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 U.P. LAW BOC COMMERCIAL LAW

TABLE OF CONTENTS

INSURANCE ............................................................. 1 TRANSPORTATION ............................................... 56

A. CONCEPT OF INSURANCE.......................................... 2 A. COMMON CARRIERS ................................ 57

B. ELEMENTS OF AN INSURANCE CONTRACT ............... 3 1. Diligence Required of Common Carriers 58
C. CHARACTERISTICS AND NATURE OF AN INSURANCE 2. Liabilities of Common Carriers ................ 59
CONTRACT ....................................................................... 5 3. Classification of transport network vehicle
D. CLASSES ........................................................................... 6 services and transport network companies 60
1. Marine Insurance....................................... 6 B. VIGILANCE OVER GOODS ...........................................60
2. Fire .......................................................... 11 1. Exempting Causes .................................. 61
3. Casualty .................................................. 13 2. Contributory Negligence .......................... 63
4. Suretyship ............................................... 14 3. Duration of Liability .................................. 63
5. Life .......................................................... 15 4. Stipulation for Limitation of Liability ......... 64
6. Microinsurance ........................................ 17 5. Liability for Baggage of Passengers ........ 66
7. Compulsory Motor Vehicle Liability C. SAFETY OF PASSENGERS ..........................................67
Insurance ................................................... 18 1. Void Stipulations...................................... 67
8. Compulsory Insurance Coverage for 2. Duration of Liability .................................. 68
Agency-Hired Workers............................... 19 3. Liability for Acts of Others........................ 69
E. VARIABLE CONTRACTS .............................................. 19 4. Liability for Delay in Commencement of
F. INSURABLE INTEREST ................................................. 20 Voyage ...................................................... 71
1. In Life/Health ........................................... 21 5. Liability for Defects in Equipment and
2. In Property ............................................... 23 Facilities..................................................... 72
3. Double Insurance and Over Insurance .... 25 6. Extent of Liability for Damages ................ 72
4. Multiple or Several Interests on Same D. BILL OF LADING .............................................................74
Property ..................................................... 26 1. Three-Fold Character .............................. 74
G. PERFECTION OF THE CONTRACT OF INSURANCE 28 2. Delivery of Goods .................................... 74
1. Offer and Acceptance/Consensuality ...... 28 3. Period for Filing Claims ........................... 76
2. Premium Payment ................................... 29 4. Period for Filing Actions........................... 77
3. Non-Default Options in Life Insurance ..... 30 5. Effects of Stipulations .............................. 77
4. Reinstatement of a Lapsed Policy of Life E. MARITIME COMMERCE ................................................77
Insurance ................................................... 31 1. Charter Parties ........................................ 77
5. Refund of Premiums................................ 31 2. Liability of Ship Owners and Shipping Agents
H. RESCISSION OF INSURANCE CONTRACTS ............. 32 ................................................................ 79
1. Concealment ........................................... 32 3. Accidents and Damages in Maritime
2. Misrepresentation/Omissions .................. 35 Commerce ................................................. 82
3. Breach of Warranties............................... 36 4. Carriage of Goods by Sea Act (COGSA) 85 F.
I. CLAIMS SETTLEMENT AND SUBROGATION ............ 38 PUBLIC SERVICE ACT ..................................................86
1. Notice and Proof of Loss ......................... 39 1. Definition of Public Utility ......................... 86
2. Guidelines on Claims Settlement ............ 40 2. Necessity for certificate of public
J. BUSINESS OF INSURANCE; REQUIREMENTS ......... 43 convenience .............................................. 86
K. INSURANCE COMMISSIONER AND ITS POWERS .... 47 G. THE W ARSAW CONVENTION .....................................89
1. Jurisdiction and Adjudicatory Powers ...... 47
BUSINESS ORGANIZATIONS................................ 93
2. Revocation of Certificate of Authority ...... 47
3. Liquidation of Insurance Company .......... 48 A. PARTNERSHIPS .............................................................94
1. General Provisions .................................. 94
PRE-NEED .............................................................. 49
2. Rights and obligations of partnership and
A. DEFINITION ..................................................................... 50 partners ................................................... 100
1. Pre-Need Plans ....................................... 50 3. Dissolution and Winding Up .................. 111
2. Pre-Need Company................................. 50 4. Limited Partnership ............................... 118
B. REGISTRATION OF PRE-NEED PLANS .................... 51 B. CORPORATIONS ........................................... 126
C. LICENSING OF SALES COUNSELORS AND GENERAL 1. Definition of Corporation ........................ 126
AGENTS .......................................................................... 52 2. Classes of Corporations ........................ 127
D. DEFAULT AND TERMINATION..................................... 53 3. Nationality of Corporations .................... 133
E. CLAIMS SETTLEMENT ................................................. 54 4. Corporate Juridical Personality.............. 136
5. Capital Structure.................................... 140
6. Incorporation and Organization ............. 147
 U.P. LAW BOC
7. Corporate Powers ................................. 162
8. Stockholders and Members ................... 179
9. Board of Directors and Trustees ............ 205
10. Capital Affairs .................................... 219
11. Dissolution And Liquidation ............... 231
12. Other Corporations............................ 242
13. Merger and Consolidation ................. 264
14. Investigations, offenses, and penalties ...
.......................................................... 268
SECURITIES ......................................................... 276
A. STATE POLICY ............................................. 277
B. DEFINITION OF SECURITIES ..................................... 277
C. KINDS OF SECURITIES .............................................. 278
1. Exempt Securities [Sec. 9] .................... 278
2. Exempt Transactions [Sec. 10].............. 279
3. Non-exempt transactions ...................... 281
D. POWERS AND FUNCTIONS OF THE SECURITIES AND
EXCHANGE COMMISSION .............................................. 282
E. PROCEDURE FOR REGISTRATION OF SECURITIES ...
.................................................................. 282
F. PROHIBITIONS ON FRAUD, MANIPULATION, AND
INSIDER TRADING ............................................................. 284
1. Manipulation of security prices [Sec. 24] ....
.............................................................. 284
2. Short sales [Rule 24.2-2, 2015 SRC IRR]...
.............................................................. 286
3. Option trading [Sec. 25] ......................... 287
4. Fraudulent transactions [Sec. 26] .......... 287
5. Insider trading [Sec. 61]......................... 288
G. PROTECTION OF SHAREHOLDER INTERESTS....... 289
INTELLECTUAL PROPERTY LAW ...................... 331
1. Tender offer rule .................................... 289
2. Rules on proxy solicitation ..................... 291
3. Disclosure rule....................................... 292
BANKING .............................................................. 295
A. THE NEW CENTRALBANK ACT ............... 296
1. State Policies......................................... 296
2. Creation of the Bangko Sentral ng Pilipinas
.............................................................. 296
3. Responsibility and Primary Objective of BSP
.............................................................. 296
4. Corporate Powers ................................. 297
5. Operations of the BSP ........................... 297
6. Monetary Board (MB); Powers and
Functions ................................................. 300
7. How The BSP Handles Banks In Distress ..
.............................................................. 300
8. Administrative sanctions on supervised
entities ..................................................... 304
9. Rules on bank deposits and investments by
directors, officers, stockholders and their
related interests ....................................... 304
10. Supervision and regulation of bank
operations ................................................ 305
11. Rate of exchange .............................. 306
COMMERCIAL LAW
B. LAW ON SECRECY OF BANK DEPOSITS ............... 307
1. Purpose ................................................. 307
2. Prohibited Acts ...................................... 307
3. Deposits and Investments Covered ....... 307
4. Exceptions............................................. 308
5. Garnishment of Deposits, Including Foreign
Deposits................................................... 309
6. Penalties for Violation ............................ 310
C. GENERAL BANKING LAW OF 2000 (GBL) ........ 310
1. Definition and classification of banks ..... 310
2. Distinction of banks from Quasi-banks and
trust entities ............................................. 311
3. Bank Powers and Liabilities................... 311
4. Diligence required of banks in view of
fiduciary nature of banking ....................... 313
5. Nature of Bank Funds and Bank Deposits ..
.............................................................. 314
6. Grant of Loans and Security Requirements
.............................................................. 314
7. Penalties for violations .......................... 317
D. PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT.
.................................................................. 319
1. Basic Policy ........................................... 319
2. Powers and functions of the PDIC;
prohibitions .............................................. 319
3. Concept of insured deposits .................. 321
4. Liability to depositors ............................. 321
5. Concept of bank resolution .................... 325
6. Role of the PDIC in relation to banks in
distress .......................................................... 326
A. INTELLECTUAL PROPERTY RIGHTS IN GENERAL. 332
1. Intellectual Property Rights.................... 332
2. Differences between copyright, trademarks,
and patents .............................................. 332
3. Technology Transfer Arrangements ...... 332
B. PATENTS ...................................................................... 333
1. Patentable Invention.............................. 333
2. Non-Patentable Inventions .................... 334
3. Ownership of a Patent ........................... 335
4. Grounds for Cancellation of a Patent..... 336
5. Remedy of the True and Actual inventor.....
.............................................................. 336
6. Rights Conferred by a Patent ................ 337
7. Limitations of Patent Rights ................... 337
8. Patent Infringement ............................... 339
9. Licensing ............................................... 340
10. Assignment and Transmission of Rights
344
C. TRADEMARKS ............................................................. 344
1. Definition of Marks, Collective Marks, and
Trade Names ................................................. 344
2. Acquisition of Ownership of Mark .......... 346
3. Acquisition of Ownership of Trade Name....
.............................................................. 347
4. Non-Registrable Marks .......................... 347
 U.P. LAW BOC COMMERCIAL LAW

5. Prior use of mark as a Requirement ...... 348 2. Financial Rehabilitation and Insolvency Act
6. Tests to Determine Confusing Similarity of 2010..................................................... 423
between Marks ........................................ 350 F. DATA PRIVACY ACT OF 2012 ........................ 437
7. Well-Known Marks ................................ 351 1. Definitions and Scope ........................... 437
8. Rights Conferred by Registration........... 352 2. Extraterritorial Application...................... 438
9. Use by third parties of names, etc. similar to 3. Processing of personal information ....... 438
registered mark ........................................ 354 4. Rights of the data subject; exceptions/non-
10. Infringement and remedies................ 354 applicability .............................................. 440
11. Unfair Competition ............................ 356 5. Duties and responsibilities of personal
12. Registration of marks under the Madrid information controller ............................... 442
Protocol ................................................... 357 G. PHILIPPINE COMPETITION ACT .............................. 443
D. COPYRIGHT ................................................................. 360 1. Definitions and Scope of Application ..... 443
1. Basic Principles ..................................... 360 2. Powers and functions of the Philippine
2. Copyrightable Works ............................. 360 Competition Commission ......................... 444
3. Non-Copyrightable Works ..................... 361 3. Prohibited acts....................................... 445
4. Rights of Copyright Owner .................... 363 4. Covered Transactions ........................... 448
5. Rules on Ownership of Copyright .......... 367 5. Determining the Relevant Market .......... 449
6. Limitations on Copyright ........................ 369 6. Determining the control or dominance of.......
7. Copyright Infringement .......................... 370 market...................................................... 449
7. Determining Existence of Anti-Competitive
SPECIAL LAWS .................................................... 376
Conduct ................................................... 450
A. SECURED TRANSACTIONS .................... 377 8. Forbearance by the Philippine Competition
1. Personal Property Security Act.............. 377 Commission ............................................. 450
2. Real Estate Mortgage Law..................... 391
3. Guaranty ............................................... 392
4. Surety .................................................... 397
5. Letters of credit...................................... 399
B. TRUTH IN LENDING ACT ........................................... 402
1. Purpose ................................................. 402
2. Obligation of Creditors to Persons to whom
Credit is Extended ................................... 402
3. Covered and Excluded Transactions ..... 402
4. Consequences of Non-Compliance ....... 403
C. ANTI-MONEY LAUNDERING ACT ............ 403
1. Policy of the Law ................................... 403
2. Covered Institutions and Their Obligations .
.............................................................. 404
3. Covered and Suspicious Transactions . 405
4. Money Laundering; how committed; unlawful
and predicate crimes ............................... 406
5. Anti-Money Laundering Council; functions .
.............................................................. 407
6. Safe Harbor Provision ........................... 408
7. Application for Freeze Orders................ 408
8. Authority to Inquire into Bank Deposits. 409
D. FOREIGN INVESTMENTS ACT ................ 411
1. Policy of the law .................................... 412
2. Definition of terms ................................. 412
3. Registration of investments of non-Philippine
nationals .................................................. 414
4. Foreign investments in export enterprises ..
.............................................................. 414
5. Foreign investments in domestic market
enterprises ............................................... 415
6. Foreign Investment Negative List .......... 415
E. INSOLVENCY LAWS ................................ 418
1. Concurrence and preference of credits. 418
U.P. LAW BOC INSURANCE COMMERCIAL LAW

INSURANCE
COMMERCIAL LAW

Page 1 of 450
 U.P. LAW BOC INSURANCE
A. CONCEPT OF
INSURANCE
Insurance is essentially a contract by which
one party (the insurer), for a consideration that
is usually paid in money, either in a lump sum
or at different times during the continuance of
the risk, promises to make a certain payment,
usually of money, upon the destruction or injury
of “something” in which the other party (the
insured) has an interest [Carale, The Philippine
Insurance Law (2014)].
On August 15, 2013, RA 10607 was signed into
law. It is a restatement of the Insurance Code
(PD 612), with amendments.
The section numbers hereinafter generally
pertain to RA 10607, unless otherwise
indicated.
1. Contract of Insurance
A contract of insurance is an agreement
whereby one undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event. [Sec. 2(a)]
Definition
Thus, a contract of insurance is:
1. A contract of indemnity;
2. Wherein one undertakes for a
consideration;
3. To indemnify another against loss,
damage, or liability;
4. Arising from an unknown or contingent
event.
Contingent Event Unknown Event
Event that is not Event which is certain to
certain to take happen, but the time of
place. its happening is not
known.
General Rule: A past event cannot be a
designated event in an insurance contract.
Exception: It may be a designated event only
in cases where it has happened already but the
Page 2 of 450
COMMERCIAL LAW
parties do not know about it e.g., prior loss of a
ship at sea (applicable only to marine
insurance) [de Leon, The Insurance Code of
the Philippines Annotated (2014)].
The unknown event may be past or future.
Even if the proximate cause of the loss is a
fortuitous event, the insurer may still be liable if
it is the event or peril insured against [de Leon].
Form
There is no particular form required for a
contract of insurance.
The Insurance Code has no provision requiring
a particular form for the validity of an insurance
contract. In our jurisdiction, the Supreme Court
has not made a categorical ruling against the
validity of an oral contract of insurance
[Carale].
An insurance policy is different from the
contract of insurance. The policy is the formal
written instrument evidencing the contract of
insurance entered into between the insured
and the insurer. [Sec. 232]
2. Doing or Transacting Insurance
Business
The term “doing an insurance
business or transacting an insurance
business” includes:
1. Making or proposing to make, as insurer,
any insurance contract;
2. Making or proposing to make, as surety,
any contract of suretyship as a vocation
and not as merely incidental to any other
legitimate business or activity of the surety;
3. Doing any kind of business, including a
reinsurance business, specifically
recognized as constituting the doing of
an insurance business within the
meaning of the Insurance Code;
4. Doing or proposing to do any business in
substance equivalent to any of the
foregoing in a manner designed to evade
the provisions of the Insurance Code. [Sec.
2(b)]
 U.P. LAW BOC INSURANCE
General rule: An insurance business consists
in undertaking, for a consideration, to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event.
Exception: Those not formally designated as
insurance businesses but are deemed “doing
or transacting an insurance business” as listed
in Sec. 2(b).
The “principal object and purpose test”
 Determines:
- Whether the assumption of risk and
indemnification of loss are the principal
object and purpose of the organization;
or
- Whether they are merely incidental to
its business.
 From such determination, it concludes that:
- If these are the principal objectives, the
business is that of insurance.
- But if they are merely incidental and
service is the principal purpose, then
the business is not insurance.
3. Governing Law
General Rule: The Insurance Code primarily
governs insurance contracts.
Exception: When there is a special law which
specifically governs (e.g., insurance contract
under R.A. 1161 or the Social Security Act), in
which case, the Insurance Code governs
subsidiarily.
Matters not expressly provided for in the
Insurance Code and special laws are regulated
by the Civil Code.
Other special laws:
a. National Health Insurance Act of 2013 (RA
10606, amending RA 7875)
b. The Revised Government Service
Insurance Act of 1997 (RA 8291)
c. The Social Security Act (RA 8282)
d. The Property Insurance Law (RA 656, as
amended by PD 245)
e. The Philippine Deposit Insurance Act of
1963 (RA 3591)
Page 3 of 450
COMMERCIAL LAW
4. Parties to an Insurance Contract
Two Parties to a Contract of Insurance:
a. Insurer or the party who assumes or
accepts the risk of loss and undertakes for
consideration to indemnify the insured or to
pay a certain lump sum on the happening
of the event or peril insured against. May
be any person, partnership, association, or
corporation [Sec. 6]; and
b. Insured or the person in whose favor the
contract is operative and whose loss is the
occasion for the payment of the insurance
proceeds by the insurer. [Carale]
May be any person except a public enemy
[Sec. 7]
There is no definition of what a “public enemy”
is, but a definition that is generally accepted
and in keeping with the nature of an insurance
contract is one where a person possesses the
nationality of the state which another is at war.
[Carale]
B. ELEMENTS OF AN
INSURANCE
CONTRACT
C2 R2 I M
a) Cause – event or peril insured against;
b) Consideration – premium payments paid
by the insured
c) Risk of loss or damage being assured by
the Insurer
d) Risk-Distributing Scheme – distribution
and transfer by the insurer of risk of loss,
damage or liability among persons having
similar risks;
e) Insurable interest - the insured possesses
an interest of some kind which the event
insured against may cause loss or damage
f) A Meeting of Minds of the parties upon all
the foregoing essentials.
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

1. Cause 5. Insurable Interest

Cause refers to an event or peril insured Insurable interest is the interest which the law
against. requires the owner of an insurance policy to
have in the person or thing insured [Carale].
2. Consideration
An insurance premium is the agreed price for In terms of the event insured against, it is the
assuming and carrying the risk. It is the relation between the insurer and the risk
consideration paid to the insurer for insured, such that the occurrence of the risk will
undertaking to indemnify the insured against a cause substantial loss or harm of some kind to
designated peril. It is based on probability of the insured [Carale].
loss and extent of liability [43 Am. Jur. 2d 326].
Under the Code, the following are void:
Premium Assessment . Stipulation in a policy for the payment of
A sum levied and A sum specifically loss whether the person insured has or
paid to meet levied by mutual has not any interest in the property
anticipated loss, insurance insured;
assessments are companies or i. Stipulation that the policy shall be
collected to meet associations, upon a received as proof of such interest;
actual loss [Vance, fixed and definite ii. Policy executed by way of gaming or
Handbook on the plan, to pay losses wagering. [Sec. 25]
Law of Insurance and expenses. [Sec.
(1951)]. 403] Note: Insurable interest is not required in
industrial life insurance [Sec. 235-237].
3. Risk of Loss or Damage
Peril is the contingent or unknown event which 6. Meeting of the Minds
may cause a loss. Its existence creates a risk The two parties to a contract of insurance
and its occurrence results in loss. whose minds need to meet regarding the
essential elements are:
The event or peril insured against must be such a. Insurer or the party who assumes or
that its happening will: accepts the risk of loss and undertakes
a. Damnify or cause loss to a person; or foonsideration to indemnify the insured or
b. Create liability against him [Sec. 3] to pay a certain lump sum on the
happening of the event or peril insured
against; and
4. Risk-Distributing Scheme b. Insured or the person in whose favor the
Insurance contracts serve to distribute the risk contract is operative and whose loss is the
of economic loss, damage or liability among as occasion for the payment of the insurance
many as possible of those who are subject to proceeds by the insurer [de Leon].
the same kind of risk.
The insured is not always the person whom the
Scheme: proceeds are paid. Such person is the
i. The payment of premiums by all will beneficiary [Vance].
inure to a general fund, out of which
payment will be made for anyone who
has suffered an economic loss.
ii. Hence, each member contributes to a
small degree toward compensation for
losses suffered by any member of the
group.

