INSURANCE LAW REVIEW 2018
MARIA CHRISTINA SAGMIT
PART ONE: GENERAL PRINCIPLES
DEFINITION
Insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
A contract of suretyship is deemed an insurance contract only
if made by a surety who or which is doing an insurance
business as a vocation.
ELEMENTS
1. The insured has insurable interest or interest of some
kind susceptible of pecuniary estimation
2. The insured is subject to a risk of loss caused by the
happening of the designated perils;
3. The insurer assumes the risk of loss;
4. Assumption is part of a general scheme to distribute
actual losses among a large group of persons bearing
somewhat similar risks;
5. As consideration for the insurer‟s promise, the insured
pays the premium
PHILIPPINE HEALTHCARE VS. CIR
ISSUE: Is a healthcare agreement in the nature of a contract of
insurance?
FACTS: Individuals enrolled in its health care programs pay an
annual membership fee.
They are entitled to various preventive, diagnostic and curative
medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in
the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
The DST under Section 185 of the 1997 Tax Code is imposed
on the privilege of making or renewing any policy of insurance
(except life, marine, inland and fire insurance), bond or
obligation in the nature of indemnity for loss, damage, or
liability.
RULING: The health care agreement is primarily a contract of
indemnity. A health care agreement is in the nature of a non-
life insurance policy.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY.
BAR 2011
Q: In return for the 20 years of faithful service of X as a house
helper to Y, the latter promised to pay Php100,000.00 to X‟s
heirs if he (X) dies in an accident by fire. X agreed. Is this an
insurance contract?
A. Yes, since all the elements of an insurance contract are
present.
B. Yes, since X‟ services may be regarded as the
consideration.
C. No, since Y actually made a conditional donation in X‟s
favor.
D. No, since it is in fact an innominate contract between X and
Y.
ANSWER: C. No, since Y actually made a conditional donation
in X‟s favor.
PRINCIPLE OF SUBROGATION
 Process of legal substitution
 The insurer, after paying the amount covered by the
policy, steps into the shoes of the insured
 Insurer avails of the rights of the insured against the
wrongdoer
 Insured CANNOT recover from offender what was
paid by insurer but can recover any deficiency.
 The principle of subrogation is a normal incident of
indemnity insurance as a legal effect of payment; it
inures to the insurer without any formal assignment or
any express stipulation to that effect in the policy.
Said right is not dependent upon nor does it grow out
of any private contract. Payment to the insured makes
the insurer a subrogee in equity. (Malayan Insurance
Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207,
NCC)
 Applicable only in non-life insurance (Philamgen v.
CA)
INSTANCES WHEN SUBROGATION IS NOT APPLICABLE
1. When the insurer pay the insured for a loss not
covered by the policy.
2. The insurer by his own act releases the wrongdoer.
3. In case of life insurance.
4. Recovery of loss in excess of the limits provided by
the policy.
BAR 2011
Q: Where the insurer was made to pay the insured for a loss
covered by the insurance contract, such insurer can run after
the third person who caused the loss through subrogation.
What is the basis for conferring the right of subrogation to the
insurer?
INSURANCE LAW REVIEW 2018
A. Their express stipulation in the contract of insurance.
B. The equitable assignment that results from the insurer‟s
payment of the insured.
C. The insured‟s formal assignment of his right to
indemnification to the insurer.
D. The insured‟s endorsement of its claim to the insurer.
ANSWER: B. The equitable assignment that results from the
insurer‟s payment of the insured.
BAR 2014
Q: ELP Insurance, Inc. issued Marine Policy No. 888 in favor
of FCL Corp. to insure the shipment of 132 bundles of electric
copper cathodes against all risks. Subsequently, the cargoes
were shipped on board the vessel "M/V Menchu" from Leyte to
Pier 10, North Harbor, Manila.
Upon arrival, FCL Corp. engaged the services of CGM, Inc. for
the release and withdrawal of the cargoes from the pier and
the subsequent delivery to its warehouses/plants in Valenzuela
City. The goods were loaded on board twelve (12) trucks
owned by CGM, Inc., driven by its employed drivers and
accompanied by its employed truck helpers. Of the twelve (12)
trucks en route to Valenzuela City, only eleven (11) reached
the destination. One (1) truck, loaded with eleven (11) bundles
of copper cathodes, failed to deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance,
Inc. a claim for insurance indemnity in the amount of
P1,500,000.00. After the requisite investigation and
adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of
P1,350,000.00 as insurance indemnity.
ELP Insurance, Inc., thereafter, filed a complaint for damages
against CGM, Inc. before the Regional Trial Court (RTC),
seeking reimbursement of the amount it had paid to FCL Corp.
for the loss of the subject cargo. CGM, Inc. denied the claim on
the basis that it is not privy to the contract entered into by and
between FCL Corp. and ELP Insurance, Inc., and hence, it is
not liable therefor. If you are the judge, how will you decide the
case? (4%)
SUGGESTED ANSWER: If I were the judge, I will rule in favor
of ELP. While it is true that CGP is not privy to the contract of
ELP and FCL, ELP has the right of subrogation.
In insurance law, an insurer, after paying the claim of an
insured, by process of legal substitution, steps into the shoes
of the insured and can proceed against an erring party or the
one who caused the loss.
NATURE AND CHARACTERISTICS
1. Aleatory
2. Contract of indemnity for non-life and an investment
for life insurance
3. Personal
4. Executory and conditional on the part of the insurer
5. Uberrimae fides (utmost good faith)
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
6. Adhesion
BAR 2012
Q: An insurance contract is an aleatory contract, which means:
A. The insurer will pay the insured equivalent to the amount of
premium paid.
B. The obligation of the insurer is to pay depending upon the
happening of an uncertain future event.
C. The insured pays a fixed premium for the duration of the
policy period and the amount of premiums paid to the insurer is
not necessarily the same amount that the insured will get upon
the happening of an uncertain future event.
D. The obligation of the insurer is to pay dependent upon the
happening of an event which is certain to happen.
ANSWER: B. The obligation of the insurer is to pay depending
upon the happening of an uncertain future event.
Aleatory - A contract whose performance by one party
depends on the occurrence of an uncertain contingent event
RULE OF CONSTRUCTION
 Doubts are resolved in favor of the insured.
 Since a contract of insurance is a contract of
adhesion, any obscure word or stipulation in the
insurance policy shall be resolved against the
insurance company which drafted the terms thereof.
(AMERICAN HOME V. TANTUCO, OCTOBER 8,
2001)
FORTUNE CARE VS. AMORIN
March 12, 2014
FACTS: Amorin is a holder of a Fortune Care healthcard,
issued by his employer, the House of Representatives.
While in Hawaii, Amorin had to undergo an emergency
surgery, an appendectomy. He spent professional and
hospitalization expenses of US$7,242.35 and US$1,777.79,
respectively.
He sought reimbursement from Fortune Care, which denied
the claim. The denial was based on the contention that the
Health Care Contract did not cover hospitalization costs and
professional fees incurred in foreign countries, as the
contract‟s operation was confined to Philippine territory.
Further, it argued that its liability to Amorin was extinguished
upon the latter‟s acceptance from the company of the amount
of P12,151.36.
RULING: In the absence of any qualifying word that clearly
limited Fortune Care's liability to costs that are applicable in the
Philippines, the amount payable by Fortune Care should not be
limited to the cost of treatment in the Philippines, as to do so
would result in the clear disadvantage of its member. If, as
Fortune Care argued, the premium and other charges in the
Health Care Contract were merely computed on assumption
and risk under Philippine cost and, that the American cost
standard or any foreign country's cost was never considered,
such limitations should have been distinctly specified and
clearly reflected in the extent of coverage which the company
INSURANCE LAW REVIEW 2018
voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the
House of Representatives, particularly in their 2006
agreement, the provision on emergency care in non-accredited
hospitals was modified to read as follows:
XXX
“However, if the emergency confinement occurs in a foreign
territory, Fortunecare will be obligated to reimburse or pay one
hundred (100%) percent under approved Philippine Standard
covered charges for hospitalization costs and professional fees
but not to exceed maximum allowable coverage, payable in
pesos at prevailing currency exchange rate at the time of
availment in said territory where he/she is confined.”
XXX
Settled is the rule that ambiguities in a contract are interpreted
against the party that caused the ambiguity. "Any ambiguity in
a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it.”
BAR 2012
Q: An insurance contract is a contract of adhesion, which
means in resolving ambiguities in the provision of the
insurance contract –
A. The general rule is that, the insurance contract is to be
interpreted strictly in accordance with what is written in the
insurance contract
B. Are to be construed liberally in favor of the insured and
strictly against the insurer who drafted the insurance policy
C. Are to be construed strictly against the insured and
liberally in favor of the insurer
D. If there is an ambiguity in the insurance contract, this will
invalidate the contract
ANSWER: B. Are to be construed liberally in favor of the
insured and strictly against the insurer who drafted the
insurance policy
STATUTE OF LIMITATIONS
General Rule: 10 YEARS from the time the cause of action
accrues
Exception: Period may be increased or decreased BUT
 In industrial life: cannot be shorter than SIX YEARS
 In all other kinds of insurance: cannot be shorter than
ONE YEAR
“RIGHT OF ACTION ACCRUES”
Period is reckoned from the time of the denial of the claim by
the insurer. (Vda de Gabriel v. CA)
If there was no denial of the claim, right of action does not
accrue.
“DOING AN INSURANCE BUSINESS”
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
 making or proposing to make, as insurer, any
insurance contract;
 making or proposing to make, as surety, any contract
of suretyship as a vocation and not merely incidental
to any other legitimate business or activity of the
surety
 doing any kind of business, including a reinsurance
business, specifically recognized as doing insurance
business
 doing or proposing to do any business in substance
equivalent to any of the foregoing
Note: An entity can still be deemed engaged in insurance
business even if it does not derive any profit from the activity.
MICROINSURANCE
Section 187. Microinsurance is a financial product or service
that meets the risk protection needs of the poor where:
(a) The amount of contributions, premiums, fees or charges,
computed on a daily basis, does not exceed seven and a half
percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
(b) The maximum sum of guaranteed benefits is not more than
one thousand (1,000) times of the current daily minimum wage
rate for nonagricultural workers in Metro Manila.
Section 188. No insurance company or mutual benefit
association shall engage in the business of microinsurance
unless it possesses all the requirements as may be prescribed
by the Commissioner. The Commissioner shall issue such
rules and regulations governing microinsurance.
REGULATION OF THE INSURANCE BUSINESS
 Insurance business is impressed with public interest.
 The public must be protected against insolvency or
unfair treatment by insurers.
 Insurance Commission is tasked to regulate the
conduct of insurance business through licensing,
examination, investigation and revocation.
 The Commission is authorized to issue a certificate of
authority which shall expire on the last day of
December, 3 years following its date of issuance.
 This shall be renewable every 3 years thereafter,
subject to the company‟s continuing compliance with
the provisions of this Code, circulars, instructions,
rulings or decisions of the Commission.
NO LGU INTERFERENCE
Section 193. xxx
No insurance company issued with a valid certificate of
authority to transact insurance business anywhere in the
Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance
policy or from transacting any insurance business within the
INSURANCE LAW REVIEW 2018
scope or coverage of its certificate of authority, anywhere in
the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any kind
of ordinance, accreditation system, or scheme. Any local
ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any
insurance company shall be deemed null and void ab initio.
FINANCIAL REPORTING FRAMEWORK
Section 189. All companies regulated by the Commission,
unless otherwise required by law, should comply with the
financial reporting frameworks adopted by the Commission for
purposes of creating the statutory financial reports and the
annual statements to be submitted to the Commission.
Financial reporting framework means a set of accounting and
reporting principles, standards, interpretations and
pronouncements that must be adopted in the preparation and
submission of the statutory financial statements and reports
required by the Commission.
This financial reporting framework is not the same as the
financial reporting framework used to prepare the financial
statements that the Securities and Exchange Commission may
require.
The main purpose of the statutory statements is to present
important information about the level of risk and solvency
situation of insurers. In prescribing the applicable statutory
financial reporting framework, the Commissioner shall take into
account international standards concerning solvency and
insurance company reporting as well as generally accepted
actuarial principles concerning financial reporting promulgated
by the Actuarial Society of the Philippines.
The assets and investments discussed in Sections 204 to 215
shall be accounted for in accordance with this section.
The valuation of reserves shall be accounted for in accordance
with Title 5 of this Code.
REGULATION OF BANCASSURANCE
Section 375. The term bancassurance shall mean the
presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate.
To engage in bancassurance arrangement, a bank is not
required to have equity ownership of the insurance company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may
be prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.
No insurance product under this section, whether life or non-
life, shall be issued or delivered unless in the form previously
approved by the Commissioner.
REGULATION OF BANCINSURER
Section 376. Personnel tasked to present and sell insurance
products within the bank premises shall be duly licensed by the
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Commissioner and shall be subject to the rules and regulations
of this Act.
Section 377. The Commissioner and the Bangko Sentral ng
Pilipinas shall promulgate rules and regulations to effectively
supervise the business of bancassurance.
CONSEQUENCES OF BANCASSURANCE PROVISIONS
 To engage in a bancassurance arrangement, a bank
is not required anymore to have equity ownership of
the insurance company. Previously, pursuant to BSP
Circular 357 (dated 8 November 2002), only
insurance companies which are affiliates of banks can
engage in cross-selling.
 Nonetheless, insurance companies cannot enter into
a bancassurance arrangement unless it possesses all
the requirements as may be prescribed by the
Insurance Commission and the BSP.
 All bancassurance products, whether life or non-life,
are required to be issued or delivered in the form
previously approved by the Insurance Commission.
 Personnel tasked to present and sell insurance
products within the bank premises must be duly
licensed by the Insurance Commission. Such
personnel will also be subject to the rules and
regulations of RA 10607 to be promulgated by the
Insurance Commission and the BSP.
REGULATION OF INSURANCE-RELATED ENTITIES
Section 430. The Commissioner shall have the power to
register as a self-regulatory organization, or otherwise grant
licenses, and to regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the operation of
organizations whose operations are related to or connected
with the insurance market such as, but not limited to,
associations of insurance companies, whether life or non-life,
reinsurers, actuaries, agents, brokers, dealers, mutual benefit
associations, trusts, rating agencies, and other persons
regulated by the Commissioner, which are engaged in the
business regulated by this Code.
The Commissioner may prescribe rules and regulations which
are necessary or appropriate in the public interest or for the
protection of investors to govern self-regulatory organizations
and other organizations licensed or regulated pursuant to the
authority granted hereunder including, but not limited to, the
requirement of cooperation within and among all participants in
the insurance market to ensure transparency and facilitate
exchange of information.
Section 431. An association cannot be registered as a self-
regulatory organization unless the Commissioner determines
that:
(a) The association is so organized and has the capacity to be
able to carry out the purposes of this Code and to comply with,
and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code,
the rules and regulations thereunder, and the rules of the
association.
INSURANCE LAW REVIEW 2018
(b) The rules of the association, notwithstanding anything in
the Corporation Code to the contrary, provide the following:
(1) Qualifications and the disqualifications on membership of
the association;
(2) A fair representation of its members to serve on the board
of directors of the association and the administration of its
affairs, and that any natural person associated with a juridical
entity that is a member shall also be deemed to be a member
for this purpose;
(3) The president of the association and at least two (2)
independent directors as members of the board of directors of
the association;
(4) Equitable allocation of reasonable dues, fees, and other
charges among members and other persons using any facility
or system which the association operates or controls;
(5) The prevention of fraudulent and manipulative acts and
practices to protect the insuring public and the promotion of
just and equitable principles of business;
(6) Members and persons associated with its members subject
to discipline for violation of any provision of this Code, the rules
or regulations thereunder, or the rules of the association;
(7) Fair procedure for the disciplining of members and persons
associated with members; and
(8) The prohibition or limitation of access to services offered by
the association or a member thereof.
Section 432. A self-regulatory organization may examine and
verify the qualifications of an applicant to become a member in
accordance with procedures established by the rules of the
association.
A self-regulatory organization shall deny membership or
condition the membership of an entity, if it does not meet the
standards of financial responsibility, operational capability,
training, experience, or competence that are prescribed by the
rules of the association; or has engaged, and there is a
reasonable likelihood it will again engage, in acts or practices
inconsistent with just and equitable principles of fair trade.
A self-regulatory organization may deny membership to an
entity not engaged in a type of business in which the rules of
the association require members to be engaged.
CAPITALIZATION OF DOMESTIC CORPORATIONS
Section 194. Except as provided in Section 289, no new
domestic life or non-life insurance company shall, in a stock
corporation, engage in business in the Philippines unless
possessed of a paid-up capital equal to at least One billion
pesos (P1,000,000,000.00):
Provided, That a domestic insurance company already doing
business in the Philippines shall have a net worth by June 30,
2013 of Two hundred fifty million pesos (P250,000,000.00).
Furthermore, said company must have by December 31, 2016,
an additional Three hundred million pesos (P300,000,000.00)
in net worth; by December 31, 2019, an additional Three
hundred fifty million pesos (P350,000,000.00) in net worth; and
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
by December 31, 2022, an additional Four hundred million
pesos (P400,000,000.00) in net worth.
The Commissioner may, as a pre-licensing requirement of a
new insurance company, in addition to the paid-up capital
stock, require the stockholders to pay in cash to the company
in proportion to their subscription interests a contributed
surplus fund of not less than One hundred million pesos
(P100,000,000.00). He may also require such company to
submit to him a business plan showing the company‟s
estimated receipts and disbursements, as well as the basis
therefor, for the next succeeding three (3) years.
xxx
 Paid-up Capital for NEW domestic life or non-life
insurance company: One billion pesos
(P1,000,000,000.00): Provided,
 A domestic insurance company already doing
business in the Philippines must have a net worth:
by June 30, 2013 - P250 Million
by December 31, 2016 - an additional P300 Million in
net worth
by December 31, 2019 - an additional P350 Million in
net worth
by December 31, 2022 - an additional P400 Million
worth
 The Commissioner may, as a pre-licensing
requirement of a new insurance company, in addition
to the paid-up capital stock, require the stockholders
to pay in cash to the company in proportion to their
subscription interests a contributed surplus fund of not
less than P100 Million.
 He may also require such company to submit to him a
business plan showing the company‟s estimated
receipts and disbursements, as well as the basis
therefor, for the next succeeding (3) years.
CAPITALIZATION OF FOREIGN CORPORATIONS
Section 197. No insurance company organized or existing
under the government or laws other than those of the
Philippines shall engage in business in the Philippines unless
possessed of unimpaired capital or assets and reserve of not
less than One billion pesos (P1,000,000,000.00), nor until it
shall have deposited with the Commissioner for the benefit and
security of the policyholders and creditors of such company in
the Philippines, securities satisfactory to the Commissioner
consisting of good securities of the Philippines, including new
issues of stock of registered enterprises, as this term is defined
in Executive Order No. 226 of 1987, as amended, to the actual
market value of not less than the amount herein required:
Provided, That at least fifty percent (50%) of such securities
shall consist of bonds or other instruments of debt of the
Government of the Philippines, its political subdivisions and
instrumentalities, or of government-owned or -controlled
corporations and entities, including the Bangko Sentral ng
Pilipinas:
INSURANCE LAW REVIEW 2018
Provided, further, That the total investment of a foreign
insurance company in any registered enterprise shall not
exceed twenty percent (20%) of the net worth of said foreign
insurance company nor twenty percent (20%) of the capital of
the registered enterprise, unless previously authorized in
writing by the Commissioner.
The Commissioner may, as a pre-licensing requirement of a
new branch office of a foreign insurance company, in addition
to the required asset or net worth, require the company to have
an additional surplus fund in an amount to be determined by
the Insurance Commission.
For purposes of this Code, the net worth of a foreign insurance
company shall refer only to its net worth in the Philippines.
CAPITALIZATION OF PARTNERSHIPS
Section 289. Any partnership, association, or corporation
authorized to transact solely reinsurance business must have a
capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty percent
(50%) is paid-up and the remaining portion thereof is
contributed surplus, which in no case shall be less than Four
hundred million pesos (P400,000,000.00) or such capitalization
as may be determined by the Secretary of Finance, upon the
recommendation of the Commissioner:
Provided, That twenty-five percent (25%) of the paid-up capital
must be invested in securities satisfactory to the Commissioner
consisting of bonds or other instruments of debt of the
Government of the Philippines or its political subdivisions or
instrumentalities, or of government-owned or -controlled
corporations and entities, including the Bangko Sentral ng
Pilipinas, and deposited with the Commissioner, and the
remaining seventy-five percent (75%) in such other securities
as may be allowed and permitted by the Commissioner, which
securities shall at all times be maintained free from any lien or
encumbrance:
Provided, further, That the aforesaid capital requirement is
without prejudice to other requirements to be imposed under
any risk-based capital method that may be adopted by the
Commissioner:
Provided, finally, That the provisions of this chapter applicable
to insurance companies shall as far as practicable be likewise
applicable to professional reinsurers.
CAPITALIZATION OF MUTUAL BENEFIT ASSOCIATION
Section 405. No mutual benefit association shall be issued a
license to operate as such unless it has constituted and
established a Guaranty Fund by depositing with the
Commissioner an initial minimum amount of Five million pesos
(P5,000,000.00) in cash, or in government securities with a
total value equal to such amount, to answer for any valid
benefit claim of any of its members.
xxx
BAR 2011
Q: A group of Malaysians wanted to invest in the Philippines‟
insurance business. After negotiations, they agreed to organize
"FIMA Insurance Corp." with a group of Filipino businessmen.
FIMA would have a PhP50 Million paid up capital, PhP40
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Million of which would come from the Filipino group. All
corporate officers would be Filipinos and 8 out of its 10-
member Board of Directors would be Filipinos. Can FIMA
operate an insurance business in the Philippines?
A. No, since an insurance company must have at least PhP75
Million paid-up capital.
B. Yes, since there is substantial compliance with our
nationalization laws respecting paid-up capital and Filipino
dominated Board of Directors.
C. Yes, since FIMA‟s paid up capital more than meets the
country‟s nationalization laws.
D. No, since an insurance company should be 100% owned by
Filipinos.
ANSWER: A. No, since an insurance company must have at
least PhP75 Million paid-up capital (based on DO 27-06).
WHAT MAY BE INSURED AGAINST
DAMNIFY A PERSON OR CREATE
LIABILITY AGAINST HIM
CONTINGENT UNKNOWN
EVENT EVENT
Section 3. Any contingent or unknown event, whether past or
future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of
an insurance policy taken out by a married person on his or her
life or that of his or her children.
All rights, title and interest in the policy of insurance taken out
by an original owner on the life or health of the person insured
shall automatically vest in the latter upon the death of the
original owner, unless otherwise provided for in the policy.
CONTINGENT EVENT
An event which may or may not happen.
Example: Fire, accident, sinking of a ship, theft
UNKNOWN EVENT
An event which is certain to happen
Aspect of being unknown is WHEN it will happen
Example: Death
DAMNIFY A PERSON / CREATE LIABILITY AGAINST HIM
Damnify - direct loss of a person
INSURANCE LAW REVIEW 2018
Create a liability - expose the person to liability to third
persons. (e.g. third party liability insurance)
INSURANCE BY A MARRIED PERSON
Section 3. Any contingent or unknown event, whether past or
future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of
an insurance policy taken out by a married person on his or her
life or that of his or her children.
All rights, title and interest in the policy of insurance taken out
by an original owner on the life or health of the person insured
shall automatically vest in the latter upon the death of the
original owner, unless otherwise provided for in the policy.
 May take out an insurance on his/her life or that of her
children or that of his/her spouse without the consent
of his/her spouse
INSURANCE BY A MINOR
Any minor may contract for life, health and accident insurance,
with any insurance company duly authorized to do business in
the Philippines provided the insurance is taken on his own life
and the beneficiary appointed is the minor's estate or the
minor's father, mother, husband, wife, child, brother or sister.
A property insurance taken by a minor is voidable or valid until
annulled (Art. 1390, CC)
If contract is not disaffirmed, insurer cannot invoke minority to
escape liability.
RIGHTS OF MINOR UNDER LIFE INSURANCE POLICIES
Section 182. An insurance upon life may be made payable on
the death of the person, or on his surviving a specified period,
or otherwise contingently on the continuance or cessation of
life.
Every contract or pledge for the payment of endowments or
annuities shall be considered a life insurance contract for
purposes of this Code.
In the absence of a judicial guardian, the father, or in the
latter‟s absence or incapacity, the mother, of any minor, who is
an insured or a beneficiary under a contract of life, health, or
accident insurance, may exercise, in behalf of said minor, any
right under the policy, without necessity of court authority or
the giving of a bond, where the interest of the minor in the
particular act involved does not exceed Five hundred thousand
pesos (P500,000.00) or in such reasonable amount as may be
determined by the Commissioner. Such right may include, but
shall not be limited to, obtaining a policy loan, surrendering the
policy, receiving the proceeds of the Policy, and giving the
minor‟s consent to any transaction on the policy.
In the absence or in case of the incapacity of the father or
mother, the grandparent, the eldest brother or sister at least
eighteen (18) years of age, or any relative who has actual
custody of the minor insured or beneficiary, shall act as a
guardian without need of a court order or judicial appointment
as such guardian, as long as such person is not otherwise
disqualified or incapacitated. Payment made by the insurer
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
pursuant to this section shall relieve such insurer of any liability
under the contract.
BAR 2012
Q: X, a minor, contracted an insurance on his own life. Which
statement is most accurate?
A. The life insurance policy is void ab initio.
B. The life insurance is valid provided it is with the consent of
the beneficiary.
C. The life insurance policy is valid provided the beneficiary is
his estate or his parents, or spouse or child.
D. The life insurance is valid provided the disposition of the
proceeds will be subject to the approval of the legal guardian of
the minor.
ANSWER: C. The life insurance policy is valid provided the
beneficiary is his estate or his parents, or spouse or child.
Life Individual
Group
Industrial
Insurance
Marine
Casualty
Fire
Non-Life
Suretyship
LIFE INSURANCE
Section 181. Life insurance is insurance on human lives and
insurance appertaining thereto or connected therewith.
Every contract or undertaking for the payment of annuities
including contracts for the payment of lump sums under a
retirement program where a life insurance company manages
or acts as a trustee for such retirement program shall be
considered a life insurance contract for purposes of this Code.
CLASSES OF LIFE INSURANCE
1. Individual – protection is based on individual application.
2. Group – unit of selection is the group rather than the
individual, blanket policy covering a number of individuals
3. Industrial – premiums are payable either monthly or oftener
if the face amount of insurance is not more than 500 times the
current statutory minimum wage in Metro Manila.
NON-LIFE INSURANCE
Property insurance or insurance whose object is other than a
person‟s life or where the covered peril is something other than
death.
CLASSES OF NON-LIFE INSURANCE
INSURANCE LAW REVIEW 2018
A. Fire Insurance
B. Casualty Insurance
C. Marine Insurance
D. Suretyship
A. FIRE INSURANCE
Section 169. As used in this Code, the term fire insurance
shall include insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks, when
such risks are covered by extension to fire insurance policies
or under separate policies.
 Includes insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied
risks, when such risks are covered by extension to fire
insurance policies or under separate policies
B. CASUALTY INSURANCE
Section 176. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance such
as fire or marine. It includes, but is not limited to, employer‟s
liability insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies,
and other substantially similar kinds of insurance.
 Covers loss or liability arising from accident or
mishap, excluding certain types of loss which by law
or custom are considered as falling exclusively within
the scope of other types of insurance such as fire,
marine
 Includes but is not limited to employers‟ liability
insurance, workmen‟s compensation insurance, public
liability insurance, motor vehicle liability insurance,
plate glass insurance, burglary and theft insurance,
personal accident and health insurance written by
non-life companies
CASUALTY INSURANCE: COMPULSORY MOTOR
VEHICLE LIABILITY OR THIRD PARTY LIABILITY
Section 390. Every land transportation operator and every
owner of a motor vehicle shall, before applying for the
registration or renewal of registration of any motor vehicle, at
his option, either secure an insurance policy or surety bond
issued by any insurance company authorized by the
Commissioner or make a cash deposit in such amount as
herein required as limit of liability for purposes specified in
Section 387.
(a) In the case of a land transportation operator, the insurance
guaranty in cash or surety bond shall cover liability for death or
bodily injuries of third-parties and/or passengers arising out of
the use of such vehicle in the amount not less than Twelve
thousand pesos (P12,000.00) per passenger or third-party and
an amount, for each of such categories, in any one accident of
not less than that set forth in the following scale:
(1) Motor vehicles with an authorized capacity of twenty-six
(26) or more passengers: Fifty thousand pesos (P50,000.00);
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
(2) Motor vehicles with an authorized capacity of from twelve
(12) to twenty-five (25) passengers: Forty thousand pesos
(P40,000.00);
(3) Motor vehicles with an authorized capacity of from six (6) to
eleven (11) passengers: Thirty thousand pesos (P30,000.00);
(4) Motor vehicles with an authorized capacity of five (5) or less
passengers: Five thousand pesos (P5,000.00) multiplied by the
authorized capacity.
Provided, however, That such cash deposit made to, or surety
bond posted with, the Commissioner shall be resorted to by
him in cases of accidents the indemnities for which to third-
parties and/or passengers are not settled accordingly by the
land transportation operator and, in that event, the said cash
deposit shall be replenished or such surety bond shall be
restored within sixty (60) days after impairment or expiry, as
the case may be, by such land transportation operator,
otherwise, he shall secure the insurance policy required by this
chapter. The aforesaid cash deposit may be invested by the
Commissioner in readily marketable government bonds, and/or
securities.
(b) In the case of an owner of a motor vehicle, the insurance or
guaranty in cash or surety bond shall cover liability for death or
injury to third-parties in an amount not less than that set forth in
the following scale in any one accident:
(1) Private Cars
(i) Bantam: Twenty thousand pesos (P20,000.00);
(ii) Light: Twenty thousand pesos (P20,000.00); and
(iii) Heavy: Thirty thousand pesos (P30,000.00).
(2) Other Private Vehicles
(i) Tricycles, motorcycles and scooters: Twelve thousand
pesos (P12,000.00);
(ii) Vehicles with an unladen weight of 2,600 kilos or less:
Twenty thousand pesos (P20,000.00);
(iii) Vehicles with an unladen weight of between 2,601 kilos
and 3,930 kilos: Thirty thousand pesos (P30,000.00); and
(iv) Vehicles with an unladen weight over 3,930 kilos: Fifty
thousand pesos (P50,000.00).
The Commissioner may, if warranted, set forth schedule of
indemnities for the payment of claims for death or bodily
injuries with the coverages set forth herein.
 Insurance against passenger and third party liability
for death or bodily injuries arising from motor vehicle
accidents
 Required before an owner or operator can use his
vehicle
 Required in registration or renewal of registration
BAR 2014
Q: As a rule, an insurance contract is consensual and
voluntary. The exception is in the case of: (1%)
INSURANCE LAW REVIEW 2018 BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT

