if the tot
al constructive loss amounts to or more of the value of the vessel. The expenxex
for refloating (P40000) and refurbishing (P1.3M) do not amount to or more of th
e value of the ship . Hence, claiming for total constructive loss is not proper.
2006 notes: If the ship owner failed to give the proper notice of abandonement
,he can still recover for partial loss. If ,as the problem states, P40,000 was s
pent for refloating and P1.2 to P1.3 M would be the expense for refurbishing and
restoring the vessel, these amounts are recoverable from the insurance company
as the actual partial loss of the insured without abandonement of the vessel.
2006 notes: If the vessel is insured and is partially damaged by a typhoon at se
a, the full amount of the insurance is recoverable if the partial damage amount
s to a constructive total loss and the Shipper firm abandons the vessel to the i
nsurer.
MEASURE OF INDEMNITY
A valuation in a marine insurance policy is conclusive between parties (except
if there s fraud) and if it is a devalued policy, where it is underinsured and par
tial loss occurs, the loss will be proportionately shared. The shipper is consid
ered an insurer as to that part of the loss he must suffer due to the devalued p
olicy. This is done in order to avoid pointing whose share was damaged.
BAR:a shipment of sugar, expected profit is P100 thousand. 50% of the shipment w
as lost, can collect P50 thousand expected profit from the insurer, because prof
its were separately insured. But under Sec. 162, if sugar worth P100 thousand if
sold would ve made P120 thousand, but damaged value was only P50 thousand, only h
alf of the expected profits can be collected as lost profits. Hence he can colle
ct only P10 thousand.
Sec. 163 is another provision pursuant to sue and labor expenses, because it is as
sumed the insurer will be willing to incur such expenses to avoid loss.
Sec. 164 talks of general average loss, that goods jettisoned to save a vessel e
nables the owner of the jettisoned goods to recover from other cargo owners the
general average (it is general since the whole crew of the ship benefited from t
hrowing the cargo).
CONSTRUCTIVE LOSS
ABANDONMENT
* Neither partial nor conditional (140)
* Must be made within a reasonable time after receipt of reliable information of
loss (141)
* If information on loss is incorrect or thing is restored and there is no total
loss, abandonment is ineffectual (141)
* It is made orally or in writing. If orally, written notice shall be submitted
within 7 days from oral notice (143)
* Has the effect of transferring by the insured of his interest, to the insurer
with all chances of recovery and indemnity (146)
WHEN THERE CAN BE ABANDONMENT
1.More than 3/4 of the value is actually lost or would have to be spent to recov
er it from peril
2.If the vessel is injured to such an extent as to reduce its value to more than
3/4
2006 notes:If the thing is a ship, and the voyage cannot be performed without in
curring either expense to the insured of >3/4 the value of the thing abandoned o
r a risk which a prudent man would not take under the circumstances
2006 notes:If the thing is cargo or freightage, voyage cannot be performed, nor
another ship be procured within a reasonable time and with reasonable diligence
to forward the cargo, without incurring like expenses or risk >3/4 of the value
of the vessel.
2006 notes:If notice of abandonment is properly given, the rights of the insured
are not prejudiced by refusal of insurer to accept abandonment (149)
2006 notes:Acceptance of abandonment may be express or implied. Mere silence is
acceptance (150)
2006 notes:If insurer refuses to accept valid abandonment, liable for actual tot
al loss deducting any amount given to the insured.
2006 notes:If insured fails to abandon, he an recover actual loss.
ON AN ACCEPTED ABANDONMENT OF SHIP:
* freightage earned before the loss- belongs to the insurer of the freightage
* Freightage earned after the loss- belongs to the insurer of the ship
AVERAGE:
General insurer is liable for proportion of the loss assessed
* if the goods of A are disposed in order to save the vessel and other goods, th
e loss suffered by A shall be shared by all other owners in proportion to the va
lue of the goods belonging to them which are saved
Particular insurer is liable unless there is a stipulation exempting the insurer
* If the goods of A are disposed but such disposition did not inure to the commo
n benefit of other owners of goods, only A will suffer the loss
* Other owners will not contribute in A s loss
INSURABLE INTEREST:
1.Shipowner-over thevessel ,except that if chartered ,the insurance is only up
to the amount not recoverable from the charterer, and if hyphothecated by a bott
omry loan, the insurable interest is only up to the excess of the value of the v
essel over the loan. He also has an insurable interest on expected freightage.