Page 4 of 450
 U.P. LAW BOC
C. CHARACTERISTICS
AND NATURE OF AN
INSURANCE
CONTRACT
1. In General
An insurance contract is:
CAVE-CCPU
a. Consensual;
b. Aleatory;
c. Voluntary;
d. Executory and unilateral, but
synallagmatic;
e. Conditional;
f. Contract of adhesion;
g. Personal contract;
h. Uberrimae fides contract (i.e. a
contract of the highest degree of good
faith).
a. Consensual
General Rule: An insurance contract is
perfected by the meeting of the minds of the
parties. There must be concurrence of offer
and acceptance. The insurance policy merely
evidences the terms and conditions thereof.
Exception: It is stipulated that the policy is
essential to the existence of the contract.
[Campos, Insurance (1983)].
b. Aleatory
It is aleatory because it depends upon some
contingent event. The obligation of the insurer
to pay depends on the happening of an event
which is uncertain, or though certain, is to occur
at an indeterminate time [Art. 2010, NCC].
Being an aleatory contract does not
necessarily mean that it is a “contract of
chance” because in a contract of insurance, the
parties seek to distribute possible loss by
reason of mischance, unlike a wagering
contract [Carale].
Page 5 of 450
INSURANCE COMMERCIAL LAW
c. Voluntary
General rule: Contracts of Insurance are not
compulsory and the parties are free to
incorporate such terms and conditions they
may deem convenient provided they are not
contrary to law, morals, good customs, public
order, or public policy [de Leon].
Exceptions: Insurance contracts particularly
liability insurance, may be required by law in
certain instances:
1. For motor vehicles [Compulsory Motor
Vehicle Liability Insurance, Secs 386-402,
Insurance Code];
2. For employees [Compulsory Coverage in
State Insurance Fund, Articles 168-184,
Labor Code];
3. As a condition to granting a license to
conduct business or calling affecting the
public safety or welfare [de Leon];
4. Social Insurance for members of the
Government Service Insurance System
(GSIS) and for the employees of the private
Sector covered by the Social Security
System (SSS).
d. Executory and Unilateral but
Synallagmatic
Once the insured pays the premium, the
contract already takes effect. After the payment
of premiums, the insurance imposes a
unilateral obligation on the insurer who
promises to indemnify in case of loss.
It is also synallagmatic and reciprocal such
that even if the contingent event or designated
peril does not occur, the insurer has still
provided protection against the risk for the
period covered by the insurance contract.
e. Conditional
It is conditional because the insurer incurs
liability only upon the happening of the event
insured against. However, many other
conditions are usually required (e.g. payments
of premium or performance of other act) as
precedent to the right of the insured to claim
benefit under the insurance.
 U.P. LAW BOC INSURANCE
f. Contract of Adhesion (Fine Print
Rule)
Insurance contracts are already presented to
the insured in its printed form on a “take it or
leave it” basis. The insured merely has to agree
to its terms. Such contracts of adhesion are
valid.
General Rule: When the terms of the contract
are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of
its stipulations shall control [Art. 1370, NCC].
Exception: Where the terms of the insurance
contract are ambiguous and susceptible to
various interpretations, the issue is to be
resolved against the insurer, being the party
that prepared the contract [Art 1377, NCC].
Thus, ambiguity shall be interpreted liberally in
favor of the insured and strictly against the
insurer who prepared the same.
g. Personal Contract
The contract of insurance is basically between
the insurer and the insured.
The insured cannot assign, before the
happening of the loss, his rights under a
property policy to others without the consent of
the insurer [Sec. 20, 58, and 83].
h. Uberrimae fides Contract
Each party is required to:
1. Deal with each other in utmost good faith;
2. Disclose conditions affecting the risk, of
which he is aware;
3. Disclose any material fact which the
applicant knows and those which he ought
to know.
Violation of this duty gives the aggrieved party
the right to rescind the contract. Where the
aggrieved party is the insured, the bad faith of
the insurer will preclude it from denying liability
on the policy based on breach of warranty.
[Campos]
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2. For Specific Kinds of Insurance
Contracts
a. For Non-Life Insurance
Contract of Indemnity
The insured who has insurable interest over
the property is only entitled to recover the
amount of actual loss sustained. The burden
is upon him to establish the amount of such
loss. Property insurance is personal in the
sense that it is the damage to the personal
interest not the property that is being
reimbursed.
General rule: Only non-life insurance or
property insurance contracts are contracts of
indemnity. Life insurance contracts are not
contracts of indemnity because the value of a
life is immeasurable.
Exception: Where the basis of the insurable
interest of the policy owner on the life of the
insured is a commercial relationship (e.g.,
creditor-debtor, mortgagor/guarantor-
mortgagee), then such contract of life
insurance is an indemnity contract.
b. For Life Insurance
Nature of property
Life insurance policies, unlike property
insurance, are generally assignable or
transferrable [Sec. 81] as they are in the
nature of property.
D. CLASSES
1. Marine Insurance
a. Definition
Marine insurance is a type of transportation
insurance which is concerned with the perils of
property in, or incidental to transit, as opposed
to property perils at a generally fixed location.
 U.P. LAW BOC INSURANCE
Marine insurance includes:
1. Loss or damage to:
a. Vessels, cargo, freightage, profits, and
all kinds of property and interests
therein, in connection with any and all
risks or perils of navigation;
b. Person or property appertaining to a
marine, inland marine, transit or
transportation insurance;
c. Precious stones, jewels, jewelry,
precious metals, whether in course of
transportation or otherwise;
d. Instrumentalities of transportation and
communication, excluding buildings,
aids to navigation and transportation,
and appurtenant facilities for the
control of waterways.
2. Marine protection and indemnity insurance
against liability incidental to ownership,
operation, maintenance or construction of
vessels and facilities therefore. [Sec. 101;
Carale]
b. Divisions
Marine insurance has two major divisions:
1. Ocean marine insurance insures against
risk connected with navigation to which a
ship, cargo, freightage, profits or other
insurable interest in movable property, may
be exposed during a certain voyage or a
fixed period of time. Its scope includes:
a. Ships or hulls;
b. Goods or cargoes;
c. Earnings such as freight, passage
money, commissions, or profits; and
d. Liability (protection and indemnity
insurance).
2. Inland marine insurance covers the land
or over-the-land transportation perils of
property shipped by railroads, motor
trucks, airplanes, and other means of
transportation. It also covers risks of lake,
river or other inland waterway
transportation and other waterborne perils
outside those covered by ocean marine
insurance.
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c. Loan on Bottomry and
Respondentia Distinguished
Loan on Bottomry Loan on
Respondentia
Loan that is obtained Loan that is obtained
for the value of the as security for the
vessel on a voyage. value of the cargo to
be transported.
In a bottomry loan, the insurable interest of a
ship owner on its bottomed boat is the
difference between the amount of the loan and
the value of the boat. Thus, if the amount of the
loan does not cover the total value of the boat,
the owner can still insure the boat.
Both loans depend on upon the safe
conclusion of the voyage. [Carale]
d. Risks
TWO KINDS OF RISKS
i. Perils of the Sea
ii. Perils of the Ship
i. PERILS OF THE SEA
Ocean marine insurance protects ships at sea
and the cargo or freight on such ships from
standard “perils of the sea” or “perils of
navigation”.
Includes:
i. Losses caused by sea damage, or by
the violence of the elements;
ii. Losses from extraordinary occurrences
or those which cannot be guarded
against by the ordinary exertion of
human skill or prudence;
iii. Barratry or the willful and intentional act
on the part of the master or the crew, in
pursuance of some unlawful or
fraudulent purpose, without the
consent of the owner, and to the
prejudice of his interest (e.g., burning
the ship, unlawfully selling the cargo).
Excludes
Ordinary wear and tear of the voyage and from
injuries suffered by the vessel in consequence
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

of her not being unseaworthy. [Roque v. IAC, e. Loss

G.R. No. L-66935 (1985)]
 Loss may be total or partial.
ii. PERILS OF THE SHIP  Total loss may be actual or constructive.
Perils of the ship are those which cause a loss
which in the ordinary course of events, results: TOTAL LOSS
1. From the ordinary, natural and inevitable 1. Actual loss exists when the subject matter
action of the sea; of the insurance is wholly destroyed or lost
2. From ordinary wear and tear of the ship; or when it is so damaged that it no longer
and exists in its original character. [Vance]
3. From the negligent failure of the ship’s
owner to provide the vessel with the proper It is caused by:
equipment to convey the cargo under a. A total destruction of the thing insured;
ordinary conditions. [de Leon] b. The irretrievable loss of the thing by
sinking, or by being broken up;
Perils of the Sea Perils of the Ship c. Any damage to the thing which renders
it valueless to the owner for the
Covers those Covers losses purpose for which he held it;
casualties due to resulting from d. Any other event which effectively
unusual violence or ordinary wear and deprives the owner of the possession,
extraordinary causes tear, or other damage at the port of destination of the thing
connected with incident to the insured. [Sec. 132]
navigation. voyage.
An actual loss may be presumed from the
Covers losses which Covers losses which continued absence of a ship without being
cannot be guarded result from the heard of. The length of time which is sufficient
against by prudence negligent failure of the to raise this presumption depends on the
and the ordinary ship’s owner to circumstances of the case. [Sec. 134]
exertion of human provide the vessel
skill. with proper 2. Constructive total loss or “technical total
equipment, and can loss” is one in which the loss, although not
thus be guarded actually total, is of such character that the
against by ordinary insured is entitled, if he thinks fit, to treat it
exertion of human as total by abandonment. [45 CJS 1150]
skill.
A constructive total loss is one which gives to a
RULE ON ALL RISKS COVERED person insured a right to abandon. [Sec. 133]
General Rule: In the absence of stipulation,
the risks insured against are only perils of the As to when a constructive total loss exists,
sea, and does not embrace all losses three rules exist:
happening at sea. [Go Tiaco y Hermanos v. 1. English rule: there is constructive total loss
Union Ins. Society of Canton, G.R. No. 13983 when the subject matter of the insurance,
(1919)] while still existent in specie, is so damaged
as not to be worth, when repaired, the cost
Exception: However, in an all risk policy, all of the repairs;
risks are covered unless expressly excepted. 2. American rule: there is constructive total
The burden rests on the insurer to prove that loss when it is so damaged that the costs
the loss is caused by a risk that is excluded. of repairs would exceed one-half of the
[Filipino Merchants Ins. Co. v. CA, G.R. No. value of the thing as acquired (also known
85141(1989)] as the “fifty percent rule”);

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 U.P. LAW BOC INSURANCE
3. Philippine rule: the insured may not
abandon the thing insured unless the loss
or damage is more than ¾ of its value. [de
Leon]
A person insured by a contract of marine
insurance may abandon the thing insured and
recover for a total loss thereof when the cause
of the loss is a peril insured against –
1. If more than ¾ thereof in value is actually
lost, or would have to be expended to
recover it from the peril;
2. If it is injured to such an extent as to reduce
its value by more than ¾;
3. If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than ¾ the
value of the thing abandoned or a risk
which a prudent man would not take under
the circumstances; or
4. If the thing insured is cargo or freightage,
and the voyage cannot be performed, nor
another ship procured by the master, within
a reasonable time and with reasonable
diligence, to forward the cargo without
incurring either an expense to the insured
of more than ¾ the value of the thing
abandoned or a risk which a prudent man
would not take under the circumstances
[Sec. 141].
Note: Freightage cannot in any case be
abandoned unless the ship is also abandoned.
f. Abandonment
Definition
Abandonment, is the act of the insured by
which, after a constructive total loss, he
declares the relinquishment to the insurer of his
interest in the thing insured. [Sec. 140]
Conditions
Aside from the requirement under Sec. 141
already mentioned above:
1. An abandonment must be neither partial
nor conditional [Sec. 142];
2. An abandonment must be made within a
reasonable time after receipt of reliable
information of the loss, but where the
Page 9 of 450
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information is of a doubtful character, the
insured is entitled to a reasonable time to
make inquiry [Sec. 143];
3. Abandonment is made by giving notice
thereof to the insurer, which may be done
orally, or in writing: Provided, That if the
notice be done orally, a written notice of
such abandonment shall be submitted
within seven days from such oral notice
[Sec. 145];
4. Abandonment must be absolute and
total.
No notice of abandonment is required for
recovery of loss in cases of actual total loss.
Where the information upon which an
abandonment has been made proves
incorrect, or the thing insured was so far
restored when the abandonment was made
that there was in fact no total loss, the
abandonment becomes ineffectual.
Characteristics
A valid abandonment has the following
characteristics:
1. There must be an actual relinquishment
by the person insured of his interest in the
thing insured;
2. There must be a constructive total loss;
3. It must be factual [Sec. 144];
4. The notice of abandonment must be
explicit and must specify the particular
cause of the abandonment. [Sec. 146]
Effects
1. An abandonment is equivalent to a transfer
by the insured of his interest to the insurer,
with all the chances of recovery and
indemnity [Sec. 148];
2. If a marine insurer pays for a loss as if it
were an actual total loss, he is entitled to
whatever may remain of the thing insured,
or its proceeds or salvage, as if there had
been a formal abandonment [Sec. 149];
3. Upon an abandonment, acts done in good
faith by those who were agents of the
insured in respect to the thing insured,
subsequent to the loss, are at the risk of the
insurer, and for his benefit [Sec. 150].
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

g. Average 3. It must be successful (i.e., resulted in the

An Average is the extraordinary or accidental
expense incurred during the voyage for the
preservation of the vessel, cargo or both and
all the damages to the vessel and cargo from
the time it is loaded and the voyage
commenced until it ends and the cargo is
unloaded. [Art. 806, Code of Commerce]
There are two kinds of averages:
1. Gross or general averages; and
2. Simple or particular averages.
saving of the vessel and/or cargo);
4. Expenses or damages should have been
incurred or inflicted after taking proper legal
steps and authority. [Magsaysay v. Agan,
G.R. No. L-6393 (1955)]
Vance, however, includes as part of the
requisites:
1. Sacrifice was made by the master or upon
his authority; and
2. That it was not caused by any fault of the
party asking for the contribution. [Carale]

Gross/General Simple/Particular An example of particular average loss would be

Average Average the wages of the crew when the vessel is
Includes damages Includes damages detained by reason of force majeure. In such a
and expenses which and expenses case, the loss is only partial and must be borne
are deliberately caused to the vessel by the owner of the vessel alone. [Carale]
caused by the or her cargo, which
master of the vessel have not inured to Rule on averages in marine insurance
or upon his authority, the common benefit Where it has been agreed that an insurance
in order to save the and profit of all the upon a particular thing, or class of things, shall
vessel, her cargo, or persons interested in be free from particular average:
both at the same the vessel and her i. A marine insurer is NOT liable for any
time from a real and cargo [Art. 809, particular average loss not depriving
known risk [Art. 811, Code of Commerce]. the insured of the possession of the
Code of Commerce]. whole of such thing, or class of things
The loss is borne The loss is suffered at the port of destination (even though
by all the owners of by and borne alone it becomes entirely worthless);
the interests by the owner of the ii. HOWEVER, such insurer is liable for
involved, who are cargo or of the his proportion of all general average
pro tanto obliged to vessel, as the case loss assessed upon the thing insured.
give proportionate must be [de Leon]. [Sec. 138]
contributions to Such loss is NOT
make up for such suffered by all h. Warranties
loss, since the persons contributing
sacrifice was made ratably [Carale]. Marine Insurance is unique in that it has certain
for the common implied warranties:
benefit of all who 1. Implied Warranty of Seaworthiness
have an interest in 2. Implied Warranty of Against Improper
the venture [Art 812, Deviation
Code of Commerce; 3. Implied Warranty of proper Documentation
Carale].
Implied Warranty of Seaworthiness
To claim general average contributions, the In every marine insurance upon a ship or
requisites are: freight, or freightage, or upon anything which is
1. There must be a common danger to the the subject of marine insurance, a warranty is
vessel or cargo; implied that the ship is seaworthy. [Sec. 115]
2. The sacrifice must be for the common
safety or for the benefit of all;

