LECTURE NOTES ON INSURANCE

2004
WHAT LAWS GOVERN INSURANCE
The laws governing insurance in the order of priority are (1) The Insurance Code [PD
1460-whose effectivity date is June 11, 1978] (2) In the absence of applicable
provisions, the Civil Code (2) In the absence of applicable provisions in the Insurance
Code and Civil Code, the general principles on the subject in the United States
(Constantino vs. Asia Life Insurance, 87 Phil 248)
Example: H applied for insurance with S Company with offices in Montreal, Canada.
The application was mailed to S and on November 26, the insurer gave notice of
acceptance by cable. H never received the cable and he died on December 20. The
Insurance Code is silent as to acceptance by cable. The Civil Code shall apply and
under Article 1319, an acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge. There was no valid contract
as H died without knowing the acceptance of his application. (Enriquez vs. Sun Life
Assurance of Canada, 41 Phil 269)
WHAT IS A CONTRACT OF INSURANCE
A Contract of Insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.
A Contract of Suretyship shall also be deemed an insurance contract if made
by a surety who or which is doing an insurance business.
Doing an insurance business or transacting an insurance business is:
a) making or proposing to make as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
c) doing any business including a reinsurance business, specifically
recognized as doing an insurance business within the meaning of the
Code;
d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of the Code.
(Section 2)
NOTE the fact that no profit is derived from making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received

shall not be deemed CONCLUSIVE to show that the making thereof does not
constitute the doing or transacting of an insurance business.
NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE
1.
IT IS AN ALEATORY CONTRACT - the liability of the Insurer depends upon
the happening of a contingent event. It is not a wagering contract.
2.
IT IS A CONTRACT OF INDEMNITY FOR NON-LIFE recovery is
commensurate to the loss. IT IS AN INVESTMENT IN LIFE INSURANCE secured
by the insured as a measure of economic security for him during his lifetime and for
his beneficiary upon his death EXCEPT one secured by the creditor on the life of the
debtor.
3.
IT IS A PERSONAL CONTRACT - an insurer contracts with reference to the
character of the insured and vice versa.
4.
IT IS EXECUTORY AND CONDITIONAL ON THE PART OF THE INSURER because upon happening of the event or peril insured against, the conditions having
been met, it has the obligation to execute the contract by paying the insured. IT IS
EXECUTED ON THE PART OF THE INSURED after the payment of the premium
5.
IT IS ONE OF PERFECT GOOD FAITH for both Insurer and Insured, but
more so for the INSURER, since its dominant bargaining position imposes a stricter
liability/responsibility.
6.
IT IS A CONTRACT OF ADHESION Insurance companies manage to
impose upon the insured prepared contracts which the insured cannot change.
Consequently, they are construed as follows:
a.
In case there is no doubt as to the terms of the insurance contract, it is
to be construed in its PLAIN, ORDINARY, AND POPULAR SENSE.
b.
If DOUBTFUL, AMBIGUOUS, UNCERTAIN it is to be construed strictly
against the insurer and liberally in favor of the insured because the latter has no
voice in the selection of the words used, and the language used is selected by the
lawyers of the Insurer. (QUA CHEE GAN v. LAW UNION ROCK INS. CO. LTD 98
Phil. 85)
ILLUSTRATIONS:
a.
P Bank obtained insurance against robbery which excluded loss by any
criminal act of the insured or any authorized representative. While transferring funds
from one branch to another, the insureds armored truck was robbed. The driver was
assigned by a labor contractor with the insured, while the security guard was

assigned by an agency contracted by the insured. Both driver and guard were found
to be involved. Can the loss be excluded? HELD: THE LOSS IS EXCLUDED, the
DRIVER/GUARD ALTHOUGH ASSIGNED BY LABOR CONTRACTORS ARE
AUTHORIZED REPRESENTATIVES. THE TERMS ARE CLEAR AND
UNAMBIGUOUS (Fortune Insurance v. CA, 244 SCRA 308).
b.
Personal Accident policies providing payment for loss of hand. The
Insurance policy defines it as amputation. Insured has an accident resulting in a
temporary total disability but hand is not amputated. HELD: Insurer is not liable (TY
v. First National Surety and Assurance Company 17 SCRA 364) BUT in a case
where the policy provided for loss of both legs by amputation, a claim against the
policy was allowed for a total paralysis to exclude total paralysis is contrary to public
policy, public good and sound morality, as it would force the insured to have his legs
amputated to be able to claim on the policy (Panaton v. Malayan 2 Court of
Appeals 783).
c.
Warranty in a fire insurance policy prohibited storage of oils having a
flash point of below 300 Fahrenheit. Gasoline is stored. Is there a policy violation?
HELD: The clause is ambiguous. In ordinary parlance oil means lubricants not
gasoline. There is no reason why gasoline could not be expressed clearly in the
language the public can readily understand. (QUA CHEE GAN 98 Phil. 85)
d.
An action to recover the amount of PHP 2,000.00 due to death by
drowning where the policy provided for indemnity in the amount of PHP 1,000.00 to
PHP 3,000.00. HELD: the interpretation of the obscure stipulation in contract must
not favor the one who caused the obscurity. Hence, judgment for an additional PHP
2,000.00 was affirmed (Del Rosario vs. Equitable Insurance and Casualty Company,
8 SCRA 343).
e.
Denial of a claim on the ground that the insured vehicle was a private
owner type vehicle on the ground that the policy issued to the insured was a
Common Carriers Liability Insurance Policy which covers a public vehicle for hire.
HELD: Insurer is liable as it was aware all along that the vehicle of the insured was
a private vehicle. (Fieldmans Insurance v. Mercedes Vargas vda De Songco, 25
SCRA 70)
f.
Denial of claim for benefit due to the death of Flaviano Landicho in a
plane crash under a GSIS Policy on the ground of non payment of the premium.
HELD: The policy contained a provision that the application for insurance is authority
for GSIS to cause the deduction of premium from the insureds salary (Landicho v.
GSIS, 44 SCRA 7)
OTHER CASE REFERENCES: New Life Enterprises v. CA, 207 SCRA 669

WHAT ARE THE ELEMENTS OF AN INSURANCE CONTRACT

1.
The insured should possess an interest of some kind, susceptible of pecuniary
estimation known as insurable interest. GENERALLY a person has insurable
interest in the subject matter insured when:
HE HAS SUCH A RELATION OR CONNECTION WITH, OR CONCERN IN,
SUCH SUBJECT MATTER THAT HE WILL DERIVE PECUNIARY BENEFIT OR
ADVANTAGE FROM ITS PRESERVATION OR WILL SUFFER PECUNIARY LOSS
OR DAMAGE FROM ITS DESTRUCTION, TERMINATION OR INJURY BY THE
HAPPENING OF THE EVENT INSURED AGAINST.
It is necessary because its absence renders the contract VOID. This is based on the
principle that insurance is a contract of indemnity. If the insured has no interest, he
will not stand to suffer loss or injury by the happening of the event insured against.
IN WHAT DOES A PERSON HAVE INSURABLE INTEREST IN
a.
Every person has an insurable interest in the LIFE and HEALTH of (1)
himself, his spouse and of his children (2) any person on whom he depends wholly
or in fact for education or support, or in whom he has a pecuniary interest (Note
Article 195 of the Family Code specifying the persons obligated to support each
other. Example-pecuniary interest-partners, employees) (3) any person under a legal
obligation to him for the payment of money, respecting property or services, of which
death or illness might delay or prevent performance (Examples: Mortgagors.
Debtors) (4) any person upon whose life, any estate or interest vested in him
depends (Example: Usufructuary X allows Y to receive fruits of the land of the former
as long as he is alive. Y has insurable interest in the life of X, because the death of X
will terminate his right and cause him damage). (Section 10)
WHAT IS THE BASIS OF INSURABLE INTEREST IN LIFE
It exists when there is reasonable ground founded on the relation of the parties,
either pecuniary or contractual or by blood, or by affinity to expect some benefit from
the continuance of life of the insured.
WHEN MUST INSURABLE INTEREST IN LIFE EXIST
Insurable interest in life must exist at the time of the effectivity of the policy and need
not exist at the time of the death of the insured as life insurance is not a contract of
indemnity.IT IS MEANT TO GIVE FINANCIAL SECURITY EITHER TO THE
INSURED OR HIS BENEFICIARIES (Section 19).However, insurable interest of a
creditor on the life of a debtor must exist not only at the time of effectivity but also at
the time of the death of the debtor as in this instance it is a contract of indemnity.HIS
INTEREST IS CAPABLE OF EXACT PECUNIARY MEASUREMENT

WHAT IS THE EXTENT OF INSURABLE INTEREST IN ONES LIFE

He has unlimited interest in his own life or that of another person regardless of
whether or not the latter has insurable interest. Provided, that if the beneficiary has
no insurable interest, there is no force or bad faith. BUT, if he takes out a policy on
the life of another and names himself as the beneficiary, he must have an insurable
interest in the life of the insured.
IS THE CONSENT OF THE INSURED REQUIRED WHEN INSURANCE IS TAKEN
The law does not require the consent of the person insured and such has been
considered as not essential to the validity of the contract as long as there is
insurable interest at the beginning.
b.
A person also has insurable interest in property as EVERY INTEREST IN
PROPERTY, WHETHER REAL OR PERSONAL, OR ANY RELATION THERETO,
OR LIABILITY IN RESPECT THEREOF, OF SUCH NATURE THAT A
CONTEMPLATED PERIL MIGHT DIRECTLY DAMNIFY THE INSURED IS AN
INSURABLE INTEREST (Section 13). It may consist of (1) An existing interest
( Example: By means of a conditional deed of sale, A sold his house to B for PHP
2,000,000.00. B pays a down payment of PHP 500,000.00. Prior to full payment and
execution of an absolute sale, A has insurable interest in the house equivalent to the
balance due him, while B has insurable interest to the extent of the down payment
because loss of the house will mean that he suffers a loss of PHP 500,000.00 (2) An
inchoate interest founded on an existing interest (Defined: interest in real estate
which is not a present interest but which may ripen into a vested interest if not
barred, extinguished, or divested. Example: Interest in Corporate property arising
from stockholdings but limited to its value (3) An expectancy, coupled with an
existing interest in that out of which the expectancy arises.(Example: A ship owner
has insurable interest in expected freight charges. Future crops that a farmer will
grow on land belonging to him at the time of the issuance of the policy) Note that the
expectancy must be founded on an actual right to the thing or a valid contract for it.
Note also that a carrier or depository of any kind has insurable interest in the thing
held by him as such to the extent of his liability but not to exceed the value thereof
(Sections 13, 14, 15).
But, a mere contingent or expectant interest in anything, not founded on contract or
actual right to the thing is not INSURABLE as there is no insurable interest (Section
16).
Examples: (1) a son has no insurable interest on a building owned by father despite
being designated as an heir in the will as the will does not produce any effect before
the testators death (2) the owner of land on expected crops has insurable interest as
he owns the land

WHAT IS THE TEST OR MEASURE OF INSURABLE INTEREST IN PROPERTY

Whether one will derive pecuniary benefit or advantage from its preservation or will
suffer pecuniary loss or damage from its destruction. (Section 17)
MUST THE BENEFICIARY IN PROPERTY INSURANCE HAVE INSURABLE
INTEREST ON THE PROPERTY INSURED
YES, as no contract or policy of insurance on property shall be enforceable EXCEPT
for the benefit of some person having insurable interest in the property insured.
EXAMPLE: The owner insures his building against fire naming his nephew as
beneficiary. In case of loss only the owner can recover what is not enforceable is
the designation of beneficiary not the entire policy itself.
WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST
Must exist at the time the insurance takes effect and when the loss occurs but need
not exist in the meantime (Section 19)
EXAMPLES:
1.
If A insures his house on May 2002 for 1 yr and without assigning the policy,
he sold it to B if a fire occurs after it is sold to B A cannot recover. B cannot
recover also as he has no insurable interest at the time the insurance was procured.
2.
An unsecured creditor secures insurance over the house of his debtor, A. The
house is burned. The creditor cannot recover as he has no insurable interest at the
time the insurance was obtained.
What if A sold the house to the creditor before the loss? Still no recovery as
there was no insurable interest at the time it took effect.
3.
If A re-acquires the property from B before the fire A can recover on the
policy.
COMPARE WITH INSURABLE INTEREST IN LIFE
LIFE

PROPERTY

1. not necessary can be based

on consanguinity or affinity

based on pecuniary interest

2. only at effectivity except that

taken by a creditor in the life

exist at the time of effectivity and loss

of the debtor
3. no limit exist if based on debtor
creditor

limited to actual volume insured

IN RELATION TO THE NEED FOR THE EXISTENCE OF INSURABLE INTEREST,

PLS. NOTE:
That a change of interest in any port of a thing insured in accompanied by a
corresponding change of interest in the insurance suspends the insurance to an
equivalent extent until interest in the thing and interest in the insurance is vested in
the same person.
EG.
A buyer of a property insured by the previous owner who has not obtained a transfer
of the insurance policy in his name cannot recover.
RELATED QUERY How about the seller NO no insurable interest at the time of
loss (Sec 19)
WHAT CHANGE IS CONTEMPLATED
An absolute transfer of the property NOT LIFE A LEASE / MORTGAGE
EXCEPTIONS
1. Life, Health or accident insurance because they are not contracts of indemnity and
insurable interest is not required at the time of loss.
2. A change of interest after occurrence of an injury and results in loss does not
affect the right of the insured to indemnity (Sec 21)
-

after loss the liability of the insurer is fixed

3. a change of interest in one or more several distinct things, separately insured by

one policy, does not avoid the insurance as to the others. (Sec 22)
4. a change of interest by will or succession on the death of the insured does not
avoid the insurance his interest passes on the thing insured (Sec 23)
5. a transfer of interest by one or several partners, joint owners, or owners in
common, who are jointly insured to the others, does not avoid insurance even
though it has been agreed that insurance shall lease upon an allocation of the thing
insured.

NOTE
-

there must be not stipulation against it otherwise it is avoided.

transfer to strangers avoid the policy

6. when notwithstanding a prohibition, the consent of the insurer is obtained

7. when the policy is so fraud that it will insure to the benefit of whomsoever may
become the owner during the continuance of the risk.
LASTLY
The following are void stipulations in property insurance
A. a stipulation for the payment of the loss whether the person insured has or has
not interest in the property insured because it is a contract of indemnity.
B. Stipulation that the policy shall be received as proof of such interest existence of
insurable interest does not depend on the policy
C. every policy issued by way of gaining or wagering shall be void.
Those insured without insurable interest as they do not suffer a damage from the
occurrence of the event insured against they vested profit.
CONTINUATION OF ELEMENTS
2. The insured is subject to risk of loss through the destruction or impairment of that
interest by the happening of the designated risks.
3. The Insurer assumes the risk of loss
4. Such assertion is part of a general scheme to distributed actual loss among a
large group of persons bearing somewhat similar risks
5. As a consideration for the insurers promise, the insured makes a ratable
contribution called a premium to the general insurance fund.
WHAT MAY BE INSURED AGAINST
ANY UNKNOWN OR CONTINGENT EVENT, WHETHER PAST OR FUTURE,
WHICH MAY DAMNIFY A PERSON HAVING INSURABLE INTEREST OR CREATE
A LIABILITY AGAINST HIM, MAY BE INSURED AGAINST (Section 3)

Example: Insurance against damage, liability,unknown past event ( in marine

insurance insurance over the vessel against perils of the sea, lost or not lost), or
future event like loss or theft of the object
In relation to the insurance so secured, NOTE (1) The consent of the husband is not
necessary for the validity of an insurance policy taken by a MARRIED woman on her
life and that of her children. Under Article 145 of the Family Code, she can also
insure her separate property without the consent of the husband. (2) A minor may
take out a contract for life, health and accident insurance with any company
authorized to do business in the Philippines, provided it be taken out on his own life
and the beneficiary named is his estate, father, mother, husband, wife, child, brother
or sister. In so doing, the married woman / minor may exercise all the rights or
privileges under the policy.
NOTE: RA 6809 lowering the age of minority from 21-18.
BUT WHAT IS THE EFFECT OF THE DEATH OF THE ORIGINAL OWNER OF A
POLICY WHICH COVERS THE LIFE OF A MINOR, AHEAD OF THE MINOR- all
rights, title and interest in the policy shall automatically vest in the minor unless
otherwise provided in the policy.
WHAT CANNOT BE INSURED
An insurance for or against the drawing of any lottery or for or against any chance or
ticket in a lottery drawing a prize. BECAUSE GAMBLING RESULTS IN PROFIT AND
INSURANCE ONLY SEEKS TO INDEMNIFY THE INSURED AGAINST LOSS
(Section 4).
WHO ARE THE PARTIES TO A CONTRACT OF INSURANCE
1.
INSURER - Every person, partnership, association or corporation duly
authorized to transact insurance business as provided in the Code may be an
insurer. It is the party who agrees to indemnify another upon the happening of
specified contingency (Section 6).
2.
INSURED Party to be indemnified in case of a loss (Section 7). Anyone
except a public enemy (is a nation at war with the Philippines and every citizen or
subject of such nation. WHY the purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is inconsistent to destroy its resources
then pay it the value of what has been destroyed) may be insured.
WHO MAY INSURE A MORTGAGED PROPERTY

Both the Mortgagor and Mortgagee may take out separate policies with the same or
different companies. The mortgagor to the extent of the value of his property, the
mortgagee to the extent of his credit (Section 8).
WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE
PROPERTY MORTGAGED IN HIS OWN NAME BUT MAKES THE LOSS PAYABLE
TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM.
UNLESS THE POLICY PROVIDES OTHERWISE
a.
The insurance is still deemed to be upon the interest of the mortgagor who
does not cease to be a party to the original contract. HENCE, if the policy is
cancelled, notice must be given to the mortgagor.
b.
Any act of the mortgagor, prior to loss, which would otherwise avoid the policy
or insurance, will have the same effect, although the property is in the hands of the
mortgagee. HENCE, if there is a violation of the policy by the mortgagor , the
mortgagee cannot recover.
c.
Any act required to be done by the mortgagor may be performed by the
mortgagee with the same effect as if it has been performed by the mortgagor.
Example: if notice of loss is required, the mortgagee may give it.
d.
Upon the occurrence of the loss, the mortgagee is entitled to recover to the
extent of his credit, and the balance, if any, is to be paid to the mortgagor, since such
is for both their benefits.
e.

