VI.

THE POLICY OF INSURANCE

A. DEFINITION AND FORM (SEC. 49-50, ICP)

SEC. 49. The written instrument in which a contract of insurance is set forth, is called a policy
of insurance.

SEC. 50. The policy shall be in printed form which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance
and which is pasted or attached to said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is also mentioned and written on the
blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued
after the original policy shall be countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise known as the ‘Electronic Commerce Act’ and to
such rules and regulations as may be prescribed by the Commissioner.

B. FINE PRINT RULE (Contract of Adhesion)

- Contract of Adhesion – policy already approved by the commission

- Generally construed in favor of the insured
- Not a result of mutual negotiations but on terms prescribed by the insurer which is usually a
printed contract where the insured may adhere or reject in its entirety.
- When the terms itself are clear; there is no room for interpretation so the courts are bound to
adhere to it although, it may be onerous, as courts cannot make a contract for the parties because
the terms are clear and unambiguous.

C. CONTENTS OF THE POLICY (SEC. 51, ICP)

SEC. 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;

(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable
upon the termination of the contract, a statement of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
 D. PAPERS ATTACHED TO THE POLICY AND THEIR BINDING EFFECT
(RIDER, WARRANTIES, CLAUSE, ENDORSEMENT)

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance
and which is pasted or attached to said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is also mentioned and written on the
blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued
after the original policy shall be countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise known as the ‘Electronic Commerce Act’ and to
such rules and regulations as may be prescribed by the Commissioner.

E. KINDS OF POLICY

1. OPEN (SEC. 60, ICP)

SEC. 60. An open policy is one in which the value of the thing insured is not agreed upon,
and the amount of the insurance merely represents the insurer’s maximum liability. The value of
such thing insured shall be ascertained at the time of the loss.

2. VALUED (SEC. 61, ICP)

SEC. 61. A valued policy is one which expresses on its face an agreement that the thing
insured shall be valued at a specific sum.

3. RUNNING (SEC. 62, ICP)

SEC. 62. A running policy is one which contemplates successive insurances, and which
provides that the object of the policy may be from time to time defined, especially as to the subjects
of insurance, by additional statements or indorsements.

F. COVER NOTES (SEC. 52, ICP)

SEC. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under the cover note and the premium
therefor.

Cover notes may be extended or renewed beyond such sixty (60) days with the written approval
of the Commissioner if he determines that such extension is not contrary to and is not for the
purpose of violating any provisions of this Code. The Commissioner may promulgate rules and
regulations governing such extensions for the purpose of preventing such violations and may by
such rules and regulations dispense with the requirement of written approval by him in the case of
extension in compliance with such rules and regulations.

G. CANCELLATION OF POLICY (SEC. 64-66, ICP)

 SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon
prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the policy, of one or more of the following:

(a) Nonpayment of premium;

(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;
(e) Physical changes in the property insured which result in the property becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of
the property insured; or
(g) A determination by the Commissioner that the continuation of the policy would violate or
would place the insurer in violation of this Code.

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing,
mailed or delivered to the named insured at the address shown in the policy, or to his broker
provided the broker is authorized in writing by the policy owner to receive the notice of
cancellation on his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish the facts on which the
cancellation is based.

SEC. 66. In case of insurance other than life, unless the insurer at least forty-five (45) days in
advance of the end of the policy period mails or delivers to the named insured at the address shown
in the policy notice of its intention not to renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages, the named insured shall be entitled to renew the
policy upon payment of the premium due on the effective date of the renewal. Any policy written
for a term of less than one (1) year shall be considered as if written for a term of one (1) year. Any
policy written for a term longer than one (1) year or any policy with no fixed expiration date shall
be considered as if written for successive policy periods or terms of one (1) year.