2.Cargo owner-over the cargo and on expected profits
3.Charterer-over the amount he is liable to the shipowner if the ship is lost or
damaged during the voyage.
Now under Section 100, the owner of the vessel has insurable interest even if he
chartered it and the charterer agreed to pay in case of loss. But, the insuran
ce company is only liable for the amount he did not recover from the charterer.
The vessel for instance is worth P10M the charterer paid P5M then he can only co
llect P5M form the insurer. Because again, insurance again is a contract of inde
mnity the insured can only collect what he lost.
Freight refers to the benefits derived by the owner of a chartered vessel who ca
rried goods and that can be insured. Now the owner of the property can also ins
ure not only the property but also the expected profits. Now the charterer 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 for goods
that I can transport. Now I will pay only if the vessel arrives safely and I wa
s 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 co
llect.
CONCEALMENT:
In marine insurance, it is failure to disclose any material fact or circumstance
which is within or ought to be within the knowledge of one party , and of whic
h the other party has no actual or presumptive knowledge.
If material, concealment entitles the innocent party to rescind.
Concealed matters not violating the contract:
1.national character of insured
2.liability of the insured thing to capture or detention
3.liability to seizure from breach of foreign laws
4.want of necessary documents
5.use of false or simulated papers.
2006 notes: 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 wa
nt of necessary document or loss of necessary papers and this is concealed, then
the vessel is lost by some other cause like it encountered a perfect storm, the
n the insurance company must still be liable.
Representation as to expectation in the absence of fraud does not avoid the mari
time 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 Ap
ril. So that was his expectation but the vessel became available only in June. T
here is no misrepresentation when the delay is excusable.
FIRE & CASUALTY INSURANCE
FIRE INSURANCE
Fire Insurance is a contract by which the insurer for a consideration agrees to
imdemnify the insured against loss of or damage to property by fire but may incl
ue loss by lightning ,windstorm ,tornado or earthquake.
ALTERATIONS:
Alteration in use or condition of a thing insured from that to which it is limi
ted in the policy made without the consent of the insurer, by means within the
control of the insured , and increasing the risk entitles the insurer to rescin
d.
Except: alterations not resulting in rescission:
1.alterations not increasing risk
for example is when a place is insured as a residential condominium but is conve
rted into an office condominium, there is no increased risk, and no alteration.
Now this was asked in the bar: a policy answers only for hostile fire, not frien
dly fire. Friendly fire is one which burns where it is intended to burn, like a
gas range fire, or a bonfire. However, fire which was initially friendly can con
vert into hostile fire.
2.increasing the risk but not violating the contract
Under Sec. 171. For instance, if there is a loss, and the building cost P250 mil
lion to build, the insurance won t pay the same amount if it is an old building. T
he value will be adjusted to reflect depreciation suffered by the building befor
e it was burned
A fire insurance policy has a stipulation that the insurer has the option to reb
uild instead of paying for the loss, much like motor vehicle insurance where ins
urer san opt to have the car repaired instead of paying. But when the insurer ex
ercises this option, the contract of insurance is novated. It turns into a contr
act for piece of work and insurer becomes liable for quality of the work done.
2006 notes: The damage to room furnishings due to smoke and soot from the furnac
e is not within the contemplation of the fire insurance contract.
Notice of Loss in Fire Insurance ( Sec. 88 )
must be given without unnecessary delay
> otherwise, the insurer is exonerated
Subrogation
when insurer pays for the loss payment operates as an equitable assignment to th
e insurer all remedies which insured may have for the recovery
2006 notes:subrogation is limited to the amount recoverable by the insured
MEASURE OF INDEMNITY:
1.Open Policy: expense necessary to replace the thing lost or injured in the con
dition it was at the time of the injury
2.Valued Policy: parties are bound by the valuation ,in the absence of fraud or
mistake.
