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INSURANCE REVIEWER What will happen if the insured assigned his rights against the party at fault to

the insurer? [p. 12]

General Provisions
The case is not between the insured and the insurer but one between the
What is the basis of the right of subrogation? [p. 8] shipper and the carrier because the insurance company merely stepped into the shoes
of the shipper.
The doctrine of subrogation is basically a process of legal substitution; the
insurer, after paying the amount covered by the insurance policy, stepping into the What is a contract of insurance? [p. 15]
shoes of the insured, as it were, and availing himself of the latter’s rights that exist
against the wrongdoer at the time of the loss. It has roots in equity. It is designed to A “contract of insurance” is an agreement whereby one undertakes for
promote and to accomplish justice and is the mode which equity adopts to compel the consideration to indemnify another against loss, damage of liability arising from an
ultimate payment of debt by one who in justice and good conscience ought to pay. unknown or contingent event”.

What is the right of subrogation? [p. 8] What are the essential elements of an insurance contract? [p. 18]

Subrogation is the substitution of one person in place of one another with (1) Subject Matter. – This refers to the thing insured. In fire insurance and in
reference to a lawful claim or right, so that he who is substituted succeeds to the rights marine insurance, the thing insured is property; in life, health or accident
of the other in relation to a debt or claim, including its remedies and securities. insurance, it is the life or health of the person that is the subject of the contract;
in casualty insurance, it is the insured’s risk of loss or liability;
Is the right of subrogation applicable to all kinds of insurance? [p. 9] (2) Consideration. – The consideration for an insurance contract is the premium
paid by the insured. Its amount is principally based on the probability of loss
The right of subrogation under Article 2207 applies only to property, and not to and extent of liability for which the insurer may become liable under the
life insurance. The value of human life is regarded as unlimited and, therefore, no contract; and
recovery from a third party can be deemed adequate to compensate the insured’s (3) Object or Purpose. – Basically, a contract of insurance is a risk-bearing contract.
beneficiary. The principal object and purpose of insurance is the transfer and distribution of
risk of loss, damage, or liability arising from an unknown or contingent event
When is there a loss of right of subrogation by act of the insured or insurer? [p. through the payment of consideration by the insured to the insurer under a
12] legally binding contract to reimburse the insured for losses suffered on the
happening of the stipulated event.
The right of subrogation has its limitations, to wit:
What are the characteristics of an insurance contract? [p. 19]
(1) Both the insurer (of goods covered by a bill of lading), and the consignee are (1) It is Consensual because it is perfected by the meeting of the minds of the
bound by the contractual stipulations under the bill of lading; and parties;
(2) The insurer can be subrogated only to the rights as the insured may have (2) It is Voluntary in the sense that it is not compulsory and the parties may
against the wrongdoer. incorporate such terms and conditions as they may deem convenient;
(3) It is Aleatory in the sense that it depends upon some contingent event;
(4) It is Executed as to the insured after the payment of the premium, and A risk-distributing device includes all the elements, which in addition:
Executory on the part of the insurer in the sense that it is not executed until
payment for a loss; (4) Distribute actual losses among a large group of persons bearing a similar risk;
(5) It is Conditional because it is subject to conditions the principal one of which is (5) Premium to the general insurance fund.
the happening of the event insured against;
(6) It is a Contract of Indemnity (except life and accident insurance where the What are the classifications of contracts of insurance? [p. 43]
result is death) because the promise of the insurer is to make good only the
loss of the insured; (1) Life Insurance
(7) It is a Personal contract between the insurer and the insured each party having (a) Individual life;
in view the character, credit and conduct of the other; (b) Group life;
(8) It is Property in legal contemplation, since an insurance is a contract. (c) Industrial life.

How does an insurance contract differ from other contract? [p. 21-22] (2) Non-life insurance
(a) Marine
The contract of insurance made between the parties usually called the insured (b) Fire
and the insurer, is distinguished by the presence of five elements, namely: (c) Casualty

(1) The insured possesses an interest of some kind susceptible of pecuniary (3) Contracts of suretyship or bonding
estimation, known as "insurable interest";
(2) The insured is subject to a risk of loss through the destruction or impairment of How will you interpret an insurance contract? [p. 45, 55, 58]
that interest by the happening of designated perils;
(3) The insurer assumes that risk of loss; (1) All provisions of the insurance policy should be examined and interpreted in
(4) Such assumption of risk is part of a general scheme to distribute actual losses consonance with its other. The policy cannot be construed piecemeal;
among a large group or substantial number of persons bearing a similar risk; (2) Various stipulations in the policy shall be interpreted together, attributing to
and doubtful ones that sense which may result from all of them taken jointly.
(5) As consideration for the insurer's promise, the insured makes a ratable
contribution called "premium," to a general insurance fund. What does the term “doing an insurance business” or transacting an insurance
business” include? [p. 15 and 59]
What is a risk-shifting device and a risk-distributing device? [p. 24]
(1) Making or proposing to make, as insurer, any insurance contract;
A risk-shifting device only possesses the first 3 distinguishing elements, that is: (2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
(1) Insurable interest; activity of the surety;
(2) Happening of the designated perils; (3) Doing any kind of business, including a reinsurance business, specifically
(3) Insurer assumes risk of loss. recognized as constituting the doing of an insurance business within the
meaning of this code;
(4) Doing or proposing to do any business in substance equivalent to any of the What do you mean by this – “an insurance contract is not a wagering contract”?
forgoing in a manner designated to evade the provisions of this code. [p. 71]

Chapter I: The Contract of Insurance A contract of insurance is a contract of indemnity and is not a wagering or
gambling contract, (see Sec. 25.) While it is based on a contingency, it is not a contract
Title 1: What May Be Insured? of chance and is not used for profit. The very purpose of insurance is the
reimbursement of the holder of insurance for actual loss suffered from specified risks.
What are the requisites of a contract of Insurance? [p. 65]
What is the similarity between insurance and gambling? [p. 72]
(1) A subject matter in which the insured has an insurable interest (see Secs. 12-
14.); Insurance and gambling are similar in only one respect. In both cases, one party
(2) Event or peril insured against which may be any (future) contingent or promises to pay a given sum to the other upon the occurrence of a given future event,
unknown event, past or future (Sec. 3.), and a duration for the risk thereof (see the promise being conditioned upon the payment of, or agreement to pay, a stipulated
Sec. 51 [g].); amount by the other party to the contract.
(3) A promise to pay or indemnify in a fixed or ascertainable amount (see Sec. 2.);
(4) A consideration for the promise, known as the "premium" (see Sec. 77.); and Title 2: Parties to the Contract
(5) A meeting of minds of the parties upon all the foregoing essentials, (see Arts.
1318, 1319, Civil Code.) Who are the parties in an insurance contract? [p. 74]

What is the subject matter of an insurance contract? [p. 66] The two parties to a contract of insurance are:
(1) The insurer or the party who assumes or accepts the risk of loss and undertakes
Anything that has an appreciable pecuniary value, which is subject to loss or for a consideration to indemnify the insured or to pay him a certain sum on the
deterioration or of which one may be deprived so that his pecuniary interest is or may happening of a specified contingency or event.
be prejudiced, may properly constitute the subject matter of insurance. Example: (2) The insured or the second party to the contract, the person in whose favor the
Property insurance, Life, health and accident insurance, and Casualty Insurance. contract is operative and who is indemnified against, or is to receive a certain
sum upon the happening of a specified contingency or event; He is the person
Who owns a life insurance policy? [p. 69]
whose loss is the occasion for the payment of the insurance proceeds by the
Ownership of a modem life insurance policy is divided between the insured and
the beneficiary, the insured being the owner of its various marketing and sales features,
such as the loan and cash surrender values, and the beneficiary being the owner of a Who is the insured? Is it the same as the assured? [p. 75]
promise to pay the proceeds at the death of the insured subject to the insured's right
of revocation. "Insured" refers to the owner of the property insured or the person whose life is
the subject of the contract of insurance. Although they are interchangeably used with
assured, strictly speaking, the term "assured," refers to the person for whose benefit
the insurance is granted.
Who is the beneficiary? Is it the same with the assured? [p. 75] (2) With respect to property insurance - The rule adopted in the Philippines is that
an insurance policy ceases to be valid and enforceable as soon as an insured
The beneficiary is the person designated by the terms of the policy as the one becomes a public enemy.
to receive the proceeds of the insurance. He is the third party in a contract of life
insurance (see Secs. 179-180.) for whose benefit the policy is issued and to whom the What is the United States Rule? [p. 79]
loss is payable. “Beneficiary " is also used sometimes as a synonym of “Assured.”
The United States rule declares that with respect to life insurance during war,
Who may be an insurer? [p. 75] the contract is not merely suspended but is abrogated by reason of non-payment of
premiums, since the time of the payments is peculiarly of the essence of the contract.
(1) Foreign or domestic insurance company or corporation
(2) Individual, partnership, or association What are the extent of insurable interest of the mortgagor and the mortgagee?
[p. 80]
Can anybody become an insured and a beneficiary in an insurable contract? [p.
77] The mortgagor of the property as the owner has an insurable interest therein to
the extent of its value, even though the mortgage debt equals such value. The reason
Yes, anybody can become insured except that of a public enemy. is that the loss or destruction of the property insured will not extinguish his mortgage
Who is a public enemy? [p. 78] The mortgagee (or his assignee) has such an insurable interest in the
mortgaged property to the extent of the debt secured, since the property is relied
A public enemy designates a nation with whom the Philippines is at war and it upon as security thereof, and in insuring, he is not insuring the property itself but his
includes every citizen or subject of such nation. interest or lien thereon.

