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TRANSCRIBED BY: JESSICA HUANG
(10/28/19), ARYA STARK (11/04/19),
MALEFICENT (11/11/19) WEDNESDAY
ADDAMS (11/18 AND 11/25/19), HAN-
SUNG AND HERMOSO (12/02/19)
DOCTRINES COMPILED BY:
NAIROBI, IRIS WEST, SAUL GOODMAN
NOTES BY: JESSICA HUANG
CONCEALMENT
CLASS DISCUSSION
Concealment is one of the grounds which
may be used by the injured party (usually the
insurer) in rescinding the contract of
insurance. When the law says "a ground
which may be used in rescinding" - it
includes a scenario that a ground may be used
in denying the claim.
In a case which I will emphasize next
meeting, an insurer time and again, had been
exercising that right of filing an action in
court for the rescission of the insurance
policy contract. But, more often than not, the
more common scenario is that: the insurance
company will just refuse on the particular
ground of concealment of a legal fact, in
denying a claim that will be filed by the
beneficiaries.
In other words, the nature of this is: when a
claim is filed, it presupposes that the insured
had already died because naturally, if the
insured is still living, and the policy is
payable upon the death of the insured, then if
a claim will be filed during the lifetime of the
insured, magagalit yung insured: buhay pa ko
pinapatay niyo na ako?
Merong isang chinese businessman na
may isang mini grocery store. So,
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tinataningan na ata siya ng doctor niya
and may anak siyang sampu na
pumaligid sa kanyang hospital bed... (a
joke).. so nakumpleto yung mga anak...
nagmura "AH LANGYA ANDITO
KAYO LAHAT SINONG TAO SA
TINDAHAN ahahha dapat daw yung
mini grocery store may bantay.. (omg
ang corny nito)
With regard to provisions of law in point, you
read 26 together with 28 for obviously, 26 is
not complete:
Sec. 26. A neglect to communicate that
which a party knows and ought to
communicate, is called a concealment.
26 is completed by 28:
Sec. 28. Each party to a contract of
insurance must communicated to the
other, in good faith, all facts within his
knowledge which are material to the
contract and as to which he makes no
warranty, and which the other has not
the means of ascertaining.
In other words, if I could just pinpoint to you
keywords it will be:
in good faith
o remember the uberrimae fidae
characteristic
(the insurance contract is a
contract of perfect good faith
and candor between the
parties)
within his knowledge
facts which are material to the
contract
Based on the cases you have read, how is
materiality determined?
WON cause of death needs to be
related to the fact of illness concealed

WON materiality will be dependent
on the state of mind or subjective
behavior and consciousness of the
insured
WON materality will be dependent on
the actual or physical
Q: Give an example of a material fact.
A: A person applied for a life insurance and
he was asked if whether has been confined in
a hospital for the last five years. He must
answer such question truthfully because such
fact is material to the insurer in accepting or
denying his application.
Q: Give an example of a material fact that
was not disclosed.
A: A person has undergone surgery. After
undergoing surgery, he applied for life
insurance but he did not disclose the surgery
he has gone through. If the insurer approved
the insurance application, the insurer would
be entitled to rescind the contract of
insurance.
Q: Who gets to determine whether the fact
concealed is material or not? The insured
or the insurer?
A: Materiality relates rather to the “probable
and reasonable influence of the facts” upon
the party to whom the communication should
have been made, in assessing the risk
involved in making or omitting to make
further inquiries and in accepting the
application for insurance; that “probable and
reasonable influence of the facts” concealed
must, of course, be determined objectively,
by the judge ultimately. (Vda de Canilang
v. CA)
DOCTRINES
1. NG GAN ZEE V. ASIAN CRUSADER LIFE
ASSUR. CORP.
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Concealment exists where the assured
had knowledge of a fact material to the
risk, and honesty, good faith, and fair
dealing requires that he should
communicate it to the assurer, but he
designedly and intentionally withholds
the same.” It has also been held “that the
concealment must, in the absence of
inquiries, be not only material, but
fraudulent, or the fact must have been
intentionally withheld.
Fraudulent intent of insured must be
established to entitle insurer to rescind
insurance contract; Misrepresentation, as
defense of insurer, is an affirmative
defense which must be proved.—Sec. 27
of the Insurance Law, nevertheless
requires that fraudulent intent on the part
of the insured be established to entitle the
insurer to rescind the contract. And as
correctly observed by the lower court,
“misrepresentation as a defense of the
insurer to avoid liability is an
‘affirmative’ defense. The duty to
establish such a defense by satisfactory Clear and
satisfactory
and convincing evidence rests upon the evidence rest
upon the
defendant. The evidence before the Court defendant.
does not clearly and satisfactorily
establish that defense.”
It bears emphasis that Kwong Nam had
informed the appellant’s medical
examiner that the tumor for which he was
operated on was “associated with ulcer of
the stomach.” In the absence of evidence
that the insured had sufficient medical
knowledge as to enable him to distinguish
between “peptic ulcer” and “a tumor”, his
statement that said tumor was “associated
with ulcer of the stomach,” should be
construed as an expression made in good
faith of his belief as to the nature of his
ailment and operation. Indeed, such
statement must be presumed to have been
made by him without knowledge of its
incorrectness and without any deliberate
intent on his part to mislead the appellant.

Where, “upon the face of the application,
a question appears to be not answered at
all or to be imperfectly answered, and the
insurers issue a policy without any further
inquiry, they waive the imperfection of
the answer and render the omission to
answer more fully immaterial. The fact of
the matter is that the defendant was too
eager to accept the application and
receive the insured’s premium. It would
be inequitable now to allow the defendant
to avoid liability under the
circumstances.”
Q: What is the provision of law cited by the
SC on the waiver to the right of
information of the insurance company?
A: Section 32 of Insurance Law [Act No.
2427] provides as follows:
“Section 32. The right to information
of material facts may be waived either
by the terms of insurance or by
neglect to make inquiries as to such
facts where they are distinctly implied
in other facts of which information is
communicated.”
2. EDILLON VS. MANILA BANKERS LIFE INS.
The age of the insured Carmen O. Lapuz
was not concealed to the insurance
company. Her application for insurance
coverage which was on a printed form
furnished by private respondent and
which contained very few items of
information clearly indicated her age at
the time of filing the same to be almost 65
years of age. Despite such information
which could hardly be overlooked in the
application form, considering its
prominence thereon and its materiality to
the coverage applied for, the respondent
insurance corporation received her
payment of premium and issued the
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corresponding certificate of insurance
without question. The accident which
resulted in the death of the insured, a risk
covered by the policy, occurred on May
31, 1969 or FORTY-FIVE (45) DAYS
after the insurance coverage was applied
for. There was sufficient time for the
private respondent to process the
application and to notice that the
application was over 60 years of age and
thereby cancel the policy on that ground
if it was minded to do so. If the private
respondent failed to act, it is either
because it was willing to waive such
disqualification; or, through the
negligence or incompetence of its
employees for which it has only itself to
blame, it simply overlooked such fact.
Under the circumstances, the insurance
corporation is already deemed in
estoppel. Its inaction to revoke the policy
despite a departure from the exclusionary
condition contained in the said policy
constituted a waiver of such condition.
Q: What did the SC said on the 45 days
(difference of the time of application and
time of death of Lapuz)?
A: It was a sufficient time for the insurance
company to process the application of Lapuz
and notice that the application was over 60
years of age and thereby cancel the policy on
that ground if it was minded to do so.
3. MALAYAN INS. CO. V. PAP CO.
Under Section 168 of the Insurance Code,
the insurer is entitled to rescind the
insurance contract in case of an alteration
in the use or condition of the thing
insured.
Section 168 of the Insurance Code
provides, as follows:

Section 168. 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.
Accordingly, an insurer can exercise
its right to rescind an insurance contract
when the following conditions are
present, to wit:
1) the policy limits the use or
condition of the thing insured;
2) there is an alteration in said use
or condition;
3) the alteration is without the
consent of the insurer;
4) the alteration is made by means
within the insured’s control; and
5) the alteration increases the risk
of loss
Q: What is the specific provision of law
that was cited by the SC in ruling against
PAP Co.?
A: Section 68. 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.
4. SATURNINO V. PHIL. AMERICAN LIFE INS.
In non-medical insurance, the waiver of
medical examination renders even more
material the information required of the
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applicant concerning previous condition
of health and diseases suffered, for such
information necessarily constitutes an
important factor which the insurer takes
into consideration in deciding whether to
issue the policy or not.
The concealment of the fact of the
operation itself is fraudulent, as there
could not have been any mistake about it,
no matter what the ailment.
In this jurisdiction, a concealment,
whether intentional or unintentional,
entitles the in- surer to rescind the
contract of insurance, concealment being
defined as “negligence to communicate
that which a party knows and ought to
communicate” (Sections 24 and 26, Act
No. 2427).
Q: In this case, the petitioners were
invoking good faith since Estefania did not
know she had cancer. What is the doctrine
that was enunciated by the SC on this
matter?
A: The defense of good faith is not
applicable. Sec. 27 of the Insurance Code
provides that A concealment whether
intentional or unintentional entitles the
injured party to rescind a contract of
insurance.
5. SUN LIFE ASSUR. CO. V. CA AND SPS.
BACANO
In weighing the evidence presented, the
trial court concluded that indeed there
was concealment and misrepresentation,
however, the same was made in “good
faith” and the facts concealed or
misrepresented were irrelevant since the
policy was “non-medical.” We disagree.
Section 26 of The Insurance Code is
explicit in requiring a party to a contract
of insurance to 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 no
means of ascertaining. Said Section
provides: “A neglect to communicate that
which a party knows and ought to
communicate, is called concealment.”
The terms of the contract are clear. The
insured is specifically required to disclose
to the insurer matters relating to his
health. The information which the
insured failed to disclose were material
and relevant to the approval and issuance
of the insurance policy. The matters
concealed would have definitely affected
petitioner’s action on his application,
either by approving it with the
corresponding adjustment for a higher
premium or rejecting the same.
Moreover, a disclosure may have
warranted a medical examination of the
insured by petitioner in order for it to
reasonably assess the risk involved in
accepting the application.
Thus, “good faith” is no defense in
concealment. The insured’s failure to
disclose the fact that he was hospitalized
for two weeks prior to filing his
application for insurance, raises grave
doubts about his bona fides. It appears
that such concealment was deliberate on
his part.
The argument, that petitioner’s waiver of
the medical examination of the insured
debunks the materiality of the facts
concealed, is untenable. We reiterate our
ruling in Saturnino v. Philippine
American Life Insurance Company, 7
SCRA 316 (1963), that “x x x the waiver
of a medical examination [in a non-
medical insurance contract] renders even
more material the information required of
the applicant concerning previous
condition of health and diseases suffered,
for such information necessarily
constitutes an important factor which the
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insurer takes into consideration in
deciding whether to issue the policy or
not x x x.”
Anent the finding that the facts concealed
had no bearing to the cause of death of the
insured, it is well settled that the insured
need not die of the disease he had failed
to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer
in forming his estimates of the risks of the
proposed insurance policy or in making
inquiries (Henson v. The Philippine
American Life Insurance Co., 56. O.G.
No. 48 [1960]).
Q: Why does the waiver of medical
examination in a non-medical insurance
contract render even more material the
information required of the applicant
concerning his previous condition of
health and diseases suffered?
A: For such information necessarily
constitutes an important factor which the
insurer takes into consideration in deciding
whether to issue the policy or not.
ATTY. TAYAG: Our Supreme Court has
been consistently repeating the rule: In a non-
medical life insurance policy, the insurance
company waives the requirement of medical
examination of the applicant if it renders
more material the information required from
the insured as regards his previous health
condition or illness. If there is no medical
exam, therefore there will be no results upon
which the insurance company may base its
decision later on. The insurance company
may just heavily rely on the representations
made by the insured in his application.
Other allegation: the reason why the CA
affirmed the ruling of the RTC and ordered
SunLife to pay, it said that the cause of death
of Bacani (plane crash) is not related to the
fact of illness concealed. Di naman renal

failure kinamatay niya eh, plane crash
naman.
SC: the cause of death may not be related to
the fact of illness concealed. It doesn’t matter
because the SC cited how materiality is
determined by the law:
Sec. 31. Materiality is to be determined
not by the event, but solely by the
probable and reasonable influence of the
facts upon the party to whom the
communication is due, in forming his
estimate of the disadvantages of the
proposed contract, or in making his
inquiries.
AMJUR DOCTRINE
SC: it is material if it would probably
influence the insurance company in deciding
whether or not to accept the application, and
in deciding to accept it, how much will it be
charged and collected from the insured.
If the answer is yes, then the insurance
company can be allowed to rescind the
contract or deny the claim on the ground of
material concealment.
Q: Now, who gets to determine whether a
fact concealed is material or not? Is it the
insurer or insured?
A: either party can do so. That's the reason
why more often than not, it would lead to a
dispute or justiciable controversy arising
from the different positions espoused by the
2 protagonists. The insurance company will
say that's material and then the beneficiaries
will say ay hindi naman po that illness is not
material. It will now result to a dispute or
controversy, then the courts will come in.
6. VDA. DE CANILANG VS. CA AND GREAT
PACIFIC LIFE
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We agree with the Court of Appeals that
the information which Jaime Canilang
failed to disclose was material to the
ability of Great Pacific to estimate the
probable risk he presented as a subject of
life insurance. Had Canilang disclosed
his visits to his doctor, the diagnosis
made and the medicines prescribed by
such doctor, in the insurance application,
it may be reasonably assumed that Great
Pacific would have made further inquiries
and would have probably refused to issue
a non-medical insurance policy or, at the
very least, required a higher premium for
the same coverage. The materiality of the
information withheld by Great Pacific did
not depend upon the state of mind of
Jaime Canilang.
A man’s state of mind or subjective belief
is not capable of proof in our judicial
process, except through proof of external
acts or failure to act from which
inferences as to his subjective belief may
be reasonably drawn. Neither does
materiality depend upon the actual or
physical events which ensue.
Materiality relates rather to the “probable
and reasonable influence of the facts”
upon the party to whom the
communication should have been made,
in assessing the risk involved in making
or omitting to make further inquiries and
in accepting the application for insurance;
that “probable and reasonable influence
of the facts” concealed must, of course,
be determined objectively, by the judge
ultimately.
Q: Citing American jurisprudence in this
case, what is the rationale of why good
faith is not a defense in concealment or
that materiality does not depend on the
state of mind of the person?
A: A man’s state of mind or subjective belief
is not capable of proof in our judicial process,
except through proof of external acts or

failure to act from which inferences as to his
subjective belief may be reasonably drawn.
ATTY. TAYAG: Materiality will have to be
determined objectively by the judge
ultimately. (Judge in the generic sense
including court justices)
The Supreme Court is the final arbiter but
they have to be guided by that rule on how
materiality is determined: materiality is not
dependent upon the state of mind or the
subjective belief of the insured because
good faith is not a valid defense in
concealment.
That's why 27 says:
Sec. 27. A concealment whether
intentional or unintentional entitles the
injured party to rescind a contract of
insurance
AMJUR DOCTRINE:
If the insurance companies will still be
required to show intentional fraud or intent to
deceive on the part of the insured, then the
insurance company will have difficulty in
proving that because it is a state of mind, the
subjective belief is in the mind of the person.
Basically, it is very easy to allege, but very
hard to prove yung good faith, honesty - state
of mind un eh.
The insurer will not be able to amply
protect itself as well as the public from the
schemes of unscrupulous individuals who
would take out life insurance policies for the
purposes of defrauding the insurance
companies. If that's the case, then there will
be no more incentive for people to tell the
truth. It will open the floodgates to fraud. It
will not only be to the detriment of the insurer
but in its totality, to the detriment of the
insuring public in general.
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Ngayon yung dinagdag ng SC sa VDA DE
CANILANG: wherein it made a brief history
of the "now you see him, now you dont" na
phrase na "intentional or unintentional" ng
27:
Historically, It would seem to be the
unspoken theory of the Insurance
Commissioner na dahil daw tinanggal yung
phrase na "whether intentional or
unintentional" ang ibig sabihin daw nun eh is
to require the concealment to be intentional.
SC: NO. The SC studied the old insurance act
which took effect 1940-1974 - the phrase
"intentional or unintentional" was present.
During the time of Marcos, when it issued PD
612 in 1974 and PD 1620 in 1978 - Pres.
Marcos deleted the phrase "whether
intentional or unintentional"
In the amendment brought by PD 874 of 1985
ibinalik nanaman. So nakakalito na, ano ba
talaga kuya?
Hence, SC debunked that unspoken theory of
the Insurance Commissioner. The words
"intentional or unintentional" cancel each
other out meaning even during the time of the
PD of President Marcos, it seems to manifest
the fact that the deletion of the phrase simply
means the word concealment there is now
unqualified (intentional or unintentional).
Remember in StatCon, when the law does not
distinguish, the courts must not distinguish.
Eh at the time of deletion, hindi naman
dinistinguish eh. So it will be very well
proper to interpret it to include all kinds of
concealment (whether intentional or
unintentional).
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 26. A neglect to communicate that
which a party knows and ought to
communicate, is called a concealment.

Four primary concerns of the parties to an
insurance contract
1. The correct estimation of the risk which
enables the insurer to decide whether he
is willing to assume it, and if so, at what
rate of premium;
2. The precise delimitation of the risk which
determines the extent of the contingent
duty to pay undertaken by the insurer;
3. Such control of the risk after it is
assumed as will enable the insurer to
guard against the increase of the risk
because of change in conditions; and
4. Determining whether a loss occurred and
if so, the amount of such loss.
The devices of concealment (Sec. 26) and
representations (Sec. 36) were originally
developed for the purpose of enabling the
insurer to secure the same information with
respect to the risk that was possessed by the
applicant for insurance, so that he might be
equally capable of forming a just estimate of
its quality.
Requisites of concealment
1. A party knows the fact which he
neglects to communicate or disclose to
the other;
2. Such party concealing is duty bound to
disclose such fact to the other;
3. Such party concealing makes no
warranty of the fact concealed; and
4. The other party has not the means of
ascertaining the fact concealed.
SEC. 27. A concealment whether
intentional or unintentional entitles the
injured party to rescind a contract of
insurance.
Effects of concealment
1. By the insured - As a rule, failure on the
party of the insured to disclose conditions
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affecting the risk, of which he is aware,
makes the contract voidable at the insurer’s
option. The reason is that insurance policies
are traditionally contracts uberrimae
fidae, that is, contracts of the utmost good
faith.
This doctrine is essential on account of
the fact that the full circumstances of the
subject matter of insurance are, as a rule,
known to the insured only, and the
insurer, in deciding whether or not to
accept a risk, must rely primarily upon
the information supplied by the applicant.
2. By the insurer - The contractual duty of
disclosure imposed by utmost good faith
is not required of the insured alone, but is
imposed with equal stringency upon the
insurer; in fact, it is more upon the latter,
since his dominant bargaining position
carries with it stricter responsibility.
Proof of fraud in concealment
Rule: The insurer need not prove fraud in
order to rescind a contract on the ground of
concealment.
Reason: If it were necessary for the
insurance company to show actual fraud on
the part of the insured, then it is plain that it
would be impossible for it to protect itself and
its honest policyholders against fraudulent
and improper claims. It would be wholly at
the mercy of any one who wished to apply for
insurance.
SEC. 28. Each party to a contract of
insurance must communicate to the other,
in good faith, all facts within his
knowledge which are material to the
contract and as to which he makes no
warranty, and which the other has not the
means of ascertaining.

