INSURANCE LAW

ASCERTAINMENT AND CONTROL OF RISK AND LOSS

 UTMOST GOOD FAITH (UBERIMEI FIDEI)
 The contract is the law between the contracting
parties, and they are enjoined to comply with it in
good faith. In a contract of insurance, the law does
not require only ordinary good faith but utmost good
faith.
 What is utmost good faith? It means absolute and
perfect candor, openness and honesty. It is the
absence of any deception or concealment however
slight.
 Theparties to a contract of insurance must act in
utmost good faith. There should be no concealment.
There should be no misrepresentation.
WHAT ARE THE FOUR PRIMARY
CONCERNS OF THE INSURER?
 
1. The correct estimation of the risk; 
2.The precise delimitation of the risk; 
3.Control of the risk; 
4.Determining whether a loss occurred and if
so, the amount of such loss.
WHAT ARE THE DEVICES USED BY THE
INSURER TO ASCERTAIN, DETERMINE
AND CONTROL
THE
 
RISKS TO BE ASSUME?
 Concealment
 Representation
 Warranties
 Conditions
 Exceptions
 What are the grounds for rescission?

Concealment
Misrepresentation 
Breach of warranty
Breach of condition subsequent
 ILLUSTRATION:

A person suffering from a terminal disease, confined

in a hospital. The doctors told him about it and he had,
at most six months to live. Wanting to provide
something for the members of his family upon his
death, he went to an insurance company and applied for
a life insurance policy. The insurance company agreed to
issue a non-medical life insurance policy. This means the
insurer waives the right to have the applicant physically or
medically examined.

1. Where the insurer agrees to issue a non-medical

insurance policy, would that constitute a waiver of the right
to communication?
2. Can the insurer rescind the contract on the ground of
concealment?
WHAT IS THE INCONTESTABILITY CLAUSE?
 
A Clause stipulating that the policy shall be
incontestable after a stated period ; after the requisites
are shown to exists, the insured shall be estopped from
contesting the policy or setting any defense, except as
allowed,
   on the ground of public policy.
REQUISITES
  OF INCONTESTABILITY CLAUSE?
1. Life insurance policy payable upon the death of the
insured; and
2. Policy must have been in force for a period of at least
two (2) years during the lifetime of the insured either
from date of issue or date of last reinstatement.
WHAT IS THE EFFECT WHEN THE POLICY
BECOMES
 
INCONTESTABLE?

  The insurer cannot set up the defenses that:

a. The policy is void ab intitio;
b. It is rescissible by reason of fraudulent
concealment of the insured or his agent, no matter
how patent or well-founded;
c. It is rescissible by reason of fraudulent
misrepresentation of the insured or his agent.
IS THE INCONTESTABLE CLAUSE ABSOLUTE?
 
No. It only deprives the insurer of those defenses which arise in
connection with the formation and operation of the policy prior to
the loss. The following defenses are still available:
 
1. That the person taking the insurance lacked insurable interest
required by law.

4. That the conditions of the policy relating to military or

naval science have been violated.
5. That the fraud is of a particular vicious type.
6. That the beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after the loss
had happened.
7. That the action was not brought within the time specified.
 
 PROBLEM 1

A applied for a non-medical life insurance. The insured did not

inform the insurer that one week prior to his application for
insurance, he was examined and confined at St. Luke‘s
Hospital where he was diagnosed for lung cancer. The insured
soon thereafter died in a plane crash. Is the insurer liable
considering that the fact concealed had no bearing with the
cause of death of the insured? Why?
 PROBLEM 2

Juan procured a non-medical life insurance from Good Life

Insurance. He designated his wife, Petra, as the beneficiary.
Earlier, in his application in response to the question as to
whether or not he had ever been hospitalized, he answered in
the negative. He forgot to mention his confinement at the
Kidney Hospital.

After Juan died in a plane crash, Petra filed a claim with

Good Life. Discovering Juan‘s previous hospitalization, Good
Life rejected Petra‘s claim on the ground of concealment and
misrepresentation. Petra sued Good Life, invoking good faith
on part of Juan.

Will Petra's suit prosper? Explain.

 PROBLEM 3

The assured answers "No" to the question in the application

for a life policy: Are you suffering from any form of heart
illness? In fact, the assured has been a heart patient for many
years. On 7 Sep 1991, the assured is killed in a plane crash.
The insurance company denies the claim for insurance
proceeds and returns the premiums paid. Is the decision of
the insurance company justified?
 PROBLEM 4
On September 23, 1990, Tan took a life insurance policy from Philam. The
policy was issued on November 6, 1990. He died on April 26, 1992 of
hepatoma. The insurance company denied the beneficiaries' claim and
rescinded the policy by reason of alleged misrepresentation and
concealment of material facts made by Tan in his application. It returned
the premiums paid.
The beneficiaries contend that the company had no right to rescind
the contract as rescission must be done during the lifetime of the insured
within two years and prior to the commencement of the action. Is the
contention of the beneficiaries tenable?

PROBLEM 5
Renato was issued a life insurance policy on January 2, 1990. He concealed the fact
that 3 years prior to the issuance of his life insurance policy, he had been seeing a
doctor about his heart ailment.
On March 1, 1992, Renato died of heart failure. May the heirs file a claim
on the proceeds of the life insurance policy of Renato?