(A) Inland Marine Insurance

 precious stones, jewels, jewelry, precious metals,
(B) Industrial Life Insurance whether in the course of transportation OR otherwise

(C) Motor Vehicle Liability Insurance
(D) Life Insurance
ANSWER: (C) Motor Vehicle Liability Insurance
C. MARINE INSURANCE
Section 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys,
securities, choses in action, instruments of debts, valuable
papers, bottomry, and respondentia interests and all other
kinds of property and interests therein, in respect to,
appertaining to or in connection with any and all risks or perils
of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly
prepared for shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment incident
thereto, including war risks, marine builder‟s risks, and all
personal property floater risks;
(2) Person or property in connection with or appertaining to a
marine, inland marine, transit or transportation insurance,
including liability for loss of or damage arising out of or in
connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance
(but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person arising out
of ownership, maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether
in course of transportation or otherwise; and
(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to
navigation and transportation, including dry docks and marine
railways, dams and appurtenant facilities for the control of
waterways.
(b) Marine protection and indemnity insurance, meaning
insurance against, or against legal liability of the insured for
loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any
vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal injury,
illness or death or for loss of or damage to the property of
another person.
 bridges, tunnels and other instrumentalities of
transportation and communication (excluding
buildings, furniture and furnishings fixed contents and
supplies held in storage), piers, wharves, docks and
slips other aids of navigation, dry docks, marine
railways, dams
D. SURETYSHIP
Section 177. A contract of suretyship is an agreement
whereby a party called the surety guarantees the performance
by another party called the principal or obligor of an obligation
or undertaking in favor of a third party called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.
 An agreement whereby a party called the surety
guarantees the performance of another party called
the principal or obligor of an obligation or undertaking
in favor of a third party called the obligee
 Includes official recognizances, stipulations, bonds or
undertakings issued by any company
AT A GLANCE
 In an insurance contract, a person indemnifies
another person for his loss, damage or liability
 Any contingent or unknown event which may damnify
a person or create a liability against him may be
insured
 The two main kinds of insurance are life and non-life
insurance
 A person can sue based on an insurance contract
within 10 years from the time the right of action
accrues
 10-year period may be longer or shorter but generally,
cannot be shorter than one year and in industrial life,
cannot be shorter than 6 years
 Doubts in interpreting insurance contracts are
resolved in favor of the insured

 vessels, craft, aircraft, vehicles, goods, freights,

cargoes, merchandise, effects, bottomry,
respondentia interests

 person or property in connection with or appertaining

to marine, inland marine, transit or transportation
insurance but excludes life insurance or surety bonds
or insurance against loss by reason of bodily injury to
any person who arising out of ownership,
maintenance or use of automobiles