This section makes it the duty of each party
to a contract of insurance to communicate in
good faith all facts within his knowledge
when:
1. they are material to the contract (Secs. 31,
34, 35)
2. the other has not the means of
ascertaining the said facts (Secs. 30, 32,
33)
3. as to which the party with the duty to
communicate makes no warranty.
The test is: If the applicant is aware of the
existence of some circumstances which he
knows would influence the insurer in acting
upon his application, good faith requires him
to disclose that circumstance, though
unasked.
SEC. 29. An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters
proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
Unlike in ordinary concealment (Sec. 27), the
non-disclosure under Section 29 must be
intentional and fraudulent in order that the
contract may be rescinded.
SEC. 30. Neither party to a contract of
insurance is bound to communicate
information of the matters following,
except in answer to the inquiries of the
other:
(a) Those which the other knows;
(b) Those which, in the exercise of
ordinary care, the other ought to know, and
of which the former has no reason to
suppose him ignorant;
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(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.
The insured cannot be penalized for
failure to disclose matters already known
to the insurer.
The insurer cannot complain of the
insured’s failure to disclose facts that
concern only risks excepted from the
policy, either expressly or by warranty,
from the liability assumed under the
policy.
SEC. 31. Materiality is to be determined
not by the event, but solely by the probable
and reasonable influence of the facts upon
the party to whom the communication is
due, in forming his estimate of the
disadvantages of the proposed contract, or
in making his inquiries.
Determination of materiality
1. Test of materiality: The effect which the
knowledge of the fact in question would
have on the making of the contract. To be
material, a fact need not increase the risk or
contribute to any loss or damage suffered.
It is sufficient of the knowledge of it
would influence the parties in making the
contract.
2. From the standpoint of the insurer—if
the knowledge of it would have a
“probable and reasonable influence upon
the insurer in assessing the risk involved
and in making or omitting further
inquiries, and cause him either to reject

the risk or to accept it only at a higher
premium rate or on different terms
though that fact may not even remotely
contribute to the contingency upon
which the insurer would become liable,
or in any wise affect the risk.
3. When concealment regarded as
intentional—A man’s state of mind or
subjective belief is not capable of proof in
our judicial process, except through proof
of external acts or failure to act from
which inferences as to his subjective
belief may be reasonably drawn.
4. Where the facts concealed not material
– The insured cannot be guilty of
concealment where the fact concealed is
not material.
Note: Concealment must take place at the
time the contract was entered into in order
that the policy may be avoided and not
afterwards.
SEC. 32. Each party to a contract of
insurance is bound to know all the general
causes which are open to his inquiry,
equally with that of the other, and which
may affect the political or material perils
contemplated; and all general usages of
trade.
Insured need not communicate public
events.
The insurer is charged with knowledge of
the general trade usages and rules of
navigations, kind of seasons, and all the
risks connected with navigation.
SEC. 33. The right to information of
material facts may be waived, either by the
terms of insurance or by neglect to make
inquiry as to such facts, where they are
distinctly implied in other facts of which
information is communicated.
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SEC. 34. Information of the nature or
amount of the interest of one insured need
not be communicated unless in answer to
an inquiry, except as prescribed by Section
51.
Under Section 51(e), it is required that a
policy of insurance must specify “interest
of the insured in property insured, if he is
not the absolute owner thereof.”
SEC. 35. Neither party to a contract of
insurance is bound to communicate, even
upon inquiry, information of his own
judgment upon the matters in question.
The duty to disclose is confined to facts.
Hence, there is no duty to disclose mere
opinions, speculation, intention or
expectation.
REPRESENTATION
CLASS DISCUSSION
Topic: Incontestability
If upon the death of the insured the policy has
been enforced for 2 yrs or more than 2 yrs
then the policy in incontestable. After such
period it can no longer be rescinded even if
concealment and misrepresentation
committed by insured is fraudulent and
apparent insurer can no longer deny claim or
rescind the contract.
Section 48 does not mean that the fraud of the
insured is tolerated or rewarded by reason of
public policy fraud MUST NOT BE
tolerated. Section 48 only seeks to regulate
the relationship of the insured and insurer.
This is the main purpose, to regulate
relations. Because of this provision, the
insured should not have made any
concealment because he knows if he dies and
the policy was less than 2 years then the

company will exercise the right to rescind on
such grounds.
Q: How is it regulated on part of insurer?
A: The practice of insurance companies of
accepting premiums every year but when the
death of the insured occurs they deny liability
is prejudicial to the insured. This is because,
the insurance company keeps on earning
premium but may have known that in the end
it will not be liable to the insured.
At least now, they conduct a thorough
investigation so that they will not be barred
by the two year period.
To further clarify, the second paragraph of
Sec. 48 “ 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 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” does NOT mean that
the insurance company cannot exercise his
right to rescind after the insured dies.
The phrase’s significance is that the policy is
no longer effective after the death of the
insured. But the Insurance company may
exercise such right of rescission even after
death of the insured provided policy is still
contestable at the time of rescinding [less
than two years enforced during the lifetime of
insured]
The concepts of date of death, effectivity of
the policy should be noted and the reckoning
period of the two-year incontestability period
should be noted for purposes of your exams.
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DOCTRINES
A. OTHER INSURANCE CLAUSE
1. PACIFIC BANKING CORP. V. CA AND
ORIENTAL ASSURANCE
Insured was guilty of clear fraud for
failure to reveal three other insurances.—
It is not disputed that the insured failed to
reveal before the loss three other
insurances. As found by the Court of
Appeals, by reason of said unrevealed
insurances, the insured had been guilty of
a false declaration; a clear
misrepresentation and a vital one because
where the insured had been asked to
reveal but did not, that was deception.
Otherwise stated, had the insurer known
that there were many co-insurances, it
could have hesitated or plainly desisted
from entering into such contract. Hence,
the insured was guilty of clear fraud.
Because of the misrepresentation of the
petitioner, “the whole foundation of the
contract fails, the risk does not attach and
the policy never becomes a contract
between the parties. Representations of
facts are the foundation of the contract
and if the foundation does not exist, the
superstructure does not arise. Falsehood
in such representations is not shown to
vary or add to the contract, or to terminate
a contract which has once been made, but
to show that no contract has ever existed.
A void or inexistent contract is one which
has no force and effect from the very
beginning, as if it had never been entered
into, and which cannot be validated either
by time or by ratification.
As the insurance policy against fire
expressly required that notice should be
given by the insured of other insurance

upon the same property, the total absence
of such notice nullifies the policy.
Fraud or misrepresentation or arson are
exceptions to the general rule that
insurance as to the interest of the
mortgagee cannot be invalidated.—The
paragraph clearly states the exceptions to
the general rule that insurance as to the
interest of the mortgagee, cannot be
invalidated; namely: fraud, or
misrepresentation or arson. As correctly
found by the Court of Appeals,
concealment of the aforecited co-
insurances can easily be fraud, or in the
very least, misrepresentation.
Undoubtedly, it is but fair and just that
where the insured who is primarily
entitled to receive the proceeds of the
policy has by its fraud and/or
misrepresentation, forfeited said right,
with more reason, petitioner which is
merely claiming as indorsee of said
insured, cannot be entitled to such
proceeds.
ATTY. TAYAG: Because the case was filed
prematurely, nothing can be recovered.
2. RAFAEL (REX) VERENDIA V. CA AND
FIDELITY AND SUERTY
Basically a contract of indemnity, an
insurance contract is the law between the
parties. Its terms and conditions
constitute the measure of the insurer’s
liability and compliance therewith is a
condition precedent to the insured’s right
to recovery from the insurer.
As it is also a contract of adhesion, an
insurance contract should be liberally
construed in favor of the insured and
strictly against the insurer company
which usually prepares it.
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3. NEW LIFE ENTERPRISES AND JULIAN SY V.
CA
Insured is specifically required to
disclose to the insurer any other insurance
and its particulars which he may have
effected on the same subject matter. The
terms of the contract are clear and
unambiguous. The insured is specifically
required to disclose to the insurer any
other insurance and its particulars which
he may have effected on the same subject
matter. The knowledge of such insurance
by the insurer’s agents, even assuming
the acquisition thereof by the former, is
not the “notice” that would estop the
insurers from denying the claim. Besides,
the so-called theory of imputed
knowledge, that is, knowledge of the
agent is knowledge of the principal, aside
from being of dubious applicability here
has likewise been roundly refuted by
respondent court whose factual findings
we find acceptable.
While it is a cardinal principle of
insurance law that a policy or contract of
insurance is to be construed liberally in
favor of the insured and strictly against
the insurer company, yet contracts of
insurance, like other contracts, are to be
construed according to the sense and
meaning of the terms which the parties
themselves have used. If such terms are
clear and unambiguous, they must be
taken and understood in their plain,
ordinary and popular sense. Moreover,
obligations arising from contracts have
the force of law between the contracting
parties and should be complied with in
good faith.
The conformity of the insured to the
terms of the policy is implied from his
failure to express any disagreement with
what is provided for.

B. TWO-YEAR INCONTESTABILITY
PERIOD
1. EMILIO TAN, ET.AL. V. CA AND
PHILAMLIFE
The so-called “incontestability clause”
precludes the insurer from raising the
defenses of false representations or
concealment of material facts insofar as
health and previous diseases are
concerned if the insurance has been in
force for at least two years during the
insured’s lifetime. The phrase “during the
lifetime” found in Section 48 simply
means that the policy is no longer
considered in force after the insured has
died. The key phrase in the second
paragraph of Section 48 is “for a period
of two years.”
The insurer has two years from the date
of issuance of the insurance contract or of
its last reinstatement within which to
contest the policy, whether or not, the
insured still lives within such period.
After two years, the defenses of
concealment or misrepresentation, no
matter how patent or well founded, no
longer lie. Congress felt this was a
sufficient answer to the various tactics
employed by insurance companies to
avoid liability
Q: What other arguments did the
petitioners invoke in this case?
A: That it was NOT Tan who applied for the
insurance contract, and the medical terms
were not explained to him.
Q: Is the “fine print” or “contract of
adhesion” rule applicable in this case?
A: NO. There is no strong showing that we
should apply the "fine print" or "contract of
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adhesion" rule in this case. There is no
showing that the questions in the application
form for insurance regarding the insured's
medical history are in smaller print than the
rest of the printed form or that they are
designed in such a way as to conceal from the
applicant their importance. Thus, it is
concluded that there was misrepresentation.
Q: What is the presumption of ROC cited
in resolving the issue? w/n failure to
explain provisions shall estop insurer from
contesting policy?
A: The deceased, by affixing his signature on
the application form, affirmed the correctness
of all the entries and answers appearing
therein. It is but to be expected that he, a
businessman, would not have affixed his
signature on the application form unless he
clearly understood its significance. For, the
presumption is that a person intends the
ordinary consequence of his voluntary act
and takes ordinary care of his concerns. [Sec.
5(c) and (d), Rule 131, Rules of Court]
Q: Anything else cited by the petitioners
regarding malpractices of insurance
companies?
A: There could have been no concealment or
misrepresentation by their late father because
he did not have to buy insurance. He was only
pressured by insistent salesmen to do so.
Here then is a case of an assured whose
application was submitted because of
repeated visits and solicitations by the
insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was
the object of solicitations and visits. That he
was a man of means, and could have obtained
a greater amount of insurance.
Follow up Q: What did the SC say
regarding this fact?
A: Like in the case of Insular life vs
Feliciano: It is of common knowledge

that the selling of insurance today is
subjected to the whirlwind pressure of
modern salesmanship. Insurance
companies send detailed instructions to
their agents to solicit and procure
applications. These agents are to be found
all over the length and breadth of the land.
They are stimulated to more active efforts
by contests and by the keen competition
offered by the other rival insurance
companies. They supply all the
information, prepare and answer the
applications, submit the applications to
their companies, conclude the
transactions, and otherwise smooth out
all difficulties.
The agents in short do what the company set
them out to do. The Insular Life case
was decided some forty years ago when the
pressure of insurance salesmanship was not
overwhelming as it is now; when the
population of this country was less than one-
fourth of what it is now; when the insurance
companies competing with one another could
be counted by the fingers. In the face of all
the above, it would be unjust if, having been
subjected to the whirlwind pressure of
insurance salesmanship this Court itself has
long denounced, the assured who dies within
the two-year period, should stand charged of
fraudulent concealment and
misrepresentation
2. MANILA BANKERS LIFE INS. CORP. V.
CRESENCIA ABAN
Fraudulent intent on the part of the
insured must be established to entitle the
insurer to rescind the contract.
Section 48 serves a noble purpose, as it
regulates the actions of both the insurer
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and the insured. Under the provision, an
insurer is given two years – from the
effectivity of a life insurance contract and
while the insured is alive — to discover
or prove that the policy is void ab initio
or is rescindible by reason of the
fraudulent concealment or
misrepresentation of the insured or his
agent.
After the two-year period lapses, or when
the insured dies within the period, the
insurer must make good on the policy,
even though the policy was obtained by
fraud, concealment, or misrepresentation.
This is not to say that insurance fraud
must be rewarded, but that insurers who
recklessly and indiscriminately solicit
and obtain business must be penalized,
for such recklessness and lack of
discrimination ultimately work to the
detriment of bona fide takers of insurance
and the public in general.
If insurers cannot vouch for the integrity
and honesty of their insurance
agents/salesmen and the insurance
policies they issue, then they should cease
doing business. If they could not properly
screen their agents or salesmen before
taking them in to market their products,
or if they do not thoroughly investigate
the insurance contracts they enter into
with their clients, then they have only
themselves to blame. Otherwise said,
insurers cannot be allowed to collect
premiums on insurance policies, use
these amounts collected and invest the
same through the years, generating
profits and returns therefrom for their
own benefit, and thereafter conveniently
deny insurance claims by questioning the
authority or integrity of their own agents
or the insurance policies they issued to
their premium-paying clients.
Insurers may not be allowed to delay the
payment of claims by filing frivolous
cases in court, hoping that the inevitable

may be put off for years — or even
decades — by the pendency of these
unnecessary court cases. In the meantime,
they benefit from collecting the interest
and/or returns on both the premiums
previously paid by the insured and the
insurance proceeds which should
otherwise go to their beneficiaries. The
business of insurance is a highly
regulated commercial activity in the
country, and is imbued with public
interest. “[A]n insurance contract is a
contract of adhesion which must be
construed liberally in favor of the insured
and strictly against the insurer in order to
safeguard the [former’s] interest.”
Q: What did SC say about purpose of sec
48?
A: Section 48 regulates both the actions of
the insured and insurer. For the insurer, this
section makes sure that the insurer cannot
keep on collecting premiums for more than
two years but after it has gained profits, will
just deny its liability to the prejudice of the
insured
It also protects the insurer from fraudulent
concealment and misrepresentation from the
insured, and also giving the insurer a chance
to RESCIND the contract. In that way
insurer is protected from fraud.
Q: What was the discussion of the SC
regarding the negligence of the agent?
A: It was argued by the IC that it could not
have easily conducted an investigation and
could not have easily pinpointed that the
agent was at fault in this case. The SC said
that there was negligence on the part of the
company because, the IC should be able to
assure that their agents were not fraudulent in
soliciting insurance contracts. Further, that it
was also the fault of the IC for failure to
conduct a timely investigation
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3. INSULAR LIFE ASSUR. CO. V. KHU, ET.AL.
It is settled that the reinstatement of an
insurance policy should be reckoned from
the date when the same was approved by
the insurer.
To reinstate a policy means to restore the
same to premium-paying status after it
has been permitted to lapse.
Q: What did SC say on ambiguities?
A: Since there is ambiguity it must be
resolved against the party who caused the
ambiguity and in this case it is Insular life
who caused it. Hence the court ruled in favor
of Felipe and agreed that reinstatement policy
took effect on 1999 since he died sept 2001,
and 2 years have already lapse making the
policy incontestable and as a result insular is
barred from rescinding the contract on the
ground of misrepresentation.
Q: What is the reckoning period?
A: BEFORE 2 YRS CONTESTABLE
AFTER 2 YEARS BARRED.
The phrase “during the lifetime of the
insured” was clarified by the SC in this matter
that you should look at the age of the policy
at the time of DEATH of the insured because
if the age of the policy is less than two years,
it is still contestable meaning, if valid
grounds exist such as concealment, fraud,
misrepresentation RESCISSION may still
be availed of. If however, the policy has been
in force for more than two years, it is no
longer contestable.
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 36. A representation may be oral or
written.
Representations are factual statements
made by the insured at the time of, or prior
to, the issuance of the policy, relative to
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the risk to be insured, as to an existing or The very nature of representation requires

past fact or state of facts, or concerning that it precede the execution of the
future happening, to give information to contract.
the insurer and otherwise induce him to A representation made after the policy is
enter into the insurance contract. issued could not have influenced either
A misrepresentation in insurance is a party to enter into the contract.
statement (1) as a fact of something which
is untrue, (2) which the insured stated with SEC. 38. The language of a representation
knowledge that it is untrue and with an is to be interpreted by the same rules as the
intent to deceive, or which he states language of contracts in general.
positively as true without knowing it to be
true and which has a tendency to mislead, SEC. 39. A representation as to the future
and (3) where such fact in either case is is to be deemed a promise, unless it appears
that it was merely a statement of belief or
material to the risk.
expectation.
o Such a misrepresentation by the
insured renders the insurance
Kinds of representation
contract voidable at the option of
1. Oral or written
the insurer, even though
2. Made at the time of issuing the policy or
innocently made and without
before
wrongful intent.
3. Affirmative or promissory
Form and nature of information a. Affirmative representation:
1. Information given concerning risk—It is
allegation as to the existence or
the duty of the person applying for
non-existence of a fact when the
insurance to give to the insurer all such
contract begins
information (orally or in writing)
b. Promissory representation: any
concerning the risk as will be of use to the
promise to be fulfilled after the
latter in estimating its character and in
contract has become into
determining whether or not to assume it.
existence or any statement
2. Forms basis of contract—However
concerning what is to happen
communicated, the information thus
during the existence of the
given forms the basis of the contract as
insurance.
made. It describes, marks out, and defines
the risk assumed.
Effect on policy of expressions of opinion
3. Intended as collateral inducements—
or expectation
Representations are made to influence the
A representation of the expectation,
insurer to accept the risk.
intention, belief, opinion or judgment of
the insured, although false, will not avoid
SEC. 37. A representation may be made at
a policy of insurance if there is no actual
the time of, or before, issuance of the
policy. fraud in inducing the acceptance of the
risk, or its acceptance at a lower rate of
premium.