CASUALTY INSURANCE
Casualty Insurance is insurance covering loss or liability arising from accident
or mishap, excluding those falling under other types of insurance as fire or m
arine.
Examples are: employer s liability insurance , workmen s compensation insurance, pub
lic liability insurance and motor vehicle liability insurance .
Section 174.
For example: personal accident insurance, third party liability insurance, contr
actors all risk insurance (to indemnify for injury caused by falling debris from
a construction area). In the 1950 s a loss of thumb would rake in P6 thousand for
the victim. Easy money! Ang daming nawawalan ng daliri noon! When the indemnity
was lowered, wala nang nawawalan ng daliri noon.
Now, Philippine insurance policies usually state that if the death is due to a v
oluntary act, the insurer will indemnify only if it is due to an external physic
al violent force. But in other countries this proviso does not appear in the con
tract. In the USA, there was a case where this guy heard that restricting the ox
ygen 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 :) obviously,
solo flight, cause who d wanna hang out with a guy like that??!). Surprise surpr
ise, he died. The US Courts ruled that his heirs could collect, because this was
an accident. But the Courts in Canada ruled the heirs cannot collect in this ca
se because the person knew (or should ve known) that death was a foreseeable risk!
Moral of the story? Stick to the tried and tested modes of achieving an orgasm
An example of this accident is a seaman who jumped into the sea to save a child
who fell overboard. The seaman died. Seaman s heirs can collect under accidental d
eath, 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 insured mus
t pay extra.
A group of policemen and a security guard were chasing a robber. The robber fire
d killing the security guard. It was ruled as accidental death, because the vict
im was chosen at random. Hence the guard s heirs can collect.Another case: if a ro
bber holds up a bus he was riding and before he leaves shoots at one of the pass
engers. Accident.
Where in this restaurant, a customer tried to surreptitiously leave without payi
ng. The waiters caught him but in the course of the melee, he was able to moment
arily leave the premises. One of the customers wanted to avoid the fracas, so he
paid for his order and left. He had just stepped out of the door, when the esta
fador customer saw him and thought he was one of the waiters out to catch him. T
he estafador shot the inocente. The Court ruled that the heirs of the inocente c
ould collect because there was an error in persona, making the death accidental.
Even if the act is considered under the Revised Penal Code as homicide through
reckless imprudence, under Insurance Law the death is considered accidental.
COMPREHENSIVE MOTOR VEHICLE INSURANCE
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 liability
attaches, it s a void provision.
Payment of Proceeds
Motor Vehicle Liability Insurance
WRITTEN notice of claim setting forth the nature, extent and duration of injurie
s sustained as certified by a duly licensed physician must be filed within SIX M
ONTHS from the date of the accident.Otherwise, claim shall be deemed waived.
Then go to court within 1 yr from denial of the claim
This ruling is premised that the person have filed a written claim, and absent s
uch claim,no cause of action accrues under such insurance contracts, considering
that , it is the rejection of the claim that triggers the running of the one ye
ar period.
* After a claim is filed, insurer shall ascertain the truth and extent of the cl
aim and pay within FIVE WORKING DAYS after reaching an agreement.
* If no agreement is reached, the insurer shall only pay the no-fault indemnity
under 378 (no quitclaim)
THEFT CLAUSE
Where a car, covered by a comprehensive insurance policy including theft and bur
glary was placed by the owner on display for sale at a gas station taken by a s
ervice station boy without the station owner s permission, and bumped against an e
lectric post, the damage is covered by the theft clause (Association v Fieldman s)
Where the insured s car is wrongfully taken without the insured s consent from the
service and repair shop to which it was entrusted for check up and repairs ,in
the course of which it was totally smashed in an accident, respondent insurer i
s liable and must pay the insured for the total loss of the insured s vehicle und
er the theft clause of the policy. (Villacorta v Insurance )
Where car is admittedly unlawfully and wrongly taken without the knowledge and c
onsent of the owner, such taking constitutes theft and it is the theft clause, not
the authorized driver clause which should apply (Perla v CA)
A car in a motor shop taken by an employee for a test drive and meeting an accid
ent is theft, as the car was taken without the consent of its owner, it is cover
ed by the comprehensive insurance making the insurer liable although there is no
conviction yet for theft filed by the employer against the employee (Malayan v
CA)
It is immaterial that HL s wife was driving the car with an expired license at th
e time it was carnapped (Seguros v CA).Supposing on the case above, the car was
bought by HL on installment basis and there were installments due and payable be
fore loss of car as well as installments not yet payable. Because of the loss o
f car, the vendor demanded from HL the unpaid balance of promissory note. HL res
isted the demand and claimed that he was only liable for the installments due an
d payable before the loss of the car but no longer for the other installments n
ot yet due at time of loss.