Page 10 of 450
 U.P. LAW BOC INSURANCE
A vessel is seaworthy if:
1. It is fit to perform the service and to
encounter the ordinary perils of the voyage
contemplated by the parties to the policy
[Sec. 116];
2. It is properly laden;
3. It is provided with a competent master;
4. It is provided with a sufficient number of
competent officers and seamen;
5. It is provided with the requisite
appurtenances and equipment;
6. It is provided with other necessary or
proper stores and implements for voyage.
[Sec.118]
A vessel should be seaworthy at the time
commencement of the risk or start of the
voyage, except:
1. When the insurance is made for a specified
length of time, the implied warranty is not
complied with unless the ship be
seaworthy at the commencement of
every voyage it undertakes during that
time (Time Policy);
2. When the insurance is upon the cargo
which, by the terms of the policy,
description of the voyage, or established
custom of the trade, is to be transhipped at
an intermediate port, the implied warranty
is not complied with unless each vessel
upon which the cargo is shipped, or
transhipped, be seaworthy at the
commencement of each particular
voyage (Cargo Policy). [Sec. 117]
Where different portions of the voyage
contemplated by a policy differ in respect to the
things requisite to make the ship seaworthy
therefor, a warranty of seaworthiness is
complied with if, at the commencement of each
portion, the ship is seaworthy with reference to
that portion. [Sec. 119]
The insurer is not liable despite breach of
warranty when the ship becomes unseaworthy
during the voyage to which an insurance
relates, but there is an unreasonable delay in
repairing the defect. [Sec. 120]
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COMMERCIAL LAW
Implied Warranty Against Improper
deviation
A deviation is a departure from the course of
the voyage insured, or an unreasonable delay
in pursuing the voyage or the commencement
of an entirely different voyage. [Sec.125]
Deviation is proper (Insurer remains liable):
1. When caused by circumstances over which
neither the master nor the owner of the ship
has any control;
2. When necessary to comply with a
warranty, or to avoid a peril, whether or not
the peril is insured against;
3. When made in good faith, and upon
reasonable grounds of belief in its
necessity to avoid a peril; or
4. When made in good faith, for the purpose
of saving human life or relieving another
vessel in distress. [Sec. 126]
Every deviation not specified in the last section
is improper [Sec. 127]. Effect of any loss
subsequent to an improper deviation: Insurer
is not liable. [Sec. 128]
Implied Warranty of Proper documentation
Where the nationality or neutrality of a ship or
cargo is expressly warranted, it is implied that
the ship will carry the requisite documents to
show such nationality or neutrality and that it
will not carry any documents which cast
reasonable suspicion thereon. [Sec. 122]
2. Fire
a. Definition
Fire Insurance is a contract of indemnity by
which the insurer, for a stipulated premium,
agrees to indemnify the insured against loss
by:
i. Fire, lightning, windstorm, tornado or
earthquake; and
ii. Other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies.
[Sec. 169]
Fire is oxidation which is so rapid as to produce
either a flame or a glow. Spontaneous
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

combustion is usually rapid oxidation. Fire is as it burns in the place where it ought to be.
always caused by combustion, but combustion [Carale]
does not always cause fire. [Western Woolen
Mills Co. v. Northern Assurance Co., 139 Fed c. Alterations in Use or Condition
637 (1905)]
An alteration in the use or condition of a thing
Fire cannot be considered a natural disaster or insured from that to which it is limited by the
calamity since it almost always arises from policy:
some acts of man or by human means. It 1. Entitles an insurer to rescind a contract
cannot be an act of God unless caused by of fire insurance if such alteration:
lightning or a natural disaster or casualty not a. Increases the risks, and
attributable to human agency. [Phil. Home b. Was made: (i) Without the consent
Assurance Corp. v. CA, G.R. No. 106999 of the insurer, and (ii) By means
(1996)] within the control of the insured;
2. Does not affect a contract of fire
Fire or other so-called “allied risks” insurance if the alteration does not
enumerated in Sec. 169 must be the proximate increase the risk. [Sec. 170-171]
cause of the damage or loss.
Note: A contract of fire insurance is not affected
The presence of heat, steam, or even smoke is by any act of the insured subsequent to the
evidence of fire, but taken by itself will not execution of the policy, which does not violate
prove the existence of fire. its provisions, even though it increases the risk
and is the cause of the loss. [Sec. 172]
b. Risks
Transferring machinery to another location,
Rule: The risk assumed by the insurer is the despite a provision in the policy stating that the
loss and damage caused by hostile fire and not machine cannot be transferred without the
friendly fire. consent of the insurer, is considered an
alteration in the condition and location of the
thing insured. [Malayan Insurance Co, Ltd v.
Hostile Fire Friendly Fire
PAP Co., Ltd., G.R. No. 200784 (2013)]
Fire that escapes Fire that burns in a
from the place where place where it is d. Measure of Indemnity
it was intended to intended to burn and
burn and ought to be, ought to be like fire 1. In an open policy, only the expense
or one which remains burning in a stove or necessary to replace the thing lost or
completely within its a lamp. [de Leon] injured in the condition it was at the time of
proper place but the injury will be paid;
because of the Friendly fire may 2. In a valued policy, the parties are bound
unsuitable materials become hostile fire by the valuation, in the absence of fraud or
used to light it, by escaping from the mistake [Sec. 173];
becomes inherently place where it ought 3. The parties may provide for an option-to-
dangerous and to be to some place in rebuild clause concerning the repairing,
uncontrollable. [de which it ought not to rebuilding, or replacing of buildings or
Leon] be [Carale]. structures wholly or partially damages.
[Sec. 174]
The principle underling this distinction is that
Valued policy
the policy shall not be construed to protect the
If there is a valuation, the effect shall be similar
insured from injury consequent upon his
to a marine insurance policy wherein the
negligent use or management of fire, so long

Page 12 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

valuation is conclusive between the parties in Excluding:

adjusting the loss. [Sec. 158] Certain types of loss which by law or custom
are considered as falling exclusively within the
Open policy scope of other types of insurance, such as fire
In the absence of express valuation in a fire or marine. [Sec. 176]
insurance policy, the insured is only entitled to
recover the amount of actual loss sustained b. Intentional and Accidental Injury
and the burden of proof is upon him to establish Distinguished
the amount of such loss by preponderance of
evidence. Intentional Injury Accidental Injury
Injury involves the Injury happens by
In an open policy, the actual loss, as exercise of the chance or
determined, will represent the total indemnity reasoning faculties, fortuitously, without
due the insured except only that the total consciousness and intention or design,
indemnity shall not exceed the total value of the volition which is
policy. [Development. Ins. Corp. v. IAC, G.R. unexpected,
No. 71360 (1986)] unusual and
unforeseen
Open to rebuild clause Where a provision of The terms do not,
Whenever the insured desires to have a the policy excludes without
valuation named in his policy, insuring any intentional injury, it is qualification,
building or structure against fire, he may the intention of the exclude events
require such building or structure to be person inflicting the resulting in
examined by an independent appraiser and the injury that is damage due to
value of the insured’s interest therein may then controlling fault, recklessness
be fixed as between the insurer and the or negligence of
insured. The cost of such examination shall be If the injuries suffered third parties.
paid for by the insured. A clause shall be by the insured clearly
inserted in such policy stating substantially that resulted from the
the value of the insured’s interest in such intentional act of the
building or structure has been thus fixed. [Sec. third person, the
174] insurer is relieved
from liability as
3. Casualty stipulated.

a. Definition c. Divisions

Casualty Insurance is insurance covering loss
or liability arising from accident or mishap.
Including, but not limited to:
i. Employer’s liability insurance,
ii. Motor vehicle liability insurance,
iii. Plate glass insurance,
iv. Burglary and theft insurance,
v. Personal accident and health
insurance, as written by non-life
insurance companies, and
vi. Other substantially similar kinds of
insurance.
Casualty insurance has two general divisions:
1. Liability Insurance - against specified
perils which may give rise to liability on
the part of the insured;
2. Indemnity insurance – against
specified perils which may affect the
persons.
Except with respect to compulsory motor
vehicle liability insurance, the Insurance Code
contains no other provisions applicable to
casualty insurance or to robbery insurance in
particular. These contracts are, therefore,
governed by the general provisions applicable

Page 13 of 450
 U.P. LAW BOC INSURANCE
to all types of insurance. Outside of these, the
rights and obligations of the parties must be
determined by the terms of their contract,
taking into consideration its purpose and
always in accordance with the general
principles of insurance law [Fortune Insurance
& Surety Co. v. CA, G.R. No. 115278 (1995)].
Liability Insurance
The insurer assumes the obligation to pay the
third party in whose favor the liability of the
insured arises. The liability of the insurer
attaches as soon as the liability of the insured
to the third party is established. It covers
liability incurred from quasi-delict or criminal
negligence but cannot cover deliberate criminal
acts [DE LEON].
Indemnity Insurance
Under this kind of insurance, no action will lie
against the insurer unless brought by the
insured for loss actually sustained and paid by
him. Liability of the insurer attaches only after
the insured has paid his liability to the third
party [DE LEON].
d. No Action Clause
A no action clause is a requirement in a policy
of liability insurance which provides that a suit
must first be instituted, and a final judgment be
first obtained against the insured before the
person injured can recover on the policy.
However, a no-action clause cannot prevail
over the Rules of Court provisions which are
aimed at avoiding multiplicity of suits. Parties
(i.e. the insured and the insurer) may be joined
as defendants in a case commenced by the
third party claiming under a liability insurance,
as the right to relief in respect to the same
transactions is alleged to exist. [Sec. 5, Rule 2
and Sec. 6, Rule 3, 1997 Rules of Civil
Procedure; Guingon v. Del Monte, G.R. No. L-
22042 (1967)]
4. Suretyship
A Contract of Suretyship is an agreement
whereby a party, called the surety, guarantees
the performance by another party, called the
Page 14 of 450
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principal or obligor, of an obligation or
undertaking in favor of a third party called the
obligee. [Sec. 177]
It includes official recognizances, stipulations,
bonds or undertakings issued by any company
by virtue of and under the provisions of Act. No
536, as amended by 2206. [Sec. 177]
Nature of Contract
It shall be deemed as insurance contract if the
surety’s main business is that of
suretyship, and not where the contract is
merely incidental to any other legitimate
business or activity of the surety.
It is an accessory contract unlike a contract
of insurance which is the principal contract
itself.
The contract of a surety is evidenced by a
document called surety bond which is
essentially a promise to guarantee the
obligation of the obligor. In turn, the obligor
executes an indemnity agreement in favor of
the insurer [de Leon].
When the obligee accepts the bond, the bond
becomes valid and enforceable, whether or not
the premium has been paid by the obligor,
unlike in an insurance contract where payment
of premium is necessary for the contract to be
valid. If the obligee has not yet accepted, then
payment of premium is still necessary for the
contract of suretyship to be valid.
Liability of Surety
The liability of the surety or sureties under a
bond is joint and several, or solidary [Sec.
178]. This means that upon the default of the
principal obligor, the surety becomes primarily
liable. Unlike a guarantor, a surety is not
entitled to the benefit of exhaustion of the
principal obligor’s assets and assumes a
regular party to the undertaking.
Said liability is limited or fixed to the amount of
the bond.
 U.P. LAW BOC INSURANCE
5. Life
a. Definition
Life Insurance is insurance on human lives
and insurance appertaining thereto or
connected therewith.
The ff. shall be considered a life insurance
contract for purposes of the Insurance Code:
1. Every contract or undertaking for the
payment of annuities;
 Including contracts for the payment of
lump sums under a retirement program
where a life insurance company
manages or acts as a trustee for such
retirement program
2. Every contract or pledge for the payment of
endowments or annuities. [Sec. 181-182]
An insurance upon life may be made payable:
1. On the death of the person, or
2. On his surviving a specified period, or
3. On the continuance or cessation of life.
[Sec. 182]
PARTIES [Carale]
Owner of With the power to name the
the policy beneficiary, assign it, cash it
in or use as collateral, with
the obligation to pay the
premiums
Cestui que One on whose life insurance
vie is obtained
Beneficiary One to whom the proceeds
may be paid
There are also cases wherein there may be
one person only for all three parties.
b. Types
There are 4 types of Life Insurance
1. Individual Life
2. Group Life
3. Industrial Life
4. Microinsurance
Individual life
Insurance on human lives and insurance
appertaining thereto or connected therewith. It
Page 15 of 450
COMMERCIAL LAW
may be made payable on the death of the
person, or after his surviving a specified period
(as an annuity or endowment), or otherwise
contingently on the continuation or cessation of
life.
Group life
It is a blanket policy covering a number of
individuals who are usually a cohesive group
(e.g., employees of a company) and subjected
to a common risk. No medical examination is
usually required of each person insured (in
contrast to individual life insurance).
Group insurance is a single insurance contract
that provides coverage for many individuals.
The employer-policy holder is the agent of the
insurer in collecting the premium. [Pineda v.
CA, G.R. No. 105562 (1993)]
Typically, the policy owner is an employer and
the policy covers the employees or members of
the group, with one master contract kept by the
employer. Where the employee is required to
pay a portion of the premium, the arrangement
is called a contributory plan, wherein his share
is deducted from his wages. [Carale]
Industrial life
Industrial life insurance refers to an
insurance policy under which the premiums are
payable either monthly or oftener, if:
1. The face amount of insurance provided in
any policy is not more than 500 times that
of the current statutory minimum daily
wage in the City of Manila; and
2. The words “industrial policy” are printed
upon the policy as part of the descriptive
matter. [Sec. 235]
It provides insurance coverage to industrial
workers or people who are unable to afford
insurance for bigger amounts.
It shall not lapse after non-payment of
premiums in 3 months after the expiration of
the grace period, if such non-payment is due to
the failure of the company to send its
representatives to the insured to collect
premium. [Sec. 235]
 U.P. LAW BOC INSURANCE
c. Other Classifications of Life
Insurance Policies
1. Ordinary or whole life policy, where the
insurer agrees to pay the face value of the
policy upon the death of the insured;
Distinct variations of Whole Life Policy:
a. Ordinary Life Insurance –
Premiums are paid throughout the
lifetime of the person insured or
until the person reaches a
predetermined specified age at
which point the coverage continues
without the payment of additional
premiums.
b. Limited Payment Life Insurance
– Premiums are paid only during a
specified number of years or until a
specified event occurs.
c. Single Premium Life Insurance –
the coverage is acquired by the
payment of a single premium.
d. Joint Life Insurance – coverage is
payable upon the first death among
two or more insured (normally
purchased by business partners or
spouses) and paid to the survivor.
e. Universal Life Insurance –
emphasizes the separation of the
portion of the premium that is used
to cover the insurance protection
from the portion of the premium
allocated to an investment.
f. Variable Life Insurance – some
amount of death benefit provided
by a variable life insurance policy is
guaranteed by the insurer, but the
total death benefit and the cash
value of the insurance before death
depend on the investment
performance of that portion of the
premium which is allocated to a
separate fund.
g. Pure endowment policy –where
the insurer pays the insured if the
insured survives a specified period.
If the insured dies within the period,
the insurer is released from liability
and unless the contract otherwise
Page 16 of 450
COMMERCIAL LAW
provides, need not reimburse any
part of the premiums paid.
h. Endowment policy – where the
insured is paid the face value of the
policy if he outlives the designated
period. If he dies within said period,
the insurer pays the proceeds to
the beneficiary. This is a
combination of term policy and
pure endowment policy.
2. Term Life Insurance, which provides for
the payment of a specified amount if death
occurs within the time period designated in
the policy, usually for periods of one to five
years.
3. Modified Life Insurance, which is a policy
that combines term and whole life
insurance into a single insurance policy.
Premiums paid by the insured are
substantially less during the first few years
then later on increases during the
remaining term of the policy. [Carale]
d. Risks
Five important risks:
1. Death or Survival
2. Suicide
3. Death at the hands of the law
4. Killing by the beneficiary
5. Accidental Death
Death or survival
Life insurance may be made payable on the
death of the person, or on his surviving a
specified period, or otherwise contingently on
the continuation or cessation of life. [Campos]
Death of the insured must be proven by the
beneficiary before the insurer can be made to
pay.
Suicide
Insurer is liable in any of the following cases:
1. If committed after 2 years from the date of
the policy’s issue or its last reinstatement
unless the policy provides for a shorter
period.
 U.P. LAW BOC INSURANCE
Note: Any stipulation extending the 2-year
period is void.
2. If committed in a state of insanity,
regardless of the date of the commission,
unless suicide is an excepted peril. [Sec.
183]
Since suicide is contrary to the laws of nature
and the ordinary rules of conduct, it is never
presumed. The burden of proving lies with the
insurer, who seeks to avoid liability under a life
policy, excepting it from coverage. [Campos]
Death at the hands of the law
Death at the hands of the law (e.g., legal
execution) is one of the risks assumed by the
insurer under a life insurance policy in the
absence of a valid policy exception. [Campos]
Killing by the beneficiary
General rule: The interest of a beneficiary in a
life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice or
accessory in willfully bringing about the death
of the insured. In such event, the other
beneficiaries so named shall receive their
share and divide among them the forfeited
share of the “guilty” beneficiary. In the absence
of other beneficiaries, proceeds shall be paid
according to the policy contract, and if silent, it
shall be paid to the estate of the insured. [Sec.
12]
Exceptions
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he
killed the insured
4. Negligence
Note: Conviction of the beneficiary is
necessary before his interest in the insurance
policy is forfeited in favor of the others indicated
in Sec. 12.
Accidental death
The terms accident and accidental means
have been taken to mean that they happen by
chance or fortuitously, without intention and
Page 17 of 450
COMMERCIAL LAW
design and are unexpected, unusual, and
unforeseen.
Where the death or injury is not the natural or
probable result of the insured’s voluntary act,
or if something unforeseen occurs in the doing
of the act which produces the injury, the
resulting death is within the protection of the
policies insuring against death or injury from
accident. [Carale]
An event is not an accident if it is due to a
voluntary and intentional act on the part of
anyone, including third parties. In the absence
of proof that the incident was intentional, the
insurer shall pay the beneficiary the value of
the supplemental policy covering death by
accident. [Calanoc v. CA, G.R. No. L-8151
(1955)]
The fact that there were nine wounds in total is
proof that the victim was killed intentionally, as
this cannot be considered accidental. Thus,
the incident is not covered by the supplemental
insurance on death by accident. [Biagtan v.
Insular [G.R. No. L-25579 (1972)]
6. Microinsurance
Microinsurance is a financial product or
service that meets the risk protection needs of
the poor, where:
1. The amount of contributions, premiums,
fees or charges, computed on a daily basis,
does not exceed 7.5% of the current daily
minimum wage rate for nonagricultural
workers in Metro Manila; and
2. The maximum sum of guaranteed benefits
is not more than 1,000 times of the said
current daily minimum wage rate. [Sec.
187]
No insurance company or mutual benefit
association shall engage in the business of
Microinsurance UNLESS it possesses all the
requirements as may be prescribed by the
Commissioner. [Sec. 188]
 U.P. LAW BOC INSURANCE
7. Compulsory Motor Vehicle
Liability Insurance
Compulsory motor vehicle liability
insurance is a policy of insurance or guaranty
in cash or surety bond to indemnify the death,
bodily injury, and/or damage to property of a
third-party or passenger arising from the use of
a motor vehicle.
It shall be unlawful for any land transportation
operator or owner of a motor vehicle to operate
the same in the public highways unless there is
in force, a policy of insurance or guaranty in
cash or surety bond:
1. Issued in accordance with the
provisions of this chapter;
2. To indemnity the death, bodily injury
and/or damage to property of a third-
party or passenger, as the case may
be, arising from the use thereof. [Sec.
387]
It is a requisite for registration or renewal of
registration of a motor vehicle by every land
transportation operator or owner. [Sec. 390] It
is the only type of compulsory insurance
provided for under the Insurance Code.
It applies to all vehicles whether public or
private vehicles.
To the extent that motor vehicle insurance is
compulsory, it must be a liability policy, and
the provision making it merely an indemnity
insurance contract cannot have any effect.
[Campos]
The insurer’s liability is direct and primary so
the insurer need not wait for final judgment in
the criminal case to be liable. The purpose is to
give immediate financial assistance to victims
of motor vehicle accidents and/or their
dependents, regardless of the financial
capability of motor vehicle owners or operators
responsible for the accident sustained. [Shafer
v. Judge, RTC Olongapo, G.R. No. 78848
(1988)]
Page 18 of 450
COMMERCIAL LAW
The claimants/victims may be a passenger or
a third party. The insured may be the party at
fault as against claims of third parties (i.e. third-
party liability) or the victim of the contingent
event.
The following clauses are relevant to
compulsory motor vehicle liability insurance:
1. Authorized Driver Clause is a stipulation
in a motor vehicle insurance policy which
provides that the driver, other than the
insured owner, must be duly licensed to
drive the motor vehicle, otherwise the
insurer is excused from liability;
2. Theft Clause is a stipulation including theft
as one of the risks insured against. If there
is such a provision and the vehicle was
unlawfully taken, the insurer is liable under
the theft clause and the authorized driver
clause does not apply. The insured can
recover even if the thief has no driver’s
license.
3. No Fault Clause is a provision required in
every compulsory motor vehicle liability
insurance regarding claims for death or
injury to a passenger or third party on a
liability insurance policy covering the
vehicle.
Any claim for death or injury to any passenger
or third party shall be paid without the necessity
of proving fault or negligence of any kind,
provided the total indemnity in respect of any
person shall not exceed P15,000.
The claim shall be made against only one
motor vehicle. It shall lie against the insurer of
the vehicle in which the occupant is riding, and
no other. The claimant is not free to choose
from which insurer he will claim the no fault
indemnity. [Perla Compania de Seguros v.
Ancheta, G.R. No. L-49699 (1988)]
 U.P. LAW BOC INSURANCE
8. Compulsory Insurance
Coverage for Agency-Hired
Workers
a. Definition
Compulsory Insurance Coverage for
Agency-Hired Workers is an insurance
mechanism made available by the law to
provide insurance protection for OFWs.
Each migrant worker to be deployed by a
recruitment/manning agency shall be covered
by a compulsory insurance contract which shall
be secured at no cost to the said worker.
Basis: It is the policy of the State to provide
adequate protection to the overseas Filipino
workers by ensuring coverage under the
compulsory insurance requirement in Section
37-A of the Migrant Workers and Overseas
Filipinos Act of 1995, as amended. [Sec. 1(b),
Insurance Guidelines on Rule XVI of the
Omnibus Rules and Regulations Implementing
RA 8042]
b. Qualifications
To be qualified to provide for the Migrant
Workers’ Compulsory Insurance Coverage, the
insurance company must:
1. Be a reputable private life, non-life and
composite insurance company;
2. Be duly licensed by IC;
3. Be in existence and operational for at least
five (5) years;
4. Have a net worth of at least Php
500,000,000 based on the audited financial
statements for the immediately preceding
year;
5. Have a current year certificate of authority;
and
6. Have an IC-approved standard policy.
[Sec. 1, Insurance Guidelines on Rule XVI
of the Omnibus Rules and Regulations
Implementing RA 8042]
c. Disqualifications
Insurance companies who have directors,
partners, officers, employees, or agents with
Page 19 of 450
COMMERCIAL LAW
relatives within the fourth civil degree of
consanguinity or affinity who work or have
interest in any of the licensed
recruitment/manning agencies or in any of the
government agencies involved in the overseas
employment program shall be disqualified from
providing the migrant worker’s insurance
coverage.
It shall be the duty of the said directors,
partners, officers, employees or agents to
disclose any such interest to the IC and POEA.
[Sec. 2, Insurance Guidelines on Rule XVI of
the Omnibus Rules and Regulations
Implementing RA 8042]
E. VARIABLE CONTRACTS
Variable contract refers to any policy or
contract, on either a group or on an individual
basis, issued by an insurance company
providing:
1. Benefits or other contractual payments or
values thereunder to vary, so as to reflect
investment results of:
a. Any segregated portfolio of
investments; or
b. A designated separate account in
which amounts received, in
connection with such contracts shall
have been placed and accounted for
separately and apart from other
investments and accounts; AND/OR
2. Benefits or values incidental thereto
payable in fixed or variable amounts, or
both.
It shall not be deemed to be a security or
securities as defined in The Securities Act, as
amended, or in the Investment Company Act,
as amended, nor subject to regulations under
said Acts. [Sec.238(b)]
No insurance company authorized to transact
business in the Philippines shall issue, deliver,
sell or use any variable contract in the
Philippines, unless and until such company
shall have satisfied the Commissioner that:
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

