INSURANCE LAW d.
Executed as to the insured after payment of the
by Atty. Rondez
Laws applicable to insurance in the order of priority:
a. Insurance Code
b. Civil Code
c. General Principles prevailing on the subject in
the US
CONTRACT OF INSURANCE - an agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage or liability arising
from an unknown contingent event
Contract of Suretyship - deemed to be an insurance
contract within the meaning of the Insurance
Code, only if made by a surety who or which, as
such, is doing an insurance business
Definition of “doing an insurance business”:
a. Making or proposing to make, as insurer, any
insurance contract;
b. Making or proposing to make as a surety, any
contract of suretyship as a vocation and not
merely incidental to any other legitimate
business or activity of the surety;
c. Doing reinsurance business;
d. Doing or proposing to do any business in the
substance equivalent to any of the foregoing in a
manner designed to evade the provisions of the
Insurance Code.
NOTE: It is not deemed CONCLUSIVE that the making
of the following does not constitute the doing or
transacting of an insurance business:
a.The fact that no profit is derived from making
of insurance contracts, agreement or
transactions
b.The fact that no separate or direct
consideration is received.
CONCEALMENT - A neglect to communicate that which
the party knows or ought to
communicate
REPRESENTATION - It is an oral or written statement of
a fact or condition affecting the risk
made by the INSURED to the insurance
company, tending to induce the insurer
to take the risk.
POLICY – is a written instrument to which the contract of
insurance is set forth.
PREMIUM – is the agreed price of the insurance
REQUISITES:
a. Existence of an insurable interest;
b. Risk of loss;
c. Assumption of risk;
d. Scheme to distribute losses; and
e. Payment of premiums
 Note: If only a, b, and c are present, it is
not a contract of insurance but a risk shifting
device.
Characteristics of an insurance contract:
a. Consensual
b. Voluntary
c. Aleatory - depends upon some contingent event;
however, it is not a wagering nor a gambling
contract
premium
e. Executory as to insurer - not executed until
payment for a loss
f. Personal - each party takes into account the
character, credit and the conduct of the other
g. Conditional - liability is based on the happening
of the event insured against
Parties to a contract of Insurance:
a. INSURER - party who assumes the risk or
undertakes to indemnify the insured or to pay a
certain sum on the happening of a specified
contingency
b. INSURED - person in whose favor the contract
is operative, and who is indemnified against, or
is to receive a certain sum upon the happening
of a specified contingency
c. BENEFICIARY - may or may not be the same as
the insured
CONSTRUCTION of Insurance Contract
- In case of doubt, it is to be construed in its
PLAIN, ORDINARY AND POPULAR SENSE.
- If DOUBFUL, AMBIGUOUS, UNCERTAIN, it is
construed strictly against the insurer and
liberally in favor of the insured.
- The interpretation of obscure stipulation in the
contract must not favor the one who caused
the obscurity.
What perils may be insured?
(a) Any contingent or unknown event, whether past
or future, which may damnify a person having an
insurable interest; or
(b) Any contingent or unknown event, whether past
or future, which may create a liability against the
person insured.
INSURABLE INTEREST
- A person has insurable interest in the subject matter
insured when HE HAS SUCH A RELATION OR CONNECTION
WITH, OR CONCERN IN, SUCH SUBJECT MATTER THAT HE
WILL DERIVE PECUNIARY BENEFIT OR ADVANTAGE FROM
ITS PRESERVATION OR WILL SUFFER PECUNIARY LOSS OR
DAMAGE FROM ITS DESTRUCTION, TERMINATION OR
INJURY BY THE HAPPENING OF THE EVENT INSURED
AGAINST.
Every person has an insurable interest in the life and
health of:
a. Himself, his spouse and his children
b. Any person on whom he depends wholly or in
part for education or support, or in whom he has
a pecuniary interest
c. Any person under a legal obligation to him for
the payment of money, or respecting property or
services, of which death or illness might prevent
the performance or delay it
d. Any person upon whose life any estate or any
interest vested in him depends
Insurable Interest in Property may consist of:
a. An existing interest
b. An inchoate interest, founded on an existing
interest
c. An expectancy, coupled with an existing interest
out of which the expectancy arises
 Definition of Insurable Interest in Property:
Interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof,
 of such nature that a contemplated peril might a. Interest in Property insured must exist when the
directly damnify the insured. insurance takes effect and when the loss occurs,
but need not exist in the meantime.
Category Insurable Interest in Insurable b. Interest in the Life or Health of a Person Insured
Life Insurance Interest in must exist when the insurance takes effect, but
Property need not exist thereafter or when the loss
1. Basis may be based on based purely occurs.
pecuniary interest, on pecuniary c. Beneficiaries of Life Insurance need not have
affinity, or interest insurable interest in the life of the insured.
consanguinity d. Beneficiaries of Property Insurance must have
2. When at the time the policy at the time the insurable interest in the property insured.
interest takes effect EXCEPT: policy takes
must exist life insurance taken effect and at VOID STIPULATIONS in Property Insurance:
by the creditor on the the time of the a. A stipulation for payment of the less whether the
life of the debtor loss person insured has or has not interest in the
wherein interest must property insured – because it is a contract of
also exist at the time indemnity.
of the loss b. Stipulation that the policy shall be received as
3.Amount of no limit EXCEPT: if limited to the proof of such interest – existence of insurable
insurable insurable interest is actual value of interest does not depend on the policy.
interest based on creditor- damage/injury/l c. Every policy issued by way of gaining or
debtor relationship oss wagering shall void.
(only to the extent of d. Those issued without insurable interest – as
the credit or debt) they do not suffer a damage from the occurrence
of the event insured against.
EXISTING INTEREST. Ex:
- Conditional Sale. Where the buyer paid a P500,000 for GENERAL RULE: A change of interest in any part of a
a property worth 2M. thing insured unaccompanied by a
- The Seller has an existing interest as to the corresponding change in interest in the
balance of 1.5M insurance suspends the insurance to an
- The buyer has existing interest as to the paid equivalent extent, until the interest in the thing
amount of .5M and the interest in the insurance are vested in
the same person.
- Mortgaged property. Both the mortgagor and the EXCEPTIONS:
mortgagee may take out separate policy with the same a. In case of life, health, and accident insurance
or different company. b. When the change in interest results after the
- The mortgagor, to the extent of the value of his occurrence of an injury which results in a loss
property. c. A change of interest in one or more several
- The mortgagee, to the extent of his credit. distinct things, separately insured by one policy
d. A change in the interest by will or succession on
 (Sec.9) If an insurer assents to the transfer of an the death of the insured (interest passes to the
insurance from a mortgagor to a mortgagee, and heirs)
at the time of his assent, imposes further e. A transfer of interest by one of several partners,
obligation on the assignee, making a new joint owners in common who are jointly insured
contract with him, the act of the mortgagor to the others (even though it has been agreed
cannot affect the right of said assignee. that the insurance shall seize upon the
 UNION MORTGAGE CLAUSE – Creates the relation alienation of the thing insured)
of insured and insurer between the mortgagee
and the insurer independent of the contract of BENEFICIARIES
the mortgagor. - When he predeceased the insured:
- If designation is irrevocable
INCHOATE INTEREST founded on an existing interest. - The legal representative of the
- Interest in real estate which is not a present interest Beneficiaries is entitled to the proceeds
but which may ripen into a vested interest if nor of the insurance.
barred, extinguished, or divested. - If designation is revocable
- Ex: Interest incorporate property from stockholdings - And there is no change
but limited to it value. - It will go to the estate of the
insured
An EXPECTANCY, coupled with an existing interest out of - If with “if living” clause
which the expectancy arises - It will go to the estate of the
- Ex: A ship owner has insurable interest in expected insured
freight charges. - If there is no change
- Future crops that a farmer will grow on land - It will go to the newly designated
belonging to him at the time of the issuance of the beneficiaries.
policy. - If he is the PRINCIPAL, ACCOMPLICE OR
- But mere contingent or expectant interest in anything, ACCESSORY in the willful killing of the insured.
not founded on contract or actual right to the thing is a. The Policy is forfeited
not INSURABLE. There is no insurable interest. b. Beneficiary forfeits his right over the
- Ex: A son has no insurable interest on a building proceeds of the insurance
owned by the father despite being designated as c. Proceeds will go to the nearest relative of
an heir in the will does not produce any effect the insured, if not otherwise disqualified.
before the testator’s death
Estate of the insured will be entitled to the proceeds:
Instances when Insurable Interest must exist: 1. If the beneficiary is disqualified
 2. If there is no Beneficiary
3. When the beneficiary predeceased the insured
and the designation of the beneficiary is
revocable and there is no change or there is a “if
living” clause.
