Insurance Reviewer

Crammer INSURANCE 1st Sem.; 2003

Helen C. Arevalo 1 Section 3D

GENERAL PROVISIONS Sec. 1. Name of Decree: The Insurance Code of 1978 Laws Governing Insurance:

1.) PD 1460: Insurance Code of 1978 Construction of Insurance Code follows that of the law of California (except for Ch. 5 w/c was taken from the law of New York).

2.) Arts. 2011 to 2012, CC: Insurance Hot tip: Art. 2012, CC: Any person forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him.

3.) Arts. 2021 to 2027, CC: Life Annuity 4.) Art. 2186, CC: Compulsory Motor Vehicle

Liability Insurance 5.) Arts. 43, par. 4, 50, 64, Family Code:

Revocation of irrevocable beneficiaries in terminated marriages.

Constantino v. Asia Life: Non-payment of premiums voids policy even if due to war. We follow the US Rule. Punctual payments important since insurer calculates on the basis of prompt payments. Time is of the essence. No premium, no insurance, Insular Life v. Ebrado: Person forbidden from receiving donation cannot be named beneficiary. Donations between persons guilty of adultery/concubinage void. Common-law spouse barred from receiving proceeds. Interpretation of Insurance Contracts: Strictly against insurer, liberally in favor of insured. Qua Chee Gan v. Law Union: Gasoline not specifically mentioned in prohibited articles. “Oils” usually means lubricants. Ambiguities or obscurities must be strictly interpreted against the party that caused them. K of insurance is a K of adhesion. Construed strictly against insurer, liberally in favor of insured. Ty v. Filipinas Cia de Seguros: Where insurance co. defines “partial disability” as loss of either hand by amputation, insured cannot recover for temporary disability. No ambiguity, literal meaning must apply. Sec. 2. Definition of Terms:

1.) Contract of insurance: An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Includes surety contract.)

Characteristics of an insurance contract:

1.) Consensual; 2.) Voluntary; 3.) Aleatory; 4.) Executory; 5.) Conditional; 6.) Personal.

Elements of insurance contract:

1.) Consent of parties a.) Insurer b.) Insured

2.) Object: Transfer or distribute risk of loss, damage, liability or disability from insured to insurer

3.) Cause/consideration: Premiums 4.) INSURABLE INTEREST: Insured possesses an interest

of some kind susceptible of pecuniary estimation. Classifications of insurance contracts:

1.) Life a.) Individual b.) Group life c.) Industrial life

2.) Non-life a.) Marine b.) Fire c.) Casualty

3.) Contracts of suretyship and bonding 2.) Doing/transacting an insurance business:

Includes: a.) Making or proposing to make, as insurer,

any insurance contract; b.) 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 activity of the surety;

c.) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

d.) Doing or proposing to any business in substance equivalent to the foregoing in a manner designed to evade the provisions of this Code.

Fact that no profit derived from contract/transaction is not deemed conclusive to show that no insurance business was transacted.

3.) Commissioner: The Insurance Commissioner.

Philamlife v. Ansaldo: The insurance commissioner has the authority to regulate the business of insurance (see definition above). The contract of agency is not include w/in the meaning of the insurance business and so the insurance commissioner has no jurisidiction. The quasi-judicial power of the Commish is limited by law to claims and complaints involving any loss, damage or liability for w/c an insurer may be answerable under any kind of policy or contract of insurance. Hence, this power does not cover the relationship affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company.



Philamcare v. CA: Health care agreement is a contract of insurance. It has the following elements:

1.) The insured has an insurable interest (his own health);

2.) The insured is subject to a risk of loss by the happening of the designated peril (incurs expenses of hospitalization/out-patient services);

3.) The insurer assumes the risk; 4.) Such assumption of risk is part of a general

scheme to distribute actual losses among a large group of persons bearing a similar risk; and

5.) In consideration of the insurer’s promise, the insured pays a premium. CHAPTER 1. THE CONTRACT OF INSURANCE Title 1. What May Be Insured (Against) Sec. 3. What may be insured (against):

1.) Any contingent or unknown event, whether past or future, which may cause damage to a person having an insurable interest; or

2.) Any contingent or unknown event, whether past or future, which may create a liability against the person insured.

Validity of insurance policy taken out by married women and minors: The consent of the husband is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children.

Rights of insured married women and minors: The married woman or the minor herein allowed to take out an insurance policy may exercise all rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Art. 1174, CC: Fortuitous events. No person responsible for fortuitous events. Art. 110, CC: Married women as administrators of paraphernal property. Either spouse may transfer the administration of his or her exclusive property. Art. 1327, CC: Who cannot give consent to contracts:

1.) Unemancipated minors; 2.) Insane or demented persons; 3.) Deaf-mutes who do not know how to write.

Art. 1390, CC: Voidable contracts:

1.) Those where one of the parties is incapable of giving consent to a contract;

2.) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

Sec. 4. Section 3 does not authorize an insurance for or against the drawing of any lottery, or for or

against any chance or ticket in a lottery drawing a prize. Sec. 25: A policy contract executed by way of gambling or wagering is void. Differences between a contract of insurance and a gambling contract:

Gambling Insurance Parties contemplate gain thru’ mere chance.

Parties seek to distribute possible loss by reason of his mis-chance.

Gambler seeks fortune. Insured seeks to avoid misfortune.

Increases inequality of fortune.

Tends to equalize fortune.

Whatever one persons wins from a wager is lost by the other wagering party.

What one insured gains is not at the expense of another insured.

When a party makes a wager, he creates a risk of loss to himself where no such risk existed previously.

Purchase of insurance does not create a risk of loss to the purchaser. Reason he purchases is because he already faces an existing risk of economic loss.

Sec. 5. Applicability of Chapter 1 provisions to all kinds of insurance: All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. Title 2. Parties to the Contract:

1.) Insurer; 2.) Insured.

Sec. 6. Who may be an insurer: Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code. Sec. 184: Insurer/insurance co.: Includes all individuals, partnerships, associations, or corporations including GOCCs, engaged as principals in the insurance business, except mutual benefit associations. Unless the context otherwise requires, the term shall also include professional reinsurers. Sec. 185: Insurance corporations: Corporations formed or organized:

1.) To save any person or persons or other corps harmless from loss, damage or liability arising from any unknown or future contingent event, or

2.) To indemnify or to compensate any person or persons or other corps for any such loss, damage or liability, or

3.) To guarantee the performance of or compliance w/ contractual obligations or the payment of debts of others.

Sec. 187: Certificate of authority from the Insurance Commissioner is required to transact insurance business. Sec. 7. Who may be insured: Anyone except a public enemy may be insured. Requisites for one to be an insured:



1.) He must be competent to enter into a contract; 2.) He must possess an insurable interest in the

subject of insurance; 3.) He must not be a public enemy.

Public enemy: Nation w/ whom the Phils is at war, and it includes every citizen or subject of such nation. Filipinas Cia de Seguros v. Christern Huenefeld & Co.: Enemy corp. War – Policy ceased to be valid and enforceable. But premiums returned. Effect of war on existing insurance contracts between Phils and citizen/subject of public enemy: Policy ceases to be valid and enforceable as soon as an insured becomes a public enemy. Sec. 8. Insurance taken by mortgagor in his own name but loss payable to mortgagee (or assigns policy to mortgagee) deemed to be upon his (mortgagor’s) interest, but mortgagee may perform any act under contract of insurance w/c is to be performed by mortgagor. Effects when mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee:

1.) K deemed to be upon the interest of the m’or, hence he does not cease to be a party to the K;

2.) Ant act of m’or prior to the loss, w/c would otherwise avoid the insurance affects the m’ee even if the property is in the hands of the m’ee;

3.) Any act w/c under the K of insurance is to be performed by the m’or nay be performed by the m’ee;

4.) In case of loss, the m’ee is entitled to the proceeds to the extent of his credit;

5.) Upon recovery by the m’ee to the extent of his credit, the debt is extinguished.

Art. 2127, CC: Security of mortgage extends to indemnity from insurance. San Miguel v. Law Union Rock Ins. Co.: Insurance policies issued in the name of mortgagee (SMB) only. Altho’ stated that merely m’ee, policies contained no reference to any other interest in the property. M’or (Dunn) sold property but no assignment of the policies were made to the buyer (Harding). SMB liable to Harding?

No. Insurance applied to exclusively to proper interest of the person in whose name it is made. Neither Dunn or Harding can recover on policies. No change or assignment of the policies had been undertaken. Besides, owner’s interest not covered by the policies.

SMC only to recover to extent of its mortgage credit. Grepalife v. CA: Group life insurance plan to insure lives of eligible housing loan m’ors of DBP. Grepalife claims that widow of member of group life insurance plan is not a real party in interest so no jurisidiction. Wrong! Widow may file suit. Rationale of grp insurance policy of m’ors is a device for protection of both m’ee and m’or. Insurance is on the m’or’s interest. M’or continues to be a party to the contract. M’ee is not a party to the contract, simply an appointee of the insurance fund. Insured is real party in interest. Since

may pass by transfer, will/succession, widow may file suit. Sec. 9. When transfer of insurance is made from mortgagor to mortgagee w/ assent of insurer w/ imposition of additional obligations on assignee, the mortgagor’s acts do not affect assignee’s rights. This is an exception to the rule that all acts of the m’or affects the m’ee: when further obligations imposed on the m’ee.

Title 3. Insurable Interest Sec. 10. Insurable interest in life and health: Every person has an insurable interest in the life and health of:

1.) Himself, of his spouse and of his children; 2.) Any person on whom he depends wholly or in part

for education or support, or in whom he has a pecuniary interest;

3.) Any person under a legal obligation to him for the payment of money, or respecting property or services, of w/c death or illness might delay or prevent the performance; and

4.) Any person upon whose life any estate or interest vested in him depends.

Hot tip: Memorize this! Insurable interest: Person deemed to have insurable interest in subject matter where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Col. C. Castro v. Insurance Commissioner: Castro got insurance on the life of his driver. 3 months later, driver shot to death by “unknown” persons (Colonel is that you?!!) Does er have insurable interest in his driver? I think not, murderer! It must appear that:

1.) There is a real concern in the life of the party named whose death would be the cause of substantial loss to those who are named as beneficiaries (mere relationship insufficient).

2.) The destruction of the life of the insured would cause pecuniary loss to the complainant.

Lincoln National Life v. San Juan: Er insured life of ee (tenant in er’s coconut land who goes by the name of Misteryoso San Juan). Misteryoso very misteryosly disappeared and a severed and rotting head was later found in jeep, purportedly his. Can er recover proceeds? No way! Geez, these employers are sick, man! El Oriente v. Posadas: El Oriente procured an insurance policy on the life of A. Velhagen (who had more than 35 years experience in the cigar mfg business) for $50,000. Velhagen had no interest/participation in the proceeds of the life insurance. Did El Oriente had insurable interest over Velhagen’s life?



SC said: Yes, El Oriente had insurable interest over the life of one of their employees (e.g. the Gen. Mgr, I think). This is because Velhagen had over 35 years of experience in the business. This is an example of a “Key Man Insurance”… Velhagen was a key person in the company, that’s why the company had insurable interest over his life… Sir compared this case with the Castro case. Philamcare v. CA: (supra) Health care agreement is an insurance contract. Health (in this case his own) is an insurable interest. Sec. 11. Insured has right to change beneficiary unless waived Beneficiary: A person, whether natural or juridical, for whose benefit the policy is issued and is the recipient of the proceeds of the insurance. Sec. 53: To whom insurance proceeds payable (infra). Sec. 2012, CC: Disqualified beneficiaries: those forbidden from receiving donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him. Art. 739, CC: Void donations:

1.) Those made between persons who were guilty of adultery or concubinage at the time of the donation;

2.) Those made between persons found guilty of the same criminal offense, in consideration thereof;

3.) Those made to a public officer or his wife, descendants and ascendants by reason of his office.

Art. 43(4), FC: Revocation of irrevocable beneficiaries in terminated marriages due to reappearance of absent spouse – allowed if innocent spouse and other in bad faith. Art. 50, FC: Revocation of irrevocable beneficiary in marriages declared void and those annulled by final judgment – allowed also as in 43(4), FC. Art. 64, FC: Revocation of irrevocable beneficiary in legal separation – After final decree, innocent spouse may revoke designation of offending spouse as beneficiary. Revocation/change in beneficiary to take effect upon written notification to insured. Nario v. Philamlife: Court authorization in a competent guardianship proceeding is needed in order to proceed w/ transaction (policy loan or surrender of policy) w/c involve a disposition or alienation of the property of the minor beneficiary. Written consent of father-guardian, if w/o court authorization, is insufficient. Sir says this is no longer so. Father/mother do not need court authorization since they are already guardians of their child. SSS v. Davac: Disqualification of concubinage does not apply where concubine had no knowledge that she was such (meaning, where there is no proof that she knew of the previous marriage). Gercio v. Sun Life: Cannot change beneficiary in the absence of stipulation expressly permitting such change. This was the old rule, it no longer holds true. Now, there is a

right to change beneficiary even w/o stipulation as long as the right had not been waived. Sec. 12. Interest of beneficiary in a life insurance policy forfeited if beneficiary a principal, accomplice or accessory in death of insured; nearest relative of insured to receive proceeds if not disqualified. Sec. 13. Insurable interest in property is that w/c is of such nature that a contemplated peril will damnify an insured Harvardian College v. Country Bankers: Even if not owners of the building and so w/o title to the property insured, building used and in their possession for several years w/ the knowledge and consent of the owner as the site of their educational institution. They, therefore, had an insurable interest in the building since they would have directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. Test in determining insurable interest in property: Whether one 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. Sec. 14. What an insurable interest in property consists of:

1.) An existing interest; 2.) An inchoate interest founded on an existing

interest; or 3.) An expectancy, coupled w/ an existing interest in

that out of w/c the expectancy arises. Existing interest: Legal or equitable title. Inchoate interest: Interest w/c has not yet ripened. Expectancy: Must be coupled w/ an existing interest in that out of w/c such expectancy arises. Traders Insurance v. Golangco: Even if not owner, can claim insurance proceeds since he still had insurable interest therein. He was in legal possession and collecting rentals from its occupant, and so he was directly damnified by such loss. Filipino Merchants v. CA: Tiekeng, consignee of fishmeal and vessel, had insurable interest due to perfected sale. Such sale was the basis of insurable interest. Sec. 15. Insurable interest of a carrier or depositary is extent of its liability Lopez v. Del Rosario: Del Rosario, warehouseman, liable to owner of stored goods (Lopez) for his share. She acted as the agent of Lopez in taking out the insurance of the contents of the warehouse.



Sec. 16. Contingent or expectant interest not founded on actual right or valid contract not insurable Sec. 17. Measure of insurable interest in property – extent to w/c insured might be damnified by loss (Property insurance is strictly a contract of indemnity) San Miguel v. Law Union Rock: (supra) SMC collects only to extent of mortgage credit. Cha v. CA: Cha: lessees; CKS: lessors. Stipulation for consent contrary to public policy. CKS has no insurable interest. Sec. 18. Unenforceability of property insurance contract by one not having insurable interest Garcia v. Hong Kong Fire & Marine Ins. Co.: Merchandise insured but insurance co. mistakenly issued policy covering building where merchandise stored. Policy written in English w/c insured did not understand. Insured should be able to collect. Sec. 19. Time when insurable interest must exist:

1.) Property insurance: at time insurance takes effect & at time of loss;

2.) Life insurance: only at time insurance takes effect.

Tai Tong Chua Che v. Insurance Commissioner: M’ee who insured mortgaged property of m’or can collect proceeds of policy since allegation that mortgage debt was already paid had not been proved. Sec. 20. Effect of change of interest in thing insured on contract of insurance:

General rule: insurance suspended until same person becomes owner of both policy and the thing insured.

Exceptions:

1.) Life, health and accident insurance; 2.) The change of interest in the thing insured occurs

after the injury w/c results in a loss; 3.) A change of interest in one or more of several

things separately insured by one policy; 4.) A change of interest by will or succession on the death

of the insured; 5.) A transfer of interest by will or succession on the death

of the insured; 6.) A transfer of joint interest by one of several partners,

joint owners or owners in common, who are jointly insured, to the other.

Sec. 58 (supra): Effect of transfer of thing insured – does not automatically transfer policy – coverage merely suspended. Bachrach v. British American Assurance Co.: Bachrach’s furniture shop burned down. One of the reasons claim denied was because Bachrach had executed a chattel mortgage on the properties insured

w/o consent of the insurer. He should be able to claim proceeds of policy. There was no express provision against the execution of a chattel mortgage on the property insured. Sec. 21. Change in the thing insured after occurrence of injury resulting in loss does not affect right to indemnity Sec. 22. Change of interest in one or more distinct things separately insured does not affect insurance of others Sec. 23. Change of interest by will or succession of insured does not avoid the insurance Sec. 181: Allows life insurance policy to pass by transfer, will or succession to anyone w/ or w/o insurable interest. Sec. 24. Transfer of interest by one of partners, joint owners or common owners who are jointly insured, to the others, does not avoid the insurance Sec. 25. Stipulation in policy for payment of loss whether insurable interest exists or not, or that policy is proof of such interest, or policy on wagering is void (This provision is the authority for voiding a contract for lack of insurable interest) Title 4. Concealment Sec. 26. What is concealment: A neglect to communicate that w/c a party knows and ought to communicate. Requisites of concealment:

1.) A party knows a fact w/c he neglects to communicate or disclose to the other;

2.) Such party concealing is duty bound to disclose such fact to the other;

3.) Such party concealing makes no warranty of the facts concealed; and

4.) The other party has no means of ascertaining the fact concealed.

Four primary concerns of parties to an insurance contract:

1.) The correct estimation of the risk w/c enables the insurer to decide whether he is willing to assume it, and if so, at what rate of premium;

2.) The precise delimitation of the risk w/c determines the extent of the contingent duty to pay undertaken by the insurer;

3.) Such control of the risk after it is assumed as will enable the insurer to guard against the increase of the risk because of change in conditions; and

4.) Determining whether a loss occurred, and if so, the amount of such loss.

