Zarah Notes

Commercial Law Review
Law on Insurance
Maria Zarah Villanueva - Castro
INSURANCE CODE (P.D. 1460 as amended) Q: Is there a contract?

A: YES.
INTRODUCTION: Importance of knowing whether the
A. Laws governing Insurance contract is one of adhesion: In case of
Insurance Code – primary law doubt, the contract shall be interpreted
New Civil Code – applied suppletorily strictly against the insurer and liberally in
specifically on law on obligations and contracts favor of the insured.
GSIS Act Q: is this rule unfair?
Property Insurance Law A: NO. Because the contract was already
Act 1498 prepared by the insurer, the only thing that
the insured can do is either take it wholly or
B. General Concept of Insurance leave it.
Contract of Insurance is an agreement whereby 3. Aleatory – The obligation of the insurer to
one undertakes for a consideration to pay the proceeds of the insurance arises
indemnify another against loss, damage or only upon the happening of an event which
liability arising from an unknown or contingent is uncertain, or which is to occur at an
event. (Sec. 2 par. 2) indeterminate time. (Article 2010 NCC)
*It is a contract of assumption of risk *The insurer becomes liable upon the
Q: Who will take the risk? happening of the peril insured against.
A: Insurer *One or both parties are reciprocally bound
Q: Who will be exposed to the risk? to give or do something for consideration
A: Insured upon the happening of an event which is
uncertain or to which is to occur at an
C. Characteristics indeterminate time.
1. Risk Distributing Device – the device of 4. Contract of Indemnity - The insured who
insurance serves to distribute the risk of has insurable interest over a property is
economic loss among as many as possible only entitled to recover the amount of
to those who are subject to the same kind actual loss sustained and the burden is
of risk. upon him to establish the amount of such
*The risk is distributed to the group of loss.
persons having the same risk. *It is the basis of all property insurance.
Q: Why is it a risk distribution device? *Life insurance is not a contract of
A: Insurer has different policyholders that indemnity. Life is not subject to pecuniary
contribute to a common fund for the same estimation; Life is precious.
risk. The common fund will indemnify the General Rule: Insurance contract is a
person who suffers loss for the same risk. contract of indemnity.
Catch: not all policyholders will suffer the Exception: Life insurance
same risk at the same time. 5. Uberrimae Fides Contract/Utmost Good
2. Contract of Adhesion – Insurance is a Faith – The contract of insurance is one of
contract of adhesion considering that most perfect good faith not for the insured alone
of the terms of the contract do not result but equally so for the insurer; in fact, it is
from mutual negotiations between the more so for the latter since its dominant
parties as they are prescribed by the insurer bargaining position carries with it stricter
in printed form to which the insured may responsibility.
“adhere” if he chooses but which he cannot *Since there was an assumption of risk on
change. the part of the insurer, it is their duty to
*Insurer always comes up with already make an intelligent estimates that is the
made contract. reason why it requires the parties to the
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contract of insurance to disclose conditions Sec. 77 of the Insurance Code states that:
affecting the risk of which he is aware, or “An insurer is entitled to payment of the
material fact, which the applicant knows, premium as soon as the thing insured is
and those, which he ought to know. exposed to the peril insured
*Material facts are facts needed by the against. Notwithstanding any agreement to
insurer for the determination of whether he the contrary, no policy or contract of
will assume or not the risk. insurance issued by an insurance company
is valid and binding unless and until the
D. Elements of Insurance premium thereof has been paid, except in
1. Existence of an insurable interest the case of a life or an industrial life policy
Sec. 12 of the Insurance Code provides that: whenever the grace period provision
“The interest of a beneficiary in a life applies.”
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or E. Right of Subrogation
accessory in willfully bringing about the *This principle is a normal incident of indemnity
death of the insured; in which event, the property insurance as a legal effect of payment;
nearest relative of the insured shall receive it inures to the insurer without any formal
the proceeds of said insurance if not assignment or any express stipulation to that
otherwise disqualified.” effect in the policy. Said right is not dependent
Sec. 13 of the Insurance Code provides that: upon nor does it grow out of any privity of
“Every interest in property, whether real or contract. Payment to the insured makes the
personal, or any relation thereto, or liability insurer an assignee in equity.
in respect thereof, of such nature that a *The insurer can only recover from the third
contemplated peril might directly damnify person what the insured could have recovered.
the insured, is an insurable interest.” Thus, there can be no recovery if the insurer
Sec. 14 of the Insurance Code provides that: voluntarily paid even if the loss is not covered
“An insurable interest in property may by the policy.
consist in: *The insured can no longer recover from the
(a) An existing interest; offending party what was paid to him by the
(b) An inchoate interest founded on an insurer but he can recover any deficiency, that
existing interest; or is, if his damages is more than what was paid.
(c) An expectancy, coupled with an existing The deficiency is not covered by the right of
interest in that out of which the expectancy subrogation.
arises.” Cases when there is no right of subrogation:
2. Risk of loss 1. The insured by his own act releases the
Sec. 51 paragraph g of the Insurance Code wrongdoer/third person liable for the loss
provides that: “ A policy of insurance must 2. Where the insurer pays the insured for a
specify: x x x (g) The period during which loss or risk not covered by the policy
the insurance is to continue.” 3. In life insurance
3. Assumption of risks 4. For recovery of loss in excess of insurance
Sec. 2 of the Insurance Code states that: coverage
“xxx (1) A “contract of insurance” is an
agreement whereby one undertakes for a CONTRACT OF INSURANCE:
consideration to indemnify another against A. Requisites of a contract of Insurance
loss, damage or liability arising from an 1. A subject matter in which the insured has
unknown or contingent event.” an insurable interest
4. Scheme to distribute losses 2. Event or peril insured against which may be
5. Payment of premiums any future contingent or unknown event,
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past or future and a duration for the risk *In property insurance, the beneficiary must
thereof have insurable interest on the property.
3. A promise to pay or indemnify in a fixed or Sec. 11 of the Insurance Code states that: “The
ascertainable amount insured shall have the right to change the
4. A consideration known as premium beneficiary he designated in the policy, unless
5. Meeting of the minds of the parties he has expressly waived this right in said
policy.” *The designation is revocable unless
B. Perfection the right to revoke is expressly waived in the
*An insurance contract is consensual contract policy.
and is therefore perfected the moment there is Sec. 12 of the Insurance Code states that: “The
a meeting of minds with respect to the object interest of a beneficiary in a life insurance policy
and the cause or consideration. shall be forfeited when the beneficiary is the
*What is being followed in insurance contracts principal, accomplice, or accessory in willfully
is what is known as the Cognition Theory. bringing about the death of the insured; in
Q: What is the crucial point? which event, the nearest relative of the insured
A: The point wherein there must be an actual shall receive the proceeds of said insurance if
communication to the insured of the approval not otherwise disqualified.”
of the application. *In life or health insurance, the insured cannot
*In Great Pacific Life Assurance Corporation v assign the policy if the designation of the
CA, the SC held that the insured is the one beneficiary is irrevocable. Reason: The
making the offer by submitting an application to irrevocable beneficiary has vested right.
the insurer and the latter accepts the offer by *If the insured refuses to pay the premiums, the
approving the application. Thus, mere designated irrevocable beneficiary may
submission of the application without the continue the policy by paying premiums that
corresponding approval of the policy does not are due. (Article 1236 NCC)
result in the perfection of the contract of Q: Despite irrevocable designation, may the
insurance. insured revoke the beneficiary?
A: YES. Under Article 42 of the Family Code,
C. Parties to a contract of Insurance Article 43 (4) of the Family Code, Article 50 of
Sec. 6 of the Insurance Code states that: “Every the Family Code and Article 64 of the Family
person, partnership, association, or corporation Code.
duly authorized to transact insurance business 1. Rule on minors
as elsewhere provided in this code, may be an Sec. 3 of the Insurance Code states that:
insurer.” “Any minor of the age of eighteen years or
Sec. 7 of the Insurance Code states that: more, may, notwithstanding such minority,
“Anyone except a public enemy may be contract for life, health and accident
insured.” insurance, with any insurance company duly
Beneficiary – person designated to receive authorized to do business in the Philippines,
proceeds of policy when risk attaches. provided the insurance is taken on his own
General Rule: When one insures his own life, he life and the beneficiary appointed is the
may designate any person as the beneficiary, minor's estate or the minor's father, mother,
whether or not the beneficiary has an insurable husband, wife, child, brother or sister.”
interest in the life of the insured. *This portion is repealed by RA 6809. Under
Exceptions: Persons specified in Article 739 in RA 6809, minors are no longer allowed to
re Article 2012 of the New Civil Code. enter into insurance contracts. This rule is
*The designation of persons mentioned in absolute.
Article 739 is void but the policy is binding. 2. Rule on married women
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Sec. 3 of the Insurance Code provides that: B. Reason for the requirement of insurable
“The married woman or the minor herein interest
allowed to take out an insurance policy may *A policy issued to a person without the
exercise all the rights and privileges of an requisite insurable interest in the subject
owner under a policy.” matter is a mere wager policy or contract,
*Under RA 7192, married women can enter hence, it is VOID.
into insurance contracts without the Evil sought to be avoided: Temptation to
assistance of their husbands. destroy the thing insured.
Reason: He has nothing to lose but everything
D. Subject matter of Insurance to gain.
Sec. 3 of the Insurance Code states that: “Any
contingent or unknown event, whether past or C. Insurable interest in Life Insurance
future, which may damnify a person having an Sec. 10 of the Insurance Code provides that:
insurable interest, or create a liability against “Every person has an insurable interest in the
him, may be insured against, subject to the life and health:
provisions of this chapter.” (a) Of himself, of his spouse and of his children;
Sec. 4 of the Insurance Code states that: “The (b) Of any person on whom he depends wholly
preceding section does not authorize an or in part for education or support, or in whom
insurance for or against the drawing of any he has a pecuniary interest;
lottery, or for or against any chance or ticket in (c) Of any person under a legal obligation to him
a lottery drawing a prize.” for the payment of money, or respecting
property or services, of which death or illness
E. Insurance not a wagering contract might delay or prevent the performance; and
Sec. 4 of the Insurance Code states that: “The (d) Of any person upon whose life any estate or
preceding section does not authorize an interest vested in him depends.”
insurance for or against the drawing of any Q: May warehouseman insure the goods
lottery, or for or against any chance or ticket in deposited in his warehouse?
a lottery drawing a prize.” A: YES. In case of loss of the goods the
*Wagering contract is not allowed because it is warehouseman is liable to the owner of the
against public policy. goods.
Reason: The insured should not be happy Q: May bottomry lender insures the
because of the loss he suffered. hypothecated vessel?
Q: What prevents insurance policy from being a A: YES. There is an insurable interest up to the
wagering contract? amount covered by the bottomry.
A: Insurable interest. Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.
INSURABLE INTEREST: *In life insurance, persons prohibited to make
A. Concept of Insurable Interest in General donation to each other are also prohibited to
*A person has an insurable interest in the become beneficiaries of each other.
subject matter if he is so connected, so situated, *For disqualification purposes, what is needed
so circumstanced, so related, that by the is only a preponderance of evidence.
preservation of the same he shall derive
pecuniary benefit, and by its destruction he D. Insurable interest in Property Insurance
shall suffer pecuniary loss, damage or Sec. 13 of the Insurance Code states that:
prejudice.” “Every interest in property, whether real or
*Insurable interest does not exist by legal personal, or any relation thereto, or liability in
relationship or by virtue of law. respect thereof, of such nature that a
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contemplated peril might directly damnify the executed by way of gaming or wagering, is
insured, is an insurable interest. “ void.”
Sec. 14 of the Insurance Code states that: “An 1. Insurable interest in case of mortgaged
insurable interest in property may consist in: property
(a) An existing interest; Sec. 8 of the Insurance Code states that:
(b) An inchoate interest founded on an existing “Unless the policy otherwise provides,
interest; or where a mortgagor of property effects
(c) An expectancy, coupled with an existing insurance in his own name providing that
interest in that out of which the expectancy the loss shall be payable to the mortgagee,
arises.” or assigns a policy of insurance to a
*In general, a person has an insurable interest mortgagee, the insurance is deemed to be
in the property, if he derives pecuniary benefit upon the interest of the mortgagor, who
or advantage from its preservation or would does not cease to be a party to the original
suffer pecuniary loss, damage or prejudice by its contract, and any act of his, prior to the loss,
destruction whether he has or has no title in, or which would otherwise avoid the insurance,
lien upon, or possession of the property. will have the same effect, although the
*Existence of insurable interest is a matter of property is in the hands of the mortgagee,
public policy, hence, the principle of estoppels but any act which, under the contract of
cannot be invoked. insurance, is to be performed by the
*In order for hope or expectancy to be mortgagor, may be performed by the
insurable, it must be coupled with existing mortgagee therein named, with the same
interest out of which the expectancy arises. It effect as if it had been performed by the
must be founded on an actual right to the thing mortgagor.”
or upon a valid contract. a. Standard or Union Mortgage Clause –
Sec. 19 of the Insurance Code states that: “An subsequent acts of the mortgagor
interest in property insured must exist when cannot affect the rights of the assignee.
the insurance takes effect, and when the loss b. Open or Loss Payable Clause – acts of
occurs, but not exist in the meantime; and the mortgagor affect the mortgagee.
interest in the life or health of a person insured Reason: Mortgagor does not cease to
must exist when the insurance takes effect, but be a party to the contract.
need not exist thereafter or when the loss Basis: Sec. 8 of the Insurance Code
occurs.” states that: “Unless the policy
Sec. 20 of the Insurance Code states that: otherwise provides, where a mortgagor
“Except in the cases specified in the next four of property effects insurance in his own
sections, and in the cases of life, accident, and name providing that the loss shall be
health insurance, a change of interest in any payable to the mortgagee, or assigns a
part of a thing insured unaccompanied by a policy of insurance to a mortgagee, the
corresponding change in interest in the insurance is deemed to be upon the
insurance, suspends the insurance to an interest of the mortgagor, who does not
equivalent extent, until the interest in the thing cease to be a party to the original
and the interest in the insurance are vested in contract, and any act of his, prior to the
the same person.” loss, which would otherwise avoid the
Sec. 25 of the Insurance Code states that: insurance, will have the same effect,
“Every stipulation in a policy of insurance for although the property is in the hands of
the payment of loss whether the person insured the mortgagee, but any act which,
has or has not any interest in the property under the contract of insurance, is to be
insured, or that the policy shall be received as performed by the mortgagor, may be
proof of such interest, and every policy performed by the mortgagee therein
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named, with the same effect as if it had insurance shall cease upon an alienation of
been performed by the mortgagor.” the thing insured.”
Sec. 9 of the Insurance Code states that: Sec. 57 of the Insurance Code provides that:
“If an insurer assents to the transfer of “A policy may be so framed that it will inure
an insurance from a mortgagor to a to the benefit of whomsoever, during the
mortgagee, and, at the time of his continuance of the risk, may become the
assent, imposes further obligation on owner of the interest insured.”
the assignee, making a new contract *The policy follows where the interest is.
with him, the act of the mortgagor Sec. 58 of the Insurance Code provides that:
cannot affect the rights of said “The mere transfer of a thing insured does
assignee.” not transfer the policy, but suspends it until
2. Effect of change of interest in the thing the same person becomes the owner of
insured both the policy and the thing insured.”
Sec. 20 of the Insurance Code states that: Article 1306 of the New Civil Code provides
“Except in the cases specified in the next that: “The contracting parties may establish
four sections, and in the cases of life, such stipulations, clauses, terms and
accident, and health insurance, a change of conditions as they may deem convenient,
interest in any part of a thing insured provided they are not contrary to law,
unaccompanied by a corresponding change morals, good customs, public order, or
in interest in the insurance, suspends the public policy.
insurance to an equivalent extent, until the
interest in the thing and the interest in the Insurable Insurable
insurance are vested in the same person.” Interest in Interest in
Sec. 21 of the Insurance Code states that: Property Life
“A change in interest in a thing insured, As to Limited to General
measure the actual Rule:
after the occurrence of an injury which
value of the Insurable
results in a loss, does not affect the right of interest in Interest in
the insured to indemnity for the loss.” the life is
Sec. 22 of the Insurance Code states that: property. unlimited.
“A change of interest in one or more several Exception: In
distinct things, separately insured by one life
insurance
policy, does not avoid the insurance as to
effected by a
the others.”
creditor on
*This is a divisible policy. the life of
Sec. 23 of the Insurance Code states that: the debtor.
“A change on interest, by will or succession, As to time The General
on the death of the insured, does not avoid when insurable Rule: It is
an insurance; and his interest in the insurable interest enough that
interest must exists when the insurable
insurance passes to the person taking his
exist the interest
interest in the thing insured.”
insurance exists at the
*This is by operation of law. takes effect time the
Sec. 24 of the Insurance Code states that: and when policy takes
“A transfer of interest by one of several the loss effect and
partners, joint owners, or owners in occurs but need not
common, who are jointly insured, to the not need exist at the
exist in the time of the
others, does not avoid an insurance even
meantime. loss.
though it has been agreed that the Exception:
Obligee
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must have warranties and condition are devices that are related to
insurable the execution of the contract.
interest at
the time the A. Concealment
policy took 1. Concept
effect and at Q: When is there concealment?
the time of
Sec. 26 of the Insurance Code provides that:
loss.
“A neglect to communicate that which a
As to There must The
expectation be a legal expectation party knows and ought to communicate, is
of benefit to basis. of the called a concealment.”
be derived benefit to be 2. Duty to Communicate
derived need Sec. 28 of the Insurance Code states that:
not have any “Each party to a contract of insurance must
legal basis.
communicated to the other, in good faith,
As to the The General
beneficiary’s beneficiary Rule: The all facts within his knowledge which are
interest must have beneficiary material to the contract and as to which he
insurable need not makes no warranty, and which the other
interest have has not the means of ascertaining.”
over the insurable 3. Test of Materiality
thing interest over Sec. 31 of the Insurance Code provides that:
insured. the life of
“Materiality is to be determined not by the
The policy is the insured
still valid, if the event, but solely by the probable and
only the insured reasonable influence of the facts upon the
designation himself party to whom the communication is due,
was avoided secured the in forming his estimate of the disadvantages
because the policy. of the proposed contract, or in making his
beneficiary Exception: If inquiries.”
has no the life
*The fact disclosed may not be the
insurable insurance
interest. was proximate cause of the loss still there is
obtained by breach because there is a vitiation of
the consent, the contract is voidable.
beneficiary, 4. Effect of Concealment
the latter Sec. 27 of the Insurance Code provides that:
must have
“A concealment whether intentional or
insurable
unintentional entitles the injured party to
interest over
the life of rescind a contract of insurance.”
the insured. Sec. 29 of the Insurance Code provides that:
Q: In case where the designated beneficiary “An intentional and fraudulent omission, on
cannot claim the proceeds due to the fact the part of one insured, to communicate
that such designation was void, who can information of matters proving or tending
claim the proceeds? to prove the falsity of a warranty, entitles
A: Insured. the insurer to rescind.”
*It vitiates the contract and entitles the
DEVICES FOR ASCERTAINING AND CONTROLLING RISK insurer to rescind, even if the death or loss
AND LOSS: is due to a cause not related to the
*Concealment and representation are devices that are concealed matter.
related to the formation of the contract whereas 5. Matters which need not be communicated
“Neither party to a contract of insurance is
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bound to communicate information of the to the issuance of the policy to give