What is a control test? [p. 78] What are the legal effects of insurance procured by the mortgagor for the benefit
of the mortgagee or if the policy is assigned to the mortgagee? [p. 83]
The control test is where the corporation is deemed to have the same
citizenship as the controlling stockholder in time of war. During this time, a private Under Section 8, where the mortgagor of property effects insurance in his own
corporation is deemed an enemy corporation although organized under Philippine name providing that the loss shall be payable to the mortgagee, or assigns a policy of
laws if they are controlled by enemy aliens. insurance to the mortgagee, the following are the legal effects:

(1) The contract is deemed to be upon the interest of the mortgagor; hence, he
What are the effects of war on existing insurance contracts? [p. 78]
does not cease to be the party to the contract;
(1) Where parties rendered enemy aliens - By the law of nations, all intercourse (2) Any act of the mortgagor prior to the loss, which would otherwise avoid the
between citizens of belligerent powers which is inconsistent with a state of war insurance (like storing inflammable materials in the insured house) affects the
is prohibited. mortgagee even if the property is in the hands of the mortgagee;
(3) Any act which under the contract of insurance is to be performed by the Title 3: Insurable Interest
mortgagor (like payment of the premium) may be performed by the mortgagee
with the same effect; What is an insurable interest? [p. 89]
(4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his
credit; and An insurable interest is one of the most basic of all requirements in insurance.
(5) Upon recovery by the mortgagee to the extent of his credit, the debt is In essence, it is that interest which the law requires the owner of an insurance policy to
extinguished. have in the person or thing insured.

NOTE: The rule on subrogation by the insurer to the right of the mortgagee does not Why is insurable interest an essential requirement in an insurance contract? [p.
apply in this case. 90]

What are the effects in case of the transfer or assignment of the policy itself? [p. It is an essential requirement because the existence of insurable interest is a
86] primary concern in determining the liability of an insurer under a policy of insurance.
Insurable interest may be in life and health or in property. The existence of insurable
The effect of an assignment or transfer is to substitute the assignee or
interest gives a person the legal right to insure the subject of the policy of insurance. In
transferee in place of the original insured in respect to the right to claim indemnity or
the absence of such interest, the person insuring in effect would be gambling (see Sec.
payment for a loss as well as the obligation to perform the conditions, if any, of the
3 [par. 1], 4, 18, 25.), which is prohibited by law (Revised Penal Code, Article 195). It is a
policy. The assignee, unless he makes a new contract with the insurer, acquires no
fundamental postulate of all insurance that it must not be a mere bet upon a future
greater right under the insurance than the assignor had, subject to insurer's defenses.

What are the effects in case of assignment of the proceeds of the policy? [p. 87]
What are the 2 general classes of life insurance policies? [p. 91]
The transfer or assignment of the proceeds of the policy after a loss has
happened, which involves a money claim under, or a right of action on the policy. Life insurance policies may be divided into two general classes:

What are the effects in case of assignment of the subject matter of the insurance? (1) Insurance upon one’s life. - Those taken out by the insured upon his own life
[p. 87] for the benefit of himself, or of his estate, in case it matures only at his death, or
for the benefit of a third person who may be designated as beneficiary. An
When there is a transfer of the subject matter of the insurance, such as a house application for insurance on one's own life does not usually present an
insured under a fire policy which has the effect of suspending the insurance until the insurable interest question; and
same person becomes the owner of both the policy and the thing insured.
(2) Insurance upon life of another. - When one applies for insurance on the life
of another for the former's benefit, he must have an insurable interest in the life
of that person.
Is there a similarity between a life insurance policy and a civil donation? [p. 93] which become payable, according to the terms of the contract, upon the death of the
Yes, there is a similarity between a life insurance policy and a civil donation
because, in essence, a life insurance policy is no different from a civil donation insofar What are the kinds of beneficiary? Define each [p. 101]
as the beneficiary is concerned. Both are founded upon the same consideration:
liberality. Kinds of Beneficiary:

A beneficiary is like a done, because from the premiums of the policy which the (1) Insured Himself. - A person, who is an immediate party to the contract and
insured pays out of liberality, the beneficiary will receive the proceeds or profits of said pays the premiums necessary to maintain it.
(2) Third Person Who Paid a Consideration - The third person named as
Is the consent of the person whose life is insured essential to the validity of the beneficiary may have paid a valuable consideration for his selection.
insurance taken by another? [p, 100]
(3) Third Person through Mere Bounty of Insured - The beneficiary may be one
It depends: who gives no consideration whatsoever for any right that may be acquired in
the policy but is designated as recipient of the proceeds in the policy through
(1) It is essential to validity of policy when, on clear principle and by the weight of mere bounty of the insured.
authority, it is believed that all such contracts, without the consent of the
insured, are contrary to public policy, and void. Are there limitations as to who shall be designated as a beneficiary? If yes, what
are these? [p. 102]
Reason: The danger to the public of such insurances is largely obviated when
the insured, with knowledge of all the circumstances, has given consent to the Yes, there are limitations as to who shall be designated as a beneficiary, namely:
contract. His very consent is strong evidence of the good faith of the person
procuring the insurance, and thus affords a needed guaranty to society. (1) Any person who is forbidden from receiving any donation cannot be named
beneficiary of a life insurance policy by the person who cannot make any
(2) It is not essential to validity of policy as provided under the law. As long as it donation to him.
could be proved that the assured has a legal insurable interest at the inception
of the policy, the insurance is valid even without such consent. (2) Donations shall be void:
(a) Between persons who were guilty of adultery or concubinage at the time of
Reason: The presence of insurable interest takes the contract out or the class of the donation;
forbidden wagers. (b) Between persons found guilty of the same criminal offense, in consideration
thereof; or
Who is the beneficiary in the contract of insurance? [p. 101] (c) To a public officer or his wife, descendants and ascendants, by reason of his
The beneficiary of the contract is the person who is named or designated in a
contract of life, health, or accident insurance as the one who is to receive the benefits
(3) A life insurance policy, in essence is no different from a civil donation insofar as What is the liability of the insurer if the insured died: at the hands of the law? Self
the beneficiary is concerned. Both are founded on the same consideration: destruction? Suicide while insane? Caused by the beneficiary? Caused by violation
liberality. of law? [p. 111]

Does the insured have the absolute right to change the beneficiary? [p. 104] The liability of the insurer if the insured died:

No, the insured does not have the absolute right to change the beneficiary. (1) At the Hands of the Law - Assumed by the insurer under a life insurance policy
Under Section 11 of The Insurance Code of the Philippines states that: in the absence of a valid policy exception;

“The insured shall have the right to change the beneficiary he designated in the (2) Self-destruction - Insurer is not liable in case the insured commits suicide
policy, unless he has expressly waived this right in said policy. Notwithstanding the intentionally, with whatever motive, when in sound mind. Also, death which is
foregoing, in the event the insured does not change the beneficiary during his lifetime, purely accidental, even though due to the insured’s own carelessness or
the designation shall be deemed irrevocable.” negligence is not excluded from the coverage by the words “self-destruction,”
“death by his own hand,” and the like which are generally considered
What will happen if the beneficiary predeceased the insured? [p. 106] synonymous with suicide;