Revocation of Beneficiaries
General Rule: Insurance contracts are revocable.
 Exception: Any person who is forbidden to receive
any donation under Article 739 of the Civil Code
cannot be named beneficiary of a life insurance
policy by the person who cannot make the donation
to him.
 The following donations shall be void:
a. Those made between persons who were guilty
of adultery or concubinage at the time of the
donation;
- Prior conviction for adultery/concubinage
is not required
- Disqualification does not extend to the
children of the adultery and
concubinage.
- A common law wife of the insured who is
married could not be named as
beneficiary (Insular life vs. Ebrado)
- Where the second wife is not aware of the
first marriage the insured may designate
her as beneficiary. (SSS vs. Davac)
b. Those made by persons found guilty of the
same criminal offense, in consideration
thereof;
c. Those made to a public officer or his wife,
descendants, ascendants, by reason of his
office.
Other Pertinent Provisions on Revocation:
(a) The termination of a subsequent marriage shall
allow the innocent spouse to revoke the
designation of the other spouse who acted in
bad faith as beneficiary in any insurance policy,
even if such designation be stipulated as
irrevocable.
(b) After the finality of the decree of legal
separation, the innocent spouse may revoke the
donations as well as the designation of the latter
as a beneficiary in any insurance policy, even if
such designation is irrevocable. The revocation
of or change in the designation shall take effect
upon written notification thereof to the insured.
The action to revoke the donation under this
article must be brought within 5 years from the
time the decree of legal separation has become
final.
(c) Therefore, the designation of the guilty spouse
as irrevocable beneficiary is revocable at the
instance of the innocent spouse in case of
termination of:
a. A subsequent marriage;
b. Nullification of marriage;
c. Annulment of the marriage; and
d. Legal Separation
WHAT MAY BE INSURED AGAINST
 ANY UNKNOWN OR CONTINGENT EVENT, WHETHER
PAST OR FUTURE, WHICH MAY DAMNIFY A PERSON
HAVING INSURABLE INTEREST OR CREATE A LIABILITY
AGAINST HIM.
NOTE: AN INSURANCE FOR OR AGAINST THE DRAWING OF
ANY LOTTERY OR FOR OR AGAINST ANY CHANCE OR
TICKET IN A LOTTERY DRAWING A PRIZE CANNOT
BE INSURED BECAUSE GAMBLING RESULTS IN
PROFIT AND INSURANCE ONLY SEEKS TO INDEMNIFY
THE INSURED AGAINST LOSS.
CONCEALMENT
 General Rule: The insured is not required to
communicate the nature (or kind) or the amount of
his insurable interest in the life or property insured to
the insurer.
 Exception:
a. When the insurer makes inquiry from the
insured of the nature or amount of the latter’s
insurable interest, whether in life or property
insurance;
b. Insurance policy must specify the interest of
the insured in the property insured, if he is not
the absolute owner thereof.
 A concealment, whether intentional or not,
entitles the injured party to rescind a contract of
insurance.
 The party claiming the existence of concealment
must prove that there was knowledge on the part of
the party charged with concealment.
 Requisites:
(a) The party concealing must have knowledge
of the facts concealed;
(b) The facts concealed must be material to the
risk;
(c) The party is duty bound to disclose such fact
to the other;
(d) The other party has no other means of
ascertaining the facts concealed;
(e) The party concealing makes no warranty as
to the facts concealed;
- But an intentional and fraudulent
omission on the part of the one insured to
communicate information on a matter
PROVING OR TENDING TO PROVE THE FALSITY
OF A WARRANTY entitles the insurer to
rescind.
Note: An insured need not die of the very disease he
failed to reveal to the insurer. It is sufficient that
the non-revelation has misled the insurer in
forming his estimate of the disadvantages of the
proposed policy or in making his inquiries in
order to entitle the insurance company to avoid
the contract.
A party charged with concealment must have
knowledge of the fact concealed before or at the time
of the effectivity of the policy even though he has no
knowledge of the same at the time of the application.
 Information acquired after the effectivity is not
concealment and does not constitute ground to
rescind the policy.
 In case of reinstatement of a lapsed policy, facts
known after the effectivity but before
reinstatement must be disclosed.
Note: The insured is under an obligation to disclose not
only such material facts as are known to him,
but also those known to his agent where:
a. It was the duty of the agent to acquire and
communicate information of the facts in
question;
b. It was possible for the agent, in the exercise
of reasonable diligence, to have made the
communication before the making of the
insurance contract.
 Failure on the part of the insured to disclose such
facts known to his agent, or wholly due to the fault of
the agent, will avoid the policy, despite the good faith
of the insured.
Neither party to the insurance contract is bound to
communicate information on the following matters
except in answer to the inquiries of the other:
a. Those of which the other knows;
b. That which, in the exercise of ordinary care, the
other ought to know and of which the former has
no reason to suppose his ignorance, i.e. political
situation, general usages of trade;
c. Those of which the other waives communication;
d. Those which prove or tend to prove the
existence of the risk excluded by a warranty and
which are not otherwise material;
e. Those which relate to a risk excepted from the
policy and which are not otherwise material.
 Neither party is bound to communicate his mere
opinion, even upon inquiry, because such opinion
would add nothing to the appraisal of the application.
 Information of the nature or amount of interest of
one insured need not be communicated except:
a.In an answer to an inquiry
b.As prescribed by Sec.51 as to the extent of the
interest of the insured in property insured must
be specified if he is not the absolute owner.
 Waiver of material facts may be:
(a) By the terms of the insurance; or
(b) By the neglect to make inquiry as to such
facts, where they are distinctly implied in
other facts which information is
communicated
Materiality is to be determined not by the events but
solely upon the probable and reasonable influence
of the facts on the party to whom the
communication is due in forming his estimate of
the disadvantages of the proposed contract or in
making his inquiries.
- TEST: Whether knowledge of the true facts
could have influenced a prudent insurer in
determining whether to accept the risk or
in fixing the premiums.
- It is immaterial that there is no causal
relationship between the fact concealed and the
loss sustained.
REPRESENTATION
It is a factual statement made by the insured at the
time of, or prior to, the issuance of the policy, to give
information to the insurer and otherwise induce him to
enter into the insurance contract.
 It may be made orally or in writing.
 It may be MADE AT THE TIME OF, OR BEFORE, the
issuance of the policy.
 It may be altered or withdrawn before the insurance
is effected, but not afterwards.
 It need not be liberally true and correct or accurate in
every aspect but it is sufficient if it is substantially
or materially true.
 A representation cannot qualify an express provision
in a contract of insurance but it may qualify an
implied warranty.
 Ex: (Art.113 –Sea worthy) The applicant
declares that his ship is 5 yrs late. --- If the
insurer still grants the insurance, he cannot
claim that there is misrepresentation.
 A representation as to the future is to be deemed a
promise unless it appears that it was merely a
statement of belief or an expectation. (must be
susceptible of present, actual knowledge)
 The statement of an erroneous opinion, belief or
information, or of an unfulfilled intention, will not
avoid the contract of insurance, unless
fraudulent.
AFFIRMATIVE PROMISSORY
REPRESENTATION REPRESENTATION
When the representation Concerns something that
affirms a fact existing will happen during the term
when the contract begins. of the insurance.
Date of Representation is acknowledge: The date the
contract goes into effect.
 Ex:
 Jan 1 – He declares he is in good health.