Upon recovery by the mortgagee, his credit is extinguished.

IF ON THE OTHER HAND, (Section 9), the Insurer assents to the transfer of the
insurance from the mortgagor to the mortgagee, and at the time of his assent,
imposes further qualifications on the assignee, making a new contract with him, the
acts of the MORTGAGOR cannot affect the rights of the assignee NOTE UNION
MORTGAGE CLAUSE Creates the relation of insured and insurer between the
mortgagee and the insurer independent of the contract of the mortgagor. In such
case, any act of the mortgagor can no longer affect the rights of the mortgagee the
insurance contract is now independent of that with the mortgagor.
WHAT IS THE EFFECT OF INSURANCE PROCURED BY THE MORTGAGEE
WITHOUT REFERENCE TO THE RIGHT OF THE MORTGAGOR.
a.
The mortgagee may collect from the insurer upon occurrence of the loss to the
extent of his credit.

b.
Unless, otherwise stated, the mortgagor cannot collect the balance of the
proceeds, after the mortgagee is paid.
c.
The insurer, after payment to the mortgagee, becomes subrogated to the
rights of the mortgagee against the mortgagor and may collect the debt to the extent
paid to the mortgagee.
d.
The mortgagee after payment cannot collect anymore from the mortgagor
BUT if he is unable to collect in full from the insurer, he can recover from the
mortgagor.
e.
The mortgagor is not released from the debt because the insurer is
subrogated in place of the mortgagee.
3.
BENEFICIARY the person who receives the benefits of an insurance policy
upon its maturity.
WHO MAY BE A BENEFICIARIES IN LIFE INSURANCE
Anyone, except those who are prohibited by law to receive donations from the
insured. Note Article 739 of the Civil Code, hence the following cannot be designated
as beneficiaries (1)Those made between persons guilty of adultery or concubinage at
the time of the designation (2)Those found guilty of the same criminal offense in
consideration thereof (3) Those made to a public officer or his wife, descendants /
ascendants by reason of his office.
A PRIOR CONVICTION FOR ADULTERY / CONCUBINAGE IS NOT REQUIRED, it
can be proven by a preponderance of evidence in the same action nullifying the
designation. Note the cases of Insular Life vs. Ebrado, 80 SCRA 181, where a
common law wife of the insured who is married could not be named as a beneficiary
and SSS vs. Davac, 17 SCRA 863, where the insured designated his second wife as
a beneficiary was upheld as the latter was not aware of the first marriage.
The disqualification does not extend to the children of the adultery or concubinage in
view of the express recognition of the successional rights of illegitimate children
(Article 287,NCC and Article 176, Family Code).
MUST THE BENEFICIARY HAVE INSURABLE INTEREST ON THE LIFE OF THE
INSURED
It is recognized that the insured may name anyone he chooses, except those
disqualified to receive donations, as a beneficiary in his life insurance, even if he is a
stranger and has no insurable interest in the life of the insured. The designation,
however, must be in GOOD FAITH AND WITHOUT FRAUD OR INTENT TO ENTER

INTO A WAGERING CONTRACT. (Example: Jose obtains several life insurance

policies that he cannot afford. Named as beneficiary is Juan, the spouse or children
of Jose are not named as beneficiaries. The premiums are paid by Juan, who did not
have insurable interest in the life of Jose. In this case the policies are void because
they were entered into as wagering contracts)
CAN THE BENEFICIARY BE CHANGED
The insured shall have the right to change the beneficiary he designated unless he
has expressly waived the right in the policy (Section 11)
If he has waived the right, the effect is to make the designation as irrevocable. Note
though that the designation of the guilty spouse as irrevocable beneficiary is
revocable at the instance of the innocent spouse in cases of termination of (1) a
subsequent marriage (2) nullification of marriage (3) annulment of marriage, and (4)
legal separation (Article 43 (4) Family Code)
WHAT IS THE EXTENT OF THE INTEREST OF THE
BENEFICIARY IN A LIFE INSURANCE CONTRACT

IRREVOCABLE

The beneficiary has a vested right that cannot be taken away without his consent. In
fact should the insured discontinue payment of the premium, the beneficiary may
continue paying. Neither can the insured get a loan or obtain the cash surrender
value of the policy without his consent (Nario vs. Philamlife, 20 SCRA 434). Note
where the wife and minor children were named irrevocable beneficiaries, wife dies,
the husband seeks to change the beneficiaries with the consent of the children. The
consent is not valid due to minority (Philamlife vs. Pineda, 170 SCRA 416).
WHAT IS THE INTEREST OF AN IRREVOCABLE BENEFICIARY IN AN
ENDOWMENT POLICY
His interest is contingent as benefits are to be paid him only if the assured dies
before the specified period. If the insured outlives the period, the benefits are paid to
the insured.
WHAT IS THE EFFECT OF THE FAILURE TO DESIGNATE OR BENEFICIARY IS
DISQUALIFIED
The benefits of the policy shall accrue to the estate of the insured.
WHO RECOVERS IF BENEFICIARY PREDECEASES THE INSURED
IF DESIGNATION IS IRREVOCABLE, the legal representatives of the beneficiary
may recover unless it was stipulated that the benefits are payable only IF LIVING.

IF DESIGNATION IS REVOCABLE, and no change is made, the benefits passes to

the estate of the insured. The rule holds also if benefits were payable only if living
or if surviving and the beneficiary dies before the insured.
WHAT HAPPENS TO INTEREST OF THE BENEFICIARY IN LIFE INSURANCE
WHERE HE WILLFULLY KILLS THE INSURED
If the killing is WILLFUL, the interest is forfeited if he is the principal, an accomplice,
or an accessory. The NEAREST RELATIVE OF INSURED GETS THE PROCEEDS
IF NOT OTHERWISE DISQUALIFIED (Section 12). If not willful or felonious, the
provision does not apply.
OUTLINE OF GENERAL PROVISIONS
I.

INSURANCE AND WHAT IS DOING AN INSURANCE BUSINESS [2]

II.
CHARACTERISTICS AND ELEMENTS: Insurable Interest- (a) Why it is
necessary (b) What it consists of (b.1) In Life [10] (b.2) In Property [13,14,15, 16] (c)
When it must exist [17,18,19] (d) Effect of a change [20,21,22,23,24]
III.
CONTRACT OF INSURANCE: (a) What may be insured against [3] (b)
What cannot be insured against [4]. (c) Void stipulations [25]- Applicability [5]
IV.

PARTIES: (a) Insurer [6] (b) Insured [7, 8,9] (c) Beneficiary [11,12]

CONCEALMENT
WHAT IS CONCEALMENT
Concealment is a neglect to communicate that which a party knows and ought to
communicate (Section 26)
WHAT IS THE EFFECT OF CONCEALMENT
Whether intentional or not, it entitles the injured party to rescind the contract of
insurance (Section 27). Note though that the right to rescind is optional on the part
of the injured party. Rescission is an option because it misleads or deceives the
insurer into accepting the risk or accepting it at the rate of premium agreed upon.
Examples: (1) The insured does not disclose sickness but dies of another cause.
There is concealment because it is material to a determination of the assumption of
risk by the insurer. (2) The father of the insured obtained an insurance policy over his
daughter, but did not disclose that she was a mongoloid child, the child dies of
influenza, the concealment relieves the insurer of liability (Grepalife vs. CA 89 S 543)

BASIS OF PROVISIONS ON CONCEALMENT / REPRESENTATION

Fundamental characteristic of a contract of insurance that it is one of PERFECT
/UTMOST GOOD FAITH.
WHO MUST PROVE KNOWLEDGE OF THE FACT CONCEALED
The party claiming the existence of concealment must prove that there was
knowledge on the part of the party charged with concealment. Example: If the
Insured stated that there was no hereditary taint (illness that has affected members
of the family) on either side of the family to my knowledge IN ORDER TO PROVE /
SHOW CONCEALMENT the insurer must prove that the hereditary taint alleged to
exist was known to the insured.
AS OF WHAT TIME MUST THE PARTY CHARGED WITH CONCEALMENT HAVE
KNOWLEDGE OF THE FACT CONCEALED
Generally, a party must have knowledge of the fact concealed at the time of the
effectivity of the policy. Note that even if a party did not know of the existence at the
time of application but before its effectivity, there is concealment.
Information acquired after effectivity is not concealment and does not constitute
ground to rescind the policy, as after the policy is issued, information subsequently
acquired is no longer material as it will not affect or influence the party to enter into
contract. However, in case of the reinstatement of a lapsed policy, facts known after
effectivity but before reinstatement must be disclosed.
HOW IS THE MATERIALITY OF CONCEALMENT OR REPRESENTATION
DETERMINED
Materiality is determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract or in making his inquiries
(Section 31).
WHAT IS THE TEST OF MATERIALITY
The test of materiality is whether knowledge of the true facts could have influenced a
prudent insurer in determining whether to accept the risk or in fixing the premiums
MUST THERE BE A CAUSAL CONNECTION BETWEEN THE FACT CONCERNED
AND THE CAUSE OF LOSS

Concealment need not, in order to be material, be of facts which bring about or

contribute to, or are connected of the insureds loss. It is IMMATERIAL that there is
no causal relationship between the fact concealed and the loss sustained. IT IS
SUFFICIENT THAT THE NON-REVELATION HAS MISLED THE INSURER IN
FORMING ITS ESTIMATE OF DISADVANTAGE OR FIXING THE PREMIUM.
Examples: Insured concealed kidney disease and enlarged liver Later he died of
thrombosis, is the insurer liable? NO, since the fact concealed was material though
the insured did not die therefrom. Henson v. Philam 50 OG 73428. Insured had
concealed that he had kidney disease. He dies in plane crash. The INSURER not
liable (Sunlife vs. CA 245 SCRA 269)
WHAT FACTS THEN MUST BE COMMUNICATED
Each party to an insurance contract is bound to communicate to the other all facts
that meet the following requisites:
(1)
Such facts that must be within his knowledge as concealment requires
knowledge of the fact concealed by the party charged with concealment.
(2)
Fact/s must be material to the contract it must be of such nature that had the
insurer known of it, it would not have accepted the risk or demanded a higher
premium
(3)

That the other party had no means of ascertaining such fact/s

(4)
That the party with a duty to communicate makes no warranty (Section 28) as
the existence of a warranty makes the requirement to disclose superfluous BUT
an intentional and fraudulent omission on the part of the one insured to communicate
information on a matter PROVING OR TENDING TO PROVE THE FALSITY OF A
WARRANTY entitles the insurer to rescind (Section 29). Example: Warranty that the
ship is seaworthy THE INTENTIONAL AND FRAUDULENT OMISSION OF THE
INSURED TO state that the ships communications equipment is out of order will
entitle the insurer to rescind.
WHAT MATTERS NEED NOT BE COMMUNICATED
Except in answer to the inquiries of the other:
(1)
Those which the other knows as the insurer cannot say that it has been
deceived or misled. Example: Insured discloses that he has tuberculosis to the agent
of the insurer, who in turn omits to state the same in the application of the insured
was deemed knowledge of the insurer (Insular Life Assurance Co vs. Feliciano, 74
Phil 468). Insurer had surveyed the location and surrounding area of a building that
is to be insured against fire, an omission to state that there are neighboring buildings
will not avoid policy.

(b)
Those, which, in the exercise of ordinary care, the other ought to know, and of
which, the former has no reason to suppose him to be ignorant. The facts that the
other ought to know as per Section 32 are: (1) all the general causes which are open
to his inquiry, equally with that of the other, and which may affect the political or
material perils contemplated. Example: public events like the fact that a nation at
war, or laws or political conditions in other countries. Here, the source of information
is equally open to the insurer, who is therefore presumed to know them, and (b) all
the general uses of trade. Examples: Rules of navigation, kinds of seasons, all the
risks of navigation.
c)
Those of which the other waives communication. A waiver takes place either,
by the terms of the insurance or by the neglect to make inquiries as to such facts
where they are distinctly implied in other facts of which information is communicated
(Section 33). Example: where an application for insurance is made in writing and the
questions therein are unanswered or incompletely answered and the insurer
without further inquiries, issues the policy. It thereby waives all right to a disclosure
or to a more complete answer. If question asks whether the insured has submitted
himself to any infirmary, sanitarium or hospital for consultation or treatment. Insured
replies that he was confined at the Quezon Memorial Hospital for five days due to
influenza. There is no waiver and shall constitute concealment as the answer was
complete and could be relied upon by the insurer. If the insured answered yes, the
answer would have been incomplete and ambiguous. This would constitute a waiver
as the insured did not make any further inquiry. (Note Ng Gan Zee vs. Asian
Crusader Life Assurance, 122 SCRA 461)
ISSUE: Is the waiver of a medical examination tantamount to a waiver of material
information. NO, because waiver of medical examination is made when the insured
represents himself to be in good health. It is reasonable to assume that had the
insured revealed material information the insurer would not have waived the
examination. Example: A obtained a non-medical insurance. In the policy, it was
stated that A never had cancer but 2 months prior she was operated on for cancer
the beneficiaries claimed payment stating that there was no material
misrepresentation in view of the waiver of the medical examination. The
misrepresentation was to be taken into consideration before issuing the policy, it was
As representation that she had a clean bill of health that led the insurer not to
require a medical examination (Saturnino v. Phil-Am 7 SCRA 316)
d)
Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material. Example: The insurance only covers
loss due to hijacking or terrorism. A warranty has been made by the insured that loss
due to perils of the sea is excluded. Consequently, the fact that the vessels engines
have been fitted with used parts need not be disclosed as the seaworthiness of the
vessel is not material.
e)
Those which relate to a risk exempted from the policy, and which are not
otherwise material (Section 30). Example: Policy covers against loss by theft. There

is no need to disclose that the area where the object is located is earthquake prone
area if loss due to earthquakes is not covered by the policy.
OTHER MATTERS THAT DO NOT NEED TO BE COMMUNICATED
a.
Information of the nature or amount of the interest of one insured need not be
communicated unless in answer to inquiry, except as prescribed by Section 51 as the
extent of the interest of the insured in property insured must be specified if he is not
the absolute owner. Also a trustee, mortgagee or building contractor must
communicate his particular insurable interest in the property even if no inquiry is
made. (Section 34)
b.
Neither party to a contract is bound to communicate even upon inquiry any
information of his own opinion or judgment upon the matters question (Section
35).Only material facts are required not opinions, speculations or expectations,
EXCEPT in marine insurance where the belief or the expectation of a 3 rd person in
reference to a material fact is material and must be communicated. Example: The
insured is required to disclose an opinion of marine experts as to seaworthiness of a
vessel (See Section 108)
REPRESENTATIONS
WHAT IS A REPRESENTATION
Oral or written statement of a fact or a condition affecting the risk made by the
INSURED to the insurance company, tending to induce the insurer to take the risk
(Section 36)
WHEN MAY A REPRESENTATION BE MADE
Since it is an inducement to entering a contract IT MUST ORDINARILY BE MADE
AT THE SAME TIME AS OR BEFORE the issuance of the policy (Section 37).
Note that it can also be made after the issuance of the policy when the purpose
thereof is to induce the insurer to modify an existing insurance contract as the
provisions also apply to a MODIFICATION (same with CONCEALMENT)
HOW SHOULD A REPRESENTATION BE CONSTRUED
The language of a representation is to be interpreted by the same rules as the
language of contracts in general (Section 38). HENCE , it need not be literally true
and correct / accurate in every respect, RATHER, it is sufficient if it is substantially or
materially true. In case of a promissory representation, it is sufficient if it is
substantially complied with. Examples: (1) H bought a car for PHP 2,800.00 and
spent PHP 900.00 for repairs H gave it to W as a gift. W secures insurance and
says the price is around PHP 4,000.00, though the present actual value is about
PHP 3,000.00. Is W guilty of misrepresentation because she did not pay for the car?