H. TIME TO COMMENCE ACTION ON THE POLICY; EFFECT OF

STIPULATION (SEC. 63, ICP)

SEC. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time
for commencing an action thereunder to a period of less than one (1) year from the time when the
cause of action accrues, is void

Cases: Lim v. Sun Life, 41 PHIL 263; Pacific Timber Export Corporation vs. CA (112 SCRA
199); Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 543

LIM V. SUN LIFE, 41 PHIL 263

Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with
Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by
Lim and company issued a “provisional policy”
> Such policy contained the following provisions “xx the abovementioned life is to be assured in
accordance with the terms and conditions contained or inserted by the Company in the policy
which may be granted by it in this particular case for 4 months only from the date of the
application, PROVIDED that the company shall confirm this agreement by issuing a policy on
said application xxx. Should the company NOT issue such a policy, then this agreement shall be
null and void ab initio and the Company shall be held not to have been on the risk at all, but in
such case, the amount herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval
of the application by the home office of the insurance company.
> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:
Whether or not the beneficiary can collect the 5T.

Held:
NO.
The contract of insurance was not consummated by the parties. The above quoted agreement
clearly stated that the agreement should NOT go into effect until the home office of the Company
shall confirm it by issuing a policy. It was nothing but an acknowledgment by the Company that
it has received a sum of money agreed upon as the first year’s premium upon a policy to be issued
upon the application if it is accepted by the Company.

When an agreement is made between the applicant and the agent whether by signing an application
containing such condition or otherwise, that no liability shall attach until the principal approves
the risk and a receipt is given by the agent, such acceptance is merely conditional and is
subordinated to the company’s act in approving or rejecting; so in life insurance a “binding slip or
receipt” does not insure itself

PACIFIC TIMBER V. CA
112 SCRA 199

Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemen’s Insurance Co.
for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said
cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The
2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the
logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said loss may
not be considered as covered under the cover note because such became null and void by virtue of
the issuance of the marine policies.

Issue:
Whether or not the cover not was without consideration, thus null and void.

Held:
It was with consideration.
SC upheld Pacific’s contention that said cover not was with consideration. The fact that no
separate premium was paid on the cover note before the loss was insured against occurred does
not militate against the validity of Pacific’s contention, for no such premium could have been paid,
since by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars
of the shipment that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a
mere application.

GREPALIFE V. CA
89 SCRA 543

Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr
endowment policy for 50T on the life of his one year old daughter Helen Go.
> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the
branch manager of Grepalife-Cebu. Mondragon then typed the data on the application form which
was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The
binding receipt contained the following provision: “If the applicant shall not have been insurable
xxx and the Company declines to approve the application, the insurance applied for shall not have
been in force at any time and the sum paid shall be returned to the applicant upon the surrender
of this receipt.”
> Mondragon wrote on the bottom of the application form his strong recommendation for the
approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the
insurance application of Ngo for the simple reason that the 20yr endowment plan is not available
for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the approval of the
endowment plan on the life of Helen, adding that Grepalife was the only insurance company NOT
selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a
claim with Gepalife, but the latter denied liability on the ground that there was no contract between
the insurer and the insured and a binding receipt is NOT evidence of such contract.

Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life insurance.

Held:
NO.
The binding receipt in question was merely an acknowledgement on behalf of the company, that
the latter’s branch office had received from the applicant, the insurance premium and had accepted
the application subject for processing by the insurance company, and that the latter will either
approve or reject the same on the basis of whether or not the applicant is insurable on standard
rates.

Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had
never became on force at any time, pursuant to par. E of the said receipt. A binding receipt is
manifestly merely conditional and does NOT insure outright. Where an agreement is made
between the applicant and the agent, NO liability shall attach until the principal approves the risk
and a receipt is given by the agent.

The acceptance is merely conditional, and is subordinated to the act of the company in approving
or rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT
insure by itself.

V. PREMIUM

A. CONCEPT
B. EFFECT OF NON-PAYMENT OF PREMIUM; EXCEPTIONS (SEC. 77, 78, ICP,
ART. 1306, NCC)

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies, or whenever under the broker and agency agreements with duly
licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days from date of issuance of the policy.

SEC. 78. Employees of the Republic of the Philippines, including its political subdivisions and
instrumentalities, and government-owned or -controlled corporations, may pay their insurance
premiums and loan obligations through salary deduction: Provided, That the treasurer, cashier,
paymaster or official of the entity employing the government employee is authorized,
notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make
deductions from the salary, wage or income of the latter pursuant to the agreement between the
insurer and the government employee and to remit such deductions to the insurer concerned, and
collect such reasonable fee for its services.

