3.

Insurance Code
(PD 1460)
Chapter I.
INTRODUCTION
1. Laws on
Insurance
1.1. Sources of Insurance Law in the
Philippines
During the Spanish period, all the provisions
concerning insurance in the Philippines were
found in Title 7 of Book 2 and Section 3 of
Title 3 of Book 3 of the Code of Commerce,
and in Chapters 2 and of Title !2 of Book
of the old Civil Code of !""#$
%hen &ct ' 227, enacted on Decem(er !!,
!#!, otherwise known as the )nsurance &ct,
took effect on *ul+ ! !#!, during the
&merican -egime, the provisions of the Code
of Commerce on insurance were e.pressl+
repealed$
n! "io# $s. Sprin!fields
%acts& &ng /iok insured the contents of his
warehouse with three insurance companies for
012$ The warehouse and its contents were
destro+ed (+ fire while the policies were in
force$ The plaintiff instituted action in the C3)
of 4anila against one of the insurers to recover
a proportional part of the loss coming to P",
!71$ ,#$ 3our special defenses were
interposed (+ the insurer, one (eing planted
on a violation of warrant+ 3 fi.ing the amount
of ha5ardous goods which might (e stored in
the insured (uilding$ Securel+ pasted on the
left hand margin of the polic+ reading in part
as follows6 7)t is agreed that during the
currenc+ of this polic+ no ha5ardous goods (e
stored in the (uilding8e.ceeding in all 3
percent of the total value of the whole
merchandise contained in said warehouse$9
'eld& The rider or slip containing said
warrant+ 3 attached to the polic+ in :uestion
and referred to therein as making part of the
two forms provided in said Section 0, of the
)nsurance ;aw$ The law sa+s that ever+
e.press warrant+ must (e 7contained in the
polic+ itself$9 The word 7contained,9 according
to the dictionaries, means included, enclosed,
em(raced, comprehended etc$ %hen
therefore, the courts speak of a rider attached to
the polic+, and thus em(odied therein, or of a
warrant+ incorporated into the polic+, it is
(elieved that the phrase 9contained in the polic+
itself9 must necessaril+ include such ride and
warrant+$ &s to the alternative relating to
7another instrument9 as here used could not
mean a mere slip of paper like a rider, (ut
something akin to the polic+ itself$ The word
instrument has a well defined definition in
California, and as used in the Codes invaria(l+
means some written paper or instrument signed
and delivered (+ one person to another,
transferring the title to, or giving a lien, on
propert+, or giving a right to de(t or dut+$ The
rider, warrant+ 3, is contained in the polic+
itself, (ecause (+ the contract agreed to (+ the
parties is made to form part of the same, (ut is
not another instrument signed (+ the insured
and referred to in the polic+ as forming a part of
it$ The rider is therefore valid and (inding$
"ercio $s. Sunlife
%acts& <n *anuar+ !#!1, the Sun ;ife
assurance Co$, of Canada issued a 21=+ear
endowment polic+ on the life of >ilario /ercio$
The insurance compan+ agreed to insure the life
of /ercio for P2, 111, to (e paid to him on
3e(ruar+ !, !#31, or if the insured should die
(efore said date, then to his wife, should she
survive him? otherwise, to the e.ecutors,
administrators, or assigns of the insured$ The
polic+ did not include an+ provision reserving to
the insured the right too change the (eneficiar+$
%hen the polic+ was issued, &ndrea @ialcita was
the lawful wife of >ilario$ )n !#!#, she was
convicted of adulter+$ )n !#21, a decree of
divorce was issued in a civil case completel+
dissolving the (onds of matrimon+ (etween
/ercio and @ialcita$ )n !#22, 3ercio formall+
notified Sun ;ife that he had revoked his
donation in favor of @ialcita, and that he had
designated in her stead his present wife, &dela
/arcia de /ercio, as the (eneficiar+ of the
polic+$ /ercio re:uested Sun ;ife to eliminate
@ialcita as (eneficiar+$ This the insurance
compan+ has refuse to do and still refuses to do$
'eld& The Code of Commerce, the Civil Code or
the )nsurance &ct does not contain an+ provision
either permitting or prohi(iting the insured to
change the (eneficiar+$ %e must perforce
conclude that whether the case (e considered in
the light of the Code of Commerce, the Civil
Code, or the )nsurance &ct, the deficiencies in
the law will have to (e supplemented (+ the
general principles prevailing on the su(Aect$ To
that end, we have gathered the rules which
follow from the (est considered &merican
authorities$ )n adopting these rules, we do so
with the purpose of having the Philippine ;aw of
)nsurance conform as nearl+ as possi(le to the
modern ;aw of )nsurance as found in the
Bnited States$ The (eneficiar+ has an a(solute
vested interest in the polic+ from the date of
its issuance and deliver+$ So when a polic+ of
life insurance is taken out (+ the hus(and in
which the wife is named the (eneficiar+, she
has a su(sisting interest in the polic+$
%hen -& 3"0, otherwise known as the Civil
Code of the Philippines, took effect on
&ugust 31, !#,1, those provisions of the old
Civil Code on insurance were also e.pressl+
repealed$
Presidential Decree ' 0!2, as amended,
which ordained and instituted the )nsurance
Code of the Philippines, was promulgated on
Decem(er !", !#7 during the period of
martial law$ )t repealed &ct ' 227, as
amended$ Before Presidential Decree 0!2,
amendments to the &ct were made (+ PDs '
03, !23, 3!7$
Presidential Decree ' !01, consolidated all
insurance laws into a single code known as
the )nsurance Code of !#7"$ Basicall+, it
reenacted Presidential Decree ' 0!2, as
amended$ )t has (een amended (+
Presidential Decree ' !"! and Batas
Pam(ansa Blg$ "7$
1.(. Laws "o$ernin! Insurance
)nsurance Code of !#7"
The law on insurance is contained now in
the )nsurance Code of !#7" CPD ' !01,
as amendedD and special laws and
partl+, in the pertinent provisions of the
Civil Code$
The )nsurance Code primaril+ governs
the different t+pes of insurance
contracts and those engaged in
insurance (usiness in the Philippines$ )t
took effect on *une !!, !#7", the date of
its promulgation 7without preAudice,
however, to the effectivit+ dates of
various laws, decrees and e.ecutive
orders which have so far amended the
provisions of the )nsurance Code of the
Philippines CPD 0!2D9
Civil Code
The provisions of the Civil Code dealing
on insurance are found in articles 73#
and 21!2 Cvoid donationsD, &rticle 21!!
Capplica(ilit+ of the Civil CodeD, &rticles
212!=2127 Clife annuit+ contractsD,
&rticle 2!"0 Ccompulsor+ motor vehicle
lia(ilit+ insuranceD, and &rticle 2217
Cright of su(rogationD$
Special laws
The )nsurance Code of !#7" CPD
!01D
The -evised /overnment Service
)nsurance &ct of !#77 CPD !!0, as
amendedD, with respect to insurance
of government emplo+ees
The Social Securit+ &ct of !#, C-&
!!0!, as amendedD with respect to
insurance of emplo+ees in private
emplo+ment
<thers E insofar as the Civil Code is
concerned, the Code of Commerce is
considered a special law
-& 0,0 Cas amended (+ PD 2,D,
known as the 7Propert+ )nsurance
;aw,9 dealing with government
propert+
-& "#" Cas amended (+ -& ,7,0D
providing life, disa(ilit+ and accident
insurance coverage to (aranga+
officials
F< 2,1 C*ul+ 2,, !#"7D increases,
integrates and rationali5es the
insurance (enefits of (aranga+ official
sunder -& "#" and mem(ers of
Sangguniang Panlalawigan,
Sangguniang Panlungsod, and
Sangguniang Ba+an under PD !!7$
The insurance (enefits are e.tended
(+ the /S)S$
-& 3,#! Cas amendedD esta(lishes
the Philippine Deposit )nsurance
Corporation which insures the
deposits of all (anks which are
entitled to the (enefits of insurance
under this &ct
Chapter II
T') CONTRCT O% INSURNC)
1. Definitions
1.1. Section (* Insurance Code
Sec$ 2$ %henever used in this Code, the following
terms shall have the respective meanings
hereinafter set forth or indicated, unless the
conte.t otherwise re:uires6
C!D & Gcontract of insuranceG is an agreement
where(+ one undertakes for a consideration to
indemnif+ another against loss, damage or lia(ilit+
arising from an unknown or contingent event$
& contract of suret+ship shall (e deemed to (e an
insurance contract, within the meaning of this
Code, onl+ if made (+ a suret+ who or which, as
such, is doing an insurance (usiness as
hereinafter provided$
C2D The term Gdoing an insurance (usinessG
or Gtransacting an insurance (usinessG, within
the meaning of this Code, shall include CaD
making or proposing to make, as insurer, an+
insurance contract? C(D making or proposing to
make, as suret+, an+ contract of suret+ship as a
vocation and not as merel+ incidental to an+
other legitimate (usiness or activit+ of the
suret+? CcD doing an+ kind of (usiness, including
a reinsurance (usiness, specificall+ recogni5ed as
constituting the doing of an insurance (usiness
within the meaning of this Code? CdD doing or
proposing to do an+ (usiness in su(stance
e:uivalent to an+ of the foregoing in a manner
designed to evade the provisions of this Code$
)n the application of the provisions of this Code
the fact that no profit is derived from the making
of insurance contracts, agreements or
transactions or that no separate or direct
consideration is received therefore, shall not (e
deemed conclusive to show that the making
thereof does not constitute the doing or
transacting of an insurance (usiness$
C3D &s used in this code, the term
GCommissionerG means the G)nsurance
CommissionerG$
1.(. +Contract of Insurance,
&n agreement (+ which one part+
CinsurerD for a consideration CpremiumD
paid (+ the other part+ CinsuredD,
promises to pa+ mone+ or its e:uivalent
or to do some act valua(le to the latter
Cor his nomineeD, upon the happening of
a loss, damage, lia(ilit+, or disa(ilit+
arising from an unknown or contingent
event$
-hite "old .arine Ser$ices $s. Pioneer
/(0012
&n insurance contract is a contract is a contract
of indemnit+ wherein one undertakes for a
consideration to indemnif+ another against loss,
damage, or lia(ilit+ arising from an unknown or
contingent event$ -egulation (+ the state
through a license or certification of authorit+ is
necessar+ since a contract of insurance involves
pu(lic interest$
1.3. +Doin! an Insurance 3usiness,
General Rule: &n insurance (usiness consists
of undertaking, for a consideration, to
indemnif+ another against loss, damage or
lia(ilit+ arising from an unknown or
contingent event
Supplementary Rule: The fact that an
esta(lishment is not formall+ designated as
one of insurance does not preclude its (eing
deemed to (e engaged in an insurance
(usiness if it undertakes an+ of the following
Ceven if not for profit or for an+ independent
considerationD6
4aking or proposing to make, as insurer,
an+ insurance contract
4aking or proposing to make, as suret+,
an+ contract of suret+ ship as a vocation
Doing an+ king of (usiness, including a
reinsurance (usiness, specificall+
recogni5ed as constituting the doing of an
insurance (usiness with the meaning of
this Code
Doing or proposing to do an+ (usiness in
su(stance e:uivalent to an+ of the
foregoing in a manner designed to evade
the provisions of the )nsurance Code
(. )le4ents
(.1. Insura5le interest
The insured has an insura(le interest in
the thing or the life of the insured

(.(. Ris# of Loss or Da4a!e 6

Desi!nated Peril as Cause
The happening of the designated events,
either unknown or contingent, past or
future, will su(Aect such interest to some
loss, whether in the form of inAur+,
damage, or lia(ilit+

(.3. Consideration& Pre4iu4

The insurer undertakes to assume the
risk of such a loss for a consideration
called the premium to (e paid (+ the
insured
(.7. Ris# Distri5utin! Sche4e
This assumption of risk is part of a general
scheme to distri(ute the loss among a
large num(er of persons e.posed to
similar risks
3. Characteristics6Nature of
Insurance Contracts
3.1. Consensual
Perfected (+ the meeting of the minds of
the parties
)f an application for insurance has not
(een either accepted or reAected, there
is no contract as +et
3.(. 8oluntar9
)t is not compulsor+ and the parties ma+
incorporate such terms and conditions as
the+ ma+ deem convenient which will (e
(inding provided the+ do not contravene
an+ provision of law and are not
opposed to pu(lic polic+
Though generall+ a
voluntar+ contract, the
carr+ing of insurance,
particularl+ lia(ilit+
insurance, ma+ (e re:uired
(+ law in certain
circumstances such as for
motor vehicles, or
emplo+ees C;a(or Code &rt$
!0"=!"D or as a condition
to granting a license to
conduct a (usiness or
calling affecting pu(lic
safet+ or welfare
Social insurance for
mem(ers of /S)S and for
emplo+ees of the private
sector covered (+ the SSS
is also esta(lished (+ law
3.3. leator9
&rt$ 21!1$ B+ an aleator+ contract, one of the
parties or (oth reciprocall+ (ind themselves to
give or to do something in consideration of what
the other shall give or do upon the happening of
an event which is uncertain, or which is to occur
at an indeterminate time$

)t depends upon some contingent event
Hot a contract of chance although the
event against the occurrence of which it
is intended to provide ma+ never occur
)t means one of the parties or (oth
reciprocall+ (ind themselves to give or
to do something in consideration of what
the other shall give or do upon the
happening of the event which is
uncertain, or which is to occur at an
indefinite time
Fach part+ must take a risk
)nsurer = (eing compelled upon
the happening of the
contingenc+, to pa+ the entire
sum agreed upon
)nsured E parting with the
amount re:uired as premium
without receiving an+thing in
case the contingenc+ does not
happen e.cept what is ordinaril+
termed 7protection9 which is itself
is a valua(le consideration
3.7. ):ecutor9 /insurer2 and e:ecuted
/insured2
F.ecutor+ on the part of the insurer in the
sense that it is not e.ecuted until
pa+ment for a loss
)t is e.ecuted as to the insured after
pa+ment of the premium
)t is a unilateral contract imposing legal
duties onl+ on the insurer who promises to
indemnif+ in case of loss

3.1. Conditional
)t is su(Aect to conditions the principal one
of which is the happening of the event
insured against
The contract usuall+ includes man+ other
conditions, such as pa+ment of premium
or performance of some other act, which
must (e complied with as precedent to the
right of the insured to claim (enefit under
it
3.;. contract of inde4nit9 /e:cept
life and accident insurance where the
result is death2
The promise of the insurer is to make
good onl+ the loss of the insured
&n+ contract that contemplates a possi(le
gain to the insured (+ the happening of
an+ event upon which the lia(ilit+ of the
insurer (ecomes fi.ed is contrar+ to the
nature of insurance
Ho person ma+ secure insurance upon
propert+ in which he has no interest$
)f the insured has no insura(le interest,
the contract is void and unenforcea(le as
(eing contrar+ to pu(lic polic+ (ecause it
affords a temptation to the insured to
wish or (ring a(out the happening of the
loss
3.<. n in$est4ent /life insurance2
4easure of economic securit+ for the
insured during life, and (eneficiar+ after
death
3inancial assistance during financial crisis
;ia(ilit+ of insurer is face value of the
polic+ and not the earning capacit+ of the
insured at the time of death
3.=. personal contract
Fach part+ having in view the credit,
character and conduct of another
&s a rule, the insured cannot assign,
(efore the happening of the loss, his
rights under a propert+ polic+ without the
consent of the insurer$ The o(ligation of
the insurer to pa+ does not attach or run
with the propert+ whether it (e real
propert+ or personal
)f a person whose propert+ is
insured sells it to another, the
(u+er cannot (e his successor in
the contract of insurance unless,
of course, the sale is with the
consent of the insurer or unless
(+ e.press stipulation of the
parties, the contract is made to
run with the propert+ of the
transferee
%here the insurance is 7on
account of the owner9 or 7for
whom it ma+ concern9 or where
7the loss is pa+a(le to (earer,9
the su(se:uent transferees or
owners (ecome (+ the terms of
the contract, the real parties to
the contract of insurance$
&ll insurance contracts share a common
trait of 7personal=ness9
Personal insurance Cincludes
life, health, accident, and
disa(ilit+ insuranceD E applies
onl+ to a particular individual,
and it is not possi(le, for
e.ample, for the insured
unilaterall+ declaring that his
health insurance polic+ shall
now (e deemed to cover the
health of someone else
;ia(ilit+ insurance E each person
purchases coverage for his own
Cor a group of related personsD
potential lia(ilit+ to others$ The
insurer prices the coverage
depending on the characteristics
and traits of the particular
insured
Propert+ insurance = the
insurance is on the insuredIs
interest in the propert+, not on
the propert+ itself$ )t is the
damage to the personal interest
not the propert+ that is (eing
reim(ursed
;ife insurance E /FHF-&;;J
&SS)/H&B;F as the+ are in the
nature of propert+ and do not
represent a personal agreement
(etween insured and insurer

