Kwin Transcripts - Insurance

Insurance Kwin
June 25, 2010 Lets start with the brief history of insurance. Authors of different books vary on their accounts on how insurance started. But they are common in saying that insurance is based on the principle of giving aid to another who suffers loss by reason of unfortunate event. In the ancient times,(Hindus, Chinese, Egyptians), there were already societies which were organized for the purpose of extending aid to any of its members. And aid comes from the fund attributed by all of its members. But with respect to the modern day insurance that we have, its origin started from the maritime law or maritime transaction. Where merchants engaged in shipping ventures particularly Italian cities. They mutually agree among themselves to distribute the loss caused by the perils of navigation. And from that concept if insurance spread rapidly the states of Europe. In England in particular, you must have heard of the famous Lloyds of London. Its a big insurance company. Actually, that started in an inn where merchants would gather. And gathering would be an occasion for them to discuss mutual agreements on how they could possibly protect themselves from the loss arising from the perils of navigation. From there, insurance evolved and developed to what we have now. And the rest is history. But for the Philippines, how did insurance develop? In the Philippines, it was rather late in development. We have low per capita income so were more concerned on the basic needs than our insurance. And also because of the attitude bahala na, so we leave everything to fate. But even the, the principles on which insurance is based is still the same. It started with the basic political units in the family and in the barangay wherein if a member of the family dies, we extend assistance, limos. And from there, there were organizations that were formed. But for modern day insurance in the Philippines, this was introduces by the representatives of Lloyds of London. They started with nonlife insurance. The life insurance was introduced by another company. Laws governing insurance of the Philippines: What are these laws? Primarily, the contract of insurance will be governed by the insurance code of 1978. Subsidiarily, it shall be governed by the provisions of NCC. What is the basis of the saying that it shall be governed by NCC? There is a specific provision of NCC that says NCC will apply art 2011. It provides that the contract of insurance will be governed by special laws. special laws refers to insurance code of the phil and other special laws. And for matters not specifically provided in the special law, then the provision oc NCC shall apply/govern. So thats your legal basis in saying that NCC will apply subsidiarily. With respect to development of insurance laws in the Philippines, during Spanish times, what governed insurance transactions? Provisions of the code of commerce. After that, during American regime, we have the insurance act or act no. 247. After that, we still have the civil code. So even before, there were already provisions od civil code governing insurance. But I think as insurance progressed and evolved, the provisions of the civil code were not sufficient. So they enacted a specific law regulating insurance transaction. That is why PD 612 during the martial law came about. But there were several amendments made. And finally we have PD 1460 or the insurance code of 1978 which consolidated all the insurance law and that is the governing law of insurance transactions. Take now: our insurance code of 1997 was patterned after the civil code of California. And you have the rule in statutory construction that if the law is adopted from another country, interpretations and constructions made on that law shall be given weight.
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Insurance Kwin
Because you have a rule in statutory construction if theres a conflict between general laws and special laws, apply the special laws. Ex. A, a married man obtained a life insurance policy with himself as the insured. He designates B, his common law wife as his beneficiary. In civil code, common law relationship is that of living together without benefit of marriage but without legal impediment to be married. A died. Can B recover from the insurance policy? No. Art 738 in relation to Art 2012; both of them are guilty of adultery and concubinage. Designating B as a beneficiary is equivalent to giving a donation to B Since A is prohibited from giving a donation to B, he cannot make B beneficiary. So in this case, B cannot recover the insurance. What happened to the policy? Is the policy void? Only the designation of the policy is void. So the proceeds of the insurance policy will go the estate of the insured. But it would be a different story if A insured B and designated B as the beneficiary. Remember that for purposes of insurance law and donation, the law does not require conviction but mere preponderance of evidence.
Another provision of NCC that relates to insurance contract is the perfection of the contract. Ex. If Mr A files an application for insurance coverage w/ B company and its officers in manila. If A mailed to B in June 1 its application; B sent the letter of acceptance for insurance coverage in June 3. But on June 2, A died. The heirs of A sought to recover from B company. Can the heirs recover? NO. the contract of insurance was not perfected. Art 7319 of NCC obligcon perfection of the contract entered into through correspondence acceptance made through letter or correspondence shall bind the offerer from the time the acceptance came to his knowledge. Here, the contract was not perfected. Because the acceptance by B of As application never came to the knowledge of A. A died. Therefore the heirs of A cannot recover from B. You cannot find this in the insurance code bt you can find this in NCC.
Another provision of NCC relating to insurance is art 739 and art 2010. Art 739 talks about void donations. Example of void donations: Those donations made by persons guilty of adultery or concubinage, Those persons guilty of criminal offense in consideration thereof, Those given to public officer, ascendant or descendant by reason of public office. These are examples of void donations under art 739. The basis is art 2012 a person prohibited from receiving donation under art 739 cannot be named beneficiary from a life insurance policy of a person who cannot make a donation to him. Why? Is there a similarity on making a donation and designating someone as beneficiary? Yes. It is of similar nature because botha acts are acts of liberality.
Another provision is in art 2207. In essence, this talks about right of subrogation. The right of subrogation is the right to step into the shoes. In relation to insurance law, the insurer steps into the shoes of the insured, after paying the insured and acquires all the rights of the insured against the wrongdoer who has caused the damage. What is the reason for subrogation? To promote justice and equity in the sense that Without the right of subrogation, the wrongdoer would be free from liability. So to make the person who has caused the loss liable. Because without the right of subrogation, what would happen is that, if Im the insured, I would already receive compensation from the insurer. So the tendency is, I wont already go after the wrongdoer. But with the right of subrogation, the insurer can go after the third party and make him liable. So to prevent double recovery from the insurance company and from the wrongdoer.
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Insurance Kwin
When does the right of subrogation accrue? Must it be provided in the contract? Must the insured make the assignment of his claim to the insurer to go after the wrongdoer? No. It accrues the moment the insurer pays the insured. The law does not provide that it be stipulated in the contract or there be assignment of his claim. The moment he pays, it operates as an EQUITTABLE ASSIGNMENT. How much can XYZ exercising the right of compensation recover from B? XYZ can only recover 1.5m because as we said, the extent of the insurers right of subrogation is only to the extent of As right also. As right against B is only 1.5m. So XYZ can still go after B for 1.5m
Is the right applicable to both life and property insurance? As expressly provided in 2207, it states there that its the plaintiffs property. Whats the reason why its applicable only to property insurance and not to life insurance? Because you cannot say that you have been compensated enough. Property insurance is a contract of indemnity. A CONTRACT OF INDEMNITY means that you can only recover to the extent of the damage that you have suffered or to the extent of your insurable interest. But in life insurance as a general rule, its not a contract of indemnity. Because the value of life is unlimited. No amount of recovery can compensate you for loss of life. So you cannot say to the insurer not to recover from the wrongdoer because we have recovered enough. SUBROGATION DOES NOT EXIST IN LIFE INSURANCE.
Assuming the court adjudged B to be liable for 2.5m, how much can XYZ recover from B? XYZ, the extent of his right to subrogation is to the extent of As right against B, but in no case shall it exceed the amount that XYZ paid to A. So what about the .5m? who can recover? Only A.
2207 if the amount paid by the insured is not sufficient to recover the loss or injury, the insured has the right to claim the deficiencwy against or from the wrongdoer. So the right to recover the deficiency is on the insured. Not the insurer.
What about if between A and B, B already paid 2m, the value of the damage. Can XYZ still go after B? No. The right of subrogation is still applicable, but A no longer has rights against B, because he already received compensation. Whats the remedy of XYZ? Go after A. Ka diba, right of subrogation prevents double recovery. Since XYZ can no longer be subrogated of the rights of A against B. it has the right to recover whatever he has paid to A. So the rightof insurance company is only to the extent of the right of A. But in no case more than the amount he has paid. And if there is deficiency, the one who is entitiled to recover the deficiency is the insured.
To what extent can the insurer recover from the wrongdoer? Ex. Insurer insured the property of A. The value of the property is 2m. The value of the policy is also 2m. rd B, 3 party, burned the house of A. He is responsible for the loss. Under the policy XYZ has to pay A 2m, the value of the policy. In the case between A and B, B was adjudged to be liable for 1.5m. XYZ company, after paying A, he go after B? Yes. He stepped into the shoes of A, acquired all the rights of A.
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Insurance Kwin
Whats the effect if A, thru his own act or negligence releases B from liability? He signs a waiver or quitclaim. The insurance co paid A 2m. Can XYZ still go after B? Is the right of subrogation still available? No. A no longer has the right to which XYZ would be subrogated to. So what is the remedy of XYZ? So after A. Because if the insured through his own fault or act caused the loss of right of subrogation on the insurance company, he has the obligation to reimburse whatever amount he has received from the insurer. Take note that when the insurance company is subrogated to the right of the insured, it is as if siya ang insured. He takes the personality of the insured, not that of the insurance company. Ex. A co, insurer, insured the cargoes of B, shipper. B entered into a contract of carriage with C, the carrier. Between A co and B, we have a contract of insurance. Between B and C, we have a contract of carriage. A insured the goods of B. The goods were damaged thru the fault of C. A co after paying B is subrogated to the rights of B. As a subrogee, A co has the right to go after C. This time he acts as the insured. Therefore, A co as the insured now can raise defenses available against the carrier, as the shipper, not as the insurer. At the same time, the carrier cannot raise the defense na defective ang insurance contract, because he is not a party to the insurance contract. Ang ilang relationship is not between a carrier and insurer. Because in the first place, C is not a part of the insurance contract. And when A co stepped into the shoes of B, he stepped into the shoes of the insured, not as the insurer. SEC 2.
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. A contract of suretyship --shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.
But if the carrier has already piad the insured, the insurance co can refuse payment. He can say that since he has already received payment from the carrier, that is tantamount to losing my right to subrogation. But you cannot compel the insured to go after the carrier first. If C knew that insurer already paid, B should return back to A. If the designation of the beneficiary is invalid, that alone is void. But the policy remains valid. But it will be void if you took the insurance policy of the life of the common law wife and at the same time designated himself as the beneficiary.
Donations made between husband and wife during marriage is void. If I insured my own life and I designate my husband as beneficiary, is the designation valid? Does it come in the prohibition on void donation? No. Both have insurable interest. But because what is prohibited in the family code on donations between husband and wife are donation inter vivos, and designation as beneficiary is donation mortis causa.
The insurer cannot tell the insured to go after the wrongdoer. It is the right of the insured to go after the insurance company or the third person. So insurance company cannot wait for 3rd p to pay. The insured can immediately go after the insurer. In fact, thats the reason why he obtained the insurance.
What is contract of insurance? It is a contract whereby one party (insurer) undertakes for a consideration (premium) to indemnify the insured against loss, damage and indemnity arising from unknown contingency. This talks about indemnification which limits the definition to non life insurance or property insurance. Life insurance as we discussed earlier is not a contract of indemnity. Kwin Transcripts Page 4
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But anyway, thats the definition. Based on the definition, we have the elements of an insurance contract. The basic elements of an insurance contract as in any other contract consent, object, cause. Consent of the contracting parties. Object is to provide protection. Subject matter is the life in life insurance, property if property insurance and risk of loss if casualty insurance. What are the distinguishing elements of an insurance contract? 1. the insured must possess an INSURABLE INTEREST on the subject matter of the insurance. 2. the insurable interest must be SUBJECT TO RISK of loss, damage, or impairment arising from an UNKNOWN OR CONTINGENT EVENT. 3. there is ASSUMPTION OF RISK by the insurer 4. part of GENERAL SCHEME who are exposed to somewhat similar risk. 5. insured must make some RATABLE CONTRIBUTION to the general fund called PREMIUM. All must be present. If only the first three are present, then thats only a RISK SHIFTING DIVICE. You merely transfer the risk. Because the contract of insurance is a RISK DISTRIBUTING DEVICE (all 5 are present). Ex. A borrowed money from B. So A is the debtor. To protect B from the death or insolvency of A, B entered into a contract with C whereby C guarantees payment of Cs obligation to B. Is the contract between B and C a contract of insurance? NO. / 1. B has insurable interest:the loan / 2. Risk: insolvency or death / 3. Assumption of risk: insurance X 4. General Scheme: the contract was only bet B and C X 5. Rateble contribution: payment made only to C This is only a risk shifting device, not a risk distributing device. This is a contract of guaranty. In suretyship, the surety pays if the debtor does not pay; primarily liable. In guaranty, the guarantor pays if the debtor cannot pay; subsidiarily liable. In guaranty, there is benefit of exhaustion of assets. In suretyship, there is none. But as a rule, they are not a contract of insurance but merely a risk shifting device. But a contract of suretyship can become a contract of insurance. When does it become one? When it forms part of the general scheme. The last 2 requirements are present. It becomes an insurance contract if they are doing an insurance business, It is considered an insurance business if it is occasioned and not just incidental to the legitimate business. So again the contract of suretyship can become a contract of insurance if the surety is doing an insurance business. So again, in risk shifting device, only 3 elements are present. Risk distributing device, all 5 elements are present. So to determine whether its an insurance contract or not, look at the designation of the contract.
In this case, can B insure the life of A? Yes. For now, this is an exception to the rule that a contract of life insurance is not a contract of indemnity. Exception: if you insure the life of the debtor. -it becomes a contract of indemnity because you can only recover to the extent of you loan or insurable interest
CHARACTERISTICS OF INSURANCE CONTACTS: 1. Is a contract of insurance a consensual contract or a real contract? CONSENSUAL contract. Its because it is perfected the moment there is meeting of the minds. As opposed to real contracts, the perfection os upon the delivery of the thing. 2. As a rule, it is VOLUNTARY. EXPT: compulsory motor vehicle insurance 3. EXECUTED AS TO INSURED, EXECUTORY AS TO INSURER. The liability of the insurer arises only upon the happening of the contingent event. Thats why it is subject to regulation because it is an aleatory contract. The premium is already paid. Naghuat ra siya sa insurer to indemnify him which may or may not happen. In effect, that becomes a UNILATERAL CONTRACT
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Insurance Kwin
4. It is ALEARTORY because it id dependent upon the happening of a contingent event. But it is not a contract of chance compared to a wagering contract. Like when you ensure the loss if you did not win the lotto. Is that insurable? No. Just to begin, theres no insurable interest. Thats a wagering contract. Case: Del Rosario v Equitable Insurance He obtained a personal accident insurance from equitable The coverage was for 1k to 3k. There was a summary for specific amounts depending on the extent of the injury. The policy did mot include death arising from drowning, but later on, this was changed. (rider) But they failed to modify the table. It did not state how much he will receive. Later he died because of drowning The issue is in the amount. How much will he recover? 3k. Because in the contract, there is an ambiguity. It is not clear how much he can recover. Then it will be interpreted liberally in favor of the insured.
5. PERSONAL It is based on the character, conductor credit of the person insured He may not be willing to insure the same property owned by another person. Thats why if the property is insured and subsequently you sell it, its not automatic that the insurance is likewise transferred. In effect the policy is suspended.
Case: Feildmans Insurance v Vda de Sonco Insured, a man of scant education insured his private jeepney. They met an accident and somebody died. Insurer denied payment alleging that the coverage was for a common carrier insurance and the vehicle was a private jeepney. So the issue was WON the private jeepney of Sonco will be covered by the insurance policy. Applying the doctrine of estoppel, Sonco can recover. In doctrine of estoppel, through your acts, representation or omission, you have led someone to believe that a particular act exists and then later on denied or changed your stand. In this case, Sonco will qualify to recover the policy. In fact, he renewed the policy twice. So the insurance company is estopped from saying that they are not covered. In fact there was a statement by the agent, who cares about the government, sue the government.
Now lets go to INTERPRETATION OF INSURANCE CONTRACTS How is insurance contract interpreted? As in the rule of statutory contruction, if the provisions of the contract are clear, they should be given its plain, ordinary, popular meaning. Only when there is doubt that you apply the rule on statutory construction: CONSTRUE STRICTLY AGAINST INSURER AND LIBERALLY IN FAVOR OF INSURED Basis? Because the contract of insurance is a contract of adhesion. What is a CONTRACT OF ADHESION? Most if not all of the terms of the (insurance) contract are not a result of mutual negotiations of the parties. But if it is prescribed to the insured in its final printed form. The language was chosen carefully with deliberate care and with aid of legal experts acting for the sole interest of the insurer. The participation of the insured is either to adhere to or reject the stipulations. If you chose to adhere, you can no longer change. Thats why it is called contract of adhesion.
Case: Landichu v GSIS Landichu was an employee of the bureau of public works and highways. There was an agreement bet BPWH and GSIS because government employees are covered by GSIS. So in their policy, they stated that they authorize their collecting officer of the bureau to deduct the premiums from the policy. So there was authority to the collecting officer to make salary deductions. And if there are failure to deduct the premium, the policy remains. Instead the premiums will be considered Kwin Transcripts Page 6
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indebtedness to GSIS. There was a provision in the policy that it shall take effect on the first day of the month following the first payment of premium. Unfortunately for Landichu, the premiums were not paid because GSIS failed to advice the collecting officer of the bureau to deduct premiums. So when the heirs sought recovery from GSIS, GSIS said that the premiums were not paid. So the policy according to them did not take effect. This was not correct. In fact SC said the there were lapses on the part of GSIS on their failure top advice the collecting officer. Second, it was the contention of GSIS that Landichu should have known that the premiums were not deducted because he received salary in full. This will warn him that the policy did not take effect. But there is no reason to think that way. Because it is stipulated that even if the premiums were not deducted , the policy would not lapse. But instead, unpaid premiums would be considered as debts. And also, GSIS gave out premiums. So all the more reason why Landichu would not doubt his policy was effected. Therefore, landichu was entitles to insurance In fact, there was only temporary disability. Therefore, there was no loss of hand.
Theres another case that I didnt assign. It involves loss of legs. It was a coverage for an accidental insurance the coverage was for loss of legs. Loss of legs was defined as amputation of legs. The insured met an accident which resulted to a total permanent paralysis of both of his legs, but there was no amputation. The insurance company refused to pay saying that there was no amputation of legs. SC said there was no ambiguity. But the insured is still entitled to recover. Because total permanent paralysis of legs is equivalent to amputation of legs. If you would rule otherwise, you would force a desperate man to have his legs amputated to be covered by the policy.
Case: De la Cruz v Capitol Insurance The insurance policy was on accident insurance. During a boxing contest, he was hit at the back of the head, fell and died. Insurance company said that the death was not an accident because he entered purposely into the boxing contest. Applying the rules on statutory contract, the provision on the contract was clear as to what accident means. accident did not acquire technical meaning. So it shall be given its plain and ordinary meaning. Accident happens by chance, fortuitous, without sign, means unforeseen, unexpected, unusual, without intention or design. The court said, the death arising from the boxing was an accident. So that when you enter into a boxing contest, it is with risk, but its not your intention to die. There are risks but as for death, that is an accident.
Case: Ty v First National Security The coverage was for a partial disability resulting to loss of hand. Loss of hand here was defined by the policy to mean amputation from the wrist. What happened here was that he fractured only some fingers.
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July 2, 2010 SEC 3
Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, --may be insured against, subject to the provisions of this chapter. The consent of the husband --is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children. Any minor of the age of eighteen years or more, --may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister. The married woman or the minor herein allowed to take out an insurance policy --may exercise all the rights and privileges of an owner under a policy. All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor --shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.
Give an example of insurance against liability. Insuring car against damage. How will this create liability? What would you insure? This will become insurance against liability that may be created when you make adamage on another car or if you hit someone. You have to take note of the policy. If the policy states that the insurer will INDEMNIFY YOU for any loss you may suffer, like foe example, makabayad kay nakabangga kag sakyanan, or makabayad ka because you injured someone, its not necessarily an insurance against liability, if the insurer will indemnify you for the actual loss that you will suffer. But it becomes as insurance against liability if the insurer will pay the third person. Normally, in insurance against liability, the 3rd party can directly go after the insurance company. Because under the policy, the benefits or proceeds of the policy is payable to the 3rd p. So those two risks: 1. insurance against damage -anything that would create damage or cause damage to you, having insurable interest or 2. insurance against liability *remember that insurance company, exercising its right to subrogation does not go after the insured. It goes after the wrongdoer
What may be insured? Why do we obtain insurance policy? What for? Arising from contingent or unknown event, either past or future. Insurable risk are those risk s that would cause damage or loss to the person having insurable interest. If not causing damage to you, it would create a liability to other person. In short, insurable risks are: 1. insurance against damage 2. insurance against liability
And then you insure these risks from what kind of events? Any contingent events and unknown events. Contingent events are events that may or may not happen. Unknown events are events that could either be past or present. So past events can also be insured. But in order for past events to be insured, the law requires that the past event must be unknown to the parties. And aside form being unknown, theres a second requirement. The policy must expressly provide or expressly stipulate that it will cover a prior loss or it will cover the past event. Normally, it is expressed in the policy by words lost or not lost. Otherwise, if it is not provided in the policy, normally the insurance company will not cover prior loss.
Give an example of insurance against damage. Insurance against fire. What risk will there be? It will result to loss or damage.
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It has to be specified. Or the policy will include it as an excepted peril or not part of the coverage. So for a past event to be insured: 1. it must be unknown to the parties 2. it must be stipulated by the parties took out the insurance policy: to secure yourself against fortuitous event PAR 2 SEC 3
The consent of the husband --is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children.