Art. 1306, NCC. Parties to a contract may establish such stipulations, clauses, terms and
conditions that may be deemed to be convenient for them as long as these are not contrary to law,
morals, good customs, public order and public policy

C. WHEN INSURED ENTITLED TO RETURN OF PREMIUMS (SEC. 79-82, ICP)

 SEC. 79. An acknowledgment in a policy or contract of insurance or the receipt of premium
is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the premium is actually paid.

SEC. 80. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of
the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured surrenders his
policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate,
unless a short period rate has been agreed upon and appears on the face of the policy, after
deducting from the whole premium any claim for loss or damage under the policy which has
previously accrued: Provided, That no holder of a life insurance policy may avail himself of the
privileges of this paragraph without sufficient cause as otherwise provided by law.

SEC. 81. If a peril insured against has existed, and the insurer has been liable for any period,
however short, the insured is not entitled to return of premiums, so far as that particular risk is
concerned.

SEC. 82. A person insured is entitled to a return of the premium when the contract is voidable,
and subsequently annulled under the provisions of the Civil Code; or on account of the fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which
the insured was ignorant of without his fault; or when by any default of the insured other than
actual fraud, the insurer never incurred any liability under the policy.

A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if
a claim is denied by reason of fraud.

Cases: Makati Tuscany Condominium Corp. vs. CA (215 SCRA 462); UCPB General Insurance
vs. Masagana Telamart, GR 137172, 4 April 2001); American Home Insurance vs. Chua (G.R.
No. 130421, June 28, 1999); Tibay v CA G.R. No. 119655. May 24, 1996

MAKATI TUSCANY CONDOMINIUM CORP. VS. CA (215 SCRA 462

FACTS:
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented
by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's
building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total
premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982,
21 June 1982 and 16 November 1982, all of which were accepted by private respondent.
Successive renewals of the policies were made in the same manner. On 1984, the policy was again
renewed and petitioner made two installment payments, both accepted by private respondent, the
first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.

Private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance
Policy. Petitioner explained that it discontinued the payment of premiums because the policy did
not contain a credit clause in its favor. Petitioner further claimed that the policy was never binding
and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for
the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the
refund of P924,206.10 representing the premium payments for 1982-85.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
Whether payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as
amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.

RULING:
No, the contract remains valid even if the premiums were paid on installments. Certainly, basic
principles of equity and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepared in full.
At the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is
indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed
to the risk insured for any period, however brief or momentary. The obligation to pay premiums
when due is ordinarily as indivisible obligation to pay the entire premium.

UCPB GENERAL INSURANCE CO. INC. V. MASAGANA TELEMART, INC.

G.R. NO. 137172, 4 APRIL 2001, 356 SCRA 307

FACTS:
On April 15, 1991, petitioner issued five (5) insurance policies covering respondent’s various
property described therein against fire, for the period from May 22, 1991 to May 22, 1992. In
March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of
their terms on May 22, 1992. Petitioner advised respondent’s broker, Zuellig Insurance Brokers,
Inc. of its intention not to renew the policies. On April 6, 1992, petitioner gave written notice to
respondent of the non-renewal of the policies at the address stated in the policies. On June 13,
1992, fire razed respondent’s property covered by three of the insurance policies petitioner issued.
On July 13, 1992, respondent presented to petitioner’s cashier at its head office five (5) manager’s
checks in the total amount of P225,753.95, representing premium for the renewal of the policies
from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies
prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its formal claim for
indemnification of the insured property razed by fire. On the same day, July 14, 1992, petitioner
returned to respondent the five (5) manager’s checks that it tendered, and at the same time rejected
respondent’s claim for the reasons (a) that the policies had expired and were not renewed, and (b)
that the fire occurred on June 13, 1992, before respondent’s tender of premium payment.
ISSUE:
Whether or not respondent is entitled to compensation despite the renewal of the insurance policy
after the occurrence of the event insured.
RULING:
No. An insurance policy, other than life, issued originally or on renewal, is not valid and binding
until actual payment of the premium. Any agreement to the contrary is void. 11 The parties may
not agree expressly or impliedly on the extension of creditor time to pay the premium and consider
the policy binding before actual payment.
Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a
month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice
of loss within a reasonable time after occurrence of the fire.