3.>. contract of adhesion

Polic+ is presented to the insured
alread+ in its printed form
7Take it or leave it9
3.10. Of hi!hest de!ree of !ood faith
Fach part+ is enAoined (+ law to deal with
each other in good faith
Disclosure or the dut+ to disclose
Kiolation of the dut+ gives the other part+
the right to rescind the contract
3.11. It is propert9 in le!al
conte4plation
7. Re?uisites of a $alid
contract of insurance
& su(Aect matter in which the insurer has
an insura5le interest
)$ent or peril insured against which ma+
(e an+ CfutureD contingent or unknown
event, past or future CSec$ 3D, and a
duration for the risk thereof
& pro4ise to pa9 or inde4nif9 in a
fi.ed or ascertaina(le amount
& consideration for the promise known
as a 7premium9
& 4eetin! of the 4inds of the parties
upon all of the foregoing essentials
The parties must (e co4petent to enter
into the contract
Bnder Sec$ 220, 7no polic+ of insurance
shall (e issued or delivered within the
Philippines unless in the for4 previousl+
approved (+ the )nsurance Commissioner9
The purpose must not (e contrar+ to law
or pu(lic polic+
1. Contracts for Contin!ent
Ser$ices@ PreAneed Plans and
Si4ilar rran!e4ents
1.1. Contracts for Contin!ent Personal
Ser$ices
)t does not necessaril+ follow that a
contract containing the a(ovementioned
elements would (e an insurance contact
The primar+ purpose of the parties
making the contract ma+ negate the
e.istence of an insurance contract
& law firm which enters into contracts
with clients in consideration of
periodical pa+ments, where it
promises to represent such clients in
all suits for or against them, is not
engaged in an insurance (usiness$ )ts
contracts are simpl+ for the purpose
of rendering personal services
& contract (+ which a consideration of
a stipulated amount, agrees at its own
e.pense to defend a ph+sician against
all suits for damages for malpractice
is one of insurance, and the
corporation will (e deemed as
engaged in the (usiness of
insurance
Bnlike the law+erIs retainer contract,
the essential purpose of such a
contract is not to render personal
services, (ut to indemnif+ against
loss or damage resulting from the
defense of actions for malpractice$
& corporation which enters into
contracts with car owners and
agrees to engage and pa+ for the
services of a law+er to handle an+
damage case arising from collision
of their cars, is engaged in the
insurance (usiness and must
therefore compl+ with the laws
relative to the transaction of
insurance (usiness and should (e
licensed as such (efore it can
lawfull+ transact such (usiness
Such contracts do not provide for
the pa+ment of an+ sum directl+ to
the contractee, (ut it does provide
for the relief of the contractee from
the e.penses of emplo+ing an
attorne+
)t would (e immaterial that the
contract states on its face that it is
not a contract of insurance, for the
nature of the contract cannot (e
changed (+ such a declaration
1.(. Contracts with Contin!ent
Incidental 3enefit
)n the case of Attorney General ex rel Monk
vs. C.E. Osgood Co., the defendant compan+
was engaged in the (usiness of selling
household furniture on the installment plan$
Bnder the contracts with its customers,
although deliver+ would (e made at the time
of the contract, title to the furniture would
not pass until all pa+ments have (een
completed$ Said contracts also provided that
should the (u+er die (efore full pa+ment of
the agreed price, the unpaid (alance would
(e remitted to the e.tent of L,11$
The )nsurance Commissioner, through the
&tt+$ /en$, claiming that this last provision
made it an insurance contract (rought suit to
restrain the defendant from pursuing its
(usiness without first securing the proper
license$ The Court upheld the &ttorne+
/eneralIs contention and issued an
inAunction holding that the contract had all
the elements of an insurance contract$
%hether this clause in the contract is
ancillar+ to defendantIs chief (usiness or is
mainl+ for advertising ends was held
irrelevant in view of the prohi(ition against
the making of insurance contracts (+
companies not authori5ed (+ law$
)t would seem, however, that the purpose of
the stipulation, taken with its effects in case of
the death of the (u+er, did not warrant a
holding that the furniture compan+ should first
secure a license to engage in the insurance
(usiness$ &lthough all the elements of an
insurance contract ma+ seem to (e present,
+et the furniture (u+er andMor his heirs did
not, under the circumstances, need the
protection which the law aims to give the
insuring pu(lic (+ the re:uirement of a prior
license$
3irst of all, when the (u+er purchased the
furniture, he must have seen and e.amined it
and must have (elieved that it was worth the
amount he agreed to pa+ for it$ Secondl+, the
furniture was delivered to him at the time of
the contract and used (+ him thereafter$
Bpon his death, his heirs continued enAo+ing
the use of the furniture$ Therefore, the (u+er
andMor his heirs stood to lose nothing (+ the
:uestioned stipulation, and if at all, stood to
gain (+ it$
1.3. PreAneed Plans
Phila4care 'ealth S9ste4s $s. C
Ratio& Section 3 of the )nsurance Code states
that an+ contingent or unknown event, whether
past or future, which ma+ damnif+ a person having
an insura(le interest against him, ma+ (e insured
against$ Fver+ person has an insura(le interest in
the life and health of himself$ Section !1
provides6 Fver+ person has an insura(le interest
in the life and health C!D for himself, of his spouse
and of his children? C2D of an+ person on whom he
depends wholl+ or in part for education or support,
or in whom he has a pecuniar+ interest? C3D of an+
person under a legal o(ligation to him for the
pa+ment of the mone+, respecting propert+ or
service, of which death or illness might dela+ or
prevent the performance? and CD of an+ person
upon whose life an+ estate or interest vested in
him depends$ )n the case at (ar, the insura(le
interest of respondentIs hus(and in o(taining the
health care agreement was on his own health$
The health care agreement was in the nature of
non=life insurance, which is primaril+ a contract of
indemnit+$ <nce the mem(er incurs hospital,
medical or an+ other e.pense arising from
sickness, inAur+ or other stipulated contingent, the
health care provider must pa+ for the same to the
e.tent agreed upon under the contracts$
;. Classification
under the Code
;.1. Life = defined as a mutual agreement (+
which a part+ agrees to pa+ a given sum on the
happening of a particular event contingent on
the duration of human life, in consideration of
the pa+ment of a smaller sum immediatel+, or in
periodical pa+ments (+ the other part+
aD )ndividual life
Sec$ !7#$ ;ife insurance is insurance on
human lives and insurance appertaining thereto
or connected therewith$
Sec$ !"1$ &n insurance upon life ma+ (e
made pa+a(le on the death of the person, or on
his surviving a specified period, or otherwise
contingentl+ on the continuance or cessation of
life$
Fver+ contract or pledge for the pa+ment of
endowments or annuities shall (e considered a
life insurance contract for purpose of this Code
)n the a(sence of a Audicial guardian, the father,
or in the latterNs a(sence or incapacit+, the
mother, or an+ minor, who is an insured or a
(eneficiar+ under a contract of life, health or
accident insurance, ma+ e.ercise, in (ehalf of
said minor, an+ right under the polic+, without
necessit+ of court authorit+ or the giving of a
(ond, where the interest of the minor in the
particular act involved does not e.ceed twent+
thousand pesos$ Such right ma+ include, (ut
shall not (e limited to, o(taining a polic+ loan,
surrendering the polic+, receiving the proceeds
of the polic+, and giving the minorNs consent to
an+ transaction on the polic+$
Sec$ !"1=&$ The insurer in a life insurance
contract shall (e lia(le in case of suicides onl+
when it is committed after the polic+ has (een in
force for a period of two +ears from the date of
its issue or of its last reinstatement, unless the
polic+ provides a shorter period6 Provided,
however, That suicide committed in the state of
insanit+ shall (e compensa(le regardless of the
date of commission$ C&s amended (+ Batasang
Pam(ansa Blg$ "7D
Sec$ !"!$ & polic+ of insurance upon life or
health ma+ pass (+ transfer, will or succession to
an+ person, whether he has an insura(le interest
or not, and such person ma+ recover upon it
whatever the insured might have recovered$
Sec$ !"2$ Hotice to an insurer of a transfer
or (e:uest thereof is not necessar+ to preserve
the validit+ of a polic+ of insurance upon life or
health, unless there(+ e.pressl+ re:uired$
Sec$ !"3$ Bnless the interest of a person
insured is suscepti(le of e.act pecuniar+
measurement, the measure of indemnit+ under a
polic+ of insurance upon life or health is the sum
fi.ed in the polic+$
)nsurance on human lives and insurance
appertaining thereto or connected
therewith
4ade pa+a(le on the death of a person, or
on his surviving a specified period, or
otherwise contingentl+ on the continuance
or cessation of life
one insures oneIs life or that of another
against death or sickness
Fffect of suicide of insured
;ia(ilit+ of insurer in case of suicide
%hen lia(le6
The suicide is committed after the
polic+ has (een in force for a
period of 2 +ears from date of its
issue or of its reinstatement?
The suicide is committed after a
shorter period provided in the
polic+ although within the 2=+ear
period?
The suicide is committed in the
state of insanit+ regardless of the
date of commission, unless
suicide is an e.cepted risk$
OHote that the polic+ cannot provide a
period longer than 2 +ears$ So, if the
polic+ provides for a 3=+ear period and
suicide is committed within the period (ut
after 2 +ears, insurer is lia(le$
%hen not lia(le6
Suicide is not (+ reason of
insanit+ and is committed within
the 2=+ear period$
Suicide is (+ reason of insanit+
(ut is not among the risks
assumed (+ the insurer
regardless of the date of
commission$
)nsurer can show that the polic+
was o(tained with the intention to
commit suicide even in the
a(sence of an+ suicide e.clusion
in the polic+$
(D /roup life
Sec$ ,1$The polic+ shall (e in printed form which
ma+ contain (lank spaces? and an+ word, phrase,
clause, mark, sign, s+m(ol, signature, num(er, or
word necessar+ to complete the contract of
insurance shall (e written on the (lank spaces
provided therein$
&n+ rider, clause, warrant+ or endorsement
purporting to (e part of the contract of insurance
and which is pasted or attached to said polic+ is
not (inding on the insured, unless the descriptive
title or name of the rider, clause, warrant+ or
endorsement is also mentioned and written on
the (lank spaces provided in the polic+$
Bnless applied for (+ the insured or owner, an+
rider, clause, warrant+ or endorsement issued
after the original polic+ shall (e countersigned (+
the insured or owner, which countersignature
shall (e taken as his agreement to the contents
of such rider, clause, warrant+ or endorsement$
/roup insurance and group annuit+ policies,
however, ma+ (e t+pewritten and need not (e in
printed form$
4a+ (e t+pewritten and need not (e in
printed form
4em(ers usuall+ a cohesive group
Pa+ a uniform premium
Bsuall+ no medical e.amination
Hormall+ re:uires a specified
num(er of persons insured (efore
polic+ is issued
cD )ndustrial life
Sec$ 22#$ The term Gindustrial life
insuranceG as used in this Code shall mean that
form of life insurance under which the premiums
are pa+a(le either monthl+ or oftener, if the face
amount of insurance provided in an+ polic+ is not
more than five hundred times that of the current
statutor+ minimum dail+ wage in the Cit+ of
4anila, and if the words Gindustrial polic+G are
printed upon the polic+ as part of the descriptive
matter$
&n industrial life polic+ shall not lapse for non=
pa+ment of premium if such non=pa+ment was
due to the failure of the compan+ to send its
representative or agent to the insured at the
residence of the insured or at some other place
indicated (+ him for the purpose of collecting
such premium? Provided, That the provisions of
this paragraph shall not appl+ when the premium
on the polic+ remains unpaid for a period of
three months or twelve weeks after the grace
period has e.pired$
3orm of life insurance under which the
premiums are pa+a(le either monthl+ or
oftener
3ace amount of insurance provided in an+
polic+ is not more than five hundred times
that of the current statutor+ minimum
dail+ wage in the Cit+ of 4anila
Shall not lapse for non=pa+ment of
premium if such non=pa+ment was due to
the failure of the compan+ to send its
representative or agent to the insured at
the residence of the insured or at some
other place indicated (+ him for the
purpose of collecting such premium
This shall not appl+ when the
premium on the polic+ remains unpaid
for a period of three months or twelve
weeks after the grace period has
e.pired$
;.(. NonAlife E include policies covering risks to
which propert+ ma+ (e e.posed, as well as those
which cover the risk of lia(ilit+ to third persons$ )t
covers a specified period of time Cnot more than !
+earD and has a definite period of coverage$
aD 4arine
Sec$ ##$4arine )nsurance includes6
C!D )nsurance against loss of or damage to6
CaD Kessels, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
dis(ursements, profits, mone+s, securities, choses
in action, evidences of de(ts, valua(le papers,
(ottomr+, and respondentia interests and all other
kinds of propert+ and interests therein, in respect
to, appertaining to or in connection with an+ and
all risks or perils of navigation, transit or
transportation, or while (eing assem(led, packed,
crated, (aled, compressed or similarl+ prepared
for shipment or while awaiting shipment, or during
an+ dela+s, storage, transhipment, or reshipment
incident thereto, including war risks, marine
(uilderNs risks, and all personal propert+ floater
risks?
C(D Person or propert+ in connection with or
appertaining to a marine, inland marine, transit or
transportation insurance, including lia(ilit+ for loss
of or damage arising out of or in connection with
the construction, repair, operation, maintenance or
use of the su(Aect matter of such insurance C(ut
not including life insurance or suret+ (onds nor
insurance against loss (+ reason of (odil+ inAur+ to
an+ person arising out of ownership, maintenance,
or use of automo(ilesD?
CcD Precious stones, Aewels, Aewelr+, precious
metals, whether in course of transportation or
otherwise?
CdD Bridges, tunnels and other
instrumentalities of transportation and
communication Ce.cluding (uildings, their furniture
and furnishings, fi.ed contents and supplies held
in storageD? piers, wharves, docks and slips, and
other aids to navigation and transportation,
including dr+ docks and marine railwa+s, dams
and appurtenant facilities for the control of
waterwa+s$
C2D G4arine protection and indemnit+
insurance,G meaning insurance against, or
against legal lia(ilit+ of the insured for loss,
damage, or e.pense incident to ownership,
operation, chartering, maintenance, use, repair,
or construction of an+ vessel, craft or
instrumentalit+ in use of ocean or inland
waterwa+s, including lia(ilit+ of the insured for
personal inAur+, illness or death or for loss of or
damage to the propert+ of another person$
<cean marine insurance E an insurance
against risk connected with navigation,
to which a ship, cargo, freightage,
profits or other insura(le interest in
mova(le propert+, ma+ (e e.posed
during a certain vo+age or a fi.ed period
of time
)nland marine insurance E it is of
comparativel+ recent origin and covers
primaril+ the land or over the land
transportation perils of propert+ shipped
(+ railroads, motor trucks, airplanes,
and other means of transportation$ )t
also covers risks of lake, river, or other
inland waterwa+ transportation and
other water(orne perils outside of those
risks that fall definitel+ within the ocean
marine categor+
(D 3ire
Sec$ !07$ &s used in this Code, the term
Gfire insuranceG shall include insurance against
loss (+ fire, lightning, windstorm, tornado or
earth:uake and other allied risks, when such
risks are covered (+ e.tension to fire insurance
policies or under separate policies$
cD Casualt+ or ;ia(ilit+ )nsurance
Sec$ !7$ Casualt+ insurance is insurance
covering loss or lia(ilit+ arising from accident or
mishap, e.cluding certain t+pes of loss which (+
law or custom are considered as falling
e.clusivel+ within the scope of other t+pes of
insurance such as fire or marine$ )t includes, (ut
is not limited to, emplo+erNs lia(ilit+ insurance,
motor vehicle lia(ilit+ insurance, plate glass
insurance, (urglar+ and theft insurance, personal
accident and health insurance as written (+ non=
life insurance companies, and other su(stantiall+
similar kinds of insurance$
dD Suret+ship
Sec$ !7,$ & contract of suret+ship is an
agreement where(+ a part+ called the suret+
guarantees the performance (+ another part+
called the principal or o(ligor of an o(ligation or
undertaking in favor of a third part+ called the
o(ligee$ )t includes official recogni5ances,
stipulations, (onds or undertakings issued (+ an+
compan+ (+ virtue of and under the provisions of
&ct Ho$ ,30, as amended (+ &ct Ho$ 2210$
Sec$ !70$ The lia(ilit+ of the suret+ or
sureties shall (e Aoint and several with the o(ligor
and shall (e limited to the amount of the (ond$ )t
is determined strictl+ (+ the terms of the contract
of suret+ship in relation to the principal contract
(etween the o(ligor and the o(ligee$ C&s amended
(+ Presidential Decree Ho$ !,,D
Sec$ !7"$ Pertinent provisions of the Civil
Code of the Philippines shall (e applied in a
suppletor+ character whenever necessar+ in
interpreting the provisions of a contract of
suret+ship$
& contract of suret+ship shall (e deemed
to (e an insurance contract, onl+ if made
(+ a suret+ who or which is doing an
insurance (usiness
;.3. 8ariations in Life Insurance
Contracts
aD %hole life plan
The terms of which the insured is re:uired
to pa+ a certain fi.ed premium annuall+ or
at more fre:uent intervals throughout life
and the (eneficiar+ is entitled to receive
pa+ment under the polic+ onl+ after the
death of the insured
The ultimate pa+ment of the insurance
proceeds is as certain as death itself
(D ;imited pa+ment plan
The terms of which the premiums are
pa+a(le onl+ during a limited period of
+ears, usuall+ ten, fifteen, or twent+
%hen the specified num(er of premium
pa+ments have (een made, the insurance
is full+ paid for
)t is like whole life policies in that it is
pa+a(le onl+ at the death of the insured
)f the insured should die within the
specified period, his (eneficiar+ is entitled
to all the proceeds of the polic+ without
an+ lia(ilit+ for the unpaid premiums
Because of the limited num(er of
pa+ments to (e made (+ the insured,
the premiums are proportionatel+ higher
cD Term plan
<ne which provides coverage onl+ of the
insured dies during a limited period
)t is an insurance for a fi.ed or a specific
term, such as two, five, or ten +ears
)f the insured dies within the period
specified, the polic+ is paid to the
(eneficiar+
)f he survives the period, the contract
terminates
The premium paid is levied during the
specified terms and increases with each
renewal term or the amount of the
coverage declines, and this is (ecause
as a person ages, the risk of death
increases
The premium is lower than in the case of
whole life policies (ecause of the
possi(ilit+ that the insurer ma+ not (e
o(liged to pa+ an+thing in proceeds
whatsoever if the insured survives the
term
dD Pure endowment plan
)nsured pa+s premium for a specified
period and should he survive the period,
the insurance compan+ pa+s him the
face value of the polic+
)f he should die within the period the
insurance compan+ is released from an+
lia(ilit+ and unless provided in the
contract, need not reim(urse an+ part of
the premiums paid
eD Fndowment plan
The terms of which the insurer (inds
himself to pa+ a fi.ed sum to the insured
if he survives for a specified period
Cmaturit+ date stated in the polic+D, or if
he dies within such period, to some
other person indicated
The premium is higher (ecause the cash
values of the polic+ grow more rapidl+$
This kind of polic+ differs from the
limited pa+ment life polic+ in that in the
case of the latter, the polic+ is paid onl+
upon the death of the insured
The insured stands a chance of (eing
paid the proceeds of the polic+ while still
alive
The proceeds on maturit+ can (e paid
either in a lump sum or as an annuit+
<. Construction 6
Interpretation of Insurance
Contracts
<.1. -here there is 45i!uit9 or
Dou5t
&s a general rule, contracts of insurance
are to (e construed li(erall+ in favor of
the insured and strictl+ against the
insurer, resolving all am(iguities against
the latter, so as to effect its dominant
purpose of indemnit+ or pa+ment to the
insured, especiall+ were a forfeiture is
involved
&n insurance contract should (e so
interpreted as to carr+ out the purpose for
which the parties entered into the contract
which is to insure against risk of loss,
damage or lia(ilit+ on the part of the
insured
The insurer is under the dut+ to make its
meaning clear if it desires to limit or
restrict the operation of the general
provisions of its contract (+ special
proviso, e.ception or e.emption
& polic+ of insurance which contains
e.ceptions or conditions tending to work a
forfeiture of the polic+ shall (e interpreted
most favora(l+ toward those against
whom the+ are intended to operate and
most strictl+ against the insurance
compan+ or the part+ for whose (enefit
the+ are inserted
%here restrictive provisions are open to
two interpretations, that which is most
favora(le to the insured is adopted$
;imitations of lia(ilit+ must (e construed
in such a wa+ as to preclude the insurer
from non compliance with its o(ligations
<.(. -here Ter4s are Clear
The cardinal principle of insurance law of
interpreting insurance contracts favora(l+
to the insured is applica(le onl+ in cases
of dou(t, not when the intention of the
polic+ is clear or the language is
sufficientl+ clear to conve+ the meaning of
the parties
The court is (ound to adhere to the
insurance contract as the authentic
e.pression of the intention of the parties,
and it must (e construed and enforced
according to the sense and meaning of the
terms which the parties themselves have
used$
)f such terms are clear and certain, the+
must (e taken in their plain and ordinar+
sense
<(ligations arising from contracts have
the force of law (etween the contracting
parties and should (e complied with in
good faith
<.3. Literal or Strict Interpretation
%irst BueCon Cit9 Insurance $s. C
%acts& Del -osario fell off a De Dios 4arikina
Transportation Co$ )nc$ (us$ Del -osario was
(rought to the hospital and sta+ed there for 1
da+s$ The cost for the hospitali5ation
amounted to P0#, while unearned salar+
due to confinement amounted to P7,,11$ Del
-osario filed a complaint against D4TC and its
insurance compan+, 3irst Pue5on Cit+
)nsurance Compan+$
'eld& The insurance compan+Is lia(ilit+
should (e limited to P!2,111 onl+$ The
insurance polic+ clearl+ placed the ma.imum
limit of 3irst Pue5on Cit+Is lia(ilit+ for damages
arising from death or (odil+ at P!2,111 per
passenger and its ma.imum lia(ilit+ per
accident at P,1,111$ This means that the
insurerIs ma.imum lia(ilit+ for an+ single
accident will not e.ceed ,12 regardless of the
num(er of the passengers killed or inAured$
T9 $s. %irst National
%acts& T+ was a mechanic foreman in the
Broadwa+ Cotton 3actor+$ & fire (roke out
which totall+ destro+ed the factor+$ &s T+ was
fighting his wa+ out of the factor+, he inAured
his left hand, causing temporar+ total disa(ilit+
due to fractures o his inde., middle, and fourth
fingers$ >e filed a notice of accident and claim
to recover indemnit+ from 3irst Hational Suret+
L assurance Co$ )nc$, pursuant to his insurance
polic+ which provides6 78the loss of a hand
shall mean the loss (+ amputation through the
(ones of the wrist89 The insurance compan+
reAected T+Is claim sa+ing that since there was
no severance (+ amputation of the hand, the
disa(ilit+ suffered (+ him was not covered
under the polic+$
'eld& The insurance compan+ is not lia(le to
indemnif+ T+$ %e cannot go (e+ond the clear
and e.press conditions of the insurance
policies, all of which define partial disa(ilit+ as
loss of either hand (+ 7amputation through the
(ones of the wrist9 There was no amputation
in this case$ The agreement contained in the
insurance policies is the law (etween the
parties$ &n interpretation that would include
the mere fracture or other temporar+ disa(ilit+
not covered (+ the policies would certainl+ (e
unwarranted$
.isa4is Lu45er $s. Capital Inc.
%acts& 4isamis ;um(er Corporation, insured
its motor car for the amount of P!,111$ The
insured car, passed over a water whole which
the driver did not see (ecause an oncoming
car did not dim its lights$ The car was later
towed and repaired (+ 4orosi 4otors at a total
cost of P312$27$ Capital )nsurance refused to
pa+ for the total cost of towage and repairs$
'eld& The insurance compan+ is not lia(le for
the pa+ment of the repairs in e.cess of P!,1$
The insurance polic+ stipulated in paragraph
that if the insured authori5es the repair, the
lia(ilit+ of the insurer is limited to P!,1$ The
literal meaning of this stipulation must control, it
(eing the actual contract, e.pressl+ and plainl+
provided for in the polic+$ The polic+ is also
drew out not onl+ the limits of the insurerIs
lia(ilit+ (ut also the mechanics that the insured
had to follow to (e entitled to full indemnit+ of
repairs$ The option to undertake the repairs is
accorded to the insurance compan+ per
paragraph 2$ The said compan+ was deprived of
the option (ecause the insured took it upon itself
to have the repairs made, and onl+ notified the
insurer when the repairs were done$ &s a
conse:uence, paragraph , which limits the
compan+Is lia(ilit+ to P!,1 applies$
Sun Insurance $s. C
%acts& Tan took from Sun )nsurance a propert+
insurance worth 3112 to insure his interest in
the electrical suppl+ store of his (rother housed
in a (uilding in )loilo Cit+$ 3our da+s after, the
(uilding was (urned down including the insured
store$ %hen Tan filed a claim with the insurance
compan+, the same was denied, after which he
asked for reconsideration which was again
denied$ )t is stipulated in the insurance polic+
that an+ action should (e filed with the
)nsurance Commission or an+ court of
competent Aurisdiction within !2 months after
receipt (+ the insured of a reAection of his claim
and failure to do so would constitute
a(andonment of claim and can no longer (e
recovera(le$
'eld& The !2=month prescriptive period
commenced upon receipt (+ Tan of the
reAectionMdenial of his claim (+ Sun )nsurance
and does not stop upon filing of the motion for
reconsideration$ The words of the provisions in
the insurance polic+ is clear and free from an+
dou(t or am(iguit+ whatsoever and thus must
(e taken and understood in its plain, ordinar+
and popular sense$
%ortune Insurance $s. C
%acts& &n armored car of Producers Bank, while
in the process of transferring cash in the sum of
72,2, was ro((ed of the said cash$ &fter an
investigation (+ police authorities, the driver and
the guard were charged with Kiolation of PD
,32, the &nti=>ighwa+ -o((er+ ;aw$ Demands
were made (+ the (ank upon the insurance
compan+ to pa+ the amount of 72,2, (ut the
latter refused to pa+ as the loss is e.cluded from
the coverage of the insurance polic+ which
reads6 7 The compan+ shall not (e lia(le under
this polic+ in respect of $ $ $ an+ loss caused (+
an+ dishonest, fraudulent or criminal act of the
insured or an+ officer, emplo+ee, partner,
director, trustee or authori5ed representative
of the insured whether acting alone or in
conAunction with others89
'eld& The insurance compan+ is not lia(le$ )t
is clear that insofar as 3ortune is concerned, it
was its intention to e.clude and e.empt from
protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access
to the (ankIs mone+ or pa+roll$ %hen it used
the term 7emplo+ee,9 it must have in mind an+
person who :ualifies as such as generall+ and
e:uivocall+ understood, or Aurisprudentiall+
esta(lished in light of the determination of the
F-=FF relationship$ )t is settled that the terms
of the polic+ constitute the measure of the
insurerIs lia(ilit+$ )n the a(sence of statutor+
prohi(ition to the contrar+, insurance
companies have the same rights as individuals
to limit their lia(ilit+ and to impose whatever
conditions the+ deem (est upon their
o(ligations not inconsistent with pu(lic polic+
<.7. Li5eral Interpretation@
Reasona5le ):pectations
%ield4anDs Inc. $s. 8da. De Son!co
%acts& Songco owned a private Aeepne+$ >e
was induced (+ an agent of 3ieldmenIs
)nsurance to appl+ for a Common CarrierIs
)nsurance Polic+, which is applica(le to pu(lic
utilit+ vehicles$ The polic+ provides6 7the
compan+ will, su(Aect to the limits of lia(ilit+
and under terms of this polic+, indemnif+ the
insured in the event of accident caused (+ or
arising out of the use of motor vehicle against
all sums which will (ecome lia(le to pa+ in
respect of death or (odil+ inAur+ to an+ fare=
pa+ing passenger$9 During the effectivit+ of
the polic+, the insured vehicle collided with
another car killing SongcoIs son and wounding
his wife$
'eld& Doctrine of estoppel applies$ &fter
leading Songco to (elieve that he could :ualif+
under the common carrier polic+ and to enter
into the contract of insurance pa+ing the
premiums due, 3ieldmenIs cannot (e permitted
to change its stand$ &lso, e.cept for the fact
that the victims were not fare=pa+ing
passengers, their status as (eneficiaries under
the polic+ is recogni5ed$ Fven assuming there
was an am(iguit+, am(iguities or o(scurities
must (e strictl+ interpreted against the part+
that caused them$ This rigid application of the
rule of am(iguities has (ecome necessar+ in
view of current (usiness practices$
.ala9an Ins. $s. C
%acts& T2C 4arketing Corp$ was the
ownerMconsignee of some 3,!"#$!7! metric tons
of so+a (ean meal which was loaded on (oard
the ship 4K &l 2a5iemah$ Said cargo was
insured against the risk of loss (+ 4ala+an
)nsurance Corporation$ %hile the vessel was
docked in South &frica on Septem(er !#"#
enroute to 4anila, the civil authorities arrested
and detained it (ecause of a lawsuit on a
:uestion of ownership and possession$ T2C
notified the insurance compan+ of the arrest of
the vessel and made a formal claim for the
amount of BSL#!0,""0$00$ 4ala+an replied that
the arrest of the vessel (+ civil authorit+ was not
a peril covered (+ the policies$
'eld& 4ala+an insurance should (e held lia(le
for the pa+ment of the insurance claim$ Since
what was also e.cluded in the deleted 3$C$ Q S$
Clause was GarrestG occasioned (+ ordinar+
Audicial process, logicall+, such GarrestG would
now (ecome a covered risk under su(section !$!
of Section ! of the )nstitute %ar Clauses,
regardless of whether or not said GarrestG (+
civil authorities occurred in a state of war$ )t
has (een held that a strained interpretation
which is unnatural and forced, as to lead to an
a(surd conclusion or to render the polic+
nonsensical, should, (+ all means, (e avoided$
;ikewise, it must (e (orne in mind that such
contracts are invaria(l+ prepared (+ the
companies and must (e accepted (+ the insured
in the form in which the+ are written$
F.ceptions to the general coverage are
construed most strongl+ against the compan+$
Fven an e.press e.ception in a polic+ is to (e
construed against the underwriters (+ whom the
polic+ is framed, and for whose (enefit the
e.ception is introduced$
-estern "uarant9 $s. C
%acts& De Dios Transportation )nc$ 3igured in
an accident when it struck -odrigue5 who was
crossing the pedestrian lane on &irport -oad$
The driver ignored the stop signal given (+ a
traffic enforcer$ -odrigue5 was thrown to the
ground and hit her head and resulted to her face
getting permanentl+ disfigured$ De Dios
Transportation filed a complaint against %estern
/uarant+ since the+ were insured (+ %estern
under a 4aster Polic+ which provided protection
against third part+ lia(ilit+$
'eld& %estern /uarant+ is lia(le to pa+ for the
damage caused to the victim including loss of
earnings, moral damages and attorne+Is fees$
The Schedule of )ndemnities does not purport to
limit or e.haustivel+ enumerate the species of
(odil+ inAur+ to the list found in the Schedule of
)ndemnities since an accident ma+ result to an
inAur+ to internal organs not necessaril+ to a loss
of lim( Camputation of the leg, arm, finger,
handD (ut such inAuries are certainl+ covered
(+ the 4aster Plan since the+ constituted
(odil+ inAuries$ &lso, the Schedule of
)ndemnities also does not purport to restrict
the kind of damages that ma+ (e paid (+ the
insurer once lia(ilit+ has arisen, under the
;ia(ilit+ to Third Part+ clause, and does not sa+
that the limit is su(Aect to the list indicated in
the Schedule of )ndemnities$ &ll other t+pes of
damages ma+ (e awarded against the insurer
once lia(ilit+ is shown to have arisen$ &
contract of insurance is a contract of adhesion
and must (e construed strictl+ against the
part+ which prepared the contract$
Bua Chee "an $s. Law Union
%acts& This case involved a claim on a fire
insurance polic+ which contained a provision as
to the installation of fire h+drants the num(er
of which depended on the height of the
e.ternal wall perimeter of the (odega that was
insured$ %hen it was determined that the
(odega should have eleven fire h+drants in the
compund as re:uired (+ the terms of the
polic+, instead of onl+ two that it had, the
claim under the polic+ was resisted on that
ground$
'eld& The said deviation from the terms of
the polic+ did not prevent the claim under the
same$ %e are in agreement with the trial
Court that the appellant is (arred (+ waiver
Cor rather estoppelD to claim violation of the so
called fire h+drants warrant+, for the reason
that knowing full+ that the num(er of h+drants
demanded therein never e.isted from the ver+
(eginning, the appellant nevertheless issued
the policies in :uestion su(Aect to such
warrant+, and received the corresponding
premiums$ )t would (e perilousl+ received the
corresponding premiums$ )t would (e
perilousl+ close to conniving at fraud upon the
insured to allow the appellant to claim now as
void a( initio the policies that it had issue to
the plaintiff without warning of their fatal
defect, of which it was informed, and after it
had misled the defendant into (elieving that
the policies were effective$ %hen the polic+
contains a condition which renders it voida(le
at its inception, and this result is known to the
insurer, it will (e presumed to have intended
to waive the conditions and to e.ecute a
(inding contract, rather than to have deceived
the insured into thinking he is insured when in
fact he is not, and to have taken his mone+
without consideration$ The insurance compan+
is lia(le on the insurance contract$
Del Rosario $s. )?uita5le Insurance
%acts& The insurer has (ound itself under the
polic+ to pa+ P!,111=3,111 as indemnit+ for the
death of the insured for (odil+ inAur+, the polic+
containing specific amounts that ma+ (e
recovered$ The polic+, however, does not
positivel+ state an+ definitive amount that ma+
(e recovera(le in case of death (+ drowning,
although it is a ground for recover+ apart from
death for (odil+ inAur+$
'eld& There is an am(iguit+ in this respect in
the polic+, which am(iguit+ must (e interpreted
in favor of the insured and strictl+ against the
insurer to allow a greater indemnit+, that is,
P3,111$
"ea!onia $s. C
%acts& /eagonia is the owner of HormanNs 4art
located in the pu(lic market of San 3rancisco,
&gusan del Sur$ >e o(tained from the private
respondent, Countr+ Bankers )nsurance
Corporation$ The polic+ contained the following
condition6 783$ The insured shall give notice to
the Compan+ of an+ insurance or insurances
alread+ effected, or which ma+ su(se:uentl+ (e
effected, covering an+ of the propert+ or
properties consisting of stocks in trade89 3ire of
accidental origin (roke out at the pu(lic market
of San 3rancisco, &gusan del Sur$ /eagoniaIs
insured stocks=in=trade were completel+
destro+ed prompting him to file with CB)C a
claim under the polic+$ The compan+ denied the
claim and the (asis of which was the petitionerNs
alleged violation of Condition 3 of the polic+$
'eld& /eagonia is not precluded from
recovering from Countr+ Bankers$ Condition 3
of the polic+ is a condition which is not
proscri(ed (+ law$ )ts incorporation in the polic+
is allowed (+ Section 7, of the )nsurance Code
which provides that GRaS polic+ ma+ declare that
a violation of specified provisions thereof shall
avoid it, otherwise the (reach of an immaterial
provision does not avoid the polic+$G )ts
violation would thus avoid the polic+$ >owever,
in order to constitute a violation, the other
insurance must (e upon the same su(Aect
matter, the same interest therein, and the same
risk$ &s to a mortgaged propert+, the
mortgagor and the mortgagee have each an
independent insura(le interest therein and (oth
interests ma+ (e covered (+ one polic+, or each
ma+ take out a separate polic+ covering his
interest, either at the same or at separate times$
$ )t is a cardinal principle of law that forfeitures
are not favored and that an+ construction which
would result in the forfeiture of the polic+
(enefits for the person claiming, will (e avoided,
if it is possi(le to construe the polic+ in a
manner which would permit recover+, as, for
e.ample, (+ finding a waiver for such forfeiture$
Provisions, conditions or e.ceptions in policies
which tend to work a forfeiture of insurance
policies should (e construed most strictl+
against those for whose (enefits the+ are
inserted, and most favora(l+ toward those
against whom the+ are intended to operate$
Sun Insurance $s. C
%acts& Sun )nsurance issued a Personal
&ccident Polic+ to ;im with a face value of
2112$ Two months later he was dead with a
(ullet wound on his head$ ;imIs death was
caused when he was pla+ing with his handgun
which accidentall+ fired$ >is wife sought
pa+ment on the polic+ (ut her claim was
reAected$ The contention of Sun )nsurance was
that ;im willfull+ e.posed himself to needless
peril and thus removed himself from the
coverage of the insurance polic+$ Bnder the
e.ceptions clause of the polic+, the insurance
compan+ shall not (e lia(le when the insured
person attempting to commit suicide or
willfull+ e.posing himself to needless peril
e.cept in an attempt to save human life$
'eld& The cause of ;imIs death was an
accident within the limits set forth in the polic+
and therefore not e.empt from the lia(ilit+ of
the insurer$ The definition of an accident is
7an event which happens without an+ human
agenc+ or, if happening through human
agenc+, an event which under the
circumstances, is unusual to and not e.pected
(+ the person to whom it happens89 Contrar+
to the contention of Sun )nsurance, ;im did
not intentionall+ e.pose himself to danger, as
testified (+ his secretar+, he removed the
maga5ine of the gun to ensure that it would
not fire and pointed it to his temple in the
(elief that it is safe to do so$
RiCal Suret9 $s. C
%acts& -i5al Suret+ issued a fire insurance
polic+ for Transworld 2nitting 4ills$ & fire
(roke out in the compound of Transworld,
ra5ing the middle portion of the four=span
(uilding and partl+ gutting the left and right
sections$ )t also destro+ed the two=store+
anne. (uilding where fun and amusement
machines and spare parts were stored$
Transworld filed insurance claim with -i5al (ut
to no avail$ -i5alIs contention is that the polic+
covered onl+ the contents of the four=span
(uilding which was onl+ partl+ (urned and not
the damage caused to the two=store+ anne.
(uilding$
'eld& The anne. (uilding and the contents
are covered under the polic+$ The so called
7anne.9 formed an integral and insepara(le
part of the four=span (uilding$ )t was a
Rpermanent structure which adAoined the =
store+ (uilding descri(ed in the polic+ and
conse:uentl+, the things stored therein were
covered (+ the insurer$ Considering that the
anne. was alread+ e.isting when the insurance
polic+ was contracted, -i5al should have
specificall+ e.cluded it from the coverage of the
fire insurance if it wanted to (ut it did not$
Dou(t should (e resolved against -i5al who
drafted the insurance polic+ contract$ This is
(ecause the insured usuall+ has no voice in the
selection or arrangement of the words emplo+ed
and that the language of the contract is selected
with great care and deli(eration (+ e.perts and
legal advisers emplo+ed (+, and acting
e.clusivel+ in the interest of the insurance
companies$
"ulf Resorts $s Philippine Charter
Insurance Corporation /(0012
)ntention of parties is shown (+ provisions of
contracts and the amount of premium paid since
premium is the consideration paid for the risk
undertaken (+ the insurer$ %hen there is an
apparent change of the wording of an insurance
contract (ut no corresponding change in the
amount of premium paid, it will (e interpreted to
mean that there was no intended change at all$
&n assumption of additional risk is presumed to
cause a commensurate additional premium
(ecause the premium, not the mere wording of
the polic+, is a more accurate indication of such
an assumption of additional risk$
=. P)R%)CTION O% T')
CONTRCT O% INSURNC)
=.1. Offer and cceptance@
consensualit9
&pplicant usuall+ makes the offer to the
insurer$
Su(mission of application, even wM
pa+ment is a mere offer on the part of the
applicant, it does not (ind the insurer$
&pproval of the application (+ the insurer
is necessar+ to perfect contract$ )f made6
= wM pa+ment of premium E polic+
(ecomes effective
= wMo pa+ment E effective upon
pa+ment of premium
i$ Dela+ in &cceptance? Tort Theor+
Situation where applicant su(mits
application for insurance, (ut due to
negligence of compan+, wMc takes an
unreasona(l+ long time (efore
processing the application, the
applicant dies (efore the application is
processed, thus, the contract is not
perfected$
-F4FDJ6 )nsurer lia(le for
da4a!es CTort Theor+D in the
amount of the face value of the
polic+, wMc is given to the estate of
the deceased applicant$ Cnot to
(eneficiar+ (ecause contract not
perfected$ &lso, no contractual
lia(ilit+ also (ec$ no contactD
-h9 Tort Theor9 = (ecause
)nsurance (usiness is affected wM
pu(lic interest$ )t is thus, the dut+ of
insurer, wMc derives its authorit+ to
act as such from the State Cwhen it
applies to get license to (e in the
insurance (usinessD, to act wM
reasona(le promptness in either
reAecting or accepting the
application$ )n case of unreasona(le
dela+ and applicant dies, applicant
would have (een deprived of
opportunit+ to secure insurance
from another source$
ii$ Deliver+ of the Polic+
Deli$er9 E the act of putting the
insurance polic+ E the ph+sical
document E into the possession of
the insured$
)ndividual life insurance contracts
usuall+ stipulate that6
Premium (e paid and
Polic+ (e delivered to the
insured while he is alive and in
good health$ Concurrence of
(oth is necessar+$ Csee Pere5 v
C& caseD
&ctual deliver+ of the polic+ is not
essential unless the parties have so
agreed in clear language$
Constructive deliver+ ma+ (e
sufficient$ CSee Kda$ De Sinda+en
caseD
%oH polic+ was delivered after its
issuance depends not upon manual
possession (+ the insured (ut rather
upon the intention of the parties as
manifested in their acts or
agreements$
%<H Deliver+ to agent is deliver+ to
insured is a :uestion over wMc there
has (een man+ conflicting opinions$
Fffect of Deliver+6
%here deliver+ is conditional E
Hon=performance of Condition
precedent prevents contract
from taking effect
%here deliver+ is unconditional
E if corresponding terms of
application, ordinaril+
consummates the contract and
polic+ as delivered (ecomes
final contract (etween the
parties$ %here parties so intend,
insurance (ecomes effective at
the same time as deliver+
%here premium still unpaid after
unconditional deliver+ E Polic+ will
lapse if premium unpaid at time
and manner specified in the
polic+, in the a(sence of an+ clear
agreement that insurer will
e.tend credit$ )nsurer cannot (e
presumed to have e.tended credit
from the mere fact of
unconditional deliver+ of the
polic+ wMo prepa+ment of
premium, and even if such
presumption ma+ (e inferred,
there must (e a clear and e.press
acceptance (+ insured of the
insurerIs offer to e.tend credit$
PereC $ C
%acts6 Pere5, alread+ previousl+ insured with B3
;ifeman )nsurance Co$ applied for additional
coverage$ >e paid premium and was issued a
receipt (+ the agent of B3 ;ifeman$ >owever, he
died (efore his application papers were
transmitted to the head office of B3 ;ifeman$
Issue& %<H the insurance polic+ was perfected
'eld& Ho$ There was no acceptance of the offer$
The perfection of the contract was conditioned
upon compliance with the provision in the
application form wMc stated that perfection onl+
lies when the applicant pa+s and the premium and
receives and accepts the polic+ while still in good
health$ Thus, the assent of B3 ;ife was not given
when it merel+ received the application form of
Pere5 in its provincial office$ &lso, deliver+ to Pere5
would (e impossi(le as he is alread+ dead$ So long
as an application for insurance has not (een
accepted or reAected (+ the insurer, it is merel+ an
offer or proposal to make a contract$ The contract
to (e (inding from date of application must have
(een a completed contract that leaves nothing to
(e done, passed upon or determined, (efore it
shall take effect$$
8da. De Sinda9en $ Insular Life ssurance
Co.
3&CTS Dec$ !#32 &rturo Sinda+en had partiall+
paid his agent the first premium for a life
insurance polic+$ &gent and Sinda+en agreed that
polic+, when and if issued, should (e delivered to
Sinda+enIs aunt who will complete the pa+ment of
the first annual premium$ *an$ !0, !#33 E agent
received approved polic+ and delivered it to
Sinda+enIs aunt on *an$ !"$ >owever, (efore the
polic+ was given to &rturo himself, he died on *an$
!#$
)SSBF6 %<H )nsular ;ife assumed the risk covered
(+ Sinda+enIs polic+
>F;D6 JFS$ Deliver+ to the insured in person is
not necessar+, and ma+ (e made (+ mail or dul+
constituted agent Cin this case, Sinda+enIs auntD$
)nsurance compan+ is (ound (+ the acts of its
agent$ )n this case, the agent is not a mere
automaton and is vested wM some discretion in
deciding %<H the condition as to the health of
the applicant has (een complied with$ <nce he
decides that it has and delivers the polic+, then,
in the a(sence of fraud, the insurance compan+
is estopped from claiming the polic+ has no
effect$
)nri?ueC $ Sun Life ssurance Co.
%acts& >errer applied for insurance and paid the
premium, however, he died (efore he received
the notice of acceptance Cof his applicationD sent
(+ Sun ;ife from its 4ontreal head office$
Issue& %<H the insurance contract was
perfected wMo the notice of acceptance coming to
the knowledge of the applicant
'eld& H<$ Bnder the CC, Consent is shown (+
the concurrence of offer and acceptance$ &n
acceptance shall not (ind the person making the
offer e.cept from the time it came to his
knowledge$
=.(. Pre4iu4 Pa94ent
Sec$ 77 Q7"? 0
Sec. << &n )nsurer is entitled to pa+ment of the
premium as soon as the thing insured is e.posed
to the peril insured against$ Hotwithstanding an+
agreement to the contrar+, no polic+ or contract
of insurance issued (+ an insurance compan+ is
valid and (inding unless and until the premium
thereof has (een paid, e.cept in the case of a life
or an industrial life polic+ whenever the grace
period provision applies$
Pre4iu4 E the agreed price for assuming
and carr+ing the risk, that is, the
consideration paid an insurer for
undertaking to indemnif+ the insured
against the specified peril$
= if onl+ one premium is paid for
several things not separatel+ valued or
separatel+ insured, the contract is
indivisi(le or entire, not divisi(le or
severa(le, as to items insured$
S)-6 %<-ST SFCT)<H of the )nsurance
Code$ This is the cashAandAcarr9
provision Csee (elow for e.planation wh+D
%h+ it raises several :uestions CCamposD6
==)s it intended to appl+ to all classes of
insurance, or does the word 7thing9 limit it
to propert+ insuranceT &s to e.ception, it
onl+ applies to life policies wMin the grace
period wMc does not support the theor+
that it applies onl+ to propert+ insurance$
= &s to grace period, grace period in life
insurance applies onl+ to premiums
su(se:uent to the first, therefore, how
can this (e an e.ception to the ruleT
= %ith respect to non=life policies, the first
sentence gives the insurer the right to
demand the pa+ment of the premium as
soon as the 7thing insured is e.posed to
peril insured against9 This assumes the
contract is (inding even (efore the
pa+ment of the premium meaning the
contract is perfected when the applicantIs
offer is accepted (+ the insurer$ This
assumption is inconsistent wM the ne.t
sentence wMc sa+s that no polic+ can (e
(inding wMo premium pa+ment$
= &lso, Sec$ 77 and 7" seem contradictor+$
= >owever, Sir sa+s a(ove does not appl+
to life insurance (ecause ;ife )nsurance
lapses upon non=pa+ment$
Present provision came from Sec 72 of the
old )nsurance Code$ >owever, Sec$ 77 has
omitted the portion of Sec$ 72 wMc permitted
credit e.tension of the premium due
Cmeaning, e.tension of period to pa+ the
premiumD$ &pparentl+, the intention is to
put the contract of insurance on a +cashA
andAcarr9 5asis, meaning the premium
must (e paid in cash as a condition
precedent for a non=life insurance polic+ to
(e valid and (inding, and an agreement to
grant the insured credit e.tension of the
premium is void$ >owever, Makati Tuscany
v CA and the second C!" case sa+s
otherwise$ >ence, credit e.tension
agreements ma+ (e valid$
FUCFPT)<HS to Sec$ 776
)n the case of a life or an industrial
polic+ whenever the grace period
provision applies CSec$ 77D
&rticle 7" Csee (elowD
&greement to grant the insured credit
e.tension for the pa+ment of the
premium
%hen there is an agreement allowing
the insured to pa+ premium in
installment and partial pa+ment has
(een made at the time of the loss CSee
Makati Tuscany v CA#
Sec. <= &n acknowledgment in a polic+ or
contract of insurance of receipt of premium is
conclusive evidence of its pa+ment, so far as to
make the polic+ (inding, notwithstanding an+
stipulation therein that it shall not (e (inding until
the premium is actuall+ paid
Fffect of acknowledgment of receipt of
premium in propert+ E )nsurer cannot den+ the
truth of the receipt of the premium even if it is
unpaid$
;aw esta(lished a legal fiction of
pa+ment Cprima facie evidence of pa+mentD$
Thus insurer presumed to have waived the
condition of prepa+ment$
SC has decided that a(ove is an
e.ception to Sec$ 77
Sec. ;7 Ho polic+ of insurance other than life
shall (e cancelled (+ the insurer e.cept upon
prior notice thereof to the insured, and no notice
of cancellation shall (e effective unless it is
(ased on the occurrence, after the effective date
of the polic+, of one or more of the following6
CaD non=pa+ment of premium?
C(D conviction of a crime arising out of
acts increasing the ha5ard insured against?
CcD discover+ of fraud or material
misrepresentation
CdD discover+ of willful or reckless acts
or omissions increasing the ha5ard insured
against?
CeD ph+sical changes in the propert+
insured which result in the propert+
(ecoming uninsura(le? or
CfD a determination (+ the
Commissioner that the continuation of the
polic+ would violate or would place the
insurer in violation of this Code
Cancellation E right to rescind, a(andon or
cancel a contract of insurance, termination of
polic+ (efore its e.piration$
Premium referred to in 0CaD refers to
pa+ment 7after effective date of the polic+9
(ecause Sec$ 77 ordains that insurance polic+
is valid and (inding unless and until premium
has (een paid$
Conditions under wMc a(ove e.ercised6
Prior notice of cancellation to insured
Hotice must (e (ased on the occurrence,
a$ter t%e e$$ective date o$ t%e policy& of
one or more of the grounds mentioned
)t must (e in writing, mailed or delivered
to the named insured at the address
shown in the polic+$ )n this regard, proof
of actual receipt of the notice is necessar+
for it to take effect? mere proof that the
insurer mailed the notice is not sufficient
to effect the cancellation$
)t must state wMc of the ground set forth is
relied upon$
)t is the dut+ of the insurer upon written
re:uest of the insured to furnish the facts
in which the cancellation is (ased$
)f there was no premium paid at all, the action
appropriate would (e a declaration of nullit+,
(ased on Section 77 which provides that 7no
polic+ or contract of insurance issued (+ an
insurance compan+ is valid and (inding unless
and until the premium thereof has (een paid9V
Ti5a9 $ C
%acts& 3ortune ;ife issued a fire insurance polic+
in favor of Ti(a+ on a (ldg in 4akati, together wM
all their personal effects therein$ Kioleta paid
part of the total premium$ 2 mos$ &fer, a fire
completel+ destro+ed the (ldg$ 2 da+s after the
fire, Ti(a+ paid the (alance of the premium$
3ortune denied Ti(a+Is claim for violation of
Sec77 of )nsurance Code$
Issue& %<H a fire insurance polic+ is alread+
valid, (inding and enforcea(le upon mere partial
pa+ment of premium
'eld& H< Sec$ 77 applies$ Since acceptance of
partial pa+ment is not mentioned among the
e.ceptions provided in Sec 77 and 7" of the
)nsurance Code, no polic+ of insurance can ever
pretend to (e efficacious until premium has (een
full+ paid$
= The polic+ contained a condition wMc said that
7The polic+ including an+ renewal thereof is not
in force until the premium has (een full+ paid .
. .9 Clearl+, the Polic+ provides for pa+ment of
premium in full$
Dissent: '(M!TD The insurance coverage should
(ecome effective from the da+ that the partial
pa+ment is accepted (+ the insurer, an+
stipulation in the polic+ to the contrar+
notwithstanding$ Partial pa+ment is enough to
esta(lish the Auridical relation (etween the two
parties$ The law does not re:uire a specific
amount of premium pa+ment in order to create
the Auridical tie$
= )f the contract is automaticall+ cancelled upon
the non=pa+ment in full (+ the insured, then the
efficac+ of the contract will (e full+ dependent
on his will$ This violates the principle of
mutualit+ of contracts$
.a#ati Tuscan9 $ C
%acts& &merican >ome &ssurance C&>&CD issued
in favor or 4akati Tuscan+ an insurance polic+
on the latterIs (ldg for ! +ear$ )t was renewed
over the course of 3 +ears$ )n !#"2, the total
premiums were paid in four installments (ut in
!#"3, Tuscan+ paid onl+ 2 installments and
refused to pa+ the remaining (alance$ -eason
for discontinuation6 polic+ contained a
reservation wherein 7&cceptance of pa+ment (+
&>&C will not waive an+ of the compan+ rights
to den+ lia(ilit+ on an+ claim under the polic+
arising (efore such pa+ments or after the
e.piration of the credit clause of the polic+, and
Su(Aect to no loss prior to premium pa+ment$ )f
there (e an+ loss, such is not covered$9 &>&C
filed a suit to recover the remaining (alance$
4akati Tuscan+ filed counterclaim for the total
amount of premiums it had paid during the
previous +ears$
Issue& %<H pa+ment (+ installment of
premiums due on an insurance polic+
invalidates the contract of insurance
'eld& H< The policies are valid even if the
premiums paid in installments (ecause the
records clearl+ show that the two parties
intended the policies to (e (inding and
effective notwithstanding the staggered
pa+ment of the premiums$ Te acceptance of
the installment pa+ments over the period of 3
+ears speak loudl+ of intention of insurer to
honor the policies it issued to 4akati Tuscan+$
= Sec 77 merel+ prohi(its the parties from
stipulating that the polic+ is valid even if
premiums were not paid, (ut it does not
e.pressl+ prohi(it an agreement granting
credit e.tensions$ Sec$ 7" also allows the
insurer to waive the condition of full pa+ment
(+ acknowledging in the polic+ that there has
(een receipt of premium despite the fact that
premium is actuall+ unpaid$ )f the Code allows
a waiver when no actual pa+ment has (een
made, then a waiver should also (e allowed in
this case where the insurer has alread+
acknowledged receipt of partial pa+ment$
H<TF6 )i$$erence *it% Ti+ay case: (n Ti+ay&
t%ere *as an express stipulation *,c said t%at
payment s%all +e made in $ull. (n t%is case& t%e
policy *as +inding +ecause o$ t%e prior
agreement to allo* installment payments&
%ence $ull payment under Sec.-- deemed
*aived.
UCP3 "en. Ins. $ .asa!ana Tele4art
%acts& 4asagan Telemart o(tained insurance
policies on its properties from BCPB$ The
policies had the effectivit+ term of 4a+ !##! E
4a+ !##2$ <n *une !##2, 4asaganIs
properties were ra5ed (+ a fire$ <n the same
da+, 4asagana tenedered, and BCPB accepted
renewal premium pa+ments$ The ne.t da+,
4asagana filed a claim for the (urned insured
(ldgs$ BCPB reAected the claims on the ground
that the polices e.prired on 4a+ !##2 and
were not renewed for another term and that
the fire took place (efore the tender of
premium pa+ment under the renewed polic+$
CHote6 This is a motion for reconsideration
from previous SC decision declaring that there
was no renewal of the polic+ and that BCPB
not lia(leD
Issue& %<H Sec 77 of the )nsurance Code
must (e strictl+ applied despite its practice of
granting a 01=#1 da+ credit term for pa+ment
of premium
'eld& H< There are e.ceptions to Sec 776
a$D The first is provided (+ Sec$ 77 itself and
that is, in case of a life or industrial life polic+
whenever the grace period applies
($D Sec 7"6 &n acknowledgment in a polic+ or
contract of insurance of the receipt of premium
is conclusive evidence of its pa+ment, so far as
to make the polic+ (inding, notwithstanding an+
stipulation therein that it shall not (e (inding
until premium is actuall+ paid$
c$D Sec$ 77ma+ not appl+ if the parties have
agreed to the pa+ment in installments of the
premium and partial pa+ment has (een made at
the time of the loss$
d$D The insurer ma+ grant credit e.tension for
the pa+ment of the premium
e$D )t would (e unAust and ine:uita(le if
recover+ on the polic+ would not (e permitted
against BCPB, wMc consistentl+ granted the 01=
#1 da+ credit term for the pa+ment of the
premiums despite its full awareness of Sec$ 77$
Fstoppel (ars it from taking refuge under the
action, since 4asagana relied on good faith on
such a practice
Dissent '.itug#:
=Fstoppel cannot create a contract of insurance
neither can it (e invoked to create a P-)4&-J
;)&B);)TJ$ So essential is the premium pa+ment
to the creation of the vinculum Auris that it
would (e dou(tful to have that pa+ment validl+
e.cused even for a fortuitous event
Dissent '!ardo#:
= 4asagana tried to pa+ the overdue premiums
(efore giving written notice that a fire has ra5ed
the propert+$ This shows the fraudulent
character of the claim$ 3ailure to give notice is
was a material misrepresentation affecting the
risk insured against$
= Fstoppel cannot give validit+ to an act that is
prohi(ited (+ law or against pu(lic polic+$ &ctual
pa+ment of premiums is a condition precedent
to the validit+ of an insurance contract other
than the insurance polic+$ &n+ agreement to the
contrar+ is K<)D as against the law and pu(lic
polic+$
=.3. Pre4iu4 default in life insurance
/Sec ((<* h E F2@ options@ lapsed polic9
Sec. ((< )n the case of individual life or endowment
insurance, the polic+ shall contain in su(stance the
following conditions6 . . .
ChD & ta(le showing in figures cash surrender values
and paid=up options availa(le under the polic+ each
+ear upon default in premium pa+ments, during at
least twent+ +ears of the polic+ (eginning with the
+ear in which the values and options first (ecome
availa(le, together with a provision that in the event
of the failure of the polic+=holder to elect one of the
said options within the time specified in the polic+,
one of the said options shall automaticall+ take effect
and no polic+holder shall ever forfeit his right to
same (+ reason of his failure to so elect$
. . . . . . . . . . . .
CAD& provision that the polic+ shall (e entitled to
have the polic+ reinstated at an+ time within 3
+ears from the date of default of premium pa+ment
unless tha cash surrender value has (een dul+ paid,
or the e.tension period has e.pired, upon
production of evidence of insura(lilit+ satisfactor+ to
the compan+ and upon pa+ment of all overdue
premiums and an+ inde(tedness to the compan+
upon said polic+, with interest rate not e.ceeding
that which would have (een applica(le to said
premiums and inde(tedness in athe polic+ +ears
prior to reinstatement . . .
NONALI%)
C-efer to Sec$77D Seems to sa+ that polic+ is
in effect as soon as the thing is e.posed to
risk even if the premium has not (een paid
+et$
%here contract covers a period of ! +ear,
there would normall+ (e onl+ one premium
pa+ment for the period$
)f parties agreed to pa+ in installments, and
there is a failure to pa+ an+ installment
when it falls due insurer ma+6
- cancel polic+ after due notice
- compel the pa+ment of installments
LI%)
)ntended to (e in force for a period longer
than a +ear? involves several periodical
premium pa+ments Cannual, semi=annual,
etcD
Contract not (inding until first periodical
premium pa+ment$ &fter first pa+ment,
insured under no legal o(ligation to pa+
su(se:uent premium$
)nsurance Code grants grace period within
which to pa+ su(se:uent premiums$ )f polic+
(ecomes a claim during the grace period (ut
(efore overdue premium is paid, overdue
ma+ (e deducted from proceeds of polic+
3ailure to pa+ wMin grace period W automatic
lapse
F.ception6 )nsured has paid three full annual
premiums$ Fntitled to the following Options
upon default6
Cas% Surrender .alue
The amount the insured, in case of
default, after the pa+ment of at
least 3 full annual premiums, is
entitled to receive if he surrenders
the polic+ and releases his claims
upon it$ )t is the portion of reserve
on a life polic+$
Hature of CSK6 Premium is uniform
throughout lifetime of polic+, so
during the earlier +ears of the
polic+, the premium charges will (e
more than the actual cost of the
protection against the risk in order to
meet the higher cost of risk during the
latter +ears of the polic+ when the
insured is older$ -eserve Kalue =
Surrender Charge W Cash Surrender
Kalue
The more premiums he has paid, the
greater will (e the CSK (ut the value
is alwa+s a lesser sum than the total
amt of premiums paid$
CSK is the amount compan+ holds in
trust for insured delivera(le upon
demand$ So long as the polic+
remains in force, the compan+ has
practicall+ no (eneficial interest in it
e.cept as its custodian? this is the
practical, though not the legal,
relation of the compan+ to this fund$
F33FCT6 Surrender polic+? terminates
the contract of insurance
Extended (nsurance
F33FCT6 Polic+ continues in force from
date of default, for a period either
stated or e:ual to the amount of the
cash surrender value, taken as a
single premium, will purchase? the
insured is given the right, upon
default, after the pa+ment of at least
three full annual premiums to have
the polic+ continued in force from the
date of default for a time either stated
or e:ual to the amount as the net
value of the polic+ taken as a single
premium, will purchase &lso called
7term insurance9, 7temporar+
insurance9 or 7paid=up e.tended
insurance9
Depends on availa(ilit+ of CSK$
During e.tended period 6 )f insured
dies, (eneficiar+ can recover face
amount of polic+$ )nsured can also
reinstate the polic+ wMin this period$
Be+ond e.tended period 6 )f he
survives Ho (enefits$ >e cannot even
reinstate the polic+ (+ pa+ing past
premiums? has to purchase new polic+
Better option if insured not in good
health or geriatric
!aid/up (nsurance
4ount of Insurance that the CSK,
applied as a single premium, can
purchase$
F33FCT6 Polic+ continues in force from
date of default for the whole period
and under the same conditions of the
original contract wMo further pa+ment
of premiums$ >owever, in case of
death of insured, he ma+ recover onl+
the 7paid=up9 value of the polic+ wMc
is much less than the original
amount agreed upon$ C)n other
words, na=reduce +ung original
insurance contract to one with a
lower valueD
Better option if insured is still +oung
and in good health (ecause unlike
e.tended insurance, he ma+ later
reinstate polic+ if he wishes$
Automatic !remium 0oan
Bpon default, insurer
lends6ad$ances to the insured
without an+ need of application on
his part, a4ount necessar9 to
pa9 o$erdue pre4iu4, (ut not to
e.ceed the CSK of the polic+$
<nl+ applies if re:uested in writing
(+ the insured either in the
application or at an+ time (efore the
e.piration of the grace period$
F33FCT6 )nsurance continues in
force for period covered (+ the
pa+ment$ &fter period, if insured
still does not resume pa+ing his
premiums, polic+ lapses, unless
there remains CSK$
)f there is still CSK, auto premium
loan continues until it is e.hausted$
&dvantageous to the insured
(ecause it helps to continue the
contract and all its features in full
force and effect$
)nsured under no legal o(ligation to
repa+ 7loan9
Reinstatement CSec AD
F33FCT6 Does not create a new
contract, merel+ -FK)KFS the old
polic+$ Thus, insurer cannot re:uire
higher premium than amount
stipulated in the contract$
-e:uired (+ )nsurance Code for
ever+ individual and industrial life
polic+
Hot re:uired that 3 annual
premiums have (een paid
-FPB)S)TFS6
e.ercised w6in 3 9ears from
default
insured must present
e$idence of insura5ilit9
satisfactor+ to the compan+
pa9 all 5ac# pre4iu4s and
all his inde5tedness to the
insurance compan+
CS8 has not 5een dul9 paid
nor the e:tension period
e:pired
)nsura(ilit+ E does not mean that
insured is in good health$ <ther factors
affect insura(ilit+ like nature of work,
age, etc$
&pplication for reinstatement must (e filed
during the insuredIs lifetime$
<ther Fffect6
1or$eiture E &(solute forfeiture of all
insured rights$ /enerall+ not favored$ Due
to li(eral spirit in the conduct of life
insurance, insurers instead, give the
insurer the (enefit of the reserve value of
the polic+$
=.7. %or4 and contents of polic9
Sec. 7> The written instrument in which a
contract of insurance is set forth is called a polic+
insurance$
Sec. 10 The polic+ shall (e in printed form which
ma+ contain (lank spaces? and an+ word, phrase,
clause, mark, sign, s+m(ol, signature, num(er, or
word necessar+ to complete the contract of
insurance shall (e written on the (lank spaces
provided therein$
&n+ rider, clause, warrant+, or
endorsement purporting to (e part of the contract
of insurance and which is pasted or attached to
said polic+ is not (inding on the insured, unless
the descriptive title or name of the rider, clause,
warrant+, or endorsement is also mentioned and
written on the (lack spaces provided in the polic+$
Bnless applied for (+ the insured or
owner, an+ rider, clause, warrant+ or endorsement
issued after the original polic+ shall (e
countersigned (+ the insured or owner, which
countersignature shall (e taken as his agreement
to the contents of such rider, clause, warrant+, or
endorsement$
/roup insurance and group annuit+
policies, however, ma+ (e t+pewritten and need
not (e in printed form$
Sec 11. & polic+ of insurance must specif+6
CaD The parties (etween whom the contract
is made?
C(D The a4ount to (e insured e.cept in the
cases of open or running policies?
CcD The pre4iu4, or if the insurance is of a
character where the e.act premium is onl+
determina(le upon the termination of the
contract, a statement of the (asis and rates
upon which the final premium is to (e
determined?
CdD The propert9 or life insured?
CeD The interest of the insured in propert+
insured, if he is not he a(solute owner
thereof?
CfD The ris#s insured against? and
CgD The period during which the insurance
is to continue
The )nsurance Code does not re:uire a
particular form for the validit+ of the
contract$ >owever, the polic+ must
contain the enumeration in &rt$ ,! Csee
a(oveD
The polic+ is different from the
contract itself$
Polic9 = written instrument
em(od+ing the terms and stipulations of
a contract of insurance$ Hot essential to
the validit+ of the contract as long as all
the essential elements for the e.istence
of contract are present$ CConsent,
o(Aect, consideration, competent
partiesD
<ther stipulations not re:uired (+ law
ma+ (e included as long as the+ are not
prohi(ited or inconsistent with the law$
4issing provisions re:uired does not
void polic+$ 4issing provisions will (e
read into the polic+ and will su(stitute
those wMc are in conflict wM the law$
Stipulations not in the e.act terms of
the statute, if more favora(le to the
insured, will (e enforced$
S)- Con oral contractsD6 )n some
Aurisdictions of the BS, oral contract is
valid, provided that all the terms are
agreed upon$ )n our )nsurance Code,
although written form not re:uired for
validit+, some provisions sa+ that a
P-)HTFD P<;)CJ is (est evidence of
contract$ SC has not ruled categoricall+
on this matter$
The following are re:uired to appear in
insurance policies6
The polic9, which must (e in printed
form Ce.cept group insurance policies
which ma+ (e t+pewrittenD, ma+
contain (lank spaces? an+ word,
phrase, clause, mark, sign, s+m(ol,
signature, num(er, or word necessar+
to complete the contract of insurance
shall (e written on the (lank spaces
provided$
&n+ rider* clause* warrant9* or
endorse4ent ma+ onl+ (e deemed
part of the insurance polic+ if, after
having (een attached to the polic+
itself, its descriptive title or name is
also mentioned and written in the
(lank spaces in the polic+$
-e:uired clauses in the polic+6
The parties (etween whom the
contract is made?
The a4ount to 5e insured
e.cept in the cases of open or
running policies?
The pre4iu4, or if the insurance
is of a character where the e.act
premium is onl+ determina(le
upon the termination of the
contract, a statement of the (asis
and rates upon which the final
premium is to (e determined?
The propert9 or life insured?
The interest of the insured in
propert+ insured, if he is not the
a(solute owner thereof?
The ris#s insured a!ainst? and
The period during which the
insurance is to continue$
F.press warranties must also (e
contained in the polic+, or in another
instrument signed (+ the insured and
referred to in the polic+ as making a
part of it$
i$ -iders, clauses, endorsements
)f parties wish to include special
stipulations, ma+ attach riders,
endorsements, warranties$
Rider E a printed or t+ped stipulation
contained on a slip of paper attached to
the polic+ and forming an integral part of
the polic+$
To (e (inding 6
=4ust (e attachedMpasted to the polic+
= Descriptive title or name of the rider,
clause, warrant+, or endorsement is
mentioned and written on the (lank spaces
provided in the polic+$
Countersignature (+ insured
"eneral Rule& Hot necessar+ if rider
attached to the polic+ when issued$
):ception& Hecessar+ when added &3TF-
polic+ is issued$ -F&S<H6 To prevent an
insurer from adding or inserting provisions wMo
the consent of the insured$
)n case of conflict (etween rider and
printed stipulation, the rider prevails as
(eing a more deli(erate e.pression of the
agreement of the contracting parties$
-arrant9 E inserted or attached to a
polic+ to eliminate specific potential
increases of ha5ard during the polic+ term
owing to6 !D actions of the insured or 2D
condition of the propert+$
Clause E an agreement (etween the
insurer and the insured on certain matters
relating to the lia(ilit+ of the insurer in
case of loss$
)ndorse4ent E an+ provision added to
an insurance contract altering its scope
or application$ F.$ Fndorsements
e.tending the perils covered$ 4ost
times, the+ are merel+ t+pewritten
additions to the contract, changing its
amount, rate, or term$
ii$ Cover Hotes or (inding receipts
Sec 1(. Cover notes ma+ (e issued to (ind
insurance temporaril+ pending the issuance of
the polic+$ %ithin si.t+ da+s after issue of a
cover note, a polic+ shall (e issued in lieu
thereof, including within its terms the identical
insurance (ound under the cover note and the
premium therefore$
Cover notes ma+ (e e.tended or
renewed (e+ond such si.t+ da+s with the written
approval of the Commissioner if he determines
that such e.tension is not contrar+ to and is not
for the purpose of violating an+ provisions of this
Code$ The Commissioner ma+ promulgate rules
and regulations governing such violation and
ma+ (e such rules and regulations dispense with
the re:uirement of written approval (+ him in
the case of e.tension in compliance with such
rules and regulations CnD
Cover notesMBinders E a written
memorandum of the most important items of
a preliminar+ ocntract intended to give
temporar+ protection Cto insuredD pending
the investigation of the risk (+ the insurer,
or until the issue of the formal polic+,
provided it is later determined that the
applicant was insura(le at the time it was
given$
)t is a (inding contract and has full force
and effect during its duration$
)nsurer not o(liged to give cover notes
(ut man+ do so in order to gain goodwill$
Bsuall+ contain onl+ the (are essentials
of an insurance contract6 i$e$ the name of
the parties, risk insured against, amount of
insurance, premium, propert+Mlife insured$
)ssuance of cover notes is ordinaril+ a
conclusive evidence of making a contract
The issuance and effectivit+ of cover
notes are governed (+ the following rules6
!D .a9 5e issued te4poraril9,
pending issuance of polic+
2D Dee4ed a contract of insurance
within meaning of X!R!S
3D Ho cover note ma+ (e issued or
renewed unless in the CodeIs previousl+
prescri5ed for4
D Cover notes are $alid and 5indin!
for a period not o$er ;0 da9s fro4
date of issuance, whether or not
premium therefor has (een paid, (ut it
ma+ onl+ (e cancelled (+ either part+
upon at least 7 da+s notice to other part+
,D If it is not cancelled* polic9 shall*
within ;0 da9s after issuance of co$er
note* 5e issued in lieu thereof$ Polic+ will
include within its terms the identical
insurance (ond under the cover note and
the premium therefor
0D Cover note 4a9 5e e:tended or
renewed 5e9ond the ;0Ada9 period
with the written appro$al of the
Insurance Co44ission, provided that
the written approval ma+ (e dispensed
with upon the certificate of the Pres, KP,
or general manager of the compan+ that
the risks involved, the values of such risks
andMor premiums therefor have not as +et
(een determined or esta(lished and that
such e.tension or renewal is not contrar+
to and is not for the purpose of violating
an+ provisions of the )nsurance Code, or
of an+ of the rulings, instructions,
circulars, orders or decisions of the
)nsurance Commissioner
7D Companies ma+ impose on cover notes
a deposit pre4iu4 e?ui$alent to at
least (1G of the esti4ated pre4iu4
of the intended insurance coverage (ut
never less than ,11 pesos$
iii$ <pen and Kalued Policies Cnon=lifeD
Sec 1>. & polic+ is either open, valued or running$
Sec ;0. &n open polic+ is one in which the value of
the thing insured is not agreed upon, (ut is left to (e
ascertained in case of loss$
Sec ;1. & valued polic+ is one which e.presses on
its face an agreement that the thing insured shall
(e valued at a specified sum$
Sec. ;(. & running polic+ is one which
contemplates successive insurances, and which
provides that the o(Aect of the polic+ ma+ (e from
time to time defined, especiall+ as to the su(Aects
of insurance, (+ additional statements or
indorsements$
=.1. Hinds of insurance policies&
Open or Un$alued Polic9
= <ne in which a certain agree sum is written on
the face of the polic+ not as the value of the
propert+ insured, (ut as the ma.imum limit of the
insurerIs lia(ilit+ Ci$e$ face valueD in case of
destruction (+ the peril insured against$
= )nsurer onl+ pa+s the actual cash value of the
propert+ as determined at the time of loss$
8alued Polic9
= <ne in which the parties e.pressl+ agree on the
value of the su(Aect matter of the insurance$
=Two values6
!D 3ace value of the polic+ wMc is the ma.
amt insurer pa+s in case of loss
2D Kalue of the thing insured
= )n the a(sence of fraud or mistake, the agreed
value of the thing insured will (e paid in case of
total loss of the propert+, unless the insurance is
for a lower amount
= )n case of loss, parties ma+ claim that value of
insured propert+ is more or less than agreed
upon$
= The lia(ilit+ of the insurer in a life polic+ is
measured (+ the face value of the polic+
C(ecause the value of a human life cannot (e
measured in actual monetar+ termsD$
Runnin! Polic9
= )ntended to provide indemnit+ for propert+ wMc
cannot well (e covered (+ a valued polic+
(ecause of its fre:uent change of location and
:uantit+, or for propert+ of such a nature as not
to admit of a gross valuation$ &lso denotes
insurance over a class of propert+ rather than
an+ particular thing$ F.$ )nsurance over
constantl+ changing stock of goods
= )n realit+, these are open policies$
= Contemplates successive insurances$
= &dvantages of a running polic+
!D Neither underinsured nor
o$erinsured at an+ time, premium
(eing (ased on monthl+ values
reported?
2D $oids cancellations otherwise
necessar+ to keep insurance adAusted to
the thingIs value at each location and for
which cancellations the inured would (e
charged the e.pensive short rate?
3D Sa$es trou5le of watchin! the
insurance and dan!er of 5ein!
underinsured in spite of care, through
oversight or mistake?
D Rate is adFusted to 100G
insurance, whereas valued policies
re:uiring insurance onl+ up to, sa+ "1Y
of value, give either a small, if an+,
reduction for amounts of insurance
a(ove this figure$
>. PRTI)S
Fssential -e:uisites for a person to (e a
part+ in an insurance contract6
4ust (e CO.P)T)NT to enter Chas
capacit+D
4ust possess INSUR3L)
INT)R)ST
4ust NOT 5e a PU3LIC )N).I
>.1. Insurer
Sec. ;. Fver+ person, partnership, association, or
corporation dul+ authori5ed to transact insurance
(usiness as elsewhere provided in this Code, ma+
(e an insurer$ CaD
Sec 1=7 3or purposes of this Code, the term
7insurer9 or 7insurance compan+9 shall include all
individuals, partnerships, associations, or
corporations, including government=owned or
controlled corporations or entities, engaged as
principals in the insurance (usiness, e.cepting
mutual (enefit associations$ Bnless the conte.t
otherwise re:uires, the term shall also include
professional reinsurers, defined in Section 2"1$
7Domestic compan+9 shall include companies
formed, organi5ed or e.isting under the laws of
the Philippines$ 73oreign compan+9 when used
without limitation shall include companies formed,
organi5ed, or e.isting under an+ laws other than
those in the Philippines$
Sec 1=1 Corporations formed or organi5ed to save
an+ person or persons or other corporations
harmless from loss, damage, or lia(ilit+ arising
from an+ unknown or future or contingent event,
or to indemnif+ or to compensate an+ person or
persons or other corporations for an+ such loss,
damage, or lia(ilit+, or to guarantee the
performance of or compliance with contractual
o(ligations or the pa+ment of de(ts or others shall
(e known as 7insurance corporations9
The provisions of the Corporation ;aw CBP
Blg 0"D shall appl+ to all insurance corporations
now or hereafter engaged in (usiness in the
Philippines insofar as the+ do not conflict with the
provisions of this Chapter$