matters following, except in answer to the information to the insurer and otherwise
inquiries of the other: induce him to enter into the insurance
(a) Those which the other knows; contract.
(b) Those which, in the exercise of ordinary *Representation per se is not wrong as long
care, the other ought to know, and of which as such representation is true.
the former has no reason to suppose him *The false representation may still be
ignorant; corrected as long as it is made before the
(c) Those of which the other waives issuance of the policy.
communication; 2. Kinds of Representation
(d) Those which prove or tend to prove the Sec. 36 of the Insurance Code provides that:
existence of a risk excluded by a warranty, “A representation may be oral or written.”
and which are not otherwise material; and Sec. 37 of the Insurance Code provides that:
(e) Those which relate to a risk excepted “representation may be made at the time of,
from the policy and which are not or before, issuance of the policy.”
otherwise material.” Sec. 39 of the Insurance Code provides that:
*Things need not be disclosed. “A representation as to the future is to be
Sec. 32 of the Insurance Code provides that: deemed a promise, unless it appears that it
“Each party to a contract of insurance is was merely a statement of belief or
bound to know all the general causes which expectation. “
are open to his inquiry, equally with that of Sec. 42 of the Insurance Code provides that:
the other, and which may affect the “. A representation must be presumed to
political or material perils contemplated; refer to the date on which the contract goes
and all general usages of trade.” into effect.”
Sec. 34 of the Insurance Code provides that: 3. Test of Materiality
“Information of the nature or amount of Sec. 46 of the Insurance Code provides that:
the interest of one insured need not be “The materiality of a representation is
communicated unless in answer to an determined by the same rules as the
inquiry, except as prescribed by section materiality of a concealment.”
fifty-one.” *Facts that may probably and reasonably
Sec. 35 of the Insurance Code provides that: influence the other party in forming his
“Neither party to a contract of insurance is estimate.
bound to communicate, even upon inquiry, 4. Effect of Alteration or Withdrawal
information of his own judgment upon the Sec. 41 of the Insurance Code provides that:
matters in question. “ “A representation may be altered or
6. Waiver of Information withdrawn before the insurance is effected,
Sec. 33 of the Insurance Code provides that: but not afterwards.”
“The right to information of material facts 5. Time to which representation refers
may be waived, either by the terms of the Sec. 42 of the Insurance Code states that:
insurance or by neglect to make inquiry as “A representation must be presumed to
to such facts, where they are distinctly refer to the date on which the contract goes
implied in other facts of which information into effect.”
is communicated.” 6. Effect when representation is obtained
from third persons
B. Representation Sec. 43 of the Insurance Code provides that:
1. Concept “When a person insured has no personal
Representations are factual statements knowledge of a fact, he may nevertheless
made by the insured at the time of or prior repeat information which he has upon the
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subject, and which he believes to be true, Exception: In case of life insurance made
with the explanation that he does so on the payable on the death of the insured.
information of others; or he may submit the Q: How rescission is made?
information, in its whole extent, to the A: By sending notice of cancellation or
insurer; and in neither case is he rescission to the insured.
responsible for its truth, unless it proceeds Even if there is a court action, the insurer
from an agent of the insured, whose duty it may raise concealment or representation as
is to give the information.” an affirmative defense.
7. When presumed false; effect of falsity 2. When Life insurance policy becomes
Sec. 44 of the Insurance Code provides that: incontestable
“A representation is to be deemed false Sec. 48 of the Insurance Code states that:
when the facts fail to correspond with its “Whenever a right to rescind a contract of
assertions or stipulations.” insurance is given to the insurer by any
Sec. 45 of the Insurance Code states that: provision of this chapter, such right must be
“If a representation is false in a material exercised previous to the commencement
point, whether affirmative or promissory, of an action on the contract.
the injured party is entitled to rescind the After a policy of life insurance made
contract from the time when the payable on the death of the insured shall
representation becomes false. The right to have been in force during the lifetime of the
rescind granted by this Code to the insurer insured for a period of two years from the
is waived by the acceptance of premium date of its issue or of its last reinstatement,
payments despite knowledge of the ground the insurer cannot prove that the policy is
for rescission.” void ab initio or is rescindible by reason of
the fraudulent concealment or
C. Remedies available in case of Concealment or misrepresentation of the insured or his
False Representation agent.”
1. When rescission by the insurer may be a. Requisites for incontestability
exercised 1. The insurance is a life insurance
Sec. 48 of the Insurance Code states that: policy payable on the death of the
“Whenever a right to rescind a contract of insured.
insurance is given to the insurer by any 2. It has been in force during the
provision of this chapter, such right must be lifetime of the insured for at least 2
exercised previous to the commencement years from its date of issue or of its
of an action on the contract. last reinstatement. The period of 2
After a policy of life insurance made years may be shortened but it
payable on the death of the insured shall cannot be extended by stipulation.
have been in force during the lifetime of the *The defense should be misrepresentation
insured for a period of two years from the or concealment only.
date of its issue or of its last reinstatement, *If the insured dies within 2 year period,
the insurer cannot prove that the policy is the insurer may still rescind the contract. If
void ab initio or is rescindible by reason of the insured died after the 2 year period, the
the fraudulent concealment or insurer cannot rescind the contract.
misrepresentation of the insured or his b. Theory and Object of incontestability
agent.” After a policy of life insurance made
General Rule: Prescriptive period: Any time payable on the death of the insured
before the commencement of a court shall have been in force during the
action on the contract. lifetime of the insured for a period of 2
years from the date of its issue or of its
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last reinstatement, the insurer cannot Part of the contract A collateral