a. Its financial and general condition; and combination of fixed amount and variable
b. Its methods of operations, including the amount of benefits, and for option lump-sum
issue and sale of variable contracts, payment of benefits. [Sec. 239]
are not and will not be hazardous to the
public or to its policy and contract owners.
[Sec. 238(a)] F. INSURABLE INTEREST
No foreign insurance company shall be
authorized to issue, deliver or sell any variable Insurable interest
contract in the Philippines, unless it is likewise That interest which a person is deemed to have
authorized to do so by the laws of its domicile. in the subject matter insured, where he has a
[Sec. 238(a)] relation or connection with or concern in it, such
that the person will:
In determining the qualifications of a company  Derive pecuniary benefit or advantage from
requesting authority to issue, deliver, sell or the preservation of the subject matter
use variable contracts, the Commissioner shall insured; and
always consider the following:
 Suffer pecuniary loss or damage from its
destruction, termination, or injury by the
1. The history, financial and general condition
happening of the event insured against.
of the company: Provided, That such
[Lalican v. Insular Life Ins., G.R. No.
company, if a foreign company, must have
183526 (2009)].
deposited with the Commissioner for the
benefit and security of its variable contract An insurable interest is one of the most basic
owners in the Philippines, securities and essential requirements in an insurance
satisfactory to the Commissioner contract.
consisting of bonds of the Government of
 The existence of an insurable interest gives
the Philippines or its instrumentalities with
a person the legal right to insure the subject
an actual market value of Two million
matter of the policy of insurance [Lalican v.
pesos (P2,000,000.00);
Insular Life Ins., G.R. No. 183526 (2009)].
2. The character, responsibility and fitness of
 It may NOT be waived by stipulation.
the officers and directors of the company;
 Absence of insurable interest renders the
and
insurance contract void. [Sec. 25]
3. The law and regulation under which the
company is authorized in the state of
General Rule: Insurable interest must be
domicile to issue such contracts. [Sec.
capable of pecuniary estimation because the
238(c)] purpose of insurance is to indemnify. It would
be difficult to measure if the benefit derived or
If after notice and hearing, the Commissioner
the loss incurred is not capable of pecuniary
shall find that the company is qualified to issue,
estimation.
deliver, sell or use variable contracts in
Exception: The insurable interest need not
accordance with this Code and the regulations
always be pecuniary in nature (e.g., in insuring
and rules issued thereunder, the
the life of a person, the purpose is not to
corresponding order of authorization shall be
indemnify but to act as an investment or
issued. Any decision or order denying authority
savings instrument). [Lucena v. Crawford,
to issue, deliver, sell or use variable contracts
2Bos & PNR 269 (1806)]
shall clearly and distinctly state the reasons
and grounds on which it is based. [Sec.238(d)]
Rationale: As a deterrence to the insured
Any insurance company issuing variable
contracts pursuant to this Code may, in its
discretion, issue contracts providing a

Page 20 of 450
 U.P. LAW BOC INSURANCE
A policy issued to a person without insurable
interest is a mere wager policy or contract and
is void for illegality. [de Leon]
Evidence that life insurance is regarded as
a wager policy:
a) The original proposal to take out
insurance was that of the beneficiary;
b) The premiums are paid by the
beneficiary;
c) The beneficiary has no interest,
economic or emotional, in the
continued life of the insured. [de Leon]
As a measure of limit of recovery
The insurable interest is the measure of the
upper limit of his provable loss under the
contract. Insurance should not provide the
insured means of making a net profit from
the happening of the event insured against.
[de Leon]
When insurable interest should exist
Insurable Interest Required
Inceptio Interveni Occurren
n ng Period ce of Loss
Life/Heal ✓
th
Property ✓ ✓ common, who are jointly insured, to the
For Life Insurance: Insurable interest over
life/health must exist at the time of the inception
of the contract, but may be lost after. [Sec. 19]
For Property Insurance: Insurable interest
must exist at the time of the inception of the
contract and at the occurrence of the loss.
 But it need not exist during the intervening
period or from the time between when the
policy takes effect and the loss occurs.
 The alienation of insured property will not
defeat a recovery if the insured has
subsequently reacquired the property and
possesses an insurable interest at the time
of loss. [Sec. 19]
CHANGE OF INTEREST
Change of interest means the absolute transfer
of the property insured.
Page 21 of 450
COMMERCIAL LAW
General rule: A change of interest in the thing
insured does not transfer the policy, but
suspends the insurance to an equivalent extent
until the interest in the thing and the interest in
the insurance policy are vested in the same
person. Thus, the contract is not rendered void
but is merely suspended. [Sec. 20]
Exceptions
1. Life, health, and accident insurance.
2. A change of interest in the thing insured
after the occurrence of an injury which
results in a loss does not affect the policy.
[Sec. 21]
3. A change in the interest in one or more of
several things, separately insured by one
policy, such as a conveyance of one or
more things, does not affect the policy with
respect to the others not so conveyed.
[Sec. 22]
4. A change of interest by will or succession
on the death of the insured. His interest
passes to his heir or legal representative
who may continue the insurance policy on
the property by continuing paying
premiums. [Sec. 23]
5. A transfer of interest by one of several
partners, joint owners, or owners in
others. This will avoid the policy only as to
the selling partners or co-owners, but not
as to others. [Sec. 24]
6. Automatic transfers of interest in cases in
which the policy is so framed that it will
inure to the benefit of whosoever may
become the owner of the interest insured
during the circumstance of the risk. [Sec.
57]
It is an exception to the general rule that upon
maturity, the proceeds of a policy shall be given
exclusively to the proper interest if the person
in whose name or for whose benefit it is made.
In case of an express prohibition against
alienation in the policy [Art. 1306, NCC],
alienation will not merely suspend the contract
but avoid it entirely.
 U.P. LAW BOC INSURANCE
1. In Life/Health
Every person has an insurable interest in the
life and health:
(a) Of himself, of his spouse and of his
children;
(b) Of any person on whom he depends wholly
or in part for education or support, or in
whom he has a pecuniary interest;
(c) Of any person under a legal obligation to
him for the payment of money, or
respecting property or services, of which
death or illness might delay or prevent the
performance; and
(d) Of any person upon whose life any estate
or interest vested in him depends. [Sec. 10]
A person is not allowed to take out insurance
upon the life of a stranger. [Carale]
There is no insurable interest in the life of an
illegitimate spouse. A creditor may take out
insurance on the life of his debtor, but his
insurable interest is only up to the amount of
the debt, and only when the debt is unsecured.
[Carale]
General Rule: The measure of indemnity under
a policy of insurance upon life or health is the
sum fixed in the policy.
Exception: Unless the interest of a person
insured is susceptible of exact pecuniary
measurement. [Sec. 186]
In Life Insurance
TYPES OF LIFE INSURANCE
Life insurance policies may be divided into two
general classes:
Insurance upon one’s life
Insurance upon the life of another
INTEREST IN ONE’S OWN LIFE
The cestui que vie is the insured himself. The
insured can designate anyone to be the
beneficiary of the policy.
Page 22 of 450
COMMERCIAL LAW
Each person has unlimited interest in his own
life, whether the insurance is for the benefit of
himself or another. [40 CJS 909]
The beneficiary designated need not have any
interest in the life of the insured when the latter
takes out policy on his own life. [de Leon]
INTEREST IN LIFE OF ANOTHER
The insurable interest in the life of another:
(i) Must be a pecuniary interest;
(ii) Exists whenever the relation between
the assured and the insured is such
that the assured has a reasonable
expectation of deriving benefit from the
continuation of the life insured or of
suffering detriment through its
termination. [de Leon]
General Rule: When the owner of the policy
insures the life of another, and designates a
third party as beneficiary, both the owner
and beneficiary must have an insurable
interest in the life of the cestui que vie.
Exception: An assignee of the insurance
contract is not required to have insurable
interest in the life of the insured, since insurable
interest over life should exist only during the
inception of the contract.
Note: An assignment of the insurance contract
is different from a change in the designated
beneficiary.
But if a person obtains a policy on the life of
another and names himself as the beneficiary,
he must have insurable interest therein [de
Leon].
BENEFICIARY OF LIFE INSURANCE
A beneficiary is the person named or
designated in a contract of life, health, or
accident insurance as the person who is to
receive the proceeds or benefits which become
payable, if the insured risk occurs.
General rule: A person may designate a
beneficiary, irrespective of the beneficiary’s
lack of insurable interest, provided he acts in
good faith and without intent to make the
 U.P. LAW BOC INSURANCE
transaction merely a cover for a forbidden
wagering contract, [de Leon]
Exceptions: Any person who is forbidden from
receiving any donation under Art. 739, Civil
Code cannot be named beneficiary of a life
insurance policy by the person who cannot
make any donation to him [Art. 2012, NCC].
Art. 739, NCC. The following donations are
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. (…)
CHANGING THE BENEFICIARY
General Rule: The insured shall have the right
to change the beneficiary he designated in the
policy. [Sec. 11]
Exception: If the insured expressly waived his
right to change the beneficiary, this makes the
latter an irrevocable beneficiary. But despite
the waiver, he can still change the beneficiary,
provided he obtained the beneficiary’s consent.
[Sec. 11]
Under the Slayer Statute, when the beneficiary
is the principal, accomplice or accessory in
willfully bringing about the death of the insured,
the interest of beneficiary in life insurance
policy is forfeited. [Sec. 12]
TRANSFER OF POLICY
The life insurance policy can be transferred
whether the transferee has insurable interest or
not. Notice of the transfer to the insurer is not
required for the validity of the same. [Sec. 184
and 185]
There is no right of subrogation in life
insurance, because it is not a contract of
indemnity.
Page 23 of 450
COMMERCIAL LAW
In Health Insurance
General rule: Interest in the life or health of a
person must exist at the inception of the
insurance contract but need not exist thereafter
or when the loss occurs. [Sec. 19]
Exceptions
1. In the case of a creditor’s insurance taken
on the life of the debtor, insurable interest
disappears once the debt has been paid;
2. In the case of a company’s insurance taken
on the life of an employee, insurable
interest disappears once the employee
leaves the company.
2. In Property
The following are considered as insurable
interest, provided that they are of such nature
that a contemplated peril might directly damnify
the insured:
1. Every interest in real or personal property;
or
 e.g., ownership
2. Any relation thereto; or
 e.g., interest of a trustee or a
commission agent
3. Any liability in respect thereof. [Sec. 13]
 e.g., interest of a carrier or
depository of goods
A person has an insurable interest in property
when he sustains such relation with respect to
it that he has a reasonable expectation of:
 Benefit to be derived from its continued
existence; or
 Loss or liability from its destruction.
[Carale; Gaisano Cagayan Ins. V. Ins. Co.
of North America, G.R. No. 147839 (2006)]
An insurable interest in property may
consist in:
a. An existing interest; [Sec. 14]
 Existing interest in property may be a
legal title or equitable title. [DE LEON]
 Examples of those having existing
interest are:
(1) Owners as regards their
properties,
 U.P. LAW BOC INSURANCE
(2) Trustees in the case of the seller
of property not yet delivered,
(3) Mortgagors over the property
mortgaged, and lessor, lessee
and sub-lessee over the property
leased. [de Leon]
b. An inchoate interest founded on an
existing interest; [Sec. 14] or
 Inchoate interest in property exists but
is incomplete or unripe until the
happening of an event. [de Leon]
 Examples of inchoate interests are:
(1) The interest of stockholders with
respect to dividends in case of
profits and shares in the assets,
and
(2) The interest of a partner in the
properties belonging to the
partnership. [de Leon]
c. An expectancy, coupled with an
existing interest in that out of which the
expectancy arises. [Sec. 14]
 For example, a farmer who planted
crops has insurable interest over his
harvest which can be expected. [de
Leon]
A mere contingent or expectant interest in
anything, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
insurable. [Sec. 16]
 A son has no insurable interest over
the property of his father because
such is just a mere expectancy and
has no legal basis before he inherits
such property. [Carale]
Time of Existence
General rule: Interest in property insured must
exist both at inception and at time of loss, but
not in the intervening period [Sec. 19].
This means that the insurable interest in the
property must exist both at the inception of the
contract and at the time of the loss [Carale].
Exceptions
1. A change in interest over the thing insured
after the loss contemplated. The insured
Page 24 of 450
COMMERCIAL LAW
may sell the remains without prejudice to
his right to recover; [Sec. 21]
2. A change of interest in one or more several
distinct things, separately insured by one
policy. This does not avoid the insurance
as to the others; [Sec. 22]
3. A change in interest by will or succession
upon the death of the insured; [Sec. 23]
4. A transfer of interest by one of several
partners, joint owners, or owners in
common who are jointly insured. The
acquiring co-owner has the same interest;
his interest merely increases upon
acquiring other co-owners interest. [Sec.
24]
Note: This makes a distinction between a
transfer in favor of a partner and in favor of a
stranger. The latter will avoid the policy while
the former will not. [Carale]
Mere transfer of the property does not transfer
the policy but suspends it until the same person
becomes the owner of both the policy and the
thing insured. [Sec. 20]
Measure of Indemnity
Being a contract of indemnity, the measure of
insurable interest in property is the extent to
which the insured might be damnified by the
loss of injury thereof. [Sec. 17]
The insured cannot recover a greater value
than that of his actual loss because it would be
a wagering policy contrary to public policy and
void.
A carrier or depository of any kind has an
insurable interest in a thing held by him as
such, to the extent of his liability but not to
exceed the value thereof. [Sec. 15]
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

Interest in Property and Life 3. The same subject matter;