AMERICAN HOME INSURANCE VS. CHUA (G.R. NO. 130421, JUNE 28, 1999)
LESSONS APPLICABLE: ACKNOWLEDGEMENT RECEIPT (INSURANCE)
Laws Applicable: Section 29, Section 66,Section 75, Section 77,Section 78, Section 306 of the
Insurance Code

FACTS:
 April 5, 1990: Antonio Chua renewed the fire insurance for its stock-in-trade of his business,
Moonlight Enterprises with American Home Assurance Companyby issuing a check
of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to him.
 April 6, 1990: Moonlight Enterprises was completely razed by fire with an est. loss
of P4,000,000 to P5,000,000
 April 10, 1990: An official receipt was issued and subsequently, a policy was issued
covering March 25 1990 to March 25 1991
 Antonio Chua filed an insurance claim with American Home and 4 other co-insurers (Pioneer
Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc. and Filipino
Merchants Insurance Co)
 American Home refused alleging the no premium was paid
 RTC: favored Antonio Chua for paying by way of check a day before the fire occurred
 CA: Affirmed
ISSUE:
1. W/N there was a valid payment of premium considering that the check was cashed after the
occurrence of the fire since the renewal certificate issued containing the acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents and non-disclosure of
the other existing insurance contracts or “other insurance clause"
HELD:petition is partly GRANTED modified by deleting the awards of P200,000 for loss of
profit, P200,000 as moral damages and P100,000 as exemplary damages, and reducing the award
of attorney’s fees from P50,000 to P10,000

1. YES.
 Section 77 of the Insurance Code
 An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of life or an industrial life policy whenever the grace
period provision applies
 Section 66 of the Insurance Code - not applicable since not termination but renewal
 renewal certificate issued contained the acknowledgment that premium had been paid
 Section 306 of the Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker shall be deemed to
have authorized such agent or broker to receive on its behalf payment of any premium which
is due on such policy or contract of insurance at the time of its issuance or delivery or which
becomes due thereon
 best evidence of such authority is the fact that petitioner accepted the check and issued the
official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of receipt
of payment
 Section 78 of the Insurance Code
 An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the premium is actually paid.
 This Section establishes a legal fiction of payment and should be interpreted as an exception
to Section 77
2. NO.
 purpose for the “other insurance clause” is to prevent an increase in the moral hazard
 failure to disclose was not intentional and fraudulent
 Section 75
 A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise
the breach of an immaterial provision does not avoid the policy.
 American Home is estopped because its loss adjusters had previous knowledge of the co-
insurers
 The loss adjuster, being an employee of petitioner, is deemed a representative of the latter
whose awareness of the other insurance contracts binds petitioner
 no legal and factual basis for the award of P200,000 for loss of profit
 no such fraud or bad faith = no moral damages
 grant of attorney’s fees as part of damages is the exception rather than the rule
 award attorney’s fees where it deems just and equitable that it be so granted
 reduced to P10,000
VI. CONCEALMENT
A. CONCEPT (SEC. 26, ICP)
SEC. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.

B. DUTY TO COMMUNICATE (SEC. 28, ICP)

SEC. 28. Each party to a contract of insurance must communicate to the other, in good faith,
all facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.

C. TEST OF MATERIALITY (SEC. 31, ICP)

SEC. 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in making his inquiries.

D. EFFECT OF CONCEALMENT (SEC. 27 & 29, ICP)

SEC. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.

SEC. 29. An intentional and fraudulent omission, on the part of one insured, to communicate
information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to
rescind.

E. MATTERS WHICH NEED NOT BE COMMUNICATED (SEC. 30, 32, 34, & 35
ICP)

SEC. 30. Neither party to a contract of insurance is bound to communicate information of the
matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former
has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which
are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise material.