Insurer E part+ who assumes or accepts the
risk of loss and undertakes for a consideration
to indemnif+ the insured or to pa+ him a
certain sum on the happening of a specified
contingenc+ or event? This can (e an
individual, a corporation, an association, even
the State, as long as it is authori5ed to engage
in a (usiness of insurance$
Summar+ of !" and !",6
!"6 %hat term 7insurer9 includes
!",6 %hat 7)nsurance Corporations9 are
regulated (+ the State6 To engage in the
(usiness of insurance, re:uired to get
certificate of authorit+ from the )nsurance
Commissioner, and must possess sufficient
capital assets$ C%ill not include other
re:uirements, med+o technical$ %e onl+
need to know defn of insurer and insurance
corporationsD? Banking institutions are not
allowed to engage in insurance (usiness
C/eneral Banking &ct !73D

>.(. Insured
Sec. < &n+one e.cept a pu(lic enem+ must (e
insured
Sec. 1; %hen the description of the insured in a
polic+ is so general that it ma+ comprehend an+
person or an+ class of persons, onl+ he who can
show that it was intended to include him can
claim the (enefit under the polic+$
R ;=0> = ;owered the age of F4&HC)P&T)<H
&HD &/F <3 4&*<-)TJ
rt. (37$ Fmancipation takes place (+ the
attainment of maAorit+$ Bnless otherwise
provided, maAorit+ commences at the age of
eighteen +ears$ Cas amended (+ -& 0"1#D
rt. (3;. Fmancipation for an+ cause shall
terminate parental authorit+ over the person and
propert+ of the child who shall then (e :ualified
and responsi(le for all acts of civil life, save the
e.ceptions esta(lished (+ e.isting laws in special
cases$ . . . Cas amended (+ -& 0"1#D
rt. 110 /%a4il9 CodeD The spouses retain the
ownership, possession, administration and
enAo+ment of their e.clusive properties$
Fither spouse ma+, during the marriage, transfer
the administration of his or her e.clusive
propert+ to the other (+ means of a pu(lic
instrument, which shall (e recorded in the
registr+ of propert+ of the place the propert+ is
located$ C!37a, !0"a, !0#aD
rt. 111 /%a4il9 Code2 & spouse of age ma+
mortgage, encum(er, alienate or otherwise
dispose of his or her e.clusive propert+, without
the consent of the other spouse, and appear
alone in court to litigate with regard to the same$
CnD
rt. 13>0 /Ci$il Code2$ The following contracts
are voida(le or annulla(le, even though there
ma+ have (een no damage to the contracting
parties6
C!D Those where one of the parties is incapa(le of
giving consent to a contract?
C2D Those where the consent is vitiated (+
mistake, violence, intimidation, undue influence or
fraud$
These contracts are (inding, unless the+ are
annulled (+ a proper action in court$ The+ are
suscepti(le of ratification$
Insured E the part+ in whose favor the
contract is operative and who is indemnified
against, or is to receive a certain sum upon
the happening of a specified contingenc+ or
event$ >e is the person whose loss is the
occasion for the pa+ment of the proceeds (+
the insurer? But the proceeds need not go to
him (ut the designated (eneficiar+ or
someone the insured assigns the proceeds to$
&s in all other contracts, onl+ persons who
have the capacit+ to enter into a contract ma+
(e insured$
Polic+ must specif+ the parties (etween whom
the contract is made$ CSec$ ,!D
Pu5lic ene49 E citi5en or su(Aect of a nation
at war with the Philippines$ Does not include
ro((ers, thieves, criminals$
- a private corporation ma+ (e deemed an
enem+ corporation if controlled (+ enem+
aliens$
>.3. 3eneficiaries
Sec 11 The insured shall have the right to change
the (eneficiar+ he designated in the polic+, unless
he has e.pressl+ waived this right in said polic+$
-efers to the person who designated in a
contract of life, health or accident insurance as
the one who is to receive the (enefits which
(ecome pa+a(le, according to the terms of the
contract, upon the death of the insured$
%ords used in designating the (eneficiaries of
a life polic+ will not (e given their technical
significance (ut will (e construed (roadl+$
Chosen e.clusivel+ (+ insured who ma+
designate an+one Cirrespective of lack of
insura(le interestD so long as sMhe not
dis:ualified (+ law$
Proceeds of life insurance polic+ (ecome the
e.clusive propert+ of the (eneficiar+ upon the
death of the insured$
Cestui ?ue $ie
A Person on whose life the polic+ was
taken$
A 4ust (e a risk accepta(le to the
insurer
2inds of (eneficiaries E either insured
himself or his personal representatives or
someone other than the insured$ )f others
are recipients, their relations to the insured
ma+ (e6
)nsured himself E one who
(ought the polic+ and paid the
premiums$ Such is an
immediate part+ to the contract
and is usuall+ called the assured
Ccreditor insures de(torIs lifeD$
Third person who paid a
consideration = as when insured
took up the polic+ for the
(enefit of the creditor or to
secure some other o(ligation? or
Third person through mere
(ount+ of insured E no
consideration paid (ut made
(eneficiar+ Cma+ (e the
insuredIs estate or a third
part+D$
)n the 2nd and 3rd cases, (eneficiar+ is not a
part+ to the contract$ )n all 3 cases, proceeds of
a life insurance polic+ (ecome the e.clusive
propert+ of the (eneficiar+ upon insuredIs death$
So if insured was Audiciall+ insolvent (efore he
died, proceeds to go to the (eneficiar+ and not
to the assignee in insolvenc+$
-ules governing (eneficiaries
Selection of the (eneficiar+ must (e in
good faith and without intent to make
the transaction a cover for a for(idden
wagering contract$
"eneral Rule& The insured ma+ change
the designated (eneficiar+ without the
consent of the latter and retain the right to
receive the cash value of the polic+, to take
out loans against the cash value, to assign
the polic+ or to surrender it without the
(eneficiar+Is consent$ >owever, this right
(elongs onl+ personall+ to the insured and
cannot (e e.ercised (+ his representatives
or assignees upon his death$
):ception& )f there has (een an e.press
waiver of the right to change the (eneficiar+
without the latterIs consent, the (eneficiar+
ac:uires an a(solute vested interest to all
(enefits under the polic+$ & new (eneficiar+
cannot (e added to the original oneMs
(ecause such would amount to the
diminution of the original (enefits$ The
insured also loses the power to destro+ the
polic+ (ecause the (eneficiar+ can pa+ the
premiums himself to ensure the continued
effectivit+ of the contract$
DF ;F<H is inclined to (elieve that, in
case the (eneficiar+ dies (efore the
insured, the proceeds shall go to the
estate of the insured, rather than to the
estate of the (eneficiar+$ >e (elieves that
the purpose of the insured in taking out
the polic+ is to provide a fund for the
(enefit of those he is accustomed to
supporting$ >e would not have intended to
e.tend such provision of funds to the
heirsM assignees of the (eneficiar+$
)n designating the (eneficiaries, words
used will not (e given their technical
significance (ut will (e (roadl+ construed
so that the (enefit shall (e received (+
those intended (+ the insured as the
o(Aect of his (ount+$
The interest of a (eneficiar+ in a life
insurance polic+ shall (e forfeited when
the (eneficiar+ is the principal,
accomplice, or accessor+ in willfull+
(ringing a(out the death of the insured$
)n this case, the nearest relative of the
insured shall receive the proceeds of said
insurance if not otherwise dis:ualified
The right to receive the proceeds of life
insurance policies shall follow the order of
intestate succession in the Civil Code in
default of an+ specific designation in the
polic+6
a$ ;egitimate children?
($ 3ather and mother, if living?
c$ /randfather and grandmother? or
ascendants nearest in degree, if living?
d$ )llegitimate children?
e$ Surviving spouse? and
f$ Collateral relatives, to wit6
f$a$ (rothers and sisters of the full
(lood?
f$($ (rothers and sisters of the
half=(lood? and
f$c$ nephews and nieces
g$ )n default of a(ove, State is entitled to
receive the proceeds
"eneral Rule& The person designated in
the polic+ as the insured or the (eneficiar+
shall (e the onl+ one entitled to recover
the proceeds of the polic+$
):ception& & third person ma+ recover
from the polic+ as against t%e insured if
there has (een a prior contract of e.press
or implied trust (etween the insured and
the third person$ & third person ma+
recover from the polic+ as against t%e
insurer onl+ if such person has (een
specificall+ given the right of recover+ in
the insurance polic+$
i$ Statutor+ ;imitations on life insurance
rt. (01( /Ci$il Code2 &n+ person who is
for(idden from receiving an+ donation under
&rticle 73# cannot (e named (eneficiar+ of a life
insurance polic+ (+ the person who cannot make
an+ donation to him, according to said article$
CnD
rt. <3> /Ci$il Code2 The following donations
shall (e void6
C!D Those made (etween persons who were
guilt+ of adulter+ or concu(inage at the time of
the donation?
C2D Those made (etween persons found guilt+ of
the same criminal offense, in consideration
thereof?
C3D Those made to a pu(lic officer or his wife,
descedants and ascendants, (+ reason of his
office$
)n the case referred to in Ho$ !, the action for
declaration of nullit+ ma+ (e (rought (+ the
spouse of the donor or donee? and the guilt of
the donor and donee ma+ (e proved (+
preponderance of evidence in the same action$
CnD
)n the first case Cadulter+M
concu(inageD, no need of criminal conviction
to void polic+$ Fnough if there is a
preponderance of evidence$
)n the second case however, the CC
uses the words 7found guilt+9 hence criminal
conviction necessar+$
Pu(lic Fnemies also dis:ualified from
(eing (eneficiar+$
Insular Life ssurance Co $ )5rado
3&CTS F(rado took out a life insurance polic+
and named his common=law partner, Carponia,
his (eneficiar+$ Bpon his death, his lawful wife
also filed a claim wM )nsular ;ife as the widow$
-TC dis:ualified Carponia from claiming
(enefits under the polic+
)SSBF6 %<H Carponia dis:ualified from claiming
insurance proceeds (ecause of her illicit relation
with the insured$
>F;D6 JFS$ CSC applied CCD Since the )nsurance
Code does not contain an+ specific provision on
rules respecting who ma+ (e named (eneficiar+,
the CC will appl+$ &rt 21!2 states that 7an+
person for(idden from receiving donations under
&rt 73# cannot (e named (eneficiar+ of a life
insurance polic+9 &rt$ 73# declares void
donations made (etween persons who are guilt+
of adulter+ or concu(inage at the time of the
donation$ >ence, Carponia is dis:ualified from
(eing named a (eneficiar+$
8da. de Consue!ra $ "SIS
3&CTS6 *ose Consuegra contracted two
marriages, to Dia5 and Berdin$ &fter his death,
the proceeds of his life insurance wM the /S)S
went to Berdin$ >owever, he was also entitled to
retirement (enefits to which he did not
designate an+ (eneficiar+$
)SSBF6 %<H Berdin should (e considered the
sole (eneficiar+ of the retirement (enefits (eing
the (eneficiar+ of the life insurance polic+
>F;D6 H<$ ;ife )nsurance and retirement
insurance are separate and distinct funds$ ;ife
)nsurance is paid to whoever is named the
(eneficiar+ and ma+ not necessaril+ (e the heir
of the insured$ -etirement (enefits on the other
hand, are primaril+ intended for the (enefit of
the ee E to provide for his old age, incapacit+,
etc$ )f the ee reaches the age retirement, he
gets the (enefits even to the e.clusion of the
(eneficiar+ named in the polic+$ The (eneficiar+
of the retirement insurance can onl+ claim the
proceeds of the retirement insurance if the ee
dies (efore retirement$ )3 there is no (eneficiar+
designated in the polic+, (enefits will accrue to
the estate, hence Dia5 is also entitled to the
retirement (enefits$
Del 8al $ Del 8al
3&CTS6 Plaintiff and Defendant are si(lings$ Prior
to their fatherIs death, he took out a life
insurance polic+ and made the Def the sole
(eneficiar+$
)SSBF6 %<H the insurance proceeds (elong
e.clusivel+ to the DF3 who was the sole
(eneficiar+
>F;D6 JFS The proceeds of an insurance polic+
(elong e.clusivel+ to the (eneficiar+ and not to
the estate of the person whose life was insured,
and that such proceeds are the separate and
individual propert+ of the (eneficiar+$
>.7. Other parties to an insurance
contract
V &ssignee of the thing insured =====
"eneral Rule& )f the thing insured is assigned to
another, the polic+ is not deemed transferred
with the thing$ The polic+ is instead deemed
suspended until the assignee also (ecomes the
owner of the polic+$ The assignor, on the other
hand, cannot recover on the polic+ after the
transfer since he has alread+ lost insura(le
interest over the thing$
):ceptions& The general rule on suspension of
polic+ is not applica(le in the following cases6
a$ )n life* health and accident
insurance CX21D
($ & chan!e of interest in the thing
insured after an inFur9 occurs resulting
in a loss CX2!D?
c$ & chan!e of interest in one or
4ore of se$eral thin!s* separatel9
insured (+ one polic+ CX22D?
d$ & chan!e of interest 59 will or
succession on the death of the insured
CX23D?
e$ & transfer of interest (+ one of
several persons, Aoint owners or owners
in common, Aointl+ insured, to the others
CX2D?
f$ -hen a polic9 will inure to the
5enefit of the one who 4a9 5eco4e
the new owner of the interest
insured during the continuance of the
risk CX,7D? and
g$ %hen there is an e:press
prohi5ition a!ainst alienation in the
polic+, alienation will cause the contract
to (e avoided, not suspended C&rticle
!310, X2, Civil CodeD
V &gent or trustee =====
)f an agent or trustee takes out an insurance
polic+ for the (enefit of his principal or
(eneficiar+, he shall state that the latter is the
real part+ in interest (+ designating himself as
an agent or trustee in the insurance polic+ itself$
>e can also signif+ his designation (+ some other
general words in the polic+$
8alenCuela $s C /1>>02
The general rule that the principal reserves the
right to terminate the agent=principal
relationship at its will admits of an e.ception6
when the agenc+ has (een given not onl+ for the
interests of the principal (ut of 3rd persons or for
the mutual interest of agent and principal$ &lso,
an insurance agent canIt (e held lia(le for all
uncollected premiums under his account (ecause
the remed+ for non=pa+ment of premiums is the
termination of an+ insurance polic+$
V Partner or co=owner =====
)nsura(le interest in the propert+ of a
partnership e.ists in (oth the partnership and
the partners and a partner has an insura(le
interest in the firm propert+ which will support the
polic+ taken out thereon for his own (enefit$ But a
partner who takes out the polic+ in own name
limits the coverage to his individual share unless
the terms clearl+ show the polic+ was meant to
cover all the shares$
V 4ortgagorM mortgagee =====
"eneral Rule& %hen a mortgagor takes out an
insurance polic+ on his own name (ut stipulates
that the proceeds shall (e pa+a(le to the
mortgagee, or assigns the said polic+ to the
mortgagee, the insurance shall (e deemed to (e
upon the insura(le interest of the mortgagor$
Conse:uentl+, three rules appl+6 C!D an+ act of the
mortgagor prior to the loss, which would otherwise
avoid the insurance, shall have the same effect
even if the propert+ insured is in the hands of the
mortgagee C2D an+ act which would have to (e
performed (+ the mortgagor ma+ (e performed (+
the mortgagee, with the same effect as if it were
performed (+ the former C3D if an insurer assents
to the transfer of an insurance from a mortgagor
to a mortgagee, and, at the time of his assent,
imposes further o(ligation on the assignee,
making a new contract with him, the act of the
mortgagor cannot affect the rights of said
assignee$
SUPPL).)NTRI RUL)S&
<n the insura(le interest of mortgagor and
mortgagee6
a$ Separate insura(le interests E each has
his own insura(le interest in the
mortgaged propert+ which is kept
separate from each other$ The (enefits of
such (elongs to the insured alone and if
the two insure the same propert+ or take
out a polic+ covering their respective
interests, this is not dou(le insurance$
($ F.tent of insura(le interest of
mortgagor E the owner=mortgagor has an
interest to the e.tent of the propert+Is
value even if the mortgage de(t e:uals it
since the loss or destruction of the insured
propert+ will not e.tinguish his de(t$
c$ F.tent of insura(le interest of
mortgagee E he or his assignee has an
interest to the e.tent of the de(t secured,
the propert+ used as securit+$ >is interest
is prima facie the value mortgaged, onl+
as to the amount owed, not e.ceeding the
value of the propert+$
d$ F.tent of amount of recover+ E
4ortgagor6 onl+ up to full amount of loss?
4ortgagee6 up to the amount of credit at
the time of the loss or the value of the
propert+$
)nsurance (+ mortgagee of his own interest
a$ -ight in case of loss E the mortgagee
is entitled to proceeds if loss happens
(efore pa+ment of mortgage$
($ Su(rogation of insurer to the right of
the mortgagee E mortgageeIs claim
passes (+ su(rogation to the insurer to
the e.tent of the insurance mone+ paid$
c$ Change of creditor E pa+ment of the
insurance to the mortgagee due to loss
does not e.tinguish the principal
o(ligation (ut onl+ changes the creditor$
The mortgagee canIt claim (oth the
insurance and the de(t$
)nsurance taken out (+ mortgagor
a$ 3or his own (enefit, as owner E
proceeds wonIt go to the mortgagee who
has no greater right than unsecured
creditors$
($ 3or the mortgageeIs (enefit E loss is
pa+a(le to the mortgagee Cusual
practiceD, to the e.tent of the credit$
Bpon pa+ment of the proceeds to the
e.tent of the credit, the de(t is
e.tinguished$ The mortgagee can (e
made the (eneficial pa+ee (+6
!$ Becoming the assignee of the
polic+ with insurerIs consent?
2$ Becoming the mere pledge
without such consent?
3$ & rider CX,1D, making the
polic+ pa+a(le to the 4ortgagee
7as his interest ma+ appear9 ,
ma+ (e attached?
$ & 7standard mortgage clause9
containing a collateral
independent contract (etween
the two parties ma+ (e
attached? or
,$ The polic+, though (+ its
terms pa+a(le to the mortgagor,
ma+ have (een procured (+ a
mortgagor under a contract
dut+ to insure for the
mortgageeIs (enefit, where the
latter ac:uires an e:uita(le line
upon the proceeds$
Chapter III
INSUR3L) INT)R)ST
1. Definition and Purpose
Sec (1 & change on interest in a thing insured,
after the occurrence of an inAur+ which results in a
loss does not affect the right of the insured to
indemnit+ for the loss$
Sec (1 Fver+ stipulation in a polic+ of insurances
for the pa+ment of loss whether the person
insured has or has not an+ interest n the propert+
insured, or that the polic+ shall (e received as
proof of such interest, and ever+ polic+ e.ecuted
(+ wa+ of gaining or wagering, is void$
Insura5le interest E interest which the law
re:uires polic+ owner to have in the person or
thing insured$
= & person is said to have an insura(le interest
in the su(Aect matter insured where he has a
relation or connection with, or concern in it that he
will derive pecuniar+ (enefit or advantage from its
preservation and will suffer pecuniar+ loss or
damage from its destruction, termination, or inAur+
(+ the happening of the event insured against$
Fssential element of an insurance contract$
Hot legall+ possi(le to waive re:uirement
-ationale for re:uiring insura(le interest6
&s deterrence to the insured E pu(lic
polic+ holds wager policies invalid for
(eing against pu(lic interest and
demorali5ing in that6
The insured has an interest in the
destruction rather than the
preservation of a su(Aect matter$
)t tempts or induces the insured, with
nothing to lose and ever+thing to
gain, to (ring a(out the event upon
the happening of which the polic+
(ecomes pa+a(le$
&s a measure of limit of recover+ E in
contracts to pa+ indemnit+, the insura(le
interest will (e the measure of the upper
limit of his prova(le loss under the
contract$ The polic+ should not provide the
insured with the means of making a net
profit from the happening of the event
insured against$
)i$$erence +et*een li$e and non/li$e insurance
'pertaining to interestD6
LI%) = (asicall+ a contract of )HKFST4FHT?
can onl+ recover face amount of the polic+
NONALI%) E (ased on principle of )HDF4H)TJ
for e.act pecuniar+ value? can onl+ recover on
the polic+ the value of the actual loss
(. Insura5le Interest in
life6health
Sec 10 Fver+ person has an insura(le interest in
the life and health6
aD <f himself, of his spouse and of
his children?
(D <n an+ person on whom he
depends wholl+ or in part for education or
support, or in whom he has a pecuniar+
interest?
cD <f an+ person under a legal
o(ligation to him for the pa+ment of
mone+, or respecting propert+ or services
of which death or illness might dela+ or
prevent the performance, and
dD <f an+ person upon whose life
an+ estate or interest vested in him
depends$
Person ma+ take out insurance on own life or
someone elseIs life provided insura(le
interest e.ists$
Cestui ?ue $ie must consent$
Sec$ !1 provides the test of presence of
insura(le interest$ Said section does not
re:uire the consent of the person (eing
insured for the polic+ to (e effective$ The
polic+ is valid as long as the presence of
insura(le interest can (e ade:uatel+ shown$
(.1. In oneDs own life6health
Sec 11 The insured shall have the right to
change the (eneficiar+ he designated in the
polic+, unless he has e.pressl+ waived this right
in said polic+$
Sec 1( The interest of a (eneficiar+ in a life
insurance polic+ shall (e forfeited when the
(eneficiar+ is the principal, accomplice, or
accessor+ in willfull+ (ringing a(out the death of
the insured, in which event, the nearest relative
of the insured shall receive the proceeds of said
insurance if not otherwise dis:ualified$
Insured is the cestui ?ue $ie
&s a rule, each has unlimited insura(le
interest in his own life, whether the
insurance is for the (enefit of himself or
another
)n insuring oneIs own life for anotherIs
(enefit, insura(le interest is onl+ needed as
evidence of good faith of the parties? it is
contrar+ to human e.perience that a person
will insure his own life for the (enefit of
another for the purpose of speculation, to
take his own life to secure pa+ment to
another, or designate as a (eneficiar+, a
person interested in the destruction, not the
continuance of the insuredIs life$
The nearest relative of the insured shall
receive the proceeds of said insurance if not
otherwise dis:ualified
/FHF-&; -B;F6 Beneficiar+ is the choice of
the insured regardless of %oH (eneficiar+ has
an insura(le interest in insuredIs life
&ssumption6 )nsured would not designate as
his (eneficiar+ a person whom he would not
trust with his own life
FUCFPT)<HS
%aiver
)rrevoca(le (eneficiar+ Cright to proceed
vestsD
(.(. In the life6health of others
rt 1>1 /%a4il9 Code2$ Su(Aect to the provisions
of the succeeding articles, the following are
o(liged to support each other to the whole e.tent
set forth in the preceding article6
C!D The spouses?
C2D ;egitimate ascendants and descendants?
C3D Parents and their legitimate children and the
legitimate and illegitimate children of the latter?
CD Parents and their illegitimate children and the
legitimate and illegitimate children of the latter?
and
C,D ;egitimate (rothers and sisters, whether of full
or half=(lood C2#!aD
Insured is not the cestui ?ue $ie 5ut is the
5eneficiar9
%hen person names himself the (eneficiar+ in
a polic+ taken out on the life of another, he
must have insura(le interest in the life of the
other person Chis interest must show some
pecuniar+ interest and it e.ists whenever the
relation (etween the assured and the insured,
whether (+ (lood, marriage or commercial
intercourseD
4ere love and affection H<T insura(le interest
C)STUI BU) 8I)& person upon whose life
insurance is taken out on
4ust agree to the taking out of insurance
Ho law sa+ing +ou donIt need his consent
pu(lic polic+ demands consent (e
o(tained
F.ception6 Parent taking polic+ out on
minor child
Ho amount of consent can make up for
lack on sura(le interest
%hen the owner of the polic+ insures the
life of anotherZthe cestui :ue vieZand
designates a third part+ as (eneficiar+,
(oth the owner and (eneficiar+ must
have an insura(le interest in the life of
the cestui :ue vie$ )f the insura(le
interest re:uirement is satisfied, a life
polic+ is assigna(le regardless of
whether the assignee has an insura(le
interest in the life of the cestui :ue vie$
)n our law, insura(le interest in
anotherIs life must (e one of those
mentioned in X!1$ Being engaged with
one another is not such interest$
CLOS) R)LTI8)S
Spouse and c%ildren Cminor or not, married
or unmarried dependent or notD
= ;aw presumes natural affection e.isting
(etween spouses, parents and children$
Thus, ;aw recogni5es a parentIs
insura(le interest in childIs life (ut is
silent as to whether or not a child has
insura(le interest in the parentIs life$
= Child entitled to support re:uired (+ law,
whether or not heMshe is financiall+
independent sufficient to constitute
pecuniar+ interest$
Ot%er close relatives C(rothers and sistersD
not e.pressl+ covered (+ law C(ut look at &rt
!#,, 3CD
Blood relationship or relationship (+ affinit+
is )44&TF-)&; when relative is source of
support Cwhere no legal o(ligation e.istsD
- There is insura(le interest (oth wa+s
OT')R R)LTI8)S and STRN")RS
4ust prove that he has some pecuniar+
interest in the life of the cestui :ue vie
otherwise polic+ is void
4ere relationship will not suffice
The re:uirements of insura(le interest
cannot (e circumvented (+ an agreement
(etween the insured Ccestui :ue vieD and a
3
rd
person who has no interest, where(+ the
latter, having induced the insured to take
out a polic+, promises to pa+ of premiums if
the polic+ is assigned to him$
The intention to take out polic+ is clearl+
not to insure life (ut rather to circumvent
the re:uirement
)s different from taking a polic+ out on self
and then later assigning it to someone who
has no insura(le interest, (ecause law
allows polic+ to transfer whether or not
there is insura(le interest
Sec 1=1 & polic+ of insurance upon life or health
ma+ pass (+ transfer, will or succession to an+
person, whether he has an insura(le interest or
not, and such person ma+ recover upon it
whatever the insured might have recovered$
Sec 1=( Hotice to an insurer of a transfer or
(e:uest thereof is not necessar+ to preserve the
validit+ of a polic+ of insurance upon life or health,
unless there(+ e.pressl+ re:uired$
)nsura(le interest of assignee in life
insurance not re:uired = since it is not a
contract of indemnit+$ ;ife insurance is
one of the (est recogni5ed forms of
investment and self=compelled savings$ So
far as reasona(le safet+ permits, it is
desira(le to give life policies the ordinar+
characteristics of propert+$ To re:uire
insura(le interest in assignee is to
diminish the investment value of the
contract to the owner$
Ho insura(le interest is re:uired where
polic+ is procured (+ the person whose life
is insured on his own initiative$ Since
an+one can (e named (eneficiar+, an
assignment would not (e invalidated (+
the lack of insura(le interest of the
assignee$
&ssignment is distinguished from a change
in the designated (eneficiar+$

CO..)RCIL or CONTRCT R)LTIONS
Creditor ma+ take out insurance on life of his
de(tor
The e.tent of the creditorIs interest is onl+
as to the amount of de(t and cost of
carr+ing the insurance on de(torIs life$
The total value must not make the polic+
a wagering or speculative one$ This kind
of polic+ is not taken out for the (enefit of
the de(tor$ The de(tor cannot claim the
proceeds (ecause the creditor does not
act as an agent of the former$
Sec 1=3 Bnless the interest of a person insured is
suscepti(le of e.act pecuniar+ measurement, the
measure of indemnit+ under a polic+ of insurance
upon life or health is the sum fi.ed in the polic+$
De(tor ma+ insure self and name creditor as
(eneficiar+
Creditor is entitled to full proceeds of
polic+ Aust as an+ other (eneficiar+ when
de(tor dies even if his credit is much less$
De(tor assigns polic+ to creditor as collateral
securit+
Creditor can onl+ recover amount of his
credit
Balance will go to designated (eneficiar+
).PLOI)R63USIN)SS SSOCIT)
4a+ take out polic+ on life of (usiness partner
)nterest e.ists death of partner results
in interruption of operations which can
lead to financial losses$
3irm ma+ take out polic+ on
officersMemplo+ees
Services are valua(le to the (usiness
Proceeds of polic+ not ta.a(le income
(ecause it serves as indemnit+ to the
emplo+ee for the loss the (usiness
suffers upon the death of the valued
officer of emplo+ee$
(.3. Ti4e when it should e:ist
Sec 1> &n interest in propert+ insured must
e.ist when the insurance takes effect, and when
the loss occurs, (ut need not e.ist in the
meantimeI and interest in the life or health of a
person insured must e.ist when the insurance
takes effect, (ut need not e.ist thereafter or
when the loss occurs$
"eneral Rule& insura(le interest must e.ist
onl+ at inception
Polic+ not indemnif+ing loss (ut rather
giving financial securit+ to insured or to
(eneficiaries
;aw gives insured the right to convert
polic+ into cash (+ selling it to a 3
rd
person who doesnIt have an+ insura(le
interest in his life$
Polic+ is an investment
):ceptions& Ccases where interest of the
insured is capa(le of e.act pecuniar+
(enefitD
Creditor who takes insurance out on life
of de(tor to secure de(t
<nce de(t has (een paid insura(le
interest disappears
Ho lia(ilit+ to pa+ proceeds (ecause
there is not longer an+thing to
indemnif+
)f de(t alread+ (een paid should (e
denied recover+ on the polic+
De(tor should have the right to take
over the polic+ from creditor after
the termination of relationship
prevent the premium paid from
going to waste$
Compan+ takes out insurance on life of
emplo+ee
Fmplo+ee leaves compan+
Polic+ is to indemnif+ emplo+ee for
losses upon death of emplo+ee not
resigning
Compan+ cannot recover on life of
emplo+ee who has alread+
leftMresigned E there is nothing to
indemnif+
-elationship slightl+ different
(ecause no esact pecuniar+ value
dan (e given$ BBT same principle
holds that the cannot recover$
3. Insura5le Interest In
propert9
3.1. Definition
Sec 13 Fver+ interest in propert+, whether real or
personal, or an+ relation thereto, or lia(ilit+ in
respect thereof, of such nature that a
contemplated peril might directl+ damnif+ the
insured, is an insura(le interest$
Contract of inde4nit9 = measure of insura(le
interest in propert+ is the e.tent to which the
insured might (e indemnified (+ loss or inAur+$
3.(. In what it 4a9 consist of
Sec 17 &n insura(le interest in propert+ ma+
consist in6
aD an e.isting interest?
(D &n inchoate interest founded on an e.isting
interest? or
cD &n e.pectanc+, coupled with an e.isting interest
in that out of which the e.pectanc+ arises
Sec 1; & mere contingent or e.pectant interest in
an+thing, not founded on an actual right to the
thing, nor upon an+ valid contract for it, is not
insura(le$
)nsura(le interest deemed to e.ist as long as
such interest, relation or lia(ilit+ is of such
nature that a contemplated part might directl+
damnift+ the insured
Fven without legal or e:uita(le title as long as
it can (e shown that the insured will (e
(enefited (+ propert+Is continued e.istence or
will suffer pecuniar+ loss (+ its destruction$
3<-4S <- )HSB-&B;F )HTF-FST
)HTF-FST in the propert+ itself, whether
such propert+ (e real or personal
e.$ <wnership of or a lien on propert+
an+ -F;&T)<H to such propert+
e.$ interest of a commission agent on
goods he is selling
;)&B);)TJ in respect thereof
e.$ interest of carrier on cargo which he
ought to carr+ safel+ to destination
H&TB-F <3 )HSB-&B;F )HTF-FST
&n e:istin! interest
ma+ arise from legal title Ce.$
mortgagor of the propert+
mortgaged? lessor of the propert+
leased? assignee of propert+ for the
(enefit of creditors, etc$D? clearl+
defina(l+ (ased on some legal title
ma+ also (e from e:uita(le title Ce.$
Purchaser of propert+ (efore
deliver+? (uilders in the (uilding
under construction or upon
completion of (uildingD
&n inchoate interest founded on an
e.isting interest
must (e founded on an e.isting
contract (ut not +et clearl+ defined
or identified CF.$ & stockholder has
an inchoate interest in the propert+
of the corporation wMc is founded on
an e.isting interest arising from his
ownership sharesD
& partner has an insura(le interest
in the firmIs propert+ which will
support a separate polic+ for his
(enefit
&n e:pectanc9, coupled with an
e.isting interest in that out of which the
e.pectanc+ arises
such must (e coupled with an
e.isting interest in that our of which
such e.pectanc+ arises$ CF.$ 3armer
insuring future crops if it (e grown
on land owned (+ him at the time of
the issuance of the polic+D
3.3. .easure of interest in propert9
Sec 11 & carrier or depositor+ of an+ kind has
an insura(le interest in a thing held (+ him as
such, to the e.tent of his lia(ilit+ (ut not to
e.ceed the value thereof$
Sec 1< & mere contingent or e.pectant interest
in an+thing, not founded on an actual right to the
thing, not upon an+ valid contract for it, is not
insura(le$
Other Interests
ST<C2><;DF-MP&-THF- to 3)-4
= >as sufficient interest in propert+ of
corporation
= )nterest does not rise to the dignit+
of a title +et he stands in such a
relation to such corporate propert+ to
vest him with an inchoate right to
dividends in case of profits and to
share in the assets upon li:uidation
= )nterest not measured (+ value of
what is destro+ed
= )nterest is to share in the
distri(ution of the proceeds onl+ after
pa+ment of corporationIs de(ts
= 4ust prove actual inAur+, otherwise
cannot recover more than nominal
damages
/FHF-&; C-FD)T<-
Ho insura(le interest in the propert+
of the de(tor
Ho right to posses, no lien, no relation
that would cause him direct damage
Cannot take out polic+ on de(torIs
propert+
Cannot recover as appointee or
(eneficiar+ on polic+ taken out (+
de(tor
*BD/F4FHT C-FD)T<-
Sufficient interest in de(torIs propert+
(ecause given right to lev+ Cgeneral
lienD
)n order to recover must show de(tor
has no other propert+ with which to
satisf+ de(t
4a+ insure de(torIs propert+ due to
pecuniar+ interest
4<-T/&/F C-FD)T<-
>as insura(le interest Cgeneral lienD
Direct preAudice if there is loss
-ecogni5ed (+ insurance Code CSFC"D
3.7. -hen it should e:ist
Sec 1> &n interest in propert+ insured must e.ist
when the insurance takes effect, and when the
loss occurs, (ut need not e.ist in the meantime?
and interest in the life or health of a person
insured must e.ist when the insurance takes
effect, (ut need not e.ist thereafter or when the
loss occurs$
"eneral Rule& )nterest must e.ist at inception
and at time of loss, (ut not in the meantime
P-<PF-TJ must e.ist when the insurance takes
effect and when the loss occurs (ut not e.ist in
the meantime$
Hature of contract as indemnit+
4ere transfer of thing does not carr+ transfer of
polic+
DoesnIt own it an+more cannot recover
Hew owner not a part+ to contract cannot
recover
Can recover if valid assignment to (u+er
made, notation of contract
Transfer suspends the contract until same
person owns thing and polic+
):ception&
C2!D & C>&H/F )H )HTF-FST )H & T>)H/
)HSB-FD$ &fter occurrence of an inAur+ which
results in a loss does not affect the right of the
insured to indemnif+ for the loss
insured of the polic+, after fire ma+
sell remains of propert+ without
preAudicing his right to recover+
C22D & change of interest )H <HF <- 4<-F
SFKF-&; D)ST)HCT T>)H/S, SFP&-&TF;J
)HSB-FD (+ one polic+ does not avoid the
insurance as to the others$
Single fire polic+ covers several pieces
of furniture and appliances, insurance
value of each on indicated, sale of one
item will not prevent insured from
recovering on items he did not sell
C23D & change on interest (+ %);; or
SBCFSS)<H on the death of the insured, does
not avoid an insurance and his interest in the
insurance passes to the person taking his
interest in the thing insured
3ire insurance on (uilding owned (+
father, father dies, son inherits
(uilding and the fire insurance
C2D & transfer of interest (+ one of SFKF-&;
P&-THF-S, *<)HT <%HF-S, or <%HF-S )H
C<44<H %>< &-F *<)HT;J )HSB-FD to the
others, does not avoid an insurance even
though it has (een agreed that the insurance
shall cease upon an alienation of the thing
insured
&c:uiring co=owner has the same
interest, interest merel+ increases upon
ac:uiring other co=owners interest
&lthough there ma+ (e a stipulation that
insurance ceases upon alienation
;aw allows polic+ to (e framed in such a
wa+ that it will inure to the (enefit of
whomever during the continuance of the
risk ma+ (ecome owner of the interest
insured$
Sale of propert+ will not suspend the
polic+ or render it ineffective$
3.1. Special Pro$isions on 4ort!a!or
and 4ort!a!ee
Sec = Bnless the polic+ otherwise provides,
where a mortgagor of propert+ effects insurance
in his own name providing that the loss shall (e
pa+a(le to the mortgagee, or assigns a polic+ of
insurance to a mortgagee, the insurance is
deemed to (e upon the interest of the
mortgagor, who does not cease to (e a part+ to
the original contract, and an+ of his , prior to the
loss which would otherwise avoid the insurance,
will have the same effect, although the propert+
is in the hands of the mortgagee, (ut an+ act
which , under the contract of insurance, is to (e
performed (+ the mortgagor, ma+ (e performed
(+ the mortgagee therein named, with the same
effect as it had (ee performed (+ the
mortgagee$
Sec > )f an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee, and
at the time of this assent imposes further
o(ligations on the assignee, making a new
contract with him, the acts of the mortgagor
cannot affect the rights of said assignee$
See part (./C
7<pen mortgage clause9 and 7union
mortgage9
aD Open .ort!a!e CSec "D E mortgage that can
(e paid=off to maturit+ wMo penalt+? mortgagee
is the (eneficiar+ for insurance taken (+
mortgagor
;enders generall+ do not like open
mortgages (ecause the earl+ pa+=off
reduces the interest the+ earn
&cts of mortgagor invalidates the
insurance
(D Union .ort!a!e E standard mortgage clause
4ortgagee ma+ perform the acts of
mortgagor
Clause included wherein the insurance
interest of mortgagee shall not (e
invalidated (+ an+ act of the mortgagor or
owner of propert+ at the time$
Protects mortgageeIs interest from
invalidation due to mortgagorIs acts
3.;. Chan!e of interest@ instances of
auto4atic transfer of interest
Sec (1 & change on interest in a thing insured,
after the occurrence of an inAur+ which results in a
loss does not affect the right of the insured to
indemnit+ for the loss$
Sec (( & change of interest in one or more of
several distinct things, separatel+ insured (+ one
polic+, does not affect the right of the insured to
indemnit+ for the loss$
Sec (3 & change of interest, (+ will or succession,
on the death of the insured, does not avoid an
insurance? and his interest in the insurance passes
to the person taking his interest in the thing
insured$
Sec (7 & transfer of interest (+ one of several
partners, Aoint owners, or owners in common, who
are Aointl+ insured, to the others, does not avoid
an insurance even though it has (een agreed that
the insurance shall cease upon an alienation of the
thing insured$
Sec 13 The insurance proceeds shall (e applied
e.clusivel+ to the proper interest of the person in
whose name or for whose (enefit it is made
unless otherwise specified in the polic+$
Sec 1< & polic+ ma+ (e so framed that it will
insure to the (enefit of whomever, during the
continuance of the risk, ma+ (ecome the owner
of the interest insured$
"eneral Rule& )f the thing insured is
assigned to another, the polic+ is not
deemed transferred with the thing$ The
polic+ is instead deemed suspended until
the assignee also (ecomes the owner of
the polic+$ The assignor, on the other
hand, cannot recover on the polic+ after
the transfer since he has alread+ lost
insura(le interest over the thing$ %hen
there has (een a change of interest in a
propert+ insured collectivel+ with others
in one polic+ and paid for with a gross
premium, the polic+ is suspended$ )f,
however, the change of interest affects
onl+ one propert+ insured together with
others under a divisi(le contract of
insurance, the suspension takes effect
onl+ with regard to the propert+
affected$
):ceptions& The general rule on
suspension of polic+ is not applica(le in
the following cases6 Secs$ 21 to 2, ,7,
&rt !310, X2, Civil Code
3.<. Se$eral interests@ dou5le
insurance /cf. o$er insurance2
Sec >3 & dou(le insurance e.ists where the
same person is insured (+ several insurers
separatel+ in respect in the same su(Aect and
interest$
Prohi(ition against additional insurance E
%hen a polic+ contains a prohi(ition against
additional insurance on the propert+ insured
without the insurerIs consent, such provision
(eing valid and reasona(le, a violation thereof
(+ the insured avoids the polic+$ CSta$ &na vs$
Commercial Bnion &ssurance Co$ ,, Phil 32#D$
Sec >7 %here this insured is over insured (+
dou(le insurance6
CaD The insured, unless the polic+ otherwise
provides, ma+ claim pa+ment from the insurers
in such order as he ma+ select, up to the
amount for which the insurers are severall+ lia(le
under their respective contracts?
C(D %here the polic+ under which the insured claims
is a valued is a valued polic+, the insured must
give credit as against, the valuation for an+ sum
received (+ him under an+ other polic+ without
regard to the actual value of the su(Aect matter
insured$
CcD %here the polic+ under which the insured claims
is an unvalued polic+ he must give credit , as
against the full insura(le value, for an+ sum
received (+ him under an+ other polic+$
CdD %here the insured receives an+ sum in e.cess of
the valuation in the case of valued policies, and
the insura(le value in the case of unvalued
policies, and the insura(le value in the case of
unvalued policies, he must hold such sum in trust
for the insurers, according to their right of
contri(ution among themselves$
CeD Fach insurer is (ound, as (etween himself and
the other insurers, to contri(ute rata(l+ to the
loss in proportion to the amount for which he is
lia(le under the contract$
D<BB;F )HSB-&HCF E when one gets several
policies to cover against the same dangerMperil
= e.ists where the same person is insured
(+ several insurers separatel+ in respect to
the same su(Aect and interest= ma+ recover
from insurer, insurer who pa+s ma+ collect
from other insurers
= a co=insurance (+ two or more insurers$
7Dou(le insurance,9 7additional insurance9
and 7other insurance9 are sometimes used
interchangea(l+, although there is a
technical difference in their meaning$
= -e:uisites of dou(le insurance
!$ Same person insured
2$ Two or more insurers insuring
separatel+
3$ Same su(Aect matter
$ Same interest insured
,$ Same -isk or peril insured
<KF- )HSB-&HCF E when amount insured is
over the value of the propert+ the insured is
over insured (+ dou(le insurance
The insured ma+ claim pa+ment from
the insurers in such order as he ma+
select, up to the amount for which the
insurers are severall+ lia(le under their
respective contracts$
Kalued polic+ E the insured must give
credit as against the valuation for an+
sum received (+ him under an+ other
polic+ without regard to the actual
value of the su(Aect matter insured$
Bnvalued polic+ E he must give credit,
as against the full insura(le value, for
an+ sum received (+ him under an+
polic+
)nsured receives an+ sum in e.cess E
he must hold such sum in trust for
the insurers, according to their right
of contri(ution among themselves$
Fach insurer is (ound as (etween
himself and the other insurers, to
contri(ute -&T&B;J to the loss in
proportion to the amount for which he
is lia(le under the contract$
Cannot get a(ove value of propert+
minus that of proceeds from other
policies
Cannot (e more than loss (ecause
that would (e wagering
Dou5le insurance O$erAinsurance
&mount of the
insurance is (e+ond
the value of the
insuredIs insura(le
interest
There ma+ (e no
over=insurance as
when the sum total of
the amounts of the
policies issued does
not e.ceed the
insura(le interest of
the insured$
There ma+ (e onl+
one insurer involved
There are alwa+s
several insurers
Chapter I8
CONC)L.)NT*
.ISR)PR)S)NTTION E
3R)C' O% -RRNTI)S
& contract of insurance is6
UBERRIMAE FIDAE = & contract of utmost good
faith
1. PRI.RI CONC)RNS O%
PRTI)S TO N INSURNC)
CONTRCT
The following are affected (+ an act of concealment
!$ Correct estimation of the risk which
ena(les 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 which
determines the e.tent of the contingent
dut+ to pa+ undertaken (+ the insurer
3$ Control of the risk after it is assumed as
will ena(le the insurer to guard against
the increase of the risk (ecause of
change in conditions
$ Determining whether a lost occurred and
if so, the amount of such loss$
(. D)8IC)S %OR
SC)RTININ" ND
CONTROLLIN" RISH ND LOSS
(.1. CONC)L.)NT E
R)PR)S)NTTION
Developed for the purpose of ena(ling the
insurer to secure the same information
with respect to the risk that was
possessed (+ the applicant for insurance
so that he ma+ (e e:uall+ capa(le of
forming a Aust estimate of its :ualit+$
(.(. %%IR.TI8) -RRNTI)S E
CONDITIONS
Deals with conditions e.isting at the
inception of the contract, and operates to
make more definite and certain the
general words used to descri(e the risk
the insurer undertook to (ear$
)t involve facts the e.istence of which
shows the risk to (e greater than that
intended to (e assumed and operates to
create in the insurer the power to
e.tinguish, if he so desires, the legal
relations alread+ created$
F.$$ %here an insured is re:uired to
warrant something and when found guilt+
of concealment or misrepresentation,
operates to void the contract$