Give an example of past, unknown event. You are the owner of a vessel that is currently going to China. The policy took effect today. But unknown to you, it already sunk in the pacific ocean. Can you go after the insurer? Yes. If the event was unknown and If the policy covers prior loss But past, unknown events are peculiar only to marine insurance. In fire insurance, the event must relate something in the future. And also in the property insurance, you cannot apply the past, unknown event. Because before the policy will take effect, normally they would take a look at the property whther it is insurable or it exists. So its not possible that theres a past unknown event. But even in marine insurance right now, in the modern means of communication, do you think this is still applicable? Well it depends if the insurer is willing to insure prior loss. Maybe years ago where its difficult to determine where you vessel is. But right now, its very easy to confirm whether the vessel still exists or not. Now we said that you insure your interest against a contingency. Contingency, you can relate this to a fortuitous event. Something which may or may not happen and is unforeseen. Can the insurer raise the defense that he will not be liable because the loss was due to a fortuitous event? Although we have the principle in obligations and contracts that no person should be liable for fortuitous events, there is still an exception. One exception is when the nature of the obligation requires assumption of risk. And in this case, the nature of the obligation requires assumption of risk. Its the reason, in the first place why you
So basically, you relate that in your family code. A married woman can obtain a policy insuring her own life, that of her children, her husband or even her separate paraphernal property without the consent of her husband. PAR 3
Any minor of the age of eighteen years or more, --may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister
This talks about a minor. But this is no longer a threat because the age of majority has already been reduced from 21 to 18. So minor here should refer to someone who is below 18 years old. In that paragraph, it provides an instance wherein an insurance policy was taken out by the minor is valid. When will it be valid? If the insurance is taken out on accident or health. And theres another requirement; not only will the insurance policy be on the life of the minor, but the designated beneficiary must be his estate, father, mother, spouse, children or siblings. Otherwise, if it is other type of insurance, it if not on life, accident or health; it is not on his own life or the designated beneficiary are not those enumerated in law, then the policy will be voidable. But who can raise the defense of minority or incapacity? Only the minor himself. Such that if the minor obtained an insurance policy and they suffered a loss, the insurer cannot, in denying the claim, raise the defense that the contract is voidable because the insured is minor. In NCC it says that only the minor can raise the defense of incapacity, those who are capable cannot raise the incapacity of those whom they contracted with. Remember that the contract is voidable. Valid until annulled. Kwin Transcripts Page 9
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The last paragraph
The married woman or the minor herein allowed to take out an insurance policy --may exercise all the rights and privileges of an owner under a policy. All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor --shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.
That is based on chance. And to start, you have no insurable interest which is exposed to a risk of loss. What about if you are into car racing, and you are composed of funding members. You make monthly contribution of 2k. and because of that, all of the funds will be given to someone who wins in the race. Is that insurance? No. its a wagering contract. But if the contribution will be used to someone who is used in the race. Is that an insurance contract? Yes. You have the five elements of an insurance contract. So under sec 4, insuring a wagering contract is prohibited. It is contrary to public policy. To begin with you have no insurable interest.
He insures the life of the minor and designates himself as the beneficiary. Ex. A, Father obtains a life insurance policy insuring the life of his son B. he designates himself as the beneficiary. Assuming A predeceased B. To whom will the proceeds of the policy go? B. The law states that it will automatically vest to the minor. But assuming A, father obtained a life insurance policy of his son, B, a minor, but designates C, his wife as the beneficiary. A predeceased B. To whom will the proceeds of the insurance policy go? To the wife, the designated beneficiary. unless the policy otherwise provides. The policy designates C as the beneficiary. Kadtong automatically vests to the minor kadto ning the owner of the policy himself is the designated beneficiary.
SEC 5
All kinds of insurance --are subject to the provisions of this chapter so far as the provisions can apply.
Sec 5 merely provides that the provision of this chapter This is referring to chapter 1 that pertains to sec 1 to 98. It applies to all kinds of insurance, life, marine, fire, suretyship, or casualty insurance. Sec 1 to 98, we will discuss that as we go along. It refers to insurable interest, principle of concealment, representation, premium, etc.
SEC 4
The preceding section --does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.
So obtaining an insurance policy on something which is based on chance like gambling or lottery or ticket in a lottery drawing a price is prohibited. Why? Whats the reason? Theres a distinction between gambling and insurance. Because insurance is a contract of indemnity. Whereas a gambling is based on chance. In gambling, there is no insurable interest, but you create risk. In insurance, you have an insurable interest and that insurable interest is exposed to risk. So when can you say that its a wagering contract or its a contract of chance or gambling? Lets say you are an operator of bingo. Can you insure yourself or business on the possible risk of loss if someone wins? Or if you bought lotto tickets worth 1k, can you obtain an insurance policy for the risk of loss? No. because that is not insurable.
Lets go now to the parties of the insurance contract. Who are the parties of an insurance contract? Insurer, insured and beneficiary. The beneficiary is the one designated to receive the proceeds of the insurance. SEC 6
Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, --may be an insurer.
Insurer. Who can be an insurer? They are those who are authorized to engage in insurance business. Our thinking before was that only corporations can engage into insurance business. But actually the law allows individuals and natural persons to engage into insurance business as long as they have CERTIFICATE OF AUTHORITY FROM THE INSURANCE COMMISSIONER. Kwin Transcripts Page 10
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They must be duly authorized. Why? Because insurance business is regulated. Why is it regulated? Because it is imbued with public interest. Because the nature of the contract of insurance is that it is aleatory and is a contract of adhesion. But normally right now, most insurance companies are juridical entities. Why? Because of the capitalization requirement. 35.42 SEC 8
Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance --is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, --will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, --may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.
SEC 7
Anyone except a public enemy --may be insured.
Insured. Who may be insured? Anyone who is not a public enemy. That anyone must be capacitated to enter inter into an contract must have insurable interest must not be a public enemy. Who is a public enemy? Public enemy is a nation who is at was with the Philippines, including the citizens and subjects of that nation. What about abusayaf? MILF? Gangs? Are they public enemy? No. they are not considered public enemy. Whats the effect in if you become a public enemy? Case: Filipinas cia de seguros v Christern Hueneferld and Co A german national obtained an insurance policy from a Philippine company. Theres a war against the Japanese and the gremans were allies with them. So germany and its citizens are considered public enemy. The building insured got burned. They will not be entitled to the insurance. The reason for that is because it in contrast with the principles of war where you want to cripple the resources of you enemy.
This talks about mortgage property. We have the mortgagor and the mortgagee. In this case, who may insure the property? Both mortgagor and mortgagee have insurable interest in the property. The mortgagor being the owner of the property, he may suffer a loss. The mortgagee also has an insurable interest on the property because it serves as security on his lien. If something happens to the property then his lien would be unsecured. So both of them have insurable interest. Both of them can obtain insurance policy, either with the same or different insurer. What is the extent of their insurable interest? As to the mortgagor, the value of the property. As to the mortgagee, the value of the debt. If the house is 1m, and the credit is 500k, If both of them insured the property, for how much can the mortgagor and mortgagee recover? Mortgagor can recover the value property, 1m, because that is the extent of is loss. Mortgagee can recover only 500k, because that is the extent of his insurable interest.
What if the fire happened after the war. Can you recover? No. even if the loss occurred after the war. The insured would no longer be entitled to recover still. Because the effect of the insured becoming a public enemy does not merely suspend the insurance policy, but it abrogates or terminates the policy.
SEC 8 talks about a situation where it is only the mortgagor who obtains the insurance policy. The mortgagor can either obtain the insurance policy for his own benefit and at the same time designate himself as the beneficiary, or obtain the insurance policy for his own interest but designates the mortgagee as the beneficiary. So in those cases, what are the effect?
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Let us first take the first situation where the mortgagor insured the mortgaged property for his own interest and designates himself also as the beneficiary. In that case, if the property is lost or damaged, who can recover from the insurance company? Only the mortgagor. Can the mortgagee recover? No. For how much will the mortgagor recover? 1m, the value of the property. Is the debt of the mortgagor to the mortgagee extinguished? No. The debt still subsists. Because in this case the policy is only for the interest of the mortgagor. Second situation. This time, the mortgagor obtained an insurance policy for his benefit or interest but he designates the mortgegaee as the beneficiary, In that case, if the property is lost, who is entitled to recover? This time it is the mortgagee who is entitled to recover. For how much can he recover from insurer? He can recover 1m being the designated beneficiary but he holds the excess of 500k in trust for the mortgagor. Is the debt extinguished? Yes.
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July 16, 2010 Last time we stopped at sec 8. To recap, sec 8 talks about a property that has been mortgaged. If there is a property mortgaged, there are two insurable interests. That of the mortgagor and that of the mortgagee. Sec 8 talks about an insurance secured by the mortgagor but the loss is made payable to the mortgagee. What is the effect? We say that the mortgagor still remains a party to the insurance contract. It is still considered as for his interest. That is why any act of the mortgagor prior to the loss which would avoid the policy will have the same effect on the part of the mortgagee, although the property is in the house of the mortgagee. In the same manner, any act which under the contract of insurance is to be performed by the mortgagor may be performed by the mortgagee. It will have the same effect as if it was performed by the mortgagor. does not mean that that is the amount the mortgagee is entitled to recover. Is the debt extinguished? No. Because after payment by the insured to the mortgagee, the insurer is subrogated. He can go after the mortgagor. For For how much? 1.5m
If the insurance was obtained by the mortgagor for his own interest but the loss is made payable to the mortgagee. Whos entitled to recover in the policy? Mortgagee. Because the loss is made payable to the mortgagee. For how much? 2m. But he keeps the .5M in trust for the mortgagor. Is the debt extinguished? Yes. Because this time, the policy was obtained by the mortgagor. Is there right of subrogation? Can the insurer after paying the policy go after the mortgagor? No. Because in this case, the debt is extinguished. The policy was obtained by the mortgagor himself. The loss was made payable to the mortgagee. He does not cease to be a party of the contract. What if the debt is already paid. Who is entitled to recover? Is the policy invalidated? The policy is not invalidated. The party entitled to recover is the mortgagor because he still has insurable interest.
Going back to our example: House: 2m Credit: 1.5m Policy: 2m The policy was obtained by the mortgagor alone with the benefit payable to himself. Who is entitled to recover the proceeds of the policy? Of course the mortgagor. For how much? 2m. Because that is the extent of his insurable interest. Is the debt extinguished? NO. because there was no payment. Is there a right of subrogation? Yes. But as far as the third party is concerned.
Going back to the previous example where the policy was obtained by the mortgagee for his own benefit, at the time of the loss, the debt was paid, can the mortgagee recover? Am I going too fast?
What if it is the mortgagee himself who obtained the policy for his own benefit? Who is entitled to recover? The mortgagee? For how much? 1.5m. Because that is the extent of his insurable interest. What happened to the excess of .5? Can the mortgagor claim the .5? No. because he is not a party to the insurance contract. the 2m only serves as the maximum limit of recovery. But it
There are three situations: 1. Mortgagor alone 2. Mortgagee alone 3. Mortgagor payable to mortgagee For second type, at the time it was burned, the debt was already paid, can the mortgagee still recover? No more. Because he has no more insurable interest. Can the mortgagor instead recover from insurer? No. Because he is not a party to the insurance contract.
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Third example Policy is obtained by the mortgagor but the loss is payable to the mortgagee. (sec 8) Who is entitled to recover? Mortgagee. For how much? 2m. But the .5m is held in trust for the mortgagor. What if at the time of the loss the debt was already paid, who can recover? The mortgagor. Because remember, he does not cease to be a party to the contract. For how much? 2m The debt is not paid. After the insurer pays the mortgagee, is the insurer subrogated? Can he go after the mortgagor? Is there right of subrogation? No. Because in this case, the debt is already extinguished. The policy was obtained by the mortgagor. You see the difference? If the policy is obtained but the mortgagee the debt is not extinguished because of the right of subrogation. In the third example, if the policy contains a stipulation prohibiting storing of flammable materials. The mortgagor stored gasoline or kerosene in the insured premises. The house was burned because of the flammable materials. Can the mortgagee recover? No. Sec 8. Mark:relating to palileo 12k 13k 1107 The policy was obtained by the mortgagee. 1k should have been refunded to the mortgagor. That would apply if the creditor His insurable interest is equivalent to So thats sec 8, last paragraph:
any act of his, prior to the loss, which would otherwise avoid the insurance, --will have the same effect, although the property is in the hands of the mortgagee,
SEC 9.
If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.
Sec 9 talks about the transfer of the policy from the mortgagor to the mortgagee wuth the consent of the insurer. When you go back to sec 8, the rule is that, although the policy is assigned or the loss is made payable to the motgagee, the mortgagor does not cease to be a party to the contract. But here comes sec 9. If in addition to the consenting to the transfer or assignment, the insurer imposes new condition or obligation, like additional payment of premium, what is the effect of the imposition of the new condition? Mortgagor ceases to be a party to the contract. The imposition of the mew condition has the effect of NOVATION OF CONTRACT. As if there is a contract created between the mortgagee and the insurer. Such that the act of the mortgagor could no longer affect the act of the mortgagee. So sec 8 is normally referred to LOSS PAYABLE MORTGAGE CLAUSE. the mortgagor is still a party to the insurance contract. Sec 9 is STANDARD UNION MORTGAGE CLAUSE the parties to the insurance contract is now the mortgagee and the insurer. Case: Giogonia v CA He obtained fire insurance policy with two separate insurers. In those policies, there is a condition that there is another insurance clause, that the insured must inform the insurer the presence of other insurance policy. What is the prohibition in the policy? It prohibits double insurance and coverage exceeding 200k. Here the property was mortgaged. It was insured by the mortgagor and at the same time it was insured by the mortgagee. So the issue now in this case is WON there is double insurance. When we say double insurance, you have insured the same risk, you have the same insurable interest and the same subject matter. In this case, we do not have the same insurable interest. Because as discussed before, the mortgagor and mortgagee have separate insurable interest. No double insurance.
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And there was also ambiguity in the policy. And if there is an ambiguity it will be construed in favor of the insured. The first policy was obtained by the mortgagor with the loss payable to the mortgagee. The other policy was mortgagee alone. Thats why there is no double insurance. If the other policy was mortgagor alone, then there would have been double insurance. Lets go to a more interesting topic, INSURABLE INTEREST. SEC10
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.
The last case Case: PNB v CA There was a property mortgaged to PNB by spouses. Spouses obtained a loan. As a security for the loan there was a mortgage with PNB. The property was insured by spouses but the loss is payable to PNB. So we have a case of number 3. The property was destroyed by fire. Did PNB recover from the insurer? PNB allowed 7 years to pass before it filed a claim from insurer. Was it able to recover from the insurer? No. as we will discuss later on, there is a perios in which you have to file your claim. 1 year lang na. Since it was not able to recover from the insurer, PNB went back to the spouses. The issue now is WON PNB can still go after the spouses? No more. Is the debt extinguished in this case? Yes. As a rule it is extinguished. As far as the spouses is concerned, their debt to PNB is already extinguished Its the fault of PNB why he let 7 years to pass before filing a claim. The effect of the policy obtained by the mortgagor with the loss payable to the mortgagee is that it will extinguish the debt.
Sec 10 talks about insurable interest. What is insurable interest? When can you say that you have an insurable interest? You have an insurable interest when you stand to gain some benefit or advantage from its preservation (if you preserve his life) and you stand to suffer a loss or a damage from its destruction. You have that relation or connection with that person or thing that you stand to benefit from its preservation or you stand to suffer a loss from its destruction. Although it mentions pecuniary, take note, in life insurance the benefit need not be pecuniary. The law requires that in all insurance policies, the person obtaining the policy or insuring the life must have insurable interest. Whats the reason for obtaining an insurable interest? For reasons of public policy. Without insurable interest, it gives temptation or inducement for a person who has nothing to lose and everything to gain; pray for the happening of the event that would make the insurer liable. Without insurable interest, it would amount to a wagering contract, a gambling contract. So deterrence on the part of the insured. If you have no insurable interest, you will have no interest on the preservation of the thing or person insured. You are more interested in its destruction And also insurable interest serves as a limit of recovery. Because as a general rule insurance contract is a contract of indemnity. You can only recover top the extent of insurable interest. so it prevents the insured from obtaining profit. So those are the reasons why the law requires insurable interest.
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Sec 10 talks about insurable interest in life and health. Who are those persons whom you have insurable interest? Himself Spouse Children To person he is dependent for support To person whom he has pecuniary interest To person who has an obligation whose death or illness might delay or prevent the performance of the legal obligation To person upon whose life any estate or interest vested in him depends. Lets discuss this one by one There are two kinds of insurable interest on life: Insurable interest on you own life Insurable interest on life of another On insurable interest on your life, theres no question about it. We all have insurable interest in our own lives. If the insurance or the owner of the policy insures his own life, The general rule is that he can designate anyone as the beneficiary. That beneficiary need not have insurable interest on the life of the insured. Why? Because, first the requirement of insurable interest is satisfied. Second, according to law, contrary to human experience, a person would bring about the death or harm to himself. The fact that he insured himself is already evidence of good faith. Although there are instances where it is the beneficiary who brings about the happening of the event, but the insurance code provides for sefeguards for that Now going back, if A the owner of the policy insured himself and designates B, a neighbor as his beneficiary, is the policy valid? Yes. Why? Because the requirement of insurable interest is already satisfied. So general rule if the owner of the policy is the one who is insured, or the subject of the insurance is his own life, anybody could be designated as a beneficiary. But there are instances where the law or court will consider the policy void even if the insured is the owner of the policy himself if there are circumstances like: the proposal to take out the policy was at the In that case, what is the requirement of the law? This time the law requires that the owner of the policy must have insurable interest on the life of the insured. Ex. A the owner of the policy insured the life of a friend B, and A is the beneficiary. Is this valid? No. Because the law requires that if you insure another person, the owner of the policy must have insurable interest. What if A insured B friend and this time designates C as the beneficiary, who is also a friend of B. Is this valid.? No. Because again, we go back to the requirement of insurable interest. A does not have insurable interest on the life of B. In this case if the person designated as the beneficiary is a third person, the law requires that A and C must have insurable interest on the life of B. OW the policy is not valid. 39.47 Who are those persons on whom you have insurable interest aside from yourself? We are talking about the life of another person You have sec 10, a to d Spouse Children Persons on whom you depend for support or education Persons on whom you have pecuniary interest Who are those persons whom you are dependent for education and support? Are they enumerated in insurance code? No. So we refer to the provisions of the family code. instance of the beneficiary. The premiums were paid by the beneficiary. The beneficiary has no insurable interest. In those cases, the court may consider the policy as a wagering contract. But as a general rule, this is valid.
The second type is insurance on the life of another The subject of insurance is another person. It could be for his own benefit or the benefit of another person.
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Who are those persons obliged to support each other? Spouses, descendants, ascendants, brothers and sisters whether full blood or half blood. (Find in FC) What about illegitimate brothers or sisters? Yes So please take note of these persons so that you will know WON you have insurable interest. Another example of existence of pecuniary benefit: A corporation insuring the life of its employee. But take note that the employee must be a key employee. Because if you are an ordinary rank and file employee, you can be replaced anytime. Letter C
(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
Examples: A grandfather insuring grandson: A brother insuring his half sister: A sister insuring her cousin: An uncle insuring his nephew:
has insurable interest has insurable interest no insurable interest no insurable interest Unless there is an expectation of pecuniary advantage
Ex. A creditor insuring the life of the debtor. C has insurable interest because D has the obligation to him. And the death or illness of D might prevent or delay the performance of the legal obligation. So C may insure the life of D, the debtor with C himself as the beneficiary. This is valid. But the extent of the insurable interest if the creditor is only up to the extent of the debt. This is an exception to the rule of life insurance policy that it is unlimited; where the insurable interest is limited to the amount of death. In this case, if it is C who insures the life of D, the life insurane policy becomes a contract of indemnity. As a rule, life insurance contract is not a contract of indemnity. But this is an exception. Assuming C insured the life of D to the extent of the debt of 500k with himself as the beneficiary. At the time of the happening of the peril the debt was already paid. Can C still recover? No because he has no more insurable interest. it is a contract of indemnity Can the Ds estate still recover? No. It is the debtor who insures his own life but the beneficiary is the creditor. Is this policy valid? Yes. Because D has insurable interest in his own life. If the debt at the time of his death is already paid, would there still be recovery of the policy? Yes. It does not affect the policy. The proceeds will go to the heirs or estate of D.
For ascendants, descendants and siblings, the insurable interest is based on blood relationship. But for lesser degree of kinship not among those enumerated in family code like uncles, aunts, nephews, nieces, in laws (except wife), for you to have insurable interest in these person, the bases of the relationship must be pecuniary. Either They have a legal obligation to you or Theres a contractual relation between the two of you Theres an expectation of pecuniary benefit. Example of expectation of pecuniary benefit: Boy friend insuring the life of his fianc? It depends if the GF provides the needs of her BF. Theres expectation of pecuniary benefit. Like in the book, Woman takes a child from the orphanage and takes care of her and provides her with basic needs. The woman who takes care of the girl has an insurable interest of the girl even though they are not related. Because during her old age, the girl would take care of her. In the same way the girl has pecuniary interest on the woman since the woman sends her to school. You must establish that there is the expectation of pesuniary benefit. Take note: In life insurance, mere expectation of pecuniary benefit is sufficient. Unlike in property insurance, mere expectation of pecuniary benefit is not sufficient if it is not founded on existing right.