Distinguished 4. The same interest insured; and
5. The same risk or peril insured against.
Property Life [Malayan Insurance v. Philippine First
Extent Insurance, G.R. No. 184300 (2012)]
Limited to actual Unlimited (save in life
value of the interest insurance effected Double insurance is NOT prohibited under the
thereon by a creditor on the law, unless the policy contains a stipulation to
life of the debtor – the contrary.
amount of debt only)  Usually, insurance policies contain an
Existence other insurance clause, which requires
Must exist when the Must exist at the time disclosure of other existing insurance
insurance takes the insurance takes policy.
effect and when the effect, BUT need not  In such case, non-disclosure will avoid the
loss occurs, BUT exist thereafter policy. It is intended to prevent over
need not exist in the insurance and thus avert the perpetration
meantime of fraud.
Expectation of benefit to be derived
If there is double insurance and loss occurs:
Must have legal Need not have legal
basis basis  Each of the insurers will be liable only up to
the face value of their respective policies;
Interest of beneficiary
and
Must have insurable Need not have
 The insured has the option of choosing the
interest over the insurable interest
order by which he will claim from the
thing insured over the life of the
insurers. [Carale]
insured if the insured
himself secured the
policy. But if the Over Insurance
insurance was
obtained by the Over insurance occurs when the value of the
beneficiary, the latter insurance exceeds the value of the insurable
must have insurable interest.
interest over the life
of the insured Over insurance It is not per se void, however:
[SUNDIANG and  Recovery is allowed only to the extent of
AQUINO] the loss or damage incurred by the insured.
[CARALE]
 An insurer may cancel an insurance policy,
3. Double Insurance and Over other than life, based on a “discovery of
Insurance other insurance coverage that makes the
total insurance in excess of the value of the
Double Insurance property insured”, subject to the
requirement of prior notice. [Sec. 64(f)]
Double insurance exists where the same  The insured is entitled to a ratable return of
person is insured by several insurers the premium, proportioned to the amount
separately in respect to the same subject and by which the aggregate sum insured in all
interest. [Sec. 95] the policies exceeds the insurable value of
the thing at risk (in case of an over
Requisites: insurance by several insurers other than
1. The same person is insured; life). [Sec. 83]
2. Two or more insurers insuring separately;

Page 25 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

If there is over-insurance and loss occurs, then ratably to the loss or damage considering that
the insurers will pay pro-rata or in the order as the several insurances cover the same subject
stated in contract or excess clause. matter and interest against the same peril. If
the loss is greater than the sum total of all the
Double Insurance Over Insurance policies issued, each insurer is liable for the
Amount of insurance Amount of insurance amount of his policy.
may or may not exceeds the value of
exceed the value of the insured’s 4. Multiple or Several Interests
the insured’s insurable interest
insurable interest
on Same Property
There are always There may be one or
General Rule: The insurance proceeds shall
several insurers more insurers
be applied exclusively to the proper interest of
the person in whose name or for whose benefit
Rules for Payment it is made.
Where the insured in a policy other than life is Exception: Unless otherwise specified in the
over insured by double insurance: policy. [Sec. 53]
(a) The insured, unless the policy otherwise
provides, may claim payment from the Examples wherein multiple persons may each
insurers in such order as he may select, up have insurable interest over the same property:
to the amount for which the insurers are (1) Corporations – the corporation and its
severally liable under their respective stockholders have insurable interest over
contracts; the corporate assets.
(b) Each insurer is bound, as between himself (2) Partnerships – the partnership and the
and the other insurers, to contribute ratably partners composing it have insurable
to the loss in proportion to the amount for interest over its assets.
which he is liable under his contract. [Sec. (3) Assignments – the assignor and assignee
96] have insurable interest over the property
assigned.
Rules for claiming payment under Valued (4) Trusts – the trustor and trustee have
Policies vs. Unvalued Policies [Sec. 96] insurable interest over the property in trust.
Valued Policy Unvalued policy (5) Lease Agreements - the lessor, lessee and
Any sum received by Any sum received by sub-lessees have insurable interest over
him under any other him under any policy the property in lease.
policy shall be shall be deducted (6) Mortgages – the mortgagor and
deducted from the against the full mortgagee/s have insurable interest over
value of the policy insurable value for the property mortgaged.
without regard to the any sum received by
actual value of the him under any policy
Multiple Interests over Mortgaged
subject matter
insured
Property
The Insurance Code recognizes that:
Where the insured receives any sum in
 Both the mortgagor and mortgagee have
excess of the valuation (for valued policies),
each separate and distinct insurable
or of the insurable value (for unvalued
interest in the mortgaged property.
policies), the insured must hold such sum in
trust for the insurers, according to their right  They may take out separate policies with
of contribution among themselves. the same or different insurance companies.
 Insurance taken by one on his own name
only, does not inure to the benefit of the
Sec. 96 enunciates the principle of contribution
other. [Sec. 53]
which requires each insurer to contribute

Page 26 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

Thus, a mortgagor has an insurable interest insurer, to the extent of the insurance money
equal to the value of the mortgaged property paid. [Palileo v. Cosio, G.R. No. L- 7667
and a mortgagee, only to the extent of the debt (1955)]
Secured by the mortgage. [Geagonia v. CA,
G.R. No. 114427(1995)] When mortgagor takes out insurance policy
When a mortgagor takes out an insurance for
Mortgagor Mortgagee his own benefit, only he can recover from the
As owner, the Only to the extent of insurer but the mortgagee has a lien on the
interest is to the the debt secured proceeds by virtue of the mortgage. A
extent of the value of mortgagor can make the proceeds payable to
the property, or assigned to the mortgagee [de Leon].
regardless of
whether it equals to Ways where mortgagee may be the
the mortgage debt or beneficial payee [Geagonia v. CA, G.R. No.
not 114427 (1995)]:
His interest lies in What is insured is (1) As assignee with the consent of the
that the loss or not the property, but insurer;
destruction of the his interest as (2) A pledge without such consent;
property will not mortgagee, which (3) The original policy may contain a mortgage
extinguish his subsists until the clause;
mortgage debt mortgage debt is (4) A rider making the policy payable to the
extinguished mortgagee “as his interest may appear”
[CARALE] may be attached;
(5) A “standard mortgage clause,” containing a
When mortgagee takes out insurance collateral independent contract between
policy the mortgagee and the insurer may be
 When a mortgagee insures his own interest attached;
in the mortgaged property without (6) The policy, though by its terms payable
reference to the right of the mortgagor, absolutely to the mortgagor, may have
mortgagee is entitled to the proceeds of the been procured by a mortgagor under a
policy in case of loss to the extent of his contract duty to insure for the mortgagee's
credit. [de Leon] benefit.
 If the proceeds are more than the total
amount of credit, then mortgagee has no Open Loss Payable Mortgage
right to the excess. Clause
 If the proceeds are equal to the credit, then
insurer is subrogated to the mortgagee’s An open loss payable clause states that the
rights and mortgagee can no longer proceeds of the insurance contract is payable
recover the mortgagor’s indebtedness. to the mortgagee as beneficiary.
 If the proceeds are less than the credit,
then the mortgagee may recover from the The contract, however, is procured by the
mortgagor the deficiency. Upon payment, mortgagor for his interest in the property. He is
the insurer is subrogated to the rights of the the party to the contract, not the mortgagee.
mortgagee against the mortgagor to the
extent of the amount paid. The acts of the mortgagor prior to the loss,
which would otherwise avoid the insurance,
When a mortgagee insured his own interest affects the mortgagee, even if the property is in
and a loss occurs, he is entitled to recover on the hands of said mortgagee.
the insurance. The mortgagee, however, is not
allowed to retain his claim against the
mortgagor, but it passes by subrogation to the

Page 27 of 450
 U.P. LAW BOC
Union Mortgage or Standard
Mortgage Clause
A standard or union mortgage clause makes a
separate and distinct contract of insurance on
the interest of the mortgagee, thus any act of
the mortgagor will not affect the mortgagee.
[Carale]
This clause is similar to an open loss payable
clause, except that it is stipulated that the acts
of the mortgagor cannot invalidate the
insurance, provided that if the mortgagor fails
to pay the premiums due, the mortgagee shall,
on demand, pay said premiums. [de Leon]
G. PERFECTION OF THE
CONTRACT OF
INSURANCE
1. Offer and
Acceptance/Consensuality
An insurance contract is consensual, it is
therefore perfected by mere consent.
Consent is manifested by the meeting of the
offer and the acceptance upon the object or the
cause which are to constitute the contract.
There is an offer when the insured submits an
application to the insurer.
There is acceptance when the insurer
approves the application.
So long as an application for insurance has not
been either accepted or rejected, it is merely a
proposal or an offer to make a contract. [Perez
v. CA, G.R. No. 112329 (2000)]
The insurance contract becomes effective
upon payment of first premium, provided there
has been an approval of the application.
The parties may impose additional conditions
precedent to the validity of the policy as a
contract as they see fit. Usually, it is stipulated
Page 28 of 450
INSURANCE COMMERCIAL LAW
in the application that contract shall not
become binding until the policy is delivered and
the first premium is paid. [de Leon]
Cognition Theory
An acceptance made by letter shall not bind the
person making the offer, except from the time
it came to his knowledge.
In Enriquez v. Sun Life Assurance Co. [G.R.
No. L-15895 (1920)] the Court held that:
a) The submission of an application,
even with premium payment is a mere
offer on the part of the applicant, and
does not bind the insurer;
b) An insurance contract is also not
perfected where the applicant dies
before the approval of his application
or it does not appear that the
acceptance of the application ever
came to the knowledge of the
applicant.
Delay in Acceptance
Delay in acting on the application does not
constitute acceptance even though the insured
has forwarded his first premium with his
application. [Perez v. CA, G.R. No. 112329
(2000)]
When there is delay in acceptance due to the
negligence of the insurance company which
takes unreasonably long time before the
application is processed and the applicant dies,
the contract is not perfected.
The insurer can be liable for damages in
accordance with the “tort theory.”
The insurance business is imbued with public
interest, thus it is the duty of the insurer to act
with reasonable promptness in acting on
applications submitted to it. [Wallace v.
Hartford Fire Insurance Co, 31 Idaho 48r,
(1918)]
 U.P. LAW BOC INSURANCE
Delivery of Policy
Delivery is the act of placing the insurance
policy (i.e. the physical document) into the
possession of the insured.
The delivery can be proof of the acceptance of
the insurer of the offer of the insured.
It is not, however, a pre-requisite of a valid
contract of insurance.
Actual manual delivery is not necessary for the
validity of the contract; constructive delivery
may be sufficient.
Delivery to the agent cannot be considered
delivery to the insured, as the agent of the
insurance company is not the agent of the
insured. [Bradley v. New York Life Ins., 275 F.
657 (1921)]
2. Premium Payment
An insurance premium is the agreed price for
assuming and carrying the risk, that is, the
consideration paid an insurer for undertaking to
indemnify the insured against the specified
peril.
General rule: No insurance policy issued or
renewal is valid and binding until actual
payment of the premium. Any agreement to the
contrary is void. [Sec. 77]
Exceptions
1. Whenever the grace period provision
applies in the case of a life or an industrial
life policy. [Sec. 77]
2. Whenever under the broker and agency
agreements with duly licensed
intermediaries, a 90-day credit extension is
given.
Note: No credit extension to a duly licensed
intermediary should exceed 90 days from
the date of issuance of the policy. [Sec. 77]
3. When there is an acknowledgment in the
contract that the premium has been paid.
[Sec. 79]
Page 29 of 450
COMMERCIAL LAW
Jurisprudence decided before RA 10607
provides two further exceptions:
a) Agreement to grant payment of premium in
installment basis and partial payment has
been made; [Makati Tuscany v. CA, G.R.
No. 95546, (1992)]
b) When parties are barred by Estoppel.
[UCPB v. Masagana Telemart, G.R. No.
137172 (2001)]
Authority of Agent to Receive
Premium
Where an insurer authorizes an insurance
agent or broker to deliver a policy to the
insured, it is deemed to have authorized said
agent to receive the premium in its behalf.
The insurer is bound by its agent’s
acknowledgement of receipt of payment of
premium. [American Home Assurance Co. v.
Chua, G.R. No. 130421 (1999)]
Payment by Post-Dated Check
The payment of premium by a postdated check
at a stated maturity subsequent to the loss is
insufficient to put the insurance into effect.
But payment by a check bearing a date prior to
the loss, assuming availability of funds, would
be sufficient, even if it remains unencashed at
the time of the loss. The subsequent effects of
encashment would retroact to the date of the
instrument and its acceptance by the creditor.
[Vitug, Commercial Laws and Jurisprudence
(2006)]
Non-Payment of Premium
Effects of non-payment of first premium:
(1) Prevents the contract from becoming
binding, unless waived. [Philippine Phoenix
Surety and Insurance v. Woodworks, G.R.
No. L-25317 (1979)]
(2) Does not affect the validity of the contracts
unless, by express stipulation, it is provided
that the policy shall, in that event, be
suspended or shall lapse.
 U.P. LAW BOC INSURANCE
Applicable Grace Periods
In case of individual life insurance, the policy
holder is entitled a grace period of either 30
days or one month within which payment of any
premium after the first may be made. [Sec. 233]
In cases of industrial life insurance, the grace
period is four weeks, and where premiums are
paid monthly, either 30 days or one month.
[Sec. 236]
Excuses for Non-Payment
(1) Fortuitous events which render payment
by the insured wholly impossible will not
prevent forfeiture of the policy when the
premium remains unpaid. In other words, it
is not an excuse.
(2) Non-payment of premiums occasioned by
war causes an insurance to be not merely
suspended, but completely abrogated.
[Constantino v. Asia Life Ins. Co. G.R. No.
L-1669 (1950)].
3. Non-Default Options in Life
Insurance
In the case of individual life or endowment
insurance, the policy shall contain a provision
specifying the options to which the policyholder
is entitled to in the event of default in a premium
payment after three (3) full annual premiums
shall have been paid. [Sec. 233(f)]
Such option shall consist of:
(1) A cash surrender value payable upon
surrender of the policy which shall not be
less than the reserve on the policy.
- The basis of which shall be indicated,
for the then current policy year; and
- Any dividend additions thereto, shall be
reduced by a surrender charge, which
shall not be more than one-fifth (1/5) of
the entire reserve or two and one-half
percent (2½%) of the amount insured
and any dividend additions thereto
(2) One or more paid-up benefits on a plan or
plans specified in the policy of such value
as may be purchased by the cash
surrender value. [Sec. 233(f)]
Page 30 of 450
COMMERCIAL LAW
Cash Surrender Value (CSV)
The CSV is the amount that the insured is
entitled to receive if he surrenders the policy
and releases his claims upon it.
 The right to CSV accrues only after three
full annual premium payments.
 The insured is given the right to claim the
amount less than the reserve, reduced by
surrender charge, [Sec. 233(f)(1)]
The CSV is an amount which the insurance
company holds in trust for the insured to be
delivered to him upon demand. When the
company’s credit for advances is paid out of the
cash value or cash surrender value, that value
and the company’s liability is diminished.
[Manufacturer’s Life Ins. v. Meer, G.R. No. L-
2910(1951)]
Rationale: The premium is uniform throughout
a lifetime, but the risk is varied (i.e. higher risk
when older, lower when young). Thus, the cost
of protection is more expensive during the early
years of the policy.
Alternatives to CSV
(1) Extended insurance/term insurance -
where the insured, after having paid three
full annual premiums, is given the right to
have the policy continued in force from
date of default for a time either stated or
equal to the amount of the CSV, taken as a
single premium.
The face value of the policy remains the
same but only within the term.
If death occurs during this period, the
beneficiary can recover the face value of
the policy, but if the insured survives, the
beneficiary gets nothing.
Reinstatement is allowed if made within the
term purchased; no reinstatement after the
lapse of the term purchased.
(2) Paid-up insurance - where, after the
insurance is “paid-up,” the insured who has
 U.P. LAW BOC INSURANCE
paid three full annual premiums is given the
right, upon default, to have the policy
continued from the date of default for the
whole period of insurance without further
payment of premiums.
It is also called reduced paid-up because in
effect the policy, terms and conditions are
the same but the face value is reduced to
the “paid-up” value.
The terms and conditions of the original
policy remain the same, however, the
amount will be less than the original face
value.
(3) Automatic premium loan (APL) - where,
upon default, the insurer lends/advances to
the insured without any need of application
on his part, the amount necessary to pay
overdue premium, but not to exceed the
CSV of the policy.
It only applies if requested in writing by the
insured either in the application or at any
time before expiration of the grace period.
In effect, the insurance policy continues in
force for a period covered by the payment.
After the period, if insured still does not
resume paying his premiums, the policy
lapses, unless CSV still remains. If there is
still CSV, APL continues until CSV is
exhausted.
4. Reinstatement of a Lapsed
Policy of Life Insurance
In the case of individual life or endowment
insurance, the policy shall contain a provision
that the policyholder shall be entitled to have
the policy reinstated:
 At any time within three (3) years from the
date of default of premium payment
o Unless the cash surrender value
has been duly paid
o Unless the extension period has
expired,
Page 31 of 450
COMMERCIAL LAW
 Upon production of evidence of insurability
satisfactory to the company; and
 Upon payment of all overdue premiums
and any indebtedness to the company
upon said policy, with interest rate not
exceeding that which would have been
applicable to said premiums and
indebtedness in the policy years prior to
reinstatement. [Sec. 233(j)]
Reinstatement of a lapsed life insurance policy
is NOT a non-default option.
 It does not create a new contract, but
merely revives the original policy so insurer
cannot require a higher premium than the
amount stipulated in the contract.
 It does not apply to group/industrial life
insurance.
Requisites: [Sec. 233(j)]
a. It must be exercised within three years from
date of default;
b. The insured must present evidence of
insurability satisfactory to the insurer;
c. He must pay all back premiums and all
indebtedness to the insurer (with interest);
d. The CSV must not have been duly paid to
the insured nor the extension period
expired;
e. The application must be filed during the
insured’s lifetime, [Andres v. Crown Life
Ins., G.R. No. L-10874 (1958)]
5. Refund of Premiums
Return of premiums can be made in the
following cases:
a. If the thing insured was never exposed to
the risks insured against, the whole
premium should be refunded. [Sec. 80(a)]
b. When the contract is voidable due to the
fraud or misrepresentation of insurer or his
agent, the whole premium should be
refunded. [Sec. 82]
c. When by any default of the insured other
than actual fraud, the insurer never
incurred any liability under the policy and
the whole premium should be refunded.
[Sec. 82]
 U.P. LAW BOC INSURANCE
d. When the contract is voidable because of
the existence of facts of which the insured
was ignorant without his fault, the whole
premium should be refunded. [Sec. 82]
e. Where the insurance is for a definite period
and the insured surrenders his policy, the
portion of the premium that corresponds to
the unexpired time at a pro rata rate, unless
a short period rate has been agreed upon
and appears on the face of the policy
should be return. [Sec. 80(b)]
f. When there is over-insurance by several
insurers, the return premiums should be
proportioned to the amount by which the
aggregate sum insured in all the policies
exceeds the insurable value of the thing at
risk. [Sec. 83]
g. When rescission is granted due to the
insurer’s breach of contract.
H. RESCISSION OF
INSURANCE CONTRACTS
1. Concealment
A concealment, whether intentional or
unintentional, entitles the injured party to
rescind a contract of insurance. [Sec. 27]
Rationale: The contract of insurance is one of
perfect good faith (uberrimae fides) not for the
insured alone, but equally for the insurer [Qua
Chee Gan v. Law Union & Rock Insurance,
G.R. No. L-4611(1955)].
Definition
Concealment is the failure to disclose facts
which the applicant at the time of application,
knows or ought to know and are material to the
insurance applied for. [Carale]
A neglect to communicate that which a party
knows and ought to communicate, is called a
concealment. [Sec. 26]
Duty to Communicate by the Insured
Each party to a contract of insurance must
communicate to the other, in good faith, all
facts within his knowledge:
Page 32 of 450
COMMERCIAL LAW
i. Which are material to the contract;
ii. As to which he makes no warrant; and
iii. Which the other has not the means of
ascertaining. [Sec. 28]
An intentional or fraudulent omission, on the
part of one insured, to communicate
information of matters proving or tending to
prove the falsity of a warranty, entitles the
insurer to rescind. [Sec. 29]
Note: If the applicant is aware of the existence
of some circumstance which he knows would
influence the insurer in acting upon his
application, good faith requires him to disclose
that circumstance, though unasked. [Vance]
Matters which Need Not be Disclosed
1. Matters already known to the insurer [Sec.
30(a)];
2. Matters which each party are bound to
know [Sec. 30(b) and Sec. 32];
3. Matters of which the insurer waives
communication [Sec. 30(c) and Sec. 33];
4. Matters which prove or tend to prove the
existence of a risk excluded by a warranty
and which are not otherwise material [Sec.
30(d)];
5. Matters which relate to a risk excepted in
the policy, and which are not otherwise
material [Sec. 30(e)];
6. Information of the nature or amount of the
interest of one insured unless if inquired
upon by the insurer, except if required by
Sec. 51 [Sec. 34];
7. Matters of opinion. [Sec. 35]
Each party to a contract of insurance is bound
to know all the general causes which are open
to his inquiry, equally with that of the other, and
which may affect the political or material perils
contemplated; and all general usages of trade.
[Sec. 32]
Requisites of Concealment:
a. A party knows a fact which he neglects to
communicate or disclose to the other;
b. Such party concealing is duty bound to
disclose such fact to the other;
c. Such party concealing makes no warranty
of the fact concealed;
 U.P. LAW BOC INSURANCE
d. The other party has not the means of
ascertaining the fact concealed;
e. The fact concealed is material.
Failure of the insured to disclose conditions
affecting the risk, of which he is aware, makes
the contract voidable at the insurer’s option, the
ratio being that a contract of insurance is of
good faith.
But, Sec. 27, uses the phrase “injured party”,
thus the insured may also rescind the contract.
Concealment may be committed by either the
insurer or the insured. [Qua Chee Gan v. Law
Union & Rock Ins. Co. G.R. No. L-4611(1955)]
Proof of Fraud in Concealment
General rule: Fraud need not be proven in
order to prove concealment. Good faith is not a
defense. [Saturnino v. Phil. American Life
Insurance, G.R. No. L-16163 (1963)]
Exception: When the concealment is made by
the insured in relation to the falsity of a
warranty, the non-disclosure must be
intentional and fraudulent in order that the
contract may be rescinded. [Sec. 29]
Rationale: The insured is under no obligation to
reveal things of which he makes a warrant
because it would constitute a superfluity of
disclosure. [Carale]
Test of Materiality
The test of materiality is whether the insurer
would have agreed to issue the policy had it
known of the facts concealed or, perhaps,
impose additional terms or require higher
premium. [Carale]
Materiality relates to the probable and
reasonable influence of the facts upon the
party to whom the communication should have
been made, in:
(1) Assessing the risk involved;
(2) Making or omitting to make further
inquiries; and
Page 33 of 450
COMMERCIAL LAW
(3) Accepting the application for
insurance. [Sec. 31]
The test is the effect which the knowledge of
the fact in question would have on the contract.
It is sufficient if the knowledge of it would
influence the party in making the contract. [de
Leon]
In several cases, the cause of death may have
no relation to the fact or facts concealed.
[CARALE]
Effects
General rule: Concealment vitiates the
contract and entitles the insurer to rescind,
even if the death or loss is due to a cause not
related to the concealed matter. [Sec. 27]
Exceptions
1. Concealment after the contract has
become effective, because concealment
must take place at the time the contract is
entered into in order that the policy may be
avoided; [Vance]
2. Waiver or estoppel;
3. In marine insurance, where concealment of
the following matters does not vitiate the
entire contract, but merely exonerates the
insurer from a loss resulting from the risk
concealed:
a. The national character of the insured;
b. The liability of the thing insured to
capture and detention;
c. The liability to seizure from breach of
foreign laws of trade;
d. The want of necessary documents; and
e. The use of false and simulated papers.
[Sec. 112]
4. Incontestability clause: stipulates that the
policy shall be incontestable after two
years from its date of issue or of its last
reinstatement. The incontestability clause
is a mandatory provision in life and
endowment policies, [Sec. 233 (b) and
Sec. 48]
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

