20 Insurance 323to396

67
INSURANCE 3. Development of insurance in England

From Italy, the practice of insuring
commercial ventures against disaster rapidly
extended to other maritime States of Europe.
The Italian merchants coming from the
flourishing commercial centers in Northern
Italy, and generally known as Lombards,
I. INTRODUCTION
founded trading houses in London in the 12 th
Century and brought with them the custom if
insuring against hazards of trade. All
A. Origin and Growth of Insurance
questions of insurance, however, were
determined in accordance with the customs of
merchants, and by merchant courts, or rather,
1. Mutual insurance as old as society
the custom of submitting all contracts
itself
involving mercantile rights to courts of
Insurance is based upon the
merchants established among themselves.
principle of aiding another from a loss
It was not until the middle of the 18 th
caused by an unfortunate event. Some
Century that the common law courts of
writers have maintained that mutual
England began to take adequate cognizance of
assistance is as old as society itself. It
insurance cases with the passage in 1601 of
seems that benevolent societies organized
the first English Insurance Act by which a
for the purpose of extending aid to their
special court was established for the trial of
unfortunate members from a fund
marine insurance controversies. In 1756, with
contributed by all, have been in existence
the appointment of Lord Mansfield as Chief
from the earliest times. They existed among
Justice of the Court of King’s Bench, there
the Egyptians, the Chinese, the Hindus, and
came a new era in the common law with
the Romans and are known to have been
reference to questions involving the law
established among the Greeks as early as
merchant. In the skillful hands of this great
the third century before Christ.
judge who is properly called the “Father of
The origin of the modern mercantile
English Commercial Law,” the essential
insurance contract appears to have been the
principles of the law merchant were
transaction evidenced by the bottomry or
incorporated into the common-law system of
respondentia bond, together with the
England and the common-law courts thereby
practice of “general average” contribution.
rendered competent to determine all questions
In the latter, the owners of cargo benefited
involving insurance.
by the deliberate sacrifice of some goods to
Lloyd’s of London is known to have
save the others from a sea peril, contributed
triggered the early development of insurance.
to pay the losses suffered by such sacrifice.
It began as a 17th Century coffeehouse
In the former, the lender on bottomry was
catering to merchants, vessel owners, bankers
repaid only if the vessel subject of the loan
and the first underwriters. It is known that
arrived safely at its destination.
Lloyd’s coffeehouse, an inn kept by one
Edward Lloyd on Tower Street in London, was,
as early as 1688, a popular resort for
2. Origin of present day insurance
seafaring men and merchants engaged in
attributed to merchants of Italian cities
foreign trade.
The practice of insurance as we
It became the custom among those
know it today, as an important agency in
who gathered at Lloyd’s to make their
promoting commercial and industrial
gathering an occasion for arranging their
transactions, is relatively of modern
mutual contracts of insurance against the sea
invention. Its origin is to be found in the
perils to which their ventures were exposed.
mutual agreements among merchants of the
The method employed in making such
Italian cities in the early middle ages
insurance contracts was for the person
engaged in common shipping ventures for
desiring the insurance to pass around among
distributing among the mutual contractors,
the company assembled a slip upon which was
the loss falling upon any one by reason of
written a description of the vessel and its
the perils of navigation. It is thus apparent
cargo, with the name of the master and the
that in its early forms, the law of insurance
character of his crew, and the voyage
was derived from the maritime law and as
contemplated. Those desiring to become
such, was part of the general law merchant,
insurers of the ventures so described would
and intentional in its character.
write beneath the description on this slip their
names or initials, and opposite thereto the
[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Bobbie_StaMaria.printing] [Miles Malaya.lectures]
[Japee_DeLeon.poli_law] [Ascheia_Yumul.rem_law] [Paul_Sorino/Judy_Ripol.civ_law] [Hya_Rafael/Mac_Macapagal.crim_law]
[Vivian_Tan/Justin_Mendoza.labor_law] [Miguel_DeJesus.legal_ethics] [Lianne_Gervasio.comm_law]
[Ces_Sicangco/Rowena_Romero.tax_law]
68
amount which each was willing to shoulder. Assurance Co., Ltd., was organized in 1910.
The term “underwriter” was believed to have In 1950, reinsurance was introduced with
originated from such a practice. Reinsurance Company of the Orient writing
treaties for both life and non-life. The first
workmen’s compensation Pool was organized
4. Development of insurance in the in 1951 as the Royal Group Incorporated. In
United States 1949, a government agency was formed to
In general, the development of the handle insurance affairs. The Insular
several kinds of insurance has followed the Treasurer was appointed Commissioner ex-
same lines in the United States as in officio.
England. However, the insurance industry of Social insurance was established in
the United States has grown to such an 1936 with the enactment of C.A. No. 186
extent that which the exception of ocean which created the Government Service
marine insurance, the English practices and Insurance System (GSIS) which started
the English decisions have little influence on operations in 1937. The Act covers
insurance in the United States. government employees. It was followed much
later in 1954 by R.A. # 1161 which provides
for the organization of the Social Security
5. Development of insurance in the System (SSS) covering employees of the
Philippines private sector.
Insurance in the Philippines is rather
a young institution. Prior to the 19 th
century, insurance, in its modern sense, did
not exist. During the pre-Spanish times, B. Laws on Insurance
when the political unit was then the family, if
a member of the family died or suffered any 1. Sources of Insurance Law in the
other misfortune, it was borne by the family. Philippines
When communities, such as the barangays  During the Spanish period, all the
developed, the assistance was extended provisions concerning insurance in the
accordingly. Even now, this practice of Philippines were found in Title 7 of Book 2
furnishing some form of assistance to and Section 3 of Title 3 of Book 3 of the
bereaved members of the family of someone Code of Commerce, and in Chapters 2 and
who dies still exists. Eventually, mutual 4 of Title 12 of Book 4 of the old Civil
benefit societies and fraternal associations Code of 1889.
were organized for the purpose of rendering  When Act # 2427, enacted on December
assistance, in money or in kind, to their 11, 1914, otherwise known as the
members. It may be that what worked Insurance Act, took effect on July 1 1915
much against the early development of during the American Regime, the
insurance in the Philippines, aside from provisions of the Code of Commerce on
economic reasons, that is, low per capita insurance were expressly repealed.
income of the people, was the fatalistic
philosophy behind our oft-quoted expression Ang Giok vs. Springfields
“bahala na.” Facts: Ang Giok insured the contents of his
Insurance, in its present concept, warehouse with three insurance companies for
was first introduced in the Philippines 60K. The warehouse and its contents were
sometime in 1829 when Lloyd’s of London destroyed by fire while the policies were in force.
appointed Stracham, Murray & Co., Inc. as The plaintiff instituted action in the CFI of Manila
its representative here. Sometime in 1939, against one of the insurers to recover a
proportional part of the loss coming to P8, 170. 59.
the Union Insurance Society of Canton
Four special defenses were interposed by the
appointed Russell & Sturgis as its agent in
insurer, one being planted on a violation of
Manila. The business transacted in the
warranty F fixing the amount of hazardous goods
Philippines then was limited to non-life which might be stored in the insured building.
insurance. It was only in 1898 that life Securely pasted on the left hand margin of the
insurance was introduced in this country policy reading in part as follows: “It is agreed that
with the entry of Sun Life Assurance of during the currency of this policy no hazardous
Canada in the local market. goods be stored in the building…exceeding in all 3
The first domestic non-life insurance percent of the total value of the whole merchandise
company, the Yek Tong Lin Fire and Marine contained in said warehouse.”
Insurance Company, was organized on June Held: The rider or slip containing said warranty F
8, 1906, while the first domestic life attached to the policy in question and referred to
insurance company, the Insular Life therein as making part of the two forms provided in

69
said Section 65 of the Insurance Law. The law authorities. In adopting these rules, we do so with
says that every express warranty must be the purpose of having the Philippine Law of
“contained in the policy itself.” The word Insurance conform as nearly as possible to the
“contained,” according to the dictionaries, means modern Law of Insurance as found in the United
included, enclosed, embraced, comprehended States. The beneficiary has an absolute vested
etc. When therefore, the courts speak of a rider interest in the policy from the date of its issuance
attached to the policy, and thus embodied and delivery. So when a policy of life insurance is
therein, or of a warranty incorporated into the taken out by the husband in which the wife is
policy, it is believed that the phrase ”contained in named the beneficiary, she has a subsisting
the policy itself” must necessarily include such interest in the policy.
ride and warranty. As to the alternative relating
to “another instrument” as here used could not  When RA 386, otherwise known as the Civil
mean a mere slip of paper like a rider, but Code of the Philippines, took effect on August
something akin to the policy itself. The word 30, 1950, those provisions of the old Civil Code
instrument has a well defined definition in on insurance were also expressly repealed.
California, and as used in the Codes invariably
means some written paper or instrument signed
 Presidential Decree # 612, as amended, which
ordained and instituted the Insurance Code of
and delivered by one person to another,
the Philippines, was promulgated on December
transferring the title to, or giving a lien, on
18, 1974 during the period of martial law. It
property, or giving a right to debt or duty. The
repealed Act # 2427, as amended. Before
rider, warranty F, is contained in the policy itself,
Presidential Decree 612, amendments to the Act
because by the contract agreed to by the parties
were made by PDs # 63, 123, 317.
is made to form part of the same, but is not
another instrument signed by the insured and  Presidential Decree # 1460, consolidated all
referred to in the policy as forming a part of it. insurance laws into a single code known as the
The rider is therefore valid and binding. Insurance Code of 1978. Basically, it reenacted
Presidential Decree # 612, as amended. It has
been amended by Presidential Decree # 1814
Gercio vs. Sunlife and Batas Pambansa Blg. 874.
Facts: On January 1910, the Sun Life
assurance Co., of Canada issued a 20-year
endowment policy on the life of Hilario Gercio. 2. Laws Governing Insurance
The insurance company agreed to insure the life
of Gercio for P2, 000, to be paid to him on  Insurance Code of 1978
February 1, 1930, or if the insured should die The law on insurance is contained now
before said date, then to his wife, should she in the Insurance Code of 1978 (PD #
survive him; otherwise, to the executors, 1460, as amended) and special laws
administrators, or assigns of the insured. The and partly, in the pertinent provisions
policy did not include any provision reserving to of the Civil Code.
the insured the right too change the beneficiary. The Insurance Code primarily governs
When the policy was issued, Andrea Zialcita was the different types of insurance
the lawful wife of Hilario. In 1919, she was contracts and those engaged in
convicted of adultery. In 1920, a decree of insurance business in the Philippines.
divorce was issued in a civil case completely
It took effect on June 11, 1978, the
dissolving the bonds of matrimony between
date of its promulgation “without
Gercio and Zialcita. In 1922, Fercio formally
notified Sun Life that he had revoked his prejudice, however, to the effectivity
donation in favor of Zialcita, and that he had dates of various laws, decrees and
designated in her stead his present wife, Adela executive orders which have so far
Garcia de Gercio, as the beneficiary of the policy. amended the provisions of the
Gercio requested Sun Life to eliminate Zialcita as Insurance Code of the Philippines (PD
beneficiary. This the insurance company has 612)”
refuse to do and still refuses to do.
Held: The Code of Commerce, the Civil Code or  Civil Code
the Insurance Act does not contain any provision The provisions of the Civil Code
either permitting or prohibiting the insured to dealing on insurance are found in
change the beneficiary. We must perforce articles 739 and 2012 (void
conclude that whether the case be considered in donations), Article 2011 (applicability
the light of the Code of Commerce, the Civil of the Civil Code), Articles 2021-2027
Code, or the Insurance Act, the deficiencies in (life annuity contracts), Article 2186
the law will have to be supplemented by the (compulsory motor vehicle liability
general principles prevailing on the subject. To insurance), and Article 2207 (right of
that end, we have gathered the rules which
subrogation).
follow from the best considered American

70
 Special laws II. THE CONTRACT OF INSURANCE
I. The Insurance Code of 1978
(PD 1460)
II. The Revised Government A. Definitions –Section 2, Insurance Code
Service Insurance Act of
1977 (PD 1146, as
Sec. 2. Whenever used in this Code, the
amended), with respect to
following terms shall have the respective
insurance of government
meanings hereinafter set forth or indicated,
employees
unless the context otherwise requires:
III. The Social Security Act of
1954 (RA 1161, as (1) A "contract of insurance" is an
amended) with respect to agreement whereby one undertakes for a
insurance of employees in consideration to indemnify another against
private employment loss, damage or liability arising from an
unknown or contingent event.
 Others – insofar as the Civil Code is
A contract of suretyship shall be deemed to be
concerned, the Code of Commerce is
an insurance contract, within the meaning of
considered a special law
this Code, only if made by a surety who or
I. RA 656 (as amended by PD
which, as such, is doing an insurance business
245), known as the
as hereinafter provided.
“Property Insurance Law,”
dealing with government (2) The term "doing an insurance
property business" or "transacting an insurance
II. RA 4898 (as amended by business", within the meaning of this Code,
RA 5756) providing life, shall include (a) making or proposing to make,
disability and accident as insurer, any insurance contract; (b) making
insurance coverage to or proposing to make, as surety, any contract
barangay officials of suretyship as a vocation and not as merely
III. EO 250 (July 25, 1987) incidental to any other legitimate business or
increases, integrates and activity of the surety; (c) doing any kind of
rationalizes the insurance business, including a reinsurance business,
benefits of barangay official specifically recognized as constituting the
sunder RA 4898 and doing of an insurance business within the
members of Sangguniang meaning of this Code; (d) doing or proposing
Panlalawigan, Sangguniang to do any business in substance equivalent to
Panlungsod, and any of the foregoing in a manner designed to
Sangguniang Bayan under evade the provisions of this Code.
PD 1147. The insurance
benefits are extended by In the application of the provisions of this
the GSIS. Code the fact that no profit is derived from the
IV. RA 3591 (as amended) making of insurance contracts, agreements or
establishes the Philippine transactions or that no separate or direct
Deposit Insurance consideration is received therefore, shall not
Corporation which insures be deemed conclusive to show that the
the deposits of all banks making thereof does not constitute the doing
which are entitled to the or transacting of an insurance business.
benefits of insurance under (3) As used in this code, the term
this Act "Commissioner" means the "Insurance
Commissioner".
1. “Contract of Insurance”
 An agreement whereby one
undertakes for a consideration to
indemnify another against loss,
damages or liability arising from an
unknown or contingent event
2. “Doing an Insurance Business”
 Making or proposing to make, as
insurer, any insurance contract

71
 Making or proposing to make, as convenient which will be binding
surety, any contract of surety ship provided they do not contravene any
as a vocation provision of law and are not opposed
 Doing any king of business, to public policy
including a reinsurance business, o Though generally a voluntary
specifically recognized as contract, the carrying of
constituting the doing of an insurance, particularly liability
insurance business with the insurance, may be required
meaning of this Code by law in certain
 Doing or proposing to do any circumstances such as for
business in substance equivalent to motor vehicles, or employees
any of the foregoing (labor Code Art. 168-184) or
as a condition to granting a
license to conduct a business
or calling affecting public
B. Elements safety or welfare
o Social insurance for members
1. Insurable interest of GSIS and for employees of
 The insured has an insurable the private sector covered by
interest in the thing or the life of the the SSS is also established by
insured law
2. Risk of Loss or Damage / Designated 3. Aleatory

Peril as Cause
 The happening of the designated
events, either unknown or Art. 2010. By an aleatory contract, one of the
contingent, past or future, will parties or both reciprocally bind themselves to
subject such interest to some loss, give or to do something in consideration of
whether in the form of injury, what the other shall give or do upon the
damage, or liability happening of an event which is uncertain, or
which is to occur at an indeterminate time.
3. Consideration: Premium
 The insurer undertakes to  It depends upon some contingent
assume the risk of such a loss event
for a consideration called the  Not a contract of chance although the
premium to be paid by the event against the occurrence of which
insured it is intended to provide may never
occur
4. Risk Distributing Scheme  It means one of the parties or both
 This assumption of risk is part of a reciprocally bind themselves to give or
general scheme to distribute the to do something in consideration of
loss among a large number of what the other shall give or do upon
persons exposed to similar risks the happening of the event which is
uncertain, or which is to occur at an
indefinite time
 Each party must take a risk
C. Characteristics/Nature of Insurance o Insurer - being compelled
Contracts upon the happening of the
contingency, to pay the entire
1. Consensual sum agreed upon
 Perfected by the meeting of the o Insured – parting with the
minds of the parties amount required as premium
 If an application for insurance has without receiving anything in
not been either accepted or case the contingency does
rejected, there is no contract as yet not happen except what is
ordinarily termed “protection”
2. Voluntary which is itself is a valuable
 It is not compulsory and the parties consideration
may incorporate such terms and
conditions as they may deem

72
4. Executory (insurer) and executed  As a rule, the insured cannot assign,
(insured) before the happening of the loss, his
 Executory on the part of the insurer rights under a property policy without
in the sense that it is not executed the consent of the insurer. The
until payment for a loss obligation of the insurer to pay does
 It is executed as to the insured after not attach or run with the property
payment of the premium whether it be real property or
 It is a unilateral contract imposing personal
legal duties only on the insurer who o If a person whose property is
promises to indemnify in case of loss insured sells it to another, the
buyer cannot be his successor
5. Conditional in the contract of insurance
 It is subject to conditions the unless, of course, the sale is
principal one of which is the with the consent of the
happening of the event insured insurer or unless by express
against stipulation of the parties, the
 The contract usually includes many contract is made to run with
other conditions, such as payment the property of the transferee
of premium or performance of some o Where the insurance is “on
other act, which must be complied account of the owner” or “for
with as precedent to the right of the whom it may concern” or
insured to claim benefit under it where “the loss is payable to
bearer,” the subsequent
6. A contract of indemnity (non-life transferees or owners
insurance) become by the terms of the
 The promise of the insurer is to contract, the real parties to
make good only the loss of the the contract of insurance.
insured  All insurance contracts share a
 Any contract that contemplates a common trait of “personal-ness”
possible gain to the insured by the o Personal insurance (includes
happening of any event upon which life, health, accident, and
the liability of the insurer becomes disability insurance) – applies
fixed is contrary to the nature of only to a particular individual,
insurance and it is not possible, for
 No person may secure insurance example, for the insured
upon property in which he has no unilaterally declaring that his
interest. health insurance policy shall
 If the insured has no insurable now be deemed to cover the
interest, the contract is void and health of someone else
unenforceable as being contrary to o Liability insurance – each
public policy because it affords a person purchases coverage
temptation to the insured to wish or for his own (or a group of
bring about the happening of the related persons) potential
loss liability to others. The insurer
prices the coverage
7. An investment (life insurance) depending on the
 Measure of economic security for the characteristics and traits of
insured during life, and beneficiary the particular insured
after death o Property insurance - the
 Financial assistance during financial insurance is on the insured’s
crisis interest in the property, not
 Liability of insurer is face value of on the property itself. It is
the policy and not the earning the damage to the personal
capacity of the insured at the time interest not the property that
of death is being reimbursed
o Life insurance – GENERALLY
8. A personal contract ASSIGNABLE as they are in
 Each party having in view the credit, the nature of property and do
character and conduct of another not represent a personal

73
agreement between insured the services of a lawyer to handle
and insurer any damage case arising from
collision of their cars, is engaged
9. A contract of Adhesion in the insurance business and
 Policy is presented to the insured must therefore comply with the
already in its printed form laws relative to the transaction of
 “Take it or leave it” insurance business and should be
licensed as such before it can
10. Of highest degree of good faith lawfully transact such business
 Each party is enjoined by law to deal  Such contracts do not provide for
with each other in good faith the payment of any sum directly
 Disclosure or the duty to disclose to the contractee, but it does
 Violation of the duty gives the other provide for the relief of the
party the right to rescind the contractee from the expenses of
contract employing an attorney
 It would be immaterial that the
contract states on its face that it
D. Contracts for Contingent Services; is not a contract of insurance, for
Pre-need Plans and Similar the nature of the contract cannot
Arrangements be changed by such a declaration
1. Contracts for Contingent Personal 2. Contracts with Contingent Incidental

Services Benefit
 It dies not necessarily follow that a In the case of Attorney General ex rel
contract containing the Monk vs. C.E. Osgood Co., the
abovementioned elements would be defendant company was engaged in the
an insurance contact business of selling household furniture on
 The primary purpose of the parties the installment plan. Under the contracts
making the contract may negate the with its customers, although delivery
existence of an insurance contract would be made at the time of the
o A law firm which enters into contract, title to the furniture would not
contracts with clients in pass until all payments have been
consideration of periodical completed. Said contracts also provided
payments, where it promises to that should the buyer die before full
represent such clients in all suits payment of the agreed price, the unpaid
for or against them, is not balance would be remitted to the extent of
engaged in an insurance $500.
business. Its contracts are The Insurance Commissioner, through the
simply for the purpose of Atty. Gen., claiming that this last
rendering personal services provision made it an insurance contract
o A contract by which a brought suit to restrain the defendant
consideration of a stipulated from pursuing its business without first
amount, agrees at its own securing the proper license. The Court
expense to defend a physician upheld the Attorney General’s contention
against all suits for damages for and issued an injunction holding that the
malpractice is one of insurance, contract had all the elements of an
and the corporation will be insurance contract. Whether this clause in
deemed as engaged in the the contract is ancillary to defendant’s
business of insurance chief business or is mainly for advertising
o Unlike the lawyer’s retainer ends was held irrelevant in view of the
contract, the essential purpose prohibition against the making of
of such a contract is not to insurance contracts by companies not
render personal services, but to authorized by law.
indemnify against loss or It would seem, however, that the purpose
damage resulting from the of the stipulation, taken with its effects in
defense of actions for case of the death of the buyer, did not
malpractice. warrant a holding that the furniture
o A corporation which enters into company should first secure a license to
contracts with car owners and engage in the insurance business.
agrees to engage and pay for Although all the elements of an insurance
contract may seem to be present, yet the

74
furniture buyer and/or his heirs did not,
under the circumstances, need the
Sec. 179. Life insurance is insurance on
protection which the law aims to give
human lives and insurance appertaining
the insuring public by the requirement of
thereto or connected therewith.
a prior license.
First of all, when the buyer purchased
the furniture, he must have seen and
examined it and must have believed that Sec. 180. An insurance upon life may
it was worth the amount he agreed to be made payable on the death of the person,
pay for it. Secondly, the furniture was or on his surviving a specified period, or
delivered to him at the time of the otherwise contingently on the continuance or
contract and used by him thereafter. cessation of life.
Upon his death, his heirs continued Every contract or pledge for the payment of
enjoying the use of the furniture. endowments or annuities shall be considered a
Therefore, the buyer and/or his heirs life insurance contract for purpose of this Code
stood to lose nothing by the questioned
stipulation, and if at all, stood to gain by In the absence of a judicial guardian, the
it. father, or in the latter's absence or incapacity,
the mother, or any minor, who is an insured
3. Pre-need Plans or a beneficiary under a contract of life, health
or accident insurance, may exercise, in behalf
Philamcare Health Systems vs. CA of said minor, any right under the policy,
Ratio: Section 3 of the Insurance Code states that without necessity of court authority or the
any contingent or unknown event, whether past or giving of a bond, where the interest of the
future, which may damnify a person having an minor in the particular act involved does not
insurable interest against him, may be insured exceed twenty thousand pesos. Such right
against. Every person has an insurable interest in may include, but shall not be limited to,
the life and health of himself. Section 10 provides: obtaining a policy loan, surrendering the
Every person has an insurable interest in the life policy, receiving the proceeds of the policy,
and health (1) for himself, of his spouse and of his and giving the minor's consent to any
children; (2) of any person on whom he depends transaction on the policy.
wholly or in part for education or support, or in
whom he has a pecuniary interest; (3) of any
person under a legal obligation to him for the Sec. 181. A policy of insurance upon life
payment of the money, respecting property or
or health may pass by transfer, will or
service, of which death or illness might delay or
succession to any person, whether he has an
prevent the performance; and (4) of any person
upon whose life any estate or interest vested in him insurable interest or not, and such person may
depends. In the case at bar, the insurable interest recover upon it whatever the insured might
of respondent’s husband in obtaining the health have recovered.
care agreement was on his own health. The health
care agreement was in the nature of non-life
insurance, which is primarily a contract of Sec. 182. Notice to an insurer of a
indemnity. Once the member incurs hospital, transfer or bequest thereof is not necessary to
medical or any other expense arising from preserve the validity of a policy of insurance
sickness, injury or other stipulated contingent, the upon life or health, unless thereby expressly
health care provider must pay for the same to the required.
extent agreed upon under the contracts.
Sec. 183. Unless the interest of a

E. Classification under the Code person insured is susceptible of exact
pecuniary measurement, the measure of
indemnity under a policy of insurance upon life
1. Life - defined as a mutual agreement by or health is the sum fixed in the policy.
which a party agrees to pay a given sum on
the happening of a particular event
contingent on the duration of human life, in  Insurance on human lives and
consideration of the payment of a smaller insurance appertaining thereto or
sum immediately, or in periodical payments connected therewith
by the other party  Made payable on the death of a
person, or on his surviving a specified
a) Individual life

75
period, or otherwise contingently on
An industrial life policy shall not lapse for non-
the continuance or cessation of life payment of premium if such non-payment was due
to the failure of the company to send its
representative or agent to the insured at the
residence of the insured or at some other place
indicated by him for the purpose of collecting such
premium; Provided, That the provisions of this
paragraph shall not apply when the premium on the
policy remains unpaid for a period of three months
b) Group life or twelve weeks after the grace period has expired.
Sec. 50.The policy shall be in printed form  Form of life insurance under which the
which may contain blank spaces; and any premiums are payable either monthly
word, phrase, clause, mark, sign, symbol, or oftener
signature, number, or word necessary to  Face amount of insurance provided in
complete the contract of insurance shall be any policy is not more than five
written on the blank spaces provided hundred times that of the current
therein. statutory minimum daily wage in the
Any rider, clause, warranty or endorsement City of Manila
purporting to be part of the contract of  Shall not lapse for non-payment of
insurance and which is pasted or attached to premium if such non-payment was
said policy is not binding on the insured, due to the failure of the company to
unless the descriptive title or name of the send its representative or agent to the
rider, clause, warranty or endorsement is insured at the residence of the
also mentioned and written on the blank insured or at some other place
spaces provided in the policy. indicated by him for the purpose of
collecting such premium
Unless applied for by the insured or owner, o This shall not apply when the
any rider, clause, warranty or endorsement premium on the policy
issued after the original policy shall be remains unpaid for a period
countersigned by the insured or owner, of three months or twelve
which countersignature shall be taken as his weeks after the grace period
agreement to the contents of such rider, has expired.
clause, warranty or endorsement.
Group insurance and group annuity policies, 2. Non-life – include policies covering risks
however, may be typewritten and need not to which property may be exposed, as well as
be in printed form. those which cover the risk of liability to third
persons. It covers a specified period of time
(not more than 1 year) and has a definite
 May be typewritten and need not be period of coverage.
in printed form
 Members usually a cohesive group a) Marine
o Pay a uniform premium
o Usually no medical Sec. 99.Marine Insurance includes:
examination (1) Insurance against loss of or damage
o Normally requires a to:
specified number of persons
insured before policy is (a) Vessels, craft, aircraft, vehicles,
issued goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities,
c) Industrial life choses in action, evidences of debts, valuable
papers, bottomry, and respondentia interests
and all other kinds of property and interests
Sec. 229.The term "industrial life insurance" as therein, in respect to, appertaining to or in
used in this Code shall mean that form of life connection with any and all risks or perils of
insurance under which the premiums are payable
navigation, transit or transportation, or while
either monthly or oftener, if the face amount of
insurance provided in any policy is not more than being assembled, packed, crated, baled,
five hundred times that of the current statutory compressed or similarly prepared for shipment
minimum daily wage in the City of Manila, and if or while awaiting shipment, or during any
the words "industrial policy" are printed upon the delays, storage, transhipment, or reshipment
policy as part of the descriptive matter.