prove that the policy is void ab initio or inducement
is rescindable by reason of the Written on the Need not be written
fraudulent concealment or policy or in a valid
rider or attachment
misrepresentation of the insured or his
Generally Should be
agent. conclusively established to be
c. Defenses not barred by presumed to be material
incontestability material
1. The person taking the insurance The fact warranted Requires only to be
lacked insurable interest as must be strictly substantially true
required by law complied with
2. The cause of the death of the
2. Kinds of Warranties
insured is an excepted risk
1. Express
3. The premiums have not been paid
2. Implied – warranties that are deemed
4. The conditions of the policy relating
included in the contract although not
to military or naval service have
expressly mentioned.
been violated
3. Affirmative – asserts the existence of a
5. The fraud is of a particularly vicious
fact or condition at the time it is made.
type
4. Promissory – the insured stipulates that
6. The beneficiary failed to furnish
certain facts or conditions shall exists or
proof of death or to comply with
thing shall be done or omitted.
any condition imposed by the policy
3. Time to which warranty refers
after the loss has happened
7. The action was not brought within
“A warranty may relate to the past, the
the time specified.
present, the future, or to any or all of
8.
these.”
D. Warranties
4. Effect of Breach
1. Concept; distinguished from
Sec. 74 of the Insurance Code states that:
representation
“The violation of a material warranty, or
Warranty is a statement or promise set
other material provision of a policy, on the
forth in the policy or by reference
part of either party thereto, entitles the
incorporated therein, the untruth or non-
other to rescind.”
fulfillment of which in any respect, and
without reference to whether insurer was
“A policy may declare that a violation of
in fact prejudiced by such untruth or non-
specified provisions thereof shall avoid it,
fulfillment , renders the policy voidable.
otherwise the breach of an immaterial
Condition is a provision wherein certain
provision does not avoid the policy.”
things are mandated by the insurer to be
complied with by the insured in order for
“A breach of warranty without fraud merely
the latter to recover.
exonerates an insurer from the time that it
Examples:
occurs, or where it is broken in its inception,
1. Filing of the claim on time
prevents the policy from attaching to the
2. Notice of loss
risk.”
3. Proof of loss
*The condition may be complied with POLICY OF INSURANCE:
before or after the loss.
A. Definition and Form
Warranty Representation Sec. 49 of the Insurance Code states that: “The
written instrument in which a contract of
10
Law on Insurance
insurance is set forth, is called a policy of upon which the final premium is to be
insurance.” determined;
Sec. 50 of the Insurance Code provides that: (d) The property or life insured;
“The policy shall be in printed form which may (e) The interest of the insured in property
contain blank spaces; and any word, phrase, insured, if he is not the absolute owner thereof;
clause, mark, sign, symbol, signature, number, (f) The risks insured against; and
or word necessary to complete the contract of (g) The period during which the insurance is to
insurance shall be written on the blank spaces continue.”
provided therein. Any rider, clause, warranty or
endorsement purporting to be part of the D. Papers attached to the policy and their binding
contract of insurance and which is pasted or effect (rider, warranties, clause, endorsement)
attached to said policy is not binding on the Rider is an attachment to an insurance policy
insured, unless the descriptive title or name of that modifies the conditions of the policy by
the rider, clause, warranty or endorsement is expanding or restricting its benefits or excluding
also mentioned and written on the blank spaces certain conditions from the coverage.
provided in the policy. Unless applied for by the *Riders, together with other attachments to the
insured or owner, any rider, clause, warranty or policy like clause, warranty or endorsements,
endorsement issued after the original policy are not binding on the insured unless the
shall be countersigned by the insured or owner, descriptive title or name thereof is mentioned
which countersignature shall be taken as his and written on the blank spaces provided in the
agreement to the contents of such rider, clause, policy.
warranty or endorsement. Group insurance and Purpose: To modify the conditions or provisions.
group annuity policies, however, may be Interpretation: In case of doubt, riders prevail
typewritten and need not be in printed form.” over the policy.
*Contract of insurance may be made in any *Riders and the like shall be countersigned by
form but the policy of insurance must be in the insured or owner unless he was the one
writing. who applied for the rider, clause, and warranty.
*When the requirements for a rider are
B. Fine Print Rule complied with including clause, warranty or
Insurance is a contract of adhesion considering endorsement, it is considered part of the policy.
that most of the terms of the contract do not *It is a part of the original policy which is in the
result from mutual negotiations between the nature of a conditional obligation.
parties as they are prescribed by the insurer in
printed form to which the insured may E. Kinds of Policy
“adhere” if he chooses but which he cannot 1. Open
change. Sec. 60 of the Insurance Code states that:
“An open policy is one in which the value of
C. Contents of the Policy the thing insured is not agreed upon, but is
Sec. 51 of the Insurance Code provides that: “A left to be ascertained in case of loss.”
policy of insurance must specify: *To put a threshold for purposes of
(a) The parties between whom the contract is premium.
made; Advantage: actual valuation; the final
(b) The amount to be insured except in the valuation is accurate value of the property
cases of open or running policies; Disadvantage: hassle
(c) The premium, or if the insurance is of a Example:
character where the exact premium is only Warehouse valued for P1M
determinable upon the termination of the At the time of loss the actual valuation of
contract, a statement of the basis and rates the warehouse is P800,000
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Law on Insurance
The insured can only recover P800,000 case of extension in compliance with such rules
2. Valued and regulations. “
Sec. 61 of the Insurance Code provides that: *This is a preliminary contract of insurance.
“A valued policy is one which expresses on *The protection is temporary; limited to 60 days
its face an agreement that the thing insured only
shall be valued at a specific sum.” *In Pacific Timber Export Corporation v CA, the
Example: SC held that no separate premium is required
a. Warehouse valued for P1M for the cover note. As an exception, the parties
Agreed valuation is P1M may agree otherwise.
The insured can recover the whole P1M
without proving the actual value of the G. Cancellation of Policy
property. Sec. 64 of the Insurance Code states that: “No
b. Warehouse valued for P1.5M policy of insurance other than life shall be
Agreed valuation is P1M cancelled by the insurer except upon prior
The insurer can only recover P1M notice thereof to the insured, and no notice of
3. Running cancellation shall be effective unless it is based
Sec. 62 of the Insurance Code provides that: on the occurrence, after the effective date of
“A running policy is one which the policy, of one or more of the following:
contemplates successive insurances, and (a) non-payment of premium;
which provides that the object of the policy (b) conviction of a crime arising out of acts
may be from time to time defined, increasing the hazard insured against;
especially as to the subjects of insurance, by (c) discovery of fraud or material
additional statements or indorsements.” misrepresentation;
*Usually covers stock and goods in (d) discovery of willful or reckless acts or
warehouse omissions increasing the hazard insured against;
Purpose: Avoidance of over and under (e) physical changes in the property insured
insurance. which result in the property becoming
uninsurable; or
F. Cover Notes (f) a determination by the Commissioner that
Sec. 52 of the Insurance Code provides that: the continuation of the policy would violate or
“Cover notes may be issued to bind insurance would place the insurer in violation of this
temporarily pending the issuance of the Code.”
policy. Within sixty days after the issue of the Prescriptive Period:
cover note, a policy shall be issued in lieu Oral = 6 years; written= 10 years
thereof, including within its terms the identical Sec. 65 of the Insurance Code states that: “All
insurance bound under the cover note and the notices of cancellation mentioned in the
premium therefor. Cover notes may be preceding section shall be in writing, mailed or
extended or renewed beyond such sixty days delivered to the named insured at the address
with the written approval of the Commissioner shown in the policy, and shall state (a) which of
if he determines that such extension is not the grounds set forth in section sixty-four is
contrary to and is not for the purpose of relied upon and (b) that, upon written request
violating any provisions of this Code. The of the named insured, the insurer will furnish
Commissioner may promulgate rules and the facts on which the cancellation is based.”
regulations governing such extensions for the Sec. 66 of the Insurance Code states that: “In
purpose of preventing such violations and may case of insurance other than life, unless the
by such rules and regulations dispense with the insurer at least forty-five days in advance of the
requirement of written approval by him in the end of the policy period mails or delivers to the
named insured at the address shown in the
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Law on Insurance
policy notice of its intention not to renew the Sec. 78 of the Insurance Code states that: “An
policy or to condition its renewal upon acknowledgment in a policy or contract of
reduction of limits or elimination of coverages, insurance or the receipt of premium is
the named insured shall be entitled to renew conclusive evidence of its payment, so far as to
the policy upon payment of the premium due make the policy binding, notwithstanding any
on the effective date of the renewal. Any policy stipulation therein that it shall not be binding
written for a term of less than one year shall be until the premium is actually paid.”
considered as if written for a term of one General Rule: No insurance policy issued or
year. Any policy written for a term longer than renewal is valid and binding until actual
one year or any policy with no fixed expiration payment of premium. Any agreement to the
date shall be considered as if written for contrary is void. (Cash and Carry Rule)
successive policy periods or terms of one year.” Exceptions:
1. In case of life and industrial life whenever
H. Time to commence action on the policy; effect the grace period provision applies (Sec. 77);
of stipulation Requisites:
Q: When cause of action accrues? a. Life and industrial life insurance
A: From the denial of the claim. b. There is a grace period
Sec. 63 of the Insurance Code provides that: “A c. Grace period still exists
condition, stipulation, or agreement in any 2. Where there is an acknowledgment in the
policy of insurance, limiting the time for contract or policy of insurance that the
commencing an action thereunder to a period premium had already been paid (Sec. 78);
of less than one year from the time when the Conclusive effect: the validity of the
cause of action accrues, is void.” contract/policy and its binding effect.
*No conclusive effect as to the payment of
PREMIUM: premium.
A. Concept *Acknowledgment results to estoppel
Premium is the consideration paid to an insurer 3. The rule laid down in Makati Tuscany
for undertaking to indemnify the insured Condominium v CA to the effect that Sec.
against a specified peril. 77 may not apply if the parties have agreed
Q: Who pays the premium? to the payment of the premium in
A: Insured installments and partial payment has been
Q: What is the consideration? made at the time of the loss;
A: Insured: premium; Insurer: Assumption of *By express agreement
risk Q: What was agreed upon?
A: Payment by instalment plan
B. Effect of non-payment of premium; exceptions 4. Where a credit term was agreed upon like
Sec. 77 of the Insurance Code states that: “. An the agreement in UCPB General Insurance,
insurer is entitled to payment of the premium Inc. v Masagana Telemart where the
as soon as the thing insured is exposed to the insurer granted a 60-90 day credit term for
peril insured against. Notwithstanding any the payment of the premiums despite full
agreement to the contrary, no policy or awareness of Sec.77;
contract of insurance issued by an insurance *By previous conduct/practice
company is valid and binding unless and until *Insured = principle of equity; insurer =
the premium thereof has been paid, except in estoppel.
the case of a life or an industrial life policy 5. Where the parties are barred by estoppels
whenever the grace period provision applies.” Article 1306 of the : “New Civil Code states that:
*This is called as Cash and Carry Rule “The contracting parties may establish such
stipulations, clauses, terms and conditions as
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Law on Insurance
they may deem convenient, provided they are A. Beneficiary