BY: HISHAM NAZZ A. BIRUAR, CPA

INSURANCE LAW REVIEW 2018
PART TWO: LIFE INSURANCE
PROCEDURE
TOPICS IN STAGES 1 AND 2
 What may be insured against
 Rule in case of death by suicide
 Insurable Interest
 Parties
 Kinds of life insurance
 Kinds of life insurance policies
CONCEPT OF LIFE INSURANCE
Section 181. Life insurance is insurance on human lives and
insurance appertaining thereto or connected therewith.
Every contract or undertaking for the payment of annuities
including contracts for the payment of lump sums under a
retirement program where a life insurance company manages
or acts as a trustee for such retirement program shall be
considered a life insurance contract for purposes of this Code.
CLASSES OF LIFE INSURANCE
1. Individual – protection is based on individual application.
2. Group – unit of selection is the group rather than the
individual, blanket policy covering a number of individuals
3. Industrial – premiums are payable either monthly or oftener
if the face amount of insurance is not more than 500 times the
current statutory minimum wage in Metro Manila.
CONTINGENCIES
 death
 survival of a specific period
 continuance or cessation of life
WHAT MAY BE INSURED AGAINST?
A. Actual death
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
B. Living death
C. Retirement death
A. ACTUAL DEATH
 Cessation of life
 Best proof of death: death certificate
 Policy matures upon the death of the insured
B. LIVING DEATH
 When the insured suffers from disability due to
disease or accident which prevents him from
engaging in any lawful occupation
 Partakes the nature of health and disability benefits
LIVING DEATH: ACCIDENT AND HEALTH
 Health, accident and disability insurance are deemed
as both life and non-life insurance and such may be
issued by either life or non-life insurance companies
(Sec. 193, 9th par).
 Deemed life insurance when death is one of the risks
insured against (Gallardo v. Morales)
ACCIDENT
An event which happens without any human agency or, if
happening through human agency, an event which under the
circumstances, is unusual and not expected by the person to
whom it happens by reason of some violence or casualty to the
insured without his design, consent or voluntary cooperation
(Sun Insurance v. CA)
DEATH BY SUICIDE: COMPENSABLE?
General Rule: No.
Basis: Section 89 which provides that an insurer is not liable if
loss is caused by willful act or connivance of the insured; and
the Rules of Court which provides that a person is presumed to
intend the consequences of his voluntary acts.
Exception: When is suicide compensable? (Section 183)
 If insured was not in his right mind/insane at the time
of suicide
 If insured committed suicide after the policy has been
effective for at least 2 years from issuance or last
reinstatement
Note: The 2-year period can be shortened but not lengthened.
Section 183. The insurer in a life insurance contract shall be
liable in case of suicide only when it is committed after the
policy has been in force for a period of two (2) years from the
date of its issue or of its last reinstatement, unless the policy
provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable
regardless of the date of commission.
BAR 2012
INSURANCE LAW REVIEW 2018
Q: X, on January 30, 2009, or two years before reaching the
age of 65, insured his life for P20 Million. For reasons unknown
to his family, he took his life 2 days after he reached 65. The
policy contains no excepted risk. Which statement is most
accurate?
A. The insurer will be liable
B. The insurer will not be liable
C. The state of sanity of the insured is relevant in order to hold
the insurer liable
D. The state of sanity of the insured is irrelevant in order to
hold the insurer liable
ANSWER: A. The insurer will be liable. The suicide was
committed after the two-year period from the time the policy
was obtained. Further, there is no excepted risk provision in
the policy. Hence, the beneficiaries are entitled to the
proceeds.
C. RETIREMENT DEATH
Life Annuity – debtor binds himself to pay annual pension or
income during the life of one or more determinate persons in
consideration of a capital consisting of money or other
property, whose ownership is transferred to him at once with
the burden of income (Art. 2021, Civil Code)
DYNAMICS IN LIFE ANNUITY
 Annuitant gives money or property to the insurer
 Insurer now becomes the debtor, and has the
obligation to give annual pension or income to either
the annuitant or another person
 The obligation of insurer to give pension stops upon
the death of the annuitant
INSURABLE INTEREST IN LIFE
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
(d) Of any person upon whose life any estate or interest vested
in him depends.
 A person cannot insure just anyone he wants
 One has to establish that he stands to suffer some
loss because of the death of a person
 Insurable interest ensures that a person can only get
a policy on the life of someone whose death will
produce loss
 There must be a relation between the insured and a
particular event such that the happening of the event
will damnify or cause loss to the person
 Purpose for the concept: to avoid wagering and to
avoid temptation of bringing about the event
Q: On whose life does a person have
insurable interest?
 himself, spouse, children
 person on whom he depends wholly or in part for
education or support or in whom he has a pecuniary
interest
 any person who is under legal obligation to him for
payment of money or respecting property or services
of which illness or death might delay or prevent
performance
 any person upon whose life any estate or interest
vested in him depends
SECTION 10 (A)
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
 Every person has unlimited insurable interest in his
own life
 One also had insurable interest in the life of his
spouse and children on the basis of love and affection
SECTION 10 (B): OBLIGATION TO GIVE SUPPORT
Section 10. Every person has an insurable interest in the life
and health:
xxx
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
xxx
Article 195, Family Code
 Spouses, legitimate ascendants and descendants
 parents and their legitimate children and legitimate or
illegitimate children of the latter
INSURANCE LAW REVIEW 2018
 parents and their illegitimate children and legitimate or
illegitimate children of the latter
 legitimate brothers and sisters whether of the full or
half blood
Article 196, Family Code
Brothers and sisters not legitimately related, whether of the full
or half blood, are likewise bound to support each other
EXCEPT only when the need for support of the brother or
sister, being of age, is due to a cause imputable to the
claimant‟s fault or negligence.
Blood relationship, affinity: enough?
 In cases not falling under 195 and 196, mere blood
relationship or affinity does not create insurable
interest
 Examples: uncle, aunt, nephew, niece, cousins, son-
in-law, brother-in-law, stepchildren
SECTION 10 (C): PECUNIARY INTEREST
Section 10. Every person has an insurable interest in the life
and health:
xxx
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
xxx
 Debtor-Creditor
 Employer-Employee (El Oriente v. Posadas)
 Business partners
 Corporate Officers
A corporation may have insurable interest in the lives
of its officers when the death or illness of said officers
would materially and injuriously affect the corporation.
SECTION 10(D): PERSON IN WHOSE ESTATE AN
INTEREST IS DEPENDENT
Section 10. Every person has an insurable interest in the life
and health:
xxx
(d) Of any person upon whose life any estate or interest vested
in him depends.
 Person is given the right to use a house
 Right ceases when the owner dies and another
person becomes the owner
BAR 2011
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Q: X has been a long-time household helper of Z. X's husband,
Y, has also been Z's long-time driver. May Z insure the lives of
both X and Y with Z as beneficiary?
A. Yes, since X and Y render services to Z.
B. No, since X and Y have no pecuniary interest on the life of Z
arising from their employment with him.
C. No, since Z has no pecuniary interest in the lives of X and Y
arising from their employment with him.
D. Yes, since X and Y are Z‟s employees.
ANSWER: C. No, since Z has no pecuniary interest in the lives
of X and Y arising from their employment with him.
BAR 2011
Q: X, Co., a partnership, is composed of A (capitalist partner),
B (capitalist partner) and C (industrial partner). If you were
partner A, who between B and C would you have an insurable
interest on, such that you may then insure him?
A. No one, as there is merely a partnership contract among A,
B and C.
B. Both B and C, as they are your partners.
C. Only C, as he is an industrial partner.
D. Only B, as he is a capitalist partner.
ANSWER: B. Both B and C, as they are your partners.
BAR 2014
Q: Carlo and Bianca met in the La Boracay festivities.
Immediately, they fell in love with each other and got married
soon after. They have been cohabiting blissfully as husband
and wife, but they did not have any offspring. As the years
passed by, Carlo decided to take out an insurance on Bianca‟s
life for P1,000,000.00 with him (Carlo) as sole beneficiary,
given that he did not have a steady source of income and he
always depended on Bianca both emotionally and financially.
During the term of the insurance, Bianca died of what
appeared to bea mysterious cause so that Carlo immediately
requested for an autopsy to be conducted. It was established
that Bianca died of a natural cause. More than that, it was also
established that Bianca was a transgender all along – a fact
unknown to Carlo. Can Carlo claim the insurance benefit? (5%)
SUGGESTED ANSWER: Carlo cannot recover from the
insurance policy. Insurable interest is necessary before a
person can obtain a life insurance policy on the life of another
person. Without insurable interest, there is no valid life
insurance policy.
Section 10 of the Insurance Code enumerates the people on
whom we have an insurable interest on, one of which is one‟s
legitimate spouse.
In the instant case, the marriage between Bianca and Carlo is
void ab initio since marriage must be between a man and a
woman. Since Bianca was a transgender, there was never a
INSURANCE LAW REVIEW 2018
valid marriage between Bianca and Carlo. Carlo never had any
insurable interest on the life of Bianca and hence, cannot
recover from the policy.
BAR 2014
Q: On July 3, 1993, Delia Sotero (Sotero) took out a life
insurance policy from Ilocos Bankers Life Insurance
Corporation (Ilocos Life) designating Creencia Aban(Aban), her
niece, as her beneficiary. Ilocos Life issued Policy No. 747,
with a face value of P100,000.00, in Sotero‟s favor on August
30, 1993, after the requisite medical examination and payment
of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the
insurance proceeds on July 9, 1996. Ilocos Life conducted an
investigation into the claim and came out with the following
findings:
1. Sotero did not personally apply for insurance coverage, as
she was illiterate.
2. Sotero was sickly since 1990.
3. Sotero did not have the financial capability to pay the
premium on the policy.
4. Sotero did not sign the application for insurance.
5. Aban was the one who filed the insurance application and
designated herself as the beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied
Aban‟s claim on April 16, 1997, but refunded the premium paid
on the policy. (6%)
(A) May Sotero validly designate her niece as beneficiary?
(B) May the incontestability period set in even in cases of fraud
as alleged in this case?
(C) Is Aban entitled to claim the proceeds under the policy?
SUGGESTED ANSWERS: (A) May Sotero validly designate
her niece as beneficiary?
Yes, Sotero has insurable interest on her own life and can
validly designate any beneficiary as long as it is not against the
law, public policy and morals. A beneficiary is not required to
have insurable interest in life insurance.
(C) Is Aban entitled to claim the proceeds under the policy?
No Aban is not entitled to the proceeds. She was the one who
obtained the policy on the life of her aunt on whose life she did
not have insurable interest. Since she did not insurable
interest, the policy is void.
MEASURE OF RECOVERY OF PROCEEDS
General Rule: Face value of the policy
Except: Pecuniary estimation is possible [Section 10 (c)]
SPECIAL RULE ON INSURABLE INTEREST IN
INDUSTRIAL LIFE
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Usual rules regarding insurable interest are generally not made
applicable in industrial life because:
 Proceeds are small, little danger to induce a person to
kill
 Investigation of presence of insurable interest will
nullify speedy payment of proceeds under the facility
of payment clause
 The costs to prove insurable interest will destroy the
purpose for this type of insurance
PARTIES
A. INSURER (SECTION 6)
Section 6. Every corporation, partnership, or association, duly
authorized to transact insurance business as elsewhere
provided in this Code, may be an insurer.
For a person to be called an insurance agent, it is necessary
that he should perform the function for compensation.
(Aisporna vs. CA, 113 SCRA 459)
Insurance corporations - corporations formed or organized to
save any person or persons or other corporations harmless
from any loss, damage or liability arising from any unknown or
contingent event, or to indemnify or compensate for such loss,
damage or liability or to guarantee performance with
contractual obligations or payment of debts.
MUTUALIZATION AND DEMUTUALIZATION
Mutualization – A shareholder-owned company is converted
into a mutual organization, typically through takeover by an
existing mutual organization. A mutual organization is
customer-owned.
Demutualization - customer-owned mutual organization or
cooperative changes form to a joint, stock company,
sometimes called stocking for privatization.
DEMUTUALIZATION
Section 280. A domestic mutual life insurance company doing
business in the Philippines may convert itself into an
incorporated stock life insurance company by demutualization.
To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this title.
The conversion of a domestic mutual life insurance company to
an incorporated stock life insurance company shall be carried
out pursuant to a conversion plan duly approved by the
Commissioner.
INSURANCE LAW REVIEW 2018
The Commissioner shall promulgate such rules and regulations
as he or she may deem necessary to carry out the provisions
of this title, after due consultation with representatives of the
insurance industry.
All converted insurers under the provisions of this title shall be
subject to all other applicable provisions of this Code. The
provisions of the Corporation Code shall apply in a suppletory
manner.
B. INSURED (SECTION 7)
Section 7. Anyone except a public enemy may be insured.
 Anyone except a public enemy may be insured.
 Public enemy - citizen or national of any country with
which the Philippines is at war
 The person who must have insurable interest
 The person who pays the premiums
 Commonly referred to as the policyholder
 Not necessarily whose life is used to constitute the
insurance policy
BAR 2000
Q: May a member of the Moro Islamic Liberation Front or its
breakaway group Abu Sayyaf be insured with a company
licensed to do business under the Insurance Code of the
Philippines? Explain (3%)
ANSWER: Yes, a member of the MILF or the Abu Sayyaf may
be insured. Only a public enemy cannot be insured. A public
enemy is a citizen or national of a country with which the
Philippines is at war.
RIGHTS OF AN INSURED
1. Right to borrow on the policy 227(g).
2. Right to dividends if participating policy 227(e); 230(e)
3. Right to reinstatement 227(j); 230(j)
 3 years from date of default of premium
payments in individual
 2 years from date of default of premium
payments in industrial
4. Payment of overdue premiums
5. Evidence of insurability
6. Right to transfer/bequeath-pass by transfer, will or
succession to any person whether he has insurable
interest or not; notice to insurer not required
C. CESTUI QUE VIE
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of which
death or illness might delay or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested
in him depends.
 Person on whose life the insurance contract is
constituted
 Can be any of those enumerated under Section 10
D. BENEFICIARY
One who receives benefits
General Rule: Designation may be changed by insured
Exception: Insured has expressly waived his right to change
BUT, if there was no change of beneficiary, designation is
IRREVOCABLE
EFFECTS OF IRREVOCABLE DESIGNATION
Insured cannot:
1. Assign the policy
2. Take the cash surrender value of the policy
3. Allow his creditors to attach or execute on the policy;
4. Add new beneficiary; or
5. Change the irrevocable designation to revocable,
even though the change is just and reasonable.
The insured does not even retain the power to destroy the
contract by refusing to pay the premiums for the beneficiary
can protect his interest by paying such premiums for he has an
interest in the fulfillment of the obligation.
BAR 2005
Q: What are the effects of an irrevocable designation of a
beneficiary under the Insurance Code? Explain (2%)
ANSWER: The irrevocable beneficiary has a vested interest in
the policy, including its incidents such as the policy loan and
cash surrender value.
Q: Jacob obtained a life insurance policy for P1 M designating
irrevocably Diwata, a friend, as his beneficiary. Jacob changed
his mind and wants to include two other friends as
beneficiaries. Can Jacob still add the two friends? (2%)
ANSWER: Jacob cannot include the two friends as additional
beneficiaries as this would diminish the interest of Diwata who
is irrevocably designated as beneficiary. Diwata has to consent
first to the inclusion.
DISQUALIFIED BENEFICIARIES
Article 2012 in relation to Article 739 of the Civil Code:
INSURANCE LAW REVIEW 2018
Article 739, CC. The following donations shall be void:
1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
2. Those made between persons found guilty of the same
criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee;
and the guilt of the donee may be proved by preponderance of
evidence in the same action.
 those made between persons who were guilty of
concubinage at the time of donation
 those made between persons found guilty of the
same criminal offense in consideration thereof
 those made to a public officer or his spouse,
descendants and ascendants by reason of his office
The designation of a common law wife is void. This needs only
be proved by preponderance of evidence, no previous
conviction is required. (Insular Life v. Ebrado, 80 SCRA 181)
If the beneficiary is disqualified, the estate of the insured will be
entitled to the proceeds of the life insurance policy.
BAR 1998
Q: A was issued a policy on whole life plan for P20,000. A is
married to B with whom he has 3 legitimate children. However,
A designated his common-law wife C as the beneficiary in his
policy and referred to C as his legal wife. When A died, both B
and C claimed the proceeds of the insurance. Who is entitled
to the proceeds? (5%)
ANSWER: The estate of A is entitled to the proceeds. C is a
disqualified beneficiary because of the illicit relation she had
with A.
BAR 2012
Q: X is the common law wife of Y. Y loves X so much that he
took out a life insurance on his own life making X as the sole
beneficiary. Y did this to ensure that X will be financially
comfortable when he is gone. Upon the death of Y---
A. X as the sole beneficiary in the policy of Y will be entitled to
the entire proceeds
B. Despite the designation of X, the proceeds will go to the
estate of Y
C. The proceeds will go the compulsory heirs of Y
D. The proceeds will be divided equally amongst X and the
compulsory heirs of Y
ANSWER: B. Despite the designation of X, the proceeds will
go to the estate of Y
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Common law spouses are barred from donating to each other.
Those who are barred from being donees cannot be
beneficiaries in a life insurance policy.
Hence, X is a disqualified beneficiary and the proceeds will go
to the estate of Y.
WHEN THE BENEFICIARY WILLFULLY CAUSES THE
DEATH OF INSURED
Section 12. The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death of
the insured. In such a case, the share forfeited shall pass on to
the other beneficiaries, unless otherwise disqualified. In the
absence of other beneficiaries, the proceeds shall be paid in
accordance with the policy contract. If the policy contract is
silent, the proceeds shall be paid to the estate of the insured.
If beneficiary WILLFULLY causes the death of the
insured/cestui que vie:
 The share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified.
 In the absence of other beneficiaries, the proceeds
shall be paid in accordance with the policy contract.
 If the policy contract is silent, the proceeds shall be
paid to the estate of the insured.
IF BENEFICIARY DIES BEFORE INSURED
If beneficiary dies ahead of the insured/cestui que vie, the
estate of the insured will get the proceeds.
IF THERE IS NO BENEFICIARY
If beneficiary is not designated, insured‟s estate will get the
proceeds.
Note: Only the insured or policyholder in life insurance is
required to have insurable interest on the life of the cestui.
The beneficiary may or may not have insurable interest on the
life of the cestui. What is vital is that the beneficiary is not
disqualified under the law to get the proceeds.
BAR 2000
Q: A is an elderly bachelor who took out an individual life
insurance policy on his life. The designated beneficiary is B a
companion-friend. A died in a fire which also destroyed his
home. The insurer refused payment to B due to absence of
insurable interest on the life of A. Is the insurer correct?
ANSWER: The insurer is wrong. B as the beneficiary is entitled
to collect the proceeds. As a beneficiary in a life insurance
policy, B is not required to have insurable interest on the life of
A. A had insurable interest on his own life and the policy was
taken on his life.
FORM OF A LIFE INSURANCE POLICY
Section 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
INSURANCE LAW REVIEW 2018
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.
General Rule: printed form
Exceptions: 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.
Contents of the form: Contains blanks where word, phrase,
clause, mark, sign necessary to complete the policy are placed
PURPOSE OF BLANK SPACES
Riders - Printed stipulations usually attached to the policy
because they constitute additional stipulations between the
parties. In case of conflict between a rider and the printed
stipulations in the policy, the rider prevails, as being a more
deliberate expression of the agreement of the contracting
parties.
Clauses - An agreement between the insurer and the insured
on certain matter relating to the liability of the insurer in case of
loss.
Endorsements - Any provision added to the contract altering
its scope or application
CONTENTS OF THE POLICY
Section 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
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
(g) The period during which the insurance is to continue.
REQUIRED PROVISIONS
1. Grace period provision – provision which gives the
insured additional time to pay his premiums from the
due date
2. Clarifies the right to collect if death happens within the
grace period
o Individual life – 30 days/1 month
o Group life – 30 days/1 month
o Industrial life – 4 weeks or if payable monthly
– 30 days/1 month
3. Entire contract provision – The policy shall constitute
the entire contract between the parties
4. Misstatement of age provision – if the age of the
insured is misstated, the amount payable shall be as
such premium would have purchased at the correct
age
LALICAN V. INSULAR LIFE
August 25, 2009
FACTS: Eulogio obtained a life insurance policy on his life,
with benefits payable to his wife Violeta.
The policy lapsed due to non-payment of premiums.
Eulogio applied for reinstatement. On the same day that
Violeta was able to file the application, Eulogio died.
RULING: Reinstatement can only happen upon filing of
application within the applicable period, payment of premiums
in arrears and evidence of insurability. The application should
have been approved during the LIFETIME of the insured.
Therefore, Violeta is not entitled to the proceeds.
SPECIAL FEATURES OF A LIFE INSURANCE POLICY
1. Loan privilege – based on the cash surrender value,
the insured may obtain a loan by pledging the policy
2. Policy dividend options – if the policy is participating,
the policyholder is entitled to a share of the surplus.
3. Exemption from claims of creditors – protection
against execution
4. Income tax treatment – proceeds of life insurance
policies are generally tax exempt. However,
endowment proceeds and cash surrender values are
treated as income and are taxable.
5. Surrender options/non-default options – if the
policyholder cannot continue paying the premiums, he
has some options which will not put to waste what he
has paid. However, these options are available only
upon payment of at least 3 annual premiums.
SURRENDER OPTIONS/NON-DEFAULT OPTIONS
1. Cash Surrender Value 227(f); 230(f) and (g)
o payment of at least 3 annual premiums
o not less than the reserve on the policy
INSURANCE LAW REVIEW 2018
2. Extended Insurance
o At least three annual premiums
o limited time, same face value
3. Paid-Up Insurance
o At least three annual premiums
o same period, lower proceeds
4. Automatic Premium Loan
o Parties agree that in case of default insurer
advances the premium not subject to
repayment
KINDS OF LIFE INSURANCE POLICY
1. Ordinary Life – payment of premiums is annually or
at more frequent intervals throughout life and the
beneficiary is entitled to receive payment only after
the death of the insured.
2. Limited Payment Life – premiums are payable only
during a limited period of years (10, 15, 20 years).
After the period, the insurance is deemed fully paid.
Proceeds are payable upon death of insured.
3. Term Insurance – provides coverage only if the
insured dies during a limited period. If the insured dies
within the period, the beneficiary gets the proceeds. If
the insured survives the period, the contract is
terminated.
4. Endowment Policy – insured gets a sum of money if
he survives a specified period. If insured dies within
the period, the beneficiary gets the proceeds.
5. Life Annuity – debtor binds himself to pay an annual
pension or income during the life of one or more
determinate persons in consideration of a capital
consisting of money or other property, whose
ownership is transferred to him at once with the
burden of income.
6. Accident Insurance – may be life or non-life
insurance. If death is one of the risks insured against,
it is classified as life insurance.
WHEN IS AN INSURANCE CONTRACT PERFECTED?
Procedure
An insurance contract is perfected at the time the insured-
applicant has knowledge of the approval of his application.
This is also called cognition theory.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
 Even if the application has been approved if the
applicant-insured does not know about approval,
there is NO perfected contract yet.
 Since the insured is the one making the offer, the
submission of the application WITHOUT the approval
of the policy does not result in a perfected contract of
insurance. (Grepalife v. CA)
 If insured died during the period of provisional policy
which is conditioned upon approval of application,
beneficiary is NOT entitled to proceeds.
 Even if the insurer has approved the application via a
letter, there is no perfected contract if there is no
evidence that the applicant knew of the approval
(Enriquez v. SunLife, 41 Phil 629)
 The insured is presumed to have understood the
application and the contract of insurance (Tang v. CA,
90 SCRA 236)
DE LIM V. SUN LIFE
FACTS: The applicant paid the premium upon filing of
application but he dies before the approval
Q: Is there a perfected contract of insurance? No.
BAR 2011
Q: On June 1, 2011, X mailed to Y Insurance, Co. his
application for life insurance, with payment for 5 years of
premium enclosed in it. On July 21, 2011, the insurance
company accepted the application and mailed, on the same
day, its acceptance plus the cover note. It reached X's
residence on August 11, 2011.
But, as it happened, on August 4, 2011, X figured in a car
accident. He died a day later. May X's heirs recover on the
insurance policy?
A. Yes, since under the Cognition Theory, the insurance
contract was perfected upon acceptance by the insurer of X's
application.
B. No, since there is no privity of contract between the insurer
and X‟s heirs.
C. No, since X had no knowledge of the insurer's acceptance
of his application before he died.
D. Yes, since under the Manifestation Theory, the insurance
contract was perfected upon acceptance of the insurer of X's
application.
ANSWER: C. No, since X had no knowledge of the insurer's
acceptance of his application before he died.
COVER NOTES VS. BINDING RECEIPT
Section 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.
INSURANCE LAW REVIEW 2018
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.
Cover notes are temporary insurance policies intended to
cover the insured while application is being evaluated.
On the other hand, binding receipts are acknowledgment of
receipt of premium and application subject to evaluation. They
are NOT the same as cover notes. (Great Pacific v. CA, 89
SCRA 543)
VALIDITY OF A COVER NOTE
 A cover note is a valid insurance contract if issued
and renewed with prior approval of the Insurance
Commissioner. This is valid and binding for not more
than 60 days, unless the Insurance Commissioner
has approved an extension based on valid grounds.
 In Pacific Timber vs. CA, the Supreme Court held that
no separate premium is required for the cover note.
 7-day notice to the other party is required to cancel
the cover note.
 The policy must be issued within 60 days from
issuance of cover notes.
 60-day period may be extended upon written approval
of Insurance Commissioner.
 Written approval of the Insurance Commissioner is
dispensed with when the president, VP or general
manager of the company certifies that the renewal is
not to circumvent the Insurance Code. (Ins. Memo
Circular 3-75)
PREMIUM
Section 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.
 Premium refers to the agreed price for assuming the
risk.
 The right to premium arises the moment the
property/object is exposed to risk
 Cash and carry basis - based on section 77 which
provides that the moment the thing insured is
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
exposed to the peril, the insurer has the right to
payment of premium.
WHEN IS NON-PAYMENT EXCUSED?
1. insolvent insured
2. insurer‟s negligence or fault
3. insurer waives the right to payment
War does not suspend the policy and does not excuse non-
payment of premiums. (Constantino vs. Asia Life, 87 Phil 248)
If insured fails to pay first premium, the insurer cannot ask for
specific performance but can only rescind the contract since
there is no creditor-debtor relationship.
SPECIAL RULE IN INDUSTRIAL LIFE IF PREMIUMS ARE
NOT PAID
Section 235. xxx
An industrial life policy shall not lapse for nonpayment of
premium if such nonpayment was due to the failure of the
company to send its representative or agent to the insured at
the residence of the insured or at some other place indicated
by him for the purpose of collecting such premium: Provided,
That the provisions of this paragraph shall not apply when the
premium on the policy remains unpaid for a period of three (3)
months or twelve (12) weeks after the grace period has
expired.
General Rule: If insured failed to pay because the insurance
agent did not collect in the address provided in the policy, the
policy will NOT lapse.
Exception: when the premium on the policy remains unpaid
for a period of three (3) months or twelve (12) weeks after the
grace period has expired.
AT A GLANCE
 Only the insured must have insurable interest on the
life if the cestui
 Suicide is generally not compensable unless: mentally
ill or committed after the policy has existed for more
than two years from issuance
 If the beneficiary is disqualified because he
participated in the death of the cestui, the other
beneficiaries will get his share. If there are no other
beneficiaries or also disqualified, the terms of the
policy will be followed. Otherwise, the estate will
recover.
 In all other cases, it is the estate of the insured which
can recover.
 If the cestui dies during the grace period, there can be
recovery.
 If the cestui dies during the duration of the cover
notes, there can be recovery.
 The measure of recovery in life insurance is the face
value of the policy, except when insurable interest is
capable of pecuniary estimation.
INSURANCE LAW REVIEW 2018
PART THREE: NON-LIFE INSURANCE
TOPICS
 What may be insured against
 Insurable interest
 Non-life insurance policy
 Premiums
 Parties
 Double insurance vs reinsurance
 Different kinds of non-life insurance
WHAT MAY BE INSURED AGAINST
Requirement for recovery
Section 86. Unless otherwise provided by the policy, an
insurer is liable for a loss of which a peril insured against was
the proximate cause, although a peril not contemplated by the
contract may have been a remote cause of the loss; but he is
not liable for a loss of which the peril insured against was only
a remote cause.
 Concept of loss - injury, damage, liability, loss of
income or profits sustained by the insured in
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA
261)
 Peril insured against must be the PROXIMATE
CAUSE of the loss or damage (Section 86)
 No liability if insured risk is only a remote cause or if
proximate cause is an excepted peril
PROXIMATE CAUSE
 That which in the natural and continuous sequence,
unbroken by any NEW INDEPENDENT cause,
produces an event without which the event would not
have occurred.
 Also called the EFFICIENT CAUSE, or one that sets
the others in motion
 NOT equivalent to IMMEDIATE CAUSE
 Examples: Fire causes an explosion which results in
loss. Fire is the proximate cause of the loss. If fire is
a covered peril, the insurer is liable.
 A house is insured against fire. The house is
destroyed due to the falling of a wall. The wall fell
due to fire. The insurer is liable.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
IMMEDIATE CAUSE VS. PROXIMATE CAUSE
Immediate cause refers to the cause or peril which appears
closest in time to the loss. Immediate cause is NOT
necessarily the proximate cause and vice versa.
BAR 2007
Q: Alfredo took out a policy to insure his commercial building
against fire. A fire broke out and destroyed the building. It was
found that the proximate cause of the fire was explosion but
fire was the immediate cause of the loss. There is no excepted
peril in the policy. Can there be recovery under the policy?
ANSWER: Alfredo cannot recover from the policy. Section 84
of the Insurance Code provides that before there can be
recovery under property insurance, the proximate cause of the
loss must be the covered peril. In the instant case, the
proximate cause of the loss was not the peril insured against.
Hence, there can be no recovery under the policy.
FRIENDLY VS HOSTILE FIRE
Friendly – a fire that burns in a place where it is intended to
burn
Hostile - occurs outside the confines or begins as a friendly
fire and becomes hostile by escaping from the place where it
ought to be
Hostile fire is the one covered by fire insurance.
SECTION 87: LOSS IN THE COURSE OF RESCUE
Section 87. An insurer is liable where the thing insured is
rescued from a peril insured against that would otherwise have
caused a loss, if, in the course of such rescue, the thing is
exposed to a peril not insured against, which permanently
deprives the insured of its possession, in whole or in part; or
where a loss is caused by efforts to rescue the thing insured
from a peril insured against.
Insurer is liable if the thing is rescued from a peril insured
against if in the course of rescue, the thing is exposed to a peril
not insured against.
Illustration: An owner gets fire insurance for his house and all
furniture inside. In the course of rescuing the furniture from
fire, the furniture is damaged due to water. The insurer is liable
to the owner although the damage is not due to fire since it
was in the course of rescuing the furniture from fire that it
suffered some damage.
IF LOSS DUE TO WILLFUL ACT OR CONNIVANCE OF
INSURED
Section 89. An insurer is not liable for a loss caused by the
willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.
 Insurer is not liable if insured, through his willful act or
connivance, caused the loss.
o Ex. Owner hiring other people to rob his
property, arson
INSURANCE LAW REVIEW 2018
 If loss is through SIMPLE negligence of insured or his
agents, insurer is STILL LIABLE.
 Insurer is NOT liable if loss is caused by GROSS
negligence of insured.
BAR 2007
Q: If the fire was found to have been caused by Alfredo‟s own
negligence, can he still recover from the policy?
ANSWER: I qualify. If the negligence was simple in nature
then Alfredo can still recover under the policy. However, if
there was gross negligence on the part of Alfredo then he is
barred from recovering under the policy.
BAR 2014
Q: On February 21, 2013, Barrack entered into a contract of
insurance with Matino Insurance Company (Matino) involving a
motor vehicle. The policy obligates Matino to pay Barrack the
amount of Six Hundred Thousand Pesos (P600,000.00) in
case of loss or damage to said vehicle during the period
covered, which is from February 26, 2013 to February 26,
2014.
On April 16, 2013, at about 9:00 a.m., Barrack instructed his
driver, JJ, to bring the motor vehicle to a near by auto shop for
tune-up. However, JJno longer returned and despite diligent
efforts to locate the said vehicle, the efforts proved futile.
Resultantly, Barrack promptly notified Matino of the said loss
and demanded payment of the insurance proceeds of
P600,000.00.
In a letter dated July 5, 2013. Matino denied the claim,
reasoning as stated in the contract that "the company shall not
be liable for any malicious damage caused by the insured, any
member of his family or by a person in the insured‟s service. Is
Matino correct in denying the claim? (4%)
ANSWER: No, Matino is wrong in denying the claim.
Under the Insurance Code, an insurance policy is intended to
cover losses due to acts of simple negligence. It is only when
the insured is guilty of willfull connivance in bringing about the
risk insured against or gross negligence that an insurer can
deny compensation.
In this case, the act of Barrack of allowing his driver to bring
the car for tune up is simple negligence, which should be
covered by an insurance policy.
Further, the act of JJ, Barrack‟s driver in running away with the
vehicle, cannot be considered as malicious damage. It is a
crime, which is an act covered by an insurance policy. Hence,
Matino cannot use this exlusionary clause to defeat payment of
proceeds.
INSURABLE INTEREST
Section 13. Every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest.
 Every interest in property, whether real or personal
(owner)
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
 Any relation thereto (lessee, agent)
 Liability in respect of property (carrier, depositary)
 Which will directly damnify the insured when a
contemplated peril happens
Section 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out
of which the expectancy arises.
 Existing interest (owner)
 Inchoate interest founded on an existing interest
(shareholder)
 Expectancy coupled with an existing interest
(usufructuary, expected profit)
Examples of Insurable Inchoate Right in Property:
a. Contractor‟s interest in the completed building for
unpaid construction cost;
b. Lessor‟s interest in the improvement made by the
lessee;
c. Naked owner‟s (owner of a naked title) interest over
property which another person has beneficial title.
FACTUAL EXPECTATION
Mere factual expectation of loss not arising from any legal right
or duty in connection with the SM does NOT constitute an
insurable interest.
NOTE: Factual expectation is enough basis in life insurance.
BENEFICIARY IS REQUIRED TO HAVE INSURABLE
INTEREST
Section 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.
Insurable interest is required before a person can benefit from
a property insurance.
BAR 2000
Q: A is an elderly bachelor. He insured his house against fire.
He named his companion-friend as beneficiary. A died in a fire
which also destroyed his home. The insurer refused payment
to B due to absence of insurable interest on the life of A. Is the
insurer correct?
ANSWER: The insurer is correct. The beneficiary in property
insurance must have insurable interest on the property. The
companion-friend of A does not have insurable interest on the
house of A. Hence, he cannot recover from the fire insurance
policy.
BAR 2001
INSURANCE LAW REVIEW 2018
Q: JQ, the owner of a condominium insured the same against
fire with XYZ Company and made the loss payable to his
brother MLQ. In case of loss by fire, who can recover from the
policy. State the reason for your answer (5%)
ANSWER: JQ can recover since he has insurable interest over
his own condominium unit. MLQ cannot recover since it is
required that a beneficiary must have insurable interest over
the property.
BAR 2014
Q: A person is said to have an insurable interest in the subject
matter insured where he has a relation or connection with, or
concern in it that he will derive pecuniary benefit or advantage
from its preservation. Which among the following subject
matters is not considered insurable? (1%)
(A) A partner in a firm on its future profits
(B) A general creditor on debtor‟s property
(C) A judgment creditor on debtor‟s property
(D) A mortgage creditor on debtor‟s mortgaged property
ANSWER: (B) A general creditor on debtor‟s property
BAR 2015
Q: Novette entered into a contract for the purchase of certain
office supplies. The goods were shipped. While in transit, the
goods were insured by Novette. Does she have an insurable
interest over the goods even before delivery of the same to
her? Explain. (2%)
ANSWER: It depends. If there was already transfer of
ownership to Novette even before the goods were delivered to
her, which may be caused by payment of full purchase price,
then she can insure the goods. The loss of the goods shall
cause damage to Novette.
However, if the goods are still owned by the seller, Novette
cannot insure them. Only an existing interest, inchoate interest
founded on an existing interest or expectancy coupled with an
existing interest shall justify an insurance policy on the goods.
BAR 2017
Q: The newly restored Ford Mustang muscle car was just
released from the car restoration shop to its owner, Seth, an
avid sportsman. Given his passion for sailing, he needed to go
to a round-the-world voyage with his crew on his brand-new
180-meter yacht. Hearing about his coming voyage, Sean, his
bosom friend, asked Seth if he could borrow the car for his
next roadshow. Sean, who had been in the business of holding
motor shows and promotions, proposed to display the restored
car of Seth in major cities of the country. Seth agreed and lent
the Ford Mustang to Sean. Seth further expressly allowed
Sean to use the car even for his own purposes on special
occasions during his absence from the country. Seth and Sean
then went together to Bayad Agad Insurance Co. (BAIC) to get
separate policies for the car in their respective names.
BAIC consults you as its lawyer on whether separate policies
could be issued to Seth and Sean in respect of the same car.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
What is insurable interest? Do Seth and Sean have separate
insurable interests? Explain briefly your answer.
ANSWER: What is insurable interest?
Every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured, is
an insurable interest.
Do Seth and Sean have separate insurable interests?
Only Seth has insurable interest. As the owner of the Mustang,
Seth has an interest on the vehicle and stands to be damnified
if something happens to the vehicle. On the other hand, Sean
as a mere bailor has no insurable interest and suffers no
damage when something happens to the vehicle.
INSURABLE INTEREST IN A MORTGAGED PROPERTY
Section 8. Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance,
will have the same effect, although the property is in the hands
of the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
 Both the mortgagor and the mortgagee have
insurable interest on the mortgaged property.
 The insurable interest of the mortgagor is to the full
value of the SM.
 The insurable interest of the mortgagee is only up to
the extent of the indebtedness.
BAR 2012
Q: A house and lot is covered by a real estate mortgage (REM)
in favor of ZZZ Bank. The bank required that the house be
insured. The owner of the policy failed to endorse nor assign
the policy to the bank. However, the Deed of Real Estate
Mortgage has· an express provision which says that the
insurance policy is also endorsed with the signing of the REM.
Will this be sufficient?
A. No, insurance policy must be expressly endorsed to the
bank so that the bank will have a right in the proceeds of such
insurance in the event of loss.
B. The express provision contained in the Deed of Real Estate
Mortgage to the effect that the policy is also endorsed is
sufficient.
C. Endorsement of Insurance Policy in any form is not legally
allowed.
D. Endorsement of the Insurance Policy must be in a formal
document to be valid.
INSURANCE LAW REVIEW 2018
ANSWER: (B) The express provision contained in the Deed of
Real Estate Mortgage to the effect that the policy is also
endorsed is sufficient.
BAR 1999
Q: A businessman obtained a fire insurance policy on his
stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to another person who
also insured the same stocks for P5 M. May the businessman
and the creditor obtain different insurance policies on the same
stocks?
ANSWER: Yes. The businessman, as the owner, and the
creditor, as the mortgagee, have insurable interest over the
stocks. Hence, they may obtain separate policies on the same
stocks.
MEASURE OF INSURABLE INTEREST
Section 17. The measure of an insurable interest in property is
the extent to which the insured might be damnified by loss or
injury thereof.
Section 25. Every stipulation in a policy of insurance for the
payment of loss whether the person insured has or has not any
interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed
by way of gaming or wagering, is void.
JURISPRUDENCE ON INSURABLE INTEREST
 Fire insurance taken on a property belonging to
another is VOID, although the insurer had full
knowledge of fact of ownership and even if insured
subsequently acquired insurable interest. (Cha v. CA,
277 SCRA 690)
 Where the real intention of insured was to insure his
goods for P15,000 but insurer mistakenly insured the
building where the goods were contained and not
owned by insured, in case of loss of goods insured
was allowed to recover. (Garcia v. Hongkong, 45 Phil
122)
WHEN INSURABLE INTEREST MUST EXIST IN PROPERTY
INSURANCE
Section 19. An interest in property insured must exist when
the insurance takes effect, and when the loss occurs, but need
not exist in the meantime; and interest in the life or health of a
person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
 when the insurance takes effect
 and when the loss occurs
 but need not exist in the meantime
BAR 2002
Q: Distinguish insurable interest in property insurance from
insurable interest in life insurance (5%)
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
ANSWER: In property insurance, the expectation of benefit
must have a legal basis. In life insurance, insurable interest
can be based on mere factual expectation.
In property insurance, the actual value of the interest is the
limit of the insurance. There is no such limit in life insurance
except if insurable interest is capable of pecuniary estimation.
In property insurance, insurable interest must exist when the
insurance takes effect and at the time of the loss but not in the
meantime. In life insurance, insurable interest must exist only
at the time the insurance takes effect.
In life insurance, the beneficiary is not required to have
insurable interest on the life of cestui que vie, unless the
beneficiary was the one who got the policy. In property, the
beneficiary must have insurable interest on the property.
BAR 2012
Q: For both the Life Insurance and Property Insurance, the
insurable interest is required to be -
A. existing at the time of perfection of the contract and at the
time of loss.
B. existing at the time of perfection and at the time of loss for
property insurance but only at the time of perfection for life
insurance.
C. existing at the time of perfection for property insurance but
for life insurance both at the time of perfection and at the time
of loss.
D. existing at the time of perfection only.
ANSWER: B. existing at the time of perfection and at the time
of loss for property insurance but only at the time of perfection
for life insurance.
CHANGE OF OWNERSHIP OF PROPERTY
Section 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the
insurance, suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the insurance
are vested in the same person.
Section 58. The mere transfer of a thing insured does not
transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured.
Illustration: A owns a car which is insured against theft. A sells
the car to B. The policy was not included in the sale. If the car
is carnapped, neither A nor B can recover under the policy.
A cannot recover because he does not own the car at the time
of the theft. B cannot recover because he does not own the
policy.
TRANSFER OF PROPERTY BY SUCCESSION
Section 23. A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance; and his
interest in the insurance passes to the person taking his
interest in the thing insured.
INSURANCE LAW REVIEW 2018
When the insured dies, and the subject matter is transferred by
succession, the new owner of the thing will also own the
insurance.
Illustration: A owns a car which has theft insurance. A
bequeath the car to B under his will. A dies. B now owns the
car, together with the insurance policy
KINDS OF POLICY
Section 59. A policy is either open, valued or running.
A. Open policy
B. Valued Policy
C. Running Policy
A. OPEN POLICY
Section 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.
The value of the thing is not agreed upon but is to be
ascertained at time of loss. The amount of the insurance
merely represents the insurer‟s maximum liability.
Illustration
Value of the building: to be determined at
the time of the loss
Face Value: P100 Million
If the valuation is more than the face
value, recovery is limited to the face value.
B. VALUED POLICY
Section 61. A valued policy is one which expresses on its face
an agreement that the thing insured shall be valued at a
specific sum.
It expresses on its face an agreement that the thing shall be
valued at a specific sum.
Illustration
Valuation of the car: P20 Million
Face Value: P10 Million
General Rule: Recovery will be based
on valuation.
Exception: If valuation is obtained
through fraud or misrepresentation,
recovery is limited to the face value, or
the insurer may deny the claim.
C. RUNNING POLICY
Section 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
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
the subjects of insurance, by additional statements or
indorsements.
A running policy covers successive insurances.
Illustration: Insurance of a Grocery
Store
As of February 1, 2018 - value of
goods – P1 Million
As of February 8, 2018 - value of
goods – P500,000
TWO KINDS OF VALUES
1. Face value – maximum amount which may be
recovered under the policy
2. Valuation - value of the subject matter agreed on by
the parties
OPEN POLICY VS. VALUED POLICY
An open policy has a face value but has no valuation of the
thing. The valuation is done only after loss.
On the other hand, a valued policy has both face value and
valuation of the thing.
PREMIUM
Section 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.
 .Premium refers to the agreed price for assuming and
carrying the risk.
 The right to premium arises the moment the thing
insured is exposed to the peril insured against.
 The cash and carry basis is followed, which provides
that the moment the thing insured is exposed to the
peril, the insurer has the right to payment of premium.
CASH AND CARRY BASIS
General Rule: Nonpayment of the first premium prevents the
contract from becoming binding.
Premium must be paid in cash as a condition precedent for
non-life insurance policy to be valid and binding.
In Suretyship, payment of premium is also necessary for the
contract to be binding. However, if the obligee has accepted
the bond, suretyship is binding even if premium has not been
INSURANCE LAW REVIEW 2018
paid, subject to the right of the insurer to recover the premium
from its principal (Sec. 179)
Section 179. The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond is perfected and
delivered to the obligor. No contract of suretyship or bonding
shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted
the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has
been paid by the obligor to the surety:
Provided, That if the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety shall collect
only a reasonable amount, not exceeding fifty percent (50%) of
the premium due thereon as service fee plus the cost of
stamps or other taxes imposed for the issuance of the contract
or bond:
Provided, however, That if the nonacceptance of the bond be
due to the fault or negligence of the surety, no such service
fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the
subsequent annual premium as it falls due until the contract of
suretyship is cancelled by the obligee or by the Commissioner
or by a court of competent jurisdiction, as the case may be.
EXCEPTIONS TO THE CASH AND CARRY BASIS
Section 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.
1. Whenever the grace period provision applies for a life
or an industrial life policy, or
2. Whenever under the broker and agency agreements
with duly licensed intermediaries, a ninety (90)-day
credit extension is given
o No credit extension to a duly licensed
intermediary should exceed ninety (90) days
from date of issuance of the policy.
3. 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.
4. When the parties have agreed on installment payment
(Makati Tuscany case)
5. When the insurer has renewed the insurance over the
years under a clear credit term arrangement (UCPB
case)
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
6. In Suretyship where the obligee accepts the bond
even if premium has not been paid (Sec. 179)
UCPB vs. MASAGANA
April 4, 2001
When there is a credit scheme, insured is entitled to
proceeds even if he has not fully paid premiums when:
A. for years, insurer has been issuing fire insurance policies to
insured and the policies were renewed;
B. insurer has been granting 60-90 day credit extension;
C. there is no valid notice of non-renewal; and
D. premium was paid by insured within credit extension period.
BAR 2007
Q: Alfredo took out a policy to insure his commercial building.
The broker agreed to give a 15-day credit to Alfredo within
which to pay the premium. Upon delivery of the policy on May
15, 2006, Alfredo issued a postdated check dated May 30,
2006. On May 28, 2006, fire destroyed the building. May
Alfredo recover from the policy?
ANSWER: Alfredo can recover from the policy. In a decided
case by the Supreme Court, it was held that parties may agree
on a credit extension in paying the premium. The happening of
the peril during the credit extension will entitle the insured to
proceeds, less the unpaid premiums.
ON PREMIUM BY INSTALLMENT
MAKATI TUSCANY vs. CA
April 4, 2001
FACTS: Makati Tuscany and American Assurance agreed that
premiums will be paid via three installments. Makati Tuscany
paid premiums for 3 consecutive years in three installments.
On the 4th year, Makati refused to pay the third installment.
American Assurance sought to collect the balance. However,
Makati Tuscany raised Section 77 as a defense which provides
that no policy will be effective unless the premium has been
paid. Since premiums were paid on installments, there was no
valid policy.
ISSUE: Is American Assurance precluded to collect the
remaining balance?
RULING: No. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy (De Leon,
the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At
the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
BAR 2006
Q: A Insurance Company issued an policy on the new car of B.
The premium of P60,000 was to be paid in 6 months. B paid
only the 1st two months installments. Despite demands, B
failed to pay the rest of the installments. Five months after the
INSURANCE LAW REVIEW 2018
issuance of the policy, the vehicle was carnapped. A denied
the claim of B since B did not pay the premium resulting to
cancellation of the policy. Can B recover from A?
ANSWER: B can recover from A the proceeds of the policy
less the unpaid premiums. In a decided case by the Supreme
Court, it was held that when the parties agreed on payment of
premiums by installment, the policy becomes effective upon
payment of first installment. Absent any provision that non-
payment of subsequent installments will cause cancellation,
the policy between A and B continue to exist.
BAR 2010
Q: Enrique obtained from Seguro Insurance Company a
comprehensive motor vehicle insurance to cover his top of the
line Aston Martin. The policy was issued on March 31, 2010
and, on even date, Enrique paid the premium with a personal
check postdated April 6, 2010.
On April 5, 2010, the car was involved in an accident that
resulted in its total loss.
On April 10, 2010, the drawee bank returned Enrique‟s check
with the notation "Insufficient Funds." Upon notification,
Enrique immediately deposited additional funds with the bank
and asked the insurer to redeposit the check.
Enrique thereupon claimed indemnity from the insurer. Is the
insurer liable under the insurance coverage? Why or why not?
(3%)
ANSWER: Enrique cannot recover. In a decided case, the
Supreme Court said that an insurer and the insured may agree
on a credit scheme for payment of premiums, which will give
rise to a perfected contract of insurance. However, the insurer
must make payment within the period agreed on. (UCPB v.
Masagana).
In this case, Enrique‟s check bounced on April 6. He only
funded the check on April 10 or 4 days late than the date of the
check. Thus, there was no perfected contract of insurance
which can cover the April 5 accident. Enrique cannot recover
under the policy.
BAR 2014
Q: On September 25, 2013, Danny Marcial (Danny) procured
an insurance on his life with a face value of P5,000,000.00
from RN Insurance Company (RN), with his wife Tina
Marcial(Tina) as sole beneficiary. On the same day, Danny
issued an undated check to RN for the full amount of the
premium.
On October 5, 2013, Danny met a tragic accident and died.
Tina claimed the insurance benefit, but RN was quick to deny
the claim because at the time of Danny‟s death, the check was
not yet encashed and therefore the premium remained unpaid.
Is RN correct? Will your answer be the same if the check is
dated October 15, 2013? (4%)
ANSWER: RN is correct in denying the claim.
Based on jurisprudence, an insurer can be held liable for loss if
the insurer and the insured agreed on a credit scheme where
there is a definite period when premium should be fully paid.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
In this case, there was no clear credit extension period or
scheme since the check issue by Danny was undated. Since
there was no payment of premiums or even a definite time
when payment should be made, there was no valid insurance
policy at the time of Danny‟s death. Hence, there can be no
recovery of proceeds.
My answer will not be the same if the check was dated October
15, 2014.
If the check was properly dated, this means that there was a
valid credit extension scheme or period between the parties.
Hence, there was a valid policy and there should be payment
of proceeds, less the amount of premiums.
BAR 2015
Q: Will an insurance policy be binding even if the premium is
unpaid? What if it were a partially paid premium? (3%)
ANSWER: No. The general rule is the cash and carry rule.
This means that an insurance policy will only be effective when
premium has been paid. However, there are exceptions to this
rule. These are:
1. In the case of a life or an industrial life policy whenever the
grace period provision applies;
2. Whenever under the broker and agency agreements with
duly licensed intermediaries, a ninety (90)-day credit extension
is given, provided no credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of
issuance of the policy.
3. 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.
4. When the parties have agreed on installment payment
(Makati Tuscany case)
5. When the insurer has renewed the insurance over the years
under a clear credit term arrangement (UCPB case)
Unless any of these exceptions is present, a policy without the
payment of premium shall have no legal effect.
WHEN IS INSURED ENTITLED TO RETURN OF WHOLE
PREMIUM?
Section 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.
A person insured is entitled to a return of the premium when:
INSURANCE LAW REVIEW 2018 BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT

1. the contract is voidable, and subsequently annulled

under the provisions of the Civil Code; or Value of the insured house: P1,500,000

2. on account of the fraud or misrepresentation of the

insurer, or of his agent, or

3. on account of facts, or the existence of which the

insured was ignorant of without his fault; or

4. when by any default of the insured other than actual

fraud, the insurer never incurred any liability under the
policy.

5. no part of his interest in the thing insured be exposed

to any of the perils insured against (Sec 80) How to compute?

Example: Agent represents that A can be insured even if his
age disqualifies him. Insured is entitled to return of premium.
WHEN IS INSURED ENTITLED TO RETURN OF PRO-
RATED PREMIUM?
Step 1: Determine the amount overinsured
Amount overinsured = Amount of insurance – value of property
Amount overinsured = P1,800,000 – P1,500,000

Section 80. A person insured is entitled to a return of Amount overinsured = P300,000

premium, as follows:
Step 2: Get the ratio of overinsurance with the total
(a) To the whole premium if no part of his interest in the thing amount of insurance
insured be exposed to any of the perils insured against;
Ratio = Amount overinsured / Total insurance
(b) Where the insurance is made for a definite period of time
and the insured surrenders his policy, to such portion of the Ratio = P300,000 / P1,800,000.00
premium as corresponds with the unexpired time, at a pro rata
rate, unless a short period rate has been agreed upon and Ratio = 1/6
appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the policy Step 3: Multiply the ratio to the amount of premium paid to
which has previously accrued: every insurer

Provided, That no holder of a life insurance policy may avail A= 1/6 of P24,000 = P4,000 from A Company
himself of the privileges of this paragraph without sufficient
cause as otherwise provided by law. B= 1/6 of P12,000 = P2,000 from B Company

Section 83. In case of an over insurance by several insurers
other than life, the insured is entitled to a ratable return of the
premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of
the thing at risk.
A person insured is entitled to a return of pro-rated premium:
Thus, the ratable premium to be returned by A Company is
P4,000. B Company has to return P2,000.
BAR 2000
Q: Name at least three instances when an insured is entitled to
a return of the premium paid.