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To avoid liability, the insurer must prove
both materiality of the insured’s opinion
and the latter’s intent to deceive.
An oral representation as to a future event
or condition, over which the insured has
no control, with reference to property or
life insured, will be deemed a mere
expression of opinion which will avoid a
contract only when made in bad faith.
o Example: Insured made an oral
promise that the building insured
will be occupied. The subsequent
failure to fulfill the promise if
made in good faith, will not avoid
the policy even though the risk be
increased by the building’s
unoccupied.
SEC. 40. A representation cannot qualify
an express provision in a contract of
insurance, but it may qualify an implied
warranty.
Reason: a representation is not part of the
contract but only a collateral inducement
to it.
SEC. 41. A representation may be altered
or withdrawn before the insurance is
effected, but not afterwards.
Reason: The insurer has already been led
by the representation in assuming the risk
contemplated in the contract.
SEC. 42. A representation must be
presumed to refer to the date on which the
contract goes into effect.
Representations refer only to the time of
making the contract.
There is no false representation, if it is
true at the time the contract takes effect
although false at the time it was made and
vice versa, there is false representation if
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it is true at the time it was made but false
at the time the contract takes effect.
SEC. 43. When a person insured has no
personal knowledge of a fact, he may
nevertheless repeat information which he
has upon the subject, and which he believes
to be true, with the explanation that he does
so on the information of others; or he may
submit the information, in its whole extent,
to the insurer; and in neither case is he
responsible for its truth, unless it proceeds
from an agent of the insured, whose duty it
is to give the information.
The insured is given discretion to
communicate to the insurer what he
knows of a matter of which he has no
personal knowledge. If the representation
turns out to be false, he is not responsible
therefor, provided he gives explanation
that he does so on the information of
others.
If the information proceeds from the
agent of the insured, whose duty it is in
the ordinary course of business to
communicate such information to his
principal, and it was possible for the
agent under such circumstances in the
exercise of due diligence to have made
such communication before the making
of the contract, the insured will be liable
for the truth.
SEC. 44. A representation is to be deemed
false when the facts fail to correspond with
its assertions or stipulations.
Sec. 44 defines misrepresentation.
Representations are not required to be
literally true; they need only be
substantially true.
In order that a policy shall be avoided, a
representation relied upon must be false

in a substantial and material respect. A
representation is substantially true when
it is true in every particular material to the
risk, or is so far true that the conduct of the
insurer would not have been different if
the exact truth had been alleged. Where a
representation partly fails but is true or is
complied with so far as is essential to the
risk insured against, the policy remains in
force.
o XPN: Marin insurance wherein
the insured is required to state the
exact whole truth in relation to
matters that he represents.
SEC. 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.
Fraud or intent to misrepresent facts is not
essential to entitle the injured party to
rescind a contract of insurance on the
ground of false representation.
To be deemed false, it is sufficient if the
representation fails to correspond with the
facts in a material point. Representations
of fact are the foundation of the contract;
and if the foundation does not exist, the
superstructure does not arise. In other
words, the minds of the parties never meet.
Effect of collusion or fraud of agent of
insurer
1. Collusion between the agent and the
insured in misrepresenting the facts will
vitiate the policy even though the agent is
acting within the apparent scope.
2. The insurer is liable when its agent writes
a false answer into the application
without the knowledge of the insured.
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SEC. 46. The materiality of a
representation is determined by the same
rules as the materiality of a concealment.
Test of materiality
The materiality of the representation 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
representation is made, in forming his
estimates of the disadvantages of the
proposed contract or in making his
inquiries.
Materiality is a judicial question. It is
determined by the courts and not by the
insurer.
Concealment v. Misrepresentation
Concealment Misrepresentation
Insured withholds Insured makes
information of erroneous
material facts from statements of facts
the insurer with the intent of
inducing the insurer
to enter into the
insurance contract
Same determination of materiality
Same effect if made by the insured: gives
the insurer a right to rescind the contract
Whether intentional or not, the injured
party is entitled to rescind the contract of
insurance
Since the contract of insurance is said to
be of one of utmost good faith on the part
of both parties, the rules on concealment
and representation apply likewise to the
insurer.

SEC. 47. The provisions of this chapter
apply as well to a modification of a
contract of insurance as to its original
formation.
SEC. 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.
When an insurer must exercise his right to
rescind
1. Non-life policy: Under the first
paragraph of Sec. 48, in order the insurer
may rescind a contract of insurance, such
right must be exercised prior to the
commencement of an action on the
contract.
Insurer’s tender of the premiums and
notice that the policy is cancelled before
the commencement of the suit, operates
to rescind a contract of insurance.
2. Life policy: Under second paragraph of
Section 48, the defenses mentioned
thereon are available only during the first
two years of a life insurance policy.
Incontestability of life policies
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Insurer shall be estopped from contesting
the policy or setting up any defense,
except as is allowed, on the ground of
public policy.
Theory and object of the incontestable
clause
1. As to the insurer: Insurer should have a
reasonable opportunity to investigate the
statements which the applicant makes in
procuring his policy and that after a
definite period, the insurer should not be
permitted to question the validity of the
policy.
2. As to the insured: The clause has its
object to give the greatest possible
assurance to a policy holder that his
beneficiaries would receive payment
without question as to the validity of the
policy or the existence of the coverage
once the period of contestability passes.
Requisites for incontestability
1. The policy is a life insurance policy;
2. It is payable on the death of the insured;
and
3. It has been inforce during the lifetime of
the insured for at least 2 years from its
date of issue of its last reinstatement.
Note: The period of 2 years for contesting a
life insurance may be shortened but it cannot
be extended by stipulation.
Note: “During lifetime” simple means that
the policy is no longer considered in force
after the insured has died.
Effect when policy becomes incontestable
The insurer may not refuse to pay the same
by claiming that:

1. The policy is void ab initio (should be
understood in the sense of “voidable”);
or
2. It is rescissible by reason of the
fraudulent concealment of the insured
or his agent, no matter how patent or
well-founded; or
3. It is rescissible by reason of the
fraudulent misrepresentation of the
insured or his agent. Note: refers to
fraud in the inducement.
Defenses not barred by incontestable
clause:
1. That the person taking the insurance
lacked insurable interest as required by
law;
2. That the cause of the death of the insured
is an excepted risk;
3. That the premiums have not been paid;
4. That the conditions of the policy relating
to military or naval service have been
violated;
5. That the fraud is of a particularly vicious
type;
6. That the beneficiary failed to furnish
proof of death or to comply with any
condition imposed by the policy after the
loss has happened; or
7. That the action was not brought within
the time specified.
THE POLICY
CLASS DISCUSSION
OPEN/UNVALUED POLICY
One in which the value of the thing insured is
not agreed upon, but is left to be ascertained
in case of loss (§60)
This is a policy in which a certain agreed sum
is written on the face of the policy not as the
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value of the property insured, but as the
maximum limit of the insurer’s liability.
The insurer pays only the actual cash value of
the property as determined at the time of loss,
e.g. Where a house insured for P1M is totally
destroyed by fire, insurer may introduce
evidence to show that the property was not
really worth P1M but some rather less sum.
Thus, if it can prove that the house was worth
only P800T and this is all the insured can get
although the face value of the policy is P1M.
If the loss is worth more than the face value,
insured is liable for only P1M.
Sec 62. Running Policy
Running policy is also an open policy. It
pertains to successive insurances. Successive
in a way that where the wordings also in that
same section is a kind of policy where in the
object or the subject matter is defined or
redefined. It is availed of when the nature of
the subject matter of the insurance usually
involves or experiences change in location,
quantity, etc.
VALUED POLICY
One which expresses on its face an agreement
that the thing insured shall be valued at a
specified sum (§61) What is defined in this
section is the value of the thing insured, not
the face value of the policy.
The liability of the insurer under a life policy
is measured by the face value of the policy.
However, the insurer may still come up with
the investigation to the actual loss suffered.
Thus, valued policies are sometimes
construed as the maximum amount of
liability (whichever is lower), e.g. A policy
insuring a ship “valued at P10M” is a valued
policy. In case of loss, the valuation always

furnishes the basis of settlement even though
it might be proved that the actual value of the
ship lost is more or less.
If the same ship is insured for only P5M, the
policy is still valued as there is an agreed
valuation (P10M), but the maximum amount
is only P5M. The insured value is P10M.
This is different from the sum or amount
insured which is P5M.
RUNNING POLICY
One which contemplates successive
insurances, and which provides that the
object of the policy may be from time to time
defined, especially as to the subjects of
insurance, by additional statements or
indorsements (§62) Running policies are, in
reality, open policies.
It is intended to provide indemnity for
property which cannot well be covered by a
valued policy because of its frequent change
in location and quantity, or for property of
such a nature as not to admit of a gross
valuation.
It contemplates that the risk is shifting,
fluctuating or varying, and which covers a
class of property rather than any particular
thing
Q: May a period to file claims be limited?
A: As a general rule, a clause in an insurance
policy to the effect that an action upon the
policy by the insured must be brought within
a certain period is valid and will prevail over
the general law on limitations of actions as
prescribed by the Civil Code (10 years, Art.
1144). But if the period fixed is less than 1
year from the time the cause of action
accrues, the stipulation, condition, or
agreement would be void (Sec. 63).
DOCTRINES
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A. MERE APPLICATION; WHETHER OR
NOT THERE IS A PERFECTED
CONTRACT
1. PEOPLE V. YIP WAI MING
It needs not much emphasis to say that an
application form does not prove that
insurance was secured. Anybody can get
an application form for insurance, fill it
up at home before filing it with the
insurance company. In fact, the very first
sentence of the form states that it merely
“forms the basis of a contract between
you and NZI Life.” There was no contract
yet.
B. WHO HAS BURDEN TO SHOW LOSS
WAS DUE TO A RISK NOT INSURED
AGAINST
1. HEIRS OF ILDEFONSO COSCOLLUELLA V.
RICO GEN. INS.
When terms of insurance contract contain
limitations on liability, courts should
construe them in such a way as to
preclude insurer from non-compliance
with his obligation. A policy of insurance
with a narration of exceptions tending to
work a forfeiture of the policy shall be
interpreted liberally in favor of the
insured and strictly against the insurance
company or the party for whose benefit
they are inserted.
Where the insurer denies liability for a
loss alleged to be due to a risk not insured
against, but fails to establish the truth of
such fact by concrete proofs, the Court
rules that the insurer is liable under the
terms and conditions of the policy by
which it has bound itself.

C. VALIDITY OF COVER NOTES
1. PACIFIC TIMBER EXPORT V. CA AND
WORKMEN’S INS.
A “Cover Note” issued in advance of the
issuance of a marine policy is binding as
an insurance contract although no
separate premium was paid therefor.—
The fact that no separate premium was
paid on the Cover Note before the loss
insured against occurred, does not
militate against the validity of petitioner’s
contention, for no such premium could
have been paid, since by the nature of the
Cover Note, it did not contain, as all
Cover Notes do not contain particulars of
the shipment that would serve as basis for
the computation of the premiums. As a
logical consequence, no separate
premiums are intended or required to be
paid on a Cover Note. This is a fact
admitted by an official of respondent
company, Juan Jose Camacho, in charge
of issuing cover notes of the respondent
company.
If the Note is to be treated as a separate
policy instead of integrating it to the
regular policies subsequently issued, the
purpose and function of the Cover Note
would be set at naught or rendered
meaningless, for it is in a real sense a
contract, not a mere application for
insurance which is a mere offer.
The non-payment of premium on the
Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there
had been payment of premium, for non-
payment by it was not chargeable against
its fault. Had all the logs been lost during
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the loading operations, but after the
issuance of the Cover Note, liability on
the note would have already arisen even
before payment of premium. This is how
the cover note as a “binder” should
legally operate; otherwise, it would serve
no practical purpose in the realm of
commerce, and is supported by the
doctrine that where a policy is delivered
without requiring payment of the
premium, the presumption is that a credit
was intended and policy is valid.
The defense of delay as raised by private
respondent in resisting the claim cannot
be sustained. The law requires this
ground of delay to be promptly and
specifically asserted when a claim on the
insurance agreement is made. The
undisputed facts show that instead of
invoking the ground of delay in objecting
to petitioner’s claim of recovery on the
cover note, it took steps clearly indicative
that this particular ground for objection to
the claim was never in its mind. The
nature of this specific ground for resisting
a claim places the insurer on duty to
inquire when the loss took place, so that
it could determine whether delay would
be a valid ground upon which to object to
a claim against it.
Q: What are Cover Notes?
A: They are merely a written memorandum
of the most important terms of a preliminary
contract of insurance, intended to give
temporary protection:
a) pending the investigation of risk by the
insurer; or
b) until the issue of a formal policy.

Qualification: provided it is later determined
that the applicant was insurable at the time it
was given.
Q: What is the purpose of the issuance of
Cover Notes?
A: To afford immediate provisional
protection to the insured.
Q: May a Cover Note be extended or
renewed?
A: Yes, but it must be approved by the
Insurance Commission
D. WHETHER OR NOT BINDING
SLIP/RECEIPT AUTOMATICALLY BINDS THE
INSURER
1. GREAT PACIFIC LIFE ASSUR. CO. V. CA
Clearly implied from the aforesaid
conditions is that the binding deposit
receipt in question is merely an
acknowledgment, on behalf of the
company, that the latter’s branch office
had received from the applicant the
insurance premium and had accepted the
application subject for processing by the
insurance company; and that the latter
will either approve or reject the same on
the basis of whether or not the applicant
is “insurable on standard rates.” Since
petitioner Pacific Life disapproved the
insurance application of respondent Ngo
Hing, the binding deposit receipt in
question had never become in force at any
time. Upon this premise, the binding
deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure
outright. As held by this Court, where an
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agreement is made between the applicant
and the agent, no liability shall attach
until the principal approves the risk and a
receipt is given by the agent. The
acceptance is merely conditional, and is
subordinated to the act of the company in
approving or rejecting the application.
Thus, in life insurance, a “binding slip” or
“binding receipt” does not insure by
itself.
No insurance contract between private
person and insurance company for non-
acceptance of alternative insurance plan
of the company and non-compliance of
conditions in binding deposit receipt;
Refund of deposit proper. Accordingly,
the deposit paid by private respondent
shall have to be refunded by Pacific Life.
Contract of insurance must be completed
contract to be binding. The contract, to be
binding from the date of the application,
must have been a completed contract, one
that leaves nothing to be done, nothing to
be completed, nothing to be passed upon,
or determined, before it shall take effect.
There can be no contract of insurance
unless the minds of the parties have met
in agreement.
Relative to the second issue of alleged
concealment, this Court is of the firm
belief that private respondent had
deliberately concealed the state of health
and physical condition of his daughter
Helen Go. When private respondent
supplied the required essential data for
the insurance application form, he was
fully aware that his one-year old daughter
is typically a mongoloid child. Such a
congenital physical defect could never be
ensconced nor disguised. Nonetheless,

private respondent, in apparent bad faith,
withheld the fact material to the risk to be
assumed by the insurance company. As
an insurance agent of Pacific Life, he
ought to know, as he surely must have
known, his duty and responsibility to
supply such a material fact. Had he
divulged said significant fact in the
insurance application form. Pacific Life
would have verified the same and would
have had no choice but to disapprove the
application outright.
Concealment is a neglect to communicate
that which a party known and ought to
communicate (Section 25, Act No. 2427).
Whether intentional or unintentional, the
concealment entitles the insurer to
rescind the contract of insurance. Private
respondent appears guilty thereof.
E. PROCEEDS TO BE APPLIED
EXCLUSIVELY TO THE PERSON FOR
WHOSE BENEFIT THE POLICY WAS MADE
1. RCBC V. CA AND GOYU AND SONS
It is settled that a mortgagor and a
mortgagee have separate and distinct
insurable interests in the same mortgaged
property, such that each one of them may
insure the same property for his own sole
benefit. There is no question that GOYU
could insure the mortgaged property for
its own exclusive benefit. In the present
case, although it appears that GOYU
obtained the subject insurance policies
naming itself as the sole payee, the
intentions of the parties as shown by their
contemporaneous acts, must be given due
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consideration in order to better serve the
interest of justice and equity.
It is basic and fundamental that the first
mortgagee has superior rights over junior
mortgagees or attaching creditors.
Section 53 of the Insurance Code ordains
that the insurance proceeds of the
endorsed policies shall be applied
exclusively to the proper interest of the
person for whose benefit it was made.—
The proceeds of the 8 insurance policies
endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively
payable to RCBC by reason of the
endorsement by Alchester to RCBC,
which we already ruled to have the force
and effect of an endorsement by GOYU
itself, these 8 policies can not be attached
by GOYU’s other creditors up to the
extent of the GOYU’s outstanding
obligation in RCBC’s favor. Section 53
of the Insurance Code ordains that the
insurance proceeds of the endorsed
policies shall be applied exclusively to
the proper interest of the person for
whose benefit it was made. In this case,
to the extent of GOYU’s obligation with
RCBC, the interest of GOYU in the
subject policies had been transferred to
RCBC effective as of the time of the
endorsement.
For an insurance company to be held
liable for unreasonably delaying and
withholding payment of insurance
proceeds, the delay must be wanton,
oppressive, or malevolent. It is generally
agreed, however, that an insurer may in
good faith and honesty entertain a
difference of opinion as to its liability.
Accordingly, the statutory penalty for

vexatious refusal of an insurer to pay a
claim should not be inflicted unless the
evidence and circumstances show that
such refusal was willful and without
reasonable cause as the facts appear to a
reasonable and prudent man. The case at
bar does not show that MICO wantonly
and in bad faith delayed the release of the
proceeds.
2. HEIRS OF LORETO MARAMAG, ET.AL. V.
EVA VERNA DE GUZMAN MARAMAG, ET.AL
& INSULAR LIFE AND GREAT PACIFIC LIFE
It is evident from the face of the
complaint that petitioners are not entitled
to a favorable judgment in light of Article
2011 of the Civil Code which expressly
provides that insurance contracts shall be
governed by special laws, i.e., the
Insurance Code. Section 53 of the
Insurance Code states—SECTION 53.
The insurance proceeds shall be applied
exclusively to the proper interest of the
person in whose name or for whose
benefit it is made unless otherwise
specified in the policy. Pursuant thereto,
it is obvious that the only persons entitled
to claim the insurance proceeds are either
the insured, if still alive; or the
beneficiary, if the insured is already
deceased, upon the maturation of the
policy. The exception to this rule is a
situation where the insurance contract
was intended to benefit third persons who
are not parties to the same in the form of
favorable stipulations or indemnity. In
such a case, third parties may directly sue
and claim from the insurer.
The revocation of Eva as a beneficiary in
one policy and her disqualification as
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such in another are of no moment
considering that the designation of the
illegitimate children as beneficiaries in
Loreto’s insurance policies remains valid.
Because no legal proscription exists in
naming as beneficiaries the children of
illicit relationships by the insured, the
shares of Eva in the insurance proceeds,
whether forfeited by the court in view of
the prohibition on donations under
Article 739 of the Civil Code or by the
insurers themselves for reasons based on
the insurance contracts, must be awarded
to the said illegitimate children, the
designated beneficiaries, to the exclusion
of petitioners. It is only in cases where the
insured has not designated any
beneficiary, or when the designated
beneficiary is disqualified by law to
receive the proceeds, that the insurance
policy proceeds shall redound to the
benefit of the estate of the insured.
F. OPEN/CONTINUING OPEN INS.
COVERAGE
1. DEVELOPMENT INS. CORP. V. IAC &
PHIL. UNION REALTY
The petitioner’s claim that the insurance
covered only the building and not the
elevators is absurd, to say the least. The
circumstance that the building insured is
seven stories high and so had to be
provided with elevators—a legal
requirement known to the petitioner as an
insurance company—makes its
contention all the more ridiculous.
Under an “open policy” of insurance
value of the damaged portion of a
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building shall be paid in full by insurer, in as determined, will represent the total
the absence of evidence of greater value indemnity due the insured from the
of entire building over the amount of insurer except only that the total
insurance bought and where the damage indemnity shall not exceed the face value
was worth less than the latter.—The of the policy.
petitioner argues that since at the time of
the fire the building insured was worth 2. ABOITIZ SHIPPING CORP. V. PHIL.
P5,800,000.00, the private respondent AMERICAN GEN. INS.
should be considered its own insurer for
the difference between that amount and
The records of this case show that private
the face value of the policy and should
respondent executed a continuous and
share pro rata in the loss sustained.
open insurance coverage covering goods
Accordingly, the private respondent is
of Marinduque imported into and
entitled to an indemnity of only
exported from the Philippines which took
P67,629.31, the rest of the loss to be
effect after September 1, 1975, as
shouldered by it alone. In support of this
contained in Marine Open Policy No.
contention, the petitioner cites Condition
100184. A similar insurance coverage
17 of the policy, which provides: x x x
was also executed by petitioner in favor
However, there is no evidence on record
of Marinduque for all its goods shipped
that the building was worth
or moved within the territorial limits of
P5,800,000.00 at the time of the loss;
the Philippines also effective after
only the petitioner says so and it does not
September 1, 1975 and contained in
back up its self-serving estimate with any
Marine Open Policy No. 100185.
independent corroboration. On the
The questioned shipment is covered by
contrary, the building was insured at
this continuing open insurance coverage
P2,500,000.00, and this must be
from the time it was loaded aboard the SS
considered, by agreement of the insurer
Arthur Maersk in Boston, U.S.A. to the
and the insured, the actual value of the
time it was delivered to the possession of
property insured on the day the fire
petitioner at its offices at Pier 4 in Manila
occurred. This valuation becomes even
until it was pilfered when the great
more believable if it is remembered that
majority of the cargo was lost in July 3,
at the time the building was burned it was
1980.
still under construction and not yet
The contention of the petitioner that it
completed.
could not be liable for the pilferage of the
As defined in the aforestated provision,
cargo as it was stolen even before it was
which is now Section 60 of the Insurance
loaded on its vessel is untenable.
Code, “an open policy is one in which the
Petitioner received the cargo when it
value of the thing insured is not agreed
arrived in Manila at its offices at Pier 4,
upon but is left to be ascertained in case
North Harbor and it was while in its
of loss.” This means that the actual loss,
possession and before loading it in its