If the beneficiary predeceased the insured, either of the following will happen: (3) Suicide while Insane - Suicide of an insured while insane does not discharge
the insurer from his liability on his contract. The insanity of the insured must
(1) His rights so vested should pass to his representatives, and on the death of the have known by the insurer and the unwitting act of self-destruction is as much
insured, the proceeds of the policy should belong, not to estate of the insured, the consequence of the disease as if some vital organs were totally affected;
but to the representatives of the beneficiary; or
(4) Caused by the Beneficiary - The insurer may properly insert in the contract an
(2) The estate of the insured should be entitled to the proceeds of the insurance express provision excepting from coverage death caused by the beneficiary,
especially where the designation is subject to the express condition to pay the whether lawfully or unlawfully;
beneficiary if he survives the insured or “if surviving.”
(5) Caused by Violation of Law - Committing a felony or violating a law would not
When will the beneficiary forfeit his/ her right to the insurance policy? [p. 109] warrant denial of liability. To avoid liability, the insurer must further establish
that the commission of the felony or the violation of law was the cause or had a
The beneficiary will forfeit his/her right to the insurance policy if he/she is the casual connection with the accident resulting in the death of the insured.
principal, accomplice, or accessory willfully bringing about the death of the insured. In
such a case, the share forfeited shall pass on to the other beneficiaries, unless What is the insurable interest in property? What does it consists? How is it
otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be paid measured? What is the effect of absence of insurable interest in property? When
in accordance with the policy contract. If the policy contract is silent, the proceeds shall should an insurable interest in property exist? [p. 114 onwards; p. 120; p. 121; p.
be paid to the estate of the insured. 125]
The insurable interest in property is every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a What is the difference of insurable interest in life and property? [p. 128]
contemplated peril might directly damnify the insured.
Insurable Interest in Life Insurable Interest in Property
It consists: As to extent of In property, insurable interest is
Insurable interest in life is
insurable limited to the actual value of the
(1) An existing interest; interest interest thereon
It is necessary that insurable
As to time It is enough that insurable
(2) An inchoate interest founded on an existing interest; and interest “must exist when the
when insurable interest exists at the time the
insurance takes effect and when
interest must policy takes effect and need not
(3) An expectancy, coupled with an existing interest in that out of which the the loss occurs but need not exist
exist exist at the time of the loss
expectancy arises. in the meantime”
An expectation of benefit, to be
It is measured by the extent to which the insured might be damnified by loss or derived from the continued
injury thereof. As to The expectation of benefit to be existence of the property insured,
expectation of derived from the continued however likely and morally certain
The effect of absence of insurable interest in the property is that the premium is benefit to be existence of life need not have of realization it may be, will not
ordinarily returned to the insured unless he is in pari delicto with the insurer. derived any legal basis whatever afford a sufficient insurable
interest unless that expectation
An insurable interest in property exist when the insurance takes effect, and has basis of legal right.
when the loss occurs, but need not exist in the meantime; and interest in the life or
health of a person insured must exist when the insurance takes effect, but need not
What are the prohibited stipulations in an insurance policy? [p. 134]
exist thereafter or when the loss occurs.
(1) Wager Policy – Stipulation for the payment of loss whether the person insured
What is the insurable interest of a carrier or a depository? [p. 118] has or has not any interest in the subject matter of the insurance. [No interest
in the subject matter – policy/ contract is void]
Insurable interest of a carrier or a depository is the loss of the thing which may
cause liability to the extent of its value. (2) Stipulations that the policy shall be received as proof of insurable interest.
[Existence of Insurable interest does not depend on the contract or its
What is a mere contingent or expectant interest? [p. 119] stipulations]

A mere contingent or expectant interest is in anything, not founded on an

actual right to the thing, nor upon any valid contract for it, is not insurable. It is a mere
hope or expectation of benefit which may be frustrated by the happening of some
event uncoupled with any present legal right which will not be supported by a contract
of insurance.
Title 4: Concealment If the insurer fails to verify, what will happen? [p. 144]

What is concealment? [p. 138] The insurance company has no obligation to verify the statements made by the
insured in his application before the issuing policy. It has the right to rely on the
Concealment is defined as neglect to communicate that which a party knows
statements of the insured as to material facts such as to his previous sickness, for he
and ought to communicate. It is intentional withholding by the insured of any fact
knows the facts, and the matter is not one of which disclosure is excused by law.
material to the risk.
What is the test of materiality? [p. 147]
What are concealment’s requisites and effects? [p. 139]
The test is in the effect which the knowledge of the fact in question would have
on the making of the contract. To be material, a fact need not increase the risk or
(1) A party knows the fact which he neglects to communicate or disclose to the
contribute to any loss or damage suffered. It is sufficient if the knowledge of it would
influence the parties in making the contract. The matter must, of course, be
(2) Such party concealing is duty bound to disclose such fact to the other;
determined by court.
(3) Such party concealing makes no warranty of the fact concealed; and
(4) The other party has not the means of ascertaining the fact concealed. How will you prove that concealment is intentional? [p. 149]

Effects: A man’s state of mind or subjective belief is not capable of proof in our judicial
A concealment whether intentional or unintentional entitles the injured party process, except through proof of external acts or failure to act from which inferences as
(insured or insurer) party to rescind a contract of insurance. to his subjective belief may be reasonable drawn.

Is proof of fraud necessary in concealment? [p. 140] Is the right to information waivable? [p. 151]

No. Under Section 27, the insurer need not prove fraud in order to rescind a The right to information of material facts may be waived either expressly, that
contract on the ground of concealment. Otherwise, it would be impossible for the is, by the terms of the insurance, or impliedly, that is, by neglect to make inquiry of the
insurer to protect itself and its honest policy holder against fraudulent and improper facts already communicated. (Sec 33)
claims. The insurer would be wholly at the mercy of anyone who wished to apply for
Is it necessary to disclose opinion, speculation, intention or expectation? [p. 153
insurance, as it would be impossible to show actual fraud except in extreme cases. and 154]
What are the rules of concealment in marine insurance? [p. 142]
The duty to disclose is confined to facts. Hence, there is no duty to disclose
The rule applicable in the Philippines, however, is applicable to every kind of mere opinion, speculation, intention or expectation. (Sec 35)
insurance (not just as to marine insurance) is that fraud is not essential in order that the Title 5: Representation
insured may be guilty of concealment. It has been held that under Section 27 of the
Insurance Act, the presence or absence of intent to deceive is immaterial. What is representation and misrepresentation?

Representation pertains to a statement made by the insured at the time of, or

prior to, the issuance of the policy, relative to the risk to be insured, as to an existing or
past fact or state of facts, or concerning a future happening, to give information to the While a Promissory Representation is any promise to be fulfilled after the
insurer and otherwise induce him to enter into the insurance contract. contract has come into existence or any statement concerning what is to happen
during the existence of the insurance.
Misrepresentation is a statement as a fact of something which is untrue, which
the insured stated with knowledge that is untrue and with an intent to deceive, or When can you consider a representation as a mere expression of opinion?
which he states positively as true without knowing it to be true and which has a
tendency to mislead, and where such fact in either case is material to the risk. A representation can be considered as a mere expression of opinion when it is
an oral representation as to future event or condition, over which the insured has no
What is the intention when a representative is made? control, with reference to property or life insured, and such will avoid a contract only
when made in bad faith.
The representations are made to influence the insurer to accept the risk, it
being merely collateral inducements to the contract, which means that representations Once a representation has been made, can you alter or withdraw it?
may be communicated in any manner whatsoever that is intelligible. However, they are
not part of the contract unless expressly made. A representation may be altered or withdrawn before the insurance is effected,
but not afterwards.
When representations are made?
Discuss the effects of the following:
Section 37 of the Insurance Code provides that a representation may be made (1) Information obtained from third persons?
at the time of, or before, issuance of the policy. (2) Information obtained from the agent of the insured?
(3) Information obtained from the agent of the insurer?
How are representations interpreted?
The following are the effects of information according to where they are
Representations are construed liberally in favor of the insured, and are required obtained, thus:
to be only substantially true.
(1) Information obtained from third persons? - The insured is given
What are the kinds of representation? discretion to communicate to the insurer what he knows of a matter of which
he has no personal knowledge. If the representation turns out to be false, he is
The kinds of representation are: not responsible therefore, provided that he gives explanation that he does so
on the information of others.
(1) Oral or written;
(2) Made at the time of issuing the policy or before; and (2) Information obtained from the agent of the insured/insurer? - If the
(3) Affirmative or promissory information proceeds from an agent of the insured, whose duty is in the
ordinary course of business to communicate such information to his principal,
An Affirmative Representation is any allegation as to the existence of a fact and it was possible for the agent under such circumstances in the exercise of
when the contract begins. due diligence to have made such communication before the making of the
contract, the insured will be liable for the truth.
(3) Information obtained from the agent of the insurer? - It must be borne in Distinguish concealment from misrepresentation.
mind that the same principle applies to the insurer though in the nature of the
things, the question does not occur so frequently. In concealment, the insured withholds information of material facts from the
insurer, whereas in misrepresentation, the insured makes erroneous statements of facts
What is the effect if representation is false? with the intent of inducing the insurer to enter into the insurance contract;

If a representation is false in a material point, whether affirmative or What is incontestability clause?