76
risks that fall definitely within the
incident thereto, including war risks, marine
ocean marine category
builder's risks, and all personal property
floater risks;
b) Fire
(b) Person or property in connection
Sec. 167. As used in this Code, the
with or appertaining to a marine, inland
term "fire insurance" shall include insurance
marine, transit or transportation insurance,
against loss by fire, lightning, windstorm,
including liability for loss of or damage
tornado or earthquake and other allied risks,
arising out of or in connection with the
when such risks are covered by extension to
construction, repair, operation, maintenance
fire insurance policies or under separate
or use of the subject matter of such
policies.
insurance (but not including life insurance or
surety bonds nor insurance against loss by
reason of bodily injury to any person arising  Insurance against loss by fire,
out of ownership, maintenance, or use of lightning, windstorm, tornado or
automobiles); earthquake and other allied risks,
when such risks are covered by
(c) Precious stones, jewels, jewelry,
extension to fire insurance policies or
precious metals, whether in course of
under separate policies
transportation or otherwise;
(d) Bridges, tunnels and other c) Casualty or Liability Insurance
instrumentalities of transportation and
Sec. 174. Casualty insurance is
communication (excluding buildings, their
insurance covering loss or liability arising from
furniture and furnishings, fixed contents and
accident or mishap, excluding certain types of
supplies held in storage); piers, wharves,
loss which by law or custom are considered as
docks and slips, and other aids to navigation
falling exclusively within the scope of other
and transportation, including dry docks and
types of insurance such as fire or marine. It
marine railways, dams and appurtenant
includes, but is not limited to, employer's
facilities for the control of waterways.
liability insurance, motor vehicle liability
(2) "Marine protection and indemnity insurance, plate glassinsurance, burglary and
insurance," meaning insurance against, or theft insurance, personal accident and health
against legal liability of the insured for loss, insurance as written by non-life insurance
damage, or expense incident to ownership, companies, and other substantially similar
operation, chartering, maintenance, use, kinds of insurance.
repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland
 Insurance covering loss or liability
waterways, including liability of the insured
arising from accident or mishap,
for personal injury, illness or death or for
excluding certain types of loss which
loss of or damage to the property of another
by law or custom are considered as
person.
falling exclusively within the scope of
other types of insurance such as fire
 Ocean marine insurance – an or marine
insurance against risk connected  Includes, but is not limited to,
with navigation, to which a ship, employer’s liability insurance, motor
cargo, freightage, profits or other vehicle liability insurance, plate glass
insurable interest in movable insurance, burglary and theft
property, may be exposed during a insurance, personal accident and
certain voyage or a fixed period of health insurance as written by non-life
time insurance companies, and other
 Inland marine insurance – it is of substantially similar kinds of
comparatively recent origin and insurance
covers primarily the land or over the
land transportation perils of d) Suretyship
property shipped by railroads, motor
trucks, airplanes, and other means
Sec. 175. A contract of suretyship is an
of transportation. It also covers
agreement whereby a party called the surety
risks of lake, river, or other inland
guarantees the performance by another party
waterway transportation and other
called the principal or obligor of an obligation
waterborne perils outside of those

77
 When the specified number of
or undertaking in favor of a third party called
premium payments have been made,
the obligee. It includes official
the insurance is fully paid for
recognizances, stipulations, bonds or
 It is like whole life policies in that it is
undertakings issued by any company by
payable only at the death of the
virtue of and under the provisions of Act No.
insured
536, as amended by Act No. 2206.
 If the insured should die within the
specified period, his beneficiary is
entitled to all the proceeds of the
Sec. 176. The liability of the surety or
policy without any liability for the
sureties shall be joint and several with the
unpaid premiums
obligor and shall be limited to the amount of
 Because of the limited number of
the bond. It is determined strictly by the
payments to be made by the insured,
terms of the contract of suretyship in
the premiums are proportionately
relation to the principal contract between the
higher
obligor and the obligee. (As amended by
c) Term plan
Presidential Decree No. 1455)
 One which provides coverage only of
the insured dies during a limited
period
 It is an insurance for a fixed or a
Sec. 178. Pertinent provisions of the specific term, such as two, five, or ten
Civil Code of the Philippines shall be applied years
in a suppletory character whenever  If the insured dies within the period
necessary in interpreting the provisions of a specified, the policy is paid to the
contract of suretyship. beneficiary
 If he survives the period, the contract
 An agreement whereby a surety terminates
guarantees the performance by the  The premium paid is levied during the
principal or obligor of an obligation specified terms and increases with
or undertaking in favor of a third each renewal term or the amount of
party or obligee the coverage declines, and this is
 Includes official recognizances, because as a person ages, the risk of
stipulations, bonds or undertakings death increases
issued by nay company by virtue of  The premium is lower than in the case
Act # 536, as amended by Act # of whole life policies because of the
2206 possibility that the insurer may not be
 A contract of suretyship shall be obliged to pay anything in proceeds
deemed to be an insurance contract, whatsoever if the insured survives the
only if made by a surety who or term
which is doing an insurance business d) Pure endowment plan
 Insured pays premium for a specified
3. Variations in Life Insurance period and should he survive the
Contracts period, the insurance company pays
him the face value of the policy
a) Whole life plan  If he should die within the period the
 The terms of which the insured is insurance company is released from
required to pay a certain fixed any liability and unless provided in the
premium annually or at more contract, need not reimburse any part
frequent intervals throughout life of the premiums paid
and the beneficiary is entitled to e) Endowment plan
receive payment under the policy  The terms of which the insurer binds
only after the death of the insured himself to pay a fixed sum to the
 The ultimate payment of the insured if he survives for a specified
insurance proceeds is as certain as period (maturity date stated in the
death itself policy), or if he dies within such
b) Limited payment plan period, to some other person
 The terms of which the premiums indicated
are payable only during a limited  The premium is higher because the
period of years, usually ten, fifteen, cash values of the policy grow more
or twenty rapidly.

78
 This kind of policy differs from the company or the party for whose
limited payment life policy in that in benefit they are inserted
the case of the latter, the policy is  Where restrictive provisions are open
paid only upon the death of the to two interpretations, that which is
insured most favorable to the insured is
 The insured stands a chance of adopted. Limitations of liability must
being paid the proceeds of the policy be construed in such a way as to
while still alive preclude the insurer from non
 The proceeds on maturity can be compliance with its obligations
paid either in a lump sum or as an
annuity 2. Where Terms are Clear
 The cardinal principle of insurance law
F. Construction / Interpretation of of interpreting insurance contracts
Insurance Contracts favorably to the insured is applicable
only in cases of doubt, not when the
1. Where there is Ambiguity or Doubt intention of the policy is clear or the
 Insurance is, in its nature, complex language is sufficiently clear to
and difficult for the layman to convey the meaning of the parties
understand  The court is bound to adhere to the
insurance contract as the authentic
 As a general rule, contracts of expression of the intention of the
insurance are to be construed parties, and it must be construed and
liberally in favor of the insured and enforced according to the sense and
strictly against the insurer resolving meaning of the terms which the
all ambiguities against the latter, so parties themselves have used.
as to effect its dominant purpose of  If such terms are clear and certain,
indemnity or payment to the they must be taken in their plain and
insured, especially were a forfeiture ordinary sense
is involved  The terms of an unambiguous
 An insurance contract should be so insurance policy cannot be enlarged
interpreted as to carry out the or diminished by judicial construction
purpose for which the parties since the court cannot make a new
entered into the contract which is to contract for the parties where they
insure against risk of loss, damage themselves have employed express
or liability on the part of the insured and unambiguous words
 A policy of insurance is a contract of  Obligations arising from contracts
adhesion, that is, most of the terms have the force of law between the
of the contracts do not result from contracting parties and should be
mutual negotiation between the complied with in good faith
parties as they are prescribed by the
insurer in final printed forms which 3. Literal or Strict Interpretation
the insured may reject or to which
he may adhere if he chooses but First Quezon City Insurance vs. CA
which he cannot change Facts: Del Rosario fell off a De Dios Marikina
 The insurer is under the duty to Transportation Co. Inc. bus. Del Rosario was
make its meaning clear if it desires brought to the hospital and stayed there for 40
to limit or restrict the operation of days. The cost for the hospitalization amounted to
the general provisions of its contract P69,444 while unearned salary due to confinement
by special proviso, exception or amounted to P7,500. Del Rosario filed a complaint
against DMTC and its insurance company, First
exemption
Quezon City Insurance Company.
 Any ambiguity in the insurance
Held: The insurance company’s liability should be
contract should, therefore, be limited to P12,000 only. The insurance policy
resolves in favor of the beneficiary clearly placed the maximum limit of First Quezon
 A policy of insurance which contains City’s liability for damages arising from death or
exceptions or conditions tending to bodily at P12,000 per passenger and its maximum
work a forfeiture of the policy shall liability per accident at P50,000. This means that
be interpreted most favorably the insurer’s maximum liability for any single
toward those against whom they are accident will not exceed 50K regardless of the
intended to operate and most number of the passengers killed or injured.
strictly against the insurance
Ty vs. First National

79
Facts: Ty was a mechanic foreman in the asked for reconsideration which was again denied.
Broadway Cotton Factory. A fire broke out which It is stipulated in the insurance policy that any
totally destroyed the factory. As Ty was fighting action should be filed with the Insurance
his way out of the factory, he injured his left Commission or any court of competent jurisdiction
hand, causing temporary total disability due to within 12 months after receipt by the insured of a
fractures o his index, middle, and fourth fingers. rejection of his claim and failure to do so would
He filed a notice of accident and claim to recover constitute abandonment of claim and can no
indemnity from First National Surety $ assurance longer be recoverable.
Co. Inc., pursuant to his insurance policy which Held: The 12-month prescriptive period
provides: “…the loss of a hand shall mean the commenced upon receipt by Tan of the
loss by amputation through the bones of the rejection/denial of his claim by Sun Insurance and
wrist…” The insurance company rejected Ty’s does not stop upon filing of the motion for
claim saying that since there was no severance reconsideration. The words of the provisions in the
by amputation of the hand, the disability suffered insurance policy is clear and free from any doubt
by him was not covered under the policy. or ambiguity whatsoever and thus must be taken
Held: The insurance company is not liable to and understood in its plain, ordinary and popular
indemnify Ty. We cannot go beyond the clear sense.
and express conditions of the insurance policies,
all of which define partial disability as loss of Fortune Insurance vs. CA
either hand by “amputation through the bones of Facts: An armored car of Producers Bank, while
the wrist” There was no amputation in this case. in the process of transferring cash in the sum of
The agreement contained in the insurance 725K, was robbed of the said cash. After an
policies is the law between the parties. An investigation by police authorities, the driver and
interpretation that would include the mere the guard were charged with Violation of PD 532,
fracture or other temporary disability not covered the Anti-Highway Robbery Law. Demands were
by the policies would certainly be unwarranted. made by the bank upon the insurance company to
pay the amount of 725K, but the latter refused to
Misamis Lumber vs. Capital Inc. pay as the loss is excluded from the coverage of
Facts: Misamis Lumber Corporation, insured its the insurance policy which reads: “ The company
motor car for the amount of P14,000. The shall not be liable under this policy in respect of . . .
insured car, passed over a water whole which any loss caused by any dishonest, fraudulent or
the driver did not see because an oncoming car criminal act of the insured or any officer, employee,
did not dim its lights. The car was later towed partner, director, trustee or authorized
and repaired by Morosi Motors at a total cost of representative of the insured whether acting alone
P302.27. Capital Insurance refused to pay for or in conjunction with others…”
the total cost of towage and repairs. Held: The insurance company is not liable. It is
Held: The insurance company is not liable for clear that insofar as Fortune is concerned, it was
the payment of the repairs in excess of P150. its intention to exclude and exempt from protection
The insurance policy stipulated in paragraph 4 and coverage losses arising from dishonest,
that if the insured authorizes the repair, the fraudulent, or criminal acts of persons granted or
liability of the insurer is limited to P150. The having unrestricted access to the bank’s money or
literal meaning of this stipulation must control, it payroll. When it used the term “employee,” it must
being the actual contract, expressly and plainly have in mind any person who qualifies as such as
provided for in the policy. The policy is also drew generally and equivocally understood, or
out not only the limits of the insurer’s liability but jurisprudentially established in light of the
also the mechanics that the insured had to follow determination of the ER-EE relationship. It is
to be entitled to full indemnity of repairs. The settled that the terms of the policy constitute the
option to undertake the repairs is accorded to the measure of the insurer’s liability. In the absence of
insurance company per paragraph 2. The said statutory prohibition to the contrary, insurance
company was deprived of the option because the companies have the same rights as individuals to
insured took it upon itself to have the repairs limit their liability and to impose whatever
made, and only notified the insurer when the conditions they deem best upon their obligations
repairs were done. As a consequence, not inconsistent with public policy
paragraph 4, which limits the company’s liability
to P150 applies. 4. Liberal Interpretation; Reasonable
Expectations
Sun Insurance vs. CA
Facts: Tan took from Sun Insurance a property Fieldman’s Inc. vs. Vda. De Songco
insurance worth 300K to insure his interest in the Facts: Songco owned a private jeepney. He was
electrical supply store of his brother housed in a induced by an agent of Fieldmen’s Insurance to
building in Iloilo City. Four days after, the apply for a Common Carrier’s Insurance Policy,
building was burned down including the insured which is applicable to public utility vehicles. The
store. When Tan filed a claim with the insurance policy provides: “the company will, subject to the
company, the same was denied, after which he limits of liability and under terms of this policy,

80
indemnify the insured in the event of accident Facts: De Dios Transportation Inc. Figured in an
caused by or arising out of the use of motor accident when it struck Rodriguez who was
vehicle against all sums which will become liable crossing the pedestrian lane on Airport Road. The
to pay in respect of death or bodily injury to any driver ignored the stop signal given by a traffic
fare-paying passenger.” During the effectivity of enforcer. Rodriguez was thrown to the ground and
the policy, the insured vehicle collided with hit her head and resulted to her face getting
another car killing Songco’s son and wounding permanently disfigured. De Dios Transportation
his wife. filed a complaint against Western Guaranty since
Held: Doctrine of estoppel applies. After leading they were insured by Western under a Master
Songco to believe that he could qualify under the Policy which provided protection against third party
common carrier policy and to enter into the liability.
contract of insurance paying the premiums due, Held: Western Guaranty is liable to pay for the
Fieldmen’s cannot be permitted to change its damage caused to the victim including loss of
stand. Also, except for the fact that the victims earnings, moral damages and attorney’s fees. The
were not fare-paying passengers, their status as Schedule of Indemnities does not purport to limit or
beneficiaries under the policy is recognized. exhaustively enumerate the species of bodily injury
Even assuming there was an ambiguity, to the list found in the Schedule of Indemnities
ambiguities or obscurities must be strictly since an accident may result to an injury to internal
interpreted against the party that caused them. organs not necessarily to a loss of limb
This rigid application of the rule of ambiguities (amputation of the leg, arm, finger, hand) but such
has become necessary in view of current injuries are certainly covered by the Master Plan
business practices. since they constituted bodily injuries. Also, the
Schedule of Indemnities also does not purport to
Malayan Ins. vs. CA restrict the kind of damages that may be paid by
Facts: TKC Marketing Corp. was the the insurer once liability has arisen, under the
owner/consignee of some 3,189.171 metric tons Liability to Third Party clause, and does not say
of soya bean meal which was loaded on board that the limit is subject to the list indicated in the
the ship MV Al Kaziemah. Said cargo was Schedule of Indemnities. All other types of
insured against the risk of loss by Malayan damages may be awarded against the insurer
Insurance Corporation. While the vessel was once liability is shown to have arisen. A contract of
docked in South Africa on September 1989 insurance is a contract of adhesion and must be
enroute to Manila, the civil authorities arrested construed strictly against the party which prepared
and detained it because of a lawsuit on a the contract.
question of ownership and possession. TKC
notified the insurance company of the arrest of Qua Chee Gan vs. Law Union
the vessel and made a formal claim for the Facts: This case involved a claim on a fire
amount of US$916,886.66. Malayan replied that insurance policy which contained a provision as to
the arrest of the vessel by civil authority was not the installation of fire hydrants the number of which
a peril covered by the policies. depended on the height of the external wall
Held: Malayan insurance should be held liable perimeter of the bodega that was insured. When it
for the payment of the insurance claim. Since was determined that the bodega should have
what was also excluded in the deleted F.C. & S. eleven fire hydrants in the compund as required by
Clause was "arrest" occasioned by ordinary the terms of the policy, instead of only two that it
judicial process, logically, such "arrest" would had, the claim under the policy was resisted on
now become a covered risk under subsection 1.1 that ground.
of Section 1 of the Institute War Clauses, Held: The said deviation from the terms of the
regardless of whether or not said "arrest" by civil policy did not prevent the claim under the same.
authorities occurred in a state of war. It has We are in agreement with the trial Court that the
been held that a strained interpretation which is appellant is barred by waiver (or rather estoppel) to
unnatural and forced, as to lead to an absurd claim violation of the so called fire hydrants
conclusion or to render the policy nonsensical, warranty, for the reason that knowing fully that the
should, by all means, be avoided. Likewise, it number of hydrants demanded therein never
must be borne in mind that such contracts are existed from the very beginning, the appellant
invariably prepared by the companies and must nevertheless issued the policies in question
be accepted by the insured in the form in which subject to such warranty, and received the
they are written. Exceptions to the general corresponding premiums. It would be perilously
coverage are construed most strongly against received the corresponding premiums. It would be
the company. Even an express exception in a perilously close to conniving at fraud upon the
policy is to be construed against the underwriters insured to allow the appellant to claim now as void
by whom the policy is framed, and for whose ab initio the policies that it had issue to the plaintiff
benefit the exception is introduced. without warning of their fatal defect, of which it was
informed, and after it had misled the defendant into
Western Guaranty vs. CA believing that the policies were effective. When
the policy contains a condition which renders it

81
voidable at its inception, and this result is known the forfeiture of the policy benefits for the person
to the insurer, it will be presumed to have claiming, will be avoided, if it is possible to
intended to waive the conditions and to execute construe the policy in a manner which would
a binding contract, rather than to have deceived permit recovery, as, for example, by finding a
the insured into thinking he is insured when in waiver for such forfeiture. Provisions, conditions or
fact he is not, and to have taken his money exceptions in policies which tend to work a
without consideration. The insurance company forfeiture of insurance policies should be construed
is liable on the insurance contract. most strictly against those for whose benefits they
are inserted, and most favorably toward those
Del Rosario vs. Equitable Insurance against whom they are intended to operate.
Facts: The insurer has bound itself under the
policy to pay P1,000-3,000 as indemnity for the Sun Insurance vs. CA
death of the insured for bodily injury, the policy Facts: Sun Insurance issued a Personal Accident
containing specific amounts that may be Policy to Lim with a face value of 200K. Two
recovered. The policy, however, does not months later he was dead with a bullet wound on
positively state any definitive amount that may be his head. Lim’s death was caused when he was
recoverable in case of death by drowning, playing with his handgun which accidentally fired.
although it is a ground for recovery apart from His wife sought payment on the policy but her
death for bodily injury. claim was rejected. The contention of Sun
Held: There is an ambiguity in this respect in the Insurance was that Lim willfully exposed himself to
policy, which ambiguity must be interpreted in needless peril and thus removed himself from the
favor of the insured and strictly against the coverage of the insurance policy. Under the
insurer to allow a greater indemnity, that is, exceptions clause of the policy, the insurance
P3,000. company shall not be liable when the insured
person attempting to commit suicide or willfully
Geagonia vs. CA exposing himself to needless peril except in an
Facts: Geagonia is the owner of Norman's Mart attempt to save human life.
located in the public market of San Francisco, Held: The cause of Lim’s death was an accident
Agusan del Sur. He obtained from the private within the limits set forth in the policy and therefore
respondent, Country Bankers Insurance not exempt from the liability of the insurer. The
Corporation. The policy contained the following definition of an accident is “an event which
condition: “…3. The insured shall give notice to happens without any human agency or, if
the Company of any insurance or insurances happening through human agency, an event which
already effected, or which may subsequently be under the circumstances, is unusual to and not
effected, covering any of the property or expected by the person to whom it happens…”
properties consisting of stocks in trade…” Fire of Contrary to the contention of Sun Insurance, Lim
accidental origin broke out at the public market of did not intentionally expose himself to danger, as
San Francisco, Agusan del Sur. Geagonia’s testified by his secretary, he removed the
insured stocks-in-trade were completely magazine of the gun to ensure that it would not fire
destroyed prompting him to file with CBIC a and pointed it to his temple in the belief that it is
claim under the policy. The company denied the safe to do so.
claim and the basis of which was the petitioner's
alleged violation of Condition 3 of the policy. Rizal Surety vs. CA
Held: Geagonia is not precluded from Facts: Rizal Surety issued a fire insurance policy
recovering from Country Bankers. Condition 3 of for Transworld Knitting Mills. A fire broke out in the
the policy is a condition which is not proscribed compound of Transworld, razing the middle portion
by law. Its incorporation in the policy is allowed of the four-span building and partly gutting the left
by Section 75 of the Insurance Code which and right sections. It also destroyed the two-storey
provides that "[a] policy may declare that a annex building where fun and amusement
violation of specified provisions thereof shall machines and spare parts were stored.
avoid it, otherwise the breach of an immaterial Transworld filed insurance claim with Rizal but to
provision does not avoid the policy." Its violation no avail. Rizal’s contention is that the policy
would thus avoid the policy. However, in order to covered only the contents of the four-span building
constitute a violation, the other insurance must which was only partly burned and not the damage
be upon the same subject matter, the same caused to the two-storey annex building.
interest therein, and the same risk. As to a Held: The annex building and the contents are
mortgaged property, the mortgagor and the covered under the policy. The so called “annex”
mortgagee have each an independent insurable formed an integral and inseparable part of the four-
interest therein and both interests may be span building. It was a [permanent structure which
covered by one policy, or each may take out a adjoined the 4-storey building described in the
separate policy covering his interest, either at the policy and consequently, the things stored therein
same or at separate times. . It is a cardinal were covered by the insurer. Considering that the
principle of law that forfeitures are not favored annex was already existing when the insurance
and that any construction which would result in policy was contracted, Rizal should have

82
specifically excluded it from the coverage of the opportunity to secure insurance from
fire insurance if it wanted to but it did not. Doubt another source.
should be resolved against Rizal who drafted the
insurance policy contract. This is because the 2. Delivery of the Policy
insured usually has no voice in the selection or  Delivery – the act of putting the
arrangement of the words employed and that the insurance policy – the physical
language of the contract is selected with great document – into the possession of the
care and deliberation by experts and legal
insured.
advisers employed by, and acting exclusively in
 Individual life insurance contracts
the interest of the insurance companies.
usually stipulate that:
1) Premium be paid and
2) Policy be delivered to the insured
while he is alive and in good
III. PERFECTION OF THE CONTRACT OF
health. Concurrence of both is
INSURANCE
necessary. (see Perez v CA case)
 Actual delivery of the policy is not
A. Offer and Acceptance; consensuality
essential unless the parties have so
agreed in clear language. Constructive
 Applicant usually makes the offer to
delivery may be sufficient. (See Vda.
the insurer.
De Sindayen case)
 Submission of application, even w/
 WoN policy was delivered after its
payment is a mere offer on the part
issuance depends not upon manual
of the applicant, it does not bind the
possession by the insured but rather
insurer.
upon the intention of the parties as
 Approval of the application by the
manifested in their acts or
insurer is necessary to perfect
agreements.
contract. If made:
 WON Delivery to agent is delivery to
- w/ payment of premium – policy
insured is a question over w/c there
becomes effective
has been many conflicting opinions.
- w/o payment – effective upon
 Effect of Delivery:
payment of premium
1) Where delivery is conditional – Non-
performance of Condition precedent
1. Delay in Acceptance; Tort Theory
prevents contract fr taking effect
 Situation where applicant submits
2) Where delivery is unconditional –
application for insurance, but due to
Delivery corresponding terms of
negligence of company, w/c takes
application consummates the contract
an unreasonably long time before
and policy delivered becomes final
processing the application, the
contract bet the parties
applicant dies before the application
3) Where premium still unpaid after
is processed, thus, the contract is
unconditional delivery – Policy will
not perfected.
lapse if premium unpaid at time and
 REMEDY: Insurer liable for
manner specified in the policy, in the
damages (Tort Theory) in the
absence of any clear agreement that
amount of the face value of the
insurer will extend credit.
policy, w/c is given to the estate of
the deceased applicant. (not to
beneficiary because contract not
Perez v CA
perfected. Also, no contractual
FACTS: Perez, already previously insured with BF
liability also bec. no contact) Lifeman Insurance Co. applied for additional
 Why Tort Theory - because coverage. He paid premium and was issued a receipt
Insurance business is affected w/ by the agent of BF Lifeman. However, he died before
public interest. It is thus, the duty of his application papers were transmitted to the head
insurer, w/c derives its authority to office of BF Lifeman.
act as such from the State (when it ISSUE: WON the insurance policy was perfected
applies to get license to be in the HELD: No. There was no acceptance of the offer.
insurance business), to act w/ The perfection of the contract was conditioned upon
reasonable promptness in either compliance with the provision in the application form
rejecting or accepting the w/c stated that perfection only lies when the applicant
application. In case of unreasonable pays and the premium and receives and accepts the
delay and applicant dies, applicant policy while still in good health. Thus, the assent of
would have been deprived of BF Life was not given when it merely received the

83
application form of Perez in its provincial office. an industrial life policy whenever the grace
Also, delivery to Perez would be impossible as he period provision applies.
is already dead. So long as an application for
insurance has not been accepted or rejected by the
 Premium – the agreed price for
insurer, it is merely an offer or proposal to make a
contract. The contract to be binding from date of assuming and carrying the risk, that is, the
application must have been a completed contract consideration paid an insurer for
that leaves nothing to be done, passed upon or undertaking to indemnify the insured
determined, before it shall take effect.. against the specified peril.
 SIR: WORST SECTION of the

Vda. De Sindayen v Insular Life Assurance Co. Insurance Code. This is the cash-and-carry
FACTS Dec. 1932 Arturo Sindayen had partially provision (see below for explanation why)
paid his agent the first premium for a life insurance  Why it raises several questions
policy. Agent and Sindayen agreed that policy, (Campos): --Is it intended to apply to all
when and if issued, should be delivered to classes of insurance, or does the word
Sindayen’s aunt who will complete the payment of “thing” limit it to property insurance? As to
the first annual premium. Jan. 16, 1933 – agent exception, it only applies to life policies w/in
received approved policy and delivered it to the grace period w/c does not support the
Sindayen’s aunt on Jan. 18. However, before the theory that it applies only to property
policy was given to Arturo himself, he died on Jan.
insurance.
19.
- As to grace period, grace period in life
ISSUE: WON Insular Life assumed the risk covered
insurance applies only to premiums
by Sindayen’s policy
HELD: YES. Delivery to the insured in person is not subsequent to the first, therefore, how can
necessary, and may be made by mail or duly this be an exception to the rule?
constituted agent (in this case, Sindayen’s aunt). - With respect to non-life policies, the first
Insurance company is bound by the acts of its sentence gives the insurer the right to
agent. In this case, the agent is not a mere demand the payment of the premium as
automaton and is vested w/ some discretion in soon as the “thing insured is exposed to
deciding WON the condition as to the health of the peril insured against” This assumes the
applicant has been complied with. Once he decides contract is binding even before the payment
that it has and delivers the policy, then, in the of the premium meaning the contract is
absence of fraud, the insurance company is perfected when the applicant’s offer is
estopped from claiming the policy has no effect. accepted by the insurer. This assumption is
inconsistent w/ the next sentence w/c says
that no policy can be binding w/o premium
Enriquez v Sun Life Assurance Co. payment.
FACTS: Herrer applied for insurance and paid the - Also, Sec. 77 and 78 seem contradictory.
premium, however, he died before he received the
- However, Sir says above does not apply to
notice of acceptance (of his application) sent by
life insurance because Life Insurance lapses
Sun Life from its Montreal head office.
ISSUE: WON the insurance contract was perfected upon non-payment.
w/o the notice of acceptance coming to the  Present provision came from Sec 72
knowledge of the applicant of the old Insurance Code. However, Sec. 77
HELD: NO. Under the CC, Consent is shown by the has omitted the portion of Sec. 72 w/c
concurrence of offer and acceptance. An permitted credit extension of the premium
acceptance shall not bind the person making the due (meaning, extension of period to pay
offer except from the time it came to his knowledge. the premium). Apparently, the intention is
to put the contract of insurance on a “cash-
and-carry basis” meaning the premium
B. Premium Payment must be paid in cash as a condition
Sec. 77 &78; 64 precedent for a non-life insurance policy to
be valid and binding, and an agreement to
Sec. 77 An Insurer is entitled to payment of grant the insured credit extension of the
the premium as soon as the thing insured is premium is void. However, Makati Tuscany
exposed to the peril insured against. v CA and the second UCPB case says
Notwithstanding any agreement to the otherwise. Hence, credit extension
contrary, no policy or contract of insurance agreements may be valid.
issued by an insurance company is valid and
binding unless and until the premium thereof  EXCEPTIONS to Sec. 77:
has been paid, except in the case of a life or

84
1. In the case of a life or an  Cancellation – right to rescind, abandon or
industrial policy whenever the grace cancel a contract of insurance, termination
period provision applies (Sec. 77) of policy before its expiration.
2. Article 78 (see below)  Premium referred to in 64(a) refers to
3. Agreement to grant the payment “after effective date of the policy”
insured credit extension for the because Sec. 77 ordains that insurance
payment of the premium policy is valid and binding unless and until
4. When there is an agreement premium has been paid.
allowing the insured to pay premium  Conditions under w/c above exercised:
in installment and partial payment has 1) Prior notice of cancellation to insured
been made at the time of the loss 2) Notice must be based on the occurrence,
(See Makati Tuscany v CA) after the defective date of the policy, of one
or more of the grounds mentioned
Sec. 78 An acknowledgment in a policy or 3) It must be in writing, mailed or delivered
contract of insurance of receipt of premium to the named insured at the address shown
is conclusive evidence of its payment, so far in the policy
as to make the policy binding, 4) It must state w/c of the ground set forth
notwithstanding any stipulation therein that is relied upon.
it shall not be binding until the premium is
actually paid Tibay v CA
FACTS Fortune Life issued a fire insurance policy
in favor of Tibay on a bldg in Makati, together w/ all
their personal effects therein. Violeta paid part of
the total premium. 2 mos. Afer, a fire completely
 Effect of acknowledgment of receipt destroyed the bldg. 2 days after the fire, Tibay paid
of premium in property – Insurer cannot the balance of the premium. Fortune denied
deny the truth of the receipt of the Tibay’s claim for violation of Sec77 of Insurance
premium even if it is unpaid. Code.
 Law established a legal fiction of ISSUE WON a fire insurance policy is already
payment (prima facie evidence of valid, binding and enforceable upon mere partial
payment). Thus insurer presumed to have payment of premium
waived the condition of prepayment. HELD NO Sec. 77 applies. Since acceptance of
 SC has decided that above is an partial payment is not mentioned among the
exception to Sec. 77 exceptions provided in Sec 77 and 78 of the
Insurance Code, no policy of insurance can ever
pretend to be efficacious until premium has been
Sec. 64 No policy of insurance other than fully paid.
- The policy contained a condition w/c said that
life shall be cancelled by the insurer except
“The policy including any renewal thereof is not in
upon prior notice thereof to the insured, and
force until the premium has been fully paid x x x”
no notice of cancellation shall be effective Clearly, the Policy provides for payment of
unless it is based on the occurrence, after premium in full.
the effective date of the policy, of one or
more of the following: DISSENT (IMPT) The insurance coverage should
(a) non-payment of premium; become effective from the day that the partial
(b) conviction of a crime arising out payment is accepted by the insurer, any stipulation
of acts increasing the hazard insured in the policy to the contrary notwithstanding. Partial
against; payment is enough to establish the juridical
relation between the two parties. The law does not
(c) discovery of fraud or material
require a specific amount of premium payment in
misrepresentation
order to create the juridical tie.
(d) discovery of willful or reckless - If the contract is automatically cancelled upon the
acts or omissions increasing the hazard non-payment in full by the insured, then the
insured against; efficacy of the contract will be fully dependent on
(e) physical changes in the property his will. This violates the principle of mutuality of
insured which result in the property contracts.
becoming uninsurable; or
(f) a determination by the Makati Tuscany v CA
FACTS American Home Assurance (AHAC) issued
Commissioner that the continuation of
in favor or Makati Tuscany an insurance policy on
the policy would violate or would place
the latter’s bldg for 1 year. It was renewed over the
the insurer in violation of this Code course of 3 years. In 1982, the total premiums
were paid in four installments but in 1983, Tuscany