not contrary to law, morals, good customs, Sec. 11 of the Insurance Code provides that:
public order, or public policy.” “The insured shall have the right to change the
beneficiary he designated in the policy, unless
C. When insured entitled to return of premiums he has expressly waived this right in said
Sec. 79 of the Insurance Code states that: “A policy.”
person insured is entitled to a return of Sec. 12 of the Insurance Code provides that:
premium, as follows: “The interest of a beneficiary in a life insurance
(a) To the whole premium if no part of his policy shall be forfeited when the beneficiary is
interest in the thing insured be exposed to any the principal, accomplice, or accessory in
of the perils insured against; willfully bringing about the death of the insured;
(b) Where the insurance is made for a definite in which event, the nearest relative of the
period of time and the insured surrenders his insured shall receive the proceeds of said
policy, to such portion of the premium as insurance if not otherwise disqualified.”
corresponds with the unexpired time, at a pro Sec. 53 of the Insurance Code states that: “The
rata rate, unless a short period rate has been insurance proceeds shall be applied exclusively
agreed upon and appears on the face of the to the proper interest of the person in whose
policy, after deducting from the whole premium name or for whose benefit it is made unless
any claim for loss or damage under the policy otherwise specified in the policy.”
which has previously accrued; Provided, That no Sec. 56 of the Insurance Code states that:
holder of a life insurance policy may avail “When the description of the insured in a policy
himself of the privileges of this paragraph is so general that it may comprehend any
without sufficient cause as otherwise provided person or any class of persons, only he who can
by law.” show that it was intended to include him can
Sec. 80 of the Insurance Code states that: “If a claim the benefit of the policy.”
peril insured against has existed, and the Sec. 57 of the Insurance Code provides that: “A
insurer has been liable for any period, however policy may be so framed that it will inure to the
short, the insured is not entitled to return of benefit of whomsoever, during the continuance
premiums, so far as that particular risk is of the risk, may become the owner of the
concerned.” interest insured.”
Sec. 81 of the Insurance Code states that: “A Q: Who receives the proceeds?
person insured is entitled to return of the A: General Rule: Beneficiary
premium when the contract is voidable, on Exception: In case the designated beneficiary is
account of fraud or misrepresentation of the disqualified, it is the insured who receive the
insurer, or of his agent, or on account of facts, proceeds.
the existence of which the insured was ignorant General Rule: The designation of the
without his fault; or when by any default of the beneficiary is revocable.
insured other than actual fraud, the insurer Exception: Irrevocable
never incurred any liability under the policy.” In irrevocable designation, the general rule is
Sec. 82 of the Insurance Code states that: “In that the designated beneficiary cannot be
case of an over-insurance by several insurers, changed.
the insured is entitled to a ratable return of the Exceptions:
premium, proportioned to the amount by which 1. The beneficiary consented to the change
the aggregate sum insured in all the policies 2. Under Art. 45 of the Family Code which
exceeds the insurable value of the thing at risk.” substantially provides that the innocent
spouse has the authority to revoke the
PERSONS ENTITLED TO RECOVER ON THE POLICY AND designation of his beneficiary
CONDITIONS TO RECOVERY:
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Law on Insurance
3. In cases where the marriage is declared Sec. 55 of the Insurance Code provides that:
void ab initio “To render an insurance effected by one
4. In cases of annulment partner or part-owner, applicable to the
5. In cases of legal separation interest of his co-partners or other part-owners,
it is necessary that the terms of the policy
B. Limitations on the appointment of beneficiary should be such as are applicable to the joint or
Article 2012 of the New Civil Code states that: common interest. “
“Any person who is forbidden from receiving E. Notice and proof of loss
any donation under Article 739 cannot be Sec. 88 of the Insurance Code states that: “In
named beneficiary of a life insurance policy by case of loss upon an insurance against fire, an
the person who cannot make any donation to insurer is exonerated, if notice thereof be not
him, according to said article.” given to him by an insured, or some person
*The prohibition applies only to life insurance entitled to the benefit of the insurance, without
policy. unnecessary delay.”
*Under Article 1236 of the New Civil Code, the Sec. 89 of the Insurance Code states that:
beneficiary may pay the premium even against “When a preliminary proof of loss is required by
the will of the insurer. a policy, the insured is not bound to give such
Reason: Beneficiary has interest over the proof as would be necessary in a court of justice;
insurance policy. but it is sufficient for him to give the best
Article 739 of the New Civil Code states evidence which he has in his power at the
that: ”The following donations shall be void: time.”
(1) Those made between persons who were Sec. 90 of the Insurance Code provides that:
guilty of adultery or concubinage at the time of “All defects in a notice of loss, or in preliminary
the donation; proof thereof, which the insured might remedy,
(2) Those made between persons found guilty and which the insurer omits to specify to him,
of the same criminal offense, in consideration without unnecessary delay, as grounds of
thereof; objection, are waived.”
(3) Those made to a public officer or his wife, Sec. 91 of the Insurance Code provides that:
descendants and ascendants, by reason of his “Delay in the presentation to an insurer of
office. notice or proof of loss is waived if caused by any
In the case referred to in No. 1, the action for act of him, or if he omits to take objection
declaration of nullity may be brought by the promptly and specifically upon that ground.”
spouse of the donor or donee; and the guilt of Sec. 92 of the Insurance Code provides that: “If
the donor and donee may be proved by the policy requires, by way of preliminary proof
preponderance of evidence in the same action.” of loss, the certificate or testimony of a person
other than the insured, it is sufficient for the
C. Rule where insurance is made by an agent or insured to use reasonable diligence to procure
trustee it, and in case of the refusal of such person to
Sec. 54 of the Insurance Code provides that: give it, then to furnish reasonable evidence to
“When an insurance contract is executed with the insurer that such refusal was not induced by
an agent or trustee as the insured, the fact that any just grounds of disbelief in the facts
his principal or beneficiary is the real party in necessary to be certified or testified.”
interest may be indicated by describing the
insured as agent or trustee, or by other general DOUBLE INSURANCE:
words in the policy.” A. Definition and requisites
Sec. 93 of the Insurance Code provides that: “A
D. Rule where insurance if made by partner or double insurance exists where the same person
part owner
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Law on Insurance
is insured by several insurers separately in Sec. 94 of the Insurance Code states that:
respect to the same subject and interest.” “Where the insured is over-insured by double
Requisites: insurance:
1. The person insured is the same (a) The insured, unless the policy otherwise
2. There are two or more insurers insuring provides, may claim payment from the insurers
separately in such order as he may select, up to the
3. The subject matter is the same amount for which the insurers are severally
4. The interest insured is also the same liable under their respective contracts;
5. The risk or peril insured against is likewise (b) Where the policy under which the insured
the same claims is a valued policy, the insured must give
credit as against the valuation for any sum
B. Distinguished from Over-insurance received by him under any other policy without
Distinctions: regard to the actual value of the subject matter
insured;
Double Insurance Over-Insurance (c) Where the policy under which the insured
When the amount of claims is an unvalued policy he must give credit,
There may be no over- the insurance is
as against the full insurable value, for any sum
insurance as when the beyond the value of
sum total of the the insured’s insurable received by him under any policy;
amounts of the interest (d) Where the insured receives any sum in
policies issued does excess of the valuation in the case of valued
not exceed the policies, or of the insurable value in the case of
insurable interest of unvalued policies, he must hold such sum in
the insured
trust for the insurers, according to their right of
There are always There may only be one
several insurers insurer involved contribution among themselves;
(e) Each insurer is bound, as between himself
*There is over-insurance if the total amount and the other insurers, to contribute ratably to
exceeds the value of the thing insured. the loss in proportion to the amount for which
Example: he is liable under his contract.”
In Fire Insurance, A insured his property to X for Formula:
500,000, to Y for 1M and to Z for 1M totalling to Insurance Policy
P2.5M. The property valued only for 1M. In this --------------------------- x Amount of loss
situation there is over-insurance. Total of Policy taken
C. Stipulation against double insurance 500000