promissory, the injured party is entitled to rescind the contract from the time when the
representation becomes false. This pertains to clauses in life insurance policies stipulating that the policy shall
be incontestable after a stated period are in general use, and are now required by
What is the difference if there is collusion between the insured and the insurer’s statutes in force. Incontestability means that after the requisites are shown to exist, the
agent? insurer shall be estopped from contesting the policy or setting up any defense, except
as is allowed, on the ground of public policy.
The following are the differences, to wit:
What are the requisites to consider in an incontestability clause?
(1) Collusion with the insured - Collusion between the agent of the agent and the
insured in misrepresenting the facts will vitiate the policy even though the In order that the insurance shall be incontestable, the following requisites must
agent is acting within the apparent scope of his authority. When there is be present:
collusion, the agent thereby ceases to represent his principal, and represents
himself; so the insurer is not estopped from avoiding the policy. (1) The policy is a life insurance policy;
(2) It is payable on the death of the insured; and
(2) Collusion with principal of agent - Where the insured merely signed the (3) It has been in force during the lifetime of the insured for at least two (2) years
application form and made the agent of the insurer fill the same for him, it was from its date of issue or of its last reinstatement.
held that by doing so, the insured made the agent of the insurer his own agent.
But where the insurer required its medical examiner to put the questions and fill What will happen if the policy becomes incontestable?
out the answers in his own handwriting, the writer of the application is not the
agent of the insured. The insurer is liable when its agent writes a false answer When a policy of life insurance becomes incontestable, the insurer may not
into the application without the knowledge of the insured. refuse to pay the same by claiming that:

How will you determine the materiality of representation? (1) The policy is void ab initio; or
(2) It is rescissible by reason of the fraudulent concealment of the insured or his
The materiality of the representation is to be determined not by the event, but agent, no matter how patent or well-founded; or
solely by the probable and reasonable influence of the facts upon the party to whom (3) It is rescissible by reason of the fraudulent misrepresentations of the insured or
the representation is made, in forming his estimates of the disadvantages of the his agent.
proposed contract or in making his inquiries.
What are the possible defenses against the application of the incontestability contractor application is such as to create ambiguity, the same should be resolved
clause? liberally in favor of the insured and strictly against the party responsible therefor.

The insurer may still contest the policy by way of defense to a suit brought Policy insurance vs. Contract Insurance [p. 181]
upon the policy or by action to rescind the same, on any of the following grounds:
A policy of insurance is different from the contract of insurance:
(1) That the person taking the insurance lacked insurable interest as required by
law; (1) The policy is the formal written instrument evidencing the contract of insurance
(2) That the cause of the death of the insured is an excepted risk; entered into between the insured and the insurer. It is the law between them.
(3) That the premiums have not been paid; (2) Form thereof previously approved by Insurance Commissioner. Insurance
(4) That the conditions of the policy relating to military or naval service have been policies generally are required in standard forms. Under Section 226, no policy
violated; of insurance shall be issued or delivered within the Philippines unless in the
(5) That the fraud is of a particularly vicious type; form previously approved by the Insurance Commissioner.
(6) That the beneficiary failed to furnish proof of death or to comply with any
condition imposed by the policy after the loss has happened; or What is the required form of an insurance policy? [p. 182]
(7) That the action was not brought within the time specified.
Section 50 provides that the policy shall be in printed form which may contain
Title 6: The Policy blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or
word necessary to complete the contract of insurance shall be written on the blank
What is a policy of insurance? [p. 178] spaces provided therein.

Section 49 provides that a policy of insurance is a written instrument in which a Group insurance and group annuity policies, however, may be typewritten and
contract of insurance is set forth. It is the written document embodying the terms and need not be in printed form.
stipulations of the contract of insurance between the insured and the insurer.
In case of conflict between the written and printed portions of a policy, the
Explain the principle that an insurance contract is a contract of adhesion [p. 179] written portion prevails. (Jargue vs. Union Fire Insurance Co., 56 Phil. 758 [1932].)

The term "adhesion contract" is essentially a description of the manner by When is insurance perfected? [p. 182]
which the contract is formed: one party having superior bargaining power imposes its
choice of terms on the other party. Ordinarily, contracts are freely negotiated by A contract of insurance, like other contracts, must be assented to by the parties
parties with roughly equivalent bargaining power. Although the insured can choose either in person or by their agents. Under the law, assent or consent is manifested by
from a variety of available coverages, he cannot negotiate the substance of the the meeting of the offer and the acceptance upon the thing and the cause which are to
contract with the insurer. Since in this type of contracts, the parties do not bargain on constitute the contract. (Art. 1319, Civil Code.)
equal footing, the weaker party's participation is reduced to the alternative "to take it
or leave it." Thus, those contracts are viewed as traps for the weaker party whom the The following are necessary for the perfection of insurance:
courts of justice must protect. Consequently, where the language used in an insurance
(1) Acceptance of application. - If an application for insurance has not been either (b) Where the application for insurance constitutes an offer by the insured, a
accepted or rejected, there is no contract yet as it is merely an offer or policy issued strictly in accordance with the offer is an acceptance of the
proposal. The contract, to be binding from the date of the application, must offer that perfects the contract. If the policy issued does not conform to the
have been a completed contract, one that leaves nothing to be done, nothing insured's application, it is an offer to the insured which he may accept or
to be completed, nothing to be passed upon, or determined, before it shall take reject.
effect. There can be no contract of insurance unless the minds of the parties
have met in agreement. What is the significance of a delivery in an insurance policy? [p. 186]

(2) Compliance with conditions precedent. - The parties may impose additional Delivery is the act of putting the insurance policy into the possession of the
conditions precedent to the validity of the policy as a contract as they see fit. insured. The delivery of the policy is important because it serves:
These conditions are valid and enforceable. Until the conditions are fulfilled, the
policy is of no binding effect. There is no valid and binding insurance contract (1) As evidence of the making of a contract and of its terms;
where no premium is paid unless credit is given or there is a waiver or some (2) As communication of the insurer's acceptance of the insured's offer.
agreement obviating the necessity for prepayment of the premium. (3) As it affects the term of the coverage;
(4) As it marks the end of the insurer's opportunity to decline coverage.
(3) Cover Notes- Cover notes (also called a binder) may be issued to afford
immediate provisional protection to the insured until the insurer can inspect or What are the modes of delivery in an insurance policy? [p. 187]
evaluate the risk in question and issue the proper policy (Sec. 52, par. 1.), or
until the risk is declined and notice thereof given. (1) Actual Delivery - Actual manual transfer of the policy;

When is there an offer and acceptance of an insurance contract? [p. 185] (2) Constructive delivery - The intention of the parties which may be shown by
their acts or words.
(1) In property and liability insurance. - It is the insured who technically makes an
offer to the insurer, who accepts the offer, rejects it, or makes a counter-offer. What is the effect of delivery in an insurance policy? [p. 189]
The offer is usually accepted by an insurance agent on behalf of the insurer.
(1) Where delivery conditional. - Non-performance of the condition precedent
(2) In life and health insurance. - The situation depends upon whether the insured prevents the contract from taking effect;
pays the premium at the time he applies for insurance.
(2) Where delivery unconditional. - Ordinarily consummates the contract, and the
(a) If he does not pay the premium, his application is considered an invitation to policy as delivered becomes the final contract between the parties; and
the insurer to make an offer, which he must then accept before the contract
goes into effect. If he pays the premium with his application, his application (3) Where premium still unpaid after unconditional delivery. In the absence of
will be considered an offer. Binding receipt is a conditional acceptance by any clear agreement granting credit extension, the policy will lapse if the
the insurer. premium is not paid, at the time and in the manner specified in the policy.
What if the delivery was made to the insurer’s agent? [p. 188] contents. The insured has the duty to read his policy and is bound by his
contract as written whether he reads it or not.
There has been much conflict of view on the question.
Who has the duty to explain? [p. 195]
(1) Beneficiary cannot recover. - One view holds that the beneficiary cannot
recover for the simple reason that the insurance agent is not his agent, (see (1) Where terms of policy are clear. - The insurer has no affirmative duty to
Bradley vs. New York Life Ins., 275 F. 657 [1921].) explain the policy or its exclusions to the insured;

(2) Beneficiary can recover. - The insured having complied with every condition (2) Important caveats. - The insurer or his agent(s) has the duty to explain:
required of him, actual delivery to him is not essential to give the policy binding
effect, (see New York Life Ins. Co. vs. Babcock,30 S.E. 273 [1898].) (a) Reasonable expectations of insured. - The doctrine of "reasonable
expectations" can operate to impose de facto a duty on the insurer to
What is a rider? In case of conflict between policy and the rider, which will explain the policy's coverage to the insured;
prevail? In case of conflict between the policy and other attached papers, which
will prevail? [p. 190] (b) Options available to insured. - In the area of motor vehicle insurance
where legislations have made certain kinds of coverage optional, usually
A rider is a small printed or typed stipulation contained on a slip of paper uninsured or underinsured motorist insurance, courts have sometimes
attached to the policy and forming an integral part of the policy. imposed a duty on the insurer to explain the options to the insured;

When there is an inconsistency between a rider and the printed stipulations in (c) Information expected by insured from insurer's agent. - Agents have the
the policy, the rider prevails, as being a more deliberate expression of the agreement obligation to explain to the customer the kinds of coverage available and to
of the contracting parties. help the insured in choosing an appropriate coverage;

This principle applies to interpretation of clauses, warranties, or indorsements (d) Contractual rights of insured after denial of coverage. - When the
which are attached to policies to vary their terms. insured disputes a denial of coverage, the duty of good faith and fair
dealing may impose an obligation on the insurer to alert the insured to his
What will happen if the insured fails to read the insurance policy? [p. 193] rights.