85
paid only 2 installments and refused to pay the payment under the renewed policy. (Note: This is a
remaining balance. Reason for discontinuation: motion for reconsideration from previous SC
policy contained a reservation wherein decision declaring that there was no renewal of the
“Acceptance of payment by AHAC will not waive policy and that UCPB not liable)
any of the company rights to deny liability on any ISSUE WON Sec 77 of the Insurance Code must
claim under the policy arising before such be strictly applied despite its practice of granting a
payments or after the expiration of the credit 60-90 day credit term for payment of premium
clause of the policy, and Subject to no loss prior HELD NO There are exceptions to Sec 77:
to premium payment. If there be any loss, such is a.) The first is provided by Sec. 77 itself and that
not covered.” AHAC filed a suit to recover the is, in case of a life or industrial life policy whenever
remaining balance. Makati Tuscany filed the grace period applies
counterclaim for the total amount of premiums it b.) Sec 78: An acknowledgment in a policy or
had paid during the previous years. contract of insurance of the receipt of premium is
ISSUE WON payment by installment of conclusive evidence of its payment, so far as to
premiums due on an insurance policy invalidates make the policy binding, notwithstanding any
the contract of insurance stipulation therein that it shall not be binding until
HELD NO The policies are valid even if the premium is actually paid.
premiums paid in installments because the c.) Sec. 77may not apply if the parties have
records clearly show that the two parties agreed to the payment in installments of the
intended the policies to be binding and effective premium and partial payment has been made at
notwithstanding the staggered payment of the the time of the loss.
premiums. Te acceptance of the installment d.) The insurer may grant credit extension for the
payments over the period of 3 years speak loudly payment of the premium
of intention of insurer to honor the policies it e.) It would be unjust and inequitable if recovery
issued to Makati Tuscany. on the policy would not be permitted against
- Sec 77 merely prohibits the parties from UCPB, w/c consistently granted the 60-90 day
stipulating that the policy is valid even if credit term for the payment of the premiums
premiums were not paid, but it does not despite its full awareness of Sec. 77. Estoppel bars
expressly prohibit an agreement granting credit it from taking refuge under the action, since
extensions. Sec. 78 also allows the insurer to Masagana relied on good faith on such a practice
waive the condition of full payment by
acknowledging in the policy that there has been DISSENT (Vitug):
receipt of premium despite the fact that premium -Estoppel cannot create a contract of insurance
is actually unpaid. If the Code allows a waiver neither can it be invoked to create a PRIMARY
when no actual payment has been made, then a LIABILITY. So essential is the premium payment to
waiver should also be allowed in this case where the creation of the vinculum juris that it would be
the insurer has already acknowledged receipt of doubtful to have that payment validly excused
partial payment. even for a fortuitous event
NOTE: Difference with Tibay case: In Tibay, DISSENT ( Pardo)

there was an express stipulation w/c said that - Masagana tried to pay the overdue premiums
payment shall be made in full. In this case, the before giving written notice that a fire has razed
policy was binding because of the prior the property. This shows the fraudulent character
agreement to allow installment payments, hence of the claim. Failure to give notice is was a material
full payment under Sec.77 deemed waived. misrepresentation affecting the risk insured
against.
Areola v CA - Estoppel cannot give validity to an act that is
Actually, I don’t know how this case is in any way prohibited by law or against public policy. Actual
remotely connected to Sec. 77 or 78 w/c was not payment of premiums is a condition precedent to
cited in the case so therefore di ko na sasama. the validity of an insurance contract other than the
insurance policy. Any agreement to the contrary is
UCPB Gen. Ins. v Masagana Telemart VOID as against the law and public policy.
FACTS Masagan Telemart obtained insurance
policies on its properties from UCPB. The
policies had the effectivity term of May 1991 – C. Premium default in life insurance (Sec
May 1992. On June 1992, Masagan’s properties 227, h & j); options; lapsed policy
were razed by a fire. On the same day,
Masagana tenedered, and UCPB accepted
Sec. 227 In the case of individual life or
renewal premium payments. The next day,
endowment insurance, the policy shall contain in
Masagana filed a claim for the burned insured substance the following conditions: x x x
bldgs. UCPB rejected the claims on the ground
(h) A table showing in figures cash surrender
that the polices exprired on May 1992 and were
values and paid-up options available under the
not renewed for another term and that the fire
policy each year upon default in premium
took place before the tender of premium

86
payments, during at least twenty years of the 1) Cash Surrender Value
policy beginning with the year in which the  The amount the insured is entitled to
values and options first become available, receive if he surrenders the policy and
together with a provision that in the event of releases his claims upon it. It is the
the failure of the policy-holder to elect one of portion of reserve on a life policy
the said options within the time specified in the  Nature of CSV: Premium is uniform
policy, one of the said options shall throughout lifetime of policy, so during
automatically take effect and no policyholder the earlier years of the policy, the
shall ever forfeit his right to same by reason of premium charges will be more than the
his failure to so elect.
actual cost of the protection against the
x x x x x x x x x x x x risk in order to meet the higher cost of
(j)A provision that the policy shall be entitled to risk during the latter years of the policy
have the policy reinstated at any time within 3 when the insured is older. Reserve Value
years from the date of default of premium - Surrender Charge = Cash Surrender
payment unless tha cash surrender value has Value
been duly paid, or the extension period has
 The more premiums he has paid, the
expired, upon production of evidence of
greater will be the CSV but the value is
insurablility satisfactory to the company and
upon payment of all overdue premiums and any always a lesser sum than the total amt of
indebtedness to the company upon said policy, premiums paid.
with interest rate not exceeding that which  CSV is the amount company holds in trust
would have been applicable to said premiums for insured deliverable upon demand.
and indebtedness in athe policy years prior to  EFFECT: Surrender policy; terminates the
reinstatement x x x contract of insurance
NON-LIFE 2) Extended Insurance

 (Refer to Sec.77) Seems to say that  EFFECT: Policy continues in force from
policy is in effect as soon as the thing is date of default, for a period either stated
exposed to risk even if the premium has or equal to the amount of the cash
not been paid yet. surrender value, taken as a single
 Where contract covers a period of 1 premium, will purchase. Also called “term
year, there would normally be only one insurance.”
premium payment for the period.  Depends on availability of CSV.
 If parties agreed to pay in installments,  During extended period: If insured dies,
and there is a failure to pay any beneficiary can recover face amount of
installment when it falls due insurer policy. Insured can also reinstate the
may: policy w/in this period.
- cancel policy after due notice  Beyond extended period: If he survives
- compel the payment of installments No benefits. He cannot even reinstate the
policy by paying past premiums; has to
LIFE purchase new policy
 Intended to be in force f or a period  Better option if insured not in good health
longer than a year; involves several or geriatric
periodical premium payments (annual,
semi-annual, etc) 3) Paid-up Insurance
 Contract not binding until first periodical  Amount of Insurance that the CSV,
premium payment. After first payment, applied as a single premium, can
insured under no legal obligation to pay purchase.
subsequent premium.  EFFECT: Policy continues in force from
 Insurance Code grants grace period date of default for the whole period and
within which to pay subsequent under the same conditions of the original
premiums. If policy becomes a claim contract w/o further payment of
during the grace period but before premiums. However, in case of death of
overdue premium is paid, overdue may insured, he may recover only the “paid-
be deducted from proceeds of policy up” value of the policy w/c is much less
 Failure to pay w/in grace period = than the original amount agreed upon. (In
automatic lapse other words, na-reduce yung original
 Exception: Insured has paid three full insurance contract to one with a lower
annual premiums. Entitled to the value)
following Options upon default:  Better option if insured is still young and
in good health because unlike extended

87
insurance, he may later reinstate policy insurers instead, give the insurer the benefit
if he wishes. of the reserve value of the policy.
4) Automatic Premium Loan D. Form and contents of policy

 Upon default, insurer
lends/advances to the insured Sec. 49 The written instrument in which a
without any need of application on contract of insurance is set forth is called a
his part, amount necessary to policy insurance.
pay overdue premium, but not to
exceed the CSV of the policy.
Sec. 50 The policy shall be in printed form
 Only applies if requested in writing
which may contain blank spaces; and any
by the insured either in the
word, phrase, clause, mark, sign, symbol,
application or at any time before the
signature, number, or word necessary to
expiration of the grace period.
complete the contract of insurance shall be
 EFFECT: Insurance continues in
written on the blank spaces provided therein.
force for period covered by the
Any rider, clause, warranty, or
payment. After period, if insured
endorsement purporting to be part of the
still does not resume paying his
contract of insurance and which is pasted or
premiums, policy lapses, unless
attached to said policy is not binding on the
there remains CSV.
insured, unless the descriptive title or name of
 If there is still CSV, auto premium
the rider, clause, warranty, or endorsement is
loan continues until it is exhausted.
also mentioned and written on the black
 Advantageous to the insured
spaces provided in the policy.
because it helps to continue the
contract and all its features in full Unless applied for by the insured or
force and effect. owner, any rider, clause, warranty or
 Insured under no legal obligation to endorsement issued after the original policy
repay “loan” shall be countersigned by the insured or
owner, which countersignature shall be taken
5) Reinstatement (Sec j) as his agreement to the contents of such rider,
 EFFECT: Does not create a new clause, warranty, or endorsement.
contract, merely REVIVES the old policy. Group insurance and group annuity
Thus, insurer cannot require higher policies, however, may be typewritten and
premium than amount stipulated in the need not be in printed form.
contract.
 Required by Insurance Code for Sec 51. A policy of insurance must specify:
every individual and industrial life policy (a) The parties between whom the
 Not required that 3 annual contract is made;
premiums have been paid (b) The amount to be insured except in
 REQUISITES: the cases of open or running policies;
1. exercised w/in 3 years from default
(c) The premium, or if the insurance is
2. insured must present evidence of
of a character where the exact premium is
insurability satisfactory to the
only determinable upon the termination of
company
the contract, a statement of the basis and
3. pay all back premiums and all his
rates upon which the final premium is to
indebtedness to the insurance
be determined;
company
4. CSV has not been duly paid nor the (d) The property or life insured;
extension period expired (e) The interest of the insured in
 Insurability – does not mean that property insured, if he is not he absolute
insured is in good health. Other factors owner thereof;
affect insurability like nature of work, (f) The risks insured against; and
age, etc. (g) The period during which the
 Application for reinstatement must be insurance is to continue
filed during the insured’s lifetime.
 The Insurance Code does not
Other Effect: require a particular form for the
6) Forfeiture – Absolute forfeiture of all validity of the contract. However, the
insured rights. Generally not favored. Due to policy must contain the enumeration
liberal spirit in the conduct of life insurance, in Art. 51 (see above)

88
 The policy is different from the prevent an insurer from adding or
contract itself. inserting provisions w/o the consent of the
 Policy - written instrument insured.
embodying the terms and  In case of conflict between rider and
stipulations of a contract of printed stipulation, the rider prevails
insurance. Not essential to the as being a more deliberate expression
validity of the contract as long as all of the agreement of the contracting
the essential elements for the parties.
existence of contract are present.  Warranty – inserted or attached to a
(Consent, object, consideration, policy to eliminate specific potential
competent parties) increases of hazard during the policy
- Must be in printed form, w/ blank term owing to: 1) actions of the
spaces to accommodate any word, insured or 2) condition of the
phrase, clause, mark sign, symbol, property.
signature, number or word  Clause – an agreement between the
necessary to complete the contract. insurer and the insured on certain
 Other stipulations not required by matters relating to the liability of the
law may be included as long as insurer in case of loss.
they are not prohibited or  Endorsement – any provision added
inconsistent with the law. to an insurance contract altering its
 Missing provisions required does scope or application. Ex.
not void policy. Missing provisions Endorsements extending the perils
will be read into the policy and will covered. Most times, they are merely
substitute those w/c are in conflict typewritten additions to the contract,
w/ the law. changing its amount, rate, or term.
 Stipulations not in the exact terms
of the statute, if more favorable to
the insured, will be enforced.
 SIR (on oral contracts): In some 2. Cover Notes or binding receipts
jurisdictions of the US, oral contract
is valid, provided that all the terms Sec 52. Cover notes may be issued to bind
are agreed upon. In our Insurance insurance temporarily pending the issuance of
Code, although written form not the policy. Within sixty days after issue of a
required for validity, some cover note, a policy shall be issued in lieu
provisions say that a PRINTED thereof, including within its terms the identical
POLICY is best evidence of contract. insurance bound under the cover note and the
SC has not ruled categorically on premium therefore.
this matter. Cover notes may be extended or
renewed beyond such sixty days with the
written approval of the Commissioner if he
1. Riders, clauses, endorsements determines that such extension is not contrary
 If parties wish to include special to and is not for the purpose of violating any
stipulations, may attach riders, provisions of this Code. The Commissioner
endorsements, warranties. may promulgate rules and regulations
 Rider – a printed or typed governing such violation and may be such
stipulation contained on a slip of rules and regulations dispense with the
paper attached to the policy and requirement of written approval by him in the
forming an integral part of the case of extension in compliance with such
policy. rules and regulations (n)
 To be binding:
-Must be attached/pasted to the policy
 Cover notes/Binders – a written
- Descriptive title or name of the rider,
memorandum intended to give temporary
clause, warranty, or endorsement is
protection (to insured) pending the the
mentioned and written on the blank
investigation of the risk by the insurer, or
spaces provided in the policy.
until the issue of the formal policy,
 Countersignature by insured
provided it is later determined that the
General Rule: Not necessary if rider applicant was insurable at the time it was
attached to the policy when issued.
given.
Exception: Necessary when added  It is a binding contract and has full
AFTER policy is issued. REASON: To
force and effect during its duration.

89
 Law requires that policy be issued in case of total loss of the property, unless the
60 days after cover note is issued. It insurance is for a lower amount
may be cancelled by either party by - In case of loss, parties may claim that value
giving, (at least) a 7-day prior notice to of insured property is more or less than
other party. agreed upon.
 Insurer not obliged to give cover
notes but many do so in order to gain  Running Policy
goodwill. - Intended to provide indemnity for property
 Usually contain only the bare w/c cannot well be covered by a valued policy
essentials of an insurance contract: i.e. because of its frequent change of location and
the name of the parties, risk insured quantity, or for property of such a nature as
against, amount of insurance, premium, not to admit of a gross valuation. Also denotes
property/life insured. insurance over a class of property rather than
 May be extended/renewed beyond any particular thing. Ex. Insurance over
60 days w/ the written approval of the constantly changing stock of goods
Insurance Commission. - In reality, these are open policies.
- Contemplates successive insurances.
3. Open and Valued Policies (non-life)
Sec 59. A policy is either open, valued or IV. PARTIES

running.
 Essential Requisites for a person to be
Sec 60. An open policy is one in which the a party in an insurance contract::
value of the thing insured is not agreed upon, 1. Must be COMPETENT to enter
but is left to be ascertained in case of loss. (has capacity)
2. Must possess INSURABLE
Sec 61. A valued policy is one which INTEREST
expresses on its face an agreement that the 3. Must NOT be a PUBLIC
thing insured shall be valued at a specified ENEMY
sum. A. Insurer
Sec. 6. Every person, partnership,

Sec. 62. A running policy is one which
association, or corporation duly authorized to
contemplates successive insurances, and
transact insurance business as elsewhere
which provides that the object of the policy
provided in this Code, may be an insurer. (a)
may be from time to time defined, especially
as to the subjects of insurance, by additional
statements or indorsements. Sec 184 For purposes of this Code, the term
“insurer” or “insurance company” shall include
Kinds of insurance policies: all individuals, partnerships, associations, or
 Open or Unvalued Policy corporations, including government-owned or
- One in which a certain agree sum is controlled corporations or entities, engaged as
written on the face of the policy not as the principals in the insurance business, excepting
value of the property insured, butas the mutual benefit associations. Unless the
maximum limit of the insurer’s liability (i.e. context otherwise requires, the term shall also
face value) in case of destruction by the peril include professional reinsurers, defined in
insured against. Section 280. “Domestic company” shall include
- Insurer only pays the actual cash value of companies formed, organized or existing
the property as determined at the time of under the laws of the Philippines. “Foreign
loss. company” when used without limitation shall
include companies formed, organized, or
 Valued Policy existing under any laws other than those in
- One in which the parties expressly agree the Philippines.
on the value of the subject matter of the
insurance. Sec 185 Corporations formed or organized to
-Two values: save any person or persons or other
1) Face value of the policy w/c is the corporations harmless from loss, damage, or
max amt insurer pays in case of loss liability arising from any unknown or future or
2) Value of the thing insured contingent event, or to indemnify or to
- In the absence of fraud or mistake, the compensate any person or persons or other
agreed value of the thing insured will be paid corporations for any such loss, damage, or

90
liability, or to guarantee the performance of Art. 110 (Family Code) The spouses retain
or compliance with contractual obligations or the ownership, possession, administration and
the payment of debts or others shall be enjoyment of their exclusive properties.
known as “insurance corporations”
The provisions of the Corporation Either spouse may, during the marriage,
Law (BP Blg 68) shall apply to all insurance transfer the administration of his or her
corporations now or hereafter engaged in exclusive property to the other by means of a
business in the Philippines insofar as they do public instrument, which shall be recorded in
not conflict with the provisions of this the registry of property of the place the
Chapter. property is located. (137a, 168a, 169a)
 Insurer – party who assumes or Art. 111 (Family Code) A spouse of age may
accepts the risk of loss and undertakes mortgage, encumber, alienate or otherwise
for a consideration to indemnify the dispose of his or her exclusive property,
insured or to pay him a certain sum on without the consent of the other spouse, and
the happening of a specified contingency appear alone in court to litigate with regard to
or event. the same. (n)
 Summary of 184 and 185:
184: What term “insurer” includes
Art. 1390 (Civil Code). The following
185: What “Insurance Corporations” are
contracts are voidable or annullable, even
Regulated by the State: To engage in
though there may have been no damage to
the business of insurance, required to
the contracting parties:
get certificate of authority from the
Insurance Commissioner, and must (1) Those where one of the parties is
possess sufficient capital assets. (Will incapable of giving consent to a contract;
not include other requirements, medyo
technical. We only need to know defn of (2) Those where the consent is vitiated by
insurer and insurance corporations) mistake, violence, intimidation, undue
Banking institutions are not allowed to influence or fraud.
engage in insurance business (General
Banking Act 173) These contracts are binding, unless they are
annulled by a proper action in court. They are
B. Insured susceptible of ratification.
Sec. 7 Anyone except a public enemy must  Insured – the party in whose favor the
be insured contract is operative and who is
indemnified against, or is to receive a
Sec. 56 When the description of the insured certain sum upon the happening of a
in a policy is so general that it may specified contingency or event. He is the
comprehend any person or any class of person whose loss is the occasion for the
persons, only he who can show that it was payment of the proceeds by the insurer.
intended to include him can claim the benefit  As in all other contracts, only persons who
under the policy. have the capacity to enter into a contract
may be insured.
RA 6809 - Lowered the age of  Policy must specify the parties between
EMANCIPATION AND AGE OF MAJORITY whom the contract is made. (Sec. 51)
 Public enemy – citizen or subject of a
Art. 234. Emancipation takes place by the
attainment of majority. Unless otherwise nation at war with the Philippines. Does
not include robbers, thieves, criminals,
provided, majority commences at the age of
eighteen years. (as amended by RA 6809) Milagros Malayas.
- a private corporation may be deemed
an enemy corporation if controlled by
Art. 236. Emancipation for any cause shall enemy aliens.
terminate parental authority over the person
and property of the child who shall then be C. Beneficiaries
qualified and responsible for all acts of civil  Refers to the person who designated in a
life, save the exceptions established by contract of life, health or accident
existing laws in special cases. x x x (as insurance as the one who is to receive the
amended by RA 6809) benefits which become payable, according

91
to the terms of the contract, upon the (3) Those made to a public officer or his wife,
death of the insured. descedants and ascendants, by reason of his
 Words used in designating the office.
beneficiaries of a life policy will not be
given their technical significance but will
In the case referred to in No. 1, the action for
be construed broadly.
declaration of nullity may be brought by the
 Chosen exclusively by insured who may
spouse of the donor or donee; and the guilt of
designate anyone (irrespective of lack of
the donor and donee may be proved by
insurable interest) so long as s/he not
preponderance of evidence in the same action.
disqualified by law.
(n)
 Proceeds of life insurance policy become
the exclusive property of the beneficiary
 In the first case (adultery/
upon the death of the insured.
concubinage), no need of criminal
 Cestui que vie
conviction to void policy. Enough if there
- Person on whose life the policy
is a preponderance of evidence.
was taken.
 In the second case however, the CC
- Must be a risk acceptable to the
uses the words “found guilty” hence
insurer
criminal conviction necessary.
 Public Enemies also disqualified from
1. Change
being beneficiary.
Sec 11 The insured shall have the right to
change the beneficiary he designated in the Insular Life Assurance Co v Ebrado
policy, unless he has expressly waived this FACTS Ebrado took out a life insurance policy and
right in said policy. named his common-law partner, Carponia, his
 If right not waived, insured has the beneficiary. Upon his death, his lawful wife also
power the power to change the filed a claim w/ Insular Life as the widow. RTC
beneficiary w/o his consent because disqualified Carponia from claiming benefits under
beneficiary has no vested right but only the policy
an expectancy over the proceeds of the ISSUE: WON Carponia disqualified from claiming
insurance. insurance proceeds because of her illicit relation
 Right must be exercised specifically with the insured.
in the manner provided in the policy. HELD: YES. (SC applied CC) Since the Insurance
Power to change beneficiary ceases at Code does not contain any specific provision on
rules respecting who may be named beneficiary,
insured’s death and cannot be exercised
the CC will apply. Art 2012 states that “any person
by his personal representatives or
forbidden from receiving donations under Art 739
assignees.
cannot be named beneficiary of a life insurance
policy” Art. 739 declares void donations made
2. Statutory Limitations on life insurance between persons who are guilty of adultery or
concubinage at the time of the donation. Hence,
Art. 2012 (Civil Code) Any person who is Carponia is disqualified from being named a
forbidden from receiving any donation under beneficiary.
Article 739 cannot be named beneficiary of a
life insurance policy by the person who Vda. de Consuegra v GSIS
cannot make any donation to him, according FACTS: Jose Consuegra contracted two
to said article. (n) marriages, to Diaz and Berdin. After his death, the
proceeds of his life insurance w/ the GSIS went to
Berdin. However, he was also entitled to retirement
Art. 739 (Civil Code) The following benefits to which he did not designate any
donations shall be void: beneficiary.
ISSUE: WON Berdin should be considered the
(1) Those made between persons who were sole beneficiary of the retirement benefits being
guilty of adultery or concubinage at the time the beneficiary of the life insurance policy
of the donation; HELD: NO. Life Insurance and retirement
insurance are separate and distinct funds. Life
Insurance is paid to whoever is named the
(2) Those made between persons found beneficiary and may not necessarily be the heir of
guilty of the same criminal offense, in the insured. Retirement benefits on the other hand,
consideration thereof; are primarily intended for the benefit of the ee – to
provide for his old age, incapacity, etc. If the ee
reaches the age retirement, he gets the benefits

92
even to the exclusion of the beneficiary named in  Difference between life and non-life
the policy. The beneficiary of the retirement insurance (pertaining to interest):
insurance can only claim the proceeds of the LIFE - basically a contract of
retirement insurance if the ee dies before INVESTMENT; can only recover face
retirement. IF there is no beneficiary designated amount of the policy
in the policy, benefits will accrue to the estate, NON-LIFE – based on principle of
hence Diaz is also entitled to the retirement INDEMNITY for exact pecuniary value; can
benefits.
only recover on the policy the value of the
actual loss
Del Val v Del Val
FACTS: Plaintiff and Defendant are siblings.
Prior to their father’s death, he took out a life
insurance policy and made the Def the sole B. Insurable Interest in life/health
beneficiary.
ISSUE: WON the insurance proceeds belong Sec 10 Every person has an insurable interest
exclusively to the DEF who was the sole in thelife and health:
beneficiary a) Of himself, of his spouse and
HELD: YES The proceeds of an insurance policy of his children;
belong exclusively to the beneficiary and not to
b) On any person on whom he
the estate of the person whose life was insured,
depends wholly or in part for education
and that such proceeds are the separate and
individual property of the beneficiary. or support, or in whom he has a
pecuniary interest;
c) Of any person under a legal
obligation to him for the payment of
V. INSURABLE INTEREST money, or respecting property or
services of which death or illness might
A. Definition and Purpose delay or prevent the performance, and
d) Of any person upon whose
Sec 21 A change on interest in a thing life any estate or interest vested in him
insured, after the occurrence of an injury depends.
which results in a loss does not affect the  Person may take out insurance on own life
right of the insured to indemnity for the loss. or someone else’s life provided insurable
interest exists.
Sec 25 Every stipulation in a policy of  Cestui que vie must consent.
insurances for the payment of loss whether
the person insured has or has not any
interest n the property insured, or that the 1. In one’s own life/health
policy shall be received as proof of such
interest, and every policy executed by way Sec 11 The insured shall have the right to
of gaining or wagering, is void. change the beneficiary he designated in the
policy, unless he has expressly waived this
Insurable interest – A person is said to right in said policy.
have an insurable interest in the subject
matter insured where he has a relation or Sec 12 The interest of a beneficiary in a life
connection with, or concern in it that he will insurance policy shall be forfeited when the
derive pecuniary benefit or advantage from beneficiary is the principal, accomplice, or
its preservation and will suffer pecuniary loss accessory in willfully bringing about the death
or damage from its destruction, termination, of the insured, in which event, the nearest
or injury by the happening of the event relative of the insured shall receive the
insured against. proceeds of said insurance if not otherwise
 Essential element of an insurance disqualified.
contract.
 Not legally possible to waive Insured is the cestui que vie
requirement  The nearest relative of the insured shall
 Developed to meet two objections: receive the proceeds of said insurance if
1) That insurance is a wagering contract not otherwise disqualified
2) That insurance creates the temptation  GENERAL RULE: Beneficiary is the choice
of bringing about the event insured of the insured regardless of WoN
against in order to collect the policy beneficiary has an insurable interest in
insured’s life

93
Assumption: Insured would not a child has insurable interest in the
designate as his beneficiary a person parent’s life.
whom he would not trust with his own - Child entitled to support required by
life law, whether or not he/she is
 EXCEPTIONS financially independent  sufficient to
- Waiver constitute pecuniary interest.
- Irrevocable beneficiary (right to  Other close relatives (brothers and
proceed vests) sisters) not expressly covered by law
 Blood relationship or relationship by
affinity is IMMATERIAL when relative is
2. In the life/health of others source of support (where no legal
obligation exists)
Art 195 (Family Code). Subject to the - There is insurable interest both ways
provisions of the succeeding articles, the
following are obliged to support each other OTHER RELATIVES and STRANGERS
to the whole extent set forth in the o Must prove that he has some pecuniary
preceding article: interest in the life of the cestui que vie
(1) The spouses; otherwise policy is void
(2) Legitimate ascendants and descendants; o Mere relationship will not suffice
o The requirements of insurable interest
(3) Parents and their legitimate children and
the legitimate and illegitimate children of the cannot be circumvented by an agreement
latter; between the insured (cestui que vie) and
a 3rd person who has no interest, whereby
(4) Parents and their illegitimate children
the latter, having induced the insured to
and the legitimate and illegitimate children
take out a policy, promises to pay of
of the latter; and
premiums is the policy is assigned to him.
(5) Legitimate brothers and sisters, whether - The intention to take out policy is clearly
of full or half-blood (291a) not to insure life but rather to
circumvent the requirement
Insured is not the cestui que vie but is - Is different from taking a policy out on
the beneficiary self and then later assigning it to
 When person names himself the someone who has no insurable interest,
beneficiary in a policy taken out on the because law allows policy to transfer
life of another, he must have insurable whether or not there is insurable
interest in the life of the other person interest
(his interest must show some pecuniary
interest)
 Mere love and affection NOT insurable
interest Sec 181 A policy of insurance upon life or
health may pass by transfer, will or succession
CESTUI QUE VIE: person upon whose life to any person, whether he has an insurable
insurance is taken out on interest or not, and such person may recover
 Must agree ot the taking out of upon it whatever the insured might have
insurance recovered.
 No law saving you don’t need his
consent public policy demands Sec 182 Notice to an insurer of a transfer or
consent be obtained bequest thereof is not necessary to preserve
 Exception: Parent taking policy out the validity of a policy of insurance upon life or
on minor child health, unless thereby expressly required.
 No amount of consent can make up  Best forms of self compelled saving
for lack on surable interest  Denying right to self would be to
diminishing value of contract.
CLOSE RELATIVES
 Spouse and children (minor or not,
married or unmarried dependent or not) COMMERCIAL or CONTRACT RELATIONS
- Law presumes natural affection  Creditor may take out insurance on life of
existing between spouses, parents his debtor
and children. Thus, Law recognizes a - Interest exist death or debtor may
parent’s insurable interest in child’s prevent payment or delay payment
life but is silent as to whether or not - Is a contract of indemnity