(.3. )JC)PTIONS
4akes more definite the coverage
indicated (+ the general description of the
risk (+ e.cluding certain specified risks
that otherwise could have (een included
under the general language descri(ing the
risk assumed$
(.7. )J)CUTORI -RRNTI)S E
CONDITIONS
&re used to ena(le the insurer to rescind
the contract in case su(se:uent events
increased the risk to such an e.tent that
he is no longer willing to (ear$ That is,
undertakings that certain conditions
should or should not e.ist in the future$
(.1. CONDITIONS PR)C)D)NT
Bsed (+ the insurer to protect himself
against fraudulent claims of loss? these
are conditions re:uiring immediate notice
of loss or inAur+ and detailed proofs of loss
within a limited period$
3. CONC)L.)NT
3.1. Definition
Sec$ 20$ & neglect to communicate that which a
part+ knows and ought to
communicate, is called a concealment$
3.(. Re?uisites of conceal4ent&
!$ & part+ #nows the fact which he
ne!lects to co44unicate or disclose
to the other
2$ the fact concealed is 4aterial to the
risk
3$ such part+ is dut9 5ound to disclose
such fact to the other
$ the other part9 has not the 4eans of
ascertainin! the fact concealed
,$ such part9 4a#es no warrant9 of the
fact concealed$ '($ a *arranty is made
o$ t%e $act concealed& t%e non/disclosure
o$ suc% $act is not concealment +ut
constitutes a violation o$ t%e *arranty#
Sec$ 27$ & concealment whether intentional or
unintentional, entitles the inAured part+ to rescind
a contract of insurance$ C&s amended (+ BP Blg$
"7D
The effect of concealment on the
part of the insured makes the
contract K<)D&B;F at the insurerIs
option
)nsurer HFFD H<T P-<KF 3-&BD in
order to rescind a contract on the
grounds of concealment$
The dut+ of communication is
independent of the intention and is
violated (+ the mere fact of
concealment even when there is no
design to deceive$
Section 27 must (e read in relation
to Section 2#$
Sec$ 2" Fach part+ to a contract of insurance
must communicate to the other, in good faith, all
facts within his knowledge which are material to
the contract, and which the other has not the
means of ascertaining, and as to which he makes
no warrant+
3.3. .atters that .ust 3e
Co44unicated )$en in the 5sence
of In?uir9 &
!$ 4atters 4aterial to the contract
2$ 4atters which the other has not the
4eans of ascertainin! the said facts
3$ 4atters as to which the part+ with the
dut+ to communicate makes no
warrant9$
T)ST& ($ t%e applicant is a*are o$ t%e existence o$
some circumstance *%ic% %e kno*s *ould
in$luence t%e insurer in acting upon %is
application& good $ait% re2uires %im to disclose
t%at circumstance& t%oug% unasked.
3.7. %raudulent Intent
Sec$ 2#$ &n intentional and fraudulent omission,
on the part of one insured, to communicate
information of matters proving or tending to
prove the falsit+ of a warrant+, entitles the
insured to rescind$
-hen %raudulent Intent Necessar9&
Bnder section 2#, concealment relates to
the falsit+ of a warrant+$
3or the section to operate it is necessar+
that the nondisclosure (e intentional and
fraudulent (efore the contract ma+ (e
rescinded$
The concealment refers to matters proving
or tending to prove the falsit+ of the
warrant+$
3.1. .TT)RS -'IC' N))D NOT 3)
DISCLOS)D
Sec$ 31$ Heither part+ to a contract of insurance
is (ound to communicate information of the
mattes following, e.cept in answer to the
in:uiries of the others6
CaD Those which the other knows?
C(D Those which, in the e.ercise of ordinar+
care, the other ought to know, and of
which the former has no reason to suppose
him ignorant?
CcD Those of which the other waives
communication?
CdD Those which prove or tend to prove the
e.istence of a risk e.cluded (+ a warrant+,
and which are not otherwise material? and
CeD Those which relate to a risk e.cepted from
the polic+, and which are not otherwise
material$
Sec$ 32$ Fach part+ to a contract of insurance is
(ound to know all the general causes which are
open to his in:uir+, e:uall+ with that of the other,
and which ma+ affect the political or material
perils contemplated? and all general usages of
trade$
Sec$ 33$ The right to information of material
facts ma+ (e waived, either (+ the terms of
insurance or (+ neglect to make in:uiries as to
such facts where the+ are distinctl+ implied in
other facts of which information is communicated$
Sec$ 3$ )nformation of the nature or amount of
the interest of one insured need not (e
communicated unless in answer to an in:uir+,
e.cept as prescri(ed (+ section ,!$
Sec$ 3,$ Heither part+ to a contract of insurance
is (ound to communicate, even upon in:uir+,
information of his own Audgment upon the
matters in :uestion$
Sections 31, 32 E 3, pertains to
matters which need not (e disclosed
F.ception found in Sec$ 31 last
phrase of first sentence6 7e.cept in
answer to the in:uiries of the other9
.atters -hich Need Not 3e Disclosed6
!$ 4attes alread9 #nown to the insurer
2$ 4atters of which the insurer wai$es
co44unication E he is in estoppel$
3$ 4atters that concern onl9 ris#s
e:cepted, either e.pressl+ or (+
warrant+, from the lia(ilit+ assumed
under the polic+$ OO)mportant Hote6
The undisclosed fact must H<T BF
4&TF-)&; otherwise the insured is still
(ound to make disclosure$
$ Infor4ation of the nature or a4ount
of the interest of one insured e.cept
if in:uired upon (+ the insurer$
,$ 4atters each part+ are 5ound to #now
such as pu(lic events, general
information etc$
0$ The ri!ht to infor4ation of 4aterial
fact 4a9 5e wai$ed either e.pressl+,
(+ the terms of insurance or impliedl+
(+ neglecting to make in:uir+ as to the
facts alread+ communicated$
7$ If the interest of the insured to the
propert+ (eing insured is a5solute
then there is no necessit9 to
disclose the e.tent of his interest, if not
then he is re:uired to disclose under
Section ,!
"$ 4atters of opinion$
3.;. .T)RILITI
Sec$ 3!$ 4aterialit+ is to (e determined not (+
the event, (ut solel+ (+ the pro(a(le and
reasona(le influence of the fact upon the part+ to
whom the communication is due, in forming his
estimate of the disadvantages of the proposed
contract, or in making his in:uiries$
Test of .aterialit9& T%e e$$ect *%ic% t%e
kno*ledge o$ t%e $act in 2uestion *ould %ave on
t%e making o$ t%e contract. To +e material& a $act
need not increase t%e risk or contri+ute to any loss
or damage su$$ered. (T (S S11(C(E3T (1 T4E
53O60E)E O1 (T 6O0) (310E3CE T4E !ART7
(3 MA5(3G T4E CO3TRACT.
4aterialit+ is to (e determined not +y t%e
event, (ut solel+ (+ the pro+a+le and
reasona+le in$luence of the facts upon the
part+ to whom the communication is due,
in forming his estimate o$ t%e
disadvantages of the proposed contract,
or in making %is in2uiries$ ><%FKF-,
matters that ma+ (e deemed immaterial
in other respects will (e deemed material
if made the su(Aect of an in:uir+$
The DBTJ T< C<44BH)C&TF is to the
e.tent that, in good faith, all facts within
the knowledge of either part+ which are
material to the contract and as to which
he makes no warrant+, and which the
other has not the means of ascertaining,
must (e communicated$ The FUCFPT)<H
to this rule is that (oth parties are
charged with the knowledge of the general
causes which are open to his in:uir+,
e:uall+ with that of the other, and which
ma+ affect the political or material perils
contemplated? and all general usages of
trade$ The )nsurance Code e.empts a
part+ from the dut+ to communicate with
regard to matters which are deemed of
pu(lic knowledge and which a prudent
man engaged in the insurance (usiness
ought to know$
/FHF-&;;J, the right to information of
material facts ma+ (e waived, either (+
the terms of the insurance or (+ neglect
to make in:uir+ as to such facts,
P-<K)DFD the+ are distinctl+ implied in
other facts of which information is
communicated$
Concealment must take place at the time
the contract is entered into in order that
the polic+ ma+ (e avoided$ )nformation
o(tained after the perfection of the
contract is no longer necessar+ to (e
disclosed (+ the insured, even if the polic+
has not (een issued COOF.ception is when
the contract is to (e effective onl+ upon
the issuance of the polic+ E the insured is
still dut+ (ound to disclose to the insurer
an+ material fact which comes to his
knowledge$D
The dut+ of disclosure ends with the
completion and effectivit+ of the
contract$
Sunlife ssurance $s C /1>>12
)nsured need not die of the disease he had failed
to disclose to the insurer$ )t is sufficient that his
nondisclosure misled the insurer in forming his
estimates of the risks of the proposed polic+ or in
making in:uiries$
7. .ISR)PR)S)NTTION
7.1. Definition
Sec$ 30$ & representation ma+ (e oral or written
7.(. Representation $s.
.isrepresentation
Representation&
factual statements made (+ the insured
at the time of, or prior to, the issuance
of the polic+ to give information to the
insurer and otherwise induce him to
enter into the insurance contract$ The+
ma+ also (e made (+ the insurer (ut
cases nearl+ alwa+s refer to
representations made (+ the insured$
.isrepresentation&
a statement CaD as a fact of something
which is untrue? C(D which the insured
stated with knowledge that it is untrue
and with an intent to deceive, or which
he states positivel+ as true without
knowing it to (e true and which has a
tendenc+ to mislead? CcD where such fact
in either case is material to the risk
7.3. Distin!uished fro4 Conceal4ent
)n concealment, the insured maintains
silence when he ought to speak, while in
misrepresentation, the insured makes a
statement of fact which is not true E
active form of concealment.
Sec$ 37$ & representation ma+ (e made at the
time of, or (efore, issuance of the polic+ CaD
Sec$ 3"$ The language of a representation is to
(e interpreted (+ the same rules as the language
of contracts in general$
7.7. Construction of Representations&
o Construed li(erall+ in favor of the
insured and are re:uired to (e
onl+ su(stantiall+ true$
Sec$ 3#$ & representation as to the future is to
(e deemed a promise, unless it appears that )
was merel+ a statement of (elief or e.pectation$
7.1. Hinds of Representation&
!$ <ral or %ritten CSec$ 30D
2$ 4ade at the time of issuing the polic+ or
(efore CSec$ 37D
3$&ffirmative or promissor+ CSec$ 3# Q
2D
ffir4ati$e Representation6
)s an+ allegation as to the e.istence or
non=e.istence of a fact when the contract
(egins$
Pro4issor9 Representation6
)s an+ promise to (e fulfilled after the
contract has come into e.istence or an+
statement concerning what is to happen
during the e.istence of the insurance$ &
promise representation is su(stantiall+ a
condition or warrant+$
7.;. -hen Representation Dee4ed a
.ere ):pression of Opinion&
"eneral Rule& a representation of the
e.pectation, (elief, opinion, or Audgment of the
insured, although false, will not avoid the polic+,
even if such was material to the risk$
):ception& Such representation will avoid
the polic+ if there is a concurrence of materialit+
and fraudulence or intent to deceive$ >owever, if
the representation is one of fact, the insurer need
onl+ prove the materialit+ of the representation,
(ecause in such cases the intent to deceive is
presumed$
);;BST-&T)<H6 The statement 7) am an
intelligent student9 will produce the following
effects6
a$ Fven if intelligence is material, if there
was no intent to deceive and the
insured was merel+ rel+ing on his own
assessment of his a(ilities, the polic+
will not (e avoided$
($ )f intelligence is material and it was
proven that there was intent on the
part of the insured to mislead the
insurer as to his intelligence, the
polic+ will (e avoided$
c$ )f the statement was actuall+ a
statement of fact and not mere
Audgment, the polic+ will (e avoided,
as when the insured was not even a
student to (egin with C7student9 is a
fact, 7intelligence9 is an opinion9D$
3raudulent intent in this case is
presumed$
Sec$ 1$ & representation cannot :ualif+ an
e.press provision in a contract of insurance? (ut
it ma+ :ualif+ an implied warrant+
& representation cannot :ualif+ an
e.press provision or an e.press
warrant+ in a contract of insurance
(ecause a representation is not a part of
the contract (ut onl+ a collateral
inducement to it$ )t ma+ however
:ualif+ an implied warrant+$
Sec$ !$ & representation ma+ (e altered or
withdrawn (efore the insurance is effected, (ut
not afterwards$
o & representation, not (eing a part of the
contract of insurance, ma+ (e altered or
withdrawn (efore the contract actuall+
takes effect (ut not afterwards since the
insurer has alread+ (een led (+ the
representation in assuming the risk
contemplated$
Sec$ 2$ & representation must (e presumed to
refer to the date on which the contract goes in
effect$
NO %LS) R)PR)S)NTTION I%&
)f it is true at the time the contract
takes effect although false at the
time it was madeMrepresented$
T')R) IS %LS) R)PR)S)NTTION I%&
)f it is true at the time it was
madeMrepresented (ut false at the
time the contract takes effect$
Sec$ 3$ %hen a person insured has no personal
knowledge of a fact, he ma+ nevertheless repeat
information which he has upon the su(Aect, and
which he (elieves to (e true, with the e.planation
that he does so on the information of others? or
he ma+ su(mit the information, in its whole
e.tent, to the insurer? and in neither case is he
responsi(le for its truth, unless it proceeds from
an agent of the insured, whose dut+ is to give the
information$
&rt$ $ & representation is to (e deemed false
when the facts fail to correspond with its
assertions or stipulations$
Sec$ defines misrepresentation
-epresentations are not re:uired to (e
literall+ true Cunlike warrantiesD? the+
need onl+ (e SBBST&HT)&;;J T-BF
Sec$ ,$ )f a representation is false in a material
point, whether affirmative or promissor+, the
inAured part+ is entitled to rescind the contract
from the time when the representation (ecomes
false$ The right to rescind granted (+ this Code
to the insurer is waived (+ the acceptance of
premium pa+ments despite knowledge of the
grounds for rescission$ C&s amended (+ BP Blg$
7D
"eneral Rule& &n+ misrepresentation on a
material point entitles the inAured part+ to rescind
the contract from the time the representation
(ecomes false$
):ceptions& The right to rescind on the
ground of misrepresentation is deemed waived
when the insurer accepts premium pa+ments
despite knowledge of the misrepresentation$
>owever, a person cannot (e held lia(le for an+
misrepresentation that he ma+ apparentl+ have
committed if C!D he has no personal knowledge of
the matter in :uestion, C2D he relies on the
information of others and C3D he (elieves such
information to (e true (ased on such e.ternal
source, or if he su(mits the information from an
e.ternal source in its entiret+ to the insurer$ The
FUCFPT)<H to this rule is when the information
relied upon proceeds from an agent of the insured,
whose dut+ it is to give the information
3raud or intent to misrepresent facts not
essential to entitle the inAured part+ to
rescind a contract of insurance on the
ground of false representation$
To (e deemed false, it is sufficient if the
representation fails to correspond with the
facts in a material point$
Sec$ 0$ The materialit+ of a representation is
determined (+ the same rules as the materialit+
of a concealment$
7.<. CONC)L.)NT $s.
.ISR)PR)S)NTTION
Sec$ 7$ The provisions of this chapter appl+ as
CONC)L.)NT .ISR)PR)S)NTTION
)nsured withholds
information of
material facts from
the insurer
)nsured makes
erroneous statements of
facts with the intent of
inducing the insurer to
enter into the insurance
contract
Determined (+ the same rules as to materialit+
Same effects on the part of the insured? insurer
has right to rescind
)nAured part+ is entitled to rescind a contract
of insurance on ground of concealment or
false representation, whether intentional or
not
-ules on concealment and representation
appl+ likewise to the insurer as insurance
contract is one of utmost good faith
well to a modification of a contract of insurance
as to its original formation$
N! $ sian Crusaders
%acts& The insured applied for a 21=+ear
endowment insurance on his life and named
his wife as (eneficiar+$ Bpon application he
gave information regarding a previous
operation Cthat a tumor was taken outD$
)nsured died of liver cancer$ The insurer
denied the claim of the (eneficiar+ claiming
misrepresentation since the operation which
the insured undertook was for 7peptic ulcer9
and not removal of a tumor$
Ratio& Concealment e.ist where the insured
had knowledge of a fact material to the risk,
and honest+, good faith and fair dealing
re:uires that he should communicate it to the
insurer, (ut he intentionall+ withhold the
same$ The insured informed the medical
e.aminer that the tumor he was operated on
was associated with ulcer of the stomach$ )n
the a(sence of evidence that the insured had
sufficient medical knowledge as to ena(le him
to distinguish (etween 7peptic ulcer9 and
tumor9 his statement was an e.pression made
in good faith of his (elief as to the nature of
his ailment and operation$ )f the operation
and ailment of the insured had such an
important (earing on the assumption of risk (+
the insurer, it should have made further
in:uires on the matter or re:uired copies of
the hospital records (efore approving the
application$ &s provided (+ Section 32 where
the right to material information ma+ (e
waived 78(+ neglect to make in:uires as to
such facts where the+ are distinctl+ implied in
other facts of which information is
communicated9
Canilan! $ C
%acts& The insured failed to disclose to the
insurer that he was diagnosed to (e suffering
from 7sinus tach+cardia9 and that he had
consulted with a doctor$ >e died of congestive
heart failure$ >is wife, as the (eneficiar+ filed
a claim with the insurer who denied the same$
Ratio& The information the insured failed to
disclose was material to the a(ilit+ of the
insurer to estimate the pro(a(le risk he
presented as a su(Aect of life insurance, had he
disclosed it, it ma+ (e reasona(l+ assumed
that the insurer would have made further
in:uires and would have pro(a(l+ refused to
issue a non=medical insurance polic+ or at the
ver+ least re:uired a higher premium for the
same coverage$ 4aterialit+ is the pro(a(le
and reasona(le influence of the facts upon the
part+ to whom the communication should have
(een made, in assessing the risk involved, in
making or omitting to make further in:uires and
in accepting the application for insurance$
Iu $ C
%acts& The insured applied for a life insurance
with private respondent insurance compan+$ >e
concealed a materialMimportant fact in his
application form when he failed to disclose that
he had consulted a doctor prior to his application
and that he was suffering from certain
s+mptoms$ )nsured died and his (rother, the
petitioner in the case filed a claim which was
denied (+ the insurer$
Ratio& The insured is guilt+ of concealment as
the fact which he failed to disclose to the
insurance compan+ deprived the respondent of
the opportunit+ to make the necessar+ in:uir+
as to the nature of his past illness so that it ma+
form its estimate relative to the approval of his
application$ 7& neglect to communicate that
which a part+ knows and ought to communicate,
is called concealment9 and 7%hether intentional
or unintentional, the concealment entitles the
insurer to rescind the contract of insurance9$
)nsurer is relieved from lia(ilit+$
Pacific 3an#in! $ C
%acts& The insured, Paramount is in the
(usiness of shirt manufacturing, it took out a fire
insurance polic+ with <riental )nsurance for 0!2$
Because of itIs inde(tedness to Pacific Banking
Corp$, the polic+ was endorsed to Pacific as
mortgageeMtrustor$ The propert+ insured was
gutted (+ fire$ Pacific made a claim on the
insurance polic+ which was denied (+ <riental
(ecause it appeared that Paramount failed to
disclose co=insurance with 3 other insurance
companies Conl+ declared 3 othersD in violation
of Polic+ Condition ' 3$
Ratio& B+ reason of the unrevealed co=
insurances, the insured had (een guilt+ of a
false declaration? a clear misrepresentation and
a vital one (ecause where the insured had (een
asked to reveal (ut did not, that was deception$
>ad the insurer known that there were man+ co=
insurers, it could have hesitated or plainl+
desisted from entering into such contract$
>ence, the insured was guilt+ of clear fraud$
The insurance polic+ against fire e.pressl+
re:uired that notice should (e given (+ the
insured of other insurance upon the same
propert+, the total a(sence of such notices
nullifies the polic+$
)!uaras $ "reat )astern
%acts& The insured applied for a life insurance
polic+ with defendant and named (eneficiar+ his
mother=in=law, the petitioner in the case$
)nsured falsel+ answered :uestions on the
application form regarding his health and
medical histor+$ &lso, when he the insurance
compan+Is ph+sician conducted a ph+sical
e.amination, another person pretending to (e
the insured was presented$ )nsured died of
intestinal occlusion$
Ratio& The insured permitted fraud to (e
committed against the insurance compan+ in
the fact that he allowed a health+ and ro(ust
person to su(stitute in his place since he knew
that he was in (ad health$ )t is immaterial the
cause of death since at the time he applied for
the insurance on his life he was affected (+ a
malad+ that would have (een sufficient cause
for the reAection of his application (+ the
insurance compan+$ The contract of insurance
is null and void (ecause it is false, fraudulent
and illegal$
"reat Pacific Life $ C /1>>>2
%acts& & group life insurance was e.ecuted
(etween /rePa;ife and DBP for mortgagors of
DBP to the amount of de(t to DBP$ The
insured in this case was one such mortgagor to
DBP$ /rePa;ife granted insurance and a
couple of months later, insured died of
7massive cere(ral hemorrhage9$ Bpon DBPIs
claim /rePa;ife denied claiming non=disclosure
of insured that he was suffering from
h+pertension at the time of application for the
insurance (ased on the testimon+ of a doctor
who declared that the cause of death was
7possi(le h+pertension several +ears ago9
Ratio& /rePa;ife failed to esta(lish that the
insured concealed a material fact as the
medical findings were not conclusive since the
doctor who gave the testimon+ did not conduct
an autops+ on the insured nor had he an+
knowledge of insuredIs previous hospital
confinements$ The death certificate onl+
stated that h+pertension as 7possi(le cause of
death9$ Concealment e.ist where the assured
had knowledge of a fact material to the risk,
and honest+, good faith and fair dealing
re:uires that he should communicate it to the
assurer, (ut he intentionall+ withholds the
same$ 3raudulent intent on the part of the
insured must (e esta(lished to entitle the
insurer to rescind the contract$
4isrepresentation as a defense of the insurer
to avoid lia(ilit+ is an affirmative defense and
the dut+ to esta(lish such defense rests upon
the insurer$
)dillon $ .anila 3an#ers Life
%acts& The insured applied for a #1=da+
insurance coverage against accident and
inAuries$ She clearl+ indicated in the
application form that her date of (irth was *ul+
!!, !#1 Cwhich made her almost 0, at the time
of applicationD$ The insurer accepted her
premium pa+ment and issued her a certificate of
insurance$ Bnder the insurance polic+, there
contained a provision which e.cludes the
compan+ from an+ lia(ilit+ to pa+ claims when
the insured is under !0 or over 01$ )nsured died
of a vehicular accident during the effectivit+ of
the insurance coverage$
Ratio& The insurer is deemed estopped from
claiming that the insured is dis:ualified$ She did
not conceal nor misrepresent her age and the
insurance corporation has (een given sufficient
information to know that the insured is over 01
+ears of age, +et the+ continued to accept the
premium pa+ment and issued her the polic+$
New Life )nterprise $ Court of ppeals
%acts& The insured contracted 3 insurance
policies from 3 different insurance companies for
the stocks=in=trade of Hew ;ife Fnterprises$ )t
was undisputed that the plaintiff failed to
indicate an+ co=insurance in an+ of the three
policies$ %hen the (uilding occupied (+ the
insured enterprise was gutted and the stocks=in=
trade insured against were (urned, the plaintiff
filed claims with the 3 insurers which were all
denied$ The reason was that the insured
violated the terms of polic+ in relation to co=
insurance$
Ratio& The terms of the contract are clear and
unam(iguous$ The insured is specificall+
re:uired to disclose to the insurer an+ other
insurance and its particulars which he ma+ have
effected on the same su(Aect$ The e.cuse of the
plaintiff that the agent of the insurance compan+
was aware of the other insurers or that he failed
to read the terms of the policies cannot (e
accepted when the words and language of the
documents are clear and plain or readil+
understanda(le (+ an ordinar+ reader$ There is
a(solute no room for interpretation or
construction and the courts are not allowed to
make contracts for the parties$ The parties
must a(ide (+ the terms of the contract (ecause
such terms constitute the measure of the
insurerIs lia(ilit+ and compliance therewith is a
condition precedent to the insuredIs right to
recover+ from the insurer$
4erican 'o4e $ C
%acts& The insured took out a fire insurance
polic+ to cover the stocks=in=trade of his
(usiness from the plaintiff insurer$ %hen a fire
gutted the (usiness, he filed a claim against
plaintiff insurer and several other insurance
companies for which he also had a polic+ for the
same stocks=in=trade$ The plaintiff insurer
refused pa+ment claiming that the insured
violated the polic+ in several instances E for our
purposes the violation was the failure of the
insured to disclose co=insurance$ >owever,
during trial, the trial court found that although
the insured failed to disclose co=insurance, the
loss adAuster of the insurance compan+ had
previous knowledge of the co=insurance prior
to the claim$
Ratio& The insurer is estopped from claiming
e.emption from lia(ilit+ due to the violation of
the polic+ on non=disclosure$ )t cannot (e said
that petitioner was deceived (+ respondent (+
the latterIs non=disclosure of the other
insurance contracts when petitioner actuall+
had prior knowledge as petitionerIs loss
adAuster had known all along of the other
e.isting insurance contracts$ The loss adAuster
(eing an emplo+ee of petitioner is deemed a
representative of the latter whose awareness
of the other insurance contracts (inds the
petitioner and thus there was no violation of
the 7other insurance9 clause (+ the respondent
and petitioner is lia(le to pa+ its share of the
loss$
;ife insurance polic+ wording that
provides a time limit on the insurerIs
right to dispute a polic+Is validit+ (ased
on material misstatements in the
application$
)ncontesta(ilit+ means that after the
re:uisites are shown to e.ist, the insurer
shall (e estopped from contesting the
polic+ or setting up an+ defense, e.cept
as is allowed, on the ground of pu(lic
polic+
Sec$ "$ %henever a right to rescind a contract
of insurance is given to the insurer (+ an+
provision of this chapter, such right must (e
e.ercised previous to the commencement of an
action on the contract$
$&fter a polic+ of life insurance made pa+a(le on
the death of the insured shall have (een in force
during the lifetime of the insured for a period of
two +ears from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
polic+ is void a( initio or is rescinda(le (+ reason
of the fraudulent concealment or
misrepresentation of the insured or his agent$
1. Rescission&
1.1. "rounds
!$ Concealment
2$ 3alse representation E misrepresentation
3$ Breach of %arrant+
1.(. -hen Insurer .ust ):ercise
Ri!ht to Rescind&
NonALife Polic9
4ust (e e.ercised prior to the
commencement of an action on the
contract$ The insurer is no longer entitled
to rescind a contract of insurance after the
insured has filed an action to collect the
amount of the insurance$
OO>owever, it has (een held that where
an+ of the material representations is
false, the insurerIs tender of the
premiums and notice that the polic+ is
cancelled (efore commencement of the
suite, operates to rescind a contract of
insurance
Life Polic9
The defense is availa(le onl+ during the
first two +ears of a life insurance polic+$
<r upon the first two +ears after
reinstatement$
1.3. Incontesta5ilit9 clauses
The principle of incontesta(ilit+ states
that, after the re:uisites are shown to
e.ist, the insurer shall (e estopped from
contesting the polic+ or setting up an+
defense, e.cept as is allowed, on the
grounds of pu(lic polic+$ )n life insurance
policies, the incontesta(ilit+ (egins after
two +ears from the time the polic+ took
effect$ &fter this period, the insurer is no
longer allowed to declare the polic+ void
or file an action for rescission on the
grounds of concealment of
misrepresentation of the insured$ )t has
the following re:uisites6
!$ The polic+ is a life insurance polic9
2$ )t is pa9a5le on the death of the
insured
3$ )t has (een in force durin! the
lifeti4e of the insured for a period of
at least two +ears from the date of
issue or its last reinstatement$ This
two=+ear period ma+ (e shortened (ut
it cannot (e e.tended (+ stipulation$
The period of two +ears for contesting a
life insurance polic+ (+ the insurer ma+ (e
shortened (ut it cannot (e e.tended (+
stipulation$
Sec$ 227 )n the case of individual life or
endowment insurance, the polic+ shall contain in
su(stance the following conditions6
C(D & provision that the polic+ shall (e
incontesta(le after it shall have (een in force
during the lifetime of the insured for a period of
two +ears from its date of issue as shown in the
polic+, or date of approval of last reinstatement,
e.cept for non=pa+ment of premium and e.cept
for violation of the conditions of the polic+
relating to militar+ or naval service in time of
war$
Defenses Not 3arred 59 Incontesta5le
Clause&
!$ That the person taking the insurance
lac#ed insura5le interest as re:uired
(+ law$
2$ That the cause of the death of the
insured is an e:cepted ris#$
3$ That the pre4iu4s ha$e not 5een
paid$
$ That the conditions of the polic9
relatin! to 4ilitar9 or na$al ser$ice
have (een $iolated$
,$ That the fraud is of a particularl9
$icious t9pe, as where the polic+ was
taken out in furtherance of a scheme to
murder the insured, or where the
insured su(stitutes another person for
the medical e.amination, or where the
(eneficiar+ feloniousl+ kills the insured$
0$ That the 5eneficiar9 failed to furnish
proof of death or to co4pl9 with an9
conditions i4posed (+ the polic+ after
the loss has happened$
7$ That the action was not 5rou!ht
within the ti4e specified$
r!ente $ -est Coast Life Ins. Co.
%acts& The insured spouses signed an
application for Aoint insurance which was
accepted (+ the insurer$ The wife died of
cere(ral apople.+ a couple of month after the
effectivit+ of the polic+$ %hen the hus(and filed
a claim, the insurer denied the claim due to
fraud and misrepresentation of the insured$ )t
appeared that the answers the spouses gave in
their medical e.aminations with regard to their
health and previous illnesses and medical
attendance were untrue$
Ratio& The spouses were guilt+ of concealment$
&s to the issue of the application of section 7
Cnow sec$ "D on the time the insurer must
e.ercise the right to rescind, the court held that
a failure to e.ercise the right of rescission cannot
preAudice an+ defense to the action which the
concealment ma+ furnish$ %here an+ of the
material representations are false, the insurerIs
tender of the premium and notice that the polic+ is
cancelled, (efore the commencement of suit
thereon, operate to rescind the contract of
insurance, and are a sufficient compliance with the
law$
;. -RRNTI)S
;.1. Definition
)s a statement or promise set forth in the polic+
itself or incorporated in it (+ proper reference, the
untruth or non=fulfillment of which in an+ respect
and without reference to whether the insurer was
in fact preAudiced (+ such untruth or non=
fulfillment, renders the polic+ voida(le (+ the
insurer$ & warrant+ ma+ also (e made (+ an
insurer$
Sec$ 07$ & warrant+ is either e.pressed or
implied$
;.(. Hinds of -arranties&
!$ ):press -arrant9 /Sec ;< E <12 is an
agreement contained in the polic+ or
clearl+ incorporated where(+ the insured
stipulates that certain facts relating to the
risk are or shall (e true or certain acts
relating to the same su(Aect have (een or
shall (e done$
2$ I4plied -arrant9 /4arine insurance
onl92 is a warrant+ which from the ver+
nature of the contract or from the general
tenor of the words, although no e.press
warrant+ is mentioned, is necessaril+
em(odied in the polic+ as a part thereof
and which (inds the insured as though
e.pressed in the contract$ CThere is an
implied warrant+ that the ship is
seaworth+ when the polic+ attachesD
3$ ffir4ati$e -arrant9 /Sec. ;=2 is one
which asserts the e.istence of a fact or
condition at the time it is made
$ Pro4issor9 warrant9 or ):ecutor9
-arrant9 /Sec. <( E <32 is one where
the insured stipulates that certain facts or
conditions pertaining to the risk shall e.ist
or that certain things with reference
thereto shall (e done or omitted$ )t is in
the nature of a condition su(se:uent$
**6arranties are eit%er a$$irmative or
promissory and expressed or implied 8 so it
comes in pairs you can %ave an implied
a$$irmative *arranty or an expressed
a$$irmative *arranty..
**A *arranty is presumed to +e a$$irmative
unless t%e contrary intention appears
Sec$ 0"$ & warrant+ ma+ relate to the past, the
present, the future, or to an+ or all of these$
Sec$ 0#$ Ho particular form of words is necessar+
to create a warrant+$
;.3. -arranties $ Representation
-RRNTI R)PR)S)NTTION
Considered part of the
contract
Collateral inducement to
the contract
&lwa+s written on the
face of the polic+,
actuall+ or (+
reference
4a+ (e written in a
totall+ disconnected
paper or ma+ (e oral
4ust (e strictl+
complied with
<nl+ su(stantial truth is
re:uired$
3alsit+ or non=
fulfillment of a
warrant+ operates as
a (reach of contract
3alsit+ of a
representation renders
the polic+ void on the
ground of fraud$
Presumed material )nsurer must show the
materialit+ of a
representation in order
to defeat an action on
the polic+$
Sec$ 71$ %ithout preAudice to section fift+=one,
ever+ e.press warrant+, made at or (efore the
e.ecution of a polic+, must (e contained in the
polic+ itself, or in another instrument signed (+
the insured and referred to in the polic+ as
making a part of it$
)n order that a stipulation ma+ (e
considered a warrant+, it must not onl+
(e clearl+ shown that the parties
intended it as such (ut it must also form
a part of the contract itself or if
contained in another instrument, it must
(e signed (+ the insured and referred to
in the polic+ as making a part of it$
4ere reference alone is not sufficient to
give this effect$
The designation or non=designation of a
clause as a warrant+ is not controlling$
%hat is essential is the intent of the
contracting parties to create a warrant+,
regardless of the form of words used$
Sec$ 7!$ & statement in a polic+, of a matter
relating to the person or thing insured, or to the
risk, as a fact, is an e.press warrant+ thereof$
Sec$ 72$ & statement in a polic+, which imports
that it is intended to do or not to do a thing which
materiall+ affects the risk, is a warrant+ that such
act or omission shall take place$
Section 72 refers to promissor+ warrant+$
Breach of promises or agreements as to
future acts will not avoid a polic+ unless
the promises are material to the risk$
F.press warranties regarding the person,
thing, or risk must refer to a statement of
fact$ )f it is a mere (elief, it will not
constitute a warrant+ as far as the polic+
is concerned, (ut merel+ a warrant+ that
the statement is his honest opinion or
Audgment$
Sec$ 73$ %hen, (efore the time arrives for the
performance of a warrant+ relating to the future,
a loss insured against happens, or performance
(ecomes unlawful at the place of the contract, or
impossi(le, the omission to fulfill the warrant+
does not avoid the polic+$
;.7. -hen 3reach of -arrant9 does
not a$oid polic9&
!$ %hen loss occurs 5efore time for
perfor4ance
2$ %hen perfor4ance 5eco4es unlawful
3$ %hen perfor4ance 5eco4es
i4possi5le Clegal Q ph+sical
impossi(ilit+D
$ %hen insurer wai$es the warrant9,
impliedl+ or e.pressl+$
;.1. .aterialit9 and %raud in -arrant9
Sec$ 7$ The violation of a material warrant+, or
other material provision of a polic+, on the part of
either part+ thereto, entitles the other to rescind$
Sec$ 7,$ & polic+ ma+ declare that a violation of
specified provision thereof shall avoid it,
otherwise the (reach of an immaterial provision
does not avoid the polic+$
Sec$ 70$ & (reach of warrant+ without fraud,
merel+ e.onerates an insurer from the time that
it occurs, or where it is (roken in its inception,
prevents the polic+ from attaching to the risk$
3raud is not essential to entitle the
insurer to rescind a contract for (reach
of warrant+$
3alsit+, not fraud, is the (asis of lia(ilit+
in warrant+$
)f the (reach of the warrant+ was
-IT'OUT %RUD E insured is entitled
to6
!$ Return of pre4iu4 paid at a pro=
rata rate from the time of (reach if
it occurs after the inception of the
contract
2$ To all the pre4iu4s if it is
5ro#en durin! the inception of
the contract$ )n this case the
contract is void a( initio and never
(ecame (inding$
)f the (reach of the warrant+ was -IT'
%RUD E polic+ is void a( initio and the
insured is not entitled to the return of
the premium paid
;.;. -arranties in %ire Insurance
Sec$ !07$ &s used in this Code, the term 7fire
insurance9 shall include insurance against loss (+
fire, lightning, windstorm, tornado or earth:uake
and other allied risks, when such risks are
covered (+ e.tension to fire insurance policies or
under separate policies$ CaD
& fire insurance is a contract of
indemnit+ (+ which the insurer, for
consideration, agrees to indemnif+ the
insured against loss of, or damage to,
propert+ (+ fire$
Sec$ !0"$ &n alteration in the use or condition of
a thing insured from that to which it is limited (+
the polic+ made without the consent of the
insurer, (+ means within the control of the
insured, and increasing the risk, entitles an
insurer to rescind a contract of fire insurance$