NO, because the literal truth is not necessary. The insurer can value the car
independently.
WHAT ARE THE FORMS AND KINDS OF REPRESENTATION
Representations may be ORAL or WRITTEN and can either be:
AFFIRMATIVE- which is an affirmation of a fact existing when the contract begins.
Example: That the insured is of good health at the time of the contract.
PROMISSORY which is a statement by the insured concerning what is to happen
during the term of the insurance. Example: That the insured will install additional fire
extinguishers at a stipulated future date. A representation as to the future is to be
deemed a promise, unless it was merely a statement of belief or expectation.
IS A REPRESENTATION PART OF THE CONTRACT
No, it cannot qualify as an express provision in a contract ( it is a collateral
inducement to the contract) BUT it may qualify an implied warranty( Section 40).
Example: Under Section 113 it is implied that a ship is seaworthy. A representation
by the insured that its communication system is defective will QUALIFY the warranty.
Hence, insured can still recover in case of loss.
CAN A REPRESENTATION BE WITHDRAWN OR ALTERED
Yes, as long as the insurance has not yet been effected and the insured has not yet
been induced to issue the policy. If withdrawn or altered afterwards, the contract can
be rescinded as the insurer has already been led to issue the policy (Section 41).
TO WHAT DATE DOES A REPRESENTATION REFER
It must be presumed to refer to the date on which the contract goes into effect
(Section 42). NOTE: there is no false representation if it is TRUE at the time the
contract takes effect although false at the time it is made. Example: Insured states at
application that vessel is in TOKYO but is really in HONGKONG, there is no false
representation if at issuance vessel is already in TOKYO. CONVERSELY, there is a
false representation, if it is true at the time it is made but false at the time the contract
takes effect. Example: Insured states that he has never been affected with
pneumonia at application, but if in the meantime, he is afflicted with pneumonia
before the policy takes effect, and he does not disclose , there is a false
representation.
WHEN IS A REPRESENTATION SAID TO BE FALSE
When the facts fail to correspond with its assertions or stipulations (Section 44)

MUST THE INSURED COMMUNICATE INFORMATION OF WHICH HAS NO

PERSONAL KNOWLEDGE BUT MERELY RECEIVES THE SAME FROM OTHERS
When a person has no PERSONAL KNOWLEDGE OF A FACTS HE MAY OR MAY
NOT communicate such information to the insurer. If he does communicate, he is not
responsible for its truth (Section 43). Hence, there can be no misrepresentation
WHEN IS THE INSURED REQUIRED TO DISCLOSE INFORMATION FROM A 3 RD
PERSON
When the information material to the transaction was acquired by an agent of the
insured, as knowledge of the agent is also knowledge of the principal. Example: If a
ship captain is aware of a defect that affects the seaworthiness, that defect must be
communicated as the ship captain is under obligation to disclose it to the owner.
WHAT IS THE EFFECT OF MISREPRESENTATION ON A MATERIAL POINT
If it is false on a material point, whether affirmative or promissory the injured party
is entitled to rescind the contract from the time the representation becomes false.
HOWEVER, the right to rescind is considered waived by the acceptance of premium
payments despite knowledge of the ground to rescind (Section 45) Example: Insurer
was aware of the lack of extinguishers required by the policy. BUT there is no waiver
if the insurer had no knowledge of the ground at the time of the acceptance of the
premium. Example: Unauthorized driver. (Stokes vs. Malayan 127 SCRA 766)
HOW IS MATERIALITY DETERMINED
The same as concealment (Section 46) probable and reasonable influence of the
facts upon the party to whom the representation is made in forming his estimate of
the advantage/disadvantages of the contract or in making inquiries.
WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE EXERCISED (Sec 48)
The right to rescind must be exercised PREVIOUS to the commencement of an
action on the contract (Section 48). Note the case of TAN CHAY HING vs. WEST
COAST LIFE INSURANCE CO, 51 PHIL 80, where an insurer interposed the
defense in an action to claim the proceeds that the contract is null and void. Section
48 was held to apply only when THERE IS A CONTRACT TO RESCIND.
IT IS ALSO QUALIFIED BY 2 ND PAR OF SECTION 48 WHICH PROVIDES that after
a policy of life insurance payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of 2 years from the date of issue or its
last reinstatement, the insurer cannot prove that the policy is VOID AB INITIO or is
subject to rescission by reason of a fraudulent concealment or misrepresentation of
the insured or his agent ( KNOWN AS THE INCONTESTABILITY CLAUSE)

WHAT IS THE THEORY AND OBJECT BEHIND THE INCONTESTABILITY CLAUSE

On the part of the INSURER an insurer has/should have a reasonable opportunity
to investigate the statements which are made by the applicant and that after a
definite period, it should no longer be permitted to question its validity.
On the part of the INSURED its object is to give the greatest possible assurance
that the beneficiaries would receive payment of the proceeds without question as to
validity of the policy.
WHAT ARE THE REQUISITES
The requisites are (1)It is a life insurance policy (2)It is a payable on the death of the
insured (3) It has been in force during the lifetime of the insured for AT LEAST TWO
YEARS from date of issue / or last reinstatement. NOTE: TAN vs. CA 174 SCRA
403- DURING THE LIFETIME OF THE INSURED MEANS THAT THE POLICY IS NO
LONGER IN FORCE IF THE INSURED DIES. Facts: Philam issued policy on
November 6, 1973. On April 26, 1975 the insured died. The beneficiaries claimed but
the insurer denied the claim on September 11, 1975 and rescinded the policy on the
ground of misrepresentation and concealment. HELD Insurer has two years from
date of issue / reinstatement within which to contest the policy whether or not the
insured still lives within the period.
WHAT DEFENSES ARE NOT BARRED BY INCONTESTABILITY EVEN AFTER THE
LAPSE OF 2 YEARS
The defenses that are not barred are (1) non-payment of premiums (2) lack of
insurable interest (3) that the cause of death was excepted or not covered by the
terms of the policy (4) that the fraud was of a particular vicious type such as (a) policy
was taken in furtherance of a scheme to murder the insured (b) where the insured
substituted another for the medical examination (c) where the beneficiary feloniously
killed the insured (5) violation of a condition in the policy relating to military or naval
service in time of war (6) the necessary notice or proof of death was not given (7)
action is not brought within time specified in the policy, which in no case should be
less than 1 year as per Section 63.
WHAT ARE THE EFFECTS OF INCONTESTABILITY
The insurer can no longer escape liability tender the policy or be allowed to prove
that the policy is void ab initio or may be rescinded by reason of concealment or
misrepresentation by the agent of the insured or the insured.
DISTINGUISH CONCEALMENT FROM REPRESENTATION

Concealment is the neglect of one party to communicate to the other material facts.
The information he gives in compliance with his duty to reveal information is
representation. Representation therefore, is the communication required to comply
with the prohibition against concealment.
Concealment is the passive and misrepresentation is the active form of the same bad
faith.
CONCEALMENT AND REPRESENTATION COMPARED
1.
In concealment the insured withholds information of material facts, while in
representation the insured makes erroneous statements
2.
In concealment and misrepresentation both give the insurer the right to
rescind the contract of insurance
3.
The materiality of concealment and representation are determined by the
same rules
4.
Whether the concealment or representation is intentional or not, the injured
party can rescind
5.
Since insurance contracts are of utmost good faith the insurer is also
covered by the rules
POLICY
DEFINE POLICY
It is the written instrument in which a contract of insurance is set forth (Section 49).
HOW IS IT CONTRUED, WHAT IF THE INSURED DOES NOT UNDERSTAND THE
CONTENTS OF THE POLICY
Generally in favor of the insured and against the insurer. The burden of proving that
the terms of the policy have been explained is upon the party seeking to enforce it.
The claim of the beneficiary that since the insured was illiterate and spoke Chinese
only, she could not be held guilty of concealment because the application and policy
was in English (Tang vs. CA, 90 SCRA 236)

FORM OF THE POLICY

It shall be printed and may contain blank spaces and any word, phrase, clause or
mark, sign, symbol, signature, or number necessary to complete it shall be written in
the blank spaces (Section 50). IF there are RIDERS, CLAUSES, WARRANTIES OR
ENDORSEMENTS purporting to be part of the contract of insurance and which are
pasted or attached to the policy is NOT BINDING on the insured UNLESS the
descriptive title of the same is also mentioned and written on the blank spaces
provided in the policy. NOTE if pasted or attached to the original policy at the time it
was issued the signature of the insured is not necessary to make it binding. if after
the original policy is issued, it must be counter-signed by the insured UNLESS
applied for by the insured.
No rider, clauses, or warranties, or endorsements shall be attached, printed or
stamped on the policy unless the form of such application has been approved by the
Insurance Commissioner.
RIDERS are forms attached to the policy when the company finds it necessary to
alter or amend the applicants answer to any question in the application.
CLAUSES are forms containing additional stipulations.
WARRANTIES are written statement / stipulations inserted on the face of the
contract or incorporated by proper words of reference where the insured contracts
as to the existence of facts, circumstances or conditions the truth of which are
essential to the validity of the contract.
ENDORSEMENTS are agreements not contained but may be written or attached
to policy to change or modify a part thereof.
WHAT MUST A POLICY SPECIFY
A policy must specify (1) The parties between whom the contract is made (2) The
amount to be insured except in open or running policies (3) The premium, or if the
premium is to be determined at the termination of the contract, a statement of the
basis and rates upon which the final premium is to be determined (4)The property or
life insured (5) The interest of the insured in the property insured, if not the absolute
owner (6) The risks insured against (7) The period during which the insurance is to
continue (Section 51)
WHAT ARE COVER NOTES
It is a written memorandum of the most important terms of a preliminary contract of
insurance intended to give protection pending investigation by the insurer of the risk
or until the issuance of the formal policy (Section 52). It is ALSO KNOWN AS
BINDING SLIP OR RECEIPT OR BINDER
EFFECTIVITY OF A COVER NOTE

The effectivity of a cover note is 60 DAYS as within such period, a policy shall be
issued including in its terms the identical assurance found under the cover rate and
the premium therefore. It may however, be extended beyond 60 days and with the
written approval of the Insurance Commissioner if he determines that it does not
violate the Insurance Code.
NOTE: The following rules have been promulgated by the Insurance Commissioner(1) A cover note is valid for 60 days whether or not a premium is paid but it may be
cancelled by either party upon at least 7 day notice to the other party (2) if the cover
note is not cancelled, a regular policy must be issued within 60 days from the date of
issue of the cover note,including within its terms the identical insurance (3) It may be
extended with the written approval of the commissioner but may be dispensed with
by a certification of the Pres. VP or GM of the insurer that the risks involved and the
extension do not violate the code (4) Insurance companies may impose a deposit
premium equivalent to at least 25% of the estimated premium but in no case less
than PHP 500.00.
WHEN WILL A COVER NOTE GIVE ADEQUATE INSURANCE PROTECTION
It gives adequate insurance protection when it is a preliminary contract of PRESENT
INSURANCE and not a mere agreement to insure at a future time, AS on
acceptance of the application or issuance / delivery of the policy. (44 CJS 958).
Example: (1) Agent issued a provisional policy acknowledging receipt of premiums
and stating that the insurance shall be effective upon approval and issuance of the
policy by the head office. There is no protection as it is a mere acknowledgment of
the payment of premiums as the effectivity of the insurance is expressly provided
(LIM vs. SUNLIFE 41 PHIL 265) (2) In life insurance, a binding slip does not insure
by itself as it was stated that it was subject to the approval of the insurer and the
same was subsequently disapproved (GREPALIFE vs. CA, 89 SCRA 543).
IS PAYMENT OF A PREMIUM PAYMENT FOR THE COVER NOTE NECESSARY
TO BE PROTECTED AGAINST THE RISK INSURED AGAINST
Cover note held to be binding despite the absence of a premium payment for its
issuance. No separate premiums are intended or required to be paid on a cover note
because they DO NOT CONTAIN THE PARTICULARS OF THE PROPERTY
INSURED THAT WOULD SERVE AS THE BASIS FOR THE COMPUTATION OF
PREMIUMS such being the case no premium can be fixed. The COVER NOTES
should not be treated as a separate policy but should be integrated in the regular
policy subsequently issued so that premiums on the regular policy should include
that for the cover note( PACIFIC TIMBER vs. CA, 112 SCRA 199).

WHOSE INTEREST IS INSURED

1.
The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made, unless otherwise
specified in the policy (Section 53). Example: (1) In the case of Del Val v. Del Val, 29
PHIL 534, the designation of sister as sole beneficiary in a life insurance cannot be
defeated by the contention of the of plaintiff that proceeds belong to the estate of the
insured was disregarded as insurance is to be governed by special law, not by the
law covering donations or succession (2) In the case of Bonifacio Bros v. Mara, GR
No. 20853, May 29, 1967.- Action to recover cost of repairs and labor to a motor
vehicle where the policy states loss is payable to H.S. Reyes, the mortgagee of the
vehicle who had no knowledge of the fact that Mara had it repaired with Bonifacio
Bros., where the court ruled that H.S. Reyes is the one entitled to the proceeds
because a policy of insurance is a separate and independent contract between the
insured and the insurer, and that third persons have no right to the proceeds of the
insurance.
MAY A 3RD PERSON SUE THE INSURER unless otherwise specified in the policy,
a 3rd person may sue if (1) the insurance contract contains a stipulation in favor of a
3rd person, the latter though not a party may sue to enforce before the contract is
revoked by the parties. Example: In the case of COQUIA v. FIELDMENS
INSURANCE CO 26 SCRA 179, the insurance company undertook to indemnify
any authorized driver who was driving the motor vehicle insured. Coquia, while
driving the insured motor vehicle, met and accident and died. His heirs were allowed
to sue the insurer, the policy being considered in the nature of a contract pour autrui
and therefore the enforcement thereof may be demanded by a 3 rd party for whose
benefit it was made (2) the insurance contract provides for indemnity against liability
to 3rd persons. Example: In the case of GUINGON v. DEL MONTE 20 SCRA 1043,
the insured procured insurance that would indemnify him against any and all sums
which he may be legally liable to pay in respect to the death or bodily injury to any
person. A jeepney covered by the insurance had bumped Guingon and had caused
his death. The insurance was held to be one for indemnity for liability to third persons
(THIRD PARTY LIABILITY), and therefore, such third person is entitled to sue the
insurer. THE TEST TO DETERMINE WHETHER A 3 RD PERSON MAY DIRECTLY
SUE THE INSURER OF THE WRONGDOER is: if the contract provides for
indemnity against liability to 3rd persons, then the latter to whom the insured is liable
may directly sue the insurer, ON THE OTHER HAND, if the insurance is for
indemnity against actual loss or payment then the 3 rd person cannot sue the
insurer recourse is against the insured alone.
2.
If the contract is executed with an agent or trustee as the insured, the fact that
his principal or beneficiary is the real party in interest may be indicated by describing
the insured as the agent / trustee or by general words in the policy (Section 54). If
not indicated, it is as if the insurance is the taken out by the agent / trustee alone,
consequently the principal has no right against the insurer.

3.
If a partner or part owner effects insurance, it is necessary that the terms of
the policy should be such as are applicable to the joint or common interest so that it
may be applicable to the interest of his co-partners / owners (Section 55).
Consequently, the policy must state that the interest of all is insured, if not, it is only
the interest of the one getting the policy that is insured.
4.
When the description of the insured in the policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
intended to include him can claim the benefit of the policy (Section 56). Example: In
a Fire insurance policy where the insured is Dela Cruz & Associates, X to be able to
recover his share must prove that he is a partner.
5.
When a policy is so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured
(Section 57). The proceeds become payable to who may be the owner at the time
the loss or injury occurs. This is an exception to Section 20.
6.
The mere transfer of a thing insured does not transfer the policy but suspends
it until the same person becomes the owner of both the policy and the thing insured
(Section 58). Note the exceptions to this rule as found in Sections 20-24 and 57
WHAT ARE THE KINDS OF INSURANCE POLICIES
The kinds of policies are (1) Open (2) Valued, or (3) Running (Section 59).
An OPEN POLICY is one in which the value of the thing insured is not agreed upon,
but is left to be ascertained in case of loss (Section 60). What is mentioned as the
amount is not the value of the property but merely the maximum limit of the insurers
liability. In case of loss, the insurer only pays the actual cash value at the time of
loss. Example: FIRE INSURANCE, where the loss is to be determined but payment
is limited to the amount stated in the policy.
A VALUED POLICY is one which expresses on it face that the thing insured shall be
valued at a specified sum (Section 61). The valuation of the property insured is
conclusive between the parties. In the absence of fraud or mistake, such value will be
paid in case of a total loss.
A VALUED POLICY DISTINGUISHED FROM AN OPEN POLICY
(1) In a valued policy, proof of value of the thing after the loss is not necessary. In an
open policy, the insured must prove the value of the thing insured (2) In a valued
policy, the parties have conclusively stipulated that that property insured is valued at
a specified sum. In an open policy, the value is not agreed but left to be ascertained
upon loss (NOTE: this does not violate the principle that a contract of insurance is a
contract of indemnity as long as the valuation is reasonable and is bonafide).

