Insurance Law Notes

INSURANCE LAW
REVIEW
From the lectures of Atty. Cecilia Jover-Angeles
S.Y. 2020-2021
ATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW
Jacinto St., Davao City
INSURANCE LAW REVIEW
ATENEO DE DAVAO COLLEGE OF LAW
S.Y. 2020-2021
First Meeting
We know that insurable interest is the backbone of Insurance Law. If you don’t have an insurable
interest, you cannot get an insurance policy.
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A past or future event can be the subject of insurance. Provided that, if the risk insured occurs, the
person getting the insurance will be damnified.
Damnified – suffered loss, damage or liability.
GR: Anything with appreciable value will be insurable.
Of course, those things which are subject to loss or deterioration or if somebody is deprived and that
deprivation will cause him to be prejudiced pecuniarily. So the loss has a pecuniary value. And if the
risk insured against happens or occurs, then that person may be prejudiced. So you’re talking about
APPRECIABLE PECUNIARY VALUE. If there is no appreciable pecuniary value or monetary value, then
that may not be the subject of insurance.
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The subjects of insurance can be categorized into 2 major categories:
 Property insurance – also known as non-life insurance.

 Life insurance – this covers life, health and accident insurance.
In an insurance contract, you have the insured and the insurer – that is for property insurance.
In a life insurance contract, you have 3 parties actually:
 Assured – the one who took out the insurance contract policy. The one who took out the
accident or health insurance policy;
 Insured – the person whose life is covered by the insurance;
 Beneficiary – the person to whom the proceeds of the insurance policy will go in the event
of death. So you have the party who receives from the insurance policy.
In property insurance, the insured party is also the beneficiary because it is unto him that the
proceeds of the property of the insurance will be given.
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Actually casualty insurance falls under the general category of non-life insurance.
You take out casualty insurance because you want to protect yourself from possible liability. So it’s
insurance against perils which may affect a person or property of the insured and give rise to a
liability on his part.
Q: What is that liability?
To pay damages to another person or party that has suffered physical injury. Usually it’s physical
injury. The 3rd party is called, if the policy has a stipulation that is in favor of a 3 rd party, it is called
a stipulation pour autrui.
The subject matter of the casualty insurance or liability insurance is the insured’s risk of loss or
liability. That he suffered loss or be compelled to indemnify a 3 rd person for the loss suffered by a
3rd person.
Example:
If you are a property owner, you take out a building insurance. In that insurance, you have to make
sure that you are covered for any possible liability that may arise. In the event that a 3 rd party,
who is not a tenant in your building; a 3 rd party who is a mere passerby of your building, will slip
and fall, even if you have no contract with that person, but because you are the owner of the
building, then you have a liability to that 3 rd party.
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Actually, that liability is under the principle of tort, you have no contractual relationship, however
you have a duty to maintain the premises of your building. The standard of duty there is the
diligence of a good father of a family.
Because there is tort, a liability may possibly arise for failing to maintain the safety of the premises.
So if were talking about that liability and that liability is covered by your building insurance, that
means that your building insurance also has the features of a casualty insurance. If the passerby
suffers a slip and fall, has to be hospitalized for 2 weeks or months and loses income, if he pursues
an action in court, then if it so happens that you as the insured has been impleaded as one of the
parties, the insurance company needs to be impleaded as well because as far as you (insured) are
concerned, you are covered by liability insurance. In the event that you are made liable by
judgment of the court, your liability will be compensated for by the insurance company.
NOTE: All insurance against loss and liability is not within the scope of fire insurance, marine
insurance, suretyship insurance or life insurance, they may fall under casualty insurance.
Q: Is this still true (referring to the contingency or unknown event) up to now?
Yes, it’s still true up to now, notwithstanding the advances of telecommunications or other forms of
technology.
LIABILITY FOR FORTUITOUS EVENT
GR: Yes, if the FE is the event is the peril insured against and is the proximate case for the loss.
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So the insurance company may interpose, “but it’s a fortuitous event. It’s the will of God.” Well, the
fortuitous event is exactly what you have sought insurance for.
Mga vessels out in the sea, when they take out marine insurance coverage for their vessels, what they
have in mind is protection from storms, inclement weather – these are also fortuitous events! These are
by nature, considered as fortuitous events.
Q: If the wreckage is caused by a fortuitous event, can the insurance company claim that it is
not liable because of a fortuitous event?
No, it is precisely that those events that are covered by the insurance policy. But it must be stated
in the policy itself. The event or the peril insured against must be in the policy itself. And the
fortuitous event must be the PROXIMATE CAUSE of the loss.
Here, we’re focusing on life insurance policy.
Q: Do you need the consent of the other spouses to take out an insurance policy for the
insurance on the children?
No, consent of the spouse is not necessary for the validity of an insurance policy taken out by a
married person.
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This provision is very clear that a wife doesn’t have to get the approval of the husband in order for
the wife to take out a life insurance policy over the children or even over the life of her husband or
on her separate paraphernal property or even on the property given by the husband.
Property given by the H could be gifts. The W can take out insurance policy over the gift without
need to get the consent of her H.
STATUS OF CONTRACT: Voidable. The insurance policy/contract would be valid until annulled in
an action in court brought by the minor or his legal representative.
If the policy is affirmed by the minor, meaning, the minor consented to the policy, the insurer is liable
and cannot escape liability by pleading the minority of the person as a defense. So minority is a
defense under Article 1397.
Persons who are capable cannot allege the incapacity of those whom they contracted: The insurance
company being a juridical person, cannot allege the incapacity of the minor they contracted with.
They cannot raise that as a defense.
Q: Who can raise that as a defense?
It would be the minor himself.
If the contract is fair and without fraud, the minor cannot recover the premiums paid if he could not
return the benefits that he received.
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If the minor does not deny that he entered into a contract, then the insurer is liable by the terms of the
insurance contract. The insurer cannot escape liability by saying that the other party is a minor. But if
the minor denies the contract, alleging that he entered into the contract by fraud, then the minor can
invalidate the contract. In the meantime that the contract is not invalidated, it’s valid. So the insurance
contract is merely voidable – valid until annulled by the minor in an action he brings to court with his
legal representative.
Q: What are these rights of a minor under the policy?
The minor can obtain a policy loan, can surrender the policy.
Q: When you surrender the policy, what do you get in return as long as you have already
complied with the 3-year rule?
Cash surrender value.
Let’s say that you surrender the policy at the 10th year and you don’t want any more to pay the
premiums, your life insurance policy earns actually a value from year to year. So when you
surrender it, you get back your CSV. Of course, it’s not the amount that appears on the policy itself,
but it is a pre-determined amount by the insurance company.
Receiving the proceeds of the policy:
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As a beneficiary, that’s one of the rights of a minor that he may exercise in the policy if he’s the
beneficiary.
All of these minor rights will be exercised by the minor’s legal representative. Before this new law was
passed, yung guardian will have to apply and will have to get a declaration from the court in a
guardianship proceedings, in order to represent a minor in a claim against an insurance company. It’s
such a hassle. Imagine going to court to get a guardianship order for you to legitimately make a claim
against the insurance company. But now, these are the people who can represent the minor even without
court order:
 Judicial guardian – understandably, is appointed by the court; or

 Natural guardian – the father or in his absence, the mother; or
PLS. REMEMBER THIS PARTICULAR PROVISION.
These are the 3 people in a life insurance policy:
 Assured
 Insured
 Beneficiary
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*The assured and insured may be one and the same person. The assured and the beneficiary can also
be one and the same person. Pero itong insured and beneficiary may also be the same person. If the
insured dies, if the beneficiary is also himself, then it goes to his estate.
In applying Section 3, the original owner of a life/health insurance policy who takes out a life
insurance policy over the life of the insured (let’s say the insured is a minor), when the assured dies,
all his rights, title and interest in the policy will automatically be vested in the insured. Even if the
insured is a minor, he will have rights, title and interest in the policy. Unless otherwise provided for
in the policy.
If the insured is not a minor, let’s say he’s of legal age; there’s no impediment as far as age is
concerned, the original assured (person who took out the insurance policy) dies, then all the rights,
titles and interest will automatically be vested in the insured, unless otherwise provided for in the
policy.
Good to remember this because the assured has rights, title and interest on that policy.
If the assured and the insured are different people, the insured actually has no right under the
insurance policy. His participation is his life being insured or being covered by the insurance policy.
Because of somebody else took out the life insurance on the life of the insured, it is that person
(assured) who has all the rights, title and interest in the policy.
(Check example in the slide)
If you can imagine Y being a minor, you go back to here. These are the rights of a minor. These are
now his rights:
The rights, title and interest are now passed on to the minor. So the minor will be represented by these
people: Judicial or the natural guardian.
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A contract of insurance of a reimbursement for ACTUAL LOSS. It’s not an estimated loss; it’s an actual
loss suffered from specified risks.
SPECIFIC RISKS – They are risks that are enumerated in the insurance contract.
If they are not enumerated in the insurance contract, they are not covered by insurance.
You cannot get an insurance for a drawing of a lottery – so magbili ka ng lotto, di ka pwedeng
magkuha ng insurance over your lotto.
*A contract of insurance is not a wagering or gambling contract.
(Check above example in the slide)
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Reason: Even if he doesn’t win, he does not suffer a loss.
INSURABLE INTEREST – One of the pillars of insurance law.
If you don’t have an insurable interest, you have no business of taking out an insurance policy.
 A person’s insurable interest may lie on himself, herself, spouse or children.

 On another person – he has insurable interest as long as he has pecuniary interest  this is
now different. If you are getting an insurance policy on a person who is neither your spouse or
your child, then you must have pecuniary interest either for education or support. So if it’s just
for blood relationship, that is not enough. Your uncle is taking out an insurance policy on the
niece, di yan pwede. Or you are taking out an insurance policy over your aunt, di yan pwede.
Blood relationship is not an insurable interest, unless there is a pecuniary interest involved in it
– e.g. education, support.
Love and affection, gratitude, friendship, by themselves, are not sufficient to be insurable
interests.
 Insurable interest on another person can be, as long as that person insured has a legal
obligation to him (meaning, to the person who took out insurance) for payment for money.
so a creditor takes out a life insurance policy on the life of a debtor but only as to the extent
of his debt. Or respecting property or service by which death or illness might delay or
prevent the performance thereof. So yung mga key personnel. Yung mga CEO, CFO,
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inventors – if the corporation feels that they will suffer a big loss if they die or suffer some
injury, then they have insurable interest in those lives.
 If an estate or interest is dependent on that life.
*Generally, ito talaga yung number 1,2,3, these are the insurable interests of a person who takes out a
life insurance policy on the life of another person.
Q: Do you need to have the consent of the person insured?
The owner of the policy, the assured (the one who pays the premium) must have insurable interest
on the life of the insured – yan ang pinaka requirement.
The insured is the life subject of the insurance.
The beneficiary is the one who receives the proceeds. He does not have to have insurable interest on
the life of the insured.
Consent of the person is not essential to the validity of the policy (Sec. 10).
“SEC. 10. Every person has an insurable interest in the life and health:
“(a) Of himself, of his spouse and of his children;
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“(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
“(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and
“(d) Of any person upon whose life any estate or interest vested in him depends.
What is required under Section 10 is that the life insured falls under the enumeration. If the life
insured does not fall under the enumeration, then the assured does not have insurable interest on
that life. Section 10 does not mention of consent. Section 10 does not require the insured to give
consent. Section 10 is the listing of the people whose life the assured can take out life insurance
policy.
It is important to show only that the assured has a legal insurable interest at the inception of
the policy.
The enumeration in Section 10 tells you if you have insurable interest on that life.
“SEC. 19. An interest in property insured must exist when the insurance takes effect, and
when the loss occurs, but need not exist in the meantime; and interest in the life or health of
a person insured must exist when the insurance takes effect, but need not exist thereafter or
when the loss occurs.
In Section 19, that insurable interest should be present only when you take out the life insurance
policy. After that, if you lose insurable interest, it’s of no moment as long as you continue to pay the
premiums, you continue to have insurable interest over that life.
Beneficiary in a life insurance need not have insurable interest of the life of the insured. Interest
of the beneficiary is on the proceeds of the policy.
VERY IMPORTANT TO UNDERSTAND: If you’re taking out a life insurance policy on the life of
another person, that insurable interest must exist at the inception of the policy.
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This words, damnify, that’s uniquely insurance law. When you write your answers to insurance law
questions, it would be good and actually impressive if you write it in the language of the particular law
that is being asked.
DAMNIFY – that person will suffer an injury.
Every interest, whether real or personal; any relation thereto for liability in respect therewith, of
such nature that if a peril happens may directly damnify the insured is an insurable interest.
(Last bullet):
Inchoate interest – something that’s not yet ripe. There is that interest in the future but it’s not yet
ripe.
Inchoate interest founded on an existing interest – there is a tie that will bind the two
Expectancy coupled with an existing interest out of which the expectancy arises – these are
very specific legal ties where an insurable interest in property may arise.
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I. EXISTING INTEREST WITH LEGAL TITLE:
Mortgagor on the property mortgaged
A mortgagor has an existing interest on the property mortgaged because he is the legal owner.
Lessor of the property that has been leased
He has an insurable interest.
The lessee and the sub-lessee may insure property leased or sub-leased
The assignee of a property may also insure for the benefit of creditors
II. EXISTING INTEREST WITH EQUITABLE TITLE:
Existing interest with an equitable title – iba yan. Equitable title is different from legal title. Usually
legal title in real property must be evidenced by some muniments or proof of ownership, like a TCT.
Example of existing interest with an equitable title:
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 Purchaser of a property before delivery – you purchased a property and money has been
paid but before the delivery  for example before the delivery of the title.
 If it’s a chattel, nagbayad kana noh, let’s say you already bought the car pero di pa
dinedeliver. You already have an insurable interest of the car even if it is still in the
showroom of Toyota or Mitsubishi. As a matter of fact, people when they purchase a car, they
purchase an insurance policy over the car right away pending delivery. Kase sabihin pa na
“lalagyan pa ng accessories Ma’am eh. Cguro mga 3 araw pa ito saaming kasa.” Ok lng, as
long as you’ve already taken out an insurance over the car.
Builders and contractors in the buildings pending payment of the construction price
Creditors under deed of assignment
III. INCHOATE INTEREST FOUNDED ON AN EXISTING INTEREST:
Stockholder on the property of a corporation which he is a stockholder
The existing interest arising from his ownership of the shares in the corporation.
NOTE: The SH has neither legal not equitable title to the assets of the corporation, but he has an
inchoate interest founded by an existing interest.
So if he chooses to spend money and say “I like to purchase a fire insurance policy over that building
there.” Insured naman yung building ng company. Well cguro marami lng talaga cyang pera, he can
do that because he’s a SH – he has an inchoate interest over an existing interest.
Q: What is his existing interest?
It’s the shares that he owns in that corporation.
A partner has an inchoate interest in the firm property
Q: What is his existing interest?
His share in the partnership, that is his existing interest.
IV. AN EXPECTANCY COUPLED WITH AN EXISTING INTEREST
Example:
A farmer may insure future crops if grown in his own land at the time of issuance of the policy.
That is why you can find insurance companies selling crop insurance.
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The event insured need not necessarily lead to loss. However, the fact that it may lead to loss is
already sufficient. And there is pecuniary injury as a result of that loss.
But if he is so situated with respect to the property that he will suffer loss as the proximate
result of its damage or destruction, then person has insurable interest
Problem:
I owned a carenderia just across a gasoline station. The gasoline station is frequented by
truckers. The truckers who stopped for meals, for a bit of shopping in the convenience store,
would cross the street and go to your carenderia. Then they would spend their breaktime
there in the carenderia and as a result, business is good. You tell yourself, “I would like to get
an insurance policy over that gasoline station because if that gasoline station gets damaged, burns
down, then my business also loses because where will all these trucks and buses go now? They would
be looking for other gasoline stations to frequent.”
Do you think that the carenderia owner has the insurable interest over the gasoline station?
Do you think that the carenderia owner can get a fire insurance policy over the gasoline
station?
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ANSWER:
There must be a right. Although we’re not talking about legal or equitable title. Although here we
know that there’s not even possession nor right to possession to the property insured, but there
must be a right.
The carenderia owner, estimate lang niya yan. She has no basis to say that “I have a right that
must be protected by an insurance policy.” So don’t lose sight of the fact that the fact that she is
situated in such a way na yung proximity ng carenderia niya sa gasoline station, that proximity
does not give her a right that must be covered by the insurance policy. That does not entitle her to
be covered by an insurance policy. That does not entitle her to protect her earnings because in the
1st place, she has no direct link to the property that she is insuring.
Yung aking theoretical question about that cerenderia is different from this case:
In my carenderia example, you may say that the carenderia benefits from the continued existence of
the gasoline station. But the gasoline station is a different entity. It has nothing to do with the carenderia.
There must be a tie that will bind the 2 together.
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Here in Harvardian Colleges, even if the Court declared that the relation to the property is such
that he will or may be benefitted by its continued existence, there is a tie that binds the 2. The
building is owned by Harvardian Colleges. The building sits on the property of the owner who is
part of the Harvardian Colleges, Inc. So there is an existing relationship. So the Court can very well
say that he will or may be benefited by its continued existence. Harvardian college will benefit from
its continued existence. Therefore, Harvardian Colleges has an insurable interest.
Ito kase, itong school builiding na ito, remember that accessory follows the principal. The owner of the
land is presumed to own the building. Here, the school building was built on the land of Ildefonso Yap
who personally owned the property. Ang sabi naman ng Harvardian Colleges is, “we have an insurable
interest over the school building.” What is the college for? Here, this is much appliacble to Harvardian
Colleges (The last bullet in the slide). But if you apply this to my carenderia example, I don’t think that
this will hold water because the carenderia cannot say that it has a tie that will bind it with the gasoline
station.
Of course it will be an entirely different story of the owner of 7/11 in that Shell complex is different
from the owner of the gasoline station running that 7/11. I would argue that it can because it sits on
the property of the land or in the perimeter of the gasoline station. It has a link or it has a tie that binds
it to the gasoline station. If something happens to the gasoline station, 7/11 will suffer pecuniary loss
definitely. So the 3rd bullet in the slide, is applicable.
Ma’am pertains to this:
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Here clearly, the hope of the carenderia owner that the business will continue to flourish because
of the gasoline station. The mere hope or expectancy is not actually founded on an actual right to the
thing is not insurable.
A general or unsecured creditor cannot insure a specific property of his debtor who is alive
If the debtor is still alive, a general or unsecured creditor cannot secure an insurance policy on a specific
property of the debtor.
Q: Who is a secured creditor?
The one where a specific property was mortgaged to it.
In a mortgagor-mortgagee relationship, the mortgagee there is the secured creditor. Pero wala
kang hinahawakan na mortgage paper or contract of mortgage, then you are just an unsecured
creditor, and you have no right over a specific property. You will fall in line together with the rest of
the creditors.
An unsecured creditor has an insurable interest in the life of the debtor to the extent of the
amount of the debt
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The principle of indemnity is also one of the pillars of insurance because you’re not supposed to
profit from the contract of insurance. By the principle of indemnity, you’ll only be paying for the
actual loss – you cannot enlarge your loss and get more from the insurance company. You will only
be entitled to the ACTUAL LOSS. So if the building suffered damage as to the ¼ part of it, yun lng
yung makuha mo – yung damage lng that is caused on that part.
“SEC. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.
This is very important! The contract of insurance cannot be enforced by any other person, except
by the person having insurable interest in the property.
LIFE INSURANCE PROPERTY INSURANCE
Is not a contract of indemnity. Is a contract of indemnity.