Sec$ !0#$ &n alteration in the use or condition of
a thing insured from that to which it is limited (+
the polic+, which does not increase the risk, does
not affect a contract of fire insurance$
Re?uisites lteration to )ntitle Insurer to
Rescind&
!$ The use or condition of the thin! is
specificall9 li4ited or stipulated in
the polic+$
2$ Such use or condition as limited (+ the
polic+ is altered$
3$ The alteration is 4ade without the
consent of the insurer
$ The alteration is 4ade 59 4eans
within the control of the insured
,$ The alteration increases the ris#$
Increase of Ris# or 'aCard in "eneral
)ncrease of ha5ard takes place whenever
the insured propert+ is put to some new
use, and the new use increases the
chance of loss$
Premise6 Fver+ insurance polic+ is made in
reference to the conditions surrounding the
su(Aect matter of the risk and the premium is fi.ed
with reference thereto$ There is thus an implied
promise or undertaking on the part of the insured
that he will not change the premises or the
character of the (usiness carried there, or to (e
carried on there, so as to increase the risk of loss
(+ fire$
"eneral Rule& )nsurer is not lia(le if there
was an increase in the risk or ha5ard$ There is
increase in ha5ard when the new use increases the
chance of loss$ The increase of the risk of loss
must in all cases (e of a su(stantial character$
):ceptions& C&lterations which will not
warrant the avoidance of the polic+D6
!$ The use of the propert+ is changed (ut it
did not in an+ wa+ increased the risk of loss
2$ The use of materials prohi(ited from (eing
used as per the polic+ if such materials are
necessar+ or ordinaril+ used in the insuredIs
(usiness$
3$ )ncrease in risks (rought a(out (+ the
undertaking of necessar+ repairs in the
premises
$ )ncrease in risks due to negligent acts
temporaril+ endangering the propert+, or
temporar+ acts or conditions which have
ceased prior to the occurrence of the loss$
,$ &lteration made (+ accident or without the
knowledge of the insured$
Pualifier6 >owever, the acts of the insuredIs
tenants which cause alterations are deemed
presumptivel+ known to the insured$
):ception to the e:ception& Bnder Section
7,, the (reach of an immaterial provision will not
avoid the polic+, (ut the insurer is given the right
to insert terms which, if violated, would avoid it$
The increase in risk (rought (+ an alteration is
therefore irrelevant if there is alread+ a provision
in the polic+ which stipulates that &HJ alteration,
of whatever nature and effect, shall avoid the
polic+$
%or sec. 1;= to operate* entitlin! the
insurer the ri!ht to rescind* there
4ust 5e an actual increase of ris# and
while it is not necessar9 that the
increased ris# should ha$e cause or
contri5uted to the loss* it is necessar9
that the increase 5e of a su5stantial
character.
Sec$ !71$ & contract of fire insurance is not
affected (+ an+ act of the insured su(se:uent to
the e.ecution of the polic+, which does not violate
its provisions, even though it increases the risk
and is the cause of a loss$
)f the polic+ does not contain an+
prohi(ition limiting the use or condition
of the thing insured, an alteration in said
use or condition does not constitute a
violation of the polic+$ The contract is
not affected (+ such alteration even
though it increases the risk and is the
cause of the loss$
Sec$ !7!$ )f there is no valuation in the polic+,
the measure of indemnit+ in an insurance against
fire is the e.pense it would (e to the insured at
the time of the commencement of the fire to
replace the thing lost of inAured in the condition in
which it was at the time of the inAur+? (ut if there
is a valuation in a polic+ of fire insurance, the
effect shall (e the same as in a polic+ of marine
insurance$
Sec$ !72$ %henever the insured desires to have a
valuation named in his polic+, insuring an+
(uilding or structure against fire, he ma+ re:uire
such (uilding or structure to (e e.amined (+ an
independent appraiser and the value of the
insuredIs interest therein ma+ then (e fi.ed as
(etween the insurer and the insured$ The cost of
such e.amination shall (e paid for (+ the insured$
& clause shall (e inserted in such polic+ stating
su(stantiall+ that the value of the insuredIs
interest in such (uilding or structure has (een
thus fi.ed$ )n the a(sence of an+ change
increasing the risk without the consent of the
insurer or of fraud on the part of the insured,
then in case of a total loss under such polic+, the
whole amount so insured upon the insuredIs
interest in such (uilding or structure, as stated in
the polic+ upon which the insurers have received
a premium, shall (e paid, and in case of a partial
loss, the full amount of the partial loss shall (e so
paid, and in case there are two or more policies
covering the insuredIs interest therein, each
polic+ shall contri(ute pro rata to the pa+ment of
such whole or partial loss$ But in no case the
insurer (e re:uired to pa+ more than the amount
thus stated in such polic+$ This section shall not
prevent the parties from stipulating in such
policies concerning the repairing, re(uilding or
replacing of (uildings or structures wholl+ or
partiall+ damaged or destro+ed$
.easure of Inde4nit9 Under an Open Polic9
Fntitled to recover amount of actual loss
sustained C(urden of esta(lishing the
amount of loss (+ a preponderance of
evidence is upon the insuredD
.easure of Inde4nit9 Under a 8alued Polic9
The valuation in the polic+ of fire
insurance is conclusive (etween the
parties in the adAustment of either partial
or total loss if the insured has an insura(le
interest and was not guilt+ of fraud
)n case of total loss, the insured can
recover the whole amount so insured as
stated in the polic+ Cthe valuated amountD
)n case of partial loss, the full amount of
the partial loss C(ut should not e.ceed the
valuated amountD
Total loss e.ists when the result of the fire
is such as to render the propert+ wholl+
unfit for use$
)f the thing is insured under two or more
policies, each polic+ shall contri(ute pro=
rata to the pa+ment of such whole or
partial loss$
The insured is not a co=insurer under a
fire insurance polic+ in the a(sence of
stipulation unlike in marine insurance$
CoAInsurance Clause
)s a clause re:uiring the insured to
maintain insurance to an amount e:ual to
a specified percentage of the value of the
insured propert+ under penalt+ of
(ecoming co=insurer to the e.tent of such
deficienc+$ 4an+ propert+ owners
reali5ing the possi(ilit+ of total destruction
is slight, merel+ take out a small
percentage of the value of the (uilding or
goods$ To prevent the insured from
taking out such small amount of
insurance, and there(+ reduce premium
pa+ments the insurers often insert as a
rider to the standard fire polic+ a so called
7co=insurance9 clause which results in
reducing the recover+ in case of partial
loss to (ut a portion of the sum named in
the polic+ though in case of total loss, the
insurer is lia(le for the amount named in
the polic+$
Option to re5uild clause
The insurer is given the option to reinstate
the propert+ damaged or destro+ed or an+
part thereof, instead of pa+ing the amount
of loss or damage$ )f the insurer chooses
to re(uild, he has to completel+ undertake
it no matter how much it will cost him,
unless the polic+ e.pressl+ states that an+
repair shall onl+ (e to the e.tent of the
amount of the insurance$
Sec$ !73$ Ho polic+ of fire insurance shall (e
pledged, h+pothecated, or transferred to an+
person, firm or compan+ who acts as agent for or
otherwise represent the issuing compan+, and
an+ such pledge, h+pothecation, or transfer
hereafter made shall (e void and of no effect
insofar as it ma+ affect other creditors of the
insured$
)ffect of Pled!e of %ire Insurance Polic9
&fter a loss has occurred, the insured
4&J pledge, h+potheticate or transfer a
fire insurance polic+ or rights
thereunder$
%hat is (eing transferred is not the
polic+ itself (ut the right to claim against
the insurer$
This right however is su(Aect to the
prohi(ition of Section !73$
Pioneer $ Iap
%acts& The insured was the owner of a store
selling (ags and footwear, she took out a fire
insurance from petitioner insurance compan+
covering her stocks, office furniture, fi.tures
and fittings of ever+ kind and description$ &
condition was set which re:uired the insured to
disclose to the insurer of an+ insurance or
insurances 7alread+ effected, or which ma+ (e
su(se:uentl+ effected9$ )t further stipulated
that 78unless such notice (e given and the
particulars of such insurance or insurances (e
stated in or endorsed on this Polic+ (+ or on
(ehalf of the Compan+ (efore the occurrence
of an+ loss or damage, all (enefits under this
Polic+ shall (e forfeited9$ The insured failed to
inform the insurer of another co=insurance$
3ire (roke out, gutted the store of insured$
Bpon filing of claim, petitioner insurance
compan+ denied the claim for violation of
condition in the polic+$
Ratio& B+ the plain terms of the polic+, other
insurance without the consent of petitioner
would ipso facto avoid the contract$ )t
re:uired not affirmative act of election on the
part of the compan+ to make operative the
clause avoiding the contract, wherever the
specified conditions occur$ )ts o(ligation
ceases, unless, (eing informed of the fact, it
consented to the additional insurance$
3urthermore, the court :uoting *ustice
Bengson C/en )nsurance Q Suret+ Corp v Hg
>uaD said that 78and considering the terms of
the polic+ which re:uired the insured to
declare other insurances, the statement in
:uestion must (e deemed to (e a statement
C%&--&HTJD (inding on (oth insurer and
insured, that there were no other insurance on
the propert+8$the annotation then, must (e
deemed to (e a warrant+ that the propert+ was
not insured (+ an+ other polic+$ Kiolation
thereof entitled the insured to rescind$9
Ioun! $ .idland Te:tile Insurance
%acts& The insured, an owner of a cand+ and
fruit store took out a fire insurance polic+ from
the defendant insurance compan+ to insure his
residence and his (odega$ Bnder the polic+, a
condition was set as Gwarrant+ BG which
stipulates that no ha5ardous goods (e stored or
kept for sale and no ha5ardous trade or process
shall (e carried in the (uilding$ During the
enforcement of the insurance polic+, the insured
kept 3 (o.es of fire crackers$ Sometime later a
fire (roke out which partiall+ destro+ed the
(uilding (ut it appeared that the fire crackers
were not the cause of the fire as the+ were
found in an area not (urned$ Bpon claim insurer
denied pa+ment$
Ratio& The terms of the contract constitute the
measure of the insurerNs lia(ilit+$ )f the contract
has (een terminated (+ a violation of its terms
on the part of the insured, there can (e no
recover+$ Compliance with the terms of the
contract is a condition precedent to the right of
recover+$ & violation of the terms of a contract
of insurance, (+ either part+, will constitute the
(asis for a termination of the contractual
relations, at the election of the other Cin this
case the insurerD$ The right to terminate the
contractual relations e.ist even though the
violation was not the direct cause of the loss,
since the deposit of the 7ha5ardous goods9 in
the (uilding insured was a violation of the terms
of the contract$ The insurer is relieved from his
lia(ilit+ since the deposit of the ha5ardous
materials created a new risk not included in the
terms of the contract$ The insurer had neither
(een paid, nor had he entered into a contract to
cover the increased risk$
)JC)PTIONS6E )JCLUSION
)ntends to limit the lia(ilit+ of the insurer
under certain circumstances$
.usn!i $ -est Coast Insurance Co. Inc.
%acts& The insured took out two life insurance
policies with defendant insurer designating as
his (eneficiaries the plaintiffs in the case$ )n his
application the insured untruthfull+ answered
:uestions regarding his health particularl+ a(out
having consulted an+ ph+sician regarding an
illness or ailment$ )t appeared that prior to his
application for insurance, the insured had (een
treated for a num(er of ailments including peptic
ulcer, TB etc$ The insured died, and upon his
death his (eneficiaries filed a claim with
defendant insurance compan+ who denied the
claim$
Ratio& The insured is guilt+ of concealment
and thus relieves the insurer from pa+ing the
claim$ The insured knew that he had suffered
from a num(er of ailment (efore su(scri(ing
the application, +et he concealed them and
omitted the hospital where he was confined as
well as the name of his ph+sician who treated
him$ The concealment and false statement
constituted fraud, since this caused the
defendant insurer to accept the risk when it
would have otherwise refused$ Such
concealment of the insured rendered the polic+
null and void Cas held also in &rgente v %est
CoastD$
%ilipinas Cia de Se!uros $ Na$a
%acts& <n 3e(ruar+ !#3#, plaintiff Hava and
defendant 3ilipinas ;ife &ssurance entered into
!7 separate contracts of life insurance for
which the insured issued !7 life insurance
policies for which the insurer issued !7 life
insurance policies, one of said policies having a
face value of P!1,111 while the rest a face
value of P,,111 each, or a total of P#12$ Fach
and ever+ polic+ contains a polic+ loan clause$
<n &pril !#", plaintiff applied for a loan of
P,,111 in line with the loan clause (ut
defendants refused citing certain regulations
issed (+ the )nsurance Commissioner on 4a+
!#0$
'eld& DefendantIs refusal to give the loan
applied for (+ the plaintiff violated the loan
clause em(odied in each of the life insurance
policies$ This violation of the loan clause in the
polic+ entitled plaintiff to rescind all policies
under Section 0# of the )nsurance &ct, which
provides6 7the violation of a material warrant+,
or other material provision of a polic+, on the
part of either part+ thereto, entitles the other
to rescind$9 <ur )nsurance ;aw does not
contain an e.press provision as to what the
court should do in cases of rescission of an
insurance polic+ under Section 0#, the
provision that should appl+ is that em(odied in
&rt$ !2#, of the old civil code, as postulated in
&rt$ !0 of the same Code, which provides that
on matters which are not governed (+ special
laws the provision of said Code shall
supplement its deficienc+$ The C& was correct
in ordering defendant to refund to plaintiff all
premiums paid (+ him up to the filing of the
action amounting to P3,0$01$
"ROUNDS ND )J)RCIS) O% RI"'T O%
R)SCISSION
Sec$ "$ %henever a right to rescind a contract
of insurance is given to the insurer (+ an+
provision of this chapter, such right must (e
e.ercised previous to the commencement of an
action on the contract$
&fter a polic+ of life insurance made pa+a(le on
the death of the insured shall have (een in force
during the lifetime of the insured for a period of
two +ears from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
polic+ is void a( initio or is rescinda(le (+ reason
of the fraudulent concealment or
misrepresentation of the insured or his agent$
Sec$ 03$ & condition, stipulation, or agreement,
in an+ polic+ of insurance, limiting the time for
commencing an action thereunder to a period of
less than one +ear from the time when the cause
of action accrues is void$
-hen Cause of ction ccrues
The right of the insured to the pa+ment of
his loss accrues from the happening of the
loss$
The cause of action in an insurance
contract does not accure BHT); T>F
)HSB-FDIS C;&)4 )S 3)H&;;J -F*FCTFD
BJ T>F )HSB-F-, (ecause (efore such
final reAection, there is no real necessit+
for (inging suit$
The period is to (e computed not from the
time the loss actuall+ occurs (ut from the
time when the insured has a right to (ring
an action against the insurer$
OOCause of &ction E re:uires as essential
elements not onl+ a legal right of the plaintiff
and a correlative o(ligation of the defendant
(ut also 7&H &CT <- <4)SS)<H <3 T>F
DF3FHD&HT )H K)<;&T)<H <3 S&)D ;F/&;
-)/>T9, the cause of action in favor of the
insured does not accrue until the insurer
refuses e.pressl+ or impliedl+ to compl+ with
his dut+ to pa+ the amount of the loss$
"eneral Rule& a clause in the polic+ to
the effect that an action upon the polic+ must (e
(rought within a certain period is valid and will
prevail over the general law on limitations of
actions as prescri(ed (+ the Civil Code, if not
contrar+ to Sec$ 03, )C$
):ceptions& )n industrial life insurance
policies, the period cannot (e less than 0 +ears
after the cause of action accrues$
Sec$ 0$ Ho polic+ of insurance other than life
shall (e cancelled (+ the insurer e.cept upon
prior notice thereof to the insured and no notice
of cancellation shall (e effective unless it is (ased
on the occurrence, after the effective date of the
polic+, of one or more of the following6
CaD non pa+ment of premium?
C(D conviction of a crime arising out of acts
increasing the ha5ard insured against
CcD discover+ of fraud or material
misrepresentation?
CdD discover+ of willful or reckless acts or
omissions increasing the ha5ard insured
against?
CeD ph+sical changes in the propert+ insured
which results in the propert+ (ecoming
uninsura(le? or
CfD a determination (+ the Commissioner
that the continuation of the polic+ would
violate or would place the insurer in
violation of this Code$
Sec$ 0,$ &ll notices of cancellation mentioned in
the preceding section shall (e in writing, mailed
or delivered to the named insured at the address
shown in the polic+ and shall state6
CaD which of the grounds set forth in section
0 is relied upon? and
C(D that, upon written re:uest of the named
insured, the insurer will furnish the facts
on which the cancellation is (ased$
%or4 and Sufficienc9 of Notice of
Cancellation
!$ There must (e prior notice of
cancellation to the insured$
2$ The notice 4ust 5e 5ased on the
occurrence, after the effective of the
polic+, of one or 4ore of the !rounds
mentioned in section ;7$
3$ )t must (e in writin!* 4ailed or
deli$ered to the named insured at the
address shown in the polic+$
$ )t 4ust state which of the !rounds
set forth is relied upon
,$ )t is the dut9 of the insurer upon
written re?uest of the insured to
furnish the facts in which the
cancellation is 5ased$ The premium
referred to in Section 0 must (e a
premium su(se:uent to the first,
(ecause it speaks of non=pa+ment 7after
the effective date of the polic+9$ )f there
was no premium paid at all, the action
appropriate would (e a declaration of
nullit+, (ased on Section 77 which
provides that 7no polic+ or contract of
insurance issued (+ an insurance
compan+ is valid and (inding unless and
until the premium thereof has (een
paid9
Sec$ !71$ & contract of fire insurance is not
affected (+ an+ act of the insured su(se:uent to
the e.ecution of the polic+, which does not violate
its provisions, even though it increases the risk
and is the cause of a loss$
Sec$ 227 )n the case of individual life or
endowment insurance, the polic+ shall contain in
su(stance the following conditions6
C(D & provision that the polic+ shall (e
incontesta(le after it shall have (een in force
during the lifetime of the insured for a period of
two +ears from its date of issue as shown in the
polic+, or date of approval of last reinstatement,
e.cept for non=pa+ment of premium and e.cept
for violation of the conditions of the polic+
relating to militar+ or naval service in time of
war$
Sec$ 3"1$ Ho cancellation of the polic+ shall (e
valid unless written notice thereof is given to the
land transportation operator or owner of the
vehicle and to the ;and Transportation
Commission at least fifteen da+s prior to the
intended effective date thereof$
Bpon receipt of such notice, the ;and
Transportation Commission, unless it receives
evidence of a new valid insurance or guarant+ in
cash or suret+ (ond as prescri(ed in this Chapter,
or an endorsement of revival of the cancelled
one, shall order the immediate confiscation of the
plates of the motor vehicle covered (+ such
cancelled polic+$ The same ma+ (e reissued onl+
upon presentation of a new insurance polic+ or
that a guarant+ in cash or suret+ (ond has (een
made or posted with the Commissioner and which
meets the re:uirements of this chapter, or an
endorsement or revival of the cancelled one$ C&s
amended (+ PD Ho$ !,,D
Chapter 8
.RIN) INSURNC)
1. D)%INITION
Sec$ ##$4arine )nsurance includes6
C!D )nsurance against loss of or damage to6
CaD Kessels, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
dis(ursements, profits, mone+s, securities, choses
in action, evidences of de(ts, valua(le papers,
(ottomr+, and respondentia interests and all other
kinds of propert+ and interests therein, in respect
to, appertaining to or in connection with an+ and
all risks or perils of navigation, transit or
transportation, or while (eing assem(led, packed,
crated, (aled, compressed or similarl+ prepared
for shipment or while awaiting shipment, or during
an+ dela+s, storage, transhipment, or
reshipment incident thereto, including war risks,
marine (uilderNs risks, and all personal propert+
floater risks?
C(D Person or propert+ in connection with or
appertaining to a marine, inland marine, transit
or transportation insurance, including lia(ilit+ for
loss of or damage arising out of or in connection
with the construction, repair, operation,
maintenance or use of the su(Aect matter of such
insurance C(ut not including life insurance or
suret+ (onds nor insurance against loss (+
reason of (odil+ inAur+ to an+ person arising out
of ownership, maintenance, or use of
automo(ilesD?
CcD Precious stones, Aewels, Aewelr+,
precious metals, whether in course of
transportation or otherwise?
CdD Bridges, tunnels and other
instrumentalities of transportation and
communication Ce.cluding (uildings, their
furniture and furnishings, fi.ed contents and
supplies held in storageD? piers, wharves, docks
and slips, and other aids to navigation and
transportation, including dr+ docks and marine
railwa+s, dams and appurtenant facilities for the
control of waterwa+s$
C2D G4arine protection and indemnit+
insurance,G meaning insurance against, or
against legal lia(ilit+ of the insured for loss,
damage, or e.pense incident to ownership,
operation, chartering, maintenance, use, repair,
or construction of an+ vessel, craft or
instrumentalit+ in use of ocean or inland
waterwa+s, including lia(ilit+ of the insured for
personal inAur+, illness or death or for loss of or
damage to the propert+ of another person$
7.1. +Na$i!ational ):posure, K 5asic
concept in definition.
Dean sa+s that since the )C C)nsurance
CodeD does not reall+ define what
marine insurance is, most important is
to Aust point out that H&K)/&T)<H&;
FUP<SB-F is the common thread that
runs through the enumeration in Sec$ ##
-elated to Havigation of the ship
Definition of 4arine insurance under the IC
and under the Insurance ct /Law w6c IC
a4ended2
Campos6 the )C gives the terms of
marine insurance a ver+ wide coverage
including propert+ e.posed to risks not
connected with navigation$
The simple clear definition in the )& was
(etter6 Marine insurance is an insurance
against risks connected *it% navigation
to *%ic% a s%ip& cargo& $reig%tage&
pro$its& or ot%er insura+le interest in
mova+le property may +e exposed during
a certain voyage or a $ixed period o$ time.
Insurance ct /old
definition2
Insurance Code
/present defDn2
4arine insurance
covers all kinds of
mova(le propert+,
(ut it operated onl+ if
such propert+ is
e.posed to risks
connected with
navigation$
Covers propert+
e.posed to risks of
navigation and even
those e.posed to
risks not connected
with navigation, like
risks connected with
all other means of
transportation,
including overland
and perhaps even air
transportaion$
Criticism of )C defIn6 )tIs confusing impractical
and unrealistic to appl+ provision intended
specificall+ and onl+ for risks of navigation
CwMc came down to us from the usages and
customs of merchantsD to risks connected with
land and air transportation$
)C definition also didnIt serve an+ legal
purpose (+ widening the scope of the
definition since most of the special provisions
in the )C relating to marine insurance can
properl+ appl+ onl+ to ships or other propert+
e.posed to navigational risks$
Fver+thing covered (+ the new definition
would an+wa+ (e necessaril+ governed (+ the
general provisions of the )C, even if the old
definition had Aust (een retained$
Transportation insurance is concerned with the
perils of propert+ in transit as opposed to
perils at a generall+ fi.ed location$
.aFor di$isions of transportation /4arine2
insurance
!D <CF&H 4&-)HF )HSB-&HCF$ &n
insurance against risk connected with
navigation, to which a ship, cargo,
freightage, profits or other insura(le
interest in mova(le propert+ ma+ (e
e.posed during a certain vo+age or a fi.ed
period of time$
- Scope of ocean marine
insurance6 it provide
protection for6 CaD ships or
hulls, C(D goods or cargoes?
CcD earnings such as freight,
passage mone+, commissions,
or profits? CdD lia(ilit+ incurred
(+ the owner or an+ part+
interested in or responsi(le for
the insured propert+ (+
reason of maritime perils$
- &ll risks or losses ma+ (e
insured against, e.cept such
as are repugnant to pu(lic
polic+ or positivel+
prohi(ited$ & general marine
insurance polic+ which does
not state the risks assured is
valid and covers the usual
marine risks? and in a
marine polic+, the general
enumeration of 7all other
perils, etc$9 e.tends onl+ to
marine damage of like kind
to those enumerated$ To
sustain recover+ on a
marine polic+, the loss must
have (een pro.imatel+
caused (+ the risk or peril
insured against$
2D )H;&HD 4&-)HF )HSB-&HCF$ Covers
primaril+ the land or over the land
transportation perils of propert+ shipped
(+ railroads, motor trucks, airplanes,
and other means of transportation$ )t
also covers risks of lake, river, or other
inland waterwa+ transportation and
water(orne perils outside of those risks
that fall definitel+ within the ocean
marine categor+$
- to (e eligi(le for inland
marine contract, the risk
must involve an element of
transportation$ Fither the
propert+ is actuall+ in transit
held (+ persons who are not
its owners, or at a fi.ed
location (ut an important
instrument of transportation,
or is a mova(le t+pe of
goods which is often at
different locations$
- Divisions of inland marine
insurance6
!$ Propert+ in transit E the insurance
provides protection to propert+
fre:uentl+ e.posed to loss while it is in
transportation from one location to
another
2$ Bailee lia(ilit+ E the insurance provides
protection to persons who have
temporar+ custod+ of the goods or
personal propert+ of others, such as
carriers, laundr+men, warehousemen,
garagekeepers
3$ 3i.ed transportation propert+ E the
insurance covers (ridges, tunnels, and
other instrumentalities of transportation
and communication, although as a
matter of fact the+ are fi.ed propert+$
The+ are insured (ecause the+ are
essential to the transportation s+stem$
4arine policies must e.clude (uildings,
their furniture, fi.tures, fi.ed contents,
and supplies held in storage$ The+
invaria(l+ e.tend to cover more perils
than those included in the usual fire
polic+$ )n order for a risk to :ualif+ for a
marine contract, there must (e included
some additional marine peril such as
collapse, collision, flood, etc$
$ 3loater E in inland marine insurance, the
term is used in the sense that it provides
insurance to follow the insured propert+
wherever it ma+ (e located, su(Aect
alwa+s to territorial limits of the contract$
&lthough the (asis for eligi(ilit+ is the fact
that transportation or movement of
propert+ is often present, the condition
need not necessaril+ occur$ 3loaters have
(een issued covering propert+ that is
seldom moved$
Propert9 co$ered 59 4arine polic9
& marine polic+ ma+ cover an+ propert+ or
interest therein which ma+ (e su(Aected
to the risks of navigation$ Definition in
polic+ ma+ (e modified or enlarged (+
riders, warranties, or indorsements
attached to the polic+$
Term 7goods and merchandise9 usuall+
found in a marine polic+ includes all
articles which are carried on the ship for
C<44F-C)&; purposes$ CDoes not incl e.$
Clothing of crew, food, etcD$ F.pected
profits from the sale of such goods ma+
also (e protected$
%rei!ht or %rei!hta!e E all (enefits
derived (+ the owner, either from
chartering C(orrowing the entire shipD of
the ship or its emplo+ment for the
carriage of his own goods or those of
others$ This is not covered unless
expressly stated in the polic+.
3reight )nsurance doesnIt cover passage
mone+ pa+a(le (+ passenger at the
completion of the vo+age unless e.pressl+
provided$
Ris#s which 4a9 5e insured a!ainst
)nsurer is lia(le for all losses
P-<U)4&TF;J caused (+ the perils
covered (+ the marine polic+
Bsuall+ enumerated
7.(. +Perils of the Sea, and +Perils of
the Ship,
o Peril of the Sea
- includes onl+ casualties arising from
the $iolent action of the elements
and does not co$er ordinar9 wear
and tear like the silent, natural and
gradual action of the elements on the
vessel itself, or other damage usuall+
incident to the vo+age$
- )t also does not include C!D an inAur+
due to the violence of some marine
force if such violence was not
unusual or une.pected? C2D loss of a
sail during a tempest, for neither
events are unusual C(ut carr+ing
awa+ of a mast or loss of an anchor
will (e covered, for in such cases the
stormIs violence is definitel+ unusual
and not to (e e.pected as incident
to navigationD
- 3ortuitous and unusual
- 4ust (e connected with maritime
navigation
- )t is a relative term and the meaning
ma+ var+ with the circumstances$
- )t em(races all kinds of marine
casualt+ such as C!D shipwreck,
foundering, stranding, collision, and
damages done to the ship or goods
at sea (+ violent action of wind and
waves? C2D loses occasioned (+ the
Aettisoning of cargo if it is made for
the purpose of saving a vessel
rendered unworth+ during the
vo+age, not through the fault of the
captain? C3D (arratr+, or an+ willful
misconduct on the part of the
master or crew in pursuance of
some unlawful or fraudulent purpose
without the consent of the owners,
and to the preAudice of the ownerIs
interest$ Barratr+ re:uires a willful
and intentional act in its
commission$ Ho honest error of
Audgment or mere negligence,
unless criminall+ gross, can (e
(arratr+$
- The meaning of 7perils of the sea9
varies with circumstances$ 3<-
FU&4P;F, a vessel designed for
inland waters was insured$ )t was
towed in the /ulf of 4e.ico$ The
insurer was aware of the ha5ardous
nature of the Aourne+ and charged
e.tra premium$ )f an+ loss occurs, it
will (e held to (e due to perils of the
sea although a sea=going vessel
would not have (een damaged (+
the moderate waves encountered$
Peril of the Ship
- ;oss which in the ordinar+ course of
events results from CaD the Natural
and inevita(le action of the sea? C(D
ordinar9 -ear and Tear of the
ship? CcD the ne!li!ent failure of
the shipDs owner to provide the
vessel with proper e:uipment to
conve+ the cargo under ordinar9
conditions
- The insurer does not undertake to
insure against perils of the ship$
3ote: Everyt%ing t%at %appens t%ru t%e in%erent
vice o$ t%e t%ing& or +y t%e act o$ t%e o*ner&
master or s%ipper s%all not +e reputed a peril i$
not ot%er*ise +orne in t%e policy
3arratr9 = willful and intentional act on
the part of the master or crew, in
pursuance of some unlawful or fraudulent
purpose, without the consent of the
owner, and to the preAudice of his
interest? Heither honest error or Audgment
nor mere negligence$
- 4a+ (e covered (+ polic+
Ta#in! at sea* arrests* restraints* and
detain4ents of all #in!s* princes and
people = e.traordinar+ acts (+ a
sovereign authorit+ in time of war, or
under other unusual international
conditions like (lockades and em(argoes$
&cts done in the course of regular
proceedings not included Ci$e$ vessel
li(eled and detained for non=pa+ment of
de(tD since there is nothing fortuitous
a(out the situation$
- )ncludes not onl+ 7arrests9 caused (+
political acts of a sei5ing state (ut
also (+ ordinar+ legal processes such
as a lawsuit on ownership and
possession of goods$ Csee 4ala+an
)nsurance Corp v C& caseD
ll other perils* losses and
4isfortunes = covers risks which are of
like kind with the particular risks which
are enumerated in the preceding part of
the same clause of the contract
La RaCon Social +"o Tiaoco 9 'er4anos, $
Union Insurance Societ9 of Canton Ltd.
Facts6 & drain pipe passing through the hold
where the insured rice was stowed had (ecome
corroded in course of time, wMc created a hole in
the pipe$ &n attempt was made to cement the
hole and cover it with a strip of iron (ut due to
the loading of the ship, this part of the pipe was
su(merged in water during the trip and was
washed out$ %ater flowed into the hold and
damaged the rice$
Issue6 %<H the insurer was lia(le
Held6 H<$ & loss which in the ordinar+ course of
events, results from the natural and inevita(le
action of the sea, from the ordinar+ wear and
tear of the ship, or from the negligent failure of
the shipIs owner to provide the vessel with
proper e:uipment to conve+ the cargo under
ordinar+ conditions, is not a peril of the sea, (ut
rather a 7peril of the ship$9 )n such a case, the
remed+ of the insured shipper or consignee is
not against the insurer (ut against the
shipowner$
Catha9 Insurance $ C
Facts: -emington )ndustrial Sales filed for the
recover+ of losses incurred due to the rusting
of steel pipes it imported from *apan while it
was in transit$ Catha+ )nsurance refused
pa+ment claiming that the rusting was not due
to a peril of the sea since it was not a casualt+
which could not (e foreseen$
Held: There is no :uestion that rusting of steel
pipes in the course of vo+age is a 7peril of the
sea9 in view of the toll on the cargo (+ wind,
water and salt conditions$ C>&H/;&B<[ But in
an+ case, the SC decided through
constructionD %e would fail to o(serve a
cardinal rule in the interpretation of contracts,
namel+, that an+ am(iguit+ therein should (e
construed against the issuerMdrafter, namel+,
the insurer$
.ala9an Insurance Corp $ C /1>><2
Facts T2C 4arketing was the ownerMconsignee
of so+a (ean meal shipped from Bra5il to
4anila$ )t was insured (+ 4ala+an )nsurance$
%hile the vessel was in South &frica it was
arrested and detained due to a lawsuit
:uestioning its ownership and possession$ &s a
result, T2C 4arketing filed a claim with
4ala+an for the non=deliver+ of the cargo$
Issue %oH the arrest of the vessel (+ the civil
authorit+ was a peril of the sea
Held The 7arrest9 caused (+ ordinar+ Audicial
process is deemed included among the covered
risks$ CDecision detailed the histor+ of the
73ree from Capture and Sei5ure9 clauseD
&lthough the 3ree from Capture and Sei5ure9
clause was originall+ inserted in marine policies
to protect against risks of war, its
interpretation in recent +ears to include sei5ure
or detention (+ civil authorities seems
consistent with the general purposes of the
clause$
%ilipino .erchants Insurance Co $ C
Facts & shipment of fishmeal insured (+
3ilipino 4erchants Co$ was found to (e
damaged upon its unloading in the Port of
4anila$ The ownerMconsignee filed action to
recover the amount represented (+ the
damages (ased on the 7all risks9 clause of the
polic+ (ut 3il$4erchants refused claiming that
there must (e some casualt+ or accidental
cause to which the loss is attri(uta(le$
Held &n 7all risks polic+9 should (e read
literall+ Cnot technicall+D as meaning all risks
whatsoever and covering all losses (+ an
accidental cause of an+ kind$ )t has evolved to
grant a greater protection than that afforded
(+ the 7perils9 clause in order to assure that no
loss can happen through the incident of a cause
neither insured against nor creating lia(ilit+ in
the ship$ The insured under an all risks polic+
has the initial (urden of proving that the cargo
was damaged when unloaded from the vessel,
thereafter, the (urden then shifts to the insurer
to show the e.ception to the coverage$ Bnder
this polic+ it is sufficient to show that there was
damage occasioned (+ some accidental cause of
an+ kind and there is no necessit+ to point to
an+ particular cause$
(. INSUR3L) INT)R)ST
Sec$ !11$ The owner of a ship has in all
cases an insura(le interest in it, even when it has
(een chartered (+ one who covenants to pa+ him
its value in case of loss6 Provided, That in this
case the insurer shall (e lia(le for onl+ that part of
the loss which the insured cannot recover from the
charterer$
<wner of Kessel has insura(le interest in
the vessel even if he has mortgaged it$
>owever, if ship is chartered and
charterer agrees to pa+ him its value in
case of loss, it is onl+ lia(le for that part
of the loss which the insured cannot
recover from the charterer$
)nsura(le interest of insured in marine
insurance
"eneral Rule& there can (e no valid
marine insurance unless supported (+ an
insura(le interest in the thing insured$
):ception& in certain cases of marine
insurance, the insurer will still (e held
lia(le if he agreed to insure a ship or
cargo 7lost or not lost9, that is, he agreed
to (e (ound in an+ case, even if it would
later on (e proved that the insured had
nothing to insure when the contract was
made$
Sec$ !1!$ The insura(le interest of the
owner of the ship h+pothecated (+ (ottomr+ is
onl+ the e.cess of its value over the amount
secured (+ (ottomr+$
Sec$ !12$ 3reightage, in the sense of a
polic+ of marine insurance, signifies all the
(enefits derived (+ the owner, either from the
chartering of the ship or its emplo+ment for the
carriage of his own goods or those of others$
Sec$ !13$ The owner of a ship has an
insura(le interest in e.pected freightage which
according to the ordinar+ and pro(a(le course of
things he would have earned (ut for the
intervention of a peril insured against or other
peril incident to the vo+age$
Sec$ !1$ The interest mentioned in the
last section e.ists, in case of a charter part+,
when the ship has (roken ground on the
chartered vo+age$ )f a price is to (e paid for the
carriage of goods it e.ists when the+ are actuall+
on (oard, or there is some contract for putting
them on (oard, and (oth ship and goods are read+
for the specified vo+age$
Sec$ !1,$ <ne who has an interest in the
thing from which profits are e.pected to proceed
has an insura(le interest in the profits$
Sec$ !10$ The charterer of a ship has an
insura(le interest in it, to the e.tent that he is
lia(le to (e damnified (+ its loss$
In Ship
3otto4r9 Loan E one given on the
securit+ of the ship, on condition
that the loan (e repaid onl+ if the
ship arrives safel+ at the port of
destination? mone+ given in
advance? if ship sinks, (ottomr+
loan e.tinguished and owner doesnIt
have to pa+ it$
Bottomr+ loans and marine
insurance can share protection and
coverage of same risks? (ut cannot
coe.tend with each other$
%here a vessel is h+pothecated (+
wa+ of (ottomr+, the owner has an
insura(le interest onl+ in the e.cess
of the vesselIs value over the amount
of the (ottomr+ loan$ This is so
(ecause when the vessel (ottomed is
lost, the owner need not pa+ the loan
and is therefore (enefited to the
e.tent of the amount of the load
o(tained and the loss he actuall+
suffers is onl+ the difference (et the
actual value of the vessel and the
(ottomr+$
The lender in (ottomr+ is entitled to
receive a high rate of interest to
compensate him for the risk of losing
his loan$
3. CONC)L.)NT
Sec$ !17$ )n marine insurance each part+ is
(ound to communicate, in addition to what is
re:uired (+ section twent+=eight, all the
infor4ation which he possesses, material
to the risk, e.cept such as is mentioned in
Section thirt+, and to state the e.act and
In Ship In "oods Shipped and
Profits
In %rei!hta!e
Owner of the
Ship
=>as insura(le interest in
&;; cases even if the ship
has (een chartered (+ one
who has agreed to pa+, its
value in case of loss$ )n this
case, insurerIs Cof the ship
ownerD lia(ilit+ is limited to
the part of the loss which
insured cannot recover
from the charterer$
= )f ship is su(Aected to
(ottomr+ loan, <wnerIs
interest is onl+ in e.cess of
value over amount secured
(+ (ottomr+$
)nterest in goods ship
carries to the e.tent that
he ma+ (e lia(le for their
loss, (ut H<T T< FUCFFD
T>F K&;BF thereof
=>as insura(le interest in
e.pected freightage wMc accdg
to the ordinar+ and pro(a(le
course of things he would
have earned (ut for the
intervention of a peril insured
against or other peril incident
to the vo+age
= )f 3reight is Pa+a(le upon
the Completion of vo+age=
<%HF- has insura(le interest
Charterer 6
Shipper
4a+ take out polic+
covering insura(le interest,
which can (e onl+ to the
e.tent that he ma+ (e
damnified (+ the loss
>as insura(le interest in
goods since the+ will suffer
damage in case of loss
3reight P&)D in &DK&HCF E
Charterer or Shipper has
insura(le interest
whole truth in relation to all matters that he
represents, or upon in:uir+ discloses or
assumes to disclose$
Sec$ !1"$ )n marine insurance,
information of the (elief or e.pectation of a
third person, in reference to a material fact,
is material$
Sec$ !1#$ & person insured (+ a
contract of marine insurance is presumed to
have knowledge, at the time of insuring, of a
prior loss, if the information might possi(l+
have reached him in the usual mode of
transmission and at the usual rate of
communication$
Sec$ !!1$ & concealment in a marine
insurance, in respect to an+ of the following
matters, does not vitiate the entire contract,
(ut merel+ e.onerates the insurer from a
loss resulting from the risk concealed6
CaD The national character of the
insured?
C(D The lia(ilit+ of the thing insured to
capture and detention?
CcD The lia(ilit+ to sei5ure from (reach
of foreign laws of trade?
CdD The want of necessar+ documents?
CeD The use of false and simulated
papers$
Concealment in marine insurance is
the failure to disclose an+ material
fact or circumstance which in fact or
law is within, or which ought to (e,
within the knowledge of one part+
and of which the other has no actual
or presumptive knowledge$
The rules are stricter than in the
case of fire insurance (ecause, in
the latter, the insurer can easil+
o(tain information regarding the
propert+ insured$ )n marine
insurance, the vessels insured are
often a(sent or afloat$ Bnder
Section !17, it is sufficient that the
insured is in possession of the
material fact concealed although he
ma+ not (e aware of it$
<pinions or e.pectations of third
persons6
"eneral Rule in insurance&
the insured is not (ound to
communicate information of his own
Audgment and what he learns from a
third person$
In 4arine insurance& the
insured is (ound to communicate the
(eliefsM opinions and e.pectations of
third persons, as long as the
information is in reference to a
material fact$
Presumptive knowledge (+ insured of
prior loss6 Sec$ !1# esta(lishes a
re(utta(le presumption of knowledge
of prior loss on the part of the
insured, on the recognition of the fact
that communications technolog+
nowada+s makes it possi(le for the
insured to (e apprised of the loss of
his vessel immediatel+ after it occurs$
The insured is not (ound, however, to
use all accessi(le means of
information at the ver+ last instant of
time to ascertain the condition of the
propert+ insured$
%hen concealment does not vitiate
entire contract
"eneral Rule in insurance&
concealment of a material fact entitles
the inAured part+ to rescind$
In 4arine insurance& if loss
happens under an+ of the conditions
in Section !!1 and such was
concealed, the insurer is merel+
e.onerated from lia(ilit+$ The insurer,
however, remains lia(le to pa+ for
damage or loss (rought (+ other
perils of the sea$
R)PR)S)NTTION
Sec$ !!!$ )f a representation (+ a
person insured (+ a contract of marine
insurance, is intentionall+ false in an+ material
respect, or in respect of an+ fact on which the
character and nature of the risk depends, the
insurer ma+ rescind the entire contract$
Sec$ !!2$ The eventual falsit+ of a
representation as to e.pectation does not, in
the a(sence of fraud, avoid a contract of
marine insurance$ CHote6 %ill (e void if there
is fraudD
&pplica(ilit+ of rules on representation
to marine insurance6
The rules on representation are applica(le
to marine insurance, like the rules on
distinction (etween representations and
warranties, construction of representations,
and avoidance of the polic+ (ased on a
su(stantial misrepresentation of an+
material fact or circumstance$ The test of
materialit+ of representations also applies in
marine insurance$
&n+thing which concerns the state
of the vessel at an+ particular period
of her vo+age are material$
Statements of the nature and
amount of cargo, or whether the
vessel was overloaded, or where the
insurer did not rel+ thereon, have
(een held to (e immaterial$
Fffect of falsit+ of representation as
to e.pectation6
-epresentations of e.pectations are
statements of future facts or events which
are in their nature contingent and which the
insurer is (ound to know that the insured
could not have intended to state as known
facts, (ut as mere e.pectations or
intentions$ Bnless made with fraudulent
intent, failure of the fulfillment of a
representation of e.pectation is not a ground
for rescission$ The+ must (e carefull+
distinguished from promissor+ warranties$
Special Rule in .arine Insurance
Su(stantial truth of an+ material
statement is H<T sufficient
;aw re:uires the insured to state
the e.act and whole truth in relation
to all matters that he represents, or
upon in:uir+, discloses or assumes
to disclose$
Due to nature of contract
Rules on Conceal4ent and
.isrepresentation are STRICT)R in
4arine insurance. -h9L
3ailure to disclose an+ material fact
or circumstance which in law or fact
is within, or which ought to (e
within the knowledge of one part+
and of which the other has no actual
or presumptive knowledge$
3ailure to disclose the ff$ will give
the insurer the right to rescincd CHo
more lia(ilit+D$
- 4aterial facts within knowledge
of part+
- ll infor4ation he posessess
which are material to risk,
e.cept as is mentioned in Sec$
31 Ccf with Sec$ 2" which onl+
re:uire communication of facts
which are material to the
contract as to which he makes
no warrant+D
- Beliefs and e.pectations of 3
rd
persons in reference to a
material fact$