1. if he surrenders the policy before the period is up ANSWER: A person insured is entitled to a return of the whole
(Sec 80) premium when:

o Example: A insures his house for 1 year but
returns the policy after 3 months. A is
entitled to ¾ of the premiums.
2. in case of an over insurance by several insurers other
than life (Sec 83)
o ratable return of premium provides that the
premiums to be returned when there is over
insurance by several insurers shall be
proportioned to the amount by which the
aggregate sum insured in all policies
exceeds the insurable value of the thing at
risk
1. the contract is voidable, and subsequently annulled under
the provisions of the Civil Code; or
2. on account of the fraud or misrepresentation of the insurer,
or of his agent, or
3. on account of facts, or the existence of which the insured
was ignorant of without his fault; or
4. when by any default of the insured other than actual fraud,
the insurer never incurred any liability under the policy.
5. no part of his interest in the thing insured be exposed to any
of the perils insured against (Sec 80)

Illustration on ratable return of premium in case of over A person insured is entitled to a return of pro-rated premium:
insurance:
1. if he surrenders the policy before the period is up (Sec 80)
BY: HISHAM NAZZ A. BIRUAR, CPA
INSURANCE LAW REVIEW 2018
2. in case of an over insurance by several insurers other than
life (Sec 83)
ADDITIONAL PREMIUMS
Section 84. An insurer may contract and accept payments, in
addition to regular premium, for the purpose of paying future
premiums on the policy or to increase the benefits thereof.
PARTIES
BENEFICIARY
Section 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.
In life insurance, the beneficiary is not required to have
insurable interest over the cestui que vie. It is only the insured
who must have insurable interest over the cestui que vie
However, in property insurance, the beneficiary must have an
insurable interest over the property insured.
INSURER
Section 193. No insurance company shall transact any
insurance business in the Philippines until after it shall have
obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by the
company concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority
to any insurance company if, in his judgment, such refusal will
best promote the interest of the people of this country. No such
certificate of authority shall be granted to any such company
until the Commissioner shall have satisfied himself by such
examination as he may make and such evidence as he may
require that such company is qualified by the laws of the
Philippines to transact business therein, that the grant of such
authority appears to be justified in the light of local economic
requirements, and that the direction and administration, as well
as the integrity and responsibility of the organizers and
administrators, the financial organization and the amount of
capital, reasonably assure the safety of the interests of the
policyholders and the public.
In order to maintain the quality of the management of the
insurance companies and afford better protection to
policyholders and the public in general, any person of good
moral character, unquestioned integrity and recognized
competence may be elected or appointed director or officer of
insurance companies in accordance with the pertinent
provisions contained in the corporate governance circulars
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
prescribed by the Commissioner. In addition hereto, the
Commissioner shall prescribe the qualifications of directors,
executive officers and other key officials of insurance
companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an
insurance company and an adjustment company.
Before issuing such certificate of authority, the Commissioner
must be satisfied that the name of the company is not that of
any other known company transacting a similar business in the
Philippines, or a name so similar as to be calculated to mislead
the public. The Commissioner may issue rules and regulations
on the use of names of insurance companies and other
supervised persons or entities.
The certificate of authority issued by the Commissioner shall
expire on the last day of December, three (3) years following
its date of issuance, and shall be renewable every three (3)
years thereafter, subject to the company‟s continuing
compliance with the provisions of this Code, circulars,
instructions, rulings or decisions of the Commission.
Every company receiving any such certificates of authority
shall be subject to the provisions of this Code and other related
laws and to the jurisdiction and supervision of the
Commissioner.
No insurance company may be authorized to transact in the
Philippines the business of life and non-life insurance
concurrently, unless specifically authorized to do so by the
Commissioner: Provided, That the terms life and non-
lifeinsurance shall be deemed to include health, accident and
disability insurance.
No insurance company shall have equity in an adjustment
company and neither shall an adjustment company have equity
in an insurance company.
No insurance company issued with a valid certificate of
authority to transact insurance business anywhere in the
Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance
policy or from transacting any insurance business within the
scope or coverage of its certificate of authority, anywhere in
the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any kind
of ordinance, accreditation system, or scheme. Any local
ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any
insurance company shall be deemed null and void ab initio.
REGULATION OF INSURER-BANCASSURANCE
Section 375. The term bancassurance shall mean the
presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate.
To engage in bancassurance arrangement, a bank is not
required to have equity ownership of the insurance company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may
be prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.
INSURANCE LAW REVIEW 2018
No insurance product under this section, whether life or non-
life, shall be issued or delivered unless in the form previously
approved by the Commissioner.
REGULATION OF BANCINSURER
Section 376. Personnel tasked to present and sell insurance
products within the bank premises shall be duly licensed by the
Commissioner and shall be subject to the rules and regulations
of this Act.
Section 377. The Commissioner and the Bangko Sentral ng
Pilipinas shall promulgate rules and regulations to effectively
supervise the business of bancassurance.
CONSEQUENCES OF BANCASSURANCE PROVISIONS
 To engage in a bancassurance arrangement, a bank
is not required anymore to have equity ownership of
the insurance company. Previously, pursuant to BSP
Circular 357 (dated 8 November 2002), only
insurance companies which are affiliates of banks can
engage in cross-selling.
 Nonetheless, insurance companies cannot enter into
a bancassurance arrangement unless it possesses all
the requirements as may be prescribed by the
Insurance Commission and the BSP.
 All bancassurance products, whether life or non-life,
are required to be issued or delivered in the form
previously approved by the Insurance Commission.
 Personnel tasked to present and sell insurance
products within the bank premises must be duly
licensed by the Insurance Commission. Such
personnel will also be subject to the rules and
regulations of RA 10607 to be promulgated by the
Insurance Commission and the BSP.
INSURER-MUTUAL BENEFIT ASSOCIATION AND TRUSTS
FOR CHARITABLE USES
Section 403. Any society, association or corporation, without
capital stock, formed or organized not for profit but mainly for
the purpose of paying sick benefits to members, or of
furnishing financial support to members while out of
employment, or of paying to relatives of deceased members of
fixed or any sum of money, irrespective of whether such aim or
purpose is carried out by means of fixed dues or assessments
collected regularly from the members, or of providing, by the
issuance of certificates of insurance, payment of its members
of accident or life insurance benefits out of such fixed and
regular dues or assessments, but in no case shall include any
society, association, or corporation with such mutual benefit
features and which shall be carried out purely from voluntary
contributions collected not regularly and/or no fixed amount
from whomsoever may contribute, shall be known as a mutual
benefit association within the intent of this Code.
xxx
MUTUALIZATION AND DEMUTUALIZATION
Mutualization – A shareholder-owned company is converted
into a mutual organization, typically through takeover by an
existing mutual organization. A mutual organization is
customer-owned.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Demutualization - customer-owned mutual organization or
cooperative changes form to a joint, stock company,
sometimes called stocking for privatization.
MUTUALIZATION
Section 280. A domestic mutual life insurance company doing
business in the Philippines may convert itself into an
incorporated stock life insurance company by demutualization.
To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this title.
The conversion of a domestic mutual life insurance company to
an incorporated stock life insurance company shall be carried
out pursuant to a conversion plan duly approved by the
Commissioner.
The Commissioner shall promulgate such rules and regulations
as he or she may deem necessary to carry out the provisions
of this title, after due consultation with representatives of the
insurance industry.
All converted insurers under the provisions of this title shall be
subject to all other applicable provisions of this Code. The
provisions of the Corporation Code shall apply in a suppletory
manner.
MUTUAL BENEFIT ASSOCIATION
Section 408. xxx
A mutual benefit association shall only maintain free and
unassigned surplus of not more than twenty percent (20%) of
its total liabilities as verified by the Commissioner. Any amount
in excess shall be returned to the members by way of
dividends, enhancing the equity value or providing benefits in
kind and other relevant services. In addition, subject to the
approval of the Commissioner, a mutual benefit association
may allocate a portion for capacity building and research and
development such as developing new products and services,
upgrading and improving operating systems and equipment
and continuing member education.
xxx
TRUST BUSINESS
Section 429. An insurance company may engage in limited
trust business, consisting of managing funds pertaining only to
retirement and pre-need plans, provided it has secured a
license to do so from the Bangko Sentral ng Pilipinas. This
trust business shall be separate and distinct from the general
business of the insurance company and shall be subject to
rules and regulations as may be promulgated by the Bangko
Sentral ng Pilipinas in consultation with the Commissioner.
SELF-REGULATORY ORGANIZATIONS
Section 430. The Commissioner shall have the power to
register as a self-regulatory organization, or otherwise grant
licenses, and to regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the operation of
organizations whose operations are related to or connected
with the insurance market such as, but not limited to,
associations of insurance companies, whether life or non-life,
reinsurers, actuaries, agents, brokers, dealers, mutual benefit
associations, trusts, rating agencies, and other persons
INSURANCE LAW REVIEW 2018
regulated by the Commissioner, which are engaged in the
business regulated by this Code.
The Commissioner may prescribe rules and regulations which
are necessary or appropriate in the public interest or for the
protection of investors to govern self-regulatory organizations
and other organizations licensed or regulated pursuant to the
authority granted hereunder including, but not limited to, the
requirement of cooperation within and among all participants in
the insurance market to ensure transparency and facilitate
exchange of information.
DOUBLE INSURANCE VS REINSURANCE
Section 95. A double insurance exists where the same person
is insured by several insurers separately in respect to the same
subject and interest.
There is double insurance when the same person is insured
by several insurers in respect of the same subject and interest
(Sec. 95)
Requisites of double insurance
1. the same person is insured
2. there are two or more insurers insuring separately
3. subject matter is the same
4. interest insured is the same
5. risk or peril insured against is the same
BAR 2005
Q: When does double insurance exist? (2%)
ANSWER: A double insurance exists where the same person
is insured by several insurers separately in respect to the same
subject and interest. (Sec. 95)
BAR 1999
Q: A businessman obtained a fire insurance policy on his
stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer refused to pay
claiming that double insurance is contrary to law. Is this
contention tenable?
ANSWER: The contention of the insurer is untenable. First,
there is no law prohibiting double insurance. Second, there
was no double insurance here because the insured in the two
policies are different. The two insured also have different
interests on the property.
BAR 2012
Q: X borrowed from CCC Bank. She mortgaged her house and
lot in favor of the bank. X insured her house. Tt1e bank also
got the house insured.
A. Is this double insurance? Explain your answer. (3%)
B. Is this legally valid? Explain your answer. (3%)
C. In case of damage, can X and CCC Bank separately
claim for the insurance proceeds? (4%)
ANSWER: 1. No, this is not double insurance. Double
insurance exists when the same person is insured by several
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
insurers in respect of the same subject and interest The
insured in the two policies are different and they have different
interests. X‟s interest is as the owner of the house and lot while
CCC‟s interest is as the mortgagee and is limited to the
amount of the debt.
2. Yes, this is legally valid. Both the mortgagee and the owner
have insurable interests over the property. Either party may
obtain a property insurance policy on the same property
because both stand to suffer loss in case the house and lot is
destroyed or damaged.
3. Yes, both X and CCC can claim under their insurance
policies. X can claim to the extent of the value of the property.
CCC can claim to the extent of the unpaid debt in favor of X,
that is secured by the property.
OVERINSURANCE
There is overinsurance when the amount of insurance is
beyond the value of insured‟s insurable interest.
HOW TO COLLECT IN CASE OF OVERINSURANCE BY
DOUBLE INSURANCE
Section 96. Where the insured in a policy other than life is
over insured by double insurance:
(a) The insured, unless the policy otherwise provides, may
claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are severally
liable under their respective contracts;
(b) Where the policy under which the insured claims is a
valued policy, any sum received by him under any other policy
shall be deducted from the value of the policy without regard to
the actual value of the subject matter insured;
(c) Where the policy under which the insured claims is an
unvalued policy, any sum received by him under any policy
shall be deducted against the full insurable value, for any sum
received by him under any policy;
(d) Where the insured receives any sum in excess of the
valuation in the case of valued policies, or of the insurable
value in the case of unvalued policies, he must hold such sum
in trust for the insurers, according to their right of contribution
among themselves;
(e) Each insurer is bound, as between himself and the other
insurers, to contribute ratably to the loss in proportion to the
amount for which he is liable under his contract.
 The insured, unless the policy otherwise provides,
may claim payment from the insurers in such order as
he may select, up to the amount for which the
insurers are severally liable under their respective
contracts;
 If it is a valued policy, any sum received by him
under any other policy shall be deducted from the
value of the policy without regard to the actual value
of the subject matter insured;
 If it is an unvalued policy, any sum received by him
under any policy shall be deducted against the full
insurable value, for any sum received by him under
any policy;
INSURANCE LAW REVIEW 2018
o Under an unvalued policy, there is a need to
determine the actual loss, and to collect from
insurance in such order as he may select
 If insured receives an amount more than the loss, he
must hold the sum in trust according to the right of
contribution.
 Each insurer must contribute ratably to the loss in
proportion to the amount for which he is liable.
BAR 2005
Q: What is the nature of liability of several insurers in double
insurance (2%)
ANSWER: In double insurance, the insurers are considered as
co-insurers. Each one is bound to contribute ratably to the loss
in proportion to the amount for which he is liable under his
contract (Sec. 96e)
BAR 2012
Q: X insured the building she owns with two (2) insurance
companies for the same amount. In case of damage, -
A. X can not claim from any of the two (2) insurers because
with the double insurance, the insurance coverage becomes
automatically void.
B. The two (2) insurers will be solidarily liable to the extent of
the loss.
C. The two (2) insurers will be proportionately liable.
D. X can choose who he wants to claim against.
ANSWER: D. X can choose who he wants to claim against.
REINSURANCE
Reinsurance is a contract by which an insurer procures a third
person to insure him against loss or liability by reason of an
original insurance.
Illustration: A gets B to insure his building against fire for P10
Million.
B (insurer) can get C (reinsurer) to reinsure him for P5 Million
out of the P10 Million insurance in favor of A. Thus, B‟s liability
shall be limited to P5 Million while C, the reinsurer, has to give
the insurer the other P5 M.
BAR 1994
Q: Distinguish Co-Insurance from Reinsurance.
Co-Insurance is the percentage in the value of the insured
property which the insured himself assumes or undertakes to
act as insurer to the extent of the deficiency in the insurance of
the insured property. In case of loss or damage, the insurer will
be liable only for such proportion of the loss or damage as the
amount of insurance bears to the designated percentage of the
full value of the property insured.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
On the other hand, reinsurance is one where the insurer
procures a third party, called the reinsurer, to insure him
against liability by reason of such original insurance.
Basically, a reinsurance is an insurance against liability which
the original insurer may incur in favor of the original insured.
DOUBLE INSURANCE REINSURANCE
insurer remains the insurer insurer becomes the insured
subject of insurance is subject of insurance is the
property original insurer‟s risk
insurance of the same insurance of a different interest
interest
insured is the party in
original insured is not a party
interest in all contracts
Insured has to give his consent of original insured is
consent not necessary
KINDS OF NON-LIFE INSURANCE
A. MARINE INSURANCE
Section 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys,
securities, choses in action, instruments of debts, valuable
papers, bottomry, and respondentia interests and all other
kinds of property and interests therein, in respect to,
appertaining to or in connection with any and all risks or perils
of navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or similarly
prepared for shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment incident
thereto, including war risks, marine builder‟s risks, and all
personal property floater risks;
(2) Person or property in connection with or appertaining to a
marine, inland marine, transit or transportation insurance,
including liability for loss of or damage arising out of or in
connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance
(but not including life insurance or surety bonds nor insurance
INSURANCE LAW REVIEW 2018
against loss by reason of bodily injury to any person arising out
of ownership, maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether
in course of transportation or otherwise; and
(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to
navigation and transportation, including dry docks and marine
railways, dams and appurtenant facilities for the control of
waterways.
(b) Marine protection and indemnity insurance, meaning
insurance against, or against legal liability of the insured for
loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any
vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal injury,
illness or death or for loss of or damage to the property of
another person.
The perils covered are the perils of the sea or perils of
navigation, which are casualties due to unusual violence or
extraordinary action of wind and wave or other extraordinary
causes connected with navigation. Such peril must be the
PROXIMATE CAUSE.
Perils of the ship are NOT covered.
PERIL OF THE SHIP VS. PERIL OF THE SEA
 Roque v. IAC – sinking of barge without extra-
ordinary circumstances (SHIP)
 Go Tiaco v. Union – loss results from natural and
inevitable action of the sea, from the ordinary wear
and tear of the ship or from negligence of owner to
provide with proper equipment (SHIP)
 Cathay v. CA – rusting of steel pipes in the course of
the voyage in view of the toll on cargo of wind, water
and salt conditions (SEA)
BAR 2011
Q: Perils of the ship, under marine insurance law, refer to loss
which in the ordinary course of events results from
A. natural and inevitable actions of the sea.
B. natural and ordinary actions of the sea.
C. unnatural and inevitable actions of the sea.
D. unnatural and ordinary actions of the sea.
ANSWER: A. natural and inevitable actions of the sea.
LIABILITY OF A SHIP OWNER‟S INSURER IN CASE OF
LOSS
Section 102. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who
covenants to pay him its value in case of loss: Provided, That
in this case the insurer shall be liable for only that part of the
loss which the insured cannot recover from the charterer.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
If the vessel is chartered, in case of loss, the ship owner‟s
insurer is liable but only for part of the loss which the insured
cannot recover from charterer.
Insurance of owner – full value of property but recovery shall
be limited to amount not paid by charterer
Insurance of charterer – extent of his liability in case of loss
Illustration:
A and B enter into a charter agreement. A's vessel is valued at
P1 Million. Per agreement, B‟s insurer shall be liable up to
P500,000 in case of loss. A has an insurance of P1 M.
In case of loss:
A‟s insurer = P500,000
B‟s insurer = P500,000
INSURABLE INTEREST OF A SHIP OWNER
Section 105. The owner of a ship has an insurable interest in
expected freightage which according to the ordinary and
probable course of things he would have earned but for the
intervention of a peril insured against or other peril incident to
the voyage.
Section 107. One who has an interest in the thing from which
profits are expected to proceed has an insurable interest in the
profits.
 Expected freightage
o Expected freightage which according to the
ordinary and probable course of things he
would have earned were it not for the
intervention of a peril insured against or
other peril incident to the voyage
o It is important that the insured must have an
inchoate right to freightage which cannot be
defeated.
 Expected profits
B. FIRE INSURANCE
Section 169. As used in this Code, the term fire insurance
shall include insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks, when
such risks are covered by extension to fire insurance policies
or under separate policies.
 Fire insurance is an insurance against loss by fire,
lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension
to fire insurance policies or under separate policies.
 Fire must be the proximate cause, and must be
hostile in nature.
INSURANCE LAW REVIEW 2018
MEASURE OF INDEMNITY
Section 173. If there is no valuation in the policy, the measure
of indemnity in an insurance against fire is the expense it
would be to the insured at the time of the commencement of
the fire to replace the thing lost or injured in the condition in
which it was at the time of the injury; but if there is a valuation
in a policy of fire insurance, the effect shall be the same as in a
policy of marine insurance.
If there is a valuation in the policy, it shall be conclusive as
between parties in adjusting partial or total loss in the absence
of fraud.
If there is no valuation, the measure of indemnity is the
expense it would be to the insured at the time of the
commencement of the fire to replace the thing lost or injured in
the condition in which it was at the time of the injury.
Loss and its amount may be determined on the basis of such
proof as may be offered by insured which need not be of such
persuasiveness as is required in judicial proceedings.
(Malayan v. Cruz Arnaldo)
HOW VALUATION IS MADE
Section 174. Whenever the insured desires to have a
valuation named in his policy, insuring any building or structure
against fire, he may require such building or structure to be
examined by an independent appraiser and the value of the
insured‟s interest therein may then be fixed as between the
insurer and the insured. The cost of such examination shall be
paid for by the insured. A clause shall be inserted in such
policy stating substantially that the value of the insured‟s
interest in such building or structure has been thus fixed.
In the absence of any change increasing the risk without the
consent of the insurer or of fraud on the part of the insured,
then in case of a total loss under such policy, the whole
amount so insured upon the insured‟s interest in such building
or structure, as stated in the policy upon which the insurers
have received a premium, shall be paid, and in case of a
partial loss the full amount of the partial loss shall be so paid,
and in case there are two (2) or more policies covering the
insured‟s interest therein, each policy shall contribute pro rata
to the payment of such whole or partial loss. But in no case
shall the insurer be required to pay more than the amount thus
stated in such policy.
This section shall not prevent the parties from stipulating in
such policies concerning the repairing, rebuilding or replacing
of buildings or structures wholly or partially damaged or
destroyed.
It is the independent appraiser who examines the property and
fixes the value.
A clause shall be inserted in the policy stating substantially that
the value of the insured‟s interest in such building or structure
has been thus fixed.
General Rule: Valuation shall be the basis for indemnity in
case of total loss.
Exception: If there is a change increasing the risk without the
consent of insurer or if there's fraud on the part of insured.
In case of a partial loss, the full amount of the partial loss
shall be so paid.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
However, instead of payment, the parties may agree that the
insurer may repair, rebuild or replace the property.
Illustration:
 Subject matter is a house
 Independent appraiser values it
at P20 Million
 The valuation is attached to the
policy
If house is totally destroyed by fire, the valuation of P20 M will
be given.
If the house is half-destroyed, the indemnity will be half of P20
Million or P10M.
If the valuation is based on some fraud on the part of the
insured, e.g. adding fixtures which are not part of the house
OR there is an alteration increasing the hazard such as
converting it to an ammunition factory, the valuation is not
used.
However, parties may agree that instead of paying the amount,
insurer will rebuild the house.
WHEN ALTERATION CAN EXONERATE INSURER
Section 170. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control
of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
Section 171. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy, which does
not increase the risk, does not affect a contract of fire
insurance.
If there is an alteration, the insurer may rescind the contract of
fire insurance, provided:
a. The alteration is in the use or condition of the thing
insured
b. The alteration is prohibited or limited in the policy
c. The alteration is made without the insurer‟s consent,
by means within the control of the insured
d. The alteration increases the risks
However, if the alteration in the use or condition of a thing
insured as limited by the policy does not increase the risk, the
contract of fire insurance is not affected.
ACT WHICH DOES NOT VIOLATE THE POLICY
Section 172. A contract of fire insurance is not affected by any
act of the insured subsequent to the execution of the policy,
which does not violate its provisions, even though it increases
the risk and is the cause of the loss.
An act of the insured, subsequent to the execution of the fire
insurance policy which does not violate its provisions, does not
affect the contract of fire insurance even though such act
increases the risk and is the cause of the loss.
BAR 2014
INSURANCE LAW REVIEW 2018
Q: On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire
insurance policy from Ilocano Insurance covering its
machineries and equipment effective for one (1) year or until
May 14, 1997. The policy expressly stated that the insured
properties were located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite."
Before its expiration, the policy was renewed on "as is" basis
for another year or until May 13, 1998. The subject properties
were later transferred to Pace Factory also in PEZA.
On October 12, 1997, during the effectivity of the renewed
policy, a fire broke out at the Pace Factory which totally burned
the insured properties.
The policy forbade the removal of the insured properties unless
sanctioned by Ilocano. Condition 9(c) of the policy provides
that "the insurance ceases to attach as regards the property
affected unless the insured, before the occurrence of any loss
or damage, obtains the sanction of the company signified by
endorsement upon the policy x x x (c) if the property insured is
removed to any building or place other than in that which is
herein stated to be insured."
PAM claims that it has substantially complied with notifying
Ilocano through its sister company, the RBC, which, in fact,
referred PAM to Ilocano for the insurance coverage. Is Ilocano
liable under the policy? (4%)
ANSWER: Ilocano is liable under the policy.
Under the Insurance Code, any alteration in the use or
condition of a thing insured which is limited by the policy, but
does not increase the risk will not affect the validity of the
policy.
In this case, although the policy forbade the transfer of the
goods without the consent of the insurer, the transfer of the
goods did not increase the risk of fire. Hence, the transfer will
not exonerate Ilocano.
Further, PAM should be deemed to have substantially
complied with the consent requirement when it notified the
agent of Ilocano. Hence, Ilocano was wrong in denying the
claim.
C. CASUALTY INSURANCE
Section 176. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance such
as fire or marine. It includes, but is not limited to, employer‟s
liability insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies,
and other substantially similar kinds of insurance.
 Covers loss or liability arising from accident or
mishap, excluding certain types of loss which by law
or custom are considered as falling exclusively within
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
the scope of other types of insurance such as fire,
marine
 Includes but is not limited to employers‟ liability
insurance, workmen‟s compensation insurance, public
liability insurance, motor vehicle liability insurance,
plate glass insurance, burglary and theft insurance,
personal accident and health insurance written by
non-life companies (provided death is NOT one of the
risks insured against)
MOTOR VEHICLE LIABILITY INSURANCE
Section 387. It shall be unlawful for any land transportation
operator or owner of a motor vehicle to operate the same in the