Is more of an investment.
The proceeds shall be applied exclusively to The proceeds of the policy will be given to the
the proper interest of the person in whose name person who took out the property insurance.
or for whose benefit it is made unless otherwise
specified in the policy.
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Under Section 53, the proceeds of the life Under Section 10, it will enforceable only for the
insurance will go to the beneficiary  benefit of the person having an insurable interest
beneficiary, not the legitimate family. Basta kung in the property insured.
sino ang nakalagay dun sa insurance as
beneficiary, yun ang tatanggap ng proceeds of
the insurance policy.
You have 3 people: You only have the insured and the insurance
company.
 Assured;
 Insured; and
 Beneficiary
The proceeds of the life insurance policy is paid If risk occurs, payment of the loss will be directly
to the beneficiary of the policy. made to the insured.
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MEASURE OF INDEMNITY
This is another phrase that you would encounter all the time with insurance contracts.
Q: What’s the measure of indemnity? How much do I get paid for the insurane policy?
 FIRE OR MARINE INSURANCE CONTRACTS – Fire insurance policy is a contract of

indemnity. The amount for which you will be indemnified is limited by the value of the interest
of the insured. The value of the interest is the cap of the indemnity – di kana magsobra nyan.
You cannot go beyond that. You cannot even ask for more.
In a property insurance, the valuation of the insurance company is very important – the
valuation of your interest in the property. That’s why in fire insurance, they put up a
description of what are the materials used, building, how many stories, what sort of plumbing
is being used – all these things because the insurance company will attach a valuation to the
property different from your own valuation as the insured. The tendency of the insured is to
bloat, especially if you have money to pay for the premium of a bloated insurance, that’s
fine. But usually, the insurance company will have its own valuation. How much exposure
does it want to have over the property? So the amount of the insurance is limited by the
amount of the value of the interest to be protected. that is also determined by the insurance
company. That determination of the insurance company will have to be consented to by the
insured. The insurance company will say, “We value your property at around P10M.” The
insured will say, “Mahal man kaayu nang premium sa P10M, ibaba lng na.” The parties can
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negotiate on the value. But once, it is determined, it cannot go beyond the indemnity in the
event of loss and cannot go beyond the value of the interest.
The goal is simply to place the insured in a situation in which he was before the loss
subject to the terms and conditions of the policy
The insured recovers only the amount of the actual loss. The amount fixed in the policy mind
you, is not the exact measure of indemnity but only the maximum.
So if you look at an insurance policy and there is an amount that is fixed there, that’s only
the maximum. That’s not the whole amount that you would be recovering from the insurance
company.
 LIABILITY OR CASUALTY INSURANCE CONTRACTS – considered contracts of indemnity

against liability not against loss.
Once adjudged to be liable, how much will be determined by the court, then that is the
extent of the liability of the insurance company under a liability insurance.
 LIFE INSURANCE CONTRACTS – not contracts of indemnity.
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As to health insurance contracts: Those that provide a specific periodic income to disabled
persons – not contracts of indemnity. They have the characteristic of an investment.
There’s a lot of healthcare agreements in the country today and they are usually sold by HMOs. They
are in the nature of non-life insurance.
Even if they use the term health insurance, it is issued by an HMO under a healthcare agreement.
It is not a pure classic insurance. It is in the nature of a non-life insurance and not life insurance.
A healthcare agreement with an HMO is primarily a contract of indemnity.
Once a member incurs hospital, medical and other expenses arising from sickness, injury or
other stipulated contingent, HMO must pay for the same to the extent agreed upon under the
contract
So it is an indemnity in favor of the person who bought the healthcare agreement.
Being a contract of indemnity, payment must be made to the party who incurred the expenses,
even if not the legal wife.
Q: What is this PRINCIPAL OBJECT AND PURPOSE TEST?
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(PhilAm Care case)
If the principle object is to render service, it is not insurance.
The HMO, in paying for hospital, medical or other expenses, they are simply rendering a service.
They are connecting their clients with medical health professionals; they are connecting their clients with
medical institutions. That’s the service that they render under their health care agreements. And so,
under the PRINCIPAL OBJECT AND PURPOSE TEST, they are simply rendering service. Therefore, they
cannot be considered as insurance companies.
This is also very important!
WHEN INSURABLE INTEREST MUST EXIST:
 PROPERTY – when the insurance takes effect and when the loss occurs, but need not exist
in the meantime.
If the insured has no more interest in the property at the time of the injury (meaning at the
time of the loss, damage or destruction he suffered no loss).
Example:
 If the fire occurs after the sale or alienation of the property.
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 If a car was has been badly damaged in an accident after the car was already
sold, then the former owner cannot collect from his fire insurance policy over the
damaged car because at the time of the injury, damage or destruction, he has no more
insurable interest in the car.
Tandaan nyo yan ha. These are the reckoning periods where insurable interest must
exist.
 LIFE/HEALTH – the insurable interest must exist when the insurance takes effect but need
not exist thereafter when the loss occurs.
Example:
 A creditor takes out a life insurance on the debtor who subsequently pays the debt.
the insurance remains in force provided that the former creditor continues to pay the
premiums.
As far as life/health insurance is concerned, the 2 nd requirement of insurable interest

being present at the time of loss, is not required.
Those 2 reckoning points only exist to determine the insurable interest over property. But in life, as long
as you have insurable interest at the inception of the insurance contract, you need not have insurable
interest at the time of death of the insured.
Example:
A creditor takes out a life insurance on the debtor:
Let’s say your company, you as the CEO, your company takes out a life insurance on you. When the
company took out your life insurance, they have insurable interest on your life, you being the CEO.
During the year, you decided to sell your shares and leave the company. It so happened that you
met and accident and you died.
Q: Can the company claim compensation over your death?
ANSWER: YES, the company can claim compensation over your death because at the inception
of the insurance policy, they have an insurable interest on your life. They paid the premium in
full. When you died, the insurance company (although it does not have any more insurable interest
on your life because you’re no longer CEO) they are still allowed to claim compensation because
at the start of the insurance policy, they had insurable interest.
That’s the main difference between property insurance and life insurance.
Q: Can an insurance be suspended?
28 Den
S.Y. 2020-2021
Yes, it can be suspended.
A transfer of the thing insured does not transfer the policy but merely suspends it until the the
same person becomes the owner of both the policy and the thing insured
This is very important under Section 58 because it also gives you a situation where you have to
determine sino ba ang may hawak ng insurance policy and sino ba ang may hawak ng object of the
insurance?
San Miguel case:
If you’re buying property, you have to make sure that you also request the seller to transfer the
insurance policy in your name or you get your insurance policy right at the beginning/right at the
transaction. If not, the purchaser cannot recover on such contract. The transfer has the effect of
suspending the insurance until the purchaser becomes the owner of the policy as well as the property
insured.
Facts:
In this case, the owner of the property mortgaged the property to an entity. The entity decided to take
its own insurance over the property for its own benefit. In the meantime while the mortgage was existing,
the original owner decided to sell the property (brewery). The brewery was sold to the buyer. It was in
this state of affairs when the brewery burned down. The buyer failed to take out an insurance policy on
29 Den
S.Y. 2020-2021
its own over the property. The original seller had its own insurance policy but he did not endorse it to
the purchaser or to the buyer.
Ruling:
In this case, the seller cannot claim on his insurance policy because he’s no longer the owner of the
property. The buyer, on the other hand, cannot also claim for compensation with the insurance company
because he’s never part of the insurance contract executed between the seller and the insurance
company.
*The insurance contract is not voided but merely suspended.
Q: In the meantime kase suspended lng man, what is the effect of that suspension if the original
seller decides to endorse the contract of insurance to the purchaser with the consent of the
insurance company?
Maybe the buyer can still claim. But at that point, I don’t think the insurance company will allow the
transfer anymore. Suspended na ang insurance contract. That means that the insurance company
gets off the hook. It’s very important to make sure that if there is transfer of ownership over
property, the insurance policy must go with it.
LIFE INSURANCE POLICIES
30 Den
S.Y. 2020-2021
 KEYMAN INSURANCE – a company has an insurable interest in the life of its managers
because it stands to be prejudiced of his death.
 CREDITOR’S LIFE INSURANCE
 MORTGAGOR-MORTGAGEE INSURANCE
*These insurance policies exist for specific reasons.
Another term that you must be very familiar with.
31 Den
S.Y. 2020-2021
If your insurance policies are asking you if you have more than one insurance over the same
property.
32 Den
S.Y. 2020-2021
“Which may be subsequently effected” – if you are still planning to get more insurance, you must also
report to the insurance company.
Q: is this (referring to the 2nd bullet) a valid provision in the contract of insurance?
Yes, it is. (Check above Court ruling).
So the insurance company did not perform any other act to void the insurance coverage. The mere fact
that they can prove that there was additional insurance taken out without their consent will invalidate
the contract automatically ipso facto avoid the contract.
Referring to last bullet:
That is well-settled. Di nayan kailangan ng meron pang, “We are notifying you that upon
investigation we found out xx.” No, hindi yan. The mere fact that there is that provision in the
insurance policy and there was a violation of that provision, the contract with the insurance policy
ipso facto void. That is well-settled. Di cya voidable. It is void.
33 Den
S.Y. 2020-2021
That clause on co-insurance has the effect of a WARRANTY CLAUSE. The statement to a question
must be deemed to be a statement binding on both insurer and the insured that there were no insurance
on the property.
If the co-insurance clause states: Nill meaning none, that is already a warranty. So if you breached
that, automatically the insurance policy is void.
Non-disclosure is very material to the validity of the policy – that is the decided case of Pioneer
Insurance and Surety Corporation. Automatically the policy is void.
34 Den
S.Y. 2020-2021
What is not allowed by law is over-insurance. But double insurance is permitted by law, provided
that there is no fraud in it.
So you can have as many insurance policies over the property if the sub-total does not exceed the value
of the property insured. You did not violate anything if you also indicated in the policy that there are
existing insurance policies. But over-insurance, then that’s the one that violates the principle of
indemnity. Pag over-insurance yan, then that’s a violation of the law. The insurer may also rescind the
contract if it is of over-insurance.
Second Meeting
Reiteration of last meeting’s discussion:
You can have double insurance without having gone the value of the interest of the insured. You can
also have over-insurance with just a single policy. It’s very clear there there are cases which double
insurance will amount to over-insurance. There are also cases where over-insurance does not necessarily
mean multiple insurance policies. In double insurance, there are several insurers. In over-insurance there
may only be one insurer. Double insurance and over-insurance can exist at the same time.
35 Den
S.Y. 2020-2021
REMEMBER:
If the policy that you are holding does not prohibit or does not contain a provision against additional
insurance, then the other insurance policies taken out by the insured is not invalidated – they are not
voided.
Meaning, it’s ok to have double insurance. What is not ok is your double insurance will also result
to over-insurance. What is also not ok is when there is a prohibition against double insurance. The
policies may also provide for the insured to declare other insurance policies. Otherwise, the
insurance policy will be avoided by the insurance company.
In cases where the insurance policy requires additional policies to be indicated therein, the answer
to the clause: “Additional insurance: NILL” – that answer amounts to a WARRANTY. So if you breach
that and it turns out that there are other insurance policies, that will be taken as a breach of the
warranty.
Fire insurance policies will always contain a stipulation or a condition that they shall be
avoided if an additional insurance is procured on the property without the insurer’s consent
If it is done without the insurer’s consent, then the condition will stand. The policy will be voided.
Why? Because of Section 75 (Check in above slide). The additional insurance clause is not an
immaterial provision. As a matter of fact, it assumes the status as a warranty. So it is important that
you comply with the warranty in the policy.
36 Den
S.Y. 2020-2021
Q: What’s the risk?
The possibility of fire.
Although the provision that additional insurance must be disclosed, it’s not directly related to the risk
of loss by fire, it still becomes a material provision under Section 75.
EFFECT: If you violate the insurance policy, particularly this provision on additional insurance, then
the insurer is entitled to rescind the contract of insurance.
Rescission – the option is given to the injured party.
Q: Who is the injured party in the violation of breach of warranty?
It is the insurance company.
If the insurance company chooses to ignore – e.g. the insurance company waits – the policy is
effective and binding. But if the insurance policy chooses the right of rescission, then the insurance
company can exercise that option. Hence, the policy in that case will be rescinded.
Q: Who is the guilty party here?
37 Den
S.Y. 2020-2021
The insured property owner.
In life insurance policies, there’s such thing as double insurance but there’s no prohibition against
double insurance. There’s no stipulation in a life insurance policy (LIP) that you have to divulge
additional life insurance policies because LIPs are treated as investments. They are not contract of
indemnity. It is only in contract of indemnity – e.g. property insurance which covers fire and liability
insurance, where double insurance can become a ground for rescission if it is in violation of the
warranty.
When there is double insurance, the insured is given certain rights. This is what you call as the
PRINCIPLE OF CONTRIBUTION.
PRINCIPLE OF CONTRIBUTION – a very important element in insurance law.
Refer to the last bullet: Take note, severally liable. It’s not solidary. The recovery of the insured
under that policy will be in proportion to the liability of the insurance company under that policy.
DAMAGE/AMOUNT OF LOSS IN THIS CASE: P1M
The insured can opt for a combo here.
38 Den
S.Y. 2020-2021
Example no. 1:
 X company is liable for P500k.