Sec. 27. Intentional or unintentional concealment entitles injured party to rescind contract



Law makes no distinction between intentional and unintentional concealment. There is no need to prove fraud to be able to rescind. Criterion in applying Sec. 27: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts w/in the insured’s knowledge or presumed knowledge? Saturnino v. Philamlife: Concealed operation for cancer involving removal or right breast. Info given obviously false as well as material. Insurer allowed to rescind. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due in forming his estimate of the proposed contract, or in making his inquiries. Waiver of medical examination renders even more material info required concerning previous condition of health and diseases suffered. Henson v. Philamlife: There is no need to prove intent to conceal to warrant rescission. Sec. 28. Duty of each party in an insurance contract to communicate to the other, in good faith all facts material to the contract and as to w/c he makes no warranty, and w/c the other has no means of ascertaining (Insurance contract is a contract “uberrima fides” – meaning “of utmost good faith”) hot tip: remember meaning of this crazy latin word! Exception to duty to communicate: Those falling under Sec. 30 Test to determine whether one must communicate: If the applicant is aware of the existence of some circumstance w/c he knows would influence the insurer in acting upon his application, good faith requires him to disclose that circumstance, though unasked. Sec. 31: What is material (infra) Sec. 107: Concealment in marine insurance – in addition to matters in Sec. 28, all info material to the risk (except those in Sec. 30) must be communicated. Sec. 35 (infra): Mere opinion, judgment, or expectation not necessary to be communicated. Fieldman’s Insurance v. Songco: Owner of an owner-type jeep persuaded by insurance agent to enter into a common carrier insurance contract. After accident, insurance co. refused to pay up on the ground that the vehicle was not a common carrier. Ins. Co. estopped. It knew all along that it was a private vehicle. Sec. 29. Failure to communicate information proving or intending to prove the falsity of a warranty entitles insurer to rescind – Here the concealment must be intentional or fraudulent to warrant rescission.

Sec. 30. Matters w/c each party to insurance contract is not bound to communicate:

1.) Those w/c the other knows; 2.) Those w/c, in the exercise of ordinary care, the

other ought to know, and of which the former has no reason to suppose him ignorant;

3.) Those of w/c the other waives communication; 4.) Those which prove or tend to prove the

existence of a risk excluded by the warranty, and w/c are not otherwise material; and

5.) Those w/c relate to a risk excepted from the policy and w/c are not otherwise material.

Exception: when the other inquires Insular Life v. Feliciano: Falsified answers due to collusion between the insured and the insurance agent and medical examiner. Insurance company absolved from liability. Sec. 31. Materiality to be determined by influence of facts on party in forming estimate of the risk, not by the event. Test of materiality: If the knowledge of fact would cause the insurer to reject the risk, or to accept it only at a higher premium rate, that fact is material, though it may not even remotely contribute to the contingency upon w/c the insurer would become liable, or in any wise affect the risk. Principal question to ask: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts w/in the insured’s knowledge or presumed knowledge? If so, then the contract is avoided, even if the cause of the loss w/c subsequently occurred be unconnected w/ the fact concealed. Sun Life v. CA: Sorry! Sec. 32. Each party bound to know:

1.) General causes w/c… a.) are open to his inquiry, equally w/

that of the other, b.) may affect either the political or

material perils contemplated. 2.) General usages of trade.

Sec. 33. Right to information of material facts may be waived by:

1.) Terms of insurance (expressly); or 2.) Neglect to make inquiries where they are

directly implied in other facts already communicated (impliedly).

Ng Gan Zee v. Asian Crusader Life: Insured stated in his application that he had a tumor removed from his stomach. Yun pala, it was actually a portion of his stomach w/c was removed. Ins. co. now refuses to pay on ground on false information. Pay up, damnum you! Can’t rescind the contract. Insured did not have sufficient knowledge to distinguish between a tumor and an ulcer. His statement was made



in good faith. Ins. co. could have made an inquiry as to the illness and operation. Its failure to do so constituted a waiver of the imperfection of the answer. Sec. 34. Nature or amount of interest need not be communicated. Exceptions:

1.) In answer to an inquiry; or 2.) When he is not the absolute owner (Sec. 51: items that

must be included in an insurance policy: (e) Interest of insured in property insured, if he is not the absolute owner thereof.)

Sec. 35. Opinion or judgment of a party to a contract not required to be communicated Sec. 108 (marine insurance): Info of the belief or expectation of a 3rd person w/ respect to material facts is material.

Title 5. Representation (Importance of representation: False representation entitles insured party to rescind – Sec. 45) Sec. 36. Representation may be oral or written Representation: 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. Misrepresentation: A statement…

1.) as a fact of something w/c is untrue; 2.) w/c the insured stated w/ knowledge that it is untrue

and w/ an intent to deceive, or w/c he states as true w/o knowing it to be true and w/c has a tendency to mislead; and

3.) where such fact in either case is material to the risk. Effect of misrepresentation: Renders insurance contract voidable at the option of the insurer, although the policy is not thereby rendered void ab initio. Sec. 37. Representation to be made at time of, or before issuance of a policy Sec. 41: representation may be withdrawn or altered before effectivity date. Sec. 38. Language of communication the same as contracts in general Representations are construed liberally in favor of the insured. Representations need not be literally true. It is sufficient if they are substantially true. Sec. 39. Representation as to the future deemed a promise unless merely a statement of belief or expectation Different kinds of representation:

1.) Oral or written; 2.) Made at time of issuance of the policy or before; and 3.) Affirmative or promissory.

Affirmative representation: Any allegation as to the existence or non-existence of a fact when the contract begins. Promissory representation: Any promise to e fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. Sec. 40. Representation cannot qualify express provision of contract, but may qualify an implied warranty Sec. 41. Representation may be altered or withdrawn before insurance is effected, but not afterwards Sec. 42. Representation refers to date of effectivity of contract There is no false representation if the representation was true at the time the contract takes effect altho’ it was false at the time it was made. But there is false representation is although/ true at the time it was made, it subsequently becomes false at the time the contract took effect. Sec. 43. Effect of representation when person has no personal knowledge of facts:

1.) He may repeat info w/c… a.) He believes to be true, b.) With the explanation that he does so on the

info of others; or 2.) He may submit the info, in its whole extent to

the insurer. 3.) In either case he is not responsible for its

truth. Exception: it proceeds from an agent of insured

whose duty is to give information. Harding v. Commercial Union: Proposal form made out by person authorized to solicit insurance is an act of the insurer. Facts, even if false, not warranted by insured in the absence of willful misstatement. Sec. 44. Misrepresentation: When facts fail to correspond to assertions or stipulations, representation is deemed false Sec. 45. False representation in a material point entitles insurer to rescind from time it becomes false. Right to rescind waived by acceptance of premium despite knowledge Note that fraudulent intent here is immaterial. Musngi v. West Coast Life: Concealed that he saw several physicians for a number of ailments. He knew that he was suffering from all these ailments yet he concealed this. This concealment constituted fraud because the insurance company by reason of such statement accepted the risk w/c it would otherwise have rejected.



Edillon v. Manila Bankers Life: There is was a provision in the certificate of insurance excluding ins. co. of liability to persons under 16 or over 60 years of age. However, insured stated correctly her date of birth showing that she was already 64 years old. She did not conceal her age, yet co. accepted her premium and issued the policy. Co. is estopped from disclaiming liability. Collado v. Insular Life: Accepting overdue premiums does NOT necessarily deprive it of d right to cancel d policy in case of default. A reinstated policy should be viewed as a new K, & d period for contestability for fraud/ breach of warranty in d application runs from the time of reinstatement. Sec. 46. Materiality of a representation is governed by same rules as materiality of concealment Sec. 31: How materiality determined: not by event but y the influence of facts on other party in forming an estimate of the risk. Sec. 47. Provisions of Chapter 1 applicable to amendment as well as to original contract Sec. 48. Incontestable clause; Insurer’s right to rescind; When must it be commenced:

1.) Non-life policy: before commencement of an action;

2.) Life insurance policy: incontestable if in force 2 years from date of issue or last reinstatement.

Sections 227(b), 228(b) and 230(b) make the incontestable clause compulsory in all life insurance contracts. Soliman v. U.S. Life: Insurer is once again given 2 years from date of reinstatement to investigate the veracity of the facts represented in the application for reinstatement. Tan v. CA: Key phrase: “2 years”. Does not need to be during lifetime of the insured. The phrase “during the lifetime” simply means that the policy is no longer in force after the death. Tan Chay Cheng v. West Coast Life: Misrepresent-ations made. Tan Chay claims that co. cannot rescind because an axn for performance had already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy unless it brings axn. to rescind before it is sued thereon. Trial court wrong. Through fraud in its execution, the policy is void ab initio and therefore no valid contract was ever made. Not an axn for rescission coz that would presuppose the existence of a contract. Therefore, not barred by Sec. 48. Philamcare v. CA: (supra) Philamcare did not want the health care agreement to be considered an insurance contract because the incontestability clause in Sec. 48

requires that any right to rescind must be exercised before any axn is commenced on the contract, and w/in 2-year period. But as we all know it is an insurance contract so the incontestability clause applies. Title 6. The Policy Sec. 49. Policy: The written contract of insurance Contract is the meeting of the minds. The policy is the formal written instrument evidencing the contract. The best evidence that a contract has been entered into between the insurer and the insured is the delivery of the policy by the insurer to the insured. Effects of delivery of policy: If delivery is conditional, non-fulfillment of the condition bars the contract from taking effect. If unconditional, the insurance becomes effective at the time of delivery. Enriquez v. Sunlife: The contract of insurance was not perfected. It had not been proved that the acceptance of application ever came to the knowledge of the applicant. An acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract of insurance, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party. Sec. 50. Formal requirements of a policy:

1.) In printed form w/c may contain blank spaces; and

2.) Any word, phrase, clause, mark, sign, symbol, signature, number or word necessary to complete the contract of insurance shall be written in the blank spaces provided therein.

Formal requirements of a rider, clause, warranty, endorsement as part of the contract:

1.) The descriptive title or name of the rider w/c is pasted or attached to the policy must be mentioned and written on the blank spaces provided in the policy; and

2.) Unless applied for by the insured or owner, said insured or owner must countersign the rider.

Requirements of group insurance and group annuity policies: May be typewritten and need not be in printed form. Sec. 226: Form of policies, application, riders, clauses, warranties or endorsements must be approved by the Insurance Commissioner. Rider: A printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. Riders are usually attached to the policy because they constitute additional stipulations between the parties. If there is an inconsistency between the policy and the rider, the rider prevails, it being a more deliberate expression of the agreement of the parties.



Warranties: Inserted or attached to a policy to eliminate specific potential increases of hazard during the policy term owing to axns of the insured, or conditions of property. Clauses: Agreements between the insurer and the insured on certain matters relating to the liability of the insurer in case of loss. Endorsement: An endorsement is any provision added to an insurance contract altering its scope or application. Sec. 51. Substantive requirements in a contract of insurance: Policy must specify:

1.) The parties between whom the contract is made; 2.) The amount to be insured except in the case of

open or running policies; 3.) The premium, or if the insurance is of a

character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon w/c the final premium is to be determined;

4.) The property/life insured; 5.) The interest of the insured in property insured if

he is not the absolute owner thereof; 6.) The risks insured against; and 7.) The period during w/c the insurance is to

continue. Kinds of insurable risks:

1.) Personal: life or health; 2.) Property: involves loss or damage to property; 3.) Liability: involves liability of the insured for an injury

caused to a person or property of another. Requirements in order that a risk be insurable:

1.) The loss to be insured against must be important enough to warrant the existence of an insurable contract;

2.) The risk must permit a reasonable statistical estimate of the chance of loss in order to determine the amount of premium to be paid;

3.) The loss should be definite as to cause, time, place and amount;

4.) The loss is not catastrophic; 5.) The risk is accidental in nature.

See Sections 227, 228 & 230 for additional matters to be included in individual, group and industrial life insurance policies. Sec. 52. Rules on cover notes (binding receipts or slips, interim, temporary or provisional policies):

1.) Insurance companies doing business in the Phils may issue cover notes to bind insurance temporarily pending the issuance of the policy.

2.) A cover note shall be deemed to be a contract of insurance w/in the meaning of Sec. 1(1) of this Code.

3.) No cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.

4.) A cover note shall be valid and binding for a period not exceeding 60 days from the date of its issuance, whether or not the premium therefore

has been paid, but such cover note may be canceled by either party upon at least 7 days notice to the other party.

5.) If a cover note is not so canceled, a policy of insurance shall w/in 60 days after issuance of the cover note be issued in lieu thereof. Such policy shall include w/in its terms the identical insurance bound under the cover note and premium therefor.

6.) A cover note may be extended or renewed beyond the aforementioned period of 60 days w/ the written approval of the Insurance Commission, provided that such written approval may be dispensed w/ upon the certification of the president, VP, or gen mgr of the insurance co. concerned, that the risks involved, the values of such risks, and the premiums therefore have not been determined or established and that such extension or renewal is not contrary to and is not for the purpose of violation of any provision of the Insurance Code.

7.) Insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.

Cover note: Written memorandum of the most important terms of the preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issue of a formal policy, provided it is later determined that the applicant was insurable at the time it was given. 2 types of preliminary contracts of insurance:

1.) Preliminary contract of present insurance; and 2.) Preliminary executory contract.

Preliminary contract of present insurance: Insurer insures the subject matter usually by what is known as a “binding slip” or “binder” or “cover note” w/c is the contract to be effective until the formal policy is issued or the risk rejected. Preliminary executory contract of insurance: Insurer makes a contract to insure the subject matter at some subsequent time w/c may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely a right to demand the delivery of a policy in accordance w/ the terms agreed upon and the obligation assumed by the insurer is to deliver such policy. Grepalife v. CA: Binding deposit receipt is merely an acknowledgment of receipt of premium. It is merely conditional as the insurance co. may still approve or reject the application. It is not a temporary contract of life insurance. Grepalife had disapproved of the application and so the binding deposit receipt never came into force. Pacific Timber v. CA: Ins. co. refuses to pay since it claims that the cover note was null and void due to the issuance of the policy. Cover note is not a separate policy. It is integrated into the regular policies subsequently issued. If it were a separate policy, its purpose would be rendered



meaningless. Cover note was w/ consideration. No separate premiums required. Sec. 53. Insurance proceeds; to whom payable: The person in whose name or for whose benefit the policy was made. Exception: Sec. 12: Forfeiture of proceeds by life insurance beneficiary when he is principal, accomplice, or accessory in willfully bringing about the death of the insured, in w/c case, proceeds will go to nearest relative of insured. Art. 2127, CC: The security of a mortgage extends to the indemnity granted or owing the owner from the insurer. Bonifacio Bros. V. Mora: Insurance proceeds go directly to person in whose name policy made. the proceeds cannot go directly to the dudes who repaired the car in the absence of stipulation pour autrui in contract. Since the repairmen and autoparts shop have no privity of contract w/ the ins. co., they have no cause of axn. Coquia v. Fieldman’s Insurance: Where there is an express stipulation pour autrui (in event of driver, ins. co. will indemnify his personal representatives), enforcement of contract may be demanded by a 3rd party as they have a direct cause of action. Del Val v. Del Val: Del Val died intestate. His beneficiary was his son, Andres. Andres got the proceeds and redeemd parcels of land sold pacto de retro. Siblings say the proceeds should got to the estate. HELD: NO!!!! The proceeds of an insurance policy belong exclusively to the BENEFICIARY & not to the estate of the person whose life was insured, and that such proceeds are the separate & individual property of the beneficiary, and not of the heirs of the person whose life was insured.

RCBC v. CA: Goyu took out a loan from RCBC. He mortgaged his factories to RCBC. His factories were insured & he told the insurance agent to endorse policies to RCBS. Factories were struck by fire. Goyu claimed proceed. MICO refused on the ground that policies were attached & proceeds were claimed by other creditors of Goyu. HELD: RCBC won! Sec. 53 ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of Goyu's obligation w/ RCBC, the interest of Goyu in the policies had been TRANSFERRED to RCBC effective as of the time of the endorsement. There are other issues, but this is the one relevant to this Section. (I hope-rosa)

Sec. 54. Insurance contract w/ agent or trustee as insured: Fact that principal or beneficiary is the real party in interest may be indicated in policy. Insurance may be taken by a person:

1.) personally, or 2.) through his agent or trustee.

If taken thru’ agent or trustee, should indicate that he is merely acting in a representative capacity since insurance is to be applied exclusively to the interest of the person in whose name and for whose benefit it is made. Sec. 55. Policy terms should be made applicable to joint interest to render insurance effected by one partner or part owner applicable to co-partners or part owners Sec. 56. Who can claim policy benefits in case of a general description of insured: he who can show that it was intended to include him (that he is the person described; or that he belongs to the class of persons comprehended in the policy). Sec. 57. A policy can be framed to inure to the benefit of whomsoever becomes the owner of the interest insured San Miguel v. Law Union Rock: (supra) Since policy made out only in name of SMC and not framed to cover owner or his assignees, assignee/owner could not claim under the policy. Sec. 58. Transfer of thing insured does not automatically transfer policy; coverage suspended until owner of policy and owner of interest are one and the same San Miguel v. Law Union Rock: (supra) Transfer of ownership over property insured does not mean assignee can recover under policy on that property unless so stipulated (w/c it wasn’t). Sec. 59. A policy is either open, valued or running Sec. 60. What an open policy is: One in w/c the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. It is one in w/c a certain agreed sum is written on the face of the policy not as the value of the property insured, but as the maximum limit of the insurer’s liability. See Sec. 161: open policy rules in marine insurance; and Sec. 171: open policy rules in fire insurance. Dev. Ins. Corp. v. IAC: In an open policy, in event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company shall limited to the actual loss and in no case shall exceed the amount of the policy.



Sec. 61. What a valued policy is: One w/c expresses on its face an agreement that the thing insured shall be valued at a specified sum. It is one in w/c the parties expressly agree on the value of the subject matter of the insurance. See Sec. 156: Valued policy rules in marine insurance; and Sec. 157: Valued policy rules in fire insurance. Sec. 62. Meaning of a running policy (sometimes called floating, adjustable, blanket or declaration policy): One w/c contemplates successive insurances, and w/c provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements. This kind of policy is intended to provide indemnity for property w/c cannot well be covered by a valued policy because of its frequent change of location and quantity, or for property of such nature as not to admit of a gross valuation. It also denotes insurance w/c contemplates that the risk is shifting, fluctuating or varying, and w/c covers a class of property rather than any particular thing. Advantages of a running policy:

1.) The insured is neither underinsured nor overinsured at any time, the premium being based on the monthly wages reported;

2.) He avoids cancellations that would otherwise be necessary to keep insurance adjusted to the value of each location, and for w/c cancellations he would be charged the expensive short rate;

3.) He is saved the trouble of watching his insurance and the danger of being underinsured in spite of his care, thru’ oversight or mistake; and

4.) The rate is adjusted to 100% insurance. Sec. 63. Stipulations limiting commencement of an action to less than 1 year from the time cause of action accrues are void Sec. 231(d): Industrial life policy; Void if less than 6 years. Sec. 229: Industrial life insurance:

1.) Premiums payable monthly or oftener; 2.) Face amount not more than 500 times minimum wage in

the City of Manila; 3.) “industrial policy” printed on contract.

Art. 1144 & 1445, CC: If no period agreed upon, the action must be brought w/in 10 years (written contract) or 6 years (oral contract). You can stipulate a period when an action based on the insurance contract can be brought. In the absence of stipulation, the period is 10 years. However, if you do stipulate and you limit the period to less than one year, the stipulation is void. New Life Enterprises v. CA: Remember the case with the clarificatory letter. Also, the contract had a stipulation that an axn should be commenced within a year d cause of axn accrued.