HELD: Promissory note is not affected by whatever befalls the subject matter of
the accessory contract. The unpaid balance on the note should be paid and not on
ly the installments due and payable before the loss of the car.
COMPULSORY MOTOR VEHICLE LIABILITY:
The claim is collected from the insurer of the vehicle where the claimant is ri
ding, mounting or dismounting from. In all other cases, the claim is against the
insurer of the offending vehicle.
The right of the person injured to sue the insurer of the party at fault depen
ds on whether the contract of insurance is intended to benefit third persons or
only the insured. Where contract is for indemnity against liability to third per
sons, then 3rd persons to whom insured is liable can sue the insurer. Where the
contract is for indemnity against actual loss or payment, then 3rd persons cann
ot proceed against the insurer, the contract being solely to reimburse the insur
ed for liability actually discharged by him thru payment to third persons, said
third persons recourse being thus limited to the insured alone.
In a case arising from collision where driver, owners and the beneficial owners
and the insurer were sued, a compromise agreement entered into between the plain
tiff and the insurer resulting in the dismissal of the case as against the insur
er did not redound to the benefit of the other defendants (Imson v CA)
2006 notes: The liability of insurer is direct and solidary with the operator,b
ut only up to the amount stated in the policy and accrues immediately upon the o
ccurrence of the accident. Any amount awarded beyond the amount stated in the p
olicy is the sole responsibility of the carrier
2006 notes: The insurer who pays can claim against the offending vehicle. The re
covery by the injured from the insurer is direct and not dependent on the recove
ry against the insured by the injured party. While technically, a court may not
order the carrier and the surety company to pay the hospital where an injured pa
ssenger was confined, especially where the hospital was not a party to the case.
In the interest of justice, courts may do so, and prevent the filing of separa
te actions by the procedure of filing a proceeding supplementary to execution .
The injured (or the heirs) may sue directly the insurer of the vehicle.
Common carriers are required to secure the Compulsory Motor Vehicle Liability In
surance (CMVLI also known as third party liability or TPL) coverage as provided
by the Insurance Code precisely for the benefit of victims of vehicular acciden
ts and to extend them immediate relief. The victims and defendants are assured
immediate financial assistance regardless of the financial capacity of motor
vehicle owners.
2006 notes: The third party liability is only upto the extent of the insurance
policy and those required by law. The liability of insurer is not in solidum w
ith the insured or with other parties at fault since the liability of insurer i
s based on a contract and that of the insured carrier or vehicle owner is bas
ed on tort.
The CMVLI allow a passenger recovery from the insurance of the vehicle where he
was riding. The contract of transportation between the passenger and the public
carrier he rode in, and which unloaded him in the middle of the street, subsis
ts up to the time the passenger is unloaded at a safe place. As such, the passen
ger who just alighted can recover from the jeepney where he alighted and not fro
m the insurer of the car who upon his alightment ,bumped him on his knees.
2006 notes: There is no need to wait for the decision of the court determining w
ho s party is liable,the occurrence of injury to the victim immediately gave rise
to liability of insurer.
NO FAULT INDEMNITY PROVISION
An insurer may be held liable under the no fault indemnity provision without the n
ecessity or proving fault or negligence of any kind, provided the following requ
isites 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 P5, 000; and
3. The necessary proof of loss under oath to substantiate the claim must be subm
itted
in case of death, you submit the death certificate. In case of injury, you subm
it a medical report. In ALL cases, however, you have to submit a police report
A claim under the no fault indemnity provision may be made against the insurer of
one motor vehicle only. Such claim may be made directly by the injured party ag
ainst 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.