94
- Recovery limited to amount owed by  EXCEPTIONS (cases where interest of the
debtor to creditor insured is capable of exact pecuniary
benefit)
Sec 183 Unless the interest of a person
insured is susceptible of exact pecuniary 1. Creditor who takes insurance out on
measurement, the measure of indemnity life of Debtor to secure debt
under a policy of insurance upon life or - Once debt has been paid insurable
health is the sum fixed in the policy. interest disappears
- No liability to pay proceeds
 Debtor may insure self and name because there is not longer
creditor as beneficiary anything to indemnify
- Creditor is entitled to full proceeds of - If debt already been paid should be
policy just as any other beneficiary denied recovery on the policy
when debtor dies even if his credit is - Debtor should have the right to
much less. take over the policy from creditor
 Debtor assigns policy to creditor as after the termination of relationship
collateral security prevent the premium paid from
- Creditor can only recover amount of going to waste.
his credit
- Balance will go to designated 2. Company takes out insurance on life
beneficiary of employee
- Employee leaves company
EMPLOYER/BUSINESS ASSOCIATE - Policy is to indemnify employee
 May take out policy on life of business for losses upon death of employee
partner not resigning
- Interest exists death of partner results - Company cannot recover on life of
in interruption of operations which can employee who has already
lead to financial losses. left/resigned – there is nothing to
 Firm may take out policy on indemnify
officers/employees - Relationship slightly different
- Services are valuable to the business because no esact pecuniary value
- Proceeds of policy not taxable income dan be given. BUT same principle
because it serves as indemnity to the holds that the cannot recover.
employee for the loss the business
suffers upon the death of the valued
officer of employee.
3. Time when it should exist C. In property
1. Definition
Sec 19 An interest in property insured must
exist when the insurance takes effect, and Sec 13 Every interest in property, whether
when the loss occurs, but need not exist in real or personal, or any relation thereto, or
the meantime’ and interest in the life or liability in respect therof, of such nature that a
health of a person insured must exist when contemplated peril might directly damnify the
the insurance takes effect, but need not insured, is an insurable interest.
exist thereafter or when the loss occurs.
Contract of indemnity - measure or
 GENERAL RULE: insurable interest must insurable interest in property is the extent to
exist only at inception which the insured might be indemnified by
- Policy not indemnifying loss but rather loss or injury.
giving financial security to insured or
to beneficiaries 2. In what it may consist of
- Law gives insured the right to convert Sec 14 An insurable interest in property may
policy into cash by selling it to a 3rd consist in:
person who doesn’t have any insurable a) an existing interest;
interest in his life. b) An inchoate interest founded on an existing
- Policy is an investment interest; or

95
c) An expectancy, coupled with an existing our of which such expectancy
interest in that out of which the expectancy arises. Ex. Farmer insuring
arises future crops if it be grown on
land owned by him at the
time of the issuance of the
Sec 16 A mere contingent or expectant
policy
interest in anything, not founded on an
actual right to the thing, nor upon any valid
contract for it, is not insurable.
3. Measure of interest in property
Sec 15 A carrier or depository of any kind has
 Insurable interest deemed to exist as
an insurable interest in a thing held by him as
long as such interest, relation or liability
such, to the extent of his liability but not to
is of such nature that a contemplated
exceed the value thereof.
part might directly damnifty the insured
 Even without legal or equitable title as
long as it can be shown that the insured Sec 17 A mere contingent or expectant
will be benefited by property’s continued interest in anything, not founded on an actual
existence or wil suffer pecuniary loss by right to the thing, not upon any valid contract
its destruction. for it, is not insurable.
 FORMS OR INSURABLE INTEREST
1). INTEREST in the property itself,
whether such property be real or Other Interests
personal  STOCKHOLDER/PARTNER to FIRM
ex. Ownership of or a lien on property - Has sufficient interest in property
2). any RELATION to such property of corporation
ex. interest of a commission agent on - Interest does not rise to the
goods he is selling dignity of a title yet he stands in
3). LIABILITY in respect thereof such a relation to such corporate
ex. interest of carrier on cargo which he property to vest him with an
ought to carry safely to destination inchoate right to dividends in case
 NATURE OF INSURABLE INTEREST of profits and to share in the assets
 An existing interest upon liquidation
- may arise from legal title (ex. - Interest not measured by value
mortgagor of the property of what is destroyed
mortgaged; lessor of the - Interest is to share in the
property leased; assignee of distribution of the proceeds only
property for the benefit of after payment of corporation’s debts
creditors, etc.) - Must prove actual injury,
- may also be from equitable title otherwise cannot recover more than
(ex. Purchaser of property nominal damages
before delivery; builders in the
building under construction or
upon completion of building)  GENERAL CREDITOR
 An inchoate interest founded  No insurable interest in the
on an existing interest property of the debtor
- must be founded on an existing  No right to posses, no lien , no
contract Ex. A stockholder has an relation that would cause him
inchoate interest in the property of direct damage
the corporation w/c is founded on an  Cannot take out policy on debtor’s
existing interest arising from his property
ownership shares.  Cannot recover as appointee or
- A partner has an insurable interest beneficiary on policy taken out by
in the firm’s property which will debtor
support a separate policy for his
benefit  JUDGEMENT CREDITOR
 An expectancy, coupled with  Sufficient interest in debtor’s
an existing interest in that out property because given right to
of which the expectancy levy (general lien)
arises  In order to recover must show
- such must be coupled with debtor has no other property with
an existing interest in that which to satisfy debt

96
 May insure debtor’s property does not avoid an insurance and his interest
due to pecuniary interest in the insurance passes to the person taking
his interest in the thing insured
 MORTGAGE CREDITOR  Fire insurance on building owned by
 Has insurable interest (general father, father dies, son inherits
lien) building and the fire insurance
 Direct prejudice if there is loss  (24) A transfer of interest by one of
 Recognized by insurance Code SEVERAL PARTNERS, JOINT OWNERS, or
(SEC8) OWNERS IN COMMON WHO ARE JOINTLY
INSURED to the others, does not avoid an
4. When it should exist insurance even though it has been agreed
Sec 19 An interest in property insured must that the insurance shall cease upon an
exist when the insurance takes effect, and alienation of the thing insured
when the loss occurs, but need not exist in  Acquiring co-owner has the same
the meantime; and interest in the life or interest, interest merely increases
health of a person insured must exist when upon acquiring other co-owners
the insurance takes effect, but need not interest
 Although there may be a stipulation
exist thereafter or when the loss occurs.
that insurance ceases upon alienation
 Law allows policy to be framed in such
GENERAL RULE: Interest must exist at a way that it will inure to the benefit
inception and at time of loss, but not in the of whomever during the continuance
meantime of the risk may become owner of the
 PROPERTY must exist when the insurance interest insured.
takes effect and when the loss occurs but  Sale of property will not suspend the
not exist in the meantime. policy or render it ineffective.
 Nature of contract as indemnity
 Mere transfer of thing does not carry 5. Special Provisions on mortgagor and
transfer of policy mortgagee
 Doesn’t own it anymore cannot
recover Sec 8 Unless the policy otherwise provides,
 New owner not a party to contract where a mortgagor of property effects insurance in
cannot recover his own name providing that the loss shall be
 Can recover if valid assignment to payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed
buyer made, notation of contract
to be upon the interest of the mortgagor, who does
 Transfer suspends the contract until not cease to be a party to the original contract, and
same person owns thing and policy any of his , prior to the loss which would otherwise
avoid the insurance, will have the same effect,
although the property is in the hands of the
EXCEPTION mortgagee, but any act which , under the contract of
 (21) ACHANGE IN INTEREST IN A THING insurance, is to be performed by the mortgagor,
may be performed by the mortgagee therein named,
INSURED. After occurrence of an injury
with the same effect as it had bee performed by the
which results in a loss does not affect the mortgagee.
right of the insured to indemnify for the
loss
 insured of the policy, after fire Sec 9 If an insurer assents to the transfer of
may sell remains of property an insurance from a mortgagor to a
without prejudicing his right to mortgagee, and at the time of this assent
recovery imposes further obligations on the assignee,
 (22) A change of interest IN ONE OR making a new contract with him, the acts of
MORE SEVERAL DISTINCT THINGS, the mortgagor cannot affect the rights of said
SEPARATELY INSURED by one policy does assignee.
not avoid the insurance as to the others.
 Single fire policy covers several (8) where a mortgagor of property effects
pieces of furniture and appliances, insurance in his own name providing that the
insurance value of each on loss shall be payable to the mortgagee, or
indicated, sale of one item will not assigns a policy of insurance to a mortgagee,
prevent insured from recovering  the insurance is deemed to be upon the
on items he did not sell interest of the mortgagor, who does not
 (23) A change on interest by WILL or cease to be a party to the original
SUCESSION on the death of the insured, contract

97
 any act of mortgagor , prior to the  Mortgagee may perform the acts of
loss, which would otherwise avoid the mortgagor
insurance will have the same effect,  Clause included wherein the insurance
although the property is in the hands interest of mortgagee shall not be
of the mortgagee invalidated by any act of the
 any act which, under the contract of mortgagor or owner of property at the
insurance, is to be performed by the time.
mortgagor, may be performed by the  Protects mortgagee’s interest from
mortgagee therein named with the invalidation due to mortgagor’s acts
same effect as if it had been
performed by he mortgagor 6. Change of interest; instances of automatic
transfer of interest
a. Separate insurable interest; extent
thereof Sec 21 A change on interest in a thing
 may separately mortgage same property insured, after the occurrence of an injury
since interest is different which results in a loss does not affect the right
 mortgagor: owns property of the insured to indemnity for the loss.
 mortgagee: credit property
Sec 22 A change of interest in one or more of
b. Insurance by mortgagor for the benefit of
several distinct things, separately insured by
mortgagee
one policy, does not affect the right of the
 Loss payable to mortgagee; excess
insured to indemnity for the loss.
proceeds go to mortgagor
 mortgagor: interest is in the value of the
property; the property itself even if Sec 23 A change of interest, by will or
event does not happen, it does not succession, on the death of the insured, does
extinguish the mortgage agreement not avoid an insurance; and his interest in the
 mortgagee: interest is the value of the insurance passes to the person taking his
loan or credit interest in the thing insured.
- in case subsequently assigned to
mortgagee any act of mortgagor can Sec 24 A transfer of interest by one of
render void the policy before the event several partners, joint owners, or owners in
happens common, who are jointly insured, to the
others, does not avoid an insurance even
c. Insurance taken by mortgagee though it has been agreed that the insurance
 Loss payable to him, collects upon shall cease upon an alienation of the thing
happening of loss insured.
 Mortgagor has not part in insurance
proceeds Sec 53 The insurance proceeds shall be
 Upon loss, Mortgagor not released from applied exclusively to the proper interest of
obligation to pay the person in whose name or for whose
- Insurer subrogates mortgagee’s benefit it is made unless otherwise specified in
right and can collect from him the policy.
 Covers only mortgagees interest
d. “Open mortgage clause” and “union

mortgage”
Sec 57 A policy may be so framed that it will
insure to the benefit of whomever, during the
 Open Mortgage (Sec 8) – mortgage that
continuance of the risk, may become the
can be paid-off to maturity w/o penalty;
owner of the interest insured.
mortgagee is the beneficiary for insurance
taken by mortgagor
 Lenders generally do not like open  GENERAL RULE ( In the cases of life,
mortgages because the early pay-off accident, and health insurance) change of
reduces the interest they earn interest suspends insurance -- Sec 20
 Acts of mortgagor invalidates the  EXCEPTION --- Sec 21 - 24
insurance
 Union Mortgage – standard mortgage
clause 7. Several interests; double insurance (cf.
over insurance)

98
Sec 93 A double insurance exists where the  OVER INSURANCE – when amount insured
same person is insured by several insurers is over the value of the property
separately in respect in the same subject the insured is over insured by double
and interest. insurance
 The insured may claim payment
 Prohibition against additional insurance – from the insurers in such order as
When a policy contain s a prohibition he may select, up to the amount
against additional insurance on the for which the insurers are severally
property insured without the insurer’s liable under their respective
consent, such provision being valid and contracts.
reasonable, a violation thereof by the  Valued policy – the insured must
insured avoids the policy. (Sta. Ana vs. give credit as against the valuation
Commercial Union Assurance Co. 55 Phil for any sum received by him under
329). any other policy without regard to
the actual value of the subject
matter insured.
Sec 94 Where this insured is over insured
 Unvalued policy – he must give
by double insurance:
credit, as against the full insurable
value, for any sum received by him
(a) The insured, unless the policy otherwise under any policy
provides, may claim payment from the  Insured receives any sum in excess
insurers in such order as he may select, up
– he must hold such sum in trust
to the amount for which the insurers are
for the insurers, according to their
severally liable under their respective
contracts; right of contribution among
themselves.
(b) Where the policy under which the insured
 Each insurer is bound as between
claims is a valued is a valued policy, the
insured must give credit as against, the himself and the other insurers, to
valuation for any sum received by him contribute RABTABLY to the loss in
under any other policy without regard to proportion to the amount for which
the actual value of the subject matter he is liable under the contract.
insured.  Cannot get above value of property
(c) Where the policy under which the insured minus that of proceeds from other
claims is an unvalued policy he must give policies
credit , as against the full insurable value,  Cannot be more than loss because
for any sum received by him under any that would be wagering
other policy.
(d) Where the insured receives any sum in
excess of the valuation in the case of
valued policies, and the insurable value in VI. CONCEALMENT,
the case of unvalued policies, and the MISREPRESENTATION & BREACH OF
insurable value in the case of unvalued WARRANTIES
policies, he must hold such sum in trust for
the insurers, according to their right of A contract of insurance is:
contribution among themselves.
(e) Each insurer is bound, as between himself UBERRIMAE FIDAE - A CONTRACT OF
and the other insurers, to contribute UTMOST GOOD FAITH
ratably to the loss in proportion to the
amount for which he is liable under the
contract.
4 PRIMARY CONCERNS OF PARTIES TO AN
 DOUBLE INSURANCE – when one gets INSURANCE CONTRACT
several policies to cover against the
same danger/peril 1. Correct estimation of the risk which
- exists where the same person is enables the insurer to decide whether
insured by several insurers separately he is willing to assume it, and if so at
in respect to the same subject and what rate of premium
interest- may recover from insurer, 2. The precise delimitation of the risk
insurer who pays may collect from which determines the extent of the
other insurers contingent duty to pay undertaken by
the insurer

99
3. Control of the risk after it is 5. CONDITIONS PRECEDENT
assumed as will enable the insurer  Used by the insurer to protect himself
to guard against the increase of the against fraudulent claims of loss;
risk because of change in conditions these are conditions requiring
4. Determining whether a lost occurred immediate notice of loss or injury and
and if so, the amount of such loss. detailed proofs of loss within a limited
period.
DEVICES FOR ASCERTAINING AND CONCEALMENT

CONTROLLING RISK AND LOSS
Sec. 26. A neglect to communicate that
1. CONCEALMENT & REPRESENTATION
which a party knows and ought to
 Developed for the purpose of
communicate, is called a
enabling the insurer to secure the
concealment.
same information with respect to
the risk that was possessed by the
applicant for insurance so that he Requisites of concealment:
may be equally capable of forming a 1. A party knows the fact which he
just estimate of its quality. neglects to communicate or disclose
to the other
2. AFFIRMATIVE WARRANTIES & 2. the fact concealed is material to the
CONDITIONS risk
 Deals with conditions existing at the 3. such party is duty bound to disclose
inception of the contract, and such fact to the other
operates to make more definite and 4. the other party has not the means of
certain the general words used to ascertaining the fact concealed
describe the risk the insurer 5. such party makes no warranty of the
undertook to bear. fact concealed. (If a warranty is made
 It involve facts the existence of of the fact concealed, the non-
which shows the risk to be greater disclosure of such fact is not
than that intended to be assumed concealment but constitutes a
and operates to create in the insurer violation of the warranty)
the power to extinguish, if he so
desires, the legal relations already Sec. 27. A concealment whether intentional
created. or unintentional, entitles the injured party to
 Ex.. Where an insured is required to rescind a contract of insurance. (As amended
warrant something and when found by BP Blg. 874)
guilty of concealment or
misrepresentation, operates to void
the contract.  The effect of concealment on the
part of the insured makes the
3. EXCPETIONS contract VOIDABLE at the
 Makes more definite the coverage insurer’s option
indicated by the general description  Insurer NEED NOT PROVE FRAUD
of the risk by excluding certain in order to rescind a contract on
specified risks that otherwise could the grounds of concealment.
have been included under the  The duty of communication is
general language describing the risk independent of the intention and
assumed. is violated by the mere fact of
concealment even when there is
4. EXECUTORY WARRANTIES & no design to deceive.
CONDITIONS  Section 27 must be read in
 Are used to enable the insurer to relation to Section 29.
rescind the contract in case
subsequent events increased the Sec. 28 Each party to a contract of insurance
risk to such an extent that he is no must communicate to the other, in good
longer willing to bear. That is, faith, all facts within his knowledge which are
undertakings that certain conditions material to the contract, and which the other
should or should not exist in the has not the means of ascertaining, and as to
future. which he makes no warranty

100
Sec. 32. Each party to a contract of
Matters that Must Be Communicated Even in
insurance is bound to know all the general
the Absence of Inquiry:
causes which are open to his inquiry, equally
1. Matters material to the contract
with that of the other, and which may affect
2. Matters which the other has not the
the political or material perils contemplated;
means of ascertaining the said facts
and all general usages of trade.
3. Matters as to which the party with
the duty to communicate makes no
warranty. Sec. 33. The right to information of material
facts may be waived, either by the terms of
TEST: If the applicant is aware of the insurance or by neglect to make inquiries as
existence of some circumstance which to such facts where they are distinctly implied
he knows would influence the insurer in in other facts of which information is
acting upon his application, good faith communicated.
requires him to disclose that
circumstance, though unasked.
Sec. 34. Information of the nature or
Sec. 29. An intentional and fraudulent amount of the interest of one insured need
omission, on the part of one insured, to not be communicated unless in answer to an
communicate information of matters proving inquire, except as prescribed by section 51.
or tending to prove the falsity of a warranty,
entitles the insured to rescind.
Neither party to a contract of insurance is
bound to communicate, even upon inquiry,
When Fraudulent Intent Necessary: information of his own judgment upon the
matters in question.
 Under section 29, concealment
relates to the falsity of a warranty.
 For the section to operate it is  Sections 30, 32 – 35 pertains to
necessary that the nondisclosure be matters which need not be
intentional and fraudulent before the disclosed
contract may be rescinded.  Exception found in Sec. 30 last
 The concealment refers to matters phrase of first sentence: “except
proving or tending to prove the in answer to the inquiries of the
falsity of the warranty. other”
MATTERS WHICH NEED NOT BE Matters Which Need Not Be Disclosed:

DISCLOSED 1. Mattes already known to the insurer
2. Matters of which the insurer waives
communication – he is in estoppel.
Sec. 30. Neither party to a contract of 3. Matters that concern only risks
insurance is bound to communicate excepted, either expressly or by
information of the mattes following, except in warranty, from the liability assumed
answer to the inquiries of the others: under the policy. **Important Note:
The undisclosed fact must NOT BE
(a) Those which the other knows; MATERIAL otherwise the insured is
(b) Those which, in the exercise of still bound to make disclosure.
ordinary care, the other ought to know, 4. Information of the nature or amount
and of which the former has no reason of the interest of one insured except if
to suppose him ignorant; inquired upon by the insurer.
(c) Those of which the other waives 5. Matters each party are bound to know
communication; such as public events, general
(d) Those which prove or tend to prove the information etc.
existence of a risk excluded by a 6. The right to information of material
warranty, and which are not otherwise fact may be waived either expressly,
material; and by the terms of insurance or
(e) Those which relate to a risk excepted impliedly by neglecting to make
from the policy, and which are not inquiry as to the facts already
otherwise material. communicated.
7. If the interest of the insured to the
property being insured is absolute

101
then there is no necessity to disclose  Is a statement of fact which is untrue
the extent of his interest, if not then  Which the insured states with
he is required to disclose under knowledge that it is untrue and with
Section 51 an intent to deceive or which he
8. Matters of opinion. states positively as true without
knowing it to be true and which has a
tendency to mislead.
MATERIALITY  Where such fact in either case is
material to the risk.
Sec. 31. Materiality is to be determined not
Distinguish from Concealment
by the event, but solely by the probable and
reasonable influence of the fact upon the
 In concealment, the insured maintains
party to whom the communication is due, in
silence when he ought to speak, while
forming his estimate of the disadvantages of
in misrepresentation, the insured
the proposed contract, or in making his
makes a statement of fact which is
inquiries.
not true – active form of
concealment.
Test of Materiality: The effect which the
knowledge of the fact in question would
Sec. 37. A representation may be made at
have on the making of the contract. To
the time of, or before, issuance of the policy
be material, a fact need not increase the
(a)
risk or contribute to any loss or damage
suffered. IT IS SUFFICIENT IF THE
KNOWLEDE OF IT WOULD INFLUENCE
Sec. 38. The language of a representation is
THE PARTY IN MAKING THE CONTRACT.
to be interpreted by the same rules as the
language of contracts in general.
 Concealment must take place at the
time the contract is entered into in
order that the policy may be Construction of Representations:
avoided. Information obtained after o Construed liberally in favor of
the perfection of the contract is no the insured and are required
longer necessary to be disclosed by to be only substantially true.
the insured, even if the policy has
not been issued (**Exception is Sec. 39. A representation as to the future is
when the contract is to b e effective to be deemed a promise, unless it appears
only upon the issuance of the policy that I was merely a statement of belief or
– the insured is still duty bound to expectation.
disclose to the insurer any material
fact which comes to his knowledge.)
 The duty of disclosure ends with the Kinds of Representation:
completion and effectivity of the 1.Oral or Written (Sec. 36)
contract. 2.Made at the time of issuing the policy
or before (Sec. 37)
3.Affirmative or promissory (Sec. 39
MISREPRESENTATION & 42)
Sec. 36. A representation may be oral or Affirmative Representation:

written  Is any allegation as to the existence
Representation: or non-existence of a fact when the
 A factual statement made by the contract begins.
insured at the time of or prior to the
formation of the insurance contract. Promissory Representation:
 The information given to the insurer  Is any promise to be fulfilled after the
induces him to enter into the contract has come into existence or
contract. any statement concerning what is to
 The insurer may also make happen during the existence of the
representation. insurance. A promise representation
is substantially a condition or
Misrepresentation: warranty.

102
personal knowledge of a fact, he may
When Representation Deemed a Mere
nevertheless repeat information which he has
Expression of Opinion:
upon the subject, and which he believes to be
 An oral representation as to a future
true, with the explanation that he does so on
even or condition, over which the
the information of others; or he may submit
insured has no control, with
the information, in its whole extent, to the
reference to property or life insured,
insurer; and in neither case is he responsible
will be deemed a mere expression of
for its truth, unless it proceeds from an agent
opinion which will avoid a contract
of the insured, whose duty is to give the
only when made in bad faith.
information.
Sec. 40. A representation cannot qualify an

express provision in a contract of insurance; Art. 44. A representation is to be deemed
but it may qualify an implied warranty false when the facts fail to correspond with
its assertions or stipulations.
 A representation cannot qualify an
express provision or an express  Sec. 44 defines misrepresentation
warranty in a contract of insurance  Representations are not required to
because a representation is not a be literally true (unlike warranties);
part of the contract but only a they need only be SUBSTANTIALLY
collateral inducement to it. It may TRUE
however qualify an implied
warranty. Sec. 45. If a representation is false in a
material point, whether affirmative or
Sec. 41. A representation may be altered or promissory, the injured party is entitled to
withdrawn before the insurance is effected, rescind the contract from the time when the
but not afterwards. representation becomes false. The right to
rescind granted by this Code to the insurer is
waived by the acceptance of premium
Sec. 42. A representation must be presumed payments despite knowledge of the grounds
to refer to the date on which the contract for rescission. (As amended by BP Blg. 474)
goes in effect.
 Fraud or intent to misrepresent facts
NO FALSE REPRESENTATION IF: not essential to entitle the injured
 If it is true at the time the party to rescind a contract of
contract takes effect although insurance on the ground of false
false at the time it was representation.
made/represented.  To be deemed false, it is sufficient if
the representation fails to correspond
THERE IS FALSE REPRESENTATION IF: with the facts in a material point.
 If it is true at the time it was  But the right to rescind is deemed
waived if the insurer accepts the
CONCEALMENT MISREPRESENTATION premium payments despite knowledge
Insured makes erroneous of the ground for rescission.
Withhold statements of facts with the
information of intent of inducing the insurer
material facts to enter into the insurance
from the insurer contract Sec. 46. The materiality of a representation
is determined by the same rules as the
Determined by the same rules materiality of a concealment.
Injured party has right to rescind

CONCEALMENT vs. MISREPRESENTATION
made/represented but false at
the time the contract takes
effect.
Sec. 47. The provisions of this chapter apply
as well to a modification of a contract of
Sec. 43. When a person insured has no insurance as to its original formation.

103
he had consulted a doctor prior to his application
and that he was suffering from certain symptoms.
Ng v Asian Crusaders Insured died and his brother, the petitioner in the
Facts: The insured applied for a 20-year case filed a claim which was denied by the insurer.
endowment insurance on his life and named his Ratio: The insured is guilty of concealment as the
wife as beneficiary. Upon application he gave fact which he failed to disclose to the insurance
information regarding a previous operation (that company deprived the respondent of the
a tumor was taken out). Insured died of liver opportunity to make the necessary inquiry as to the
cancer. The insurer denied the claim of the nature of his past illness so that it may form its
beneficiary claiming misrepresentation since the estimate relative to the approval of his application.
operation which the insured undertook was for “A neglect to communicate that which a party
“peptic ulcer” and not removal of a tumor. knows and ought to communicate, is called
Ratio: Concealment exist where the insured had concealment” and “Whether intentional or
knowledge of a fact material to the risk, and unintentional, the concealment entitles the insurer
honesty, good faith and fair dealing requires that to rescind the contract of insurance”. Insurer is
he should communicate it to the insurer, but he relieved from liability.
intentionally withhold the same. The insured
informed the medical examiner that the tumor he Pacific Banking v CA
was operated on was associated with ulcer of the Facts: The insured, Paramount is in the business
stomach. In the absence of evidence that the of shirt manufacturing, it took out a fire insurance
insured had sufficient medical knowledge as to policy with Oriental Insurance for 61K. Because of
enable him to distinguish between “peptic ulcer” it’s indebtedness to Pacific Banking Corp., the
and tumor” his statement was an expression policy was endorsed to Pacific as
made in good faith of his belief as to the nature mortgagee/trustor. The property insured was
of his ailment and operation. If the operation and gutted by fire. Pacific made a claim on the
ailment of the insured had such an important insurance policy which was denied by Oriental
bearing on the assumption of risk by the insurer, because it appeared that Paramount failed to
it should have made further inquires on the disclose co-insurance with 3 other insurance
matter or required copies of the hospital records companies (only declared 3 others) in violation of
before approving the application. As provided by Policy Condition # 3.
Section 32 where the right to material information Ratio: By reason of the unrevealed co-
may be waived “…by neglect to make inquires as insurances, the insured had been guilty of a false
to such facts where they are distinctly implied in declaration; a clear misrepresentation and a vital
other facts of which information is one because where the insured had been asked to
communicated” reveal but did not, that was deception. Had the
insurer known that there were many co-insurers, it
Canilang v CA could have hesitated or plainly desisted from
Facts: The insured failed to disclose to the entering into such contract. Hence, the insured
insurer that he was diagnosed to be suffering was guilty of clear fraud. The insurance policy
from “sinus tachycardia” and that he had against fire expressly required that notice should
consulted with a doctor. He died of congestive be given by the insured of other insurance upon
heart failure. His wife, as the beneficiary filed a the same property, the total absence of such
claim with the insurer who denied the same. notices nullifies the policy.
Ratio: The information the insured failed to
disclose was material to the ability of the insurer Eguaras v Great Eastern
to estimate the probable risk he presented as a Facts: The insured applied for a life insurance
subject of life insurance, had he disclosed it, it policy with defendant and named beneficiary his
may be reasonably assumed that the insurer mother-in-law, the petitioner in the case. Insured
would have made further inquires and would falsely answered questions on the application form
have probably refused to issue a non-medical regarding his health and medical history. Also,
insurance policy or at the very least required a when he the insurance company’s physician
higher premium for the same coverage. conducted a physical examination, another person
Materiality is the probable and reasonable pretending to be the insured was presented.
influence of the facts upon the party to whom the Insured died of intestinal occlusion.
communication should have been made, in Ratio: The insured permitted fraud to be
assessing the risk involved, in making or omitting committed against the insurance company in the
to make further inquires and in accepting the fact that he allowed a healthy and robust person to
application for insurance. substitute in his place since he knew that he was in
bad health. It is immaterial the cause of death
Yu v CA since at the time he applied for the insurance on
Facts: The insured applied for a life insurance his life he was affected by a malady that would
with private respondent insurance company. He have been sufficient cause for the rejection of his
concealed a material/important fact in his application by the insurance company. The
application form when he failed to disclose that