HELD: The stipulation in the k was EQUAL to 1 year (to commence an axn), the prohibition is for LESS than 1 yr. Therefore, the stipulation was valid. The SC said that the 1 year should be reckoned from the 1st rejexn, NOT the rejexn after the denial of M4recon. Sec. 64. Cancellation of a policy (other than life) by the insurer to be effective requires prior notice and occurrence of enumerated conditions:

1.) Non-payment of premium; 2.) Conviction of a crime arising out of acts

increasing the hazard insured against; 3.) Discovery of fraud or material

misrepresentation; 4.) Discovery of willful/reckless acts/omissions

increasing the hazard insured against; 5.) Physical changes in the property insured w/c

result in the property becoming uninsurable; or 6.) A determination by the Commissioner that the

continuation of the policy would violate or would place the insurer in violation of this Code.

Cancellation: The right to rescind, abandon or cancel a contract of insurance. Non-payment of premium: refers to premiums subsequent to the first premium because the law speaks of non-payment after the effective date of the policy. Remember, if you do not pay the 1st policy, no policy is valid and binding. Therefore, the 1st premium is the condition precedent to the effectivity of the insurance. So any premium after the effective date of the policy must refer to the premiums after the 1st one has been paid. Sec. 79(b): (infra) Cancellation by insured implied. Compare with Sec. 66: (infra) non-renewal of non-life policy Rules in Compulsory Motor Vehicle Liability:

1.) Sec. 380: for written notice of cancellation of CTPL by insurer – written notice to LTO also needed 15 days prior to effectivity of cancellation.

2.) Sec. 381: for cancellation of CTPL policy by vehicle owner or operator – notice to LTO also needed plus replacement of CTPL policy or bond efore cancellation effective.

Sec. 65. Conditions for cancellation (by insurer) of policy (other than life):

1.) There must be prior notice of cancellation to the insured;

2.) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned in Sec. 64;

3.) The notice must be in writing, mailed or delivered to the insured at the address shown in the policy;

4.) It must state which of the grounds set forth in Sec. 64 is relied upon; and

5.) If so requested by the insured, it is the duty of the insurer to furnish the facts on which the cancellation is based.



Saura v. Phil International Co.: Notice of cancellation by insurer to m’ee alone is not effective as to m’or/ owner. There must be actual and personal notice. Malayan Insurance v. Arnaldo: Notice was not effectively made. No proof was presented that the notice was actually mailed to and received. A valid cancellation requires:

1.) Prior notice to insured; 2.) Notice must be based on grounds mentioned; 3.) Must be in writing, mailed or delivered to the

insured; 4.) Must state ground for cancellation.

Sec. 66. In non-life insurance, insured is entitled to renew contract by payment of premium unless notified by insurer 45 days prior to expiry date Title 7. Warranties Sec. 67. A warranty is express or implied Warranty: A statement or promise set forth in the policy itself or incorporated in it by proper reference, the untruth or non-fulfillment of w/c in any respect and w/o reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. Different kinds of warranty:

1.) Affirmative (Sec. 68); 2.) Promissory (Sec. 72); 3.) Express (Sec. 67); or 4.) Implied (Sec. 67).

Express warranty: An agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured stipulates that certain facts relating to the risk are or shall be true or certain acts relating to the same subjects have been or shall be done. Implied warranty: Warranty w/c from the very nature of the contract or from the general tenor of the words, altho’ no express warranty is mentioned, is necessarily embodied in the policy as part thereof and w/c binds the insured as tho’ expressed in the contract. Affirmative warranty: One w/c asserts the existence of a fact or condition at the time it is made. Promissory warranty: One where the insured stipulates that certain facts or conditions pertaining to the risk shall exist or that certain things w/ reference thereto shall be done or omitted. It is the nature of a condition subsequent. Sec. 68. A warranty may relate to the past, present or to the future, or any or all of them Sec. 69. No particular form of words necessary to create a warranty When insured stipulates something in the policy or even in the application form, it is not always a warranty. It depends on his intention. Sometimes a statement made by the insured is not

meant to be a warranty but a representation. In case of doubt, such statement is only considered a representation. Difference between a warranty and a representation:

Warranties Representations Considered parts of the contract.

Collateral inducements to the contract.

Always written on the face of the policy, actually or by reference.

May be written in a totally disconnected paper, or may even be oral.

Must be strictly complied w/. Substantial truth only required.

Falsity/non-fulfillment operates as a breach of contract.

Falsity renders policy void on the ground of fraud.

Presumed material. Insurer must show the materiality in order to defeat axn on policy.

Sec. 70. An express warranty must be in the policy itself or in another document signed by the insured and made part of the policy Ang Giok Chip v. Springfield Fire & Marine Ins.: It is well settled that a rider attached to a policy is a part of the contract, to the same extent and with like effect as if actually embodied therein. In the second place, an express warranty must appear upon the face of the policy, or be clearly incorporated therein and made a part thereof by explicit reference, or by words clearly evidencing such intention. Sec. 71. Express warranty: A statement in the policy relating to the person or thing insured, or to the risk as a fact Sec. 72. Promissory warranty: to do or not to do a thing that materially affects the risk An act or omission is material to the risk if it increases the risk. Under the law, only substantial increase of risk forfeits the policy. Sec. 73. Breach of warranty; effect: Avoids contract of insurance.

Exceptions: 1.) When loss occurs before time for

performance; 2.) When performance becomes unlawful; 3.) When performance becomes impossible.

Sec. 74. Violation of a material warranty or other material provision by either parties entitles other party to rescind Young v. Midland Textile Ins.: Even if (storage of firecrackers) not cause of the event insured against (fire), violation of warranty terminates the contract. Compliance with terms of contract is condition precedent to right of recovery. Sec. 75. If specifically stipulated, a violation of a specified provision shall avoid a policy, otherwise



a breach of immaterial provision does not avoid the policy Gen Insurance v. Ng Hua: Stipulation that failure to give notice that any other insurance was obtained would result in forfeiture of the benefits. The rebel didn’t give notice that he had insurance on the same goods w/ another co. Breach of warranty. Insurer entitled to rescind. Materiality of non-disclosure of other insurance policies is undoubted. Sec. 76. Breach of warranty, w/o fraud, exonerates insurer or prevents policy from attaching to risk depending on when breach occurred Breach of warranty…

1.) Without fraud: policy avoided only from time of the breach and hence, the insured is entitled to:

a.) a return of premiums paid at the pro rata rate from the time of the breach if it occurs after the inception of the contract; or

b.) to all the premiums if it is broken during the inception of the contract.

2.) With fraud: policy avoided ab initio and the insurer is not entitled to the return of the premium paid.

Title 8. Premium Sec. 77. Insurer entitled to premium from moment risk attached; policy binding only when premium paid; Exceptions (a life insurance policy where the grace period applies) Premium: The agreed price for assuming and carrying the risk. It is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. Assessment: A sum specifically levied by mutual insurance companies or associations, upon a fixed and definite plan, to pay losses and expenses. Difference between a premium and an assessment:

Premium Assessment Levied and paid to meet anticipated losses.

Collected to meet actual losses.

Payment of premium, after the 1st, is not enforceable against the insured.

Legally enforceable once levied.

Not a debt. Is a debt (if properly levied). Effect of non-payment of premiums: 1.) Non-payment of the 1st premium unless waived prevents the contract from becoming binding notwithstanding the acceptance of the application nor the issuance of the policy. But non-payment of the balance of the premium due does not produce the cancellation of the contract. 2.) Non-payment of subsequent premiums does not affect the validity of the contracts unless by express stipulation, it is provided that the policy in that event be suspended or shall lapse.

Secs. 227(a), 228(a), 230(a): In the case of life or endowment insurance, group life insurance and industrial life insurance, the policy holder is entitled to a grace period of 30 days. Sec. 78 (infra): acknowledgement of receipt of premium in policy is binding. Sec. 177: Surety bond premiums. Sec. 52 (supra): rules on cover notes. Sec. 306(2): delivery of policy to agent presumes authority to collect premium. Phil. Phoenix v. Woodworks #1: Partial payment, balance unpaid. No cancellation of contract. Contract had been perfected and partially performed. Can demand payment of balance. Phil. Phoenix v. Woodworks #2: No payment at all. Policy must be deemed to have lapsed. Valenzuela v. CA: Valenzuela, agent, is not liable for unpaid premiums. The policies having lapsed, there is no more contract or obligation. South Sea Surety v. CA: Agent, in receiving check for the insurance premium prior to the occurrence of the risk insured against, acted as agent holding the insurance co. liable. Delivery of policy to agent means he’s authorized to receive payment of any premium. Premiums paid to agent so co. liable for proceeds. Areola v. CA: Agent’s receipt is ins. co.’s receipt. Agent’s failure to remit not a defense, co. is liable for fraudulent acts of its employees. Tibay v. CA: Partial payment does not make contract valid, binding and enforceable. There was an express stipulation for payment of premium in full. Cannot collect on policy. UCPB v. Masagana Telamart: UCPB is in estoppel for having received 60-90 day credit term. Sec. 78. Legal fiction of payment of premium for purposes of making policy binding: Acknowledgment in policy of receipt of premium is conclusive evidence of payment for purpose of making policy binding. American Home Assurance v. CA: Check received as payment for renewal of policy and a renewal certificate delivered. Fire occurred. Official receipt for payment issued. There is valid payment of premium even if the check was encashed after the fire. Sec. 79. When insured entitled to return of premiums:

1.) When no part of thing insured has been exposed to any of the perils insured against (whole premium returned);

2.) When the insurance is for a definite period and



the insured surrenders his policy before termination thereof (such portion as corresponds w/ unexpired time, at a pro rata rate, returned).

Exceptions: a.) Short period rate agreed upon and appears

on face of policy (exception to pro rata rate). b.) Life insurance (exception to applicability of

this section). 3.) When the contract is voidable because of fraud or

misrepresentations of the insurer or his agent (Sec. 81 infra);

4.) When the contract is voidable because of the existence of facts of w/c the insurer was ignorant w/o his fault (Sec. 81 infra);

5.) When the insurer never incurred any liability under the policy because of default of the insured other than actual fraud (Sec. 81 infra);

6.) When there is overinsurance (Sec. 82 infra); 7.) When rescission is granted due to the insurer’s breach of

contract. Short period rate clause: A clause w/c appears in most fire insurance policies providing that in the event the policy is surrendered by the insured for cancellation, the company shall retain a premium for the time the policy has been in force. There is no right to recovery of premiums in life insurance because it is not a divisible contract. It is not an insurance for any single year, w/ a privilege of renewal from year to year by paying the annual premium. It is an entire contract of insurance for life subject to discontinuance and forfeiture for non-payment of any of the stipulated premiums. Grepalife v. CA: Late payment. Letter sent to insured saying policy not in force. Insurer must return premium. policy inoperative/ineffectual from the beginning. Co. never at risk and so not entitled to keep premium. Sec. 80. Insured not entitled to return of premiums when risk already attached and insurer liable for any period Makati Tuscany v. CA: Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid where the insurer was exposed to the risk for any period, however brief or momentary. Sec. 81. Insured entitled to return of premium when:

1.) Contract voidable due to insurer’s fault; or 2.) Insurer never incurred liability due to:

a.) Insured’s ignorance of facts or b.) Default other than fraud

Grepalife v. CA: (supra) Never at risk; not entitled to keep premiums. Sec. 82. Insured entitled to ratable return of premium in case of over-insurance.



Title 9. Loss Sec. 83. Agreement not to transfer claim after loss happened is void. Exception: Life insurance Limitation on the Transfer: Sec 173: Transfer of FIRE policy to agents of insurer is void if in fraud of creditors Rationale: Against public policy for it hinders the free transmission of property from one person to another. Why should the agreement be void when it is a personal contract? After loss has been suffered, it is no longer a personal contract which is being assigned but a money claim OR a right of action under the policy. There is no moral hazard because the insurer’s risk cannot be increased anymore since the loss has already occurred. Sec. 84. Insurer liable if peril insured against is proximate cause. Loss: Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortunes against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. Liability of Insurer for Loss: Depends on:

1.) Whether the insured suffers a loss; and 2.) The extent of the loss.

Insurer liable only for a loss PROXIMATELY caused by the perils insured against although a peril not insured against may have been the remote cause of the loss. Proximate cause: That which, in natural & continuous sequence, unbroken by any new independent cause, produces an event and without which the event would not have occurred. It is the efficient cause – one that sets others in motion – to which the loss is attributed, although other & incidental causes may be nearer in time to the result & operate more immediately in producing the loss. Proximate cause is NOT synonymous to immediate cause. Sec. 85. Insurer’s liability for loss:

1.) Loss from peril not insured against to which thing was exposed in rescuing it from peril insured against; and

2.) Loss caused by efforts to rescue thing insured from a peril insured against.

Insurer is liable when:

1.) Loss took place while being rescued from the peril insured against;

2.) Loss took place when, while in the course of rescue, thing is exposed to a peril not insured against, which permanently deprived the insured of possession of the thing;

3.) Loss is caused by efforts to rescue the thing insured from a peril insured against.

Sec. 86. Insurer liable for loss, the immediate cause of which was the peril insured against

unless the proximate cause was excepted in contract Even if the proximate cause is not the peril insured against, the insurer may still be held liable if the immediate cause is the peril insured against. 3 kinds of causes:

1.) Remote; 2.) Proximate; and 3.) Immediate

Sec. 87. Insurer not liable for loss caused by willful act or with connivance of insured; Insurer liable for negligence of insured Insurer is not liable for loss when:

1.) Loss was caused by willful act of insured; or 2.) Through the connivance of the insured.

Exception to the Rule:

Sec 180-A (Suicide Clause): Insurer liable if: 1.) Suicide committed AFTER 2 yrs from date of issue; or 2.) Committed anytime in state of insanity

Insurer is liable for negligence of insured. Contributory negligence on part of insured does NOT mitigate insurer’s liability. It has no application to insurance contracts. Title 10. Notice of Loss Sec. 88. In fire insurance, failure of insured/ assured to give notice of loss without unnecessary delay exonerates insurer Sec. 89. Preliminary proof of loss if required by policy need not be that required by a court of law; best evidence enough Condition that MUST be Complied with BEFORE loss occurs: Compliance with terms of the policy. The terms of the contract constitute the measure of the insurer’s liability & non-compliance therewith by the insured bars his right of recovery. Condition that MUST be Complied with AFTER loss occurs:

1.) Notice of loss must be given to insurer without delay (immediately given)

2.) When required by the policy, preliminary proof of loss (may be given later)

These requirements are NOT exclusive. Certificate of attending physician as part of proof of death is required in some life & accident policies. Notice of loss: More or less formal notice given by the insured or claimant under a policy of the occurrence of the loss insured against. Purpose: To apprise the insurance company with the occurrence of the loss, so that it may gather info & make proper investigation while evidence is still fresh & take such action as may be necessary to protect its interest. In property insurance, it prevents further loss to the property.



Effect if notice of loss not given: Insurer is exonerated. When notice of loss must be given: Without unnecessary delay; within reasonable time. Proof of loss: More or less formal evidence of the occurrence of loss given the company by the insured or claimant under a policy of the occurrence of the loss, the particulars thereof and the data necessary to enable the company to determine its liability and the amount thereof. Purpose:

1.) To give insurer info by which he may determine extent of his liability;

2.) To afford him a means of detecting any fraud that may have been practiced upon him;

3.) To operate as a check upon extravagant claims Form of notice and proof of loss: WALA! It may be given orally or in writing. However, its advisable to give it in writing for the protection of the insured or beneficiaries. Para its not your word against theirs. Sec. 90. Defects in notice or preliminary proof of loss waived if insurer omits to specify them as grounds of objections Sec 90 presupposes that notice of loss & proof of loss have already been given. It is the DUTY of the insurer to specify to the insured all defects in the notice of loss or in the preliminary proof as grounds for its objection without necessary delay. Otherwise, same shall be deemed WAIVED. There is waiver when the insurer:

1.) Writes to the insured that he considers the policy null & void so that furnishing of notice or proof of loss would be useless

2.) Recognizes his liability to pay claim 3.) Denies liability under the policy 4.) Joins in the proceedings for determining amt of loss by

arbitration without making objections to the notice & preliminary proof

5.) Makes no objections on any ground other than a formal defect in the preliminary proof

General statement that proof is defective is NOT sufficient. Insurer must specify what those defects are in order that insured may remedy them. Malayan Insurance v. Arnaldo: Malayan denied liability on ground that the certification issued by the Integrated National Police given by Pinca (insured) was not a persuasive proof of the amount of loss. Was notice given sufficient?

YES. Loss & its amount may be determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. The certification was sufficient. Failure of insurer to specify defects of proof & w/o unnecessary delay is deemed waiver of all objections to notice and proof of loss. Pacific Bank v. CA: Letters were sent as notice of loss but the subsequent required written notice and pertinent docs had not been submitted as per

the contract. Since the required claim together with the relevant docs which contains the necessary info to ascertain the amount of loss) had not been complied with, ins. co. cannot be deemed to have finally rejected insured’s claim and therefore, no cause of action had yet arisen. Compliance is a requirement sine qua non to right to maintain action as prior thereto no violation of petitioner’s right can be attributable to the ins. co. Before final rejection, there is no real necessity for bringing suit. Action was premature. Sec. 91. Delay in notice or proof of loss waived if caused by insurer or if he fails to object promptly 2 cases of waiver by the insurer of delay in presentation of notice or proof of loss:

1.) Delay is caused by an act of the insurer 2.) Insurer omits to take objection promptly & specifically

upon ground of delay Pacific Timber v. CA: No marine policy yet BUT cover note issued. Insured logs were lost. Pacific Timber immediately filed claim. Insurer requested an adjustment company to inspect & assess the loss BUT later denied the claim. Was notice given by Pacific Timber on time?

YES. The defense of delay raised by insurer cannot be sustained. The law requires that this ground of delay be promptly & specifically asserted when a claim on the insurance agreement is made. (1) Insurer had enough time to determine if Pacific was guilty of delay BUT failed to raise the issue. (2) Delay was never raised in the proceedings which took place with the Insurance Commissioner. Sec. 92. If required by policy as a preliminary proof of loss, the certificate or testimony of person other than insured satisfies it if insured used reasonable diligence to procure it; If person refuses to give it, then reasonable evidence to insurer enough provided refusal is not based on disbelief in facts Where the policy requires, by way of preliminary proof of loss, the certificate/testimony of a person other than the insured, the insured is merely required to exercise due diligence to procure it. If he fails to procure certificate BUT has exercised due diligence, he would be considered to have complied with the requirement. If the third person refuses: Insured must furnish reasonable evidence that the refusal was made NOT coz of disbelief on the part of the third person in the facts necessary to be certified BUT coz of other grounds. Title 11. Double Insurance Sec. 93. When double insurance exists:

1.) Person insured is the same;



2.) Interest insured is the same; 3.) Risk OR peril insured against is the same; 4.) Subject matter insured is the same; and 5.) Two or more insurers insure separately.