A RUNNING POLICY is one which contemplates successive insurances and which

provides that the object of the policy may be from time to time defined especially as
to the subjects of insurance, by additional statements or indorsements (Section 62).
This is ALSO KNOWN AS a Floating policy usually issued to provide indemnity for
property which cannot be covered by specific insurance because of a frequent
change in location and quantity. Example: Insurance procured by a retail
establishment to cover its inventory that fluctuates in quantity, or is located in several
areas.
CAN THERE BE AGREEMENTS AS TO PRESCRIPTION OF AN ACTION OR
LIMITATIONS ON THE PERIOD OF TIME TO BRING AN ACTION
YES, provided the period agreed upon should NOT BE LESS THAN ONE YEAR
(Section 63). If less than one year, the agreement is VOID. The period so agreed
shall be considered as having commenced from the time the cause of action accrues.
Usually, the CAUSE OF ACTION accrues from the date of the insurers rejection of
the claim of the beneficiary or of the insured SINCE BEFORE REJECTION there is
no necessity to bring suit. WHEN NO PERIOD IS STIPULATED OR IF THE
STIPULATION IS VOID, the period is within 10 years under Article 1144, NCC, it
being a written contract (EAGLE STAR vs. CHIA YU 96 PHIL 696, ACCFA vs. ALPHA
INSURANCE,
24 SCRA 151).
IF THE INSURED ASKS
FOR A
RECONSIDERATION OF THE DENIAL, the period is still counted from the time the
claim is denied at the first instance NOT RECONSIDERATION as it gives the
insured a scheme or devise to waste time until evidence that may be considered
against him can be destroyed( Sun Life Office Ltd vs. CAR 195 SCRA 193). The
period does not run if action is brought against an agent of the insurer.
WHAT IS THE PRESCRIPTIVE PERIOD FOR MOTOR VEHICLE INSURANCE
One year from denial of the claim NOT DATE OF ACCIDENT (Summit Guaranty
vs. De Guzman 15 SCRA 389
WHERE IS THE ACTION FILED
An action may be filed in the following: (1) Courts (2) Insurance Commissioner, who
has concurrent jurisdiction with courts for claims not exceeding PHP 100,000.00 (3)
POEA / DOLE have the power to compel a surety to make good on a solidary
undertaking in the same proceeding where the liability of the principal obligor is
determined. Note that the claim becomes an ACTION upon filing with the Court.
CANCELLATION OF THE POLICY
No policy other than life shall be cancelled by the insurer EXCEPT UPON PRIOR
NOTICE THEREOF TO THE INSURED. NO NOTICE OF CANCELLATION SHALL
BE EFFECTIVE IF NOT BASED ON THE OCCURRENCE, AFTER EFFECTIVE

DATE OF ONE OR MORE GROUNDS (1) non-payment of premium (2) conviction of

a crime arising out of acts increasing the hazard insured against. Example: insured
has been convicted of arson or car theft (3) discovery of fraud or material
misrepresentation. Example: insured represents himself as the owner but is not
actually the owner (4) discovery of willful or reckless acts or omissions increasing the
hazard insured against. Example: storage of hazardous materials in the premises (5)
physical changes in the property insured which result in the property being
uninsurable. Example: private vehicle being converted into a racing vehicle (6)
determination by the insurance commissioner that a continuation of the policy would
place the insurer in violation of the code. Example: policy was issued absent
insurable interest (Section 64).
FORM OF NOTICE OF CANCELLATION
It must be in writing, mailed or delivered to the name insured at the address shown
in the policy which shall state (1) The grounds relied upon as per Section 64, and (2)
that upon written request of the named insured, the insurer will furnish the facts on
which cancellation is based (Section 65). NOTES: (1) a fire insurance policy is
cancelled on October 15, 1981. The insurers clerk allegedly sent notice of
cancellation by mail but there was no proof that it was actually mailed and received.
Insurer relies on the presumption of regularity. HELD: Considering the strict
language of the law that no policy can be cancelled without prior notice it
behooved on the insurer to make sure that cancellation was actually sent and
received by the insured (Malayan vs. Arnaldo, 156 SCRA 672). (2) A insured his
building against fire and made the loss payable to mortgagee. Upon cancellation
notice was sent to the mortgagee.HELD: There was no valid notice of cancellation.
The notice is personal to the insured and not to any unauthorized person (Saura
Import Export vs. Philippine International Surety Co, Inc., 8 SCRA 143)
DOES THE INSURED HAVE THE RIGHT TO RENEW HIS POLICY
Yes, in insurance other than life, the NAMED INSURED, may renew the policy upon
payment of the PREMIUM due on the effective date of the renewal, IF, he has not
been given notice BY THE INSURER OF THE INTENTION NOT TO RENEW OR TO
CONDITION RENEWAL UPON REDUCTION OF LIMITS OR ELIMINATION OF
COVERAGES by mail or delivery at least FORTY FIVE DAYS in advance of the END
of the POLICY (Section 66).
WARRANTIES
DEFINED
It is a statement or promise stated in the policy or incorporated therein by reference,
whereby the INSURED expressly or impliedly (Section 67) contracts as to the past,
present or future (Section 68) existence of certain facts conditions or circumstances
the LITERAL TRUTH of which is essential to the validity of the contract. Examples:
AS TO PAST That he never had a heart ailment, AS TO THE PRESENT That he

is in good health/ That house is being utilized as a residence. AS TO THE FUTURE

That insured will not store explosives
FORM
No particular form of words is necessary to create a warranty (Section 69). What is
essential is what the parties intend a statement to be, and if so intended as a
warranty it must be included as part of the contract. NOTE:(1) Whether a warranty is
constituted or not depends upon the intention of the parties, the nature of the
contract, or the words used thereto (2) In case of doubt, the statement is presumed
to be a representation not a warranty.
WHAT ARE THE KINDS OF WARRANTIES
1.
Affirmative those that relate to matters that exist AT or BEFORE the
issuance of the policy. Example: that vessel is equipped of a competent crew.
2.
Promissory those where the insured promises or undertakes that certain
matters shall exist or will be done or will be omitted after the policy takes effect. It is
a statement in the policy, which imports that it is intended to do or not to do a thing
which materially affects the risk, is a warranty that such act or omission shall take
place (Section 72). Example: That a house shall not be leased out. That the
insureds premises will be fenced.
NOTE that unless the contrary intention appears, the courts will presume that the
warranty is merely an affirmative warranty. Example: A description of the property as
being a two storey residence- there is no promissory warranty that it will be
maintained as a residence OR there is a statement that there is a security guard on
duty at night is not a promissory warranty that a security guard will be maintained.
3.
Express a statement in a policy of a matter relating to the person or thing
insured, or to the risk as a fact (Section 71) and where the assertion or promise is
clearly set forth in the policy or incorporated therein by reference. They can be
affirmative or promissory warranties.
AN EXPRESS WARRANTY MADE AT OR BEFORE THE EXECUTION OF THE
POLICY SHOULD BE CONTAINED (a) in the policy itself. (b) in another instrument
signed by the insured and referred to in the policy as making a part of it (Section 70).
This includes a RIDER - it is a part of the policy, it need not be signed unless the
rider was issued after the original policy took effect.
4.
Implied where the assertion or promise is not expressly set forth in the policy
but because of the general tenor of the terms of the policy or from the very nature of
the insurance contract, a warranty is necessarily inferred or understood. Note that

the law only provides for implied warranties in contracts of marine insurance. See
Sections 113 (seaworthiness) and 126 (deviation).
EFFECT OF VIOLATION OF A WARRANTY
The violation of a material warranty, or other material provision of the policy, on the
part of either party thereto, entitles the other to rescind (Section 74) Note that the
insured can exercise the right also when the insurer violates a warranty, like when it
refuses to grant a loan on the policy. BUT as far as the insured, NOTE ALSO that
(1) while a policy may declare that a violation of specified provisions thereof shall
avoid it, OTHERWISE the breach of an immaterial provision does not avoid the
policy (Section 75). MEANING- ORDINARILY A BREACH OF AN IMMATERIAL
PROVISION DOES NOT AVOID A POLICY, however, if stipulated that any breach
avoids the policy, the policy is avoided. (2) a breach of warranty without fraud,
merely exonerates an insurer from the time it occurs, or where it is broken at its
inception, prevents the policy from attaching to the risk (Section 76). MEANING- that
if the breach is without fraud- the policy is avoided only from the time of the breach,
prior to the breach it is still effective. Consequently, the insured is entitled to a prorate return of the premium paid under Section 79 (b) or all premiums, if the breach
occurs at the inception of the contract, as such is void ab initio and had never
become binding.
NOTE that a CAUSAL CONNECTION between the violation of the warranty is not
necessary So, even if the violation did not contribute to the loss the other party
may still rescind. Example: A insured building against fire. A warranty stated that no
hazardous goods would be stored.A stored fireworks. The building was burned and
the fireworks were discovered stored in the area not affected by the fire. The Insurer
was not held liable as the storage had increased the risk (Young v. Midland Textile
Ins. 30 PHIL 617)
THE NON-PERFORMANCE OF A PROMISSORY WARRANTY DOES NOT AVOID
THE POLICY WHEN BEFORE THE ARRIVAL OF THE TIME FOR PERFORMANCE
(1) the loss insured against happens. Example: There is a warranty that a firewall
will be constructed, but fire occurs before the period for compliance (2) the
performance becomes unlawful at the place of the contract. Example: A law or
ordinance prohibits the construction of the specified firewall (3) the performance
becomes impossible. Example: A severe lack of materials to construct. (Section 73)
DISTINGUISHING IT FROM REPRESENTATIONS.
1.
A warranty is part of the contract, while a representation is merely a collateral
inducement thereto.

2.
A warranty is expressly set forth in the policy or incorporated therein by
reference while a representation may be oral or written in another statement.
3.
A warranty must be strictly and literally performed while a representation must
be substantially true.
4.
so.

A warranty is presumed material while a representation must be shown to be

5.
A breach of warranty is a breach of the contract itself while a (mis)
representation is ground to rescind the contract.
PREMIUM
DEFINED
The agreed price for assuming and carrying the risk
WHEN IS THE INSURER ENTITLED TO A PREMIUM
The insurer is entitled to the payment of a premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium is paid EXCEPT in (1) In case of life or
industrial life (life insurance policy where the premium is payable monthly or oftener)
whenever the grace period applies (Section77), (2) When the insurer makes a
written acknowledgment of the receipt of premium, such is conclusive evidence of
the payment of the premium to make it binding notwithstanding any stipulation
therein that it shall not be binding until the premium is paid (Section 78) HENCE, the
effect of an acknowledgment in a policy or contract of insurance of the receipt of the
premium is that it is conclusive evidence of its payment so far as to make the
policy binding. HOWEVER, it is conclusive only to make the policy binding and not
for the purpose of collecting the premium, and (3) Where the obligee has accepted
the bond or suretyship contract in which case such bond or suretyship contract
becomes valid and enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety(Section 177).
NOTE that there is no excuse for non-payment of the premium since payment on
time is of the essence. THE ONLY RECOGNIZED EXCEPTION is when failure is
due to the wrongful conduct of the insurer. Example: the refusal to accept a validly
tendered payment of the premium.
WHAT IS THE EFFECT OF PARTIAL PAYMENT
ORDINARILY, the obligation to pay premium when due is considered an
INDIVISIBLE OBLIGATION.Hence, forfeiture is not prevented by a part payment
UNLESS,payment by installment has been agreed upon or is the established

practice BASIC PRINCIPLES OF EQUITY AND FAIRNESS would not allow the
insurer to collect and accept installments and later deny liability as premiums were
not paid in full. (See Philippine Phoenix Surety and Ins. v. Woodworks 20 SCRA
1270, Makati Tuscany Condominium Corporation v. CA, 215 SCRA 462 - payment
by installment was agreed upon, NOTE ALSO TIBAY v. CA 257 SCRA 126 any
partial payment when there is an agreement that the policy shall not be effective
pending payment of full premium was in the concept of deposit.)
PAYMENT TO INSURANCE AGENT OR BROKER is payment to the insurance
company.
WILL PAYMENT BY PROMISSORY NOTE OR CHECK BE SUFFICIENT TO MAKE
THE POLICY BINDING
No, Art 1249 2nd paragraph of the Civil Code, that such produces payment only
when it is encashed.
WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUMS PAID
The insured is entitled to a return when (1) To the whole premium, when no part of
the interest in the thing insured is exposed to any of the perils insured against
(Section 79 a). Example: insurance on a vessel for a voyage that did not take place
(2) where the insurance is made for a definite period of time and the insured
surrenders his policy before the expiration of the period. Here, the insured only
recovers a portion of the policy premiums corresponding with the unexpired time
BUT it does not apply if (a) the policy is not for a definite period (b) a short period
rate (insurance is for a period of less than a year and a rate has been agreed to if
the policy is surrendered. Example: If the policy is in force for a month, the insurer
retains 20% of the premium) has been agreed upon (c) the policy is a life insurance
policy it is indivisible but he has a cash surrender value (3) when the contract is
voidable on account of fraud or misrepresentation of the insurer or the agent
(Section 81). Example: where insurer makes a representation not contained in the
policy because policy is not that applied for (4) where the contract is voidable on
account of facts, the existence of which the insured was ignorant without his fault
(Section 81). Example: when the insurance is taken by the insured, who is ignorant
of the facts, that he did not have insurable interest or a person, not knowing that that
his car has been totally damaged, procured insurance over it.(5). when by any
default of the insured other than actual fraud, the insurer never incurred any liability
under the policy (Section 81) Example: a person insured his vessel for a trip, but
vessel is destroyed before the trip. (6) In case of over-insurance. Here the insurance
is in excess of the amount of the insurable interest of the insured and it is insured by
several insurers, the insured is entitled to a RATABLE RETURN OF PREMIUM,
proportional to the amount by which the aggregate sum insured in all the policies
exceeds the insurable value. Example:
As house is valued at 1.5million, he obtained the following policies Here A is
entitled to the return of 5,000 from X and 10000 from Y

Insurer
X
Y

Premium
10,000
20,000

Amount
1,000,000
2,000,000

TO WHOM ARE THE PREMIUMS RETURNED

Unless otherwise stated they shall be returned to the insured who paid them.
WHEN ARE THEY NOT RECOVERABLE
Premiums cannot be recovered: (1) if the peril insured against has existed, and the
insurer has been liable for any period, the period being entire and indivisible (Section
80). Example: The vessel is insured for a voyage that will take 5 days, 2 days into a
voyage, the policy is surrendered (2) In life insurance (Section 79-b), and (3) when
the insured is guilty of fraud or misrepresentation (Section 81)
LOSS AND NOTICE OF LOSS
WHAT ARE THE RULES TO DETERMINE WHETHER THE INSURER IS LAIBLE
FOR THE LOSS OF THE THING INSURED
They are:
(1)
Loss of which a peril insured against is the proximate cause ( PROXIMATE
CAUSE that which, in a natural and continuous sequence, unbroken by any
efficient intervening cause, produces an injury and without which the injury would not
have occurred), although a peril not contemplated by the contract may have been a
remote cause BUT the insurer is not liable for a loss of which the peril insured against
was only a remote cause (Section 84).
Example: In life insurance that covers death by accident, if the insured sustains an
accident that renders him weak, while in said state, he contracts a cold that develops
into pneumonia. The proximate cause is the accident, while the remote cause is the
pneumonia, the insurer is liable. An example of a loss, where the peril insured
against is only a remote cause is: firemen train their hoses at the house of the
insured, damaging windows and furnitures, though not necessary to put out the fire
as the same was affecting the house of the neighbor. The insured cannot claim loss
due to fire as it is only a remote cause.
RECOGNIZING THAT THERE ARE PROBLEMS IN DETERMINING PROXIMATE
CAUSE NOTE THE FOLLOWING RULES:

(a)
If there is a single cause which is an insured peril, clearly it is the proximate
cause and there is liability. Example: Insurance is against fire and the property
insured is burned OR Insurance covers accidental death and the insured dies in an
accident
(b)
If there are concurrent causes (those happening together) with no excluded
perils, there is liability if one of the causes is an insured peril, the others may be
ignored. Example: In accident insurance where the insured has a heart disease. He
is involved in an accident that causes injuries, which coupled with his weak heart
causes his death. The proximate cause is the accident. The insurer is liable.
(c)
If there are concurrent causes with an excepted peril (insured peril and
excepted peril operate together to produce the loss) the claim will be outside the
scope of the policy. Example: No liability in a claim for property stolen by rioters
under a burglary policy, if the policy exclude riot risks.
(d)
But, if the results of the operation of the insured peril can be clearly separated
from the effects of the excepted peril, the insurer is liable. Example: a personal
accident policy will cover death by accident although the insured was suffering from
a disease excluded by the policy
(3)
Where a number of causes operate one after the other, and the original cause
happens to be a peril insured against , there is liability. Example: Insured scratches
an open wound, which gets infected, which ultimately results in death BUT if the
direct chain of events can be traced to an excepted peril there is no liability.
Example: An earthquake (if excepted) causes a fire that spreads, all resulting fire
damage is deemed caused by an excepted peril. BUT, if the chain of events is
broken by the intervention of a new an independent cause, liability will depend upon
whether the new cause is an insured or excepted peril. Example: if the insured is
treated in the hospital for an accident but while there he contracts a disease, the
disease is the proximate cause, there will be no liability under the accident policy, if
death by disease is covered, then the insurer is liable.
(2)
Loss caused by efforts to rescue the thing insured from a peril insured against
that would otherwise have caused a loss, if in the course of such rescue, the thing is
exposed to peril not insured against, which permanently deprives the insured of its
possession, in whole or in part, or where a loss is caused by efforts to rescue the
thing insured from a peril insured against (Section 85). Here the principle of
proximate cause is extended to loss incurred while saving the thing insured.
Example: (a) When the thing insured is water damaged due to efforts to put out a fire,
the fire being a peril insured against (b) theft by 3 rd persons while the goods are
brought out in the course of rescuing them from a fire, which is the peril insured
against BUT no loss if the goods are left out and are lost it is now due to lack of
reasonable care and vigilance (c) A insured the contents of his house against fire. A

fire breaks out, while removing the contents, they were stolen or they were broken
or damaged, theft or breakage not being perils insured against.
3.
Where a peril is especially excepted in a contract of insurance, a loss, which
would not have occurred but for such peril, is thereby excepted although the
immediate cause of the loss was a peril which was not excepted (Section 86). The
immediate cause is the CAUSE OR CONDITION NEAREST THE TIME AND PLACE
OF THE INJURY. Here, the insurer will be liable if both the immediate cause and the
proximate cause are not excepted. If the proximate cause is excepted and the
immediate cause is not, the insurer is not liable.
Example: A factory is insured against fire, but it excepts loss through explosion. If an
explosion occurs and results into a fire that creates a loss, the insurer is not liable. If
a fire occurs first, then an explosion is caused, the insurer is liable.
4.
An insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the insured,
or of the insureds agent or others (Section 87). Consequently, if the insured was
merely negligent, the insurer is still liable as one of the principal reasons for
procuring insurance is to protect himself against the consequences of his own
negligence or that of his agents.
Example: The insured carelessly used kerosene in lighting a stove, causing his
house to catch fire, the insurer is liable for loss BUT if the negligence is so gross so
as to be sufficient basis for fraudulent intent it can amount to a willful act.
TRANSFER OF CLAIMS
An agreement not to transfer the claim of the insured after the loss happens IS
VOID if MADE BEFORE THE LOSS except as otherwise provided in case of life
insurance (Section 83). This means that the insured has an absolute right to transfer
his claim against the insurer AFTER THE LOSS occurs, what is prohibited is a
transfer prior to the loss. This is so because such a stipulation after the loss occurs
shall hinder the transmission of property. Neither does it affect the insurer as its
liability is already fixed and what is actually assigned is the money claim, not the
contract itself. The EXCEPTION is Section 173 that provides that the transfer of a fire
insurance policy to any person or company who acts as an agent for or otherwise
represents the issuing company is prohibited and is void insofar as it affects other
creditors of the insured.
NOTICE AND PROOF OF LOSS
WHEN MUST NOTICE OF LOSS BE GIVEN AND BY WHOM
Notice of Loss must be given without unnecessary delay by the insured or some
person entitled to the benefit of the insurance. IF NOT GIVEN, the insurer is
exoection 88). MEANING OF WITHOUT UNNECESSARY DELAY is within a