public highways unless there is in force in relation thereto a
policy of insurance or guaranty in cash or surety bond issued in
accordance with the provisions of this chapter to indemnify the
death, bodily injury, and/or damage to property of a third-party
or passenger, as the case may be, arising from the use
thereof.
Motor vehicle – any vehicle propelled by any power other than
muscular power using the public highways, with certain
exceptions
AT A GLANCE
 Insurable interest in property insurance must exist at
the time of the issuance and at the time of the loss
although it need not exist in between these times.
 A beneficiary in property insurance must have
insurable interest over the property
 It is possible that two or more persons may have
insurable interest over the same object. As in the
case of owner and lessee, mortgagor and mortgagee.
 In such cases, two or more separate insurance
policies may be obtained. This is not double
insurance since they don‟t have the same insured and
they have different interests.
 The covered peril must be the proximate cause before
there can be recovery under the policy.
 Instances when there can be return of premiums.
 Payment of premiums must be on cash and carry
basis.
 Important exceptions to cash and carry: credit
extension and installment payment
INSURANCE LAW REVIEW 2018
PART FOUR: PAYMENT OF PROCEEDS AND FILING OF
CLAIMS
BASIC RULE IN RECOVERY
Section 89. An insurer is not liable for a loss caused by the
willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.
BAR 2010
Q: To secure a loan of P10 million, Mario mortgaged his
building to Armando. In accordance with the loan
arrangements, Mario had the building insured with First
Insurance Company for P10 million, designating Armando as
the beneficiary.
Armando also took an insurance on the building upon his own
interest with Second Insurance Company for P5 million.
The building was totally destroyed by fire, a peril insured
against under both insurance policies. It was subsequently
determined that the fire had been intentionally started by Mario
and that in violation of the loan agreement, he had been
storing inflammable materials in the building.
How much, if any, can Armando recover from either or both
insurance companies? (2%)
What happens to the P10 million debt of Mario to Armando?
Explain. (3%)
ANSWER: Armando cannot recover from either policy. Under
Section 89 of the Insurance Code, an insurer is exonerated
when the loss is caused by the willful act of the insured.
The loan will remain, but it will be considered as unsecured.
IN LIFE INSURANCE
Q: When is payment made?
Section 248. The proceeds of a life insurance policy shall be
paid immediately upon maturity of the policy, unless such
proceeds are made payable in installments or as an annuity, in
which case the installments, or annuities shall be paid as they
become due: Provided, however, That in the case of a policy
maturing by the death of the insured, the proceeds thereof
shall be paid within sixty (60) days after presentation of the
claim and filing of the proof of death of the insured. Refusal or
failure to pay the claim within the time prescribed herein will
entitle the beneficiary to collect interest on the proceeds of the
policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless such failure
or refusal to pay is based on the ground that the claim is
fraudulent.
The proceeds of the policy maturing by the death of the
insured payable to the beneficiary shall include the discounted
value of all premiums paid in advance of their due dates, but
are not due and payable at maturity.
General Rule: Paid immediately upon maturity of the policy
(death, survival, cessation or continuance of life)
Exceptions: Proceeds are payable in installments or annuity
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
If maturity of the policy is due to death of the insured, the
proceeds shall be paid within sixty (60) days after presentation
of the claim and filing of the proof of death of the insured.
There must be proof of death such as a death certificate. Mere
notice of death is not enough.
When there is delay in the payment of the claim, the
beneficiary is entitled to collect interest on the proceeds of the
policy for the duration of the delay, unless such failure or
refusal to pay is based on the ground that the claim is
fraudulent.
Q: To whom payment is made?
Section 234. xxx
(f) A provision that any sum becoming due by reason of death
of the person insured shall be payable to the beneficiary
designated by the insured, subject to the provisions of the
policy in the event that there is no designated beneficiary, as to
all or any part of such sum, living at the death of the insured,
and subject to any right reserved by the insurer in the policy
and set forth in the certificate to pay at its option a part of such
sum not exceeding Five hundred pesos (P500.00) to any
person appearing to the insurer to be equitably entitled thereto
by reason of having incurred funeral or other expenses incident
to the last illness or, death of the person insured;
General rule: Payment is made to the designated
beneficiaries.
Exception: Facility of payment clause in group life and
industrial life insurance.
Facility of payment: Group life insurance
 There is no designated beneficiary
 pay not exceeding P500.00
 to any person equitably entitled for incurring funeral or
other expenses incident to the last illness or death of
the insured (Sec 234, f)
Facility of payment: Industrial life
Section 236. xxx
(m) xxx Such policy may also contain a provision that if the
beneficiary designated in the policy does not surrender the
policy with due proof of death within the period stated in the
policy, which shall not be less than thirty (30) days after the
death of the insured, or if the beneficiary is the estate of the
insured, or is a minor, or dies before the insured, or is not
legally competent to give valid release, then the insurer may
make any payment thereunder to the executor or administrator
of the insured, or to any of the insured‟s relatives by blood or
legal adoption or connections by marriage or to any person
appearing to the insurer to be equitably entitled thereto by
reason of having incurred expense for the maintenance,
medical attention or burial of the insured;
If the beneficiary:
 does not surrender policy with due proof of death
within the period stated in the policy OR
INSURANCE LAW REVIEW 2018
 is the estate of the insured OR
 is a minor OR
 dies before the insured OR
 is not legally competent to give valid release
proceeds may be given to:
 the executor or administrator of insured OR
 any of insured‟s relative by blood as legal adoption or
by marriage OR
 any person who incurred expenses for maintenance,
medical attention or burial
IN NON LIFE-INSURANCE
Q: When is payment made?
Section 249. 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 (30) days after proof
of 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 (60) days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be
paid within ninety (90) 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 delay at the rate
of twice the ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the ground that the
claim is fraudulent.
Payment is made within thirty (30) days after proof of 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.
If no ascertainment is made or can be had within 60 days from
receipt of proof of loss, then the insurer must pay within 90
days after receipt of such proof.
Refusal to pay within the prescribed period entitles the
beneficiary to collect interest on the proceeds of the policy for
the duration of the delay, unless such failure or refusal to pay
is based on the ground that the claim is fraudulent.
Illustration:
If A presents proof of loss of car by theft and the insurer
ascertains amount of loss on January 1, 2018, the proceeds
must be paid 30 days after January 1, 2018. Otherwise,
interest must likewise be paid.
However, if A presents proof of theft on January 1, 2018 but
the parties cannot agree on the amount of loss by March 1,
2018 or within 60 days from January 1, then the proceeds must
be paid within 90 days from January 1, 2018. Otherwise,
interest will accrue.
IN MOTOR VEHICLE LIABILITY
Procedure for filing claims:
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
NO-FAULT INDEMNITY CLAUSE
Section 391. Any claim for death or injury to any passenger or
third-party pursuant to the provisions of this chapter shall be
paid without the necessity of proving fault or negligence of any
kind: Provided, That for purposes of this section:
(a) The total indemnity in respect of any person shall not be
less than Fifteen thousand pesos (P15,000.00);
(b) The following proofs of loss, when submitted under oath,
shall be sufficient evidence to substantiate the claim:
(1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the
proper payee; or
(3) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed;
(c) Claim may be made against one motor vehicle only. In the
case of an occupant of a vehicle, claim, shall lie against the
insurer of the vehicle in which the occupant is riding, mounting
or dismounting from. In any other case, claim shall lie against
the insurer of the directly offending vehicle.
In all cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident
shall be maintained.
 death or injury of to any passenger or third-party
 without necessity of proving fault or negligence of any
kind
 total indemnity of one person shall not be less than
P15,000.
 proofs of loss are submitted under oath:
o police report of accident AND
o death certificate and evidence to establish
the proper payee, OR medical report and
evidence of medical and hospital
disbursement of which refund is claimed
 claim against one motor vehicle only
 in the case of an occupant of a vehicle, the claim shall
lie against the insurer of the vehicle
 in any other case, the claim shall lie against the
insurer of the directly offending vehicle
BAR 2012
INSURANCE LAW REVIEW 2018
Q: X is a passenger of a jeepney for hire being driven by Y.
The jeepney collided with another passenger jeepney being
driven by Z who was driving recklessly. As a result of the
collision, X suffered injuries. Both passenger jeepneys are
covered by Comprehensive Motor Vehicular Insurance
Coverage. If X wants to claim under the "no fault indemnity
clause", his claim will lie -
A. against the insurer of the jeepney being driven by Z who
was the one at fault.
B. the claim shall lie against the insurer of the passenger
jeepney driven by Y because X was his passenger.
C. X has a choice against whom he wants to make his claim.
D. None of the above.
ANSWER: B. the claim shall lie against the insurer of the
passenger jeepney driven by Y because X was his passenger.
Claim may be made against one motor vehicle only. In the
case of an occupant of a vehicle, claim, shall lie against the
insurer of the vehicle in which the occupant is riding, mounting
or dismounting from. In any other case, claim shall lie against
the insurer of the directly offending vehicle. (Sec 391, c)
BAR 2014
Q: On May 26, 2014, Jess insured with Jack Insurance (Jack)
his 2014 Toyota Corolla sedan under a comprehensive motor
vehicle insurance policy for one year. On July 1, 2014, Jess‟
car was unlawfully taken. Hence, he immediately reported the
theft to the Traffic Management Command (TMC) of the
Philippine National Police (PNP), which made Jess accomplish
a complaint sheet as part of its procedure. In the complaint
sheet, Jess alleged that a certain Ric Silat(Silat) took
possession of the subject vehicle to add accessories and
improvements thereon.
However, Silat failed to return the subject vehicle within the
agreed 3-day period. As a result, Jess notified Jack of his claim
for reimbursement of the value of the lost vehicle under the
insurance policy. Jack refused to pay claiming that there is no
theft as Jess gave Silat lawful possession of the car. Is Jack
correct? (4%)
ANSWER: Jack is wrong.
Jeff obtained a comprehensive motor vehicle insurance policy,
which should cover all kinds of losses for whatever reason,
except gross negligence.
The policy should cover the loss of the car, although it was not
really unlawfully taken by Silat. The fact remains that there was
loss of vehicle and the proceeds for the loss should be paid to
Jeff.
DELAY, PROOF, AND SUBROGATION IN PAYMENT
A. DELAY
Reasonable Delay in Payment
 delay due to investigation to ascertain the truth of
information it received that insured was not insurable
at time of application (Chuy v. Philamlife)
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
 delay caused by determination of actual beneficiary
and claims of creditors (RCBC v. CA)
B. PROOF
Preliminary proof of loss
Section 91. When a preliminary proof of loss is required by a
policy, the insured is not bound to give such proof as would be
necessary in a court of justice; but it is sufficient for him to give
the best evidence which he has in his power at the time.
The purpose of a preliminary proof of loss is to apprise the
insurer of the loss so that he can:
1. make a proper investigation while evidence is still
fresh
2. prevent further losses
Notice of loss in fire insurance
Section 90. In case of loss upon an insurance against fire, an
insurer is exonerated, if written notice thereof be not given to
him by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay. For other non-life
insurance, the Commissioner may specify the period for the
submission of the notice of loss.
The notice of loss in fire insurance must be in writing and must
be given without unnecessary delay. Otherwise, the insurer is
exonerated.
Notice of loss in other non-life insurance
Section 90. In case of loss upon an insurance against fire, an
insurer is exonerated, if written notice thereof be not given to
him by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay. For other non-life
insurance, the Commissioner may specify the period for the
submission of the notice of loss.
In other non-life insurance, the giving of notice of loss depends
on the period for the submission of such notice, as may be
specified by the Commissioner.
C. SUBROGATION
When the insurer pays for the loss, the payment to the insured
operates as an equitable assignment to the insurer of all
remedies which the insured may have for the recovery of the
amount.
Note: Subrogation is limited only to the amount recoverable by
the insured.
MARINE INSURANCE
This is the third and the most extensive discussion on marine
insurance.
WHAT MAY BE INSURED AGAINST?
 Only covers loss due to perils of the sea and not
perils of the ship
INSURANCE LAW REVIEW 2018
 In case there is a bottomry, insurable interest of the
ship owner is limited to excess of its value over the
amount secured by bottomry. (Sec 103)
Section 103. The insurable interest of the owner of the ship
hypothecated by bottomry is only the excess of its value over
the amount secured by bottomry.
BAR 2010
Q: Paolo, the owner of an ocean-going vessel, offered to
transport the logs of Constantino from Manila to Nagoya.
Constantino accepted the offer, not knowing that the vessel
was manned by an irresponsible crew with deep-seated
resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of the
sea and barratry. The logs were improperly loaded on one
side, thereby causing the vessel to tilt on one side. On the way
to Nagoya, the crew unbolted the sea valves of the vessel
causing water to flood the ship hold. The vessel sank.
Constantino tried to collect from the insurance company which
denied liability, given the unworthiness of both the vessel and
its crew.
Constantino countered that he was not the owner of the vessel
and he could therefore not be responsible for conditions about
which he was innocent.
Is the insurance company liable? Why or why not? (3%)
What is "barratry" in marine insurance? (2%)
ANSWER: The insurer is not liable because the vessel violated
the implied warranty of seaworthiness. The loss was also
caused by a peril of the ship and not peril of the sea.
Barratry includes every wrongful act committed by a vessel
master or crew, to the prejudice of the owner or the charterer.
BAR 2011
Q: T Shipping, Co. insured all of its vessels with R Insurance,
Co. The insurance policies stated that the insurer shall answer
for all damages due to perils of the sea. One of the insured's
ship, the MV Dona Priscilla, ran aground in the Panama Canal
when its engine pipes leaked and the oil seeped into the cargo
compartment. The leakage was caused by the extensive
mileage that the ship had accumulated. May the insurer be
made to answer for the damage to the cargo and the ship?
A. Yes, because the insurance policy covered any or all
damage arising from perils of the sea.
B. Yes, since there appears to have been no fault on the part
of the shipowner and shipcaptain.
C. No, since the proximate cause of the damage was the
breach of warranty of seaworthiness of the ship.
D. No, since the proximate cause of the damage was due to
ordinary usage of the ship, and thus not due to a peril of the
sea.
ANSWER: D. No, since the proximate cause of the damage
was due to ordinary usage of the ship, and thus not due to a
peril of the sea.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
WHO CAN INSURE?
Section 102. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who
covenants to pay him its value in case of loss: Provided, That
in this case the insurer shall be liable for only that part of the
loss which the insured cannot recover from the charterer.
 The ship owner has an insurable interest with respect
to:
o Freightage – all benefits derived by the
owner either from chartering the ship or its
employment for the carriage of his own
goods or those of others
o Expected profits
 The charterer of the ship has insurable interest on the
ship to the extent that he is damnified by the loss.
AVERAGE
Section 138. Where it has been agreed that an insurance
upon a particular thing, or class of things, shall be free from
particular average, a marine insurer is not liable for any
particular average loss not depriving the insured of the
possession, at the port of destination, of the whole of such
thing, or class of things, even though it becomes entirely
worthless; but such insurer is liable for his proportion of all
general average loss assessed upon the thing insured.
General average – insurer is liable for proportion of the loss
assessed
Particular average – insurer is liable unless there is a
stipulation exempting the insurer
Illustration (General average):
If the goods of A valued at 1M are disposed and the disposition
saves the goods of B (1M) and C (1M), the 1M loss of A will be
shared by B and C in proportion to the value of the goods
belonging to them which are saved. The 1M loss will be
divided by three to be shared by A, B, and C.
Illustration (Particular average):
If the goods of A are disposed but the disposition did not inure
to the common benefit of other owners of goods, only A and
his insurer will suffer the loss. The other owners and their
insurers will not contribute in A‟s loss.
RESHIPMENT
Section 135. When a ship is prevented, at an intermediate
port, from completing the voyage, by the perils insured against,
the liability of a marine insurer on the cargo continues after
they are thus reshipped.
Nothing in this section shall prevent an insurer from requiring
an additional premium if the hazard be increased by this
extension of liability.
Section 136. In addition to the liability mentioned in the last
section, a marine insurer is bound for damages, expenses of
discharging, storage, reshipment, extra freightage, and all
INSURANCE LAW REVIEW 2018
other expenses incurred in saving cargo reshipped pursuant to
the last section, up to the amount insured.
When an insured peril prevents a ship from completing voyage
at an intermediate port, the liability of the marine insurer
continues after reshipment without prejudice to insurer's right
to collect more premiums.
In case of reshipment, the insurer of goods is liable for
damages, expenses of discharging, storage, reshipment and
other expenses.
KINDS OF LOSS IN MARINE INSURANCE
TOTAL LOSS VS. PARTIAL LOSS
Section 129. A loss may be either total or partial.
Section 130. Every loss which is not total is partial.
Section 131. A total loss may be either actual or constructive.
Section 132. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being
broken up;
(c) Any damage to the thing which renders it valueless to the
owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.
Section 133. A constructive total loss is one which gives to a
person insured a right to abandon, under Section 141.
Section 134. An actual loss may be presumed from the
continued absence of a ship without being heard of. The length
of time which is sufficient to raise this presumption depends on
the circumstances of the case.
 Every loss which is not total is partial.
 Total loss may either be actual or constructive.
 Actual loss may be:
o caused by a total destruction of the thing
insured;
o the irretrievable loss of the thing by sinking,
or by being broken up;
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
o any damage to the thing which renders it
valueless to the owner for the purpose for
which he held it; or
o any other event which effectively deprives
the owner of the possession, at the port of
destination, of the thing insured. (Sec 132)
o presumed from the continued absence of a
ship without being heard of (Sec 134)
 Constructive total loss, also called technical total
loss, is one which gives to a person insured the right
to abandon under Section 141. (Sec 133)
ABANDONMENT
Section 140. Abandonment, in marine insurance, is the act of
the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in the
thing insured.
Section 141. A person insured by a contract of marine
insurance may abandon the thing insured, or any particular
portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when
the cause of the loss is a peril insured against:
(a) If more than three-fourths (¾) thereof in value is actually
lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more
than three-fourths (¾);
(c) If the thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an
expense to the insured of more than three-fourths (¾) the
value of the thing abandoned or a risk which a prudent man
would not take under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship procured by the
master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like
expense or risk mentioned in the preceding subparagraph. But
freightage cannot in any case be abandoned unless the ship is
also abandoned.
Section 142. An abandonment must be neither partial nor
conditional.
Section 143. An abandonment must be made within a
reasonable time after receipt of reliable information of the loss,
but where the information is of a doubtful character, the
insured is entitled to a reasonable time to make inquiry.
Section 144. Where the information upon which an
abandonment has been made proves incorrect, or the thing
insured was so far restored when the abandonment was made
that there was then in fact no total loss, the abandonment
becomes ineffectual.
For there to be a valid abandonment:
1. it must neither be partial nor conditional (Sec 142)
INSURANCE LAW REVIEW 2018
2. it must be made within a reasonable time after receipt
of reliable information of the loss (Sec 143)
3. If the information on loss is incorrect, or the thing is
restored and there is no total loss, abandonment is
ineffectual (Sec 144)
There can be abandonment:
1. when more than 3/4 of the value of the thing insured
is actually lost or would have to be spent to recover it
from peril
2. if the vessel is injured to such an extent as to reduce
its value to more than 3/4
3. if the thing is a ship, and the voyage cannot be
performed without incurring either an expense to the
insured of more than 3/4 the value of the thing
abandoned or a risk which a prudent man would not
take under the circumstances
4. If the thing insured is cargo or freightage, and the
voyage cannot be performed, nor another ship be
procured within a reasonable time and with
reasonable diligence to forward the cargo, without
incurring expenses or risk more than 3/4 of the value
of the vessel. (Sec 141)
BAR 2011
Q: For a constructive total loss to exist in marine insurance, it
is required that the person insured relinquish his interest in the
thing insured. This relinquishment must be
A. actual.
B. constructive first and if it fails, then actual.
C. either actual or constructive.
D. constructive.
ANSWER: A. actual
NOTICE OF ABANDONMENT
Section 145. Abandonment is made by giving notice thereof to
the insurer, which may be done orally, or in writing: Provided,
That if the notice be done orally, a written notice of such
abandonment shall be submitted within seven (7) days from
such oral notice.
Section 146. A notice of abandonment must be explicit, and
must specify the particular cause of the abandonment, but
need state only enough to show that there is probable cause
therefor, and need not be accompanied with proof of interest or
of loss.
Section 147. An abandonment can be sustained only upon the
cause specified in the notice thereof.
Section 148. An abandonment is equivalent to a transfer by
the insured of his interest to the insurer, with all the chances of
recovery and indemnity.
A notice of abandonment:
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
 must be made orally or in writing. If orally, written
notice shall be submitted within 7 days from such oral
notice (Sec 145)
 has the effect of transferring by the insured of his
interest, to the insurer with all chances of recovery
and indemnity (Sec 148)
BAR 2011
Q: X Shipping, Co., insured its vessel MV Don Teodoro for
Php100 Million with ABC Insurance, Co. through T, an agent of
X Shipping. During a voyage, the vessel accidentally caught
fire and suffered damages estimated at Php80 Million. T
personally informed ABC Insurance that X Shipping was
abandoning the ship.
Later, ABC insurance denied X Shipping‟s claim for loss on the
ground that a notice of abandonment through its agent was
improper. Is ABC Insurance right?
A. Yes, since X Shipping should have ratified its agent‟s action.
B. No, since T, as agent of X Shipping who procured the
insurance, can also give notice of abandonment for his
principal.
C. Yes, since only the agent of X Shipping relayed the fact of
abandonment.
D. No, since in the first place, the damage was more than 3⁄4
of the ship's value.
ANSWER: B. No, since T, as agent of X Shipping who
procured the insurance, can also give notice of abandonment
for his principal.
Section 149. If a marine insurer pays for a loss as if it were an
actual total loss, he is entitled to whatever may remain of the
thing insured, or its proceeds or salvage, as if there had been a
formal abandonment.
If the insurer pays for a loss as if there was an actual total loss
BUT there was no formal abandonment, the marine insurer is
entitled to whatever may remain of the thing insured or its
proceeds of salvage (Sec 149)
WHO IS ENTITLED TO FREIGHTAGE IN CASE OF
ABANDONMENT?
Section 155. On an accepted abandonment of a ship,
freightage earned previous to the loss belongs to the insurer of
said freightage; but freightage subsequently earned belongs to
the insurer of the ship.
Freightage earned before the loss belongs to the insurer of the
freightage.
Freightage earned after the loss belongs to the insurer of the
ship.
WHEN INSURER REFUSES VALID ABANDONMENT
Section 151. Where notice of abandonment is properly given,
the rights of the insured are not prejudiced by the fact that the
insurer refuses to accept the abandonment.
INSURANCE LAW REVIEW 2018
Section 152. The acceptance of an abandonment may be
either express or implied from the conduct of the insurer. The
mere silence of the insurer for an unreasonable length of time
after notice shall be construed as an acceptance.
Section 156. If an insurer refuses to accept a valid
abandonment, he is liable as upon an actual total loss,
deducting from the amount any proceeds of the thing insured
which may have come to the hands of the insured.
Acceptance of abandonment may be express or implied. Mere
silence is acceptance. (Sec 152)
When the insurer refused to accept the abandonment, the
rights of the insured are not prejudiced by such refusal. The
insurer is still liable for the actual total loss, deducting the
amount any proceeds of the thing insured which may have
come to the hands of the insured. (Sec 151 and 156)
WHEN THE INSURED REFUSES TO ABANDON
Section 157. If a person insured omits to abandon, he may
nevertheless recover his actual loss.
Illustration:
A insures his vessel with B for P1 Million .The vessel's value is
reduced to P200,000 due to a peril of the SEA. In this case, A
has two choices, whether to abandon or to claim actual total
loss.
Option 1: A abandons
A must immediately give a written notice of abandonment to B.
If B accepts the abandonment, he must give P1 Million to A.
Because of the abandonment, B now has all the rights with
respect to the vessel. However, freightage earned before the
loss belongs to the insurer of the goods. Only freightage
earned after the loss will belong to the insurer of the vessel.
Option 2: A does not abandon but claims actual total loss
A can recover actual loss or P800,000 since the vessel is
reduced to 20% of its former value of P1 Million.
After payment, B will now have the right over the vessel, what
remains of it and proceeds of salvage.
MEASURE OF INDEMNITY
Section 158. A valuation in a policy of marine insurance is
conclusive between the parties thereto in the adjustment of
either a partial or total loss, if the insured has some interest at
risk, and there is no fraud on his part; except that when a thing
has been hypothecated by bottomry or respondentia, before its
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
insurance, and without the knowledge of the person actually
procuring the insurance, he may show the real value. But a
valuation fraudulent in fact, entitles the insurer to rescind the
contract.
Section 159. A marine insurer is liable upon a partial loss, only
for such proportion of the amount insured by him as the loss
bears to the value of the whole interest of the insured in the
property insured.
 Valuation is conclusive between parties in
determining total or partial loss, EXCEPT if there is
fraud.
 Marine insurer is liable for partial loss only for such
proportion of the amount insured by him as the loss
bears to the value of the whole interest.
HOW TO ESTIMATE LOSS IN OPEN POLICY
Section 163. In estimating a loss under an open policy of
marine insurance the following rules are to be observed:
(a) The value of a ship is its value at the beginning of the risk,
including all articles or charges which add to its permanent
value or which are necessary to prepare it for the voyage
insured;
(b) The value of the cargo is its actual cost to the insured,
when laden on board, or where the cost cannot be ascertained,
its market value at the time and place of lading, adding the
charges incurred in purchasing and placing it on board, but
without reference to any loss incurred in raising money for its
purchase, or to any drawback on its exportation, or to the
fluctuation of the market at the port of destination, or to
expenses incurred on the way or on arrival;
(c) The value of freightage is the gross freightage, exclusive of
primage, without reference to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the
value thus estimated.
 Value of the ship – value at the beginning of risk
including articles which adds to its value or to prepare
it for the voyage
 Value of the cargo – actual cost to insured when
laden on board OR market value at the time and
place of lading
 Value of the freightage is the gross freightage,
exclusive of primage
 Cost of insurance shall be added to the estimated
value
EFFECT OF AN „OTHER INSURANCE POLICY CLAUSE‟
An “other insurance policy clause” is generally allowed, subject
only to the possible stipulation that the insurer must be
informed or must consent to the additional insurance policies
on the same property.
BAR 2011
INSURANCE LAW REVIEW 2018
Q: If an insurance policy prohibits additional insurance on the
property insured without the insurer's consent, such provision
being valid and reasonable, a violation by the insured