SEC. 32. Each party to a contract of insurance is bound to know all the general causes which
are open to his inquiry, equally with that of the other, and which may affect the political or material
perils contemplated; and all general usages of trade.

SEC. 34. Information of the nature or amount of the interest of one insured need not be
communicated unless in answer to an inquiry, except as prescribed by Section 51.

SEC. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry,
information of his own judgment upon the matters in question.
F. WAIVER OF INFORMATION (SEC. 33, ICP)
- SEC. 33. The right to information of material facts may be waived, either by the terms of
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied
in other facts of which information is communicated.
INSURANCE LAW
Course Outline
Atty. Maria Zarah R. Villanueva-Castro
I. Introduction
A. Laws governing insurance
B. General concept of insurance
C. Characteristics
1. risk distributing device
2. contract of adhesion
3. aleatory
4. contract of indemnity
5. uberrimae fides contract
D. Elements of insurance
E. Right of subrogation
Cases: White Gold Marine Services vs. Pioneer Insurance, et al. (GR No. 154514, 28 July 2005);
Verendia vs. CA (217 SCRA 417); Rizal Surety and Insurance Co. vs. CA (336 SCRA 12);
Philamcare Health Systems Inc. vs. CA (379 SCRA 356); Fortune Insurance and Surety Co., Inc. vs.
CA (244 SCRA 308)l; Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. GR No. 155167, 16
May 2005; Manila Mahogany vs. CA (154 SCRA 650); Federal Express Corporation vs. American
Home Assurance Company and Phil-Am Insurance Company, Inc., G.R. No. 150094, 18 August
2004); Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co., GR No.
166245, 09 April 2008
II. Contract of Insurance
A. Requisites of a contract of insurance
B. Perfection
C. Parties to a contract of insurance (Sec. 6 & 7, ICP)
1. rule on minors (Sec. 3, ICP)
2. rule on married women (Sec. 3, ICP)
D. Subject matter of insurance (Sec. 3 & 4, ICP)
E. Insurance not a wagering contract (Sec. 4, ICP)
Cases: Enriquez vs. Sun Life Insurance of Canada (G.R. No. 15895, Nov. 29, 1920); Great Pacific
Life Assurance Co. vs. CA (G.R. Nos. 31845 & 31873, April 30, 1979)
III. Insurable Interest
A. Concept of insurable interest in general
B. Reason for the requirement of insurable interest
C. Insurable interest in life insurance (Sec. 10, ICP)
D. Insurable interest in property insurance (Sec. 13 & 14, ICP)
1. Insurable interest in case of mortgaged property (Sec. 8, ICP)
a. standard or union mortgage clause
b. open or loss payable clause
2. Effect of change of interest in the thing insured (Sec. 20, 21, 22, 23, 24, 57 & 58, ICP, Art. 1306,
NCC)
Cases: Spouses Cha vs. CA, (August 18, 1997); Geagonia vs. CA, February 6, 1995); RCBC vs. CA
(289 SCRA 292); Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No.
147839 (June 8, 2006).
IV. Devices for ascertaining and controlling risk and loss
A. Concealment
1. Concept (Sec. 26, ICP)
2. Duty to communicate (Sec. 28, ICP)
3. Test of materiality (Sec. 31, ICP)
4. Effect of concealment (Sec. 27 & 29, ICP)
5. Matters which need not be communicated (Sec. 30, 32, 34, & 35 ICP)
6. Waiver of information (Sec. 33, ICP)
B. Representation
1. Concept (Sec. 36, ICP)
2. Kinds of representation (Sec. 36, 37, 39, 42, ICP)
3. Test of materiality (Sec. 46, ICP)
4. Effect of alteration or withdrawal (Sec. 41, ICP)
5. Time to which representation refers (Sec. 42, ICP)
6. Effect when representation is obtained from third persons