reasonable time, depending on circumstances of a peculiar case, although courts

have construed the requirement liberally in favor of the insured. NOTE THE
SPECIFIC APPLICATION TO FIRE INSURANCE due to the nature of the loss and
urgent need to determine the cause thereof. The longer the period that lapses from
the time of loss, the greater is the opportunity of the insured to tamper with the
evidence in preparation for a fraudulent claim.
PROOF OF LOSS
If the policy requires Preliminary Proof of Loss (evidence given the insurer of the
occurrence of the loss, its particulars, and data necessary to enable it to determine
liability and the amount thereof) IT IS NOT NECESSARY that the insured give such
proof AS MAY OR WOULD BE NECESSARY IN A COURT OF JUSTICE. WHAT IS
SUFFICIENT is the BEST EVIDENCE which he has in his power at that time (Section
89).
WHEN ARE DEFECTS IN THE NOTICE OR PROOF OF LOSS DEEMED WAIVED
BY THE INSURER
1.
When the insurer fails to specify to the insured any defect which the insured
can remedy without delay. Example: It is required to be sworn to but is accepted by
the insurer
2.
When the insurer denies liability on a ground other than the defect in the
notice or proof of loss. Example: Denial is based on nullity of the contract (Section
90)
WHEN IS DELAY IN THE GIVING OF NOTICE WAIVED
1.
If it is caused by any act of the insurer. Example: The insurer accepts
payment of the premium with full knowledge that the premises have been lost or
damaged will be estopped from claiming delay in the giving of notice of loss.
2.
If the insurer omits to make an objection promptly and specifically on that
ground. MEANING: despite delay, the insurer does not object (Section 91)
REQUIREMENT OF CERTIFICATION OR TESTIMONY OF A THIRD PERSON
If in the giving of preliminary proof of loss, a certification or testimony of a third
person other than the insured is required, it is sufficient for the insured to use
REASONABLE DILIGENCE to procure it. In case of REFUSAL to give it, the insured
can furnish REASONABLE EVIDENCE to the insurer that such refusal WAS NOT
INDUCED BY ANY JUST GROUNDS OF DISBELIEF in the facts necessary to be

certified or testified ONCE SHOWN or GIVEN the requirement may be dispensed

with (Section 92).
WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING
OF NOTICE OF LOSS
In property insurance, after the insured has received payment from the insurer of the
loss covered by the policy, the insurance company is SUBROGATED to the rights of
the insured against the wrongdoer or the person who has violated the contract. The
right of subrogation accrues upon payment of the insurance claim. NOTE: That
subrogation takes effect by operation of law and does not require the consent of the
wrongdoer (Firemans Fire Insurance vs. Jamilla & Company, 70 SCRA 323). THERE
IS NO SUBROGATION in (a) Life Insurance as it is not a contract of indemnity (b)
when proximate cause of the loss is the insured himself (c) when the insurer pays to
the insured a loss not covered by the policy. THE INSURED IS NO LONGER
ENTITLED TO COLLECT FROM THE WRONGDOER if the amount that he received
from the insurer has fully compensated for the loss.
DOUBLE INSURANCE
WHEN DOES DOUBLE INSURANCE EXIST
Where the same person is insured by several insurers separately in respect to same
subject or interest (Section 93). Its REQUISITES are: (1) same person is insured (2)
there are several insurers (3) subject insured is the same (4) interest insured is the
same (5) risk or peril insured against is the same. There is a prohibition TO
PREVENT OVER-INSURANCE, thus preventing fraud.
EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE
1.
Insured, unless the policy otherwise provides, may claim payment from the
insurers in such order as he may select up to the amount for which the insurers are
severally liable under their respective contracts. Example: A house is insured with X
Insurance for 10K, with Y Insurance for 20K, and with Z Insurance for 20K. It is
valued at 20K. In case of loss A can recover 10K-from X Insurance and 10K from
either Y Insurance or Z Insurance
2.
Where the policy under which the insured claims is a valued policy, the insured
must give credit as against the valuation for any sum received by him under any
policy without regard to the actual value of the subject matter insured. Example: A
owns a house valued at 40K. He insured it with X Insurance for 35K and with Y
Insurance for 5K. The value of the house with both companies is 20K. If it is lost A
can collect 5K from Y Insurance. He cannot collect 35K from Y Insurance but only the
difference between the value of the house (20K) and the value of the policy with Y
Insurance (5K)

3.
Where the policy under which the insured claims is an unvalued policy, he
must give credit, as against the full insurable value, for any sum received by him
under any policy. Example: A insured his house with X Insurance for 40K and with Y
Insurance for 30K, and with Z Insurance for 20K. The policies are open. The loss is
70K. If Y Insurance and Z Insurance have paid 50K, X Insurance will only have to
pay A, the difference between what he received from Y and Z (50K) and the amount
of loss (70K) or 20K.
4.
Where the insured receives any sum in excess of the valuation in case of a
valued policy or the insurable value in case of an unvalued policy, he must hold such
sum in trust for the insurers, according to their right of contribution among them.
Example: if A collects 35K from X Insurance and 5K from Y Insurance when the
value of the house is only 20K, he must hold the 20K excess in trust. If the policies
are open, if A can collect 40K from X Insurance, 30K from Y Insurance and 20K from
Z Insurance, when the actual loss is only 70K he must hold the excess in trust.
5.
In relation Paragraph (4) Each insurer is bound, as between himself and the
other insurers to contribute ratably to the loss in proportion to the amount for which it
is liable under his contract. ALSO REFERRED TO AS THE PRINCIPLE OF
CONTRIBUTION WHICH HAS ALREADY BEEN INCORPORATED IN ALMOST
ALL POLICIES that should there be other insurances covering the same property,
the liability of the company would be limited to its ratable proportion of the loss or
damage (Also known as CONTRIBUTION CLAUSE)
The formula is: Insurer Policy / total amount of policies times the amount of loss
equals the share of the insurer
Example: 10K x 20K = 4,000 X Insurance
50K
20K x 20K = 8,000 Y Insurance
50K
20K x 20K = 8,000 Z Insurance
50K
If Z Insurance paid 20K but since its share is only 8K, it may collect 4,000 from X
Insurance and 8K from Y Insurance, so that it only pays its ratable share (Section
94)
TEST TO DETERMINE EXISTENCE OF DOUBLE INSURANCE
Whether the insured, in case of happening of the risk, can be directly benefited by
recovering on both policies? If yes there is double insurance.

IS DOUBLE INSURANCE VALID

If there is an OTHER INSURANCE CLAUSE one that prevents other insurance on
the property except with the consent of the company THEN IT WILL PREVENT
ENFORCEMENT OF THE POLICY, the policy then will be NULL AND VOID. If there
is no OTHER INSURANCE CLAUSE, then double insurance is allowed but the
provisions of Section 94 must be followed because property insurance is a contract
of indemnity.
DISTINGUISHING OVER INSURANCE FROM DOUBLE INSURANCE
1.
In double insurance, there must be 2 or more insurers. In over insurance, 1
insurer is sufficient.
2.
In double insurance, the total amount of the policies need not exceed the
value of insurable interest. In over insurance, the value must always be in excess of
the insurable interest.
REINSURANCE
WHAT IS REINSURANCE
Reinsurance occurs when an insurer procures a 3 rd person to insure him against loss
or liability by reason of such original insurance (Section 95)
WHEN IS REINSURANCE COMPULSORY
1.
When a non-life insurer insure in any one risk or hazard an amount exceeding
20% of its net worth, the insurer needs reinsurance of the excess over such limit
(Section 215, Paragraph 1)
2.
When a foreign insurance company withdraws from the Philippines, it should
cause its primary liabilities under policies insuring residents of the Philippines to be
reinsured by another company authorized to transact an insurance business in the
Philippines (Section 275)
DISTINGUISH REINSURANCE FROM DOUBLE INSURANCE
1.
In double insurance, the insurer remains an insurer. In reinsurance, the insurer
becomes the insured.
2.
In double insurance, the subject matter is property. In reinsurance, the subject
matter is the insurers risk or liability
3.
In double insurance, the same interest and risk is insured with another. In
reinsurance, different risk and interest are insured,

WHAT MUST BE COMMUNICATED WHEN THE ORIGINAL INSURER OBTAINS

REINSURANCE
Except in automatic reinsurance treaties (where two or more insurance companies
agree in advance that they will reinsure a part of any line of insurance taken by the
other. Since such contracts are self-executing and the obligation attaches
automatically, the information required to be communicated herein could not
influence the reinsurer in deciding whether or not to accept the reinsurance because
it is automatic), it must communicate (1) all representations of the original insured (2)
all information or knowledge he possesses whether previously or subsequently
acquired, which are material to the risk (Section 96). Example: after issuance of the
policy, the original insured had a bad reputation and that he had burned a building,
the reinsurance is rendered void if it is not disclosed. NOTE: the fact that the
representations on the original insured were untrue at the time of the execution of the
reinsurance will not affect liability of the insurer, provided they were true at the time of
the original contract.
WHAT KIND OF CONTRACT IS REINSURANCE
It is presumed to be a contract of indemnity against liability, and not merely against
damage (Section 97). As a RULE, the reinsurer is not liable to the reinsured for a loss
under an original policy if the reinsured is not liable to the original policy holder.
Example: A insured his car against vehicular accidents with B Insurance. B Insurance
reinsures the policy with C Insurance. A violates the policy by allowing an unlicensed
driver to use the vehicle. B insurance cannot claim against C Insurance on the
reinsurance as it was never liable to A- BUT when the reinsured becomes liable
under the original policy, it may obtain payment from the reinsurer even before paying
the loss to the original insured. Example: A insured his house with X Insurance. X
Insurance reinsures with Z Insurance. The house is burned, but X Insurance cannot
pay because it is insolvent. X Insurance can still collect from Z Insurance because it
is a contract of indemnity against liability and not merely against damage. NOTE: The
subject of the reinsurance contract is the insurers risk not the property insured in the
original policy THUS, IT IS NOT NECESSARY THAT THE INSURER FIRST PAY
ON A CLAIM ON THE ORIGINAL POLICY BEFORE CLAIMING FROM THE
REINSURER.
WHAT IS THE EXTENT OF THE LIABILITY OF THE REINSURER
The liability of the reinsurer is measured by the liability of the reinsured to the original
policy holder PROVIDED, it does not exceed the amount of reinsurance. Example: A
insures his house valued at 1 million X Insurance for 1.5 million. X Insurance
reinsured with Z Insurance for 1.2 million. The house burns. The liability of Z
Insurance is only up to 1 million, which is the liability of X Insurance. WHAT IF
ORIGINAL INSURED AND INSURANCE COMPANY SETTLES FOR LESS, the
liability of Z Insurance is still only up to what is paid by X Insurance OTHERWISE,

the original insurer profits and thus violates that the principle that it is a contract of
indemnity.
WHAT IS THE INTEREST OF THE ORIGINAL INSURED IN THE CONTRACT OF
REINSURANCE
The original insured has no interest in the contract of reinsurance (Section 98).
Hence, only the reinsured can claim against the reinsurer.
CLASSES OF INSURANCE
MARINE INSURANCE
WHAT IS MARINE INSURANCE
Insurance against loss or damage to:
(a)
Vessels, craft, aircraft, vehicles ,goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, securities, choses in action, evidences of
debt, valuable papers, bottomry or respondentia interest and all other kinds of
property and interests therein, in respect to, appertaining to or in connection with any
and all risks or PERILS OF NAVIGATION, TRANSIT OR TRANSPORTATION OR
WHILE BEING ASSEMBLED, PACKED, CRATED, BALED, COMPRESSED OR
SIMILARLY PREPARED FOR SHIPMENT OR WHILE AWAITING SHIPMENT OR
DURING ANY DELAYS, STORAGE, TRANSHIPMENT OR RESHIPMENT INCIDENT
THERETO, including WAR RISKS, MARINE BUILDERS RISK, AND ALL
PERSONAL PROPERTY FLOATER RISKS (follows property wherever it may be)
(b)
Person or property in connection with or appertaining to marine, island marine,
transit or transportation insurance, including liability for loss or in connection with the
construction, repair, operation, maintenance, use of the subject matter of the
insurance (BUT NOT INCLUDING LIFE INSURANCE, OR SURETY BONDS, NOR
INSURANCE AGAINST LOSS BY REASON OF BODILY INJURY TO ANY PERSON
ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE OF AUTOMOBILES)
(c)
Precious stones, jewels, jewelry, precious metals whether in the course of
transportation or otherwise.
(d)
Bridges, tunnels or other instrumentalities of transportation and
communications (excluding buildings, their furniture and furnishings, fixed contents,
and supplies held in storage), piers, wharves , docks, slips, and other aids to
navigation and transportation, including dry docks, marine railways, dams and
appurtenant facilities for the control of waterways.
AND Marine Protection and Indemnity insurance meaning insurance against, or
against legal liability of the insured for loss damage or expense incident to

ownership, operation, chartering, maintenance, use, repair or construction of any

vessel, craft or instrumentality in use in ocean or island waterways, including liability
of the insured for personal injury, illness or death or for loss or damage to the
property of another person( Section 99).
NOTE that marine insurance is really TRANSPORTATION INSURANCE which is a
kind of insurance which is concerned with the perils of property in (or incidental to)
transit as opposed to property perils at a generally fixed location. BUT it does not
include normal motor vehicle insurance which is treated separately by law.
WHAT ARE THE DIVISIONS OF TRANSPORTATION INSURANCE
The divisions of transportation insurance are: (1) Ocean Marine Insurance
pertaining primarily to sea perils of ships and cargoes, and (2) Inland Marine
Insurance pertaining primarily to land or over land (but sometimes water)
transportation perils of property shipped by railroads, motor trucks, airplanes and
other means of transportation. These includes four basic policies: (a) property in
transit- providing protection to property frequently exposed to loss while in transport
from one place to another (b) bailee liability- providing protection to persons who
have temporary custody of goods or personal property of others (c) fixed
transportation property- providing protection to fixed property considered aids to
the movement of property, like bridges and tunnels, and (d) floater- providing
protection to personal property (such as precious stones, jewelry, works of art)
wherever it may be located subject always to the territorial limits of the contract and
need not necessarily be in the course of transportation. NOTE also that marine
insurance may be in the form of property insurance, indemnifying the insured for loss
or damage to property (Par. 1, Section 99) or liability insurance, protecting the
insured against the consequences of legal liability for loss or damage to property or
for personal injury, illness or death of a person (Par. 2, Section 99)
WHAT RISKS ARE INSURED AGAINST
The basic risk insured against is what is commonly known as PERILS OF THE SEA
(all kinds of marine casualties and damages done to the ship or goods at sea by the
violent action of the winds or waves, one that could not be foreseen and is not
attributable to the fault of anybody. Examples: shipwrecks, foundering, stranding,
collision, including the jettisoning of cargo if made for the purpose of saving the
vessel) although it also includes FIRE, ENEMIES, PIRATES, THIEVES, JETTISON,
SURPRISALS, TAKING AT SEA, ARRESTS, RESTRAINTS, DETAINMENTS OF
KINGS, PRINCESS AND PEOPLE OF WHAT NATION, CONDITION OR QUALITY,
BARRATRY OF THE MASTER AND ALL OTHER PERILS LOSSES, MISFORTUNES
THAT HAVE OR SHALL COME TO HURT, DETRIMENT OR DAMAGE OF THE SAID
GOODS, MERCHANDISE, SHIP OR ANY PART THEREOF.
WHAT ARE NOT COVERED

Generally PERILS OF THE SHIP ARE NOT COVERED (losses or damages that
result from (a) natural and inevitable action of the sea (b) ordinary wear and tear of
the ship (c) negligent failure of the ship owner to provide the vessel with the proper
equipment to convey the cargo under ordinary conditions. Example: (a) Insurance
upon a cargo of rice, when sea water entered the compartment where the rice was
found through a defective steel pipe (b) The insured loaded logs unto a barge. The
logs are covered by insurance. The barge sank due to improper loading and leaks
because the barge was not provided with tarpaulins that could have prevented the
barge from retaining sea water splashing into it during the voyage.
WHO MUST CHECK ON THE SEA WORTHINESS OF A VESSEL
Since there is an implied warranty of seaworthiness, it becomes the obligation of the
cargo owner or the insured to look for a reliable common carrier which keeps it
vessels seaworthy. The insured may have no control on the vessel but has full control
in the choice of common carrier.
WHAT PERILS ARE INSURED IN AN ALL RISKS POLICY
It is to be construed as creating a special insurance and extending to all risks than
are usually contemplated and will cover all losses except such that may arise from
intentional fraud, intentional misconduct, or that otherwise excluded. It may include
all losses whether arising from a marine peril or not, to include pilferage during a war
(Filipino Merchants Insurance Co. vs. CA, 179 SCRA 638).
DEFINITION OF OTHER TERMS
BARRATRY is a willful act of the master and crew in pursuance of some fraudulent
or unlawful purpose without the consent of the owner and to the prejudice of his
interest. Example: burning of the ship or unlawfully selling the cargo.
INCHMAREE CLAUSE is a provision in marine insurance that it shall cover loss or
damage to the hull or MACHINERY THRU THE NEGLIGENCE OF THE MASTER,
CHARTERERS, MARINERS, ENGINEERS, or PILOTS THRU EXPLOSION,
BURSTING OF BOILERS, BREAKAGE OF SHAFTS OR THROUGH ANY LATENT
DEFECT IN THE HULL OR MACHINERY NOT RESULTING FROM WANT OF DUE
DILIGENCE. THIS IS ALSO AS KNOWN IN MARINE INSURANCE AS THE
NEGLIGENCE CLAUS.
ALL RISKS CLAUSE- one that covers any loss other than a willful and fraudulent act
of the insured and avoids putting upon the insured the burden of establishing that
the loss was due to a peril within the policys coverage, whether arising from a marine
peril or not PROVIDED the risk is not excluded.
WHAT CONSTITUTES INSURABLE INTEREST IN OCEAN MARINE INSURANCE