If the debtor insures the life of the creditor and the creditor is the beneficiary. Is that policy valid? No. because D has no insurable interest on the life of C
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Going back, must the creditor have insurable interest on the life of D if D insures his own life? No. If the subject of the policy is the life of the insured himself, he can designate anybody as the beneficiary, even if the beneficiary has no insurable interest. But it does not invalidate the policy even if the debt is already paid The point there is that the payment of the debt does not invalidate the policy because the subject of the insurance is the life of D. C insured the life of D at the time the debt still subsists with E, a friend as the beneficiary? Can C change the beneficiary to E? Is that valid? No. For a life insurance policy taken out by another person, the both owner of the policy and the beneficiary must have insurable interest. Here, E does not have insurable interest. The only time when the beneficiary need not have insurable interest, is if the subject of the life insurance is the life of the owner of the policy himself. an insurance on your own life. **Statute of limitation refers to prescription. Written contract prescribes in 10 years. **the doctrine of waiver and estoppel is not applied. The fact that there is no insurable interest, the policy is void. You cannot raise against the insurer that he is estopped. There will still be return of premiums unless the insured is in pari delicto.
If the policy is silent and simply designates C as the beneficiary, but we know that the intention of D why he made C as a beneficiary was for the payment of the debt. But at the time off his death the debt was already paid. And in the policy there was mention made that the proceeds will go to C so long as the debt still subsists. So in this case, the proceeds will go to C. But if theres a mention in the policy that it shall be paid only to C so long as the debt subsists, and at the time of death, the debt is paid, then it should go to the estate of D. In that case, if Im D and debt was already paid, I should change the designation of the beneficiary. Because if you do not change it, it becomes a vested right at the time of the death of the insured. In fact at the time it becomes a vested right, it cannot be changed without his consent, absent any condition in the policy.
And the last on, letter d.

(d) Of any person upon whose life any estate or interest vested in him depends.
A gives right of usufruct to B subject to the requirement that B will enjoy the right as long as A survives. So in this case B has insurable interest in the life of A because B has an interest in insuring the life of A. OW if A dies, the usufructuary rights will also be extinguished.
What if at the time of death, the right to collect has already prescribed? Can C still recover? No. The basis for C in insuring Ds life is insurable interest, which is the payment of the debt. If it has prescribed, theres no more debt, then theres no more insurable interest. In short wala nay obligation si D kang C. Remember that this is a contract of indemnity. So the requirement of insurable interest at the time the policy exists and at the time of the death is important. You have insurable interest on the person under legal obligation.
Ex. In his last will and restatement A bequeathed/devised to B a property. Can B insure the life of A? (they are not related) No. B has no insurable interest on the life of A. It does not fall on the enumeration. The devisee or legatee does not depend on the life A. B would not be interested in the preservation of the life of A But since it is in the last will and testament, it will take effect only upon his death. Is the consent of the person necessary if you insure the life of another person? There are different views. Its necessary because obtaining consent is evidence of good faith. But if you look at sec 10, it does not mention that it needs the consent of the insured Because the law considers that so long as you have insurable interest, thats already evidence of good faith.
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Case el orient El Oriente is engaged in the manufacture of cigars. There was a policy obtained the company insuring the life of their manager. The beneficiary was El Oriente. Is the policy valid? Yes. There is insurable interest. What is the basis for insurable interest? The basis is on expectation of pecuniary benefit. He is a key employee, manager, and has been in 35 the company for 35 years. You can even say that the manager has a legal obligation whose death will delay or prevent the performance. The issue was WON the proceeds of the insurance is taxable. Is it taxable? No. There is no income. But it is to compensate/indemnify a loss SEC 11.
The insured --shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.
What if A insured the life of B and designates himself as beneficiary? So it boils now if there is insurable interest on the life of B. Here there is common law relationship. There is insurable interest pecuniary benefit.
What is the effect if the designation of beneficiary is revocable? (remember that presumption is:revocable) So if the designation of the beneficiary is revocable, the beneficiary does not acquire vested right, because it can be changed by the owner of the policy without his consent. But if it is irrevocable, then the effect is that, there will be a vested right. Since its a vested right can the designation be changed? No, without his consent. Can I add another beneficiary? No, without his consent. Can I stop paying the premiums? Yes. Not the beneficiary can continue because he already has vested rights. What is the effect if the beneficiary predeceased the insured? To whom will the proceeds of the policy go? It depends on the designation of the beneficiary. If revocable the proceeds if the policy will go to the estate of the insured. If irrevocable the proceeds of the policy will go to the estate of beneficiary. There is already a vested right.
Under the new provision, the designation of the beneficiary is presumed to be revocable. Under the old law, the designation is presumed to be the irrevocable. The beneficiary is the person entitled to receive the proceeds. Who could be a beneficiary? If the insured person is not the owner of the policy, then the beneficiary must have insurable interest on the life of the insured. But if it is the insured himself is the owner of the policy, the beneficiary can be anyone so long as that beneficiary is not disallowed by law. (provision on void donations: guilty of adultery, concubinage because theres a similarity between a cicl obligation and designating someone as a beneficiary. Theyre both acts of liberality)
What if there is no designation of beneficiary or the designated beneficiary is not qualified, where will the proceeds go? It will go to the estate of the insured, if he was not able to designate a new one.
What about persons living together without the benefit of marriage? A insures Himself and designates B as beneficiary. They live together as husband and wife without benefit of marriage. Is the policy valid? Is B disqualified from being a beneficiary? Yes. Since A insured his own life, the designation is valid. He can designate anybody as beneficiary. B is not disqualified because they are not guilty of adulterous relationship.
Ex. A is a married man.B is the woman he is co habiting. He insured his own life and designated B as the beneficiary. B is disqualified. But is the policy invalidated? No. Only the designation of the beneficiary is considered void. The proceeds will go to the estate of A.
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Case: insular life v ibrado Designation was revocable. The designated beneficiary was the common law wife although designated as wife. But she is actually not his legal wife. They are guilty of concubinage. He died. (hit by a branch of a tree) Woman is not entitled to the proceeds. SEC 12
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 which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.
But what if they are both single, can she recover? Yes. There is insurable interest. Case: southern Luzon Roman Conception has insurance policy and designated common law wife, Aquilina and their children. He had 3 families. All sought recovery of the policy. Who is entitled? The designated beneficiary? The legal wife? Or the other woman? The designated beneficiary. But take note that this case was decided under the old civil code when there was no provision yet on void donation. Under the new law, can Aquilina still recover? No. she is disqualified from becoming a beneficiary. What about the children of Acquilina? Not disqualified. They can recover.
So this is now the safeguard provided by law in cases where is you insure your own life, the beneficiary need not have insurable interest. So theres a tendency that he would wish something bad will happen to you. Who are these nearest relatives? So you refer to your rules in intestate succession. (look this up) The law mentions about willfully bringing about the death of the insured. What if the act on killing the insured is an act of self defense, will the beneficiary still be disqualified? What the law intended here when it said willfully, the act must amount to felony If the act is an act of self defense, then the beneficiary is still entitled. Sec10-12 Talks about insurable interest in life insurance policy.
Case: SSS v Davac There were 2 marriages. The designation of the second wife is not disqualified. Her guilt is not proven. The guilt need not be conviction but through preponderance of evidence. In this case, although she is not a legal wife because the fist marriage still subsists, the guilt is not proven. It was not established that she has knowledge of the existence of the first marriage.
SEC 19
An interest in property insured --must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured --must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
Case: maio The policy failed to designate the beneficiary. To whom will the proceeds go? To the estate of the deceased.
When must insurable interest on life exist? It needs to exist only at the time the policy takes effect. It need not exist thereafter. Why? Because the rule in life insurance is that it is not a contract of indemnity. Exception is if you insure the life of your debtor. Ex. If the husband insured the life of his wife. At the her death, their marriage was declared null and void. Can the husband still recover? Yes. The only requirement is that he has insurable interest at the time the policy takes effect. The guilt of the spouse will not affect the insurance policy. The basis may not be marriage but may be pecuniary benefit.
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July 23 2010 We are to start on insurable interest in property. SEC 13
Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, --is an insurable interest.
If the thing is destroyed, I may not have a liability to the seller but the fact that I am buying the goods, I am interested in the goods, especially if its specific. So what is the basis of the buyers insurable interest? The perfected contract of sale. Take note: unlike in life insurance, mere expectation of loss or mere expectation of benefit is not sufficient to constitute insurable interest. Example: you are the owner Bakak in front of law building. Most of its customers are USC law students. He expects to derive profit from them. You think that if you preserve the building, you will have continued profit. Can the owner of that restaurant insure the USC building? No. because although you might have expectation of benefit or loss, Its just a mere expectation. Its not founded on existing right or legal right.
When do you have insurable interest in property? Same as insurable interest in life, you have insurable interest in that property is you stand to benefit in its continued existence or you stand to suffer from its destruction or impairment from the happening of the event. If you look at the definition of insurable interest in property, ownership and possession is not a requirement for you to have insurable interest. The sources of insurable interest are 3: 1. you have insurable interest arising from the property itself 2. you have insurable interest because you have relation to the property or, 3 you have insurable interest because you have a connection to that property. So ownership is not the only basis of the interest. Example where ownership and possession of the goods is not required: You are the buyer of the goods and the goods are not yet delivered to you. In the contract of sale, you acquire ownership upon delivery. But the buyer already has insurable interest although ownership and possession has not yet been transferred. What is the basis of his insurable interest? is the buyers interest on the goods already existing or still inchoate? Doe s he have a relation that property that he will derive benefit from its preservation? Yes in fact its already an existing right on the basis of perfected contract of sale. If he has not yet paid the amount, do you think that the buyer has insurable interest? Yes. Because even there is no payment of amount, there is already a perfected contract of sale. If something happened to the property, can the seller compel the buyer to pay? Even the goods have been destroyed? What about perfected contract of sale, does he have rights na? Theres still insurable interest. There are rights because the moment the sale is perfected The obligations are reciprocally demandable.
SEC 14
An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.
EXITISNG INTEREST You have existing interest because you have a legal title. Example of insurable interest based legal title: The lessor has an insurable interest based on a legal and existing right or title. The mortgagor because he is the owner of the property. What about the lessee? Can he insure the property? Does he have insurable interest? Yes. Trustee and assignee. Can the administrator/executor insure the estate? Yes. But the proceeds of the policy will not go the executor or administrator. But to the estate. Still, he has existing interest. An example of insurable interest based on equitable title: you are the buyer. The goods have not yet been delivered to you. No ownership yet. But you have insurable interest. What about consignee of goods? Yes. Its the same as buyer or purchaser.
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What about builders or contractors? Yes. Provided they have not received payment EXPECTANCY COUPLED WITH EXISTING INTEREST OUT OF WHICH THE EXPECTANCY ARISES. Ex. The crops are my expectancy. What is my existing interest out of which my expectancy arises? What am I insuring? I insure the crops. That is my expectancy. But is my expectancy founded on an existing interst? Yes. What is the existing interest? I am the owner of the land. What if I am not the owner of the land? Even if the farmer is the owner of the land, there is still existing interest so long as the crops will belong to him. Another example: Construction worker has insurable interest on the building. Why? What is the expectancy on that? Maybe equitable title. Could be
INCHOATE INTEREST BASED ON AN EXISTING INTEREST What do you mean by inchoate? A stockholder has an interest on the property of the corporation ion which he is a stockholder. Why is the interest of the stockholder on the property of the partnership inchoate? Because the corporation owns the property of the corporation, not the stockholders. The stockholders have inchoate interest because upon the dissolution of the corporation, the corporation will distribute its assets and properties. The inchoate right is based on the existing interest. What is that existing interest? The existing interest is based on being the stockholder of the corporation or the ownership on the shares of stock of the corporation. A partner in the partnership has insurable interest also on the partnership assets. Same principle with the corporation. Because the partnership has a separate personality from the partners themselves.
An artist. Can I insure my work of art? Yes. But on the basis that I am the owner of the work, existing interest, not on expectancy. Another example: You are the owner of taxis. Can I insure future boundaries? Yes. But my expectancy is based on existing interest. What is my existing interest? Being the owner of the taxis. Or the businessman. Can he insure the future profits of his business. Thats valid because the expectancy is based n the existing interest. I own the business.
What of I am a depositor in a bank and I have a huge deposit. I expect that 5 months from now, I will earn interest from that bank. Can I insure the bank? Because if something happens to the bank, there goes my deposit. Even if there is no interest, can I insure my deposit? No. There is no existing right on the bank. But what about my deposit? Its just a mere expectation of loss not founded on the existing interest. yes I have a time deposit but it doesnt mean that I have an interest on the properties of the bank. So its not a valid basis of insurable interest.
A entered into a contract with B for the sale of crops not yet harvested in the farm. The sake is for 300k. payment is to be made upon harvest. A obtained an insurance policy from XYZ. On the other hand, B obtained an insurance policy on the same crops with ABC. Which policy is valid? Both. As insurable interest on the crops is based on an expectancy founded on an existing right (ownership of the crops). Bs insurable interest on the crops is based on an expectancy founded on an existing right (being the buyer). Or it may also be based on existing interest (perfected contract of sale). He already has equitable title.
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A, father owns several properties. B, only heir. Can B insure the properties (apartment units) of his father? No. He has inchoate interest but it is not founded on an existing right. As long as the father is alive, the property belongs to the father. During his lifetime, he could dispose of those properties. Or vise versa. If the son has properties, the father cannot insure the properties of the son. SEC 15.
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.
This is another basis of insurable interest The basis of sec 15 of the carriers insurable interest is on the liability to be created. Remember, under sec 13, you have an insurable interest if you have a relation or connection in respect thereto or a liability in respect thereof. You will have interest on that property of the loss or destruction of that property will result to your liability. So a carrier has an insurable interest on the goods in transit. A depository has insurable interest on the goods under his care or custody. Because when these goods are damaged, they can become liable to the shipper or dipositor. So when there is shipment, there are three types of insurable interest: on the shipper: he can obtain insurance he has insurable interest based on existing right or legal title. on the consignee: he can obtain insurance he has insurable interest based on equitable title. on the carrier: he can obtain insurance he has insurable interest based on liability that can be created. See? Same property, different insurable interest. In the depositary, we have the bailor and balilee (gibinlan): on the bailee: he can obtain insurance he has insurable interest based on liability that can be created. Can the warehouseman insure the goods in the warehouse? Yes. Because they may create liability. What about the laundry shop? Can you insure the 501 jeans? Yes. What about the car repair shop? Yes. But only to the extent of the liability. In no case shall it exceed the value. So the basis of insurable interest is LIABILITY.
Case: traders Archbishop was the lessor. The lessee entered into a sublease. Sublessee has insurable interest. He was already in legal possession of the property by virtue of the grant of legal possession. Insurable interest is based on: existing interest/equitable or legal title. He stands to suffer a loss if something happens to the property. Case: Filipino merchant The property subject to policy were consigned goods. The term of shipment was cross and freight collect, manila. The destination is manila. The consignee/buyer insured the goods. Issue: if the consignee has insurable interest? Contention of insurer: The consignee has no interest yet because under the shipping terms ownership is transferred only at point of destination. Held: Consignee has insurable interest because there is already perfected contract of sale. To have insurable interest, you need not have ownership or possession. The basis of insurable interest is equitable title. What is the nature of contract to sell? How is it different from contract of sale? Normally in contract to sell the perfection of sale is upon the payment of the price. Normally there is a conditional deed of sale. Is the insurable interest? Yes. The basis is equitable title.
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SEC 16
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 17
The measure of an insurable interest in property --is the extent to which the insured might be damnified by loss or injury thereof.
Again, we just reiterate the requirement in Sec 14 that for an expectancy or a contingency to be insurable, it must be founded on an existing right. And if it is an existing right, it must be based on a valid contract or perfected contract of sale to be insurable. But mere expectancy alone is not insurable. Ex. Son insuring the property of his father is not insurable. Because what he has is an expectancy or an inchoate right which or not founded on an existing interest. Or a husband insuring the property of the wife or vise versa. What about: D borrowed money from C for 100k. D has a property, car, worth 100k. Can the creditor insure the property of D? No. There is no insurable interest. No existing interest based on equitable or legal title. No inchoate interest based on existing interest No expectancy Not create liability But you mentioned: as long as the debtor is alive. Because here, C is an unsecured creditor. He has no right to the specific property of the debtor. Would it change of the debtor is dead? Yes. The credtor would now have insurable interest. If the debtor dies, what happens to the liability? Only personal liabilities are extinguished. The utang susbsists. The creditor can go after the estate; the car is part of the estate. But what if at the time of the debtors death, the debt is already paid? Can the creditor still insure the car? No more. He has no insurable interest. But what if the debtor is still alive and he has obtained a judgment against the debtor. In short he is a judgment creditor. Can he now insure the car? Yes. But he must prove that the debtor has no other property out of which to pay the debt.
Again, sec17 talks about the extent of insurable ointerest extent he will be indemnified. Because the property insurance is a contract of indemnity. You can only recover to the extent of your loss. Ex. A insure his house with XYZ. The value of the house is 500k. the policy is 600k. If the house is completely destroyed, for how much can A recover? Only 500k because that is the extent of his loss. What is the 600k? It is the maximum amount of recovery But later in our discussion, it depends on whether it is a valued policy or an open policy. Because if it is a valued policy, the value agreed by the insured and the insurer at the time the policy took effect is conclusive on the parties. So he can recover 600k. But for now, the extent of your recovery is limited to the extent of your loss and that is 500k. Assuming that the loss was ascertained by the adjuster? to amount to 50%. How much can he recover? Only 250k. If the third party who caused the loss paid A 80k, for how much can A recover from XYZ assuming that it was a 100% loss? 420k. You can recover only to the extent of the loss. He already received 80k. Remember right of subrogation. XYZ is subrogated the rights of A. XYZ can recover 420k id the wrongdoer was adjudged with 500k liability.
The example in your book is different. It talks about the contractor. A is a building contractor who entered into a contract with B. The contract is that he has to build a house worth 500k. B already paid A a down payment of 80k. can A insure his construction? Yes. He has insurable interest existing interest based on equitable title. To what extent is his insurable interest? 500k Why not 420k? Because that is on the cost of the contruction.
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SEC 18
No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.
When fire broke out, the lessor claimed the proceed of insurance policy on the basis of their lease contract. The issue is WON the lessor is entitled to the proceeds. No. Cha is entitled to the proceeds. Lessor cannot recover based on sec 18. Lessor has no insurable interest. Is the policy invalidated? No. because the lessor is the owner of the goods insured, has insurable interest. What if it was the building was insured? Either can recover depending on who is the beneficiary. They both have insurable interest. Basis: existing right and equitable title.
As discussed before, doctrine of estoppel or waiver is not applicable. The insurer cannot waive the requirement of insurable interest. Or you cannot raise the defense that the insurer is already estopped from raising the question of insurable interest. Because its contrary to public policy. Lets say A insured Bs house. B is his neighbor. A think that because of Bs house it will ensure the value of his property as well. Can A insure Bs house with himself as the insured? Is this policy valid? No. Because A has no insurable interest over the house of B. No existing right. Even there is expectancy of increase in value of property, it is not founded on existing right. Can A enforce the contract against the insurer? No. sec 18 says it is not enforceable except for those having insurable interest.
What if A insured his own house. But this time, he designates B, his friend as the beneficiary. If something happens to As house, can B go after the insurer? No. under sec 18, no contract of insurance shall be enforceable except foe the benefit of the person having insurable interest. If the law says enforceable, it talks about the policy owner and the beneficiary. To be able to enforce the policy, the beneficiary must have insurable interest. But in this case, since B has no insurable interest, what happens? Is the insurer free from liability? No. A intead can recover the policy. In short, the policy is not invalidated only the designation of B is invalidated. Why is the policy not void? Because A has insurable interest. It would be different if the power of the policy himself has no insurable interest. the policy itself will be void. In fact there was a case (unassigned): Cha vs CA Cha entered into a contract of lease. It provides that lessee must obtain the consent of the lessor if he insures the building. If ever he does not obtain the consent , the proceeds of the policy will automatically go to the lessor. The lessee insured the goods stored in the building, but he did not obtain the consent of the lessor.
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SEC 19
An interest in property insured --must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured --must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
Going back to property, it must exist at the time the policy takes effect to prevent it from becoming a wagering contract. And it must exist at the time of loss because it 8is a contract of indemnity. But it need not exist in the meantime. In between you need not have insurable interest. Illustration: A insured As house. 7-1-10 policy takes effect 7-5-10 sold B 7-20-10 destroyed by fire Who can recover from XYZ, insurer? No one. A cannot recover because A has no insurable interest at the time of loss. B cannot recover because B has no insurable interest at the time the policy took effect.
Time when insurable interest must exist. When must there be insurable interest? To distinguish property and life insurance: PROPERTY LIFE Exist -takes effect -takes effect -time of loss -need not be at time of loss -not on intervening p. Expt:creditor-debtor Extent: -value -unlimited EXpt:creditor-debtor
In property, insurance interest must exist at the time the policy takes effect. Why? Because then it will be similar to a wagering contract. You have nothing to lose. What about life insurance? Same. It must exist at the time policy takes effect.