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vessel that the cargo was pilfered. Its
liability is clear.
G. ONE-YEAR PRESCRIPTIVE PERIOD;
WHEN CAUSE OF ACTION DEEMED TO
ACCRUE
1. EAGLE STAR INS., KURR STEAMSHIP,
ET.AL. V. CHIA YU
The U. S. Carriage of Goods by Sea Act
of 1936 was adopted and made applicable
to the Philippines by Commonwealth Act
65. Where there is a stipulation in a bill of
lading covering shipment from the United
States to the Philippines that "the carrier
and the ship shall be discharged from all
liability in respect of loss or damage
unless suit is brought within one year
after the delivery of the goods or the date
when the goods should have been
delivered", the shipper's failure to bring
an action for damages within the said
period of one year discharges the carrier
from all liability.
Contractual limitations contained in
insurance policies are regarded with
extreme jealousy by courts and will be
strictly construed against the insurer and
should not be permitted to prevent a
recovery when their just and honest
application would not produce that result.
That a clause in an insurance policy
providing that an action upon the policy
by the insured must be brought within a
certain time is, if reasonable, valid and
will prevail over statutory limitations of
the action. That decision, however, was
rendered before the passage of Act 4101,
which inserted in the Insurance Act
section 61-A providing that "Any
condition, stipulation or agreement in any
policy of insurance, limiting the time for
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commencing an action thereunder to a
period of less than one year from the time
when the cause of action accrues, is
void."
Where the policy provides that the
insured should file his claim, first, with
the carrier and then with the insurer, the
shipper has a right to wait for his claim to
be finally decided before going to court.
The law does not encourage unnecessary
litigation.
2. ACCFA V. ALPHA INS. & RICARDO
LADINES, ET.AL
A fidelity bond is, in effect, in the
nature of a contract of insurance
against loss from misconduct and is
governed by the same principle of
interpretation. Consequently, the
condition of the bond limiting the
period for bringing action thereon, is
subject to the provisions of Section 61-
A of the Insurance Act (No. 2427) as
amended by Act 4101. The year for
instituting action in court must be
reckoned, therefore, from the time of
appellee's refusal to comply with its
bond.
In so far, therefore, as condition eight of
the bond requires action to be filed within
one year from the filing of the claim for
loss, such stipulation contradicts the
public policy expressed in Section 61-A
of the Philippine Insurance Act.
Condition eight of the bond, theref ore, is
null and void, and the appellant is not
bound to comply with its provisions.
Action must be brought within the
statutory period of limitation for written
contracts (N.C.C., Article 1144).
3. SUN LIFE INS. V. CA AND EMILIO TAN

A stipulation in an insurance policy that
claims must be brought within one year
after rejection is not only a procedural
requirement but an important matter
essential to a prompt settlement of
insurance claims. In enunciating the
above-cited principle, this Court had
definitely settled the rationale for the
necessity of bringing suits against the
Insurer within one year from the rejection
of the claim. The contention of the
respondents that the one-year prescriptive
period does not start to run until the
petition for reconsideration had been
resolved by the insurer, runs counter to
the declared purpose for requiring that an
action or suit be filed in the Insurance
Commission or in a court of competent
jurisdiction from the denial of the claim.
To uphold respondents’ contention would
contradict and defeat the very principle
which this Court had laid down.
Moreover, it can easily be used by
insured persons as a scheme or device to
waste time until any evidence which may
be considered against them is destroyed.
The cause of action in an insurance
contract does not accrue until the
insured’s claim is finally rejected by the
insurer. This is because before such final
rejection there is no real necessity for
bringing suit” “Since ‘cause of action’
requires as essential elements not only a
legal right of the plaintiff and a correlated
obligation of the defendant in violation of
the said legal right, the cause of action
does not accrue until the party obligated
(surety) refuses, expressly or impliedly,
to comply with its duty (in this case to pay
the amount of the bond).” Indisputably,
the above-cited pronouncements of this
Court may be taken to mean that the
insured’s cause of action or his right to
file a claim either in the Insurance
Commission or in a court of competent
jurisdiction commences from the time of
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the denial of his claim by the Insurer,
either expressly or impliedly.
The rejection referred to should be
construed as the rejection, in the first
instance, for if what is being referred to is
a reiterated rejection conveyed in a
resolution of a petition for
reconsideration, such should have been
expressly stipulated.
4. H.H. HOLLERO CONSTRUCTION, INC. V.
GSIS & POOL OF MACHINERY INSURERS
Contracts of insurance, like other
contracts, are to be construed according
to the sense and meaning of the terms
which the parties themselves have used.
If such terms are clear and unambiguous,
they must be taken and understood in
their plain, ordinary, and popular sense.
If a claim is made and rejected and no
action or suit is commenced within
twelve months after such rejection or, in
case of arbitration taking place as
provided herein, within twelve months
after the Arbitrator or Arbitrators or
Umpire have made their award, all
benefit under this Policy shall be
forfeited. Case law illumines that the
prescriptive period for the insured’s
action for indemnity should be reckoned
from the “final rejection” of the claim
Final rejection” simply means denial by
the insurer of the claims of the insured
and not the rejection or denial by the
insurer of the insured’s motion or request
for reconsideration.
5. SUMMIT GUARANTY AND INSURANCE CO.
V. HON JOSE DE GUZMAN, ET.AL
Two periods in Sec, 384 of the Insurance
Code, namely, the 6-months period for
filing a notice of claim, and the one-year

period for bringing an action or suit, do
not always concur; One-year period, only
required “in proper cases,”; Phrase “in
proper cases.” Interpreted. There is
absolutely nothing in the law which
mandates that the two periods must
always concur. On the contrary, it is very
clear that the one-year period is only
required “in proper cases.” It appears that
petitioner company disregarded this very
significant phrase when it made its own
interpretation of the law. Had the
lawmakers intended it to be the way
petitioner company assumes it to be, then
the phrase “in proper cases” would not
have been inserted.
Observation by Supreme Court that some
insurance companies have been inventing
excuses to avoid their just obligations,
and it is only the State that can protect
them from such abuses.
The one-year period should instead be
counted from the date of rejection by the
insurer as this is the time when the cause
of action accrues.
6.COUNTRY BANKERS INS. CORP. VS
TRAVELER’S INSU. AND SURETY CO.
To prevent the insurance company from
evading its responsibility to the insured
through this clever scheme, and to protect
the insuring public against similar acts by
other insurance companies, the Court
held that the one-year period under
Section 384 should be counted not from
the date of the accident but from the date
of the rejection of the claim by the
insurer. The Court further held that it is
only from the rejection of the claim by the
insurer that the insured’s cause of action
accrued since a cause of action does not
accrue until the party obligated refuse,
expressly or impliedly, to comply with its
duty.
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The requirement that any claim or action
for recovery of damage under an
insurance policy must be brought within
one year from the date of the accident was
intended to ensure that suits be brought
by the insured while evidence as to the
origin and cause of destruction have not
yet disappeared. This is to enable the
insurance companies to make proper
assessment of whether or not the insured
can recover and, if so, to determine the
amount recoverable.
However, where, as in this case, the delay
in bringing the suit against the insurance
company was not caused by the insured
or its subrogee but by the insurance
company itself, it is unfair to penalize the
insured or its subrogee by dismissing its
action against the insurance company on
the ground of prescription. The latter
should bear the consequences of its
failure to act promptly on the insured’s
claim. Under the law, insurance
companies are duty bound to adopt and
implement reasonable standards for the
prompt, fair and equitable settlement of
claims.
It might not be amiss to state that Section
384 was amended in 1985 by Batas
Pambansa Blg. 874. The amendment was
inserted by the then Batasang Pambansa
after realizing that Section 384 of the
Insurance Code has created so many
problems for the insuring public]. Thus,
as amended, the law now provides that:
Any person having any claim upon the
policy issued pursuant to this chapter
shall, without any unnecessary delay,
present to the insurance company
concerned a written notice of claim
setting forth the nature, extent and
duration of the injuries sustained as
certified by a duly licensed physician.
Notice of claim must be filed within six
months from date of the accident
otherwise, the claim shall be deemed

waived. Action or suit for recovery of
damage due to loss or injury must be
brought in proper cases, with the
Commissioner or the Courts within one
year from denial of the claim, otherwise
the claimant’s right of action shall
prescribe.
H. WHETHER THE PAYMENTS MADE
FOR THE PRINCIPAL INDEBTEDNESS
MAY BE APPLIED FOR THE PAYMENT
OF PREMIUM
1.SERVICEWIDE SPECIALISTS, INC. V. CA &
SPS. TRINIDAD
Where the Chattel Mortgage does not
authorize the mortgagee to apply
previous payments for the car to the
insurance, the mortgagee has to send
notice to the mortgagor if it decides to
convert any of the installments made by
the latter for the renewal of the
insurance.—Furthermore, even if the car
were not covered with the proper
insurance, there is nothing in the
provisions of the Chattel Mortgage that
authorizes petitioner to apply previous
payments for the car to the insurance.
What is stated is: “x x x that any money
so disbursed by the mortgagee shall be
added to the principal indebtedness
hereby secured x x x” (italics supplied).
Clear is it that petitioner is not obligated
to convert any of the installments made
by private respondents for the car to the
payment for the renewal of the insurance.
Should it decide to do so, it has to send
notice to private respondents who had
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already paid in full the principal
indebtedness in question.
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 49. The written instrument in which
a contract of insurance is set forth, is called
a policy of insurance.
Sec. 49 defines the policy of insurance
SEC. 50. The policy shall be in printed
form which may contain blank spaces; and
any word, phrase, clause, mark, sign,
symbol, signature, number, or word
necessary to complete the contract of
insurance shall be written on the blank
spaces provided therein.
Any rider, clause, warranty or endorsement
purporting to be part of the contract of
insurance and which is pasted or attached
to said policy is not binding on the insured,
unless the descriptive title or name of the
rider, clause, warranty or endorsement is
also mentioned and written on the blank
spaces provided in the policy.
Unless applied for by the insured or owner,
any rider, clause, warranty or endorsement
issued after the original policy shall be
countersigned by the insured or owner,
which countersignature shall be taken as
his agreement to the contents of such rider,
clause, warranty or endorsement.
Notwithstanding the foregoing, the policy
may be in electronic form subject to the
pertinent provisions of Republic Act No.
8792, otherwise known as the ‘Electronic
Commerce Act’ and to such rules and
regulations as may be prescribed by the
Commissioner.

Signature of the parties
GR: The policy is signed only by the insurer
or his duly authorized agent.
XPN: Where express warranties are
contained in a separate instrument forming
part of the policy in which case the law
requires that the instrument must be signed
by the insured,
Policy controls terms of insurance contract
1. It is the measure of the insurer’s liability.
In order to recover, the insured must
show himself within the terms.
2. To create an enforceable agreement, all
the requisites necessary in order that there
will be a valid contract of insurance must
be present.
3. The compliance by the insured with the
terms of policy is a condition precedent to
the right of recovery.
Policy, a contract of adhesion
The terms are drafted and imposed by the
insurer.
Except for riders which may later be
inserted, the insured sees the contract in
its final form and has had no voice in the
selection of the words employed therein.
Although the insured can choose from a
variety of available coverages, he cannot
negotiate the substance of the contract
with the insurer.
Ambiguity is resolved against the insurer.
Contractual limitations of liability found
in insurance contracts should be
construed as to preclude the insurer from
evading compliance with its just
obligation.
The “fine print” or “contracts of
adhesion” rules do not apply where, for
example, the petitioner is an acute
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businessman of experience who is
presumed to have assented to the assailed
provisions of the policy with full
knowledge and, therefore cannot claim he
did not know its terms.
Form of contract of insurance
The policy must be in printed form.
In case of conflict between the written
and printed portion of a policy, the
written portion prevails.
Perfection of insurance contract
If an application for insurance has not
been either accepted or rejected by the
insurer, no contract yet as it is merely an
offer or proposal.
The usual conditions found in the
application for insurance or in the policy
are that the contract shall not become
binding until the policy is delivered and
the first premium paid. Until the
conditions are fulfilled, the policy is of no
binding effect.
There is no valid and binding insurance
contract where no premium is paid
unless credit is given or there is waiver
or some agreement obviating the
necessity for prepayment of the
premium.
Cover notes: they may be issued to bind
the insurance temporarily pending the
issuance of the policy.
Offer and acceptance in insurance
contract
The applicant usually makes the offer to the
insurer.
1. In property and liability insurance—it is
the insured who technically makes an
offer to the insurer, who accepts the offer,

rejects it, or makes a counter-offer. The
offer is usually accepted by an insurance
agent on behalf of the insurer.
2. In life and health insurance—the
situation depends upon whether the
insured pays premium at the time he
applies for insurance.
a. If he does not pay the premium,
his application is considered an
invitation to the insurer to make an
offer, which he must then accept
before the contract goes into
effect.
b. If he pays the premium with his
application, his application will be
considered an offer.
Life and health insurance agents,
however, do not have the authority to
bind immediately the insurers they
represent. Instead, they customarily
issue a binding receipt that makes the
coverage effective on (1) the date of
the application, or (2) the date of the
medical examination, if the insurer
determines later that the applicant was
insurable on that date. The binding
receipt is, therefore, a conditional
acceptance by the insurer.
Importance of delivery of policy
Delivery is the act of putting the insurance
policy—the physical document—into the
possession of the insured.
Process of forming a contract—
o As evidence of the making of a
contract and of its terms; and
o As communication of the
insurer’s acceptance of the
insured’s offer.
Determination of policy period—delivery
may affect the term of the coverage.
Example: where a policy provides that
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the coverage terminates 1 year after
delivery, it, therefore, becomes the
important fact for determining when the
policy period ends.
Absence of delivery – the delivery of a
policy is not a prerequisite to a valid
contract of insurance. The contract may
be completed prior to delivery of the
policy or even without the delivery of the
policy depending on the intention of the
parties.
Modes of delivery
Actual/ constructive delivery—actual
manual transfer of the policy is not a
prerequisite to its validity unless the
parties have so agreed in clear language.
Constructive delivery may be sufficient.
o Delivery may be made to the
insured in person or to his duly
constituted agent or some person
for the benefit of the insured.
Delivery, primarily a matter of
intention—possession by the insured
raises the presumption that the policy was
delivered to the insured, while possession
by the insurer is prima facie evidence the
no delivery was made. If the application
contains a provision that the insurance
shall not be effective until delivery of the
policy, delivery is essential to the
consummation of the contract.
Effect of delivery of policy
1. When delivery conditional—non-
performance of the condition
precedents prevents the contract from
taking effect.
2. Where delivery unconditional—
ordinarily consummates the contract,
and the policy as delivered becomes the
final contract between the parties.
3. Where premium still unpaid after

conditional delivery—there must be a
clear and express acceptance by the
insured of the insurer’s offer to extend
credit. The insurer cannot be presumed
to have extended credit from the mere
fact of unconditional delivery of the
insurance policy without prepayment
of premium.
Rider in a contract of insurance
A rider is a printed or typed stipulation
contained on a slip of paper attached to the
policy and forming an integral part of the
policy.
1. Additional binding stipulations
between the parties
o Riders are usually attached to the
policy because they constitute
additional stipulations between the
parties
o As if actually embodied in the
policy.
2. Necessity of riders, etc.—in the
conduct of insurance business, it is
necessary to add new provision to a
policy, or to modify or waive an existing
provision or to make any desired
change in the policy.
3. Rule in case of conflict between a rider,
etc. and printed stipulations of a
policy—the rider prevails, as being a
more deliberate expression of the
agreement of the contracting parties.
o Also applies to the interpretation
of clauses, warranties, or
indorsements which are attached to
polices to vary their terms
Note: The rider becomes a part of the
policy and supersedes any part of the
policy in conflict with its provisions.
Attached papers on insurance policy
Section 50(2) states the requirements
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that must be observed in order that a
rider, etc., may be binding on the
insured.
o Restriction provided by Section
226: No rider, etc., shall be
attached to, printed or stamped
upon a policy of insurance
unless the form of such rider,
etc., has been approved by the
Insurance Commissioner
Any rider, etc., pasted or attached to
said policy is not binding in the
insured, unless the descriptive title or
name of the rider, etc. is also
mentioned and written on the blank
spaces provided in the policy. The lack
of description will not affect the other
provisions of the policy except where
without such rider, etc., the contract
would be incomplete.
o Warranties are inserted or
attached to a policy to eliminate
specific potential increases of
hazard during the policy term
owing to—
Actions of the insured, or
Condition of the property
o A clause is an agreement
between the insurer and the
insured on certain matter
relating to the liability of the
insurer in case of loss.
o An endorsement is any
provision added to an insurance
contract altering its scope or
application.
Effect of lack of signature—as a rule, it
will not prevent its inclusion and
construction as a part of the insurance
contract.
o The same rule applies where
the rider, although issued after
the original policy, was applied
for by the insured or owner.