Sec$ 2"$Fach part+ to a contract of insurance
must communicated to the other, in good
faith, all facts within his knowledge which are
material to the contract and as to which he
makes no warrant+, and which the other has
not the means of ascertaining$
Sec$ 31$ Heither part+ to a contract of
insurance is (ound to communicate
information of the matters following, e.cept in
answer to the in:uiries of the other6
CaD Those which the other knows?
C(D Those which, in the e.ercise of
ordinar+ care, the other ought to know, and of
which the former has no reason to suppose
him ignorant?
CcD Those of which the other waives
communication?
CdD Those which prove or tend to prove
the e.istence of a risk e.cluded (+ a warrant+,
and which are not otherwise material? and
CeD Those which relate to a risk e.cepted
from the polic+ and which are not otherwise
material$
T)ST of .aterialit9& 6%et%er t%e concealed
$act caused t%e loss and not its pro+a+le
in$luence on t%e ot%er party in deciding
*%et%er or not to enter t%e contract.
Representations& (nsured must state t%e
exact and *%ole trut% in relation to all matters
t%at %e represents o$ upon in2uiry discloses or
assumes to disclose.
%alse representations&
!$ &n+ misrepresentation of a material
fact made with fraudulent intent
2$ The character and nature of the ris#
depends on the fact
4isrepresented
)ffect& )nsurer ma+ -FSC)HD the contract
):ception& Fventual falsit+ of a
representation as to e.pectation, in the
a(sence of fraud, does not avoid the contract$
Coastwise $ C
%acts& Pag=&sa Sales had molasses
transported from Hegros to 4anila using
Coastwise ;ighterage CorpIs open (arges$
>owever, one of the (arges sank when it hit
an unknown sunken o(Aect while approaching
4anila Ba+ Port$ Because of this, Pag=&sa
reAected the shipment as a total loss and Phil$
/eneral )nsurance Compan+ paid for the loss$
Phil/en then filed an action against Coastwise
;ighterage seeking to recover the amount it
paid Pag=asa$ Coastwise claims that it was
unaware of the hidden danger in its path,
thus it (ecame impossi(le for Coastwise to
avoid it, even with the e.ercise of
e.traordinar+ diligence$
'eld& CoastwiseIs assertion is (elied (+ the
evidence$ The patron of the vessel which
sank admitted that he was not licensed thus,
it cannot safel+ claim to have e.ercised
e.traordinar+ diligence (+ placing a person
whose navigational skills are :uestiona(le at
the helm of the vessel wMc met the accident$
;ogicall+, a person wMo license to navigate
lacks not Aust the skill to do so, (ut also the
familiarit+ with the usual and safe routes
taken (+ seasoned and legall+ authori5ed
persons$
7. I.PLI)D -RRNTI)S
Sec$ !!3$ )n ever+ marine insurance
upon a ship or freight, or freightage, or upon
an+ thing which is the su(Aect of marine
insurance, a warrant+ is implied that the
ship is seaworth+$
Sec$ !!$ & ship is seaworth+ when
reasona(l+ fit to perform the service and to
encounter the ordinar+ perils of the vo+age
contemplated (+ the parties to the polic+$
Sec$ !!,$ &n implied warrant+ of
seaworthiness is complied with if the ship (e
seaworth+ at the time of the of
commencement of the risk, e.cept in the
following cases6
CaD %hen the insurance is made for a
specified length of time, the implied
warrant+ is not complied with unless the ship
(e seaworth+ at the commencement of
ever+ vo+age it undertakes during that time?
C(D %hen the insurance is upon the
cargo which, (+ the terms of the polic+,
description of the vo+age, or esta(lished
custom of the trade, is to (e transhipped at
an intermediate port, the implied warrant+ is
not complied with unless each vessel upon
which the cargo is shipped, or transhipped,
(e seaworth+ at the commencement of each
particular vo+age$
Sec$ !!0$ & warrant+ of seaworthiness
e.tends not onl+ to the condition of the
structure of the ship itself, (ut re:uires that
it (e properl+ laden, and provided with a
competent master, a sufficient num(er of
competent officers and seamen, and the
re:uisite appurtenances and e:uipment, such
as (allasts, ca(les and anchors, cordage and
sails, food, water, fuel and lights, and other
necessar+ or proper stores and implements for
the vo+age$
Sec$ !!7$ %here different portions of
the vo+age contemplated (+ a polic+ differ in
respect to the things re:uisite to make the
ship seaworth+ therefor, a warrant+ of
seaworthiness is complied with if, at the
commencement of each portion, the ship is
seaworth+ with reference to that portion$
Sec$ !!"$ %hen the ship (ecomes
unseaworth+ during the vo+age to which an
insurance relates, an unreasona(le dela+ in
repairing the defect e.onerates the insurer on
ship or shipownerNs interest from lia(ilit+ from
an+ loss arising therefrom$
Sec$ !!#$ & ship which is seaworth+ for
the purpose of an insurance upon the ship
ma+, nevertheless, (+ reason of (eing unfitted
to receive the cargo, (e unseaworth+ for the
purpose of the insurance upon the cargo$
Sec$ !21$ %here the nationalit+ or
neutralit+ of a ship or cargo is e.pressl+
warranted, it is implied that the ship will carr+
the re:uisite documents to show such
nationalit+ or neutralit+ and that it will not
carr+ an+ documents which cast reasona(le
suspicion thereon$
%arrant+, in marine insurance, has
(een defined as a stipulation, either
e.pressed or implied, forming part of
the polic+ as to some fact, condition
or circumstance relating to the risk$
)mplied %arranties = conditions upon
the underwriterNs lia(ilit+ for the risks
assumed in ever+ insurance upon an+
marine venture whether of vessel,
cargo, or freight$
7.1. I4plied warranties in 4arine
insurance
aD Seaworthiness
(D Deviation
cD <ther )mplied %arranties6
= Carr+ the re:uisite documents to
show nationalit+ or neutralit+
= Hot engage in an+ illegal venture
dD it is also impliedl+ warranted that the
insured has an insura(le interest in the
su(Aect matter insured
/eneral provisions on warranties
also appl+ to marine insurance
<H;J marine insurance has )4P;)FD
%&--&HT)FS provided (+ law
a2 Seaworthiness&
.eanin!
S%ip is sea*ort%y *%en reasona+ly
$it to per$orm t%e services and to
encounter t%e ordinary perils o$ t%e
voyage contemplated +y t%e parties
to t%e policy.
H<T a(solute guarantee that vessel
will safel+ meet all possi(le perils
C)-CB4ST&HCFS determine %<H
vessel is reasona(l+ seaworth+
Seaworthiness e.tends not onl+ to
condition of shipIs structure, (ut
re:uires
- ship to (e properl9 laden
- co4petent 4aster
- sufficient nu45er of
co4petent officers and crew
- re:uisite appurtenances and
e?uip4ent C(allasts, ca(les,
anchors, cordage, sails, food,
water, fuel, lights,
necessar+Mproper stores and
implements for the vo+ageD
- )n a fit state as to repair,
e:uipment, crew and in all other
respects to perform the vo+age
insured and to encounter the
ordinar+ perils of navigation
- 4ust also (e in a suita5le
condition to carr9 the car!o
put on (oard or intended to (e
put on (oard
Such warrant+ can (e e.cluded onl+
(+ clear provisions of the polic+
%here seaworthiness admitted (+
insurer6
a$ &dmission is stipulated in the
contract6 the issue of
seaworthiness cannot (e raised
(+ the insurer without showing
concealment or
misrepresentation (+ the
insured$
($ The admission ma+ mean6
C!D that the warrant9 of
seaworthiness is to 5e ta#en
as fulfilled? or
C2D that the ris# of
unseaworthiness is assu4ed
(+ the insurer
c$ )nsertion of waiver clauses in
cargo policies is in recognition of
the realistic fact that cargo
owners cannot control the state of
the vessel$
%here unseaworthiness unknown to
owner of cargo insured6
a$ SBB*FCT 4&TTF- )S C&-/<6 the
implied warrant+ of seaworthiness
attaches to whoever is insuring
the cargo, %<H he is the
shipowner$
($ ;ack of knowledge (+ the insured
is immaterial in ordinar+ marine
insurance and is not a defense in
order to recover on the polic+$
c$ Since the law provides for an
implied warrant+, it (ecomes the
o(ligation of a cargo owner to
look for a relia(le common carrier
which keeps its vessels in
seaworth+ condition$ Shipper ma+
have no control over the vessel
(ut he has full control in the
choice of the common carrier that
will transport his goods$
d$ Cargo owner ma+ also enter into
a contract of insurance which
specificall+ provides that the
insurer answers not onl+ for the
perils of the sea (ut also provides
for coverage of perils of the ship$
e$ & charterer of a vessel has no
o(ligation (efore transporting its
cargo to ensure that the vessel
complied with all the legal
re:uirements$ The dut+ rests
upon the common carrier simpl+
for (eing engaged in Gpu(lic
services$G
f$ Because of the implied warrant+
of seaworthiness, shippers are not
e.pected, when transacting with
common carriers, to in:uire into
the vesselNs seaworthiness,
genuineness of its licenses and
compliance with all maritime
laws$
Seaworthiness is a relative term
depending upon the nature of ship
Cmust (e in a fit state as to repair,
e:uipment, crew and in all other
respects to perform the vo+age
insured and encounter the ordinar+
perils? suita(le condition to carr+
cargoD, nature of $o9a!e
Cdetermines %<H vessel is well=
fittedD, nature of ser$ice Cnature of
cargo should (e determined? the
vessel should (e reasona(le capa(le
of safel+ carr+ing the cargo to the
port of destinationD$
3ailure of a common carrier to
maintain in seaworth+ condition the
vessel is a clear (reach of its dut+
prescri(ed in &rticle !7,,, CC$
)t is not necessar+ that the cargo
itself shall (e seaworth+$
-hen warrant9 dee4ed co4plied with@
e:ceptions
)mplied warrant+ of seaworthiness is
deemed complied with if ship is
seaworth+ &T T>F T)4F <3 T>F
C<44FHCF4FHT <3 T>F -)S2?
%hat matters is that at the start of
the vo+age insured, ship is
seaworth+$ &ssured makes no
warrant+ that vessel will continue to
(e seaworth+, or that the crew
wonIt (e negligent
= Principle Behind this6 )f vessel,
crew, and e:uipment (e originall+
sufficient, the assured has done all
that he contracted to do Cnot
an+more responsi(le for future
deficienc+D$
F.ceptions6 Secs$ !!,a, !!,(, !!7
- C!!,aD )n case of TI.) polic+ E
insurance made for a specified
length of time, ship must (e
seaworth+ at the
co44ence4ent of e$er9
$o9a!e she ma+ undertake
- C!!,(D in case of Car!o polic+ E
)nsurance is upon the cargo
which (+ the terms of the
polic+, description of the
vo+age, or esta(lished custom
of the trade, is to (e
transshipped
1
at an intermediate
port? each $essel upon which
the cargo is shipped must (e
seaworth+ at the
commencement of each
particular vo+age
- C!!7D )n case of 8o9a!e polic+
contemplating a vo+age in
different stages E ship must (e
seaworth+ at the
commencement of each portion?
1
Transshipment - the act of taking cargo out of one
ship and loading it in another or the transfer of goods
from the vessel stipulated in the contract of
affreightment to another vessel before the place of
destination named in the contract has been reached or
the transfer for further transportation from one ship or
conveyance to another. Fact of transshipment is not
dependent upon the ownership of the transporting
conveyances but rather on the fact of actual physical
transfer or cargoes from one vessel to another.
Transshipment of freight without legal excuse,
however competent and safe the vessel into which the
transfer is made, is an infringement on the right of the
shipper and subjects the carrier to liability if the freight
is lost even by a cause otherwise excepted.
stages must (e separate and
distinct in order to have a
different degree of seaworthiness
for particular parts$
Scope of Seaworthiness of $essel
!$ )HSB-&HCF <H C&-/<6 it must (e properl+
loaded, stowed, dunnaged, and secured so as
not to imperil the navigation of the vessel to
cause inAur+ to the vessel or cargo$
2$ )HSB-&HCF <H KFSSF;6 ship is not
unseaworth+ (ecause of some defect in
loading or stowage which is easil+ cura(le (+
those on (oard, and was cured (efore the
loss$
3$ DFC2 C&-/<6 carr+ing it raises a
presumption of unseaworthiness which can (e
overcome onl+ (+ showing affirmativel+ that
the deck cargo was not likel+ to interfere with
the due management of the vessel$
-here ship 5eco4es unseaworth9 durin!
$o9a!e
"eneral Rule& There is no implied
warrant+ that the vessel will remain in a
seaworth+ condition throughout the life of the
polic+$
!$ %hen the vessel (ecomes
unseaworth+ during the vo+age, it is
the dut+ of the master, as the
shipownerNs representative, to
e.ercise due diligence to make it
seaworth+ again, and if loss should
occur (ecause of his negligence in
repairing the defect, the insurer is
relieved of lia(ilit+ (ut the contract of
insurance is not affected as to an+
other risk or loss covered and not
caused or increased (+ such particular
defect$
2$ Benefit of e.oneration is given onl+
to an Ginsurer on ship or shipownerNs
interest$G
Due dili!ence not a defense
%arrant+ precludes an+ defense that
insured had e.ercised due diligence to
make the ship seaworth+$
S>)P 4BST &CTB&;;J BF
SF&%<-T>J
Seaworthiness as to car!o
Ship ma+ (e seaworth+ for purpose of
insurance on the ship, (ut ma+ still (e
unseaworth+ for purpose of insurance
of the cargo Ce.$ Ship with porthole
onl+ ! foot a(ove waterline ma+ (e fit
to travel the sea, (ut not fit to carr+
wheat or rice (ecause water will go
into the ship via the porthole and
damage the cargoD
Ro?ue $ IC
Facts: 4anila Ba+ ;ighterage Corp, a
common carrier, entered into a contract wM
-o:ue where(+ 4anila Ba+ ;ighterage
would carr+ on (oard its (arge -o:ueIs
logs from Palawan to 4anila$ The logs
were insured (+ Pioneer )nsurance$
>owever, the (arge sank$ )t was found
that the (arge was not seaworth+ Cone of
the hatches was left open, there was a
leak in the (argeD$ Pioneer refused to pa+
damages (ecause of the (reach of the
implied warrant+ on seaworthiness$
-o:ueIs defense is that as a mere shipper
of cargo, the+ have no control of the ship
therefore seaworthiness has nothing to do
with the matter of insurance over the logs$
Issue: %<H the implied warrant+ of
seaworthiness also applies to marine
insurance on cargo$
Held: JFS 3or ever+ contract of insurance
which is a su(Aect of marine insurance, a
warrant+ is implied that the ship will (e
seaworth+$ Since the law provides for an
implied warrant+ of seaworthiness in ever+
contract of marine insurance, it (ecomes
the o(ligation of a cargo owner to look for
a relia(le common carrier which keeps its
vessels in seaworth+ condition$ The
shipper of the cargo ma+ have no control
over the vessel (ut he has full control in
the choice of the common carrier that will
transport his goods$
Delsan Transport $ C
Facts: Calte. entered into a contract of
affreightment with Delasan Transport ;ines
to transport Calte.Is fuel oil from its
refiner+ to different parts of the countr+$
>owever, the ship to @am(oanga which
was insured (+ &merican >ome Corp$
sank$ &merican >ome paid Calte.
representing the insured value of the lost
cargo$ &merican >ome, e.ercising its right
of su(rogation, demanded of Delsan the
same amt it paid to Calte. (ut Delsan
refused$ )t was found that the chief mate
of the vessel was not :ualified under the
Phil$ 4erchant 4arine -ules$
Issue: %<H the pa+ment made (+
&merican >ome to Calte. amounted to
admission that the vessel was seaworth+
Held: H<$ The pa+ment made (+
&merican >ome operates as a waiver of its
right to enforce the term of the implied
warrant+ against Calte. under the
insurance polic+$ >owever, the same
cannot (e validl+ interpreted as an
automatic admission of the vesselIs
seaworthiness (+ &merican home as to
foreclose recourse against Delsan for an+
lia(ilit+ under its contractual o(ligation as a
common carrier$ The fact of pa+ment grants
the private respondent su(rogator+ right
wMc ena(les it to e.ercise legal remedies
that would otherwise (e availa(le to Calte.
as owner of the lost cargo$$
52 8o9a!e and De$iation
Sec$ !2!$ %hen the vo+age
contemplated (+ a marine insurance polic+ is
descri(ed (+ the places of (eginning and
ending, the vo+age insured in one which
conforms to the course of sailing fi.ed (+
mercantile usage (etween those places$
Sec$ !22$ )f the course of sailing is not
fi.ed (+ mercantile usage, the vo+age insured
(+ a marine insurance polic+ is that wa+
(etween the places specified, which to a
master of ordinar+ skill and discretion, would
mean the most natural, direct and
advantageous$
Sec$ !23$ Deviation is a departure from
the course of the vo+age insured, mentioned
in the last two sections, or an unreasona(le
dela+ in pursuing the vo+age or the
commencement of an entirel+ different
vo+age$
Sec$ !2$ & deviation is proper6
CaD %hen caused (+ circumstances over
which neither the master nor the owner of the
ship has an+ control?
C(D %hen necessar+ to compl+ with a
warrant+, or to avoid a peril, whether or not
the peril is insured against?
CcD %hen made in good faith, and upon
reasona(le grounds of (elief in its necessit+ to
avoid a peril? or
CdD %hen made in good faith, for the
purpose of saving human life or relieving
another vessel in distress$
Sec$ !2,$ Fver+ deviation not specified
in the last section is improper$
Sec$ !20$ &n insurer is not lia(le for an+
loss happening to the thing insured
su(se:uent to an improper deviation$
-hat 8o9a!e Insured
Polic9 -hat ship 4ust do
Hames6
!$Ports of
depature
2$ Ports of
destination
3$ )ntermediate
ports of call
Kessel insured 4BST
follow course
SPFC)3)FD
Hames6
!$ Ports of
departure
2$ Ports of
destination =
Several routes
to destination
!$ Ko+age insured is
the one which
conforms to course
of sailing fi.ed (+
mercantile usage
(etween ports CSec$
!2!D
2$ if not fi.ed (+
mercantile usage,
course (etween
ports specified
which to a master
of ordinar+ skill and
discretion would (e
most natural,
direct, and
advantageous CSec$
!22D
Rule&
- 3i.ed -oute
- Bsual Custom
- Discretionar+ Cmost
naturalD
De$iation CSec$ !23D
)s an+ une:cused departure from
the regular course or route of the
insured vo+age or an+ other act which
su(stantiall+ alters the risk constitutes
a deviation
Departure fro4 course of ship
Unreasona5le dela9 in pursuing
vo+age
Commencement of entirel9 different
$o9a!e
Proper and I4proper De$iation
P-<PF- deviation E those allowed
(+ law CSec$ !2D
)4P-<PF- deviation E all other
deviation not mentioned in Sec$
!2? an+ loss suffered (+ thing
insured su(se:uent to improper
deviation e.onerates insurer from
lia(ilit+, regardless of whether
deviation increased risk or not
%>J does improper deviation
e.onerateT Because insured novated
contract without consent of insurer[
TFST6 %<H deviation was proper or
not CNOT %<H risk was increased
or diminishedD
"eneral Rule& when the vo+age covered
(+ the polic+ is descri(ed (+ the places of
(eginning and ending, the vo+age insured is
the one which conforms to the course of
sailing fi.ed (+ mercantile usage (etween the
places, or in a(sence of the latter, the wa+
(etween the places that to a master of
ordinar+ skill and discretion would mean the
most natural, direct and advantageous route$
The insurer is not lia(le for a loss after an
improper deviation from the 7usual9 course or
the 7(est9 course Rterms in :uotation mineS$
):ception& the insurer is not e.onerated
from lia(ilit+ for loss happening after proper
deviation$ The effect is as if there was no
deviation$
-hen de$iation is proper
Ho vitiation of the polic+ if the
deviation is Fustified or caused 59
actual necessit9 which is e:ual in
importance to such deviation$
Such compulsor+ deviations are risks
impliedl+ assumed (+ the underwriter$
%hile deviation to save propert+ is
not Austified, unless it is to sa$e
another $essel in distress, a
deviation for the purpose of sa$in!
life does not constitute a (reach of
warrant+$ *ustification rests on ground
of humanit+$
De$iation to repair da4a!ed ship
)f during vo+age, vessel (ecomes so
damaged as to render it unsafe
without undergoing repairs, insurer is
not relieved (+ deviation from the
shipIs course in order to make the
nearest port for such repairs Ccan fall
under 7avoid peril9D
4aster must consider distance,
facilities of port, :uickness new
material can (e procured, etc$ Cnot
necessaril+ nearest port, (ut must (e
most proper port for repairD$
<nce repair is made, ship must
pursue new course without deviation
in shortest and most e.peditious
manner Cotherwise, this is deviation
and will a(solve insurerD
-ai$er of warrant9 a!ainst i4proper
de$iation
Done (+ e.pressl+ permitting waiver
in polic+ 7at a P-F4)B4 to (e
hereafter arranged,9 provided DBF
H<T)CF (e given (+ insured upon
recipt of advice of such deviation$
-e:uirement6 FUP-FSSFD in polic+$
P-F4)B4 paid, H<T)CF given
c2 Other I4plied -arranties
%hen Hationalit+ or Heutralit+ of
ship or cargo is e.pressl+
warranted, itIs implied ship will
carr9 re?uisite docu4ents
showin! nationalit9 or neutralit9
and will not carr+ documents that
will cause reasona(le suspicion
- Hationalit+ = doesnIt mean that
the ship was (uilt in such
countr+, (ut that the propert+
(elongs to a su(Aect thereof
= Heutralit+ E propert+ insured
(elongs to neutrals? a warrant+
of neutralit+ imports that the
propert+ insured is neutral in
fact, and in appearance and
conduct, that the propert+ shall
(elong to neutrals, that no act
of insured or his agent shall (e
done which can legall+
compromise its neutralit+?
warrant+ e.tends to insuredNs
interest in all the propert+
intended to (e covered (+ the
polic+, (ut not to the interest of
a third person not covered (+
the polic+$
& warrant+ of national character
ma+ (e gathered from the language
of the polic+ although an e.ception
has (een made where the fact
recited could have no relation to the
risk$
)mplied that ship will not en!a!e in
an9 $enture which is ille!al
under the laws of the countr+ where
contract is made or (efore whose
courts :uestion ma+ come? C&HH<T
(e waived since rule of pu(lic polic+$
)mplied warrant+ to carr+ re:uisite
documents6
!D %arrant+ of nationalit+ also
re:uires that the vessel (e
conducted and documented as of
such nation, a (reach of warrant+ in
either particular will avoid the
polic+$
2D %arrant+ is a continuing one,
change of nationalit+ is a (reach of
the warrant+, (ut warrant+ is not
(roken (+ a contract for sale and
transfer to an alien at a future date$
3D Proper papers must (e produced
when necessar+ to prove ownership$
Production not e.cused (ecause the
papers were lost (+ the fault of the
master$
1. LOSS
1.1. Hinds co$ered* ctual and
Constructi$e Loss
Sec$ !27$ & loss ma+ (e either total or
partial$
Sec$ !2"$ Fver+ loss which is not total is
partial$
Sec$ !2#$ & total loss ma+ (e either
actual or constructive$
Sec$ !31$ &n actual total loss is cause
(+6
CaD & total destruction of the thing
insured?
C(D The irretrieva(le loss of the thing (+
sinking, or (+ (eing (roken up?
CcD &n+ damage to the thing which
renders it valueless to the owner for the
purpose for which he held it? or
CdD &n+ other event which effectivel+
deprives the owner of the possession, at the
port of destination, of the thing insured$
Sec$ !3!$ & constructive total loss is
one which gives to a person insured a right to
a(andon, under Section one hundred thirt+=
nine$
Sec$ !32$ &n actual loss ma+ (e
presumed from the continued a(sence of a
ship without (eing heard of$ The length of
time which is sufficient to raise this
presumption depends on the circumstances of
the case$
Sec$ !33$ %hen a ship is prevented, at
an intermediate port, from completing the
vo+age, (+ the perils insured against, the
lia(ilit+ of a marine insurer on the cargo
continues after the+ are thus reshipped$
Hothing in this section shall prevent an insurer
from re:uiring an additional premium if the
ha5ard (e increased (+ this e.tension of
lia(ilit+$
Sec$ !3$ )n addition to the lia(ilit+
mentioned in the last section, a marine insurer
is (ound for damages, e.penses of
discharging, storage, reshipment, e.tra
freightage, and all other e.penses incurred
in saving cargo reshipped pursuant to the
last section, up to the amount insured$
Hothing in this or in the preceding section
shall render a marine insurer lia(le for an+
amount in e.cess of the insured value or, if
there (e none, of the insura(le value$
Sec$ !3,$ Bpon an actual total loss, a
person insured is entitled to pa+ment
without notice of a(andonment$
Sec$ !30$ %here it has (een agreed
that an insurance upon a particular thing, or
class of things, shall (e free from particular
average, a marine insurer is not lia(le for
an+ particular average loss not depriving the
insured of the possession, at the port of
destination, of the whole of such thing, or
class of things, even though it (ecomes
entirel+ worthless? (ut such insurer is lia(le
for his proportion of all general average loss
assessed upon the thing insured$
Sec$ !37$ &n insurance confined in
terms to an actual loss does not cover a
constructive total loss, (ut covers an+ loss,
which necessaril+ results in depriving the
insured of the possession, at the port of
destination, of the entire thing insured$
HINDS of LOSS
!D Total E underwriter is lia(le for the whole
of the amount insured
= ma+ (e actual or a(solute <-
constructive or technical
2D Partial Crefer to gen$ and part averageD
TOTL LOSS /an9 loss not total is
partial2
a. ctual Total Loss
!$ Total destruction thing insured
2$ )rretrieva(le loss of thing (+
sinking or (+ (eing (roken up
3$ &n+ damage to thing which renders it
valueless to owner for the purpose for
which the owner held it
;oss (+ sinking ma+ not (e
irretrieva(le, (ut thereIs still actual
total loss if thing (ecomes valueless
to owner for purpose for which he
held it
T<T&; ;<SS is cost of -FT-)FK&;
e:ual to or more than original value
$ &n+ other event which effectivel+
deprives owner of possession, at the port
of destination of thing insured$
,$ Bnder Section !31, the complete ph+sical
destruction of the su(Aect matter as in the
case of fire is not essential to constitute
an actual total loss CR(S, RcS, RdSD$ Such
loss ma+ e.ist where the form and specie
of the thing is destro+ed although the
materials of which it consisted still e.ist
CPan 4ala+an v$ C& R#!SD$ 3or e.ample,
when repairs would (e more e.pensive
than the original cost of the vessel and
effective deprivation of use and
possession of propert+$
Presumed from continued a(sence of
ship without (eing heard of Cfor
length of time sufficient to raise such
presumptionD
"eneral Rule& if a vessel is not heard
of at all within a reasona(le time after sailing
or for a reasona(le time after she was last
seen, she will (e presumed to have (een lost
from a peril insured against$
'ow presu4ption is esta5lished&
Plaintiff must prove that vessel left the port of
outfit for the vo+age insured$ Then, he must
show that the vessel was not heard of at port
of departure after sailing, without calling
witnesses from port of destination to show she
never arrived there$ Ho rule as to the time
after which missing vessel is presumed lostZ
depends on the circumstances of the case$
)nsured has &BS<;BTF right to claim
whole amount of insurance even
without notice of a(andonment$ <nce
he receives amount, it takes the place
of the vessel and must (e used to pa+
for an+ damage for which it (e held
lia(le$
5. Constructi$e /or Technical2 total loss@
5andon4ent /refer to the ne:t few
sections2
;oss, although not actuall+ loss, is of
character that the insured is entitled,
if he thinks fit, to treat it as total (+
a(andonment$
/ives the insured the right to
a(andon the thing insured (+
relin:uishing to the insurer his
interest in such a thing, entitling him
to recover for a total loss thereof
-ight to a(andon granted (+ law if the
peril insured against causes a loss of
more than \ the value of the thing
insured$
)nsurer ac:uires all rights over the
thing insured
)f a(andonment is not proper or
properl+ made, the insurer would
still (e lia(le as upon the &ctual
total loss, deducting from the
amount an+ proceeds from the thing
insured which ma+ have come to the
hands of the insured$
%h+ differentiate (etween the 2 t+pes of
total loss6 the kind of loss is the (asis
for the application of the doctrine of
a(andonment CSection !3", !3#D$ )n
actual total loss, no a(andonment
necessar+? (ut if loss merel+
constructivel+ total, an a(andonment
(ecomes necessar+ to recover as for a
total loss$
Stipulation of 7actual total loss9 onl+
strictl+ construed6 an insurance against
7total loss onl+9 covers an+ total loss,
actual or constructive, although there is
authorit+ to the contrar+$ )f against
7a(solute9 or 7actual total loss, insurer
not lia(le for constructive loss$
Lia5ilit9 of insurer in case of partial loss
of ship or its e?uip4ent
There is a deduction from the cost of
repairs of 7one third new for old9, on the
theor+ that the new materials render the
vessel much more valua(le than it was
(efore the loss$ %hen repairs are made,
one=third of the cost of the repair is laid
upon the insured as his (urden, and the
implied agreement under the polic+ is
that in case of damage to the ship (+ a
peril within the polic+, the loss shall (e
estimated at two=thirds of the cost of
repairs fairl+ e.ecuted or one=third new
for old, as is commonl+ e.pressed$
I% 8OI") CNDT 3) CO.PL)T)D CSee
Sec$ !33D
)n )nsurance &ct CSec$!20D, if ship is
prevented from leaving an
intermediate port (+ perils insured
against, the master must make
ever+ e.ertion to procure, in the
same or contiguous port, another
ship for the purpose of conve+ing
the cargo to its destination and the
lia(ilit+ of a marine insurer thereon
continues after the+ are thus
reshipped$ >owever, such an
o(ligation was deleted from the
)nsurance Code$ Campos sa+s that
this ma+ (e either an unintentional
omissionMerror or intentional$ )n an+
case, in case of reship4ent* the
insurer is lia5le&
!$ 3or an+ loss which ma+ take place on
goods until the+ are reshipped if
vo+age cannot (e completed in an+
insurance upon cargo E insurer ma+
re:uired additional premium if the
ha5ard (e increased (+ the e.tension
of lia(ilit+ CSec$ !33D
2$ )nsurer also lia(le for e.penses
necessar+ to complete the
transportaion of cargo reshipped?
damages, e.penses of discharging,
storage, reshipment, e.tra freiathage,
and all other e.penses incurred in
saving cargo reshipped E such
lia(ilit+, however, cannot e.ceed the
amount of insurance CSec !3D
"eneral Rule& if the original ship (e
disa(led, and the master, acting with a wise
discretion, as the agent of the merchant and
the shipowner, forwards the cargo in another
ship, such necessar+ and Austifia(le change of
ship will not discharge the underwriter on the
goods from lia(ilit+ for an+ loss which ma+
take place on goods after such reshipment$
):ception& the general rule is not
o(ligator+ if the crew had to procure a vessel
from distant places and there are serious
impediments in the wa+ of putting the cargo
on (oard$
Su5sidiar9 Rule& additional premium
ma+ (e re:uired if the ha5ard is increased (+
e.tension of lia(ilit+$
LI3ILITI O% INSUR)R IN CS) O%
8)R")
$era!e E an+ e.traordinar+ or accidental
e.penses incurred during the vo+age for the
preservation of the vessel, cargo or (oth and
all damages to the vessel and cargo from the
time it is loaded and the vo+age commenced
until it ends and the cargo unloaded
Two #ind of $era!es /Under d4iralt9
Law2&
a. Particular $era!e E partial loss caused
(+ the peril insured against which is not a
general average loss out of the ordinar+ use of
the thing
Hot ever+one (enefits$
Not intentionall9 caused to prevent
a common danger
)nsurer lia(le for the particular
average unless polic+ e.cludes it$
;ia(ilit+ is limited to the proportion of
the contri(ution attaching to his polic+
value where this is less than the
contri(uting value of the thing
insured$
;ia(ilit+ for particular insurance
"eneral Rule& an insurer is lia(le
for (oth general and particular average loss$
):ception& parties can stipulate, as
it often happens in marine insurance, that
the insurer will not (e lia(le for loss, partial
or total, arising from perils of the sea, of a
certain class of goods which are perisha(le
or peculiarl+ su(Aect to damage$
):ception& the+ ma+ also agree to
e.empt particular average$ Then, insurer is
lia(le onl+ for general average and not for
particular average FUCFPT if the particular
average loss has the effect of 7depriving
insured of possession at the port of
destination of the whole9 of the thing
insured$
5. "eneral $era!e E common (enefit Cto
ever+oneD INT)NTIONL damage to save
the maAorit+ thing Csomething is sacrificedD$
&pplies onl+ when it is
SUCC)SS%UL
(ncludes all damages and expenses
*%ic% are deli+erately caused in
order to save t%e vessel& its cargo
or +ot% at t%e same time& $rom a
real and kno*n risk
Therefore, when ever+one (enefits,
ever+one has to spend for it, so the
person whose cargo was sacrificed
cannot recover ever+thing (ecause
part of that will go to the pro=rata
damage to save the maAorit+
7/eneral average9 contri(ution is a
device for a limited distri(ution of
loss$ ;oss is pro tanto made up (+
proportionate or 7general average9
contri(utions from owners of
interests (enefited (+ the sacrifice$
& principle of customar+ law,
independent of contract
F.$ Fntering another port for
repairs, rehandling of cargo, and
Aettisoning of goods to lighten vessel
in case of danger of shipwreck
/ives rise to right of owner to
contri(ution form those (enefited
there(+ or from insurer
3ormalities in &rt$ "!3 and "! of
the Code of Commerce must (e
complied with to incur e.penses and
cause damages corresponding to
gross average$
Lia5ilit9 of Insurer& )f owner is
insured, he has the alternative of
seeking from his insurer,
su(rogating the latter to his said
right of contri(ution$ >e loses this
alternative, however, if he neglects
or waives his right to such
contri(ution
):ception& There can (e no recover+
for general average loss against the
insurer6
!$ &fter the separation of the
interests lia(le to the
contri(ution
2$ %hen the insured has
neglected or waived his right
to contri(ution$
Re?uisites for "en. $e to e:ist
!$ There must (e co44on
dan!er to ship and cargo
2$ 3or common safet+, part of
the $essel or car!o is
sacrificed deli5eratel9
3. %ro4 the e:penses or
da4a!es caused follows
the sa$in! of the $essel
and car!o
$ That the e:penses or
da4a!es should have (een
incurred or inflicted after
ta#in! the proper le!al
steps$
,$ .ade 59 the 4aster or
upon his authorit+
;. Not caused 59 an9 fault of
part9 as#in! for
contri5ution
<. Necessar9
Lia5ilit9 of insurer for !eneral
a$era!e
&rt$ ",#, Code o$ Commerce$ The underwriters
of the vessels, of the freightage and of the
cargo shall (e o(liged to pa+ for the indemnit+
of the gross average in so far as is re:uired of
each one of these o(Aects respectivel+$
The a(ove provision is mandator+ in terms,
and insurers, whether for vessel, cargo or
freightage, are (ound to contri(ute to the
indemnit+ of the general average$ This places
insurer on same footing as others who have
an interest in the vessel or cargo, at time of
occurrence of the general average and who
are compelled to contri(ute$
%or4ula for co4putin! lia5ilit9 of
insurer
&mt of insurance]]]] . /eneral &veage W Proportion of /&; for
Total amt or value involved ;oss C/&;D which insurer is lia(le
Li4it as to lia5ilit9 of insurer for
!eneral a$era!e loss
)t is limited to the proportion of
contri(ution attaching to his polic+ value
where this is less than the contri(uting value
of the thing insured$ )n other words, the
lia(ilit+ of the insurer shall (e less than the
proportion of the general average loss
assessed upon the thing insured where its
contri(uting value is more than the amount
of the insurance$ )n such a case, the insured
is lia(le to contri(ute rata(l+ with the insurer
to the indemnit+ of the general average6
Philippine .anufacturin! Co $
Insurance Societ9 of Canton Ltd.
Facts: The insured vessel owned (+ Phil$
4anufacturing Co$ sand due to a t+phoon$
Despite the offer of Phil 4an$ To a(andon
the vessel as an a(solute total loss, the
insurer, )ns$ Societ+ of Canton refused it
and re:uired that the ship (e salvaged$
&fter several futile attempts, the ship was
finall+ raised a(out two months later and
was repaired$ The cost of salvage and
repair was su(stantiall+ e:ual to the
original cost of the vessel$
Issue: %<H )nsurance Societ+ can (e
held for total loss of the vessel even after
its recover+
Held: JFS$ )nsurer lia(le for total loss
(ecause while the ship was in the (ottom
of the sea, it was of no value to the owner$
To render it valueless to the insured, it is
no necessar+ that there (e an actual or
total loss or destruction of all the different
parts of the entire vessel$
Choa $ C
Facts: Choa imported some lactose
cr+stals from >olland$ The goods were
insured with 3ilipino 4erchants against all
risks$ Bpon arrival in 4anila, it was found
that out of the 011 (ags, 13 were in (ad
order$ Choa filed a claim for the loss (ut
3il$ 4er reAected$
Issue: %<H an 7all risks9 coverage covers
onl+ losses occasioned (+ fortuitous events
Held: H<$ &n all risk insurance polic+
insures against all cause of conceiva(le
loss or damage e.cept as otherwise
e.cluded in the polic+ or due to fraud$ The
terms of the polic+ are clear and re:uire
no interpretation$ &n 7all risks9 provision
creates a special t+pe of insurance wMc
e.tends coverage to risks not usuall+
contemplated and avoids putting upon the
insured the (urden of esta(lishing that
insurer can avoid coverage upon
demonstrating that a specific provision
e.pressl+ e.cludes the loss from coverage$
5oitiC Shippin! $ P'IL.")N
Facts: 4arindu:ue 4ining )ndustrial Crop
had shipped from the BS a shipment of
one skid carton parts for valves$ %hen cargo
arrived in 4anila, it was deposited in the
office of &(oiti5 Shipping Corp for
transshipment to Honoc )sland$ >owever,
(efore it was transshipped, said cargo was
pilfered$ 4arindu:ue filed a claim against
&(oiti5 in the amount of the pilfered cargo$
)t also filed for the same amount against
Philippine &merican /eneral )nsurance Co
CPhil=&mD, its insurer$
Issue: %<H &(oiti5 should (e held lia(le for
the pilfered cargo$
Held: JFS$ The :uestioned shipment is
covered (+ a continuing open insurance
coverage from the time it was loaded in the
BS to the time it was delivered to the
possession of &(oiti5 in its 4anila office$
&(oiti5Is contention is that it could not (e
held lia(le for the pilferage as it was stolen
even (efore it was loaded on the vessel$
This is untena(le as the logs were in its
possession (efore it was pilfered$
Oriental ssurance $ C
Facts: Panama Sawmill Co had logs shipped
from Palawan a(oard the (arges of
Transpacific Towage )nc$ )t was insured with
<riental &ssurance Corp and loaded on 2
(arges$ >owever, during the vo+age, #7
pieces of the ,#" pieces loaded on one of
the (arges was lost$
Issue: %<H Panama can demand pa+ment
for constructive loss of the logs on one of
the (arges
Held: H<$ The logs involved, although
placed in two (arges, were not separatel+
valued (+ the polic+, nor separatel+ insured$
-esultantl+, the logs lost in the (arge in
relation to the total num(er of logs loaded
on the same (arge can not (e made the
(asis for determining constructive total loss$
The logs having (een insured as one
inseparate unit, the correct (asis for
determining the e.istence of constructive
total loss is the totalit+ of the shipment of
logs$ C<3 the !,21" logs, onl+ #7 pieces
were lost or !Y therefore it cannot fall
under constructive total lossD
Pan .ala9an Insurance $ C
Facts: The (arge carr+ing a shipment of
certified rice seeds to 2ampuchea sank$ The
owner of the rice seeds, the 3ood and
&gricultural <rgani5ation of the B$H$ C3&<D
filed its claim under a marine insurance
polic+ with Pan 4ala+an$ ;ater, it was
informed (+ ;u5on Stevedoring Corporation,
the carrier, that the shipment was
recovered, hence 3&< filed a claim wM ;u5on
mount of insurance !! " #roportion of general $imit of liability
%alue of the thing average loss assessed & of insurer
insured upon thing insured
Stevedoring for compensation fo damages
of its cargo$
Issue: %oH 3&< can recover for total loss
even if some of the rice seeds was
recovered$
Held: JFS$ The complete ph+sical
destruction of the su(Aect matter is not
essential t oconstitute an actual total loss$
Such a loss ma+ e.ist where the form and
specie of the thing is destro+ed although
the materials which it consisted still e.ist$
<f the 3,!22 (ags of rice seeds shipped,
27,#22 (ags were determined to (e
lostMdamaged C7"Y of cargo damagedD$
;. 3NDON.)NT
;.1. Re?uisites and Conditions
Sec$ !3"$ &(andonment, in marine
insurance, is the act of the insured (+ which,
after a constructive total loss, he declares
the relin:uishment to the insurer of his
interest in the thing insured$
Sec$ !3#$ & person insured (+ a
contract of marine insurance ma+ a(andon
the thing insured, or an+ particular portion
thereof separatel+ valued (+ the polic+, or
otherwise separatel+ insured, and recover
for a total loss thereof, when the cause of
the loss is a peril insured against6
CaD )f more than three=fourths thereof in
value is actuall+ lost, or would have to (e
e.pended to recover it from the peril?
C(D )f it is inAured to such an e.tent as
to reduce its value more than three=fourths?
CcD )f the thing insured is a ship, and
the contemplated vo+age cannot (e lawfull+
performed without incurring either an
e.pense to the insured of more than three=
fourths the value of the thing a(andoned or
a risk which a prudent man would not take
under the circumstances? or
CdD )f the thing insured, (eing cargo or
freightage, and the vo+age cannot (e
performed, nor another ship procured (+ the
master, within a reasona(le time and with
reasona(le diligence, to forward the cargo,
without incurring the like e.pense or risk
mentioned in the preceding su(=paragraph$
But freightage cannot in an+ case (e
a(andoned unless the ship is also
a(andoned$
Sec$ !1$ &n a(andonment must (e
neither partial nor conditional$
Sec$ !!$ &n a(andonment must (e
made within a reasona(le time after receipt of
relia(le information of the loss, (ut where the
information is of a dou(tful character, the
insured is entitled to a reasona(le time to
make in:uir+$
Sec$ !2$ %here the information upon
which an a(andonment has (een made proves
incorrect, or the thing insured was so far
restored when the a(andonment was made
that there was then in fact no total loss, the
a(andonment (ecomes ineffectual$
Sec$ !3$ &(andonment is made (+
giving notice thereof to the insurer, which ma+
(e done orall+, or in writing? Provided, That if
the notice (e done orall+, a written notice of
such a(andonment shall (e su(mitted within
seven da+s from such oral notice$
Sec$ !$ & notice of a(andonment
must (e e.plicit, and must specif+ the
particular cause of the a(andonment, (ut need
state onl+ enough to show that there is
pro(a(le cause therefor, and need not (e
accompanied with proof of interest or of loss$
Sec$ !,$ &n a(andonment can (e
sustained onl+ upon the cause specified in the
notice thereof$
Sec$ !0$ &n a(andonment is
e:uivalent to a transfer (+ the insured of his
interest to the insurer, with all the chances of
recover+ and indemnit+$
Sec$ !7$ )f a marine insurer pa+s for a loss as
if it were an actual total loss, he is entitled to
whatever ma+ remain of the thing insured, or
its proceeds or salvage, as if there had (een a
formal a(andonment$
Sec$ !"$ Bpon an a(andonment, acts done in
good faith (+ those who were agents of the
insured in respect to the thing insured,
su(se:uent to the loss, are at the risk of the
insurer and for his (enefit$
Sec$ !#$ %here notice of a(andonment is
properl+ given, the rights of the insured are
not preAudiced (+ the fact that the insurer
refuses to accept the a(andonment$
Sec$ !,1$ The acceptance of an
a(andonment ma+ (e either e.press or
implied from the conduct of the insurer$ The
mere silence of the insurer for an
unreasona(le length of time after notice
shall (e construed as an acceptance$
Sec$ !,!$ The acceptance of an
a(andonment, whether e.press or implied, is
conclusive upon the parties, and admits the
loss and the sufficienc+ of the a(andonment$
Sec$ !,2$ &n a(andonment once
made and accepted is irrevoca(le, unless the
ground upon which it was made proves to (e
unfounded$
Sec$ !,3$ <n an accepted
a(andonment of a ship, freightage earned
previous to the loss (elongs to the insurer of
said freightage? (ut freightage su(se:uentl+
earned (elongs to the insurer of the ship$
Sec$ !,$ )f an insurer refuses to
accept a valid a(andonment, he is lia(le as
upon actual total loss, deducting from the
amount an+ proceeds of the thing insured
which ma+ have come to the hands of the
insured$
Sec$ !,,$ )f a person insured omits to
a(andon, he ma+ nevertheless recover his
actual loss$
3NDON.)NT
&(andonment, in marine insurance,
is the act of the insured (+ which,
after a constructive total loss, he
declares the relin:uishment to the
insurer of his interest in the thing
insured$ The insured chooses to take
the proceeds in place of the
remaining parts of the thing, which
is ceded to the insurer$
-ight to a(andon is granted (+ law to
the insured if peril insured against
causes a loss of more than \ the
thing insured, or where its value is
reduced (+ more than \
Re4e45er& 7,G loss W Constructive
;oss which entitles reco$er9 of the
full amount in the polic+$ Does not
mean that recover+ is onl+ up to
7,Y$
-hen Constructi$e TOTL loss e:ists& M
Rule CSec$ !3#D
!$ )f more than \ thereof in value is
actuall+ lost, or would have to (e
e.pended to recover from peril
2$ )f it is inAured to such an e.tent as to
reduce its value more than \
3$ )3 the thing insured is a ship, and the
contemplated vo+age canIt (e lawfull+
performed wMo incurring either an
e.pense to the insured or more than \
the value of the thing a(andoned or a
risk which a prudent man would not
take under the circumstances
$ )f the thing insured, (eing cargo or
freightage, and the vo+age canIt (e
performed, nor another ship procured
(+ the master, within a reasona(le time
and with reasona(le diligence, to
fowrward the cargo, without incurring
the like e.pense or risk mentioned in
the preceding su(=paragraph$ But
freightage cannot in an+ case (e
a(andoned unless the ship is also
a(andoned$
Re?uire4ents&
!$ There must (e actual relin?uish4ent
(+ the person insured of his interest in
the thing insured C!3"D
2$ There must (e constructi$e total loss
C!3#D$ &n+ particular portion of the thing
insured separatel+ valued (+ the polic+
ma+ (e separatel+ a(andoned as it is
deemed separatel+ insured
3$ )t must (e total and a5solute C!1D
$ )t must (e within a reasona5le ti4e
after the receipt of relia(le information
of the loss C!!D
,$ )t must (e factual C!2D
0$ )t must (e made (+ giving notice
thereof to the insurer which ma+ (e
done orall+ or in writing C!3D
7$ Notice 4ust 5e e:plicit and 4ust
specif9 the particular cause of the
a5andon4ent C!D
Ineffecti$e a5andon4ent
&(andonment
can (e
sustained
onl+ upon
F:uivalent to transfer (+ the
insured of his interest to the
insurer, with all the chances of
recover+ and indemnit+
CC)PTNC)
F.press or )mplied
from conduct of
insurer
NO &B&H=D<H=
4FHT
)nsured still entitled
cause
specified
)f cause is
unfounded
and info upon
which it was
made proves
incorrect
Thing insured
was so far
restored
when the
a(andonment
was made
that there
was in fact no
total loss
)3 proper and notice is properl+
given, refusal to accept
a5andon4ent does not
preAudice insured$ )nsured still
lia(le for actual total loss, minus
amount an+ proceeds of thing
insured which ma+ have come to
the hands of the insured$
)3 insurer accepts
a(andonment, itIs conclusive
(etween the parties and admits
the loss and the sufficienc+ of
the a(andonment
)rrevoca(le unless grounds
prove to (e unfounded
4ere silence for
unreasona(le length
of time ma+ (e
deemed acceptance
to recover actual loss
Same rule applies
where a(andon=ment
wasnIt proper or
where it wasnIt
properl+ made
Necessit9 for a5andon4ent
TFC>H)C&; T<T&; ;<SS6 insured
canIt claim the whole insurance
without showing due regard to the
interest the underwriter ma+ take in
the a(andoned propert+$ )f
underwriter can save some parts, he
is entitled to timel+ notice of
a(andonment and he canIt (e lia(le
for a total loss without it$ But there
is no o(ligation to a(andonZ
insuredIs choice$ >e still recovers
actual loss even if he doesnIt
a(andon CX!,,D$
International Rule&
right of a(andonment of vessels, as
a legal limitation of a ship ownerIs
lia(ilit+, does not appl+ where inAur+
or average was caused (+ ship
ownerIs own fault$ &rt$,"7 CCode of
CommerceD refers onl+ to cases of
captainIs fault or negligence$ )f
owner is also at fault, Civil Code
provisions on Common Carriers
appl+$
-hen there is constructi$e total loss
Philippine rule E insured man+ not
a(andon unless lossMdamage is
more than \ of value as indicated in
X!3#$
5andon4ent where insurance di$isi5le
and where indi$isi5le
Things separatel+ valued (+ the
polic+ ma+ (e separatel+ a(andoned
(ecause the+ are separatel+ insured
CSection !3#D This is a :uestion of
intention to (e determined (+ the
language used
Criterion as to e:tent of loss
"eneral Rule& The e.tent of inAur+
to the vessel is considered with reference to
the general market value immediatel+ (efore
the disaster$ The rule is said to appl+ even
though the polic+ is valued (ut some think
otherwise$ )f the polic+ is e.pressl+ provides
that the valuation will (e used, it should (e
followed$ The e.penses incurred or to (e
incurred (+ the insured recovering the thing
insured are also considered Ce.$ cost for
refloating the shipD$
5andon4ent 4ust 5e a5solute
"eneral Rule& To cover the whole
interest insured, a(andonment must (e
unconditional$
):ception& if onl+ part of the thing
is covered (+ the insurance, the insurer need
onl+ a(andon that part$
5andon4ent 4ust 5e 4ade within a
reasona5le ti4e
<nce the insured received the notice
of loss, he must choose within a
reasona(le time %<H he will a(andon
to the insurer$ )f he chooses to do so,
he must give notice so that the
insurer ma+ not (e preAudiced (+ the
dela+ and ma+ take immediate steps
for the preservation of the propert+$
-easona(le time = depending on the
facts and circumstances in each case$
)f the first notice is not clearl+ made,
the insured must have sufficient time
to ascertain the facts$ >e cannot wait
an undue length of time to see if it
will (e more profita(le to a(andon or
claim for partial loss$
5andon4ent 4ust 5e factual
!$ F.istence of loss at time of
a(andonment = the right of the
insured to choose (etween
a(andonment or recover+ for total
loss depends on the facts at the time
of the offer to a(andon and not upon
the state disclosed (+ the information
received or state of loss (efore the
time of offer
2$ Fffect of su(se:uent events = none$
<nce the a(andonment is made good
the rights of the parties (ecome fi.ed$
The same is true when the
a(andonment is not made good$
Su(se:uent events will not affect it as
to retroactivel+ impart validit+$
a$ )nsured cannot a(andon when the
thing is safe or when he knew at
the time he made the offer that
the vessel had (een repaired and
is continuing vo+age$
($ )f after a(andonment, the thing is
recovered, insured ma+ not
withdraw$
3$ )nstances Austif+ing a(andonment =
insured ma+ a(andon for a total loss
in case of capture, sei5ure, or
detention of the ship or cargo?
restraint (+ (lockade or em(argo?
funds for repair cannot (e raised wMo
fault of owner? where vo+age
a(solutel+ lost? where sale made (+
master of the vessel (ecause of
urgent necessit+$
Infor4ation need not 5e direct or positi$e
Direct or positive information not
necessar+ Ce.$ newspaper report,
letter from an agentD
The information must (e of such
facts and circumstances as to render
it highl+ pro(a(le that a constructive
total loss has occurred, and facts
sufficient to constitute a total loss
must e.ist$ But the facts and
information need not (e the same$
%or4 of notice of a5andon4ent
"eneral Rule& no particular form of
giving notice of a(andonment is re:uired (+
law$ )t ma+ (e made orall+ unless the polic+
re:uires that it (e made in writing$ Hotice (+
telegraph ma+ (e sufficient$
Su5sidiar9 Rule& if notice is done
orall+, the insured must su(mit to the
insurer a written notice wMin 7 da+s from the
oral notice
Notice of a5andon4ent 4ust 5e e:plicit
Hotice cannot Aust (e inferred from
some e:uivocal acts$ There must (e
an intention to a(andon, apparent
from the communication$
The use of the word 7a(andon9 is
not necessar+$
There is no a(andonment although
the insured has given notice of an
intention to a(andon if he continues
to claim and use the propert+ as his
own$
Notice of a5andon4ent 4ust specif9
particular cause thereof
The grounds must (e stated with
such particularit+ as to ena(le the
insurer to determine %<H he is
(ound to accept the offer$
Pro(a(le cause of a(andonment
contained in the notice is sufficient$
Proof of interest or of loss is not
necessar+ in the notice$
Proof of other causes not ad4issi5le
Sufficient grounds for a(andonment
must (e stated to make the
a(andonment valid$ >e cannot avail
himself of an+ ground other than
those he stated$
%or4 of acceptance of a5andon4ent
Heed not (e e.press$ )t ma+ (e
implied (+ conduct, as from an act
of the insurer in conse:uence of an
a(andonment, which can onl+ (e
Austified under a right derived from
the a(andonment Ce.$ when the
insurer took possession of the ship
and made repairs alread+ followed
(+ retention for an unreasona(le
amount of timeD
Silence, if not for an unreasona(le
amount of time will not operate as an
acceptance
Ri!ht of the insurer to frei!hta!e
"eneral Rule& a validl+ made
a(andonment passes to the insurer the
interest that the insured has over the thing
Su5sidiar9 Rule* as to a ship& the
insurer, after a(andonment, (ecomes the
owner thereof and his title (ecomes vested as
of the time of the loss$
Su5sidiar9 Rule* as to frei!hta!e&
depends upon when such freightage was
earned$ )f su(se:uent to the loss, it (elongs to
the insurer of the ship$ )f previousl+ earned, to
the insurer of the freightage who is
su(rogated to the rights of the insured up to
the time of the loss$
)ffects of acceptance of a5andon4ent
!$ Bpon receiving notice of
a(andonment, the insurer 4a9
accept or reFect a(andonment$
2$ Insurer 5eco4es lia5le for whole
a4ount of insurance and 5eco4es
entitled to all the ri!hts which the
insured has over the thing
3$ The partiesI ri!hts 5eco4e fi:ed$
$ The insurer 4a9 no lon!er rel9 on
an9 insufficienc9 in the for4* ti4e
or ri!ht of a5andon4ent$ %<H the
insured has a right to a(andon is
immaterial where offer is alread+
accepted and there is no fraud$
,$ FUCFPT)<H to the general effects of
acceptance6 when the ground upon
which it was made proves to (e
unfounded$
0$ &(andonment can (e sustained onl9
upon the !round specified in the
notice$
)ffect of refusal to accept a $alid
a5andon4ent on insurerDs lia5ilit9
"eneral Rule& the insuredIs right to
a(andon is a(solute when it is Austified (+
circumstances$ &cceptance is not necessar+ to
validate it$
C&ctual ;ossD
= CProceeds the insurer
might have received
from the damaged
propert+D]]]]]]]]]
C;ia(ilit+ of insurerD
Su5sidiar9 Rule& upon proper
a(andonment, insured ma+ still recover to
the e.tent of the damage proved
<. .)SUR) O% IND).NITI
<.1. Open and 8alued Polic9
Sec$ !,0$ & valuation in a polic+ of marine
insurance in conclusive (etween the parties
thereto in the adAustment of either a partial or
total loss, if the insured has some interest at
risk, and there is no fraud on his part? e.cept
that when a thing has (een h+pothecated (+
(ottomr+ or respondentia, (efore its insurance,
and without the knowledge of the person
actuall+ procuring the insurance, he ma+ show
the real value$ But a valuation fraudulent in
fact, entitles the insurer to rescind the contract$
Sec$ !,7$ & marine insurer is lia(le
upon a partial loss, onl+ for such proportion
of the amount insured (+ him as the loss
(ears to the value of the whole interest of
the insured in the propert+ insured$
Sec$ !,"$ %here profits are separatel+
insured in a contract of marine insurance,
the insured is entitled to recover, in case of
loss, a proportion of such profits e:uivalent
to the proportion which the value of the
propert+ lost (ears to the value of the whole$
Sec$ !,#$ )n case of a valued polic+ of
marine insurance on freightage or cargo, if a
part onl+ of the su(Aect is e.posed to the
risk, the evaluation applies onl+ in proportion
to such part$
Sec$ !01$ %hen profits are valued and
insured (+ a contract of marine insurance, a
loss of them is conclusivel+ presumed from a
loss of the propert+ out of which the+ are
e.pected to arise, and the valuation fi.es
their amount$
Sec$ !0!$ )n estimating a loss under
an open polic+ of marine insurance the
following rules are to (e o(served6
CaD The value of a ship is its value at the
(eginning of the risk, including all articles or
charges which add to its permanent value or
which are necessar+ to prepare it for the
vo+age insured?
C(D The value of the cargo is its actual
cost to the insured, when laden on (oard, or
where the cost cannot (e ascertained, its
market value at the time and place of lading,
adding the charges incurred in purchasing and
placing it on (oard, (ut without reference to
an+ loss incurred in raising mone+ for its
purchase, or to an+ draw(ack on its
e.portation, or to the fluctuation of the market
at the port of destination, or to e.penses
incurred on the wa+ or on arrival?
CcD The value of freightage is the gross
freightage, e.clusive of primage, without
reference to the cost of earning it? and
CdD The cost of insurance is in each case
to (e added to the value thus estimated$
Sec$ !02$ )f cargo insured against
partial loss arrives at the port of destination in
a damaged condition, the loss of the insured is
deemed to (e the same proportion of the
value which the market price at that port, of
the thing so damaged, (ears to the market
price it would have (rought if sound$
Sec$ !03$ & marine insurer is lia(le for
all the e.penses attendant upon a loss which
forces the ship into port to (e repaired? and
where it is stipulated in the polic+ that the
insured shall la(or for the recover+ of the
propert+, the insurer is lia(le for the e.pense
incurred there(+, such e.pense, in either
case, (eing in addition to a total loss, if that
afterwards occurs$
Sec$ !0$ & marine insurer is lia(le for a
loss falling upon the insured, through a
contri(ution in respect to the thing insured,
re:uired to (e made (+ him towards a general
average loss called for (+ a peril insured
against? provided, that the lia(ilit+ of the
insurer shall (e limited to the proportion of
contri(ution attaching to his polic+ value
where this is less than the contri(uting value
of the thing insured$
Sec$ !0,$ %hen a person insured (+ a
contract of marine insurance has a demand
against others for contri(ution, he ma+ claim
the whole loss from the insurer, su(rogating
him to his own right to contri(ution$ But no
such claim can (e made upon the insurer after
the separation of the interests lia(le to the
contri(ution, nor when the insured, having the
right and opportunit+ to enforce the
contri(ution from others, has neglected or
waived the e.ercise of that right$
Sec$ !00$ )n the case of a partial loss
of ship or its e:uipment, the old materials
are to (e applied towards pa+ment for the
new$ Bnless otherwise stipulated in the
polic+, a marine insurer is lia(le for onl+
two=thirds of the remaining cost of repairs
after such deduction, e.cept that anchors
must (e paid in full$
. 8alued Polic9
Kaluation fi.es in advance the value
of the propert+ and thus avoids the
necessit+ of proving its actual value
in case of loss
Kaluation is conclusive (etween the
parties in the adAustment of either a
total or partial loss$
F.ception6 )f there is 3-&BD on the
part of the insured, insurer would
have the right to -FSC)SS)<H
The change in a vesselIs value after
a long period of vo+age cannot (ind
the parties, as the insured value
stated in the polic+ is conclusive
upon them$
Heither part+ can give evidence of
the real value of the thing insured$
But when the thing has (een
h+pothecated (+ (ottomr+ or
respondentia (efore its insurance
and without the knowledge of the
person who actuall+ procured the
insurance, the insurer ma+ show the
real value (ut he is not entitled to
rescind the contract unless he can
prove that the valuation was in fact
fraudulent$
%hen insured a co=insurer in marine
insurance
= )n marine insurance, the
insured is e.pected to cover (+
insurance the full value of the
propert+ insured$ )f the value of
his interest e.ceeds the amount
of the insurance, he is
considered the co=insurer for an
amount determined (+ the
difference (etween the
insurance taken out and the
value of the propert+6
= Section !,7 applies onl+ if C!D the
loss is partial and C2D the amount of
insurance is less than the insured
entire insura(le interest in the
propert+ insured$
;oss of profits separatel+ insured
= )f the profits to (e reali5ed are
separatel+ insured from the
vessel or cargo, the insured is
entitled to recover, in case of
loss, such proportion of the profits
as the value of the propert+ lost
(ears to the value of the whole
propert+6
= )f polic+ is valued, loss of such
profits is conclusivel+ presumed
from a loss of the propert+ out of
which the+ are e.pected to arise,
and the valuation fi.es their
amount$
%here onl+ part of a cargo or
freightage insured e.posed to risk
= The valuation will (e reduced
proportionatel+$ The insurer is
(ound to return such portion of
the premium as corresponds with
the portion of the cargo which
had (een e.posed to the risk$
Presumption of loss of profits
- %here profits are separatel+
insured from the propert+ out of
which the+ are e.pected to arise,
the insured, in case of partial loss
of the propert+, is entitled merel+
to partial indemnit+ for the profits
lost$
- )f the propert+ is totall+ lost, pro
tanto the total profits are also
lost$ Such loss of the profits is
conclusivel+ presumed from the
loss of the propert+ and the
valuation agreed upon in the
polic+ fi.es the amount of
recover+$
3. Open Polic9
;oss is estimated in accordance with
certain rules laid down in the code
Crefer to ta(le (elowD
Cost of insurance must (e added to
the value of ship, cargo, or freightage
as the case ma+ (e
] CpartialD ;oss]]] &mount &mount
value of thing U of Profits W of -ecover+
insured
%alue of property lost!!!! mount of mount of
%alue of the whole property " profits & recovery
insured
>owever, ma.imum recover+ ma+
onl+ (e up to the face value of the
polic+
-'T 8LU) in OP)N POLICI
Ship Kalue at (eginning of risk Cincl
all articles which add to its
permanent value or which are
necessar+ to prepare if for the
vo+age insuredD, not the value
at time she was (uilt
Car!o &ctual cost when laden on
(oard$
)3 actual cost canIt (e
determined, market value at
time and place of lading, P;BS
e.penses incurred in
purchasing and placing them
on (oard$
F.pected profits are not
considered since the+ can (e
separatel+ isnured$
%rei!hta!e /ross freightage without
reference to cost of earning it
The cost of insurance is added in
calculating the value of the ship,
cargo, or freightage of other su(Aect
matter in an open polic+$
%here cargo insured against partial
loss is damaged
= Section !02 is applica(le if the
cargo is insured against a partial
loss and it suffers damage as a
result of which its market value
at the port of destination is
reduced6
4arket price in sound state
;ess6 4arket price in damaged state]
W -eduction in value CdepreciationD
-educed in value U amount of W amount
4arket price in insurance of
sound state recover+