BAR:Driving his car one night, A crossed an intersection as the signal turned gr
een. Suddenly he saw an old woman crossing the street just a few feet from his c
ar. He applied his brakes immediately ,but just the same ,he hit the woman who t
urned out to be senile already. He brought her to the nearest hospital where she
was confined for 3 days, upon her discharge, A had to pay the hospital bill whi
ch amounted to P2000 including X-rays ,doctor s fees and medicines. Is insurance
company liable to reimburse A for the hospital expense?
HELD:Yes, the insurance company is liable to reimburse A for the expenses. This
is a recovery under the no-fault clause provision,as such ,it is with no regard
to the fault or negligence of any person involved in the accident, the insurer o
f the only vehicle involved in the accident is liable upto a maximum of P5000 u
pon submission by the insured of the police report, medical report ,and evidence
of hospital disbursement. The reimbursement claim of A for P2000 is within the
maximum amount, hence ,the insurer should reimburse.
BAR: G driving his car with his friend A. one night on their way to Dasmarinas
when a car driven by E hit them behind which was in turn hit by a gasoline tunk
er driven by I causing the car of G to turnturtle thus resulting to the death of
A. All vehicles were insured. G file claim for the death of A against the ins
urers of the said 3 vehicles under the No fault indemnity.
HELD: since G invoked the no fault indemnity(for death or physical injury to 3rd
persons) ,he can only claim against the insurer of his own car, the vehicle wh
ere A was riding at the time of the incident. The amount recoverable shall not e
xceed P5000.
However, if G s claim includes damage to his car, the claim may prosper if brough
t against the insurers of the other vehicles not his own unless of course, G s in
surance on his car is a comprehensive one and not just the required CMVLI.
2006 notes:if occupant of a vehicle, claim against insurance of vehicleotherwise
, claim against offending vehicle
The General Rules in the No Fault liability are:
1.suit or claim of recovery is directed at one vehicle only
2.suit is directed against the insurer of the vehicle where the victim was a pas
senger of,or against the insure of the vehicle which bumped the victim
3.The insurer who pays can claim against the vehicle at fault . The claim shall
be under oath with sufficient proofs as follows:
-police report of accident
-death certificate and evidence sufficient to establish the proper payee
-medical report and evidence of medical /hospital disbursement in respect of whi
ch refund is claimed.
Rights of Insurer:
In all cases, the right of the party paying the claim to recover against the own
er 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 caused t
he accident since the law provides that the insurer paying the claim may recover
from the owner of the vehicle responsible for the accident (Perla Compania de S
eguros case)
The no fault indemnity clause is without prejudice to the claimant s getting more.
For instance, the claim is for 15, 000. Under the no fault indemnity clause, he
gets 5, 000. But this doesn t mean that the 10, 000 is barred. Only that the cl
aimant has to prove that there was negligence. It s void for the insurance compan
y to require the claimant to waive his other claims as a condition precedent to
the release of the P5, 000 (which the claimant is entitled to as a matter of rig
ht anyway)
4blue 95 notes:which means for the mean time, he may claim P5000 muna para pampa
tawid gutom, but he still have the right to claim the remaining P10000.
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. This
is known as the Authorized Driver requirement.
A foreigner without a valid driver s license since his stay in Philippines is more
than 90 days is disqualified to drive and the insurer may refuse to pay if insu
red car is involved (Stokes v Malayan)
2006 notes: An expired traffice violation ticket of a driver of a vehicle in
volved in an accident violates a provision of an accident insurance policy that
a driver of a covered jeepney must be a holder of a valid and subsisting prof
essional driver s license, and prevents liability from attaching against the insur
er
Reasonable Delay in Payment
1.delay due to investigation to ascertain the truth of information it received t
hat insured was not insurable at time of application (Chuy v. Philamlife)
2.delay caused by determination of actual beneficiary and claims of creditors (R
CBC v. CA)
INSURANCE COMMISSIONER
Officer charged with the implementation of the laws with regards Insurance.