Q: Is double insurance legally prohibited? X = --------- x 1M = 200,000
A: General Rule: NO. 2.5M
Exception: If prohibited by an “other insurance
clause.”
Basis: Sec. 75 of the Insurance Code which 1M
provides that: “A policy may declare that a Y = -------- x 1M = 400,000
violation of specified provisions thereof shall 2.5M
avoid it, otherwise the breach of an immaterial
provision does not avoid the policy.” 1M
Z = -------- x 1M = 400,000
D. Rules for payment where there is over- 2.5M
insurance by double insurance
*The balance shall be returned.
16
Law on Insurance
*As far as the excess payment is concern, the or damage from the same occurrence of
excess shall be held in trust by the insured. any hazard insured against.
Reinsurance ceded as authorized under the
REINSURANCE: succeeding title shall be deducted in
determining the risk retained. As to surety
*This is called a Liability Insurance risk, deduction shall also be made of the
A. Definition amount assumed by any other company
Sec. 95 of the Insurance Code provides that: “A authorized to transact surety business and
contract of reinsurance is one by which an the value of any security mortgage, pledged,
insurer procures a third person to insure him or held subject to the surety's control and
against loss or liability by reason of such original for the surety's protection.”
insurance.” 2. Sec. 275 of the Insurance Code which
Example: provides that: “Every foreign insurance
In fire insurance, A insured his property against company desiring to withdraw from the
fire to X, X reinsured his obligation to Y. Philippines shall, prior to such withdrawal,
Q: Can A recover to the reinsurer? discharge its liabilities to policyholders and
A: General Rule: NO creditors in this country. In case of its
Reason: No privity of contract policies insuring residents of the Philippines,
Exception: Stipulation stating that the policy is it shall cause the primary liabilities under
taken for the benefit of the insured of the first such policies to be reinsured and assumed
contract of insurance. (Stipulation pour autrui) by another insurance company authorized
Q: Can X recover from Y even if X has not yet to transact business in the Philippines. In
pay A? the case of such policies as are subject to
A: YES. Immediately arises from the time the cancellation by the withdrawing company,
liability of X has occur. it may cancel such policies pursuant to the
terms thereof in lieu of such reinsurance
B. Nature and assumption of liabilities.”
Sec. 97 of the Insurance Code states that: “A
reinsurance is presumed to be a contract of C. Distinguished from double insurance
indemnity against liability, and not merely Distinctions:
against damage.” Reinsurance Double Insurance
Insurance of different Involves same interest
interests
“The original insured has no interest in a
Insurer becomes an Insurer remains in
contract of reinsurance.” insured in relation to such capacity
Q: Is reinsurance mandatory? reinsurer
A: General Rule: NO Original insured has no Insured in the 1st
Exceptions: interest in reinsurance contract is a party in
1. Sec. 215 of the Insurance Code which contract interest in the 2nd
provides that: “No insurance company contract
Subject of insurance is Subject of insurance is
other than life, whether foreign or domestic,
the original insurer’s property
shall retain any risk on any one subject of risk
insurance in an amount exceeding twenty Consent of original Insured has to give his
per centum of its net worth. For purposes insured, not necessary consent
of this section, the term "subject of
insurance" shall include all properties or D. Duty of reinsured to disclose facts
risks insured by the same insurer that Sec. 96 of the Insurance Code provides that:
customarily are considered by non-life “Where an insurer obtains reinsurance, except
company underwriters to be subject to loss under automatic reinsurance treaties, he must
17
Law on Insurance
communicate all the representations of the (c) Precious stones, jewels, jewelry, precious
original insured, and also all the knowledge and metals, whether in course of transportation or
information he possesses, whether previously otherwise;
or subsequently acquired, which are material to (d) Bridges, tunnels and other instrumentalities
the risk.“ of transportation and communication
(excluding buildings, their furniture and
MARINE INSURANCE: furnishings, fixed contents and supplies held in
A. Definition storage); piers, wharves, docks and slips, and
Marine Insurance includes policies that covers other aids to navigation and transportation,
risks connected with navigation, to which a ship, including dry docks and marine railways, dams
cargo, freightage, profits or other insurable and appurtenant facilities for the control of
interest in movable property, may be exposed waterways.
during a certain voyage or a fixed period of time. (2) "Marine protection and indemnity
Basis: Sec. 99 of the Insurance Code. insurance," meaning insurance against, or
against legal liability of the insured for loss,
B. Scope of marine insurance damage, or expense incident to ownership,
Sec. 99 of the Insurance Code provides that: operation, chartering, maintenance, use, repair,
“Marine Insurance includes: or construction of any vessel, craft or
(1) Insurance against loss of or damage to: instrumentality in use of ocean or inland
(a) Vessels, craft, aircraft, vehicles, goods, waterways, including liability of the insured for
freights, cargoes, merchandise, effects, personal injury, illness or death or for loss of or
disbursements, profits, moneys, securities, damage to the property of another person.”
choses in action, evidences of debts, valuable *In Roque v IAC, the SC held that cargo can be
papers, bottomry, and respondentia interests the subject of marine insurance, and once it is
and all other kinds of property and interests entered into, the implied warranty of
therein, in respect to, appertaining to or in seaworthiness immediately attaches to
connection with any and all risks or perils of whoever is insuring the cargo, whether he be
navigation, transit or transportation, or while the shipowner or not. Although he has no
being assembled, packed, crated, baled, control over the vessel, the shipper has control
compressed or similarly prepared for shipment in the choice of vessel.
or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment C. Risks or losses covered in marine insurance
incident thereto, including war risks, marine 1. Perils of the sea vs. perils of the ship
builder's risks, and all personal property floater Perils of the Sea Perils of the Ship
Include only those Is a loss which is in
risks;
casualties due to the ordinary course
(b) Person or property in connection with or
the unusual of events, results:
appertaining to a marine, inland marine, transit violence or 1. From the
or transportation insurance, including liability extraordinary ordinary,
for loss of or damage arising out of or in causes connected natural and
connection with the construction, repair, with navigation. It inevitable
operation, maintenance or use of the subject has been said to action of the
include only such sea;
matter of such insurance (but not including life
losses as are of 2. From
insurance or surety bonds nor insurance against extraordinary ordinary
loss by reason of bodily injury to any person nature or arise wear and
arising out of ownership, maintenance, or use from some tear of the
of automobiles); overwhelming ship; and
power which 3. From the
cannot be guarded negligent
against by the failure of the
18
Law on Insurance
ordinary exertion of ship’s owner A: A contract where the owner lends his
human skill or to provide whole vessel to a charterer for a
prudence, as the vessel particular voyage.
distinguished from with the
*Indemnity Principle applies
the ordinary wear proper
b. Rule where vessel hypothecated by
and tear of the equipment to
voyage and from convey the bottomry
injuries suffered by cargo under Sec. 101 of the Insurance Code which
the vessel in ordinary provides that: “The insurable interest of
consequence of her conditions. the owner of the ship hypothecated by
not being bottomry is only the excess of its value
unseaworthy.
over the amount secured by bottomry.”
Extraordinary perils Usual perils
*Principle of Indemnity applies.
attendant to
navigation Q: What is bottomry?
*Only perils of the sea are assumed by the A: it is a contract of loan which said
insurer. loan is used for the repair of the vessel.
2. “all risks” marine insurance policy means The payment of which is conditional.
that all risks are covered unless expressly *The owner’s insurable interest is the
excepted. The burden rests on the insurer amount in excess of the value of the
to prove that the loss is caused by a risk ship over the amount secured by the
that is excluded. bottomry
*Owner incurs loss due to the damage
D. Insurable interest in marine insurance of the vessel but at the same time he
1. Ship owner’s insurable interest receives gain due to the extinguishment
Sec. 100 of the Insurance Code provides of his loan obligation.
that: “The owner of a ship has in all cases c. Insurable interest in freightage
an insurable interest in it, even when it has Sec. 102 of the Insurance Code states
been chartered by one who covenants to that: “Freightage, in the sense of a
pay him its value in case of loss: Provided, policy of marine insurance, signifies all
That in this case the insurer shall be liable the benefits derived by the owner,
for only that part of the loss which the either from the chartering of the ship or
insured cannot recover from the charterer.“ its employment for the carriage of his
*The insurable interest of the shipowner is own goods or those of others.”
over the value of the vessel and over Sec. 103 of the Insurance Code
expected freightage. provides that: “The owner of a ship has
Measurement: Ownership an insurable interest in expected
*It does not matter whether the ship was freightage which according to the
mortgaged or chartered. ordinary and probable course of things
a. Rule where vessel is chartered he would have earned but for the
Sec. 100 of the Insurance Code states intervention of a peril insured against or
that: “The owner of a ship has in all other peril incident to the voyage.”
cases an insurable interest in it, even *Supposed earnings may be subject to
when it has been chartered by one who marine insurance.
covenants to pay him its value in case of 2. Charterer’s insurable
loss: Provided, That in this case the Sec. 106 of the Insurance Code provides
insurer shall be liable for only that part that: “The charterer of a ship has an
of the loss which the insured cannot insurable interest in it, to the extent that he
recover from the charterer.” is liable to be damnified by its loss.”
Q: What is a charter party?
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Law on Insurance
E. Concealment
1. Meaning of concealment in marine F. Representations
insurance 1. Effect of false representation by the
*Definition of concealment in marine insured
insurance is the same as what defined in Sec. 111 of the Insurance Code states that:
Sec. 26 of the Insurance Code. “If a representation by a person insured by
*However, concealment under the marine a contract of marine insurance, is
insurance is more strict than the ordinary intentionally false in any material respect,
insurance or in respect of any fact on which the
Reason: Unpredictable risk character and nature of the risk depends,
*In marine insurance, opinions and the insurer may rescind the entire
expectations of third persons are contract.”
considered, whereas in ordinary insurance 2. Effect of false representation as to
as a general rule, opinions of third persons expectation
are not necessary. Exception: expert Sec. 112 of the Insurance Code provides
opinion. that: “The eventual falsity of a
2. Duty to communicate representation as to expectation does not,
Sec. 107 of the Insurance Code which in the absence of fraud, avoid a contract of
provides that: “In marine insurance each marine insurance.”
party is bound to communicate, in addition G. Implied warranties in marine insurance
to what is required by section twenty-eight, 1. Seaworthiness
all the information which he possesses, Sec. 113 of the Insurance Code provides
material to the risk, except such as is that: “In every marine insurance upon a
mentioned in Section thirty, and to state ship or freight, or freightage, or upon any
the exact and whole truth in relation to all thing which is the subject of marine
matters that he represents, or upon inquiry insurance, a warranty is implied that the
discloses or assumes to disclose.” ship is seaworthy.”
3. Opinions or expectations of third persons *Charterer is also subject to warranty on
Sec. 108 of the Insurance Code which seaworthiness because he has control in the
provides that: “In marine insurance, selection of the ship to be leased.
information of the belief or expectation of a *Bottomry lender is also subject to
third person, in reference to a material fact, warranty on seaworthiness because he has
is material.” also the control in the selection of the
4. When concealment does not vitiate the vessel.
entire contract a. What constitutes seaworthiness
Sec. 110 of the Insurance Code states that: Sec. 114 of the Insurance Code states
“A concealment in a marine insurance, in that: “A ship is seaworthy when
respect to any of the following matters, reasonably fit to perform the service
does not vitiate the entire contract, but and to encounter the ordinary perils of
merely exonerates the insurer from a loss the voyage contemplated by the parties
resulting from the risk concealed: to the policy.”
(a) The national character of the insured; Q: What makes a vessel seaworthy?
(b) The liability of the thing insured to A: Sec. 114. Fitness of the vessel is the
capture and detention; general test.
(c) The liability to seizure from breach of *Warranty on the condition of the ship
foreign laws of trade; Example:
(d) The want of necessary documents; Shipowner insured his vessel with X
(e) The use of false and simulated papers.” insurer.
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Law on Insurance
On the part of the insurer, the inured unseaworthy for the purpose of the
warrants that his vessel is ship worthy. insurance upon the cargo.”
The burden falls on the b. When complied with; exceptions
shipowner/insured of proving Sec. 115 of the Insurance Code
otherwise. provides that: “An implied warranty of
*Seaworthiness depends on the seaworthiness is complied with if the
transaction entered into or undertaken ship be seaworthy at the time of the of
by the ship. commencement of the risk, except in
Sec. 116 of the Insurance Code states the following cases:
that: “A warranty of seaworthiness (a) When the insurance is made for a
extends not only to the condition of the specified length of time, the implied
structure of the ship itself, but requires warranty is not complied with
that it be properly laden, and provided unless the ship be seaworthy at the
with a competent master, a sufficient commencement of every voyage it
number of competent officers and undertakes during that time; (Time
seamen, and the requisite Policy)
appurtenances and equipment, such as Example:
ballasts, cables and anchors, cordage The transaction is covered for one
and sails, food, water, fuel and lights, year from January 1, 2007 to
and other necessary or proper stores December 31, 2007.
and implements for the voyage.” The ship will undertake 5 different
Requisites: voyages.
1. Condition of the structure of the The ship must be seaworthy at the
ship commencement of each and every
2. Properly laden and provided with a voyage.
competent master (b) When the insurance is upon the
3. Sufficient number of competent cargo which, by the terms of the
officers and seamen policy, description of the voyage, or
4. Requisite appurtenances and established custom of the trade, is
equipment to be transhipped at an
*In Delsan Transport case, the SC held intermediate port, the implied
that the issuance of certificate of warranty is not complied with
seaworthiness is not enough to prove unless each vessel upon which the
seaworthiness of the ship. cargo is shipped, or transhipped, be
Example: seaworthy at the commencement
Cargo owner insured his cargo of each particular voyage. (Cargo
Q: Does that implied warranty on Policy)”
seaworthiness apply to cargo owner? Controlling: There must be
A: YES. The cargo owner has the control transhipment
in the selection of the vessel where his *The ship must be seaworthy in
cargoes to be shipped. each particular voyage.
Sec. 119 of the Insurance Code Sec. 117 of the Insurance Code
provides that: “A ship which is provides that: “Where different
seaworthy for the purpose of an portions of the voyage contemplated by
insurance upon the ship may, a policy differ in respect to the things
nevertheless, by reason of being requisite to make the ship seaworthy
unfitted to receive the cargo, be therefor, a warranty of seaworthiness is
complied with if, at the commencement
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Law on Insurance
of each portion, the ship is seaworthy voyage or the commencement of an