o But the countersignature of the
insured or owner is required to
any rider, etc. not applied for by
him if issued after the delivery
of the policy, which
countersignature shall be taken
as his agreement to the contents
of the matter so attached.
Insurer’s duty to explain the policy
Where the terms of the policy are clear:
no affirmative duty to explain the
policy or its exclusions to the insured.
If the insurer had provided an
explanation of the coverage, the
insured’s expectation of different
coverage would have been rendered
unreasonable.
SEC. 51. A policy of insurance must
specify:
(a) The parties between whom the contract
is made;
(b) The amount to be insured except in the
PAPIR P cases of open or running policies;
(c) The premium, or if the insurance is of a
character where the exact premium is only
determinable upon the termination of the
contract, a statement of the basis and rates
upon which the final premium is to be
determined;
(d) The property or life insured;
(e) The interest of the insured in property
insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance
is to continue.
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Contents of the policy
1. Name of the parties
Mere fact that the name of the insured
was incorrectly spelled is of no
importance whatever, provided that
the identity of the party can be
sufficiently established.
It is also not essential that the name of
the insured should appear as he may
be described in other ways than by
name.
2. Amount of insurance
Necessary to easily determine the
amount of indemnity to be paid the
insured in case of loss or damage
Basis of calculating the premium
Need not be specified in cases of open
policy (Sec. 60) and running policy
(Sec. 62)
In workmen’s compensation
insurance, the amount is not specified
in the policy but by the law imposing
liability upon the employer
3. Premium
Represents the consideration of the
contract
What the insured pays the insurer to
assume the risk of or the value of loss
Based on the nature and character of
the risk assumed and also on the value
of the property or other interest
insured
4. Property or life insured
Subject matter of the contract
5. Interest of insured in property
Especially important in fire insurance
policies
6. Risks insured against
7. Term or duration of the insurance

Insurer would not be liable unless it
occurred during such duration of the
insurance.
Kinds of insurable risks
1. Personal risks—those involving the
person; chiefly concerned with the time of
death or disability.
2. Property risks—those involving loss or
damage to property; arises from the
destruction of property.
a. Direct losses by fire, lightning,
windstorm, flood, and other
forces of nature offer a constant
threat of loss.
b. Indirect losses also may occur,
including loss of profits, rents, or
favorable leases.
3. Liability risks—occasioned by the
operation of the law of liability (tort) and
may sometimes be called third party risks
Risk, peril and hazards
1. Risk—the chance of loss or the possibility
of the occurrence of loss, based on known
and unknown factors.
2. Peril—the contingent or unknown event
which may cause a loss.
3. Hazard—the condition or factor,
tangible or intangible, which may create
or increase the chance of loss from a given
peril.
a. Physical hazards—includes
everything relating to location,
structure, occupancy, exposure,
etc.
b. Moral hazards—applied to those
factors that have their inception
in mental attitudes; it requires the
study of the character of the
person under consideration in the
light of his reputation. It includes
the hazards created by
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dishonesty, insanity,
carelessness, indifference and
other causes psychological in
nature.
SEC. 52. Cover notes may be issued to
bind insurance temporarily pending the
issuance of the policy. Within sixty (60)
days after issue of a cover note, a policy
shall be issued in lieu thereof, including
within its terms the identical insurance
bound under the cover note and the
premium therefor.
Cover notes may be extended or renewed
beyond such sixty (60) days with the
written approval of the Commissioner if he
determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions for
the purpose of preventing such violations
and may by such rules and regulations
dispense with the requirement of written
approval by him in the case of extension in
compliance with such rules and
regulations.
Issuance and renewal of cover notes
Cover notes (also called a binder) are
short-term insurance policies that may be
issued to afform immediate provisional
protection to the insured until the insurer
can inspect or evaluate the risk in
question and issue the proper policy.
The fact that no separate premium was
paid on the cover note before the loss
does not militate against its binding
effect as in insurance contract.
If it is to be treated as separate policy, its
purpose and function would be set at
naught or rendered meaningless, for it is
in a real sense a contract, not a mere

application for insurance which is a mere
offer.
Rules on cover notes
1. May be issued to bind insurance
temporarily, pending the issuance of
the policy;
2. Deemed a contract of insurance;
3. The form must be previously approved
by the Insurance Commission;
4. Valid and binding for a period not
exceeding 60 days from the date of its
issuance, whether or not the premium
thereafter has been paid; may be
cancelled by either party upon at least
7 days notice to the other party;
5. If not so cancelled, a policy of insurance
shall, within 60 days after the issuance
of such cover note, be issued in lieu
thereof;
6. May be extended or renewed beyond
the aforementioned period of 60 days
upon complying with certain
requirements;
7. Insurance companies may impose a
deposit premium equivalent to at least
25% of the estimated premium but in no
case less than P500.00.
SEC. 53. The insurance proceeds shall be
applied exclusively to the proper interest of
the person in whose name or for whose
benefit it is made unless otherwise
specified in the policy.
A third person has no right in law or
equity to the proceeds of an insurance
unless there is a contract or trust
expressed or implied, between the
insured and the third person or the
insurance contract was intended to
benefit third persons who are not parties
to the contract in the form of reasonable
stipulations.
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SEC. 54. When an insurance contract is
executed with an agent or trustee as the
insured, the fact that his principal or
beneficiary is the real party in interest may
be indicated by describing the insured as
agent or trustee, or by other general words
in the policy.
Agent or trustee when making an
insurance contract for or on behalf of his
principal should indicate that he is merely
acting in a representative capacity by
signing as such agent or trustee, or by
other general terms in the policy.
SEC. 55. To render an insurance effected
by one partner or part-owner, applicable to
the interest of his co-partners or other part-
owners, it is necessary that the terms of the
policy should be such as are applicable to
the joint or common interest.
Insurable interest in the property of a
partnership exists in both the partnership
and the partners.
SEC. 56. When the description of the
insured in a policy is so general that it may
comprehend any person or any class of
persons, only he who can show that it was
intended to include him, can claim the
benefit of the policy.
SEC. 57. A policy may be so framed that it
will inure to the benefit of whomsoever,
during the continuance of the risk, may
become the owner of the interest insured.
Note: Although it is usual to insert in a policy
the name of the person insured, it is not
essential as he may be described in other
ways.

SEC. 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.
Since a contract of insurance is a personal
contract, it does not attach to or run with
the property insured.
SEC. 59. A policy is either open, valued or
running.
Advantages of a running policy
SEC. 60. An open policy is one in which
the value of the thing insured is not agreed
upon, and the amount of the insurance
merely represents the insurer’s maximum
liability. The value of such thing insured
shall be ascertained at the time of the loss.
SEC. 61. A valued policy is one which
expresses on its face an agreement that the
thing insured shall be valued at a specific
sum.
SEC. 62. A running policy is one which
contemplates successive insurances, and
which provides that the object of the policy
may be from time to time defined,
especially as to the subjects of insurance,
by additional statements or indorsements.
Kinds of policies
1. Open or unvalued policy: does not
predetermine the value of the insured
property but establishes a maximum
amount the insurer will pay in case of a
total loss of the property insured.
2. Valued policy: the value of the insured
property is predetermined and the value is
the amount to be used in case of a total
loss.
3. Running policy: intended to provide
indemnity for property which cannot well
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be covered by a valued policy because of
its frequent change of location and
quantity, or for property of such a nature
as not to admit of a gross valuation. It also
denotes insurance which contemplates that
the risk is shifting, fluctuating or varying,
and which covers a class of property
rather than any particular thing. (E.g.:
changing stock of goods)
1. The insured is neither
underinsured nor overinsured at
any time the premium being based
on the monthly values reported;
2. He avoids cancellations, and for
which cancellations he would be
charged the expensive short rate;
3. The rate is adjusted to 100%
insurance.
SEC. 63. A condition, stipulation, or
agreement in any policy of insurance,
limiting the time for commencing an action
thereunder to a period of less than one (1)
year from the time when the cause of action
accrues, is void.
If the period fixed is less than one year
from the time the cause of action accrues,
the stipulation would be void. In industrial
life insurance, the period cannot be less
than 6 years after the cause of action
accrues.
This condition is not merely a procedural
requirement. It is essential to prompt
settlement of claims.
When cause of action accrues: until the
insured’s claim is finally rejected by the
insurer
Where the policy provided that no suit or
action thereon “for the recovery of any
claim shall be sustainable in any court of

law or equity unless the insured shall
have fully complied with all the terms and
conditions of the policy nor unless
commenced within 12 months next after
the happening of the loss,” it has been
held that the above stipulation is
repugnant to Section 63 because if given
effect would reduce the period allowed
the insured for bringing his action to less
than one year.
SEC. 64. No policy of insurance other than
life shall be cancelled by the insurer except
upon prior notice thereof to the insured,
and no notice of cancellation shall be
effective unless it is based on the
occurrence, after the effective date of the
policy, of one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts
increasing the hazard insured against;
(c) Discovery of fraud or material
misrepresentation;
(d) Discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
(e) Physical changes in the property
insured which result in the property
becoming uninsurable;
(f) Discovery of other insurance coverage
that makes the total insurance in excess of
the value of the property insured; or
(g) A determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
violation of this Code.
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SEC. 65. All notices of cancellation
mentioned in the preceding section shall be
in writing, mailed or delivered to the
named insured at the address shown in the
policy, or to his broker provided the broker
is authorized in writing by the policy
owner to receive the notice of cancellation
on his behalf, and shall state:
(a) Which of the grounds set forth in
Section 64 is relied upon; and
(b) That, upon written request of the named
insured, the insurer will furnish the facts on
which the cancellation is based.
Cancellation: generally used with regard to
insurance, is broadly regarded as the right to
rescind, abandon, or cancel a contract of
insurance.
The right of the insurer to the cancellation of
a policy of insurance other than life
insurance is covered by Sections 64 and 65.
The insured can cancel and insurance
contract at his election by surrendering the
policy. Such surrender entitles him to the
return of the premiums.
Form and sufficiency of notice of
cancellation
1. There must be prior notice of cancellation
to the insured;
2. The notice must be based on the
occurrence, after the effective date of the
policy, of one or more of the grounds
mention (Sec. 64);
3. It must be in writing, mailed or delivered
to the named insured at the address shown
in the policy; and
4. It must state which of the grounds set forth
is relied upon.

Note: It is the duty of the insurer upon
written request of the named insured to
furnish the facts on which the cancellation is
based.
The premium referred to in Section 64(a)
refers to the first, because it speaks of non-
payment “after the effective date of the
policy.”
Purpose for requiring notice: To prevent
the cancellation of the policy, without
allowing the insured ample opportunity to
negotiate for other insurance in its stead for
his own protection
SEC. 66. In case of insurance other than
life, unless the insurer at least forty-five
(45) days in advance of the end of the
policy period mails or delivers to the
named insured at the address shown in the
policy notice of its intention not to renew
the policy or to condition its renewal upon
reduction of limits or elimination of
coverages, the named insured shall be
entitled to renew the policy upon payment
of the premium due on the effective date of
the renewal. Any policy written for a term
of less than one (1) year shall be considered
as if written for a term of one (1) year. Any
policy written for a term longer than one
(1) year or any policy with no fixed
expiration date shall be considered as if
written for successive policy periods or
terms of one (1) year.
Renewal of non-life insurance policy
1. A renewal of insurance by the payment
of a new premium and the issuance of
a receipt therefor where there is no
provision in the policy for its
renewal—a new contract on the same
terms as the old one.
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2. Where the renewal is in pursuance of a
provision to that effect—it is not a new
contract but an extension of the old one.
Rights of parties
In case of insurance other than life, the
named insured is given the right to renew
upon the same terms and conditions the
original policy upon payment of the
premium due on the effective date of the
renewal unless the insurer at least 45
days in advance of the end of the period
mails or delivers to the insured notice of
its intention not to renew the policy or to
condition its renewal upon reduction of
its amount or elimination of some
coverages.
Periods for giving notice of non-renewal
by insurer
Policy written for a term of less than 1
year considered as if written for a
term of 1 year
Policy written for a longer tem or with no
fixed expiration date considered as
written for successive policy periods
with terms of 1 year
Term of policy is 5 years: notice must be
given at least 45 days before the
anniversary date of any given policy
year.
If the 45 day-rule is not complied with,
the insurer may not refuse to renew
policy upon payment of the premium
due.
Unless the insurer complies with the
requirements of Section 65 and 66, he has to
renew the policy whether he likes it or not.

PREMIUM
CLASS DISCUSSION
SEC. 77. An insurer is entitled to payment
of the premium as soon as the thing insured
is exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid
and binding unless and until the premium
thereof has been paid, except in the case of
a life or an industrial life policy whenever
the grace period provision applies, or
whenever under the broker and agency
agreements with duly licensed
intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a
duly licensed intermediary should exceed
ninety (90) days from date of issuance of
the policy.
Section 77 applies to property
insurance only.
Section 77 is intended for the insurance
company.
Premium payments can be likened to
taxes which are the lifeblood of the State.
Premium payments are the lifeblood of
the insurance company
o “elixir vitae” of the insurance
company
o This is the reason why we have a
cash-and-carry rule.
Cash-and-carry rule: it is expressed in
Section 77 itself
o “No policy or contract of
insurance issued by an insurance
company is valid and binding
unless and until the premium
thereof has been paid.”
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Q: When does the insurance company is
deemed to have earned the premium paid
by the insured?
A: This is provided in the first sentence of
Section 77: “as soon as the thing insured is
exposed to the peril insured against.”
Q: What if the thing insured is not exposed
to the peril insured against?
A: The insurance company has not been
exposed to the peril insured against. In this
case, when the premium has already been
paid by the insured, the insurance company is
now obligated to return the premium already
paid subject to provisions of law.
Example of provision of law: Section
84 wherein the insured is not entitled
of refund when he is guilty of fraud.
Exceptions to Section 77:
1. Life or industrial life policy where grace
period applies
The insured is entitled by a statutory
right of a grace period of a minimum
of 30 days or 1 month in the payment
of premium.
This means that the grace period may
be extended but in the absence of a
stipulation the contrary, the grace
period must be 30 days or 1 month.
2. Section 79
SEC. 79. An acknowledgment in a policy
or contract of insurance or the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that it shall not be binding until the
premium is actually paid.
Another example of express waiver
because there is an express
acknowledgment that the insured
company had received the premium

from the insured even though in
reality, the premium has not been paid
yet
Significance: the acknowledgment is
a conclusive evidence but only
insofar to make the policy binding.
o Conclusive only to make the
policy binding
o Contrary to evidence is
allowed to rebut it
o Reason: it would be unjust
enrichment if the insurance
company would not be
allowed to collect the unpaid
premium
3. Makati Tuscany case: premium is paid by
installment
REMEMBER: For the insurance
company to be liable by estoppel for
payment by installment, partial
payment must have already been
paid at the time of the loss.
4. When there is an agreement to grant the
insured credit extension for the payment
of the premium
UCPB Case
The credit extension shall not exceed
90 days.
REMEMBER: The insurance
company is held liable even though
there is no payment yet of premium
provided that the loss happened
within the period of the credit term
extension.
Instances where the insured will:
1. NOT be entitled to refund premium
2. Be entitled to refund of premium
(Whole or Partial)
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2 Instances where the insured is NOT
entitled to refund of premium paid:
1. If the insured is guilty of fraud
SEC. 82 (LAST PARAGRAPH). 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.
2. In a life insurance policy - in all kinds
of life insurance policies, there is no
such thing as refund of premium
because under the law a life insurance
policy is indivisible by nature
Comparing it to property insurance, for
example, in a fire insurance policy, it can be
effected for a year and then premiums would
be paid for that particular year. In this case,
the fire insurance policy can be subdivided
into different periods covering certain
months so much so that if ever the insured
without fraud would like to pre-terminate the
fire insurance policy, the law says
particularly Section 80 (b).
SEC. 80 (B). Where the insurance is made for
a definite period of time and the insured
surrenders his policy, to such portion of the
premium as corresponds with the unexpired
term, at a pro rata rate, unless a short period
rate has been agreed upon and appears on the
face of the policy, after deducting from the
whole premium any claim for loss or damage
under the policy which has previously
accrued; Provided, that no holder of a life
insurance policy may avail himself of the
privileges of this paragraph without sufficient
cause as otherwise provided by law.
GR: the insured is entitled to partial refund
of payment proportioned to the unexpired
term of the policy.
XPN: unless a short period had been agreed
upon.

Short Period - schedule of amounts or
portions of the premium will not be refunded
depending on when the policy is pre-
terminated.
Example:
“It is hereby agreed that, in the event of this
policy being surrendered by the insured for
cancellation, the company shall retain
premium in accordance with the following
scale:
1 month or less 20% of the annual
rate
2 months 30% of the annual
rate
3 months 40% of the annual
rate
4 months 50% of the annual
rate
If a policy on which premiums have
been paid for a year is cancelled by the
insurer before the expiration of the year, it
retains only a proportion of the annual
premium that the expired time bears to the
entire time. If the policy is cancelled by the
insured, the pro rata return of premium will
not be followed if the policy stipulates a short
period rate, in which case, the insured is
entitled to return of the premium in the
proportion stipulated.
In the case of a life insurance policy,
if the mode of payment that the insured chose
is annual payment, initially, when pays his
premium for 1 year. And then for example,
on the 6th month of effectivity the insured
changed his mind and pre-terminated the
insurance.
Q: If the insurance company would grant his
request, and the insured would demand from
the agent a refund corresponding to the
unexpired portion, can the insured validly
claim the refund?
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A: No, because under the law, a life
insurance policy is taken as indivisible by
nature, it cannot be subdivided, it’s a
premium paid for his whole life. It just so
happens that the mode of payment that he
chose is annual
SEC. 81. If a peril insured against has
existed, and the insurer has been liable for
any period, however short, the insured is not
entitled to return of premiums, so far as that
particular risked concerned.
Instances where the insured is
ENTITLED to a refund of premium:
A) Full Refund
B) Partial Refund
Full Refund
Basic rule: For insured to be entitled to
refund, he must not be guilty of fraud.
To be entitled to full refund:
SEC. 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
SEC. 80 (a). A person insure is entitled to a
return of premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to any
of the perils insured against.
SEC. 82 (first paragraph). 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, 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.
An instance where an insurer never
incurred any liability under the policy will be
Section 80(a) where the thing insured was not
exposed to any of the perils insured against.
For example, in a marine insurance
policy, the vessel without fraud or fault on the
part of the insured vessel owner, the vessel
was not able to commence its voyage. In
other words, for reasons beyond the control
of the insured and without fraud or fault on
his part, the vessel was not exposed to the
perils of navigation insured against.
Also, under Section 82, the insured is
entitled when the insurance is rescinded by
reason of fraud on the part of the INSURER
or the agent of the insurer, the insured is
entitled to full refund.
Going back to Section 76, it is the last
section on warranties, which talks about
breach of warranty. What the latter part of
Section 76 (where it is broken in its
inception...) is practically the same scenario
as that of Sec. 80(a) and the latter part of Sec.
82, where the insurer never incurred any
liability under the policy.
Don't forget the basic rule that for the
insurer to be liable for payment of premium,
at the very least, the insurer must have earned
the premium.
Q: When can you say the insurer had already
earned the premium?
A: When the insurer had been exposed to
the risk of being held liable under the policy,
however short.
DOCTRINES
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1.VALENZUELA, ET.AL V. CA & ARAGON, ET.
AL
Under Section 77 of the Insurance Code,
the remedy for the non-payment
premiums is to put an end to and render
the insurance policy not binding—“Sec.
77 x x x [N]otwithstanding any
agreement to the contrary, no policy or
contract of insurance is valid and binding
unless and until the premiums thereof
have been paid except in the case of a life
or industrial life policy whenever the
grace period provision applies.
The non-payment of premium does not
merely suspend but puts an end to an
insurance contract since the time of the
payment is peculiarly of the essence of
the contract.
An insurer cannot treat a contract as valid
for the purpose of collecting premiums
and invalid for the purpose of indemnity.
Perforce, since admittedly the premiums
have not been paid, the policies issued
have lapsed. The insurance coverage did
not go into effect or did not continue and
the obligation of Philamgen as insurer
ceased. Hence, for Philamgen which had
no more liability under the lapsed and
inexistent policies to demand, much less
sue Valenzuela for the unpaid premiums
would be the height of injustice and
unfair dealing. In this instance, with the
lapsing of the policies through the non-
payment of premiums by the insured
there were no more insurance contracts to
speak of.
2.ARCE V. CAPITAL INS. & SURETY CO.