Double insurance is NOT the same as over insurance.

Double insurance Over insurance There may be no over insurance as when the sum total of the amts of the policies issued does not exceed the insurable interest of the insured.

Amount of insurance is beyond the insured’s insurable interest

Always Several insurers May only be one insurer involved

Stipulation in policy that double insurance is prohibited & violation of stipulation will result in avoidance of the policy is VALID and reasonable. Purpose of prohibition against double insurance: To prevent over insurance & thus avert the perpetration of fraud. The public & insurer are interested in preventing the situation in which a loss would be profitable to the insured. Reason for prohibition of over insurance: An insurance contract is strictly a contract of indemnity & the insured can’t profit. The hazard in this is that the insured may be tempted to cause the peril. Pioneer Ins. v. Yap: Yap took a fire insurance policy for his building from Pioneer Insurance which provided that notice shall be given to Pioneer of subsequently effected policies, otherwise, all benefits shall be forfeited. He procured another fire insurance policy for the same property with Federal Insurance WITHOUT notifying Pioneer. When the building burned down, Pioneer denied Yap’s claim for violation of the notice requirement. Is Pioneer free from liability?

YES. By plain terms of the policy, other insurance effected without the consent of Pioneer would ipso facto avoid the contract. PURPOSE: to prevent over-insurance & thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a loss would be profitable to the insured. Geagonia v. CA: Geagonia obtained a fire insurance policy over its stock-in-trade from Country Banker’s Insurance. The policy provided that (1) insurer be notified of other policies, otherwise, benefits shall be forfeited; (2) nullity shall only be to the extent exceeding P200T of the total policies obtained. Geagonia obtained a policy from Phil First Insurance without notice. He now filed a claim for P100T. Is Country Banker’s Insurance liable?

YES. #1 only refers to double insurance. There was no double insurance in this case coz the second insurance was procured by Geagonia’s creditor-mortgagee which has a distinct &

separate insurable interest. Non-discloure of the former policies were NOT fatal to Geagonia’s right to recover on the policy. Country Banker’s Insurance is also liable coz it was willing to assume the risk provided that the TOTAL insurance does not exceed P200T. Sec. 94. Consequences of over-insurance in case of double insurance:

1.) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for 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 any other policy without regard to 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 any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

5.) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

Sec 94 applies only when there is over-insurance by double insurance, that is, the insurance is contained in several policies & the total amount of which is in excess of the insurable interest of the insured. Example: P6M house. Insured with: X: P4M Y: P2M Z: P6M

1.) Insured can collect payment from each insurer in such order as he may select, up to the amount for which each is liable under its contract. e.g. XYorZ, YXorZ, OR Z only.

2.) If insured already collects P4M from X, he must credit against the valuation of P6M for P4M already received by him without regard to his actual loss. He may recover the difference of P2M from Y or Z or from both so long as he does NOT recover more than P2M. If the insured is fully indemnified for his loss by one insurer, he cannot file subsequent claims against the others.

3.) In case of an open or unvalued policy, ascertain the value of loss by showing proof of the amount & extent of loss then follow same steps. Just remember that the insured cannot collect more than the value of the loss.



4.) Insurer is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

Formula: Amount of policy x Loss = Liability of insurer

Total insurance

Pro-rata Contribution: X: P4M x P6M = P2M P12M Y: P2M x P6M = P1M P12M Z: P4M x P6M = P3M P12M

If the insured received P6M from Z, X & Y are liable to reimburse Z for their respective shares. However, if there is a pro-rata clause in the policy, where the insurer is liable only for his ratable proportion of the loss, the insured cannot exercise his right under the 1st policy & he may claim only such amt corresponding to his ratable proportion of the loss. If the insured collects more then the ratable liability of the insurer: The insured should hold the excess IN TRUST for the insurers. Formula to Pro-rate: EXCESS x pro-rata contribution (fraction) = Share of insurer from excess Title 12. Reinsurance Sec. 95. Reinsurance: contract whereby one party (reinsurer) agrees to indemnify another (reinsured/original insurer), either in whole or in part, against loss or liability which the latter (reinsured) may sustain or incur under a separate & original contract of insurance with a third party (original insured).

Difference between Reinsurance and Double insurance

Reinsurance Double Insurance Original insurer becomes an insured as far as the reinsurer is concerned

Original insurer remains an insurer

SUBJECT: original insurer’s risk

SUBJECT: Property

Insurance of different interest Insurance of SAME interest Original insured has no interest in the K of reinsurance which is independent of the original K of insurance

Insured is the party in interest in all the contract

Consent of original insured NOT necessary

Consent of original insured necessary

Reinsurance & surety risks shall be deducted in determining the risk retained.

To relieve the insurer from liability under an insurance contract, the insurer must reinsure the risk with a reinsurance company. Read with Sec. 215 – retention limits of non-life companies – not exceeding 20% of net worth on any one risk. 20% of net worth= MAX liability for ONE subject of insurance EXCEPT life insurance companies Read with Sec. 222 – life insurance company cannot reinsure whole risk on one life or all its insurance in force without consent of Ins. Commissioner

Reinsurance Policy Reinsurance Treaty contract of indemnity one insurer makes with another to protect the 1st insurer from a risk it has already assumed.

merely an agreement between two insurance companies whereby one agrees to cede & the other to accept reinsurance business pursuant to provisions specified in the treaty

Contracts OF insurance Contracts FOR insurance Philamlife v. Auditor General: Philamlife & Airco entered into a reinsurance treaty with Airco as reinsurer of Philamlife. Central Bank collected forex margin from the reinsurance premiums. Philamlife contends that it is not liable for the tax since pre-existing obligations were expressly exempt from margin fee. Is the reinsurance treaty a pre-existing obligation?

NO. Philamlife is liable to pay the forex margin. Payment of premium is NOT a pre-existing obligation. NOTHING in the treaty obligates Philamlife to remit to Airco a fixed & obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides is that Philamlife agrees to reinsure. The treaty speaks of a probability & not a reality. For without reinsurance, no premium is due. Sec. 96. Requirement when insurer obtains reinsurance: Communicate all

1.) Representations, 2.) Knowledge & 3.) Information

he possesses that are material to the risk Things that insurer-reinsured must communicate to the reinsurer:

1.) All the representations of the original insured; and

2.) All the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.

Exception: In case of automatic reinsurance treaty. Automatic reinsurance treaty: An agreement between 2 or more insurance companies that each will reinsure a part of any line of insurance taken by the other; such contract is self-executing and the obligation attaches automatically on acceptance of a risk by the reinsured. In this case, the obligation to communicate is not



necessary due to the self-executing and the automatic feature of such reinsurance treaty. Sec. 97. Reinsurance presumed indemnity contract against liability and not merely against damage Nature of reinsurance contract: Reinsurer agrees to indemnify insurer NOT against actual payment but against liabilities incurred. Thus, it is by no means necessary that the insurer shall first have paid a loss accruing, as a condition precedent to his demanding payment of the reinsurer. Reason: SM of contract is the INSURER’S RISK and NOT the property insured under the original policy. Sec. 98. Original insured (in insurance contract) has no interest in reinsurance contract Reinsurance contract: Contract between reinsured & reinsurer by which the later agrees to protect the former from risks already assumed. The insured, unless the contract so provides, has no concern with the contract of reinsurance & the reinsurer is NOT liable to the insured either as surety or otherwise. Liability of reinsurer to reinsured: Reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. e.g. reinsurer not liable if reinsured not liable to original insured. Reinsurer liable only to the extent that reinsured is liable. Liability of reinsurer to original insured:

1.) If the K is only between the insurer & reinsurer, contemplating only an indemnity to the insurer against losses suffered by reason of the policies carried by him the original insured has ABSOLUTELY no interest in the contract & is a total stranger to it.

2.) If the reinsurance contract contains a stipulation assigning the right of the insurer in favor of the insured, then the insured may go after the reinsurer as an assignee. But the insured-assignee will have no rights greater than that vested in the insurer-assignor.

3.) If the reinsurance K contains a provision whereby the reinsurer binds himself to pay the insured for any loss which the insurer may become obliged to pay under the original policy, then reinsurer becomes liable to a suit by the insured under the K of insurance. Insured may go against BOTH the insurer & reinsurer.

Artex Dev. Corp. v. Wellington Insurance: Wellington issued an insurance policy over the buildings, stocks, & machinery of Artex. Later, Wellington reinsured the risk with Alexander & Alexander. When fire gutted the insured properties, Wellington paid Artex BUT left an unpaid balance. Artex then manifested that since Wellington was undergoing financial difficulties, it should be allowed to go after Alexander & Alexander for the balance. Can Artex recover from Alexander (reinsurer)?

NO. Artex NOT being a party or privy to Wellington’s reinsurance contracts, could not directly demand enforcement of such reinsurance contracts.

UNLESS there is a specific grant in or assignment of the reinsurance contract in favor of the insured or a manifest intention of the contracting parties to the reinsurance K to grant such benefit to the insured, the insured NOT being privy to the reinsurance K, has NO CAUSE OF ACTION against the reinsurer. The stipulation pour autrui MUST be clearly expressed.

Artex’ right as insured to sue Wellington as insurer directly & solely should not be affected or curtailed in any way, by Wellington’s filing a third-party complaint or separate suit against its reinsurer. CHAPTER II – CLASSES OF INSURANCE Title 1. Marine Insurance Subtitle 1-A. Definition Sec. 99. Marine insurance includes:

1.) Insurance against loss of or damage to: a.) Vessels, craft, aircraft, disbursements,

profits, moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transshipment or reshipment incident thereto, including war risks, marine builder’s risks, and all personal property floater risks;

b.) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss or for damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of insurance;

c.) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise;

d.) Bridges, tunnels and other instrumentalities of transportation and communication; piers, wharves, docks and slips, and other aids of navigation and transportation;

2.) Marine protection and indemnity insurance, meaning insurance 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 inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.

2 major divisions of transportation insurance:



1.) Ocean marine insurance; and 2.) Inland marine insurance.

Scope of ocean marine insurance: Protection for:

1.) Ships or hulls; 2.) Goods or cargoes; 3.) Earning such as freight, passage money, commissions,

or profits; and 4.) Liability incurred by the owner or any party interested

in or responsible for the insured property by reason of maritime perils.

Perils of the sea: Casualties due to unusual violence OR extraordinary action of wind & wave OR to other extraordinary causes connected with navigation. Embraces all kinds of marine casualty such as shipwreck, foundering, stranding, collision & every specie of damage done to ship or goods at sea by violent action of the wind & waves or losses occasioned by jettisoning the cargo if it is made for the purpose of saving a vessel rendered unworthy during the voyage, NOT thru the fault of the captain. Not covered: Losses resulting from ordinary wear & tear OR other damage usually incident to the voyage are not included. Mere fact that the injury is due to the violence of some marine force does NOT necessarily bring it w/in the protection of the policy of such violence NOT unusual or unexpected. Perils of the ship: Loss which in the ordinary course of events, results

1.) From natural & inevitable action of the sea 2.) From wear & tear of the ship 3.) From negligent failure of the ship owner to provide

vessel with proper equipment to convey cargo under ordinary conditions (Go Tiaco v. Union Insurance Society of Canton)

The insurer does NOT undertake to insure against perils of the ship BUT only perils of the sea. Insured can hold insurer liable only for perils of the sea. For perils of the ship, the injured party must look to the ship owner for redress. For the insurer to be liable, perils of the sea must be the proximate cause of the loss. Scope of Inland Marine Insurance: Risk must involve an element of transportation. 4 classes of inland marine insurance:

1.) Property in transit: Insurance provides protection for property frequently exposed to loss while it is in transport from one location to another

2.) Bailee liability: Insurance provides protection to persons who have temporary custody of goods (carriers, laundrymen, warehousemen, & garage keepers)

3.) Fixed transportation property: Insurance covers bridges, tunnels, & other instrumentalities of transpo & communication. They are insured coz they are held to be an essential part of the transpo system.

4.) floater: Provides insurance to follow the insured property wherever it may be located, subject to territorial limits of the K. Floater policies may be issued for items like jewelry, fur, works of art, contractor’s equipment, theoretical property, salesmen samples & others. Although floaters are issued on the basis of the transportation or movement of good, they have also been issued to properties seldom moved.

Go Tiaco v. Union Insurance: Go Tiaco insured a cargo of rice with Union Insurance. The rice was damaged BUT Union Insurance refused to pay alleging that the ship was unseaworthy. Is Union Insurance liable?

NO. Seaworthiness as to the ship is different as to seaworthiness as to the cargo. In this case, the vessel may be seaworthy as to the ship BUT it is not seaworthy as to the cargo. The entrance of sea water into the ship’s hold thru the defective pipe already described was not due to any accident which happened during the voyage BUT to the failure of the ship’s owner to repair a defect the existence of which he was appraised. Filipino Merchants Ins. v. CA: Choa Tiek Seng is the consignee of a shipment of fishmeal insured by Filipino Merchants. When the shipment was damaged, Filipino Merchants refused to pay as the “all risks policy” excluded accidents. Is FM liable?

YES. FM failed to discharge the burden of proof that the cause of the loss was not an insured peril. Subtitle 1-B. Insurable Interest Sec. 100. Insurable interest of shipowner when ship chartered. Insurable interest of owner of the ship: On the vessel to the extent of its value. He continues to have insurable interest even if he mortgaged or chartered the vessel to a third person who agrees to pay him its value in case of loss. However, the insurer is only liable only for the part of the loss which the insured cannot recover from the charterer. insurable interest of owner of the ship IF CHARTERED: To the extent that he can’t recover from the charterer Sec. 101. Insurable interest of shipowner if hypothecated by bottomry: Excess of its value over amount of bottomry loan. Insurable interest of lender: To the extent of the loan. Loan on bottomry: Payable only if vessel is given as security for the loan completes in safety the contemplated voyage. Lender is entitled to high rate of interest to compensate him from the risk of losing his loan. Owner of the vessel receives in case of loss no indemnity BUT he does secure immunity from payment of the loan. Respondentia loan: Loan on goods Sec. 102. Meaning of freightage in marine insurance: ALL benefit which is to accrue to the owner of the vessel from its use in the voyage contemplated or the benefit derived from the employment of the ship Sources of freightage:

1.) Chartering of ship 2.) Employment of ship for carriage of owner’s goods



3.) Employment of ship for carriage of another’s goods Sec. 103. Insurable interest of shipowner in expected freightage: The shipowner has an insurable interest in expected 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. Sec. 104. When insurable interest in freightage of charter party exists: When the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods, it exists when:

1.) They are actually on board; or 2.) There is some contract for putting them on

board, and both the ship and goods are ready for the specified voyage.

Sec. 105. Insurable interest in profits. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits. To give an insurable interest in expected freightage, the insured must have an inchoate right to freight. He must be in such position with regard to freight that nothing could prevent him from ultimately having a perfect right to it but the intervention of the perils insured against. Sec. 106. Insurable interest of charterer of ship: To the extent that he is liable to be damnified by its loss. Insurable interest of a charterer:

1.) Value of ship IF charter stipulates charterer to pay ship’s value in case of loss

2.) Profit he expects to earn by carrying goods, in excess of the charter hired

3.) Up to the extent that he is liable to be damnified by its loss.

Different types of charter parties:

1.) Contracts of affreightment: use of shipping space on vessels leased by the ship owner in part or as a whole, to carry goods for others

a.) Time charter: vessel is leased to charterer for fixed period of time

b.) Voyage charter: ship is leased for a single voyage

2.) Charter by demise or bareboat charter: by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command & possession & consequent control over its navigation including the master & crew who are its servants

Subtitle 1-C. Concealment Sec. 107. What information (other than that required in section 28) each party in marine insurance is bound to communicate to the other: All the information he possesses, material to the risk, except such as is mentioned in Sec. 30, and to state the exact and whole truth in relation to all matters that he

represents, or upon inquiry discloses or assumes to disclose. Concealment: Failure to disclose any material fact or circumstance which in fact or law is within OR which ought to be within the knowledge of one party & for which the other has no actual of presumptive knowledge. Sec. 108. In marine insurance, info of belief or expectation of 3rd party with respect to a material fact is material In marine insurance, the rule is STRICTER coz the insured is bound to communicate to the insurer not only (1) facts BUT also (2) beliefs or opinions of 3rd persons OR (3) expectations of 3rd persons. Thus, there is concealment where the insured at the time of application for insurance did not disclose the opinion of marine experts who inspected the vessel insured that it was unseaworthy. Sec. 109. Presumption of knowledge of prior loss Sec 109 establishes a rebuttable presumption of knowledge of a prior loss on the part of the insured “if the info might possibly have reached him in the usual mode of transmission at the usual rate of communication. Reason: Quickness in transmission of news by means of modern communications Sec. 110. Concealment in marine insurance does not vitiate entire contract but merely exonerates insurer with respect to matters enumerated

1.) National character of the insured; 2.) Liability of the thing insured to capture and

detention; 3.) Liability to seizure from breach of foreign

laws of trade; 4.) Want of necessary documents; 5.) Use of false and simulated papers.

General Rule: Concealment of material fact entitles the injured party to rescind the entire contract of insurance. Exception: Under this Section, concealment of any of the matters enumerated does NOT avoid the policy ab initio. If the vessel is lost by any of the causes in 110 which was concealed, insurer is NOT liable. If vessel is lost by other perils of the sea like a storm, the insurer is liable. Subtitle 1-D. Representation Sec. 111. Marine insurer entitled to rescind contract if representation is intentionally false in any material aspect Compare with Sec. 45 where intent is not essential Sec. 112. Falsity of representation as to expectation in absence of fraud does not avoid contract



Effect of False Representation of FACT in Marine

Insurance: 1.) If made with FRAUDULENT intent: avoids policy 2.) NOT intentional BUT material: insurer may also

rescind Effect of Falsity of Representation as to EXPECTATIONS REPRESENTATIONS OF EXPECTATION: Statements of future facts or events which are in their nature contingent & which the insurer is bound to know that the insured could not have intended to state as known facts, but as intentions or expectations merely. MUST be made with fraudulent intent to be a ground for rescission. Examples:

1.) Vessel will sail or is expected to sail 2.) Nature of cargo to be shipped 3.) Amt of profits expected 4.) Destination of vessel 5.) Statement that the insured has no doubt that he can

get insurance effected for a certain premium Note: Fraudulent intent as ground for rescission is material only in marine policies. For other insurance contracts, intent is immaterial & the insurer has a right to rescind in case of misrepresentation or concealment. Subtitle 1-E. Implied Warranties Sec. 113. Seaworthiness of ship an implied warranty in marine insurance Warranty: Stipulation, either expressed or implied, forming part of the policy as to some fact, conditions, or circumstance relating to the risk. Implied Warranties:

1.) Seaworthiness at inception of voyage (Sec. 113); 2.) Carry proper documents if nationality expressly

warranted (Sec. 120); 3.) No improper deviation (Secs. 123-125); 4.) Not an illegal venture (Vance).