 Y company can also be liable for P500k because it’s still under the amount in the policy.
 Z company, kase nag-abot na cya ng P500k, a total of P1M has already been recovered
only from the 2 insurance companies. So there is no more need to recover from Z company.
Otherwise, your recovery of more than your insurable interest.
Another combination will be…
Example no. 2:
 Y company will pay for P1M. Hence, the insured can no longer recover from X company,
nor from Z company because the insured has already recovered fully from Y company.
 Z company, he insured the property for P1.5M, even if the amount is beyond the insurable
interest, the insured can only recover P1M from Z company.
This is the Principle of Contribution.
PRINCIPLE OF CONTRIBUTION – comes into play when there is double insurance.
This phrase: “Unless otherwise provided by the policy” – this is an agreement by the parties. So it
takes precedence.
The contribution clause stipulates that the insurance company shall not be liable to pay or
contribute more than its ratable proportion of the loss or damage.
That’s what the contribution clause is. Of course, unless otherwise provided for in the policy. That is
what I usually call as the escape goat here. Of course, you give precedence to the agreement of the
parties because the parties freely entered into the contract. This is not also contrary to law, morals, etc.
There is no thing the insurance code that says double insurance is fraud. It becomes fraud only when
the consent of the insurance party is not secured. It becomes a violation of the contract only when it is
a breach of warranty. Otherwise, it is not in violation of law. So the parties can agree as to what will
happen when there is double insurance.
39 Den
S.Y. 2020-2021
Here’s the formula for calculating how much each insurance company will be liable when there is
double insurance.
When there are 2 or more insurance company, the rule is, the insurer will contribute ratably to the
loss in proportion to the amount he is liable under the contract.
 AMOUNT OF THE POLICY – that is insured by the insurance company.

 TOTAL INSURANCE TAKEN – you add up all the insurance policies taken.
 LOSS – the amount of the loss.
 LIABILITY OF THE INSURANCE COMPANY – how much the insurance company will pay.
40 Den
S.Y. 2020-2021
If the insured says, “I want everybody to pay me.” That’s where the calculation will be very helpful.
How much compensation will each insurance company bear for the total loss?
Q: If the insured will just want to recover from one company, what will happen? What if he
wants to recover all from Z company?
Z company will have to pay the P1M loss.
Q: What is Z going to do?
Z will collect from X company as well as Y company using also this formula.
If the insured choses each party to be responsible under their respective contract, the you use the
formula. If the insured chooses only one company, this formula is still going to be used in calculating
how much will each be liable.
In the case of Z, kase babayaran niya lahat yung P1M, he will have to collect from X and Y their
proportionate share in the loss.
Principle of contribution is connected to double insurance. Each insurance company will contribute to
the loss.
Q: Who has the option to select?
41 Den
S.Y. 2020-2021
The option is given to the insured. Cya ang mamimili.
42 Den
S.Y. 2020-2021
In reinsurance, the original insurer is the one actually looking for insurance coverage over its possible
loss or liability. In the business of insurance, sometimes the risk of loss is too big that the insurance
company would like to protect itself as well. Protect its exposure to the risk. So there are big insurance
companies, e.g. PhilAmLife. What these insurance companies do, if they feel that they are over-
exposed, they will look for a reinsurer. The reinsurer is the new insurance company. He’s the new insurer.
And he agrees to indemnify the original insurance company either partially or as a whole, against
whatever loss or liability that the original insurer may suffer. This is under a separate and original
contract of insurance with a 3rd party who is the original insured. These separate and original contract
of insurance refers to the original insurance contract. So if the original insurance contract is too huge
a risk, that is what the insurance company will xx.
This is sometimes called a treaties.
(Check distinctions between reinsurance and double insurance in the above slide).
In other words, a reinsurance contract is independent of the original insurance.
Q: What about all the representations?
The representations must also be conveyed by the original insurer to the reinsurer.
43 Den
S.Y. 2020-2021
Because you’re passing on the obligation or the risk of loss, the reinsurer is also entitled to get all the
representations of the original insured; and also on top of that, all info and knowledge that the original
insurer has previously or will subsequently acquire which are material to the risk.
Reinsurance is a contract of indemnity against liability and not against damage.
Actually, in a liability insurance, you are insuring a liability. The reinsurer is insuring the liability of
the original insurer.
44 Den
S.Y. 2020-2021
The original insured cannot file a direct action against the reinsurer because a contract of insurance
is a personal contract. Because of this privity of contract, it is binding only between the parties. In
the reinsurance contract, the original insured is not a party to the reinsurance contract. Therefore,
the original insured cannot sue on that contract of reinsurance.
As to the exception (check the above slide), that is the only exception there where the orig. insured
can sue on the contract of reinsurance: If there is an assignment of the right of the original insurer to
the insured.
Q: What is the remedy of the insured?
It is both against the insurer and the reinsurer.
When you say what is the remedy of the insured? It simply means that the original insured can file a
case, can implead both the original insurance company (inaudible) xx. This is the only instance where
the original insured can sue on the contract of reinsurance.
45 Den
S.Y. 2020-2021
Q: In the contract of reinsurance between the parties, sino yung mga parties nayun?
The reinsurer and the original insurer. And in all probability in a contract of reinsurance, kasama
din yung original insured.
Novation as we know, alters the nature of the contract; alters the relationship of the parties under the
original contract. There can be novation if new terms and conditions are introduced with the effect that
both of it changes the obligations of the parties towards one another.
If this happens in a contract of reinsurance, the original insurer will be released only when the
insured agrees with the insurer as well as the reinsurer to the novation.
So there can be no novation if the insured himself objected to it, if the insured’s consent was not
taken, so there can be no novation.
46 Den
S.Y. 2020-2021
47 Den
S.Y. 2020-2021
PASSENGER – So you may not be fare paying, but if you are authorized to ride without fare, you
will still be considered as a passenger.
Q: Why is this important?
We will find out later, this will also determine who can you recover against. That’s why we need to
know if you are a passenger of the vehicle.
3RD PARTY – If you are an employee, you are excluded from the compulsory motor vehicle
insurance coverage (CMVI). Remember that the CMVI is compulsory to all owners of motor vehicles,
all land transpo operators. They cannot renew their registration if they do not take out a CMVI. The
CMVI has a specific coverage.
The coverage of this type of insurance is mandatory as far as 3rd party liability insurance is
concerned. Kaya if you have an old car, you may not chose to get a comprehensive motor vehicle
insurance. What you are going to get is simply a compulsory 3 rd party liability.
Q: What is that compulsory 3rd party liability?
(inaudible) That one you cannot do without.
Q: What is the rationale behind compulsory 3rd party liability?
48 Den
S.Y. 2020-2021
To provide immediate financial assistance to victims of motor vehicle accidents and their
dependents, esp. they are poor regardless of the financial capability of motor vehicle owners or
operators responsible for the accident sustained.
So it is a regulation by the state requiring compulsory 3 rd party liability is an intervention actually by

the state in the affairs of the insurance companies, as well as the insured people who own vehicles.
There is also a social reason behind it. There is also an economic side.
 Social reason being that, this is going to provide immediate need to the victims of motor vehicle
accidents if the accident results to physical injury or physical loss on the victim, not on another
motor vehicle.
 Economic side to that, if all the vehicles will take 3rd party liability insurance, then the coverage
will be much greater. If the coverage is much greater, you do not have to pay a very high
premium to come under its xx.
Kaya yung 3rd part liability is P400, P500. Kase this is nationwide. The basket is too large that
everybody is paying into the pool. If a 3 rd party suffers injury, death, then all that his heirs would do
is to make a claim on that fund, and he will be assured that you have some sort of compensation. Kaya
yung mga CMVI, mas mahal yan sila. If you own a 5 year old car, mahal parin yan. If you own a 7
y.o. car, mahal parin yan, kase the basket is not everybody; not everyone can engage in transportation.
Actually, that’s CMVI. Ang iba, they only get CMVI if their cars are 5 y.o. or 7 y.o. Pero pag matagal
nayan, di na nila inaasikaso to get big insurance coverage. Kaya mahal ang CMVI.
49 Den
S.Y. 2020-2021
NO FAULT INDEMNITY – di na tayo kailangan na mag kaso2x pa. You don’t need a judgment
from the court assigning who is liable. “Basta ako ang 3rd party passenger and I suffered damages!”
All you have to do is to make a claim and you have immediate compensation.
If the damage is inflicted into another motor vehicle, then di ka makakuha dito sa compulsory 3 rd
party liability insurance.
50 Den
S.Y. 2020-2021
As to the indemnity: Tinaas nay an ngayon that the passenger or 3 rd person may claim from the
compulsory 3rd party liability.
Q: Because there’s no necessity of proving negligence, what are the conditions that you must
comply to be able to file a successful claim?
 File a police report or accident

 Death cert. and evidence sufficient to estab. the proper payee – this will be provided for
by the heirs.
 Medical report or evid. of medical or hospital disbursement
*Documentary evidence would suffice.
51 Den
S.Y. 2020-2021
Occupant of the vehicle – the passenger of the vehicle.
Q: If you were the passenger and you suffered accident, where will you claim your
compensation from the 3rd party liability?
 Against the vehicle where you are mounting or dismounting

 Insurer of the vehicle
If you are a pedestrian and you got hit by a motor vehicle, then the MV is the directly offending
vehicle. The insurance company of that directly offending vehicle will be responsible for
compensation under the 3rd party liability insurance.
The party paying the claim has right to recover against the owner of the vehicle responsible
for the accident.
Example:
Let us say, there are multiple collisions. There’s vehicle A, B and C. Vehicle A was stopped at the
stoplight. Vehicle B was too close vehicle A. vehicle C was driving very fast and then he didn’t
notice that the signal light was stopped, so he rammed into vehicle B and as a result, because B
was so close to the bumper of A, B also rammed into A, causing A to be pushed forward hitting
the pedestrian.
52 Den
S.Y. 2020-2021
Q: Where will the pedestrian claim?
The pedestrian here is a 3rd party. The pedestrian will file the claim against the directly offending
vehicle, the insurer of vehicle A. so the insurer of A, pag naka bayad cya, it will now go after the
insurer of B because B was responsible for hitting A. B will recover whatever it has paid to A from
C because C was responsible for the collision. But as far as the pedestrian is concerned, A is at
fault.
If the passengers inside A were likewise hurt, they also incurred medical expenses – e.g. whiplash
or nahulog sa seats, then the passengers will claim from the insurance company of the vehicle
where they were riding.
THIS IS IMPORTANT!
Q: May a 3rd person sue the insurer directly?
It depends. Hence, you have to check the policy.
If the policy for indemnity is against liability, the insurer can be sued directly by a 3 rd person.
If the policy provides for reimbursement after actual payment by the insured or for the
indemnity against a loss, a 3rd person has no cause of action against the insurer.
53 Den
S.Y. 2020-2021
Kailangan talaga icheck yung contract of insurance. Pero ang mga TPL (3 rd party liability insurance)
kase, very specific yan. If what you’re are claiming for is under the TPL coverage, then there is
really no way out for the insurance company who issued that TPL policy because it’s very specific.
Pero if there are other damages involved, then this question arises: May a 3rd person sue the insurer
directly?
If the policy for indemnity is against liability, and the a TPL is an insurance against liability, the
insurer can be sued directly by the 3 rd person.
Q: Is the insurer solidarily liable with the insured?
Of course, the insurance company is liable under its policy but can it be made solidarily with the
insured? Remember that the liability of the insurance is only to the extent of its liability as contained
in the contract of insurance.
(To answer the above question): No, the insurer’s liability is based on contract, that of the insured
is based on torts.
Insurer’s liability is limited only to the amount of the insurance coverage even if the judgment
awards more than the maximum required under the law.
You will have a case where both the insured (erring vehicle) and the insurance company that will
get sued by the heirs of a pedestrian who dies on the accident.
Q: We know the extent of the liability of the insurance company under the TPL contract because
it is provided for by law. If the court decides to award other compensatory damages, will the
insurance company be held solidarily liable with the insured?
No, because the liability of the insured is based on tort while the liability of the insurance company
is based on contract. It would be in excess of the court’s jurisdiction if he awards compensatory
damages more than what the insurance company is liable under its contract; and hold the insurance
company solidarily liable with the insured. That’s a no-no. The insurance company cannot be made
solidarily liable. So yung mga other compensatory damages, will be shouldered by the insured
himself. The insurance company cannot be held solidarily liable for the other damages that the court
may award the 3rd party.
54 Den
S.Y. 2020-2021
There is no need to wait for the court to render a judgment in favor of the injured party against the
insurer. The injured party can sue the insurer directly. So di na kailangan magpresent ng proof. The
injured can directly sue the insurer. That also means that you don’t have to wait for a favorable
judgment before you can run to the insurance company and say, “Mr. insurer, I have a favorable
judgment. The court held that the insured, your client, is liable to me. The injured party can sue the
insurer directly. When you sue the insurer directly it does not mean to say that “show me the money”
agad. Of course, when you sue the insurer directly, you’re still going to prove that you suffered loss
and that loss (whether it be just hospitalization or death), that this happened because of a risk and the
risk was covered by the policy. When you sue an insurance company, it does not mean to say that
you’re free from proving your complaint, no. You still have to go to the process of proving the liability
of the insurance company. Pero ito, you go directly to the party who sue directly the party who holds
the money. di kana dadaan pa sa insured. If a client comes to you and dependent or heirs cya ng victim,
you just make a joinder of parties in the complaint – ilagay mo yung pangalan ng insured, ilagay mo
rin yung pangalan ng insurance company. Sometimes in the insurance policy, there is also a provision
there. There the insurance company will represent the interest of both insured and the insurance
company. So di na kailangan maghire ng lawyer ang insured to defend himself in court because it
already the insurance company who is defending the insured and itself.
55 Den
S.Y. 2020-2021
There is created a contractual relation which inures to the benefit of any person who may be
injured by the insured, as if such injured person were specifically named in the policy.
That is giving the injured person a direct relief towards making a claim on the insurance policy.
Referring to the last bullet:
If the injured party impleaded only the insured (wrongdoer) in the action, if the injured party did
not implead the insurance company as well, the insured may file a 3 rd party complaint against the
insurance company. So the insured is not prevented from doing that – bringing the insurance
company into the litigation. So that once and for all, all the parties, their rights, duties and
obligations will be adjudicated by the court in one proceeding.
56 Den
S.Y. 2020-2021
This CMVI is actually a 3rd party liability insurance, because this is the one that is mandated by law.
If you take out a separate comprehensive insurance, that’s also good but the law is not concerned
about that. What the law is concerned about here, because it being compulsory, is the no-fault
indemnity. This particular insurance coverage provides for relief, compensation, without having to
go through proving who is at fault or is negligent.
BLTB v. LALAMUNAN:
Facts:
So it’s really very specific. So here, the employee was working in the garage of BLTB. Tapos he
suffered injury within the company premises because the motor vehicle which was insured (the
TPL), natamaan cya. He was trying to file a claim under the TPL insurance.
Q: What did the court say?
Ruling:
He’s not a 3rd party. That’s why it’s important to know the definition of passenger, etc. because
definitely he’s not a passenger. He’s an employee of the insured. The 3 rd party under the law, it
is only a passenger who can recover from the TPL insurance.
57 Den
S.Y. 2020-2021
58 Den
S.Y. 2020-2021
Usually if there’s an insurance company involved, it’s not really good to ignore the insurance
company if the victim and the insured are coming to terms or they are agreeing among themselves.
You have to include the insurance company. You get the consent of the insurance company.
Yu have to be careful when you are entering into compromise settlements when there is an insurance
company involved, because if you don’t get the consent, you cannot recover. You cannot go to the
insurance company and say, “Na-advance ko na yung payment ninyo.” The insurance company will
say, “We haven’t given any consent.”
I mentioned this already.
That is actually the basis on why there should be no solidary liability in the insured and the insurance
company.
REVIEW:
Q: Why “no fault”?
Because the claimant under the coverage does not have to prove negligence and fault. But of
course, you still need to support your claim with documents – e.g. death certificate, establish identity
of the payee, medical records or hospital disbursements. There’s still a need to prove using such
documents but you don’t have to go to court to prove fault or negligence. Because it’s a no fault
indemnity, fixed din ang compensatory reliefs, to the extent of a certain amount allowed by law.
59 Den
S.Y. 2020-2021
60 Den
S.Y. 2020-2021
If the policy provides for a shorter period and suicide occurs after that short period, it is still
compensable. Because the parties agreed to a shorter period, that shorter period was actually the
contestable period. If after that period, suicide was committed by the insured, then the insurance
company will be liable.
The insurer will be liable if on the suicide, regardless of the date of commission, of the insured
commits the same under a state of insanity. If the insured was not mentally sound, can be considered
as a state of insanity, whether the suicide occurred during the 2-year period or after the 2-year
period from its date of issue or last reinstatement, the insurance company is liable.
If the suicide occurs within the 2-year period and the insured was not insane, the suicide is not
compensable.
So parang incontestability clause under Section 48 lng din yan. Remember that if there is
misrepresentation, concealment and in that concealment the insurance company did not investigate into
that concealment or misrepresentation, did not question the policy and the insured dies after the
effectivity for 2 years of the policy, the death of the insured will be compensable. The insurance
company cannot be allowed to raise the defense of concealment or misrepresentation because now, the
insurance policy has become incontestable.
In suicide, pareha lng. If the suicide was committed within the 2-year period and the insured was sane
and you cannot prove the insanity of the insured, then the insurance company is off the hook. Di cguro
right mind yan noh when you commit suicide? It’s really a psychological or psychiatric reason for the
insured to have committed suicide. But if you want to recover, you must really prove that the suicide
was committed under a state of insanity.
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The suicide can also be made an excepted risk. That means that the insurance company will not be
liable.
Suicide is actually a willful act of the insured, but it can be compensable when it is not an excepted
risk.
There must be substantial proof by preponderance of evidence that the fact of suicide took place.
If you are alleging that it took place under a state of insanity, therefore the insurance company is
liable, then you must do it. You really have to present proof.
BAR Q:
Is suicide compensable?
Answer:
You have to argue.
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Q: Why last reinstatement?
Because there are policies that lapse. Nakalimutan. The insurance companies allow the insured to
reinstate the same. When it is reinstated, there are no changes; there may be no changes; same
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premiums ate continued to be paid. It really depends on the agreement of the parties. As between
the two, if there is reinstatement of the policy, the reckoning date for the 2-year period is the date
of last reinstatement. The 2-year period may be shortened but not extended by stipulation.
Once the policy has become incontestable, these defenses are no longer available to the insurance
company. There is no other recourse but to pay the proceeds of the life insurance company to the
claimant.
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Q: Can the insurance company raise a defense?
Yes, but the defenses are very few.
 PERSON HAS NO INSURABLE INTEREST – if you have no insurable interest, there is no