 Jan 5 – He had a heart attack.
 Jan 7 – the Policy is issued.
 There is misrepresentation by the applicant.
 If he had a heart attack after Jan 7, there is no
misrepresentation.
RULES:
 There is false representation if true at the time it
is made but false at the time the contract takes
effect.
 The representation is FALSE if it does not
correspond with its assertions or stipulations.
No False Representation:
1.If it is TRUE AT THE TIME THE CONTRACT TAKES EFFECT
although it is FALSE at the time it is made.
2.When applicant has no personal knowledge of a
fact. – He may or may not communicate and if he
does, he is not responsible for its truth.
Right to rescind because of false representation:
- Must be exercised previous to the commencement
of an action on the contract (the action referred
to is that to collect a claim on the contract)
- Misrepresentation, whether intentional or not, gives
the right to rescind
- Deemed waived by the acceptance of the premium
payments despite knowledge of the ground to
rescind.
- Applies only when there is a contact to rescind.
Thus, if the contract is null and void it does not
apply.
MISREPRESENTATION CONCEALMENT
Insured withholds
Insured makes erroneous
information of material
statements
facts.
Both give the insurer the right to rescind the contract.
Materiality of the concealment and representation are
determined by the same rules.
Whether intentional or not, the injured party can rescind
Since insurance contracts are of utmost good faith – the
insurer is also covered by the rules.
 INCONTESTABLE CLAUSE: After a policy of
life insurance made payable on the death of the
insured shall have been in force during the lifetime
of the insured for a period of 2 years from the date
of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment
or misrepresentation of the insured or his agent.
 Exceptions:
 (a) Lack of insurable risk
(b) Cause of loss is not covered by the policy
(c) The fraud was of a particular vicious type
such as:
- Policy was taken in furtherance of a
sheme to murder the insured;
- Where the insured substituted another
for medical examination
- Where the beneficiary feloniously
killed the insured.
(d) Non-payment of premium
(e) Violation of conditions relating to naval or
military services in time of war
(f) The necessary notice or proof of death wan
not given
(g) Action is not brought within the time
specified in the policy, which in no case be
less than 1 year.
 Requisites:
a. The policy is a life insurance
b. Payable on the death of the insured
c. Shall have been in force during the lifetime of
the insured for a period of 2 years from the date
of its issue or of its last reinstatement
Tan vs. CA. PHILAM life issued policy on 11/6/73.
On 4//26/75 the insured died. The beneficiaries
claimed but the insurer denied the claim and
rescinded the policy on the ground of
misrepresentation and concealment. HELD: Insurer
has 2 years to from the date of issue/reinstatement
within which to contest the whether or not the
insured still lives within the period. DURING THE
LIFETIME OF THE INSURED means that the policy is no
longer in force if the insured dies.
WARRANTIES
GENERAL RULE: Non-performance of a promissory
warranty avoids a contract of insurance. It entitles the
injured party to rescind the contract.
EXCEPTIONS:
a. When before the time for performance of the
promissory warranty, a loss insured against
occurs;
b. When before the time of the performance of
the warranty, the act becomes unlawful;
c. When before the time of the performance of
the warranty, said performance becomes
impossible.
 There is no form required. It is important that there is
intent to create a warranty. Otherwise the statement
is merely a representation.
NOTE: It must be part of the contract or at least have
reference to the contract
 A statement or a promise set forth in the policy
or by reference incorporated therein, the non-
fulfillment of which in any respect and without
reference to whether the insurer was in fact
prejudiced by such non-fulfillment, renders the policy
voidable by the insurer, wholly irrespective of the
materiality of such statement or promise.
KINDS:
1.AFFIRMATIVE – Those that relate to matters that
exist AT or BEFORE the issuance of the
policy.
2.PROMISSORY – Those where the insured
promises or undertakes that certain
matters shall exist or will be done or will
be omitted after the policy takes effect.
 For as long as the intention is not clear, the
court will presume that the warranty is
merely an affirmative warranty.
3.EXPRESS – A statement in a policy of a matter
relating to the person or thing insured,
or to the risk as a fact and where
assertion or promise is clearly set forth
in the policy or incorporated therein by
reference.
4.IMPLIED – Where the assertion or promise is not
expressly set forth in the policy but
because of the general tenor of the
terms of the policy or from the very
nature of the insurance contract, a
warranty is necessary inferred or
understood.
Warranty Representation
Part of the insurance Collateral inducement
contract
Always written on the Maybe oral or written
policy
Conclusively presumed Materiality must be proved
material
Must be strictly complied Requires substantial truth
with
Made by the insured May be made by insurer or
insured
Note: If there is a breach of warranty, even if the
cause of the loss is a different risk, the insurer is
entitled to rescind the contract of insurance.
 The insured can exercised the right also when
the insurer violates the warranty.
 Breach must refer to a material warranty,
whether intentional or not. Except when it is
stipulated that any breach will avoid the policy.
 If the breach is without fraud, merely
exonerates the insurer only from the time of
the breach but prior to the breach the policy is
effective. Consequently, he is entitled to a pro-
rate return of the premium paid.
 If the breach is without fraud BUT it occurs at the
inception of the contract, the policy is void ab
initio and had never become binding, and
therefore the insured is entitled to all the
premiums paid.
NOTE: A CUASAL CONNECTION between the violation
and of the warranty is not necessary to warrant
a breach.
POLICY
It is construed in favor of the insured and against the
insurer. It therefore construed in popular sense
depending upon the insured’s capacity and
intelligence.
 The burden of proving that the terms of the
policy have been explained is upon the party
seeking to enforce it.
Must specify the following: (CONTENTS)
1. The parties between whom the contract
is made;
2. The amount to be insured except in
open or running policies;
3. The premium or if the premium is to be
determined at the termination of the contract, a
 statement of the basis and the rates upon which Valued Running
Open Policy
the final premium is to be determined; Policy Policy
4. The property or life insured; DETERMINATION OF THE VALUE OF THE PROPERTY
5. The interest of the insured in the INSURED
property insured, if not the absolute owner thereof; The property
6. The risk insured against The value of insured is valued Value of
7. The period during which the insurance is property is to be at a specific property is
to continue. ascertained amount defined from
upon loss expressed in the time to time.
 If there are RIDERS, CLAUSES, WARRANTIES OR policy
ENDORSEMENTS purporting to be part of the The insured Proof of value of
contract and which is pasted or attached to the must prove the property after the
policy, it is NOT BINDING on the insured UNLESS the value of the loss is not
descriptive title of the same is also MENTIONED thing insured. necesasry
and written on the blank spaces provided in the void. When NO PERIOD IS STIPULATED OR THE
policy. STIPULATION IS VOID, the period is 10 years it
RIDER – This are forms attached to the policy when the being a written contract.
company finds it necessary to ALTER or
AMEND the applicant’s answer to any WHOSE INTEREST IS INSURED?
question in the application. - The person in whose name or for whose benefit it
- It is an additional provision in a policy not part is made.
of the body of the printed form. - EXCEPT:
CLAUSES – are forms containing additional stipulation. a. A 3rd person if:
WARRANTIES -are written statement or stipulations  The insurance contract contains a stipulation
inserted on the face of the contract or in favor of a 3rd person. The latter may sue
incorporated by proper words or reference the the insurer.
truth of which are essential to the validity of  The insurance contract provides for
the conrtact. indemnity against liability to 3rd persons.
ENDORSEMENT – are agreements not contained but b.Agent or trustee if
may be written to the policy to change or  The contract is executed by the agent or
modify a part thereof. trustee without indicating that the principal is
the real party in interest.
COVER NOTES – It is a written memorandum of the c. Co-partner/Co-owner if
most important terms of a preliminary contract
 A partner or part owner effects insurance,
of insurance, intended to give temporary
which is applicable to joint or common
protection pending the investigation of the risk
interest, and the policy states that the
by the insurer, or until the issuance of a formal
interest of all is insured. Otherwise, it is only
policy. It is effective for 60 days extendable
the interest of the one getting the policy that
for another 60 days with the written approval
is insured.
of the of the Insurance Commissioner.
d. Other person as when
 The description of the insured in the policy is
GENERAL RULE: Cover notes bind insurer temporarily
so general that it may comprehend any
pending the issuance of the policy despite the absence
person or any class of persons.
of a premium payment for its issuance.