Madrigal v. Hanson: Isla Verde, owned by Madrigal, was chartered by Mabanta & insured by Hanson. The vessel sank. Hanson denies liability as the vessel was unseaworthy. Was the vessel not sea worthy, thus, making Hanson liable?

NO. The vessel was unseaworthy coz (1) no typhoon at time it sank; (2) waves were not rough; (3) launch did not touch bottom or hit anything during her cruise; (4) water was bubbling in the engine room. Unseaworthiness of the vessel, thus, precludes recovery. Roque v. IAC: Roque insured its logs with Pioneer Insurance. The logs were loaded on Mla Bay Lighterage Corporation’s barge which sank. Pioneer Insurance denied liability as the ship was not seaworthy. Was the ship seaworthy?

NO. Seaworthiness as to the ship is different as to seaworthiness as to the cargo. In this case, the vessel was seaworthy as to the ship BUT NOT seaworthy as to the cargo.

Cargo can be the subject of marine insurance & once it is contracted, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, w/r he be the owner or not. Cargo owner has the obligation to choose a common carrier that takes care of its ships. While the cargo owner has no control over the ship itself & its seaworthiness, he has control over the choice of shipping company to use.

The cause of the loss was perils of the ship & NOT perils of the sea. An insurer is only liable for perils of the sea. Sec. 114. Meaning of seaworthiness: Reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy. Sec. 115. Seaworthiness satisfied if ship seaworthy at start of voyage; Exceptions:

1.) In the case of a time policy: The ship must be seaworthy at the commencement of EVERY voyage she may undertake;

2.) In the case of cargo policy: each vessel upon which the cargo is shipped or transshipped must be seaworthy at the commencement of EAC PARTICULAR voyage;

3.) In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of EACH PORTION.

Sec. 116. Seaworthiness of ship means it must be properly laden and refers not only to body of vessel but also to crew and equipment Sec. 117. Where different portions of voyage are contemplated in the policy, a ship must be seaworthy at start of every portion Sec. 118. Unseaworthiness during the voyage must be attended to by shipowner or captain without reasonable delay, otherwise insurer exonerated from loss Sec. 119. Seaworthiness of vessel for hull insurance is not necessarily seaworthiness for purposes of cargo insurance Seaworthiness: Relative term depending upon the nature of the ship, the voyage, and the service in which she is at the time engaged. Nature of ship: Vessel must be in a fit state as to:

1.) Repair 2.) Equipment 3.) Crew 4.) All other respects to perform the voyage insured & to

encounter the ordinary perils of navigation 5.) Suitable condition to carry the cargo to be put on

board or intended to be put on board 6.) NOT necessary that cargo itself shall be seaworthy



Nature of the voyage: What is reasonable fitness to encounter perils expected to arise in the curse of the voyage vary naturally with the character of the voyage. Nature of service: Reasonably capable of safely carrying the cargo to its port of destination. Seaworthiness does not mean you need to have a perfect vessel. Only that which is sufficient for the kind of vessels insured & the service in which they are employed. Compliance of Seaworthiness:

General Rule: Complied with if the ship be seaworthy at time of commencement of the risk. Prior or subsequent seaworthiness is not a breach of the warranty; nor is it material that the vessel arrives in safety at the end of her voyage. There is no implied warranty that the vessel will remain in seaworthy condition throughout the life of the policy.

Exceptions: 1.) TIME POLICY: seaworthy at commencement of EVERY

voyage she may undertake 2.) CARGO POLICY: seaworthy at commencement of

EACH PARTICULAR VOYAGE 3.) VOYAGE POLICY: contemplating a voyage in different

stages, seaworthy at commencement of EACH PORTION.

Scope of Seaworthiness:

1.) Vessel: a.) Equipment & appliances appropriate to

voyage in which it is engaged & cargo it carries

b.) Sufficient fuel, stores, & provisions to last for the entire voyage

c.) Sufficient number of competent officers & men

d.) Properly loaded, stowed, dunnaged, & secured so as not to imperil navigation of vessel OR cause injury to vessel or cargo

Ship becomes unseaworthy during voyage: Duty of the master as the ship owner’s representative to exercise due diligence to make it seaworthy again & if LOSS should occur coz of negligence in repairing the defect, the insurer is relieved of liability. Philamgen v. CA: Coca cola loaded bottles on MV Asilda owned by Felman. Shipment insured by Philamgen. Vessel sank. Unseaworthy as to cargo. Top-heavy. Carrying deck cargo raises presumption of unseaworthiness. Sec. 120. Express warranty on nationality or neutrality of vessel implies requisite documents are carried on board (Implied warranty to carry required documents) If you EXPRESSLY WARRANT the nationality or neutrality of the ship or cargo, you impliedly warrant that you will carry the documents showing or proving such nationality or neutrality. Subtitle 1-F. The Voyage & Deviation

Sec. 121. Voyage contemplated by marine insurance policy with points of departure and ending refers to route fixed by mercantile usage Sec. 122. If sailing route is not fixed by mercantile usage, the voyage insured is that to which a master of ordinary skill and discretion would be most natural, direct and advantageous Sec. 123. Deviation is:

1.) A departure from the course of the voyage 2.) Unreasonable delay in pursuing voyage 3.) The commencement of an entirely different

voyage Deviation: Unexcused departure from the regular course or route of the insured voyage OR any other act which substantially alters the risk 4 cases of deviation:

1.) Departure from course of sailing fixed by mercantile usage

2.) NOT FIXED BY MERCANTILE USAGE: departure from most natural, direct, & advantageous route

3.) Unreasonable delay in pursuing voyage 4.) Commencement of entirely different voyage

In case of proper deviation, the effect is as if there was no deviation at all. Hence, it is not that the insurer is exonerated from liability, BUT that the INSURER WAS NEVER LIABLE. Sec. 124. Instances when deviation is proper:

1.) When caused by circumstances over which neither the master nor the owner of the ship has any control;

2.) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;

3.) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid peril; or

4.) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.

Sec. 125. Deviation not specified in Sec. 124 is improper Sec. 126. Insurer not liable if loss occurred after an improper deviation

Kinds of deviation: 1.) Proper deviation; 2.) Improper deviation.

Effect of improper deviation: Insurer becomes immediately absolved from further liability under the policy for losses occurring SUBSEQUENT to (NOT before!) the deviation, notwithstanding the fact that the deviation did not increase the risk not in any wise contribute to the loss.



Subtitle 1-G. Loss Sec. 127. Loss is either total or partial Sec. 128. When loss not total, it is partial Sec. 129. Total loss is either actual or constructive Sec. 130. Actual loss and causes thereof Kinds of losses:

1.) Total a.) Actual b.) Constructive

2.) Partial Effect of total loss: Underwriter is liable for the WHOLE AMOUNT INSURED Actual Total Loss: SM of insurance is wholly destroyed or lost or when it is so damaged as no longer to exist in its original character. Complete physical destruction is not essential to constitute actual total loss. Causes:

1.) Total destruction of the thing insured 2.) The irretrievable loss of the thing by sinking OR by

being broken up 3.) Any damage to the thing which renders it valueless to

the owner for the PURPOSE for which he held it 4.) Any other event which effectively deprives the owner

of the possession, at the port of destination, of the thing insured.

PMC v. Union Insurance: PMC was the owner of a lighter. Union Ins. issued it a policy for absolute total loss of the lighter. Typhoon, it sunk, salvaged, cost of repairs = cost of ship. Union Ins. refuses to pay saying that hindi sya absolute total loss since they salvaged the wreck and put it back into operation. Hello?!! Syempre absolute total loss sya. Nag-sink nga yung ship, eh! PMC had to spend more than the original cost of the vessel when repairing it. Union Ins. must pay up. Malayan v. CA: TKC Mktg insured its soya bean meal with Malayan Ins. Co. While docked in Durban, South Africa, shipment arrested and detained. Malayan liable for loss. “Arrest” caused by ordinary judicial process included among the covered risks. There was a constructive total loss over the cargo. Sec. 131. Constructive total loss or “technical total loss” is one which gives insured the right to abandon under Sec. 139 Constructive total loss: One in which the loss, although not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as a total loss by abandonment.

In cases of actual total loss, no abandonment is necessary, but if the loss is merely constructively total, an abandonment becomes necessary in order to recover as for a total loss. Sec. 132. Presumption of actual loss arises from continued absence of ship without being heard from; length of time depends on circumstances Presumption: Where a vessel is not heard of at all within a reasonable time after sailing, or for a reasonable time after she was last seen, she will be presumed to have been lost from a peril insured against. Sec. 133. Liability of insurer continues during reshipment if ship is prevented from completing voyage by a peril insured against Type of insurance contemplated under 133: Cargo. It is well-settled that if the original ship be disabled, and the master. Acting with wise discretion forwards the cargo in another ship, such necessary and justifiable change of ship will not discharge the underwriter on the goods from liability for any loss which may take place on goods subsequent to such reshipment. In any case however, the insurer may always require an additional premium if the hazard is increased by the extension of liability. Sec. 134. Marine insurer also liable for damages, expenses for discharging, storage, reshipment, extra freightage and other expenses in saving cargo reshipped – but only up to amount insured Expenses contemplated in 134: Those necessary to complete the transportation of cargo reshipped under Sec. 133. The insurer is liable for them in addition to paying for any loss or damage which may take lace on the goods, due to the perils insured against. The liability however of the insurer under Sec. 134 cannot exceed the amount of the insurance. Sec. 135. Insured entitled to payment in actual total loss; no need of abandonment In case of actual total loss, the right of the insured to claim the whole insurance is absolute. Hence, he need not give notice of abandonment nor formally abandon to the insurer anything that may remain of the insured property. Pan Malayan Ins. v. CA: FAO transported its rice seeds to Vietnam. Barge sank in the China Sea. Some bags of seed were recovered. Still an absolute total loss. All bags were rendered valueless for their purposes since when they got wet, they started to germinate. Since absolute total loss, no need for notice of abandonment. Sec. 136. Free from particular average (FPA) coverage does not cover particular or simple average losses



unless loss is total; but insurer liable for general or gross average loss Average: Any extraordinary or accidental 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 commenced, until it ends and the cargo is unloaded (Art. 806, Code of Commerce) Kinds of Average:

1.) Gross or general average: Include damages and expenses which are 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 or known risk. A general average loss must be borne equally by all of the interests concerned in the venture (Sec. 812, Code of Commerce).

2.) Simple or particular averages: Includes all damages and expenses caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and cargo. They refer to those losses which occur under such circumstances as do not entitle the owners to receive contribution from other owners concerned in the venture. It is suffered by and borne alone by the owner of the cargo or of the vessel, as the case may be (Sec. 808, Code of Commerce).

Principle behind general average: Principle of customary law, independent of contract, whereby when it is decided by the master of a vessel, acting for all the interests concerned, to sacrifice any part of a venture exposed to a common and imminent peril in order to save the rest, the interests so saved are compelled to contribute ratably to the owner of the interest sacrificed, so that the cost of the sacrifice shall fall equally upon all. Requisites to the right to claim general average contribution:

1.) There must be a common danger to the vessel or cargo;

2.) Part of the vessel or cargo was sacrificed deliberately;

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;

5.) It mustn’t be caused by any fault of the party asking for contribution;

6.) It must be successful, i.e. it resulted in the saving of the vessel and/or the cargo; and

7.) It must be necessary. Example: Jettisoning of goods to lighten the vessel. Jettison: Intentional casting overboard of any part of a venture exposed to a peril in the hope of saving the rest of the venture. Liability of insurer for general average: His proportion. He is placed on same footing as other persons who have an interest in the vessel, or the cargo therein, at the time of the occurrence of the general average and who are compelled to contribute.

Formula for computing liability of insurer: Loss x Amount insured = Contribution Value Liability of insurer for particular average: If the parties stipulate that the insurer will be liable for “general average only” he will not be liable for particular average unless such particular average loss has the effect of depriving the insured of the possession at the port of destination of the whole of the thing insured. Sec. 137. Insurance covering actual total loss does not include constructive total loss. However, it includes deprivation of possession of thing insured at port of destination Subtitle 1-H. Abandonment Sec. 138. Abandonment is act of insured after a constructive total loss in relinquishing to insurer his interest in thing insured Abandonment: The act of an insured in notifying the insurer that owing to damage done to the subject of the insurance, he elects to take the amount of insurance in the place of the subject thereof, the remnant of which he cedes to the insurer. Requisites for a valid abandonment:

1.) There must be an actual relinquishment by the person insured of his interest in the thing insured.

2.) There must be a constructive total loss. 3.) The abandonment is neither partial nor conditional. 4.) The abandonment must be made within a reasonable

time after receipt of reliable information of the loss. 5.) It must be factual. 6.) It must be by giving notice thereof to the insurer

which may be done orally or in writing. 7.) The notice of abandonment must be explicit and must

specify the particular cause of the abandonment. Sec. 139. Abandonment may be done when more than ¾ of value will be suffered by insured to recover thing insured or its equivalent When the insured may abandon the thing insured: When the loss or damage is more than three-fourths of its value. Rule when the insurance is divisible: Any particular portion of the thing insured separately valued by the policy may be separately abandoned as it is deemed separately insured. See also Sec. 146 for consequences of abandonment Oriental Assurance Corp. v. CA: Logs insured for total loss only. They were loaded onto 2 barges. 1 of the barges was damaged due to rough seas and strong winds and so most of the logs on that barge were lost. Was there constructive total loss? NO. Contract indivisible. No Constructive loss. The logs, although placed on 2 different barges, were not separately valued by the policy, nor separately insured. The logs having been insured as one inseparable unit, the correct basis for



determining the existence of constructive total loss is the totality of the shipment of logs. 2/3 requirement not met. Pan Malayan Ins. v. CA: Barge on which FAO rice seed on the way to Vietnam was sank in China Sea. Total loss due to germination. No need to go into issue of validity of abandonment since in actual total loss, a person is entitled to payment without notice of abandonment. Sec. 140. Abandonment must not be partial nor conditional The abandonment must be entire and absolute and cover the whole interest insured. It must be unconditional and unfettered by contingencies and limitations. Sec. 141. Abandonment must be made within reasonable time from receipt of information of loss When abandonment must be made: When the insured has received notice of a loss, he must elect within a reasonable time whether he will abandon to the insurer, and if he so elects, he must give notice thereof within a reasonable time. This is in order that the insurer may not be prejudiced by the delay, and may take immediate steps for the preservation of such property insured as may remain in existence. Sec. 142. If basis for abandonment is incorrect then it is ineffectual When the loss must exist: At the time of abandonment. When abandonment is ineffectual:

1.) When the information upon which an abandonment has been made proves incorrect; and

2.) When the thing insured was so far restored when the abandonment was made that there was in fact no total loss.

Information required in order for the insured to abandon: Need not be direct or positive. A newspaper report, a letter from an agent or a notice from the master is sufficient. As long as the information is of facts and circumstances that renders it highly probable that a constructive loss has occurred, that is enough. Sec. 143. Notice of abandonment to insurer may be oral or written, if oral, written notice must be submitted within 7 days Form of notice: Written or oral. But if oral, must give written notice within 7 days. It need not be made by insured himself. Can be made by an authorized agent. Sec. 144. Notice of abandonment must be explicit, specifying particular cause; Probable cause not enough, no need of proof of interest or loss

Sec. 145. Abandonment sustained only upon specified cause in notice Meaning: If the cause you specified in the notice is non-existent, you will not be allowed to adduce evidence to prove other causes for abandonment which you did not so specify. Sec. 146. Abandonment equivalent to transfer of interest from insured to insurer Effect of valid abandonment: It transfers to the underwriter the interests in the subject matter covered by the policy subject to the rights and interests, if any, of third persons. The underwriter acquires thereby the entire interest insured, together with all its incidents, including rights of action which the insured has against third persons for injury. In other words, the insurer becomes entitled to all the rights which the insured possessed in the thing insured. Sec. 147. If marine insurer pays for loss as if actual total loss, the he is entitled to remainder of thing insured, proceeds, or salvage as if abandoned When formal abandonment necessary: Only in constructive loss. Situation contemplated by this article: There is a constructive loss but without waiting for a formal abandonment, the insurer (magnanimously) pays the insured as if the loss were actual and total. The law then steps in and says that since the insurer paid and the insured accepted, we will consider that as an offer and acceptance of abandonment. Hence, from that time on, the insurer is entitled to whatever may remain of the thing insured, or its proceeds or salvage. Sec. 148. Upon abandonment, acts done in good faith by agents of insured after loss are at risk of insurer and for his benefit (agent of the insured becomes agent of the insurer. The captain or master of the ship continues to be the agent of the insured until abandonment, but from the moment of a valid abandonment, the master of the vessel and the agents of the insured become the agents of the underwriter, and the underwriter becomes responsible for all their acts in connection with the insured property and for all the expenses and liabilities in respect thereto. The abandonment when made relates back to the time of the loss and of effectual, the title of the underwriter becomes vested as of that date and he is responsible for the reasonable expenses incurred by the master after the date in an attempt to save the vessel. The insurer is likewise liable for the wages of the seamen earned subsequent to the loss. Sec. 149. When notice of abandonment is properly given, insured is not prejudiced by insurer’s refusal to accept it Effect on the insured’s rights if the insurer refuses to accept the abandonment: Acceptance is in no case necessary if the abandonment is properly made. In this



case, the insured’s right cannot be prejudiced by the refusal of the insurer to accept. Sec. 150. Acceptance of abandonment is express, or implied from insurer’s conduct. Mere silence of insurer for an unreasonable length of time after notice deemed acceptance Form of abandonment: Any. It may be express or implied from the acts of the insurer. The silence must be for an unreasonable length of time. Sec. 151. Express or implied acceptance of an abandonment is conclusive between parties, admits loss and sufficiency of abandonment Sec. 152. Abandonment is irrevocable unless ground is unfounded Effect of acceptance of abandonment:

1.) Insurer becomes at once liable for the whole amount of the insurance;

2.) Insurer becomes entitled to all rights which the insured possessed in the thing insured;

3.) Fixes the rights of the parties. It is conclusive upon them and is irrevocable.