1.
The owner of a vessel has insurable interest in the vessel, and such shall
continue even if (a) the vessel has been chartered by one who covenants to pay the
owner the value of the vessel upon loss BUT, in case of loss, the insurer is liable only
for the part of the loss which the insured cannot recover from the from the charterer
(Section 100)
2.
The insurable interest of the owner of a ship hypothecated by bottomry is only
the excess of its value over the amount secured by bottomry (Section 101)
BOTTOMRY/RESPONDENTIA DEFINED is a loan payable only if the vessel given
as security for said loan arrives safely at port from contemplated voyage
(BOTTOMRY) or a loan payable only upon the safe arrival in port of the goods given
as security (RESPONDENTIA).
These CONTRACTS ARE IN THE NATURE OF A MORTGAGE as the owner
borrows money for the use, equipment or repair of the vessel for a definite term with
the ship as security with maritime or extraordinary interest on account of the risks
borne by the lender, it being stipulated that if the ship be lost during the voyage or
within a limited period, the lender also loses his money (NOTE THAT THE LENDER
HAS INSURABLE INTEREST TO THE EXTENT OF LOAN) Example: The owner of
the vessel valued at PHP 300,000 as security for a loan of PHP 200,000.00. His
insurable interest is the excess of the value of the vessel over the loan or PHP
100,000.00. If the vessel is lost, the owner does not have to pay the loan of PHP
200,000.00.
3.
The OWNER OF A VESSEL ALSO HAS INSURABLE INTEREST IN
EXPECTED FREIGHTAGE, WHICH ACCORDING TO THE ORDINARY COURSE
OF THINGS HE WOULD HAVE EARNED BUT FOR THE INTERVENTION OF A
PERIL INSURED AGAINST OR OTHER PERIL INCIDENT TO THE VOYAGE.
( Section 103)
FREIGHTAGE DEFINED are the benefits derived by the owner from (a) chartering of
the ship (b) its employment for the carriage of his own goods or those of others
(Section 102)
IT EXISTS (a) In case of a charter party when the ship has broken on the chartered
voyage (b) if a price is to be paid for the carriage of goods, when they are actually on
board or there is contract to put them on board AND the vessel and goods are ready
for the specified voyage (Section 104).
ARE THERE PERSONS/ PARTIES OTHER THAN THE OWNER WHO HAS
INSURABLE INTEREST
1.
One who has an interest in the thing from which profits are expected to
proceed, has insurable interest on the profits (Section 105). Example: owner of cargo

transported on a vessel not only has insurable interest on the cargo but also on the
expected profits from a future sale.
2.
The charterer of a ship has insurable interest to the extent that he is liable to
be damnified by its loss (Section 106). Example: A charters Bs vessel on condition
that A would pay B in case of loss the amount of PHP 300,000.00. A has insurable
interest to the extent of PHP 300,000.00.
CONCEALMENT IN MARINE INSURANCE
A PARTY IS BOUND TO COMMUNICATE, in addition to what is required by Section
28 (facts within his knowledge, material to the contract, other party has not the
means of ascertaining, as to which party with a duty to communicate makes no
warranty) INFORMATION that he possesses, that are material to the risk AND, to
state the EXACT and WHOLE TRUTH in relation to all matters that he represents, or
upon inquiry discloses or assumes to disclose EXCEPT those that the insurer knows
or those in the exercise of ordinary care, the other ought to know, and which the
former has no reason to suppose him to be ignorant under Section 30 (Section 107)
NOTE: that the rules on concealment in marine insurance are stricter as it is sufficient
that the insured is in POSSESSION OF THE MATERIAL FACT, ALTHOUGH HE IS
UNAWARE OF IT. Example: If an agent fails to notify principal of the loss of the cargo
and the latter, after the loss but ignorant thereof, secured insurance lost or not lost,
the insurance will be void due to concealment.
A PARTY IS ALSO BOUND TO COMMUNICATE, the information belief or
expectation of a 3rd person, in reference to a material fact, is material. Note: under
Section 35 such is not required to be communicated in ordinary insurance (Section
108)
PRESUMPTION OF A PRIOR LOSS
Insured in marine insurance is presumed to have knowledge, AT THE TIME OF
INSURING, of a prior loss, if INFORMATION MIGHT POSSIBLY HAVE REACHED
HIM IN THE USUAL MODE OF TRANSMISSION AND AT THE USUAL RATE OF
COMMUNICATION (Section 109)
EFFECT OF CONCEALMENT
WHILE CONCEALMENT AS A RULE ENTITLES THE INJURED PARTY TO
RESCIND, the rule must yield to Section 110 as it does not vitiate the contract but
merely exonerates the insurer FROM A LOSS RESULTING FROM THE RISKS
CONCEALED as related to (a) the national character of the insured (b) the liability of
the thing insured to capture and detention (c) the liability to seizure from breach of
foreign laws of trade (d) the want of the necessary documents (e) the use of
false/simulated documents. Example: The vessel is seized due to lack of documents,

the insurer is exonerated. If the vessel is lost due to a storm, the insurer is liable
despite concealment of lack of documents.
DISTINGUISHING
INSURANCE

ORDINARY

CONCEALMENT

FROM

THAT

IN

MARINE

1.
In ordinary insurance, opinion or belief of a 3 rd person or own judgment of the
insured is not material and need not be communicated (Section 35), in marine
insurance, belief or expectation of a 3 rd person in reference to a material fact is
material and has to be communicated.
2.
In ordinary insurance, a causal connection between the fact concealed and
cause of loss is not necessary for the insurer to rescind, in marine insurance the
concealment of any of the matters stated in Section 110 merely exonerates the
insurer from loss, if the loss results from the fact concealed.
REPRESENTATION IN MARINE INSURANCE
WHEN IS THE INSURER ENTITLED TO RESCIND
If the representation is INTENTIONALLY FALSE IN ANY MATERIAL RESPECT, OR,
in respect of any fact on which the character and nature of the risk depends, the
insurer may rescind (Section 111) BUT the eventual falsity of a representation as to
an EXPECTATION does not, IN THE ABSENCE OF FRAUD, avoid the contract
(Section 112). Example: statement as to time of sailing, nature of the cargo or
amount of profits.
WHAT ARE THE IMPLIED WARRANTIES IN MARINE INSURANCE
(1)
In every contract of marine insurance upon a SHIP OR FREIGHT,
FREIGHTAGE or UPON ANYTHING WHICH IS THE SUBJECT OF marine
insurance, there is an implied warranty that the SHIP IS SEAWORTHY (Section 113).
A SHIP IS SEAWORTHY when it is reasonably fit to perform the service and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy
(Section 114). NOTE that it is relative and is made to depend on the circumstances.
THE IMPLIED WARRANTY OF SEAWORTHINESS IS COMPLIED WITH as a
GENERAL RULE when it is seaworthy at the time of the commencement of the risk
EXCEPT (a) when the insurance is made for a specified length of time, it must be
seaworthy at the commencement of every voyage it undertakes at that time (b) when
the insurance is upon cargo, which by the terms of the policy, description of the
voyage, or established custom of trade, is required to be transshipped at an
immediate port, in which case each vessel upon which the cargo is shipped or
transshipped must be seaworthy at the commencement of each particular voyage
(Section 115). (c) where different portions of the voyage contemplated in the policy
differ in respect to the things requisite to make the ship seaworthy, in which case it

must be seaworthy at the commencement of each portion (Section 117). Example:

the voyage will pass thru rivers then seas the warranty is not complied with if at
the time it goes out to sea it is not seaworthy to encounter the perils of the sea.
TO WHAT DOES THE WARRANTY OF SEAWORTHINESS EXTEND TO
The warranty of seaworthiness extends not only to the condition of the structure of
the ship, but it requires that (a) it be properly laden or loaded with cargo (b) is
provided with a competent master, sufficient number of officers and seamen (c) it
must have the requisite equipment and appurtenances LIKE ballasts, cables,
anchors, cordage, sails, food, water, fuel, lights and other necessary and proper
stores and implements for the voyage (Section 116).
NOTE that WHEN A SHIP BECOMES UNSEAWORTHY DURING THE VOYAGE it
will not avoid the policy AS LONG AS there is no UNREASONABLE DELAY IN
REPAIRING THE DEFECT. OTHERWISE the insurer is exonerated on the ship or
the shipowners interest from any liability from any loss arising therefrom (Section
118). HENCE, if loss is not one due to the defect or peril was not increased by the
defect INSURER is still liable.
ALSO, while a ship may be seaworthy for purposes of insurance on it, it may by
reason of BEING UNFITTED TO RECEIVE CARGO, be unseaworthy for the purpose
of insurance on the CARGO (Section 119). Example: A cargo of wheat was laden on
a ship which had a port hole insecurely fastened at the time of lading. The port hole
was foot above the water line, and in the course of the voyage, water entered the
cargo area and damaged the wheat. The ship was deemed unworthy with reference
to the cargo, hence the insurer of the cargo was not liable (Steel vs. State Line
Steamship, cited in Go Tiaco vs. Union Society of Canton, 40 Phil 40)
(2)
It shall carry the requisite documents to show its nationality or neutrality and
that it SHALL NOT carry any document that will cast reasonable suspicion on the
vessel (Section 120). THIS WARRANTY ARISES ONLY WHEN NATIONALITY OR
THE NEUTRALITY OF THE VESSEL OR CARGO IS EXPRESSLY WARRANTED.
(3)
That the vessel shall not make any improper deviation from the intended
voyage.
HOW IS THE INTENDED VOYAGE DETERMINED
(a)
When it is described by places of beginning and ending, the voyage is the
course of sailing fixed by mercantile usage between those places (Section 121).
(b)
When it is not fixed by mercantile usage, the voyage is the way between the
places specified which to a master of ordinary skill and discretion would seem the
most natural, direct and advantageous (Section 122).

WHAT IS A DEVIATION
It is a departure from the course of the voyage as defined by Sections 121 and 122
OR an unreasonable delay in pursuing the voyage OR the commencement of an
entirely different voyage (Section 123).
WHEN IS A DEVIATION PROPER
(a)
When it is caused by circumstances over which neither the master nor the
owner of the ship has any control. Example: An ailment strikes the crew of the vessel.
(b)
When necessary to comply with a warranty, or to avoid a peril, whether or not
the peril is insured against. Example: When repairs are necessary or to avoid getting
caught in a conflict.
(c)
When made in good faith, and upon reasonable grounds of belief in its
necessity to avoid a peril. Example: When undertaken to avoid the eye of a storm.
(d)
When made in good faith, for the purpose of saving human life or relieving
another vessel in distress. Example: When assistance is given
ANY DEVIATION THAT IS NOT SO INCLUDED IS NOT PROPER (Sections 124 and
125)
CONSEQUENCE OF AN IMPROPER DEVIATION
Insurer is not liable for any loss happening to the thing insured subsequent to an
improper deviation (Section 126). This applies whether the risk has been increased
or diminished.
(4)

That the vessel does not or will not engage in any illegal venture.

LOSSES IN MARINE INSURANCE

Losses in marine insurance may be partial or total (Section 127). A loss that is not
TOTAL is PARTIAL (Section 128).
KINDS OF TOTAL LOSSES
A total loss may be ACTUAL or CONSTRUCTIVE (Section 129).

(1)
If it is an ACTUAL TOTAL LOSS it may be caused by : (a) total destruction of
the thing insured (b) the irretrievable loss of the thing by sinking or by being broken
up (c) any damage to the thing which renders it valueless to the owner for the
purpose that he held it (d) any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured (Section 130) Example:
When palay was rendered valueless because they began to germinate, thus it no
longer remains as the same thing, it was an ACTUAL TOTAL LOSS (Pan Malayan v.
CA 201 SCRA 382)
AN ACTUAL TOTAL LOSS CAN ALSO BE PRESUMED from the continued absence
of the ship without being heard of (Section 132). The length of time which is sufficient
to raise this presumption DEPENDS on the CIRCUMSTANCES of the case
IF THE VESSEL BE PREVENTED, AT AN IMMEDIATE PORT, FROM COMPLETING
THE VOYAGE, by the perils insured against, the liability of the marine insurer on the
cargo continues after they are reshipped (Section 133) and the liability extends to
damages, expenses of discharging, storage, reshipment, extra freightage and all
other expenses incurred in saving the cargo reshipped UP TO THE AMOUNT
INSURED NOTHING SHALL RENDER THE INSURER LIABLE FOR AN AMOUNT
IN EXCESS OF THE INSURED VALUE OR IF NONE, OF THE INSURABLE VALUE
(Section 134).
UPON ACTUAL TOTAL LOSS, the insured is entitled to payment without notice of
abandonment (Section 135) AND IF THE insurance is confined to an ACTUAL LOSS
it will not cover a CONSTRUCTIVE LOSS, but it will cover any loss, which
necessarily results in depriving the insured of possession, at the port of destination of
the entire thing insured (Section 137)
(2)
It is a CONSTRUCTIVE TOTAL LOSS when the person insured is given a
right to ABANDON under Section139 (Section 131)
ABANDONMENT is the act of the insured by which, AFTER A CONSTRUCTIVE
TOTAL LOSS, he declares to the insurer the RELINQUISHMENT in its favor of his
INTEREST in the thing insured (Section 138)
A person insured by a contract of marine insurance may abandon the thing insured,
or any particular portion thereof separately valued by the policy, or otherwise
separately insured AND RECOVER A TOTAL LOSS WHEN THE CAUSE OF LOSS
IS A PERIL INSURED AGAINST IF (a) more than thereof in value is actually lost or
would have to be expended to recover it from the peril (b) if it is injured to such extent
as to reduce its value by more than of value (c) if the thing injured is a ship, and
the contemplated voyage cannot lawfully be performed without incurring either an
expense to the insured of more than the value of the thing abandoned OR a risk
which a prudent man would not take under the circumstances (d) if the insured is

FREIGHTAGE OR CARGO and the voyage cannot be performed NOR another

ship procured by the master WITHIN A REASONABLE TIME WITH REASONABLE
DILIGENCE to forward the cargo without incurring the like expense or risk
mentioned in item (c) BUT, FREIGHTAGE cannot be abandoned unless the ship is
also abandoned (Section 139).
ABANDONMENT MUST NEITHER BE PARTIAL NOR CONDITIONAL( Section 140).
Hence, it must be TOTAL and ABSOLUTE
ABANDONMENT MUST BE MADE within a reasonable time after receipt of
RELIABLE information of the loss BUT, where the information is of DOUBTFUL
CHARACTER, the INSURED is entitled to a reasonable time to make an inquiry
(Section 141). This is to enable the insurer to take steps to preserve the property.
If the information proves INCORRECT or thing insured is RESTORED when the
abandonment was made that there was then in fact NO TOTAL LOSS the
abandonment becomes INEFFECTUAL (Section 142)
HOW NOTICE OF ABANDONEMENT IS MADE
By giving notice oral or written notice to the insurer BUT if orally given, a written
notice of such must be submitted within seven days from giving oral notice (Section
143). The notice must be explicit and specify the PARTICULAR cause of the
abandonment BUT need state only enough to show that there is PROBABLE CAUSE
THEREFORE and need NOT be accompanied by PROOF OF INTEREST OR OF
LOSS (Section 144). The requirement as the explicitness of the notice is due to the
fact that abandonment can only be sustained upon the cause specified in the
NOTICE (Section 145).
EFFECTS OF ABANDONMENT
(1)
it is equivalent to a transfer by the insured of his interest to the insurer, with all
the chances of recovery and indemnity (Section146). NOTE THOUGH, if the insurer
pays for a loss as if it were an actual total loss, he is entitled to whatever may remain
of the thing insured, or its proceeds or salvage as if there has been a formal
abandonment. HERE THE INSURER HAS OPTED TO PAY FOR A TOTAL ACTUAL
LOSS notwithstanding the absence on actual abandonment
(2)
acts done in good faith by those who were agents of the insured in respect to
the thing insured SUBSEQUENT TO THE LOSS, are at the risk of the insurer and for
his benefit. (Section 148). THE AGENTS OF THE INSURED BECOME AGENTS OF
THE INSURER. This retroacts to the date of the loss when abandonment is
effectively made.

EFFECTIVITY OF ABANDONMENT
(1)
Abandonment becomes effective upon the acceptance of the insurer.
ACCEPTANCE may either be EXPRESS or IMPLIED from the conduct of the
INSURER. The MERE SILENCE of the insurer for an UNREASONABLE LENGTH
OF TIME after NOTICE shall be construed as acceptance (Section 150). ONCE
ACCEPTED, it is conclusive between the parties, The loss is admitted together with
the sufficiency of the abandonment (Section 151). IT IS ALSO IRREVOCABLE upon
acceptance and upon its being made UNLESS the ground upon which it is was
made proves to be UNFOUNDED (Section 152). Thus, if the insurer accepts the
abandonment, it cannot raise any question as to insufficiency of the form under
Section 143, time for giving notice under Section 141, or right to abandon under
Section 139. THE ONLY EXCEPTION THEN is under Section 152 when the ground
is unfounded which is defined in Section 142, and/ or as related to Section 145.
(2)
On an accepted abandonment involving a ship, FREIGHTAGE earned
previous to the loss belongs to the insurer of the FREIGHTAGE, that subsequently
earned belongs to the insurer of the SHIP (Section 153). Example: The contemplated
voyage for the transport of cargo is from Point X to Point Y. In between, a loss occurs
and the ship is abandoned. The freightage already earned from Point X until the point
of loss, belongs to the insurer of the freightage. If the ship is subsequently repaired,
and continues on to point Y, the freightage due belongs to the insurer of the ship.
(3)
IF ABANDONMENT IS NOT ACCEPTED despite its validity, the insurer is
liable upon an ACTUAL TOTAL LOSS, deducting from the amount any proceeds of
the thing insured that may have come to the hands of the insured (Section 154). This
is due to the fact that under Section 149 which provides that if notice is properly
given, it does not prejudice the insured, if the INSURER refuses to accept the
abandonment.
IF ABANDONMENT IS NOT MADE OR OMITTED
The fact that abandonment is not made or is omitted does not prejudice the insured
as he may nevertheless recover his ACTUAL LOSS (Section 155)
LIABILITY FOR AVERAGES
AVERAGE DEFINED is any extraordinary or accidental expense incurred during
the voyage for the preservation of the vessel, cargo, or both AND all damages to the
vessel or cargo from the time it is loaded and the voyage commenced until it ends
and the cargo is unloaded.
KINDS OF AVERAGES ARE: (a) PARTICULAR OR SIMPLE AVERAGE is a damage
or expense caused to the vessel or cargo which has NOT INURED to the COMMON
BENEFIT and PROFIT of all PERSONS interested in the CARGO or the VESSEL.