104
contract of insurance is null and void because it any co-insurance in any of the three policies.
is false, fraudulent and illegal. When the building occupied by the insured
enterprise was gutted and the stocks-in-trade
Great Pacific Life v CA (1999) insured against were burned, the plaintiff filed
Facts: A group life insurance was executed claims with the 3 insurers which were all denied.
between GrePaLife and DBP for mortgagors of The reason was that the insured violated the terms
DBP to the amount of debt to DBP. The insured of policy in relation to co-insurance.
in this case was one such mortgagor to DBP. Ratio: The terms of the contract are clear and
GrePaLife granted insurance and a couple of unambiguous. The insured is specifically required
months later, insured died of “massive cerebral to disclose to the insurer any other insurance and
hemorrhage”. Upon DBP’s claim GrePaLife its particulars which he may have effected on the
denied claiming non-disclosure of insured that he same subject. The excuse of the plaintiff that the
was suffering from hypertension at the time of agent of the insurance company was aware of the
application for the insurance based on the other insurers or that he failed to read the terms of
testimony of a doctor who declared that the the policies cannot be accepted when the words
cause of death was “possible hypertension and language of the documents are clear and plain
several years ago” or readily understandable by an ordinary reader.
Ratio: GrePaLife failed to establish that the There is absolute no room for interpretation or
insured concealed a material fact as the medical construction and the courts are not allowed to
findings were not conclusive since the doctor make contracts for the parties. The parties must
who gave the testimony did not conduct an abide by the terms of the contract because such
autopsy on the insured nor had he any terms constitute the measure of the insurer’s
knowledge of insured’s previous hospital liability and compliance therewith is a condition
confinements. The death certificate only stated precedent to the insured’s right to recovery from
that hypertension as “possible cause of death”. the insurer.
Concealment exist where the assured had
knowledge of a fact material to the risk, and American Home v CA
honesty, good faith and fair dealing requires that Facts: The insured took out a fire insurance policy
he should communicate it to the assurer, but he to cover the stocks-in-trade of his business from
intentionally withholds the same. Fraudulent the plaintiff insurer. When a fire gutted the
intent on the part of the insured must be business, he filed a claim against plaintiff insurer
established to entitle the insurer to rescind the and several other insurance companies for which
contract. Misrepresentation as a defense of the he also had a policy for the same stocks-in-trade.
insurer to avoid liability is an affirmative defense The plaintiff insurer refused payment claiming that
and the duty to establish such defense rests the insured violated the policy in several instances
upon the insurer. – for our purposes the violation was the failure of
the insured to disclose co-insurance. However,
Edillon v Manila Bankers Life during trial, the trial court found that although the
Facts: The insured applied for a 90-day insured failed to disclose co-insurance, the loss
insurance coverage against accident and adjuster of the insurance company had previous
injuries. She clearly indicated in the application knowledge of the co-insurance prior to the claim.
form that her date of birth was July 11, 1904 Ratio: The insurer is estopped from claiming
(which made her almost 65 at the time of exemption from liability due to the violation of the
application). The insurer accepted her premium policy on non-disclosure. It cannot be said that
payment and issued her a certificate of petitioner was deceived by respondent by the
insurance. Under the insurance policy, there latter’s non-disclosure of the other insurance
contained a provision which excludes the contracts when petitioner actually had prior
company from any liability to pay claims when knowledge as petitioner’s loss adjuster had known
the insured is under 16 or over 60. Insured died all along of the other existing insurance contracts.
of a vehicular accident during the effectivity of The loss adjuster being an employee of petitioner
the insurance coverage. is deemed a representative of the latter whose
Ratio: The insurer is deemed estopped from awareness of the other insurance contracts binds
claiming that the insured is disqualified. She did the petitioner and thus there was no violation of the
not conceal nor misrepresent her age and the “other insurance” clause by the respondent and
insurance corporation has been given sufficient petitioner is liable to pay its share of the loss.
information to know that the insured is over 60
years of age, yet they continued to accept the  Life insurance policy wording that provides
premium payment and issued her the policy. a time limit on the insurer’s right to dispute
a policy’s validity based on material
New Life Enterprise v Court of Appeals misstatements in the application.
Facts: The insured contracted 3 insurance  Incontestability means that after the
policies from 3 different insurance companies for requisites are shown to exist, the insurer
the stocks-in-trade of New Life Enterprises. It shall be estopped from contesting the policy
was undisputed that the plaintiff failed to indicate

105
or setting up any defense, except as is two years from its date of issue or of
allowed, on the ground of public policy its last reinstatement
**The period of two years for contesting a life
Sec. 48. Whenever a right to rescind a insurance policy by the insurer may be
contract of insurance is given to the insurer shortened but it cannot be extended by
by any provision of this chapter, such right stipulation.
must be exercised previous to the Sec. 227 In the case of individual life or
commencement of an action on the contract. endowment insurance, the policy shall
contain in substance the following conditions:
After a policy of life insurance made payable
on the death of the insured shall have been (b) A provision that the policy shall be
in force during the lifetime of the insured for incontestable after it shall have been in force
a period of two years from the date of its during the lifetime of the insured for a period
issue or of its last reinstatement, the insurer of two years from its date of issue as shown
cannot prove that the policy is void ab initio in the policy, or date of approval of last
or is rescindable by reason of the fraudulent reinstatement, except for non-payment of
concealment or misrepresentation of the premium and except for violation of the
insured or his agent. conditions of the policy relating to military or
naval service in time of war.
Grounds for Rescission:
1. Concealment
2. False representation – Defenses Not Barred by Incontestable
misrepresentation Clause:
3. Breach of Warranty 1. That the person taking the insurance
lacked insurable interest as required
When Insurer Must Exercise Right to by law.
Rescind: 2. That the cause of the death of the
insured is an excepted risk.
Non-Life Policy 3. That the premiums have not been
 Must be exercised prior to the paid.
commencement of an action on the 4. That the conditions of the policy
contract. The insurer is no longer relating to military or naval service
entitled to rescind a contract of have been violated.
insurance after the insured has filed 5. That the fraud is of a particularly
an action to collect the amount of vicious type, as where the policy was
the insurance. taken out in furtherance of a scheme
 **However, it has been held that to murder the insured, or where the
where any of the material insured substitutes another person for
representations is false, the the medical examination, or where
insurer’s tender of the premiums the beneficiary feloniously kills the
and notice that the policy is insured.
cancelled before commencement of 6. That the beneficiary failed to furnish
the suite, operates to rescind a proof of death or to comply with any
contract of insurance conditions imposed by the policy after
the loss has happened.
Life Policy 7. That the action was not brought
 The defense is available only during within the time specified.
the first two years of a life insurance
policy. Or upon the first two years
after reinstatement. Argente v West Coast Life Ins. Co.
Facts: The insured spouses signed an application
Requisites for Incontestability of Life for joint insurance which was accepted by the insurer.
Policies: The wife died of cerebral apoplexy a couple of month
after the effectivity of the policy. When the husband
1. The policy is a life insurance policy. filed a claim, the insurer denied the claim due to
2. It is payable on the death of the fraud and misrepresentation of the insured. It
insured appeared that the answers the spouses gave in their
3. It has been in force during the medical examinations with regard to their health and
lifetime of the insured for at least previous illnesses and medical attendance were
untrue.

106
Ratio: The spouses were guilty of concealment. 73) is one where the insured
As to the issue of the application of section 47 (now stipulates that certain facts or
sec. 48) on the time the insurer must exercise the conditions pertaining to the risk shall
right to rescind, the court held that a failure to exist or that certain things with
exercise the right of rescission cannot prejudice reference thereto shall be done or
any defense to the action which the concealment omitted. It is in the nature of a
may furnish. Where any of the material condition subsequent.
representations are false, the insurer’s tender of
the premium and notice that the policy is cancelled,
**Warranties are either affirmative or
before the commencement of suit thereon, operate
promissory and expressed or implied – so
to rescind the contract of insurance, and are a
sufficient compliance with the law. it comes in pairs you can have an implied
affirmative warranty or an expressed
affirmative warranty..
WARRANTIES **A warranty is presumed to be
affirmative unless the contrary intention
 Is a statement or promise set forth appears
in the policy itself or incorporated in
it by proper reference, the untruth
or non-fulfillment of which in any Sec. 68. A warranty may relate to the past,
respect and without reference to the present, the future, or to any or all of
whether the insurer was in fact these.
prejudiced by such untruth or non-
fulfillment, renders the policy
voidable by the insurer.
Sec. 69. No particular form of words is
necessary to create a warranty.
Sec. 67. A warranty is either expressed or
implied.
Warranties v Representation
Kinds of Warranties:
WARRANTY REPRESENTATION
1. Express Warranty (Sec 67 & 71) Considered part of Collateral inducement
is an agreement contained in the the contract to the contract
policy or clearly incorporated
whereby the insured stipulates that Always written on May be written in a
certain facts relating to the risk are the face of the totally disconnected
or shall be true or certain acts policy, actually or paper or may be oral
relating to the same subject have by reference
been or shall be done. Must be strictly Only substantial truth
2. Implied Warranty (marine complied with is required.
insurance only) is a warranty
which from the very nature of the Falsity or non- Falsity of a
contract or from the general tenor of fulfillment of a representation renders
the words, although no express warranty operates the policy void on the
warranty is mentioned, is as a breach of ground of fraud.
necessarily embodied in the policy contract
as a part thereof and which binds Presumed material Insurer must show the
the insured as thorugh expressed in materiality of a
the contract. (There is an implied representation in order
warranty that the ship is seaworthy to defeat an action on
when the policy attaches) the policy.
3. Affirmative Warranty (Sec. 68) is

one which asserts the existence of a Sec. 70. Without prejudice to section fifty-
fact or condition at the time it is one, every express warranty, made at or
made before the execution of a policy, must be
contained in the policy itself, or in another
4. Promissory warranty or instrument signed by the insured and
Executory Warranty (Sec. 72 & referred to in the policy as making a part of

107
it. policy, on the part of either party thereto,
entitles the other to rescind.
 In order that a stipulation may be
considered a warranty, it must not
Sec. 75. A policy may declare that a
only be clearly shown that the
violation of specified provision thereof shall
parties intended it as such but it
avoid it, otherwise the breach of an
must also forma a part of the
immaterial provision does not avoid the
contract itself or if contained in
policy.
another instrument, it must be
signed by the insured and referred
to in the policy as making a part of Sec. 76. A breach of warranty without fraud,
it. Mere reference alone is not merely exonerates an insurer from the time
sufficient to give this effect. that it occurs, or where it is broken in its
inception, prevents the policy from attaching
to the risk.
Sec. 71. A statement in a policy, of a matter
relating to the person or thing insured, or to  Fraud is not essential to entitle the
the risk, as a fact, is an express warranty insurer to rescind a contract for
thereof. breach of warranty.
 Falsity, not fraud is the basis of
liability in warranty.
Sec. 72. A statement in a policy, which
 If the breach of the warranty was
imports that it is intended to do or not to do
WITHOUT FRAUD – insured is
a thing which materially affects the risk, is a
entitled to:
warranty that such act or omission shall take
1. Return of premium paid at a pro-
place.
rata rate from the time of breach
if it occurs after the inception of
 Section 72 refers to promissory the contract
warranty. 2. To all the premiums if it is broken
 Beach of promises or agreements as during the inception of the
to future acts will not avoid a policy contract. In this case the
unless the promises are material to contract is void ab initio and
the risk. never became binding.
 If the breach of the warranty was
WITH FRAUD – policy is void ab
Sec. 73. When, before the time arrives for
initio and the insured is not entitled to
the performance of a warranty relating to the
the return of the premium paid
future, a loss insured against happens, or
performance becomes unlawful at the place
of the contract, or impossible, the omission to
WARRANTIES IN FIRE INSURANCE
fulfill the warranty does not avoid the policy.
Sec. 167. As used in this Code, the term

When Breach of Warranty does not Avoid
“fire insurance” shall include insurance
Policy:
against loss by fire, lightning, windstorm,
1. When loss occurs before time for
tornado or earthquake and other allied risks,
performance
when such risks are covered by extension to
2. When performance becomes
fire insurance policies or under separate
unlawful
policies. (a)
3. When performance becomes
impossible (legal & physical
impossibility)  A fire insurance is a contract of
4. When insurer waives the warranty, indemnity by which the insurer, for
impliedly or expressly. consideration, agrees to indemnify the
insured against loss of, or damage to,
MATERIALITY and FRAUD IN WARRANTY property by fire.
Sec. 74. The violation of a material Sec. 168. An alteration in the use or
warranty, or other material provision of a condition of a thing insured from that to

108
does not constitute a violation of the
which it is limited by the policy made without
policy. The contract is not affected by
the consent of the insurer, by means within
such alteration even though it
the control of the insured, and increasing the
increases the risk and is the cause of
risk, entitles an insurer to rescind a contract
the loss.
of fire insurance.
Sec. 171. If there is no valuation in the

Sec. 169. An alteration in the use or policy, the measure of indemnity in an
condition of a thing insured from that to insurance against fire is the expense it would
which it is limited by the policy, which does be to the insured at the time of the
not increase the risk, does not affect a commencement of the fire to replace the
contract of fire insurance. thing lost of injured in the condition in which
it was at the time of the injury; but if there is
Requisites Alteration to Entitle Insurer to a valuation in a policy of fire insurance, the
Rescind: effect shall be the same as in a policy of
1. The use or condition of the thing is marine insurance.
specifically limited or stipulated in
the policy.
Sec. 172. Whenever the insured desires to
2. Such use or condition as limited by
have a valuation named in his policy, insuring
the policy is altered.
any building or structure against fire, he may
3. The alteration is made without the
require such building or structure to be
consent of the insurer
examined by an independent appraiser and
4. The alteration is made by means
the value of the insured’s interest therein
within the control of the insured
may then be fixed as between the insurer
5. The alteration increases the risk.
and the insured. The cost of such
examination shall be paid for by the insured.
Increase of Risk or Hazard in General
A clause shall be inserted in such policy
 Increase of hazard takes
stating substantially that the value of the
place whenever the insured property
insured’s interest in such building or structure
is put to some new use, and the
has been thus fixed. In the absence of any
new use increases the chance of
change increasing the risk without the
loss.
consent of the insurer or of fraud on the part
 Mere negligent acts
of the insured, then in case of a total loss
temporarily endangering the
under such policy, the whole amount so
property will not violate the policy
insured upon the insured’s interest in such
 Temporary acts or
building or structure, as stated in the policy
conditions which have ceased prior
upon which the insurers have received a
to the occurrence of the loss will
premium, shall be paid, and in case of a
also not violate the policy.
partial loss, the full amount of the partial loss
 For sec. 168 to operate,
shall be so paid, and in case there are two or
entitling the insurer the right to
more policies covering the insured’s interest
rescind, there must be an actual
therein, each policy shall contribute pro rata
increase of risk and while it is
to the payment of such whole or partial loss.
not necessary that the increased
But in no case the insurer be required to pay
risk should have cause or
more than the amount thus stated in such
contributed to the loss, it is
policy. This section shall not prevent the
necessary that the increase be
parties from stipulating in such policies
of a substantial character.
concerning the repairing, rebuilding or
replacing of buildings or structures wholly or
Sec. 170. A contract of fire insurance is not partially damaged or destroyed.
affected by any act of the insured subsequent
to the execution of the policy, which does not
violate its provisions, even though it
increases the risk and is the cause of a loss.
Measure of Indemnity Under an Open
 If the policy does not contain any Policy
prohibition limiting the use or  Entitled to recover amount of actual
condition of the thing insured, an loss sustained (burden of establishing
alteration in said use or condition

109
the amount of loss is upon the
company, and any such pledge,
insured)
hypothecation, or transfer hereafter made
shall be void and of no effect insofar as it
Measure of Indemnity Under a Valued
may affect other creditors of the insured.
Policy
 The valuation in the policy of fire
insurance is conclusive between the Effect of Pledge of Fire Insurance Policy
parties in the adjustment of either  After a loss has occurred, the insured
partial or total loss if the insured has MAY pledge, hypotheticate or transfer
an insurable interest and was not a fire insurance policy or rights
guilty of fraud thereunder.
 In case of total loss, the insured can  This right however is subject to the
recover the whole amount so prohibition of Section 173.
insured as stated in the policy (the
valuated amount) Pioneer v Yap
 In case of partial loss, the full Facts: The insured was the owner of a store
amount of the partial loss (but selling bags and footwear, she took out a fire
should not exceed the valuated insurance from petitioner insurance company
amount) covering her stocks, office furniture, fixtures and
fittings of every kind and description. A condition
 Total loss exist when the result of
was set which required the insured to disclose to
the fire is such as to render the
the insurer of any insurance or insurances “already
property wholly unfit for use. effected, or which may be subsequently effected”.
 If the thing is insured under two or It further stipulated that “…unless such notice be
more policies, each policy shall given and the particulars of such insurance or
contribute pro-rata to the payment insurances be stated in or endorsed on this Policy
of such whole or partial loss. by or on behalf of the Company before the
 The insured is not a co-insurer occurrence of any loss or damage, all benefits
under a fire insurance policy in the under this Policy shall be forfeited”. The insured
absence of stipulation unlike in failed to inform the insurer of another co-insurance.
marine insurance. Fire broke out, gutted the store of insured. Upon
filing of claim, petitioner insurance company
Co-Insurance Clause denied the claim for violation of condition in the
 Is a clause requiring the insured to policy.
maintain insurance to an amount Ratio: By the plain terms of the policy, other
equal to a specified percentage of insurance without the consent of petitioner would
the value of the insured property ipso facto avoid the contract. It required not
affirmative act of election on the part of the
under penalty of becoming co-
company to make operative the clause avoiding
insurer to the extent of such
the contract, wherever the specified conditions
deficiency. Many property owners
occur. Its obligation ceases, unless, being
realizing the possibility of total informed of the fact, it consented to the additional
destruction is slight, merely take out insurance. Furthermore, the court quoting Justice
a small percentage of the value of Bengson (Gen Insurance & Surety Corp v Ng Hua)
the building or goods. To prevent said that “…and considering the terms of the policy
the insured from taking out such which required the insured to declare other
small amount of insurance, and insurances, the statement in question must be
thereby reduce premium payments deemed to be a statement (WARRANTY) binding
the insurers often insert as a rider to on both insurer and insured, that there were no
the standard fire policy a so called other insurance on the property….the annotation
“co-insurance” clause which results then, must be deemed to be a warranty that the
in reducing the recovery in case of property was not insured by any other policy.
partial loss to but a portion of the Violation thereof entitled the insured to rescind.”
sum named in the policy though in
case of total loss, the insurer is
liable for the amount named in the
Young v Midland Textile Insurance
policy.
Facts: The insured, an owner of a candy and fruit
store took out a fire insurance policy from the
Sec. 173. No policy of fire insurance shall be defendant insurance company to insure his
pledged, hypothecated, or transferred to any residence and his bodega. Under the policy, a
person, firm or company who acts as agent condition was set as "warranty B" which stipulates
for or otherwise represent the issuing that no hazardous goods be stored or kept for sale

110
and no hazardous trade or process shall be Filipna cia de Seguros v Nava
carried in the building. During the enforcement Facts: On February 1939, plaintiff Nava and
of the insurance policy, the insured kept 3 boxes defendant Filipinas Life Assurance entered into 17
of fire crackers. Sometime later a fire broke out separate contracts of life insurance for which the
which partially destroyed the building but it insured issued 17 life insurance policies for which
appeared that the fire crackers were not the the insurer issued 17 life insurance policies, one of
cause of the fire as they were found in an area said policies having a face value of P10,000 while
not burned. Upon claim insurer denied payment. the rest a face value of P5,000 each, or a total of
Ratio: The terms of the contract constitute the P90K. Each and every policy contains a policy
measure of the insurer's liability. If the contract loan clause. On April 1948, plaintiff applied for a
has been terminated by a violation of its terms on loan of P5,000 in line with the loan clause but
the part of the insured, there can be no recovery. defendants refused citing certain regulations issed
Compliance with the terms of the contract is a by the Insurance Commissioner on May 1946.
condition precedent to the right of recovery. A Held: Defendant’s refusal to give the loan applied
violation of the terms of a contract of insurance, for by the plaintiff violated the loan clause
by either party, will constitute the basis for a embodied in each of the life insurance policies.
termination of the contractual relations, at the This violation of the loan clause in the policy
election of the other (in this case the insurer). entitled plaintiff to rescind all policies under Section
The right to terminate the contractual relations 69 of the Insurance Act, which provides: “the
exist even though the violation was not the direct violation of a material warranty, or other material
cause of the loss, since the deposit of the provision of a policy, on the part of either party
“hazardous goods” in the building insured was a thereto, entitles the other to rescind.” Our
violation of the terms of the contract. The insurer Insurance Law does not contain an express
is relieved from his liability since the deposit of provision as to what the court should do in cases
the hazardous materials created a new risk not of rescission of an insurance policy under Section
included in the terms of the contract. The insurer 69, the provision that should apply is that
had neither been paid, nor had he entered into a embodied in Art. 1295 of the old civil code, as
contract to cover the increased risk. postulated in Art. 16 of the same Code, which
provides that on matters which are not governed
by special laws the provision of said Code shall
EXCEPTIONS/& EXCLUSION supplement its deficiency. The CA was correct in
ordering defendant to refund to plaintiff all
 Intends to limit the liability of the premiums paid by him up to the filing of the action
insurer under certain circumstances. amounting to P34,644.60.
Musngi v West Coast Insurance Co. Inc.

Facts: The insured took out two life insurance GROUNDS AND EXERCISE OF RIGHT OF
policies with defendant insurer designating as his RESCISSION
beneficiaries the plaintiffs in the case. In his
application the insured untruthfully answered
Sec. 48. Whenever a right to rescind a
questions regarding his health particularly about
contract of insurance is given to the insurer
having consulted any physician regarding an
by any provision of this chapter, such right
illness or ailment. It appeared that prior to his
application for insurance, the insured had been must be exercised previous to the
treated for a number of ailments including peptic commencement of an action on the contract.
ulcer, TB etc. The insured died, and upon his After a policy of life insurance made payable
death his beneficiaries filed a claim with on the death of the insured shall have been
defendant insurance company who denied the in force during the lifetime of the insured for
claim. a period of two years from the date of its
Ratio: The insured is guilty of concealment and issue or of its last reinstatement, the insurer
thus relieves the insurer from paying the claim. cannot prove that the policy is void ab initio
The insured knew that he had suffered from a or is rescindable by reason of the fraudulent
number of ailment before subscribing the concealment or misrepresentation of the
application, yet he concealed them and omitted insured or his agent.
the hospital where he was confined as well as
the name of his physician who treated him. The
concealment and false statement constituted Sec. 63. A condition, stipulation, or
fraud, since this caused the defendant insurer to agreement, in any policy of insurance,
accept the risk when it would have otherwise limiting the time for commencing an action
refused. Such concealment of the insured thereunder to a period of less than one year
rendered the policy null and void (as held also in
from the time when the cause of action
Argente v West Coast).
accrues is void.

111
When Cause of Action Accrues
 The right of the insured to the
(a) which of the grounds set forth in
payment of his loss accrues from the
section 64 is relied upon; and
happening of the loss.
(b) that, upon written request of the
 The cause of action in an insurance
named insured, the insurer will
contract does not accure UNTIL THE
furnish the facts on which the
INSURED’S CLAIM IS FINALLY
cancellation is based.
REJECTED BY THE INSURER,
because before such final
rejection ,there is no real necessity Form and Sufficiency of Notice of
for binging suit. Cancellation
 The period is to be computed not 1. There must be prior notice of
from the time the loss actually cancellation to the insured.
occurs but from the time when the 2. The notice must be based on the
insured has a right to bring an occurrence , after the effective of the
action against the insurer. policy, of one or more of the grounds
**Cause of Action – requires as mentioned in section 64.
essential elements not only a legal right 3. It must be in writing, mailed or
of the plaintiff and a correlative delivered to the named insured at the
obligation of the defendant but also “AN address shown in the policy.
ACT OR OMISSION OF THE DEFENDANT 4. It must state which of the grounds set
IN VIOLATION OF SAID LEGAL RIGHT”, forth is relied upon
the cause of action in favor of the
insured does not accrue until the insurer Sec. 170. A contract of fire insurance is not
refuses expressly or impliedly to comply affected by any act of the insured subsequent
with his duty to pay the amount of the to the execution of the policy, which does not
loss. violate its provisions, even though it
increases the risk and is the cause of a loss.
Sec. 64. No policy of insurance other than
life shall be cancelled by the insurer except
upon prior notice thereof to the insured and Sec. 227 In the case of individual life or
no notice of cancellation shall be effective endowment insurance, the policy shall
unless it is based on the occurrence , after contain in substance the following conditions:
the effective date of the policy, of one or
more of the following: (b) A provision that the policy shall be
incontestable after it shall have been in force
(a) non payment of premium; during the lifetime of the insured for a period
(b) conviction of a crime arising out of of two years from its date of issue as shown
acts increasing the hazard insured in the policy, or date of approval of last
against reinstatement, except for non-payment of
(c) discovery of fraud or material premium and except for violation of the
misrepresentation; conditions of the policy relating to military or
(d) discovery of willful or reckless acts or naval service in time of war.
omissions increasing the hazard
insured against;
(e) physical changes in the property Sec. 380. No cancellation of the policy shall
insured which results in the property be valid unless written notice thereof is given
becoming uninsurable; or to the land transportation operator or owner
(f) a determination by the of the vehicle and to the Land Transportation
Commissioner that the continuation Commission at least fifteen days prior to the
of the policy would violate or would intended effective date thereof.
place the insurer in violation of this Upon receipt of such notice, the Land
Code. Transportation Commission, unless it receives
evidence of a new valid insurance or
guaranty in cash or surety bond as prescribed
Sec. 65. All notices of cancellation in this Chapter, or an endorsement of revival
mentioned in the preceding section shall be in of the cancelled one, shall order the
writing, mailed or delivered to the named immediate confiscation of the plates of the
insured at the address shown in the policy motor vehicle covered by such cancelled
and shall state: policy. The same may be reissued only upon

112
presentation of a new insurance policy or that (2) "Marine protection and indemnity
a guaranty in cash or surety bond has been insurance," meaning insurance against, or
made or posted with the Commissioner and against legal liability of the insured for loss,
which meets the requirements of this damage, or expense incident to ownership,
chapter, or an endorsement or revival of the operation, chartering, maintenance, use,
cancelled one. (As amended by PD No. 1455) repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland
waterways, including liability of the insured for
personal injury, illness or death or for loss of
or damage to the property of another person.
MARINE INSURANCE
1. “Navigational Exposure” – basic
concept in defininition.
A. DEFINITION  Dean says that since the IC
(Insurance Code) does not really
Sec. 99.Marine Insurance includes: define what marine insurance is, most
(1) Insurance against loss of or damage important is to just point out that
to: NAVIGATIONAL EXPOSURE is the
common thread that runs through the
(a) Vessels, craft, aircraft, vehicles,
enumeration in Sec. 99
goods, freights, cargoes, merchandise,
 Related to Navigation of the ship
effects, disbursements, profits, moneys,
securities, choses in action, evidences of
Definition of marine insurance under the
debts, valuable papers, bottomry, and
IC and under the Insurance Act (Law w/c
respondentia interests and all other kinds of
IC amended)
property and interests therein, in respect to,
 Campos: the IC gives the terms of
appertaining to or in connection with any
marine insurance a very wide
and all risks or perils of navigation, transit or
transportation, or while being assembled, coverage including property exposed
to risks not connected with
packed, crated, baled, compressed or
similarly prepared for shipment or while navigation.
 The simple clear definition in the IA
awaiting shipment, or during any delays,
storage, transhipment, or reshipment was better: Marine insurance is an
incident thereto, including war risks, marine insurance against risks connected
builder's risks, and all personal property with navigation to which a ship,
floater risks; cargo, freightage, profits, or other
insurable interest in movable property
(b) Person or property in connection
may be exposed during a certain
with or appertaining to a marine, inland
voyage or a fixed period of time.
marine, transit or transportation insurance,
including liability for loss of or damage
arising out of or in connection with the
Insurance Act (old Insurance Code
construction, repair, operation, maintenance
definition) (present def’n)
or use of the subject matter of such
Marine insurance Covers property
insurance (but not including life insurance or
covers all kinds of exposed to risks of
surety bonds nor insurance against loss by
movable property, navigation and even
reason of bodily injury to any person arising
but it operated only those exposed to
out of ownership, maintenance, or use of
is such property is risks not connected
automobiles);
exposed to risks with navigation, like
(c) Precious stones, jewels, jewelry, connected with risks connected with
precious metals, whether in course of navigation. all other means of
transportation or otherwise; transportation,
(d) Bridges, tunnels and other including overland
instrumentalities of transportation and and perhaps even air
communication (excluding buildings, their transportaion.
furniture and furnishings, fixed contents and
supplies held in storage); piers, wharves,  Criticism of IC def’n: It’s confusing
docks and slips, and other aids to navigation impractical and unrealistic to apply
and transportation, including dry docks and provision intended specifically and only for
marine railways, dams and appurtenant risks of navigation (w/c came down to us
facilities for the control of waterways. from the usages and customs of

113
merchants) to risks connected with land vessel itself, or other damage
and air transportation. usually incident to the voyage.
 IC definition also didn’t serve any legal - Fortuitous and unusual
purpose by widening the scope of the - Must be connected with maritime
definition since most of the special navigation
provisions in the IC relating to marine - It is a relative term and the
insurance can properly apply only to meaning ma y vary with the
ships or other property exposed to circumstances.
navigational risks.
 Everything covered by the new definition  Peril of the Ship
would anyway be necessarily governed - Loss which in the ordinary course of
by the general provisions of the IC, even events results from:
if the old definition had just been - The Natural and inevitable action
retained. of the sea.
- Ordinary Wear and Tear fo the
Property covered by marine policy ship
 A marine policy may cover any - The negligent failure of the
property or interest therein which ship’s owner to provide the
may be subjected to the risks of vessel with proper equipment to
navigation. Definition in policy may convey the cargo under
be modified or enlarged by riders, ordinary conditions
warranties, or indorsements
attached to the policy.  Barratry - willful and intentional act
 Term “goods and merchandise” on the part of the master or crew, in
usually found in a marine policy pursuance of some unlawful or
includes all articles which are carried fraudulent purpose, without the
on the ship for COMMERCIAL consent of the owner, and to the
purposes. (Does not incl ex. prejudice of his interest; Neither
Clothing of crew, food, etc). honest error or judgment nor mere
Expected profits from the sale of negligence.
such goods may also be protected. - May be covered by policy
 Freight or Freightage – all
benefits derived by the owner,  Taking at sea, arrests, restraints,
either from chartering (borrowing and detainments of all kings,
the entire ship) of the ship or its princes and people -
employment for the carriage of his extraordinary acts by a sovereign
own goods or those of others. This is authority in time of war, or under
not covered unless expressly stated other unusual international conditions
in the policy. like blockades and embargoes. Acts
 Freight Insurance doesn’t cover done in the course of regular
passage money payable by proceedings not included (i.e. vessel
passenger at the completion of the libeled and detained for non-payment
voyage unless expressly provided. of debt) since there is nothing
fortuitous about the situation.
Risks which may be insured against - Includes not only “arrests” caused
 Insurer is liable for all losses by political acts of a seizing state
PROXIMATELY caused by the perils but also by ordinary legal
covered by the marine policy processes such as a lawsuit on
 Usually enumerated ownership and possession of
goods. (see Malayan Insurance
2. “Perils of the Sea” and “Perils of Corp v CA case)
the Ship”
o Peril of the Sea  All other perils, losses and
- includes only casualties arising misfortunes - covers risks which are
from the violent action of the of like kind with the particular risks
elements and does not cover which are enumerated in the
ordinary wear and tear like preceding part of the same clause of
the silent, natural and gradual the contract
action of the elements on the