Unless premium is paid, insurance
contract not effective.
Insurance company relieved of obligation
to pay insurance proceeds under the
policy for insured’s failure to pay
premiums on the policy.
3.PHIL. PHOENIX SURETY & INS. CO V.
WOODWORKS, INC.
Insurance is “a contract whereby one
undertakes for a consideration to
indemnify another against loss, damage
or liability arising from an unknown or
contingent event.” The consideration is
the “premium”. “The premium must be
paid at the time and in the way and
manner specified in the policy and, if not
so paid, the policy will lapse and be
forfeited by its own terms.”
Since the premium had not been paid, the
policy must be deemed to have lapsed. x
x x “The non-payment of premiums does
not merely suspend but puts an end to an
insurance contract, since the time of the
payment is peculiarly of the essence of
the contract. x x x the rule is that under
policy provisions that upon the failure to
make a payment of a premium or
assessment at the time provided for, the
policy shall become void or forfeited, or
the obligation of the insurer shall cease,
or words to like effect, because the
contract so prescribes and such a
Stipulation is a material and essential part
on the contract. This is true, for instance,
in the case of life, health and accident, fire
and hail insurance policies.
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4.CAPITAL INS. & SURETY CO VS. PLASTIC
ERA CO. & CA
The insurer accepted the promise of the
insured to pay the insurance premium
within thirty (30) days from the effective
date of the policy. By so doing, it has
implicitly agreed to modify the tenor of
the insurance policy and in effect, waived
the provision therein that it would only
pay for the loss or damage in case the
same occurs after the payment of the
premium. Considering that the insurance
policy is silent as to the mode of payment,
the insurer is deemed to have accepted the
promissory note in payment of the
premium. This rendered the policy
immediately operative on the date it was
delivered.
The fact that the check issued by the
insured was later on dishonored did not in
any way operate as a forfeiture of its
rights under the policy, there being no
express stipulation therein to that effect.
Having held the check for such an
unreasonable period of time, the insurer
was estopped from claiming a forfeiture
of its policy for non-payment even if the
check had been dishonored later. Where
the check is held for an unreasonable time
before presenting it for payment, the
insurer may be held estopped from
claiming a forfeiture if the check is
dishonored.
5.SPS. ANTONIO AND VIOLETA TIBAY, ET.AL.
V. CA & FORTUNE LIFE
The consideration is the premium, which
must be paid at the time and in the way

and manner specified in the policy, and if
not so paid, the policy will lapse and be
forfeited by its own terms.
Precisely, the insurer and the insured
expressly stipulated that (t)his policy
including any renewal thereof and/or any
indorsement thereon is not in force until
the premium has been fully paid to and
duly receipted by the Company x x x x and
that this policy shall be deemed effective,
valid and binding upon the Company only
when the premiums therefor have
actually been paid in full and duly
acknowledged. Conformably with the
aforesaid stipulations explicitly worded
and taken in conjunction with Sec. 77 of
the Insurance Code the payment of partial
premium by the assured in this particular
instance should not be considered the
payment required by the law and the
stipulation of the parties. Rather, it must
be taken in the concept of a deposit to be
held in trust by the insurer until such time
that the full amount has been tendered
and duly receipted for. In other words, as
expressly agreed upon in the contract, full
payment must be made before the risk
occurs for the policy to be considered
effective and in force.
Verily, it is elemental law that the
payment of premium is requisite to keep
the policy of insurance in force. If the
premium is not paid in the manner
prescribed in the policy as intended by the
parties, the policy is ineffective. Partial
payment even when accepted as a partial
payment will not keep the policy alive
even for such fractional part of the year as
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the part payment bears to the whole
payment.
A maxim of recognized practicality is the
rule that the expressed exception or
exemption excludes others. Exceptio
firmat regulim in casibus non exceptis.
The express mention of exceptions
operates to exclude other exceptions;
conversely, those which are not within
the enumerated exceptions are deemed
included in the general rule. Thus, under
Sec. 77, as well as Sec. 78, until the
premium is paid, and the law has not
expressly excepted partial payments,
there is no valid and binding contract.
Hence, in the absence of clear waiver of
prepayment in full by the insurer, the
insured cannot collect on the proceeds of
the policy.
For as long as the current Insurance Code
remains unchanged and partial payment
of premiums is not mentioned at all as
among the exceptions provided in Secs.
77 and 78, no policy of insurance can ever
pretend to be efficacious or effective until
premium has been fully paid. And so it
must be. For it cannot be disputed that
premium is the elixir vitae of the
insurance business because by law the
insurer must maintain a legal reserve fund
to meet its contingent obligations to the
public, hence, the imperative need for its
prompt payment and full satisfaction. It
must be emphasized here that all actuarial
calculations and various tabulations of
probabilities of losses under the risks
insured against are based on the sound
hypothesis of prompt payment of
premiums. Upon this bedrock insurance

firms are enabled to offer the assurance of
security to the public at favorable rates.
A. EXCEPTIONS
1.MAKATI TUSCANY CONDI. CORP. V. CA &
AMERICAN HOME ASSURANCE CO.
Court holds that the subject policies are
valid even if the premiums were paid on
installments.
Where the risk is entire and the contract
is indivisible, the insured is not entitled to
a refund of the premiums paid if the
insurer was exposed to the risk insured
for any period however brief or
momentary.
2. UCPB GEN. INS. V. MASAGANA
TELAMART
The first exception is provided by Section
77 itself, and that is, in case of a life or
industrial life policy whenever the grace
period provision applies. The second is
that covered by Section 78 of the
Insurance Code, which provides:
SEC. 78. Any acknowledgment in
a policy or contract of insurance of the
receipt of premium is conclusive
evidence of its payment, so far as to make
the policy binding, notwithstanding any
stipulation therein that it shall not be
binding until premium is actually paid. A
third exception was laid down in Makati
Tuscany Condominium Corporation vs.
Court of Appeals, wherein we ruled that
Section 77 may not apply if the parties
have agreed to the payment in
installments of the premium and partial
payment has been made at the time of
loss, x x x Not only that. In Tuscany, we
also quoted with approval the following
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pronouncement of the Court of Appeals
in its Resolution denying the motion for
reconsideration of its decision: x x x By
the approval of the aforequoted findings
and conclusion of the Court of Appeals,
Tuscany has provided a fourth exception
to Section 77, namely, that the insurer
may grant credit extension for the
payment of the premium. This simply
means that if the insurer has granted the
insured a credit term for the payment of
the premium and loss occurs before the
expiration of the term, recovery on the
policy should be allowed even though the
premium is paid after the loss but within
the credit term.
There is nothing in Section 77 which
prohibits the parties in an insurance
contract to provide a credit term within
which to pay the premiums. That
agreement is not against the law, morals,
good customs, public order or public
policy. The agreement binds the parties.
Where an insurer had consistently
granted a 60- to 90-day credit term for the
payment of premiums despite its full
awareness of Section 77, and the assured
had relied in good faith on such practice,
estoppel bars it from taking refuge under
said Section
3. JAIME GAISANO V. DEVELOPMENT INS.
CORP.
Insurance is a contract whereby one
undertakes for a consideration to
indemnify another against loss, damage
or liability arising from an unknown or
contingent event. Just like any other
contract, it requires a cause or
consideration. The consideration is the
premium, which must be paid at the time
and in the way and manner specified in
the policy. If not so paid, the policy will

lapse and be forfeited by its own terms.
The law, however, limits the parties’
autonomy as to when payment of
premium may be made for the contract to
take effect. The general rule in insurance
laws is that unless the premium is paid,
the insurance policy is not valid and
binding.
The notice of the availability of the check,
by itself, does not produce the effect of
payment of the premium
Even if there is a waiver of prepayment of
premiums, that in itself does not become
an exception to Section 77, unless the
insured clearly gave a credit term or
extension. This is the clear import of the
fourth exception in the UCPB General
Insurance Co., Inc. v. Masagana
Telemart, Inc.. To rule otherwise would
render nugatory the requirement in
Section 77 that “[n]otwithstanding 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.
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 77. An insurer is entitled to payment
of the premium as soon as the thing insured
is exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid
and binding unless and until the premium
thereof has been paid, except in the case of
a life or an industrial life policy whenever
the grace period provision applies, or
whenever under the broker and agency
agreements with duly licensed
intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a
duly licensed intermediary should exceed
ninety (90) days from date of issuance of
the policy.
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SEC. 78. Employees of the Republic of the
Philippines, including its political
subdivisions and instrumentalities, and
government-owned or -controlled
corporations, may pay their insurance
premiums and loan obligations through
salary deduction: Provided, That the
treasurer, cashier, paymaster or official of
the entity employing the government
employee is authorized, notwithstanding
the provisions of any existing law, rules
and regulations to the contrary, to make
deductions from the salary, wage or
income of the latter pursuant to the
agreement between the insurer and the
government employee and to remit such
deductions to the insurer concerned, and
collect such reasonable fee for its services.
Premium: The agreed price for assuming and
carrying the risk—that is, the consideration
paid an insurer for undertaking to indemnify
the insured against a specified peril.
Note: When only one premium is paid for
several things not separately valued or
separately insured, making for only one cause
or consideration, the insurance contract is
entire or indivisible as to the items insured. It
is immaterial that they are shipped or
transported separately.
Payment of premium ordinarily not a debt
1. In fire, casualty, and marine insurance—
the premium payable becomes a debt as
soon as the risk attaches, and in
suretyship, as soon as the contract or bond
is perfected and delivered to the obligor.
Note: When there was not only a
perfected contract of insurance but a
partially performed one as far as the
payment of the agreed premium was

concerned, the obligation of the insurer to
pay the insured arose and become binding
upon it while the obligation of the insured
to pay the remainder of the total amount
of the premium due became demandable.
Nonpayment of the balance of the
premium does not produced the
cancellation of the contract of insurance
in the sense that it can no longer be
enforced. A contrary rule would place
exclusively in the hands of the insured the
right to decide whether the contract
should stand or not.
Excuses for nonpayment of premiums
2. In life insurance—the premium becomes
a debt or when in case of the first
premium, the contract has become
binding, and in the case of subsequent
premiums, when the insurer has
continued the insurance after maturity of
the premium, in consideration of the
insured's express or implied promise to
pay.
Note: The insured becomes duty bound
to pay the premium agreed upon lest he
runs the risk of having this insurance
policy lapse if he fails to pay such
premiums.
Effect of nonpayment of premium
1. First premium
non-payment of the first premium
unless waived, prevents the contract
from becoming binding
notwithstanding the acceptance of
the application nor the issuance of the
policy
2. Subsequent premiums
non-payment of subsequent
premium does not affect the validity
of the contracts unless, by express
stipulation, it is provided that the
policy shall in that event be
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suspended or shall lapse.
In case of individual life or
endowment insurance and group
life insurance, the policyholder is
entitled to a grace period of either
30 days or 1 month within which
the payment of any premium after
the first may be made.
In the case of industrial life
insurance, the grace period is 4
weeks, and where premiums are
payable monthly, either 30 days or
1 month.
Fortuitous events will not prevent the
forfeiture of the policy when the
premium remains unpaid
Nonpayment is excused:
o Where the insurer has become
insolvent and has suspended
business, or has refused without
justification a valid tender of
premiums;
o Where the failure to pay was due
to the wrongful conduct of the
insurer as when the insurer induced
the beneficiary under a policy to
surrender it for cancellation by
falsely representing that the insurance
was illegal and void, and returning
the premiums paid; or
o Where the insurer has in any wise
waived his right to demand
payment.
Insurer will not be
deemed to have waived
his privilege of
forfeiture by mere
inaction or silence if the
ground be default in the
payment of premiums

Note: The insurer, however, cannot
ordinarily force the insured to make these
payments.
Sec. 77 merely precludes the parties
from stipulating that the policy is valid
even if the 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.
Exceptions to Sec. 77
1. In the case of a life or an industrial
policy whenever the grace period
provision applies;
2. Whenever under the broker and
agency agreements with duly
licensed intermediaries, a 90-day
extension is given;
3. When there is an acknowledgment in
a policy or contract of insurance of
receipt of premium even if there is a
stipulation therein that it shall not be
binding until the premium is actually
paid;
4. When there is an agreement allowing
the insured to pay the premium in
installments and partial payment has
been made at the time of loss;
5. When there is an agreement to grant
the insured credit extension for the
payment of the premium, and loss
occurs before the expiration of the
credit term; and
6. When estoppel bars the insurer from
invoking Section 77 to avoid
recovery on a policy providing a
credit term for the payment of
premiums, as against the insured who
relied in good faith on such extension.
Note: If the credit extension exceeds 90 days
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from the date of the issuance of the policy, it
should be deemed only for 90 days. The
receipt by the insurer of the premium even
after the expiration of the credit term but
before the loss, render the insurance valid
and binding.
Note: Once a policy has been issued, the
presumption lies that the premium has been
duly paid, and where the nonpayment of the
premium is attributable to the fault or
misrepresentation of the insurer, the insured
is entitled to recover in case of loss.
SEC. 79. An acknowledgment in a policy
or contract of insurance or the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that it shall not be binding until the
premium is actually paid.
Effect of acknowledgment of receipt of
premium in policy
1. Waiver of condition of prepayment—
where the policy or contract of insurance
contains an acknowledgment of receipt
of premium, the insurer cannot deny the
truth of the receipt of the premium in an
action against him on the policy even if it
is actually unpaid and notwithstanding
any stipulation making prepayment of the
premium a condition precedent to the
binding effect of the policy.
Reason: Presumption that the insurer has
waived the condition of prepayment
2. Recovery of premium if unpaid—the
conclusive presumption extends only to
the question of the binding effect of the
policy. As far as the payment of the
premium itself is concerned, the
acknowledgment is only a prima facie
evidence of the fact of such payment. The

insurer may still dispute its
acknowledgment but only for the
purpose of recovering the premium due
and unpaid. Whether payment was
indeed made is a question of fact.
SEC. 80. A person insured is entitled to a
return of premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to
any of the perils insured against;
(b) Where the insurance is made for a
definite period of time and the insured
surrenders his policy, to such portion of the
premium as corresponds with the
unexpired time, at a pro rata rate, unless a
short period rate has been agreed upon and
appears on the face of the policy, after
deducting from the whole premium any
claim for loss or damage under the policy
which has previously accrued: Provided,
That no holder of a life insurance policy
may avail himself of the privileges of this
paragraph without sufficient cause as
otherwise provided by law.
SEC. 81. If a peril insured against has
existed, and the insurer has been liable for
any period, however short, the insured is
not entitled to return of premiums, so far as
that particular risk is concerned.
SEC. 82. A person insured is entitled to a
return of the premium when the contract is
voidable, and subsequently annulled under
the provisions of the Civil Code; or on
account of the fraud or misrepresentation
of the insurer, or of his agent, or on account
of facts, or the existence of which the
insured was ignorant of without his fault;
or when by any default of the insured other
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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.
SEC. 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.
When insured entitled to recover
premiums already paid or a portion
thereof—
1. When no part of the thing insured has been
exposed to any of the perils insured
against;
2. When the insurance is for a definite
period and the insured surrenders his
policy before the termination thereof;
3. When the contract is voidable because of
the fraud or misrepresentation of the
insurer or his agent;
4. When the contract is voidable because of
the existence of facts of which the insured
was ignorant without his fault;
5. When the insurer never incurred any
liability under the policy because of the
default of the insured other than actual
fraud;
6. When there is over-insurance; and
7. When rescission is granted due to the
insurer's breach of contract.
Note: In Nos. 1, 3, 4, and 5, the insured is
entitled to a return of the entire premium paid.