And the property must exist at the time of loss. Why? Because the nature of property insurance is that it is a contract of indemnity. It will indemnify only if you will suffer a loss. What about life insurance? GR: No. because life is not a contract of indemnity. EXPT: If the creditor insures the life of the debtor. This time it becomes a contract of indemnity.
Illustration: A insured As house. 7-1-10 policy takes effect 7-5-10 sold B 7-17-10 acquired back property 7-20-10 destroyed by fire Who can recover from XYZ, insurer? A can recover because he has insurable interest at the time the policy took effect and at time of loss although he lost his insurable interest, the law does not require it to exist in the meantime. Illustration: A has a debt to C. A insured As house with XYZ. C insured As house with RST. 7-1-10 policy takes effect 7-10-10 creditor insured property 7-20-10 destroyed by fire On XYZ, who can recover? A
What is the extent of the insurable interest of the property? To the extent of its value or the extent it will suffer loss. In life? GR: Unlimited. EXPT: D-C relationship. The insurable interest is up to the extent of the debt
On RST, can C recover? No. C has no insurable interest at the time the policy took effect and at the time of loss.
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Illustration: A has a debt to C. A insured As house with XYZ. C insured As house with RST. 7-1-10 policy takes effect 7-10-10 creditor insured property 7-19-10 agreed in dation en pago 7-20-10 destroyed by fire Can C recover from RST? No. Because C does not have insurable interest at the time policy took effect. Although C has insurable interest at the time of loss because in dation en pago, ownership is transferred, still he cannot recover. What if the public sale there was a deficiency? As a rule in real estate mortgage, deficiency can be recovered. So if there is a deficiency, does it mean that he has insurable interest? No. Because the property is only to satisfy his credit and that is already sold as security of the debt. If there is deficiency, he can go after A.
Case: Tai Tong Chuache & co. v Insurance Commission He obtained a loan from Taitong. As security, they obtained a mortgage over land and building. Taitong insured the building. He has existing right because he is the mortgagee. At the time of the loss, he has the right to recover the deficiency, provided at the time of the loss, the debt is not yet paid or cancelled.
Illustration: A has mortgaged his house to C. A insured As house with XYZ. C insured As house with RST. 7-1-10 policy takes effect 7-10-10 creditor insured property 7-20-10 destroyed by fire Can C recover? Yes, because the mortgagee has insurable interest. At the time the policy takes effect, he is already a mortgagee at the time of loss.
SEC 20
Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance,
a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, --suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.
Illustration: A has mortgaged his house to C. A insured As house with XYZ. C insured As house with RST. 7-1-10 policy takes effect 7-10-10 creditor insured property 7-19-10 mortgage is foreclosed and sold to HB, D 7-20-10 destroyed by fire Can A still recover from XYZ? Yes. A has insurable interest at the time the policy takes effect since he is the owner. A has insurable interest at the time of loss. He has a right of redemption after the foreclosure, on the basis of legal title, existing right. Can C recover from RST? No. C has insurable interest at the time the policy took effect because he is the mortgagee. C has no insurable interest at the time of loss.
GR:
NO AUTOMATIC TRANSFER -if you transfer your property, its not automatic that the insurance policy will also follow. -the insurance is suspended. -when is that revived? 1. policy owner reacquires the property 2. policy is transferred or there is an assignment
Why is it that there is no automatic transfer? Because one of the nature/characteristic of an insurance policy is that it is PERSONAL CONTRACT. The insurer may be willing to insure the property if you are the owner. But he may not trust the transferee or the insurable risk might increase. For there to be transfer, there must be an assignment or there must be the consent of the insurer. If the policy is suspended and the loss happened during the period of suspension, what is the effect? Nobody will recover. Nether the original or subsequent owner of the property.
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It will only be revived if: 1. there is an assignment 2. the owner reacquires the property So if he did not reacquire back, A cannot recover. Why? (legal basis) 1. sec 20, property is transferred without corresponding transfer of policy 2. he has no insurable interest at the time of loss. But take not that what the law refers to here as transfer must be absolute transfer. Ex. sale. Such that if you mortgage the property, there is still insurable interest, because mortgage is not an absolute transfer. Neither if you have it rented. Ex. A insures his house and designates B as the one who will inherit the house. If A died on 7-10-10 and the fire broke out in 715-10. Who is entitled to the policy? B. so automatic, bisan walay assignment of policy. B inherits the property by virtue of a will or by succession, the interest over the property also transfers to B. But its different of B insured the house and A died. If there is a will, B is the devicee. B inherits the house and its proceeds. If there is no will and B does not inherit, B can no longer recover because B has no more insurable interest.
GR: EXPT:
If you transfer the property without transferring the policy, the policy is suspended. 1. Sec 20 life health or accident insurance Because IT needs to exist only at the time the policy takes effect. 2. Sec 21 loss has already occurred If the loss has already occurred even if you transfer the property, it will not suspend the policy. You can still recover. In fact after the loss, you can even assign your claim. Ex. A insured his house. Half of the house got destroyed. After the fire, A sold to B the remainder of the house. Is the policy suspended? Yes. Because although he transferred the interest the transfer was made after the loss. At the time of the loss, the liability of the insurer is already fixed. 3. sec thru will or succession There is a change in interest but it is made thru will, estate or succession upon death of the owner of the policy. The policy will go to the heirs of to whoever acquires the interest in the property. Here, there is a transfer but the transfer is thru will or succession. So automatic sad na ang interest in the insurance policy, mutransfer sad whoever inherits the property.
4. sec Separately insurable Take note that for the policy not to be suspended, you must determine whether the policy is divisible or not. How do you determine? In the language used by the parties. In this exception, we talk about several things which are separately insured but are in one policy. Thats why we have to determine whether the policy is divisible or not. How do we determine if it is divisible? If they are separately valued. Ex. A has the following properties: car, house, motorcycle, boat. A obtained an insurance policy and paid the premium of 200k. A day after the policy took effect, he sold the car to B. three days after, the car got lost. Can A recover from XYZ? No. Can B recover from XYZ? No. Reason: GR the transfer of property suspends the policy Here, the policy is indivisible. Ex. But if the policy says: the car is valued at 100k, house 500k, motorcycle 200k, boat 300k. He paid 1 premium for one policy of 200k. He sold the car for 100k to B. Car got destroyed. Kwin Transcripts Page 28
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Who is entitled to recover? Can A recover? July 30, 2010 Before when we discussed about the characteristics of an insurance contract, one of its characteristics is that it is aleatory the obligation of the insurer shall arise only upon the happening of the contingency. Because of this nature of insurance contracts, there are so many variables unknown, specially on the part of the insurer. Thats why the insurer developed certain devices to help the insurer in obtaining information from the insured, particularly information concerning the subject matter of the insurance and the circumstances surrounding the risk, in order for the insured to make the decision on WON he would accept the risk, or if he will accept it, to what extent and what premium he is going to charge.
No. has no insurable interest at the time of the loss. Can A recover on the house? Yes because he has insurable interest at the time the policy takes effect and at the time of loss. Because these properties are lost. On the car, he cannot recover because he no longer has insurable interest. But for the rest of the properties, the transfer of the car will not suspend the policy.
Devices: Concealment Representation Warranties Conditions Exceptions Tonight were going to discuss the device called concealment. Concealment and representation are devices used by the insurer to obtain necessary information before he will make the decision WON he is going to accept the risk. What is concealment? When is there concealment? ART 26
A neglect to communicate that which a party knows and ought to communicate, is called a concealment.
This may be made by either party. There must be: 1. knowledge of the fact and 2. duty to disclose So we have the elements of concealment (sec 26 and 28) 1. knowledge of the fact 2. duty to disclose 3. other party has no means of ascertaining the information concealed 4.party concealing makes no warranty 5. material information to the contract of insurance
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KNOWLEDGE When must the party have knowledge of the fact concealed to be guilty of the concealment? TIME OF KNOWLEDGE: At the time the policy takes effect If the insured has knowledge at the time of the application of the policy and he concealed that, then there is concealment. It will also apply if even if at time of the application he has no knowledge yet, but subsequently he acquires information after the application but before the effectivity of the policy. There is still concealment because at the time of the effectivity he already has knowledge. There is no more concealment. Because the knowledge was acquired after the effectivity of the policy. Why is the time of knowledge important? The assessment comes in before the effectivity of the policy. Here the information happened after. Even if he did not disclose, that information would no longer affect the policy. He has already issued the policy. Subsequent events would no longer influence the insurer in making the decision on WON he will accept the risk.
But take note on the after. As a rule, if the knowledge was acquired after the effectivity, even oif he disclosed it there is no concealment; Except in sec 47: if after the effectivity of the policy, it is possible that the insured could make amendments in the policy or some modification (ex. increase coverage), the insured is bound to disclose to insurer information subsequently acquired. Illustration: July 10 -issue policy Between -obtained significant information material to the insurance contract Aug 10 -applied for amendment modification of the insurance policy In this case the insured must disclose the information to the insurer. If he failed to disclose that, then there is concealment. This time that information is significant. It could now have an influence on the insurer in deciding WON we agree on the modification or on the amendment. But of there is no modification or amendment, there is no need to disclose.
Illustration: Application: Jul 10 Diagnosed: Jul 30 Approved/effectivity: Aug 1 A applied for insurance policy in July 10, 2010. Application was forwarded to head office for approval. July 30, 2010. He was confined to hospital and was diagnosed with hypertension. And it was the approval on Aug 1, 2010. But after the application before the effectivity of the policy, A was confined in the hospital because he was having chest pains and he was diagnosed with hypertension. On August 1, the policy was issued. A week after the insured died because of hypertension. Can he recover the policy? No. There is already concealment. Although at the time, he has no knowledge, but after application but before the effectivity of the policy he was already confined in the hospital. So he already has knowledge of the heart condition. Here to have concealment, you must have knowledge at the time of the effectivity of the policy. In this case, at the time of the effectivity of the policy, the insured already had knowledge if the material fact. The insured should have disclosed that fact to the insurer.
SEC 27
A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. (As amended by Batasang Pambansa Blg. 874)
Illustration: Application: Jul 10 Approved/effectivity: Aug 10 Diagnosed: Aug 15 What if instead he was confine in hospital in Aug 15, and one week later he died, the policy was issued in Aug 10. Can he recover? Yes
What if the reason why I failed to disclose was that I forgot or I made a mistake, is that a valid defense? No. That would render the contract voidable. What makes the contract voidable? There is vitiation of consent
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Under the new provision, there is concealment WON there is failure to disclose is intentional or unintentional. (b4 intentional lang) Why? Under sec 27 theres no need to prove presence of fraud. Intent is a state of mind. Its difficult to prove. The fact that you concealed it, so long as the other elements are present, then it entitles the other party to rescind the contract. There test to know if there is concealment is : There must be vitiation of consent When is there vitiation of consent? If he was misled or deceived into entering into a contract. or if he would have entered into the contract, the premium paid is not correct. Could there be concealment on the part of the insurer? Yes. When can there be concealment on the part of the insurer? Ex. Extent of benefit to be received. Extent of coverage. What can the insured do? Rescind the contract. Effect: return what you have received. Case: great pacific Life insurance. There is insurable interest. When we apply there is an application form. Q: have you ever consulted the physician for any physical impairment? A: Yes Q:To the best of your knowledge, are you in good health? A:yes The insurer granted the policy. Verbalife denied the payment of the premiums. Denied because there was concealment. Was there concealment? No. What was the cause of death? Hemorrhage secondary to hypertension. Lets go back to the elements of concealment. There should be knowledge of the fact. Is there knowledge here? Was the allegation considered conclusive? No. There was no autopsy conducted. It was not established the insured had knowledge of hypertension or any disease. Its not necessary the fact that he concealed hypertension. The fact that you concealed need not be the cause of your death. There is no need of connection between the fact concealed and the cause of the death. Since there is no knowledge there is no concealment. An information is considered material if it is a subject to a special inquiry, that is presumed to be material. Concealment presupposes knowledge of the fact concealed and whoever alleges the existence of concealment must prove that the person concealing has knowledge. Once you establish knowledge, you need not prove that the concealment is intentional or not. 41.39 There is another case, in your book where father obtained a policy for mongoloid child. It was a non medical insurance. If non medical, there is a waiver of medical examinations. Therefore it renders more important the information supplied by the insured. In this case, the father did not disclose in the application for, that the child was mongoloid. Is there concealment? Yes. Is that information material? Yes. What if the child is authestic? Is the information material? Yes.
Case: Musngi v resco At the time he applied for the policy, the insured himself knew that he was already suffering pulmonary tuberculosis. He was confined in the hospital and consulted a doctor who treated him for that ailment. Concealment is very clear.
Case: Sunlife v CA POLICY: Double indemnity in case of accidental death. Cause of death is plane crash. Father demanded for proceeds. Sunlife rejected the claim because the insured did not disclose material fact, rendering the contract voidable. There was concealment because in the application form he was asked if he consulted the doctor. He said yes. What he disclosed was only the confinement for the cough and flu but not the confinement in the lung center due to renal failure.
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Here he died of plane. The contention of the insured was that the fact concealed has nothing to do with the cause of death. Is that a defense? No. Its not necessary that the fact that you concealed is the cause of the death. The connection is not needed. The fact that you have knowledge and you have the duty to disclose and you make no warranty on the material fact, is already concealment. Lets discuss materiality When is a fact considered material? Its not based on the event but more on the probable and reasonable influence on the insurer in deciding whether or not he will accept the risk, if he will accept it, what rate of premium or what extent. So again, its material: if it increases the risk if knowledge of that, the insurer will decide not to accept the risk if knowledge of that, the insurer will increase the premium Matters subject of inquiry are presumed to be material. (kanang maga pangutana nimo) -ex. life insurance: Removal of cist Cancer Diabetes Hypertension Dengue In to extreme sports Cement fatory worker Property insurance: Other insurance is obtained In non medical information, normally when there is a waiver of medical examination, it makes it more material the information that you supply. Test of materiality is not based on the event but on the probable and reasonable influence on the insurer. Case: Vda de canilang Prior to application for the insurance, he was already treated and diagnosed with acute bronchitis. Having disclosed this fact, the insurer would not have issued a non medical insurance or the insurer would have made further inquiries, or if it decided to accept that risk, it would charged higher premium. So those fact that he concealed was material. Case: arjente There were questions: Q: have you ever consulted a physician? A: no Q:have you ever consulted for any ailment or disease? A:yes Q:nature of ailment? A:scabis Q:have you ever consulted a physician for brain and nervous system? A:no
The obligation to disclose that fact is on the insured and not for the insurer to rescind the contract every time he knows that you have knowledge. It doesnt mean that at the start they will make the inquiry. They have the right to rely on the information. We will discuss later on when there is waiver of information. Because there are cases wherein there is concealment because the insurer himself waived further information. But if there is no waiver like what you answered there is complete on its face, there is no obligation on the part of the insurer to make further verification. And if he issued the policy without further inquiry, it is not considered as waiver. You cannot say that you did not disclose because you are shy to tell the information. There is this case where the insured is Chinese and he does not know English. Later on the insurer refused to pay on the ground of concealment. The contention of the insured was that he did not know because he did not understand. But the ruling of the court is that he who wishes to enforce the contract has the burden of proving that the contract was not explained to him. Thats why it is called the contract of adhesion because some of the terminologies are so technical. Sec 28
Each party to a contract of insurance must communicated to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.
Because of insurance is a contract of utmost good faith. So you must disclose all the significant information So under sec 28 there is a duty to disclose facts which are Within your knowledge, Material to the contract The other party has no means of ascertaining For which you make no warranty
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Wife was asked: Q:do you use beer, wine spirits? A:beer in small quantity Q:have you ever consulted a physician for brain and nervous system? A:no Q:are you in good health? A:yes But the truth is, she has been hospitalized with alcoholism, manic depressive and psychoneurosis. There was concealment If you conceal that and the act of concealing is intentional or fraudulent, then it entitles the party to rescind the contract. Ex of warranty: Implied warranty of the vessel that it is sea worthy. Meaning: It is in good condition It is manned by a competent crew It is equipped with navigational equipment So you do not need to disclose that you have complied with those mentioned above because it is covered by the warranty. If there is a fact that a week prior to your insurance, ang imong vessel kay nasanghyad or nabuslot and hull or theres a defect in your engine, or the crew is not complete; that fact , you must disclose that, because that fact will tend to prove the falsity of your implied warranty that the vessel is sea worthy. If you did not disclose that fact, you violate your warranty. It is not concealment but breach of warranty. The effect is the same. It entitles the party to rescind the contract. But this time, it must be proven na ang uimong pagconceal is fraudulent or intentional.
Case: saturnino Operated for cancer not make the disclosure. There was a contention of the wife that she did not know that the operation was about cancer. But the court said that the fact that you did not conceal the operation itself is already concealment. That it a material fact. You should have disclosed that. So there is concealment whether intentional or unintentional.
If you were operated on as a kid and you have forgotten about the operation and you did not disclose it, can that still be considered as knowledge? Yes. Because knowledge does not refer only to those which you know. But in a case it is referred to things that you know and ought to know. Because its easy to say you forgot about it.
SEC 30-35 These sections talks about information where there is no duty to disclose. Even if you have knowledge of this information you have no need to disclose. SEC 30
SEC 29
An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
GR: whether intentional or intentional, concealment entitles the injured to rescind the contract But ere we have sec 29 wherein the concealment must be intentional or fraudulent. But here the concealment must relate to the fact on which you make a warranty. Diba the rule is that you need not disclose of a fact wherein you make a warranty. Diba in elements of concealment, you make no warranty. If you make a warranty, di nata kinahanglan mudisclose. But if that fact would tent to prove the falsity of the warranty, then the law requires that you must make a disclosure.
Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: (a) Those which the other knows; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; (c) Those of which the other waives communication; (d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and (e) Those which relate to a risk excepted from the policy and which are not otherwise material.
THOSE WHICH THE OTHER KNOWS Even if you did not disclose that, and the other party knows about that already then there is no concealment. Its not limited only the facts personally known to the insurer but also the facts known by the agent. Because the relationship of the principal and the agency; the agent is an extension of the personality of the principal. So if the agent has knowledge, then the principal also has knowledge. If there is a conspiracy between the agent and the insured; in which case it will not bind the insurer.
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Ex. You applied for property insurance. When you submitted for the application, the insurer sent an agent. The agent went to your place and surveyed your house, and the neighboring area. In that case, the insurer cannot say that the insurer cannot say that he concealed the fact that the material of the neighbors house is made of wood/light material. Because it is presumed that the knowledge of the agent is the knowledge of the insurer. There is no concealment because the other party knows of it already. Ex. If in the application form there are questions. If the insured did not answer the question or if it was incompletely answered, and the insurer, without making further inquiry issued the policy, then there is implied waiver. He waived the right to further information on those questions which are incompletely answered or on those questions which are unanswered. But if the question were answered and the answer was apparently complete on its face, and the insurer without further inquiry issues the policy, then there is an implied waiver. Ex. If in the application form theres the question: Q: Is the policy encumbered, if yes, for what amount. A: Yes mortgaged to Mr A for 500k The insurer without making further inquiry issued the policy. But the truth is, there is a second mortgage. Is there implied waiver such that the insurer could no longer raise the defense of concealment? No. Because the answer is apparently complete on its face. But if the answer is yes lang and I issued the policy without further inquiry. Is that an implied waiver? Yes. Because I issued a policy without further inquiries. The answer is not complete. Ex. Q:have you been confined in the hospital; and for what ailment? A: yes at CDU on june 30, 2010 for dengue The insurer without making further inquiry issued the policy. But the truth is A has been confined in Chong Hua and Perpetual. Is there implied waiver? No. Because the answer is complete upon its face. When is there implied waiver? When there is a neglect to make further inquiries on facts which are distinctly implied from other facts on which the other information is communicated. If the question is unanswered or if the answer is incomplete, and you issued without making further inquiry, there is implied waiver. But if the answered is apparently complete and you issued a policy, there is no implied waiver.
IN EXERCISE OF ORDINARY CARE SHOULD KNOW Relate that to sec 32 SEC 32

Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade.
This refers to information of public knowledge. Ex. Peace and order situation He insured his oil tanker in Iraq. The insurer cannot say that the injured did not say that he did not disclose that thee was an oil tanker in Iraq. Is there concealment? No. Because this is a matter of public knowledge.
WAIVER OF COMMUNICATION SEC 33

The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.
Waiver could either be express or implied. Express waiver when it is expressly stipulated in the contract or by the express terms of the contract. No problem with express waiver. When can we say that there is an implied waiver on the insured? When there is a neglect to make further inquiry on facts distinctly implied on the other facts already communicated. So if you issue a policy without making further inquiry, there is implied waiver.
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Here, the question is Q: have you ever admitted yourself top a hospital? A: yes. CDU june 30 - dengue. In this case there is no implied waiver. Because the answer is apparently complete. So the insurer has the right to imply that you are comfined only in CDU and not in other hospital. But if the answer is just yes and I issued the policy, is there an implied waiver? Yes. Because if you are a prudent insurer, you should have asked, what hospital, for what ailment. Can I raise later on the defense of concealment? No. SEC34
Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section fifty-one.