(1) Majority rule. - The insured's acceptance and retention of the policy unread is What are the contents of a policy of insurance? [p. 197]
not such laches as will defeat his right to reformation. The basis for the
decisions is that insurance contracts are contracts of "adhesion" and not of A policy of insurance must specify:
bargaining, that is, the insured purchases the contract prepared solely by the
insurer; and (1) Names of parties;
(2) Amount of insurance;
(2) Minority rule. - One who accepts a contractual instrument is conclusively
(3) Premium;
presumed, in the absence of fraud or mutual mistake, to know and assent to its
(4) Property or life insured; (2) Calculability - The risk must permit a reasonable statistical estimate of the
(5) Interest of insured in property; chance of loss and possible variations from the estimate;
(6) Risks insured against;
(3) Definiteness of loss – The losses should be fairly definite as to cause, time,
(7) Term or duration of insurance.
place, and amount, for otherwise, estimates of possible loss are difficult;

What are the kinds of insurable risks? [p. 200] (4) No catastrophic loss -There must be no catastrophic loss.

The risks confronting man are ordinarily divided into three (3) classifications, (5) Accidental nature - Insurable risks must also normally be accidental in nature.
What are the kinds of preliminary contracts of insurance? [p. 204]
(1) Personal risks. - They are those involving the person. This classification of risk is There are two kinds of preliminary contract of insurance, namely:
chiefly concerned with the time of death or disability;
(1) Preliminary contract of present insurance. – The insurer insures the subject
(2) Property risks. - They are those involving loss or damage to property. This matter usually by a “binding slip,” or “binder” or “cover note,” the contract to be
arises from the destruction of property; effective until the formal policy is issued or the risk rejected;

(3) Liability risks. - They are those involving liability for the injury to the person or (2) Preliminary contracts of executor insurance. – The insurer makes a contract
to insure the subject matter at some subsequent time which may be definite or
property of others. This is occasioned by the operation of the law of liability
and may sometimes be called third party risks.
What are cover notes? [p. 206]
Distinguish risk, peril and hazards. [p. 201]
Cover notes (also called a binder) are short-term insurance policies that may be
Risk is the chance of loss, or the possibility of the occurrence of a loss, based on issued to afford immediate provisional protection to the insured until the insurer can
known and unknown factors. inspect or evaluate the risk in question and issue the proper policy or until the risk is
declined and notice thereof given.
Peril is the contingent or unknown event which may cause a loss.
What are the rules on cover notes? [p. 207]
Hazard is the condition or factor, tangible or intangible, which may create or
(1) Insurance companies doing business in the Philippines may issue cover notes to
increase the chance of loss from a given peril.
bind insurance temporarily, pending the issuance of the policy;
What are the requirements for risk to be insurable? [p. 202] (2) A cover note shall be deemed to be a contract of insurance;

(1) Importance - The loss to be insured against should be important enough to (3) No cover note shall be issued or renewed unless in the form previously
warrant the existence of an insurance contract; approved by the Insurance Commission;
(4) A cover note shall be valid and binding for a period not exceeding 60 days from Who benefits the policy when the description of the insured in a policy is in
the date of its issuance, whether or not the premium therefor has been paid, general terms? [p. 212]
but such cover note may be cancelled by either party upon at least seven (7)
days notice to the other party; When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
(5) If a cover note is not so cancelled, a policy of insurance shall, within 60 days intended to include him, can claim the benefit of the policy
after the issuance of such cover not, be issued in lieu thereof;
What is the effect of transfer of thing insured? [p. 213]
(6) A cover note may be extended or renewed beyond the aforementioned period
of 60 days with the written approval of the Insurance Commission; Mere transfer of a thing insured does not transfer the policy, but suspends it
(7) Insurance companies may impose on cover notes a deposit premium equivalent until the same person becomes the owner of both the policy and the thing insured.
to at least 25% of the estimated premium of the intended insurance coverage
but in no case less than P500.00 What are the kinds of insurance policies? [p. 213]

Are third persons entitled to recover on policy? [p. 208] Insurance policies may be OPEN, VALUED, or RUNNING.

(1) As against the insured. - Third persons have no right either in court of equity (1) Open policy. - It is one in which the value of the thing insured is not agreed
or in a court of law to the proceeds of the policy unless there is some contract upon and the amount of insurance merely represents the insurer’s maximum
of trust, express or implied, between the insured and third persons; liability. The value of such thing insured shall be ascertained at the time of the
loss. In other words, it does not predetermine the value of the insured property
(2) As against the insurer. - A third person, in the absence of any provision in the but establishes a maximum amount the insurer will pay in case of a total loss of
policy, has also no right to the proceeds thereof. the property insured;

What is the rule where an insurance contract is made by an agent or trustee? [p. (2) Valued policy. - It is one which expresses on its face an agreement that the
211] thing insured shall be valued at a specific sum. In other words, the value of the
insured property is predetermined and the value is the amount to be used in
When an insurance contract is executed with an agent or trustee as the insured, case of a total loss;
he may indicate that his principal or beneficiary is the real party in interest. This is done
by merely acting in a representative capacity by signing as an agent or trustee. (3) Running policy. - It is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time defined,
Where insurance effected by partner or part owner [p. 211] especially as to the subjects of insurance, by additional statements or
When insurance is effected by one partner or part owner, applicable to the
interest of his co-partners or other part-owners, it is necessary that the terms of the What is the rule in the validity of an agreement limiting time for commencing
action? [p. 217]
policy should be such as are applicable to the joint or common interest.
GR: A clause in an insurance policy to the effect that an action upon the policy by the
insured must be brought within a certain period is VALID.
XPN: If the period fixed for commencing action in a policy of insurance is fixed to a What are the kinds of warranties? [p. 226]
period of less than one (1) year from the time the cause of action accrues, such
condition, stipulation or agreement would be VOID. (1) Express warranty. – It is an agreement contained in the policy or clearly
incorporated where the insured stipulates certain facts relating to the risk are
What is cancellation of non-life insurance policy? [p. 222] true or certain acts have been done;
(2) Implied warranty. – It is a warranty which from the very nature of the contract
Cancellation is the right to rescind, abandon or cancel a contract of insurance or general tenor of the words is necessarily embodied in the policy and which
which may be terminated by either the insurer or the insured before its expiration. binds the insured as though expressed in the contract;

What are the formalities required for the right to cancel a policy of insurance? [p.
(3) Affirmative warranty. – It is one which asserts the existence of a fact or
condition at the time it is made;

The right to cancel may be exercised when all the following conditions are
(4) Promissory warranty. - It is one where the insured stipulates that certain facts
or conditions pertaining to the risk shall exist or that certain things with
reference thereto shall be done or omitted.
(1) There must be prior notice of cancellation to the insured;
What time does warranty refers [p. 228]
(2) The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds for cancellation under Sec. 64 of the
A warranty may relate to the past, the present, the future, or to any or all of
Insurance Code;
these. But in the case of a promissory warranty, the same may refer only to future
(3) It must be in writing, mailed or delivered to the named insured at the address in
the policy, or to his authorized broker; and
Does the word “warranty” in an insurance contract necessarily constitute a
warranty? [p. 228]
(4) It must state which of the grounds set forth is relied upon.
The use of the word warranty in an insurance contract does not necessarily
Title 7: Warranties
constitute a warranty nor is the word necessary to constitute one. Whether a statement
made by the insured in an insurance policy is a warranty depends upon the intention of
What is a warranty? [p. 226]
the parties. The parties must intend a statement to be a warranty and it must be
included as part of the contract.
Warranty is a statement or promise by the insured contained in the policy itself
or incorporated in or attached to it by proper reference, the falsity or non-fulfillment of
Distinguish warranties and representation. [p. 229]
which and regardless of whether or not the insurer has suffered loss or prejudice as a
result of the falsity or non-fulfillment, renders the policy voidable at the election of the
(1) Warranties are considered parts of the contract, while representations are but
collateral inducements to it;
(2) Warranties are always written on the face of the policy, actually or by reference, What is an assessment? [p. 245]
while representations may be written in a totally disconnected paper or may be
oral; An assessment is a sum specifically levied by mutual insurance companies or
associations, upon a fixed and definite plan, to pay losses and expenses.
(3) Warranties must be strictly complied with, while in representations, substantial
truth only is required; Distinguish Premium and Assessment. [p. 245]

(4) Falsity or non-fulfillment of a warranty operates as a breach of contract, while The distinction between premiums and assessments lies in the fact that the
the falsity of a representation renders the policy voidable or rescissible on the former are levied and paid to meet anticipated losses, while the latter are collected to
ground of fraud; meet actual losses.