A. reduces the value of the policy.
B. avoids the policy.
C. offsets the value of the policy with the additional
insurances‟s value.
D. forfeits premiums already paid.
ANSWER: B. avoids the policy.
BAR 2017
Q: Absolute Timber Co. (ATC) has been engaged in the
logging business in Isabel. To secure one of its shipments of
logs to be transported by Andok Shipping Co., ATC purchased
a marine policy with an “all risks” provision. Because of a
strong typhoon then hitting Northern Luzon, the vessel sank
and the shipment of logs was totally lost. ATC filed its claim,
but the insurer denied the claim on several grounds, namely:
(1) the vessel had not been seaworthy; (2) the vessel‟s crew
had lacked sufficient training; (3) the improper loading of the
logs on only one side of the vessel had led to the tilting of the
ship to that side during the stormy voyage; and (4) the
extremely bad weather had been a fortuitous event.
ATC now seeks your legal advice to know if its claim was
sustainable. What is your advice? Explain your answer.
ANSWER:
THE INSURANCE COMMISSIONER
Section 437. The Insurance Commissioner shall be appointed
by the President of the Republic of the Philippines for a term of
six (6) years without reappointment and who shall serve as
such until the successor shall have been appointed and
qualified. If the Insurance Commissioner is removed before the
expiration of his term of office, the reason for the removal must
be published.
xxx
POWERS OF THE INSURANCE COMMISSIONER
A. ADJUDICATORY POWER
Section 439. The Commissioner shall have the power to
adjudicate claims and complaints involving any loss, damage
or liability for which an insurer may be answerable under any
kind of policy or contract of insurance, or for which such insurer
may be liable under a contract of suretyship, or for which a
reinsurer may be sued under any contract of reinsurance it
may have entered into; or for which a mutual benefit
association may be held liable under the membership
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
certificates it has issued to its members, where the amount of
any such loss, damage or liability, excluding interest, cost and
attorney‟s fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership
certificate does not exceed in any single claim Five million
pesos (P5,000,000.00).
The power of the Commissioner does not cover the
relationship between the insurance company and its
agents/brokers but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.
xxx
The Commissioner‟s adjudicatory power covers single claims
of P5 Million or below (excluding cost, attorney‟s fees and
interest).
This jurisdiction is concurrent with the regular courts (MTC or
RTC depending on the amount of claim).
This power, however, does not cover the relationship between
the insurance company and its agents/brokers but is limited to
adjudicating claims and complaints filed by the insured against
the insurance company.
B. ADMINISTRATIVE POWER
Section 437. xxx
The Insurance Commissioner shall have the duty to see that all
laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have sole
and exclusive authority to regulate the issuance and sale of
variable contracts as defined in Section 238 hereof and to
provide for the licensing of persons selling such contracts, and
to issue such reasonable rules and regulations governing the
same.
The Commissioner may issue such rulings, instructions,
circulars, orders and decisions as may be deemed necessary
to secure the enforcement of the provisions of this Code, to
ensure the efficient regulation of the insurance industry in
accordance with global best practices and to protect the
insuring public. Except as otherwise specified, decisions made
by the Commissioner shall be appealable to the Secretary of
Finance.
In addition to the foregoing, the Commissioner shall have the
following powers and functions:
(a) Formulate policies and recommendations on issues
concerning the insurance industry, advise Congress and other
government agencies on all aspects of the insurance industry
and propose legislation and amendments thereto;
(b) Approve, reject, suspend or revoke licenses or certificates
of registration provided for by this Code;
(c) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
(d) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and orders;
INSURANCE LAW REVIEW 2018
(e) Enlist the aid and support of, and/or deputize any and all
enforcement agencies of the government in the implementation
of its powers and functions under this Code;
(f) Issue cease and desist orders to prevent fraud or injury to
the insuring public;
(g) Punish for contempt of the Commissioner, both direct and
indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
(h) Compel the officers of any registered insurance corporation
or association to call meetings of stockholders or members
thereof under its supervision;
(i) Issue subpoena duces tecum and summon witnesses to
appear in any proceeding of the Commission and, in
appropriate cases, order the examination, search and seizure
of all documents, papers, files and records, tax returns, and
books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
(j) Suspend or revoke, after proper notice and hearing, the
license or certificate of authority of any entity or person under
its regulation, upon any of the grounds provided by law;
(k) Conduct an examination to determine compliance with laws
and regulations if the circumstances so warrant as determined
by appropriate rules and regulations;
(l) Investigate not oftener than once a year from the last date of
examination to determine whether an institution is conducting
its business on a safe and sound basis: Provided, That, the
deficiencies/irregularities found by or discovered by an audit
shall be immediately addressed;
(m) Inquire into the solvency and liquidity of the institutions
under its supervision and enforce prompt corrective action;
(n) To retain and utilize, in addition to its annual budget, all
fees, charges and other income derived from the regulation of
insurance companies and other supervised persons or entities;
(o) To fix and assess fees, charges and penalties as the
Commissioner may find reasonable in the exercise of
regulation; and
(p) Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the express powers granted the
Commission to achieve the objectives and purposes of this
Code.
xxx
Section 438. In addition to the administrative sanctions
provided elsewhere in this Code, the Insurance Commissioner
is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply with, or
violation of any provision of this Code, or any order, instruction,
regulation, or ruling of the Insurance Commissioner, or any
commission or irregularities, and/or conducting business in an
unsafe or unsound manner as may be determined by the
Insurance Commissioner, the following:
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
(a) Fines not less than Five thousand pesos (P5,000.00) and
not more than Two hundred thousand pesos (P200,000.00);
and
(b) Suspension, or after due hearing, removal of directors
and/or officers and/or agents.
Section 253. The Commissioner shall at least once a year and
whenever he considers the public interest so demands, cause
an examination to be made into the affairs, financial condition
and method of business of every insurance company
authorized to transact business in the Philippines and of any
other person, firm or corporation managing the affairs and/or
property of such insurance company.
Such company, as well as such managing person, firm or
corporation, shall submit to the examiner all such books,
papers and securities as he may require and such examiner
shall also have the power to examine the officers of such
company under oath touching its business and financial
condition, and the authority to transact business in the
Philippines of any such company shall be suspended by the
Commissioner if such examination is refused and such
company shall not thereafter be allowed to transact further
business in the Philippines until it has fully complied with the
provisions of this section.
Government-owned or -controlled corporations or entities
engaged in social or private insurance shall similarly be subject
to such examination by the Commissioner unless their
respective charters otherwise provide.
The following are the Insurance Commissioner‟s administrative
powers:
1. to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual
benefit associations, and trusts for charitable uses are
faithfully executed and to perform the duties imposed
upon him by this Code
2. to regulate the issuance and sale of variable contracts
as defined in Section 238 hereof and to provide for
the licensing of persons selling such contracts, and to
issue such reasonable rules and regulations
governing the same.
3. to issue such rulings, instructions, circulars, orders
and decisions as may be deemed necessary to
secure the enforcement of the provisions of this Code
to ensure the efficient regulation of the insurance
industry in accordance with global best practices and
to protect the insuring public. Except as otherwise
specified, decisions made by the Commissioner shall
be appealable to the Secretary of Finance.
4. the powers and functions as specifically enumerated
in Section 437 (a-p)
5. to impose penalties on insurers:
o fines not less than Five thousand pesos a
(P5,000.00) and not more than Two hundred
thousand pesos (P200,000.00); and
o suspension, or after due hearing, removal of
directors and/or officers and/or agents (Sec
438)
INSURANCE LAW REVIEW 2018
6. to examine, at least once a year, the affairs, financial
conditions and methods of business of insurers (Sec
253)
7. to issue a license, approve registration, or grant
authority to the following:
o Domestic or foreign insurer
o Reinsurance Broker (license)
o Insurance Agent and Broker (license)
o Resident agent of a foreign insurer
(certificate of registration)
o Non-life company underwriter (certificate of
registration)
o Adjusters Actuary
GROUNDS TO REVOKE AGENT‟S LICENSE
Section 314. An application for the issuance or renewal of a
license to act as an insurance agent or insurance broker may
be refused, or such license, if already issued or renewed, shall
be suspended or revoked if the Commissioner finds that the
applicant for, or holder of, such license:
(a) Has willfully violated any provision of this Code; or
(b) Has intentionally made a material misstatement in the
application to qualify for such license; or
(c) Has obtained or attempted to obtain a license by fraud or
misrepresentation; or
(d) Has been guilty of fraudulent or dishonest practices; or
(e) Has misappropriated or converted to his own use or illegally
withheld moneys required to be held in a fiduciary capacity; or
(f) Has not demonstrated trustworthiness and competence to
transact business as an insurance agent or insurance broker in
such manner as to safeguard the public; or
(g) Has materially misrepresented the terms and conditions of
policies or contracts of insurance which he seeks to sell or has
sold; or
(h) Has failed to pass the written examination prescribed, if not
otherwise exempt from taking the same.
In addition to the foregoing causes, no license to act as
insurance agent or insurance broker shall be renewed if the
holder thereof has not been actively engaged as such agent or
broker in accordance with such rules as the Commissioner
may prescribe.
8. to suspend or revoke the certificate of authority on the
following grounds:
o Insurer is of an unsound condition
o Insurer failed to comply with the provisions of
law or regulations obligatory upon it
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
o Insurer's condition or method of business is
hazardous to the public or its policyholders
o Insurer's paid up capital or available assets
or security deposits is impaired or is deficient
o Margin of solvency is deficient
o Commission of any of unfair claim settlement
practices
UNFAIR CLAIM SETTLEMENT PRACTICES
Section 247. (a) No insurance company doing business in the
Philippines shall refuse, without just cause, to pay or settle
claims arising under coverages provided by its policies, nor
shall any such company engage in unfair claim settlement
practices. Any of the following acts by an insurance company,
if committed without just cause and performed with such
frequency as to indicate a general business practice, shall
constitute unfair claim settlement practices:
(1) Knowingly misrepresenting to claimants pertinent facts or
policy provisions relating to coverage at issue;
(2) Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims arising under
its policies;
(3) Failing to adopt and implement reasonable standards for
the prompt investigation of claims arising under its policies;
(4) Not attempting in good faith to effectuate prompt, fair and
equitable settlement of claims submitted in which liability has
become reasonably clear; or
(5) Compelling policyholders to institute suits to recover
amounts due under its policies by offering without justifiable
reason substantially less than the amounts ultimately
recovered in suits brought by them.
(b) Evidence as to numbers and types of valid and justifiable
complaints to the Commissioner against an insurance
company, and the Commissioner‟s complaint experience with
other insurance companies writing similar lines of insurance
shall be admissible in evidence in an administrative or judicial
proceeding brought under this section.
(c) If it is found, after notice and an opportunity to be heard,
that an insurance company has violated this section, each
instance of noncompliance with paragraph (a) may be treated
as a separate violation of this section and shall be considered
sufficient cause for the suspension or revocation of the
company‟s certificate of authority.
The commission of any unfair claim settlement practice would
warrant the suspension or revocation of an insurer‟s certificate
of authority.
As enumerated under Section 247, the following shall
constitute unfair claim settlement practices:
1. Knowingly misrepresenting to claimants pertinent
facts or policy provisions relating to coverage at issue
2. Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims
arising under its policies
INSURANCE LAW REVIEW 2018
3. Failing to adopt and implement reasonable standards
for the prompt investigation of claims arising under its
policies
4. Not attempting in good faith to effectuate prompt, fair
and equitable settlement of claims submitted in which
liability has become reasonably clean; or
5. Compelling policyholders to institute suit to recover
amounts due under its policies by offering without
justifiable reason substantially less than the amounts
ultimately recovered in suits brought by them
UNLAWFUL CLAIMS
Section 251. It is unlawful to:
(a) Present or cause to be presented any fraudulent claim for
the payment of a loss under a contract of insurance; and
(b) Fraudulently prepare, make or subscribe any writing with
intent to present or use the same, or to allow it to be presented
in support of any such claim. Any person who violates this
section shall be punished by a fine not exceeding twice the
amount claimed or imprisonment of two (2) years, or both, at
the discretion of the court.
APPEAL OF INSURANCE COMMISSION CASES
If it involves an administrative function, file a Memorandum
of Appeal within 15 days to the Secretary of Finance (Rule IX,
Section 1 of Insurance Memorandum Circular 1-93)
If it involves an adjudicatory function, the remedy is to go to
the Court of Appeals, subject to the proper mode of appeal as
the case may be.
AT A GLANCE
 Period to pay claims in life insurance (60 days) and
non-life insurance (30-60-90 rule)
 Facility of payment clause
 Notice of loss in fire insurance
 Actual loss
 Constructive loss – more than ¾ rule on
abandonment
 Jurisdiction of the Insurance Commissioner
 Jurisdiction of regular courts
 Unfair claims settlement practices
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
PART FIVE: GROUNDS FOR RESCISSION
GROUNDS FOR RESCISSION
A. Concealment
B. Misrepresentation
C. Breach of warranty, express or implied
D. Other grounds - Sections 64 and 65
Section 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.
Section 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.
FIRST GROUND: CONCEALMENT
Section 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
Section 27. A concealment whether intentional or unintentional
entitles the injured party to rescind a contract of insurance.
Concealment is the neglect to communicate that which a party
knows and ought to communicate. It may be intentional or
unintentional.
Requisites of concealment
1. Party knows the fact which he neglects to
communicate or disclose
INSURANCE LAW REVIEW 2018
2. party concealing is duty bound to disclose such fact to
the other
3. party concealing makes no warranty as to concealed
fact
4. other party has no means of ascertaining the fact
concealed
What must be communicated
Section 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.
 All facts within his knowledge
 Material to the contract
 Other party has no means of ascertaining
 He makes no warranty
 Information which prove or tend to prove falsity of
warranty
What need not be communicated
Section 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.
Section 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.
Section 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.
Section 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.
a. Those which the other knows;
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
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 30)
f. General causes open to his inquiry which may affect
the political or material perils contemplated (Sec 32)
g. General usages of trade (Sec 32)
h. Nature or amount of interest, except in an answer to
an inquiry (Sec 34)
i. Information of his own judgment (Sec 35)
Information of his own judgment
Where matters of opinion or judgment are called for, answers
made in good faith and without intent to deceive will not avoid
the policy even though they are untrue.
Reason: The insurer cannot rely on those statements. He must
make further inquiry. (Philamcare Health Systems vs. CA, G.R.
No. 125678, March 18, 2002).
Test of materiality
Section 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.
Materiality is used to assess risk, in making or omitting further
inquiries, which causes the insurer to reject the risk or accept it
at higher premium.
Where the applicant concealed prior medical history and he
died in a plane crash, there was still concealment
notwithstanding the apparent lack of relation between the fact
concealed and the cause of death. (Sunlife v. CA, 245 SCRA
268)
BAR 2011
Q: A applied for non-medical life insurance. He did not inform
the insurer that he was examined and confined at St. Luke‟s
Hospital where he was diagnosed for lung cancer. A died in a
plane crash. Is the insurer liable considering that the fact
concealed had no bearing with the cause of death of A?
ANSWER: The insurer is not liable. The concealed fact is
material to the approval and issuance of the policy. According
to a decided case, the insured need not die of the disease he
failed to disclose to the insurer. It is sufficient that his non-
disclosure misled the insurer in forming his estimate of the
risks of the proposed insurance policy or in making further
inquiries.
INSURANCE LAW REVIEW 2018
BAR 2011
Q: An insured, who gains knowledge of a material fact already
after the effectivity of the insurance policy, is not obliged to
divulge it. The reason for this is that the test of concealment of
material fact is determined
A. at the time of the issuance of the policy.
B. at any time before the payment of premium.
C. at the time of the payment of the premium.
D. at any time before the policy becomes effective.
ANSWER: D. at any time before the policy becomes effective.
Waiver of the right to information
Section 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.
 By the terms of insurance OR
 By neglect to make inquiries as to such material facts
Note: Concealment entitles the injured party to rescind the
contract of insurance.
Concealment in marine insurance
Section 109. In marine insurance, each party is bound to
communicate, in addition to what is required by Section 28, all
the information which he possesses, material to the risk,
except such as is mentioned in Section 30, and to state the
exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to disclose.
Section 110. In marine insurance, information of the belief or
expectation of a third person, in reference to a material fact, is
material.
Section 111. A person insured by a contract of marine
insurance is presumed to have knowledge, at the time of
insuring, of a prior loss, if the information might possibly have
reached him in the usual mode of transmission and at the
usual rate of communication.
 in addition to Section 28, each party must
communicate all information he possesses material to
the risk, except those in Section 30
 must state the exact and whole truth in relation to all
matters that he represents
 information of belief or expectation of a third person
as to a material fact is MATERIAL (Sec 110)
 insured is presumed to know prior loss at time of
insuring (Sec 111)
General Rule: Concealment entitles the innocent party to
rescind the contract of insurance.
Exception: Section 112
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
Section 112. A concealment in a marine insurance, in respect
to any of the following matters, does not vitiate the entire
contract, but merely exonerates the insurer from a loss
resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents; and
(e) The use of false and simulated papers.
INCONTESTABILITY CLAUSE IN LIFE INSURANCE
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or
his agent.
If the life insurance has been in force during the lifetime of the
insured for a period of 2 years from the DATE OF ISSUE or
LAST REINSTATEMENT, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or
his agent.
Illustration:
A is issued a life insurance policy on April 2, 2000. He
conceals the fact that he has tuberculosis. A dies on April 3,
2002.
Although there was concealment, the policy has been in force
during the lifetime of A for 2 years from April 2, 2000. As such,
the insurance company must pay.
WHEN INCONTESTABILITY CLAUSE DOES NOT APPLY
1. A party has no insurable interest.
2. The cause of death is an excepted peril.
3. Premiums have not been paid.
4. The conditions of the policy relating to military or
naval service have been violated.
5. Fraud of a vicious type is present when the policy was
taken out.
6. The beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after
the loss has happened.
7. That the action was not brought within time specified.
INSURANCE LAW REVIEW 2018
BAR 2012
Q: The "incontestability clause" in a Life Insurance Policy
means –
A. that life insurance proceeds cannot be claimed two (2) years
after the death of the insured.
B. that two (2) years after date of issuance or reinstatement of
the life insurance policy, the insurer cannot anymore prove that
the policy is void ab initio or rescindable by reason of
fraudulent concealment or misrepresentation of the insured.
C. that the insured can still claim from the insurance policy
after two (2) years even though premium is not paid.
D. that the insured can only claim proceeds in a life insurance·
policy two (2) years after death.
ANSWER: B. that two (2) years after date of issuance or
reinstatement of the life insurance policy, the insurer cannot
anymore prove that the policy is void ab initio or rescindable by
reason of fraudulent concealment or misrepresentation of the
insured.
BAR 2014
Q: On July 3, 1993, Delia Sotero (Sotero) took out a life
insurance policy from Ilocos Bankers Life Insurance
Corporation (Ilocos Life) designating Creencia Aban (Aban),
her niece, as her beneficiary. Ilocos Life issued Policy No. 747,
with a face value of P100,000.00, in Sotero‟s favor on August
30, 1993, after the requisite medical examination and payment
of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the
insurance proceeds on July 9, 1996. Ilocos Life conducted an
investigation into the claim and came out with the following
findings:
1. Sotero did not personally apply for insurance coverage, as
she was illiterate.
2. Sotero was sickly since 1990.
3. Sotero did not have the financial capability to pay the
premium on the policy.
4. Sotero did not sign the application for insurance.
5. Aban was the one who filed the insurance application and
designated herself as the beneficiary.
For the above reasons and claiming fraud, Ilocos Life denied
Aban‟s claim on April 16, 1997, but refunded the premium paid
on the policy. (6%)
(A) May Sotero validly designate her niece as beneficiary?
(B) May the incontestability period set in even in cases of fraud
as alleged in this case?
(C) Is Aban entitled to claim the proceeds under the policy?
ANSWER: (B) May the incontestability period set in even in
cases of fraud as alleged in this case?
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
The incontestability clause shall not apply because the niece
did not have insurable interest on the life of her aunt. Hence,
she cannot use the clause to recover.
Caveat: The facts were culled from the case Manila Bankers v.
Aban (July 29, 2013)
In the said case, the incontestability clause was applied
because it was established that it was Sotero (not her niece)
who got the policy. Hence, there was insurable interest.
The SC ruled:
The insurance policy was thus in force for a period of 3 years,
7 months, and 24 days. Considering that the insured died after
the two-year period, the plaintiff-appellant is, therefore, barred
from proving that the policy is void ab initio by reason of the
insured’s fraudulent concealment or misrepresentation or want
of insurable interest on the part of the beneficiary, herein
defendant-appellee.
(c) Is Aban entitled to claim the proceeds under the policy?
No. Aban is not entitled to the proceeds because she was the
one who obtained the policy on the life of her aunt and she
does not have insurable interest. Hence, the policy is void.
SECOND GROUND: MISREPRESENTATION
This refers to the false representation of factual statements
made by the insured at the time of, or prior to the issuance of
the policy.
These are statements of:
a. a fact of something which is untrue
b. which the insured stated with knowledge that it is
untrue and with an intent to deceive, or which he
states positively as true without knowing it to be true
and which has a tendency to mislead, and
c. where such fact in either case is material to the risk
Misrepresentation: Test of Falsity and Materiality
Section 44. A representation is to be deemed false when the
facts fail to correspond with its assertions or stipulations.
Section 46. The materiality of a representation is determined
by the same rules as the materiality of a concealment.
Misrepresentation as a ground to rescind
Section 45. If a representation is false in a material point,
whether affirmative or promissory, the injured party is entitled
to rescind the contract from the time when the representation
becomes false.
The injured party is entitled to rescind the contract of insurance
from the time the representation becomes false.
The right to rescind by the insurer is waived by acceptance of
premiums despite knowledge of the ground to rescind.
Bound by agent‟s misrepresentations
INSURANCE LAW REVIEW 2018
Where the insured merely signed the application form and
made the agent of the insurer fill the same for him, it was held
that by doing so, the insured made the agent of the insurer his
own agent and he was responsible for his acts for that
purpose. (Insular Life Assurance Co. vs.Feliciano, 74 Phil. 469)
Misrepresentations as to Age in Life Insurance
Section 236. In the case of industrial life insurance, the policy
shall contain in substance the following provisions:
xxx
(d) A provision that if the age of the person insured, or the age
of any person, considered in determining the premium, or the
benefits accruing under the policy, has been misstated, any
amount payable or benefit accruing under the policy shall be
such as the premium paid would have purchased at the correct
age;
xxx
If there is a misrepresentation as to age in life insurance, there
can be no rescission but any amount payable or benefit
accruing under the policy shall be such as the premium paid
would have purchased at the correct age.
Misrepresentation in Marine Insurance
Section 113. If a representation by a person insured by a
contract of marine insurance, is intentionally false in any
material respect, or in respect of any fact on which the
character and nature of the risk depends, the insurer may
rescind the entire contract.
Section 114. The eventual falsity of a representation as to
expectation does not, in the absence of fraud, avoid a contract
of marine insurance.
When the person insured made a misrepresentation as to a
material fact, the insurer may rescind the contract of marine
insurance.
In the absence of fraud, the eventual falsity of a representation
as to expectation does NOT avoid a marine insurance contract.
BAR 2011
Q: Shipowner X, in applying for a marine insurance policy from
ABC, Co., stated that his vessel usually sails middle of August
and with normally 100 tons of cargo. It turned out later that the
vessel departed on the first week of September and with only
10 tons of cargo. Will this avoid the policy that was issued?
A. Yes, because there was breach of implied warranty.
B. No, because there was no intent to breach an implied
warranty.
C. Yes, because it relates to a material representation.
D. No, because there was only representation of intention.
ANSWER: D. No, because there was only representation of
intention.
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
THIRD GROUND: BREACH OF WARRANTY
Section 67. A warranty is either expressed or implied.
Section 68. A warranty may relate to the past, the present, the
future, or to any or all of these.
Section 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs, or where it is
broken in its inception, prevents the policy from attaching to the
risk.
IMPLIED WARRANTIES IN A MARINE INSURANCE
Section 115. In every marine insurance upon a ship or freight,
or freightage, or upon any thing which is the subject of marine
insurance, a warranty is implied that the ship is seaworthy.
Section 122. Where the nationality or neutrality of a ship or
cargo is expressly warranted, it is implied that the ship will
carry the requisite documents to show such nationality or
neutrality and that it will not carry any documents which cast
reasonable suspicion thereon.
Section 123. When the voyage contemplated by a marine
insurance policy is described by the places of beginning and
ending, the voyage insured is one which conforms to the
course of sailing fixed by mercantile usage between those
places.
The following are the implied warranties in a marine insurance:
A. Seaworthiness (Sec 115)
B. Nationality or neutrality (Sec 122)
C. Warranty against improper deviation (Sec 123)
D. Warranty against illegal ventures
A. SEAWORTHINESS
Section 116. A ship is seaworthy when reasonably fit to
perform the service and to encounter the ordinary perils of the
voyage contemplated by the parties to the policy.
Section 118. A warranty of seaworthiness extends not only to
the condition of the structure of the ship itself, but requires that
it be properly laden, and provided with a competent master, a
sufficient number of competent officers and seamen, and the
requisite appurtenances and equipment, such as ballasts,
cables and anchors, cordage and sails, food, water, fuel and
lights, and other necessary or proper stores and implements
for the voyage.
B. NATIONALITY OR NEUTRALITY
Section 122. Where the nationality or neutrality of a ship or
cargo is expressly warranted, it is implied that the ship will
carry the requisite documents to show such nationality or
neutrality and that it will not carry any documents which cast
reasonable suspicion thereon.
C. WARRANTY AGAINST IMPROPER DEVIATION
Section 125. Deviation is a departure from the course of the
voyage insured, mentioned in the last two (2) sections, or an
INSURANCE LAW REVIEW 2018 BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT

unreasonable delay in pursuing the voyage or
commencement of an entirely different voyage.
When is deviation proper?
Section 126. A deviation is proper:
(a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
the (g) A determination by the Commissioner that the continuation
of the policy would violate or would place the insurer in
violation of this Code.
Notice of Cancellation
Section 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:

(c) When made in good faith, and upon reasonable grounds of (a) Which of the grounds set forth in Section 64 is relied upon;
belief in its necessity to avoid a peril; or and

(d) When made in good faith, for the purpose of saving human (b) That, upon written request of the named insured, the
life or relieving another vessel in distress. insurer will furnish the facts on which the cancellation is based.

BAR 2011  Rescission must be exercised before the

Q: T, the captain of MV Don Alan, while asleep in his cabin,
dreamt of an Intensity 8 earthquake along the path of his ship.
On waking up, he immediately ordered the ship to return to
port. True enough, the earthquake and tsunami struck three
days later and his ship was saved. Was the deviation proper?
commencement of any action on the contract.
 In case of a motor vehicle liability insurance, notice of
cancellation must be sent to the land transportation
owner/operator and the LTO at least 15 days before
the date of effectivity.

A. Yes, because the deviation was made in good faith and on a

reasonable ground for believing that it was necessary to avoid
a peril.

B. No, because no reasonable ground for avoiding a peril

existed at the time of the deviation.

C. No, because T relied merely on his supposed gift of

prophecy.

D. Yes, because the deviation took place based on a

reasonable belief of the captain.

ANSWER: B. No, because no reasonable ground for avoiding

a peril existed at the time of the deviation.

FOURTH GROUND: OTHER GROUNDS FOR RESCISSION

IN NON-LIFE INSURANCE UNDER SECTIONS 64 AND 65

Section 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

BY: HISHAM NAZZ A. BIRUAR, CPA

INSURANCE LAW REVIEW 2018 BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT

PART SIX: THE PDIC LAW  add together all deposits in the bank maintained in the
same right and capacity for his benefits either in his
REPUBLIC ACT NO. 9576 own name or in the name of others.
April 29, 2009
 A joint account regardless of whether the
AN ACT INCREASING THE MAXIMUM DEPOSIT conjunction 'and,' 'or,' 'and/or' is used, shall be insured
INSURANCE COVERAGE, AMENDING RA 3591 separately from any individually-owned deposit
account:
DEPOSIT
 Provided, That (1) If the account is held jointly by two
“Deposit" means the unpaid balance of money or its equivalent or more natural persons, or by two or more juridical
received by a bank in the usual course of business and for persons or entities, the maximum insured deposit
which it has given or is obliged to give credit to a commercial, shall be divided into as many equal shares as there
checking, savings, time or thrift account, or issued in are individuals, juridical persons or entities, unless a
accordance with Bangko Sentral rules and regulations and different sharing is stipulated in the document of
other applicable laws. deposit, and

Excluded in the concept of deposit
 any obligation of a bank which is payable at the office
of the bank located outside of the Philippines shall not
be a deposit for any of the purposes of this Act or
included as part of the total deposits or of insured
deposits
 If the account is held by a juridical person or entity
jointly with one or more natural persons, the
maximum insured deposits shall be presumed to
belong entirely to such juridical person or entity
Illustration (Joint Account)

 Subject to the approval of the Board of Directors, any

insured bank which is incorporated under the laws of
the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its
deposit obligations payable only at such branch

The corporation shall not pay deposit insurance for the

following accounts or transactions, whether denominated,
documented, recorded or booked as deposit by the bank:

1. Investment products such as bonds and securities,

trust accounts, and other similar instruments;

2. Deposit accounts or transactions which are unfunded,

or that are fictitious or fraudulent;

3. Deposits accounts or transactions constituting, and/or

emanating from, unsafe and unsound banking
practice/s, as determined by the Corporation, in
consultation with the BSP, after due notice and
hearing, and publication of a cease and desist order
issued by the Corporation against such deposit
accounts or transactions; and

WHAT TO DO WITH PDIC EXCLUSIONS? Illustration (Institutional Account)

Grounds for Petition for Certiorari: excess of jurisdiction or with

such grave abuse of discretion as to amount to a lack or
excess of jurisdiction.

A petition for certiorari may only be filed within thirty (30) days
from notice of denial of claim for deposit insurance.

INSURED DEPOSIT

 amount due to any bona fide depositor for legitimate

deposits in an insured bank net of any obligation of
the depositor to the insured bank as of date of
closure, but not to exceed Five hundred thousand
pesos (P500,000.00).

BY: HISHAM NAZZ A. BIRUAR, CPA

INSURANCE LAW REVIEW 2018
Joint accounts held by a juridical person with a natural person
will be presumed to belong to the juridical person. Thus,
Accounts #1 and #2 will be consolidated in the name of ABC
Co. Total amount of insured deposits will be P500,000.
WHO WILL PAY P500,000?
 For the first 3 years from the effectivity of RA 9576,
P250,000 shall be paid by PDIC while the other
P250,000 shall be paid by the national government.
 Congress shall annually appropriate the necessary
funding to reimburse the PDIC for any payment to
insured depositors paid in excess of P250,000.00.
 After 3 years, the entire amount is solely paid by
PDIC.
PDIC‟S RIGHT TO EXAMINATION
PDIC may examine banks with prior approval of the Monetary
Board, provided that no examination can be conducted within
twelve months from the last examination date.
In case of a threatened or impending closure of a bank, PDIC
may, in coordination with the Bangko Sentral, conduct a
special examination as the Board of Directors, by an
affirmative vote of a majority of all of its members.
In case there is a finding of unsafe or unsound banking
practice, PDIC and/or Bangko Sentral may inquire into or
examine deposit accounts and all information related thereto.
SANCTIONS AGAINST UNSAFE AND UNSOUND BANK
PRACTICES
BY: HISHAM NAZZ A. BIRUAR, CPA
BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT
ROLE OF PDIC IN CLOSED BANKS
 Shall act as receiver
 Shall control, manage and administer the affairs of the
closed bank
 Effective immediately upon takeover as receiver of
such bank, the powers, functions and duties, as well
as all allowances, remunerations and perquisites of
the directors, officers, and stockholders of such bank
are suspended, and the relevant provisions of the
Articles of Incorporation and By-laws of the closed
bank are likewise deemed suspended.
 The assets of the closed bank under receivership
shall be deemed in custodia legis in the hands of the
receiver.
 Assets shall not be subject to attachment,
garnishment, execution, levy or any other court
processes.
 A judge, officer of the court or any person who shall
issue, order, process or cause the issuance or
implementation of the writ of garnishment, levy,
attachment or execution shall be liable.
PDIC DIRECTORS AND OFFICERS HAVE NO LIABILITY
General Rule: PDIC, its directors, officers, employees and
agents are held free and harmless to the fullest extent
permitted by law from any liability.
They shall be indemnified for any and all liabilities, losses,
claims, demands, damages, deficiencies, costs and expenses
of whatsoever kind and nature that may arise in connection
with the performance of their functions, without prejudice to
any criminal liability under existing laws.
Exception: If the actions of PDIC or any of its officers and
employees are found to be in willful violation of this Act,
performed in bad faith, with malice and/or gross negligence
TAX OBLIGATIONS OF PDIC
All tax obligations of PDIC for a period of five (5) years
reckoned from the date of effectivity of this Act shall be
chargeable to the Tax Expenditure Fund (TEF) in the annual
General Appropriations Act.
On the 6th year and thereafter - exempted from income tax,
final withholding tax, and value-added tax on assessments
collected from member banks and local taxes.
SPLITTING OF DEPOSITS
A deposit account with an outstanding balance of more that the
statutory maximum amount of insured deposit maintained
under the name of natural or juridical persons is broken down
and transferred into two (2) or more accounts in the name/s of
natural or juridical persons or entities who have no beneficial
ownership on transferred deposits in their names.
The transfer must be made within 120 days immediately
preceding or during a bank-declared bank holiday, or
immediately preceding a closure order issued by the Monetary
INSURANCE LAW REVIEW 2018 BASED ON THE LECTURES OF ATTY. MARIA CHRISTINA SAGMIT

Board of the Bangko Sentral ng Pilipinas for the purpose of

availing of the maximum deposit insurance coverage.

BAR 2000

Q: BD has a bank deposit of half a million pesos. Since the

PDIC limit is P250,000, BD would like some protection for the
excess by taking out an insurance against all risks arising from
unsound bank practices. Does BD have insurable interest
under the Insurance Code?

ANSWER: Yes, BD has insurable interest in his bank deposit.

In case of loss to the extent of the amount not covered by
PDIC, BD will be damnified. He will suffer pecuniary loss of
P250,000 since PDIC Law only covers accounts up to
P250,000.

Note: Prior to the amendment brought about by RA 9576 in

2009, the maximum deposit insurance coverage is only
P250,000.

BAR 2010

Q: When Occidental Bank folded up due to insolvency, Manuel

had the following separate deposits in his name: P200,000 in
savings deposit; P250,000 in time deposit; P50,000 in a
current account; P1 million in a trust account; and P3 million in
money market placement. Under the Philippine Deposit
Insurance Corporation Act, how much could Manuel recover?
Explain. (2%)

ANSWER: Manuel can only recover up to a total of P500,000

for his savings deposit, time deposit and current account.
Under the PDIC Law, a single depositor can only recover a
maximum of P500,000 for these kinds of accounts. The trust
account and money market placement are excluded from the
coverage of the PDIC Law.

BY: HISHAM NAZZ A. BIRUAR, CPA