This damage or expense is borne ordinarily by the owner of the vessel or cargo that
gives rise to the expenses or suffered the damage. Examples: Damage sustained by
a cargo from the time it is loaded to the time it is unloaded OR additional expenses
that are incurred by the vessel from the time it puts out to sea until it reaches its
destination (b) GENERAL OR GROSS AVERAGE is an expense or damage suffered
deliberately in order to save the vessel or its cargo or both from a REAL or KNOWN
risk. THUS, all persons having an interest in the VESSEL and CARGO or both at the
occurrence of the AVERAGE shall contribute. Example: Jettisoning of cargo.
AS A RULE, WHEN IT HAS BEEN AGREED THAT AN INSURANCE UPON A
PARTICULAR THING OR CLASS OF THINGS SHALL BE FREE FROM
PARTICULAR AVERAGE, a marine insurer is not liable for a particular average loss
NOT DEPRIVING THE INSURED OF THE POSSESSION, AT THE PORT OF
DESTINATION, of the whole such thing, or class of things, even though it becomes
entirely worthless, BUT such insurer is liable for his proportion of all general average
loss assessed upon the thing insured (Section 136)
IN CASE OF A GENERAL AVERAGE LOSS
The insurer is liable for the loss falling upon the insured, through a contribution in
respect to the thing insured when required to be made by him towards a general
average loss called for a peril insured against BUT liability is limited to the proportion
of the contribution attaching to his policy value where this is less than the contributing
value of the thing insured (Section 164). MEANING that the insured can hold his
insurer liable for his contribution up to the value of the policy.
RIGHT OF SUBROGATION
When a person insured in a contract of marine insurance has a demand against the
others for CONTRIBUTION, HE MAY CLAIM THE WHOLE LOSS FROM HIS
INSURER subrogating the insurer to his own right to contribution BUT no such claim
can be made upon the insurer if (a) there is separation of the interest liable to
contribution. Example: When the cargo liable for contribution has been removed from
the vessel, NOR (b) when the insured having the right and opportunity to enforce
contribution from others, has NEGLECTED OR WAIVED the exercise of the right
(Section 165). MEANING that the insured has a choice of recovery on the happening
of a general average loss. They are: (a) enforcing the contribution against interested
parties, or (b) claiming from the insurer. If it be the latter, subrogation takes place.
MEASURE OF INDEMNITY IN MARINE INSURANCE
(1)
IF THE POLICY IS VALUED
(a)
A valuation in the policy of marine insurance is conclusive between the parties
thereto in the adjustment of either a partial or total loss, if the insured has some
interest at risk and there is no fraud on his part. If there is fraud in valuation, it

ENTITLES THE INSURER TO RESCIND AS IT IS AN EXCEPTION AS TO

CONCLUSIVENESS (Section 156)
If however, hypothecated by bottomry or respondentia BEFORE INSURANCE AND
WITHOUT KNOWLEDGE OF THE PERSON SECURING IT he may show the real
value. Example: a person purchases a vessel subject to bottomry but he is not
aware of it , he may upon a loss show the real value of the vessel. The insurer cannot
rescind.
(b)
An Insurer is liable upon a partial loss ONLY FOR SUCH PROPORTION OF
THE AMOUNT INSURED BY HIM as the loss bears to the whole interest of the
insured (Section 157). The effect is that the insured is deemed a co-insurer if the
value of the insurance is less than the value of the property. THIS APPLIES EVEN IN
THE ABSENCE OF A STIPULATION IN CONTRACT AND IS ALSO KNOWN AS THE
AVERAGE CLAUSE. Example: A vessel valued at PHP 500,000.00 is insured for
PHP 400,000.00. The vessel is damaged to the extent of PHP 200,000.00. The
insurer is liable not for the PHP 200,000.00 but only for PHP 160,000.00. The formula
being:
Insurance x Loss = Liability
Value
THE 2 REQUISITES FOR THE APPLICATION OF THE AVERAGE CLAUSE: (1)
insurance is for less than actual value (2) the loss is partial
NOTE: That co-insurance exists in Marine Insurance. In Fire Insurance, there is no
co-insurance unless expressly stipulated (Sections 171/172). In Life Insurance, there
is none also as value is fixed in the policy (Section 183)
NOTE ALSO: That Section 157 is further qualified by Section 166, which provides:
That IN CASE OF A PARTIAL LOSS OF THE SHIP OR ITS EQUIPMENT the old
materials are to be applied towards the payment of the new AND UNLESS
STIPULATED IN THE POLICY, the insurer is liable only for 2/3 of the remaining cost
or repairs after the deduction EXCEPT THAT ANCHORS ARE PAID IN FULL (Section
166).
(c)
In case profits are separately insured in a contract of marine insurance (See
Section 105), the insured can recover in case of a loss (AND under Section 160,
there is a conclusive presumption of a loss from the loss of the property out of which
they were expected to arise, and the valuation fixes their amount), a proportion of
such profits equivalent to proportion of the value of the property lost bears to the
value of the whole (Section 158). Example: Goods are valued at PHP 500,000.00,
expected profits are PHP 50,000.00. Goods suffer a partial loss of PHP 100,000.00.
The insured can recover PHP 10,000.00 on the insurance over profits.
Insurance of profits x loss = Amount Recoverable

Value of Goods
(d)
In case of a valued policy on freightage or cargo, if only a part of the subject
is exposed to the risk, the valuation applies only in proportion to such part (Section
159). Example: goods are valued at PHP 500,000.00, if only PHP 250,000.00 are
shipped and exposed to the risk, the valuation is reduced by . In case of a total
loss, the insured can only demand of valuation or PHP 250,000.00.
IF THE POLICY IS OPEN
(a)
The value of the ship is its value AT THE BEGINNING OF THE RISK,
including all articles or charges which add to its permanent value or which are
necessary to prepare it for the voyage insured. Note: The value at the time it was
built or acquired is not the value that is material.
(b)
The value of the cargo is its actual cost to the insured, WHEN LADEN on
board OR where that cost cannot be ascertained, its MARKET VALUE at the time
and place of LADING, adding the charges incurred in PURCHASING AND PLACING
it on BOARD BUT without reference to any LOSS incurred in raising money for its
purchase or any drawback on its exportation or fluctuation of the market at the port of
destination or expenses incurred on the way or on arrival.
DRAWBACK government allowance upon duties on imported merchandise when
the importer re-exports instead of selling it.
(c)
Value of freightage is the GROSS FREIGHTAGE, exclusive of PRIMAGE,
without reference to the cost of earning it.
PRIMAGE compensation paid by the shipper to the master of the vessel for his
care and trouble bestowed on the goods of the shipper, which he retains in the
absence of a contrary stipulation with the owner of the vessel.
(d)
The cost of insurance is in each case to be added to the value thus estimated
(Section 161).
IF CARGO IS INSURED AGAINST PARTIAL LOSS
If it arrives at the port of destination in a DAMAGED CONDITION, the loss of the
insured is deemed to be the SAME PROPORTION OF THE VALUE WHICH THE
MARKET PRICE AT THAT PORT OF THE THING SO DAMAGED BEARS TO THE
MARKET PRICE IT WOULD HAVE BROUGHT IF SOUND (Section 162). Meaning if
reduction in value is 1/5, then amount of recovery on the insurance is also 1/5.

The formula is:

(a)
Market Price in sound state less Market Price in damaged state equals
Reduction in Value.
(b)
Reduction in Value divided by Market Price in sound state multiplied with the
Amount of Insurance equals the Amount of Recovery
CONTINUATION OF MEASURE OF INDEMNITY REGARDLESS OF WHETHER
POLICY IS VALUED OR OPEN
(2)
An insurer is liable (a) for all the expenses attendant upon a loss that forces
the ship into port to be repaired. These refer to expenses for repairing the ship due to
damages attributable to perils insured against, as well as other expenses such as
launching, towing, raising and navigating the vessel. These expenses are also called
PORT OF REFUGE EXPENSES. (b) If so stipulated, that the insured shall LABOR
for recovery of the property insured, the insurer is liable for expenses incurred
thereby. Example: When the vessel is unlawfully detained. This is also known as the
SUE AND LABOR CLAUSE. In either case, said expenses are to be added to a
TOTAL LOSS, if that afterwards occurs (Section 163).

FIRE INSURANCE
WHAT IS INCLUDED IN FIRE INSURANCE
Insurance against fire includes loss or damage due to LIGHTNING, WINDSTORM,
TORNADO, EARTHQUAKE OR OTHER ALLIED RISKS when such risks are
covered by extensions to the fire insurance policy or under separate policies (Section
167). Hence, while it is not limited to loss or damage due to fire, coverage as to other
risks is not automatic.
FIRE DEFINED
In insurance, it is defined as the active principle of burning, characterized by heat and
light combustion. Combustion without visible light or glow is not fire ( Example:
Damage caused by smoke from a lamp when no ignition occurred outside the lamp)
TO ALLOW RECOVERY, it must be the proximate cause of the damage or loss AND
the fire must be HOSTILE (If it (a) burns at a place where it is not intended to burn (b)
starts as a friendly fire but becomes hostile if it should escape from the place where it
is intended to burn and becomes uncontrollable (c) is a friendly fire which becomes
hostile by not escaping from its proper place but because of the unsuitable material
used to light it and it becomes inherently dangerous and uncontrollable) as opposed
to FRIENDLY FIRE (one that burns in a place where it is intended to burn and

employed for the ordinary purpose of lighting, heating or manufacturing) BUT the
policy itself may limit or restrict coverage to losses under ordinary conditions but not
those due to extra-ordinary circumstances or abnormal conditions like war, invasion,
rebellion, civil war or similar causes. In these cases recovery is still possible.
ALTERATION DEFINED
Is a change in the use or condition of a thing insured from that to which it is limited by
the policy, made without the consent of the insurer, by means within the control of the
insured, and increasing the risk, which entitles the insurer to rescind the contract of
insurance (Section 168).
From the foregoing definition, the requisites must be present to constitute an
alteration so as to allow the rescission of the contract, to wit:
(a)
The use or condition of the thing insured is specifically limited or stipulated in
the policy BUT under Section 170, the contract of insurance is not affected by an act
of the insured SUBSEQUENT to the execution of the policy, which does not violate its
provisions, even though it increases the risk and is the cause of the loss. Example:
(1) If the insured stored thinner, paints and varnish. A fire subsequently occurs and
there is no express prohibition as to storage of such items, even if the risk is
increased, the insurer is still liable (BACHRACH v. BRITISH ASSURANCE,17 Phil
555), OR (2) The policy states that the 1 st floor is unoccupied, it is later occupied.
There is no alteration that entitles the insurer to rescind, the description of the house
cannot be said to be a limitation as to use (HODGES v. CAPITAL INSURANCE (60
O.G. 2227)
(b)

There is an alteration in the said use or condition

(c)

The alteration is without the consent of the insurer.

(d)
The alteration is made by means within the insureds control. If the alteration
be by accident or means beyond the control of the insured, the requisite is not met.
Example: The alteration is made by a tenant with the consent or knowledge of the
insured, the insurer can rescind. If the alteration was undertaken by the tenant
without the consent or knowledge of the insured, the insurer cannot rescind.
(e)
The alteration increases the risk of loss BUT under Section 169 any alteration
in the use or condition of the thing insured from that to which is limited by the policy,
which does not increase the risk does not affect the contract.

BUT THERE MUST NOT BE ANY VIOLATION OF THE CONTRACT OTHERWISE.

THE BASIS FOR RESCISSION IS THAT payment of the premium is based on the
risk as assessed at the time of the issuance of the policy when the risk is increased
without a corresponding increase in premium, it is as if no premium is paid.
MEASURE OF INDEMNITY IN FIRE INSURANCE
In an OPEN POLICY, it is the expense it would be to the insured at the time of the
commencement of the fire to replace the thing lost or injured in the condition in which
it was at the time of the injury. In a VALUED POLICY, it is the same as in marine
insurance, the valuation as agreed upon by the parties is conclusive in the
adjustment of either a partial or total loss in the absence of fraud (Section 171).
HOW IS THE VALUATION MADE
(1)
Whenever the insured would like to have a valuation stated in a policy insuring
a building or structure against fire, it may be made by an independent appraiser, who
is paid by the insured and the value may then be fixed between the insurer and the
insured.
(2)
Subsequently, the clause is then inserted in the policy that said valuation has
thus been fixed.
(3)
In case of loss, PROVIDED there is no change increasing the risk without the
consent of the insurer or fraud on the part of the insured, the insurer will pay the
whole amount so insured and stated in the policy is paid. If it is a PARTIAL LOSS, the
whole amount of the partial loss is paid. In case there are 2 or more policies, each
shall contribute pro-rata to the total or partial loss BUT the liability of the insurers
cannot be more than the amount stated in the policy.
(4)
OR the parties may stipulate that instead or payment, the option to repair,
rebuild or replace the property wholly or partially damaged or destroyed shall be
exercised (Section 172).
No policy of Fire insurance shall be pledged, hypothecated or transferred to any
person, firm or company that acts as agent for or otherwise represents the issuing
company, such shall be void and of no effect insofar as it may affect other creditors of
the insured (Section 173).

CASUALTY INSURANCE
CASUALTY INSURANCE DEFINED
Generally, it is one that covers loss or liability arising from an accident or mishap
EXCLUDING THOSE THAT FALL EXCLUSIVELY WITHIN OTHER TYPES OF
INSURANCE LIKE FIRE OR MARINE. It includes Employers liability, workmens
compensation, public liability, motor vehicle liability, plate glass liability, burglary and
theft ,personal accident and health insurance as written by non-life companies, and
other substantially similar insurance (Section 174).
DEFINITIONS
Employers liability is insurance obtained by the employer against liability to an
employee for damages caused or arising from injuries by reason of his employment
Workmens compensation is insurance secured by an employer for the benefit of
his employees and laborers for loss resulting from injuries, disablement, or death
through industrial accident, casualty, or disease in connection with their employment.
NOTE that most if not all types of this insurance is underwritten by the GSIS or the
SSS.
Public liability is insurance against liability of the insured to pay damages for
accidental bodily injury or damage to property arising from an activity of the insured
defined in the policy.
Motor vehicle liability is insurance against loss or injury arising from the use of a
motor vehicle by its owner as opposed loss or damage to the vehicle itself. Coverage
for both may however be contained in one policy.
Plate glass is insurance that indemnifies the insured against loss caused by the
accidental breaking of plate glass, windows, doors or show cases.
Burglary and Theft is insurance against loss of property through burglary or theft
Personal accident is insurance against expense, loss of time and suffering from
accidents that cause a physical injury.
Health is insurance for indemnity for expenses or loss occasioned by sickness or
disease.
SURETYSHIP
DEFINED An agreement whereby a party called the surety guarantees the
performance by another party called the PRINCIPAL or OBLIGOR of an obligation or
undertaking in favor of a 3rd party called the obligee (Section 175).

INCLUDES official recognizances, bonds or undertakings issued by any company

under Act No. 536, as amended by Act No. 2206 (GOVERNMENT TRANSACTIONS
BY AUTHORIZED COMPANIES)
WHAT IS THE LIABILITY OF THE SURETY
It is joint and several (solidary) with the OBLIGOR but limited to the amount of the
BOND AND DETERMINED STRICTLY BY THE TERMS OF THE CONTRACT IN
RELATION TO THE PRINCIPAL CONTRACT BETWEEN OBLIGOR OBLIGEE
(Section 176).
IS A SURETYSHIP CONTRACT VALID AND BINDING WHERE THE PREMIUM HAS
NOT YET BEEN PAID
Generally, payment of the premium is a condition precedent. Hence the bond is not
valid. An EXCEPTION is when it is issued and accepted by the obligee, it is valid
despite non payment of the premium (Section 177)
WHAT OTHER LAWS GOVERN A SURETYSHIP CONTRACT
IN THE ABSENCE OF SPECIFIC PROVISIONS, CIVIL CODE PROVISIONS APPLY
IN A SUPPLETORY CHARACTER IF NECESSARY TO INTERPRET THE
CONTRACT PROVISIONS (Section 178)
DISTINGUISHED WITH GUARANTY
(1)
A surety assumes liability as a regular party to the agreement, a guarantors
liability depends on an independent agreement to pay if primary debtor fails to pay
(2) A surety is primarily liable, a guarantor is secondarily liable (3) a surety is not
entitled to EXHAUSTION, a guarantor is entitled to EXHAUSTION
LIFE INSURANCE
DEFINED Is insurance on human lives and insurance appertaining thereto or
connected therewith (Section 179)
WHEN IS IT PAYABLE
An insurance upon life may be made payable on (1) death of the person, or (2) his
surviving a specified period, or (3) or otherwise, contingently on the continuance or
cessation of life.