(5) Warranties are presumed material, while the insurer must show the materiality What is cash and carry rule? [p. 256 footnote]
of a representation in order to defeat an action on the policy.
The cash and carry rule is found in Section 77 of the Insurance Code which
Where does an express warranty be contained? [p. 231] provides that no contract of insurance is binding unless the premium has been paid.
The payment contemplated is means full and prompt payment.
In order that a stipulation may be considered a warranty, it must not only be
clearly shown that such was the intention of the parties but also must form part of the When is an insured entitled to recover premiums? [p. 275]
contract itself or if contained in another instrument, it must be signed by the insured
and referred to in the policy as making a part of it. Mere reference alone is not (1) When no part of the thing insured has been exposed to any of the perils insured
sufficient to give this effect. against;
(2) When the insurance is for a definite period and the insured surrenders his policy
What is a promissory warranty? [p. 234] before the termination thereof;
(3) When the contract is voidable and subsequently annulled because of the fraud
Section 72 refers to a promissory warranty, which provides that, “a statement in or misrepresentation of the insurer or his agent;
a policy, which imparts that it is intended to do or not to do a thing which materially (4) When the contract is voidable because of the existence of facts which the
affects the risk, is a warranty that such act or omission shall take place.” insured was ignorant without his fault;
(5) When the insurer never incurred any liability under the policy because of the
Title 8: Premium default of the insured other than actual fraud;
(6) When there is over-insurance;
What is a premium? [p. 244] (7) When rescission is granted due to the insurer’s breach of contract.

An insurance premium is the agreed price for assuming and carrying the risk –
that is, the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.
May an insurer contract and accept payments in addition to regular premiums? Explain what is hostile and friendly fires [p. 288]
[p. 283]
Yes, Section 84 provides that an insurer may contract and accept payments, in
addition to regular premium, for the purpose of paying future premiums on the policy One that burns in a place
One that escapes from the place
where it was
or to increase the benefits thereof. where it was intended to burn
intended to burn and ought to
and ought to be.
Title 9: Loss
It is hostile when it occurs outside of the It is to be regarded as merely
What is Loss in Insurance? [p. 285] usual confines or begins as a friendly fire an agency for the
and becomes hostile by escaping from the accomplishment of some
Injury, damage or liability sustained by the insured in consequence of the place where it ought to be to some place purpose and not as a hostile
happening of one or more of the perils against which the insurer, in consideration of where it ought not to be. peril.
the premium, has undertaken to indemnify the insured.
Example: where a fire in the chimney due to
What is the scope of loss? [p. 285] Examples: Fire burning in a
ignition of soot and smoke to issue from the
furnace, or a stove, or a lamp
stove so as to damage the property insured
Loss in insurance law embraces bodily injury, including death or property
damage or destruction. It also includes loss of income or profits and legal liability to a
third party. Damage that may be caused by
Even though a fire may remain entirely
such fires, due to their
within its proper place, it may become
negligent management, is not
What is Proximate Cause? [p. 287] hostile if it by accident , becomes so
considered to be within the
excessive as to be beyond control
terms of the policy.
It is that which, in a natural and continuous sequence, unbroken by any new
independent cause, produces an event and without which the event would not have Insurer is liable Insurer is not liable
What is the extension of the principle of proximate cause? [p. 290]
It is the efficient cause, the one that sets others in motion, to which the loss is
to be attributed, although other and incidental causes may be nearer in time to the The insurer is liable in two (2) cases:
result and operate more immediately in producing the loss.
(1) Where the loss took place while being rescued from the peril insured
against. - The insurer is liable where the insured is permanently deprived of
the possession, in whole or in part of the thing insured by a peril not insured
against provided it is shown that said property would have been lost by the
peril insured against had there been no attempt to rescue it.
(2) Where the loss is caused by efforts to rescue the thing insured from a peril What is the time for giving notice of Loss?
insured against. - It is the efforts to rescue the thing that caused the loss
(1) The notice of loss upon an insurance against fire must be given “without
Title 10: Notice of Loss unnecessary delay”. It is a requirement of policy that notice of loss be given
immediately or forthwith requires the giving of notice within a reasonable time.
What must be fulfilled before the insured becomes entitled to the benefit of fire
insurance policy? [p. 297] By reasonable time it means that the notice has been given “as soon as
circumstances permitted the insured, in the exercise of reasonable diligence, to
Conditions concerning matters after the loss that must be fulfilled before the communicate.”
insured becomes entitled to the benefit of fire insurance policy, namely:
(2) For life insurance, other than fire, the Commissioner may specify the period for
(1) Written notice of loss must be given to the insurer; and the submission of the notice of loss.
(2) When required by the policy, a preliminary proof of loss must likewise be given.
(3) The insurance contract may provide that the notice of loss shall be given within
What is the meaning and purpose of Notice of Loss? [p. 298] stated time after the loss occurs and that failure to give the notice within such
time shall preclude recovery. Such provision is valid provided the time so fixed
1) Notice of loss is more or less formal notice given the insurer or claimant is not unreasonably short.
under a policy of the occurrence of the loss insured against.
What is the purpose of Proof of loss? [p. 301]
2) The purpose of a notice of loss is to apprise the insurance company with
the occurrence of the loss, so that it may gather information and make The statement of loss is much more formal requirement and intended not only:
proper investigation while the evidence is still fresh and take such action as
may be necessary to protect its interest from fraud or imposition, in the (1) To give the insurer information by which he may determine the extent of his
case of property insurance, to prevent further loss to the property. liability, but also,
(2) To afford him a means of detecting any fraud that may have been practiced
When is Notice of Loss necessary? [p. 298] upon him; and
(3) To operate as a check upon extravagant claims.
The insurer cannot be held liable to pay a claim unless he receives notice of
that claim. Title 11: Double Insurance

Under the law, if notice of loss is not given to the insurer by the person insured What is Double Insurance?
or by the person entitled to the benefit of the insurance without unnecessary delay, or
in a timely manner, the insurer is exonerated or discharge from liability even though It exists where same person is insured by several insurers separately in respect
the loss is one the policy was designed to protect against. to same subject and interest. (Sec. 93)
What are the requisites of Double Insurance? [p. 307] Title 12: Reinsurance

There is no double insurance, unless the following requisites exist: What is Reinsurance? [p. 315]

(1) Person insured is the same; A contract of reinsurance is a contract between the reinsured and the reinsurer
(2) Two or more insurers insuring separately; by which the latter agrees to protect the former from risks already assumed.
(3) Identity of Subject matter;
(4) Identity of Interest insured; Distinguish reinsurance distinguished from double insurance. [p. 316]
(5) Identity of Risk or peril insured against is likewise the same.
(1) In double insurance, the insurer remains as the insurer of the original insured,
Distinguish Double Insurance and Over Insurance. [p. 308] while in reinsurance, the insurer becomes the insured, insofar as the reinsurer is
Double insurance is different from over insurance: (2) In double insurance, the subject of the insurance is property; while in
reinsurance, it is the original insurer’s risk;
(1) There is over insurance when the amount of the insurance is beyond the value (3) Double insurance is an insurance of the same interest while reinsurance is an
of the insured’s insurable interest. In double insurance, there may be no over insurance of a different interest;
insurance as when the sum total of the amounts of the policies issued does not (4) In double insurance, the insure is the party in interest in all contracts, while in
exceed the insurable interest of the insured reinsurance, the original insured has no interest in the contract of reinsurance
(2) While in double insurance there are always several insurers, in over insurance which is independent of the original contract of insurance;
there may be only one insurer involved. (5) In double insurance, the insured has to give his consent, while in reinsurance,
(3) Double insurance and over-insurance may exist at the same time or neither may the consent of the original insured is not necessary.
exist at all. Double insurance is the term used instead of “co-insurance” when
the sums insured exceed the insurable interest. In such case, there is “over- What is Automatic & Facultative Methods of ceding reinsurance? [p. 320]
insurance” by “double insurance”.
(1) Automatic Reinsurance Treaties. - Here, the ceding company (reinsured) is
What is the purpose of prohibition against Double Insurance? [p. 309] bound to cede (give off by way of reinsurance) and the reinsurer is obligated to
accept a fixed share of the risk which has to be reinsured under the contract;
The purpose of the prohibition against double insurance is to prevent over-
insurance and thus averts the perpetration of fraud. The public as well as the insurer is (2) Facultative insurance. - It covers liability on individual risk, there is no
interested in preventing the situation in which a loss would be profitable to the obligation either to cede or to accept participation in the risk insured, each
insured. party having a free choice. But once the share is accepted, the obligation is
absolute and the liability assumed there under can be discharged by one and
only way, payment of the share of the losses.
Distinguish Reinsurance Treaty and Reinsurance policy. [p. 320] (2) Contract of reinsurance with stipulation in favor of original insured. The
reinsurer who has promised to pay the losses accruing under the original policy will be
A reinsurance policy is a contract of indemnity an insurer makes with another to liable to a suit by the original insured under the contract of reinsurance;
protect the first insurer from a risk it has already assumed.
(3) Contract reinsurance amounting to novation of original contract. The original
A reinsurance treaty is merely an agreement between two insurance companies insured may also maintain an action against the reinsurer in those cases in which the
whereby one agrees to cede and the other to accept reinsurance business pursuant to circumstances attending the making of the contract of reinsurance amount to a
provisions specified in the treaty. novation of the original contract and hence, operate to discharge that contract and the
original insurer from all obligations there under. The original insurer, however will be
Treaties are contracts for insurance; while reinsurance policies or cessions are released only when the insured agrees with the insurer and reinsurer to the novation.
contracts of insurance.
Chapter II: Classes of Insurance
What is presumed in a Contract of Reinsurance? [p. 321]
Title I: Marine Insurance
Section 99 provides that a contract of reinsurance is presumed to be a contract
of indemnity against liability, and not merely against damage. What are the Perils of the Sea? [p. 331]