- Only he who can show that it was
 Exception: Where it is merely an intended to include him can claim the
acknowledgment on behalf of the company that benefit of the policy.
the latter’s branch office had received from the
 When the policy is so framed that it will inure
applicant the insurance premium and accepted the
to the benefit of whomsoever, during the
application subject for processing by the insurance
continuance of the risk, may become the
company and that the latter will either approve or
owner of the interest insured.
reject the same.
 CANCELLATION OF THE POLICY:
KINDS OF POLICIES:
For Policies Other than Life:
a. OPEN - the value of the thing insured is not (1) Prior notice of the cancellation to insured
agreed upon, but is left to be ascertained at the
time of the loss
(2) Notice must be based on the following occurrences
after effective date of the policy: (GROUNDS)
b. VALUED - expresses on its face an agreement
that the thing insured shall be valued at a specific
(a) Non-payment of premiums
sum (b) Conviction of a crime arising out of acts
c. RUNNING - contemplates successive insurance increasing the hazard insured against
which provides that the object of the policy may be (c) Discovery of fraud or material
from time to time defined especially as to the misrepresentation
subject of insurance by additional statements or (d) Discovery of willful or reckless acts or
endorsements omissions increasing the hazard insured
 Note: If an amount is written on the face of against
an open policy, it is merely a determination (e) Physical changes in the property insured
of the maximum limit of recovery and not as which results in the property becoming
the value of the policy. uninsurable
(f) Determination by the Commissioner that the
 Period for commencing an action against the policy: continuation of the policy would violate or
Within 1 year from the time the cause of action would place the insurer in violation of the
accrues, i.e., from the time of rejection of the claim Insurance Code
by the insurer. Any condition, stipulation, or (3) Notice must be in writing
agreement limiting the time to less than 1 year is
(4) It must be mailed or delivered to the insured at the
address shown in the policy
(5) Notice must state the ground relied upon and that
upon written request of the insured, the insurer will
furnish facts on which the cancellation is based
Renewal of the Policies Other than Life:
Insurer must mail or deliver to the insured
notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or
elimination of coverages within 45 days before the
policy ends. Otherwise, insured entitled to renew
the policy upon payment of the premium due on the
effective date of the renewal.
1. If the peril insured against has existed and the
insurer has been liable for any period which is
entire and indivisible;
2. In life insurance;
3. When the insured is guilty of fraud or
misrepresentation.
LOSS
PROBABLE CAUSE – that is in the natural and
continuous sequence, unbroken by any
efficient intervening cause, produces an
injury without which the injury would not
have occurred.

PREMIUM IMMEDIATE CAUSE – is the cause or condition nearest

in time and place of the injury.
GENERAL RULE: No policy is binding until the
premium thereof has been paid. When Insurer is Liable:
Exceptions: a. Where the peril insured against was the proximate
(a) In case of life or industrial life policy (payment of cause, although a peril not contemplated by the
premium, either monthly or oftener), whenever the contract may have been the remote cause or even
grace period applies. the immediate cause of the loss
(b) In case of estoppel, such as: b. Where the thing insured is rescued from the peril
 When the insurer makes a written insured against that would otherwise have caused
acknowledgment of the receipt of premium, a loss, if, in the course of such rescue, the thing is
which is conclusive evidence of payment. exposed to a peril not insured against, which
But it is conclusive only to make the policy permanently deprives the insured of its possession
binding and not for collecting the premium. in whole or in part
 When the obligee has accepted the bond or c. Where loss is caused by efforts to rescue the thing
suretyship contract in which case such bond insured from a peril insured against
or suretyship contract becomes valid and d. Insurer is not exonerated by a loss caused by
enforceable irrespective of whether or not simple negligence of the insured if the proximate
the premium has been paid by the obligor to cause of the loss is a peril insured against
the surety. e. Loss, the immediate cause of which is a peril
insured against except when the proximate cause
 Insurer is entitled to payment of premiums as soon as is an excepted peril
the thing insured is exposed to the perils insured
against. Causes Covered PC LIABLE
There is no excuse for non-payment except  Single   
when failure is due to the wrongful conduct of  Concurrent   
the insurer.
 Concurrent X  X
and
 Payment to the insurance agent or broker is payment
Excepted If covered can be clearly 
to the insurance company.
Peril separated from the effects
 Payment by promissory note or check produces
payment only when it is encashed. of the excepted peril
 Generally, it cannot be paid in part except: Series (One   
a. Agreed by the parties or after the Only if the IE is
other) covered
b. It is the established practice
 Original X
When insured entitled to Return of Premiums cause WON IE is  X
covered
a. When no part of the interest in the thing insured
is exposed to any of the perils insured against.  PC and IC Both  
b. When the contract is voidable on account of PC only  
fraud or misrepresentation of the insurer; IC only  X
c. When on account of facts, the existence of
When Insurer Not Liable:
which the insured was ignorant without his fault
a. Where the peril insured against was only a remote
d. When by any default of the insured other than
cause
actual fraud, the insurer never incurred any
liability under the policy b. Where the peril is specifically excepted, a loss
which would not have occurred but for such peril is
e. When the insured has become a public enemy
thereby excepted
and the policy automatically canceled (on the
ground of equity) c. Loss caused by the connivance of the insured
f. In case of over-insurance by several insurers d. Loss caused by the willful act of insured
(ratable return of premiums, proportioned to the e. Loss caused by insured’s negligence, if it amounts
amount by which the aggregate sum insured in to bad faith
all policies exceed the insurable value of the
thing at risk) General Rule: The insurer is not liable for a loss caused
g. When the insurance is made for a definite period by the willful act of the insured.
and the insured surrenders his policy before the  Exception: Suicide Clause in Life Insurance:
expiration of the period. Insurer liable in case insured committed suicide after
the policy has been in force for a period of 2 years
CANNOT BE RECOVERED: from the date of its issue or last reinstatement. If
 insured kills himself within a period of 2 years,
insurer is not liable.
 Exception to Exception: If suicide is committed
in a state of insanity, regardless of the time of
commission, the insurer is liable.
 An agreement NOT to transfer the claim of the
insured after the loss happens is VOID if made
before the loss except as otherwise provided in
case of life insurance.
 The principal reason for procuring an insurance is to
protect himself against the consequence of his
own negligence or that of his agent.
NOTICE OF LOSS
- Must be given w/o unnecessary delay
- W/in the reasonable time, depending on
circumstances of a peculiar case, although
courts have construed the requirement liberally
in favor of the insured.
- By the insured or some person entitled to the of the
insurance.
- If NOT given --- the INSURER is EXONERATED.
- DEFECTS deemed WAIVED by the insured:
a.When he fails to specify to the insured any
defect, which the insured can remedy w/o
delay.
b.When the insurer denies liability on a ground
other than the defect in the notice or proof
of loss.
- DELAY in the giving of notice waived:
a.If it is caused by any of the insurer. --- The
insurer accepts payment of the premium
with full knowledge that the premises have
been lost or damaged will be estopped
from claiming delay in giving of the notice
of loss.
b.If the insurer omits to make an objection
promptly and specifically on that grounf. ---
Despite delay, the insurer does not object.
PROOF OF LOSS
- If the policy requires Preliminary proof of loss.
- It is not necessary that the insured give such proof
as may or would be necessary in a court of Justice.
- What is sufficient is the Best evidence, which
he has in his power at that time.
- May also require Certification or Testimony of a 3 rd
person.
- It is sufficient that the insured used reasonable
diligence to procure it.
- In case of refusal to give it.
- The insured can furnish a between himself and the other insurers to
REASONABLE EVIDENCE to insurer
that such refusal was not induced by
any just grounds of disbelief in the facts
necessary to be certified or testified.
- Once shown or given the requirement
may be dispensed with.