SUMMARY:
Powers of the Commissioner
* Administrative powers - can revoke licenses based on complaints grounded on un
fair settlement practices
* decision of the Commission is appealable to the Finance Secretary
* Adjudicatory powers - claims more than P100,000 (excluding cost, attorney s fees
and interest)
decision is subject to motion for reconsideration within 15 days
* appealable to the Court of Appeals
ADMINISTRATIVE
1.Issue certificates of authority to qualified insurers
2.See that all insurance laws are faithfully executed
3.Regulate the sale and issuance of variable contracts to license persons sellin
g them and to issue rules and regulations governing the same
4.Sec. 414. The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters, mutual b
enefit associations, and trusts for charitable uses are faithfully executed and
to perform the duties imposed upon him by this Code, and shall, notwithstanding
any existing laws to the contrary, have sole and exclusive authority to regulate
the issuance and sale of variable contracts as defined in section two hundred t
hirty-two and to provide for the licensing of persons selling such contracts, an
d to issue such reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and dec
ision as he may deem necessary to secure the enforcement of the provisions of th
is Code, subject to the approval of the Secretary of Finance. Except as otherwis
e specified, decisions made by the Commissioner shall be appealable to the Secre
tary of Finance.
5.Sec. 415. to impose upon the insurance companies, their directors and/or offic
ers and/or agents, for any willful failure or refusal to comply with, or violati
on of any provision of this Code, or any order, instruction, regulation, or ruli
ng of the Insurance Commissioner, or any commission or irregularities, and/or co
nducting business in an unsafe or unsound manner as may be determined by the Ins
urance Commissioner, the following: (a) fines not in excess of five hundred peso
s a day; and (b) suspension, or after due hearing, removal of directors and/or o
fficers and/or agents.
REGULATORY AND NON-QUASI JUDICIAL DUTIES (UNDER ADMINISTRATIVE POWERS)
1.authority to issue, or refuse issuance of a certificate of authority to a pers
on or entity desirous of engaging in insurance business
2.revoke or suspend such certificate of authority upon finding of the existence
of the following grounds:
(a) knowingly misrepresenting to claimants pertinent facts or policy provisions
relating to coverage at issue;
(b) failing to acknowledge with reasonable promptness pertinent communications w
ith respect to claims arising under its policies;
(c) failing to adopt and implement reasonable standards for the prompt investiga
tion of claims arising under its policies;
(d) not attempting in good faith to effectuate prompt, fair and equitable settle
ment of claims submitted in which liability has become reasonably clear; or
(e) compelling policyholders to institute suits to recover amounts due under its
policies by offering without justifiable reason substantially less than the amo
unts ultimately recovered in suits brought by them.
If the Commissioner is of the opinion upon examination of other evidence that an
y domestic or foreign insurance company is in an unsound condition, or that it h
as failed to comply with the provisions of law or regulations obligatory upon it
, or that its condition or method of business is such as to render its proceedin
gs hazardous to the public or to its policyholders, or that its paid-up capital
stock, in the case of a domestic stock company, or its available cash assets, in
the case of a domestic mutual company, or its security deposits, in the case of
a foreign company, is impaired or deficient, or that the margin of solvency req
uired of such company is deficient, the Commissioner is authorized to suspend or
revoke all certificates of authority granted to such insurance company, its off
icers and agents, and no new business shall thereafter be done by such company o
r for such company by its agent in the Philippines while such suspension, revoca
tion or disability continues or until its authority to do business is restored b
y the Commissioner. Before restoring such authority, the Commissioner shall requ
ire the company concerned to submit to him a business plan showing the company's
 estimated receipts and disbursements, as well as the basis therefor, for the ne
xt succeeding three years.
ADJUDICATORY POWERS
Sec. 416. The Commissioner shall have the power to adjudicate claims and complai
nts involving any loss, damage or liability for which in insurer may be answerab
le under any kind of policy or contract of insurance, or for which such insurer
may be liable under a contract of suretyship, or for which a reinsurer may be su
ed under any contract of reinsurance it may have entered into; or for which a mu
tual benefit association may be held liable under the membership certificates it
has issued to its members, where the amount of any such loss, damage or liabili
ty, excluding interest, cost and attorney's fees, being claimed or sued upon any
kind of insurance, bond, reinsurance contract, or membership certificate does n
ot exceed in any single claim one hundred thousand pesos.