Does an original insured have a right in a contract of reinsurance? [p. 322] The phrase “perils of the sea” includes only those casualties due to the unusual
violence or extraordinary action of wind and wave, or to other extraordinary causes
Section 100 states that the “original insured has no interest in a contract of connected with navigation. It embraces all kinds of marine casualty such as shipwreck,
reinsurance.” Unless the contract so provides, the insured has no concern with the foundering, stranding, collision, and every specie of damage done to the ship or goods
contract of reinsurance, and the reinsurer is not liable to the insured, either as surety or at sea by the violent action of the wind and waves or losses occasioned by the
otherwise. jettisoning of cargo if it is made for the purpose of saving a vessel rendered unworthy
during the voyage, not through the fault of the captain.
What is the liability of the reinsurer to the reinsured? [p. 323]
Distinguish perils of the sea and perils of the ship. [p. 332]
The reinsurer is not liable to the reinsured for a loss under an original policy if
the latter is not liable to the original insured or for an amount more than the sum Perils of the sea include only such losses that are extraordinary nature or arise
actually paid to the insured. from some overwhelming power which cannot be guarded against by the ordinary
exertion of human skill or prudence.
What is the liability of reinsurer to original insured? [p. 323]
Perils of the ship which in the ordinary course of events, results from the natural
(1) Contract of insurance solely between the insurer and reinsurer. The original and inevitable action of the sea, from the ordinary wear and tear of the ship, or from
insured has absolutely no interest in the contract and is a total stranger to it; the negligent failure of the ship’s owner to provide the vessel with proper equipment
to convey the cargo under ordinary conditions.
What is the Insurable interest of Insured in Marine Insurance? [p.339] What is the Insurable Interest in Passage of Money? [p. 344]

Section 102 expressly states that “the owner of a ship has in all cases an Passage money, unlike freight, is customarily payable in advance it cannot be
insurable interest in it, even when it has been chartered by one who covenants to pay recovered if the vessel is lost before the completion of the passage. Under such
him its value in case of loss; Provided, that in this case the insurer shall be liable for circumstances, the passenger can clearly insure his advances of passage money but the
only that part of the loss which the insured cannot recover from the charterer.” ship-owner may not insure it unless it is payable only upon the completion of the
What is Loan on Bottomry? [p. 342]
What is concealment in marine insurance? [p. 349]
It is one which is payable only if the vessel, given as a security for the loan,
completes in safety the contemplated voyage. The lender in bottomry is entitled to Concealment in marine insurance is the failure to disclose any material fact or
receive a high rate of interest to compensate him for the risk of losing his loan. The circumstance which in fact or law is within, or which ought to be within the knowledge
owner of the vessel receives in case of loss no indemnity for his loss, but he does of one party and of which the other has no actual or presumptive knowledge.
secure immunity from payment of the loan.
What is Presumptive knowledge by Insured of Prior Loss? [p. 351]
What is the meaning of freightage? [p. 343]
Section 111 provides that “a person insured by a contract of marine insurance is
Freightage is the benefit which is to accrue to the owner of the vessel from its presumed to have knowledge, at the time of insuring, of a prior loss, if the information
use in the voyage contemplated or the benefit derived from the employment of the might possibly have reached him in the usual mode of transmission and at the usual
ship. rate of communication.”

What are the sources of freightage? [p. 343] What is the Effect of False Representation by the Insured? [p. 353]

Freightage may be derived from: (1) If intentional. – Any misrepresentation of a material fact made with fraudulent
intent entitles the insurer to rescind the entire contract;
(1) The chartering of the ship;
(2) Its employment of the ship for the carriage of the ship-owner’s own goods; and (2) If not intentional. – If the misrepresentation is not intentional or fraudulent but
(3) Employment of the ship for the carriage of the goods of others. the fact misrepresented is material to the risk, the insurer may also rescind the
contract from the time the representation becomes false.
What is Insurable interest in expected or anticipated freightage? [p. 343]
The owner of a ship has an insurable interest in expected freightage which he Define Warranty in Marine Insurance [p. 354]
may not earn in case of intervention of a peril insured against or other peril incident to
the voyage. The rule is the same although the freight has been paid in advance. In marine insurance, a warranty has been defined as a stipulation, either
expressed or implied, forming part of the policy as to some fact, condition or
circumstance relating to the risk.
What constitutes seaworthiness? [p. 357] (3) Unreasonable delay in pursuing the voyage; and
(4) The commencement of an entirely different voyage.
A ship is seaworthy, when reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy. When is deviation proper? [p. 367]
Seaworthiness is a relative term depending upon the nature of the ship, the voyage,
and the service in which she is at the time engaged. Section 126 provides that a deviation is proper in the following instances:

What are Time and Voyage Policies? [p. 361] (1) When caused by circumstances over which neither the master nor the owner of
the ship has any control;
A time policy provides coverage for a fixed period of time, at the expiration of (2) When necessary to comply with a warranty, or to avoid a peril, whether or not
which the insurance will lapse. the peril is insured against;
(3) When made in good faith, and upon reasonable grounds of belief in its
A voyage policy covers the subject matter for the voyage named in the policy necessity to avoid a peril; or
until the specified voyage ends, regardless of the time it takes to complete the voyage. (4) When made in good faith, for the purpose of saving human life or relieving
another vessel in distress.
What is the Express warranty as to nationality or neutrality? [p. 364]
What is actual loss? [p. 369]
Section 122 provides that “where the nationality or neutrality of a ship or cargo
is expressly warranted, it is implied that the ship will carry the requisite documents to An actual total loss exists when the subject matter of the insurance is wholly
show such nationality or neutrality and that it will not carry any documents which cast destroyed or lost or when it is so damaged as no longer to exist in its original
reasonable suspicion thereon.” character.

What is Deviation? [p. 366] What is constructive total loss? [p. 371]

Deviation is a departure from the course of the voyage insured, or an A constructive total loss, or, as it is sometimes called, a "technical total loss," is
unreasonable delay in pursuing the voyage or the commencement of an entirely one in which the loss, although not actually total, is of such a character that the insured
different voyage. is entitled, if he thinks fit, to treat it as total by abandonment.