SUBROGATION
- After the insured received payment from the insurer
of the loss covered by the policy.
- The insurer is SUBROGATED to the rights of the
insured against the wrongdoer or his consent not
required.
- Takes effect by operation of law.
- Notice to the wrongdoer or his consent is not
necessary.
- NOT ALLOWED in
a. Life insurance --- it is not contract of indemnity
b. When the probable cause of the loss is the
insured himself.
c. When the insurer pays to the insured a loss
not covered by the policy.
- The insured is no longer entitled to collect from the
wrongdoer if the amount that he received from the
insurer has fully compensated for the loss.
DOUBLE INSURANCE
 Exists where the same person is insured by several
insurers separately in respect to the same subject and
interest
 Requisites: a. Person insured must be the same
b. Existence of several insurers
c. Subject matter insured must be the
same
d. Interest the same
e. Risk insured against also the same
Over Insurance Double Insurance
May be only one insurer Must be 2 or more insurers
Insurance covers more Insurance may or may not
than the value of exceed the value of insurable
insurable interest interest
 There is prohibition to prevent over-insurance,
thus preventing fraud.
EFFECTS:
1. Insured, unless the policy otherwise provides, may
claim payment from the insurers in such order
as may select up to the amount fro which the
insurers are severally liable under their
respective contracts.
2. Where the policy under which the insured claims
is a valued policy, the insured must give credit
as against the valuation for any sum received by
him under a policy without regard t the actual
value of the subject matter insured.
3. Where the policy under which the insured claims is
an unvalued policy, he must give credit, as
against the full insurable value, for any sum
received by him under any policy.
4. Where the insured receives a sum in excess of the
valuation in case of a valued policy or the
insurable value in case of an unvalued policy, he
must hold such sum in trust for the insurers,
according to their right of contribution among
them.
5. In relation to No.4, each insurer is bound, as
contribute ratably to the loss in proportion to the
amount for which it is liable under his contract.
Example for #1:
- A’s house is insured with:
- X insurance for 30k 50k
- Y insurance for 10k
- Z insurance for 40k
- IN CASE OF LOSS
- A can recover 30k from X and another 10k
from Y and only 10k from Z.
- Or A can claim only from Y 10k and from Z
40k.
 Provided the loss is due to the probable cause
covered by the policy.
 Take note the rules on loss of the thing insured.
Example for #2:
- A’s house is insured with:
- X insurance for 10k 50k
- Y insurance for 20k
 - Z insurance for 20k - If there is none, then the double insurance is
- It is valued 20k ALLOWED subject to the above-mentioned
- IN CASE OF LOSS effects which must be observed.
- A can recover 10k from X and another 10k
either from Y or Z. OTHER INSURANCE CLAUSE – is one that prevents
- A can choose to recover only either from Y or other insurance on the property except
Z the full 20k. without the consent of the insurance
company.

Example for #3: REINSURANCE

- A’s house is insured with:
- X insurance for 40k 90k  A process by which an insurer procures a third
- Y insurance for 30k person to insure him against loss or liability by
- Z insurance for 20k reason of such original insurance.
- It is open policy  Compulsory in the following:
- At the time of the loss the value of the house is 70k 1. When a non-life insurer insure in any one risk or
- IN CASE OF LOSS hazard an amount exceeding 20% of its net
- If Y and Z paid the 50k, A can only worth, the insurer needs reinsurance of the
recovero20k from X excess over such limit.
- OR if X and Z paid the 60k, A can only recover 2. When foreign insurance company withdraws
10k from Y. from the Philippines, it should cause its
- OR claim only from X and Y for full insurance, primary liabilities under policies insuring
totaling 70k. residents of the Philippines to be reinsured by
another company authorized to transact an
Example for #4: insurance business in the Philippines.
- A’s house is insured with:
- X insurance for 10k 50k  The original insured cannot recover from this
- Y insurance for 20k insurance unless there is a specific grant, or
- Z insurance for 20k assignment of, the reinsurance contract in favor of
- It is valued 20k the insured, or a manifest intention of the contracting
- IN CASE OF LOSS parties to the reinsurance contract to favor the
- A can recover 10k from X and another 10k insured.
either from Y or Z. General Rule: The insurer who obtains reinsurance
- Either Y or Z must hold such sum not must communicate:
paid by him in TRUST for the other a. All the representations of the original insured; and
insurers who paid such amount b. All the knowledge and information he possesses,
claimed of them by the insured. whether previously or subsequently acquired
- A can choose to recover only either from Y or which are material to the risk
Z the full 20k.  Exception: under automatic reinsurance treaties
- The other insurer must hold such sum
not paid by him in TRUST for the AUTOMATIC REINSURANCE TREATIES
other insurers who paid such amount - Where two or more insurance companies agree in
claimed of them by the insured. advance that they will reinsure a part of any
line of insurance taken by the other.
Example for #5: - Since such contracts are self-executing and the
obligator, attaches automatically, the
 Liability of each Insurer: information required to be communicated
could not influence the reinsurer in deciding
A X C = Liability of the insurer whether or not to accept the reinsurance.
B
 The fact that the representations on the original
A – Insurance taken from each insurer insured were untrue at the time of the execution of
B – total insurance the reinsurance will not affect the liability of the
C – Value of the property insurer, provided they are true at the time of the
original contract.
 Therefore in relation to Example #4, #5 effect is  It is presumed to be a CONTRACT OF INDEMNITY
explained as follows: AGAINST LIABILITY, and not merely against
Computation of liability damage.
X = 10K/50K x 20K = 4,000  Reinsurer is not liable to the reinsure for a loss
Y = 20K/50K x 20K = 8,000 under an original policy if the reinsured is not liable
Z = 20K/50K x 20K = 8,000 to the original policyholder.
---BUT when the insured becomes liable under
- If Y or Z paid the full 20k, it can recover the 4k the original policy, it may obtain payment from
from X and the 8k from the other insurer. reinsurer even before paying the loss of the
- If X paid 10k and Y 10k, they can recover from z in original insured.
proportion of the latter’s liability.
 Extent of liability --- limited to liability of the
reinsured to the original insured. NOT MORE THAN
 Validity: the amount of reinsurance.
- If there is an OTHER INSURANCE CLAUSE,
then it will prevent enforcement of the policy,
the policy then will be NULL AND VOID.
 MARINE INSURANCE
 Insures against perils of the sea, not of the ship
 All kinds of marine casualties and damages
done to the ship or goods at sea by the violent
action of the winds or waves, one that could not be
foreseen and is not attributable to the fault of
anybody.
 Perils of the Ship are not covered. Also the ff:
a. Natural and inevitable action of the sea;
b. Ordinary wear and tear of the ship;
c. Negligent failure of the ship owner to
provide the vessel with the proper
equipment to convey the cargo under
ordinary conditions.
 It is the obligation of the cargo owner or the
insured to look for reliable common carrier that
keeps it vessels seaworthy.
 Owner of the Ship has Insurable Interest:
a. In the ship
- Even if it has been chartered by one who
promises to pay him in value in case of
loss (insurer is liable for what insured
cannot recover from the charterer),
- Or even when hypothecated by bottomry or
respondentia (only the excess of its value
over the amount secured by bottomry or
by respondentia) and
b. In the freightage, which according to the
ordinary and probable course of things he would
have earned but for the intervention of a peril
insured against or other peril incident to the
voyage. It Exist in the ff:
1. In case of a charter party – when the ship
ahs broken on the chartered voyage.
2. If a price is to be paid for the carriage of
goods, when they are actually on board or
there is contract to put them on board and
the vessel and goods are ready for the
specified voyage.
“All risk Policy”
- It is to be construed as creating a special insurance
and extending to all risk than are usually
contemplated and will cover all losses except such
that may arise from intentional fraud, intentional
misconduct or otherwise excluded.
Insurable Interest: Determined when one will sustain
loss from the destruction of the subject matter or
derive benefit from its preservation.
 Charterer has insurable interest in the ship to
the extent that he is liable to be damnified by its
loss.