INCONTESTABILITY CLAUSE Grounds still available:

In the case of individual life or endowment 1. Non-payment of premium to make the
insurance, the policy shall contain a provision policy effective or remain in force
that the policy shall be incontestable. 2. Lack of insurable interest
 After it shall have been in force during the 3. Coverage such that the loss/damage did
lifetime of the insured for a period of two (2) not arise from the risks covered
years from its date of issue as shown in the 4. Violation of military or naval service
policy, or date of approval of last provisions of the policy (also an issue of
reinstatement. [Sec. 233(b)] coverage)
 Exceptions: 5. Failure to commence action within
o Non-payment of premium reglementary period
o Violation of the conditions of the 6. Failure to comply with conditions (proof of
policy relating to military or naval loss, etc.) subsequent to the loss; or
service in time of war [Sec. 233(b)] 7. The particular viciousness of the fraud
employed by the insured to procure the
The insurer CANNOT prove that the policy is contract, such as:
void ab initio or is rescindable by reason of the Where the policy was taken pursuant to
fraudulent concealment or misrepresentation a scheme to murder the insured, or
of the insured or his agent: the insured substitutes himself with
 After a policy of life insurance made another during the medical
payable on the death of the insured shall examination.
have been in force during the lifetime of the
insured for a period of two (2) years from Concealment in Marine and
the date of its issue or of its last Ordinary Private Insurance
reinstatement [Sec. 48] Distinguished
 The insurer’s right to rescind a contract is
not exercised previous to the Marine Ordinary
commencement of an action on the Insurance Insurance
contract. [Sec. 48]
Required Exact and Substantial
Disclosure whole truth truth
Effect of the incontestability clause Effect of Concealment Any kind of
The insurer cannot prove that the policy is: Concealment of the concealment
 Void ab initio; or
matters will make the
 Rescissible by reason of –
specified in insurer not
o Fraudulent concealment by the
Sec. 112 will liable.
insured or his agent;
not entirely
o Misrepresentation by the insured or
his agent. [Sec. 48] avoid the
contract but
The incontestability clause is made for the will merely
benefit of the insured, and not the insurer, exonerate
considering that its effect and purpose is to cut the insurer
off, after a considerable period, any assertion from losses
that the policy is invalid. resulting
from the risk
concealed.
Defenses, other than concealment,
misrepresentation and breach of warranty are
still available to the insurer, subsequent to the
2-year period. [Carale]

Page 34 of 450
 U.P. LAW BOC INSURANCE
Concealment in Non-Medical
Insurance
The cause of death is not important because it
is well settled that the insured need not die of
the disease he had failed to disclose to the
insurer. It is sufficient that his nondisclosure
misled the insurer in forming his estimates of
the risks of the proposed policy or in making
inquiries. [Sunlife v. Sps. Bacani G.R. No.
105135 (1995)]
Where matters of opinion or judgment are
called for, answers made in good faith and
without intent to deceive will not avoid the
policy even though they are untrue. Reason:
The insurer cannot simply rely on those
statements. He must make further inquiry.
[Philamcare Health Systems v. CA, G.R. No.
125678 (2002)]
2. Misrepresentation/Omissions
Representations are factual statements made
by the insured at the time of, or prior to, the
issuance of the policy, which give information
to the insurer and induce him to enter into the
insurance contract. It may be about a past, an
existing fact, or a future happening. [Carale]
A representation:
 May be oral or written. [Sec. 36]
 May be made at the time of or before, the
issuance of the policy. [Sec. 37]
 May be altered or withdrawn before the
insurance is effected, but not afterwards.
[Sec. 41]
 Must be presumed to refer to the date on
which the contract goes into effect. [Sec.
42]
Misrepresentation is a false representation
which the insured states with knowledge that is
untrue, intended to deceive the insurer into
accepting risk. It can be distinguished from
concealment in a sense that it is an active form
of deception, while concealment is the passive
form thereof. [Carale]
Page 35 of 450
COMMERCIAL LAW
Just like concealment, misrepresentation is
committed before or at the time of the
commencement of the insurance contract.
Subsequent to this time, an insured may no
longer be guilty of misrepresentation as the
insurer had already been persuaded to assume
the risk. [Carale]
There is no false representation if the matter is
true at the time the contract takes effect
although false at the time it was
made/represented.
Requisites of misrepresentation:
a. The insured stated a fact which is untrue;
b. Such fact was stated with knowledge that it
is untrue and with intent to deceive or which
he states positively as true without knowing
it to be true and which has a tendency to
mislead;
c. Such fact in either case is material to the
risk.
Like in concealment, fraud or intent is not
essential to entitle the insurer to rescind on the
ground of misrepresentation. [Sec. 45]
Kinds of Representations
a. Affirmative – Refers to any allegation as
to the existence or non-existence of a fact
when the contract begins [de Leon]
b. Promissory - Any promise to be fulfilled
after the contract has come into existence;
or any statement concerning what is to
happen during the existence of the
insurance. [Sec. 39]
A promissory representation is substantially a
condition or warranty. [de Leon]
Test of Materiality
The materiality of a representation is
determined by the same rules as the materiality
of a concealment. [Sec. 46]
Materiality is a judicial question and not left to
the insurance company’s sole discretion.
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

Effects estopped. [Edillon v. Manila Bankers Life, G.R.

No. L-34200 (1982)]
General Rule: The injured party is entitled to
rescind from the time when the representation Despite not answering the questions and
becomes false. [Sec. 45] keeping blank certain questions in the
application regarding ailments he has suffered,
Exceptions when the insured signed the pension plan
1) Incontestability clause; application, he adopted the written
2) Misrepresentation after contract takes representations and declarations embodied in
effect; as his own. Therefore, it is clear from these
3) Waiver, made by acceptance of insurer of representations that he concealed his chronic
premium payments despite knowledge of heart ailment and diabetes. [Florendo v. Philam
the ground for rescission [Sec. 45]; Plans, G.R. No. 186983 (2012)]
4) A representation of the expectation, belief,
opinion, or judgment of the insured, Concealment Misrepresentation
although false, and even if material to the Who may commit
risk [Philamcare Health Systems, Inc. v. May be committed Committed only by
CA, G.R. No. 125678 (2002)]; by either insured or insured
5) Representation by insured based on insurer
information obtained from third persons Act involved
(not his agent), provided the insured: Passive form Active form
a) Has no personal knowledge of the Insured withholds Insured makes
facts; information of erroneous
b) Believes them to be true; and material facts from statements of facts
c) Explains to the insurer that he does so the insurer; he with the intent of
on the information of others; maintains silence inducing the insurer
6) A misrepresentation as to age does not when he ought to to enter into the
constitute a ground for rescission. If the speak insurance contract
age of the insured was considered in Materiality
determining the premium and the benefits Determined by the same rules
under the policy and the age is misstated, Effects
the amount payable for the policy shall be Same effects on the part of the insured;
as if the policy was purchased at the insurer has right to rescind
correct age. [Sec. 233(d); Carake] Injured party is entitled to rescind a contract
of insurance on ground of concealment or
A representation cannot qualify an express false representation, whether intentional or
provision or an express warranty of insurance not.
[Sec. 40] because a representation is not part
of the contract but only a collateral inducement
to it. However, it may qualify as an implied 3. Breach of Warranties
warranty.
A warranty is a statement or promise by the
It is sufficient that the representation is insured set forth in the policy itself or
substantially or materially true, and in case of incorporated in it by proper reference, the
promissory representation, it is sufficient that it untruth or nonfulfillment of which in any respect
is substantially complied with. [Carale] and without reference to whether the insurer
was in fact prejudiced by such untruth or non-
The insurer is not entitled to rescission for fulfillment, renders the policy voidable by the
misrepresentation of age if the birth date on the insurer. [Vance]
policy leads to the conclusion that the insured
is beyond the age covered. Insurer is deemed

Page 36 of 450
 U.P. LAW BOC INSURANCE
Statements or promises agreed upon by both
parties to the insurance contract which are
contained in the contract or properly
incorporated constitute warranties. [Carale]
A warranty may:
 Relate to the past, the present, the future,
or to all of these. [Sec. 68]
 Be made in any form of words. [Sec. 69]
 Also be made by the insurer. [Carale]
Warranties, Riders, and
Endorsements
A rider is a printed or typed stipulation
contained in a slip of paper attached to the
policy and forming an integral part thereof.
Thus, it does not need to be signed by the
insured.
The signature of the insured is required only if
the warranties, or endorsements are in another
instrument.
For any rider, clause, warranty or endorsement
to be binding on the insured: [Sec. 50]
 Such rider, clause, warranty or
endorsement, must be pasted or attached
to the policy;
 The descriptive title or name of the rider,
clause, warranty or endorsement must also
be mentioned and written on the blank
spaces provided in the policy;
 Such rider, clause, warranty or
endorsement issued after the original
policy must be countersigned by the
insured or owner.
o Unless the same is applied for by
the insured or owner
o Such countersignature shall be
taken as his agreement to the
contents of such rider, clause,
warranty or endorsement
Notwithstanding the foregoing, the policy may
be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise
known as the ‘Electronic Commerce Act’ and to
such rules and regulations as may be
prescribed by the Commissioner.
Page 37 of 450
COMMERCIAL LAW
Kinds of Warranties
Express Warranty
The Code does not prescribe a particular form
for a warranty to be considered as such. [Sec.
69]
However, the Code prescribes a requirement
for express warranties. It must be an
agreement contained in the policy or clearly
incorporated therein as part thereof, relating to
the person or thing insured or to the risk as a
fact. [Sec. 71]
Thus, it is not enough, for a stipulation to
become a warranty, that the parties intended it
as such. It must form part of the contract of
insurance.
Implied Warranty
Deemed included in the contract although not
expressly mentioned (e.g., implied warranty of
seaworthiness of the vessel in marine
insurance and implied warranty not to alter the
circumstances of the thing insured). This is
only available for marine insurance.
Affirmative Warranty
Asserts the existence of a fact or condition at
the time it is made.
Promissory Warranty or Executory
Warranty
The insured stipulates that certain facts or
conditions pertaining to the risk shall exist or
that certain things with reference thereto shall
be done or omitted. It is in the nature of a
condition subsequent. [Sec. 72 and 73]
Effect of Breach
MATERIAL WARRANTY
The violation of a material warranty, or other
material provision of the policy, on the part of
either the insured or insurer, entitles the other
to rescind. [Sec. 74]
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

Breach of a material warranty may either be: Warranty Representation

1. Without fraud, in which case, the insurer Nature
will be exonerated from the time it occurs. Part of the contract Mere collateral
If made during the inception, it will prevent inducement
the policy from taking effect. [Sec. 76] Form
2. With fraud, in which case, the policy is Written on the policy, May be written in the
avoided ab initio and the insured is not actually or by policy or may be oral
entitled to the return of the premiums paid. reference
[de Leon] Materiality
Presumed material Must be proved to be
Exceptions material
1. Loss occurs before the time of Compliance
performance of the warranty; [Sec. 73]
Must be strictly Requires only
2. Performance becomes unlawful; [Sec. 73]
complied with substantial truth and
3. Performance becomes impossible; [Sec.
compliance
73];
Applicability of incontestability clause
4. Waiver or estoppel.
Does not apply Applies
IMMATERIAL WARRANTY
A policy may declare that a violation of I. CLAIMS SETTLEMENT
specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision AND SUBROGATION
does not avoid the policy. [Sec. 75]
Loss in insurance law embraces injury or
General rule: Breach of an immaterial damage.
provision does not avoid the policy. [Sec. 75]
Requisites
Exception: Breach of an immaterial provision Recovery upon a loss requires that:
avoids the policy when the parties stipulate that a. The insured must have insurable
violation of a particular provision, though interest in the subject matter;
immaterial, shall avoid the policy. In effect, the b. The interest is covered by the policy;
parties converted the immaterial provision into c. There be a loss; and
a material one. [Sundiang and Aquino] d. The loss must be one for which the
insurer is liable;
A condition in the policy which requires the e. Notice and proof of loss must be given
insured to disclose to the insurer of any if policy is fire insurance or when the
insurance that, if violated by the insured, would same is stipulated in the policy.
ipso facto avoid the contract. [Pioneer v. Yap,
G.R. No. L-36232 (1974)] Causes of loss

Insurer is barred by waiver (or estoppel) to 1. Remote Cause

claim violation of the so-called hydrants
warranty when, despite knowing fully that only
2 fire hydrants existed (out of the 11 hydrants
required), it still issued the insurance policies
and received the premiums. [Qua Chee Gan v.
Law Union, G.R. No. L-4611 (1955)]
An event preceding another in a causal chain,
but separated from it by other events.
2. Proximate Cause
That cause, which, in natural and continuous
sequence, unbroken by any efficient
intervening cause, produces the injury, and
without which the result would not have
occurred. [Vda. De Bataclan v. Medina, G.R.
No. L-10126 (1957)]
3. Immediate Cause

Page 38 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

The cause, not the proximate cause, which investigation and take such action as may be
immediately precedes the loss. necessary to protect its interest.