The insurer or surety may, in the same action file a counterclaim against the in
sured or the obligee.
The insurer or surety may also file a cross-claim against a party for any claim
arising out of the transaction or occurrence that is the subject matter of the o
riginal action or of a counterclaim therein.
With leave of the Commissioner, an insurer or surety may file a third-party comp
laint against its reinsurers for indemnification, contribution, subrogation or a
ny other relief, in respect of the transaction that is the subject matter of the
original action filed with the Commissioner.
The party filing an action pursuant to the provisions of this section thereby su
bmits his person to the jurisdiction of the Commissioner. The Commissioner shall
acquire jurisdiction over the person of the impleaded party or parties in accor
dance with and pursuant to the provisions of the Rules of Court.
The authority to adjudicate granted to the Commissioner under this section shall
be concurrent with that of the civil courts, but the filing of a complaint with
the Commissioner shall preclude the civil courts from taking cognizance of a su
it involving the same subjectmatter.
Any decision, order or ruling rendered by the Commissioner after a hearing shall
have the force and effect of a judgment. Any party may appeal from a final orde
r, ruling or decision of the Commissioner by filing with the Commissioner within
thirty days from receipt of copy of such order, ruling or decision a notice of
appeal to the Intermediate Appellate Court in the manner provided for in the Rul
es of Court for appeals from the Regional Trial Court to the Intermediate Appell
ate Court. (2005 notes: Claims above P100000, it is cognizable by the RTC)
As soon as a decision, order or ruling has become final and executory, the Commi
ssioner shall motu proprio or on motion of the interested party, issue a writ of
execution requiring the sheriff or the proper officer to whom it is directed to
execute said decision, order or award, pursuant to Rule thirty-nine of the Rule
s of Court. For the purpose of any proceeding under this section, the Commission
er, or any officer thereof designated by him, empowered to administer oaths and
affirmation, subpoena witnesses, compel their attendance, take evidence, and req
uire the production of any books, papers, documents, or contracts or other recor
ds which are relevant or material to the inquiry. In case of contumacy by, or re
fusal to obey a subpoena issued to any person, the Commissioner may invoke the a
id of any court of first instance within the jurisdiction of which such proceedi
ng is carried on, where such person resides or carries on his own business, in r
equiring the attendance and testimony of witnesses and the production of books,
papers, documents, contracts or other records. And such court may issue an order
requiring such person to appear before the Commissioner, or officer designated
by the Commissioner, there to produce records, if so ordered or to give testimon
y touching the matter in question. Any failure to obey such order of the court m
ay be published by such court as a contempt thereof.
A full and complete record shall be kept of all proceedings had before the commi
ssioner, or the officers thereof designated by him, and all testimony shall be t
aken down and transcribed by a stenographer appointed by the Commissioner.
A transcribed copy of the evidence and proceeding, or any specific part thereof,
 of any hearing taken by a stenographer appointed by the Commissioner, being cer
tified by such stenographer to be a true and correct transcript of the testimony
on this hearing of a particular witness, or of a specific proof thereof, carefu
lly compared by him from his original notes, and to be a correct statement of ev
idence and proceeding had in such hearing so purporting to be taken and subscrib
ed, may be received as evidence by the Commissioner and by any court with the sa
me effect as if such stenographer were present and testified to the facts so cer
tified. (As amended by Presidential Decree No. 1455).
2005 notes: decisions be appealed to CA within 15 days from notice of award or f
inal order or of denial of new trial or reconsideration. Decision which has bec
ome final may be the subject of execution which may be served and enforced by a
Sheriff.
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 following yea
r.
What is the meaning of margin of solvency?
Margin of solvency is the excess of the value of an insurance company s admitted a
ssets exclusive of its paid up capital, in case of a domestic company, or an exc
ess of the value of its admitted assets in the Philippines, exclusive of its sec
urity deposits, in case of a foreign company, over the amount of its liabilities
, unearned premiums and reinsurance reserves in the Philippines (Section 194)
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.
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