Take note under a, b, c, d, e, there is no duty to disclose Except in answer to inquiry. It now becomes material In sec 24, there is no duty to disclose your insurable interest. When do you need to disclose the insurable interest? 1. If there is an inquiry 2. You are not absolute owner Ex. Mortgagee/Lessee SEC 35
Case: Operated for myoma, ulcer of the stomach and the tumor taken was the size of a hens egg. But the truth is he was operated on peptic ulcer an not mere tumor. Later he died of cancer. Insurer issued a policy without making further inquiry. The issue here was that WON the insured was guilty of concealment. SC said that there is no concealment because the insurer when he issued the policy, there was an implied waiver of further information.
Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.
PROVE EXISTENCE OF RISK Ex. Fire insurance policy. The policy excludes the risk arising from rebellion, sedition, coup detat, riot where the property is situated. You did not disclose the facts that there are rebels. Is there concealment? Because accepted man siya sa warranty and not otherwise material. Those are the accepted risks.
These are questions answerable by your judgment or opinion. Ex. -How long will do you think you will live? If you answer this and it turns out that you are not correct, there is no misrepresentation or concealment. -Do you think you are a good driver? If you say yes, and then you met an accident, it will not matter. But it will matter if you said yes and you do not know how to drive. In this case there is already misrepresentation.
What if the policy excludes death arising from suicide whether committed while sane or insane. I did not disclose the fact that I have suicidal tendency. Is there concealment? No. If the policy states that storage from flammable materials are excluded and I store in my building gasoline and I did not disclose that. Is that concealment? That knowledge will not matter to the insurer? It is excluded from the policy but is that material? It is material. And gi exclude lang is fire from kerosene but it would somehow increase the risk/hazard.
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Aug 13, 2010 REPRESENTATION This is the device developer by the insurer forpurpose of obtaining necessary information on the risk its going to assume. So what is representation? These are factual statements made by the insured to the insurer. And these information concerns about the risk that is to be assumed by the insurer. And what is the purpose of these statements? Why do you give the statements to the insurer? Because you want to induce or convince the insurer to accept the risk. Just like marketing agents or salesmen when they want to sell a product, they make representations about the product or the service. But in insurance, it is the insured who is giving information for the purpose of inducing the insured to assume the risk. So in short these are collateral inducements for the insurer to decide whether to accept the contract or not. And since these are collateral inducements, these normally precede the execution of the contract. these are given before the effectivity of the contract. In what form must representation be given? Theres no form prescribed by law. So representation can be made orally or in writing. Orally like in questions made by the agent. Or in writing like your answers in the application form. But take note, it must not be incorporated in the policy. OW it now becomes a Condition Warranty or Executory term of a contract. When are they given? Before are given before at the time if the effectivity of the policy. So same as concealment. Concealment pertains to knowledge acquired prior to the effectivity of contracts. Such that information acquired after the effectivity of the contract would no longer affect the policy. Because it would no longer influence the insurer. Same with representation. GR: EXPT: Since they are collateral inducements, this must be given at the time or prior to the effectivity. sec 47 (to be discussed later)
How are representation construed/ interpreted? Same rule as in statutory construction. If the language is clear, then it should be given its plain and ordinary meaning. If it is ambiguous, the ambiguity should be resolved in favor of the insured and strictly against the insurer. But with respect to representations, they are construed liberally in favor of the insured in the sense that representations are required only to be SUBSTANTIALLY OR MATERIALLY TRUE. It need not be literally true, unlike warranties. If it is true in a material aspect, then there is no misrepresentation. Ex. Question as to illness Q: Have you suffered any illness? Confined in the hospital for any illness or sickness? A: No. But the truth is, a week prior to that you have a cold/fever/soar eyes/diarrhea. Is there now misrepresentation? No because the answer is substantially true. Illness must refer to serious illness. Why? The purpose of the representation is to induce the insurer.
Ex. Question as to the use of spirits Q: Do you drink beer/wine/liquor? A: No. But the truth is you drink at parties or after exams. Is there misrepresentation now? No because the answer is substantially true. Question as to use of liquor is understood to mean habitual or excessive use. Ex. What about when you apply for insurance coverage in motor vehicles? You represented that the color of the motor vehicle is white But it turned out that the color is black. Is there misrepresentation? No. There is no misrepresentation so long as the major description of the vehicle like chasis number, engine number, plate number, model it exact.
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Ex. What if you misrepresented the model, is there misrepresentation? Yes. Because your model is a material fact. It would change the decision of the insurer. It may no longer be insurable if daan na kkaayo ang sakyanan. So the law requires only to be substantially true. With respect to promissory representation, what is required by law? What is promissory representation? Something to be performed/to be done after the contract took effect. It requires too be substantially complied. Di kinahanglan word for word. Case: In his application form, he promised that he will provide a sufficient fire protection measure, like 10 fire extinguishers, 5 fire hydrants But it turns out that he only installed 5 fire extinguishers, 3 fire hydrants. So there is now an issue as to whether there is misrepresentation. Is there misrepresentation? No because promissory representation needs only be substantially complied with. You promised to put a a sufficient fire protection measure. Then it has been substantially complied with. So again it requires only to be substantially or materially true. KINDS OF REPRESENTATION 1. AFFIRMATIVE REPRESENTATION You affirm or allege as to the existence or non existence of a fact existing at the time the contract begins. Ex. so at the time I made my application, I affirm that this building has working fire alarm system. What if at the time of the loss, the fire alarm system is no longer working? Is there misrepresentation? No Because in the affirmative representation, you only affirm as to the existence of a fact at the time the contract begins. It will not affected by the subsequent change of the representation. It is not a continuing guaranty that the fire alarm system will be working so long as the time the contract begins, the subsequent change will not affect you representation. Ex. this house is used for residential purposes There is a subsequent change of the use of the house At the time of the loss, residential na siya. You will not be liable for misrepresentation. But of course there are some policies that provide that if there is some change in use, the insurer will be liable But my point is, as to the representation that you made, you will not be liable as a misrepresentation. So long as its true at the time the contract begins then thats a valid representation. 2. PROMISSORY It it made before the application but the performance is to be done after. -kinds: 1. oral/parol promise 2. incorporated promise Ex. I will install fire sprinklers in all floors of the building Because it is to be done after the execution of the contract. If the promise is incorporated in the policy, it could be a warranty, condition or part of the term of the contract. What if the promised is not fulfilled? Then the insurer is not liable. Because its a breach of warranty. Its a non fulfillment of a condition. But what If oral lang gimade? It was not incorporated in the policy. Whats the rule? So the insurer cannot use the oral promise to prove that there is a breach of contract. Because that will violate the PAROLE EVIDENCE RULE. That rule forbids the admission of oral testimony to alter the terms of a written contract. So in the written contract, it was not incorppoarted But the insurer can use the defense that he made that promise in bad faith. Meaning he made the promise with no intention to fulfill that promise. Maybe he just made it fraudulently to obtain a lower rate of premium.
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Like the example given in the book: you promised that the house will be occupied. The promise was not incorporated in the policy. The house was not occupied at the time of the loss. Would the insurer be liable? Can the insurer raise the defense of misrepresentation? What kind of representation is that? That is a promissory representation. And that promise was not made part of the policy Can the insurer refuse payment by saying that there is misrepresentation? No. Since the promise was just oral. It was not incorporated in the policy. For the insurer to raise that as a defense, he must prove that the promise was made in bad faith. That at the time he made that promise, he had no intention to have the place occupied. But if the promise was done n good faith, he really wanted to have the house occupied, and no body occupied the house. In that case, the insured will not be liable for misrepresentation. So the important factor with respect to oral misrepresentation is: BAD FAITH Although as a general rule, misrepresentation need not be intentional. But it could be unintentional and intentional. But with respect to promissory representation, for the insurer to raise that defense, he must prove that the oral promise was made in bad faith. If the insured is an expert on appraisal? That is still a statement of belief or expectation. So if it just a statement of belief or expectation, you will not be liable in case of non fulfillment. Provided there is no fraudulent intent. Ex. Q:Are you a good driver? A:Yes. The statement is just a belief. If it turned out that you are not really a good driver, you will not be liable. If it turned out that you do not know how to drive, would you be liable now for misrepresentation? Yes. Ex. Q:How long do you think you will live? A:20 years. This is just a statement of belief or misrepresentation. Ex. Q:Do you think that you are suffering from any serious ailment? A:No. I believe that I am healthy. But it turned out that you have a serious ailment. That is already a misrepresentation. !!!
SEC 40
A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty.
How do you differentiate a promissory representation to a statement of belief or expectation? Its a statement of belief or expectation if it is something which by nature oft the statement is contingent. And the insurer has no right to rely on the statement to make further inquiry. And the effect of a statement or expectation, if it is not fulfilled or if it turns out to be false, would the insured be liable? No. The insured will not be liable. Unless there is fraudulent intent. Ex of statement of belief or expectation: -this machine will still have a life of five years. -this house can survive a strong typhoon -there would be no misrepresentation because by the nature of the insurer has no reason to rely on the statement.
What do you mean the word qualify? It means that you cannot change, amend modify an express provision of a contract. But it may qualify, change or amend an implied warranty. Meaning: (why can it change implied warranty?) Implied warranties are not incorporated or stipulated in the policy. Ex. Representation: this house is used for residential purpose Policy: the building is used for commercial purposes At the time of the loss, it turned out that the building is used for commercial purposes. What is the effect? Insurer is liable. Your representation cannot change the express provision of the policy. Meaning the insurer assumed the risk of a commercial building. Kwin Transcripts Page 38
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If it turned out that the building is really used for residential purpose? Is there misrepresentation? Is the insurer liable? No. Because representation cannot modify an express warranty. Ex. Policy: all floors of the building will have fire extinguisher. Application form, you represented: first three floors only. If only the first three floors have extinguisher, is the insurer liable? Not liable. Because a representation cannot change the express provision of the policy. At the time of the loss, the insured is not able to comply. What would be binding is what is stated in the policy. When you say all floors, it becomes now a warranty. If it is incorporated in the policy, it must be strictly and literally complied with. **It would only be estoppel if during the term of the policy, the insurer already knows that the first three floors are with extinguisher and despite that knowledge, he continued. SEC 41
A representation may be altered or withdrawn before the insurance is effected, but not afterwards.
So since the reckoning point of the representation is the time the policy takes effect. So if before the effectivity, the act you represented has already change, you can alter or withdraw. Ex. At the time you applied for a policy, you said that you have not had any serious ailment. But after the application but before the effectivity you contracted a serious disease. If you did not disclose that, you will be liable for concealment or misrepresentation. As a remedy, what should you do? So you either withdraw you representation and change it or tell the insurer that you have contracted the disease. SEC 42
A representation must be presumed to refer to the date on which the contract goes into effect.
It must be true at the time the policy takes effect. Ex. If the vessel is cargo Policy: insure passenger. At the time of the loss, the vessel is really cargo. Is the insurer liable? No. because I did not insure cargo. Not passenger. Ex. You represented that the vessel subject to insurance is in Tokyo. At the time the policy takes effect, it is in Manila. Is there misrepresentation? Yes. Representation must be presumed to refer at the time the policy takes effect. But if you say that the vessel is in manila? Is there misrepresentation? No. Because it is true at the time the policy takes effect. As a remedy, what should you do? You should alter or withdraw your representation. 1.06.54 8-13-10 kwin But if you say that the vessel is in Manila. At the time you said that its in Tokyo. But at the time it took effect, its already in Manila. Is there misrepresentation? No. because it is true at the time the contract takes effect. So the representation must be true at the time the contract takes effect. But with respect to age; at the time you signed the contract you said you are 21. But at the time it took effect, you are already 22. Is there misrepresentation? No. because by the nature of things, di pwede mubalik ang edad.
But a representation may qualify an implied warranty. Ex of an implied warranty: In marine insurance: vessel is sea worthy. If it turned out later on that there is a defect in engine or it is not completely manned, then there is a violation of the implied warranty that the vessel is seaworthy. If you told the insurer that there is defect, then that representation can modify the representation can modify the implied warranty that the vessel is sea worthy. If at the time of the loss, it was found out that there is a defect, would you be liable for misrepresentation? No. because the insured already had that knowledge. Reason: that is just an implied warranty. The difference with the implied warranty is that it is not incorporated in the policy. So it can be changed by a representation. Whereas if it is expressly stated in the policy, you cannot change that by making an opposite representation.
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SEC 43
When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.
represented to the insurer that the vessel is safe at port. Would the ship owner be liable for misrepresentation even if there is no personal knowledge? Yes. Because the ship captain (agent) has knowledge. SEC 44
A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.
Sec 43 talks about the insured not having personal knowledge. But he acquire that information from third person. As a rule, is there a duty on your part to disclose that information? No. there is no duty to disclose. If you did not disclose that you will not be liable for concealment.
It actually defines what is misrepresentation. So when is there misrepresentation? When are you liable for misrepresentation? When you say something as a fact when it is untrue. It is material to the risk. And at the time he states that, he knows that it is untrue. Or without knowing it to be true, he states it as true. In short, you say something that is not true. So there is misrepresentation It must be false in substantial and material aspect.
Do you remember concealment? You will be guilty of concealment if you have knowledge. Under sec 43, you have the discretion to disclose that information coming from third person. But so as for you not to be liable in case it turns out to be false, you must explain to the insurer that that information is based only from the information from third persons. Or you just give the information to the full extent. And in such case, if it turns out to be false, then you will not be liable. Thats the general rule. Exception: If the information comes from your agent. Knowledge of the agent is knowledge of the agent s considered to be knowledge of the principal. And that agent has the duty to give you that information. In that case, if the information is coming from your agent, you are not only required to disclose it, you must attest to the truthfulness of the statement. You are now liable to disclose. And you are liable for the truthfulness of the statement. Common example of information coming from the third person: information as to the cause of death of your parent. You have no personal knowledge if they died when you are still young. You can disclose that information that that is based from relatives. In that case, you will not be liable if the information turns out to be false. But if the information comes from the agent like the ship captain. A ship captain is considered as the owner of the vessel. So if the ship captain has information that the vessel is in the middle of the pacific ocean. There is the storm. The owner who does not have knowledge took policy and
Case: insular life In application form Q: do you drink beer and other intoxicant? A: no. only occasionally. Q: do you suffer any ailment on lungs? A: no. Q: did you ever spit blood? A: no. In first question, there is no misrepresentation because it refers to habitual use. Its still substantially true. On last question, the truth is he suffered from chronic cough. So there is sputum. There is no misrepresentation. Despite that he was suffering from chronic cough. It doesnt mean you have ailment in lungs.
Case: Iguaras He was substituted by another person who was healthy. Doctor states he was healthy. WON there was a waiver on the part of the insurer because they issued the policy even if in the medical report it says that he is very healthy. The fraud committed by Dominador is what you call FRAUD OF A VICIOUS TYPE: you substitute a healthy person for a sick person. Such that even the incontestability clause will not apply. So even if two years have lapsed, the insurer can still raise the defense of misrepresentation/concealment. Kwin Transcripts Page 40
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SEC 45
If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission. (As amended by Batasang Pambansa Blg. 874).
Unless if the policy says that in case there is a change in us, the insurer will not be liable.
SEC 46
The materiality of a representation is determined by the same rules as the materiality of a concealment.
The remedy for the misrepresentation is same as in concealment. He could rescind the contract from the time the representation becomes false. So if he already has knowledge that the representation has become false, then he must exercise the right to rescind. When is there a waiver on the right to rescind? If he accepts the premium and at the time if acceptance he has knowledge. There is no waiver by simply accepting the premium. You must prove that the insurer already has knowledge of the violation of the policy. And yet he continued to accept the premiums or renewed the policy. Ex. despite the knowledge that the jeepney is not public but private yet he still renewed the contract. That is already waived. Or he has already knowledge that the insured is suffering from a serious ailment and yet you still continue to accept premium and not exercise right to rescind. Then that would be considered as a waiver. Ex. in your book: Policy states that coverage was only for persons aging 16-60 years old. Mr. A applied for the policy he stated his date of birth 1940. So hes already 70 years old If despite the disclosure of the age of the insured, the insurer issued the policy, can the insurer later on refuse payment? No. it is considered waiver. In the application form, the insurer could already see that the insured is no loner qualified. The court considers the insurer already in estoppel.
When is the fact material? When it would influence the insurer. Probable and reasonable influence on whether you will accept the risk or not. So misrepresentation and concealment. How is it different? Misrepresentation is considered as active form of concealment. Test of materiality is the same. Effect: the same. It entitles the insurer to rescind the contract. SEC 47
The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.
It means that the rules on representation and concealment applies not only to the original provision of the contract but it also applies to modification. We discussed earlier in misrepresentation and concealment that it refers only to facts at the time or before the issuance of the policy. Subsequent knowledge after would no longer have an effect. Except if there is modification or if the insured applies for amendment in the policy.
Mr. A applied for insurance policy. At the time of application, sa ubos nay bakery, realizing that he is paying a higher rate of premium, now he applied for an amendment in the policy wit the intention to have the premium reduced. He represented that theres no more bakery Take note: when did he make the representation? After the effectivity of original policy. If it turn out that there is still a bakery, would the insurer now be liable for misrepresentation? Yes. Although it was made after the effectivity of the policy, it was made before the effectivity of the modification.
Ex. at the time the policy took effect, you represented that the house is for residential purpose. The policy covers also for residential purpose. But at the time of the loss, the use is already changed to commercial. Assuming there is no provision in the policy as to change of use, would the insured be liable for misrepresentation? No. because the representation was true at the time the policy takes effect.
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Ex At the time the policy takes effect, he said he is in good health. Five months after he got sick with serious ailment. Subsequently he applied for increase in coverage. The policy was issued. He did not disclose that he got sick. He is liable for misrepresentation. Although it was made before the effectivity of the modification. Ex. there is concealment on the part of the insured. Policy takes effect: jul 1, 2009 Filed claim: jul 8, 2010 Rescind? No. because case is already filed. Raise defense? Yes Buttake note that there is a case where after the loss has occurred, the insurer offered to return the premium and denied the claim. And after that, it was rejected by the insured. The insured now filed a case in court. Question was WON the rescission was made on time. SC said that the case was made on time. Because the offer of the return of premium and the denial of claim was equivalent to rescission. If you could no longer rescind the contract because you have already filed a case, would the insurer still be liable? Not necessarily. He can have other defense of concealment or misrepresentation. Is rescinding a contract the same from raising a defense? Yes. When you say you want to have the contract, youre saying you want it cancelled. But when you raise the defense, you are not rescinding the contract but you are simply raising the defense to defeat recovery. Although you can no longer rescind the contract, you can still raise the defense of concealment and representation. Par 2 applied only to life insurance. That is what we call the INCONTESTATBILITY CLAUSE. Incontestability in a sense that the insurer could no longer rescind the contract. he couls no longer raise the defense of misrepresentation or concealment or that the contract is void ab initio for reason of misrepresentation or concealment. Whats the purpose of the incontestability clause? On the part of the insured, there is peace of mind that after the lapse of certain number of years, the insured can no longer question the validity of the policy. (evidence is no longer available) On the part of the insurer, the law considers two years as enough time for the insurer to verify the statements. So after the lapse of two years, you could no longer question the validity of the policy.
Why is this still considered material? Because it will still influence. It will have an effect on the decision of the insurer on whether he would accept the modification or not. SEC 48
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.
First par applies to both life insurance and property insurance. So the right of the insurer to rescind the contract must be exercised B4 COMMENCEMENT of an action by the court. When is an action considered commenced? Upon filing of the case in court. Right now, filing complaint with insurance commissioner is considered commencement of an action. The insurance commissioner has the power to adjudicate insurance cases. Before the insured has filed the case in court. So if the insurer has already filed a case in court, the insurer could no longer rescind the contract. So what does it mean? Is he liable?
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For incontestability clause to apply, the following requisites must be present: 1. it must be a life insurance policy 2. it must be payable upon the death of the insured. 3. it is enforced during the lifetime of the insured for at least two years from the date of issue or the date of reinstatement.
Policy took effect: jul 1, 2007 Insured died: july 30, 2009 Filed: aug 1, 2010 Rescind? No Raise defense of misrepresentation? No From the time the policy was issued to the time of death, the policy was already enforced for 2 years or more. Policy: jan 25, 2004 Filed: dec 20, 2006 Filed claim: jan 20, 2007 Rescind? no Raise defense? no Its already more than 2 years jan 2004-dec 2006 Exception to incontestability clause: Even if the incontestability clause will apply, he can still rescind the contract and raise defense of misrepresentation or concealment: 1. If you have no insurable interest -the policy is null and void. It cannot be waived. Defense of estoppel is not applicable. 2. excepted risk/excepted peril -ex. the policy did not cover death arising from drowning. -risk is not included 3. there is no premium pay -cash and carry rule from insurance contract 4. condition in policy that they will not be liable if you join war 5. fraud 6. to murder the insured 7. fraud is of a vicious type -substituting another person/ replacing specimen 8. necessary proof of death is not given Par 1 applies to both life and property. The action to rescind must be made before an action is commenced. But even if you filed it on time, if the incontestability clause already apply, then the insurer is. 2 years is counted from the date the policy takes effect to the date of death because it should be enforced during the life of insured.