Therefore, the acceptance of an abandonment estops the underwriter from relying on any insufficiency in the form, time or right of abandonment. Except: when the ground upon which the abandonment is made proves to be unfounded. Sec. 153. In an accepted abandonment of ship, freightage before loss belongs to insurer of freightage; freightage after belongs to insurer of ship Right to freightage of insurer of ship: When abandonment is validly made, the interest of the insured in the thing covered passes to the insurer. The insurer of the ship becomes the owner thereof after an abandonment, and his title becomes vested as of the time of the loss. Hence, freightage earned subsequent to the loss belongs to the insurer of the ship. Right to freightage of insurer of freightage: The insurer of the freightage is subrogated to the rights of the insured at the time of the loss hence any freightage earned previous to the time of loss rightfully belongs to him. Sec. 154. If insurer refuses to accept valid abandonment, he is liable for actual total loss less proceeds from thing insured in hands of insured Effect on the insurer’s liability if he refuses to accept valid abandonment: He is liable as upon an actual loss less any proceeds the insured may have received on account of the damaged property as when the insured succeeds in selling the property as damaged. Formula: Liability of insurer = Actual loss – Any Proceeds Received by

the Insured.

If abandonment was improper, the insured may nevertheless recover to the extent of the damage proved. Sec. 155. If insured does not abandon, he can recover actual loss Effect of insured’s failure to abandon: The insured has an election to abandon or not, and he cannot be compelled to abandon although abandonment is proper. He may await the final event, and recover accordingly for a total or partial loss, as the case may be. Subtitle 1-I. Measure of Indemnity Sec. 156. Valuation in an marine policy (valued policy) is conclusive between parties; exception: hypothecation by bottomry or respondentia before insurance; fraudulent valuation entitles insurer to rescind Object of valuation: It may happen that when a vessel is insured for a long time or for a long voyage, her value at the end of the voyage may not be the same as at the beginning. Hence, we resort to valuation in order to fix in advance the value of the property ands thus, avoid the necessity of proving its actual value in case of loss. Insured value: That stated in the policy. It is conclusive upon the parties provided that the insured has some interest at risk, and there is no fraud on his part. In case of fraud on part of insured in stating the value: Insurer may rescind the contract. In a valued marine policy, when the thing insured is lost, neither party is permitted to give evidence of the real value of the thing. Reason: There was already a conclusive value given to it by the parties in the policy. Exception: If the thing has been hypothecated by bottomry or respondentia before it was insured, and such hypothecation is WITHOUT the knowledge of the person who procured the insurance, the real value of the thing MAY BE SHOWN by the insurer. See Sec. 161 for marine open policies Sec. 157. In a marine policy in case of partial loss the insurer is liable only for a proportion of the amount insured as it bears to the interest insured (principle of co-insurance) Meaning: In every marine insurance, the insured is expected to cover by insurance the full value of the property insured. However, there are instances when people insure for less than their interest. So if the value of the insured’s interest exceeds the amount of insurance, the insured is considered a co-insurer for an amount determined by the difference between the insurance taken out and the value of the property. Formula: Partial Loss x Amt of = Amt of Value of thing insured Insurance Recovery



Circumstances in which Section 157 will apply:

1.) Loss is partial; and 2.) Amount of insurance is less than the insured’s entire

insurable interest in the property insured Compare with Sec. 172 (fire insurance) – no co-insurance in fire insurance unless stipulated Sec. 158. Where profits are separately insured, the insured is entitled to a proportion of profits lost, equivalent to proportion of property lost bears to value of whole Formula: Value of Property lost x Amt of = Amt of Value of whole property insured Profits Recovery Sec. 159. In a valued marine policy of freightage or cargo, if part of subject is exposed to risk, valuation applies in proportion to such part Meaning: When cargo is insured under a valued policy but only a portion of the cargo is actually carried by the vessel at the time of loss, the valuation will be reduced proportionately. The insurer is bound to return such portion of the premium as corresponds with the portion of the cargo which had not been exposed to the risk. Sec. 160. When profits valued, loss is conclusively presumed from loss of property from which they arise and valuation fixes their amount Meaning: If the property is totally lost, then consequently, the total profits are also lost. Such loss of profits are conclusively presumed from the loss of the property and the valuation agreed upon in the policy fixes the amount of recovery. Sec. 161. Rules in estimating loss in a marine open policy regarding values of:

1.) Ship – Value at the beginning of the risk. 2.) Cargo – Its actual cost to the insured, when

laden on board, or where that cost cannot be ascertained, its market value at the time and place of lading.

3.) Freightage – Gross freightage, exclusive of primage, without reference to the cost of earning it.

4.) Cost of insurance added to value estimated In determining the loss under an open policy of marine insurance, the real value of the thing insured must be proved by the insured in each case. Section 161 lays down the rules in ascertaining the value to be used for indemnity purposes. Sec. 162. Rule when cargo insured against partial loss arrives in damaged condition; loss is deemed in same proportion as market price of damaged goods bears to market price of goods in sound condition in port of destination

Section 162 applies if: 1.) The cargo is insured against partial loss; and 2.) It suffers damage as a result of which its market value at the port of destination is reduced. Formula: Market price _ Market price = Depreciation In sound state in damaged state Depreciation x Amt of = Amt of Market price in sound state Insurance Recovery Sec. 163. Sue and Labor Clause (if stipulated): Insurer liable for expense incurred by insured in recovering the property in addition to total loss if it occurs later As a general rule, a marine insurer is not liable for more than the amount of the policy. Under Section 163, however, expenses incurred in repairing damages suffered by a vessel because of perils insured against and expenses incurred for saving the vessel from such perils are items to be borne by the insurer in addition to a total loss if that afterwards takes place. Such expenses are known as Port of Refuge Expenses. Sec. 164. Marine insurer liable for general average loss contribution in proportion to what insured value bears to contributing value of thing insured See also Arts. 811-812, Code of Commerce (rules on general average loss) Jarque v. Smith Bell: Jarque owned the motorboat Pandan which he insured with Nat’l Union Fire Ins. Co. for absolute total loss only. Due to very heavy sea, they had to jettison cargo. Ins. co. liable to contribute? YES. Liability for contribution in general average is not based on express terms of policy, but rests upon the theory that from the relation of the parties and for their benefit, a quasi-contract is implied by law. Art. 859 of Code of Commerce is mandatory. Insurers are bound to contribute to indemnity of the general average. This simply places the insurer on the same footing as other persons who have an interest in the vessel, or the cargo therein. The jettison was as much to the benefit of the underwriter as to the owner, if jettison had not taken place and the ship foundered, insurer would have had to pay a lot more money. Sec. 165. Marine insurer is liable for general average loss and is subrogated to insured’s right to general average contribution, but shall not be liable

1.) When insurer is made liable after separation of interests liable to contribution;

2.) When insured neglected or waived the right to demand contribution from others



Rights of the insured in case of general average: The insurer is liable for any general average loss where it is payable or has been paid by the insured in consequence of a peril insured against. The insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution, or demand contribution from the other interested parties as soon as the vessel arrives at her destination. In other words, the insured need not wait for an adjustment of the average. There can be no recovery for general average against the insurer:

1.) After the separation of the interests liable to contribution, or rather, after the cargo liable for contribution has been removed from the vessel; or

2.) When the insured has neglected or waived his right to contribution.

Limit as to the liability of the insurer: It is limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. In other words, the liability of the insurer shall be less than the proportion of the general average loss assessed upon the thing insured where its contributing value is more than the amount of the insurance. In such case, the insured is liable to contribute ratably with the insurer to the indemnity of the general average. Formula: Amount of insurance x Proportion of gen. = Limit of Value of thing insured ave. loss assessed liability of upon thing insured insurer See Art. 2207, Civil Code – Insurer subrogated to rights of the insured against wrongdoers Sec. 166. Partial loss of ship or equipment – old materials to be applied to payment of new. Unless stipulated, marine insurer liable for only 2/3 of remaining costs of repairs but anchors to be paid in full Liability of the insurer in case of partial loss of the ship or its equipment: 2/3 cost of repairs. “1/3 new for old” on the theory that the new materials render the ship more valuable than it was before the loss. Title 2. Fire Insurance Sec. 167. Fire insurance includes insurance against fire, lightning, windstorm, tornado, earthquake & other allied risks if these are stipulated in fire policies or in separate policies Fire insurance: A contract of indemnity by which the insurer for a consideration, agrees to indemnify the insured against the loss of or damage to, a property by fire. As used in this Code, it includes loss also by:

1.) Lightning; 2.) Windstorm; 3.) Tornado; 4.) Earthquake; and 5.) Other allied risks.

But only when such risks are covered by extension to fire insurance policies or under separate policies, subject to the payment additional premiums. Nature of fire insurance: Contract of indemnity. Indemnity is its sole purpose and any contract that contemplates a possible gain to the insured by the happening of the event upon which the liability becomes fixed is contrary to the proper nature of insurance and is not allowed. Risks or losses covered: In determining whether a risk or cause of loss is written, the scope and coverage of a fire insurance policy and the intention of the parties, as indicated by their contract controls. Fire insurance policies now frequently contain extended coverage provisions bringing certain additional risks, or all other risks not excluded within the coverage of this policy. In some policies, damage or loss by explosion, lightning, earthquake or riot may be expressly insured against in addition to that caused by fire. They may also extend the coverage to indirect or inconsequential losses. Kinds of indirect/consequential losses:

1.) Physical damage – caused to other property which is not covered by the basic insurance policy.

2.) Loss of earnings due to the interruption of business by damage to insured’s property.

3.) Extra expense or additional expenditure or charges incurred by the insured following damage or destruction of buildings or contents by an insured peril.

Sec. 168. Change within control of insured, in use or condition of thing insured, without consent of insurer increasing the risk entitles insurer to rescind Sec. 169. Change which does not increase risk does not affect contract Requisites for insurer to rescind in case of alteration:

1.) The use or condition of the thing is specifically limited or stipulated in the policy;

2.) Such use or condition as limited by the policy is altered;

3.) The alteration is made without the consent of the insurer;

4.) The alteration is made by means within the control of the insured; and

5.) The alteration increases the risk. Alterations which avoid the policy: Any alteration in the use or condition of the property insured which increase the risk. Alterations which do not avoid the policy:

1.) Building insured used in a different way but which is not of a dangerous character and does not differ materially from the use specified in the policy; or

2.) Prohibited articles are necessary or ordinarily used in the business conducted in the insured premises; or

3.) The making of repairs, painting and other acts of similar character on the thing insured.

Sec. 170. Act of insured increasing risk and is cause of loss but which does not violate fire policy provisions does not affect fire policy Sec. 171. If no valuation in policy (open policy), measure of indemnity is replacement cost; if there is



valuation (valued policy), same rule as in marine insurance (conclusive between parties) Sec. 172. If insured desires valuation in a fire policy – an independent appraiser may be hired by insured at his expense & value can then be fixed between him and insurer and a clause then stipulated mentioning value. Value stated is maximum of insurer’s liability. Full amount of partial loss is payable. Parties can also stipulate that repair, replacement or rebuilding of buildings be done Measure of indemnity under an open policy: Amount of actual loss sustained. Burden is upon him to establish the amount of such loss by a preponderance of evidence. Measure of indemnity under a valued policy: Valuation in policy of fire insurance is conclusive between the parties in the adjustment of either partial or total loss if the insured had an insurable interest and was not guilty of fraud. Unlike in marine insurance, in the absence of stipulation, insured is not a co-insurer under fire policies. Thus, if property valued at P10,000 is insured for P5,000 and is damaged by fire to the extent of one-half of its value, the insurer will be compelled to pay the entire P5,000 necessary to repair the loss. To avoid such a situation, fire insurers insert 2 types of clause in their policy:

1.) Co-insurance clause; and 2.) Option to rebuild clause.

Co-insurance clause: A clause requiring the insured to maintain insurance to an amount equal to the value or specified percentage of the value of the insured property under penalty of being a co-insurer to the extent of such deficiency. In other words, this clause is inserted to make the insured a co-insurer. Option to rebuild clause: Under this clause, if stipulated, the insurer is given the option to reinstate or replace the building damaged or destroyed or any part thereof, instead of paying the amount of the loss or damage. Compare with Sec. 157 (marine insurance) where there is always co-insurance Galian v. State Assurance: Household effects were insured against fire. House caught fire causing substantial damage to property. Insured made itemized statement of losses and values. Insurer refuses to pay saying that the claim made was fraudulent for overstating amount. Is insured qualified to appraise the value of the household effects? YES. All people of ordinary education and refinement are reasonably familiar with household effects. One need not be an expert to be considered competent to testify as to the value of these articles. Insured was intimately acquainted with the articles since he was the one who purchased them most of them.

Gen. Insurance v. Ng Hua: Policy contained stipulation that insured should give notice to the insurer of any other insurance effected otherwise, all benefits under the policy would be forfeited. Insured had obtained other insurance on same goods. The face of the policy bears the annotation: Co-insurance declared. CA, referring to annotation held that there was no violation inasmuch as coinsurance exists when a condition of the policy requires the insured to bear ratable proportion of the loss when the value of the insured policy exceeds the face value of the policy, hence there is no co-insurance here. Whether co-insurance exists. YES. Undoubtedly, coinsurance exists under the condition described by the CA. but that is one kind of co-insurance. It is not the only situation where co-insurance exists. Other insurers of the same property against the same hazard are sometimes referred to as co-insurers. If “co-insurance” means what the CA says, annotation served no purpose. Annotation must be deemed a warranty that the property was not insured by any other policy. Violation entitles insurer to rescind. Ong Guan Can v. Century Ins.: Ins co. contends that under clause 14 of the conditions of the policies, it should be allowed to, instead of paying for the loss of burnt house, rebuild the same although the house would be smaller. This clause makes the obligation of the insurer an alternative one. Notice is required. The insurance company failed to notify the insured of his election, stating which of the 2 prestations he is disposed to fulfill. The object of notice is to give the insured an opportunity to express his consent, or to impugn the election made by the insurer, and only after said notice shall the election take legal effect when consented by the creditor, or if impugned by the latter, when declared proper by the competent court. They did not give formal notice. (AND unfair kaya kung smaller house with cheap materials.) Sec. 173. No policy of fire insurance shall be pledged, hypothecated, or transferred to agents or representatives of issuing company (insurer). Such contracts are void insofar as they affect creditors of insured Even after loss has occurred, insured may pledge, hypothecate or transfer a fire insurance policy or rights thereunder. He may even do this without the consent of or notice to the insurer. Limitation: Prohibition in Sec. 173 which says a transfer of a policy of fire insurance to any person or company who acts as agent or otherwise represents the insurer is void and of no effect insofar as it may affect the creditors of the insured.



Compare with Sec. 83 – agreement not to transfer claim after loss is void.

Title 3. Casualty Insurance [with CTPL Secs. 373-389] Sec. 174. Casualty insurance is insurance covering loss or liability arising from accidents or mishaps outside coverage of fire or marine insurance. It includes workmen’s compensation, employer’s liability, public liability, motorcar, plate glass, burglary and theft, personal accident and health insurance as written by non-life insurance companies Casualty insurance: Includes all forms of insurance against loss or liability arising from accident or mishap which are not within the scope of other types of insurance, namely marine, fire, suretyship and fire. General divisions of casualty insurance

1) Insurance against specified perils which may affect the person and or property of the insured such as personal accident, robbery or theft, damage to or loss of motor vehicle etc.; and

2) Insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to others or damage to their property, such as workmen’s compensation, motor vehicle liability, professional liability, products liability etc.

Liability insurance: It is a contract of indemnity for the benefit of the insured and those in privity with him, or those to whom the law upon the grounds of public policy extends the indemnity against liability. Under policies of this type, an indemnity is provided to the insured in respect of his legal liability to pay damages, usually arising out of negligence or nuisance and occasionally, under contract. Insurable liability: Liability which arises from the commission of a quasi-delict or a tort is insurable. However, if the liability arose from the commission of a crime, it depends. If the liability arose out of acts of negligence which are also criminal, they may be insurable on the ground that such acts are ACCIDENTAL. Example is motor insurance policy covering the insured’s liability for accidental injury caused by negligence, even if it so gross resulting to homicide. On the other hand, if the liability arose out of DELIBERATE criminal acts, such is not insurable. Rule as to death or injury resulting from accidental means:

GR: Death or injury does not result from accident or accidental means within the terms of an accident policy if it is the natural result of the insured’s voluntary act, unaccompanied by anything unforeseen except the death or injury

EXCEPTION: There is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produce or brings about injury or death. In other words, the death or injury is not the natural or probable result of the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of policies insuring against death or injury from accident. Villacorta v. Ins. Commission: Insured got private car policy on his Colt Lancer for theft and 3rd partly liability. Vehicle was brought to Sunday Machine

Works. Taken by 6 persons to Rizal where they had an accident. Claim denied. Commish dismissed complaint contending that it does not fall under Own Damage or Theft Coverage but under the Authorized Driver Clause. Mali ang commish. Insured did not know the driver, he is an unauthorized driver. When car unlawfully taken, theft clause, not authorized driver clause applies. It was without the owner’s consent – eh ‘di theft sya. Ins. Co. must pay. Association of Baptists v. Fieldmen’s Insurance: Chevrolet carry-all placed at Mobilgas station under care of Rene Te to be displayed for sale. One of the station boys took the car for a joy-ride without the consent of either Rene Te or the owner. Bumped an electric post. It was theft; ins. co. liable. Taking without consent = theft. No need for conviction. Preponderance of evidence only. Besides, no stipulation in policy which requires prior conviction for theft to entitle insured to recovery. Tanco v. Phil Guaranty: Owner’s auto while being driven by his brother, got in a car accident. There’s an exception clause in the policy w/c provided that the co. is not liable in case the driver is not an authorized driver. At the time of collision, brother did not have a valid driver’s license. NOT authorized driver. Authorized driver:

1.) On owner’s order/permission; 2.) Permitted by licensing laws; not

disqualified. Stokes v. Malayan Insurance: Owner’s car, when in collision, driven by James Stokes, who was authorized to do so by owner. Stokes is Irish. He was here for more than 90 days. NOT authorized driver. Tourists who are licensed to drive in own country can drive in phils. However, after 90 days, they should pay fees and carry a license to still be able to drive here. Gutierrez v. Capital Insurance: Jeepney got into a collision. Passenger killed. Jeepney driver licensed for years 1962 and 1963 but at the time of the accident, did nto have license. Instead, he had a carbon copy of a traffic violation report which served as temporary operator’s permit but only for 15 days. 15-day period had already expired. NOT authorized driver. Barred from recovery under policy Palermo v. Pyramid Insurance: Claim was disallowed since insured was driving with an expired driver’s license. Tama ba ang disallowance? NO. Driver of the vehicle at the time of accident was the insured himself, hence, an authorized driver. The requirement that the driver be permitted in accordance with the licensing and other laws/regulations applies only when the



driver is driving on the insured’s order/with his permission. It does not apply when the person driving is the insured himself. How does a standard authorized driver clause in a private motor vehicle policy read?‘AUTHORIZED DRIVER Any of the following:

a) the insured b) any person driving on the insured’s orders or

with his permission; provided that the person driving is permitted in accordance with the licensing or other laws or regulations, to drive the motor vehicle and is not disqualifies from driving such motor vehicle by order of a court of law or by reason of any enactment or regulation in that behalf.’