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.
Where risk never attached
1. Approval of application or acceptance of
policy absent—no premium can be
recovered. If the premium has previously
been paid, it must be returned as no risk
whatsoever has ever attached.
2. Loss occurs before effective date—where
the insured pays in advance the annual
premium on a certain property insured by
him, the insurance to take effect on a
certain date and the loss occurs before said
date, the insured is entitled to a return of
the whole premium.
3. Insured and insurer become public
enemies— premiums paid after the
declaration of war between the belligerent
states be returned to the insured.
Where the insured surrenders policy
before termination
Entitled only to recover the premiums
already paid equivalent to the unexpired
term at a pro rata rate
Section 80(b) does not apply:
1. Where the insurance is not for a
definite period
2. Where a short period rate has been
agreed upon (in this case, the insured
is entitled to return of the premium in
the proportion stipulated)
3. Where the policy is a life insurance
policy (Reason: life insurance is not
a divisible contract)
When risk has attached
1. Whole premium considered as earned—
in the absence of any agreement to the
contrary, "if a peril insured against has
existed, and the insurer has been liable for
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any period, however short, the insured is
not entitled to return of premiums so far
as that particular risk is concerned."
2. Where insurance divisible--consisting of
several distinct risks for which different
amounts of premiums have been paid, the
premium paid for any particular risk is not
earned until that risk has attached.
Where the contract is voidable
1. Fraud of the insurer or his agent—the
insured may, by timely action, rescind the
contract and demand the return of the
premiums paid by him.
2. Other grounds—also entitled to a return
of the premiums when the contract is
voidable "on account of facts, the
existence of which the insured was
ignorant without his fault; or when, by any
default of the insured other than actual
fraud, the insurer never incurred liability
under the policy."
3. Fraud of the insured—not entitled to a
return of the premium paid.
Where there is over-insurance by double
insurance
The insurer is not liable for the total
amount of the insurance taken, his
liability being limited to the amount of the
insurable interest on the property insured.
Hence, he is not entitled to that portion of
the premium corresponding to the excess
of the insurance over the insurable interest
of the insured.
The premium to be returned where there is
over-insurance by several insurers shall
be proportioned to the amount by which
the aggregate sum insured in all the
policies exceeds the insurable value of
the thing at risk.
Where insurance is illegal

GR: Premiums cannot be recovered.
XPN: If, in fact, the parties are not in pari
delicto, the law will allow an innocent
insured to take again his premiums as
when—
1. The insured was ignorant of the
facts which rendered the
insurance illegal; or
2. One, having no insurable interest
in the life insured, paid
premiums in the bona fide belief
induced by the fraudulent
statement of the insurer, that
such insurance was valid.
Basis of right to recover premiums
1. Insurer could have been called to pay the
whole sum insured—if the insurer could
at any time, and under any conceivable
circumstances, have been called on to
pay the whole sum on which he has
received premium, in such case the
whole premium is earned and there shall
be no return;
2. Insurer could have been called to pay
only part of the whole sum insured—if,
on the other hand, he could never in any
event have thus been called on to pay
the whole, but only a part of the amount
of his subscription he ought not retain
a larger than one- half or one fourth of
the premium and must return the
residue.
SEC. 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.
The insured is duty bound to make
prompt payment only of the insurance
premiums under the policy.
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LOSS
CLASS DISCUSSION
Sec. 85. An agreement not to transfer the
claim of the insured against the insurer after
the loss has happened, is void if made before
the loss except as otherwise provided in the
case of life insurance.
For example, in a fire insurance
policy for a 1-year period, the fire being a
contingent event is precisely because it may
or may not happen within that 1-year
coverage. In fact, after the lapse of 1 year and
the fire did not happen the insured cannot say
that since the fire did not happen, the insurer
should return the premium. This is precisely
an example where the insurer already earned
the premium because for that 1-year period
even if the fire did not take place, the fact is
in that 1-year period, the insurer was
exposed to the risk of being held liable
under policy.
(Other part of the explanation is inaudible.
This is lifted from the De Leon Book)
Before a loss has occurred, an
insurance policy, except a life insurance
policy, is not assignable without the consent
of the insurer on the theory that the policy is
a personal contract between the insured and
the insurer. After a loss has occurred, the
insured has an absolute right to transfer his
claim against the insurer. A stipulation which
attempts to prohibit such transfer of a policy
is void.
According to Atty. Tayag: Before the loss, the
right of the insured is inchoate or
speculative because the insurance contract is
a personal contract, in cannot be easily
transferred. As discussed before, the mere
selling of a house does not transfer the
insurance contract under which it is covered.

What Sec. 85 is saying is that, the
moment that the peril insured against, from
that day that the fire caused the damage, the
right to claim is already vested in the
insured, it already becomes definite or
certain.
The right to claim becomes an
ordinary property right which can now be
transferred.
Prohibition to transfer such claim is
not allowed for being contrary to public
policy, since under the property rights of an
owner, he has the right to dispose his own
property.
SEC. 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.
Proximate Cause - is that which, in a natural
and continuous sequence, unbroken by any
new independent cause, produces an event
and without which the event would not have
occurred.
The proximate cause is the cause of
the immediate cause.
For example, the immediate cause of
the property insured is water. There was
water damage because water was used to put
out the fire. The firefighters were successful
in putting away the fire, which means that the
property insured was not damaged by fire,
but the water damaged the property.
Q: Since this is a fire insurance policy, is the
insurer correct in denying the claim by saying
that the property was damage not by fire, but
by water?
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A: No, in the absence of any special
stipulation limiting the liability of the insurer,
even if the immediate cause is the water, the
cause of the immediate cause, or the
proximate cause is the fire.
GR: If the cause of the loss is the proximate
cause or the immediate cause, the insurer is
liable.
XPN: If the proximate cause is expressly
excluded in the policy.
For example, in a fire insurance
policy, the property was damaged by the fire.
If there is a stipulation in the fire insurance
policy that says, "if the proximate cause of
the fire is explosion then the insurer is not
liable", if after investigation, if it is
determined that the proximate cause is an
explosion, the insurer can deny the claim.
The stipulation is valid, it is a valid limitation
on the liability of the insurer.
If ever the cause of the loss is due to
the intentional act of the insured, the
insurer is not liable i.e. arson.
As to the intentional act of killing
oneself:
If the suicide happened within at
least 2 years after the policy was effected, the
insurer is liable. However, the 2-year rule
will not apply, if the suicide was proven to be
committed during the state of insanity.
DOCTRINES
A. SCHEDULE OF INDEMNITIES UNDER
THE POLICY
1. WESTERN GUARANTY CORP V. CA &
PRISCILLA RODRIGUEZ ET.AL
The scope of liability of Western is
marked out in comprehensive terms: “all
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sums necessary to discharge liability of as to preclude the insurer from evading

the insured in respect of [the precipitating compliance with its just obligations.
events] –“, The precipitating events
which generate liability on the part of the B. MEANING OF “ACCIDENT” AND
insurer, either in favor of a passenger or a “ACCIDENTAL”
third party, are specified in the following
terms: (1) death of, or (or) bodily injury 1. FINMAN GEN. ASSUR. CORP. V. CA AND
to, or (3) damage to property of, the JULIA SURPOSA
passenger or the third party. Where no
The generally accepted rule is that, death
death, no bodily injury and no damage to
or injury does not result from accident or
property resulted from the casualty (“any
accidental means within the terms of an
accident caused by or arising out of the
accident-policy if it is the natural result of
use of the Schedule Vehicle”), no liability
the insured’s voluntary act,
is created so far as concerns the insurer,
unaccompanied by anything unforeseen
petitioner Western.
except the death or injury.
It must be stressed, however, that the
where the death or injury is not the natural
Schedule of Indemnities does not purport
or probable result of the insured’s
to limit, or to enumerate exhaustively, the
voluntary act, or if something unforeseen
species of bodily injury occurrence of
occurs in the doing of the act which
which generate liability to petitioner
produces the injury, the resulting death is
Western. A car accident may, for
within the protection of the policies
instance, result in injury to internal
insuring against death or injury from
organs of a passenger or third party,
accident.” As correctly pointed out by the
without any accompanying amputation or
respondent appellate court in its decision:
loss of an external member (e.g., a foot or
“In the case at bar, it cannot be pretended
an arm or an eye). Bust such internal
that Carlie Surposa died in the course of
injuries are surely covered by Section1 of
an assault or murder as a result of his
the Master Policy, since they certainly
voluntary act considering the very nature
constitute bodily injuries
of these crimes. In the first place, the
Petitioner Western would have us
insured and his companion were on their
construe the Schedule of Indemnities as
way home from attending a festival. They
comprising contractual limitations of
were confronted by unidentified persons.
liability which, as already noted, is
The record is barren of any circumstance
comprehensively defined in Section1 –
showing how the stab wound was
“Liability to the Public” – of the Master
inflicted. Nor can it be pretended that the
Policy. It is well-settled, however, that
malefactor aimed at the insured precisely
contractual limitations of liability found
because the killer wanted to take his life.
in insurance contracts should be regarded
In any event, while the act may not
by courts with a jaundiced eye and
exempt the unknown perpetrator from
extreme care and should be so construed
criminal liability, the fact remains that the

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happening was a pure accident on the part
of the victim. The insured died from an
event that took place without his foresight
or expectation, an event that proceeded
from an unusual effect of a known cause
and, therefore, not expected. Neither can
it be said that there was a capricious
desire on the part of the accused to expose
his life to danger considering that he was
just going home after attending a
festival.”
The principle of “expresso unius exclusio
alterius”—the mention of one thing
implies the exclusion of another thing—
is therefore applicable in the instant case
since murder and assault, not having been
expressly included in the enumeration of
the circumstances that would negate
liability in said insurance policy cannot
be considered by implication to discharge
the petitioner insurance company from
liability for any injury, disability or loss
suffered by the insured.
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 85. An agreement not to transfer the
claim of the insured against the insurer
after the loss has happened, is void if made
before the loss except as otherwise
provided in the case of life insurance.
Effect or agreement not to transfer claim
of insured after a loss
Before a loss has occurred, an insurance
policy (except life insurance policy) is not
assignable without the consent of the insurer
on the theory that the policy is personal
contract between the insured and the insurer.
After the loss, the insured has an absolute
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right to transfer or assign his claim against the
insurer.
1. Agreement hinders free transmission of
property— void as against public
policy.
2. Transfer involves but money claim or
right of action— AFTER the loss has
been suffered, the policy or right
thereunder may be assigned without the
consent of or notice to the insurer for in
such case, it is not the personal contract
which is being assigned, but a money
claim under or a right of action on the
policy.
3. Transfer involves no question of moral
hazard—Such assignment of the right
to collect from the insurer involves NO
QUESTION OF MORAL HAZARD
because it cannot increase the insurer's
risk for a loss that has already occurred.
SEC. 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.
The insurer assumes liability only for a
loss proximately caused by the perils
insured against although a peril is not
insured against may have been a remote
cause of the loss.
Proximate cause: That which, in a
natural and continuous sequence,
unbroken by any new independent cause,
produces an event and without which the
event would not have occurred.
o Not immediate cause

SEC. 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.
Here, it is the efforts to rescue the thing
that caused the loss.
But the insured is bound to exercise a
reasonable degree of care in removing the
goods.
SEC. 88. Where a peril is especially
excepted in a contract of insurance, a loss,
which would not have occurred but for
such peril, is thereby excepted although the
immediate cause of the loss was a peril
which was not excepted.
The insurer is not liable if the proximate
cause of the loss is a peril excepted from
the policy although the immediate cause
is a peril not excepted.
SEC. 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
The insurer is not liable for a loss caused
by the intentional act of the insured or
through his connivance.
Loss caused by negligence of insured
1. Where there is ordinary negligence—
one of the purposes for taking out
insurance is to protect the insured against
the consequences of his own negligence
and that of his agents. Thus, it is a basic
rule in insurance that the carelessness and
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negligence of the insured or his agents
constitute no defense on the part of the
insurer. Note: The doctrine of
contributory negligence does not in any
way apply to rights under a contract of
insurance.
2. Where there is gross negligence—
relieves the insurer from liability.
Note: It is the absence or failure to
exercise even the slightest degree of care.
NOTICE OF LOSS
DOCTRINES
A. NOTICE OF LOSS IN FIRE
INSURANCE
1.PACIFIC BANKING CORP. V. CA
It is not disputed that the insured failed to
reveal before the loss three other
insurances. As found by the Court of
Appeals, by reason of said unrevealed
insurances, the insured had been guilty of
a false declaration; a clear
misrepresentation and a vital one because
where the insured had been asked to
reveal but did not, that was deception.
Otherwise stated, had the insurer known
that there were many co-insurances, it
could have hesitated or plainly desisted
from entering into such contract. Hence,
the insured was guilty of clear fraud.
Consequently, “the whole foundation of
the contract fails, the risk does not attach
and the policy never becomes a contract
between the parties. Representations of
facts are the foundation of the contract
and if the foundation does not exist, the
superstructure does not arise. Falsehood
in such representations is not shown to

vary or add to the contract, or to terminate
a contract which has once been made, but
to show that no contract has ever existed.
As the insurance policy against fire
expressly required that notice should
be given by the insured of other
insurance upon the same property, the
total absence of such notice nullifies the
policy.
Undoubtedly, it is but fair and just that
where the insured who is primarily
entitled to receive the proceeds of the
policy has by its fraud and/or
misrepresentation, forfeited said right,
with more reason, petitioner which is
merely claiming as indorsee of said
insured, cannot be entitled to such
proceeds.
B. ALTERATION IN THE USE OR
CONDITION OF THE THING INSURED
1.MALAYAN INSU. CO. V. PAP CO., LTD.
Under Section 168 of the Insurance Code,
the insurer is entitled to rescind the
insurance contract in case of an alteration
in the use or condition of the thing
insured. Section 168 of the Insurance
Code provides, as follows: Section 68.
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. Accordingly,
an insurer can exercise its right to rescind
an insurance contract when the following
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conditions are present, to wit: 1) the
policy limits the use or condition of the
thing insured; 2) there is an alteration in
said use or condition; 3) the alteration is
without the consent of the insurer; 4) the
alteration is made by means within the
insured’s control; and 5) the alteration
increases the risk of loss?
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 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.
SEC. 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.
Conditions after loss
1. Sections 90 and 91 establish conditions
concerning matters after the loss that
must be fulfilled before the insured
becomes entitled to the benefit of a fire
insurance policy, namely: written notice
of loss must be given to the insurer and
when required by the policy, a
preliminary proof of loss must likewise
be given.
2. These conditions shall be construed with
much less strictness than those conditions
that operate prior to the loss.

The purpose of a notice of loss is to apprise
the insurer with the occurrence of the loss, so
that it may gather information and make
proper investigation while the evidence is
still fresh, and take such action as may be
necessary to protect its interest from fraud or
imposition; in the case of property insurance,
to prevent further loss to the property.
Time for giving a notice of loss
1. Fire insurance policy
o Must be given without
unnecessary delay (must be given
within a reasonable time)
o What constitutes a reasonable
time depends on the
circumstances of the particular
case
2. Non-life insurance policy
o The Commissioner may specify
the period for the submission of
the notice of loss
3. The insurance contract may provide that
the notice of loss shall be given within a
stated time after the loss occurs and that
failure to give the notice within such time
shall preclude recover. Such provision is
valid provided the time so fixed is not
unreasonably short.
Meaning and nature of proof of loss
1. Proof of loss is the more or less formal
evidence given the company by the
insured or claimant under a policy of the
occurrence of the loss, the particulars
thereof and the data necessary to enable
the company to determine its liability
and the amount thereof.
2. It is not what is known in the law of
evidence as "proof" or "evidence" for the
consideration of the trial court, and it
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does not stand for proof in court. Loss
and its amount may be determined on the
basis of such proof as may be offered by
the insured which need not be of such
persuasiveness as is required in judicial
proceedings.
Form of notice or proof of loss
In case of fire insurance: the law requires
a written notice
Other non-life insurance: the law is
silent; hence, the notice may be given
orally or in writing
Burden of proof of loss in court action: the
insured has the burden of proving that he has
suffered loss.
Excuses for non-compliance with
conditions
Failure on the part of the insured to
comply strictly with their terms will be
excused when the circumstances were
such as to make strict compliance
impossible.
The failure to give notice and proof of
loss will be excused when it is due to the
death or incapacity of the insured or the
fact that the beneficiary had no
knowledge of the existence of the policy
of the insured who died.
SEC. 92. All defects in a notice of loss, or
in preliminary proof thereof, which the
insured might remedy, and which the
insurer omits to specify to him, without
unnecessary delay, as grounds of
objection, are waived.
Insurer must be satisfied when the
insured has done all in his powers to
furnish the information stipulated for in
the policy.

It is the duty of the dissatisfied insurer to
indicate the defects in the proofs of loss
as given, so that the deficiencies may be
supplied.
SEC. 93. Delay in the presentation to an
insurer of notice or proof of loss is waived
if caused by any act of him, or if he omits
to take objection promptly and specifically
upon that ground.
Waiver of delay in the presentation of
notice or proof of loss may be made:
1. By an act of the insurer; and
2. By failure to take objection promptly
and specifically upon that ground
SEC. 94. If the policy requires, by way of
preliminary proof of loss, the certificate or
testimony of a person other than the
insured, it is sufficient for the insured to
use reasonable diligence to procure it, and
in case of the refusal of such person to give
it, then to furnish reasonable evidence to
the insurer that such refusal was not
induced by any just grounds of disbelief in
the facts necessary to be certified or
testified.
It has been held that the requirement
under this section must be liberally
construed in favor of the insured.
DOUBLE INSURANCE
CLASS DISCUSSION
In double insurance, MEMORIZE the 5
requisites.
1. The person insured is the same.
2. Two or more insurers insuring separately.
3. There is identity of subject matter.
4. There is identity of interest insured; and
5. There is identity of risk or peril insured
against.
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Please don’t forget, all must concur.
If only one of them is absent, there is no
double insurance. In fact, please don’t
forget, double insurance is not prohibited
under the law. What is prohibited is over-
insurance. Double insurance is not
prohibited but it is discouraged because when
there is double insurance, in more likelihood,
there will be over-insurance.
An example of a clause that is automatically
inserted in a fire insurance policy that would
discourage double insurance is the “Other
Insurance Clause”
DOCTRINES
1.GEAGONIA V. CA & COUNTRY BANKERS
INS. CORP.
Condition 3 of the private respondent's
Policy No. F-14622 is a condition which
is not proscribed by law. Its incorporation
in the policy is allowed by Section 75 of
the Insurance Code which provides that
"[a] policy may declare that a violation of
specified provisions thereof shall avoid it,
otherwise the breach of an immaterial
provision does not avoid the policy."
Such a condition is a provision which
invariably appears in fire insurance
policies and is intended to prevent an
increase in the moral hazard. It is
commonly known as the additional or
"other insurance" clause and has been
upheld as valid and as a warranty that no
other insurance exists. Its violation would
thus avoid the policy. However, in order
to constitute a violation, the other
insurance must be upon the same subject
matter, the same interest therein, and the
same risk.

As to a mortgaged property, the
mortgagor and the mortgagee have each
an independent insurable interest therein
and both interests may be covered by one
policy, or each may take out a separate
policy covering his interest, either at the
same or at separate times. The
mortgagor's insurable interest covers the
full value of the mortgaged property,
even though the mortgage debt is
equivalent to the full value of the
property. The mortgagee's insurable
interest is to the extent of the debt, since
the property is relied upon as security
thereof, and in insuring he is not insuring
the property but his interest or lien
thereon. His insurable interest is prima
facie the value mortgaged and extends
only to the amount of the debt, not
exceeding the value of the mortgaged
property. Thus, separate insurances
covering different insurable interests may
be obtained by the mortgagor and the
mortgagee.
A double insurance exists where the same
person is insured by several insurers
separately in respect of the same subject
and interest. As earlier stated, the
insurable interests of a mortgagor and a
mortgagee on the mortgaged property are
distinct and separate. Since the two
policies of the PFIC do not cover the
same interest as that covered by the
policy of the private respondent, no
double insurance exists. The non-
disclosure then of the former policies was
not fatal to the petitioner's right to recover
on the private respondent's policy.
The rationale behind the incorporation of
"other insurance" clause in fire policies is
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to prevent over-insurance and thus avert
the perpetration of fraud. When a
property owner obtains insurance policies
from two or more insurers in a total
amount that exceeds the property's value,
the insured may have an inducement to
destroy the property for the purpose of
collecting the insurance. The public as
well as the insurer is interested in
preventing a situation in which a fire
would be profitable to the insured.
ATTY. TAYAG: There is no double
insurance because there is no identity of the
insurable interest insured.
Even though there is identity in the property,
there is no double insurance because there is
no identity of the insurable interest insured.
The person insured is also different.
The carrier always has insurable interest over
the property it undertook to transport under
its Contract of Carriage.
2.MALAYAN INSU. CO. V. PHIL. FIRST INSU.
CO.
A common carrier becomes a private
carrier when it undertakes to carry a
special cargo or chartered to a special
person only.
By the express provision of Section 93 of
the Insurance Code, double insurance
exists where the same person is insured
by several insurers separately in respect
to the same subject and interest and risk.
The requisites in order for double
insurance to arise are as follows: 1. The
person insured is the same; 2. Two or
more insurers insuring separately; 3.
There is identity of subject matter; 4.