way that you can recover from your insurance policy.
 CAUSE OF DEATH IS AN EXCEPTED RISK – if it is an excepted risk and it occurs, then the
insurance company is off the hook.
 PREMIUMS HAVE NOT BEEN PAID – premiums are also very important because that’s the
financial consideration in a contract of insurance. So if it has not been paid, then the policy
is not effective/binding kahit na babayaran pa nya uli. But we shall see later on in property
insurance that if there is a credit accommodation extended – meaning to say, yung premiums
ay di bayad in full, but there is a credit accommodation extended and it has been practiced by
the parties to the contract, then it can be said that the insurance company still intended to be
bound by the insurance contract. Here, itong premiums that have not been paid, if the
insurance company has point out that the premiums for this policy have never been paid, so
the contract of insurance has never become binding between the parties.
 VICIOUS FRAUD – fraud requires investigation, proof. If there is proof that e.g. the parties
colluded for the death of the insured, then that can be considered as fraud being
particularly of a vicious type.
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 NON-FULFILLMENT OF THE CONDITIONS OF THE POLICY – if you cannot comply with the
conditions of the policy, then you simply cannot avail of the benefits of the policy. That can
be raised by the insurance company.
ANSWER:
1.) The policy was taken out on January 2016 and the death of Mr. H by suicide occurred
on January 2019, which is beyond the 2-year period. Hence, his concealment cannot be
raised as a defense.
2.) The insurance company can still be liable because generally, suicide is actually
compensable under certain circumstances. However, there is an exception to that rule. If
the suicide is covered by the policy and the policy has been effective for more than 2
years already, unless it is an excepted risk.
*You have to explain because there are also exceptions and there are qualifications. If there are
qualifications, you have to point that out. If it was done under a state of insanity, isama nyo nayan
kahit wala naming nakalagay ditto sa facts. If it is not mentioned, what will you say? Maybe you
will think, di mn nya gimention sodi nlng natin ibanggit. But in your answer, if you really knew your
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law, then you will state it. That’s why it’s very important to understand your black-letter law. Know
your codal provisions because that’s in your codal provision.
Third Meeting
As you know, the parties to the insurance contract are as follows:
 Insurer
 Insured/assured
 Beneficiary – is not necessarily a 3rd party to the insurance contract because the assured
can be the beneficiary himself.
 In a life insurance policy, the beneficiary can also be the insured himself. The
beneficiary can also be the person who took out an insurance.
 In a non-life insurance policy (property, liability, suretyship), the beneficiary is the

one who will receive the proceeds under the insurance contract when the risk insured
against happens. In that framework, the beneficiary is the insured himself. If you
take out an insurance on your property, necessarily you also want to receive the
proceeds when the peril insured against happens. You are also the beneficiary.
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In this relationship, there are certain rights and obligations that are fixed for every party to the
contract. Let’s start off with the insurance company.
Q: What are the rights and obligations of the insurer?
Let’s take a look of the qualifications 1st of what an insurer should be or what must the insurer have
in order to conduct the business of insurance. (Check 1st bullet in the above slide)
These capital and assets requirement under the insurance code, you will find that in the Chapter
called the Business of Insurance.
This certificate of authority is issued by the Insurance Commission. If you’re compliant with the
requirements of the law, then the insurance commissioner will issue a certificate of authority. The
office of the insurance commission is the regulatory authority vested with the power of control and
supervision over all entities conducting insurance business in the Philippines.
It’s very important that the undertaking of the insurer is for a specified risk. If the risk is not specified
in the contract of insurance, then the insurer is not liable for that risk.
HOW ARE INSURANCE CLAIMS SETTLED WITH THE INSURANCE COMPANY? WHAT IS THE
PERIOD TO FILE A CLAIM UNDER THE POLICY? WHAT IS THIS PRINCIPLE OF SUBROGATION.
There are 2 things here that you have to remember:
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1.) An insurance company cannot refuse without just cause to pay or settle claims under the
coverage – without just cause is the key phrase here. If there is just cause, then the insurance
company may deny the claim. The insurance company may ask for an extension of period
to investigate into the validity of the claims, provided that just cause is there. Then the
insurance company can investigate further into the circumstances attendant to the loss
suffered by the insured. If there is no just cause, then the insurance company’s refusal to pay
is in violation of the law.
2.) A company who engages in an unfair settlement claims practices is also violating the
law
Q: What is an unfair claims settlement practice?
Basically, the action of the insurer is confuse, to delay and to defraud the insured in his claim for
compensation.
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Ultimately, the penalty would be suspension or revocation of the certificate of authority.
Under the law, there are specific periods to settle a claim.
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If there is fraud, then the insurance company may be justified to pursue further investigation. But if
the ground is otherwise – e.g. there is no reason for the insurance company to delay and if there is
delay or refusal, what you have to remember is that the insured is entitled to collect interests on the
proceeds of the policy at twice the ceiling prescribed by the monetary board.
Q: What is the ceiling right now prescribed by the monetary board?
The ceiling for either forbearance of money or for payment of damages is 6%.
The insured here files a claim on the insurance contract with the insurance company. This is different
from filing a suit in court. We’re simply talking about the periods within which an insurance company
must settle its claim.
In other words, kung di nagawa yung pag determine ng loss within 60 days, then the max. is 90
days.
Hence, the maximum number of days within which the insurance company must settle the claims is within
90 days.
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This now refers to LIFE INSURANCE POLICIES.
Referring to 2nd bullet:
For example, we talked about endowment policy. Endowment policies are also life insurance
policies but with a definite period. There are endowment policies for 10 years, 20 years. When
the time comes that the endowment policy matures, all you have to do is to bring the policy to the
insurance company, present the policy and say, “I would like to claim the benefits under the
endowment policy.” The insurance company is obligated to pay immediately upon the maturity of
the policy, unless the proceeds are payable in installments or in annuities, and thus shall be paud
when each installment/annuity becomes due. So kung installement or hulog-hulogan lng ang payment,
ok lng. Annuities, it’s some sort of an income. When the annuity falls due, you pay also the claim.
Parang staggered payments ito. In this kind of policy, the insured did not die. The insured survived.
Kaya binibigay sa kanya immediately upon presentation of the claim.
Referring to 3rd bullet:
Here, death occurred.
Q: Bakit 60 days?
Mag-imbestiga muna.
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The proceeds that will be paid to the insured will also include the discounted value of all premiums
paid in advance of their due dates, but not yet due and payable at maturity.
Q: What findings?
As to whether the claims were reasonably or unreasonably denied or withheld. It will either be the
court or the commissioner.
That’s what’s important in making a finding that the claim was unreasonably denied or withheld –
it is for the purpose of awarding damages.
In order to be awarded of atty’s fees and other expenses that you have incurred in filing a suit
either before the office of the insurance commissioner or before the courts, that the claims was
unreasonably withheld or denied, so that you can be awarded damages.
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Remember in insurance, fraud is the number one enemy. If you present a fraudulent document; if
you cause to be presented a fraudulent claim, then that is unlawful.
If you falsified the report of the BFP to be made part of proof of loss, then that is unlawful.
Penalty: Fine or imprisonment or both.
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We’re now going into a very important feature of insurance law: SUBROGATION
Subrogation is not part of the insurance contract between the insured and the assured. But it is by
operation of law because it is found under the civil code. In a contract of insurance, subrogation is
also very unique. That’s one of the pillars of insurance law. That’s one of the pillars between an
insurance relationship between the insured and the insurance company.
Q: What again is an indemnity insurance?
They are property insurance.
So walang subrogation sa life insurance contract.
Subrogation is the legal effect of payment by the insurance company to the claimant will result to
subrogation.
This equitable right of subrogation inures to the insurer without any formal assignment or any
express stipulation in the policy.
Even if the policy is silent about it, there shall arise the equitable right of subrogation once the
insurance company pays the claimant under the policy. The right of subrogation is not dependent
upon nor does it grow out in any privity of contract or upon written assignment of claims.
Remember the 3:
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1.) It is not dependent upon or

2.) Nor does it grow out of any privity of contract or
3.) Upon written assignment of claim
So there need not be an express assignment from the proceeds of the insured to the insurance company
and it does not grow out of privity of contract.
NOTE OF THE 2 IMPORTANT CASES UNDER SUBROGATION WITHIN WHICH THE INSURANCE
COMPANY CAN FILE AN ACTION IN COURT TO RECOVER ON THE BASIS OF SUBROGATION:
VECTOR SHIPPING CORP. v. AMERICAN HOME ASSURANCE COMPANY (2013)
Ruling:
Where an action took place on subrogation, subrogation is created by obligation of law.