MEANING? Either the insured himself, or someone authorized or permitted to drive by the insured, provided he is not disqualified by law. Ergo, The requirement of a license does not apply to the driver who is the insured himself, but only to driver (b), the permitted one. But the insured could still be subject to penal laws for driving without a valid license. CCC Ins. Corp. v. CA: Time of vehicular collision the owner’s driver was driving. He possessed a license but without taking the exam. He is an authorized driver. A genuine license which is really issued by the Motor Vehicles Office is proof that he is qualified. The issuance of the license is proof that the Motor Vehicles Office Official considered the driver qualified to operate motor vehicles, and the insured was entitled to rely upon such license. Hence, no breach was committed and the insurer is liable. Perla Cia de Seguros v. CA: While the car was parked it was carnapped. Ins. Co. denied claim since person who was driving the vehicle before it was carnapped was in possession of an expired driver’s license and hence, not an authorized driver. Ins. co. liable. Where a car is admittedly unlawfully taken w/o the owner’s consent/knowledge, such taking constitutes theft and therefore it is the theft clause and not the authorized driver clause that should apply. There is no causal connection between the possession of a valid driver’s license and the loss of a vehicle. Sun Insurance v. CA: Felix Lim took the magazine out of his gun then pointed it to his temple, thinking it was unloaded. He pulled the trigger and shot himself to death. Ins co. liable. This is a case of pure accident. He did not expose himself intentionally to peril. He really thought the gun was not loaded. Oo, bobo sya, he was negligent, but it was an accident. Accidents are usually caused by negligence and kabobohan.

Finman Gen. Ins. v. CA: Charlie was stabbed to death at a maskara festival. There was no motive for the stabbing – thrill killing. Finman says that death by assault/murder is not included in the policy. Finman liable. There was no voluntary act of Charlie that led to his death. He did not mean to get in the path of a psychotic murderer nor in the way of the latter’s knife. It was a case of pure accident. No stipulation that death by assault/murder excluded. Fortune Ins. v. CA: Producers Bank of the Phils. filed a complaint for recovery of the sum of P725,000 which was lost during a robbery of Producer’s armored vehcle while it was in transit to transfer the money from one of its branches to its head office. Among the accused were the driver of the armored truck and one of the guards. The policy contained among its general exceptions any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner…or authorized representative of the insured. The driver and the guard were, inrespect to the transfer of money from the branch to the principal office, authorized representatives as they were entrusted with the specific duty to safely transfer that money. Ins. co. exempt from liability. Gabriel v. CA: Gabriel, insured, was employed at contruction project in Iraq and covered by a personal accident insurance under a group policy. The insured risk was for bodily injury caused by violent accidental external and visible means which injury would solely and independently of any other cause result in death/disability. He died. Wife claimed insurance. The only evidence given was wife’s own affidavit and a letter of a co-worker. Lack of evidence. In an accident insurance, the insured’s beneficiary has burden of proof in demonstrating that the cause of death is due to the covered peril (not like life insurance where insured’s death, regardless of cause would normally be compensable). CHAPTER VI – COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE Sec. 373. Definition of Terms. See nalang codal if you really want to know this but I don’t think it’s important. Motor vehicle: Under Section 3a of RA 4136, a motor vehicle means any vehicle propelled by any power other than muscular power using the public highways BUT EXCEPTING road rollers, trolley cars, streetsweepers, sprinklers, lawnmowers, bulldozers, graders, forklifts, amphibian trucks and cranes if not used in public highways, vehicles which run only on rails or tracks and tractors, trailers and traction engines of all kinds used exclusively for agricultural purposes.



Camping trailers or those used to carry boats or other objects, which you attach at the end of your car: Not considered extension of car you attach them to. Those trailers, regardless of number of wheels, as long as they are intended to be propelled by attachment to a motor vehicle are classified as a separate motor vehicle with no power rating. Sec. 374. Insurance policy, cash or surety bond in favor of 3rd party or passenger in case of death or bodily injury, is required for motor vehicles. Motor vehicle liability insurance (MVLI): MVLI is a protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of a motor vehicle by its owner. Before this protection was obtained purely on a voluntary basis by a vehicle owner to meet his needs in connection with whatever liability he would have incurred in operating the vehicle. However now, with the increase in the number of stupid, idiotic and moronic drivers whose licenses should be revoked, legal luminaries have made it COMPULSORY. Persons subject to CMVLI requirement:

1.) Motor vehicle owner or one who is the actual legal owner of a motor vehicle whose name such vehicle is registered with the LTO; or

2.) Land transportation operator or one who is the owner of a motor vehicle being used for conveying passengers for compensation

Is the CMVLI a MUST? Not really, because there

are two substitutes for the CMVLI policy: 1.) Posting of a surety bond with the Insurance

Commissioner who shall be made the creditor in the bond in such amount required as limits of indemnity to answer for the same losses sought to be covered by the CMVLI policy; or

2.) The making of a cash deposit with the Insurance Commission in such amounts required as limits of indemnity also for the same purpose

Type of coverage required by the law:

For owners of private motor vehicles- coverage must be comprehensive against third party liability for death or bodily injury. In case the private motor vehicle is being used to transport passengers for compensation (ex. school bus), such coverage must also include passenger liability

For operators of land transportation- the coverage must also be comprehensive against both passenger and third party liabilities for death or bodily injuries. However, the insurer may also extend additional other risks, but only at its option. Sec. 375. Insurance Commissioner to furnish list of authorized insurance companies. Sec. 376. Evidence of 3rd party liability coverage required prior to motor vehicle registration or renewal Prerequisite before a motor vehicle is registered and operated: Sec 374 prohibits a land transportation operator or a motor vehicle owner from operating his

vehicle in public highways unless there is in force in relation thereto a policy insurance or guaranty in cash or surety bond to indemnify the death or bodily injury of a third party or of a passenger, arising from the use of the vehicle. This is what the law calls THIRD PARTY LIABILITY COVERAGE Sec. 377. Compulsory liability maximum amount limits Sec. 378. No fault indemnity; amount limits

a.) Death & bodily injuries only b.) Not more than P5,000 per person c.) Claim against one motor vehicle only; against

motor vehicle where one is a passenger, mounting or dismounting; otherwise, against offending vehicle

d.) Proofs required by law are submitted (i.e. police report, death certificate, medical report, proof of medical expenses)

What is a ‘no-fault indemnity’ claim? VERY IMPT! LUMABAS SA FINALS 15 PTS!!!

It provides that in cases where the vehicle insured causes death or physical injuries, the person injured may claim under the following circumstances:

1.) If the person is a passenger of the vehicle meaning he is on board, or boarding or dismounting from the vehicle, the person injured or his heirs (in case of death) may claim from the insurer of the vehicle he was on board under the CMVLI

2.) If it transpires in any other case but resulting from an accident involving motor vehicles and the person is not a passenger, he may claim from the insurer of the offending vehicle.

Under the ‘no-fault indemnity clause,’ the person injured or the heirs may claim up to P5,000—without need of establishing whose fault or who is liable for the accident. That the said vehicle might not be the one who caused the accident is immaterial since the law provides that the party paying the claim may later on recover against the owner of the vehicle responsible for the accident. This is precisely the essence of the ‘no-fault indemnity’ insurance, to provide victims immediate compensation although in a limited amount, pending final determination of who is responsible for the accident and liable for the victim’s injuries or death. Nevertheless, he or his heirs may only claim from one vehicle and if the person injured wishes to claim more he must establish fault or liability as to who caused the accident.

When does the insurer’s liability attach? The insurer’s liability attaches to any party during the

effectivity of the policy in the absence of any showing that the same has been cancelled with

proper notice to all parties concerned Perla Cia de Seguros v. Ancheta: Bus collision between 2 buses, IH Scout and Superlines. Passengers of IH Scout sustained injuries and went after the insurer of Superlines (Perla) under the no fault indemnity provision. It is the insurer of IH Scout (Malayan) which is liable under the no fault clause. The law is clear –



they must claim against the insurer of the vehicle in which they were riding. Sec. 379. Rules for insurance companies authorized to issue CTPL insurance Sec. 380. Rules on cancellation of compulsory liability coverage by insurer

1.) Notice to land operator or owner 2.) Notice to LTO 15 days prior to cancellation

Sec. 381. Rules on cancellation of compulsory liability coverage by land transportation operator or owner

1.) Replace policy, bond or cash & file with LTO 2.) Notify insurer of cancellation

Duty if one intends to cancel his CMVLI policy: One must

1) Give the insurance or surety company concerned a written notice of his intention to cancel;

2) He must secure, before the insurance policy or surety bond ceases to be effective, another similar policy or bond to replace the one cancelled;

3) Without making such replacement, make a cash deposit in sufficient amount with the Insurance Commissioner and secure a certification from the Insurance Commissioner regarding the deposit made for presentation to and filing with the LTO

What should one do in case his cash deposit has already been proceeded against, or his surety bond has already expired? He should replenish the cash deposit or restore the bond or secure an insurance policy within 60 days from impairment or expiration Effect of the cancellation of insurance: When the LTO receives notice of cancellation from the insurance company, it shall order the confiscation of the plates of the motor vehicle concerned, unless it receives any of the following:

1.) Evidence or proof of a new and valid CMVLI cover which may be either an insurance policy or guaranty in cash or surety bond;

2.) A signed duplicate of an endorsement or addendum issued by the insurance company concerned showing revival or continuance of the CMVLI owner; or

3.) A certification issued by the Insurance Commissioner to the effect that a cash deposit in the amount required as limit of indemnity has been made with him by the motor vehicle owner or land transportation operator

Sec. 382. Effect of change of ownership of motor vehicle on CTPL insurance coverage: no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and provided the ins. co. shall agree to continue the policy, such change of ownership shall be indicated in an endorsement filed with the Land Transpo. Commission. Sec. 383. Indemnity not an instrument of enrichment

Sec. 384. Claims procedure in case of compulsory motor vehicle liability insurance

1.) Notice of claim to insurer within 6 months – otherwise

2.) Action or suit – within 1 year from denial of claim – otherwise action prescribed

Schafer v. Judge, RTC Olongapo: Schafer obtained a private car policy over his Ford for 3rd party liability. An information for reckless imprudence resulting in damage to property and serious physical injuries was filed against Schafer. Schafer was granted leave of court to file a 3rd party complaint against Makati Ins. Insurer moved to dismiss. Dismissed. Trail court erred in dismissing 3rd party complaint. There is no need to wait for the decision of the Trial Court finding him guilty of reckless imprudence. Where an insurance policy insures directly against liability, the insurer’s liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. Summit Guaranty v. Arnaldo: Vehicular accident – Olaso and Floralde. Olaso’s insurer, FGU Ins., paid it’s share of repair cost and now (subrogated) went after Floralde. Floralde failed to reveal his ins. carrier. Later on, found out that it was Summit. Motion to dismiss filed by Summit on ground of prescription. No prescription. In the present case, it is not denied that an extrajudicial demand for payment was made by FGU on Summit but Summit failed to respond to it. Nevertheless, the complaint was filed even BEFORE denial of the claim was made by summit. For all legal purposes, the 1-year prescriptive period had not begun to run. The cause of action arises only and starts to run only upon denial of the claim. Sec. 385. Deadline for payment of claims:

1.) After reaching agreement – within 5 working days.

2.) No agreement – pay under no fault indemnity.

CTPL claims under original jurisdiction of Insurance Commission subject to sec. 416. Sec. 386. Unlawful to require drivers and employees to contribute premiums Sec. 387. Government offices, and their employees prohibited from acting as agents. Sec. 388. Sanctions and penalties for violation of these provisions:



1.) Fine of not less than P500 but not more than P1,000 and/or imprisonment for not more than 6 months.

2.) Revocation of certificate of public convenience (in the case of land transportation operator).

Sec. 389. Persons liable as principals in case violator of these provisions is a corporation, association or government office: Executives or officers who knowingly permitted or failed to prevent violation. Title 4. Suretyship Sec. 175. Surety contract is an agreement where a party (the surety) guarantees performance by another party (the principal or obligor) of an obligation or undertaking in favor of a 3rd party (obligee) Nature of the liability of the surety:

1.) Joint and Several or Solidary – This means that upon default by the obligor in complying with his obligation as secured by the bond, the surety becomes primarily liable to the obligee who has the right to demand payment under the terms and conditions of the bond.

2.) Limited to the amount of the bond 3.) Determined strictly by the terms of the contract of

suretyship in relation to the principal contract between the obligor and the obligee.

Other Relevant Provisions of Law

1.) Civil Code, Article 2047. (Difference between guaranty and suretyship): By guaranty, a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If the person binds himself solidarily with the principal debtor, the provisions [regarding joint and solidary obligations] shall be observed. In such case, the contract is called a suretyship.

2.) Insurance Code, Section 2, par. 1 and 2(b): Surety contracts are also considered insurance contracts.

Sec. 176. Liability of surety is solidary with obligor but limited to amount of bond. It is determined strictly by surety contract and principal contract between obligor and obligee NASSCO v. Torrento: Although as a rule, sureties are only subsidiarily liable for an obligation, nevertheless, if they bind themselves jointly and severally, or in solidum, with the principal debtor, the creditor may bring an action against anyone of them, either alone or together with the principal debtor.

While it is the rule that the liability of a surety is limited by the terms of the surety bond fixing its liability and that such liability cannot be extended by implication, it should be noted in the present case that although the technical specifications of the items to be purchased have been changed, it clearly appears that such changes are not substantial and have not added any other liability

to that originally assumed. A surety is not released by a change in the contract which does not have the effect of making its obligation more onerous. Napocor v. CA: The surety bond must be read in its entirety and together with the principal contract between the NPC (obligee) and the contractor (obligor). The provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. Sec. 177. Surety entitled to payment of premium as soon as contract perfected & delivered to obligor. Contract not valid until premium paid except where obligee accepted bond where contract valid irrespective of whether premium paid or not; if contract not accepted by, or not filed with, obligee, surety entitled to service fee of not exceeding 50% of premium due plus documentary stamps and other taxes Section 177 contains the rules for payment of premium. In a nutshell:

1.) The premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor;

2.) The contract of suretyship or bonding shall not be valid and binding unless and until the premium therefor has been paid;

3.) Where the obligee has accepted the bond, it shall be valid and enforceable notwithstanding that the premium has not been paid;

4.) If the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount, not exceeding 50% of the premium due thereon as service fee, plus the cost of doc stamps and other taxes imposed for the issuance of the bond.

5.) If the non-acceptance of the bond is due to the fault or negligence of the surety, no such service fee, stamps, or taxes shall be collected.

6.) In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner, or by a court of competent jurisdiction.

Phil Pryce Assurance v. CA: The surety claims the defense that the checks issued by its principal in payment for the premiums bounced, hence there is not contract of surety to speak of.

This is incorrect. The surety must pay. While it is true that no contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, the exception is where the obligee has accepted the bond, in which case the bond becomes valid and enforceable, irrespective of whether or not the premium has been paid by the obligor to the surety. In this case, the obligee had already accepted the bond. Therefore, the bond is valid and binding, notwithstanding non-payment of premiums by the obligor.



Sec. 178. Civil Code provisions suppletory in interpreting surety contracts See Arts. 2047, Civil Code (Guaranty) Arts. 1207-1222, Civil Code (joint and solidary obligations) Title 5. Life Insurance (See also Secs. 226-231) Sec. 179. Life insurance covers human lives and allied matters Gallardo v. Morales: Morales sentenced to pay Gallardo P7,000. Before execution of judgment, Mrales’s husband died by assassination. He was covered by a personal accident policy issued by a non-life insurance co. Sheriff garnished and levied execution on sum due from ins co. Morales objected saying that proceeds from any life insurance are exempt from execution. Exempt ba?

YES. Life insurance is, generally speaking, distinct and different from an accident insurance. However, when one of the risks insured in the latter is death of the insured by accident, then there are authorities to the effect that such accident insurance may, also be regarded as life insurance. Sec. 180. Life insurance is that payable upon

1.) Death of insured; or 2.) His surviving a specified period.

Contract for payment of endowments or annuities considered a life insurance contract under Insurance Code.

In the absence of a judicial guardian, the following exercise rights of minor insureds or beneficiaries under life insurance policies (without court authority or bond):

1.) Father 2.) In latter’s absence or incapacity, the Mother

Provided minor’s interest does not exceed P20,000 But see Art. 225, par. 2, Family Code which amends par. 3 of Sec. 180 – Father and mother are joint legal guardians over minor children’s property; no need of court appointment; Guardians bond needed only when minor’s annual income or property is more than P50,000 Life insurance: An insurance payable on the death of a person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. It is a contract to make specific payments upon the death of a person whose life is insured. Life insurance may be made payable:

1.) On the death of the person; 2.) On his surviving a specified period; or 3.) Otherwise contingently on the continuation or

cessation of life. Parties involved in a policy of life insurance:

1.) Insurer;

2.) Owner of the policy – who has the power to name or change the beneficiary, to assign the policy, to cash it in for its surrender value, or to use it as collateral in obtaining a loan, and who has the obligation of paying the premiums;

3.) Person whose life is subject of the policy, also known as the cestui que vie;

4.) The beneficiary to whom the proceeds are paid. Note that one person might occupy all 3 positions by naming his estate as beneficiary; but then again, each of the 3 positions may also be held by separate parties. Different types of life insurance policies:

1.) Ordinary life insurance policy; 2.) Limited payment life policy; 3.) Term insurance policy; 4.) Endowment policy; and 5.) Life annuity.