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September 3, 2010 AFTER MIDTERMS 37 min POLICY. What is a policy? Its the evidence of the contract of insurance. It governs the relationship of the insured and the insurer. It also serves as the, measure of the insurers liability. And for the insured to recover, he must show that he is covered in the terms of the insurance contract. Must it be in writing? Yes. In modern day insurance, the policy has to be in writing because it states that it is a written document. Must in be in any form? Does the form require approval? Right now, any policy issued by any insurer must be in a form previously approved by the insurance commissioner. What is the effect if the form is not approved by the commissioner? Does it invalidate the policy? Can the insured still recover from the insurer? Can the insurer raise the defense that he cannot recover because it is not in the right form? The insured can still recover. It is not a defense. The insurer cannot raise his own fault of not having the policy approved by the insurance commissioner. It does not affect the validity of the insurance contract. The insured will still recover. In fact it is the insurer that will be held liable. There will be administrative case for issuing a form that has not been previously approved. What about the language of the policy. Is there a duty on the part of the insurer to explain? What if the insurer is not able to explain to the insured? Case: Tang v CA Insurer refused to pay on the ground of concealment and misrepresentation. Tang was a Chinese illiterate. And she does not know English language. In the application form, he was able to state the answer that she was healthy. But it turned out that she was suffering from lung cancer, which fact she concealed from the insurer. When the beneficiary, the insurer refused payment by saying that concealment or misrepresentation. The contention of the beneficiary that there could be no concealment or misrepresentation because in the first place, wala siya kasabot. She did not understand the questions in the application form. And second, there is a duty on the part of the insurer to prove that the insurer explained to the insured the contents of the policy. So the issue now on this case in WON there is a duty on the part of the insurer to explain the contents of contract of the policy. Was it fully explained? Is there a need to prove that there was explanation made by the insurer? SC applied the provisions of the civil code. If one party is unable to read or if the contract is in the language not understood by him and mistake or fraud is alleged, the party who seeks to enforce the contract has the burden of proof to show that the contract was fully explained to the other party. So in this case, who was the party interested in enforcing the contract? The insured or the beneficiary. The insurer is not interested to enforce the contract. in fact it was seeking to rescind the contract. In this case, the court said no. there is no duty on the part of the insurer to show that it has fully explained to the insured the language of the policy. So kung ikaw ang interesado to enforce the contract, then you have the burden of proof to show that it was not explained to you. Is that fair? Baliktad man diba? I dont understand also. Art 1332. In this case, it was clearly established that there was misrepresentation. But what if there is no concealment or misrepresentation? And you want to enforce the contract? and the insurer wants to rescind the contract? Never mind.
What about duty read the policy? Is there a duty on the part of the insured to read the policy? No. Actually there were two views. Can the insurer later on say na gadanghag lang ka. Had you read the policy, you would have known that that is an excepted risk or di na covered na risk or there is that condition. The first view says that if the insured has accepted the policy without reading it, that is already considered as negligence. But theres another view that states that the fact that you have accepted the policy without reading it does not really amount to negligence. The jurisprudence favors the second view or the majority view. For the reason that the contract of insurance is a contract of adhesion. Even if you have read it, there is no guarantee that you understood it. It is very technical. Kwin Transcripts Page 44
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SEC 50
The policy --shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance --shall be written on the blank spaces provided therein. Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy --is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy --shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement. Group insurance and group annuity policies, however, --may be typewritten and need not be in printed form.
But in order for this rider to be binding, there are certain conditions or requirements. What are the requirements? 1. Descriptive title of the rider is mentioned in the policy. Like in the policy it must be printed there that: Sec 3 is subject to clause G and F indicated in a separate instrument or Sec 5 is subject to the rider What if the descriptive title is not mentioned, what is the effect? The rider is not binding. But it does not affect the provisions of the policy. 2. Signature of the insured where the signature is needed or necessary As a rule, in the policy of insurance, kinahanglan ban a insured must sign? No. normally, its only the insurer. But what about the rider? Is there a need for the insured to sign the rider? When is the signature of the insured needed and when is it not needed? Theres no need for signature of the insured if the rider was issued together with the original policy. Idungan sila or issue. Or even if the rider was issued after the original policy was issued if the rider was applied by the owner himself There is a need for signature if the rider was made after the policy was issued and it was not the insured himself who applied for the rider. Because the signature is to be taken as agreement to the rider. But if issued after and you did not apply, it needs your signature as proof that you agreed to the provisions of the rider.
Sec 50 talks about a policy where there are blank spaces. Parang pre printed form na. and all you have to do is to fill in the blanks and spaces. Thats still a valid policy of insurance. It also mentions about a rider, a clause, a warranty or an endorsement. What is the biding effect? What are these things? A rider, clause, warranty or endorsements are like additions to the insurance policy. The purpose is to modify the provisions of the original policy. Instead of amending or revising the entire policy, what they do is just insert a rider, clause or warranty. And it is contained in a separate instrument and it is attached or incorporated to the original policy. The rider has the same binding effect as the original policy as if it was embodied in the policy, provided certain conditions are complied. In order for this rider to be binding, certain conditions must be present. Example of a rider: In a policy, it excludes damage arising from explosion or death arising from drowning. For payment of higher premiums, the insured wants to have explosions as covered risk or death arising from drowning would be a covered risk Instead of modifying the policy, they would just insert a rider. The rider now would state that death by drowning or damage through explosion is now a covered risk. So in effect the rider would modify the provision stated in the original policy.
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SEC 51
A policy of insurance must specify: (a) The parties between whom the contract is made; (b) The amount to be insured except in the cases of open or running policies; (c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; (d) The property or life insured; (e) The interest of the insured in property insured, if he is not the absolute owner thereof; (f) The risks insured against; and (g) The period during which the insurance is to continue.
SEC 52
Cover notes --may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy --shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor. Cover notes --may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner --may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.
Sec 51 Contents in the policy What must be indicated in the policy? 1. parties The name of the insurer and the name of the insured. What if the name is misspelled? Does that affect the policy? No. Incorrect designation of the insured does not affect the policy. Ang miss nhimog misis. Or ang male nahimog female. 2. amount to be insured Because the amount serves as the limit of the insurers liability. This is the face value of the policy. Not necessarily the amount to be paid by the insurer. 3. premium So in life insurance, what are the factors to be considered by the insurer in fixing the premium? Age, sex, occupation, lifestyle, previous health condition, activities (alcoholic, smoker), etc What about property, what are the factors used by the insurer in determining premium? Location, contents, use (commercial, residential, industrial) 4. property or life insured 5. interest of the insured But you only need to disclose this if you are not the absolute owner 6. risk insured Of course this is very important. What risk is assumed the insurer, whether it covers fire, earthquake etc. 7. term or duration of insurance So basically these are the important contents in the policy of insurance.
What is a cover note? Whats the purpose of the cover note? What is the importance of a cover note? Is it distinct from the insurance policy itself? Do I need to pay separate for premium for the cover note? It provides temporary protection The purpose of cover note, ex for commercial transaction, you are a businessman and you want to ship your goods. As protection, you want to insure your goods. But the insurer cannot issue yet the formal policy because there are certain information needed. Ex. he cannot yet quantify exactly how much is the premium to charge. But you cannot wait for that because you want to ship your goods. To provide temporary protection, the insurer will issue you the cover note. Under the cover note, it already provides you immediate protection, even if the formal policy is not yet issued. Such that if something happens to the goods pending the issuance of the policy, the insured would be entitled to the policy. But cover notes are of two types: These are what we call preliminary contract of insurance. We have; 1. preliminary contract of present insurance 2. preliminary contract of future or executory insurance. In preliminary contract of present insurance, these are the types of cover notes which already provides of immediate protection. So meaning if something happens to the goods, the insured will be entitled to recover. The other one, preliminary contract of executory insurance, the insurer simply undertakes to insure you at some future time. Wala pa siyay gihatag na immediate protection. Kwin Transcripts Page 46
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How would you know if its a preliminary contract of executory insurance? If the cover note would state that the insurance is effective only upon approval of the insurer. But if the cover note already states that it already insured the goods, then in that case, that is a preliminary contract of present insurance. You are already entitled to recover. Payment of premiums. Is there a need for separate payment of premiums for cover notes? There is a case where the insurer issued a cover note. It was a preliminary contract of present insurance. But the insured did not pay a separate premium. Later on the insurer refused to pay by saying that insured did not pay insured for the cover note. Is that correct? A separate premium is not needed for the cover note to be effective. A cover note is not considered different from the formal policy. The premiums that you pay for the formal policy aready covers for the cover note. So even if you have not paid any premiums, so long as the insurer has already insured a cover note, you are already covered or protected. Provided its a preliminary contract of present insurance. PERIOS For how long can you issue cover note? 60 days. After 60 days, the insurer should have issued you a policy. But if di gyud mada, can it be extended? Yes. Provided there is permission from the insurance commissioner. SEC 53
The insurance proceeds --shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.
party, the third party can go after the insurer.
If you are not the owner of the policy neither are you the beneficiary, then you are not entitled to recover. We have discussed this before. The policy obtained by the mortgagor for his own interest accrues only to the mortgagor. Unless there is a loss payable clause. In the same way the policy obtained by the mortgagee accrues only to the benefit of the mortgagee. Except if the policy contains a stipulation in favor of the third party. You call that a stipulation pour autriu. Or if the policy itself is for liability against third party. The effect is that if there is a stipulation in favor of third person or if there is a stipulation for liability against third
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September 11, 2010 SEC 53
The insurance proceeds --shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.
For you to be entitled to the proceeds of the policy, its either you are a beneficiary of the policy or you are a party to the insurance contract (owner of the policy) So in sec 53, unless you are mentioned or you are a party to it, then you are not entitled to recover. Because we have discussed before that in a single property, there could be several insurable interest. Like a mortgage property, the mortgagor could have a different insurable interest than the mortgagee. Such that the insurance obtained by the mortgagor is distinct from the interest of the mortgagee unless there is a LOSS PAYABLE MORTGAGE CLAUSE. So if you are not a party to the insurance contract; you are neither the beneficiary, you are not entitled to recover.
insurance? Is it the designated beneficiary or Bonifacio and Ayala? Court said that the person entitled to the proceeds is Reyes Its clear in sec 53. They are not parties to the contract and they are not designated as a beneficiary. If they have a claim against Mora, its not based on the contract of insurance but another contract. It is civil. Maybe payment of repairs or payment of spare parts but not under insurance proceeds. Case: Dingon The only time where third party has right to claim the proceeds from insurance is when 1. it is specified in the property or 2. it is expressly stipulated in favor of third persons or there is stipulation pour autrui or policy itself provides for indemnity to third party. In this case, in motor vehicle, theres compulsory third party liability insurance. WON the heirs of the victim are entitled to the insurance proceeds obtained by the owner of the jeepney? They are considered third party right? So are they entitled? Yes. The policy contains third party liability and insured agreed. The policy itself provides for indemnity against third party liability. But to what extent? Ex. A is the owner of the policy. G is the victim. The court adjudged A under torts to be liable for 100k. We said that the heirs of the victim can go after the insurer by virtue of the third party liability clause. But the proceed of the insurance was only 80k. For how much can heirs of G go after the insurer? Only 80k. Why? Because the basis of liability of the insurer is under the contract of insurance. It does not mean that although the third party can go after the insurer, the insurer is now solidarily liable with A. because his liability is based on torts whereas the liability of insurer is based only on contract of insurance. It is limited only on the value that is assumed.
Case: del val v del val Del val was the owner of the policy. He died. He designated his son as a beneficiary. There is an issue who is entitled to the proceeds, either the beneficiary, the son or to estate, as contended bythe other siblings. The other siblings applied rule in succession collation. If the donation during his lifetime made a gift or donation to any if the compulsory heirs, it will be considered advance legitime. It should be collated to form part of the estate. He court said that the proceeds belong to the beneficiary. Is there a conflict between insurance code and civil code regarding succession? What did the court say on that? Special law should be followed. Therefore the insurance proceeds should accrue exclusively to designated beneficiary. What you collate are gifts and donation. Designating son as a beneficiary is not included as a gift/donation. Its clear that the son is designated as a beneficiary. So insurance law should govern.
Case: Bonifacio brothers The owner of the policy is Mora. He mortgaged the policy to Reyes (mortgagee). Reyes is the same time the beneficiary. There is a loss payable mortgage clause. Meaning the proceeds shall accrue to the mortgagee. The car was damaged and the repairs were made by Bonifacio. The supplies were given by Ayala. Both Bonifacio and Ayala claimed that they are entitled to the proceed of the insurance. So the issue now is who is entitled to the proceeds of the
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Take note, you have to determine if it is determine if it is indemnity for liability against third party or indemnity against actual loss. Because if it is just indemnity against actual loss, meaning the insurer binds himself to pay the insured for whatever loss it suffered or may be liable. But if it is third party liability, the insurer binds himself to pay gyud third party. So if its indemnity for third party liability, the third person can go after directly against the insurer. But its just an indemnity for actual loss; the third party cannot directly go after the insurer. He has to go after the insured. Even if you are not an owner of the vehicle, before you are issued registration, you have to get TPL. Case: Coquia Similar principle in Gingon. Owner of the taxi insured one of its units and the taxi met an accident. Heirs o the victims filed a claim against the insurer. So the issue again is WON the heirs are entitled to the proceeds. The court says yes. Policy itself contains a stipulation in favor of third persons. SEC 55
To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.
So the presumption is that if the policy is obtained by a coowner, it is presumed to cover his own interest. Unless the policy clearly states that it covers not only his own interest but also the interest of co-owners of copartners. SEC 56
When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him --can claim the benefit of the policy.
If the description is in general term. Example of general description: Beneficiary are class 404 co heirs children here, you present proof that you are a part of that group. SEC 57
A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, --may become the owner of the interest insured.
SEC 54
When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest --may be indicated by describing the insured as agent or trustee, or by other general words in the policy.
This talks about the policy obtained by an agent. Ex. A property belonging to the principal. The policy may be obtained by the agent. He must disclose that he is obtaining the insurance for and in behalf of the principal. But can the agent also insure the property in his own name? Yes. He has insurable interest. It may create a liability against him. If something happens to the property while he is designated as an agent, it may create a liability. But in this case, what sec 54 is talking about is insurance is obtained by the agent not for his own interest but for that if the principal. But in order for it to cover the interest of the principal, that fact must be stated in the policy. OW, it will only be for the interest of the agent. Then theres now an issue whether he has a right to insure it on his own name.
Sec 57 in relation to sec 20, is an exception. GR in sec 20, regarding transfer of interest of property without corresponding transfer of interest in the insurance: It has the effect of suspending the policy. Exception in sec 57: Policy is so framed that it will inure to the owner of the interest insured. Kung negotiable instrument, murag payable to bearer. So whoever is the owner of the policy is also entitled to the proceeds of the insurance. So in order for this to apply, it must be EXPRESSLY STATED IN TH EPOLICY. SEC 58
The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.
This is similar to sec 20. The transfer to interest of the thing insured does not transfer the policy. But instead the effect is that the insurance is suspended.
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SECS 59-62 KINDS OF POLICY Kinds of policy: 1. open policy 2. value policy 3. running policy 1. OPEN POLICYIf the value of the policy is not agreed upon. It is not stated in the policy. But it is determined at the time of loss. Although the policy contains a certain amount. But it is only on reference of the face of the policy. The purpose of the face of the policy is the maximum limit of the insurers liability. SITUATION: Face: 2m Value: 2m So if its an open policy, for example, A insured his house for 2m, thats the face value of the policy. Assuming that A believes that his house is also worth 2m, at the time of the loss, if its an open policy, its not a guaranty that the insurer would indemnify the insured for 2m. The valuation at the time of effectivity is not binding to the insurer but the value of the house is to be determined only at the time of loss. Meaning the insurer may submit evidence to prove that the value of the house is not really 2m but less tan 2m. SITAUATION a: Example if at the time of the loss it was determined that the value of the house was 1.5m, for how much can the insured entitled to recover? Only 1.5m SITUATION b: But if it was determined that at the time of the loss is 2.5m, for how much is the insurer liable? Only 2m. it is determined at the time of the loss but in no case shall it exceed the face value. 2. VALUE POLICY Its a value policy it there are two amounts: 1. Face value and 2. Agreed valuation SITUATION: Face value 2m Agreed valuation 2m Here, the parties to the contract already agree that the value of the house is 2m. In the absence of fraud, this value is conclusive to the parties. Such that at the time of loss, it is determined that the agreed valuation is less than the actual value of the house, the insurer is still liable to pay 2m. Or if at the time of the loss it is determined that less than nalang diay ang value of the house, the insurer is still liable to pay 2m. Or at the time of the loss it was determined that the value of the house is more than 2m, the insurer is still liable for 2m. ILLUSTRATION: Face value 2m Agreed valuation 2m Value at of loss- Loss 1.5m 100% 2.5m 100% 1.5m 50% 2.5m 50%
= = = = =
Amt recoverable 2m 2m (underinsured) 1m ( of agreed valuation) 1m ( of agreed valuation)
ILLUSTRATION: Face value 2m Agreed valuation 1m Value at lossLoss = 1.5m 100% = 2.5m 100% = ILLUSTRATION: Face value 3m Agreed valuation 2m Value at lossLoss 1.5m 100% 2.5m 100% 1.5m 50% 2.5m 50%
Amt recoverable from insurer 1m 1m
= = = = =
Amt recoverable from insurer 2m 2m 1m 1m
ILLUSTRATION: Face value 3m Agreed valuation 3.5m Value at lossLoss = Amt recoverable from insurer 1.5m 100% = 3m (limit:face value) 2.5m 100% = 3m 1.5m 50% = 1.5m? 2.5m 50% = 1.5m !!! asked later on oct 1, 2010 1.5 is 1.75 Lets compare it with an open policy: ILLUSTRATION: Face value 2m Agreed valuation none Value at of loss- Loss = 1.5m 100% = 1.5m 50% = 2.5m 100% =
Amt recoverable 1.5m 7.5k ( of value at loss) 2m (limit:face value)
*If there is a co-insurance clause that is when we apply the proration. Meaning the insurer assumed to be liable fro Kwin Transcripts Page 50
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between the face value of the policy and the actual value of the property and the actual value of the property. We will discuss this later. ILLUSTRATION: Face value 3m Agreed valuation none Value at of loss- Loss = 1.5m 100% = 2.5m 100% = SEC 63
A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.
Amt recoverable 1.5m 2.5m
Sec 63 talk about prescriptive period for the insured to file an action. When you say commencement of action, it means filing of case before the court or insurance commissioner or POEA, DOLE. When must the insurer commence an action in court? At the time of rejection of claim. Before rejection or denial, there is no reason for the insured to file a case in court. Under the law it is valid for the parties of the insurance contract to stipulate as to the period in which the insured must commence action. And if that period stipulated is valid, that will govern the general limitations provided under the civil code. If its a written contract, 10 years. If its an oral contract, 6 years. But this will not apply because insurance contract is a written contract. So if the parties provide for 15 years, 20 years, 5 years, etc., that period will prevail over the limitation provided under the civil code. For so long as the period is not less than 1 year. 1 years from when? From the time the cause of action accrues or from the time of rejection of the claim. So if the policy provides 5 years from the time of the denial of the claim, that period should be followed. If the insured did not file his claim within the period, then the effect is that the insurer will be relieved from liability. So meaning the period is a condition precedent to the insurers liability. So if the action is not filed on time, so the insurer is discharged from liability. What is the reason for the period? Why must the insurer comply with that period? While the evidence surrounding the loss, destruction has not yet disappeared. Kay og langaylangayon nimo, its difficult to determine what is the cause of the loss. So its for prompt settlement of the insurance claim.
In an open policy, the liability of the insurer is determined at the time of loss (value of the property at the time of loss) but in no case will that amount exceed the face value. Whereas in the open policy, the amount that I will be liable if based on the agreed valuation. I dont care kung pila na ang value at the time of the loss. We always refer to the agreed valuation. But in no case also that the amount that I can recover will exceed he face value. * normally if you underinsure, it will depend if it is marine insurance or fire insurance. In marine insurance, if you underinsure, automatic that you are considered a co-insurer for the difference between the amount insured and the value of the property. Lets say that the value of the property is 500k and you took insurance for 400k, you are considered a co-insurer for the 100k. Meaning you are liable for 100k. But in fire insurance it depends if there is what we call a coinsurance clause. Co-insurance clause simply means that if the insured underinsured the property, he is considered a co-insurer for the difference. We will discuss more about this later. If the parties state that this is a value then its clear that its a valued policy. 3. RUNNING POLICY Ex. stocks in grocery store and merchandise. Its difficult to determine the value of the property because in every month it will fluctuate. So the reason why they will obtain a running policy is to prevent over insurance or underinsurance at a particular time. So in running policy, I modify ang subject matter of the policy. Lainlain ilang valuation.