Subrogation is an obligation under the law. So the party has a period of 10 years within which
to file an action for sum of money on the basis of subrogation.
FT:
Civil Law; Prescription; The following actions must be brought within ten years from the time the
cause of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; and (3)
Upon a judgment.—We concur with the CA’s ruling that respondent’s action did not yet prescribe.
The legal provision governing this case was not Article 1146 of the Civil Code, but Article 1144
of the Civil Code, which states: Article 1144. The following actions must be brought within ten
years from the time the cause of action accrues: (1) Upon a written contract; (2) Upon an
obligation created by law; (3) Upon a judgment. We need to clarify, however, that we cannot
adopt the CA’s characterization of the cause of action as based on the contract of affreightment
between Caltex and Vector, with the breach of contract being the failure of Vector to make the
M/T Vector seaworthy, as to make this action come under Article 1144 (1), supra. Instead, we
find and hold that that the present action was not upon a written contract, but upon an obligation
created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is be cause the
subrogation of respondent to the rights of Caltex as the insured was by virtue of the express
provision of law embodied in Article 2207 of the Civil Code.
Insurance Law; Right of Subrogation; The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer.—The juridical situation arising under Article 2207 of the Civil
Code is well explained in Pan Malayan Insurance Corporation v. Court of Appeals, 184 SCRA
54 (1990), as follows: Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or negligence of
a party other than the assured, then the insurer, upon payment to the assured, will be subrogated
to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been
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obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to
the former of all remedies which the latter may have against the third party whose negligence
or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer [Compania Maritima v. Insurance Company of North America,
G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman’s Fund Insurance Company v.
Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
HENSON, JR. v. UCPB GENERAL INSURANCE (2019) EN BANC
The Court here clarified the rules as to when an insurance company filing a case against another
party on the basis of subrogation, can validly file a claim. This is 40 pages long. But it’s very
useful because it sets the timeline for all insurance companies that may want to file cases on the
basis of subrogation.
Just whatever rights the insured has that can be passed on to the insurance company, that is also
the extent of recovery by the insurance company.
Exception:
CEBU SHIPYARD AND ENGINEERING WORKS (CSEW) v. WILLIAM LINES
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Ruling:
It will be unfair and inequitable to limit the liability of the wrongdoer to the amount stipulated
between himself and the insured, because in actuality the exposure of the insurance company
was P45M.
This phrase: “unfair and inequitable to limit the liability” is an exception to the rule that the insurer
can collect only what the insured may collect.
The insured, instead of running after the wrong-doer 3rd party, decides to claim under its insurance
policy. So the insured goes to its insurer and file a claim. He collects from the insurer.
The insurer under the rules of subrogation can run after the 3 rd party who caused the damage of
the loss. So the relationship between the insurer and the 3 rd party, the claim of the insurer is by
virtue of subrogation. So the insurer pays the insured and recovers from the 3 rd party. The insurer
can recover the proceeds by virtue of subrogation. And it’s full substitution. Not partial; not ¼; not
½. Meaning, whatever amount that the insurance company has paid its insured, it can likewise claim
that amount from the wrongdoer.
If this 3rd party has an insurance company of its own and the insurer knows about it, the insurer can
actually file a claim against the insurance company of the 3 rd party. If a 3rd party is a liability
insurance, then the insurer of that liability insurance will be obligated to represent the 3 rd party to
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step into the shoes of the 3rd party and pay his insurer for any liability that this party may have to
the insurer.
This is an application od Article 2207 of the New Civil Code:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
It is not found in the contract between the parties, neither is it found in the insurance code.
We know now that subrogation is an equitable assignment of the xx of the proceeds of the insurance
policy to the insurer.
Q: Are there exceptions to this rule?
Yes. (Check the above slide)
In example no. 2: This envisions a carrier that is liable for damages against the insured. Here the
insurer pays the assured the value of the lost goods without notifying the carrier. Who has in good
faith settled directly the insured’s claim for loss. Yung carrier who was at fault decided to settle
directly. Going back to the diagram, if the 3 rd party is the carrier, the carrier decided to pay
directly the insured. The insurer decided to pay the insured also without notifying the 3 rd party. The
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insurer if it decides to pay must take precaution by way of informing the wrongdoer that “wait, I’m
going to pay because a claim was made with me.” In the case of Pan Malayan Insurance, the insurer
paid the assured the value of the lost goods without notifying the carrier, who in good faith paid
for the loss of the insured. In this case, since the insurer failed to notify the carrier of his intention to
pay, the insurer now cannot go to the 3 rd party carrier and claim reimbursement on the basis of
subrogation. It is now the problem of the insurer of how to get back the money from the insured. As
far as the 3rd party carrier is concerned, binayaran kona yan cya. Payment has already been
directly affected to the insured.
In example no. 3: The insurer decides to pay for the loss of the insured over a risk that’s not even
covered by the policy. This is called as voluntary payment. Nagkamali ang insurance company. It
paid for a loss by a risk that is not covered by the policy. In that case, the insurer has no right of
subrogation against the 3rd party laible for the loss.
PROOF OF LOSS
Proof of loss is needed because without which, the insurance company will not pay you. Presentment
of proof of loss is a condition sine qua non. It’s a mandatory requisite.
The standard of proof here is lower than that which you must present before a court of justice. It is
however sufficient for the insured to give the best evidence to which he has in his power at that
time. If it is an oral statement and that party is there is testify to the proof of loss, so be it. That is
the best evidence that the insured has at that time.
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If there is a kind of proof that is required under the policy, absolute compliance is not needed.
Substantial compliance will be deemed sufficient.
You know lawyers, there would always be moment where we would argue with substantial compliance.
We will argue using substantial compliance. It does have significance. If you say that this is the standard
of proof that you require and if you cannot comply strictly, you can argue on the basis of substantial
compliance, and the SC has allowed that.
The requirement of consent of an insurance company without any payment by the insurer to the
insured is a valid stipulation. That’s settled. The purpose of such stipulation is to avoid collusion
between the insured and the claimant. Kung ikaw insurance company ka, di ka magpataka ug bayad.
You cannot pay the insured without getting the consent of the 3 rd party wrongdoer because that is
a requirement to prevent fraud.
PERLA DE SEGUROS v. CA (1990)
Facts:
The bus met an accident and caused fatal injuries to 4 people. One of the victims filed a suit
against the owner of the bus. The 3 victims were directly paid by the owner of the bus. There
were many procedural mishaps that took place on the account of wrong filing, wrong forum.
Ang sabi ng insurance company, there was a stipulation in our contract that prior to payments
made, you have to inform the insurance company and get the consent of the insurance company
in order for those payments to be refunded.
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Issue: Was the owner of the bus justified in paying directly the 3?
Ruling:
If there is such a stipulation requiring the consent of the insurance company to be 1 st obtained
before any payment by the insured for the loss in the settlement of the claim. That stipulation is
valid. The purpose is to avoid collusion between the insured and the claimant.
EFFECT: The wrongdoer/insured cannot collect from the insurance company. The bus owner will
have to shoulder personally payments made to the victims.
It is also important that the stipulation is present. Anything agreed upon by the parties in an
insurance policy, as long as it is not in violation of the law, morals, good customs, public order, public
policy, the court will not put any additional interpretation to that. the stipulations of the parties will
be observed as clearly as they are worded in the policy or in the contract itself.
Q: When does a cause of action arise?
From the moment the claim is rejected a cause of action arises in favor of the insured.
Q: When can an insured file an action?
Under Section 63 of the Insurance Code, the insured has 1 year from the denial of the claim within
which to file an action.
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So the insured has 1 year from when the cause of action arose to file a claim against an insurer.
SUN INSURANCE v. CA (1991)
In this case, the lawyer decided to file a MFR. Actually nag lapse na yung kanyang 1 year period
within which to file a case or action in court against the insurer. What he did was to file a MFR.
Not all MFRs are good. Kailangan you have to strike while the iron is hot. 1 year from the denial
of the claim, you have to file an action in court against the insurer.
Perhaps what you can do is create your own table for prescription of actions as to when you can
file a claim against the insurance company, prescription of actions or period within which the
insurance company will have to pay or settle your claims. Kayo lng gagawa ng matrix ninyo so that
if you review for the bar you will be able to refer to that chart. Kase minsan confusing ang
prescriptive periods.
We’re now discussing the rights and obligations of the insured.
When you are the insured, if it’s a life insurance policy, you have to have insurable interest on the
life of the person you’re taking an insurance policy out. If it’s a non-life insurance policy, the person
taking out the insurance must have an insurable interest on the property itself.
Referring to the 3rd bullet:
That’s the effect of war to insurance contracts.
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Premiums are the consideration of the insurance contract.
GENERAL RULE: Dapat bayaran ang premium, otherwise the policy will be void. It will not be valid
and binding until actual payment of the premium.
EXCEPTIONS (Explanation):
1.) The grace period here is for 30 days from the time that the policy lapsed. When you talk
of lapsed, you talk about when the premium when it fell due, was not paid. What follows is
a period called grace period. If payment was made within the grace period, then the
contract of insurance is valid and binding.
2.) An acknowledgement is usually an express statement acknowledging the payment of

premium. This acknowledgment becomes a conclusive evidence of payment notwithstanding
a stipulation in the policy that it will not be binding until the premiums have been actually
paid. When you talk about conclusive evidence, that kind of evidence establishes a fact and
it cannot be rebutted anymore. Thus, the acknowledgment of receipt of premium renders
the contract of insurance valid and binding. The law itself states that the acknowledgement
is a conclusive evidence of payment even if there is a stipulation in the contract that the
insurance will not be binding until the premium is actually paid.
3.) Cover notes temporarily bind the insurance pending issuance of your policy. When the
insurance company issues a cover note, the insurance is binding over the subject of the
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contract pending issuance of a policy. But cover notes are valid only for 60 days. After 60
days or within 60 days, an insurance policy must be issued by an insurance company. It can
be renewed, but with the approval of the office of the insurance commissioner.
4.) If the oblige has accepted the bond, even if there is no payment of the surety bond premium,
the surety bond binds the insurance company.
5.) This is laid in the Makati Tuscany case.
Other exceptions can be found in the other decided cases of the SC.
AMERICAN HOME ASSURANCE v. CHUA:
When it is conclusive evidence, it establishes a fact already. Hence, it cannot accept anymore
evidence. When the law says that it is conclusive evidence, then the fact sought to be established
is considered as established. So the payment of the premium is considered established; it is
considered done. Therefore, that acknowledgment will be conclusive evidence to bind the
insurance company.
PHILIPPINE PRYCE ASSURANCE v. CA:
Even is the surety bond premium was not paid but if the oblige accepts the surety bond, then
the insurance company is bound by the surety bond.
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PACIFIC TIMBER v. CA:
A cover note temporarily binds the insurance company. It gives temporary insurance coverage
and is binding between the parties. If a cover note is issued, then the insurance is binding.
MAKATI TUSCANY v. CA:
Remember the credit extensions? Section 77 talks about the insurer being entitled to premiums.
Exception is in the case of a life or industrial life policy where there is a grace period of 30 days
or whenever under the broker, an agency agreement, a duly licensed intermediary, a 90-day
credit extension is given. No credit extension to a duly-licensed intermediary should exceed 90
days from the date of the issuance of the policy. The law under Section 77 recognizes credit
extension.
In this case, when partial payment has already been made at the time of the loss and this is
already a practice between the parties, the non-payment of premium at the time when the loss
occurred xx of premiums under Section 77.
UCPB GENERAL INSURANCE v. MASAGANA TELEMART:
This is already the decision on the MFR.
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In this case, the extension of the credit will stop the insurance company from making an issue of
non-payment of the premium at the time when the loss occurred.
Ma’am has an unstable internet connection in this part of the lecture.
Insurance Case Digest: Philippine Phoenix Surety & Insurance Co. V. Woodworks Inc (1979)
(Source:http://www.philippinelegalguide.com/2011/12/insurance-case-digest-
philippine_267.html)
G.R. No. L-25317 August 6, 1979

Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Section 77 of the Insurance Code
FACTS:
July 21, 1960: Woodworks, Inc. was issued a fire policy for its building machinery and equipment
by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21, 1960 to July 21, 1961.
Woodworks did not pay the premium totalling to P10,593.36.
April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix the cancellation of
the Policy so Philippine Phoenix credited P3,110.25 for the unexpired period of 94 days and
demanded in writing the payment of P7,483.11
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Woodworks refused stating that it need not pay premium "because the Insurer did not stand
liable for any indemnity during the period the premiums were not paid."
Philippine Phoenix filed with the CFI to recover its earned premium of P7,483.11
Woodworks: to pay the premium after the issuance of the policy put an end to the insurance
contract and rendered the policy unenforceable
CFI: favored Philippine Phoenix
ISSUE: W/N there was a valid insurance contract despite no premium payment was paid
HELD: NO. Reversed
 Policy provides for pre-payment of premium. To constitute an extension of credit there

must be a clear and express agreement therefor and there nust be acceptance of the
extension - none here.
 Since the premium had not been paid, the policy must be deemed to have lapsed.
 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 because such a stipulation is a
material and essential part of the contract. This is true, for instance, in the case of life,
health and accident, fire and hail insurance policies.
 Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire
only "after payment of premium" Compliance by the insured with the terms of the contract
is a condition precedent to the right of recovery.
 The burden is on an insured to keep a policy in force by the payment of premiums, rather
than on the insurer to exert every effort to prevent the insured from allowing a policy to
elapse through a failure to make premium payments.
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This is one of the important provisions also in the chapter of PREMIUMS.
GENERAL RULE: In order for the contract to be binding, there are premium that have to be paid.
Remember also those exceptions because the facts of the case that may be presented to you may
fall under those exceptions.
Q: Can those premiums be returned?
Yes, under the law.
Q: How and on what ground?
(Check above slide)
 If the insurance was not endorsed to the new buyer, then the insured can actually ask for
the return of premiums for the portion that is unearned by the insurance company.
Unearned – the insurance company will never be exposed to the risk. Only a pro-rata of
the amount left will be returned to the insured.
 When there is over-insurance.
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 Return of premiums can be demanded by the insured when rescission is granted due to the
insurer’s breach of contract.
Under these instances, the insured is entitled to the return of premiums.
You have to remember: There must be payment of premium in order for the insurance contract to
be valid and binding. But there are exceptions. Apart from that, you need to know that the insurance
premiums can also be returned to the insured under the above circumstances.
If the insured wants to rescind the contract of insurance because of misrepresentation by the insurer,
the insured can demand for a return of premiums.
Just imagine, can a contract of insurance be transferred?
 LIFE INSURANCE – Yes