 One who has an interest in the thing from which
profits are expected to proceed, has an insurable
interest on the profits.
BARRATRY: Any willful misconduct on the part of the
masters or crew, in pursuance of some unlawful or
fraudulent purpose, without the consent of the
owners and to the prejudice of the owner’s
interest.
JETTISON: Intentional casting overboard of any part of a
venture exposed to a peril, whether it be of the
cargo, or the ship’s furniture or tackle, in the hope
of saving the rest of the venture.
CHARTER PARTY: Contract by virtue of which the owner
or the agent of a vessel binds himself to transport
merchandise or persons for a fixed price. It has
also been defined as a contract by virtue of which
Reinsurance Double Insurance
1. Insurer becomes the 1. Insurer remains the
insured insurer
2. Subject matter is the 2. Subject matter is
insured risk or property
liability
3. Different risks and 3. The same interest
interests of insured and risk are insured
4. There must be consent 4. Insured has to give
of original his consent
5. One who is original 5. Insured is the party in
insured has no interest in interest in all
the contract of reinsurance contracts
the owner or the agent of the vessel for the
transportation of goods or persons from one port
to another.
LOAN ON BOTTOMRY: Contract in the nature of a
mortgage whereby the owner of a ship borrows
money for the use, equipment or repair of the
vessel for a definite term, and pledges the ship as
a security for repayment, with maritime or
extraordinary interest on the account of the
maritime risks to be borne by the lender. It is
stipulated in such a contract that if the ship be lost
in the course of the specific voyage or during a
specified limited time caused by any of the perils
enumerated in the contract, the lender shall
resolutely lose his money.
LOAN ON RESPONDENTIA: Contract akin to that of
mortgage made on the goods on board the ship,
and which are to be sold or exchanged in the
course of the voyage. The goods serve as the
principal security.
FREIGHTAGE: Signifies all the benefits derived by the
owner, carriage of his own goods, or those of
others.
ALL RISK CLAUSE – one that covers any loss other than a
willful and fraudulent act of the insured and
avoids putting upon the insured the burden of
establishing that the loss was due to a peril
within the policy’s coverage, whether arising
from a marine peril or not provided the risk is not
escluded.
INCHMAREE CLAUSE – is a provision in marine insurance
that it shall cover loss or damage to the hull or
machinery thru the negligence of the master,
charters, mariners, engineers, or pilots thru
explosion, bursting of boilers, breakage of shafts
or through any latent defect in the hull on
machinery not resulting from any want of due
negligence.
MARINE PROTECTION AND INDEMNITY INSURANCE
- Meaning insurance against, or against legal liability of
the insured for loss damage or expense incident to
ownership, operation, chartering, maintenance, use,
repair or construction of any vessel, craft or
instrumentality in use in ocean or island waterways,
including liability of the insured for personal injury,
illness or death or for loss or damage to the property of
another person.
 Marine insurance is really TRANSPORTATION
INSURANCE, which is a kind of insurance that is
concerned with the perils of property in transit as
opposed to property perils at a generally fixed location.
 But it does not include normal motor vehicle insurance.
Division of Transportation insurance:
3.Ocean Marine Insurance – pertaining primarily to sea (c) Where different portions of the voyage
perils of ship and cargoes. contemplated in the policy differ in respect
4.Inland Marine Insurance – pertaining primarily to land to the things requisites to make the ship
or over land transportation perils of property seaworthy – it must be seaworthy at the
shipped by railroads, motor trucks airplanes commencement of each portion.
and other means of transportation. It b. That the vessel shall not engage in illegal
includes: venture
d. Property in transit c. That the vessel shall not deviate from the course
e. Bailee liability of the voyage insured
f. Fixed transportation property d. Where the nationality or neutrality of a ship or
g. Floater cargo is expressly warranted, it is implied that
the ship will carry the requisite documents to
Concealment: In marine insurance, information or the show such nationality or neutrality and that it will
belief or expectation of a 3rd person, in reference to a not carry any documents which may cast
material fact is material. reasonable suspicion thereon
 In addition to requirements and likewise subject to
the exceptions in the rules on concealment in the A SHIP SEA WORTHY – when it is reasonably fit to perform
ordinary insurance, the party in marine insurance is the service and to encounter the
bound: ordinary perils of the voyage,
a. To communicate information that he possesses, contemplated by the parties to the
that are material to the risk and policy.
b. To state the exact and whole truth in relation to
all matters that he represents, or upon inquiry
discloses or assumes to disclose. Perils of the Sea Perils of the Ship
 Therefore, it is sufficient that the insured Covered by marine Not covered by marine
is in POSSESSION if the material fact, insurance insurance
although he is UNAWARE of it. Denote nature Damage or losses resulting
accidents peculiar to from:
GENERAL RULE: Concealment entitles the injured party the sea which do not 1. Natural and inevitable
to RESCIND. happen by intervention action of the sea
BUT: Concealment of the following merely exonerates of man nor are to be 2. Ordinary wear and tear of
the insurer from the resulting loss therefrom: prevented by human a ship, or
a. National character of the insured prudence 3. Negligent failure of the
b. Liability of the thing insured to capture and ship owner to provide the
detention vessel with proper equipment
c. Liability to seizure from breach of foreign to convey the cargo under
laws of trade ordinary conditions
d. Want of necessary documents
e. Use of false and simulated papers  Seaworthiness depends on:
a. Nature of the ship
CONCEALMENT b. Nature of the voyage
Marine Insurance Ordinary Insurance c. Nature of the service
Information, opinion or It is NOT material and
the belief or expectation need not be  Seaworthiness EXTENDS:
of a 3rd person, in communicated. - Not only to the condition of the structure of the
reference to a material ship, but it requires that:
fact is material. a. It be properly laden or loaded with cargo
b. Is provided with a competent master,
Concealment may A causal connection sufficient number of officers and seamen
merely exonerate the between the fact c. It must have the requisite equipment and
insurer from loss, if the concealed and cause of appurtenances.
loss results from the fact loss is not necessary for
concealed. the insurer to rescind.  When the ship becomes unseaworthy during the
voyage
Representation: If is intentionally false in any material – It will not AVOID the policy – as long as there is
respect, or in respect of any fact on which NO UNREASONABLE DELAY in repairing
the character and the nature of the risk the defect.
depends, the insurer may RESCIND. – Otherwise – the insurer is exonerated on the
- BUT eventual falsity of a representation ship or the shipowners interest from any
does not, in the absence of fraud, AVOID the liability from any loss arising therefrom.
contract.
 While a ship may be seaworthy for purposes of
Implied Warranties: insurance on it, it may by reason BEING UNFIT TO
a. That the ship is seaworthy - complied with if the RECEIVE CARGO, be unseaworthy for the purpose
ship is seaworthy at the time of commencement of insurance on the cargo.
of risk, except:
(a) Insurance for a specified length of time - at  Seaworthiness of the vessel is required only at the
the commencement of every voyage it commencement of the risk
undertakes during that time;  Exceptions:
(b) Cargo to be transshipped at indeterminate a. In a Time Policy - commencement of every
port - each vessel upon which cargo is voyage that must be undertaken
shipped is seaworthy at the b. In a Cargo Policy - commencement of each
commencement of each particular voyage particular voyage
 c. In a Voyage Policy - commencement of each
portion of the voyage
INTENDED VOYAGE is determined:
a. When it is described by places of beginning and
ending, the voyage is the course of sailing fixed
by mercantile usage between those places.
b. When it is not fixed by mercantile usage, the
voyage is the way between the places specified
that to a master of ordinary skill and discretion
would seem the most natural, direct and
advantageous.
Deviation
a. A departure from the course of the voyage
insured
b. Unreasonable delay in pursuing the voyage
c. Commencement of an entirely different voyage
- Proper in the ff:
a. When caused by circumstances over which
neither the master not the owner of the ship
has any control
b. When necessary to comply with a warranty or
to avoid a peril whether it is insured against or
not
c. When made in good faith for the purpose of
saving human life or relieving another vessel in
distress
d. When made in good faith and upon reasonable
grounds of belief in its necessity to avoid a peril
- If not proper --- the insurer is NOT liable for any loss
happening to the thing insured
subsequent to an improper
deviation. This will apply whether
the risk has been increased or
diminished.