114
La Razon Social “Go Tiaoco y Hermanos” v Filipino Merchants Insurance Co v CA
Union Insurance Society of Canton Ltd. Facts A shipment of fishmeal insured by Filipino
Facts: A drain pipe passing through the hold Merchants Co. was found to be damaged upon its
where the insured rice was stowed had become unloading in the Port of Manila. The
corroded in course of time, w/c created a hole in owner/consignee filed action to recover the amount
the pipe. An attempt was made to cement the represented by the damages based on the “all
hole and cover it with a strip of iron but due to risks” clause of the policy but Fil.Merchants
the loading of the ship, this part of the pipe was refused claiming that there must be some casualty
submerged in water during the trip and was or accidental cause to which the loss is
washed out. Water flowed into the hold and attributable.
damaged the rice. Held An “all risks policy” should be read literally
Issue: WON the insurer was liable (not technically) as meaning all risks whatsoever
Held: NO. A loss which in the ordinary course of and covering all losses by an accidental cause of
events, results from the natural and inevitable any kind. It has evolved to grant a greater
action of the sea, from the ordinary wear and protection than that afforded by the “perils” clause
tear of the ship, or from the negligent failure of in order to assure that no loss can happen through
the ship’s owner to provide the vessel with the incident of a cause neither insured against nor
proper equipment to convey the cargo under creating liability in the ship. The insured under an
ordinary conditions, is not a peril of the sea, but all risks policy has the initial burden of proving that
rather a “peril of the ship.” In such a case, the the cargo was damaged when unloaded from the
remedy of the insured shipper or consignee is vessel, thereafter, the burden then shifts to the
not against the insurer but against the shipowner. insurer to show the exception to the coverage.
Under this policy it is sufficient to show that there
Cathay Insurance v CA was damage occasioned by some accidental
Facts: Remington Industrial Sales filed for the cause of any kind and there is no necessity to
recovery of losses incurred due to the rusting of point to any particular cause.
steel pipes it imported from Japan while it was in
transit. Cathay Insurance refused payment
claiming that the rusting was not due to a peril of B. INSURABLE INTEREST
the sea since it was not a casualty which could Sec. 100. The owner of a ship has in all
not be foreseen. cases an insurable interest in it, even when it
Held: There is no question that rusting of steel
has been chartered by one who covenants to
pipes in the course of voyage is a “peril of the
pay him its value in case of loss: Provided,
sea” in view of the toll on the cargo by wind,
That in this case the insurer shall be liable for
water and salt conditions. (HANGLABO! But in
any case, the SC decided through construction) only that part of the loss which the insured
We would fail to observe a cardinal rule in the cannot recover from the charterer.
interpretation of contracts, namely, that any
ambiguity therein should be construed against  Owner of Vessel has insurable interest
the issuer/drafter, namely, the insurer. in the vessel even if he has
mortgaged it. However, if ship is
Malayan Insurance Corp v CA chartered and charterer agrees to pay
Facts TKC Marketing was the owner/consignee him its value in case of loss, it is only
of soya bean meal shipped from Brazil to Manila. liable for that part of the loss which
It was insured by Malayan Insurance. While the the insured cannot recover from the
vessel was in South Africa it was arrested and charterer.
detained due to a lawsuit questioning its
ownership and possession. As a result, TKC
Marketing filed a claim with Malayan for the non- Sec. 101. The insurable interest of the
delivery of the cargo. owner of the ship hypothecated by bottomry is
Issue WoN the arrest of the vessel by the civil only the excess of its value over the amount
authority was a peril of the sea secured by bottomry.
Held The “arrest” caused by ordinary judicial
process is deemed included among the covered Sec. 102. Freightage, in the sense of a
risks. (Decision detailed the history of the “Free policy of marine insurance, signifies all the
from Capture and Seizure” clause) Although the benefits derived by the owner, either from the
Free from Capture and Seizure” clause was chartering of the ship or its employment for
originally inserted in marine policies to protect the carriage of his own goods or those of
against risks of war, its interpretation in recent
others.
years to include seizure or detention by civil
authorities seems consistent with the general
purposes of the clause. Sec. 103. The owner of a ship has an
insurable interest in expected freightage which
according to the ordinary and probable course

115
of things he would have earned but for the proceed has an insurable interest in the
intervention of a peril insured against or profits.
other peril incident to the voyage.
Sec. 106. The charterer of a ship has an
Sec. 104. The interest mentioned in insurable interest in it, to the extent that he is
the last section exists, in case of a charter liable to be damnified by its loss.
party, when the ship has broken ground on
the chartered voyage. If a price is to be  As with other insurances, marine
paid for the carriage of goods it exists when insurance is invalid unless supported
they are actually on board, or there is some by an insurable interest.
contract for putting them on board, and both
ship and goods are ready for the specified
voyage.
Sec. 105. One who has an interest in

the thing from which profits are expected to
so because when the vessel bottomed

In Ship is lost, the owner need not pay the
 Bottomry Loan – one given on the loan and is therefore benefited to the
security of the ship, on condition extent of the amount of the load
that the loan be repaid only if the obtained and the loss he actually
ship arrives safely at the port of suffers is only the difference bet the
destination; money given in actual value of the vessel and the
advance; is ship sinks, bottomry bottomry.
loan extinguished and owner doesn’t
have to pay it.
 Bottomry loans and marine C. CONCEALMENT
insurance can share protection and Sec. 107. In marine insurance each party is bound
coverage of same risks; but cannot to communicate, in addition to what is required by
coextend with each other. section twenty-eight, all the information which he
 Where a vessel is hypothecated by possesses, material to the risk, except such as is
mentioned in Section thirty, and to state the exact
In Ship In Goods Shipped and In Freightage
Profits
Owner of the -Has insurable interest in Interest in goods ship -Has insurable interest in
Ship ALL cases even if the ship carries to the extent that expected freightage w/c accdg
has been chartered by one he may be liable for their to the ordinary and probable
who has agreed to pay, its loss, but NOT TO EXCEED course of things he would
value in case of loss. In this THE VALUE thereof have earned but for the
case, insurer’s (of the ship intervention of a peril insured
owner) liability is limited to against or other peril incident
the part of the loss which to the voyage
insured cannot recover - If Freight is Payable upon
from the charterer. the Completion of voyage-
- If ship is subjected to OWNER has insurable interest
bottomry loan, Owner’s
interest is only in excess of
value over amount secured
by bottomry.
Charterer / May take out policy Has insurable interest in Freight PAID in ADVANCE –
Shipper covering insurable interest, goods since they will suffer Charterer or Shipper has
which can be only to the damage in case of loss insurable interest
extent that he may be
damnified by the loss
way of bottomry, the owner has an and whole truth in relation to all matters that he
insurable interest only in the excess represents, or upon inquiry discloses or assumes to
of the vessel’s value over the disclose.
amount of the bottomry loan. This is

116
Sec. 108. In marine insurance, is within, or which ought to be within
information of the belief or expectation of a the knowledge of one party and of
third person, in reference to a material fact, which the other has no actual or
is material. presumptive knowledge.
 Failure to disclose the ff. will give the
insurer the right to rescincd (No more
Sec. 109. A person insured by a
liability).
contract of marine insurance is presumed to
- Material facts within knowledge of
have knowledge, at the time of insuring, of a
party
prior loss, if the information might possibly
have reached him in the usual mode of - All information he posessess
transmission and at the usual rate of which are material to risk, except
communication. as is mentioned in Sec. 30 (cf
with Sec. 28 which only require
communication of facts which are
Sec. 110. A concealment in a marine material to the contract as to
insurance, in respect to any of the following which he makes no warranty)
matters, does not vitiate the entire contract, - Beliefs and expectations of 3rd
but merely exonerates the insurer from a persons in reference to a material
loss resulting from the risk concealed: fact.
(a) The national character of the
insured; Sec. 28.Each party to a contract of insurance
(b) The liability of the thing insured to must communicated to the other, in good
capture and detention; faith, all facts within his knowledge which are
(c) The liability to seizure from breach material to the contract and as to which he
of foreign laws of trade; makes no warranty, and which the other has
(d) The want of necessary documents; not the means of ascertaining.
(e) The use of false and simulated
papers. Sec. 30. Neither party to a contract of
insurance is bound to communicate
REPRESENTATION information of the matters following, except in
Sec. 111. If a representation by a answer to the inquiries of the other:
person insured by a contract of marine (a) Those which the other knows;
insurance, is intentionally false in any (b) Those which, in the exercise of
material respect, or in respect of any fact on ordinary care, the other ought to know, and of
which the character and nature of the risk which the former has no reason to suppose
depends, the insurer may rescind the entire him ignorant;
contract. (c) Those of which the other waives
communication;
Sec. 112. The eventual falsity of a (d) Those which prove or tend to prove
representation as to expectation does not, in the existence of a risk excluded by a warranty,
the absence of fraud, avoid a contract of and which are not otherwise material; and
marine insurance. (Note: Will be void if there (e) Those which relate to a risk excepted
is fraud) from the policy and which are not otherwise
material.
Special Rule in Marine Insurance
 Substantial truth of any material TEST of Materiality: Whether the concealed
statement is NOT sufficient fact caused the loss and not its probable
 Law requires the insured to state influence on the other party in deciding
the exact and whole truth in relation whether or not to enter the contract.
to all matters that he represents, or
upon inquiry, discloses or assumes Knowledge of prior loss is presumed.
to disclose. Reason: Quickness in the transmission of
 Due to nature of contract news by means of modern communication.
Rules on Concealment and Representations: Insured must state the

Misrepresentation are STRICTER in exact and whole truth in relation to all matters
marine Insurance. Why? that he represents of upon inquiry discloses or
 Failure to disclose any material fact assumes to disclose.
or circumstance which in law or fact

117
False representations: (a) When the insurance is made for a
1. Any misrepresentation of a material specified length of time, the implied warranty
fact made with fraudulent intent is not complied with unless the ship be
seaworthy at the commencement of every
2. The character and nature of the risk
voyage it undertakes during that time;
depends on the fact
misrepresented (b) When the insurance is upon the cargo
Effect: Insurer may RESCIND the contract which, by the terms of the policy, description
Exception: Eventual falsity of a of the voyage, or established custom of the
representation as to expectation, in the trade, is to be transhipped at an intermediate
absence of fraud, does not avoid the port, the implied warranty is not complied with
contract. unless each vessel upon which the cargo is
shipped, or transhipped, be seaworthy at the
Coastwise v CA commencement of each particular voyage.
Facts: Pag-Asa Sales had molasses transported
from Negros to Manila using Coastwise Sec. 116. A warranty of seaworthiness
Lighterage Corp’s open barges. However, one of extends not only to the condition of the
the barges sank when it hit an unknown sunken structure of the ship itself, but requires that it
object while approaching Manila Bay Port. be properly laden, and provided with a
Because of this, Pag-Asa rejected the shipment competent master, a sufficient number of
as a total loss and Phil. General Insurance competent officers and seamen, and the
Company paid for the loss. PhilGen then filed an requisite appurtenances and equipment, such
action against Coastwise Lighterage seeking to
as ballasts, cables and anchors, cordage and
recover the amount it paid Pag-asa. Coastwise
sails, food, water, fuel and lights, and other
claims that it was unaware of the hidden danger
in its path, thus it became impossible for necessary or proper stores and implements for
Coastwise to avoid it, even with the exercise of the voyage.
extraordinary diligence.
Held: Coastwise’s assertion is belied by the Sec. 117. Where different portions of
evidence. The patron of the vessel which sank the voyage contemplated by a policy differ in
admitted that he was not licensed thus, it cannot respect to the things requisite to make the
safely claim to have exercised extraordinary ship seaworthy therefor, a warranty of
diligence by placing a person whose navigational seaworthiness is complied with if, at the
skills are questionable at the helm of the vessel commencement of each portion, the ship is
w/c met the accident. Logically, a person w/o seaworthy with reference to that portion.
license to navigate lacks not just the skill to do
so, but also the familiarity with the usual and safe
routes taken by seasoned and legally authorized Sec. 118. When the ship becomes
persons. unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in
repairing the defect exonerates the insurer on
ship or shipowner's interest from liability from
any loss arising therefrom.
Sec. 119. A ship which is seaworthy for
D. IMPLIED WARRANTIES the purpose of an insurance upon the ship
Sec. 113. In every marine insurance may, nevertheless, by reason of being unfitted
upon a ship or freight, or freightage, or upon to receive the cargo, be unseaworthy for the
any thing which is the subject of marine purpose of the insurance upon the cargo.
insurance, a warranty is implied that the
ship is seaworthy. Sec. 120. Where the nationality or
neutrality of a ship or cargo is expressly
Sec. 114. A ship is seaworthy when warranted, it is implied that the ship will carry
reasonably fit to perform the service and to the requisite documents to show such
encounter the ordinary perils of the voyage nationality or neutrality and that it will not
contemplated by the parties to the policy. carry any documents which cast reasonable
suspicion thereon.
Sec. 115. An implied warranty of
seaworthiness is complied with if the ship be Implied warranties in marine insurance
seaworthy at the time of the of a) Seaworthiness
commencement of the risk, except in the b) Deviation
following cases: c) Other Implied Warranties:

118
- Carry the requisite documents - Principle Behind this: If vessel, crew,
to show nationality or and equipment be originally sufficient,
neutrality the assured has done all that he
- Not engage in any illegal contracted to do (not anymore
venture responsible for future deficiency).
 Exceptions: Secs. 115a, 115b, 117
 General provisions on warranties - (115a) In case of TIME policy –
also apply to marine insurance insurance made for a specified
 ONLY marine insurance has IMPLIED length of time, ship must be
WARRANTIES provided by law seaworthy at the
commencement of every
a) Seaworthiness: voyage she may undertake
Meaning - (115b) in case of Cargo policy –
 Ship is seaworthy when reasonably Insurance is upon the cargo which
fit to perform the services and to by the terms of the policy,
encounter the ordinary perils of the description of the voyage, or
voyage contemplated by the parties established custom of the trade,
to the policy. is to be transshipped at an
 NOT absolute guarantee that vessel intermediate port; each vessel
will safely meet all possible perils upon which the cargo is shipped
 CIRCUMSTANCES determine WON must be seaworthy at the
vessel is reasonably seaworthy commencement of each particular
 Seaworthiness extends not only to voyage
condition of ship’s structure, but - (117) In case of Voyage policy
requires contemplating a voyage in
- ship to be properly laden different stages – ship must be
- competent master seaworthy at the commencement
- sufficient number of competent of each portion.
officers
- requisite appurtenances and Due diligence not a defense
equipment (ballasts, cables,  Warranty precludes any defense that
anchors, cordage, sails, food, water, insured had exercised due diligence to
fuel, lights, necessary/proper stores make the ship seaworthy.
and implements for the voyage  SHIP MUST ACTUALLY BE
SEAWORTHY
Nature of Ship – must be in a fit state as to
repair, equipment, crew and in all other Seaworthiness as to cargo
respects to perform the voyage insured and  Ship may be seaworthy for purpose of
encounter the ordinary perils; suitable insurance on the ship, but may still be
condition to carry cargo unseaworthy for purpose of insurance
of the cargo (ex. Ship with porthole
Nature of Voyage – determines WON only 1 foot above waterline may be fit
vessel is well-fitted to travel the sea, but not fit to carry
wheat or rice because water will go
Nature of Service – nature of cargo should into the ship via the porthole and
be determined; the vessel should be damage the cargo)
reasonable capable of safely carrying the
cargo to the port of destination. Roque v IAC
Facts: Manila Bay Lighterage Corp, a common
When warranty deemed complied with; carrier, entered into a contract w/ Roque whereby
exceptions Manila Bay Lighterage would carry on board its
 Implied warranty of seaworthiness is barge Roque’s logs from Palawan to Manila. The
deemed complied with if ship is logs were insured by Pioneer Insurance. However,
seaworthy AT THE TIME OF THE the barge sank. It was found that the barge was
COMMENCEMENT OF THE RISK; not seaworthy (one of the hatches was left open,
there was a leak in the barge). Pioneer refused to
What matters is that at the start of
pay damages because of the breach of the implied
the voyage insured, ship is
warranty on seaworthiness. Roque’s defense is
seaworthy. Assured makes no that as a mere shipper of cargo, they have no
warranty that vessel will continue to control of the ship therefore seaworthiness has
be seaworthy, or that the crew
won’t be negligent

119
nothing to do with the matter of insurance over mean the most natural, direct and
the logs. advantageous.
Issue: WON the implied warranty of
seaworthiness also applies to marine insurance
on cargo. Sec. 123. Deviation is a departure from
Held: YES For every contract of insurance which the course of the voyage insured, mentioned
is a subject of marine insurance, a warranty is in the last two sections, or an unreasonable
implied that the ship will be seaworthy. Since the delay in pursuing the voyage or the
law provides for an implied warranty of commencement of an entirely different
seaworthiness in every contract of marine voyage.
insurance, it becomes the obligation of a cargo
owner to look for a reliable common carrier which Sec. 124. A deviation is proper:
keeps its vessels in seaworthy condition. The
shipper of the cargo may have no control over (a) When caused by circumstances over
the vessel but he has full control in the choice of which neither the master nor the owner of the
the common carrier that will transport his goods. ship has any control;
(b) When necessary to comply with a
Delsan Transport v CA warranty, or to avoid a peril, whether or not
Facts: Caltex entered into a contract of the peril is insured against;
affreightment with Delasan Transport Lines to (c) When made in good faith, and upon
transport Caltex’s fuel oil from its refinery to reasonable grounds of belief in its necessity to
different parts of the country. However, the ship avoid a peril; or
to Zamboanga which was insured by American
(d) When made in good faith, for the
Home Corp. sank. American Home paid Caltex
representing the insured value of the lost cargo. purpose of saving human life or relieving
American Home, exercising its right of another vessel in distress.
subrogation, demanded of Delsan the same amt
it paid to Caltex but Delsan refused. It was found Sec. 125. Every deviation not specified
that the chief mate of the vessel was not in the last section is improper.
qualified under the Phil. Merchant Marine Rules.
Issue: WON the payment made by American
Sec. 126. An insurer is not liable for any
Home to Caltex amounted to admission that the
vessel was seaworthy loss happening to the thing insured
Held: NO. The payment made by American subsequent to an improper deviation.
Home operates as a waiver of its right to enforce
the term of the implied warranty against Caltex What Voyage Insured
under the insurance policy. However, the same Policy What ship must do
cannot be validly interpreted as an automatic Names: Vessel insured MUST
admission of the vessel’s seaworthiness by 1.Ports of foloow course
American home as to foreclose recourse against depature SPECIFIED
Delsan for any liability under its contractual 2. Ports of
obligation as a common carrier. The fact of destination
payment grants the private respondent
3. Intermediate
subrogatory right w/c enables it to exercise legal
ports of call
remedies that would otherwise be available to
Caltex as owner of the lost cargo.. Names: 1. Voyage insured is
1. Ports of the one which
departure conforms to course
b) Voyage and Deviation 2. Ports of of sailing fixed by
destination - mercantile usage
Sec. 121. When the voyage
Several routes between ports (Sec.
contemplated by a marine insurance policy is
to destination 121)
described by the places of beginning and
2. if not fixed by
ending, the voyage insured in one which
mercantile usage,
conforms to the course of sailing fixed by
course between
mercantile usage between those places.
ports specified
which to a master
Sec. 122. If the course of sailing is not of ordinary skill and
fixed by mercantile usage, the voyage discretion would be
insured by a marine insurance policy is that most natural,
way between the places specified, which to a direct, and
master of ordinary skill and discretion, would advantageous (Sec.
122)

120
 When Nationality or Neutrality of ship
Rule: or cargo is expressly warranted, it’s
- Fixed Route implied ship will carry requisite
- Usual Custom documents showing nationality or
- Discretionary (most neutrality and will not carry
natural) documents that will cause reasonable
suspicion
Deviation (Sec. 123) - Nationality - doesn’t mean that
 Departure from course of ship the ship was built in such country,
 Unreasonable delay in pursuing but that the property belongs to a
voyage subject therof
 Commencement of entirely different - Neutrality – property insured
voyage belongs to neutrals
 Implied that ship will not engage in
Proper and Improper Deviation any venture which is illegal under the
 PROPER deviation – those allowed laws of the country where contract is
by law (Sec. 124) made or before whose courts question
 IMPROPER deviation – all other may come; CANNOT be waived since
deviation not mentioned in Sec.124; rule of public policy.
any loss suffered by thing insured
subsequent to improper deviation
exonerates insurer from liability,
regardless of whether deviation VII. LOSS
increased risk or not
 WHY does improper deviation Kinds covered, Actual and Constructive
exonerate? Because insured novated Loss
contract without consent of insurer! Sec. 127. A loss may be either total or
 TEST: WON deviation was proper or partial.
not (NOT WON risk was increased
or diminished)
Sec. 128. Every loss which is not total is
partial.
Deviation to repair damaged ship
 If during voyage, vessel becomes so
damaged as to render it unsafe Sec. 129. A total loss may be either
without undergoing repairs, insurer actual or constructive.
is not relieved by deviation from the
ship’s course in order to make the Sec. 130. An actual total loss is cause
nearest port for such repairs (can by:
fall under “avoid peril”) (a) A total destruction of the thing
 Master must consider distance, insured;
facilities of port, quickness new
(b) The irretrievable loss of the thing by
material can be procured, etc. (not
sinking, or by being broken up;
necessarily nearest port, but must
(c) Any damage to the thing which
be most proper port for repair).
 Once repair is made, ship must renders it valueless to the owner for the
purpose for which he held it; or
pursue new course without deviation
in shortest and most expeditious (d) Any other event which effectively
manner (otherwise, this is deviation deprives the owner of the possession, at the
and will absolve insurer) port of destination, of the thing insured.
Waiver of warranty against improper Sec. 131. A constructive total loss is

deviation one which gives to a person insured a right to
 Done by expressly permitting waiver abandon, under Section one hundred thirty-
in policy “at a PREMIUM to be nine.
hereafter arranged,” provided DUE
NOTICE be given by insured upon Sec. 132. An actual loss may be
recipt of advice of such deviation. presumed from the continued absence of a
 Requirement: EXPRESSED in policy. ship without being heard of. The length of
PREMIUM paid, NOTIC given time which is sufficient to raise this
c) Other Implied Warranties

121
presumption depends on the circumstances 1. Total destruction thing insured
of the case. 2. Irretrievable loss of thing by
sinking or by being broken up
3. Any damage to thing which renders it
Sec. 133. When a ship is prevented,
valueless to owner for the purpose for
at an intermediate port, from completing the
which the owner held it
voyage, by the perils insured against, the
 Loss by sinking may not be
liability of a marine insurer on the cargo
irretrievable, but there’s still actual
continues after they are thus reshipped.
total loss if thing becomes valueless
Nothing in this section shall prevent an
to owner for purpose for which he
insurer from requiring an additional premium
held it
if the hazard be increased by this extension
 TOTAL LOSS is cost of RETRIEVAL
of liability.
equal to or more than original value
4. Any other event which effectively
Sec. 134. In addition to the liability deprives owner of possession, at the port
mentioned in the last section, a marine of destination of thing insured.
insurer is bound for damages, expenses of
discharging, storage, reshipment, extra  Presumed from continued absence of ship
freightage, and all other expenses incurred without being heard of (for length of time
in saving cargo reshipped pursuant to the sufficient to raise such presumption)
last section, up to the amount insured.  Insured has ABSOLUTE right to claim
Nothing in this or in the preceding section whole amount of insurance even without
shall render a marine insurer liable for any notice of abandonment. Once he receives
amount in excess of the insured value or, if amount, it takes the place of the vessel
there be none, of the insurable value. and must be used to pay for any damage
for which it be held liable.
Sec. 135. Upon an actual total loss, a
person insured is entitled to payment b. Constructive (or Technical) total loss;
without notice of abandonment. Abandonment (refer to the next few
sections)
 Gives the insured the right to
Sec. 136. Where it has been agreed
abandon the thing insured by
that an insurance upon a particular thing, or
relinquishing to the insurer his
class of things, shall be free from particular
interest in such a thing, entitling him
average, a marine insurer is not liable for
to recover for a total loss thereof
any particular average loss not depriving the
 Right to abandon granted by law if the
insured of the possession, at the port of
peril insured against causes a loss of
destination, of the whole of such thing, or
more than ¾ the value of the thing
class of things, even though it becomes
insured.
entirely worthless; but such insurer is liable
 Insurer acquires all rights over the
for his proportion of all general average loss
thing insured
assessed upon the thing insured.
 If abandonment is not proper or
properly made, the insurer would still
Sec. 137. An insurance confined in be liable as upon the Actual total loss,
terms to an actual loss does not cover a deducting from the amount any
constructive total loss, but covers any loss, proceeds from the thing insured which
which necessarily results in depriving the may have come to the hands of the
insured of the possession, at the port of insured.
destination, of the entire thing insured.
IF VOYAGE CAN’T BE COMPLETED (See
Sec. 133)
KINDS of LOSS  In Insurance Act (Sec.126), if ship is
prevented from leaving an
1) Total (may be actual or constructive) intermediate port by perils insured
against, the master must make every
2) Partial (refer to gen. and part average) exertion to procure, in the same or
TOTAL LOSS (any loss not total is contiguous port, another ship for the
partial) purpose of conveying the cargo to its
destination and the liability of a
a. Actual Total Loss marine insurer theron continues after

122
they are thus reshipped. However,  Therefore, when everyone benefits,
such an obligation was deleted from everyone has to spend for it, so the
the Insurance Code. Campos says person whose cargo was sacrificed
that this may be either an cannot recover everything because
unintentional omission/error or part of that will go to the pro-rata
intentional. In any case, in case of damage to save the majority
reshipment, the insurer is liable:  Ex. Entering another port for repairs,
1. For any loss which may take place rehandling of cargo, and jettisoning of
on goods until they are reshipped if goods to lighten vessel in case of
voyage cannot be completed in any danger of shipwreck
insurance upon cargo – insurer may  Gives rise to right of owner to
required additional premium if the contribution form those benefited
hazard be increased by the thereby or from insurer
extension of liability (Sec. 133)  Liability of Insurer: If owner is
2. Insurer also liable for expenses insured, he has the alternative of
necessary to complete the seeking from his insurer, subrogating
transportaion of cargo reshipped; the latter to his said right of
damages, expenses of discharging, contribution. He loses this alternative,
storage, reshipment, extra however, if he neglects or waives his
freiathage, and all other expenses right to such contribution
incurred in saving cargo reshipped –  Exception: There can be no recovery
such liability, however, cannot for general average loss against the
exceed the amount of insurance insurer:
(Sec 134) 1. After the separation of the
interests liable to the
LIABILITY OF INSURER IN CASE OF contribution
AVERAGE 2. When the insured has
Average – any extraordinary or accidental neglected or waived his right
expenses incurred during the voyage for the to contribution.
preservation of the vessel, cargo or both and  Requisites for Gen. Ave to exist
all damages to the vessel and cargo from the 1. There must be common
time it is loaded and the voyage commenced danger to ship and cargo
util it ends and the cargo unloaded 2. For common safety, part of
the vessel or cargo is
Two kind of Averages (Under Admiralty sacrificed deliberately
Law): 3. From the expenses or
a. Particular Average – partial loss caused damages caused follows the
by the peril insured against which is not a saving of the vessel and
general average loss out of the ordinary use cargo
of the thing 4. That the expenses or
 Not everyone benefits. damages should have been
 Not intentionally caused to incurred or inflicted after
prevent a common danger taking the proper legal steps.
 Insurer liable for the particular
average unless policy excludes it.
 Liability is limited to the proportion Philippine Manufacturing Co v Insurance
of the contribution attaching to his Society of Canton Ltd.
policy value where this is less than Facts: The insured vessel owned by Phil.
the contributing value of the thing Manufacturing Co. sand due to a typhoon. Despite
insured. the offer of Phil Man. To abandon the vessel as an
b. General Average – common benefit (to absolute total loss, the insurer, Ins. Society of
everyone) INTENTIONAL damage to save Canton refused it and required that the ship be
salvaged. After several futile attempts, the ship
the majority thing (something is sacrificed.
was finally raised about two months later and was
 Applies only when it is
repaired. The cost of salvage and repair was
SUCCESSFUL
substantially equal to the original cost of the
 Includes all damages and expenses vessel.
which are deliberately caused in Issue: WON Insurance Society can be held for
order to save the vessel, its cargo total loss of the vessel even after its recovery
or both at the same time, from a Held: YES. Insurer liable for total loss because
real and known risk while the ship was in the bottom of the sea, it was