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Case: Eagle star Atkin (shipper) was the shipper and the owner to the policy. He shipped the goods to SSD (carrier). U was the consignee. Goods were insured by eagle star (insurer). Some goods were lost. U filed a claim against the carrier and filed the claim against insurer. What is the basis of Us right to file a claim against the insurer? Was he the owner of the policy? No. But the policy was assigned to U. so he has now a right to file a claim against the insurer. More than 2 years after: Nov 4, 1948 filed an action in court WON the action was brought within the period provided by law or policy. What is the stipulation in the contract on when should the action be filed? 1 year from happening of loss. So this is what is provided in policy. Is this valid? No. Why? The law clearly states from the law cause of action accrues. The time when the cause of action accrues is the time there is denial of claim. Not from the happening of loss. In effect, you shorten the period. So since this stipulation is not valid, being contrary to law, what is the effect? What is now the period of prescription? Then you have 10 years. So the rule is that, if the period provided is not valid or if there is no period provided in the policy, then the period of limitation is 10 years. You go back to the provisions of the civil code. So what this filed on time? Yes. Kanus a man nareject iyang claim? 4-22-48. Its even less than 1 year. Case: Ang v fortune 12/30/54 filing of claim against the insurer 4/19/56 receipt of denial of claim 5/5/58 action was filed Policy states within 12 months after rejection Is policy valid? Yes Was the action filed on time? No. Prescribed Filing a case against the agent is not filing of cliam. It refers to filing if action in the proper court or quasi judicial body. Case: Sun insurance Issue: Filed a reconsideration Claim was already rejected and yet he still asked for reconsideration from the insurer. 8/20/83 filed a claim against the insurer 2/29/84 denied 4/3/84 motion for reconsideration 10/11/85 denied reconsideration 11/20/85 filed an action Policy file within 12 months from rejection Was the action filed on time? No. The court said that the one year should be counted from the first denial of claim, and not 1 year from the denial of the reconsideration. What is the reason for that? Because you should file the action 1 year from the time the cause of action accrued. Cause of action accrued at the time of the denial. Also if we allow period to count 1 year from the time of the denial of reconsideration, it will be a scheme of the insured to waste time. Can I opt for recon and in trying to preserve my 1 year also file an action? Yes. We have this rule of exhaustion of administrative remedies. This does not apply because if you dont file, your cause of action will prescribe. Case: Accfa This is in connection with COGSA. Policy states that it should be filed within 1 year from the time of claim of the loss. Is the provision valid? No Therefore, what should apply is the 10 year prescriptive period. Case: Mayer Mayer (insured) South sea (insurer) Goods shipped were damaged. Mayer tried to recover from south sea. South sea says that it should be the prescriptive period of COGSA that will apply. When was the claim filed? How many years after? Two years. Meyer filed a claim against the insurer 2 years from the unloading/ delivery of the goods. So take note here, Mayer filed a claim against the insurer, not against the shipper. Under COGSA, any claims against the shipper should be filed within 1 year from the time the delivery or when it should Kwin Transcripts Page 52
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have been delivered. This defense was used by the insurer in refusing the claims of Mayer. South sea says that under COGSA, it should be 1 year. 2 years had already passed. BTW is there a stipulation on when the claims should be filed? No. Whats is the effect? Apply civil code on contracts 10 years This defense does not apply because it applies only when the claim is filed against the shipper and not against the insured. Because the basis of meyers claim against south sea is under the contract of insurance. Whereas in COGSA, it is under the contract of carriage. Lets distinguish this case from the case of Filipino merchants. Case: Filipino merchants Filipino merchants (insurer) Shipper (owner of the policy) Shipper filed a claim against the insurance company. 3rd party complaint was filed against the carrier. 3rd party complaint was filed more than 1 year from the delivery of goods. So when Filipino merchant was exercising his right of subrogation, filed a case against the carrier, the court said, no more. Because applying COGSA, any claims against the carrier should be filed within 1 year. How is it different from the mayer case? In mayer case, the claim was filed against the insurer. Therefore we apply insurance law. When Filipino merchants filed a case against the carrier, its on the basis of the contract of carriage. Because by virtue of the right of subrogation, he merely stepped into the shoe of the shipper. So the action of the shipper against the carrier is not based on the contract of insurance but base don the contract of carriage. So in effect, the court also said that COGSA applies not only to claims by shipper against the carrier but also insurer against the carrier, with the insurer exercising the right of subrogation. Question in meyer: Diba mayer filed a claim against the insurer in 2 years. If Im south sea, can I not raise the defense, that since you filed a claim against me, more than 1 year na as required by COGSA, in effect you defeat my right to subrogation. Remember when we discussed right of subrogation? If the insured commits any act which defeats the right of the insurer, diba the insurer can raise that as defense in denying liability? But in this case, it was mentioned that south sea was held liable because he was not able to raise that defense But since wala man, then he was held liable. But it could have been. South sea could have raised that defense. 1.29.53 9-11-10 SEC 64
No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; (d) discovery of willful or reckless acts or omissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.
SEC 65
All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.
Sec 64-65 Talks about cancellation. The insurer can cancel the policy provided that, what? What are the requirements in order for the cancellation to happen? 1. Notice must be in writing 2. Basis for cancellation is based on the grounds enumerated in sec 64 3. Ground/s are indicated in notice of cancellation What are these grounds? 1. non payment of the premium -take note that nonpayment of premiums here refers to nonpayment of subsequent premium; not the initial premium. As we will discuss later on, if you did not pay the initial premium, there is no contract of insurance to speak of. 2. conviction of crime increasing hazard -ex. of a crime would warrant cancellation of property insurance: arson 3. discovery of fraud or material misrepresentation 4. discovery of willful/reckless acts/omissions increasing hazard -ex. storing of flammable materials 5. physical changes in property making it uninsurable -ex. from residential to industrial 5. determination of commissioner of violation of insurance code
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Case: saura import There was a loss payable mortgage clause. There was a notice of cancellation but the notice was given only to the mortgagee. So the issue is WON the notice given to PNB was binding to mortgagor. Not binding. Notice should be given to mortgagor. Under the loss payable mortgage clause, the mortgagor does not cease to be a party of the contract. Purpose of notice of cancellation is to afford opportunity to the insured to secure or obtain other insurance. Case: Malayan insurance Insurance was obtained and was cancelled. There was a notice of cancellation. But the insured denied receiving notice of cancellation. Theres now an issue. Which would prevail? The denial of the insure that he did not receive notice? Or the contention of the insurer that he sent it through mail? Does the legal presumption of regularity and due performance of duty, meaning, if you mailed it, it is understood that it is already received? In this case, the court sided with the insured by saying that the legal presumption that if it is mailed, it is understood to be delivered will not apply. Because sec 64 requires that the written notice must be given and must be received by the insured. And that prevailed over the presumption of regularity of performance of duties. WARRANTY SEC 67
A warranty is either expressed or implied.
SEC 68
A warranty may relate to the past, the present, the future, or to any or all of these.
What is a warranty? These are stipulations or agreements concerning the insured, the risk insured, the facts, conditions or circumstances surrounding the thing insured. But as opposed to representations where you also make statements or assertions, a warranty becomes such because the statements and stipulations are written in the policy itself or is incorporated in the policy by proper reference. Kinds of warranty: Under sec 67 1. express 2. implied 1. affirmative 2. promissory What is an express warranty? It is contained in the policy itself. Expressly or clearly incorporated in the policy. What is an implied warranty? These are stipulations or agreement that are not contained in the policy but its existence is admitted by the mere fact that you entered into the contract of insurance. Inherent na siya in this kind of insurance. But take note that implied warranty applies only to marine insurance. Its only in marine insurance that the law provides for implied warranty of seaworthiness. So even if it is not incorporated in the policy or even if the insured did not warrant that the vessel is seaworthy, the fact that you entered into the contract, it is inherent. It is presumed to exist. Like in the contract of sale, when you entered to it, there are implied warranties. Like warranty against hidden defects or warranty against eviction, even if it is not written. So the difference between express and implied is that in express , it is agreed upon, and is found in the policy itself. Whereas in implied, its not necessarily agreed upon but it is presumed to exist.
As a rule, the insured has the right to automatic renewal of the policy. Unless if you are the insurer, and you dont want to renew it anymore, what would you want to do? At least 45 days prior to the expiration of the policy, you inform the insured of your intention not to renew or you condition you conditional your renewal upon payment of higher premium, etc. If you did not give notice of renewal, it is understood that the policy is renewed. Whether you like it or not. How do you count the 45 days? If the policy is less than 1 year, then it is understood to be one year. So 45 days before expiration. After break.
What is an affirmative warranty?
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You assert the existence of a particular fact or a condition at the time of the effectivity of the policy. It is required to be true at the time it is made. R: Misrepresentation and concealment entitles the injured party to rescind the contract because there is fraud. W: if turns out to false or if not fulfilled, it entitles the injured party to rescind the contract on the basis of breach of contract or breach of warranty. R: Not found in the policy. These are just collateral inducements. These are just answers in the application form. W: Incorporated in the policy How do you construe warranty? While the law requires strict compliance, there is one case where the court said that warranties should also be reasonably interpreted. In this particular case, the warranty states that the insured must provide an efficient working condition, fire fighting appliances. And in the warranty, he enumerated these fire fighting appliances. So there were fire hydrants, security, etc. Of the 4, the insured was able to comply only three. So there was an issue whther there is a breacg of warranty. In that case, the court said that the warranty should be interpreted to simply require the insured to maintain in good working condition fire fighting appliances. It does not require the insured to maintain all the items listed therein. Therefore SC said that the listing is not inclusive. such as but not limited to. And since the insured was able to comply three of the four, the court said that it already complied the warranty of maintaining in good working condition effiecient fire fighting equipments. SEC 70 SEC 69
No particular form of words is necessary to create a warranty. 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.
But same as an affirmative representation as we have discussed before, it is not a continuing guaranty. Like when you say there are fire extinguishers or fire hydrants or when you say that the building is used for residential purposes; if it is true at the time that it is made, then its a valid affirmative warranty. But its not a continuing guaranty that the house will continuously be used as a residential house or the fire extinguishers or fire sprinklers will be kept in good condition. Affirmative raman siya. It is true at the time it is made. Subsequent change in the use or subsequent change in the condition does not affect your affirmative warranty. What is a promissory warranty? It relates to a statement or fact or condition which is to happen or something to be done in the future. Basically this is the same as representation. The only difference is that this becomes a warranty because it is incorporated to the policy. In case of doubt, warranties are presumed to be only affirmative warranties.
Its not necessary for you to use warranty for it to constitute warranty Or just because you use warranty does not mean that it is warranty. What governs is the intention of the parties. Distinguish between representation and warranty. R: precede the contract W: made during the signing if the contract R: substantially correct W: strictly and literally performed R: must be shown to be material W: materiality is presumed
Where should the express warranty appear? As a rule, the express warranty must be contained in the policy. Can t be contained in another instrument? Yes. Provided that for it to be binding as a warranty, it must be signed by the insured and referred to in the policy. Because if it is found in the policy itself, it need not have signature. But if it is not found in the policy, it must be signed or incorporated by proper reference in the policy. It mentions about sec 51, particularly on the rider. What is a rider again? These are additional or modifications in the policy. And these are contained in a separate instrument. Kwin Transcripts Page 55
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As a general rule, a rider has the same effect as if it is incorporated in the policy. It is part of the policy at the same extent. But in order for this rider to have a binding effect there is a requirement, the rider must be signed and referred to also. The descriptive title of the rider must be referred to in the policy. Second, it must be signed, provided the signature is necessary. When is the signature necessary? If the rider was made after the policy was done and it is proposed by the insurer. Because if it was proposed by the insured even if it was made after the original policy, it does not need signature. The reason why we are talking about rider is because if the warranty is contained in a rider, for it to be binding, then it must comply with the requirements of the rider. 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 71 simply defines what is an express warranty. Those contained in the policy, clearly incorporated in the policy, relating to the person insured. And you state is as a fact, because warranties are factual statements. These are not opinions and judgments. 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.
Sec 72 talks about promissory warranties. This is the definition of the promissory warranty a fact or condition to exist after or subsequent to the effectivity of the warranty.
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September 17, 2010 I AM LATE. GET THE RECORDING FROM GBANG. Theres still a breach of warranty because says that it is not necessary that the violation contributed to the cause of the loss. The fact that you breached the warranty, the fact that you stored fire works, the effect is that it increases the risk. And that risk, the insurer did assume for that kind of risk or had the insurer known that you have stored the fireworks, he would have rescinded the contract or charged a higher premium. So thats still considered as breach of warranty. By way of exception, there are also cases that discuss that the warranty regarding storing of hazardous goods is not violated if the storing is incidental to the business or if it only on small amounts intended for daily use. Case: Barrack v British American insurance The nature of the business is furniture for sale. What is the subject of fire insurance? Building and furniture. There was express warranty against storing of hazardous goods. Found in the premises varnish, paint and alcohol, gasoline. These are all hazardous and flammable goods. So there is now an issue whether there is a breach of warranty. There is no breach of warranty because varnish and alcohol are incidental to the business. Alcohol is mixed with varnish and varnish is required to preserve the furniture. The storing was incidental to the business Ex. if you obtained a building for residential purposes. There is an express warranty against storing of inflammable goods. And in your kitchen you have LPG tank. Is there a breach now of warranty? Such that if there is fire, you are not entitled to recover? No. Because there is no breach of warranty because it is necessary. In small quantity for daily use. But if nag sideline nakag shellane, it depends if the coverage is only incidental and you did represent to the insurer that you are into shellane business. Another case: The insured was a drug store. There is an express warranty against storing of inflammable goods and hazardous materials. In the drug store, there re naptaline balls that are flammable. The issue is whether the insured committed breach of warranty. SC said that they are considered pharmaceutical product therefore incidental t he business.
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.
States that as a general rule a breach of an immaterial provision does not avoid the policy. Unless it is expressly stipulated that breach of the specific provision whether material or immaterial avoids the policy. So in effect sec 75 converts an immaterial provision to a material provision. Like normally, when you say, other insurance. Unless the policy expressly states that the act of the insurer in obtaining other insurance violates the policy. But otherwise, it is just considered an immaterial provision. 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.
Theres another case mentioned in your book. Case: qua che gua v law union This case the insured was engaged in copra and hemp. The subject of insurance was warehouse. And the warehouse was used for the storage of copra and hemp. Inside the ware house were motor vehicles. The motor vehicles were used as delivery truck. Inside the warehouse the insured stored gasoline sufficient for 2 days use of vehicle. And there is an express warranty against storing if hazardous and flammable goods. So the issue again was WON the insured committed a breach of warranty on the storing of inflammable materials. No because the gasoline was incidental to the business. Magic word is incidental to the business. Its a question of fact.
What is the effect of breach of warranty? If the insured commits breach of warranty, it entitles the insurer to rescind the contract. Must fraud be established? Do you need to prove fraud? No. because in breach of warranty fraud is not the basis for liability.
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But instead, what is the basis of liability? Falsity of the warranty or the nonfulfilment of the promissory warranty. Now if the breach is committed and it is without fraud, what is the effect? It depends upon the time when the breach is committed. 1. at effectivity void ab initio 2. after effectivity no longer liable from time of breach So if the breach was committed at the effectivity of the policy, what is the effect? It makes the policy void ab inito. It prevents the policy from attaching to the risk, as if the policy never became effective. Example: If you make an express affirmative warranty that you were not confined in the hospital for any serious illness. Thats an affirmative warranty. If its found in the policy, then its an express affirmative warranty. But it turned out that prior to the effectivity of the policy, you have been confined in the hospital for a serious ailment, so at the time the policy took effect, theres already a breach. So the plicy is void ab initio. Or you made an affirmative warranty that the house is used as a dwelling. In order for the affirmative warranty to be valid, that fact must be true. But if its false, then theres already breach at effectivity. So the policy is void ab anitio. Meaning if the loss occurred, is the insured liable? No. because the policy never became valid and binding But if the breach was committed after the effectivity of warranty; normally this will apply to promissory warranty, because the fulfillment will be after the effectivity of the policy. Example: If the policy was for a period of 1 year and there is an express warranty that the insured shall not store hazardous or inflammable goods. What if 6 months after the effectivity, the insured stored flammable goods, what is the effect? Not void ab initio. But it only exonerates the insurer from liability from the time of breach. So from 6 months onwards the insurer is no longer liable. Such that if the loss happened after the breach is committed, the insurer is no longer liable But before the breach, the loss has already occurred, is the insurer still liable? Yes. It is not void ab initio. What is the effect on premium? Is the insured entitled to return of premium if breach was committed at effectivity? Yes. All of the premium. Provided it is without fraud. Its just fair because the insured never incurred liability. He did not assume any risk. How about if breach was after effectivity? Is the insured entitled to premium? Yes. So if the premium here was 10k, for how much is the insured entitled to the premium? 5k corresponding to the remaining period But if the breach was committed with fraud, what is the effect? What happens to the policy? Void ab initio. Is the insured entitled to the premiums? No. Lets proceed now to 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.
Under sec 77, the law provides payment of premium is a condition precedent or essential for the validity of the insurance policy. Such that if no premium is paid, as a general rule, then theres is no policy. - Cash and carry rule. The reason for that is because the time of payment of premium is the essence of the insurance contract. kung sa taxation pa, its the lifeblood of the insurance contract. The prompt payment of premium is necessary for the maintenance of the legal reserve fund. It is for the protection of the policy holders and for the prompt settlement of claims. Sec 77, unlike the old provision is a very strict rule on the payment of premiums. If you do not pay premiums then the policy is not valid and binding. That is the general rule, notwithstanding any agreement to the contrary. So even if the policy provides that this policy shall be valid and binding even if no payment is paid; that stipulation is null and void. That is what is meant by law- notwithstanding any agreement Kwin Transcripts Page 58
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Agreement here refers to an agreement where you stipulate that the policy is valid and binding even if no premium is paid. As we will discuss later on, this does not refer to other agreements. Going back, Sec 77 states that:
An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Meaning if for example A insured his vessel for a voyage from Manila to Cebu. The moment the vessel departs from manila, the thing is already exposed to the peril insured against. And from that moment on, the insurer is entitled to the payment of premium. Such that if no premium is paid the policy is not valid and binding. And if the vessel is lost at sea, the insurer is not liable. Case: Philippine phoenix The insured here is woodworks who obtained a fire insurance policy. He applied for insurance policy but did not pay any premium. But he was issued a policy. Woodworks notified the insurer that the policy was already cancelled. In this case it was the insurer who filed a case against the insured because the insurer wanted to recover the unpaid premium. Is the insurer entitled to recover the unpaid premium? No Why not? Because the nonpayment of the premium did not merely suspend the policy, but the policy was never, in the first place, became valid and binding. The basis is sec 77. If we turn the tables around and have woodwork file for recovery, do you think he will be entitled? No. so thats just fair. So the insurer is not entitled to recover premium because it never became valid binding. Also, the insurer never assumed liability such that if the loss occurred the insurer would also not be liable. Since he is not liable, then theres no basis for him for demanding payment on the unpaid premium. So its based on the general rule provided in sec 77. This is strange because it is the insurer who is filing the claim against the insured.
Case: Acme shoe rubber Since 1946, then it renewed its policy for 1963 to 1964. Normally if you renew the policy, you ought to pay the premium at the time you had the renewal. But in this case, no premium was paid right away, but paid on Jan 8, 1864, 7 months after the effectivity of the policy did the insurer receive the payment of the premium. But nevertheless the insurer still accepted the payment of the premium. Then it was renewed again for another year for 1964-1965. But here there was a credit agreement in the policy which provides that the insured will pay the premium within 90 days after the policy was issued. And so long as the payment is within 90 days, it is considered valid and binding. Loss/fire occurred in Oct 13, 1964. And at the time of the loss, the premium for the renewal of the policy was unpaid. The issue is WON the insured can recover. The contention of insured was that before, I had late payments, therefore impliedly you grant me credit extension But here, if you look at this from May 1964 to Oct 13 (time of loss), clearly it was more than 90 days. Assuming that the credit agreement is valid, still it is more than 90 days. But without touching on the credit agreement, just basing it in sec 77, do you think the insured can recover? No because at the time of the loss, the premium is unpaid, therefore not valid and binding
What if the loss occurred within 90 days? It depends because that will now fall under the exception in the Makati case; the loss occurred on the credit term but there was still no payment of premium yet.
Case: Makati There was a pronouncement there that if there is an agreement to grant credit extension and the loss occurred before the expiration of credit term; even if theres no policy made, the policy was still considered valid and binding. But going back to acme case, the loss occurred beyond the 90 days credit term. And theres no payment of premium. Therefore, in no way can the insured recover. 34.31 9.17.2010 Case: Arse v capital insurance At the time of the loss, no premium was paid. There was no mention of credit agreement or extension. So simply at the time the policy was issued, no payment of premium was made. At the time of the loss, labaw na, theres no payment of premium. So is the insured entitled to recover? No. under sec77.
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Case: capitol insurance v surety The case involves payment of premium by way of promissory notes and checks. The checks were not encashed and when they were presented for payment, they were dishonored due to insufficient funds. But the court said, since the insurer accepted the payment of checks, even if it is dishonored the policy is still valid and binding. But take note that this case is no longer applicable under the new provision of the insurance code. Because this case was decided under the old provision of the insurance code. Wherein theres still that provision unless there is credit agreement. But in the new provision, this phrase is deleted. The provision even now says notwithstanding any agreement to the contrary. So if this case is to be decided now, the policy would not be valid and binding. Lets go now to the exception to the general rule Actually there are 5 exceptions. GR: NO PREMIUM, NO POLICY SEC 77 EXPT A. STATUTORY EXCEPTIONS (provided by law) 1. SEC 77 LIFE INSURANCE 2. SEC 78 ACKNOWLEDGEMENT B. JURISPRUDENCE 3.PAYMENT IN INSTALLMENTS Makati tuscani 4.CREDIT EXTENSION/TERM Makati tuscani 5. ESTOPPEL UCPB A. STATUTORY EXCEPTIONS (provided by law) 1. SEC 77 LIFE INSURANCE If we talk about life insurance, after the payment of the initial premium, the insured is entitled to a grace period of 1 month or 30 days within which to pay premium. Meaning, if the insured dies, without payment of premium, before the payment of premium of 1 month, the insured is still entitled to recover. Basta lang he died within the grace period. Also in life insurance, there are devices in life insurance which prevent the forfeiture of the policy due to the non payment of premium. We have what we called CASH SURRENDER VALUE. Its the amount that the insurer is entitled to receive. If you cannot pay for the premium, normally the premium id deducted from the cash surrender value. Or there is what we call automatic loan. If you cannot pay, pautangon ka sa insurer; the amount to be deducted from the policy. So you cannot forfeit the policy so long as he died within the grace period. 2. SEC 78 ACKNOWLEDGEMENT 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.