Liability for Loss Failure to Give Notice

In fire insurance: An insurer is exonerated, if
Loss for which the Loss for which the notice of loss be not given to him by an insured,
insurer is liable insurer is not liable or some person entitled to the benefit of the
Loss the proximate Loss by insured’s insurance, without unnecessary delay. [Sec.
cause of which is the willful act 90]
peril insured against
[Sec. 86] In other types of insurance:
Loss the immediate Loss due to General Rule: Failure to give notice will not
cause of which is the connivance of the exonerate the insurer.
peril insured against, insured [Sec. 89] Exception: Unless there is a stipulation in the
except where the policy requiring the insured to do so.
proximate cause is
an excepted peril However, it has been held that formal notice of
Loss through Loss where the loss is not necessary if insurer has actual
negligence of excepted peril is the notice of loss [Fidelity Phoenix Insurance v.
insured except proximate cause Friedman, 174 SW 215 (1987)] but there is a
where there was ruling to the contrary [Col. Sav. Bank v.
gross negligence American Surety, 87 P 118].
amounting to willful
acts Form
Loss caused by In case of loss as regards fire insurance, there
efforts to rescue the must be a written notice thereof [Sec. 90]. But
thing from peril as to other non-life insurance policies, the law
insured against if, does not provide for a necessity of written
during the course of notice. [de Leon]
the rescue, the thing
is exposed to a peril The notice of loss may be in the form of an
not insured against, informal or provisional claim containing a
which permanently minimum of information, as distinguished from
deprives the insured a formal claim which contains the full details of
of its possession in the loss, computations of the amounts claimed,
whole or in part [Sec. and supporting evidence, together with a
87] demand or request for payment [de Leon].

Time for Giving Notice

1. Notice and Proof of Loss Notice of loss must be given within reasonable
time. [Bachrach v. Britain American Assurance,
Notice of Loss G.R. No. L-5715 (1910)]

This refers to the formal notice given the
insurer by the insured or claimant under a
policy of the occurrence of the loss insured
against.
Purpose
Its purpose is to apprise the insurance
company so that it may make proper
For compulsory motor vehicle insurance, the
notice must be given within six months from the
date of the accident. [Sec. 397]
For other non-life insurance, the Commissioner
may specify the period for the submission of
the notice of loss. [Sec. 90]

Page 39 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

Proof of Loss 2) For notice of loss, a formal notice of loss is

not necessary if insurer has actual notice
It is the formal evidence given to the insurance of loss.
company by the insured or claimant, under a
policy, of: 2. Guidelines on Claims
 The occurrence of the loss,
Settlement
 The particulars thereof, and
 The data necessary to enable the company
Claims settlement is the indemnification of the
to determine its liability and the amount. [de
loss suffered by the insured. The claimant may
Leon]
be the insured or reinsured, the insurer who is
entitled to subrogation, or a third party who has
Purpose
a claim against the insured.
Its purpose is to give the insurer information by
which he may determine the extent of his
Where a policy gives the insurer the control of
liability but also to afford him a means of
the decision to settle claim or litigate it, the
detecting any fraud that may have been
insurer nevertheless is required to observe a
practiced upon him, and to operate as a check
certain measure of consideration for the
upon extravagant claims.
interest of the insured.
Like a notice of loss, in the absence of any
Life Insurance Non-Life
stipulation in the policy, proof may be given
Insurance
orally or in writing.
Maturity
Either: 1. Upon happening
The insured is not bound to give such proof as
1. Upon death of of event insured
would be necessary in a court of justice; but it
the person against; and
is sufficient for him to give the best evidence
insured; 2. Event must occur
which he has in his power at the time. [Sec. 91]
2. Upon his within the period
surviving a specified in
RULES FOR RECOVERY
specific period; policy, otherwise
General Rule: Timely compliance with the
or insurer has no
notice and proof of loss is a condition
3. Otherwise liability
precedent to the right to recover if the policy is
contingently on
fire insurance, or when the same is stipulated
in the policy [Sec. 90]. the continuance
or cessation of
life. [Sec. 182]
Exceptions
1) For both notice and proof of loss, defects Delivery of Proceeds
or delay in the presentation of notice may
be waived:
a) Defects in a notice or proof of loss
may be waived when such defects,
which the insured might remedy, are
not specified without unnecessary
delay to him as ground of objection by
the insurer. [Sec. 92]
b) Delay in presentation to an insurer of
notice or proof of loss is waived if
caused by any act of his, or if he omits
to take objection promptly and
specifically upon that ground. [Sec. 93]

Page 40 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

General rule: The 1. Within 30 days Unfair Claims Settlement;

proceeds should be after: Sanctions
delivered a. Proof of loss is
immediately upon received by No insurance company doing business in the
maturity of policy. insurer; and Philippines shall:
b. Ascertainment of (1) Refuse, without just cause, to pay or settle
Exceptions: loss or damage is claims arising under coverages provided
1. If payable in made either by by its policies; nor
installments or agreement (2) Engage in unfair claim settlement
as an annuity, between the practices. [Sec. 247]
when such insured and
installments or insurer or by Unfair Claim Settlement Practices
annuities arbitration Any of the following acts by an insurance
become due; 2. If ascertainment company, if committed without just cause and
2. If maturity is is not made performed with such frequency as to indicate a
upon death, within 60 days general business practice, shall constitute
within 60 days after such receipt unfair claim settlement practices:
after by insurer of (1) Knowingly misrepresenting to claimants
presentation of proof of loss, pertinent facts or policy provisions relating
claim and filing then loss or to coverage at issue;
of proof of death damage shall be
of insured. [Sec. paid within 90 (2) Failing to acknowledge with reasonable
248] days after such promptness pertinent communications with
receipt. [Sec. respect to claims arising under its policies;
249]
Effect of refusal or failure to pay claim (3) Failing to adopt and implement reasonable
within time prescribed standards for the prompt investigation of
1. This entitles the beneficiary to collect claims arising under its policies;
interest on the proceeds of policy for the
duration of the delay at rate of twice the (4) Not attempting in good faith to effectuate
ceiling prescribed by the monetary board prompt, fair and equitable settlement of
(unless refusal to pay is based on claims submitted in which liability has
ground that claim is fraudulent) become reasonably clear; or
2. In case damages are awarded, this
includes attorney’s fees and other (5) Compelling policyholders to institute suits
expenses incurred due to delay (plus the to recover amounts due under its policies
interest) [Sec. 248 and 249] by offering without justifiable reason
substantially less than the amounts
In case of litigation, it is the duty of the ultimately recovered in suits brought by
Commissioner or the Court to determine them. [Sec. 247]
whether the claim has been unreasonably
denied or withheld. Failure to pay any such Admissible Evidence
claim within the time prescribed shall be The following shall be admissible in evidence
considered prima facie evidence of in an administrative or judicial proceeding for
unreasonable delay in payment. [Sec. 250] the purpose of determining whether unfair
claim settlement practices have been
committed:
(a) Evidence as to numbers and types of valid
and justifiable complaints to the
Commissioner against an insurance
company; and

Page 41 of 450
 U.P. LAW BOC INSURANCE
(b) The Commissioner’s complaint experience
with other insurance companies writing
similar lines of insurance. [Sec. 247]
Penalty Per Violation
If it is found, after notice and an opportunity to
be heard, that an insurance company has
violated this section, each instance of
noncompliance:
(1) May be treated as a separate violation; and
(2) Shall be considered sufficient cause for the
suspension or revocation of the company’s
certificate of authority.
Sec. 247 lists the grounds which are sufficient
cause for the suspension or revocation of the
insurer’s certificate of authority [Sec. 247(c)].
Prescription of Action
Should the insurer reject the claim of the
insured, the remedy of the latter would be to file
an action against the insurer with the proper
tribunal [Carale].
An “action” or “suit” is an act by which one sues
another in a court of justice for the enforcement
or protection of a right, or the prevention or
redress of a wrong. [Lopez v. Filipinas
Compania de Seguros, G.R. No. L-19613
(1966)]
Prescriptive Period
General Rule: It being based on a written
contract, the action prescribes in ten years.
[Art. 1144, NCC]
Exception: The parties may validly agree on a
shorter period, provided it is not less than one
year from the time the cause of action accrues.
[Sec. 63]
Note: In compulsory motor vehicle insurance,
the action prescribes in one year from the
denial of the claim. [Sec. 397]
Reckoning Point
The period of commencing an action under a
policy of insurance under Sec. 63 is to be
computed from the time when the insured
has a right to bring an action against the
Page 42 of 450
COMMERCIAL LAW
insurer, NOT from the time when the loss
actually occurs.
The cause of action in an insurance contract
does not accrue until the insured's claim is
finally rejected by the insurer. This is because
before such final rejection, there is no real
necessity for bringing suit. [Eagle Star
Insurance vs Chia Yu, G.R. No. L-5915 (1955)]
Subrogation
Subrogation is a process of legal substitution.
The insurer, after paying the amount covered
by the insurance policy, steps into the shoes of
the insured and avails himself of the latter's
rights that exist against the wrongdoer at the
time of loss.
The insurer becomes entitled to recover from
the wrongdoer the amount of the loss it may
have paid to the insured.
Note: Subrogation applies only to property
insurance and non-life insurance.
Right of Subrogation
The insurance company shall be subrogated to
the rights of the insured against the wrongdoer
or the person who has violated the contact if:
(1) The plaintiff’s property has been insured,
and
(2) The plaintiff has received indemnity from
the insurance company for the injury or loss
arising out of the wrong or breach of
contract complained of. [Art. 2207, NCC]
Rights Transferred
A subrogee-insurer cannot succeed to a right
not possessed by the subrogor. A subrogee
can recover only if the insured likewise could
have recovered. [Sulpicio Lines, Inc. v. First
Lepanto-Taisho Ins. Corp., G.R. No. 140349
(2005)]
Right to Recover Deficiency Not
Subrogated
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
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

deficiency from the person causing the loss or

injury. [Art. 2207, NCC]
J. BUSINESS OF
INSURANCE;
The insured can no longer recover from the
offended party what was paid to him by the
REQUIREMENTS
insurer, but he can recover any deficiency if the
Business of Insurance
damages suffered are more than what was
The term “doing an insurance
paid. The deficiency is not covered by the right
business or transacting an insurance
of subrogation.
business” includes:
(1) Making or proposing to make, as insurer,
The insurer must present the policy as
any insurance contract;
evidence to determine the extent of its
(2) Making or proposing to make, as surety,
coverage. [Wallem Phil. Shipping v. Prudential
any contract of suretyship as a vocation;
Guarantee, G.R. No. 152158 (2003)]
- Must not be merely incidental to any
other legitimate business or activity of
Where There is No Right of Subrogation
the surety
1. Where the insured by his own act releases
(3) Doing any kind of business, specifically
the wrongdoer or third party liable for the
recognized as constituting the doing of an
loss or damage;
insurance business within the meaning of
2. Where the insurer pays the insured the
the Insurance Code;
value of the loss without notifying the
- Including a reinsurance business,
carrier who has in good faith settled the
(4) Doing or proposing to do any business in
insured’s claim for loss;
substance equivalent to any of the
3. Where the insurer pays the insured for a
foregoing in a manner designed to evade
loss or risk not covered by the policy; [Pan
the provisions of the Insurance Code. [Sec.
Malayan Ins. Co. v. CA, G.R. No. 81026
2(b)]
(1990)]
4. In life insurance;
The following shall NOT be deemed conclusive
5. For recovery of loss in excess of insurance
to show that the making thereof does not
coverage. [de Leon]
constitute the doing or transacting of an
insurance business:
The right of subrogation is not dependent upon,
a. The fact that no profit is derived from
nor does it grow out of, any privity of contract
the making of insurance contracts,
or upon written assignment of claim. It accrues
agreements or transactions; or
simply upon payment of the insurance claim by
b. The fact that no separate or direct
the insurer. [Pan Malayan Ins. Co v. CA, G.R.
consideration is received therefor.
No. 81026 (1990)]
[Sec. 2(b)]
Should the insured, after receiving payment
For the purpose of determining what "doing an
from the insurer, release the wrongdoer who
insurance business" means, we have to
caused the loss, the insurer loses his rights
scrutinize the operations of the business as a
against the latter. But in such a case, the
insurer will be entitled to recover from the whole and not its mere components. [Philippine
insured whatever it has paid to the latter, Health Care Providers, Inc. v. CIR,
unless the release was made with the consent G.R.167330 (2009)]
of the insurer. [Manila Mahogany v. CA G.R.
No. L- 52756 (1987)] Requirements to Engage in the Business of
Insurance
1. Certificate of Authority
2. Sufficient paid-up capital, Surplus Fund &
Solvency

Page 43 of 450
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

3. Filing with the Commissioner interests a contributed surplus fund of

4. Reserves not less than P100,000,000.00;
5. For foreign companies: Sufficient capital (2) The company to submit to him a business
and securities deposited with the plan showing the company’s estimated
Commissioner receipts and disbursements, as well as the
6. For foreign companies: Resident Agent basis therefor, for the next succeeding
7. For foreign companies: Surplus Fund, three (3) years. [Sec. 194]
Legal Reserves
An insurance company doing business in the
1. Certificate of Authority Philippines shall at all times maintain the
No insurance company shall transact any minimum paid-up capital and net worth
insurance business in the Philippines until after requirements as prescribed by the
it shall have obtained a certificate of authority Commissioner. Such solvency requirements
for that purpose from the Commissioner upon shall be:
application therefor and payment by the (1) Based on internationally accepted
company concerned of the fees hereinafter solvency frameworks; and
prescribed. [Sec. 193] (2) Adopted only after due consultation
with the insurance industry
2. Sufficient paid-up capital, Surplus Fund associations. [Sec. 200]
& Solvency [Sec. 194, 197, 200]
No new domestic life or non-life insurance 3. Filing with the Commissioner [Sec. 195]
company shall, in a stock corporation, engage Every company must, before engaging in the
in business in the Philippines unless business of insurance in the Philippines, file
possessed of a paid-up capital equal to at with the Commissioner the following:
least One billion pesos a) A certified copy of the last annual
(P1,000,000,000.00): Provided, That a statement or a verified financial
domestic insurance company already doing statement exhibiting the condition and
business in the Philippines shall have: affairs of such company; and
(1) By June 30, 2013 – P250,000,000.00
net worth If A copy of the articles of
(2) By December 31, 2016 – An additional incorporated incorporation and bylaws,
P300,000,000.00 in net worth; under the and any amendments to
(3) By December 31, 2019 – An additional laws of the either, certified by the SEC
P350,000,000.00 in net worth; and Philippines
(4) By December 31, 2022 – An additional 1. A certificate from the
P400,000,000.00 in net worth. [Sec. SEC showing that it is
194] duly registered in the
Note: The President of the Philippines may mercantile registry of
order a periodic review every two (2) years the that Commission in
capital structure set out above to determine the If accordance with the
capital adequacy of the local insurance incorporated Corporation Code
industry from and after the integration and under any 2. If organized or formed
liberalization of the financial services, including laws other under any law requiring
insurance, in the ASEAN Region. than those such to be filed: A copy
of the of the articles of
The Commissioner may also, as a pre- Philippines incorporation and
licensing requirement of a new insurance bylaws, and any
company, require: amendments to either
(1) The stockholders to pay in cash to the 3. If not so organized: A
company in proportion to their subscription copy of the law, charter
or deed of settlement