Loss
A. ACTUAL TOTAL LOSS
 May be caused by:
b. A total destruction of the thing insured
c. The irretrievable loss of the thing by
sinking or by being broken up
d. Any damage to the thing which renders it
valueless tot he owner for which he held it
e. Any other event which effectively deprives
the owner of possession, at the port of
destination, of the thing insured
 Can also be presumed from the continued
absence of the ship without being heard of. The
length of time depends on the circumstances of
the case.
 Upon actual loss, the insured is entitled to
payment without notice of abandonment.
 If the insurance is confined to an actual loss it
will not cover a constructive loss, BUT it will
cover any loss, which is necessarily results in
DEPRIVING the insured of the POSSESSION,
at the port of the destination of the entire thing
insured.
a. CONSTRUCTIVE TOTAL LOSS - gives to the person
insured the right to abandon
 GROUNDS:
(a) More than ¾ thereof in value is actually lost
or would have been expended to recover it
from the peril
(b) It is injured to such an extent as to reduce its
value by more than ¾
(c) If the thing insured is the ship and the
voyage cannot be lawfully performed without
incurring an expense of more than ¾ of the
whole, or a risk which a prudent man would
not undertake under the circumstances
(d) If the thing insured is cargo or freightage,
and the voyage cannot be performed on
another ship procured by the master within a
reasonable time and with reasonable
diligence to forward the cargo without
incurring an expense or a risk as stated
above
 Abandonment must be TOTAL and ABSOLUTE
 TOTAL LOSS may be recovered, even is the
thing insured is abandoned where the cause of
loss is a peril insured against if any of the
GROUNDS.
 Abandonment must be made within a
reasonable time after the receipt of RELIABLE
INFORMATION.
- If info is of DOUBTFUL CHARACTER ---
the insured is entitled to a reasonable
time to make an inquiry.
- If info is INCORRECT or the things is
RESTORED when the abandonment
was made that there was then in fact
NO TOTAL LOSS
--- The Abandonment becomes
INEFFECTUAL.
ABANDONMENT - act of the insured by which, after a
constructive total loss, he declares the
relinquishment to the insured of his interest in
the thing insured
 Requisites of a Valid Abandonment:
a. Must be total and conditional
b. Made within a reasonable time
c. Explicit notice
d. Coupled with actual abandonment
 Requisites for Valid Valuation in the Valued Marine
Policy:
a. Insured must have interest at risk
b. There must be no fraud on the insured’s part
 Notice of Abandonment:
- May be oral or in writing (if oral, written notice
must be submitted within 7 days from oral notice)
a. Must be explicit
b. Must specify the particular cause for
abandonment
c. Need not be accompanied by proof of
interest or loss
- If notice specify a WRONG CAUSE, it is
UNFOUNDED.
Freightage cannot be abandoned unless ship is
also abandoned.
 Effects:
1.It is equivalent to a transfer by the insured of his
interest to the insurer, with all the chances of
recovery and indemnity.
- If the insurer, however, pays for a loss as if it
were an actual total loss, he is entitled to
whatever may remain of the thing insured or
its proceeds or salvage as if there has been
a formal abandonment.
2.Acts done in good faith by those who were agents
of the insured in respect to the thing insured
subsequent to the loss are at the risk of the insurer
and for his benefit.
- The agents of the insured become agents of
the insured. This retroacts to the date of the
loss when abandonment is effectively made.
 - Vessel valued at P500k
 Acceptance of Abandonment - Insured for P400k
- Abandonment becomes effective upon - Damaged to the extent of P200k
acceptance. - Insurer is only liable for P160k
- May be express or implied (i.e. silence for - Computed: 400k/500x200 = 160k
unreasonable length of time or by the conduct) - FORMULA: Insurance/value x loss = liability
a. Conclusive upon the parties and admits
the loss and sufficiency of abandonment Average Clause or Co-insurance: form of insurance in
b. Irrevocable which the person who insures his property for less
- UNLESS: In both instance, the ground than the entire value is understood to be his own
on which it is made is proved to be insurer for the difference which exists between the
unfounded true value of the property and the amount of
- If insurer refuses to accept a valid abandonment insurance applied
- liable as upon actual total loss 1. When the Insurance is for less than the
 The fact that abandonment is not made or is omitted actual value
does not prejudice the insured as he may 2. When the loss is partial.
nevertheless recover his ACTUAL LOSS.
Upon actual abandonment Sec. 157: In case of a partial loss of the ship or its
a. Freightage earned before loss - belongs to the equipment the old materials are to be applied
insurer of freightage towards the payment of the new and unless
b. Freightage earned after loss - belongs to stipulated in the policy, the insurer is liable only fro
insurer of ship 2/3 of the remaining cost of repairs after the
deduction EXCEPT that anchors are paid in FULL.
 Primage - increase in freightage
If profits are separately insured
- Insured can recover in case of loss a proportion of
AVERAGE - any extraordinary or additional expense
such profits equivalent to proportion of the value of
incurred during the voyage for the preservation
the property lost bears to the value of the whole.
of the vessel, cargo, or both and all damages to
- FORMULA:
the vessel and cargo from the time it is loaded
Insurance Profits x loss = Amount Recoverable
and the voyage commenced until it ends and the
Value of Goods
cargo unloaded
KINDS:
Valued policy on freightage or cargo
1.Particular or simple average – is a damage or
- If only a part of the subject is exposed to the risk,
expense caused to the vessel or cargo
the valuation applies only in proportion to such
which has NOT INURED to the COMMON
part.
BENEFIT and PROFIT of all persons
interested in the cargo or the vessel.
- If the policy is OPEN
2.General Average - an expense or damage suffered
- As to the ship
deliberately in order to save the vessel, its
- The value of the ship at the beginning of the risk,
cargo, or both from the real or known risk
- Not the value at the time is was built or
acquired.
General rule: When it has been agreed than an
- As to cargo
insurance upon a particular class or things shall be
- Its actual cost to the insured when LADEN,
free from a particular average, a marine insurer is
adding the charges incurred in purchasing and
NOT LIABLE for a particular average loss and the
placing it on board.
insured may still posses the same even if already
- Or market value at the time and place of lading
worthless.
when cost cannot be ascertained, adding the
BUT: the insurer is LIABLE for his proportion of all
charges incurred in purchasing and placing it on
general average loss assessed upon the thing
board.
insured.
- As to freightage
- Gross freightage exclusive of primage whitout
Right of subrogation
reference to the cost of earning it.
- When the insured has demand against the others for
- The cost of insurance is in each case to be added to
contribution, he may claim the whole loss from his
the value thus estimated.
insurer subrogating the insurer to his own right to
contribution.
If cargo is insured against partial loss
- Except:
- If is arrives at the port of destination in a damaged
a) There is separation of the interest liable to
condition
contribution
- Loss is deemed to be the same proportion of the
b) When the insured having the right and
value which the market price at the port of the
opportunity to enforce contribution from others,
thing so damaged bears to the market price it
has neglected or waived the exercise of the right
would have brought if sound
- Thus, if the amount of reduction in value is 1/5,
Recovery from a general average loss
then the amount of recovery is also 1/5
a. Enforcing the contribution against interested
parties
- Regardless of whether the insurance is Valued or
b. Or claiming from the insurer.
Open
Measure of Indemnity - Insurer is liable for:
- If policy is VALUED a. All expense attendant upon a loss that forces
- The valuation in the policy the ship into the port to be repaired. (PORT
OF REFUGE EXPENSES)
- If the value of the insurance is less than the value
of the property – insured is deemed a co-insurer.
- Example:
 b. If stipulated that the insured shall labor for
recovery of the property insured, the insurer is
liable for expenses incurred thereby.
Fire Insurance
Insurer is liable for loss or damage caused by
hostile fire (fire that escapes from the place where it was
intended to burn and ought to be in) and not that caused
by friendly fire (fire which burns in a place where it is
intended to burn).