C. Total Loss
In case of open polic9&
Kalue of total loss will (e computed
in rules stated a(ove
)nsurer lia(le for total loss, (ut it
canIt e.ceed face amount of polic+
In case of $alued polic9&
)nsurer must pa+ valuation fi.ed in
the polic+ without an+ right to argue
against its correctness e.cept on
(asis of fraud
;ia(ilit+ canIt e.ceed amount in polic+
D. Partial Loss@ CoAInsurance
)n (oth open and valued policies, in
case of partial loss, the insured is
deemed 59 law as co=insurer if the
value of the insurance is less than the
value of the propert+ or interest
insured, even in the a(sence of an+
agreement to that effect$
>owever, law does not prevent parties
from stipulating otherwise
Difference with 3ire )nsurance6 Polic9
should e:pressl9 pro$ide for coA
insurance otherwise, insurer is lia(le
for the full amount of the partial loss$
)n marine insurance, co=insurance is
mandated (+ law$
F.ample of Co=)nsurance6
Ship6 L!11 4
)nsurance6 L"14
;oss6 L,14
%hat does insured getT L14
= onl+ gets proportion
). Other ):penses Char!ea5le to Insurer
)f ship has to make port for repairs,
marine insurer must (ear the
attendant e.penses
)nsurer also lia(le for e.penses for
recover+ of the propert+ if polic+
imposed upon the insured the dut+ of
such recover+, such e.penses (eing
additional to total loss
%. %ranchise Clause
3ranchise W Designated Percentage
Sometimes, polic+ on cargo ma+
provide that unless damage reaches a
designated percentage of the value of
such cargo, no amount will (e paid (+
insurer$
)f loss reaches such percentage,
insured will (e entitled to full amount
of loss
Chapter 8I
CLI.S* S)TTL).)NT E
SU3RO"TION
1. NOTIC) ND PROO% O%
LOSS
Title !1 E Hotice and Proof of ;oss
Sec$ ""$ )n case of loss upon an insurance
against fire, an insurer is e.onerated, if notice
thereof (e not given to him (+ an insured, or
some person entitled to the (enefit of the
insurance, without unnecessar+ dela+$
Sec$ "#$ %hen a preliminar+ proof of loss is
re:uired (+ a polic+, the insured is not (ound
to give such proofs as would (e necessar+ in a
court of Austice? (ut it is sufficient for him to
give the (est evidence3 which he has in his
power at the time$
Hotice of ;oss E the formal notice given the
insurer (+ the insured or claimant under a
polic+ of the occurrence of the loss insured
against$
The purpose is to apprise the
insurance compan+ so that it ma+
make proper investigation and take
such action as ma+ (e necessar+ to
protect its interest$
)t is necessar+ as the insurer cannot
(e lia(le to pa+ a claim unless he
receives notice of that claim$
Bnder Sec$ "" insurer is e.onerated
if notice of loss is not given to the
insurer (+ the insured or (+ the
person entitled to the (enefit
without unnecessar+ dela+$
)t has (een held however that
formal notice of loss is not
necessar+ if insurer has actual
notice of loss alread+$
Proof of ;oss E is the formal evidence given
the insurance compan+ (+ the insured or
claimant under a polic+ of the occurrence of
the loss, the particulars and the data
necessar+ to ena(le the compan+ to
determine its lia(ilit+ and the amount$ )s
not tantamount to proof or evidence under
the law on evidence$
Proof of loss is distinct from notice
of loss and intended to6
!$ give the insurer information (+
which he ma+ determine the
e.tent of his lia(ilit+
2$ afford him a means of detecting
an+ fraud that ma+ have (een
practiced upon him$
The law does not stipulate an+
re:uirement as to the form in which
notice or proof of loss must (e
given$ >owever according to De
;eon, it is advisa(le to give the
notice in writing for the protection of
the insured or his (eneficiar+$ Hotice
ma+ (e an informal or provisional
claim containing a minimum of
information as distinguished from a
formal claim which contains full
details of the loss, computations of
the amounts claimed, and supporting
evidence, together with a demand or
re:uest for pa+ment$