Page 44 of 450
 U.P. LAW BOC INSURANCE
under which the deed of
organization is made
4. A certificate under the
hand and seal of the
proper officer of such
state or country that
such corporation or
company is :
i. Organized under the
laws of such state or
country,
ii. With the amount of
capital stock or assets
and legal reserve
required by this Code;
A certificate setting forth:
i. The nature and
character of the
business,
ii. The location of the
principal office,
iii. The name of the
individual or names of
If not the persons
incorporated composing the
and of partnership or
foreign association,
domicile iv. The amount of actual
capital employed or to
be employed therein,
and
v. The names of all
officers and persons
by whom the
business is or may be
managed.
4. Reserves
Every insurance company, other than life, shall
maintain a reserve for unearned premiums on
its policies in force, which shall be charged as
a liability in any determination of its financial
condition. [Sec. 219]
5. For foreign companies: Sufficient
capital and securities deposited with
the Commissioner [Sec. 197, 198]
No insurance company organized or existing
under the government or laws other than those
of the Philippines shall engage in business in
the Philippines unless:
Page 45 of 450
COMMERCIAL LAW
A. Possessed of unimpaired capital or
assets and reserve of not less than
One billion pesos (P1,000,000,000.00)
B. It has deposited with the Commissioner
for the benefit and security of the
policyholders and creditors of such
company in the Philippines, securities
satisfactory to the Commissioner:
Provided That –
(1) At least fifty percent (50%) of such
securities shall consist of bonds or
other instruments of debt of the
Government of the Philippines, its
political subdivisions and
instrumentalities, or of GOCCs and
entities, including the Bangko Sentral
ng Pilipinas;
(2) The total investment of a foreign
insurance company in any registered
enterprise shall not exceed twenty
percent (20%) of the net worth of said
foreign insurance company nor twenty
percent (20%) of the capital of the
registered enterprise, unless
previously authorized in writing by the
Commissioner. [Sec. 197]
Securities, for the purposes of this
requirement, consist of:
- Good securities of the Philippines,
- New issues of stock of registered
enterprises
6. For foreign companies: Resident Agent
The Commissioner must require as a condition
precedent to the transaction of insurance
business in the Philippines by any foreign
insurance company, that such company file in
his office:
A. A written power of attorney:
(1) Designating some person who
shall be a resident of the
Philippines as its general agent on
whom any notice provided by law
or by any insurance policy, proof of
loss, summons and other legal
processes may be served in all
actions or other legal proceedings
against such company, and
(2) Consenting that service upon such
general agent shall be admitted
 U.P. LAW BOC INSURANCE
and held as valid as if served upon
the foreign company at its home
office.
B. Agreement or stipulation, executed
by the proper authorities of said
company, which states that:
(1) Service of any notice provided by
law, or insurance policy, proof of
loss, summons, or other legal
process may be made upon the
Insurance Commissioner
(2) Such service upon the Insurance
Commissioner shall have the same
force and effect as if made upon
the company if at any time said
company shall:
a. Leave the Philippines, or
b. Cease to transact business
therein, or
c. Be without any agent in the
Philippines on whom any
notice, proof of loss,
summons, or legal process
may be served, then in any
action or proceeding
arising out of any business
or transaction which
occurred in the Philippines
(3) Whenever such service of notice,
proof of loss, summons, or other
legal process shall be made upon
the Commissioner, he must, within
ten (10) days thereafter, transmit
by mail, postage paid, a copy of
such notice, proof of loss,
summons, or other legal process to
the company at its home or
principal office. [Sec. 196]
7. For foreign companies: Surplus Fund,
Legal Reserves [Sec. 196, 199]
The Commissioner may, as a pre-licensing
requirement of a new branch office of a foreign
insurance company, require the company to
have an additional surplus fund in an amount
to be determined by the Insurance
Commission. [Sec. 197]
Every foreign company doing business in the
Philippines shall:
Page 46 of 450
COMMERCIAL LAW
(1) Set aside an amount corresponding to the
legal reserves of the policies written in the
Philippines; and
(2) Invest and keep the same therein in
accordance with the provisions of this
section. [Sec. 199]
The legal reserve therein required to be set
aside shall be invested only in the classes of
Philippine securities described in Section
206: Provided, however, That –
(1) No investment in stocks or bonds of any
single entity shall, in the aggregate exceed
20% of the net worth of the investing
company or 20% of the capital of the
issuing company, whichever is the lesser,
unless otherwise approved in writing by the
Commissioner.
(2) The securities purchased and kept in the
Philippines under this section, shall not be
sent out of the territorial jurisdiction of the
Philippines without the written consent of
the Commissioner. [Sec. 199]
Rule as to Partnerships, Persons, or
Association of Persons
General Rule: No person, partnership, or
association of persons shall transact any
insurance business in the Philippines except as
agent of a person or corporation authorized to
do the business of insurance in the
Philippines.
Exceptions: Such person, partnership, or
association of persons may transact insurance
business in the Philippines, provided that:
(1) It is possessed of the capital and assets
required of an insurance corporation doing
the same kind of business in the
Philippines and invested in the same
manner;
(2) The Commissioner granted it a certificate
to the effect that it has complied with all the
provisions of this Code. [Sec. 192]
 U.P. LAW BOC INSURANCE
K. INSURANCE
COMMISSIONER AND
ITS POWERS
1. Jurisdiction and Adjudicatory
Powers
The Insurance Commissioner exercises
administrative supervision over insurance
companies, mutual benefit associations and
trusts for charitable uses. He has the duty to
see that all laws relating to insurance
companies and other insurance matters are
faithfully executed. [Carale]
In addition to administrative powers, the
Commissioner has the power to adjudicate
disputes relating to an insurance company’s
liability to an insured under a policy. [Sec. 437]
A complaint or claim filed with such official is
considered an “action” or “suit” the filing of
which would have the effect of tolling the
suspending the running of the prescriptive
period.
Concurrent jurisdiction (with regular civil
courts) over cases where any single claim does
not exceed P5,000,000 involving liability
arising from:
a. Insurance contract;
b. Contract of suretyship;
c. Reinsurance contract;
d. Membership certificate issued by members
of mutual benefit association [Sec. 439]
Primary and exclusive jurisdiction over claims
for benefits involving pre-need plans where the
amount of benefits does not exceed P100,000.
[Sec. 55, RA 9829]
For the purpose of proceeding under its
adjudicatory powers under the Insurance
Code, the Commissioner or any officer thereof
designated by him, is empowered to administer
oaths and affirmation, subpoena witnesses,
compel their attendance, take evidence and
require the production of any books, papers,
Page 47 of 450
COMMERCIAL LAW
documents or contracts or other records which
are relevant or material to the inquiry [Sec.
439].
Note: However, the Insurance Commission has
no jurisdiction to decide the legality of a
contract of agency entered into between an
insurance company and its agent. The same is
not covered by the term “doing or transacting
insurance business” under Sec. 2, neither is it
covered by Sec. 439, which grants the
Commissioner adjudicatory powers. [Sundiang
and Aquino]
2. Revocation of Certificate of
Authority
The Certificate of Authority issued to the
domestic or foreign company by the
Commission may be revoked or suspended by
the Insurance Commissioner for any of the
following grounds:
. The company is in an unsound condition
a. That it has failed to comply with the
provisions of law or regulations obligatory
upon it
b. That its condition or method of business is
such as to render its proceedings
hazardous to the public or its policyholders
c. That its paid-up capital stock, in the case of
a domestic stock corporation, or its
available cash assets, in the case of a
domestic mutual company, or its security
deposits, in the case of a foreign company,
is impaired or deficient
d. That the margin of solvency required of
such company is deficient. [Sec. 254]
The Commissioner is authorized to suspend or
revoke all certificates of authority granted to
such insurance company, its officers and
agents, and no new business shall thereafter
be done by such company or for such company
by its agents in the Philippines while such
suspension, revocation, or disability continues
or until its authority to do business is restored
by the Commissioner. [Sec. 254]
Before restoring such authority, the
Commissioner shall require the company
 U.P. LAW BOC INSURANCE COMMERCIAL LAW

concerned to submit to him a business plan

showing the company’s estimated receipts and
disbursements, as well as the basis therefor,
for the next succeeding three years. [Sec. 254.

3. Liquidation of Insurance
Company
If the company is determined by the
Commissioner to be insolvent or cannot
resume business, he shall, if public interest
requires, order its liquidation. [Sec. 256]

This should be distinguished from a situation

where a conservator is appointed when the
Commissioner finds that a company is in a
state of continuing inability or unwillingness to
maintain a condition of solvency or liquidity
adequate to protect the policyholders and
creditors. The conservator will take charge of
the management of the insurance company.
[Sec. 255]

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U.P. LAW BOC INSURANCE COMMERCIAL LAW

PRE-NEED
COMMERCIAL LAW

Page 49 of 450
U.P. LAW BOC PRE-NEED COMMERCIAL LAW

A. DEFINITION
The section numbers hereinafter generally pertain to
RA 9829 (Pre-Need Code), unless otherwise indicated.
Pre-need plans are contracts, agreements,
deeds or plans for the benefit of the
planholders which provide for the performance
of future services, payment of monetary
considerations or delivery of other benefits at
>the time of actual need or agreed maturity
date, as specified therein, in exchange for cash
or installment amounts with or without interest
or insurance coverage and includes life,
pension, education, interment and other plans,
instruments, contracts or deeds. [Sec. 4(B)]
1. Pre-Need Plans
Pre-need plans are contracts which provide
for the rendering of services or payment of
money to plan holders or their beneficiaries
when the actual need for such payment or
rendition of services accrues. [Carale]
They are governed by the Pre-Need Code (RA
9829). They are not considered as
insurance contracts because:
a. Pre-need plans can have insurance
coverage, implying that they are separate
contracts; and
b. Pre-need plans do not involve unknown or
contingent events but events certain to
happen at a certain time.

Contracts However, all Pre-need plans are under the

Agreements primary and exclusive power supervision and
Form
Deeds regulation of the Insurance Commission. [Sec.
Plans 5, RA 9829. In addition, the Insurance
Beneficiary Planholder/s Commissioner shall have the primary and
To provide for the: exclusive power to adjudicate any and all
- Performance of future claims involving pre-need plans. If the amount
services of benefits does not exceed P100,000, which
Purpose - Payment of monetary decision shall be final and executory. [Sec. 55]
considerations; or
- Delivery of other 2. Pre-Need Company
benefits
At the time of actual need A Pre-need Company refers to:
When
OR a. Any corporation
benefits may
On agreed maturity date  Registered with the Commission and
be availed
specified therein
authorized/licensed to sell or offer to sell
Cash or installment pre-need plans
amounts with or without b. Schools, memorial chapels, banks,
Consideration
interest, OR nonbank financial institutions and other
Insurance Coverage entities
Life  Authorized/licensed to sell or offer to sell
Pension pre-need plans insofar as their pre-need
Education activities or business are concerned. [Sec.
Types
Interment 4(c)]
Other plans, instruments,
contracts, or deeds

Page 50 of 450
 U.P. LAW BOC TRANSPORTATION LAW
B. REGISTRATION OF
PRE-NEED PLANS
Powers of the Commission
i. Promulgate rules governing the registration
of pre-need plans and the required
documents. Said rules shall further set
forth the:
a. Conditions under which such
registration may be denied
revoked, suspended or withdrawn;
b. Remedies of pre-need companies
in such instances;
ii. Approve all forms, including amendments,
relating to the pre-need plans. [Sec. 14 &
17]
Required Documents for Registration
a. The viability study
b. Certification, under oath, of a pre-need
actuary accredited by the Commission
ii.
c. A copy of the pre-need plan
d. Any information brochure
e. Information and documents necessary to
ensure the protection of planholders and
the general public [Sec. 14]
1. Necessity of Registration
a. To be granted a license to do business as
a pre-need company
b. To file a registration statement with the
Commission for the sale of pre-need
plans
- This is required for every pre-need
plan which the company intends to
offer for sale to the public [Sec. 14]
2. When Registered
Within a period of forty-five (45) days after the
grant of a license to do business as a pre-need
company. [Sec. 14]
3. Registration Requirements
The Commission shall require the following
documents, among others:
(a) Duly accomplished Registration
Statements;
(b) Board resolution authorizing the
registration of applicant’s pre-need plans;
Page 51 of 450
COMMERCIAL LAW
(c) Opinion of independent counsel on the
legality of the issue;
(d) Audited financial statements;
(e) Viability study with certification, under oath,
of pre-need actuary accredited by the
Commission;
(f) Copy of the proposed pre-need plan; and
(g) Sample of sales materials.
Such registration statements and sales
materials required under this section shall
contain the appropriate risk factors as may be
determined by the Commission. [Sec. 15]
4. Accreditation of Actuary
An actuary prepares and certifies, under oath,
the viability study required for registration.
[Sec. 15]
Requirements to be a Pre-Need Actuary:
i. Must be accredited by the Commission.
[Sec. 15]
Must NOT be engaged by the pre-need
company as actuary, and at the same time:
 Be a stockholder; or
 Serve as:
a. Director of the board
b. Chief executive officer or
c. Chief financial officer of the
company, or
d. Any such position that the
Commission may determine to
have an inherent conflict of
interest to the position of an
actuary. [Sec. 16]
The Commission shall have the power to:
1. Set standards for the accreditation of
actuaries directly responsible for the
preparation and certification of the viability
study of the pre-need plan submitted by the
pre-need company for registration or
amendment with the Commission;
2. Define the obligations and liabilities of
actuaries accredited by it.
5. Pre-Need Advertising Rules
Pre-need plans shall be advertised and sold in
an appropriate non-misleading manner in
accordance with the rules to be prescribed by
the Code.
U.P. LAW BOC TRANSPORTATION LAW
It shall be unlawful for any pre-need company
to adverti>se itself or its pre-need plans unless
the Commission has approved such
advertising material.
The Commission shall have a period of ten (10)
working days to approve or deny the
advertising material and failure to act within the
said period shall cause the advertising material
to be approved. For purposes hereof, the
Commission shall have the power to define the
scope of its advertising rules to appropriately
cover advertising or other communications to
the public.
Any person who sells or offers to sell any pre-
need plan or contract by any means or
instruments of communication in violation of
this section shall be liable to the person
purchasing such pre-need contract who may
sue to recover the consideration paid for such
pre-need contract with interest thereon. In
addition hereto, the Commission shall have the
power to pursue the erring pre-need company
in an administrative or criminal proceeding.
A fine of P100, 000,000.00 shall be imposed on
any pre-need company found to have violated
this section: Provided, That a second violation
of this section shall, in addition to the fine
imposed, result in the suspension of the license
of the pre-need company. [Sec. 18]
6. Disclosures to Prospective Planholders
No registered pre-need plan shall be sold to
prospective planholders unless an information
brochure, which has been filed with the
Commission, has been provided to the
purchaser.
The information brochure shall contain:
a. An explanation of the principal features of
the pre-need plan;
b. A statement that the planholder may avail
of a default or reinstatement period within
which to reinstate his lapsed plan;
c. The conditions of the same and the rates of
return for scheduled benefit plans and
illustrative yields for contingent benefit
plans;
Page 52 of 450
COMMERCIAL LAW
d. Such other information that the
Commission shall require by rule. [Sec. 19]
The making of any untrue statement of a
material fact in an information brochure is a
ground for administrative sanctions and
criminal penalties. [Sec. 56(a)(i), IRR of RA
9829]
C. LICENSING OF SALES
COUNSELORS AND
GENERAL AGENTS
1. Qualifications for Issuance
No sales counselor shall be allowed to solicit,
sell or offer to sell pre-need plans under this
Code without being licensed as such by the
Commission.
Such license shall automatically expire every
30th day of June or such date of every year as
may be fixed by the Commission and may be
accordingly renewed.
Qualifications for the issuance of a license:
a. The applicant must be of good moral
character and must not have been
convicted of any crime involving moral
turpitude;
b. The applicant has undergone a training
program approved by the Commission and
such fact has been certified under oath by
a duly authorized representative of a pre-
need company; and
c. The applicant has passed a written
examination administered by the
Commission: Provided, that the
administration of the examination may be
delegated to an independent organization
under the supervision of the Commission.
[Sec. 20]
2. Denial, Suspension, or Revocation of
License
An application for the issuance or renewal of a
license to act as sales counselor may be
denied, or such license, if already issued, shall
be suspended or revoked based on the
following grounds:
U.P. LAW BOC TRANSPORTATION LAW
(a) Materially misrepresented statements in
the application requirements;
(b) Obtained or attempted to obtain a license
by fraud or misrepresentation;
(c) Materially misrepresented the terms and
conditions of pre-need plans;
(d) Sold, solicited or attempted to solicit or sell
a pre-need plan by means of false or
misleading representation and other
fraudulent means;
(e) Terminated for cause from another pre-
need company;
(f) Similar grounds found in Section 11 of RA
9829;
(g) Wilfully allowing the use of one’s license by
a non-licensed or barred individual;
(h) Analogous circumstances. [Sec. 21]
3. Licensing of General Agents
If the issuer should contract the services of a
general agent to undertake the sales of its
plans, such general agent shall be required to
be licensed as such with the Commission, in
accordance with the requirements imposed by
the Commission. [Sec. 22]
D. DEFAULT AND
TERMINATION
1. Default; Reinstatement Period
Grace Period
The pre-need company must provide in all
contracts issued to planholders a grace period
of at least sixty (60) days within which to pay
accrued installments, counted from the due
date of the first unpaid installment.
Nonpayment of a plan within the grace period
shall render the plan a lapsed plan.
Any payment by the planholder after the grace
period shall be reimbursed forthwith, unless the
planholder duly reinstates the plan.
Reinstatement
The planholder shall be allowed a period of not
less than two (2) years from the lapse of the
Page 53 of 450
COMMERCIAL LAW
grace period or a longer period, as provided in
the contract within which to reinstate his plan.
No cancellation of plans shall be made by the
issuer during such period when reinstatement
may be effected.
Notice Requirement
The pre-need company shall give written notice
to the planholder that his plan will be cancelled
if not reinstated within two (2) years.
Two notices shall be given:
 Within thirty (30) days from the expiration
of the grace period; and
 Within thirty (30) days from the expiration
of the reinstatement period, which is two (2)
years from the lapse of the grace period.
Failure to give either of the required notices
shall preclude the pre-need company from
treating the plans as cancelled. [Sec. 23]
2. Termination of Pre-Need Plans
A planholder may terminate his pre-need plan
at any time by giving written notice to the
issuer. [Sec. 24]
Termination Value
The termination value of the pre-need plan
shall be predetermined by the actuary of the
pre-need company upon application for
registration of the pre-need plans with the
Commission and shall be disclosed in the
contract.
A pre-need plan shall contain a schedule of
termination values to which the planholder is
entitled to upon termination.
Such schedule of termination value shall be
required for all in-force pre-need plans and
shall be fair, equitable and in compliance with
the Commission issuances. [Sec. 24]
U.P. LAW BOC TRANSPORTATION LAW COMMERCIAL LAW

Contingent Benefit Plans

In the case of contingent benefit plans, the
E. CLAIMS SETTLEMENT benefits shall be paid by the pre-need company
thirty (30) days upon submission of all
necessary documents. [Sec. 26]
1. Unfair Claims Settlement Practices
No pre-need company shall refuse, without just
Refusal or Failure to Pay
cause, to pay or settle claims arising under
coverages provided by its plans nor shall any General Rule: Refusal or failure to pay the
such company engage in unfair claim claim within fifteen (15) days from maturity or
due date will entitle the beneficiary to collect
settlement practices.
interest on the proceeds of the plan for the
duration of the delay at the rate twice the legal
The following acts constitute unfair claims
interest.
settlement practices:
1. Knowingly misrepresenting to claimants
Provided, That the planholder has duly
pertinent facts or plan provisions relating to
complied with the documentary requirements
coverages at issue;
of the pre-need company.
2. Failing to acknowledge with reasonable
promptness pertinent communications with
Exception: Unless such failure or refusal to
respect to claims arising under its plan;
3. Failing to adopt and implement reasonable pay is based on the ground that the claim is
standards for the prompt investigation of fraudulent.
claims arising under its plan;
3. Recovery of Investment
4. Failing to provide prompt, fair and equitable
settlement of claims submitted in which The planholder may institute the necessary
legal action in court to recover his/her
liability has become reasonably clear; or
investment in the pre-need company thirty (30)
5. Compelling planholders to institute suits or
days upon submission of all necessary
recover amounts due under its plan by
documents.
offering, without justifiable reason,
substantially less than the amounts
However, in case the insolvency or bankruptcy
ultimately recovered in suits brought by
is a mere cover-up for fraud or illegality, the
them.
planholder may institute the legal action
Any violation of this section shall be considered directly against the officers and/or controlling
owners of the said pre-need company. [Sec.
sufficient cause for the suspension or
revocation of the company's certificate of 27]
authority. [Sec. 25]
4. Consequences of Delay or Default
In case of any litigation for the enforcement of
2. Payment of Plan Proceeds
any pre-need plan, it shall be the duty of the
Commission to determine whether the
Scheduled Benefit Plans
payment of the claim of the planholder has
General Rule: In the case of scheduled benefit
been unreasonably denied or withheld.
plans, the proceeds of the plan shall be paid
immediately upon maturity of the contract.
The failure to pay any such claim within the
time prescribed in Section 26 hereof shall be
Exception: Unless such proceeds are made
considered prima facie evidence of
payable in installments or as an annuity, in
unreasonable delay in payment. [Sec. 27]
which case the installments or annuities shall
be paid as they become due.
If found to have unreasonably denied or
withheld the claim, the pre-need company shall
be liable to pay damages, consisting of actual

Page 54 of 450
U.P. LAW BOC TRANSPORTATION LAW COMMERCIAL LAW

damages, attorney’s fees and legal interest, to

be computed from the date the claim is made
until it is fully satisfied.

5. Distribution of Profits
A pre-need company may declare
divided: Provided, That the following shall
remain unimpaired, as certified under oath by
the president and the treasurer with respect to
items (a) and (b); and in the case of item (c), by
the trust officer:
(a) One hundred percent (100%) of the capital
stock;
(b) An amount sufficient to pay all net losses
reported, or in the course of settlement,
and all liabilities for expenses and taxes;
and
(c) Trust fund.

Any dividend declared under the preceding

paragraph shall be reported to the Commission
within thirty (30) days after such declaration.
[Sec. 29]

Page 55 of 450