There is identity of interest insured; and
5. There is identity of the risk or peril
insured against.
There is solidary liability only when the
obligation expressly so states, when the
law so provides or when the nature of the
obligation so requires. Where the
insurance contract provides for indemnity
against liability to third persons, the
liability of the insurer is direct and such
third persons can directly sue the insurer.
The direct liability of the insurer under
indemnity contracts against third party[-
]liability does not mean, however, that
the insurer can be held solidarily liable
with the insured and/or the other parties
found at fault, since they are being held
liable under different obligations. The
liability of the insured carrier or
vehicle owner is based on tort, in
accordance with the provisions of the
Civil Code; while that of the insurer
arises from contract, particularly, the
insurance policy.
PROVISIONS AND NOTES FROM THE
BOOK OF DE LEON
SEC. 95. A double insurance exists where
the same person is insured by several
insurers separately in respect to the same
subject and interest.
In double insurance, there is co-insurance
by two or more insurers; hence it is also
known as co-insurance.
Requisites of double insurance
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. The subject matter is the same;
4. The interest insured is also the same; and
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5. The risk or peril insured against is likewise
the same
Double insurance distinguished from over-
insurance
Double insurance Over-insurance
There may be no The amount of the
over-insurance as insurance is beyond
when the sum total the value of the
of the amounts of insured’s insurable
the policies issued interest
does not exceed the
insurable interest of
the insured
There are always There may be only
several insurers one insurer
involved
Note: They may exist at the same time.
Binding effect of stipulation against double
insurance
1. A policy which contains no stipulation
against additional insurance is not
invalidated by the procuring of such
insurance.
2. Additional insurance obtained by the
insured—it is valid and reasonable, and
in the absence of consent, waiver or
estoppel on the part of the insurer, a
breach thereof will prevent recovery on
the policy. However, in order to
constitute a violation, the other
insurance must be upon the same
subject matter, the same interest
therein, and the same risk.
3. Additional insurance obtained by a
third person— without the knowledge
or consent of the insured will not affect
his rights under the policy in the absence
of ratification.
Purpose of prohibition against double

insurance: To prevent over-insurance and
thus avert the perpetration of fraud
SEC. 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.
A contract of insurance is a contract of
indemnity. The insured can recover no more
than the amount of his insurable interest.
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The rules provided under Sec. 96 enunciate
the principle of contribution which requires
each insurer to contribute ratably to the loss
or damage considering that the several
insurances cover the same subject matter and
interest against the same peril. They apply
only where there is over-insurance by
double insurance.
REINSURANCE
CLASS DISCUSSION
Amjur doctrine which says that a reinsurance
company is not deemed doing business in
certain state even though the person or
property insured is located in that state.
*Please see the Avon Insurance Case below*
A contract of contract of re-insurance is a
contract between the original insurer, who
then becomes the re-insured, and the re-
insurer. So please don’t forget Sec. 100,
SEC. 100. The original insured has no
interest in a contract of reinsurance.
In the absence of a stipulation pour outri or
stipulation in favor of the original insured,
the original insured does not have any direct
cause of action to file a case against the re-
insurer kasi sino ang ka-privity of contract ni
re-insurer? Si insurer. And, it is the insurer
now who can run after re-insurer.
Under the law, insurance companies are not
just permitted but they are required to re-
insure certain amount.
DOCTRINES
1.AVON INS. PLC., ET.AL V. CA &
YUPANGCO COTTON MILLS, ET.AL
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The reinsurance treaties between the PROVISIONS AND NOTES FROM THE
petitioners and Worldwide Surety and BOOK OF DE LEON
Insurance were made through an SEC. 97. A contract of reinsurance is one
international insurance broker, and not by which an insurer procures a third person
through any entity or means remotely to insure him against loss or liability by
reason of such original insurance.
connected with the Philippines.
Definition of a contract of reinsurance: it is
Moreover, there is authority to the effect
a contract whereby one party, the reinsurer,
that a reinsurance company is not doing
agrees to indemnify another, the reinsured
business in a certain state merely because (original insurer), either in whole or in part,
the property or lives which are insured by against loss or liability which the latter may
the original insurer company are located sustain or incur under a separate and original
in that state. The reason for this is that a contract of insurance with a third party, the
contract of reinsurance is generally a original insured.
separate and distinct arrangement from
the original contract of insurance, whose Such contracts are sometimes referred to as
contracted risk is insured in the treaties.
reinsurance agreement. Hence, the
original insured has generally no interest Reinsurance distinguished from double
in the contract of reinsurance. insurance
Double Insurance Reinsurance
2.IVOR GIBSON V. HON. REVILLA & The insurer remains The insurer
LEPANTO CONSOLIDATED MINING CO. as the insurer of the becomes the
Defenses that reinsurer may avail against original insured insured, insofar as
the reinsured. —Petitioner’s contention the reinsurer is
concerned
that he has to pay once Malayan is finality
The subject of the It is the original
adjudged to pay Lepanto because of the
insurance is insurer's risk
very nature of a contract of reinsurance
property
and considering that the re-insurer is
An insurance of the An insurance of a
obliged ‘to pay as may be paid thereon
same interest different interest
(referring to the original policies),
The insured is the The original
although this is subject to other
party in interest in insured has no
stipulations and conditions of the
all the contracts interest in the
reinsurance contract, is without merit. contract of
The general rule in the law of reinsurance reinsurance
is that the re-insurer is entitled to avail which is
itself of every defense which the re- independent of
insured (which is Malayan) might urge in the original
an action by the person originally insured contract of
(which is Lepanto). insurance
The insured has to The consent of

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give his consent the original
insured (who is
hardly even aware
of the reinsurance
transaction) is not
necessary
SEC. 98. Where an insurer obtains
reinsurance, except under automatic
reinsurance treaties, he must communicate
all the representations of the original
insured, and also all the knowledge and
information he possesses, whether
previously or subsequently acquired,
which are material to the risk.
The duty of the original insurer to disclose all
material facts is no less than the similar duty
imposed on a person seeking an original
insurance. Thus, a policy may be avoided
where the reinsured conceals the fact that a
loss has taken place or that the property is
over-insured where he has knowledge
thereof.
Automatic and facultative methods of
ceding insurance
1. Share or participation in risk insured—
the rule in Section 98 does not apply in
case of automatic reinsurance treaties
under which the ceding company
(reinsured) is bound to cede (give off by
way of reinsurance) and the reinsurer is
obliged to accept a fixed share of the risk
which has to be reinsured under the
contract.
In a facultative insurance, which covers
liability on individual risk, there is no
obligation either to cede or to accept
participation in the risk insured, each party
having a free choice. But once the share is
accepted, the obligation is absolute and
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the liability assumed thereunder can be
discharged by one and only way— payment
of the share of the losses. There is no
alternative or substitute prestation.
2. The main advantage of automatic method
is avoidance of any delay in issuing its
policy.
SEC 99. A reinsurance is presumed to be a
contract of indemnity against liability, and
not merely against damage.
The subject matter of a contract of
reinsurance is the primary insurer’s risk
and not the property insured under the
original policy.
The contract of insurance is independent
and separate from the contract of
reinsurance.
The rule on subrogation is applicable.
SEC. 100. The original insured has no
interest in a contract of reinsurance.
There is no privity of contract between
the original reinsured and the reinsurer.
The reinsurer is entitled to avail itself of
every defense which the reinsured might
urge in an action by the person originally
insured.
Liability of reinsurer to original insured
The original insured may stand in any of 3
relations towards the reinsurer in
accordance with the terms of the particular
contract of reinsurance.
1. Contract of reinsurance solely between
insurer and reinsurer—Unless the
reinsurance contract contains
stipulation assigning the right of the
insurer in favor of the insured, the
latter, not being a privy to the contract,
has no cause of action against the
reinsurer, but only against the insurer.

2. Contract of reinsurance with
stipulation in favor of original
insured—the contract of reinsurance
may contain a provision whereby the
reinsurer binds himself to pay to the
policyholder any loss for which the
insurer may become liable. In this case,
the remedy of the insured is both
against the reinsurer and the original
insurer.
3. Contract of reinsurance amounting to
novation of original contract—the
original insured may also maintain an
action directly against the reinsurer in
those cases in which the circumstances
attending the making of the contract of
reinsurance amount to a novation of the
original contract and hence, operate to
discharge that contract and the original
insurer from all obligations thereunder.
The original insurer however, will be
released only when the insured agrees
with the insurer and reinsured to the
novation.
MOTOR VEHICLE LIABILITY
INSURANCE
CLASS DISCUSSION
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);
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"(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.”
Rationale: to provide immediate payment or
compensation to the victims of an accident;
those resulting in the death or injury of the
passengers or third parties
Whoever is the party who would be required
to pay by the victim pursuant to Sec. 391 has
the right to seek reimbursement from the
party ultimately responsible for the accident.
Paramount Insurance v. Sps.
Remondeulaz and Jewel Villacorta v.
Insurance Commission, et.al: Anti-theft
clause
Vda. De Maglana v. Hon Consolacion, et.al
and Heirs of George Y. Poe v. Malayan
Insu. Co.: In a 3rd party liability insurance,
which provides that even third parties can
claim against the insurer, the insurer cannot
automatically be held solidarily liable with

the insured because the cause of action arose
from different grounds (culpa contractual
based on the insurance policy for the insurer
(cannot be held liable for more than the
amount stipulated in the policy, culpa
aquiliana for the insured or driver)
Authorized Driver Clause (applicable only
when the one driving is not the insured)
2 Requisites:
1. The driver must be authorized by the
insured
2. Drive must be duly licensed to drive
DOCTRINES
1.PARAMOUNT INSU. V. SPS. REMONDEULAZ
Records would show that respondents
entrusted possession of their vehicle
only to the extent that Sales will
introduce repairs and improvements
thereon, and not to permanently
deprive them of possession thereof.
Since, Theft can also be committed
through misappropriation, the fact that
Sales failed to return the subject vehicle
to respondents constitutes Qualified
Theft. Hence, since respondents’ car is
undeniably covered by a Comprehensive
Motor Vehicle Insurance Policy that
allows for recovery in cases of theft,
petitioner is liable under the policy for the
loss of respondents’ vehicle under the
“theft clause.”
2. VDA. DE MAGLANA V. HON
CONSOLACION, ET.AL
“Where an insurance policy insures
directly against liability, the insurer’s
liability accrues immediately upon the
occurrence of the injury or event upon
which the liability depends, and does not
depend on the recovery of judgment by
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the injured party against the insured.” The
underlying reasons behind the third party
liability (TPL) of the Compulsory Motor
Vehicle Liability Insurance is “to protect
injured persons against the insolvency of
the insured who causes such injury, and
to give such injured person a certain
beneficial interest in the proceeds of the
policy x x x.” Since petitioners had
received from AFISCO the sum of
P5,000.00 under the no-fault clause,
AFISCO’s liability is now limited to
P15,000.00.
3.HEIRS OF GEORGE Y. POE V. MALAYAN
INSU. CO.
It is settled that where the insurance
contract provides for indemnity against
liability to third persons, the liability of
the insurer is direct and such third persons
can directly sue the insurer. The direct
liability of the insurer under indemnity
contracts against third party liability does
not mean, however, that the insurer can
be held solidarily liable with the insured
and/or the other parties found at fault,
since they are being held liable under
different obligations. The liability of the
insured carrier or vehicle owner is based
on tort, in accordance with the provisions
of the Civil Code; while that of the insurer
arises from contract, particularly, the
insurance policy. The third-party liability
of the insurer is only up to the extent of
the insurance policy and that required by
law; and it cannot be held solidarily liable
for anything beyond that amount. Any
award beyond the insurance coverage
would already be the sole liability of the
insured and/or the other parties at fault.
4. JEWEL VILLACORTA V. INSURANCE
COMMISSION, ET.AL
The main purpose of the “authorized
driver” clause, as may be seen from its

text, supra, is that a person other than the
insured owner, who drives the car on the
insured’s order, such as his regular driver,
or with his permission, such as a friend or
member of the family or the employees of
a car service or repair shop must be duly
licensed drivers and have no
disqualification to drive a motor vehicle.
A car owner who entrusts his car to an
established car service and repair shop
necessarily entrusts his car key to the
shop owner and employees who are
presumed to have the insured’s
permission to drive the car for legitimate
purposes of checking or road-testing the
car. The mere happenstance that the
employee(s) of the shop owner diverts the
use of the car to his own illicit or
unauthorized purpose in violation of the
trust reposed in the shop by the insured
car owner does not mean that the
“authorized driver” clause has been
violated such as to bar recovery, provided
that such employee is duly qualified to
drive under a valid driver’s license.
5. JAMES STOKES V. MALAYAN INSU. CO.
Under the “authorized driver” clause, an
authorized driver must not only be
permitted to drive by the insured. It is also
essential that he is permitted under the
law and regulations to drive the motor
vehicle and is not disqualified from so
doing under any enactment or regulation.
At the time of the accident, Stokes had
been in the Philippines for more than 90
days. Hence, under the law, he could not
drive a motor vehicle without a
Philippine driver’s license. He was
therefore not an “authorized driver”
under the terms of the insurance policy in
question, and MALAYAN was right in
denying the claim of the insured.
6. ANDREW PALERMO V. PYRAMID INSU. CO
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There is no merit in the appellant’s
allegation that the plaintiff was not
authorized to drive the insured motor
vehicle because his driver’s license had
expired. The driver of the insured motor
vehicle at the time of the accident was the
insured himself, hence an “authorized
driver” under the policy.
While the Motor Vehicle Law prohibits a
person from operating a motor vehicle on
the highway without a license or with an
expired license, an infraction of the
Motor Vehicle Law on the part of the
insured, is not a bar to recovery under the
insurance contract. It however renders
him subject to the penal sanctions of the
Motor Vehicle Law.
The requirement that the driver be
“permitted in accordance with the
licensing or other laws or regulations to
drive the Motor Vehicle and is not
disqualified from driving such motor
vehicle by order of a Court of Law or by
reason of any enactment or regulation in
that behalf,” applies only when the driver
“is driving on the insured’s order or with
his permission.” It does not apply when
the person driving is the insured himself.
In an American case, where the insured
herself was personally operating her
automobile but without a license to
operate it, her license having expired
prior to the issuance of the policy. the
Supreme Court of Massachusetts was
more explicit: “x x x Operating an
automobile on a public highway without
a license, which act is a statutory crime is
not precluded by public policy from
enforcing a policy indemnifying her
against liability for bodily injuries
inflicted by use of the automobile.”
7. AGAPITO GUTIERREZ V. CAPITAL INSU. &
SURETY CO. INC.

We hold that paragraph 13 of the policy,
already cited, is decisive and controlling
in this case. It plainly provides, and we
repeat, that “a driver with an expired
Traffic Violation Receipt or expired
Temporary Operator’s permit is not
considered an authorized driver within
the meaning” of the policy. Obviously,
Ventura was not an authorized driver. His
temporary operator’s permit had expired.
The expiration bars recovery under the
policy.
It may be that for purposes of the Motor
Vehicle Law the TVR is coterminous
with the confiscated license. That is why
the Acting Administrator of the Motor
Vehicles Office and the Manila deputy
chief of police ventured the opinion that a
TVR does not suspend the erring driver’s
license, that it serves as a temporary
license and that it may be renewed but
should in no case extend beyond the
expiration date of the original license
But the instant case deals with an
insurance policy which definitively fixed
the meaning of “authorized driver”. That
stipulation cannot be disregarded or
rendered meaningless. It is binding on the
insured.
Duty of insured to see to it that his driver
is authorized as provided for in the
policy, a requirement for recovery;
Insurance policy, considered the law
between the parties.—It means that to be
entitled to recovery the insured should
see to it that his driver is authorized as
envisaged in paragraph 13 of the policy
which is the law between the parties. The
rights of the parties flow from the
insurance contract.
8. PERLA COMPANIA DE SEGUROS, INC. V.
HON. CONSTANTE ANCHETA, ET.AL
From a reading of the provision, which is
couched in straightforward and
unambiguous language, the following
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rules on claims under the “no fault
indemnity” provision, where proof of
fault or negligence is not necessary for
payment of any claim for death or injury
to a passenger or a third party, are
established: 1. A claim may be made
against one motor vehicle only. 2. If the
victim is an occupant of a vehicle, the
claim shall lie against the insurer of the
vehicle in which he is riding, mounting or
dismounting from. 3. In any other case
(i.e. if the victim is not an occupant of a
vehicle), the claim shall lie against the
insurer of the directly offending vehicle.
4. 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.
The law is very clear—the claim shall lie
against the insurer of the vehicle in which
the “occupant” is riding, and no other.
The claimant is not free to choose from
which insurer he will claim the “no fault
indemnity,” as the law, by using the word
“shall,” makes it mandatory that the claim
be made against the insurer of the vehicle
in which the occupant is riding, mounting
or dismounting from.
That said vehicle might not be the one
that caused the accident is of no moment
since the law itself provides that the party
paying the claim under Sec. 378 may
recover against the owner of the vehicle
responsible for the accident. This is
precisely the essence of “no fault
indemnity” insurance which was
introduced to and made part of our laws
in order to provide victims of vehicular
accidents or their heirs immediate
compensation, although in a limited
amount, pending final determination of
who is responsible for the accident and
liable for the victims’ injuries or death. In
turn, the “no fault indemnity” provision is
part and parcel of the insurance Code
provisions on compulsory motor vehicle

liability insurance [Sec. 373- 389] and
should be read together with the
requirement for compulsory passenger
and/or third party liability insurance [Sec.
377] which was mandated in order to
ensure ready compensation for victims of
vehicular accidents.
Irrespective of whether or not fault or
negligence lies with the driver of the
Superlines bus, as private respondents
were not occupants of the bus, they
cannot claim the “no fault indemnity”
provided in Sec. 378 from petitioner. The
claim should be made against the insurer
of the vehicle they were riding. This is
very clear from the law. Undoubtedly, in
ordering petitioner to pay private
respondents the “no fault indemnity,”
respondent judge gravely abused his
discretion in a manner that amounts to
lack of jurisdiction. The issuance of the
corrective writ of certiorari is therefore
warranted.
LIFE INSURANCE
PROVISIONS
SEC. 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.
SEC. 182. An insurance upon life may be
made payable on the death of the person,
or on his surviving a specified period, or
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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 pursuant to this section shall relieve
such insurer of any liability under the
contract.
SEC. 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)
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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.

SEC. 184. A policy of insurance upon life

or health may pass by transfer, will or
succession to any person, whether he has
an insurable interest or not, and such
person may recover upon it whatever the
insured might have recovered.

SEC. 185. Notice to an insurer of a transfer

or bequest thereof is not necessary to
preserve the validity of a policy of
insurance upon life or health, unless
thereby expressly required.

SEC. 186. Unless the interest of a person

insured is susceptible of exact pecuniary
measurement, the measure of indemnity
under a policy of insurance upon life or
health is the sum fixed in the policy.

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