 PROPERTY INSURANCE – No
That is also similar to what I said earlier that insurance does not follow the property.
That is why a fire insurance policy cannot be transferred to another person without the consent of
the insurer. The insurance company need to see, investigate the personal qualifications of the
insured. “Hindi bai to blacklisted?” “Hindi bai to nagging involved in arson?” And also, “Does this
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person have insurable interest over the property?” questions like that prevent the transfer of a policy
of insurance to another person.
As to the 1st and 2nd bullets:
Example:
You bought a car and you sold the car later.
Q: What happens to the insurance policy?
In that transaction, the sale to another person, the insurance coverage did not follow the car. In
other words, the interest in the car is vested in one person; the interest in the policy is vested in the
former owner. The interest in the policy vested in the former owner. The interest in the car is vested
in another person.
“The policy is suspended and will not be avoided” – di naman cya kaagad declared null and void. It
will not be avoided until the interest in the thing insured and the interest in the policy are vested in
one and the same person.
EFFECT: Suspension
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Q: How do you unsuspend the whole thing?
The person who has the interest in the policy must go to the insurance company and have the
insurance company give its consent. Have the insurance company endorse the insurance policy in
favor of the new owner.
Q: Will the previous owner agree to that?
It really depends on the parties. If the new owner will go back to the previous owner and say,
“Bayaran ko na lng din yung insurance. Whatever is left, I will reimburse you.” Then the former owner
surely will not object to the endorsement of the insurance company. But here, the insurance company
plays a key role because the insurance company will not just approve or give its endorsement unless
it is able to verify the personal qualifications of the new owner as well as other requirements – e.g.
check on insurability. We know that a contract of insurance is a personal insurance between the
insurance company and the insured.
Q: If no endorsement takes place, what will happen?
The insurance policy will not just stay suspended. For all eternity. What the owner of the insurance
policy will do is have the premiums returned to him. The previous owner will go to the insurance
company and ask for the return of premiums for the unearned portion of the policy.
Unearned – Unearned by the insurance company. Di na-expose ang insurance company to any risk
under that policy.
Q: What will the new owner do?
He will just get a new insurance policy from an new insurance company of his choice.
As to the 3rd bullet:
Pag life insurance policies, they can be transferred and assigned whether or not the assignee has
an insurable interest in the life of the insured.
Assignment should be distinguished from a change of the designated beneficiary.
That’s very important because in assignment, when you assign a policy, the beneficiary designated
there is still the beneficiary of the policy assigned. It does not change the beneficiary, especially if
you have an irrevocable beneficiary. The policy is transferred to an assignee, but the beneficiary
remains the same.
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Except those under Article 739 of the Civil Code, those are the people who cannot be designated
as beneficiaries.
Article 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the time of
the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration
thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by reason of his
office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the
spouse of the donor or donee; and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action. (n)
“SEC. 10. Every person has an insurable interest in the life and health:
“(a) Of himself, of his spouse and of his children;
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“(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
“(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and
“(d) Of any person upon whose life any estate or interest vested in him depends.
Under this section, the law provides for a list of people on whom life insurance policies can be
taken. You can divide the list by 2:
1.) You take out an insurance on your own life or on the life of your spouse or children –
you can designate any beneficiary. If you insure your life, then you can designate any
beneficiary. If on your wife or child, then you can also designate your own self or your wife
as beneficiary under that policy. The beneficiary need not have any insurable interest on
the life of the insured. That’s where insurable interest on the life of another is very important.
2.) You take out an insurance on the life of other people – classic example here is the life
insurance policy that you take out on the life of your debtor. You have no blood relationship
that will allow you to have insurable interest on the debtor, but there is pecuniary interest in
the life of your debtor. Because you have pecuniary interest in the life of your debtor, you
have insurable interest in the life of your debtor. Then the designation of yourself as
beneficiary is allowed.
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So if you take out a fire insurance policy over your property, you will also be the beneficiary over
that fire insurance policy. The proceeds will also go to you.
Fourth Meeting
RECAP:
 Non-life insurance – the one who takes out that policy is usually the beneficiary of that
policy.
 Life insurance policy – the beneficiary could be a 3rd party. The person may occupy all 3
(assured, insured and beneficiary) positions vis-à-vis a contract of insurance.
NOTE: A person must be designated in the insurance policy. Lack of designation, the proceeds will
go to the estate of the insured whose life is insured under the policy.
An irrevocable beneficiary has a vested interest in the proceeds of the life insurance policy.
Under Section 181, a life insurance policy may be transferred to another person. This other person
may or may not have an insurable interest to obtain the policy itself. However, if there is a
designated irrevocable beneficiary, the transfer may be made provided that there is consent from
the irrevocable beneficiary because he already has a vested interest in the policy itself.
Referring to the last bullet:
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“to an automatic extended term or paid up insurance options, etc.” – these are features in a life
insurance policy. Usually the owner of the policy enjoys this benefits. These are the marketing
features of a life insurance policy. If the insured himself fails to pay the premium and the irrevocable
beneficiary decides to continue the insurance coverage, he may do so and may himself pay the
premium and the above features may also go to the irrevocable beneficiary.
What will apply here in the event that the insured refuses to continue the policy, the applicable
provision is Article 1236 of the Civil Code. This is not found in the insurance code. This right to
continue paying the premium on behalf of the insured is found under Article 1236 of the Civil Code.
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The irrevocable does not have any right to the proceeds of the policy until the death of the insured.
Nario talks about the right of an irrevocable beneficiary.
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When you say that it will go to the legal heirs, it will also be a per capita division.
You know sometimes the Court can be very considerate and sometimes the Court can be very harsh.
After all, our SC is made up of infallible men and women.
CONSUEGRA v. GSIS:
In this case, it was the Court who adjudicated on how the proceeds would be distributed between
these 2 women.
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INSULAR LIFE v. EBRADO:
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Here, the wife was not designated as the beneficiary but the common-law spouse. Because the
wife was not designated, the Court here ruled that the proceeds cannot be given to the named
beneficiary because that’s not allowed. It cannot go directly also to the wife because the wife
was not designated as a beneficiary in the policy.
Q: Where will the proceeds go?
It will go to the estate of the deceased. Once it is given to the estate of the deceased, it will be
divided amongst the heirs of the estate. But if there are designated beneficiaries, the receipt of
the proceeds under the life insurance policy will not be under the rules on succession but rather,
under the insurance code. That means that it will be divided by the beneficiaries of the policy.
Q: Do you need a final judgment?
No, you don’t need a final judgment finding the beneficiary beyond reasonable doubt. Mere
suspicion is enough.
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You have to cross-refer this to the provisions of the Family Code.
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A warranty is different from a representation. Representation is not necessarily in the policy itself.
But when you talk about warranty, it’s something that’s in the policy itself.
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There are conditions before and after the loss. But all these conditions must be in the policy.
Referring to the example:
The conditions here are known as conditions subsequent to the occurrence of the loss. The insurance
company may require in the policy that before payment of loss or claim, here are the following
documents that must be submitted without unnecessary delay. If they are not submitted or if they
are submitted but after too much delay, the insurance company can resort to rescission.
Referring to exceptions:
You take out a fire insurance policy and there is a portion there referring to exceptions. Under the
exceptions, the insurance company will be very specific as to what it will not be liable for.
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TEST OF MATERIALITY – it’s the materiality of the fact concealed will determine whether or not
the insurance company will take on your obligations.
Test of materiality is in the effect which the knowledge of the fact in question would have in
the making the contract; it misleads the insurer into accepting the risk or at a premium agreed
upon.
If you hid the fact from the insurance company and the insurance company is misled into accepting
your application at the premium agreed upon.
EFFECTS OF CONCEALMENT
Example:
The insured was riding an airplane. It crashed and the insured died. While investigating into the
death of the insured, they found out that the insured suffered from certain diseases. Meron pala
cyang kidney problem, heart problem, etc., but those were not stated in the application.
Q: What happens?
Even is this death was not caused by the facts concealed, what is important is the insured did conceal
those medical conditions from the insurance company. Because the insurance company, had it known
the medical conditions, would have decided at the very start not to accept the application or to
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accept the application at a higher premium. Even if the death of the insured was by plane crash,
still the Court will uphold the concealment that was done by the insured.
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Ang importante dito is: “The fact concealed is material to the contract.”
If you violate the rule on concealment, it renders the contract voidable.
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Q: Why voidable only?
Because if the insurance company decides to waive it, it can do so.
The insurer himself also needs to disclose material facts to the insured.
The insured has the duty to be of utmost good faith in entering into a contract of insurance.
2nd bullet:
It is optional on his part to exercise the right of rescission. An insurance company may decide to just
forego the concealment. Usually if the claim is not that big, the insurance company will not really
make an issue out of it. But if the claim is of sizeable amount, they will really have the contract of
insurance rescinded.
3rd bullet:
The insurance company need not prove to the court that there was fraud exercised by the insured.
The mere fact that there’s a showing that there’s proof that certain medical conditions did exist and
were not revealed to the insurance company, that’s proof of concealment.
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Both waiver and estoppel are valid defenses/grounds that can be raised by the insured against
the insurance company. It can be raised by the insured against the insurance company when the
insurance company continues to accept premiums under the policy.
If the insured insists that his application went through because he was examined by a medical
examiner, his document was filled up by the insurance agent of the insurance company, despite this,
the insurer is not estopped from raising concealment because there was the fact of concealing
material facts will render the contract voidable. So di pwede iraise na ground by the insured that
the insurance company’s agents were that the application is ok. The insurance company may dispute
that. The insurance company will say, “I did not participate in the collusion between my insurance
agent and my medical examiner. I am not estopped from raising concealment under the policy.”
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“A further basis for the issuance of the policy” – this phrase is a statement that the insurance company
relies on the representations of the insured on the application.
Q: What did the Court say?
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The fact that there was waiver of medical examination under that application makes it more
material that the insured be truthful in her application. The conditions given will be very much more
material because there was no medical examination required under the policy.
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If there is rescission, because that is the course of action that the insurance company took, the insurer
was ordered to refund the premiums paid by the deceased insured with legal interest from the time
the payment was made.
When you look at the cases when the insurance company is trying to rescind it, they know that they
have the duty to return the premiums which is much less than if they were made to pay for the
insurable amount under the policy. Meron pa ring isasauli na pera ang insurance company to the
insured. But returning the premiums would be a lot cheaper/less expensive than for the insurance
company to pay out the insurable amount under the policy.
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2nd bullet:
But in marine insurance, opinions must be disclosed.
3rd bullet:
Example:
OPINION:
Check the following boxes which you think are true:
 Do you think you lived a healthy life?

 Do you think you are a social drinker?
You marked check even though you know it’s untrue. But it certainly calls for an opinion.
Ang social mo pala is one case a night.
Even if they are untrue, considering the questions merely call out for an opinion, if they turn out to be
false, then they will not be taken out as concealment.
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*Although false, a representation of expectation, intention, mere opinion or judgment will not avoid the
policy provided that there is no actual fraud inducing the acceptance of the risk.
If there is a clear case of intention to defraud or to deceive the insurance company, even if it was
merely an opinion, there is still fraud employed. This is actually a matter of proof. The insurance
company has to prove that even if an opinion or an expectation but it was stated with fraudulent
intent to deceive, then the concealment may still affect the enforceability of the contract of insurance.
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The insurance company may effectively waive its right to be informed of material facts.
Impliedly – insurance companies get in trouble here  they failed to make an inquiry as to the
facts already communicated.
Last bullet:
Despite of the imperfection in the answers, the insurance company accepts the policy, this is an
indication that the insurance company does not mind the imperfect answers or absence of answers
by the insured. If there are answers to the questions that require further investigation, and the
insurance company did not investigate further, then the insurance company is impliedly deemed to
have waived as to the facts already communicated.
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Q: Who commences an action?
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The insured in order to make the insurance company pay, he will have to go to court or to the
insurance commissioner, as the case may be. When they institute an action on the policy, it will be
too late now for the insurance company to rescind the contract.
Q: What does that mean?
It means that as soon as the insurance company sees a ground for rescission, it notifies the insured
and right away expresses to the insured that he is rescinding the contract of insurance. It must do so
right away, otherwise it may wait for the insured to file an action, it will now be too late for the
insurance company to rescind the contract of insurance.
A tender of premiums by the insurance company coupled with a notice that the policy is
cancelled before commencement of the suit operates to rescind a contract of insurance
When the insurance company now offers to pay (tender of premiums) and with notice of cancellation
of the policy, that is already rescission. It must be done before the commencement of the suit by the
insured.
That’s how you rescind contract on the part of the insurance company.
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Basically the same rule as concealment.
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Representations are not found in the insurance policy. They are mere collateral inducements.
It will not render the policy void but merely voidable.
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If that statement is there, regardless of whether it made an effect on the insurance company to
accept or not to accept your obligation, if that statement is breached, then it will render the policy
voidable. Ang importante lng sa warranties is it is in the policy, it is termed as warranty and that
warranty was breached. Whether or not it influenced the insurance company in accepting the
application, that is of no moment. The simple fact is, it was breached and therefore it renders the
policy voidable.
OTHER INSURANCE CLAUSE
The perfect example where the insured gets into trouble is the other insurance clause/co-insurance
clause which is actually a warranty usually in a non-life insurance policy.
This clause provides that the policy will be void (not just voidable) if the insured procures additional
insurance without the consent of the insurer.
When we talk about other insurance clause were talking about other insurance policies taken out
by the insured. If you don’t have other insurance over the property, you just state there, nil. But if
you do have other insurance, you have to indicate it. To say that, “Oh I forgot” or “Oh I didn’t
know.” That’s not an excuse. You will still be in breach of your warranty if you do not reveal other
insurance policies covering the same subject matter, the same risk involved and the same insured
involved.
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Classic example here is the OTHER INSURANCE CLAUSE. It is considered an IMMATERIAL

PROVISION because it does not really affect directly the risk or the exposure of the insurance
company to the risk involved. It is more actually of making the insurance company investigate into
other possible insurance policies that the insured or the applicant may have because it wants to
know whether the risk is spread out between other insurance policies. So by stating there in the
insurance policy requiring it to be answered, that seemingly insignificant clause will actually be
converted into a material provision. So it assumes the characteristic of a warranty. If that is
breached, then the policy itself is void.
A breach of a MATERIAL PROVISION will avoid the policy. It gives the insurer the right to rescind.
If it is specified that a violation of an IMMATERIAL PROVISION will avoid the policy, the insurance
company will be given the right to rescind the contract.
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Loss must be established by proof. The insured can only claim the proceeds under the policy if it is
able to establish loss. When you have instituted an action over the insurance policy, the initial burden
of proof lies actually with the insured. And the insured has the burden of proving the fact of loss.
Loss here must be caused by a risk by a risk that is insured and the proximate cause of the loss.
These are the terms that you can encounter when you talk about loss:
 Proximate cause;
 Immediate cause;
 Remote cause
What we are interested in is proximate cause.
So the insurer will be liable if the proximate cause for the loss is the peril insured. The insurer is
liable for the insured’s negligence. Common sense. That’s why you take out an insurance policy
because of the possibility that you will be negligent because of the possibility that your workers
would be negligent and you need protection from the result of their negligence, except that the
insurance company will not be liable for gross negligence.
GROSS NEGLIGENCE – amounts to a willful act of the insured.
The insurer cannot raise the defense that the insured was negligent. The doctrine of contributory
negligence does not even apply to rights under the insurance contract. The insurance company
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cannot say, “well if you put more firefighting equipment the building would not have razed down to
ashes.” Or “Well had you trained your people on how to fight the fire, the building would not have
burned down.” The insurance company is accusing the insured of negligence. But these alleged to be
negligent acts are still covered by the insurance. There’s no gross negligence there. The doctrine of
contributory negligence, which under the law of tort lessens the liability of the tortfeasor, does not
apply to rights under the insurance contract.
Loss caused by efforts to rescue the thing from the peril insured against.
The building was on fire and firefighters were fighting the fire. There were people employed by
the building taking out some objects in the building. In the course thereof, nasira, nabasa. But they
are still covered under the fire insurance policy. Kahit na di nasunog, because they were rescued
from the peril insured against, the insurer will still be liable.
EXCEPTED PERILS – those perils which the insurance company has expressly excepted liability from,
if that is the proximate cause, then the insurance company is not liable.
Liability of insurer if insured was committing a felony.
The insured here is still covered by the insurance policy. His loss under the policy is still compensable.
Liabilities out of deliberate criminal acts not covered by insurance contract.
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This is not compensable.
If there was murder, that is already a deliberate criminal act and not covered by the insurance
policy.
*Just remember when an insurer is not liable for a loss and what is the liability of the insurer when the
insured commits a felony.
In order to prove loss, you need to file a notice of loss and couple it with a proof of loss. Dalawa
yan:
 Notice of loss; and

 Proof of loss
Q: What kind of proof of loss is required?
Only a preliminary proof of loss. It’s not necessary to present that degree of proof that required in
court.
If there is a provision requiring the kind of proof, what is substantial is compliant enough
(SUBSTANTIAL COMPLIANCE).
REMEMBER:
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Any payment towards settlement that is not participated in by the insurance company will always
be questioned. It will either make the insurance company free from any liability to the insured. It
will always happen that way. If the insured settles with the injured 3 rd party without the consent of
the insurance company, in all probability the insured wanting to recover the payment made to the
injured party, will go to the insurance company and ask for a refund. The insurance company will
deny any liability/refund because they do not seeks its consent.
Any form of settlement must always be done with the consent of the insurer.
Insurance, as in all other contracts, prescription is very important. In fact, that’s the 1 st thing that the
insurance companies will look at.
Q: When should we commence an action upon an insurance contract?
It shouldn’t be less than 1 year from the time the cause of action accrues.
VECTOR SHIPPING CORP. v. AMERICAN HOME ASSURANCE COMPANY:
Facts:
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Caltex entered into a contract of affreightment with Vector Shipping (VS) for VS to ship their oil.
There was an accident and Caltex suffered a loss. Caltex then went to its insurance company
American Home Insurance (AHI), hence there was subrogation. AHI paid Caltex. In the meantime,
the prescription period was running. The cause of action of AHI was based on quasi-delict.
CONTENTION OF CALTEX: If it’s based on tort, then you only have 4 years to file an action on
the contract.
Ruling:
The act of asking a refund by AHI against VS was not because of a quasi-delict, but because of
an obligation created by law. That obligation created by law was supposed to the subrogation.
That was the decision of the court at that time. A few years down the road, came the case of…
HENSON, JR. v. UCPB GENERAL
This is very interesting because this is an en banc decision. This overturned the decision on Vector
Shipping. What made it interesting was the dissenting opinion of CJ Bersamin was also very long.
But anyway, the dissent does not hold water in jurisprudence. We go by the decision of the majority.
Ruling:
The subrogation here did not create a new obligation under the law. AHI only inherited whatever
rights and obligations Caltex had with VS, including prescriptive rights.
Q: What was the prescriptive right of Caltex against VS?
In the en banc decision, it was said that whatever is the prescriptive right of Caltex against VS
would also be the same prescriptive right that AHI will assume from Caltex. As to the question of
how long is the prescriptive period, is it 4 years or 10 years? I’ll just make you a brief case digest
of this so that you have it with you for reference para ma-synthesize natin yung case. What I want
you to know is the old case has already been reversed. This is now the controlling case as far as
prescription is concerned. We have to follow this one because at the end of the decision, the Court
has provided for a timeline on cases similarly situated but were filed in 4 or after this decision has
been rendered.
Q: As far as loss is concerned, make sure that you also know the prescriptive periods for all
actions. Here, if you’re going to commence an action in court, is there a prescriptive period that
would allow you to file it before 1 year?
No. They may validly agree for a shorter period. Take note that it must be validly agreed upon by
the parties. Otherwise, the prescriptive period should not be less than 1 year from the time the
cause of action accrues.
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When your claim is rejected, then that is when your cause of action accrues. Your cause of action
does not accrue from the time the loss occurred. Your cause of action accrues from the time of the
rejection of your claim. Iba-iba yan.
 RIGHT OF ACTION – occurs from the time of loss occurred.