Ordinary life policy: One under the terms of which the insured is required to pay a certain fixed premium annually or at more frequent intervals throughout the life and the beneficiary is entitled to receive payment under the policy only after the death of the insured. Thus, the ultimate payment of the insurance proceeds is as certain as death itself. In this type of policy, do you get payment only when death occurs? Not really because this type of policy has an alternative form of payment which is called the cash surrender value. This feature means that in case the owner cancels the policy or the policy lapses through non-payment of premium, the insurer returns a certain amount which is found in a table of rates in the policy itself. This amount is called the cash surrender value. Limited Payment Life policy: One under the terms of which the premiums are payable only during a limited period of years. When the specified number of premium payments have been made, the insurance is fully paid for. It is like ordinary life policies in that it is payable only at the death of the insured. If the insured should die within the specified period, the beneficiary is entitled to all the proceeds of the policy without any liability for the unpaid premiums. Because of the limited number of payments to be made by the insured, the premiums are proportionately higher. Term Insurance policy: One which provides coverage only if the insured dies during a limited period. It is an insurance for a fixed or specific term. If the insured dies within the period specified, the policy is paid to the beneficiary. If he survives the period, the contract terminates. The premium is levied during the specified terms and increases with each renewal terms. The premium is lower than in the case of ordinary life insurance because of the possibility that the insurer may not be obliged to pay anything in the proceeds whatsoever if the insured survives the term. Moreover, there is generally no provision for payment of a cash surrender value upon surrender or lapse of the policy. The insured may however be given the option to convert the policy to ordinary or endowment life. Endowment policy: One under the terms of which the insurer binds himself to pay a fixed sum to the insured if he survives for a specified period, or if he dies within such period, to some other person indicated. The



premium is higher because the cash values of the policy grow more rapidly. This kind of policy differs from the limited payment life policy in that in the case of the latter, the policy is paid only upon the death of the insured. Here, the insured stands a chance of being paid the proceeds of the policy while still alive. The proceeds on maturity can be paid either in lump sum or as an annuity. This type of policy is thus useful in retirement planning. Life annuity: A contract whereby the insurer binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. Although essentially, annuities differ from ordinary life policies, the law considers them as life insurance contracts. The law governing annuities is the Civil Code. Calanoc v. CA: Basilio, a watchman of an auto supply shop, secured a life insurance policy from Philamlife to which was attached a supplementary contract covering death by accident. One day, he heard something suspicious happening at the house of Ojeda, about a block away from the shop. He went there and was fatally shot. Widow was given amt under life ins. policy but not the additional sum under the supplemental policy covering death by accident. Hindi daw accident. Accident sya. Liable ang Philamlife. The happening was a pure accident on the part of the victim. It cannot be presumed that the malefactor aimed at the deceased precisely because he wanted to take his life. Kanapi v. Insular Life: Kanapi insured his life with Insular life. Under their contract, an additional P5,000 was to be paid if the death was due to accidental means. The additional payment was subject to the exception that it would not apply if the death resulted from injury “intentionally inflicted by a 3rd party.” Insured died of a bullet wound inflicted w/o provocation on his part. The killer was found guilty of murder. Should insular life pay the additional sum? NO. The agreed facts are to the effect that the insured was murdered, thus making it indisputable that his death resulted from injury “intentionally inflicted by a 3rd party”. Biagtan v. Insular Life: Same facts with first, only this time, the insured (Biagtan) was killed by multiple stab wounds inflicted by a band of robbers. Same thing. Insular cannot be held liable under the Accidental Death Benefit. Whether the robbers had the intent to kill or merely to scare the victim or ward off any defense he might offer, it canno tbe denied that the act itself of inflicting the injuries was intentional. The exclusion clause does not speak of the purpose – whether homicidal or not – of a 3rd party in causing injuries, but only the

fact that such injuries have been intentionally inflicted. This was obviously intended to distinguish them from injuries which, although received at the hands of a 3rd party, are purely accidental. Bank of PI v. Posadas: Schuetze got life insurance with Sun Life and named his estate as beneficiary. He married Gelano and executed a will wherein she was made his universal heir. Schuetze died. BPI was appointed administrator of the estate. BPI received the proceeds of the life insurance and delivered them to Gelano, less inheritance tax. Gelano protested the deduction of inheritance tax and insisted on a refund. Is she entitled to one? YES but only a PARTIAL one. As all the premiums on the life insurance policy taken out by Schuetze were paid out of the conjugal funds, with the exception of the first, the proceeds of the policy, excluding the proportional part corresponding to the first premium, constitute community property, notwithstanding the fact that the policy was made payable to the deceased’s estate, so that one-half belongs to the estate and the other half belongs to Gelano. Only one-half were inherited, half of the tax should be refunded. Del Val v. Del Val: It is erroneously claimed that the proceeds of the insurance policy payable to an heir belong to the estate. It is argued that the proceeds are akin to donations inter vivos which are subject to collation.

The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contracts or to the destination of life insurance proceeds. That subject is regulated exclusively by the Code of Commerce which provides for the terms of the contract, the relations of the parties and the destination of the proceeds of the policy.

The proceeds of the life-insurance policy being the exclusive property of the defendant and he having used a portion thereof in the repurchase of the real estate sold by the decedent prior to his death with right to repurchase, and such repurchase having been made and the conveyance taken in the names of all of the heirs instead of the defendant alone, plaintiffs claim that the property belongs to the heirs in common and not to the defendant alone. Dela Cruz v. Capital Insurance Company: dela Cruz, an employee of Itogon-Suyoc Mines, was the holder of an accident insurance policy. In celebration of New Year, Itogon-Suyoc sponsored a boxing contest. Dela Cruz joined. He slipped and was hit by his opponent at the back part of his head, causing him to fall, with his head hitting the rope of the ring. He subsequently died. Ins. co. refuses



to pay. It argues that since his inclusion in the boxing card was voluntary, he cannot be considered as having met his death by “accidental means.” Ins. Co. liable. The term “accident” and “accidental’ as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptations. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. Here, it was an accident, he was rendered that fatal blow because he slipped. Pineda v. CA: In group insurance policies, the employer is the agent of the insurer. The father and mother are the legal guardian of the child’s property if the market value of the property does not exceed P50,000, otherwise a bond is required. Sec. 180-A. Insurer in a life policy liable for suicide if committed after policy in force for 2 years after issue or last reinstatement unless shorter period stipulated. Suicide while insane is compensable regardless of date of commission (Sec. 3, BP 874) This is an exception to Sec. 87 where the insurer is not liable for loss caused by the willful act of the insured In case of suicide, insurer is liable when:

1.) The suicide is commited after the policy has been in force for a period of 2 years from the date of its issue or of its last reinstatement;

2.) The suicide is committed after a shorter period provided in the policy although within the 2 years period; and

3.) The suicide is committed in the state of insanity regardless of the date of commission, unless suicide is an excepted risk.

Cannot provide for longer period than 2 years. Insurer is not liable when:

1.) The suicide is not by reason of insanity or is committed within the 2 year period;

2.) The suicide is by reason of insanity however it is not one of the risks assumed by the insurer; and

3.) The insurer can show that the policy was obtained with the intention to commit suicide, even in the absence of any suicide exclusion in the policy.

Edralin v. Insular Life: Insured died as a result of her inhalation of poisonous gas from the cooking gas stove in the kitchen at her residence. Accidental or suicide? The basic instinct of self-preservation militates against the commission of suicide. It is incumbent upon a party alleging suicide as a defense, especially in actions involving insurance policies to prove it by clear and convincing proof. Failure to prove, must pay claim.

Sec. 181. A life insurance policy may pass by transfer, will or succession whether transferee has insurable interest or not See also Sec. 23 – change of interest by will or succession does not avoid an insurance Sec. 182. Notice to insurer of transfer not necessary unless stipulated When effecting a transfer, the consent of the following must be obtained:

1.) Assignor; 2.) Assignee; and 3.) Beneficiary.

When is the consent of the beneficiary a must? Only in policies which contain an express waiver of the right to change the beneficiary. The execution of such waiver gave the beneficiary a vested and absolute interest which he cannot be divested of without his consent. In case the policy contains no such waiver, the insured may assign the policy without the consent of the beneficiary. Is notice to insurer of a transfer necessary in all cases? Not really, it depends. If the policy does not expressly require the insured to give notice of an assignment or transfer of the policy to the insurer, such notice is not essential to the validity of the assignment. However, where notice to the insurer is required by the provision of the policy, an assignment without such notice, in the absence of waiver, shall have no effect so far as the insurer is concerned. This means that the insurer is relieved of any responsibility in case payment is made to the beneficiary before receipt by the insurer of the notice. Sec. 183. Measure of indemnity under life insurance policy is face amount of policy unless interest of person insured is measurable (Life insurance is a valued policy) CHAPTER III – THE BUSINESS OF INSURANCE Title 9. Policy Forms [Read in conjunction with sample insurance policies, and Arts. 2011, 2012, 2021-2027 (CC)] Sir says: “read the codal, if you don’t understand it, read the policy.” Dudes, ang HABA ng codal! He lectured on the mandatory provisions, etc. (e.g. (a) is the grace period; (b) is the incontestability clause… with where to find them in the sample policies.) Kaso, I don’t have notes so read yours. If you don’t have notes either, read someone else’s. That’s what I’m planning on doing if I have time pa. If there’s no time, ok lang yun. I don’t think these provisions are very important. Tinanong ba nya mga to sa past exams? Sec. 226. Pre-approval of Insurance Commissioner required for every insurance policy, certificate, contract or endorsement.



Sec. 227. Mandatory provisions in single life insurance contracts (not applicable to group life or industrial life). Sec. 228. Mandatory provisions in group life insurance policies. Sec. 229. Definition of industrial life insurance policies: That form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than 500 times that of the current statutory minimum wage in the City of Manila, and if the words “industrial policy” are printed upon the policy as part of the descriptive matter. Sec. 230. Mandatory provisions in industrial life insurance policies. Sec. 231. Prohibited provisions in an industrial life insurance policy. Title 11. Claims Settlement Sec. 241. Acts constituting unfair claim settlement practices What are acts that constitute unfair claim settlement practices? LUMABAS TO SA FINALS, 5 pts for enumeration

1.) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

2.) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

3.) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies;

4.) Not attempt in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear; or

5.) Compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts that could be ultimately recovered in suits brought by them.

How or when do these acts become unfair practices? LUMABAS DIN TO 5 PTS

They become unfair practices when: 1.) It is done without just or legal grounds; and 2.) if it done regularly so as to constitute a general

business practice What is the effect of having found after due investigation that any of the acts had been committed by the insurance company? 5 PTS DIN TO (inimbento ko lang yung tanong, basta yung sagot sa bluebook ni mr/ms 97 ay:)

Any of the acts constituting unfair claim settlement practices taken separately or individually may EACH CONSTITUTE A GROUND OR BE SUFFICIENT CAUSE FOR THE REVOCATION OR SUSPENSION of the Certificate to operate as an insurance company in the Philippines issued by the Insurance Commissioner.

When an insured decides to compromise a third party claim, instead of filing suit, must the insurer respect such decision?

Where a policy gives the control of the decision to settle claim or litigate it, the insurer nevertheless is required to observe a certain measure of consideration for the interest of the insured. In case of liability insurance, it is usually in the interest of the insures that the case be settled. The rule that has become generally accepted is that while the express terms of the policy do not impose on the insurer the duty to settle the claim at all costs, there is an implied duty on his part to give due consideration to the interest of the insured in its exercise of the option to reject a compromise settlement and proceed with litigation. Sec. 242. Period within which claim proceeds of life insurance policy should be settled:

a.) Immediately upon maturity of policy (survival benefits)

b.) Those maturing by death (death benefits) – within 60 days after presentation of claim and filing of proof of death

Effects of non-payment – interest at 2x the CB ceiling. What is the time payment of claims in life insurance policies?

It depends. 1) In policies maturing upon the expiration of the term

set for the therein, the proceeds are immediately payable to the insured, unless they are made payable in installments or as an annuity, in which case the installments or the annuities shall be paid as they become due; and

2) In policies maturing at the death of the insured occurring prior to the expiration of the term stipulated, the proceeds are payable to the beneficiaries within 60 days after presentation of the claim and filing of proof of death

Is the 60 day period mandatory? NO. It is merely procedural in nature, evidently to determine the exact amount to be paid and the interest thereon to which the beneficiaries may be entitled to collect in case of unwarranted refusal of the company to pay, and also to enable the insurer to verify or check on the fact of death which it may evidently waive. Sec. 243. Period within which claim proceeds of a non-life policy should be settled:

a.) Within 30 days after receipt of proof of loss and ascertainment of loss is made by agreement or arbitration.

b.) Within 90 days after receipt of proof of loss if ascertainment of loss is not made within 60 days.

Effects of non-payment – interest at 2x the CB ceiling. In case of fire, what are the obligations of the insured in a fire insurance contract?

1.) Two of these, the requirement of the notice of loss and obligation to file a proof of loss, are conditions with which the insured must comply before there is any liability on the part of the insurer

2.) Furthermore, after a fire, the insured is required to do everything reasonable to prevent further damage to the property insured. An insured who fails to protect



his property adequately from further loss after the fire cannot collect for the additional loss thus occasioned.

What are the settlement options of the insurer in a fire insurance contract? The fire insurance contract usually provides for two options of settlement by the insurer: the payment of damages for the loss; or the restoration of the subject matter of the insurance to its former condition. If the insurer elects to rebuild, the amount of damage recoverable for a breach is not thereafter limited to the amount of the insurance, this is the reason why this option is rarely exercised. Usually, insurers prefer to settle all losses by a cash payment. How does liability insurance differ from other types of insurance? In liability insurance, the claimant is not the insured himself. Hence the adjuster is not dealing with a customer of the insurer, but with a third person to whom the customer of the insurer is liable. Furthermore, the determination of the adequate amount to compensate for the injury is made difficult by many uncertain factors which don’t really have pecuniary value, like loss of time, suffering and inconvenience. It is relatively easier if the victim suffered minor injuries like cuts and wounds which did not require a long confinement. You could still compute the compensation based on medical bills and hospital expenses but just imagine if the injured party suffered permanent injury, the problem of damages now becomes complex. What is the time payment of claims in non-life policies? The proceeds shall be paid within 30 days after receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties, or by arbitration but not later than 90 days from such receipt of proof of loss whether or not ascertainment is made. *NOTE: Rule is different with Compulsory Motor Vehicle Liability Insurance What is the effect if the claim is fraudulent? Under policies, particularly against fire, which contain a provision to the effect that all benefits under the policy shall be forfeited if the claim for loss be in any respect fraudulent, or if any false declaration be made by the insured or his agent to obtain any benefit under the policy, a serious discrepancy between the actual loss and that claimed in the proof of loss, shall avoid it. Fraud in any part of the claim taints the whole. And the mere filing of such claim will exonerate the insurer. Upon whom rests the burden of proving fraud? Upon Insurer Effect if the false statements were innocently made: The insured can recover for his loss Is resort to arbitration mandatory? It depends on your contract. Some contracts contain a provision that in event of loss and the company denies liability, no action can be taken without first submitting to arbitration. This type of stipulation is valid. Some provision say that arbitration only be resorted to in case of dispute as to amount of liability. Thus, no arbitration is necessary if the dispute is as to the existence or non-existence of liability. Sec. 244. Duty of Commissioner or Court to make a finding of unreasonable denial of claim and to award damages, if findings affirmative; failure to pay claim within prescribed time prima facie evidence of unreasonable delay.

When is the insured entitled to damages? Under Secs 242, 243 & 244, the Commissioner or the Court must make a finding that the payment of the claim has been unreasonably denied or withheld before the insured shall be entitled to collect damages and interest of 24%. In the absence of such finding, the judgment should bear only interest at the legal rate of 12% for the delay in the payment of the claim. When does the presumption of unreasonable delay arise? There is prima facie presumption of unreasonable delay if the insurer fails to pay any such claim within the time prescribed in Secs 242, 243 &244. To overcome the presumption, the burden of proof rests on the insurer. What type of damages may be awarded the insured in case of unreasonable delay? Under Sec 244, the damages that may be awarded are:

1.) Attorney’s fees 2.) Other expenses incurred by the insured person by

reason of such unreasonable denial or withholding of payment

3.) Interest at twice the ceiling prescribed by the Monetary Boar of the amount of the claim due the insured; and

4.) The amount of the claim Cathay Ins. v. CA: Unreasonable delay in the processing and payment of insurance claims entitles the assured to collect interest at the rate of twice the ceiling prescribed by the Monetary Board for the duration of the delay. Prima facie evidence of delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. Insurer is liable to pay the damages consisting of atty’s fees and other expenses incurred by the insured by reason of the insurer’s delay. Zenith Ins. v. CA: Under the Insurance Code, in case of unreasonable delay in the payment of the proceeds of an insurance policy, the damages that may be awarded are:

1.) Atty’s fees; 2.) Other expenses incurred by the insured person

by reason of such unreasonable denial or withholding of payment;

3.) Interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim due the injured; and

4.) The amount of the claim. RCBC v. CA: Insurance over mortgaged properties obtained pursuant to mortgage contract. Mortgaged property burned; mortgagor Goyu claims proceeds.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit



the insurance policies were taken out. Consider thus the following:

1.) It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.

2.) GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.

3.) Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of said endorsements.

4.) GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the mortgaged properties.

Finman v. CA: As regards the submission of documents to prove loss, substantial, not strict compliance with the requirements will always be deemed sufficient. A prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244. CHAPTER VIII – THE INSURANCE COMMISSIONER Title 1. Administrative and Adjudicatory Powers Secs. 414-416. Powers and duties of Insurance Commissioner What are the major administrative powers of the Insurance Commissioner?

1.) Licensing, 2.) examination and 3.) investigation of insurance companies

Licensing: Acheck on the insurer’s financial condition to ascertain that it has the required capital and surplus for the kinds of insurance permitted in the license (Secs 186-191). The Commissioner has power to refuse to issue a renewal license, as well as the power of suspension or revocation Examination: Once the insurance companies have been licensed, the Commissioner proceeds with examination—the checking of assets, liabilities and reserves is part of this procedure, as well as a review of almost all underwriting, investment and claim practices of the insurers. Investigation: Investigation determines whether or not insurers or their representatives are meeting the requirements of the law. Free access to records and books of the insurers and hearing of unfair trade practices are examples. As a result of investigation, the Commisioner may issue administrative rulings or advisory opinions with regard to the business conduct of insurers or their agents. In extreme cases, he may even

declare the insolvency of an insurer in liquidation or rehab proceedings. Adjudicatory power of the Commissioner: Sec 416 empowers the Commission to adjudicate claims and complaints involving any loss, damage or liability being claimed or suited upon any kind of insurance, bond reinsurance contract or membership certificate where the amount thereof, excluding interests, cost and attorney’s fees, does not exceed in any single claim, P100,000. Any decision, order or ruling rendered by the Commissioner after a hearing has the force and effect of a judgment appealable to the Court of Appeals. Almendras v. OIC: The Office of the Insurance Commission is an administrative agency vested with regulatory power as well as with adjudicatory authority. Among the several regulatory or non-quasi-judicial duties of the Insurance Commissioner is the authority to issue, or refuse issuance of, a certificate of authority to a person or entity desirous of engaging in insurance business in the Philippines, and to revoke or suspend such certificate upon a finding of the existence of statutory grounds for such revocation or suspension. The claim of petitioner in excess of P100,000 fell outside the quasi-judicial jurisdiction of the Insurance Commissioner. Philamlife v. Ansaldo: Insurance Commissioner has the authority to regulate the business of insurance. The quasi-judicial power of the Insurance Commissioner does not cover the relationship affecting the insurance company and its agents or employees but is limited to adjudicating claims and complaints filed by the insured against the insurance company.

Special thanks to my troops: Privates X, Feet, & Tin, You made this Mission Impossible possible!

At ease!

GOOD LUCK TO US ALL! ☺

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