(Sec. 43, ICP)
7. When presumed false; effect of falsity (Sec. 44 & 45, ICP)
C. Remedies available in case of concealment or false representation
1. When rescission by the insurer may be exercised (Sec. 48, ICP)
2. When life insurance policy becomes incontestable (Sec. 48, ICP)
a. requisites for incontestability
b. theory and object of incontestability
c. defenses not barred by incontestability
D. Warranties
1. Concept; distinguished from representation
2. Kinds of warranties (express, implied, affirmative, promissory)
3. Time to which warranty refers (Sec. 68, ICP)
4. Effect of breach (Sec. 74, 75, & 76, ICP)
Cases: Great Pacific Life Assurance vs. CA (316 SCRA 678); Sun Life Assurance Co. of Canada vs.
CA (G.R. No. 105135, June 22, 1995); Philamcare Health Systems Inc. vs. CA (379 SCRA 356);
Vda de Canilang vs. CA (G.R. No. 92492, June 17, 1993); Tan vs. CA (June 29, 1989); Florendo v.
Philam Plans, G.R. No. 186983, February 22, 2012
V. The Policy of Insurance
A. Definition and form (Sec. 49-50, ICP)
B. Fine print rule
C. Contents of the policy (Sec. 51, ICP)
D. Papers attached to the policy and their binding effect (rider, warranties, clause, endorsement)
E. Kinds of policy
1. open (Sec. 60, ICP)
2. valued (Sec. 61, ICP)
3. running (Sec. 62, ICP)
F. Cover notes (Sec. 52, ICP)
G. Cancellation of policy (Sec. 65-66, ICP)
H. Time to commence action on the policy; effect of stipulation (Sec. 63, ICP)
Cases: Pacific Timber Export Corporation vs. CA (112 SCRA 199); Great Pacific Life Assurance
Corporation vs. CA, 89 SCRA 543); PhilAm Life and General Insurance Co. vs. Judge Valencia-
Bagalacsa (GR No. 139776; August 1, 2002)
VI. Premium
A. Concept
B. Effect of non-payment of premium; Exceptions (Sec. 77, 78,
ICP, Art. 1306, NCC)
C. When insured entitled to return of premiums (Sec. 79-82, ICP)
Cases: Makati Tuscany Condominium Corp. vs. CA (215 SCRA 462); UCPB General Insurance vs.
Masagana Telamart (June 15, 1999); UCPB General Insurance vs. Masagana Telamart (356 SCRA
307); American Home Insurance vs. Chua (G.R. No. 130421, June 28, 1999); Tibay vs. CA (257
SCRA 126); Phil. Phoenix Surety & Ins., Co. vs. Woodworks, Inc., (92 SCRA 419)
VII. Persons entitled to recover on the policy and conditions to recovery
A. Beneficiary (Sec. 11-12, 53, 56, & 57 ICP)
B. Limitations on the appointment of beneficiary (Art 2012 & 739, NCC)
B. Rule where insurance is made by an agent or trustee (Sec. 54,
ICP)
C. Rule where insurance if made by partner or part owner (Sec. 55,
ICP)
D. Notice and proof of loss (Sec. 88-92, ICP)
Cases: Bonifacio Bros. Inc. vs. Mora (May 29, 1967); The Insular Life Assurance vs. Ebrado, 80
SCRA 181); Vda. de Consuegra vs. GSIS (37 SCRA 315); Asian Terminals, Inc. v. Malayan
Insurance, Co., Inc., (G.R. No. 171406, April 4, 2011)
VIII. Double Insurance
A. Definition and requisites (Sec. 93, ICP)
B. Distinguished from over-insurance
C. Stipulation against double insurance
D. Rules for payment where there is over-insurance by double insurance (Sec. 94, ICP)
Case: Malayan Insurance Co., Inc., v. Philippines First Insurance Co. Inc. and Reputable Forwarder
Services (G.R. No. 184300, July 11, 2012)
IX. Reinsurance
A. Definition (Sec. 95, ICP)
B. Nature (Sec. 97 & 98, ICP)
C. Distinguished from double insurance
D. Duty of reinsured to disclose facts (Sec. 96, ICP)
X. Marine Insurance
A. Definition
B. Scope of marine insurance (Sec. 99, ICP)
C. Risks or losses covered in marine insurance
1. perils of the sea vs. perils of the ship
2. “all risks” marine insurance policy