 CAUSE OF ACTION – accrues from the time the claim is rejected by the insurance company.
That is the time that your right is denied by the other party. Hence, the violation of your
claim gives rise to a cause of action against the insurance company.
We’re trying to visualize the process here.
POINTS TO FOCUS FOR THE EXAM:
6/7 Principles of Insurance Law:
 Duty of utmost good faith

 Insurable interest
 Principle of contribution
 Double insurance
 Concealment/Misrepresentation
 Premiums
Fifth Meeting
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There are many policies of insurance out there that are being marketed by the insurance industry. As
long as you can pay the premium, you can find the insurance contract or policy that you need.
This has a very wide coverage. This policy is the best policy to protect the goods that are in transit,
whether by sea, by air or by land.
Error in bullet no. 1: That cover ALSO inland marine insurance.
You take out a marine insurance policy for insuring your goods that are sent through a ship. You
also take out a marine insurance for cargo, for freight, for profit and other insurable interest
connected with movable property.
When you take out a marine insurance for vessels, there is an implied warranty on the part of the
owner of the vessel/charterer of seaworthiness.
Q: What about the cargo?
There is also an implied warranty of seaworthiness for the cargo. Whether it is the shipowner that
is insuring the cargo or the cargo owner separately insuring cargo, bears the responsibility of
warranting for its seaworthiness.
Although the shipper has no control over the vessel, the shipping has control in the choice of
the vessel.
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So there is also a warranty of seaworthiness in the cargo.
Q: Who makes this warranty?
It is the shipper himself. The shipper is deemed to have also taken the duty to inspect to make sure
the vessel on which the cargo will be shipped is seaworthy. Thus, the warranty of seaworthiness.
Look at your insurance code of the instances when deviation is proper.
“SEC. 126. A deviation is proper:
“(a) When caused by circumstances over which neither the master nor the owner of the ship
has any control;
“(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril
is insured against;
“(c) When made in good faith, and upon reasonable grounds of belief in its necessity to
avoid a peril; or
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“(d) When made in good faith, for the purpose of saving human life or relieving another
vessel in distress.
The shipowner has insurable interest over expected freightage – yung kikitain niya over the shipment
onboard his vessel.
As we know, a charter party is simply another term for a lease or a rental of the ship.
There are 3 parties here when we discuss about insurable interest:
 Shipowner;
 Cargo owner/Shipper;
 Charterer
The shipper need not be the cargo owner. The shipper is another party that has insurable interest
in what is being shipped on-board a vessel. Dba uso yan ngayon yung mga courier na yan? The
courier company has insurable interest over the means of transport – it may own the vehicle. And it
has also insurable interest over the income that he will earn in the transportation of his goods. If the
shipper decides to take out a separate insurance policy, the shipper has insurable interest over the
goods also.
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 PERILS OF THE SEA OR NAVIGATION – if they’re not extraordinary causes; if the losses
are just caused by the wear-and-tear of the ship, then they are called PERILS OF THE SHIP
rather than perils of the sea.
Q: Why is it necessary to distinguish between perils of the ship than perils of the sea?
It is only the perils of the sea that are covered by or insured against by the marine insurance policy,
unless there’s a stipulation to the contrary.
“ALL RISK POLICY” – the insurer carries the burden of proving that the loss was caused by an
excepted risk.
Pro mahal itong “all risk policy”. The premiums are quite high.
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CONCEALMENT
If the fact concealed is not material in a life/fire insurance policy, there is no concealment there.
The concealment can only be subject to rescission if the fact is material to the risk involved. If it is
not, then there is no concealment; there is no misrepresentation. We also know that in life or fire
insurance policy that beliefs and opinions of a 3 rd party do not affect the validity of the policy. But
in marine insurance, opinions or beliefs of a 3 rd party in reference to a material fact is material.
CO-INSURANCE CLAUSE
Q: What happens if there is co-insurance?
There is a kind of loss-sharing between the insurer and the insured.
In this co-insurance clause, if the insurance policy taken out by the insured is less than the value of
the property being insured, the insured is considered a co-insurer for the difference between the
amount of the insurance and the value of the property. That’s what the law calls loss sharing between
the insured and the insurer. The owner here bears a portion of the risk.
There are times when the owner of the property feels that the premium would be too expensive, so the
owner (insured) would like to get a lower amount. That’s fine if nothing happens to the property. But
what if something happens to the property? If you have a marine insurance policy, the difference there
would be treated as the share of the insured.
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It doesn’t mean that because P200k falls or can come under the umbrella of P800k that the P200k
will be recovered completely by the insured. No, because as you can see, the extent of the damage
is only partial.
Q: How much can be recovered by the insured?
Follow the formula in the above slide.
But in fire insurance policy, there has to be an express stipulation to that effect.
The deductibles are actually a pre-determined amount set by the insurance company. The amount
of the deductible has no relationship to the extent of the coverage of a property’s total value.
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 GENERAL AVERAGE – looks at the vessel or the cargo that were saved. The vessel or cargo
owner, when the vessel or cargo were saved, will be liable for general average.
 PARTICULAR AVERAGE – looks at a specific damaged cargo or a vessel if it covered by

the policy.
It’s important to determine the extent of the damage and against whom will the damage or loss will be
claimed.
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The implied warranty of seaworthiness is true to all vessel owners and cargo owners. But as I’ve
said, if you’re a cargo owner and take out a policy over the goods, there is also an implied warranty
on your part that you have picked a seaworthy ship. Di ka pupunta sa mga pipichugin na mga barko.
That’s why the law requires that implied warranty.
If you are the insured and you say, “I did not know that the ship was not seaworthy”, your ignorance
is immaterial in ordinary marine insurance. You cannot raise that as a defense in order to recover
from the insurance company.
Here, the vessel is seaworthy if it is reasonably fit to perform the service and to encounter the
ordinary perils of the voyage, contemplated by the parties to the policy.
Here, it depends on what vessel it is. A cruise ship is not expected to carry vast loads of containers
across the ocean. A containership cannot be expected to carry a full load of passengers. So it
depends on the service that the ship is suited for. If it is an ocean-going vessel, you must have all
the equipment necessary and appropriate to navigate through high seas. If not, then you suffer
damage, you suffer loss, the vessel sinks, then you breached your implied warranty of
seaworthiness.
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Remember that if the force majeure is covered by the policy, it is compensable because they
constitute acts of nature. Tandaan ninyo: If the policy covers acts of nature, then force majeure is not
a defense by the insurance company. They are compensable. But if they are excepted risks, then the
insurance company will not be liable.
Take note that of the insurer pays the insured for lost cargo, the payment operates as a waiver to
the insured’s right to enforce that implied warranty of seaworthiness.
The payment here, which in effect was a waiver, extended only in favor of the insured. It did not
extend in favor of the carrier.
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You find only deviation in marine insurance policies. We need to know when there is proper deviation
because if there is, then the insurance company will be liable.
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Only in marine insurance do you have the right of abandonment. It is not present in the other forms
of insurance.
The thing here may refer to the vessel itself or the cargo onboard the vessel, that is rendered
valueless.
When the owner is totally deprived of the vessel or the cargo, either or which is insured, there is
actual loss.
TRANSSHIPMENT – yung kukunin from the ship and then it will be forwarded to another ship.
If the expense of that transshipment exceeds the value of the cargo, “no thank you, never mind. I
will declare it as a constructive total loss.”
Only in constructive total loss do you have the right to abandon.
Q: What does this right to abandon entail?
You can claim from the insurer the whole insured value. Not just what was damaged but the total
insured value. Or without abandoning the vessel, you can claim for actual total loss.
When there is damage rendering the thing valueless, even if physically there is still xx, that is actual
loss. So if you have a shipment of grains at nabasa, everything is rendered valueless. Even if there
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are remaining sacks that are still there, it is actually ACTUAL LOSS. You have to declare actual loss.
Do not declare constructive total loss.
Take note that in CONSTRUCTIVE TOTAL LOSS, the actual loss is more than ¾ of the value of the
object. It does not speak of the thing being rendered valueless. It may refer to a different kind of
property, not probably grains, but some other form of property where ¾ of the value of the object
has been lost.
This is what I just want to emphasize because I recall where I gave an exam and the shipment there
were rice seeds and were bound for Cambodia in connection with the UN food program. The seeds got
wet and the transportation of the cargo. Some of you nagcompute kayo. Of course, I put some things
there that tend to confuse. I put there the number of bags, etc. Some of the students computed as to
whether the value was more than ¾. Mali nay un because the damage fell under this 3 rd bullet: Damage
rendering the thing valueless. The damage to the rice seeds rendered the whole thing valueless and
there was ACTUAL LOSS. And if there was actual loss, there was no need to exercise the right of
abandonment. Remember that ha.
139 Den
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ALLIED RISKS – it refers to floods.
140 Den
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Those who are living close to rivers, make sure that your fire insurance policy also have a provision
or coverage for floods.
Take note that a fire insurance policy cannot be transferred to the agent of the insurer. Any action
transferring such policy to the agent of the insurer is void.
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REPLACEMENT COST – is determined at the commencement of the fire.
Di naman at its brand new cost. Brand new cost is different from replacement cost. What the law
requires only is replacement cost.
VALUED POLICY – the amount is already pre-determined on the face of the policy.
The valuation/agreed amount stated in the policy is conclusive between the parties.
Q: What do you know about conclusive?
It prevents other evidence to rebut what is on the policy itself.
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TAKE NOTE: If the fire occurred during the war, but it took place independent of the war, it’s not
because of the war. Hence, the insurer is not relieved of its liability.
The insurance company will not be exonerated if the fire was caused by simple negligence. But if
there is proof of gross negligence, then the insurer will not be liable for the loss.
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That’s why it is important for you to file your notice of loss and preliminary proof of loss when you
file a claim without delay with your insurance company because the insurance company needs to
send somebody to the location of the fire and investigate the ruins and look as to how the fire
started because of arson. If the insurance company determines that there is arson, then they will be
exonerated.
Building or property insured for substantially more than its actual value at the time of the
insurance policy.
Napakalaking insurance over the building. It’s not commensurate to the value over the property.
During the lifetime of the policy, more than 2 fires occurred in the same or other premises
owned or under the control of the insured.
That’s also a sign of arson.
Shortly before the fire, a substantial portion of the effects insured and stored in the building or
property withdrawn from the premises unless it is in the ordinary course of business.
Very suspicious movement of furniture’s, fixtures, etc. just before the fire took place. Unless it can
be shown by the insured that the movement was in the ordinary course of his business.
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Riot: Yung mga naga rally dyan. Kahirap mag claim.
Example:
There was a big rally and then your car was parked close to the rally venue. Then hell broke loose
when the police came and disbanded it. The police fired teargases, the crowd started throwing
rocks then kasama kotse mo. Patay ka. If the insurance company will say, “The loss was caused by
the riot where your car was parked.”
Burden of proof that loss or damage is covered by the policy: INSURED
If you tell the insurance company, “I never knew that a riot will erupt.” You have to prove it. The
burden is with you.
DBP POOL v. RMN:
Sinunog ang mga transmitters ng RMN together with their offices. RMN was trying to recover
compensation from DBP Pool.
DBP’S DEFENSE: The loss was the burning of the transmitter and all the equipment of RMN was
due to rebellion, kase DBP alleged that they were burned down by the NPA rebels. The cause
of the loss was due to an excepted risk.
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Ruling:
The Court interpreted this to mean as 1 st, the insured has to prove loss. After proving loss, the
burden shifts to the insurer to prove rebellion. So it’s not easy for the insurer to get away from
its responsibility.
Burden of proof: On the insured only to prove loss or damage; On insurer only to prove that the loss
or damage is an excepted risk.
The same sa sunogan na nangyari sa Lapanday. There was an incident as few years back where tshe
NPAs burned down trucks of Lapanday. Parang ganun din yung RMN. But the Court said that 1 st,
all that the insured has to do is to prove te fact of loss or damage. Then the burden shifts to the
insurance company to prove that the cause of the loss was an excepted risk.
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After the fire insurance policy was issued, the insured performed an act which increased the risk
and which was actually the cause of the loss but that action did not violate the policy provisions,
then it will not affect the fire insurance policy, and the insurer will still be liable under the policy.
147 Den
S.Y. 2020-2021
In the above slides are the requisites in order for the fire policy to continue to be binding even if
the insured has performed an act subsequent to the issuance of the policy. Even if it increases the
risk and even if it also causes the loss but it did not violate the fire policy provisions, then it will not
affect the fire policy.
This one involved a furniture factory which keeps benzene for the purpose of its operations or where
it is used for the cleaning of machinery. Syempre meron kang mga oil, lubricants which can be fore
hazards. The insurer cannot on that ground, avoid payment of loss though keeping of the benzene
on the premises is expressly prohibited. It’s expressly prohibited but it’s incidental to the business.
That’s the important thing to remember there. Hence, the keeping of these chemicals is not a violation
of the fire insurance policy. It may increase the risk and can in fact be the cause of the loss but it
does not violate the fire policy provision. Granted that it violated the fire policy provisions, the
Court in Bachrach v. British American Assurance ruled that because they are incidental to the business,
the insurance company cannot raise the defense and will continue to be held liable. That is the
exception to the rule that it should not violate fire policy provisions.
148 Den
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So suicide is compensable if it happened after 2 years when the policy has been issued or last
reinstatement, unless it is an excepted risk.
Suicide under a state of insanity: Compensable regardless of the date of commission.
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S.Y. 2020-2021
GR: The insurer is not liable for the loss caused by the willful act of the insured.
Example: Arson
So this suicide is one of those exceptions.
2nd bullet:
Q: Who is going to prove this?
The insurance company.
3rd bullet:
There’s no such thing as an open-policy or a valued policy. A life insurance policy is considered a
valued policy. But there is no open life insurance policy. The measure of indemnity on a life insurance
policy is already determined based on the insurance policy. What you see is what you get.
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REMEMBER:
Fire insurance policy cannot be transferred to the agent of the insurer. A fire insurance policy cannot
be transferred before the loss to another person without the consent of the insurance company. As
we said, fore insurance policy (property insurance) does not follow the property if the transfer was
made before the loss. But after the loss, the fire insurance policy becomes a money claim. As money
claim, it can now be transferred to another person even without the consent of the insurance
company. All of these because of the PRINCIPLE OF INDEMNITY.
If you’re going to change your irrevocable beneficiary, you need to get the consent of the
beneficiary.
151 Den
S.Y. 2020-2021
The insurance company may agree to a shorter period. It’s ok if in the agreement the incontestability
clause applies after 6 months from the date of issuance or last reinstatement. Di mas better.
MANILA BANKERS v. ABAN:
Q: What happens if the insured dies within the 2-year period.
If the insured dies within the 2-year period and within the 2-year period the insurance company
did not take steps to investigate to any concealment or misrepresentation, the beneficiary of the
insured of the insured can still claim the benefits from that policy. The insurance company should
have taken steps to investigate prior to the death of the insured.
Because we know that the insurance that the insurance company can investigate within the 2-year
period. But what it the insured dies within the 2-year period? If there’s a showing that not
investigation was taking place, then it seemed that the beneficiary of the insured may still file a
claim ang may actually claim the proceeds of the insurance policy. So dapat magkasama sila –
that the insurance company did take steps to investigate the representations of the insured from the
application.
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This is quite confusing when the insured dies within the 2-year period because it would seem that
the insurance company can still investigate within the 2-year period. It would seem that within the
2-year period, any concealment or misrepresentation will arise, then that is a ground for rescission.
No. In this case of Aban, after the 2-year period lapses or when the insured does within the period.
You have to take note of that.
153 Den
S.Y. 2020-2021
The COMPULSORY MOTOR VEHICLE (CMV) of the insurance code is actually casualty insurance.
154 Den
S.Y. 2020-2021
Usually another term for this would be GENERAL LIABILITY INSURANCE – that’s the umbrella
insurance as far as this is concerned.
Kung may madapa sa bulding mo, of nagka barilan sa premises ng building and you were accused
by the heirs of the victim that you did not provide for security to make sure that the premises were
safe. If it will be proven that you did not exercise the diligence of a GFOF, that’s a case for tort.
That liability there is compensable if you have a casualty insurance.
MANILA BANKERS v. ABAN:
Q: What happens if the insured dies within the 2-year period.
If the insured dies within the 2-year period and within the 2-year period the insurance company
did not take steps to investigate to any concealment or misrepresentation, the beneficiary of the
insured of the insured can still claim the benefits from that policy. The insurance company should
have taken steps to investigate prior to the death of the insured.
COVERAGE: For loss and liability and not damage to property, because damage to property
would either be fire insurance or marine insurance.
You call that as COMPULSORY JOINDER OF PARTIES in procedure.
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REMEMBER:
When the policy contains an indemnity against liability for 3 rd persons, then the 3rd persons can sue
the insurer directly. It’s not necessary for the 3 rd party to get 1st judgment finding the insured liable
and then waiting for the judgment to be rendered, after which they will proceed to the insurance
company. No. All 3 can be impleaded.
So if it’s for actual loss or payment – irerefund lng ang insured, then the 3rd persons cannot proceed
against the insurer. The recourse of the 3rd persons is only limited to the insured alone.
That’s the distinction that you must note. Pag merong indemnity for liability to 3rd persons, 3rd persons
can sue the insurance company directly. But if it’s just to reimburse the insured, then the insurance
company cannot be joined in that action.
Walang solidary liability sa insurance contracts. When judgment is rendered against the insured,
the court cannothold the insurance company solidarily liable for the damages that the court will
award. Remember that the insurance company is liable only for the amount in the contract of
insurance.
RULE: The Rules of Court will prevail especially if you’re trying to avoid multiplicity of suits (answer
to the exam question).
156 Den
S.Y. 2020-2021
This is a form of insurance if it is issued by the insurance company.
This is the only instance where the insurer is solidarily liable with the principal debtor.
Iba yung contract of guaranty. The guarantor will step in only if the person guaranteed fails to
pay. But the surety is solidarily liable. In that sense, this is the only insurance contract where there is
solidary liability.
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S.Y. 2020-2021
Duty of another: Meaning, the performance of that duty.
Liabilities of the surety and debtor are interwoven and inseparable.
Kaya nga solidary talaga.
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S.Y. 2020-2021
The surety becomes only primarily liable when the obligor cannot comply with his obligation. The
oblige may still have to demand from the obligor to perform the service that needed to be
performed, to pay the debt. The principal still have to deliver these obligations under the principal
agreement. The surety comes in only to do or to pay if the obligor fails to perform his obligation.
The surety comes in as a primary party in the event of failure of the obligor to pay the debt in the
original contract.
159 Den
S.Y. 2020-2021
 As between the obligor and the obligee, there is a principal agreement.

