WARRANTIES AND

PREMIUMS IN THE
INSURANCE ACT OF THE
PHILIPPINES
Sections 67 to 82 in the Insurance Code
WHAT ARE WARRANTIES?
These are promises that statements made by an insured
or put down in their proposal form are true, or that a
particular state of affairs regarding their risks exists
either at present or in the future.
There are statements that affect the validity of the
contract and if shown to be false or breached, can
render the policy contract void.
Warranties can also be inserted or attached to a policy
to eliminate specific potential increases of hazard during
the policy term owing to actions of the insured, or
conditions of property.
WHAT ARE WARRANTIES?
The insured must exactly and literally comply
with the warranty stated in the contract.
Breach of a warranty will discharge the insurer
from liability under the policy automatically.
No action by the Insurer is required for the Insurer to
become off-risk.
WHAT ARE WARRANTIES?
The goal of warranties is to eliminate potentially
increasing hazards.
The principle of utmost good faith simplifies
applications processing. It enables the insurance
company to investigate the loss only as it actually
occurs.
The warranties becomes part of the insurance
contract.
If the insured breaches the warranty, the insurer can
void the contract and deny payment of a claim.
EXAMPLES OF WARRANTIES
Life insurance: The applicant declares that he is in
good health and does not have a terminal illness.
Marine insurance: For the warranty of
seaworthiness, the insured has to promise that the
ship that is sent to sea is in a seaworthy state,
otherwise, the insurance company is not liable for
any loss attributable to unseaworthiness.
Fire insurance: The insurance shall not store
flammable materials within the premises of the
insured property.
TYPES OF WARRANTIES
Affirmative warranty: A statement regarding a
fact at the time the contract was made.
Ex: Life Insurance: I am not or have been diagnosed
with a terminal illness
Promissory warranty: A statement about future
facts or about facts that will continue to be true
throughout the term of the policy.
Ex: Fire insurance: This property will not be used for
the mixing of explosives.
TITLE 7: WARRANTIES
Sec. 67. A warranty is either expressed or
implied.
Expressed warranty: Terms that are specifically stated
in the policy contract.
Implied warranty: Terms are presumed.
TITLE 7: WARRANTIES
Sec. 68. A warranty may relate to the past, the
present, the future, or to any or all of these.
Any breach in the warranty at any time can void the
coverage.
The insurer is discharged from liability even where a
warranty has only been breached for a short period of
time and the breach has been cured at the time of
loss.
TITLE 7: WARRANTIES
Sec. 68. A warranty may relate to the past, the
present, the future, or to any or all of these.
Example: Fire insurance policy warranty on storing of
flammable materials. For Christmas and New Year, you
stored some firecrackers inside your house, which is
insured against fire. All these firecrackers were used
up on New Years Eve. Come February, your house
burns down due to faulty electrical wiring. Can you be
denied the claim?
Yes, the insurance company can deny your claim since
there was a breach of the warranty in the past.
TITLE 7: WARRANTIES
Sec. 69. No particular form of words is necessary
to create a warranty.
Sec. 70. Without prejudice to section fifty-one,
every express warranty, made at or before the
execution of a policy, must be contained in the
policy itself, or in another instrument signed by
the insured and referred to in the policy as
making a part of it.
TITLE 7: WARRANTIES
Sec. 71. A statement in a policy of matter relating
to the person or thing insured, or to the risk, as a
fact, is an express warranty thereof.
Sec. 72. A statement in a policy which imparts
that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such
act or omission shall take place.
TITLE 7: WARRANTIES
Sec. 73. When, before the time arrives for the
performance of a warranty relating to the
future, a loss insured against happens, or
performance becomes unlawful at the place of
the contract, or impossible, the omission to
fulfill the warranty does not avoid the policy.
Sec. 74. The violation of a material warranty, or
other material provision of a policy, on the part
of either party thereto, entitles the other to
rescind.
TITLE 7: WARRANTIES
Sec. 75. A policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise
the breach of an immaterial provision does not avoid
the policy.
The violation of an immaterial provision will not avoid the
policy, EXCEPT when the policy as provided for under Sec. 75
expressly provides or declares that a violation thereof will
avoid it.
Example: Fire insurance. Even if the cause of the fire is faulty
wiring, the insurance company may deny the claim on the
grounds that the policy is avoided because the policy
expressly declares that a violation thereof will avoid it.
But, if there are no such stipulations, the policy remains since
there are no specific provisions stated.
TITLE 7: WARRANTIES
Sec. 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs,
or where it is broken in its inception, prevents the
policy from attaching to the risk.
Fraud is not necessary in the breach of warranty.
Without any fraud, the policy is avoided only from the
time of the breach and the insured is entitled to:
Return of premium paid at a pro rata rate from the time of
the breach, if the breach occurs after the inception of the
contract; or
To all the premiums paid if the policy is considered avoided
during the inception of the contract.
TITLE 8: PREMIUMS
Sec. 77. An insurer is entitled to payment of the
premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract
of insurance issued by an insurance company is
valid and binding unless and until the premium
thereof has been paid, except in the case of a life
or an industrial life policy whenever the grace
period provision applies.
Insurance coverage is on a cash and carry basis. No
payment of premiums, no coverage or policy.
CASE EXAMPLE
Source:
http://chriscaldeguer.blogspot.com/2010/12/philippine-insuranc
e-
law.html
Case: American-Fortune Life and General Insurance Co., Inc.
(Am-Fortune) issued Fire Insurance Policy No. 136171 in favor
of Mr. John Michael Roxas on his five-star hotel building in
Makati City, together with all its effects therein. The insurance
was for P8M covering the period from 23 January 2008 to 23
January 2009. On 23 January 2008, of the total premium of
P10,000 Mr. Roxas only paid P5,000.00 thus leaving a
considerable balance unpaid.
On 8 March 2008, the insured building was completely
destroyed by fire. On March 10, 2008 Mr. Roxas paid the
balance of the premium. On the same day, Mr. Roxas filed with
Am-Fortune a claim on the fire insurance policy.
CASE EXAMPLE
Am-Fortune denied the claim of Mr. Roxas, for the
premium has not yet been fully paid in violation of
Policy Condition No. 2 of the Contract which states:
2. This policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium has
been fully paid to and duly receipted by the Company in
the manner provided herein.
It is elemental law that the payment of premium is
requisite to keep the policy of insurance in force. If
the premium is not paid in the manner prescribed in
the policy as intended by the parties the policy is
ineffective.
TITLE 8: PREMIUMS
Sec. 77. As such, the insured can also demand
for a return of the entire premium when there is
no assumption of risk. That is, if the thing
insured was not exposed to the peril being
insured against.
For example: You buy cargo insurance. The cargo was
not shipped due to certain reasons and it remained in
the pier. Since there was no exposure to any
navigational peril that the policy was insured against,
the insured can ask for a return of the premiums.
TITLE 8: PREMIUMS
Sec. 78. An acknowledgment in a policy or
contract of insurance or the receipt of premium
is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding
until the premium is actually paid.