D. Insurable interest in marine insurance
1. ship owner’s insurable interest (Sec. 100, ICP)
a. rule where vessel is chartered (Sec. 100, ICP)
b. rule where vessel hypothecated by bottomry (Sec.
101, ICP)
c. insurable interest in freightage (Sec. 102-103, ICP)
2. charterer’s insurable interest (Sec. 106, ICP)
E. Concealment
1. Meaning of concealment in marine insurance
2. Duty to communicate (Sec. 107, ICP)
3. Opinions or expectations of third persons (Sec. 108, ICP)
4. When concealment does not vitiate the entire contract (Sec. 110, ICP)
F. Representations
1. Effect of false representation by the insured (Sec. 111, ICP)
2. Effect of false representation as to expectation (Sec. 112, ICP)
G. Implied Warranties in Marine Insurance
1. Seaworthiness (Sec. 113, ICP)
a. what constitutes seaworthiness (Sec. 114, 116, 119, ICP)
b. when complied with; Exceptions (Sec. 115, ICP)
c. rule where ship becomes unseaworthy in the course of the voyage (Sec. 118, ICP)
2. Warranty that necessary documents are carried (Sec. 120, ICP)
3. Warranty against improper deviation
a. meaning of deviation (Sec. 123, ICP)
b. when proper (Sec. 124, ICP)
c. effect of improper deviation (Sec. 125, ICP)
H. Loss
1. Kinds of losses (actual and constructive) (Sec. 130, 131, & 132, ICP)
2. Right to payment upon an actual total loss (Sec. 135, ICP)
3. Scope of insurance against actual total loss (Sec. 137, ICP)
4. When constructive total loss exists (Sec. 139, ICP)
5. Concept of abandonment and its requisites
6. Average
a. Kinds of average (particular and general)
b. Requisites of general average
c. Insurer’s liability for general average
Cases: Roque vs. IAC (139 SCRA 596); Go Tiaco vs. Union Ins. Society of Canton (40 Phil 401);
Cathay Insurance vs. CA (151 SCRA 710); Filipino Merchants Insurance Co. vs. CA (179 SCRA
638); Oriental Assurance Corporation vs. CA (200 SCRA 459)
XI. Fire Insurance
A. Definition and scope of fire insurance (Sec. 167, ICP)
B. Risks or losses covered
C. Effect of alteration in the thing insured (Sec. 168, ICP)
E. Measure of indemnity
F. Co-insurance clause
XII. Casualty Insurance
A. Concept (Sec. 174, ICP)
B. Third Party Liability insurance
C. Insurable interest
D. Meaning of “accident” and “accidental” in casualty insurance
E. Basis and extent of insurer’s liability
Cases: Finman General Assurance Co. vs. CA (September 2, 1992); Sun Insurance Office Ltd. vs.
CA (July 17, 1992); Biagtan vs. The Insular Life Assurance Co., Ltd., (44 SCRA 58)
XIII. Life Insurance
A. Definition (Sec. 179 & 180, ICP)
B. Kinds of life insurance
C. Liability of insurer in case of suicide (Sec. 180-A, ICP)
D. Right to assign life insurance policy (Sec. 181 & 182, ICP)
E. Measure of indemnity (Sec. 183, ICP)
XIV. Compulsory Motor Vehicle Liability Insurance
A. Reason for the requirement
B. Scope of coverage required
C. Persons subject to the requirement
D. No-fault indemnity claim (Sec. 378, ICP)
E. Notice of claim (Art. 384, ICP)
Cases: Vda. de Gabriel vs. CA (November 14, 1996); Vda. de Maglana vs. Hon. Consolacion
(August 6, 1992); Tiu vs. Arriesgado (GR No. 138060, 01 September 2004)
XV. Claims Settlement
A. Unfair claim settlement practices (Sec. 241, ICP)
B. Claims for life insurance policies (Sec. 242, ICP)
C. Claims for non-life insurance policies (Sec. 243, ICP)
D. Delay in payment of claims (Sec. 244, ICP)
Cases: Tio Khe Chio vs. CA (September 30, 1991); Finman General Assurance Corporation (July
12, 2001); see again: Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20
June 2006