 As between the obligor and the surety, there is such a thing as indemnity agreement. Once
the surety pays the obligee, the surety can run after the obligor.
160 Den
S.Y. 2020-2021
Also the same rule. There is no valid surety bond if there’s no premium paid.
This is the small chapter in insurance law.
161 Den
S.Y. 2020-2021
This has already been discussed. Just refer to the previous slides and discussions.
162 Den
S.Y. 2020-2021
VICENTE G HENSON JR. VS. UCPB GENERAL INS.CO., G.R. NO. 223134
(This abandoned the ruling in VECTOR SHIPPING v. AMERICAN HOME ASSURANCE)
FACTS:
National Arts Studio leased a portion of the ground floor of the building owned by the Henson.
Later, National Arts moved to and rented the second floor of the building and made renovations
with the buildings piping assembly. Copylandia moved in to the ground floor.
On May 9, 2006, a water leak occurred and damaged Copylandia’s various equipment to the
amount of P2,062,640.00. Copylandia filed a claim with UCPB General Insurance for said
amount. On November 2, 2006, UCPB settled with Copylandia paying P1,326, 342.76. UCPB
was subrograted to the rights of Copylandia over all claims and demands, arising from the
incident. On May 20, 2010, UCPB demanded from National Arts Studio for payment but to no
avail. It filed a complaint for damages against National Arts. Meanwhile, sometime in 2010,
Henson transferred the ownership of the building to Citrinne Holdings,Inc. where he is stockholder
and the president.
On October 6, 2011, UCPB filed an Amended Complaint (Second Amendment) impleading

Citrinne as party defendant as the new owner of the building. On April 21, 2014, UCPB again
filed a Motion to Admit Attached Complaint and Pre Trial Brief (Third Amendment) praying that
Henson, instead of Citrinne, be impleaded as party defendant because it was Henson who was
then the owner of the building when the water leak damage occurred.
According to the UCPB, the defendants were negligent in maintaining the building’s draining
system. Such negligence resulted in substantial damage to Copylandia’s various equipment.
Cintrinne on the other hand, opposed the Motion To Admit on the ground of prescription arguing
that since UCPB’s cause of action is based on quasi-delict, the case should have been brought
within four years from it accrual on May 9, 2006. Thus, UCPB is barred for proceeding against
CHI/Henson, especially since the latter (CHI/Henson) never received any prior demand form the
UCPB.
The RTC Ruling
RTC ruled in favor of UCPB and accordingly ordered the: 1) dropping of Citrinne as party
defendant and joining Henson as one of the party-defendants in the case. The RTC said UCPB’s
cause of action against Henson arose after it paid Copylandia its insurance claim, subrogating
to the rights and claims of Copylandia. As it merely enforced its right of subrogation, the
prescriptive period is ten years based on an obligation created by law counted from date of
payment, November 2, 2006. As such, UCPB’s claim against Henson is yet to prescribe when it
sought to include Henson as party-defendant on April 21, 2014.
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Citrinne moved for reconsideration which was denied. Henson filed a petition for certiorari (Rule
65) with the CA.
The CA Ruling
CA affirmed the ruling that UCPB’s cause of action has not yet prescribed since it was not based
on quasi-delict which must be brought within 4 years from date of occurrence of the negligent
act, but based on an obligation created by law, which has a longer prescriptive period of ten
years reckoned from its accrual. CA denied the motion for reconsideration.
The Supreme Court Ruling
The RTC and CA ruling was based on the case of Vector Shipping Corporation vs. American Home
Assurance Corporation (Vector). [713 Phil 198 (2013)]
In Vector, Caltex entered a contract of affreightment with Vector Shipping for the transport of
the Caltex’s goods. Caltex insured its goods with American Home Assurance Co. During transport
on Dec. 20, 1987, Vector’s ship collided with another vessel and sank, resulting to total loss of
Caltex’s goods. American Home indemnified Caltex on July 12, 1988. Thereafter, it filed a suit
against Vector for the recovery of such amount on March 5, 1992. At first, RTC ruled that
American Home’s claim against Vector has prescribed as it was based on a quasi-delict which
should have been filed within four (4) years from the time Caltex suffered a total loss of its
goods. But, the CA reversed the ruling, saying that the claim has yet to prescribed as it is based
on a breach of Vector’s contract of affreightment with Caltex, which has a longer prescriptive
period often 10 years, from the time of loss.
In Vector, the Court agreed that the claim has yet to prescribe, but qualified that “the present
action was not upon a written contract, but upon an obligation created by law”. The Supreme
Court CLARIFIED that while they concurred with the ruling of the CA that American Home’s action
has not yet prescribed, it said that it couldn’t adopt the characterization by the CA that the cause
of action was based on the contract of affreightment between Caltex and Vector with the breach
of contract being the failure of Vector to make the M/T Vector seaworthy. The Court said that
the present action was not upon a written contract, but upon an obligation created by law.
Hence, the action by American Home was not upon a written contract [Art. 1144 (1)] but upon an
obligation created by law. [Art. 1144 (2)]. Subrogation of insurer to the right of the insured was
by virtue of the express provision of law under Art. 2207 of the Civil Code. Said provision states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the injury or loss, the
164 Den
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aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
The Court invoked its ruling in Pan Malayan Insurance Corp. vs. CA, stating that the juridical
situation under Art. 2207 is based on the well-settled principle of subrogation:
“Payment by insurer to the assured operates as an equitable assignment to the

insurance company of all remedies which the assured may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation is
not dependent upon, nor does it grow out of, any privity of contract of upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer.”
In Vector, the Court stated that the insured’s (American Home’s) claim against the debtor
(Vector) was premised on the right of subrogation pursuant to Art. 2207 of the Civil Code,
and hence, an obligation created by law.
However, in this case, the Court said that the Vector Court FAILED TO DISCERN that NO
NEW OBLIGATION WAS CREATED BETWEEN AMERICAN HOME AND VECTOR for the
reason that a subrogee only steps into the shoes of the subrogor hence, the subrogee-
insurer only assumes the rights of the subrogror-insured based on the latter’ original
obligation with the debtor.
The Court proceeded to lay down the legal effects of subrogation:
1) it is primarily between the subrogee-insurer and the subrogor-insured
2) by payment, subrogee acquires, by operation of law, all rights of the subrogor-

insured against debtor (the wrongdoer)
3) debtor is a stranger to this juridical tie because it only remains bound by its original
obligation to its creditor whose rights, however, have already been assumed by the
subrogee.
The Court pointed out that by subrogation, Caltex is obliged to respect this assumption of
rights by American Home against Vector. In cannot deny American Home of its right to
claim against Vector. But, the subrogation by American Home did not alter the original
obligation between Caltex and Vector.
The Court said that in Vector, the Court erroneously concluded that “the cause of action
(against Vector) accrued as of the time (American Home) actually indemnified Caltex on
July 12, 1988. Instead, it is actually the SUBROGATION OF RIGHTS BETWEEN CALTEX
AND AMERICAN HOME THAT AROSE FROM THE TIME THE INDEMNITY WA PAID. But, the
accrual of the cause of action that Caltex had against Vector did not change because no
165 Den
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new obligation was created as between them (Caltex and Vector) by reason of
subrogation. The cause of action against Vector therefore accrued at the time it breached
its original obligation with Caltex, whose right of action just so happened to have been
assumed in the interim by American Home due to subrogation. “A right of action is the right
to presently enforce a cause of action, while a cause of action consists of the operative fact
which give rise to such right of action.”
The Court held that subrogation allows only the insurer to assume ipso jure the old creditor’s
rights without need of any contract, to go after the debtor, but it does not mean that a
new obligation is created between the debtor and the insurer. The insurer, as the new
creditor, remains bound by the limitations of the old creditor’s claims against the debtor,
including the aspect of prescription. Thus, the debtor’s right to invoke the defense of
prescription cannot be circumvented by the mere expedient of successive payments of
certain insurers that purport to create new obligations, when, in fact, what remains subsisting
is only the original obligation.
On this basis, the Court must abandon the ruling in Vector that an insurer may file an action
against the tortfeasor within ten years from the time the insurer indemnifies the insured.
Since the insurer only steps into the shoes of the insured, for purposes of prescription, the
insurer inherits only the remaining period within which the insured may file an action against
the wrongdoer for tort. The prescriptive period of the action begins at the time the tort was
committed (i.e., the collision) and the loss/injury occurred against the insured. The
indemnification of the insured by the insurer only allows it to be subrogated to the former’s
rights but does not create a new reckoning point for the cause of action that the insured
original has against the wrongdoer.
This Decision by the Court, abandoning the Vector doctrine should apply prospectively.
Then the Court prescribed GUIDELINES to the application of Vector and this Henson decision
vis-à-vis the prescriptive period in cases where the insurer is subrogated to the rights of the
insured against the wrongdoer based on a quasi delict.
Application to the Case at Bar
The Court found that if adjudged by the present parameters of legal subrogation,
prescription should have already set in. But, the prevailing rule applicable to the case is
Vector (Vector doctrine). Hence, the reckoning date for the 10 year prescriptive period is
Nov. 2, 2006, which is the date when Copylandia was indemnified. Therefore, when the
amended complaint against Henson was filed on April 21, 2014, the case cannot be said
to have prescribed under Vector.
The petition is denied.
-END- 
166 Den
S.Y. 2020-2021
Trust in the Lord with all thine heart; and lean not unto thine own understanding.
In all thy ways acknowledge him, and he shall direct thy paths.
-PROVERBS 3:5-6, KJV
167 Den

Insurance Law Notes

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Insurance Law Notes

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INSURANCE LAW

Damnified – suffered loss, damage or liability.

GR: Anything with appreciable value will be insurable.

The subjects of insurance can be categorized into 2 major categories:

 Property insurance – also known as non-life insurance.

In a life insurance contract, you have 3 parties actually:

Q: What is that liability?

Q: Is this still true (referring to the contingency or unknown event) up to now?

LIABILITY FOR FORTUITOUS EVENT

Here, we’re focusing on life insurance policy.

Q: Who can raise that as a defense?

It would be the minor himself.

Q: What are these rights of a minor under the policy?

Cash surrender value.

Receiving the proceeds of the policy:

 Judicial guardian – understandably, is appointed by the court; or

PLS. REMEMBER THIS PARTICULAR PROVISION.

These are the 3 people in a life insurance policy:

(Check example in the slide)

*A contract of insurance is not a wagering or gambling contract.

(Check above example in the slide)

Reason: Even if he doesn’t win, he does not suffer a loss.

INSURABLE INTEREST – One of the pillars of insurance law.

 A person’s insurable interest may lie on himself, herself, spouse or children.

Q: Do you need to have the consent of the person insured?

The insured is the life subject of the insurance.

“(a) Of himself, of his spouse and of his children;

DAMNIFY – that person will suffer an injury.

I. EXISTING INTEREST WITH LEGAL TITLE:

Mortgagor on the property mortgaged

Lessor of the property that has been leased

He has an insurable interest.

II. EXISTING INTEREST WITH EQUITABLE TITLE:

Example of existing interest with an equitable title:

Creditors under deed of assignment

III. INCHOATE INTEREST FOUNDED ON AN EXISTING INTEREST:

Stockholder on the property of a corporation which he is a stockholder

Q: What is his existing interest?

It’s the shares that he owns in that corporation.

A partner has an inchoate interest in the firm property

Q: What is his existing interest?

His share in the partnership, that is his existing interest.

IV. AN EXPECTANCY COUPLED WITH AN EXISTING INTEREST

Ma’am pertains to this:

Q: Who is a secured creditor?

The one where a specific property was mortgaged to it.

LIFE INSURANCE PROPERTY INSURANCE

Is not a contract of indemnity. Is a contract of indemnity.

 FIRE OR MARINE INSURANCE CONTRACTS – Fire insurance policy is a contract of

 LIABILITY OR CASUALTY INSURANCE CONTRACTS – considered contracts of indemnity

 LIFE INSURANCE CONTRACTS – not contracts of indemnity.

A healthcare agreement with an HMO is primarily a contract of indemnity.

So it is an indemnity in favor of the person who bought the healthcare agreement.

Q: What is this PRINCIPAL OBJECT AND PURPOSE TEST?

(PhilAm Care case)

If the principle object is to render service, it is not insurance.

This is also very important!

WHEN INSURABLE INTEREST MUST EXIST:

 If the fire occurs after the sale or alienation of the property.

As far as life/health insurance is concerned, the 2 nd requirement of insurable interest

A creditor takes out a life insurance on the debtor:

Q: Can the company claim compensation over your death?