 Scope of Fire Insurance:
a.
Fire
b.
Lightning
c.
Windstorms
d.
Tornado
e.
Earthquake
f.
Other allied risks
ALTERATION – the change in he use or condition of a
thing insured from that to which it is limited by
the policy made without the consent of the
insurer, by means within the control of the
insured and increasing the risk, which entitles
the insurer to rescind the contract of insurance.
 Requisites:
a. The use or condition of the thing insured is
specifically limited or stipulated in the policy.
b. There is alteration in the said use or condition
c. It was made without the insurer’s consent
d. It is done within the insured’s control, and
e. It increases the risk of loss or damage
Valuation
- If Open Policy
- It is the expense it would be to the insured at the
time of the commencement of the fire to replace
the thing lost or injured in the condition in which
it was at the time of the injury.
- If valued Policy
- Value agreed upon by the parties, in the
absence of fraud.
 Rules:
a. Policy shall not protect the insured from injury
consequent upon his negligent use or
management of fire, so long as it is confined to
the place where it ought to be
b. If it escapes, even though the insured was
negligent, the insurer is liable
c. Even though a fire may remain in its proper
place, it may become hostile if it by accident,
becomes so extensive as to be beyond control
 Options of the Insurer
a. Purchase the property at appraised valuation
b. Restore the property damaged - contract of
insurance is discharged and parties enter into
a new contract of insurance
Casualty Insurance: Any injury that is intended,
unexpected and unusual, even though it results
from an act or even which was intelligently done.
 Insurer is Liable for death/injury to insured:
a. By his own hand while insane
b. By taking poison by mistake
c. By overdoes of drugs administered or taken by
mistake, by ignorance or material pathological
conditions
d. By unexpected bacterial infection consequent
upon doing acts, even though such acts were
intentionally done
e. By unprovoked violence of others
Compulsory Motor Vehicle Liability Insurance
- Persons subject to CMVLI:
a. Motor vehicle owner or one who is the actual legal
owner of a motor vehicle in whose name such
vehicle is registered with the LTO
b. Land transport operator or one who is the owner of
a motor vehicle or vehicles being used for
conveying passengers for compensation (including
school buses)
 No need to have a case file for reckless imprudence
 No need for actual filing of an action
 No need for a decision on a case
 The insured is insured against liability
 Effects:
1. Insurer is already liable
2. 3rd party can bring an action directly against the
insurer.
3. There is liability when the injury occurs.
No Fault Indemnity Clause: The insurance company
shall pay any claim for death or bodily injuries sustained
by a passenger or 3rd party without the necessity of
proving fault or negligence of any kind subject to certain
conditions. This does not apply to property damage.
Provided:
a. Indemnity in respect of one person shall not
exceed P5000.
b. The necessary proof of loss under oath to
substantiate the claim is submitted, these are:
- Police report of accident
- Either Death certificate or medical report.
Authorized Driver Clause: Any person in the order of
the insured provided authorized by our driver’s license
law.
 Rules:
a. If the driver is the insured, he is an authorized
driver
b. If the license is not expired, otherwise he is not
an authorized driver though consented by the
insured.
c. Temporary license
d. Tourist – Within 90 days from arrival, otherwise
not authorized
e. Perfectly copied driver’s license – it is presumed
to be genuine.
Claim for Payment
- Within 6 months from the injury
- By giving a written notice setting forth the nature,
extent and duration of the injuries as certified by a duly
licensed physician.
- The insurance company shall forthwith ascertain
the truth and extent of the claim and make
payment within 5 working days after reaching an
agreement.
- If no agreement reached, Still pay the “no
fault indemnity”
- The insured shall not be required to file a
“quit claim” or release from liability.
- Failure; deemed waiver.
- If denied: an action must be brought within 1 year from
the date of denial with the Insurance Commissioner or
the Court.
Cancellation of the policy:
- By the insurer, requires written notice at least 15 days
prior to intended effective date.
- The LTO may order the immediate confiscation
of license plates
- Unless receives a new valid insurance/ surety/
proof of cash deposit or revival by endorsement
of the cnacelled policy.
- By the insured
- A similar policy or surety must be secured before
the cancelled policy or surety ceases to be
effective
- Or make a cash deposit and file the same or
proof thereof with the LTO.
Suretyship - an agreement whereby the surety
guarantees the performance of the principal or
obligor of an obligation or undertaking in favor of
a 3rd party called the obligee
Life Insurance: an insurance in human life and
insurance appertaining thereto or connected
therewith may be payable:
a. on the death of the insured
b. on his surviving a specified period
c. otherwise, contingently on the continuance or
cessation of life
(b and c refer to endowment or annuities)
 Uses and Common Kinds of Life Insurance:
a. Whole Life or Ordinary Policies - here, the
insured agrees to pay annual, semi-annual
or quarterly premiums while he lives. The
insurer agrees to pay the face value of the
policy upon the death of the insured.
b. Limited Payment Life Policy - premiums
paid only for a specified period of years.
c. Term Policy - insurer’s liability arises only
upon the death of the insured within the
agreed term as period. If the latter survives
the period, the contract terminates and the
insurer is not liable
d. Endowment Policy - insurer agrees to pay a
certain sum to the insured if the latter
outlives a designated period; if he dies
before that time, the proceeds are paid to
the beneficiary
e. Life Annuity - debtor binds himself to pay
an annual pension or income during the life
of one or more persons in consideration of
a capital consisting of money or other
property, whose ownership is transferred to
him with the burden of income
The Business of Insurance
a. Life or Endowment Policies
Grace Period - 30 days for the payment of any
premium due after the first premium has been paid
Period of Incontestability - after the lapse of 2
years from the date of issue or date of approval of
last reinstatement
Reinstatement of Policy - within 3 years from
the date of default of premium, upon:
a. production of evidence of insurability, and
b. payment of all overdue premiums and any
indebtedness to the company upon said
policy
Exceptions:
a. if cash surrender value has been paid
b. if period of extension has expired
b. Claims Settlement
Unfair Claims Settlement Practices:
(a) knowingly misrepresenting to claimants
pertinent facts or policy provisions relating to
coverage at issue
(b) failing to acknowledge with reasonable
promptness pertinent communications with
respect to claims arising under its policies
(c) failing to adopt or implement reasonable
standards for the prompt investigation of
claims arising under its policies
(d) no attempt in good faith to effectuate prompt,
fair and equitable settlement of claims
submitted in which liability has become
reasonably clear
(e) compelling policy holders to institute suits to
recover the amount due under its policies by
offering with no justifiable reason an amount
substantially less than that ultimately
recovered in suits brought by them
Proceeds of Life Insurance - payable within 60
days after:
(a) presentation of claims, and
(b) filing of proof of death (upon failure to pay
interest, at the rate of 2 times the ceiling
prescribed by the Monetary Board unless
based on the ground that the rate is
fraudulent)
Proceeds of Policies other than Life - payable:
(a) upon proof of loss
(b) upon ascertainment of loss or damage (if not
made within 60 days of proof of loss, payable
in 90 days)
c. Power of Commissioner to Suspend/Revoke
License
(a) if insurance contract is in unsound condition
(b) if it has failed to comply with the provisions of
law or regulations obligatory upon it
(c) its conditions or methods of business s such
as to render its proceedings hazardous to the
public or to its policy holders
(d) that its paid up capital stock, or its available
cash assets, or its security deposits, as the
case may be, is impaired or deficient
(e) that the margin of solvency required of each
company is deficient
Insurance Agent - any person who for compensation
solicits or obtains insurance on behalf of any insurance
company or transacts for a person other than himself an
application for a policy or contract of insurance to or from
such company or offers or assumes to act in negotiating
of such insurance. He must be first licensed as such
before doing any acts as insurance agent.
Insurance Broker - any person for any compensation,
commission or any other thing of value, acts, or aids in
any manner in soliciting, negotiating or procuring the
making of any insurance contract or in placing risk or
taking out insurance, on behalf of an insured other than
himself. A license is required.