with reference to that portion.” entirely different voyage.”
(Voyage Policy) *Deviation is either proper or improper.
*There is a single ship that completes *There is breach of warranty if the
the voyage however, the ship will deviation is improper.
undergo different degree of perils. b. When proper
*The ship must be seaworthy upon Sec. 124 of the Insurance Code
commencement of each level of peril. provides that: “A deviation is proper:
General Rule: The ship must be (a) When caused by circumstances over
seaworthy at the time of the which neither the master nor the owner
commencement of the risk. of the ship has any control;
Exceptions: (b) When necessary to comply with a
1. Time policy warranty, or to avoid a peril, whether or
2. Cargo policy not the peril is insured against;
3. Voyage policy *Whether or not the peril is covered by
*In time policy, seaworthiness the policy is immaterial.
commenced in every voyage. (c) When made in good faith, and upon
*In voyage policy, no transhipment. The reasonable grounds of belief in its
voyage has different stages to go necessity to avoid a peril; or
through. Every stage of voyage the ship (d) When made in good faith, for the
must be seaworthy. purpose of saving human life or
c. Rule where ship becomes unseaworthy relieving another vessel in distress.”
in the course of the voyage *Warranty is against improper
Sec. 118 of the Insurance Code deviation.
provides that: “When the ship becomes *Whether or not improper deviation
unseaworthy during the voyage to contributed to the loss is immaterial
which an insurance relates, an because there was already a breach of
unreasonable delay in repairing the implied warranty.
defect exonerates the insurer on ship or Sec. 126 of the Insurance Code states
shipowner's interest from liability from that: “An insurer is not liable for any
any loss arising therefrom.” loss happening to the thing insured
2. Warranty that necessary documents are subsequent to an improper deviation.”
carried
Sec. 120 of the Insurance Code states that: H. Loss
“Where the nationality or neutrality of a 1. Kinds of losses
ship or cargo is expressly warranted, it is a. Actual
implied that the ship will carry the requisite Sec. 130 of the Insurance Code
documents to show such nationality or provides that: “An actual total loss is
neutrality and that it will not carry any cause by:
documents which cast reasonable suspicion (a) A total destruction of the thing
thereon.” insured;
3. Warranty against improper deviation (b) The irretrievable loss of the thing by
a. Meaning of deviation sinking, or by being broken up;
Sec. 123 of the Insurance Code states (c) Any damage to the thing which
that: “Deviation is a departure from the renders it valueless to the owner for the
course of the voyage insured, purpose for which he held it; or
mentioned in the last two sections, or (d) Any other event which effectively
an unreasonable delay in pursuing the deprives the owner of the possession,
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Law on Insurance
at the port of destination, of the thing a risk which a prudent man would not take
insured.” under the circumstances; or
Sec. 132 of the Insurance Code states (d) If the thing insured, being cargo or
that: “An actual loss may be presumed freightage, and the voyage cannot be
from the continued absence of a ship performed, nor another ship procured by
without being heard of. The length of the master, within a reasonable time and
time which is sufficient to raise this with reasonable diligence, to forward the
presumption depends on the cargo, without incurring the like expense or
circumstances of the case.” risk mentioned in the preceding sub-
b. Constructive paragraph. But freightage cannot in any
Sec. 131 of the Insurance Code case be abandoned unless the ship is also
provides that: “A constructive total loss abandoned.”
is one which gives to a person insured a Test: The loss is more than ¾ but less than 1.
right to abandon, under Section one *If there is partial loss, only partial can be
hundred thirty-nine. “ claimed.
2. Right to payment upon an actual total loss *The extent of damage in constructive loss
Sec. 135 of the Insurance Code states that: is so severe.
“Upon an actual total loss, a person insured *This is not automatic.
is entitled to payment without notice of *There is an option either to abandon it or
abandonment.” to recover only the partial loss.
3. Scope of insurance against actual total loss 5. Concept of abandonment and its requisites
Sec. 137 of the Insurance Code states that: Definition:
“An insurance confined in terms to an Sec. 138 of the Insurance Code states that:
actual loss does not cover a constructive “Abandonment, in marine insurance, is the
total loss, but covers any loss, which act of the insured by which, after a
necessarily results in depriving the insured constructive total loss, he declares the
of the possession, at the port of destination, relinquishment to the insurer of his interest
of the entire thing insured.” in the thing insured.”
4. When constructive total loss/partial loss *It is necessary to abandon the surviving
exists part of the thing.
Sec. 139 of the Insurance Code provides Formula:
that: “A person insured by a contract of Constructive total loss + Abandonment =
marine insurance may abandon the thing Total loss
insured, or any particular portion thereof If there is only constructive total loss there
separately valued by the policy, or is only partial loss.
otherwise separately insured, and recover Requisites:
for a total loss thereof, when the cause of 1. There must be an actual relinquishment
the loss is a peril insured against: by the person insured of his interest in
(a) If more than three-fourths thereof in the thing insured.
value is actually lost, or would have to be 2. There must be a constructive total loss
expended to recover it from the peril; 3. The abandonment be neither partial
(b) If it is injured to such an extent as to nor conditional
reduce its value more than three-fourths; 4. It must be made within a reasonable
(c) If the thing insured is a ship, and the time after receipt of reliable
contemplated voyage cannot be lawfully information of the loss
performed without incurring either an 5. It must be factual and reasonable
expense to the insured of more than three-
fourths the value of the thing abandoned or
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Law on Insurance
6. It must be made by giving notice - It refers to those losses

thereof to the insurer which may be which occur under such
done orally or in writing circumstances as do not
7. The notice of abandonment must be entitle the unfortunate
explicit and must specify the particular owners to receive
cause of the abandonment contribution from other
*The residual part is abandoned. Reason: owners concerned in the
Principle of Indemnity venture as where a vessel
*If the requisites are satisfied the insurance accidentally runs aground
company cannot refuse to accept the and goes to pieces after the
abandonment. cargo is saved.
6. Average Recourse: Go after the insurer
Average is any extraordinary or accidental *Stipulation exempting the insurer for a
expense incurred during the voyage for the particular average loss is possible and
preservation of the vessel, cargo, or both, valid.
and all damages to the vessel and cargo ii. General
from the time it is loaded and the voyage - Includes damages and
commenced until it ends and the cargo expenses which are
unloaded. deliberately caused by the
*Expenses for maritime transaction. master of the vessel or
a. Kinds of average: upon his authority, in order
i. Particular to save the vessel, her
Sec. 136 of the Insurance Code cargo, or both at the same
provides that: “Where it has time from a real or known
been agreed that an insurance risk.
upon a particular thing, or class - It must be borne equally by
of things, shall be free from all of the interests
particular average, a marine concerned in the venture.
insurer is not liable for any b. Requisites of general average
particular average loss not 1. There must be a common danger to
depriving the insured of the the vessel or cargo
possession, at the port of 2. Part of the vessel or cargo was
destination, of the whole of sacrificed deliberately
such thing, or class of things, 3. The sacrifice must be for the
even though it becomes common safety of for the benefit of
entirely worthless; but such all
insurer is liable for his 4. It must be made by the master or
proportion of all general upon his authority
average loss assessed upon the 5. It must be successful, i.e., resulted
thing insured.” in the saving of the vessel or cargo
- Includes all damages and 6. It must be necessary
expenses caused to the c. Insurer’s liability for general average
vessel or to her cargo which The insurer of the vessel or cargo that
have not inured to the are saved is liable for general average
common benefit and profit contribution and not for particular
of all persons interested in average. Only the insurer of the
the vessel and her cargo. damaged cargo or vessel is liable for
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Law on Insurance
particular average if covered by the FIRE INSURANCE:

policy.
Q: If there is a stipulation exempting A. Definition and scope of fire insurance
the insurer for a particular average loss, Sec. 167 of the Insurance Code provides that:
does it extend to general average loss? “As used in this Code, the term "fire insurance"
A: NO. shall include insurance against loss by fire,
Basis: Article 859 of the Code of lightning, windstorm, tornado or earthquake
Commerce; Article 812 of the Code of and other allied risks, when such risks are
Commerce covered by extension to fire insurance policies
Reason: Equity or under separate policies.”
Q: Are there a mandatory co-insurance in marine
insurance? B. Risks or losses covered
Q: What are allied risks?
A: YES.
Basis: Sec. 157 of the Insurance Code provides that: “A A: lightning, windstorm, tornado or earthquake,
marine insurer is liable upon a partial loss, only for such tsunami.
proportion of the amount insured by him as the loss Q: What are direct losses?
bears to the value of the whole interest of the insured A: Direct losses are losses that pertain to the
in the property insured.” physical destruction of the thing insured.
*There is a co-insurance when the property is insured Q: What are indirect losses?
for less than its value, the insured is considered a co- A: Indirect losses pertain to consequential
insurer for the difference between the amount of losses.
insurance and the value of the property. Q: Are consequential losses compensable?
Requisites: A: General Rule: NO in standard fire policy
1. The loss is partial Except: If there is an agreement
2. The amount of insurance is less than the value *The liability of the insurer is to pay for direct
losses only
of the property insured.
Formula: Friendly Fire – fire that burns in a place where it
Loss is supposed to burn.
------- x Insurance = Insurer’s Liability Hostile Fire – fire that escapes and burns in a
Value place where it is not supposed to be.
Example:
A’s insurable interest = P500,000 C. Effect of alteration in the thing
Insured Amount = P300,000 Sec. 168 of the Insurance Code provides that:
Loss = P300,000 “An alteration in the use or condition of a thing
insured from that to which it is limited by the
Q: Would the whole P300,000 be recovered from the
insurer? policy made without the consent of the insurer,
A: NO. Only 180,000 will be recovered and the balance by means within the control of the insured, and
of 120,000 will be suffered by the insured as a co- increasing the risks, entitles an insurer to
insurer. rescind a contract of fire insurance.”
Computation: Sec. 169 of the Insurance Code states that: “An
300,000 alteration in the use or condition of a thing
----------- x 300,000 = 180,000 insured from that to which it is limited by the
500,000 policy, which does not increase the risk, does
If the loss is 500,000, the insured can recover the whole not affect a contract of fire insurance.”
300,000 because there is a total loss and not partial loss. Q: If the policy is silent as to the use or
*In fire insurance, there has to be an express stipulation condition of the thing insured, are there implied
to that effect. warranty in fire insurance?
A: General Rule: YES. The insured has the
insurable interest in the thing insured.
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Law on Insurance
Exception: If the policy expressly provides for *Casualty insurance ay provide for third party
the use of condition of the thing insured. liability in the nature of stipulation pour autrui
for personal injury and even damage to
D. Measure of indemnity property, in which case, the third party may
Sec. 171 of the Insurance Code provides that: directly sue the insurer upon the occurrence of
“If there is no valuation in the policy, the the loss. However, the insurer is not solidarily
measure of indemnity in an insurance against liable with the insured or the tortfeasor for the
fire is the expense it would be to the insured at latter’s obligation.
the time of the commencement of the fire to *Insurance against specified perils which may
replace the thing lost or injured in the condition give rise to liability on the part of the insured
in which at the time of the injury; but if there is for claims for injuries to or damage to property
a valuation in a policy of fire insurance, the of others.
effect shall be the same as in a policy of marine *If there is no stipulation in favor of third
insurance.” person but the insurance is an insurance against
1. Open Policy: only the expense necessary to liability to third persons, any third person who
replace the thing lost or injured in the might be injured may not sue the insurer.
condition it was at the time of the injury. - Liable for actual loss, the third party has no
2. Valued Policy: the parties are bound by the direct recourse with the insurer but only to the
valuation, in the absence of fraud or insured. The insured has recourse to the insurer.
mistake.
C. Insurable interest
E. Co-insurance clause *Insurable interest is based on the interest of
General Rule: Applies primarily to marine the insured in the safety of persons and their
insurance. property, who may maintain an action against
Exception: Co-insurance applies to fire him in case of their injury or destruction,
insurance if expressly agreed upon. respectively.
CASUALTY INSURANCE: D. Meaning of “accident” and “accidental” in

A. Concept casualty insurance
Sec. 174 of the Insurance Code states that: *The terms “accident” and “accidental” as used
“Casualty insurance is insurance covering loss or in insurance contracts, have not acquired any
liability arising from accident or mishap, technical meaning. They are construed by the
excluding certain types of loss which by law or courts in the ordinary and common acceptation.
custom are considered as falling exclusively Thus, the terms have been taken to mean that
within the scope of other types of insurance which happens by chance or fortuitously,
such as fire or marine. It includes, but is not without intention or design, which is
limited to, employer's liability insurance, motor unexpected, unusual and unforeseen. The
vehicle liability insurance, plate glass insurance, terms do not, without qualification, exclude
burglary and theft insurance, personal accident events resulting in damage or loss due to fault,
and health insurance as written by non-life recklessness or negligence of third parties.
insurance companies, and other substantially *It is something that the insured did not foresee
similar kinds of insurance.” or though foreseen cannot be avoided.
Q: What is the subject matter of the casualty *Accident or not, it must be taken from the
insurance? viewpoint of the victim.
A: Life, property, liability and health brought by
accident. E. Basis and extent of insurer’s liability
*The beneficiary is not designated, the
B. Third Party Liability Insurance proceeds will be given to the victims.
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Law on Insurance
*The third party has direct recourse against the LIFE INSURANCE:
insurer. The insurer is purely liable.
A. Definition
SURETYSHIP: Sec. 179 of the Insurance Code provides that: “.
Life insurance is insurance on human lives and
A. Definition insurance appertaining thereto or connected
Sec. 175 of the Insurance Code states that: “A therewith.”
contract of suretyship is an agreement whereby Sec. 180 of the Insurance Code states that: “An
a party called the surety guarantees the
insurance upon life may be made payable on
performance by another party called the the death of the person, or on his surviving a
principal or obligor of an obligation or specified period, or otherwise contingently on
undertaking in favor of a third party called the the continuance or cessation of life.
obligee. It includes official recognizances, Every contract or pledge for the payment of
stipulations, bonds or undertakings issued by endowments or annuities shall be considered a
any company by virtue of and under the life insurance contract for purpose of this Code.
provisions of Act No. 536, as amended by Act In the absence of a judicial guardian, the father,
No. 2206.” or in the latter's absence or incapacity, the
mother, or any minor, who is an insured or a
B. Nature of Liability of surety beneficiary under a contract of life, health or
Sec. 176 of the Insurance Code provides that: accident insurance, may exercise, in behalf of
“The liability of the surety or sureties shall be said minor, any right under the policy, without
joint and several with the obligor and shall be necessity of court authority or the giving of a
limited to the amount of the bond. It is bond, where the interest of the minor in the
determined strictly by the terms of the contract particular act involved does not exceed twenty
of suretyship in relation to the principal thousand pesos. Such right may include, but
contract between the obligor and the obligee.” shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds
C. Distinctions between suretyship and property of the policy, and giving the minor's consent to
insurance any transaction on the policy.”
Suretyship Property Insurance
Accessory contract Principal Contract
B. Kinds of Life Insurance
There are three There are two parties:
parties: surety, obligor insurer and insured 1. Ordinary Life, General Life or Old Line
and oblige Policy – insured pays a fixed premium every
Credit accommodation Contract of indemnity year until he dies. Surrender value after 3
Surety can recover Insurer has no such years.
from principal right; only right of 2. Group Life – essentially a single insurance
subrogation contract that provides courage for money
Bond can be cancelled May be cancelled individuals.
only with consent of unilaterally either by
3. Limited Payment Policy – insured pays
obligee, Commissioner, insured or insurer on
or court grounds provided by premium for a limited period. If he dies
law within the period, his beneficiary is paid; if
Requires acceptance of No need of he outlives the period, he does not get
obligee to be valid acceptance by any anything.
third party 4. Endowment Policy – pays premium for
Risk-shifting device, Risk-distributing specified period. If he outlives the period,
premium paid being in device, premium paid
the face value of the policy is paid to him; if
the nature of a service as a ratable
fee contribution to a not, his beneficiaries receive the benefit.
common fund 5. Term Insurance – insurer pays once only,
and he is insured for a specified period. If
27
Law on Insurance
he dies within the period, his beneficiaries Exception: If the creditor insured the life of the
benefits. If he outlives the period, no debtor.
person benefits from the insurance.
6. Industrial Life – life insurance entitling the COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE:
insured to pay premiums weekly, or where A. Reason for the requirement
premiums are payable monthly or oftener. Purpose: To give immediate financial assistance
to victims of motor vehicle accidents and/or
C. Liability of insurer in case of suicide their dependents, especially if they are poor
Sec. 180-A of the Insurance Code states that: regardless of the financial capability of motor
“The insurer in a life insurance contract shall be vehicle owners or operators responsible for the
liable in case of suicides only when it is accident sustained.
committed after the policy has been in force for Q: What is the mandatory reason for this type
a period of two years from the date of its issue of insurance?
or of its last reinstatement, unless the policy A: To allow the registration or renewal of
provides a shorter period: Provided, however, registration of any motor vehicle.
That suicide committed in the state of insanity
shall be compensable regardless of the date of B. Scope of coverage required
commission.” Sec. 374 of the Insurance Code states that: “It
*Recovery of the proceeds depends on the shall be unlawful for any land transportation
commission of the suicide. operator or owner of a motor vehicle to
*In case of suicide, the insured may recover operate the same in the public highways unless
only after two years from the date the policy there is in force in relation thereto a policy of
was issued or last reinstatement. insurance or guaranty in cash or surety bond
*In case of suicide committed in the state of issued in accordance with the provisions of this
insanity, it is compensable regardless of the chapter to indemnify the death, bodily injury,
date of the commission. and/or damage to property of a third-party or
passenger, as the case may be, arising from the
D. Right to assign life insurance policy use thereof.”
Sec. 181 of the Insurance Code states that: “A Sec. 376 of the Insurance Code states that:
policy of insurance upon life or health may pass “The Land Transportation Commission shall not
by transfer, will or succession to any person, allow the registration or renewal of registration
whether he has an insurable interest or not, and of any motor vehicle without first requiring
such person may recover upon it whatever the from the land transportation operator or motor
insured might have recovered. “ vehicle owner concerned the presentation and
Sec. 182 of the Insurance Code states that: filing of a substantiating documentation in a
“Notice to an insurer of a transfer or bequest form approved by the Commissioner evidencing
thereof is not necessary to preserve the validity that the policy of insurance or guaranty in cash
of a policy of insurance upon life or health, or surety bond required by this chapter is in
unless thereby expressly required.“ effect.”
E. Measure of indemnity C. Persons subject to the requirement