Hature of notice and proof of loss
&lthough the+ are in the form of
conditions precedent, the+ are in the
nature of conditions su(se:uent the
(reach of which affects a right that
has alread+ accrued C(efore the loss,
insurerIs lia(ilit+ is contingent (ut
with the happening of the loss, his
lia(ilit+ (ecomes properl+ fi.edD$
These conditions are intended merel+
for evidentiar+ purposes and do not
form an+ part of the conditions of
lia(ilit+ and are construed with much
less strictness than those conditions
that operate prior to loss$
Sec$ #1$ &ll defects in a notice of loss? or in
preliminar+ proof thereof, which the insured
might remed+, and which the insurer omits to
specif+ to him, without unnecessar+ dela+, as
grounds of o(Aection, are waived$
Sec$ #!$ Dela+ in the presentation to an
insurer of notice or proof of loss is waived if
caused (+ an+ act of him, or if he omits to
take o(Aection promptl+ and specificall+ upon
that ground
Dela+ in the presentation of notice
and proof of loss is deemed waived
when due to an act of the insurer, (+
failure to take o(Aection promptl+ and
specificall+ upon that ground$
)f the insured attempted to compl+
and the compan+ made o(Aections,
the insured will (e allowed a
reasona(le time after he is appraised
within which to remed+ the defects
regardless of the time prescri(ed (+
the polic+ for furnishing proofs$ Dela+
as a ground for resisting a claim
places the insurer on dut+ to in:uire
when the loss took place, so that it
could determine whether dela+ would
(e a valid ground to o(Aect to a claim$
Sec$ #2$ )f the polic+ re:uires, (+ wa+ of
preliminar+ proof of loss, the certificate or
testimon+ of a person other than the insured,
it is sufficient for the insured to use
reasona(le diligence to procure it, and in case
of the refusal of such person to give it, then to
furnish reasona(le evidence to the insurer
that such refusal was not induced (+ an+ Aust
grounds of dis(elief in the facts necessar+ to
(e certified or testified$
Certificate or Testimon+ of Person other than
)nsured as Preliminar+ Proof
4a+ (e re:uired (+ the polic+
Sufficient that he insured use
reasona(le diligence to procure it
)f person refuses to give it, it is
sufficient to furnish reasona(le
evidence to the insurer that such
refusal was not induced (+ an+
grounds of D)SBF;)F3 in the facts
necessar+ to (e certified$
"eneral Rule& )nsured must give, (+
wa+ of preliminar+ proof of loss, the
certificate or testimon+ of a person other
than the insured when re:uired (+ the
polic+$
Supple4entar9 Rules& )t is sufficient
for the insured to use reasona(le diligence to
procure it$ )n case of the refusal of such
person to give it, insured must furnish
reasona(le evidence to the insurer that such
refusal was not induced (+ an+ Aust grounds
of dis(elief in the facts necessar+ to (e
certified or testified, (ut (ecause of other
grounds$ This re:uirement must (e li(erall+
construed in favor of the insured$
Phil. 4. Life $ C E Pulido
%acts& The insured 3lorence Pulido took
out a non=medical life insurance polic+
from Philamlife in the amount of !112 and
the polic+ was issued on 3e($ !!, !#"#$
She died on Sept$ !1, !##! and her
(eneficiar+, her sister Fli5a Pulido filed a
claim which was denied (+ Philamlife on
the ground of fraud claiming that at the
time the insured applied for the polic+, she
was alread+ actuall+ dead$
Ratio& There was no fraud, the death
certificates and notes (+ the municipal
health officer prepared in the regular
performance of duties are prima facie
evidence of facts$ & dul+=registered death
certificate is considered a pu(lic document
and the entries found therein are
presumed correct, unless the part+ who
contests its accurac+ can produce positive
evidence to esta(lish otherwise which in
the case at (ar Philamlife failed to do$
(. "UID)LIN)S ON CLI.S
S)TTL).)NT
Title !! E Claims Settlement
Sec$ 2!$
C!D Ho insurance compan+ doing (usiness
in the Philippines shall refuse, without
Aust cause, to pa+ or settle claims
arising under coverages provided (+
its policies, nor shall an+ such
compan+ engage unfair claim
settlement practices$ &n+ of the
following acts (+ an insurance
compan+, if committed without Aust
cause and performed with such
fre:uenc+ as to indicate a general
(usiness practice, shall constitute
unfair claim settlement practice6
CaD knowingl+ misrepresenting to
claimants pertinent facts or
polic+ provisions relating to
coverages at issue?
C(D failing to acknowledge with
reasona(le promptness
pertinent communications
with respect to claims arising
under its policies?
CcD failing to adopt and implement
reasona(le standards for the
prompt investigation of claims
arising under its policies?
CdD not attempting in good faith
to effectuate prompt, fair and
e:uita(le settlement of claims
su(mitted in which lia(ilit+
has (ecome reasona(l+ clear?
or
CeD compelling polic+holders to
institute suits to recover
amounts due under its polices
(+ offering without Austifia(le
reason su(stantiall+ less than
the amounts ultimatel+
recovered in suites (rought (+
them$
C2D Fvidence as to the num(ers and t+pes
of valid and Austifia(le complaints to
the Commissioner against an
insurance compan+, and the
CommissionerIs complaint e.perience
with other insurance companies
writing similar lines of insurance shall
(e admissi(le in evidence in an
administrative or Audicial proceeding
(rought under this section$
C3D )f it is found, after notice and an
opportunit+ to (e heard, that an
insurance compan+ has violated this
section, each instance of non
compliance with paragraph C!D ma+
(e treated as a separate violation of
this section and shall (e considered
sufficient cause for the suspension or
revocation of the compan+Is certificate
of authorit+$
Sec$ 22$ The proceeds of a life insurance
polic+ shall (e paid immediatel+ upon maturit+
of the polic+, unless such proceeds are made
pa+a(le in installments or as an annuit+, in
which case the installments, or annuities shall
(e paid as the+ (ecome due6 Provided,
however, That in the case of a polic+ maturing
(+ the death of the insured, the proceeds
thereof shall (e paid within si.t+ da+s after
presentation of the claim and filing of the
proof of the death of the insured$ -efusal or
failure to pa+ the claim within the time
prescri(ed herein will entitle the (eneficiar+ to
collect interest on the proceeds of the polic+
for the duration of the dela+ at the rate of
twice the ceiling prescri(ed (+ the 4onetar+
Board, unless such failure or refusal to pa+ is
(ased on the ground that the claim is
fraudulent$
The proceeds of the polic+ maturing (+ the
death of the insured pa+a(le to the
(eneficiar+ shall include the discounted value
of all premiums paid in advance of their due
dates, (ut are not due and pa+a(le at
maturit+$
Sec$ 23$ The amount of an+ loss or damage
for which an insurer ma+ (e lia(le, under an+
polic+ other than life insurance polic+, shall (e
paid within thirt+ da+s after proof of loss is
received (+ the insurer and ascertainment of
the loss or damage is made either (+
agreement (etween the insured and the
insurer or (+ ar(itration? (ut if such
ascertainment is not had or made within si.t+
da+s after such receipt (+ the insurer of the
proof of loss, then the loss or damage shall (e
paid within ninet+ da+s after such receipt$
-efusal or failure to pa+ the loss or damage
within the time prescri(ed herein will entitle
the assured to collect interest on the proceeds
of the polic+ for the duration of the dela+ at
the rate of twice the ceiling prescri(ed (+ the
4onetar+ Board, unless such failure or refusal
to pa+ is (ased on the ground that the claim is
fraudulent$
Sec$ 2$ )n case of an+ litigation for the
enforcement of an+ polic+ or contact of
insurance, it shall (e the dut+ of the
Commissioner or the Court, as the case ma+
(e, to make a finding as to whether the
pa+ment of the claim of the insured has
unreasona(l+ denied or withheld? and in the
affirmative case, the insurance compan+ shall
(e adAudged to pa+ damages which shall
consist of attorne+Is fees and other e.penses
incurred (+ the insured person (+ reasons of
such unreasona(le denial or withholding of
pa+ment plus interest of twice the ceiling
prescri(ed (+ the 4onetar+ Board of the
amount of the claim due the insured, from the
date following the time prescri(ed in Section
two hundred fort+=two or in Section two
hundred fort+=three, as the case ma+ (e, until
the claim is full+ satisfied? Provided, That the
failure to pa+ an+ such claim within the time
prescri(ed in said section shall (e considered
prima facie evidence of unreasona(le dela+ in
pa+ment$
(.1. Unfair Clai4s Settle4ent
Sec$ 2! C!D provides instances of unfair
claims settlement done (+ an insurance
compan+6
CaD knowingl+ misrepresenting to
claimants pertinent facts or
polic+ provisions relating to
coverages at issue?
C(D failing to acknowledge with
reasona(le promptness
pertinent communications with
respect to claims arising under
its policies?
CcD failing to adopt and implement
reasona(le standards for the
prompt investigation of claims
arising under its policies?
CdD not attempting in good faith to
effectuate prompt, fair and
e:uita(le settlement of claims
su(mitted in which lia(ilit+ has
(ecome reasona(l+ clear? or
CeD compelling polic+holders to
institute suits to recover
amounts due under its polices
(+ offering without Austifia(le
reason su(stantiall+ less than
the amounts ultimatel+
recovered in suites (rought (+
them$
(.(. Ci$il Code Rules on
Presu4ption of Death
&rt$ 3#1$ &fter an a(sence of seven +ears, it
(eing unknown whether or not the a(sentee
still lives, he shall (e presumed dead for all
purposes e.cept for those of succession$
The a(sentee shall not (e presumed dead for
the purpose of opening his succession till after
an a(sence of ten +ears$ )f he disappeared
after the age of sevent+=five +ears, an
a(sence of five +ears shall (e sufficient in
order that his succession ma+ (e opened$ CnD
&rt$ 3#!$ The following shall (e presumed
dead for all purposes, including the division of
the estate among the heirs6
C!D & person on (oard a vessel lost
during a sea vo+age, or an aeroplane
which is missing, who has not (een
heard of for four +ears since the loss
of the vessel or aeroplane?
C2D & person in the armed forces who has
taken part in war, and has (een
missing for four +ears?
C3D & person who has (een in danger of
death under other circumstances and
his e.istence has not (een known for
four +ears$ CnD
&rt$ 3#2$ )f the a(sentee appears, or without
appearing his e.istence is proved, he shall
recover his propert+ in the condition in which
it ma+ (e found, and the price of an+ propert+
that ma+ have (een alienated or the propert+
ac:uired therewith? (ut he cannot claim either
fruits or rents$ C!#D
Londres $ National Life Insurance Co.
%acts& Hational ;ife issued a life insurance
polic+ on the life of *ose C$ ;ondres in the
amount of Php3,111$11 on &pril !, !#3
Cduring the war periodD$ >e died on 3e($ 7,
!#,$ >is (eneficiar+ filed a claim which
Hational denied claiming that there was a
lack of proof of death and a slew of other
special defenses, including the pa+ment
should (e made (ased on the Ballant+ne
scales$
Ratio& Hational must pa+ the (eneficiar+ of
the insured the amount of the polic+
C3,111$11D as the agreement was that the
o(ligation will (e made in the currenc+
prevailing at the end of the stipulated period
which in this case is the Philippine currenc+$
The proof of death was su(stantiall+ made
(+ the claimant and was not properl+
disproved (+ Hational$
%ernandeC $ National Life Insurance Co.
%acts& Hational insured the life of *uan
3ernande5 for the period of *ul+ !,, !# to
*ul+ !, !#,$ *uan died on Hov$ 2, !#$
>is (eneficiaries filed their claim 7 +ears after
his death or on &ug$ !, !#,2$ The dispute is
%<H the Ballant+ne scale is applica(le in
computing the amount which should (e paid to
the (eneficiaries$ The C3) rendered Audgment
that Hational should pa+ the proceed of P>p
,11$11 Ballant+ne scale applica(le$
Ratio& C3) correct$ Ballant+ne scale is
applica(le since in life insurance, the polic+
matures upon the e.piration of the term set
forth therein E in this case upon the death of
*uan$ The o(ligation of Hational arose as of
that date and not at the time of the claim$
Since the Hational could have paid his
o(ligation at an+ time during the *apanese
occupation$ Pa+ment after li(eration must (e
adAusted in accordance with the Ballant+ne
schedule$
Tio Hhe Chio $ C E )astern
ssurance
%acts& Tio 2he Chio imported fishmeal$
These were insured with Fastern &ssurance$
The vessel used to ship the fishmeal was 3ar
Fastern Shipping Co$ %hen the goods
reached 4anila, the+ were found to (e
damaged E and therefore useless$ The issue
is %<H the interest to (e paid (+ Fastern
&ssurance is !2Y or 0YT
Ratio& 0Y onl+, as Sec$ 23 and 2 of the
)nsurance Code is not applica(le to the case
as these provisions appl+ onl+ when the court
finds an unreasona(le dela+ or refusal in the
pa+ment of the claims$ The applica(le law
according to SC is &rt$ 221# of the Civil Code
which stipulates that in the a(sence of
stipulation the legal interest applica(le is 0Y
Catha9 $ C
%acts& ;uga+ insured against fire with the 0
insurance companies named as petitioner in
this case for the total sum of million her
printing press which was ra5ed (+ fire on
Decem(er !,, !#"2$ She filed a claim
su(mitting all the re:uired proof of loss$ &fter
nearl+ !1 months of waiting for her claim to
(e paid she filed a suit to collect her claim$
&fter the trial on the merits, the TC rendered
Audgment in favor of ;uga+ and directed the 0
insurance companies to pa+ their share in the
insurance and further made them pa+
plaintiff interest at the rate of 2. the ceiling
(eing prescri(ed (+ the 4onetar+ (oard from
the time when the case was filed$ Bpon
appeal to the C&, the C& affirmed the
decision of the TC$
Ratio& The award made (+ the TC of dou(le
interest is Austified under Sections 23 and
2 of the )nsurance Code which provides
that 7Sec$ 23$ 8-efusal or failure to pa+
the loss or damage within the time
prescri(ed herein will entitle the assured to
collect interest on the proceeds of the
polic9 for the duration of the dela9 at
the rate of twice the ceilin! prescri5ed
59 the .onetar9 3oard89 and 7Sec$ 2$
)n case of an+ litigation for the enforcement
of an+ polic+ or contract of insurance, it shall
(e the dut+ of the Co44issioner or the
Court* as the case 4a9 5e to 4a#e a
findin! as to whether the pa94ent of
the clai4 of the insured has 5een
unreasona5l9 denied or withheld? and in
the affirmative case, the insurance compan+
shall (e adAusted to pa9 da4a!es which
shall consist of attorne9Ds fees and
other e:penses incurred 59 the insured
person 59 reason of such unreasona5le
denial or withholdin! of pa94ent plus
interest of twice the ceilin! prescri5ed
59 the .onetar9 3oard of the a4ount of
clai4 due the insuredN,.
Noda $ CruCArnaldo
%acts& Hoda o(tained from @enith 2 fire
insurance policies for 2 of his properties$
Both was destro+ed (+ fire$ %hen Hoda filed
a claim, it was denied (+ @enith due to
premiums not paid and the other one was
settled onl+ for !,2^^$ )C denied Hoda to
claim full amount due to insufficient proof of
the value of his losses$
Ratio& Hoda was a(le to prove sufficient
losses, since the document offered (+ Hoda
were offered (+ @enith itself to proof the
amount of itIs lia(ilit+ (eing !M0
th
of the total
loss onl+$ Thus could ver+ well (e
considered as an admission of its lia(ilit+ up
to the amount recommended$
%in4an "eneral $ C
%acts& BS)P>); o(tained a fire insurance
polic+ from 3)H4&H$ The propert+ insured
was loss due to fire and BS)P>); filed a
claim$ >$>$ Ba+ne was appointed (+
3)H4&H to undertake evaluation$ BS)P>);
su(mitted all the re:uired proof of losses
su(stantiall+$ Despite all these, 3)H4&H
refused to pa+ BS)P>);IS claim due to failure
to compl+ with Condition !3 of the polic+$ TC
and C& rule din favor of BS)P>); and ordered
3)H4&H to pa+ ^ dou(le the interest C2YD
Ratio& Su(stantial compliance, not strict
compliance with the re:uirements will (e
deemed sufficient$ The dou(le interest of
2Y is authori5ed (+ Sections 23 and 2 of
the )nsurance Code$
Delsan Transport $ C /supra2
CLI.S LI%) INSURNC) NONALI%) INSURNC)
4aturit+ !$ Bpon death of the
person insured?
2$ Bpon his surviving a
specific period
3$ <therwise contingentl+
on the continuance or
cessation of life CSec$
!"1D
Bpon happening of event
insured against
Fvent must occur within the
period specified in polic+,
otherwise insurer has no lia(lit+
Deliver+ of Proceeds /FHF-&; -B;F6
)mmediatel+ upon
maturit+ of polic+$
FUCFPT)<H6
)f pa+a(le in
)HST&;;4FHTS or as
an &HHB)TJ, when
such installments or
annuities (ecome due
)3 4&TB-)TJ )S BP<H DF&T>6
%ithin 01 da+s after
presentation of claim
and filing of proof of
death of insured$
%ithin 31 da+s after
C!D Proof of loss is received (+
insurer? and
C2D &scertainment of loss or
damage is made either (+
agreement (etween the
insured and insurer or (+
ar(itration
)f ascertainment not made
within 01 da+s after such
receipt (+ insurer of proof of
loss, loss or damage shall (e
paid within #1 da+s after such
receipt$
Fffect of -efusal or 3ailure to
pa+ claim within time
prescri(ed6
)n case of litigation,
it is the dut+ of the
Commissioner or the
Court to determine
%<H claim has (een
unreasona(l+ denied
of withheld$
3ailure to pa+ an+
such claim within
the time prescri(ed
shall (e considered
prima facie evidence
of unreasona(le
dela+ in pa+ment$
Fntitles (eneficiar+ to
collect interest on the
proceeds of polic+ for
the duration of the
dela+ at rate of twice
ceiling prescri(ed (+
the monetar+ (oard
Cunless re$usal to pay
is +ased on ground t%at
claim in $raudulent#
)n case damages
awarded, this includes
attorne+Is fees and
other e.penses
incurred due to dela+
Cplus the interestD
Fntitles (eneficiar+ to collect
interest on the proceeds of
polic+ for the duration of the
dela+ at rate of twice ceiling
prescri(ed (+ the monetar+
(oard Cunless re$usal to pay
is +ased on ground t%at
claim in $raudulent#
)n case damages awarded,
this includes attorne+Is fees
and other e.penses incurred
due to dela+ Cplus the
interestD
3. PR)SCRIPTION O%
CTION
3.1. Title ; K The Polic9
Sec$ 03$ & condition, stipulation, or
agreement in an+ polic+ of insurance, limiting
the time for commencing an action thereunder
to a period of less than one +ear from the
time when the cause of action accrues, is
void$
& clause in an insurance polic+ to
the effect that an action upon the
polic+ (+ the insured must (e (rought
within a certain period is K&;)D and
will prevail over the general law on
limitations of actions$
><%FKF-, if the period fi.ed is less
than one +ear from the time the
cause of action accrues, it is K<)D$
Hature of condition limiting period for
filing claim6
)t is not merel+ a procedural
re:uirement$ )t is essential for the
prompt settlement of claims as it
demands for suits to (e (rought
while the evidence as to the origin
and cause of the loss or
destruction has not +et
disappeared$ )t is a condition
precedent to the insurerIs
lia(ilit+ or a resolutor+ cause in
case the action is not filed (+
the insured within the stipulated
period$
)nsurance Code empowers the
)nsurance Commissioner to
adAudicate disputes relating to an
insurance compan+Is lia(ilit+ to an
insured under a polic+$ & complaint
or claim filed with such official is
considered an 7action9 or 7suit9 the
filing of which would have the effect
of tolling the suspending the running
of the prescriptive period$
Cause of &ction E The violation of a legal
right committed knowingl+? &n act or
omission of one part+ in violation of the legal
rightMs of the other$
3.(. Re?uisites6)ssential
)le4ents&
!$ & legal right of the plaintiff
2$ & correlative o(ligation of the
defendant
3$ &n act or omission of the defendant
in violation of the legal right of
plaintiff$
The cause of action in an
insurance polic+ therefore
does not accrue until the
insurer refuses e.pressl+ or
impliedl+ to compl+ with his
dut+ to pa+ the amount of
the loss$
3.3. Co4pulsor9 .otor 8ehicle
Lia5ilit9 Insurance
Sec$ 3"$ &n+ person having an+ claim upon
the polic+ issued pursuant to this chapter
shall, without an+ unnecessar+ dela+, present
to the insurance compan+ concerned a written
notice of claim setting forth the nature, e.tent
and duration of the inAuries sustained as
certified (+ a dul+ licensed ph+sician$ Hotice
of claim must (e filed within si. months from
date of the accident, otherwise, the claim shall
(e deemed waived$ &ction or suit for
recover+ of damage due to loss or inAur+ must
(e (rought, in proper cases, with the
Commissioner or the Courts within one +ear
from the denial of the claim, otherwise the
claimantIs right of action shall prescri(e C&s
amended (+ PD Ho$ !"! and BP Blg$ "7$D
3.7. Ci$il Code K Prescription
&rt$ !!$ The following action must (e
(rought within ten +ears from the time the
right of action accrues6
C!D Bpon a written contract?
C2D Bpon an o(ligation created (+ law
C3D Bpon a Audgment$ CnD
/eneral -ules on Prescription6
!1 Jears CCCD
F.ceptions to the /eneral -ule6
Stipulation in the contract
CSec$ 03D E a clause in an
insurance polic+ limiting the
period for which an action
upon the polic+ (a+ (e
(rought is valid provided it (e
not less than one +ear$
.otor 8ehicle Insurance K
<ne C!D +ear onl+
7. T') INSURNC)
CO..ISSION)R
D.INISTRTI8) ND
DOUDICTORI PO-)RS
Sec$ !0$ The Commissioner shall have the
power to adAudicate claims and complaints
involving an+ loss, damage or lia(ilit+ for
which in insurer ma+ (e answera(le under
an+ kind of polic+ or contract of insurance, or
for which such insurer ma+ (e lia(le under a
contract of suret+ship, or for which a
reinsurer ma+ (e sued under an+ contract of
reinsurance it ma+ have entered into? or for
which a mutual (enefit association ma+ (e
held lia(le under the mem(ership certificates
it has issued to its mem(ers, where the
amount of an+ such loss, damage or lia(ilit+,
e.cluding interest, cost and attorne+Ns fees,
(eing claimed or sued upon an+ kind of
insurance, (ond, reinsurance contract, or
mem(ership certificate does not e.ceed in
an+ single claim one hundred thousand pesos$
The insurer or suret+ ma+, in the same action
file a counterclaim against the insured or the
o(ligee$ The insurer or suret+ ma+ also file a
cross=claim against a part+ for an+ claim
arising out of the transaction or occurrence
that is the su(Aect matter of the original
action or of a counterclaim therein$
%ith leave of the Commissioner, an insurer or
suret+ ma+ file a third=part+ complaint
against its reinsurers for indemnification,
contri(ution, su(rogation or an+ other relief,
in respect of the transaction that is the
su(Aect matter of the original action filed with
the Commissioner$
The part+ filing an action pursuant to the
provisions of this section there(+ su(mits his
person to the Aurisdiction of the
Commissioner$ The Commissioner shall
ac:uire Aurisdiction over the person of the
impleaded part+ or parties in accordance with
and pursuant to the provisions of the -ules of
Court$
The authorit+ to adAudicate granted to the
Commissioner under this section shall (e
concurrent with that of the civil courts, (ut
the filing of a complaint with the
Commissioner shall preclude the civil courts
from taking cogni5ance of a suit involving the
same su(Aect matter$
&n+ decision, order or ruling rendered (+ the
Commissioner after a hearing shall have the
force and effect of a Audgment$ &n+ part+
ma+ appeal from a final order, ruling or
decision of the Commissioner (+ filing with
the Commissioner within thirt+ da+s from
receipt of cop+ of such order, ruling or
decision a notice of appeal to the
)ntermediate &ppellate Court in the manner
provided for in the -ules of Court for appeals
from the -egional Trial Court to the
)ntermediate &ppellate Court$ C&s amended
(+ Batas Pam(ansa Blg$ "7D$
&s soon as a decision, order or ruling has
(ecome final and e.ecutor+, the
Commissioner shall motu proprio or on
motion of the interested part+, issue a writ of
e.ecution re:uiring the sheriff or the proper
officer to whom it is directed to e.ecute said
decision, order or award, pursuant to -ule
thirt+=nine of the -ules of Court$
3or the purpose of an+ proceeding under this
section, the Commissioner, or an+ officer
thereof designated (+ him, empowered to
administer oaths and affirmation, su(poena
witnesses, compel their attendance, take
evidence, and re:uire the production of an+
(ooks, papers, documents, or contracts or
other records which are relevant or material
to the in:uir+$ )n case of contumac+ (+, or
refusal to o(e+ a su(poena issued to an+
person, the Commissioner ma+ invoke the aid
of an+ court of first instance within the
Aurisdiction of which such proceeding is
carried on, where such person resides or
carries on his own (usiness, in re:uiring the
attendance and testimon+ of witnesses and
the production of (ooks, papers, documents,
contracts or other records$ &nd such court
ma+ issue an order re:uiring such person to
appear (efore the Commissioner, or officer
designated (+ the Commissioner, there to
produce records, if so ordered or to give
testimon+ touching the matter in :uestion$
&n+ failure to o(e+ such order of the court
ma+ (e pu(lished (+ such court as a
contempt thereof$
& full and complete record shall (e kept of all
proceedings had (efore the commissioner, or
the officers thereof designated (+ him, and all
testimon+ shall (e taken down and
transcri(ed (+ a stenographer appointed (+
the Commissioner$
& transcri(ed cop+ of the evidence and
proceeding, or an+ specific part thereof, of
an+ hearing taken (+ a stenographer
appointed (+ the Commissioner, (eing
certified (+ such stenographer to (e a true
and correct transcript of the testimon+ on this
hearing of a particular witness, or of a specific
proof thereof, carefull+ compared (+ him from
his original notes, and to (e a correct
statement of evidence and proceeding had in
such hearing so purporting to (e taken and
su(scri(ed, ma+ (e received as evidence (+
the Commissioner and (+ an+ court with the
same effect as if such stenographer were
present and testified to the facts so certified$
C&s amended (+ Presidential Decree Ho$
!,,D$
7.1. Ourisdiction of
Insurance Co44ission
)ncludes the following as long as an+ S)H/;F
C;&)4 does H<T FUCFFD !11,111$116
C!D Claims and complaints involving
lia(ilit+ of insurer under an+ kind of
polic+ or contract
C2D Suret+ship
C3D -einsurance
CD 4utual Benefit mem(ership
certificates
(. Relation to RTC
The -TC and )C have
concurrent Aurisdiction$ ><%FKF-,
filling a complaint with the )C
P-FC;BDFS civil courts from taking
cogni5ance of suit involving the same
su(Aect$
LopeC $ %ilipinas
%acts& ;ope5 insured with 3CS his
Biederman truck tractor and %inter %eils
trailer from loss or damages$ )t appeared
that ;ope5 concealed some material fact
with regard to :uestions asked (+ 3CS$ The
vehicles figured in an accident$ ;ope5 filed a
claim which 3CS denied$ ;ope5 filed a
complaint with )C less than 2 months after
the denial and a complaint with the Court !7
months after the denial when 3CS told the
)C that it refused to su(Aect itself to
ar(itration$ 3CS claimed prescription$
Ratio& The right of action has prescri(ed$
There is nothing in the )nsurance ;aw, nor
in an+ of its allied ;egislations which
empower the )C to adAudicate on disputes
relating to an insurance compan+Is lia(ilit+
to an insured under a polic+ issued (+ the
insurer to an insured$ The validit+ of an
insuredIs claim under a specific polic+, its
amount, and all such other matters as
might involve the interpretation and
construction of the insurance polic+, are
issues which onl+ a regular court of Austice
ma+ resolve and thus the complaint filed
(+ ;ope5 with the )C could not have (een
an action or suit$ The prescription period
started to run on &ugust 2", !#01 when
3CS reAected the claim of ;ope5 and the
commencement of an action was filed onl+
on Septem(er !#, !#0!with the C3) of
4anila, nearl+ !7 months after the claim
was reAected$ Thus the action has alread+
prescri(ed$
%in4an $ Inocencio
%acts& Pan Pacific o(tained a suret+ (ond
from 3inman in compliance with P<F&
rules$ )nocencio et$al filed complaint
against Pan Pacific$ P<F& ordered Pan
Pacific and 3inman Aointl+ and severall+ to
pa+ the claim of )nocencio et$al$
Ratio& P<F& has Aurisdiction over the
suret+ (onds as it is a well settled doctrine
that the conditions of a (ond specified in
the statute providing for the su(mission of
a (ond are (uilt into all (onds tendered
under that statue even through not printed
therein$ 3inman ma+ (e held lia(le, if it is
solidaril+ lia(le with Pan Pacific under the
terms of the (ond, it must follow that it is
also lia(le to (oth )nocencio et$al and
P<F&$ sorr+ gu+s ) donIt get how
prescription figures into this case[[[
)a!le Star $ Chin Iu
%acts& Chin Ju consigned ! (ales of
underwear$ )nsured with Fagle Star$
Bpon arrival to 4anila, (ales were lost
and 3 were damages$ Chin Ju filed claim
for the lost and damages (ales against he
carrier and then with the insurer$ Both
denied lia(ilit+$
Ratio& &ction has not prescri(ed under
Sec$ 0!=&, the period of prescription starts
to run when the cause of action accrues
and the cause of action accrues onl+ upon
the reAection of the insurer of the claim and
not upon the filing of the claim$
CC% $ lpha Ins
%acts& 3&C<4& took out a fidelit+ (ond of
Php,,111$11 to insure its funds from &lpha
)nsurance which it later assigned to &CC3&$
The funds were misappropriated upon which
&CC3& immediatel+ notified &lpha of the
loss and presented proof of loss within the
period fi.ed, (ut despite repeated demands,
the suret+ compan+ refused and failed to
pa+$ )t filed a suit against &lpha$ &lpha
moved to dismiss claiming that &CC3&Is
right of action has prescri(ed since it filed
an action one +ear after it filed its notice of
loss == claiming that &CC3&Is right of action
accrued upon su(mission of notice of loss as
stipulated under Condition " of the contract$
Ratio& The action does not accrue until the
part+ o(ligated refuses, e.pressl+ or implied
to compl+ with its dut+ Cin this case refusal
of &lpha to pa+ the amount of the (ondD$
The +ear for instituting the action in court
must (e reckoned from the time of &lpha
refused to compl+ with its (ond and not
from the creditorIs filling of the claim of loss
Csince the creditor does not know +et upon
filling that the claim would (e denied or
refusedD$ Therefore, condition '" which
re:uired action to (e filed within one +ear
from the filling of the claim for loss
contradicts the pu(lic polic+ e.pressed in
Sec$ 0!=& of the Philippine )nsurance &ct
and is thus null and void
n! $ %ulton
%acts& &ng insured his propert+ against fire
for ! +ear with 3ulton through its agent
Paramount$ $
!2$27$!#73 == Store was destro+ed through
fire C3 da+s later, &ng filed claimD
!$!3$!#,, E &ng charged with arson,
ac:uitted
$0$!#,0 E 3ulton denied &ngIs claim
$!#$!#,0 E &ng received 3ulton denial
,$!#,0 E &ng instituted claim against
Paramount which was dismissed wMo
preAudice on #$!#,7
,$,$!#," E &ng instituted present action
against 3ulton$
&ccording to C3), action not +et prescir(ed
Ratio& &ction alread+ prescri(ed$ The
action of &ng against Paramount does not
have an+ legal effect e.cept that of notif+ing
the agent and serves no other purpose$ )t
did not stop the prescription from running$
The filing of a claim within one +ear after
reAection is a condition precedent to the
lia(ilit+ of the insurer E a resolutor+ cause,
the purpose of which is to terminate all
lia(ilities in case action is not filed within
the said period$
Tra$ellers Insurance $ C
%acts& & 7" +ear old woman was hit (+ a
ta.i ca(, died$ >er son CKicenteD filed a
claim against the owner of the ;ad+ ;ove
ta.i ca(, the driver and Travellers as the
compulsor+ insurer
Ratio& Travellers cannot (e held Aointl+
and severall+ lia(le with the owner and
driver of the ;ad+ ;ove ta.i ca( as Kicente
failed to attach a cop+ of the insurance
contract to his complaint, there could (e
no (asis to apprise the real nature and
pecuniar+ limits of Travellers lia(ilit+$
3urther, he also failed to file a written
notice of claim with Traveller, which is an
indispensa(le re:uirement thus his cause
of action did not accrue$
Sun Insurance $ C /supra2
1. SU3RO"TION
1.1. Ci$il Code Pro$isions
<(ligations Q Contracts E F.tinguishment of
<(ligations
&rt$ !230$ The creditor is not (ound to accept
pa+ment or performance (+ a third person
who has no interest in the fulfillment of the
o(ligation, unless there is a stipulation to the
contrar+$
%hoever pa+s for another ma+ demand from
the de(tor what he has paid, e.cept that if he
paid without the knowledge or against the will
of the de(tor, he can recover onl+ insofar as
the pa+ment has (een (eneficial to the de(tor
C!!,"aD
Damages
&rt$ 2217$ )f the plaintiffIs propert+ has (een
insured, and he has received indemnit+ from
the insurance compan+ for the inAur+ or loss
arising out of the wrong or (reach of contract
complained of, the insurance compan+ shall
(e su(rogated to the rights of the insured
against the wrongdoer or the person who has
violated the contract$ )f the amount paid (+
the insurance compan+ does not full+ cover
the inAur+ or loss, the aggrieved part+ shall (e
entitled to recover the deficienc+ from the
person causing the loss or inAur+$
&ccording to sir E there is onl+
su(rogation in propert+ insurance$
1.(. Concept&
Process of legal su(stitution Cinsurer
steps into shoes of insuredD
-eason6 FPB)TJ E to prevent the
insured from receiving more than his
actual loss, while at the same time
makes the person who caused loss
legall+ responsi(le$
Loss Due to -ron!ful ct or 3reach of
Contract 59 Third Person* NOT
PPLICL3L) TO LI%) INSURNC).
<ptions availa(le to insured when
through wrongful act or (reach of
contract committed (+ 3
rd
person,
insured propert+ suffers loss6
C!D Collect from insurer E if insurer
pa+s, insurer su(rogates insured
under Civil Code
o -ight of su(rogation e.ist
even if no e.press
agreement recogni5ing it
since itIs under the CC
o &rises onl+ after insurer
pa+s insured$
C2D Demand pa+ment from
wrongdoer
Since ;ife )nsurance is not contract of
)HDF4H)TJ, su(rogation o(viousl+
cannot appl+$
-hen .a9 Lia5ilit9 to Su5ro!ee 5e
Li4ited&
Bill of ;ading CSt$ Paul v 4acondra+D
Contri(utor+ Hegligence CTa(acalera v
H3SD
)ffect of 8oluntar9 Pa94ent
-ight of Su(rogation does not e.ist in
favor of mere volunteer
)f insurer has right to rescind, (ut still
pa+s insured, there is still su(rogation
E the 3
rd
part+ has no privit+$
%here the insurer pa+s the insured
for a loss or lia(ilit+ which is not a risk
covered (+ the polic+, it will (e
considered as a volunteer with no
right of su(rogation$ ><%FKF-,
insurer ma+ still recover under &rt$
!230 of the Civil Code E to the e.tent
that the de(tor had (een (enefited$
)f insured gets amount of polic+ not
as pa+ment (ut as a ;<&H, repa+a(le
to the e.tent of an+ recover+ from the
3
rd
part+ responsi(le, there can (e
no su(rogation$
In Case of "eneral $era!es&
!$ Demand contri(utions directl+ from
different persons lia(le$
2$ Clam whole loss from the insurer E
insurer su(rogates right of
contri(ution$
Coastwise $ C /supra2
.a!lana $ Concolacion /supra2
Ce5u Ship9ard $ -illai4
Lines
%acts& %illiam ;ines, )nc contracted the
services of CSF% for its ships annual dr+=
docking and repairs$ The vessel was insured
with Prudential for , million for hull and
machiner+$ The coverage included an
7&dditional Perils9 clause covering loss of or
damage to the vessel through the negligence
of ship repairman$ The vessel caught fire and
sank resulting to its eventual total loss$
Prudential paid %illiam ;ines the total
amount of the insurance polic+ and sued
CSF%, as su(rogee to the rights of %illiam
;ines$
Ratio& Since it has alread+ (een resolved
that the cause of the fire which gutted 4K
4anila Cit+ was the negligence act of CSF%,
the proof of pa+ment made (+ Prudential to
%illiam ;ines, )nc operated to properl+
su(rogate Prudential to the rights of %illiam
;ines under &rt$ 2217 of the Civil Code
Pioneer Insurance $ C
%acts& *aco( ;im purchased 2 aircrafts from
*D& using funds from Bormaheco, the
Cervantes and 4aglana$ )nsured it with
Pioneer as suret+$ ;im failed to pa+, Pioneer
paid CPioneer reinsured the suret+ with an
unnamed reinsurerD and collected from the
reinsurer$ &lso foreclosed aircraft, sold it
and collected proceeds$
Ratio& Pioneer no longer has an+ claim
since it has alread+ collected the proceeds of
the reinsurance on its (ond$ Bnder the
principle of &rt$ 2217 of the CC, the
reinsurer, on pa+ment of a loss ac:uires the
same rights (+ su(rogation as are ac:uired
in similar cases where the original insurer
pa+s a loss$
.anila .aho!an9 $ C
%acts& 4anila 4ahogan+ insured its 4ercede5
Ben5 with @enith$ Car was (umped and
damaged (+ S4C truck$ @enith paid
4ahogan+ in amica(le settlement$ @enith
then demanded reim(ursement from S4C, (ut
it appeared that S4C alread+ paid 4ahogan+
evidenced (+ a -elease of Claim$
Ratio& B+ the act of 4anila 4ahogan+ issuing
a release claim to S4C, the right of @enith
against S4C is nullified since the insurer can
(e su(rogated to onl+ such rights as the
insured ma+ have, should the insured, after
receiving pa+ment from the insurer, release
the wrongdoer who causes the loss, the
insurer loses his rights against him$ But in
such a case the insurer will (e entitled to
recover from the insured whatever it has paid,
unless it was made with the consent of the
insurer$
Pan .ala9an $ C E %a5ie
%acts& The driver of Frlinda 3a(ie hit the
insured 4itsu(ishi Colt ;ancer owned (+ the
Canlu(ang &utomotive -esources Corporation$
The vehicle was insured with P&H4&;&J who
paid the amount insured under the 7own
damage9 coverage9 of the insurance polic+$
P&H4&;&J then demanded from 3a(ie the
pa+ment of whatever amount it paid claiming
that the+ were su(rogated to the rights of
Canlu(ang$
Ratio& &rt$ 2217 of the Civil Code appl+ in the
case at (ar, under the principle of
su(rogation$ )f the insured propert+ is
destro+ed or damaged through the fault or
negligence of a part+ other than the assured,
then the insurer, upon pa+ment to the assured
will (e su(rogated to the rights of the assured
to recover from the wrongdoer to the e.tent
that the insurer has (een o(ligated to pa+$
Pa+ment (+ the insurer to the assured
operates as an e:uita(le assignment to the
former of all remedies which the latter ma+
have against the third part+ whose negligence
or wrongful act caused the loss$ The right of
su(rogation is not dependent upon, nor does it
grow out of, an+ privit+ of contract or upon
written assignment of claim$ )t accrues simpl+
upon pa+ment of the insurance claim$
%ire4anDs %und $ Oa4ila E Co.
%acts& 3irestone loss some properties due to
the acts of its emplo+ees and the securit+
guards provided (+ the securit+ agenc+ of
*amila Q Co$ 3iremanIs 3und, the insurer of
3irestone paid the loss and proceeded against
*amila and *amilaIs insurer 3irst Pue5on Cit+
)ns$ Co$ Both denied lia(ilit+, TC dismissed
complaint due to no cause of action$
Ratio& 3irestone no longer has cause of
action since it has alread+ (een paid (+
3iremanIs 3und$ 3iremanIs 3und however
has a cause of action as this falls under &rt$
2217 under the doctrine of su(rogation$
Ta5acalera $ North %ront
Shippin!
%acts& Sacks of corn grain valued at over
34 were consigned to -34 under a (ill of
lading and insured with Ta(acalera et al$
The vessel was owned (+ Horth 3ront$
Prior to leaving port, the vessel was
inspected and was deemed fit to carr+
merchandise$ %hen it arrived, it advised
-34 who did not immediatel+ commence
unloading without an+ apparent reason$
%hen unloaded, there was shortage and the
rest were mold+, rancid and unfit for its
purpose$ -34 reAected cargo and demanded
from Horth 3ront pa+ment for damages
which was denied$ Ta(acalera et$al paid,
then sued Horth 3ront$ TC and C& dismissed
case$
Ratio& Horth Point is lia(le since it is a
common carrier and as such is re:uired to
o(serve e.traordinar+ diligence in its
vigilance over the goods it transports$ %hen
goods placed in its care are lost or damaged,
the carrier is presumed to have (een at fault
or to have acted negligentl+$ Horth 3ront
has (urden of proving it o(served
e.traordinar+ diligence in order to avoid
responsi(ilit+ which it failed to do$ >owever
since -34 was guilt+ of contri(utor+
negligence, the+ should share at least 1Y
of the loss$ Horth Point ordered to pa+
Ta(acalera et al 01Y of the total amount it
paid to -34$
Phila4!en $ C
%acts& Coca=Cola Bottlers Philippines, )nc$
CCCBP)D loaded on (oard 74K &silda9 7,,11
cases of !=liter Coke to (e transported from
@am(oanga Cit+ to Ce(u Cit+$ The vessel
was owned and operated (+ 3F;4&H$ The
shipment was insured with P>);&4/FH$ The
vessel sank$ CCBP) filed a claim with
3F;4&H for recover+ of damages which was
denied and thus CCBP) filed an insurance
claim with P>);&4/FH which paid its claim
for P>p7,,,2,1$11$ Claiming its right of
su(rogation, P>);&4/FH sought recourse
against 3F;4&H who disclaimed an+ lia(ilit+
from the lost$
Ratio& Clearl+ falls under &rt$ 2217 of the
Civil Code$ The pa+ment (+ the assurer to
the assured operates as an e:uita(le
assignment to the assurer of all the remedies
which the assured ma+ have against the third
part+ whose negligence or wrongful act caused
the loss$ The right of su(rogation is not
dependent upon, nor does it grow out of an+
privit+ of contract$ )t accrues simpl+ upon
pa+ment (+ the insurance compan+ of the
insurance claim$
St Paul $ .acondra9
%acts& %inthrop Products consigned to
%inthrop Stearns drugs and medicines Cfrom
HJ to 4laD through 4acondra+ Q Co$ )nsured
with St$ Paul 3ire$ &rrastre services provided
(+ 4la$ Port Services$ Bpon arrival to 4anila
one drum and several cartons arrived in (ad
condition$ %inthrop Stearms filed a claim for
damages$ St$ Paul paid claim$ St$ Paul then
proceeded against the &rrastre Service who
resisted action which claimed it delivered
goods in same condition it received from the
carrier C4acondra+D$ 4acondra+ denied
lia(ilit+ claiming lia(ilit+ ceased upon
discharge of goods from shipIs tackle$ Hote6
there is a (ill of lading which stipulated that
the amount of the lia(ilit+ should onl+ (e
Php!2^^, (ut St$ Paul paid amount USP!k^
^
Ratio& St$ Paul should receive the amount
according to the (ill of lading$ The purpose of
the (ill of lading is to provide for the rights
and lia(ilities of the parties$ The stipulation in
the (ill of lading limiting the common carrierIs
lia(ilit+ to the value of the goods appearing in
the (ill is valid and (inding$ St$ Paul after
pa+ing the claim of the insured for damages
under the polic+ is su(rogated merel+ to the
rights of the assured as su(rogee, it can
recover onl+ the amount that is recovera(le (+
the latter$ Since the right of %inthrop in case
of loss or damage to the goods is limited or
restricted (+ the provision in the (ill of lading,
a suit (+ St$ Paul as su(rogee is necessaril+
su(Aect to like limitations and restrictions$
Chapter 8II
R)INSURNC)
Title !2 E -einsurance
Sec$ #,$ & contract of reinsurance is one (+
which an insurer procures a third person to
insure him against loss or lia(ilit+ (+ reason of
such original insurance$
1. D)%INITION O%
R)INSURNC)
)t is a contract where(+ one part+,
the reinsurer, agrees to indemnif+
another, the reinsured, either in
whole or in part, against loss or
lia(ilit+ which the latter ma+ sustain
or incur during a separate and
original contract of insurance with a
third part+, the original insured$
& contract of reinsurance is an
insurance of an insurance or when
insurance (usiness is transferred
from one insurance compan+ to
another$ Sometimes called
7treaties$9
(. RTIONL) O%
R)INSURNC)
)t is one t+pe of lia(ilit+ insurance$
)t represents a further e.tension of
the fundamental idea of insurance,
that is, distri(ution among man+ of
the risks resting upon one$
%here an insurer desires to entirel+
relieve himself of lia(ilit+ under
contracts made and reinsures all his
risks$
ContractsMtreaties of reinsurance are
plainl+ (eneficial to the pu(lic
inasmuch as the+ promote (oth
efficienc+ and sta(ilit+ in the
conduct of the insurance (usiness$
3. 3)N)%ITS O%
R)INSURNC) TO
T') INSUR)R
!$ )nsurers are a(le to issue
policies in e:cess of such retention
li4its or the 4a:i4u4 clai4 it wishes
to pa9 out of its own resources$
2$ Pooling the resources of man+
companies also e.tends !reater co$era!e
of insurance protection, e.tended even
among &PP;)C&HTS re:uiring large amounts
and those not eligi(le for insurance at
standard rates$
3$ BHDF-%-)TF-S (enefit through
the placin! of additional insurance in an
e:panded 4ar#et$
$ The insurance )HDBST-J (enefits
(+ reducin! the waste arisin! out of
policies which are applied for 5ut not
issued$
,$ The -F)HSB-F- (enefits through
the ac?uisition of 5usiness which is
e.pected to prove profita(le in the long run$
7. 3)N)%ITS O%
R)INSURNC) TO
T') INSUR)D
!$ )t gives insurance companies !reater
financial sta5ilit9 and thus makes
the insuredIs individual polic+ more
relia(le$
2$ )f a large amount of insurance is
needed, the insured 4a9 o5tain it
without ne!otiatin! with
nu4erous co4panies$
3$ )t ena(les the insured to o5tain
protection pro4ptl9, without the
dela+ that would (e re:uired to divide
and distri(ute the amount among
man+ companies$
$ &ll the insurance can (e written
under identical contract
pro$isions, whereas otherwise these
might var+ with the different
companies among whom the
insurance is divided$
,$ S4all co4panies are encoura!ed
to di$ide lar!e e:posures for
safet9 and ena(led to accept a wide
variet+ of applicants$
1. NTUR) O% CONTRCT O%
R)INSURNC)
The su(Aect of the contract of reinsurance is
the primar+ insurerIs risk and not the propert+
insured under the original polic+$
!$ C<HT-&CT <3 )HDF4H)TJ &/&)HST
;)&B);)TJ$ The reinsurer agrees to
indemnif+ the insurer, not against
actual pa+ment made (ut against
lia(ilities incurred$ )t is not necessar+
that the insurer first pa+ the loss
accruing to demand pa+ment from
reinsurer$
2$ C<HT-&CT SFP&-&TF 3-<4
<-)/)H&; )HSB-&HCF P<;)CJ$
Contracts of insurance and
reinsurance are independent from
each other$ The practice is for the
reinsurer to pa+ the insurer even
(efore the latter has indemnified the
original insured$
3$ C<HT-&CT B&SFD <H <-)/)H&;
P<;)CJ$ The reinsurance polic+ is
necessaril+ (ased on the original
contract, and the rights of the parties
in the reinsurance are greatl+ affected
(+ the latterIs terms and conditions$
The reinsured risk must (e the same
as that covered (+ the original
polic+$
$ )HSB-&B;F )HTF-FST
-FPB)-F4FHT &PP;)C&B;F$ The
doctrine of insura(le interest used in
the original polic+ is also applica(le
to reinsurance$ >ence, the primar+
insurer is not entitled to contract for
reinsurance e.ceeding the limits of
the polic+ ceded to the reinsurer$
,$ -B;F <H SBB-</&T)<H
&K&);&B;F$ )n general, a reinsurer,
on pa+ment of a loss, ac:uires the
same rights (+ su(rogation as are
ac:uired in similar cases where the
original insurer pa+s a loss$
;. R)INSURNC) 8S
DOU3L) INSURNC)
DISTIN"UIS')D
Reinsurance Dou5le Insurance
)nsurer (ecomes the
insured, insofar as
the reinsurer is
concerned
)nsurer remains as
the insurer of the
original insured
The su(Aect of the
insurance is the
original insurerIs risk
The su(Aect of the
insurance is the
propert+ (eing
insured
)nsurance of a
different interest
)nsurance of the
same interest
<riginal insured has
no interest in the
contract of
reinsurance which is
independent of the
original contract of
insurance
)nsured is the part+
in interest in all the
contracts
Consent of the
original insured is not
necessar+
The insured has to
give his consent$
Sec$ #0$ %here an insurer o(tains
reinsurance, e.cept under automatic
reinsurance treaties, he must communicate all
the representations of the original insured,
and also all the knowledge and information he
possesses, whether previousl+ or
su(se:uentl+ ac:uired, which are material to
the risk$
The reinsured has the dut+ to
disclose all material facts to the
reinsurer Csince the risk insured
against in a contract of reinsurance
is the pro(a(ilit+ that the original
insurer ma+ (e compelled to
indemnif+ form the loss under the
polic+ issued (+ himD, the dut+
imposed is similar to persons seeking
an original insurance E that of the
strictest good faith$
%hen called T-F&T)FS E where the insurer
insures all or a su(stantial portion of its risk
with one insurer
<. R)INSURNC) TR)TI)S
8S R)INSURNC) POLICI)S
Reinsurance
Treat9
Reinsurance
Polic9
4erel+ an agreement
(etween two
insurance companies
where one agrees to
cede and the other
to accept
reinsurance (usiness
pursuant to
provisions specified
in the treat+
Contract for
indemnit+ one
insurer makes with
another to protect
the first insurer from
risk it has alread+
assumed
Contracts for
insurance
Contracts of
insurance
uto4atic Reinsurance Treaties E the
ceding compan+ CreinsuredD is (ound to cede
and the reinsurer is o(ligated to accept a fi.ed
share of the risk which has to (e reinsured
under the contract$
%acultati$e Reinsurance Treaties E there is
no o(ligation either to cede or to accept
participation in the risk insured, each part+
having a free choice$
d$anta!e to the insurer A The advantage
of the automatic method is avoidance of dela+
in issuing the insurerIs polic+$ The advantage
of the facultative method is that it receives the
reinsurerIs underwriting opinion (efore the
polic+ is issued$
Protection to the reinsurer A B+ agreeing to
accept (usiness automaticall+, the reinsurer is
rel+ing on the underwriting Audgment of the
insurer and is (ound to accept a case even
though it ma+ not agree with the underwriting
decision$ The insurer is protected (+ the
re:uirement that the original insurer retains
its full retention limit, which assures a
measure of self=interest
>istor+6 )n the !#,1Is, domestic insurerIs
ceded risks to foreign reinsurers (ecause
there was no reinsurance compan+ in the
Philippines$ &lthough, toda+ even when
there are domestic reinsurance companies
operating in the countr+, domestic risks are
still ceded to foreign reinsurance companies
since the Philippines is a C&;&4)TJ P-<HF
countr+$
;imitation
Code limits risk which a non=life
insurer ma+ retain on an+ one
su(Aect of insurance to 21Y of its
net worth$
&n+ reinsurance ceded (+ it is
deducted in determining the risk
retained$
Sec$ #7$ & reinsurance is presumed to (e a
contract of indemnit+ against lia(ilit+, and not
merel+ against damage$
Sec$ #"$ The original insured has no interest
in a contract of reinsurance$
=. R)LTIONS'IP O%
INSUR)D TO R)INSUR)R
/eneral -ule
<riginal insured has H< )HTF-FST in
the reinsurance contract
%hatever the reinsurer pa+s the
insurer upon the happening of the
loss (ecomes part of the insurerIs
assets, and all its creditors share
e:ual rights with the insured to
demand pa+ment from such funds$
F.ceptions6
Contract ma+ e.pressl+ (ind the
reinsurer to pa+ directl+ to the
original owner an+ loss for which the
original insurer ma+ (e lia(le$
o )nsured ma+ choose to sue
either insurer, reinsurer or
B<T>$ >owever, total
recover+ cannot (e more
than the actual loss$
o ;ia(ilit+ of reinsurer to
original insured would not
(e affected (+ an+ defense
which the reinsurer ma+
have against the original
insurer$
o Ho novation which
discharges original polic+ E
original polic+ remains in
full force and original
insured has right to demand
that all its terms and
conditions (e complied with$
)f insured agreed with insurer and
reinsurer that he will look onl+ to
reinsurer for indemnit+ in case of loss
o Hovation discharged original
insurer
o Technicall+ not a reinsurance$
>. LI3ILITI O% R)INSUR)R
TO R)INSUR)D
-einsurer is entitled to avail himself of ever+
defense which the reinsured might urge in an
action (+ the person originall+ insured$ Thus,
the reinsurer is not lia(le to the reinsured for
a loss under an original polic+ if the latter is
not lia(le to the original insured or for an
amount more than the sum actuall+ paid to
the insured$
Phila4 $ uditor
%acts& Philamlife had a reinsurance treat+
with &)-C< with an agreement to pa+
reinsurance premiums on an annual (asis$
The Central Bank collected foreign e.change
margin on the remittances of Philamlife to
&)-C<$ Philamlife filed for refund
contending that the reinsurance premiums
remitted were paid pursuant to the
reinsurance treat+ and therefore were pre=
e.isting o(ligations e.pressl+ e.empt fro the
margin fee$
Ratio& Philamlife is not entitled to refund$
-einsurance treaties and reinsurance
policies are not one and the same$
-einsurance treaties are contracts 3<-
insurance while reinsurance policies are
contracts <3 insurance$ PhilamlifeIs
o(ligation to remit reinsurance premiums
(ecomes fi.ed and definite onl+ upon the
e.ecution of the reinsurance polic+, (ecause
it is onl+ after a reinsurance polic+ is made
that pa+ment of reinsurance premiums ma+
(e e.acted as it is onl+ after Philamlife
seeks to remit the reinsurance premiums
that the o(ligation to pa+ the margin fee
arises$
%ield4anDs $ sian Suret9
%acts& 3ieldmanIs and &sian entered into a
reinsurance treat+ wherein &sian will cede to
3ieldmenIs a specified portion of the amount
of insurance underwritten (+ &S)&H$ The
contract stipulates that if either part+ wishes
to terminate or cancel the agreement, the+
must give at least 3 moths notice (+
registered mail to the other part+ and the
cancellation was to take effect as of the
3!
st
of Decem(er of the +ear in which the
notice was given$ Sometime in Septem(er
!#0! 3ieldmenIs gave notice to &sian
which &sian did not repl+ to, 3ieldmenIs
gave 2 other notices$ During this time,
one of the reinsurance contracts E /S)S
propert+ was ra5ed (+ fire$ &sian filed a
claim with 3ieldmenIs who denied lia(ilit+
pointing out that the+ have alread+
terminated the reinsurance treat+$
Ratio& The 3acultative=<(ligator+
-einsurance Treat+ 3ire Cpart of the
reinsurance contractMtreat+D provides that
7in t%e event o$ termination o$ t%is
Agreement x x x& t%e lia+ility o$ t%e
1ieldmen9s under current cessions shall
continue in full force and effect until
their natural exir! x x x$9 and 7On t%e
termination o$ t%is Agreement $rom any
cause *%atever& t%e lia+ility o$ t%e
RE(3SRER '1ieldmen9s# under any
current cession including any amounts due
to +e ceded under t%e terms o$ t%is
Agreement *%ic% are not cancelled in t%e
ordinary course o$ +usiness shall
continue in full force until their exir!
unless the "#M$A%& 'Asian( shall)
rior to the *+
st
of Decem,er next
follo-in. such notice) elect to
-ithdra- the existin. cessions$9 Thus
insofar as the 2 reinsurance agreements
as concerned, the e.press stipulations did
not ipso facto terminate all reinsurance
cessions$ Such cessions continued to (e in
full force until their respective dates of
e.piration$ Since it was under one of said
agreements, namel+, the 3acultative
<(ligator+ -einsurance Treat+=3ire, that
the reinsurance cessions corresponding to
the /S)S polic+ had (een made,
3)F;D4FHIS cannot avoid lia(ilit+ which
arouse (+ reason of the (urning of the
insured propert+$
Co?uia $ %ield4enDs Insurance
%acts& 3ieldmenIs issued to 4anila Jellow
Ta.ica( a common carrier accident
insurance polic+ which will 7indemnif+ the
insured in the event of accident caused (+
or arising out of the use of 4otor Kehicle
against all sums which the insured will
(ecome legall+ lia(le to pa+ in respect of6
death or (odil+ inAur+ to an+ fare=pa+ing
passenger including the driver, conductor
andMor inspector89 %hile polic+ was in
force, Carlito Co:uia driving the insured
vehicle met an accident and died$ >is heirs
field complaint against 3ieldmenIs
Ratio& >eirs of Co:uia have cause of action
against 3ieldmenIs under &rt$ !3!! of the
Civil Ccontracts pour autruiD$ This rule is the
e.ception to the general rule that onl+
parties to a contract ma+ (ring an action$
Bnder this e.ception, third parties ma+
demand the enforcement of the contract
which was made for his (enefit$
Philippine Deposit Insurance
Corporation ct
/R 31>1 as a4ended 59 Rs
;03<* <700* =<>1 and >30(
and PDs 1(0* 10>7* 1711 and
1>312
1. 3asic Polic9
To insure the deposits of all (anks which
are entitled to the (enefits of insurance
under this &ct
To promote and safeguard the interests of
the depositing pu(lic (+ wa+ of providing
permanent and continuing insurance
coverage on all insured deposits$
(. PDIC %unctions
Can lend mone+ to (anks (efore closure
)nsurer of deposits against (ank closures
&cts as receiver for (anks
The PD)C &ct is not applica(le to <ffshore
Banking Bnits
Hature of insurance function6 compulsor+
insurance on all (ank deposits
&dministrative 3unctions6
(.1. uthorit9 to ):a4ine 3an#s
The PD)C has the power to conduct
e.amination of (anks with prior approval of
the 4onetar+ Board6
!rovided& Ho e.amination can (e
conducted within !2 months from the
last e.amination date$
(.(. uthorit9 to Underwrite and
d$ance Le!al %ees and Liti!ation
):penses
/ho are covered0
The Corporation shall underwrite or advance
litigation costs and e.penses, or provide
legal assistance to its directors, officers,
emplo+ees or agents in connection with an+
civil, criminal, administrative or an+ other
action or proceeding, to which such director,
officer, emplo+ee or agent is made a part+
(+ reason of the e.ercise of authorit+ or
performance of functions and duties under
this &ct$
Directors, officers, emplo+ees or agents who
shall resign, retire, transfer to another
agenc+ or (e separated from the service,
shall continue to (e provided with such legal
protection in connection with an+ act done or
omitted to (e done (+ them in good faith
during their tenure or emplo+ment$
T%is shall not appl+ to an+ civil, criminal,
administrative or an+ action or proceeding
initiated (+ the Corporation against such
director, officer, emplo+ee or agent$
/hat fees 1 exenses are covered0
;itigation costs and e.penses, including
legal fees and other e.penses of
e.ternal counsel, or providing legal
assistance
;egal assistance shall include the grant
or advance of reasona(le legal fees to
ena(le the emplo+ee to engage counsel
of his choice$
)n the event of a settlement or
compromise, indemnification shall (e
provided onl+ when the Corporation is
advised (+ counsel that the persons to
(e indemnified did not commit an+
negligence or misconduct$
The costs and e.penses incurred ma+ (e
paid (+ the Corporation in advance of
the final disposition upon receipt of an
undertaking (+ the emplo+ee to repa+
the amount advanced should it
ultimatel+ (e determined (+ the Board
of Directors that he is not entitled to (e
indemnified$

(.3. uthorit9 to Pro$ide %inancial

ssistance
-hat entities are co$eredL
Insured ,an2s in dan.er of
closin.
%hen the Corporation has determined that
an insured (ank is in danger
of closing
the continued operation of
such (ank is essential to
provide ade:uate (anking
service in the communit+
maintain financial sta(ilit+ in
the econom+$
Insured ,an2s that have alread!
closed
The authorit+ to e.tend financial assistance
ma+ also (e e.ercised in the case of a closed
insured (ank if the Corporation finds that
the resumption of operations
of such (ank is vital to the
interests of the communit+,
or
a severe financial climate
e.ists which threatens the
sta(ilit+ of a num(er of (anks
possessing significant
resources
Entities ac3uirin. 1mer.in. -ith
closed 1 closin. insured ,an2s
The Corporation ma+ provide an+ corporation
ac:uiring control of
merging with
consolidating with
ac:uiring the assets of
an insured (ank in danger of closing in order
to prevent such$
"losure of entities that ma!
roduce s!stemic conse3uences
%hen the 4onetar+ Board has determined
that there are s+stemic conse:uences of a
pro(a(le closure of an insured (ank, the
Corporation ma+ grant financial assistance in
such amount as ma+ (e necessar+ to prevent
its failure or closure andM or restore the
insured (ank to via(le operations$
& s!stemic ris2 refers to the possi(ilit+ that
failure of one (ank to settle net transactions
with other (anks will trigger a chain reaction,
depriving other (anks of funds leading to a
general shutdown of normal clearing and
settlement activit+$ )t also means the
likelihood of a sudden, une.pected collapse of
confidence in a significant portion of the
(anking or financial s+stem with potentiall+
large real economic effects$
-hat are PDICDs powers with re!ard to
financial assistanceL
)t is authori5ed to
make loans
purchase the assets
assume lia(ilities
make deposits
Provide financial assistance which ma+
take the form of e:uit+ or :uasi=e:uit+
of the insured (ank !rovided That the
Corporation shall dispose of such e:uit+
as soon as practica(le$
The Corporation, prior to the e.ercise of its
powers, shall determine that actual pa+off
and li:uidation will (e more e.pensive than
the e.ercise of this power$
The Corporation ma+ not use its authorit+ to
purchase the voting or common stock of an
insured (ank (ut it can enter into and
enforce agreements that it determines to (e
necessar+ to protect its financial interests$
3. Concept of Insured
Deposits
The term 4insured deosit5 means the
amount due to an+ depositor for deposits in
an insured (ank net of an+ o(ligation of the
depositor to the insured (ank as of the date
of closure, (ut not to e.ceed P2,1,111$11$
)n determining such amount due to an+
depositor, there shall (e added together all
deposits in the (ank maintained in the same
right and capacit+ for his (enefit either in his
own name or in the name of others$
& 6oint account regardless of whether the
conAunction 7and,9 7or,9 7andMor9 is used,
shall (e insured separatel+ from an+
individuall+=owned deposit account6
!rovided& That
a$ )f the account is held Aointl+ (+ two
or more natural persons, or (+ two
or more Auridical persons or entities,
the ma.imum insured deposit shall
(e divided into as man+ e:ual
shares as there are individuals,
Auridical persons or entities, unless a
different sharing is stipulated in the
document of deposit and
($ )f the account is held (+ a Auridical
person or entit+ Aointl+ with one or
more natural persons, the ma.imum
insured deposit shall (e presumed to
(elong entirel+ to such Auridical
person or entit+
c$ The aggregate of the interests of
each co=owner over several Aoint
accounts, whether owned (+ the
same or different com(inations of
individuals, Auridical persons or
entities, shall likewise (e su(Aect to
the ma.imum insured deposit of
P2,1,111$11
3o ownerMholder of an+ negotia(le
certificate of deposit shall (e recogni5ed
as a depositor entitled to the rights
provided in this &ct unless his name is
registered as ownerMholder thereof in the
(ooks of the issuing (ank$
7. Lia5ilit9 to Depositors
7.1. Co44ence4ent of Lia5ilit9
;ia(ilit+ commences when an insured (ank is
closed (+ the 4onetar+ Board pursuant to Sec
31 of -$&$ 70,3$
7.(. ):tent of Lia5ilit9
;ia(ilit+ covers the amount due to an+
depositor for deposits in an insured (ank net
of an+ o(ligation of the depositor to the
insured (ank as of the date of closure, (ut not
to e.ceed P2,1,111$11$
7.3. Deter4ination of Insured
Deposits
The Corporation shall commence the
determination of insured deposits upon its
actual takeover of the closed (ank$
)n order that a claim for deposit insurance
with the PD)C ma+ prosper, the law re:uires
that a corresponding deposit (e placed in the
insured (ank$ & deposit as defined in Section
3CfD, ma+ (e constituted onl+ if mone+ or the
e:uivalent of mone+ is received (+ a (ank6
CfD The term 7deosit7 means the
unpaid (alance of mone+ or its
e:uivalent received +y a +ank in the
usual course of (usiness and for which
it has given or is o(liged to give credit
to a commercial, checking, savings,
time or thrift account or which is
evidenced (+ pass(ook, check andMor
certificate of deposit CPD)C vs C&,
!##7D
The Corporation shall pu(lish the notice once a
week for at least 3 consecutive weeks in a
newspaper of general circulation or, when
appropriate, in a newspaper circulated in the
communit+ or communities where the closed
(ank or its (ranches are located$
7.7. Calculation of Lia5ilit9
CSee Part )))D
Special Provisions for *oint &ccounts CPD)C
Bulletin 211=1D
!$ & Aoint account regardless of
whether the conAunction 7and9, 7or9
or 7andMor9 is used, shall (e insured
separatel+ from an individuall+=
owned deposit account$
2$ )f the account is held Aointl+ (+ two
or more natural persons, or (+ two
or more Auridical persons or entities,
the ma.imum insured deposit shall
(e divided into as man+ e:ual
shares as there are individuals,
Auridical persons or entities, unless a
different sharing is stipulated in the
document of deposit$
Document of deposit referred to in
the preceding paragraph pertains to
Aoint account agreements, account
ledgers, certificate of time deposits,
pass(ooks or other evidence of
deposits, specimen signature cards,
corporate resolutions, contracts or
similar instruments, copies of which
must (e in the custod+ or
possession of the (ank upon
takeover (+ PD)C$
3$ )f the account is held (+ a Auridical
person or entit+ Aointl+ with one or
more natural persons, the ma.imum
insured deposit shall (e presumed to
(elong entirel+ to the Auridical
person or entit+$
$ The aggregate of the interests or
total share of each co=owner over
several Aoint accounts, whether
owned (+ the same or different
com(inations of individuals, Auridical
persons or entities, shall likewise (e
su(Aect to the ma.imum insured
deposit of P2,1,111$11$
,$ The amount of insurance due to an+
depositor for deposits in an insured
(ank shall (e net of an+ matured or
unmatured o(ligation of the
depositor to the insured (ank as of
date of closure$ )n case of Aoint
deposit accounts where onl+ one of
the co=depositors has an o(ligation
to the closed (ank, the following
shall appl+6
a$ %here the deposit is a Aoint
7andMor9 or 7or9 account
which is covered (+ a hold=
out agreement, the
o(ligation secured (+ the
hold=out agreement shall (e
deducted from the (alance of
the Aoint account, regardless
of the fact that onl+ one of
the co=depositors in the Aoint
account is inde(ted to the
closed (ank$
($ %hen the deposit is a Aoint
7and9 account which is
covered (+ a hold=out
agreement, the o(ligation
secured (+ the hold=out
agreement shall (e deducted
onl+ from the share in the
Aoint account of the depositor
who is inde(ted to the closed
(ank, unless his co=depositor
is himself a co=signator+ to
the hold=out agreement$
c$ %here the deposit is either a
Aoint 7and9, 7or9 or 7andMor9
account which is not covered
(+ a hold=out agreement, the
o(ligation of the depositor
who is inde(ted to the closed
(ank shall (e deducted onl+
from his share in the (alance
of the Aoint deposit account$
7.1. .ode of Pa94ent
Pa+ment of the insured deposits shall (e made
(+ the Corporation as soon as possi(le either
(+ cash or
(+ making availa(le to each depositor
a transferred deposit in another
insured$
The term 4transfer deosit5 means a
deposit in an insured (ank made availa(le to a
depositor (+ the Corporation as pa+ment of
insured deposit of such depositor in a closed
(ank and assumed (+ another insured (ank$
7.;. Conditions that 4a9 5e
i4posed prior to pa94ent
The Corporation, in its discretion, ma+
re:uire proof of claims to (e filed
(efore pa+ing the insured deposits
%here the Corporation is not satisfied
as to the via(ilit+ of a claim for an
insured deposit, it ma+ re:uire final
determination of a court of competent
Aurisdiction (efore pa+ing such claim
7.<. )ffect of Pa94ent of Insured
Deposit
PD)C is discharged from o(ligations
Pa+ment of an insured deposit
to an+ person (+ the
Corporation shall discharge the
Corporation
Pa+ment of a transferred
deposit (+ the new (ank or (+
an insured (ank in which a
transferred deposit has (een
made availa(le shall discharge
the Corporation and such new
(ank or other insured (ank
PD)C is su(rogated to depositorIs
rights
The Corporation, upon pa+ment
of an+ depositor shall (e
su(rogated to all rights of the
depositor against the closed
(ank$ But the depositor shall
retain his claim for an+
uninsured portion of his deposit$
&ll pa+ments (+ the Corporation
of insured deposits in closed
(anks partake of the nature of
pu(lic funds, and must (e
considered a preferred credit
similar to ta.es due to the
Hational /overnment$
7.=. %ailure to settle clai4 of
insured depositor
3ailure to settle the claim, within 0 months
from the date of filing of claim for insured
deposit, where such failure was due to grave
a(use of discretion, gross negligence, (ad
faith, or malice, shall su(Aect the directors,
officers or emplo+ees responsi(le to
imprisonment from 0 months to ! +ear$
The period shall not appl+ if the validit+ of
the claim re:uires the resolution of issues of
facts and or law (+ another office, (od+ or
agenc+$
7.>. %ailure of Depositor to Clai4
Insured Deposit
Bnless otherwise waived (+ the Corporation,
if the depositor in the closed (ank shall fail
to claim his insured deposits with the
Corporation
within 2 +ears from actual takeover
of the closed (ank (+ the receiver,
or
within 2 +ears after the two=+ear
period to file a claim,
all rights of the depositor against the
Corporation shall (e (arred$
>owever, all rights of the depositor against
the closed (ank and its shareholders or the
receivership estate to which the Corporation
ma+ have (ecome su(rogated, shall revert to
the depositor$
1. Restriction on Pa94ent of
Di$idends 59 Insured 3an#
1.1. "eneral Rule&
Ho insured (ank shall pa+ an+ dividend on its
capital stock or interest on its capital notes or
de(entures Cif such interest is re:uired to (e
paid onl+ out of net profitsD or distri(ute an+
of its capital assets while it remains in default
in the pa+ment of an+ assessment due to the
Corporation
1.(. ):ception&
)f such default is due to a dispute (etween
the insured (ank and the Corporation over
the amount of such assessment and Bank
deposits securit+ satisfactor+ to the
Corporation for pa+ment upon final
determination
;. Prohi5ition a!ainst
Splittin! of Deposits
The penalt+ of prision mayor or a fine of not
less than P,1,111 (ut not more than
P2,111,111 or (oth shall (e imposed upon an+
director, officer, emplo+ee or agent of a (ank
for 6
...
,D splitting of deposits or creation of fictitious
loans or deposit accounts$
...
<. Prohi5ition a!ainst
Issuance of TROs
Ho court, e.cept the C&, shall issue an+
T-<, preliminar+ inAunction or preliminar+
mandator+ inAunction against the
Corporation$
This prohi(ition shall appl+ in all cases,
disputes or controversies instituted (+ a
private part+, the insured (ank, or an+
shareholder$#
The Supreme Court ma+ issue a restraining
order or inAunction when
o the matter is of e.treme urgenc+
involving a constitutional issue
o grave inAustice and irrepara(le inAur+
will arise
o The part+ appl+ing shall file a (ond in
an amount to (e fi.ed (+ the Supreme
Court
)ffects of issuin! TRO&
&n+ restraining order or inAunction issued
in violation of this Section is void and of no
force and effect
&n+ Audge who has issued the same shall
suffer the penalt+ of suspension of at least
01 da+s without pa+