COMMON KINDS
WHOLE LIFE/ORDINARY LIFE/STRAIGHT LIFE premiums are payable for life and
the insurer agrees to pay the face value upon the death of the insured.
LIMITED PAYMENT LIFE insured pays premiums for a limited period after which he
stops with a guarantee by the insurer that upon death the face amount is to be paid
if death occurs while payment is not complete beneficiary receives face amount.
TERM POLICY Insurer is liable only upon death of the insured within the agreed
term or period. If insured survives the insurer is not liable.
ENDOWMENT protection is for a limited period, if the insured is still alive at the end
of the period, the value of the policy is paid to him. If he dies before the end of the
period, it is paid to the beneficiaries.
ANNUITY where the insured or a named person/s is paid a sum or sums
periodically during life or a certain period (NOTE that CONTRACTS FOR THE
PAYMENT of endowment or annuities are CONSIDERED AS LIFE INSURANCE
CONTRACTS)
Distinguishing Life Insurance from Payment of Annuity. In the former, it is payable
upon the death of the insured, while in the latter, it is payable during the lifetime of
the annuitant. In the former, the premium is paid in installments, while in the latter,
annuitant pays a single premium. In the former, there is lump sum payment upon
death, while in the latter, annuities are paid until death.
NOTE THAT Section 180 also provides that as far as a minor, who is the insured or a
beneficiary in an insurance contract, in the absence or incapacity of a JUDICIAL
GUARDIAN, the father, in default, the mother, MAY ACT IN BEHALF OF THE MINOR
WITHOUT NEED OF BOND OR COURT AUTHORITY when it involves the exercise
of any right under the policy, to include but not limited to obtaining a policy loan,
surrendering the policy, receiving the proceeds of the policy and giving the minors
consent to any transaction on the policy PROVIDED the interest of the minor does
not exceed PHP 20,000.00.
WHAT RISKS ARE COVERED
(1)
Generally all causes of death are covered UNLESS excluded by law, by the
policy or public policy. Examples: By law- beneficiary is the principal, accomplice or
accessory in bringing death of the insured. By the policy- when it does not cover
assault, murder or injuries inflicted intentionally by a 3 rd person BUT where the
insured is not the intended victim, insurer is liable (Calanoc vs. CA, 98 Phil 79) What
must be considered is that death or injury is not the natural or probable result of the
insureds voluntary act (Finman General Assurance Corporation vs. CA, 213 SCRA
493) as opposed to an act of the insured to confront burglars (Biagtan vs. Insular Life

Assurance Company, 44 SCRA 58). By public policy- when the insured is executed
for a crime committed.
(2)
SUICIDE, if committed after the policy has been in force for a period of two
years from date of issue or last reinstatement unless policy provides a shorter period
BUT it is nevertheless compensable if committed in the state of insanity regardless of
date of commission (Section 180 A)
IS A LIFE INSURANCE POLICY TRANSFERABLE OR ASSIGNABLE
Yes, it may pass by transfer, will or succession to any person, whether he has
insurable interest or not (Section 181). EFFECT, the person to whom it is transferred
may recover upon it whatever the insured might have recovered.
NOTE while there is no need for the assignee/transferee to have insurable interest, it
should not be used to circumvent the law prohibiting insurance without insurable
interest. THUS, an assignment CONTEMPORANEOUS with ISSUANCE may
invalidate the policy unless made in good faith.
IS NOTICE TO THE INSURER OF TRANSFER OR BEQUEST REQUIRED
It is not necessary to preserve the validity of the policy UNLESS THEREBY
EXPRESSLY REQUIRED (Section 182)
IS THE CONSENT OF THE BENEFICIARY REQUIRED
Yes, if he is designated as an irrevocable beneficiary as he has acquired a vested
right.
WHAT IS THE MEASURE OF INDEMNITY IN LIFE INSURANCE
UNLESS the interest of a person insured is susceptible of pecuniary estimation, the
amount stated or specified in the policy is the measure of indemnity (Section 183).
HENCE a life insurance policy has been held to be a VALUED POLICY.
BUSINESS OF INSURANCE
ORGANIZATION, CAPITALIZATION AND AUTHORIZATION
REQUIREMENTS FOR A CERTIFICATE OF AUTHORITY FROM THE INSURANCE
COMMISSION
The requirements for a certificate of authority are: (a) qualified by Philippine Laws to
transact insurance business (b) has a name that is not in anyway similar to another
company (c) if organized as a stock corporation, it should have a paid up capital of

no less than PHP 5,000,000.00 (d) If it is organized as a mutual company (one

whose capital funds are not contributed by stockholders but by policy holders) it must
have available cash assets of at least PHP 5,000,000.00 above all liabilities for
losses reported, expenses, taxes, legal reserves and reinsurance of all outstanding
risks, and the contributed surplus fund equal to the amounts required of stock
corporations (PHP 1,000,000.00 if a life insurance company or PHP 500,000.00, if a
non-life insurance company). If a foreign insurance company, it must appoint a
resident agent, deposit securities and maintain a legal reserve (Sections 184- 193).
MARGIN OF SOLVENCY
The margin of solvency is the excess of the value of insurance companys admitted
assets EXCLUSIVE of its paid up capital. In case of a DOMESTIC INSURANCE
COMPANY and the excess of the value of its admitted assets in the Philippines
exclusive of security deposits over the amount of its liabilities, unearned premiums,
and reinsurance reserves in the Philippines (Section 194).
The required margin is in case of life insurance companies is TWO PERCENT (2%)
of the total amount of its insurance in force as of the preceeding calendar year on all
policies except term insurance AND in case of non life insurance companies, at least
TEN PERCENT (10%) of total amount of its net premium during the proceeding
calendar year BUT IN NO CASE TO BE LESS THAN PHP 500,000.00. IF NOT
MET, the insurance company is (a) not permitted to take on any new risk and no
dividends can be declared (Section 195).

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

CONCEPT OF COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
It is to provide protection or coverage to answer for bodily injury or property damage
that may be sustained by another arising from the use of a motor vehicle. PLEASE
NOTE THOUGH that what is now compulsory is death or bodily injury arising from
motor vehicle accidents AS PER AN AMENDMENT TO THE INSURANCE CODE BY
PD 1814 and PD1455 brought about by insurance losses due to padded claims for
property damage. HENCE, property damage is now optional.
HOW ITS COMPULSORY NATURE IS ENFORCED
The compulsory nature of the insurance is enforced by prescribing that any land
transportation operator (owner/s or motor vehicles for transportation of passengers
for compensation, including school buses) or owner of a motor vehicle (actual legal
owner of a motor vehicle in whose name the vehicle is registered with the LTO) would
be considered as unlawfully operating a motor vehicle (is any vehicle as defined in
Sec (3) RA 4136 which is propelled by any power other than muscular power using

public highways with exceptions (a) road rollers, holley cars, street sweepers,
sprinkles, lawn movers, bulldozers, graders, forklifts, amphibian trucks, or cranes not
used on public highways (b)Those that ran on rails or tracks (c) Tractor, trailers (when
propelled or intended to be propelled by an attachment to a motor vehicle is
classified as a motor vehicle without power rating), traction engines of all kinds used
exclusively for agricultural purposes) UNLESS there is a (a) policy of insurance
(contract of insurance against passenger or 3 rd party liability for death or bodily injury
arising from motor vehicle accidents),or (b) guaranty in cash, or (c) surety bond, to
INDEMNIFY THE DEATH OR INJURY TO A THIRD PARTY other than a passenger,
excluding a member of the household, or a member of the family of a motor vehicle
owner or lane transportation operator or his employee in respect to death, bodily
injury or damage to property arising out of and in the course of employment) OR
PASSENGER (any fare paying person being transported or conveyed in and by
motor vehicle for transportation of passengers for compensation, including persons
expressly authorized by law or by the vehicles operator or his agents to ride without
fare) ARISING FROM THE USE THEREOF (Sections 373, 374).
COMPLIANCE by the motor vehicle owner or the land transportation operator is
monitored as the Land Transportation Office shall not allow registration or renewal of
registration without compliance with Section 374 (Section 376).
EXTENT OF THE LIABILITY COVERAGE
Every insurance policy, surety or cash deposit required by Section 374 shall comply
with the minimum limits prescribed under Section 377. (a) if a Land Transportation
Operator it is PHP 12,000.00 per passenger, plus PHP 50,000.00 for vehicles with
capacity of 26 or more passengers OR PHP 40,000.00 for vehicles with capacity of
12 to 25 passengers OR PHP 30,000.00 for vehicles with capacity of 6 to 11
passengers, OR PHP 5,000.00 per passenger for vehicles with capacity of 5 or less
passengers PROVIDED, that if a cash deposit or surety bond is posted with the
Commissioner, it shall be resorted to in case of accidents, the indemnities for which
WERE NOT SETTLED by the Land Transportation Operator, and in that event, said
deposit of surety bond shall be replenished or surety reposted or restored within 60
days from impairment or expiration OTHERWISE, he will be required to get an
insurance policy. NOTE ALSO that the cash deposits may be invested in readily
marketable government bonds and / or securities by the Commissioner (b) If a Motor
Vehicle Owner for a Bantam or Light Car- PHP 20,000.00, a Heavy Car-PHP
30,000.00. For other private vehicles Tricyles / Scooters /Motorcycles PHP
12,000.00, Vehicles with unladed might of 2600 kilos or less-PHP 20,000.00, if over
2601 kilos but not over 3930kilos PHP 30,000.00, if over 3,930 kilos PHP
50,000.00.
DISTINGUISHED FROM OWN DAMAGE COVERAGE AND COMPREHENSIVE
MOTOR VEHICLE INSURANCE

Third Party Liability answers for liabilities arising from death or bodily injury to 3 rd
persons or passengers.
Own Damage Insurance answers for reimbursement of the cost of repairing the
damage to vehicle of the insured.
Comprehensive Insurance answers for all liabilities/damages arising from the
use/operation of a motor vehicle, it includes Third Party, Own Damage, Theft and
Property Damage.
WHEN DOES THE LIABILITY OF THE INSURER ACCRUE
In an insurance policy that directly insures against liability, the insurers liability
accrues immediately upon the occurrence of the injury upon which liability depends,
and does not depend on the recovery of judgment by the injured party against the
insured. Hence, there is no need for the insured to wait for a decision of the court
finding him guilty of reckless imprudence. The occurrence of an injury for which the
insured may be liable immediately gives rise to insurer liability
( Shafer vs.
Judge, 167 SCRA 386). In fact a third party can bring a claim or an action directly
against the insurer as the general purpose of the statute is to protect the injured
against the insolvency of the insured.
NATURE OF THE LIABILITY OF THE INSURER
It is not solidary with the insured. The liability of the insurer is based on contract,
while that of the insured is based on tort. (Malayan Insurance v. CA 165 SCRA 536)
WHO CAN ISSUE POLICY OR SURETY BOND
Those authorized by the commissioner in the list furnished to Land Transportation
Office (Section 375). If the Motor Vehicle Owner or the Land Transportation Operator
is unable to obtain or is unreasonably denied the policy of insurance, they will be
required to show proof of a cash deposit with the commissioner, but the authority of
the insurance company to engage in casualty or surety lines of business shall be
withdrawn immediately (Section 379)
CANCELLATION OF THE POLICY
BY THE INSURER , requires written notice to Motor Vehicle Owner/Land
Transportation Operator at least 15 days prior to intended effective date. IF SO
CANCELLED, the Land Transportation Office may order the immediate confiscation
of license plates UNLESS it receives new valid insurance / surety / proof of cash
deposit or revival by endorsement of the cancelled policy (Section 380).

BY THE INSURED , the Motor Vehicle Owner/Land Transportation Operator shall

secure a similar policy or surety before the cancelled policy / surety ceases to be
effective or make a cash deposit AND file the same or proof thereof with the Land
Transportation Office (Section 381).
EFFECT OF A CHANGE IN OWNERSHIP OR CHANGE IN ENGINE
There is no need to issue a new policy until the next date of registration PROVIDED,
the insurer shall agree to continue the policy and such change shall be indicated in a
second duplicate which is filed with the Land Transporation Office (Section 382).
OTHER PROHIBITED ACTS
(1)
The Motor Vehicle Owner or the Land Transportation Operator cannot require
driver/s/employees to contribute to the payment of the premium (Section 386)
(2)
Any government office or agency having the duty to implement the provisions,
official or employee thereof shall not act as an agent in procuring the policy or surety
bond and in no case shall the commission of the procuring agent exceed 10% of the
premiums paid (Section 387).
PENALTIES FOR VIOLATION
The penalties for a violation by the Motor Vehicle Owner or the Land Transportation
Operator is a fine of not less than PHP 500.00 nor more than PHP 1,000.00 and / or
imprisonment for not more than 6 months. If a Land Transportation Operator violates
Section 377 (minimum limits of coverage) it is sufficient cause for revocation of a
certificate of public convenience (Section 388).
If the violation is committed by a corporation / association or government office /
entity, the executive officer/s who shall have knowingly permitted or failed to prevent
the violation shall be held liable as principals (Section 389).
PAYMENT OF CLAIMS
A claim for payment is to be filed without any unnecessary delay, within 6 months
from the date of accident by giving written notice setting forth the nature, extent and
duration of the injuries as certified by a duly licensed physician (Section 384).

EFFECT OF FAILURE TO FILE CLAIM WITHIN PERIOD

The failure to file a claim will be deemed a waiver. If a claim is filed but denied, an
action must be brought within 1 year from date of denial with the Insurance
Commissioner or the Court, otherwise the right of action will be deemed as having
prescribed.
WHAT SHALL INSURANCE COMPANY DO UPON FILING OF THE CLAIM
It shall forthwith ascertain the truth and extent of the claim and make payment within
5 working days after reaching an AGREEMENT. If NO AGREEMENT IS REACHED,
IT MUST NEVERTHELESS PAY THE NO FAULT INDEMNITY (Section 378) without
PREJUDICE TO A FURTHER PURSUIT OF THE CLAIM IN WHICH CASE HE
SHALL NOT BE REQUIRED OR COMPELLED TO EXECUTE A QUIT CLAIM OR
RELEASE FROM LIABILITY. Note though that in case of dispute as to enforcement
of policy provisions, the adjudication shall be within the original and exclusive
jurisdiction of the commissioner subject to Section 416, which provides for concurrent
jurisdiction but the filing with the Insurance Commissioner shall preclude filing with
the court (Section 385).
WHAT IS NO FAULT INDEMNITY
A no fault indemnity claim is a claim for payment for death or injury to a passenger or
third party without NECESSITY OF PROVING FAULT OR NEGLIGENCE. This is
payable by the insurer PROVIDED (a) indemnity in respect of one person shall not
exceed PHP 5,000.00 (b) the necessary proof of loss under oath to substantiate the
claim is submitted, these are: police report of accident and either the death certificate
and sufficient evidence to establish the payee OR the medical report and evidence of
medical or hospital disbursement in respect of which refund is made.
AGAINST WHOM IS THE PAYMENT CLAIMED
A claim under the no fault indemnity clause may be made against one motor vehicle
insurer only as follows: (a) in case of an occupant of a vehicle- against the insurer of
the vehicle in which the occupant is riding, mounting or dismounting from (b) in any
other case, from the insurer of the directly offending vehicle (c) in all cases, the right
of the party paying the claim to recover against the owner of the vehicle responsible
for the accident shall be maintained.
INTERPRETATION OF THE AUTHORIZED DRIVER CLAUSE
The authorized driver clause is interpreted to refer to the insured or any person
driving on the order of the insured or with his permission PROVIDED, such person is
permitted to operate a motor vehicle in accordance with our licensing laws or
regulations and who is not otherwise disqualified.

NOTE the following jurisprudence (1)If license is expired, person is not authorized to
operate a motor vehicle (Tarco Jr. v. Phil Guaranty 15 SCRA 313), (2) Issued a
Temporary Operators Permit or a Temporary Vehicle Receipt, a person is authorized
to operate a motor vehicle, but if it has expired, it is as if he had no license (Gutierrez
v. Capital Insurance 130 SCRA 618, PEZA v. Alikpala, 160 SCRA 31), (3) A tourist
with license but in the country for more than 90 days, is not authorized to operate a
motor vehicle because it is as if he has no license (Stokes vs. Malayan 127 SCRA
766), (4) A drivers license that bears all the earmarks of a duly issued license is
presumed genuine (5) a license is not necessary, where the insured himself is the
driver (Paterno v. Pyramid Insurance 161 SCRA 677, 1986 BAR)
OTHER PROVISIONS
1.
Chapter VII- Mutual Benefit Associations (SEC. 390. Any society, association
or corporation, without capital stock, formed or organized not for profit but mainly for
the purpose of paying sick benefits to member, or furnishing financial support to
members while out of employment, or of paying to relatives of deceased members of
fixed or any sum of money, irrespective of whether such aim or purpose is carried out
by means of fixed dues, assessments, or voluntary contributions, or of providing, by
the issuance of certificates of insurance, payment to its members of accident or life
insurance benefits, out of due or assessments collected from the members, shall be
known as a mutual benefit association within the intent of this Code. Any society,
association, or corporation principally organized as a labor union shall be governed
by the Labor Code notwithstanding any mutual benefit feature provisions in its
charter as incident to its organization.) and Trusts for Charitable Use (SEC. 410. The
term trust for charitable uses within the intent of this Code, shall include, all real or
personal properties or funds, as well as those acquired with the fruits or income
therefrom or in exchange or substitution thereof, given to or received by any person,
corporation, association, foundation or entity, except the National Government, its
instrumentalities or political subdivisions, for charitable, benevolent, educational
pious, religious, or other uses for the benefit of the public at large or a particular
portion hereof or for the benefit of an indefinite number of persons.) (Sections 396 to
413)
2.
Chapter VIII- Insurance Commissioner (Section 414- Administrative Functions,
Section 415- Power to Impose Fines/Suspensions- Section 415, Adjudicatory
Powers-Note: it is concurrent with courts but the filing with the commissioner shall
preclude civil courts from taking cognizance of a suit over the same subject matter.
Decisions are appealable to the CA within 30 days by notice of appeal (Section 416).