Sec. 183 of the Insurance Code states that: Sec. 377 of the Insurance Code provides that:
“Unless the interest of a person insured is “Every land transportation operator and every
susceptible of exact pecuniary measurement, owner of a motor vehicle shall, before applying
the measure of indemnity under a policy of for the registration or renewal of registration of
insurance upon life or health is the sum fixed in any motor vehicle, at his option, either secure
the policy.” an insurance policy or surety bond issued by
General Rule: Life policy is always valued any insurance company authorized by the
28
Law on Insurance
Commissioner or make a cash deposit in such (b) Light : Twenty thousand pesos;
amount as herein required as limit of liability (c) Heavy : Thirty thousand pesos;
for purposes specified in section three hundred II. Other Private Vehicles
seventy-four. (a) Tricycles, motorcyles, and scooters : Twelve
(1) In the case of a land transportation operator, thousand pesos;
the insurance guaranty in cash or surety bond (b) Vehicles with an unladen weight of 2,600
shall cover liability for death or bodily injuries of kilos or less : Twenty thousand pesos;
third-parties and/or passengers arising out of (c) Vehicles with an unladen weight of between
the use of such vehicle in the amount not less 2,601 kilos and 3,930 kilos : Thirty thousand
than twelve thousand pesos per passenger or pesos;
third party and an amount, for each of such (d) Vehicles with an unladen weight over 3,930
categories, in any one accident of not less than kilos : Fifty thousand pesos.
that set forth in the following scale: The Commissioner may, if warranted, set forth
(a) Motor vehicles with an authorized capacity schedule of indemnities for the payment of
of twenty-six or more passengers: Fifty claims for death or bodily injuries with the
thousand pesos; coverages set forth herein.”
(b) Motor vehicles with an authorized capacity
of from twelve to twenty-five passengers: Forty D. No-Fault indemnity claim
thousand pesos; Sec. 378 of the Insurance Code provides that:
(c) Motor vehicles with an authorized capacity “Any claim for death or injury to any passenger
of from six to eleven passengers: Thirty or third party pursuant to the provisions of this
thousand pesos; chapter shall be paid without the necessity of
(d) Motor vehicles with an authorized capacity proving fault or negligence of any kind;
of five or less passengers: Five thousand pesos Provided, That for purposes of this section:
multiplied by the authorized capacity. (i) The total indemnity in respect of any
Provided, however, That such cash deposit person shall not exceed fifteen
made to, or surety bond posted with, the thousand pesos;
Commissioner shall be resorted to by him in (ii) The following proofs of loss, when
cases of accidents the indemnities for which to submitted under oath, shall be
third-parties and/or passengers are not settled sufficient evidence to substantiate the
accordingly by the land transportation operator claim: (a) Police report of accident; and
and, in that event, the said cash deposit shall be (b) Death certificate and evidence
replenished or such surety bond shall be sufficient to establish the proper payee;
restored with sixty days after impairment or or (c) Medical report and evidence of
expiry, as the case may be, by such land medical or hospital disbursement in
transportation operator, otherwise, he shall respect of which refund is claimed;
secure the insurance policy required by this (iii) Claim may be made against one motor
chapter. The aforesaid cash deposit may be vehicle only. In the case of an occupant
invested by the Commissioner in readily of a vehicle, claim shall lie against the
marketable government bonds and/or insurer of the vehicle in which the
securities. occupant is riding, mounting or
(2) In the case of an owner of a motor vehicle, dismounting from. In any other case,
the insurance or guaranty in cash or surety claim shall lie against the insurer of the
bond shall cover liability for death or injury to directly offending vehicle. In all cases,
third parties in an amount not less than that set the right of the party paying the claim
forth in the following scale in any one accident: to recover against the owner of the
I. Private Cars vehicle responsible for the accident
(a) Bantam : Twenty thousand pesos; shall be maintained.“
29
Law on Insurance
Q: How does the law protects the victim? year from denial of the claim, otherwise, the
A: By the provision under the NO FAULT claimant's right of action shall prescribe.”
INDEMNITY CLAUSE.
*No fault clause applies only to bodily physical CLAIMS SETTLEMENT:
injuries or death not to property damage. A. Unfair claim settlement practices
Q: From whom should the injured recover? Sec. 241 of the Insurance Code states that: “(1)
A: (a) In the case of an occupant of a vehicle, No insurance company doing business in the
claim shall lie against the insurer of the vehicle Philippines shall refuse, without just cause, to
in which the occupant is riding, mounting or pay or settle claims arising under coverages
dismounting from; (b) If not an occupant, claim provided by its policies, nor shall any such
shall lie against the insurer of the directly company engage in unfair claim settlement
offending vehicle; (c) In all cases, the right of practices. Any of the following acts by an
the party paying the claim to recover against insurance company, if committed without just
the owner of the vehicle responsible for the cause and performed with such frequency as to
accident shall be maintained. indicate a general business practice, shall
Examples: constitute unfair claim settlement practices:
a. A passenger rode Y taxi cab. The taxi cab is (a) knowingly misrepresenting to claimants
insured by X company under the pertinent facts or policy provisions relating to
compulsory motor vehicle liability insurance. coverage at issue;
The taxi collided against a MERALCO post. (b) failing to acknowledge with reasonable
The passenger can claim against X company promptness pertinent communications with
without proving fault or negligence. Only respect to claims arising under its policies;
documents that prove the happening of the (c) failing to adopt and implement reasonable
incident. standards for the prompt investigation of claims
b. Passenger 1 received P15,000 under the no arising under its policies;
fault clause. His actual expenses amount to (d) not attempting in good faith to effectuate
P50,000. prompt, fair and equitable settlement of claims
Q: Can he still recover the balance? From submitted in which liability has become
whom? reasonably clear; or
A: YES. Against the offending vehicle but (e) compelling policyholders to institute suits to
this time he is required to prove fault or recover amounts due under its policies by
negligence. offering without justifiable reason substantially
less than the amounts ultimately recovered in
E. Notice of claim suits brought by them.
Sec. 384 of the Insurance Code states that: (2) Evidence as to numbers and types of valid
“Any person having any claim upon the policy and justifiable complaints to the Commissioner
issued pursuant to this Chapter shall, without against an insurance company, and the
any unnecessary delay, present to the insurance Commissioner's complaint experience with
company concerned a written notice of claim other insurance companies writing similar lines
setting forth the nature, extent and duration of of insurance shall be admissible in evidence in
the injuries sustained as certified by a duly an administrative or judicial proceeding brought
licensed physician. Notice of claim must be filed under this section.
within six months from date of accident, (3) If it is found, after notice and an opportunity
otherwise, the claim shall be deemed waived. to be heard, that an insurance company has
Action or suit for recovery of damage due to violated this section, each instance of non-
loss or injury must be brought, in proper cases, compliance with paragraph (1) may be treated
with the Commissioner or the Courts within one as a separate violation of this section and shall
be considered sufficient cause for the
30
Law on Insurance
suspension or revocation of the company's delay at the rate of twice the ceiling prescribed
certificate of authority.” by the Monetary Board, unless such failure or
General Rule: Upon maturity of the policy refusal to pay is based on the ground that the
Exception: Annuities payment claim is fraudulent.”
B. Claims for life insurance policies D. Delay in payment of claims

Sec. 242 of the Insurance Code provides that: Sec. 244 of the Insurance Code provides that:
“The proceeds of a life insurance policy shall be “In case of any litigation for the enforcement of
paid immediately upon maturity of the policy, any policy or contract of insurance, it shall be
unless such proceeds are made payable in the duty of the Commissioner or the Court, as
installments or as an annuity, in which case the the case may be, to make a finding as to
installments, or annuities shall be paid as they whether the payment of the claim of the
become due: Provided, however, That in the insured has been unreasonably denied or
case of a policy maturing by the death of the withheld; and in the affirmative case, the
insured, the proceeds thereof shall be paid insurance company shall be adjudged to pay
within sixty days after presentation of the claim damages which shall consist of attorney's fees
and filing of the proof of the death of the and other expenses incurred by the insured
insured. Refusal or failure to pay the claim person by reason of such unreasonable denial
within the time prescribed herein will entitle or withholding of payment plus interest of twice
the beneficiary to collect interest on the the ceiling prescribed by the Monetary Board of
proceeds of the policy for the duration of the the amount of the claim due the insured, from
delay at the rate of twice the ceiling prescribed the date following the time prescribed in
by the Monetary Board, unless such failure or section two hundred forty-two or in section two
refusal to pay is based on the ground that the hundred forty-three, as the case may be, until
claim is fraudulent. the claim is fully satisfied; Provided, That the
The proceeds of the policy maturing by the failure to pay any such claim within the time
death of the insured payable to the beneficiary prescribed in said sections shall be considered
shall include the discounted value of all prima facie evidence of unreasonable delay in
premiums paid in advance of their due dates, payment.”
but are not due and payable at maturity.”
C. Claims for non-life insurance policies

“The amount of any loss or damage for which
an insurer may be liable, under any policy other
than life insurance policy, shall be paid within
thirty days after proof loss is received by the
insurer and ascertainment of the loss or
damage is made either by agreement between
the insured and the insurer or by arbitration;
but if such ascertainment is not had or made
within sixty days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will
entitle the assured to collect interest on the
proceeds of the policy for the duration of the
31

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Commercial Law Review

INSURANCE CODE (P.D. 1460 as amended) Q: Is there a contract?

bound to communicate information of the to the issuance of the policy to give

last reinstatement, the insurer cannot Part of the contract A collateral

they may deem convenient, provided they are A. Beneficiary

C. Stipulation against double insurance 500000

of each portion, the ship is seaworthy voyage or the commencement of an

6. It must be made by giving notice - It refers to those losses

particular average if covered by the FIRE INSURANCE:

CASUALTY INSURANCE: D. Meaning of “accident” and “accidental” in

E. Measure of indemnity C. Persons subject to the requirement

B. Claims for life insurance policies D. Delay in payment of claims

C. Claims for non-life insurance policies

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