123
of no value to the owner. To render it valueless to not be made the basis for determining constructive
the insured, it is no necessary that there be an total loss. The logs having been insured as one
actual or total loss or destruction of all the inseparate unit, the correct basis for determining
different parts of the entire vessel. the existence of constructive total loss is the
totality of the shipment of logs. (OF the 1,208 logs,
Choa v CA only 497 pieces were lost or 41% therefore it
Facts: Choa imported some lactose crystals cannot fall under constructive total loss)
from Holland. The goods were insured with
Filipino Merchants against all risks. Upon arrival Pan Malayan Insurance v CA
in Manila, it was found that out of the 600 bags, Facts: The barge carrying a shipment of certified
403 were in bad order. Choa filed a claim for the rice seeds to Kampuchea sank. The owner of the
loss but Fil. Mer rejected. rice seeds, the Food and Agricultural Organization
Issue: WON an “all risks” coverage covers only of the U.N. (FAO) filed its claim under a marine
losses occasioned by fortuitous events insurance policy with Pan Malayan. Later, it was
Held: NO. An all risk insurance policy insures informed by Luzon Stevedoring Corporation, the
against all cause of conceivable loss or damage carrier, that the shipment was recovered, hence
except as otherwise excluded in the policy or due FAO filed a claim w/ Luzon Stevedoring for
to fraud. The terms of the policy are clear and compensation fo damages of its cargo.
require no interpretation. An “all risks” provision Issue: WoN FAO can recover for total loss even if
creates a special type of insurance w/c extends some of the rice seeds was recovered.
coverage to risks not usually contemplated and Held: YES. The complete physical destruction of
avoids putting upon the insured the burden of the subject matter is not essential t oconstitute an
establishing that insurer can avoid coverage actual total loss. Such a loss may exist where the
upon demonstrating that a specific provision form and specie of the thing is destroyed although
expressly excludes the loss from coverage. the materials which it consisted still exist. Of the
34,122 bags of rice seeds shipped, 27,922 bags
Aboitiz Shipping v PHILAMGEN were determined to be lost/damaged (78% of
Facts: Marinduque Mining Industrial Crop had cargo damaged).
shipped from the US a shipment of one skid
carton parts for valves. When cargo arrived in
Manila, it was deposited in the office of Aboitiz
Shipping Corp for transshipment to Nonoc
Island. However, before it was transshipped, said VIII. ABANDONMENT
cargo was pilfered. Marinduque filed a claim
against Aboitiz in the amount of the pilfered Requisites and Conditions
cargo. It also filed for the same amount against
Philippine American General Insurance Co (Phil- Sec. 138. Abandonment, in marine
Am), its insurer. insurance, is the act of the insured by which,
Issue: WON Aboitiz should be held liable for the after a constructive total loss, he declares the
pilfered cargo. relinquishment to the insurer of his interest in
Held: YES. The questioned shipment is the thing insured.
covered by a continuing open insurance
coverage from the time it was loaded in the US Sec. 139. A person insured by a
to the time it was delivered to the possession of contract of marine insurance may abandon the
Aboitiz in its Manila office. Aboitiz’s contention is thing insured, or any particular portion thereof
that it could not be held liable for the pilferage as separately valued by the policy, or otherwise
it was stolen even before it was loaded on the
separately insured, and recover for a total loss
vessel. This is untenable as the logs were in its
thereof, when the cause of the loss is a peril
possession before it was pilfered.
insured against:
Oriental Assurance v CA (a) If more than three-fourths thereof in
Facts: Panama Sawmill Co had logs shipped value is actually lost, or would have to be
from Palawan aboard the barges of Transpacific expended to recover it from the peril;
Towage Inc. It was insured with Oriental (b) If it is injured to such an extent as to
Assurance Corp and loaded on 2 barges. reduce its value more than three-fourths;
However, during the voyage, 497 pieces of the (c) If the thing insured is a ship, and the
598 pieces loaded on one of the barges was lost.
contemplated voyage cannot be lawfully
Issue: WON Panama can demand payment for
performed without incurring either an expense
constructive loss of the logs on one of the barges
to the insured of more than three-fourths the
Held: NO. The logs involved, although placed in
two barges, were not separately valued by the value of the thing abandoned or a risk which a
policy, nor separately insured. Resultantly, the prudent man would not take under the
logs lost in the barge in relation to the total circumstances; or
number of logs loaded on the same barge can

124
(d) If the thing insured, being cargo or Sec. 148. Upon an abandonment, acts done in
freightage, and the voyage cannot be good faith by those who were agents of the
performed, nor another ship procured by the insured in respect to the thing insured,
master, within a reasonable time and with subsequent to the loss, are at the risk of the
reasonable diligence, to forward the cargo, insurer and for his benefit.
without incurring the like expense or risk
mentioned in the preceding sub-paragraph. Sec. 149. Where notice of abandonment is
But freightage cannot in any case be properly given, the rights of the insured are
abandoned unless the ship is also not prejudiced by the fact that the insurer
abandoned. refuses to accept the abandonment.
Sec. 140. An abandonment must be Sec. 150. The acceptance of an abandonment

neither partial nor conditional. may be either express or implied from the
conduct of the insurer. The mere silence of the
Sec. 141. An abandonment must be insurer for an unreasonable length of time
made within a reasonable time after receipt after notice shall be construed as an
of reliable information of the loss, but where acceptance.
the information is of a doubtful character,
the insured is entitled to a reasonable time Sec. 151. The acceptance of an
to make inquiry. abandonment, whether express or implied, is
conclusive upon the parties, and admits the
Sec. 142. Where the information upon loss and the sufficiency of the abandonment.
which an abandonment has been made
proves incorrect, or the thing insured was so Sec. 152. An abandonment once made
far restored when the abandonment was and accepted is irrevocable, unless the ground
made that there was then in fact no total upon which it was made proves to be
loss, the abandonment becomes ineffectual. unfounded.
Sec. 143. Abandonment is made by Sec. 153. On an accepted abandonment

giving notice thereof to the insurer, which of a ship, freightage earned previous to the
may be done orally, or in writing; Provided, loss belongs to the insurer of said freightage;
That if the notice be done orally, a written but freightage subsequently earned belongs to
notice of such abandonment shall be the insurer of the ship.
submitted within seven days from such oral
notice.
Sec. 154. If an insurer refuses to accept
a valid abandonment, he is liable as upon
Sec. 144. A notice of abandonment actual total loss, deducting from the amount
must be explicit, and must specify the any proceeds of the thing insured which may
particular cause of the abandonment, but have come to the hands of the insured.
need state only enough to show that there is
probable cause therefor, and need not be
Sec. 155. If a person insured omits to
accompanied with proof of interest or of loss.
abandon, he may nevertheless recover his
actual loss.
Sec. 145. An abandonment can be
sustained only upon the cause specified in
ABANDONMENT
the notice thereof.
 Right to abandon is granted by law to
the insured if peril insured against
Sec. 146. An abandonment is causes a loss of more than ¾ the
equivalent to a transfer by the insured of his thing insured, or where its value is
interest to the insurer, with all the chances reduced by more than ¾
of recovery and indemnity.  Remember: 75% loss = Constructive
Loss which entitles recovery of the
Sec. 147. If a marine insurer pays for a loss full amount in the policy. Does not
as if it were an actual total loss, he is mean that recovery is only up to
entitled to whatever may remain of the thing 75%.
insured, or its proceeds or salvage, as if
there had been a formal abandonment. When Constructive TOTAL loss exists: ¾
Rule (Sec. 139)

125
1. If more than ¾ thereof in value is 2. There must be constructive total loss
actually lost, or would have to be (139). Any particular portion of the thing
expended to recover from peril insured separately valued by the policy
2. If it is injured to such an extent as to may be separately abandoned as it is
reduce its value more than ¾ deemed separately insured
3. IF the thing insured is a ship, and the 3. It must be total and absolute (140)
contemplated voyage can’t be lawfully 4. It must be within a reasonable time
performed w/o incurring either an after the receipt of reliable information
expense to the insured or more than of the loss (141)
¾ the value of the thing abandoned 5. It must be factual (142)
or a risk which a prudent man would 6. It must be made by giving notice thereof
not take under the circumstances to the insurer which may be done orally
4. If the thing insured, being cargo or or in writing (143)
freightage, and the voyage can’t be 7. Notice must be explicit and must specify
performed, nor another ship procured the particular cause of the abandonment
by the master, within a reasonable (144)
time and with reasonable diligence, to
fowrwar4d the cargo, without Notice of Abandonment:
incurring the like expense or risk  May be done ORALLY but written notice
mentioned in the preceding sub- must be submitted within 7 days from
paragraph. But freightage cannot in such oral notice
any case be abandoned unless the  Must be explicit
ship is also abandoned.  Specifies particular cause of
abandonment, although it need state
Requirements: only enough to show that there is
1. There must be actual relinquishment probable cause therefore
by the person insured of his interest in
the thing insured (138)
Ineffective abandonment
NO ABAN-DON-
 Abandonment  Equivalent to transfer by the ACCEPTANCE
can be insured of his interest to the Express or Implied
sustained insurer, with all the chances of from conduct of MENT
only upon recovery and indemnity insurer Insured still entitled
cause  IF proper and notice is properly to recover actual loss
specified given, refusal to accept Mere silence for
 If cause is abandonment does not unreasonable length Same rule applies
unfounded prejudice insured. Insured still of time may be where abandon-ment
and info upon liable for actual total loss, minus deemed acceptance wasn’t proper or
which it was amount any proceeds of thing where it wasn’t
made proves insured which may have come to properly made
incorrect the hands of the insured.
 Thing insured  IF insurer accepts
was so far abandonment, it’s conclusive
restored between the parties and admits
when the the loss and the sufficiency of
abandonment the abandonment
was made  Irrevocable unless grounds
that there prove to be unfounded
was in fact no
total loss

126
IX. MEASURE OF INDEMNITY, (c) The value of freightage is the gross
freightage, exclusive of primage, without
Open and Valued Policy reference to the cost of earning it; and
Sec. 156. A valuation in a policy of marine (d) The cost of insurance is in each case
insurance in conclusive between the parties to be added to the value thus estimated.
thereto in the adjustment of either a partial or
total loss, if the insured has some interest at
risk, and there is no fraud on his part; except
that when a thing has been hypothecated by Sec. 162. If cargo insured against
bottomry or respondentia, before its insurance, partial loss arrives at the port of destination in
and without the knowledge of the person a damaged condition, the loss of the insured is
actually procuring the insurance, he may show deemed to be the same proportion of the
the real value. But a valuation fraudulent in value which the market price at that port, of
fact, entitles the insurer to rescind the contract. the thing so damaged, bears to the market
price it would have brought if sound.
Sec. 157. A marine insurer is liable
upon a partial loss, only for such proportion Sec. 163. A marine insurer is liable for
of the amount insured by him as the loss all the expenses attendant upon a loss which
bears to the value of the whole interest of forces the ship into port to be repaired; and
the insured in the property insured. where it is stipulated in the policy that the
insured shall labor for the recovery of the
Sec. 158. Where profits are separately property, the insurer is liable for the expense
insured in a contract of marine insurance, incurred thereby, such expense, in either
the insured is entitled to recover, in case of case, being in addition to a total loss, if that
loss, a proportion of such profits equivalent afterwards occurs.
to the proportion which the value of the
property lost bears to the value of the whole. Sec. 164. A marine insurer is liable for a
loss falling upon the insured, through a
Sec. 159. In case of a valued policy of contribution in respect to the thing insured,
marine insurance on freightage or cargo, if a required to be made by him towards a general
part only of the subject is exposed to the average loss called for by a peril insured
risk, the evaluation applies only in proportion against; provided, that the liability of the
to such part. insurer shall be limited to the proportion of
contribution attaching to his policy value
where this is less than the contributing value
Sec. 160. When profits are valued and of the thing insured.
insured by a contract of marine insurance, a
loss of them is conclusively presumed from a
loss of the property out of which they are Sec. 165. When a person insured by a
expected to arise, and the valuation fixes contract of marine insurance has a demand
their amount. against others for contribution, he may claim
the whole loss from the insurer, subrogating
him to his own right to contribution. But no
Sec. 161. In estimating a loss under such claim can be made upon the insurer after
an open policy of marine insurance the the separation of the interests liable to the
following rules are to be observed: contribution, nor when the insured, having the
(a) The value of a ship is its value at the right and opportunity to enforce the
beginning of the risk, including all articles or contribution from others, has neglected or
charges which add to its permanent value or waived the exercise of that right.
which are necessary to prepare it for the
voyage insured;
(b) The value of the cargo is its actual Sec. 166. In the case of a partial loss of
cost to the insured, when laden on board, or ship or its equipment, the old materials are to
where the cost cannot be ascertained, its be applied towards payment for the new.
market value at the time and place of lading, Unless otherwise stipulated in the policy, a
adding the charges incurred in purchasing marine insurer is liable for only two-thirds of
and placing it on board, but without the remaining cost of repairs after such
reference to any loss incurred in raising deduction, except that anchors must be paid
money for its purchase, or to any drawback in full.
on its exportation, or to the fluctuation of
the market at the port of destination, or to A. Valued Policy
expenses incurred on the way or on arrival;

127
 Valuation fixes in advance the value insured, even in the absence of any
of the property and thus avoids the agreement to that effect.
necessity of proving its actual value  However, law does not prevent
in case of loss parties from stipulating otherwise
 Valuation is conclusive between the  Difference with Fire Insurance: Policy
parties in the adjustment of either a
should expressly provide for co-
total or partial loss.
insurance otherwise, insurer is liable
 Exception: If there is FRAUD on the
for the full amount of the partial loss.
part of the insured, insurer would
In marine insurance, co-insurance is
have the right to RESCISSION mandated by law.
 Example of Co-Insurance:
B. Open Policy
Ship: $100 M
 Loss is estimated in accordance with
Insurance: $80M
certain rules laid down in the code
Loss: $50M
(refer to table below) What does insured get? $40M
 Cost of insurance must be added to
- only gets proportion
the value of ship, cargo, or
freightage as the case may be E. Other Expenses Chargeable to Insurer
 However, maximum recovery may  If ship has to make port for repairs,
only be up to the face value of the marine insurer must bear the
policy attendant expenses
 Insurer also liable for expenses for
WHAT VALUE in OPEN POLICY recovery of the property if policy
Ship Value at beginning of risk (incl imposed upon the insured the duty of
all articles which add to its such recovery, such expenses being
permanent value or which are additional to total loss
necessary to prepare if for the
voyage insured) F. Franchise Clause
Cargo Actual cost when laden on  Franchise = Designated Percentage
board.  Sometimes, policy on cargo may
IF actual cost can’t be provide that unless damage reaches a
determined, market value at designated percentage of the value of
time and place of lading, PLUS such cargo, no amount will be paid by
expenses incurred in insurer.
purchasing and placing them  If loss reaches such percentage,
on board insured will be entitled to full amount
Freightage Gross freightage without of loss
reference to cost of earning it
G. Where profits are insured
C. Total Loss  If profits are separately insured,
In case of open policy: insurer’s liability in case of loss is the
 Value of total loss will be computed proportion of such profits which the
in rules stated above value of the property lost bears to the
 Insurer liable for total loss, but it value of the whole.
can’t exceed face amount of policy  If policy is valued, loss of such profits
In case of valued policy: is conclusively presumed from a loss
 Insurer must pay valuation fixed in of the property out of which they are
the policy without any right to argue expected to arise, and the valuation
against its correctness except on fixes their amount.
basis of fraud
 Liability can’t exceed amount in
policy
X.
D. Partial Loss; Co-Insurance CLAIMS SETTLEMENT & SUBROGATION
 In both open and valued policies, in
case of partial loss, the insured is
deemed by law as co-insurer if the NOTICE AND PROOF OF LOSS
value of the insurance is less tha the
value of the property or interest Title 10 – Notice and Proof of Loss

128
Sec. 88. In case of loss upon an insurance
against fire, an insurer is exonerated, if notice Sec. 90. All defects in a notice of loss; or in
thereof be not given to him by an insured, or preliminary proof thereof, which the insured
some person entitled to the benefit of the might remedy, and which the insurer omits to
insurance, without unnecessary delay. specify to him, without unnecessary delay, as
grounds of objection, are waived.
Sec. 89. When a preliminary proof of loss is
required by a policy, the insured is not bound Sec. 91. Delay in the presentation to an
to give such proofs as would be necessary in a insurer of notice or proof of loss is waived if
court of justice; but it is sufficient for him to caused by any act of him, or if he omits to
give the best evidence3 which he has in his take objection promptly and specifically upon
power at the time. that ground
Notice of Loss – the formal notice given the When delay in presentation of notice or proof of
insurer by the insured or claimant under a loss is deemed waived:
policy of the occurrence of the loss insured 1. By an act of the insurer
against. 2. By failure to take objection
 The purpose is to apprise the promptly and specifically upon
insurance company so that it may that ground.
make proper investigation and take
such action as may be necessary to Sec. 92. If the policy requires, by way of
protect its interest. preliminary proof of loss, the certificate or
 It is necessary as the insurer cannot testimony of a person other than the insured,
be liable to pay a claim unless he it is sufficient for the insured to use
receives notice of that claim. reasonable diligence to procure it, and in case
 Under Sec. 88 insurer is exonerated of the refusal of such person to give it, then to
if notice of loss is not given to the furnish reasonable evidence to the insurer
insurer by the insured or by the that such refusal was not induced by any just
person entitled to the benefit grounds of disbelief in the facts necessary to
without unnecessary delay. be certified or testified.
 It has been held however that
formal notice of loss is not
Certificate or Testimony of Person other than
necessary if insurer has actual Insured as Preliminary Proof
notice of loss already.
 May be required by the policy
Proof of Loss – is the formal evidence given  Sufficient that he insured use
the insurance company by the insured or reasonable diligence to procure it
claimant under a policy of the occurrence of  If person refuses to give it, it is
the loss, the particulars and the data sufficient to furnish reasonable
necessary to enable the company to evidence to the insurer that such
determine its liability and the amount. Is refusal was not induced by any
not tantamount to proof or evidence under grounds of DISBELIEF in the facts
the law on evidence. necessary to be certified.
 Proof of loss is distinct from notice

of loss and intended to: Phil. Am. Life v CA & Pulido
1. give the insurer information by Facts: The insured Florence Pulido took out a
which he may determine the non-medical life insurance policy from Philamlife in
extent of his liability the amount of 100K and the policy was issued on
2. afford him a means of detecting Feb. 11, 1989. She died on Sept. 10, 1991 and
any fraud that may have been her beneficiary, her sister Eliza Pulido filed a claim
practiced upon him. which was denied by Philamlife on the ground of
fraud claiming that at the time the insured applied
 The law does not stipulate any for the policy, she was already actually dead.
requirement as to the form in which Ratio: There was no fraud, the death certificates
notice or proof of loss must be and notes by the municipal health officer prepared
given. However according to De in the regular performance of duties are prima
Leon, it is advisable to give the facie evidence of facts. A duly-registered death
certificate is considered a public document and the
notice in writing for the protection of
entries found therein are presumed correct, unless
the insured or his beneficiary.

129
the party who contests its accuracy can produce administrative or judicial proceeding
positive evidence to establish otherwise which in brought under this section.
the case at bar Philamlife failed to do.
(3) If it is found, after notice and an
opportunity to be heard, that an
GUIDELINES ON CLAIMS SETTLEMENT
insurance company has violated this
section, each instance of non
Title 11 – Claims Settlement
compliance with paragraph (1) may
be treated as a separate violation of
Sec. 241. this section and shall be considered
(1) No insurance company doing business sufficient cause for the suspension or
in the Philippines shall refuse, without revocation of the company’s certificate
just cause, to pay or settle claims of authority.
arising under coverages provided by
its policies, nor shall any such
company engage unfair claim
settlement practices. Any of the Sec. 242. The proceeds of a life insurance
following acts by an insurance policy shall be paid immediately upon maturity
company, if committed without just of the policy, unless such proceeds are made
cause and performed with such payable in installments or as an annuity, in
frequency as to indicate a general which case the installments, or annuities shall
business practice, shall constitute be paid as they become due: Provided,
unfair claim settlement practice: however, That in the case of a policy maturing
by the death of the insured, the proceeds
(a) knowingly misrepresenting to thereof shall be paid within sixty days after
claimants pertinent facts or presentation of the claim and filing of the
policy provisions relating to proof of the death of the insured. Refusal or
coverages at issue; failure to pay the claim within the time
(b) failing to acknowledge with prescribed herein will entitle the beneficiary to
reasonable promptness collect interest on the proceeds of the policy
pertinent communications for the duration of the delay at the rate of
with respect to claims arising twice the ceiling prescribed by the Monetary
under its policies; Board, unless such failure or refusal to pay is
(c) failing to adopt and implement based on the ground that the claim is
reasonable standards for the fraudulent.
prompt investigation of claims The proceeds of the policy maturing by the
arising under its policies; death of the insured payable to the
(d) not attempting in good faith beneficiary shall include the discounted value
to effectuate prompt, fair and of all premiums paid in advance of their due
equitable settlement of claims dates, but are not due and payable at
submitted in which liability maturity.
has become reasonably clear;
or Sec. 243. The amount of any loss or damage
(e) compelling policyholders to for which an insurer may be liable, under any
institute suits to recover policy other than life insurance policy, shall be
amounts due under its polices paid within thirty days after proof of loss is
by offering without justifiable received by the insurer and ascertainment of
reason substantially less than the loss or damage is made either by
the amounts ultimately agreement between the insured and the
recovered in suites brought by insurer or by arbitration; but if such
them. ascertainment is not had or made within sixty
days after such receipt by the insurer of the
(2) Evidence as to the numbers and types proof of loss, then the loss or damage shall be
of valid and justifiable complaints to paid within ninety days after such receipt.
the Commissioner against an Refusal or failure to pay the loss or damage
insurance company, and the within the time prescribed herein will entitle
Commissioner’s complaint experience the assured to collect interest on the proceeds
with other insurance companies of the policy for the duration of the delay at
writing similar lines of insurance shall the rate of twice the ceiling prescribed by the
be admissible in evidence in an Monetary Board, unless such failure or refusal

130
to pay is based on the ground that the claim is amounts ultimately recovered
fraudulent. in suites brought by them.
Sec. 244. In case of any litigation for the Civil Code Rules on Presumption of Death
enforcement of any policy or contact of
insurance, it shall be the duty of the
Art. 390. After an absence of seven years, it
Commissioner or the Court, as the case may
being unknown whether or not the absentee
be, to make a finding as to whether the
still lives, he shall be presumed dead for all
payment of the claim of the insured has
purposes except for those of succession.
unreasonably denied or withheld; and in the
The absentee shall not be presumed dead for
affirmative case, the insurance company shall
the purpose of opening his succession till after
be adjudged to pay damages which shall
an absence of ten years. If he disappeared
consist of attorney’s fees and other expenses
after the age of seventy-five years, an
incurred by the insured person by reasons of
absence of five years shall be sufficient in
such unreasonable denial or withholding of
order that his succession may be opened. (n)
payment plus interest of twice the ceiling
prescribed by the Monetary Board of the
amount of the claim due the insured, from the Art. 391. The following shall be presumed
date following the time prescribed in Section dead for all purposes, including the division of
two hundred forty-two or in Section two the estate among the heirs:
hundred forty-three, as the case may be, until (1) A person on board a vessel lost
the claim is fully satisfied; Provided, That the during a sea voyage, or an aeroplane
failure to pay any such claim within the time which is missing, who has not been
prescribed in said section shall be considered heard of for four years since the loss
prima facie evidence of unreasonable delay in of the vessel or aeroplane;
payment. (2) A person in the armed forces who has
taken part in war, and has been
missing for four years;
UNFAIR CLAIMS SETTLEMENT (3) A person who has been in danger of
death under other circumstances and
Sec. 241 (1) provides instances of unfair his existence has not been known for
claims settlement done by an insurance four years. (n)
company:
Art. 392. If the absentee appears, or without
(a) knowingly misrepresenting appearing his existence is proved, he shall
to claimants pertinent facts recover his property in the condition in which
or policy provisions relating it may be found, and the price of any property
to coverages at issue; that may have been alienated or the property
(b) failing to acknowledge with acquired therewith; but he cannot claim either
reasonable promptness fruits or rents. (194)
pertinent communications
with respect to claims arising
Londres v National Life Insurance Co.
under its policies;
Facts: National Life issued a life insurance policy on
(c) failing to adopt and
the life of Jose C. Londres in the amount of
implement reasonable Php3,000.00 on April 14, 1943 (during the war
standards for the prompt period). He died on Feb. 7, 1945. His beneficiary
investigation of claims filed a claim which National denied claiming that
arising under its policies; there was a lack of proof of death and a slew of other
(d) not attempting in good faith special defenses, including the payment should be
to effectuate prompt, fair made based on the Ballantyne scales.
and equitable settlement of Ratio: National must pay the beneficiary of the
claims submitted in which insured the amount of the policy (3,000.00) as the
liability has become agreement was that the obligation will be made in the
reasonably clear; or currency prevailing at the end of the stipulated period
(e) compelling policyholders to which in this case is the Philippine currency. The
institute suits to recover proof of death was substantially made by the
amounts due under its claimant and was not properly disproved by National.
polices by offering without
justifiable reason
substantially less than the

131
Fernandez v National Life Insurance Co. Board…” and “Sec. 244. In case of any litigation for
Facts: National insured the life of Juan Fernandez the enforcement of any policy or contract of
for the period of July 15, 194 to July 14, 1945. insurance, it shall be the duty of the Commissioner
Juan died on Nov. 2, 1944. His beneficiaries filed or the Court, as the case may be to make a
their claim 7 years after his death or on Aug. 1, finding as to whether the payment of the claim of
1952. The dispute is WON the Ballantyne scale is the insured has been unreasonably denied or
applicable in computing the amount which should withheld; and in the affirmative case, the insurance
be paid to the beneficiaries. The CFI rendered company shall be adjusted to pay damages which
judgment that National should pay the proceed of shall consist of attorney’s fees and other
PHp 500.00 Ballantyne scale applicable. expenses incurred by the insured person by
Ratio: CFI correct. Ballantyne scale is applicable reason of such unreasonable denial or
since in life insurance, the policy matures upon the withholding of payment plus interest of twice the
expiration of the term set forth therein – in this case ceiling prescribed by the Monetary Board of the
upon the death of Juan. The obligation of National amount of claim due the insured…”.
arose as of that date and not at the time of the
claim. Since the National could have paid his Noda v Cruz-Arnaldo
obligation at any time during the Japanese Facts: Noda obtained from Zenith 2 fire insurance
occupation. Payment after liberation must be policies for 2 of his properties. Both was destroyed
adjusted in accordance with the Ballantyne by fire. When Noda filed a claim, it was denied by
schedule. Zenith due to premiums not paid and the other one
was settled only for 15K++. IC denied Noda to claim
full amount due to insufficient proof of the value of his
Tio Khe Chio v CA & Eastern Assurance losses.
Facts: Tio Khe Chio imported fishmeal. These Ratio: Noda was able to prove sufficient losses,
were insured with Eastern Assurance. The vessel since the document offered by Noda were offered by
used to ship the fishmeal was Far Eastern Shipping Zenith itself to proof the amount of it’s liability being
Co. When the goods reached Manila, they were 1/6th of the total loss only. Thus could very well be
found to be damaged – and therefore useless. The considered as an admission of its liability up to the
issue is WON the interest to be paid by Eastern amount recommended.
Assurance is 12% or 6%?
Ratio: 6% only, as Sec. 243 and 244 of the Finman General v CA
Insurance Code is not applicable to the case as Facts: USIPHIL obtained a fire insurance policy from
these provisions apply only when the court finds an FINMAN. The property insured was loss due to fire
unreasonable delay or refusal in the payment of and USIPHIL filed a claim. H.H. Bayne was
the claims. The applicable law according to SC is appointed by FINMAN to undertake evaluation.
Art. 2209 of the Civil Code which stipulates that in USIPHIL submitted all the required proof of losses
the absence of stipulation the legal interest substantially. Despite all these, FINMAN refused to
applicable is 6% pay USIPHIL’S claim due to failure to comply with
Condition 13 of the policy. TC and CA rule din favor
of USIPHIL and ordered FINMAN to pay + double the
Cathay v CA interest (24%)
Facts: Lugay insured against fire with the 6 Ratio: Substantial compliance, not strict compliance
insurance companies named as petitioner in this with the requirements will be deemed sufficient. The
case for the total sum of 4 million her printing press double interest of 24% is authorized by Sections 243
which was razed by fire on December 15, 1982. and 244 of the Insurance Code.
She filed a claim submitting all the required proof of
loss. After nearly 10 months of waiting for her Delsan Transport v CA (supra)
claim to be paid she filed a suit to collect her claim.
After the trial on the merits, the TC rendered
judgment in favor of Lugay and directed the 6
insurance companies to pay their share in the
insurance and further made them pay plaintiff
interest at the rate of 2x the ceiling being
prescribed by the Monetary board from the time
when the case was filed. Upon appeal to the CA,
the CA affirmed the decision of the TC.
Ratio: The award made by the TC of double
interest is justified under Sections 243 and 244 of
the Insurance Code which provides that “Sec. 243.
…Refusal or failure to pay the loss or damage
within the time prescribed herein will entitle the
assured to collect interest on the proceeds of the
policy for the duration of the delay at the rate of
twice the ceiling prescribed by the Monetary

132
CLAIMS LIFE INSURANCE NON-LIFE INSURANCE
Maturity 1. Upon death of the  Upon happening of event
person insured; insured against
2. Upon his surviving a
specific period  Event must occur within the
3. Otherwise contingently period specified in policy,
on the continuance or otherwise insurer has no liablity
cessation of life (Sec.
180)
Delivery of Proceeds GENERAL RULE:  Within 30 days after

 Immediately upon (1) Proof of loss is received by
maturity of policy. insurer; and
(2) Ascertainment of loss or
EXCEPTION: damage is made either by
 If payable in agreement between the
INSTALLMENTS or as insured and insurer or by
an ANNUITY, when arbitration
such installments or
annuities become due  If ascertainment not made
within 60 days after such
IF MATURITY IS UPON DEATH: receipt by insurer of proof of
 Within 60 days after loss, loss or damage shall be
presentation of claim paid within 90 days after such
and filing of proof of receipt.
death of insured.
Effect of Refusal or Failure to  Entitles beneficiary to  Entitles beneficiary to collect

pay claim within time collect interest on the interest on the proceeds of
prescribed: proceeds of policy for policy for the duration of the
the duration of the delay at rate of twice ceiling
 In case of litigation, delay at rate of twice prescribed by the monetary
it is the duty of the ceiling prescribed by board (unless refusal to pay
Commissioner or the the monetary board is based on ground that
Court to determine (unless refusal to pay claim in fraudulent)
WON claim has been is based on ground that
unreasonably denied claim in fraudulent)  In case damages awarded,
of withheld. this includes attorney’s fees
 In case damages and other expenses incurred
 Failure to pay any awarded, this includes due to delay (plus the
such claim within attorney’s fees and interest)
the time prescribed other expenses
shall be considered incurred due to delay
prima facie evidence (plus the interest)
of unreasonable
delay in payment.
 A clause in an insurance policy to the

effect that an action upon the policy
by the insured must be brought within
PRESCRIPTION OF ACTION a certain period is VALID and will
prevail over the general low on
Title 6 – The Policy limitations of actions.
 HOWEVER, if the period fixed is less
Sec. 63. A condition, stipulation, or than one year from the time the
agreement in any policy of insurance, limiting cause of action accrues, it is VOID.
the time for commencing an action thereunder
to a period of less than one year from the Cause of Action – The violation of a legal right
time when the cause of action accrues, is committed knowingly; An act or omission of
void. one party in violation of the legal right/s of the
other.