What are those cases of deviation in Marine Insurance? [p. 366] What is the importance of making a distinction between Actual and Constructive
Total Loss? [p. 372]
There are four (4) cases of deviation in marine insurance, namely:
It is highly important that the two kinds of total loss be carefully differentiated,
(1) Departure from the course of sailing fixed by mercantile usage between the for upon them depends the whole doctrine of abandonment, so important in the law
places of beginning and ending specified in the policy; of marine insurance.
(2) Departure from the most natural, direct, and advantageous route between the
places specified if the course of sailing is not fixed by mercantile usage;
In cases of actual total loss, no abandonment is necessary; but if the loss is
merely constructively total, abandonment becomes necessary in order to recover as for (2) Simple or Particular Average. - Include all damages and expenses caused to
a total loss. the vessel to her cargo which have not inured to the common benefit and profit
of all the persons interested in the vessel and her cargo.
Can Actual Total Loss be presumed? [p. 372]
What is the principle of General Average Contribution? [p. 375]
Section 134 provides that “an actual loss may be presumed from the continued
absence of a ship without being heard of. The length of time which is sufficient to raise General average is principle of customary law, independent of contract,
this presumption depends on the circumstances of the case.” whereby, when it is decided by the master or captain of a vessel, acting for all the
interests concerned, to sacrifice any part of a venture exposed to a common and
What is the liability of Insurer in case of Reshipment? [p. 373] imminent peril in order to save the rest, the interests so saved are compelled to
contribute ratably or proportionately, based on the value of the said interests, to the
Section 135 states that “when a ship is prevented, at an intermediate port, from owner of the interest sacrificed, so that the cost of the sacrifice shall fall equally upon
completing the voyage, by the perils insured against, the liability of a marine insurer on all.
the cargo continues after they are thus reshipped.”
What are the requisites of a party claim general average contribution? [p. 376]
This rule will not be obligatory where resort must be had to distant places to
procure a vessel, and there are serious impediments in the way of putting the cargo on (1) There must be a common danger to the vessel or cargo;
board. In any case, the insurer may require an additional premium if the hazard be (2) Part of the vessel or cargo was sacrificed deliberately;
increased by the extension of liability. (3) The sacrifice must be for the common safety or for the benefit of all;
(4) It must be made by the master or upon his authority;
What is Average? [p. 374] (5) It must not be caused by any fault of the party asking the contribution;
(6) It must be successful, i.e. resulted in the saving of the vessel or cargo; and
Average is defined by the Code of Commerce as any extraordinary or accidental (7) It must be necessary.
expense incurred during the voyage for the preservation of the vessel, cargo, or both
and all damages to the vessel and cargo from the time it is loaded and the voyage What is the liability of Insurer for General Average? [p. 376]
commenced until it ends and the cargo unloaded.
The liability of the insurer for general average is clearly provided in the clause
What are the kinds of Average? [p. 374] of Section 136 which states “but he is liable for his proportion of all general average
loss assessed upon the thing insured. Also, Article 859 of the Code of Commerce
2 kinds of Average: provides that it is mandatory in terms, and insurers, whether for the vessel or for the
freightage or for the cargo, are bound to contribute to indemnity of the general
(1) Gross or General Average. - Include damages and expenses which are average.
deliberately caused by the master of the vessel or upon his authority, in order
to save the vessel, her cargo, or both at the same time from a real and known
What is the liability of Insurer for Particular Average? [p. 378] (2) When the vessel is totally lost, abandonment is not required as there is no
vessel to abandon.
The marine insurer is liable only for general average and not for particular
average unless such particular average loss has the effect of “depriving the insured of When must abandonment be made? [p. 383]
the possession at the port of destination of the whole” of the thing insured (Sec 136).
In the absence of any contrary stipulation, the insurer is liable for particular average Section 143 provides that an abandonment must be made within a reasonable
loss. time after receipt of reliable information of loss (notice of abandonment), but where
the information is a doubtful character, the insured is entitled to a reasonable time to
What is Abandonment? [p. 379] make inquiry (but he cannot wait an undue length of time to see whether it will be
more profitable to abandon or to claim for a partial loss).
Section 140 provides that abandonment, in marine insurance, is “the act of the
insured by which, after a constructive total loss, he declares the relinquishment to the By whom and to whom notice of abandonment must be made? [p. 385]
insurer of his interest in the thing insured.”
(1) The abandonment need not necessarily be made by the insured but may be
What are the requisites of Abandonment? [p. 379] made by an authorized agent, and an agent having authority to insure has
prima facie an authority to abandon;
(1) There must be an actual relinquishment by the person insured of his interest in
the thing insured; (2) The abandonment may be made to an agent of the underwriter and
(2) There must be a constructive or total loss; abandonment to a broker who is agent to both parties is sufficient.
(3) The abandonment must be neither partial nor conditional;
(4) It must be made within a reasonable time after receipt of reliable information of What is the effect of a valid abandonment? [p. 386]
the loss;
(5) It must be factual; A valid abandonment makes the insurer entitled to all the rights which the
(6) It must be made by giving notice thereof to the insurer which may be done insured possessed in the thing insured. According to Section 148, abandonment is
orally or in writing; and equivalent to a transfer by the insured of his interest to the insurer, with all the chances
(7) The notice of abandonment must be explicit and must specify the particular of recovery and indemnity.
cause of the abandonment.
What is the right of an insurer who pays partial loss as actual total loss? [p. 387]
When is Abandonment necessary? [p. 380]
Section 149 provides that if a marine insurer pays for a loss as if it were an
(1) When the loss is only technically total, the insurer is entitled to timely notice of actual total loss, he is entitled to whatever remain of the thing insured, or its proceed
abandonment by the insured and he cannot be made liable for a total loss or salvage, as if there had been a formal abandonment.
without it. The insurer/ underwriter by prompt action might be able to save
some portion of the insured property; What is the form of acceptance of abandonment? [p. 388]
An insurer’s acceptance of an offered abandonment need not be express. It may be
implied by conduct, as by an act of the insurer in consequence of an abandonment
which can be justified only under a right derived from the abandonment. Mere silence What are the rules for estimating loss under an open police in Marine Insurance?
after notice would not operate as an acceptance, if it is not “for an unreasonable length [p. 395]
of time”. Nor would steps taken by the insurer to preserve the property from further
loss for the benefit of all the parties’ amount to an acceptance. In estimating a loss under an open policy of marine insurance, the following
rules are to be observed:
What is the Effect of Acceptance of Abandonment? [p. 389]
(1) The value of a ship is its value at the beginning of the risk, including all articles
or charges which add to its permanent value or which are necessary to prepare
If the insurer accepts the abandonment, he becomes at once liable for the whole
it for the voyage insured;
amount of the insurance, and also becomes entitled to all the rights which the insured
possessed in the thing insured. Acceptance of abandonment stops the insurer to rely (2) The value of cargo is its actual cost to the insured, when laden on board, or
on any insufficiency in the FORM, TIME or RIGHT of abandonment. where that cost cannot be ascertained, its market value at the time and place of
lading, adding the charges incurred in purchasing and placing it on board, but
What is the right of insurer to Freightage? [p. 390]
without reference to any loss incurred in raising money for its purchase, or to
any drawback on its exportation, or to the fluctuation of the market at the port
When abandonment is validly made, the interest of the insured in the thing
of destination, or to expenses incurred on the way or on arrival;
covered passes to the insurer. The insurer of the ship becomes the owner thereof after
abandonment, and his title becomes vested as of the time of the loss. Freightage (3) The value of freightage is the gross freightage, exclusive of primage, without
earned subsequent to the loss belongs to the insurer of the ship, but freightage earned reference to the cost of earning it; and
previously belongs to the insurer of said freightage who is subrogated to the rights of
the insured up to the time of loss. (4) The cost of insurance is in each case to be added to the value thus estimated.

Title 4: Suretyship
What is the effect of refusal to accept valid abandonment on insurer’s liability?
[p. 390] What is a contract of suretyship?
A contract of suretyship is an agreement whereby a party called the surety guarantees
If the insurer DECLINES to accept a proper abandonment, he is LIABLE as upon the performance by another party called the principal or obligor of an obligation or
an actual total loss less any proceeds the insured may have received on account of the undertaking in favor of a third party called the obligee. It includes official
damaged property as when the insured succeeds in selling the property as damaged. If recognizances, stipulations, bonds or undertakings issued by any company by virtue
the abandonment was improper, the insured may nevertheless recover to the extent of and under the provisions of Act No. 536 as amended by Act No. 2206.
the damage proved.
Chapter III: The Business of Insurance
When can the insured be considered a co-insurer in Marine Insurance? [p. 392]
Title 9: Policy Forms
In every marine insurance, the insured is expected to cover by insurance the full
value of the property insured. If the value of his interest exceeds the amount of What is a group insurance?
insurance, he is considered the co-insurer for an amount determined by the difference
between the insurance taken out and the value of the property.
Group insurance is the coverage of a number of individuals by means of a
single blanket policy, thereby affecting economies which frequently enable the insurer
to sell its services at lower premium rates than are ordinarily obtainable for the same
type of insurance protection on life policies sold to individuals. It is essentially a single
insurance contract that provides coverage for many individuals.

What is the role of the employer?

In group insurance policies, the employer is the agent of the insurer in

performing the duties of administering group insurance policies.

What is the role of the employee?

Although the employer may be the titular or named insured, the insurance is
actually related to the life and health of the employee. Indeed the employee is in the
position of a real party to the master policy, and even in a non-contributory plan, the
payment by the employer of the entire premium is part of the total compensation paid
for the services of the employee.