133
Requisites/Essential Elements: The Insurance Commissioner
1. A legal right of the plaintiff
2. A correlative obligation of the Administrative and Adjudicatory Powers
defendant Sec. 416. The Commissioner shall have the
3. An act or omission of the defendant power to adjudicate claims and complaints
in violation of the legal right of involving any loss, damage or liability for
plaintiff. which in insurer may be answerable under
any kind of policy or contract of insurance, or
 The cause of action in an for which such insurer may be liable under a
insurance policy therefore contract of suretyship, or for which a
does not accrue until the reinsurer may be sued under any contract of
insurer refuses expressly or reinsurance it may have entered into; or for
impliedly to comply with his which a mutual benefit association may be
duty to pay the amount of held liable under the membership certificates
the loss. it has issued to its members, where the
 amount of any such loss, damage or liability,
Compulsory Motor Vehicle Liability Insurance excluding interest, cost and attorney's fees,
Sec. 384. Any person having any claim upon being claimed or sued upon any kind of
the policy issued pursuant to this chapter insurance, bond, reinsurance contract, or
shall, without any unnecessary delay, present membership certificate does not exceed in
to the insurance company concerned a written any single claim one hundred thousand pesos.
notice of claim setting forth the nature, extent The insurer or surety may, in the same action
and duration of the injuries sustained as file a counterclaim against the insured or the
certified by a duly licensed physician. Notice obligee. The insurer or surety may also file a
of claim must be filed within six months from cross-claim against a party for any claim
date of the accident, otherwise, the claim shall arising out of the transaction or occurrence
be deemed waived. Action or suit for that is the subject matter of the original
recovery of damage due to loss or injury must action or of a counterclaim therein.
be brought, in proper cases, with the With leave of the Commissioner, an insurer or
Commissioner or the Courts within one year surety may file a third-party complaint
from the denial of the claim, otherwise the against its reinsurers for indemnification,
claimant’s right of action shall prescribe (As contribution, subrogation or any other relief,
amended by PD No. 1814 and BP Blg. 874.) 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
Civil Code – Prescription
provisions of this section thereby submits his
person to the jurisdiction of the
Art. 1144. The following action must be Commissioner. The Commissioner shall
brought within ten years from the time the acquire jurisdiction over the person of the
right of action accrues: impleaded party or parties in accordance with
(1) Upon a written contract; and pursuant to the provisions of the Rules of
(2) Upon an obligation created by law Court.
(3) Upon a judgment. (n) The authority to adjudicate granted to the
Commissioner under this section shall be
General Rules on Prescription: concurrent with that of the civil courts, but
 10 Years (CC) the filing of a complaint with the
Commissioner shall preclude the civil courts
Exceptions to the General Rule: from taking cognizance of a suit involving the
 Stipulation in the contract same subject matter.
(Sec. 63) – a clause in an Any decision, order or ruling rendered by the
insurance policy limiting the Commissioner after a hearing shall have the
period for which an action force and effect of a judgment. Any party
upon the policy bay be may appeal from a final order, ruling or
brought is valid provided it decision of the Commissioner by filing with
be not less than one year. the Commissioner within thirty days from
 Motor Vehicle Insurance receipt of copy of such order, ruling or
– One (1) year only decision a notice of appeal to the
Intermediate Appellate Court in the manner
provided for in the Rules of Court for appeals
from the Regional Trial Court to the

134
Intermediate Appellate Court. (As amended
by Batas Pambansa Blg. 874). Jurisdiction of Insurance Commission
As soon as a decision, order or ruling has Includes the following as long as any SINGLE
become final and executory, the CLAIM does NOT EXCEED 100,000.00:
Commissioner shall motu proprio or on (1) Claims and complaints involving
motion of the interested party, issue a writ of liability of insurer under any kind of
execution requiring the sheriff or the proper policy or contract
officer to whom it is directed to execute said (2) Suretyship
decision, order or award, pursuant to Rule (3) Reinsurance
thirty-nine of the Rules of Court. (4) Mutual Benefit membership
For the purpose of any proceeding under this certificates
section, the Commissioner, or any officer
thereof designated by him, empowered to Relation to RTC:
administer oaths and affirmation, subpoena  The RTC and IC have
witnesses, compel their attendance, take concurrent jurisdiction. HOWEVER,
evidence, and require the production of any filling a complaint with the IC
books, papers, documents, or contracts or PRECLUDES civil courts from taking
other records which are relevant or material cognizance of suit involving the same
to the inquiry. In case of contumacy by, or subject.
refusal to obey a subpoena issued to any
person, the Commissioner may invoke the aid Lopez v Filipinas
of any court of first instance within the Facts: Lopez insured with FCS his Biederman
truck tractor and Winter Weils trailer from loss or
jurisdiction of which such proceeding is
damages. It appeared that Lopez concealed some
carried on, where such person resides or
material fact with regard to questions asked by
carries on his own business, in requiring the FCS. The vehicles figured in an accident. Lopez
attendance and testimony of witnesses and filed a claim which FCS denied. Lopez filed a
the production of books, papers, documents, complaint with IC less than 2 months after the
contracts or other records. And such court denial and a complaint with the Court 17 months
may issue an order requiring such person to after the denial when FCS told the IC that it
appear before the Commissioner, or officer refused to subject itself to arbitration. FCS claimed
designated by the Commissioner, there to prescription.
produce records, if so ordered or to give Ratio: The right of action has prescribed. There is
testimony touching the matter in question. nothing in the Insurance Law, nor in any of its
Any failure to obey such order of the court allied Legislations which empower the IC to
may be published by such court as a adjudicate on disputes relating to an insurance
contempt thereof. company’s liability to an insured under a policy
A full and complete record shall be kept of all issued by the insurer to an insured. The validity of
proceedings had before the commissioner, or an insured’s claim under a specific policy, its
the officers thereof designated by him, and all amount, and all such other matters as might
testimony shall be taken down and involve the interpretation and construction of the
insurance policy, are issues which only a regular
transcribed by a stenographer appointed by
court of justice may resolve and thus the complaint
the Commissioner.
filed by Lopez with the IC could not have been an
A transcribed copy of the evidence and action or suit. The prescription period started to
proceeding, or any specific part thereof, of run on August 28, 1960 when FCS rejected the
any hearing taken by a stenographer claim of Lopez and the commencement of an
appointed by the Commissioner, being action was filed only on September 19, 1961with
certified by such stenographer to be a true the CFI of Manila, nearly 17 months after the claim
and correct transcript of the testimony on this was rejected. Thus the action has already
hearing of a particular witness, or of a specific prescribed.
proof thereof, carefully compared by him from
his original notes, and to be a correct Finman v Inocencio
statement of evidence and proceeding had in Facts: Pan Pacific obtained a surety bond from
such hearing so purporting to be taken and Finman in compliance with POEA rules. Inocencio
subscribed, may be received as evidence by et.al filed complaint against Pan Pacific. POEA
the Commissioner and by any court with the ordered Pan Pacific and Finman jointly and
same effect as if such stenographer were severally to pay the claim of Inocencio et.al.
present and testified to the facts so certified. Ratio: POEA has jurisdiction over the surety
bonds as it is a well settled doctrine that the
(As amended by Presidential Decree No.
conditions of a bond specified in the statute
1455).
providing for the submission of a bond are built into
all bonds tendered under that statue even through

135
not printed therein. Finman may be held liable, if Ratio: Action already prescribed. The action of
it is solidarily liable with Pan Pacific under the Ang against Paramount does not have any legal
terms of the bond, it must follow that it is also effect except that of notifying the agent and serves
liable to both Inocencio et.al and POEA.  sorry no other purpose. It did not stop the prescription
guys I don’t get how prescription figures into this from running. The filing of a claim within one year
case!!! after rejection is a condition precedent to the
liability of the insurer – a resolutory cause, the
Eagle Star v Chin Yu purpose of which is to terminate all liabilities in
Facts: Chin Yu consigned 14 bales of case action is not filed within the said period.
underwear. Insured with Eagle Star. Upon
arrival to Manila, 4 bales were lost and 3 were Travellers Insurance v CA
damages. Chin Yu filed claim for the lost and Facts: A 78 year old woman was hit by a taxi cab,
damages bales against he carrier and then with died. Her son (Vicente) filed a claim against the
the insurer. Both denied liability. owner of the Lady Love taxi cab, the driver and
Ratio: Action has not prescribed under Sec. 61- Travellers as the compulsory insurer
A, the period of prescription starts to run when Ratio: Travellers cannot be held jointly and
the cause of action accrues and the cause of severally liable with the owner and driver of the
action accrues only upon the rejection of the Lady Love taxi cab as Vicente failed to attach a
insurer of the claim and not upon the filing of the copy of the insurance contract to his complaint,
claim. there could be no basis to apprise the real nature
and pecuniary limits of Travellers liability. Further,
ACCFA v Alpha Ins he also failed to file a written notice of claim with
Facts: FACOMA took out a fidelity bond of Traveller, which is an indispensable requirement
Php5,000.00 to insure its funds from Alpha thus his cause of action did not accrue.
Insurance which it later assigned to ACCFA. The
funds were misappropriated upon which ACCFA Sun Insurance v CA (supra)
immediately notified Alpha of the loss and
presented proof of loss within the period fixed,
but despite repeated demands, the surety
company refused and failed to pay. It filed a suit SUBROGATION
against Alpha. Alpha moved to dismiss claiming
that ACCFA’s right of action has prescribed since Civil Code Provisions
it filed an action one year after it filed its notice of
loss -- claiming that ACCFA’s right of action
Obligations & Contracts – Extinguishment of
accrued upon submission of notice of loss as
Obligations
stipulated under Condition 8 of the contract.
Ratio: The action does not accrue until the party
obligated refuses, expressly or implied to comply Art. 1236. The creditor is not bound to accept
with its duty (in this case refusal of Alpha to pay payment or performance by a third person
the amount of the bond). The year for instituting who has no interest in the fulfillment of the
the action in court must be reckoned from the obligation, unless there is a stipulation to the
time of Alpha refused to comply with its bond and contrary.
not from the creditor’s filling of the claim of loss
(since the creditor does not know yet upon filling Whoever pays for another may demand from
that the claim would be denied or refused). the debtor what he has paid, except that if he
Therefore, condition #8 which required action to paid without the knowledge or against the will
be filed within one year from the filling of the of the debtor, he can recover only insofar as
claim for loss contradicts the public policy
the payment has been beneficial to the debtor
expressed in Sec. 61-A of the Philippine
(1158a)
Insurance Act and is thus null and void
Ang v Fulton Damages

Facts: Ang insured his property against fire for 1 Art. 2207. If the plaintiff’s property has been
year with Fulton through its agent Paramount. . insured, and he has received indemnity from
12.27.1973 -- Store was destroyed through fire
the insurance company for the injury or loss
(3 days later, Ang filed claim)
arising out of the wrong or breach of contract
1.13.1955 – Ang charged with arson, acquitted
complained of, the insurance company shall
4.6.1956 – Fulton denied Ang’s claim
4.19.1956 – Ang received Fulton denial be subrogated to the rights of the insured
5.1956 – Ang instituted claim against Paramount against the wrongdoer or the person who has
which was dismissed w/o prejudice on 9.1957 violated the contract. If the amount paid by
5.5.1958 – Ang instituted present action against the insurance company does not fully cover
Fulton. the injury or loss, the aggrieved party shall be
According to CFI, action not yet prescirbed entitled to recover the deficiency from the

136
person causing the loss or injury. repayable to the extent of any
recovery from the 3rd party
responsible, there can be no
 According to sir – there is only
subrogation.
subrogation in property insurance.
In Case of General Averages:
Concept:
1. Demand contributions directly from
 Process of legal substitution (insurer
different persons liable.
steps into shoes of insured)
2. Clam whole loss from the insurer –
 Reason: EQUITY – to prevent the
insurer subrogates right of
insured from receiving more than
contribution.
his actual loss, while at the same
time makes the person who caused
loss legally responsible.
Coastwise v CA (supra)
Loss Due to Wrongful Act or Breach of
Contract by Third Person, NOT
Maglana v Concolacion (supra)
APPLICLABLE TO LIFE INSURANCE.
 Options available to insured when Cebu Shipyard v Willaim Lines
through wrongful act or breach of Facts: William Lines, Inc contracted the services of
contract committed by 3rd person, CSEW for its ships annual dry-docking and repairs.
insured property suffers loss: The vessel was insured with Prudential for 45 million
(1) Collect from insurer – if insurer for hull and machinery. The coverage included an
pays, insurer subrogates insured “Additional Perils” clause covering loss of or damage
under Civil Code to the vessel through the negligence of ship
o Right of subrogation repairman. The vessel caught fire and sank resulting
exist even if no express to its eventual total loss. Prudential paid William
agreement recognizing it Lines the total amount of the insurance policy and
since it’s under the CC sued CSEW, as subrogee to the rights of William
o Arises only after insurer Lines.
Ratio: Since it has already been resolved that the
pays insured.
cause of the fire which gutted MV Manila City was
(2) Demand payment from
the negligence act of CSEW, the proof of payment
wrongdoer
made by Prudential to William Lines, Inc operated to
 Since Life Insurance is not contract properly subrogate Prudential to the rights of William
of INDEMNITY, subrogation Lines under Art. 2207 of the Civil Code
obviously cannot apply.
Pioneer Insurance v CA
When May Liability to Subrogee be Facts: Jacob Lim purchased 2 aircrafts from JDA
Limited: using funds from Bormaheco, the Cervantes and
 Bill of Lading (St. Paul v Macondray) Maglana. Insured it with Pioneer as surety. Lim failed
 Contributory Negligence (Tabacalera to pay, Pioneer paid (Pioneer reinsured the surety
v NFS) with an unnamed reinsurer) and collected from the
reinsurer. Also foreclosed aircraft, sold it and
Effect of Voluntary Payment collected proceeds.
 Right of Subrogation does not exist Ratio: Pioneer no longer has any claim since it has
in favor of mere volunteer already collected the proceeds of the reinsurance on
 If insurer has right to rescind, but its bond. Under the principle of Art. 2207 of the CC,
still pays insured, there is still the reinsurer, on payment of a loss acquires the
same rights by subrogation as are acquired in similar
subrogation – the 3rd party has no
cases where the original insurer pays a loss.
privity.
 Where the insurer pays the insured
Manila Mahogany v CA
for a loss or liability which is not a Facts: Manila Mahogany insured its Mercedez Benz
risk covered by the policy, it will be with Zenith. Car was bumped and damaged by SMC
considered as a volunteer with no truck. Zenith paid Mahogany in amicable settlement.
right of subrogation. HOWEVER, Zenith then demanded reimbursement from SMC, but
insurer may still recover under Art. it appeared that SMC already paid Mahogany
1236 of the Civil Code – to the evidenced by a Release of Claim.
extent that the debtor had been Ratio: By the act of Manila Mahogany issuing a
benefited. release claim to SMC, the right of Zenith against
 If insured gets amount of policy not SMC is nullified since the insurer can be subrogated
as payment but as a LOAN, to only such rights as the insured may have, should

137
the insured, after receiving payment from the Ratio: North Point is liable since it is a common
insurer, release the wrongdoer who causes the carrier and as such is required to observe
loss, the insurer loses his rights against him. But in extraordinary diligence in its vigilance over the goods
such a case the insurer will be entitled to recover it transports. When goods placed in its care are lost
from the insured whatever it has paid, unless it was or damaged, the carrier is presumed to have been at
made with the consent of the insurer. fault or to have acted negligently. North Front has
burden of proving it observed extraordinary diligence
Pan Malayan v CA & Fabie in order to avoid responsibility which it failed to do.
Facts: The driver of Erlinda Fabie hit the insured However since RFM was guilty of contributory
Mitsubishi Colt Lancer owned by the Canlubang negligence, they should share at least 40% of the
Automotive Resources Corporation. The vehicle loss. North Point ordered to pay Tabacalera et al
was insured with PANMALAY who paid the amount 60% of the total amount it paid to RFM.
insured under the “own damage” coverage” of the
insurance policy. PANMALAY then demanded from Philamgen v CA
Fabie the payment of whatever amount it paid Facts: Coca-Cola Bottlers Philippines, Inc. (CCBPI)
claiming that they were subrogated to the rights of loaded on board “MV Asilda” 7,500 cases of 1-liter
Canlubang. Coke to be transported from Zamboanga City to
Ratio: Art. 2207 of the Civil Code apply in the case Cebu City. The vessel was owned and operated by
at bar, under the principle of subrogation. If the FELMAN. The shipment was insured with
insured property is destroyed or damaged through PHILAMGEN. The vessel sank. CCBPI filed a claim
the fault or negligence of a party other than the with FELMAN for recovery of damages which was
assured, then the insurer, upon payment to the denied and thus CCBPI filed an insurance claim with
assured will be subrogated to the rights of the PHILAMGEN which paid its claim for
assured to recover from the wrongdoer to the PHp755,250.00. Claiming its right of subrogation,
extent that the insurer has been obligated to pay. PHILAMGEN sought recourse against FELMAN who
Payment by the insurer to the assured operates as disclaimed any liability from the lost.
an equitable assignment to the former of all Ratio: Clearly falls under Art. 2207 of the Civil Code.
remedies which the latter may have against the The payment by the assurer to the assured operates
third party whose negligence or wrongful act as an equitable assignment to the assurer of all the
caused the loss. The right of subrogation is not remedies which the assured may have against the
dependent upon, nor does it grow out of, any privity third party whose negligence or wrongful act caused
of contract or upon written assignment of claim. It the loss. The right of subrogation is not dependent
accrues simply upon payment of the insurance upon, nor does it grow out of any privity of contract.
claim. It accrues simply upon payment by the insurance
company of the insurance claim.
Fireman’s Fund v Jamila & Co.
Facts: Firestone loss some properties due to the St Paul v Macondray
acts of its employees and the security guards Facts: Winthrop Products consigned to Winthrop
provided by the security agency of Jamila & Co. Stearns drugs and medicines (from NY to Mla)
Fireman’s Fund, the insurer of Firestone paid the through Macondray & Co. Insured with St. Paul Fire.
loss and proceeded against Jamila and Jamila’s Arrastre services provided by Mla. Port Services.
insurer First Quezon City Ins. Co. Both denied Upon arrival to Manila one drum and several cartons
liability, TC dismissed complaint due to no cause of arrived in bad condition. Winthrop Stearms filed a
action. claim for damages. St. Paul paid claim. St. Paul then
Ratio: Firestone no longer has cause of action proceeded against the Arrastre Service who resisted
since it has already been paid by Fireman’s Fund. action which claimed it delivered goods in same
Fireman’s Fund however has a cause of action as condition it received from the carrier (Macondray).
this falls under Art. 2207 under the doctrine of Macondray denied liability claiming liability ceased
subrogation. upon discharge of goods from ship’s tackle. Note:
there is a bill of lading which stipulated that the
Tabacalera v North Front Shipping amount of the liability should only be Php1K++, but
Facts: Sacks of corn grain valued at over 3M were St. Paul paid amount US$1k++
consigned to RFM under a bill of lading and insured Ratio: St. Paul should receive the amount according
with Tabacalera et al. The vessel was owned by to the bill of lading. The purpose of the bill of lading
North Front. Prior to leaving port, the vessel was is to provide for the rights and liabilities of the parties.
inspected and was deemed fit to carry The stipulation in the bill of lading limiting the
merchandise. When it arrived, it advised RFM who common carrier’s liability to the value of the goods
did not immediately commence unloading without appearing in the bill is valid and binding. St. Paul
any apparent reason. When unloaded, there was after paying the claim of the insured for damages
shortage and the rest were moldy, rancid and unfit under the policy is subrogated merely to the rights of
for its purpose. RFM rejected cargo and the assured as subrogee, it can recover only the
demanded from North Front payment for damages amount that is recoverable by the latter. Since the
which was denied. Tabacalera et.al paid, then right of Winthrop in case of loss or damage to the
sued North Front. TC and CA dismissed case. goods is limited or restricted by the provision in the

138
bill of lading, a suit by St. Paul as subrogee is whereas otherwise these might vary
necessarily subject to like limitations and with the different companies among
restrictions. whom the insurance is divided.
5. Small companies are encouraged to
divide large exposures for safety and
enabled to accept a wide variety of
REINSURANCE applicants.
Title 12 – Reinsurance Reinsurance v Double Insurance

Distinguished
Sec. 95. A contract of reinsurance is one by
which an insurer procures a third person to Reinsurance Double Insurance
insure him against loss or liability by reason of Insurer becomes the Insurer remains as
such original insurance. insured, insofar as the insurer
the reinsurer is
Definition of Reinsurance concerned
The subject of the The subject of the
 It is a contract whereby one party, insurance is the insurance is the
the reinsurer, agrees to indemnify original insurer’s risk property being
another, the reinsured, either in insured
whole or in part, against loss or Insurance of a Insurance of the
liability which the latter may sustain different interest same interest
or incur during a separate and
Original insured has Insured is the party
original contract of insurance with a
no interest in the in interest in all the
third party, the original insured.
contract of contracts
reinsurance which is
Rationale of Reinsurance
independent of the
original contract of
 It is one type of liability insurance.
insurance
 It represents a further extension of
the fundamental idea of insurance, Consent of the The insured has to
that is, distribution among many of original insured is not give his consent.
the risks resting upon one. necessary
 Where an insurer desires to entirely
relieve himself of liability under Sec. 96. Where an insurer obtains
contracts made and reinsures all his reinsurance, except under automatic
risks. reinsurance treaties, he must communicate all
 Contracts/treaties of reinsurance are the representations of the original insured,
plainly beneficial to the public and also all the knowledge and information he
inasmuch as they promote both possesses, whether previously or
efficiency and stability in the subsequently acquired, which are material to
conduct of the insurance business. the risk.
Benefits of Reinsurance to the Insured

 The reinsured has the duty to disclose
all material facts to the reinsurer, the
1. It gives insurance companies
duty imposed is similar to persons
greater financial stability and thus
seeking an original insurance – that of
makes the insured’s individual policy
the strictest good faith.
more reliable.
2. If a large amount of insurance is
When called TREATIES – where the insurer
needed, the insured may obtain it
insures all or a substantial portion of its risk
without negotiating with numerous
with one insurer
companies.
3. It enables the insured to obtain
Automatic Reinsurance Treaties – the
protection promptly, without the
ceding company (reinsured) is bound to cede
delay that would be required to
and the reinsurer is obligated to accept a fixed
divide and distribute the amount
share of the risk which has to be reinsured
among many companies.
under the contract.
4. All the insurance can be written
under identical contract provisions,

139
Facultative Reinsurance Treaties – there have against the original
is no obligation either to cede or to accept insurer.
participation in the risk insured, each party o No novation which discharges
having a free choice. original policy – original
policy remains in full force
History: In the 1950’s, domestic insurer’s and original insured has right
ceded risks to foreign reinsurers because to demand that all its terms
there was no reinsurance company in the and conditions be complied
Philippines. Although, today even when with.
there are domestic reinsurance companies  If insured agreed with insurer and
operating in the country, domestic risks are reinsurer that he will look only to
still ceded to foreign reinsurance companies reinsurer for indemnity in case of loss
since the Philippines is a CALAMITY PRONE o Novation discharged original
country. insurer
o Technically not a reinsurance.
Limitation
 Code limits risk which a non-life Philam v Auditor

insurer may retain on any one Facts: Philamlife had a reinsurance treaty with
subject of insurance to 20% of its AIRCO with an agreement to pay reinsurance
net worth. premiums on an annual basis. The Central Bank
 Any reinsurance ceded by it is collected foreign exchange margin on the
deducted in determining the risk remittances of Philamlife to AIRCO. Philamlife
retained. filed for refund contending that the reinsurance
premiums remitted were paid pursuant to the
reinsurance treaty and therefore were pre-existing
Sec. 97. A reinsurance is presumed to be a obligations expressly exempt fro the margin fee.
contract of indemnity against liability, and not Ratio: Philamlife is not entitled to refund.
merely against damage. Reinsurance treaties and reinsurance policies are
not one and the same. Reinsurance treaties are
contracts FOR insurance while reinsurance
Sec. 98. The original insured has no interest
policies are contracts OF insurance. Philamlife’s
in a contract of reinsurance.
obligation to remit reinsurance premiums becomes
fixed and definite only upon the execution of the
Relationship of insured to reinsurer reinsurance policy, because it is only after a
reinsurance policy is made that payment of
General Rule reinsurance premiums may be exacted as it is only
 Original insured has NO INTEREST in after Philamlife seeks to remit the reinsurance
the reinsurance contract premiums that the obligation to pay the margin fee
 Whatever the reinsurer pays the arises.
insurer upon the happening of the
loss becomes part of the insurer’s
assets, and all its creditors share Fieldman’s v Asian Surety
Facts: Fieldman’s and Asian entered into a
equal rights with the insured to
reinsurance treaty wherein Asian will cede to
demand payment from such funds.
Fieldmen’s a specified portion of the amount of
insurance underwritten by ASIAN. The contract
Exceptions: stipulates that if either party wishes to terminate or
 Contract may expressly bind the cancel the agreement, they must give at least 3
reinsurer to pay directly to the moths notice by registered mail to the other party
original owner any loss for which the and the cancellation was to take effect as of the
original insurer may be liable. 31st of December of the year in which the notice
o Insured may choose to sue was given. Sometime in September 1961
either insurer, reinsurer or Fieldmen’s gave notice to Asian which Asian did
BOTH. However, total not reply to, Fieldmen’s gave 2 other notices.
recovery cannot be more During this time, one of the reinsurance contracts –
than the actual loss. GSIS property was razed by fire. Asian filed a
o Liability of reinsurer to claim with Fieldmen’s who denied liability pointing
original insured would not out that they have already terminated the
reinsurance treaty.
be affected by any defense
Ratio: The Facultative-Obligatory Reinsurance
which the reinsurer may
Treaty Fire (part of the reinsurance contract/treaty)
provides that “in the event of termination of this

140
Agreement x x x, the liability of the Fieldmen’s
under current cessions shall continue in full
force and effect until their natural expiry x x
x.” and “On the termination of this Agreement
from any cause whatever, the liability of the
REINSURER (Fieldmen’s) under any current
cession including any amounts due to be ceded
under the terms of this Agreement which are not
cancelled in the ordinary course of business
shall continue in full force until their expiry
unless the COMPANY (Asian) shall, prior to
the 31st of December next following such
notice, elect to withdraw the existing
cessions.” Thus insofar as the 2 reinsurance
agreements as concerned, the express
stipulations did not ipso facto terminate all
reinsurance cessions. Such cessions continued
to be in full force until their respective dates of
expiration. Since it was under one of said
agreements, namely, the Facultative Obligatory
Reinsurance Treaty-Fire, that the reinsurance
cessions corresponding to the GSIS policy had
been made, FIELDMEN’S cannot avoid liability
which arouse by reason of the burning of the
insured property.
Coquia v Fieldmen’s Insurance

Facts: Fieldmen’s issued to Manila Yellow
Taxicab a common carrier accident insurance
policy which will “indemnify the insured in the
event of accident caused by or arising out of the
use of Motor Vehicle against all sums which the
insured will become legally liable to pay in
respect of: death or bodily injury to any fare-
paying passenger including the driver, conductor
and/or inspector…” While policy was in force,
Carlito Coquia driving the insured vehicle met an
accident and died. His heirs field complaint
against Fieldmen’s
Ratio: Heirs of Coquia have cause of action
against Fieldmen’s under Art. 1311 of the Civil
(contracts pour autrui). This rule is the exception
to the general rule that only parties to a contract
may bring an action. Under this exception, third
parties may demand the enforcement of the
contract which was made for his benefit.


20 Insurance 323to396

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

20 Insurance 323to396

Transféré par

Droits d'auteur :

Formats disponibles

67

INSURANCE 3. Development of insurance in England

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

2. Risk of Loss or Damage / Designated 3. Aleatory

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

1. Contracts for Contingent Personal 2. Contracts with Contingent Incidental

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec. 183. Unless the interest of a

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

 SIR: WORST SECTION of the

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

NOTE: Difference with Tibay case: In Tibay, DISSENT ( Pardo)

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

NON-LIFE 2) Extended Insurance

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

4) Automatic Premium Loan D. Form and contents of policy

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec 59. A policy is either open, valued or IV. PARTIES

Sec. 6. Every person, partnership,

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

3. Time when it should exist C. In property

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

d. “Open mortgage clause” and “union

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

DEVICES FOR ASCERTAINING AND CONCEALMENT

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

MATTERS WHICH NEED NOT BE Matters Which Need Not Be Disclosed:

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec. 36. A representation may be oral or Affirmative Representation:

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec. 40. A representation cannot qualify an

Injured party has right to rescind

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

3. Affirmative Warranty (Sec. 68) is

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec. 167. As used in this Code, the term

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

Sec. 171. If there is no valuation in the

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]

[Lorybeth_Baldrias.head] [Nayna_Malayang.deputy] [Dionne_Sanchez.acads] [Jam_Jacob.design]