Case: American home assurance In American Insurance, the payment of the premium was also by way of check. But the policy/renewal certificate contains an acknowledgment as to the receipt of premium. So never mind the check, even if it would be dishonored. But in this case, it was not dishonored. Gideny lang niya ang pagdawat. But even if the check was dishonored, the policy would still be valid and binding because the policy CONTAINS AN ACKNOWEDGMENT FOR THE RECEIPT OF PREMIUM. And that falls provided under the exception provided in sec78. (to be discussed later) But again, payment of check and promissory note will not make the policy valid or binding. Diba we have the provision in the civil code, when will the check or promissory note or negotiable instrument produce the effect of payment? Only when it is encashed. That is why in capitol insurance, if it were to be decided now, it would not be valid and binding. Case: Velasco v Valenzuela Loss occurred before payment of premium. So again the policy is not valid and binding. Same as in the first case of Philippine phoenix, its the insurance company who sought payment of unpaid premiums. And since no premium was paid at the time the policy was issued, the court said that the policy has elapsed. Then theres no basis for the insurer to file a case against unpaid premiums.
So the effect of the acknowledgment in the policy is a waiver for purposes of making the policy valid and binding. So the acknowledgment in the policy is conclusive evidence as to the payment of the premium. But it is conclusive only insofar as to making the policy valid and binding. Notwithstanding any stipulation that the policy shall not be valid if o premium is paid. So meaning by virtue of sec 78, the law creates a legal fiction of payment. So it is as if there is no payment even if in reality, there was none. But only for the purpose of making the policy valid and binding Kwin Transcripts Page 60
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But can the insurer still recover the payments later on? Yes. The insured cannot say that it is already conclusive evidence of payment. As far as the payment itself, it is only a prima facie presumption. So the insurer can still recover payment Like as Ive mentioned in American insurance, the payment was made in check but the re was an acknowledgment in the policy as to the payment of premiums. So the court said, acknowledgment is conclusive evidence of payment. So to make the policy valid and binding. Why is it like that? That if there is acknowledgment, it is already conclusive evidence of payment? The insurer by issuing an acknowledgment receipt; in effect waived the condition that there should be payment first before the policy becomes valid and binding. B. JURISPRUDENCE 3. PAYMENT IN SURANCE Case: Makati Tusacni condominium v CA Insured is Makati tuscani, and insurer is American home insurance. Made and renewed in: 1982,1983,1984 In these three years, the premium was paid in installments. Makati refused to pay premiums. Here although the premium was made in installments, it did not make the policy lapse. Because for three years, the insurer accepted payments in installments. It speaks loudly of the insurers intention to honor the policy. Therefore, since the policy is valid and binding, the insurer is entitled to recover the remaining balance. Difference: In Philippine phoenix, there was no premium paid at all. That is why SC said that the policy never became valid and binding. Therefore the insurer had no right to recover. In Makati Tuscani, there was payment but in installments. And the insured has been paying the premium on installments for 3 years. Meaning the insurer has intention to honor the policy even if the payment was made in installments. Since the policy was valid, then it was entitled to the remaining balance. But there is an issue: isnt this contrary to he provision of sec77 where it states notwithstanding any agreement to the contrary? How did the court reconcile that one? Is there inconsistency? No. What is prohibited here is that the agreement that states that the policy is still valid even if no premium was paid. But this does not prohibit the parties from entering into other agreements. Like credit terms or ageemnet as to the payment on installments. The court says that that kind of agreement is not contrary to law, morals, good customs and public policy. Therefore, since for tree years the insurer continued to accept premium on installments; in effect the insured granted credit term or credit extension or allowed the insured to pay the premium on installments. Because the ratio also of the court is that it is unfair also on the part of the insurer if we are to rule otherwise. Because if we were to rule otherwise, what if is it a different story now? Meaning its not the insurer this time whos filing a case on recovery? What if the loss has occurred before the insured has paid the full amount? Do you think that the insured is entitled to recover? Yes. Because the court said the insurer cannot escape liability by saying that he has not paid the premium but before the loss has occurred it has been collecting installments. Your acceptance of premium in installments speaks of the intention to honor the policy. So since the policy is valid and binding, the insured can recover. This is exception to sec 77. Because in sec 77, GR: no premium, no policy. Also the general rule of premium is that it is INDIVISIBLE. You cannot pay on installments. The partial payment of premium does not prevent the forfeiture of the policy. That is the general rule. Unless you fall under the exception in the case o Makati Tuscani. The GR is that you should pay the premium in full. If you pay in partial and a loss has occurred, as a rule, you are not entitled to recover; unless you fall in the exception of Makati tuscani. In Makati tuscani, it is clear that there is an agreement between the parties to allow payment in installments. So again, what is the exception sated in Makati tuscani? When there is an agreement allowing the insured to pay premium on installments and partial payment has been made at the time of loss. In that case the insured is still entitled to recover and in the policy is still valid and binding. So both ways, makarecover ang insured, makarecover sad ang insurer for the unpaid premium. But if the facts were different, it is not an established practice. What if it is still first year, only partial payment is made? You think the insured is entitled to recover? It depends again if they fallunder another exception if Kwin Transcripts Page 61
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theres an agreement allowing the insured a credit extension or a credit term. 4.CREDIT EXTENSION/TERM Makati tuscani Another exception provided in Makati tuscani is that if there is a clear agreement between the parties to grant payment of premium and the loss occurred before the expiration of the credit term, so whats the effect? Is the insured entitles to recover? Yes. Can the insurer collect the unpaid premium? Yes. Because the effect in short is that the policy is valid and binding. So thats the fourth exception. If theres an agreement as to credit extension. Provided that the loss occurred before the expiration of the credit extension. Now, is sickness or incapacity a valid excuse for non payment of premium? No. as a rule, no. What are the exceptions? Excuses for non payment of premiums? 1. there is war and the insured became a public enemy 2. insurer refused to accept payment There was an old case, the insured went to the office of insurer wanting to pay the premium. The insurer will not accept because it is war time. Lets discuss now return of premium. When is the insured entitled to a return of premiums? 1. sec 79 a NOT EXPOSED TO PERIL INSURED AGAINST 2. sec 79 b POLICY FOR A DEFINITE TERM 3. sec 81 CONTRACT IS VOIDABLE FOR FRAUD/REPRESENTATION ON PART OF INSURER 4. sec 81 CONTRACT IS VOIDABLE ON GROUNDS UNKOWN TO INSURED W/O HIS FAULT 5. sec 81 INSURED NEVER INCURRED LIABILITY 6. Sec 82 - OVERINSURANCE SEC 79
Sec. 79. A person insured is entitled to a return of premium, as follows: (a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; (b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.
Case:Angtibay There was also payment on installment. There was partial payment but the policy also expressly states that the policy shall not be valid and binding until there is full payment, Here the loss occurred before the payment became full. So the issue there was whether the insured was entitled to recover. The court said no. In fact, Angtibay raised as a defense the case of Makiti tuscani because they allowed the validity of the policy even if only premium was paid. But the court said that that is different because there, therewas a clear agreement that the payment of the premium is in installments. It makes the policy valid and binding. nd And in the 2 phoenix case, there was partial payment of premium. But the insured filed a case for the recovery of unpaid premium. So in effect, it speaks of the intention of the insurer to honor the policy.
1. sec 79 a NOT EXPOSED TO PERIL INSURED AGAINST

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;
5. ESTOPPEL Case: UCPB For several years, the insurer consistently granted the insured a credit term for 60-90 days. I think he renewed the policy for 5 years. And here, what happened is that the loss occurred before the payment of the premium but within the credit term. So the issue here is whether or not the insurer is liable Is the insurer liable? Yes for reasons of estoppel. In effect you granted a credit term or credit extension.
He is entitled to a return of whole of the premium. Ex. a. he lost the car before the policy took effect -so it was not exposed to the peril exposed against. So the insured is entitled to return of the whole of the premium. b. he already paid the premium but the application was rejected or denied. c. you insured a vessel for voyage from Cebu to HK but the voyage never commenced. d. the insured became a public enemy e. you withdrew your application before it was accepted. Kwin Transcripts Page 62
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2. sec 79 b POLICY FOR A DEFINITE TERM
(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.
3. sec 81 CONTRACT IS VOIDABLE FOR FRAUD/REPRESENTATION ON PART OF INSURER SEC 81

A person insured is entitled to return of the premium when the contract is voidable, 1. on account of fraud or misrepresentation of the insurer, or of his agent, or 2. on account of facts, the existence of which the insured was ignorant without his fault; or 3. when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.
Here it talks about a policy for a definite term. So lets say that the term is for 1 year. And before the expiration of the period, lets say 6 months, the insured surrendered the policy. In that case, he will be entitled to return of premium. For how much? Corresponding to the unexpired term. Lets say for 1 year, he paid 10k. what will be returned to him is 5k. Exception: if short period rates will apply. What is short period rate? In a policy , theres a table there of rates, that is the policy is effective only of lets say 1 month or 2 months, then it will have equivalent rates also. As a general rule, it will be pro rata. Unless the policy expressly stipulate that in case the policy states that in case of stipulation, the following rates will apply. Again take note, this applies only to a policy with a definite term. As we will discuss later on, it will not apply if the risk is indivisible or it does not apply in case of life insurance. We will discuss that later. What if before he surrendered the policy, a loss has already occurred? You insured your house for 1 year. Before six months, part of the house was insured by fire and you suffered a loss of 2k. the insurer was liable for 2k. After 6 months, you surrendered the policy. We said that you will be entitled to a return of premium prorata. But what if there is a loss prior to cancellation? How would you compute the return of the premium? How would you compute now the return of the premium? (Premium paid less return of policy) X unexpired term= return of premium --10k - 2k =8k. --8k X (6/12) =4k
Take note: fraud or misrepresentation on the part of the insurer. If there is fraud on the part of the insurer, is the insured entitled to the return of the premium? Yes. Example of fraud or misrepresentation of the insurer; insured will say that the heirs will be happy or he misrepresented that after 5 years you will have the cash surrender value or you may obtain loan.
4. sec 81 CONTRACT IS VOIDABLE ON GROUNDS UNKOWN TO INSURED W/O HIS FAULT Example: he insured his vessel but unknown to him, the vessel is already lost. He is entitled to the return of premiums provided that the policy does not state whether lost or not lost. So again, he is entitled to the whole of the premiums
5. sec 81 INSURED NEVER INCURRED LIABILITY So same example as before; you insured a car and the car got lost before the policy took effect. Or you insured you vessel for a voyage from HK to Cebu but the vessel was still under repair and repairs were not finished. So the insurer never incurred liability. Or in short, thing was never exposed to the peril insured against. The insured is still entitled to return of premiums.
6. Sec 82 - OVERINSURANCE SEC 82

In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.
Here the law talks about over insurance by reason of double insurance. When is there double insurance? When you insure the same insurable risk, same insurable interest, different insurer. Kwin Transcripts Page 63
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So for example, house valued at 600k is insured with the following insurance companies: Face Value Premium A 200k 20k B 400k 40k C 600k 60k 1.2m 120k So in this case there is over insurance to the extent of the difference between the total face value of the insurance policy and the total insurable interest (value of the house). Over insurance = 600k = 1.2m 600k = 50% = 600k/1.2m The law says that the insurer is entitled to return of premiums. How much? Proportion to the amount by which the policy exceed the insurable interest. Proportion = 0ver insurance / total face value 50% =600k/1.2m Premium A 20k X50% B 40k X50% X50% C 60k 120k Return of premiums =10k =20k =30k 60k So if the insured opt to recover from C 600k, can he do that? Yes. Because the face value is 600k. After recovering from C, can I go after A and B? No. because in no case can my recovery exceed 600k, the value of my insurable interest.
If I opt to recover from A 200k, can I still go after B? Yes. For how much? 400k. If I go after B for 400k, can I still go after C? Yes. For how much? 200k. But between them, the insurers, they are entitled to reimbursements. By how much? It depends on their liability. So if I recover from C 600k he can go after A for 100k and B for 200k. This is assuming that it is a valued policy, and the 600k is the agreed valuation. What if it states that it is an open policy; and at the time of the loss it was determined that the value of the house was 500k. How can you determine their respective liabilities? Simple. You simply change 600k to 500k. but in now case again that it will be more than the face value.
So the insured is entitled to return of premiums of 10k, 20k, and 30k from A, B and C respectively.
Assuming that there is loss, for how much or against whom can the insured recover? Or how much is the respective liabilities of A, B and C? As a rule, I can recover 200k, 400k and 600k from A, B and C respectively. Bottomline, I cannot recover more than 600k. What if I recover only from C, what happens to A and B? are they relieved from liability? No. C is entitled to get reimbursement from A and B. Therefore, we have to determine how much is the respective liability of A B and C. Liability: (face val/total face val) A (200k/1.2) B (400k/1.2) C (600k/1.2)
Id like to discuss with you in relation to over insurance, COINSUANCE. There is co-insurer if there is underinsurance. Like if the face of the policy is less than the value of the property or less than the amount if your insurable interest. Value of house: 500k Insured (face): 400k Under insured: 100k So if you insure your property for less than its value, you are considered as a co-insurer for the difference. So meaning as a co-insurer, you would be liable. What is the effect? It depends. In MARINE INSURANCE, automatic na siya. If you insure you vessel for less than its value, you are considered automatically as a co-insurer for the difference. Because the law requires that in marine insurance, you must insure the Kwin Transcripts Page 64
X insurable interest X600k X600k X600k
=liability =100k =200k =300k
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property up to its value. So if the insured insured it for less than its value, so as a penalty you would be considered as a co-insurer for the difference. The co-insurer is the insured. You are a co-insurer of the insurer. EXAMPLE: Value Face 80%. In fire insurance, if there is no co insurance clause, the insured is entitled to recover whatever is stated in the policy. Example: Value 500k Face 400k 100k For how much am I entitled to recover? GR: Damage/loss: Amount recoverable: 1. 300k 300k 2. 100% 400k EXPT: if there is co-insurance clause Damage is: Insured only 80% (400k/500k): Amt recoverable: 1. 300k 80%X300 =240k 2. 100% 80%X500 =400k
1m 800k 200k
insurer insured
If you insured a vessel valued at 1m for 800k, 800k is the liability of the insurer. For the 200k, you are liable. What is the effect? It would have an effect now in your recovery. In FIRE INSURANCE, GR there is no co insurance. Meaning kung pila and face value of the policy, you are entitled to recover, whether you are underinsured or not. Exception is when you have what we called a co-insurance clause. In co-insurance clause, it provides that if the insured insures the property for less than its value, then as a penalty, you will be considered a co insurer for the difference. Why does the fire insurance provide for a co-insurance clause? In fire insurance, it will not result to total destruction. And the insured knows that. So instead of insuring the full amount, gamay ra ang iyang i-insure to have less premium. And in most fire insurance policy, the insurer would provide for co-insurance clause. What is now the effect? Back to marine insurance Vale 1m insurer Face 800k 200k insured What if the property is damaged, for how much is the insured entitled to recover? Damage is: Insured only 80% (800k/1m): Amt recoverable: 1. 50% 80% X (1m X 50%) 80% X 500k =400k 2. 100% 3. 400k 80% X 1m 80% X 400k =800k =320k
Example: Value Face 800 600 200
GR: Damage/loss: 1. 100% 2. 50% 3. 500k
Amount recoverable: 600k apply limit even if value is 800k 400k based on value (800 X 50%) 500k not exceed limit
EXPT: if there is co-insurance clause Damage is: Insured only 75% (600k/800k): Amt recoverable: 1. 50% 75% X(800k X 50%) 75% X 400k =300k 2. 100% 75% X 800k =600k 2. 500k 75% X 500k =325k
Coverage: policy warranty, premium, loss
The principle is that pila raman ka percent of the value ang akong gi insure? 80%. Or in case of partial loss, I am only entitled to recover 80% of the value of loss. But in total loss, I need not multiply with 80% because the amount insured is
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September 24, 2010 One of he instances where the insured is entitled to return of premium is: When the thing insured is not exposed to the peril exposed against When the contract is voidable but it is through the fault of the insurer When he contract is voidable on account of facts which the insured was ignorant When there is over insurance. There is over insurance here as a result of double insurance. There is double insurance when you insured the same interest, the same risk and you insured it with several insurers. You are entitled to reimbursement because there is over insurance. The law states that if you are over insured, the insured is entitled to return of premiums. For how much? In proportion to the over insurance. So you have to determine first by how much are you over insured. How do you do that? You simply compare the value of the house or the property insured as against the total face value of the policy. Here, the value of the house is 1m, and the face value is 1.2m. The over insurance is 200k. In over insurance, the liability of each insurer is solidary. So meaning, if I am the insured, I can recover as much as the value of the house but in no case will it be more than the face value of the policy. Each of the insurers liability is not joint as far as the insured is concerned. Joint lang ang ilang liability among themselves. *** lecture is wrong *** deleted from transcriptions*** the lecture was about over insurance *** refer to transcripts from previous class*** So for example in marine insurance, the value of your vessel is 1m, but you insured it only for 750k. You are under insured by 250k. Under the law you are a co-insurer for the difference. Meaning you are liable. Because the insured is only accountable to the extent of 750k.
Value of vessel Face value Underinsurance
1m 750k 250k
Meaning you insured your property only to the extent of 75%. What if the property is damaged, for how much is the insured entitled to recover? Damage is: Insured only 75% (750k/1m): Amt recoverable: 1. 500k 75% X 500k =375k 2. 100% 57% X 1m =75k
If there is 75% damage, you dont need to multiply it by 75% because 750k is already 75%. You are already co insuring to the amount of 250k. If you lost the entire vessel valued at 1m, you are only entitled to 750k. Thats your fault because you under insured your property. Meaning you co-insure your property. But in fire insurance, as a general rule, there is no coinsurance. Meaning you are entitled to recover to the extent of the face value of the policy. The exception is when the policy itself provides for what we call, CO INSURANCE CLAUSE. If there is co-insurance clause then the same rule will apply in marine insurance. Assuming we have the same example but using the fire insurance. GR: Value of property Face value Underinsurance GR: Damage/loss: 1. 500k 2. 100% 1m 750k 250k
What if there is under insurance? The total face value of the policy is less than the insurable interest or the value of the property. In under insurance, you have to distinguish between marine insurance and fire insurance. Because in marine insurance, it is automatic hat there is coinsurance. Meaning if you underinsured your property, you are considered as co-insurer for the difference between the value of the property as against the face value of the policy.
Amount recoverable: 500k apply limit even if value is 750k 750k not exceed limit
EXPT: if there is co-insurance clause Damage is: Insured only 75% (750k/1m): Amt recoverable: 1. 500k 75% X 500k =375k 2. 100% 75% X 1m =750k
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Actually, there is difference only when there is partial damage. But if there is 100% damage, you can recover only to the extent of the face value of the policy. If there is underinsurance then is no more return of premium. But for purposes of liability, we have to compute. Lets go now to loss. How is loss defined as far as insurance is concerned? There is injury, there is damage on the thing insured or it will create a liability. And these arise from the happening of the peril insured against. So the two losses here could be partial loss or total loss. When is the insured not entitled to return of premium? 1. When there is fraud or misrepresentation on the part of the insured 2. If the thing insured is already exposed to a peril insured against no matter how brief. Were talking here about insurance which is not for a definite term but an insurance which is indivisible. Ex. If you insure your vessel for a trip from Cebu to HK. And the voyage would normally take 10 days. You already paid premium of 100k. Assuming within the 5th day, you decided to cancel the policy, are you entitled to the return of premium? No more. Because the thing insured is already exposed to peril insured against. And the nature of insurance contract is that it is indivisible. You cannot apportion. You cannot say that 100k is good for 10 days, because the risk assumed by the insured is not equal each day. The moment the voyage already started, the insurer already assumed risk. Different man tong when the insured is entitled to the return of premium prorata because in that case, the contract of insurance was for a definite term. But it is different if he obtained several insurance for separate destination like from port A to Port B. so before we commence the voyage from port B to port C, he will say he will cancel the policy, can the insured say that he is entitled to return of premium? Yes. Because it is divisible. 3. When it is a life insurance If you preterminate your life insurance policy, you are not entitled to return of premium. 4. If the contract is illegal or void and the parties are in pari delicto If you are not in pari delicto, then of course you are entitled to return of premium. Example when the policy is void or illegal is when there is lack of insurable interest. So thats premium. SEC 83
An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.
Is it valid to agree or stipulate that the insured cannot transfer his insurance claim after the loss has occurred? No. it is void. Why is it void? Take note, what is being transferred here? Is it the policy? No. What is being transferred here is the money claim or the right of action or the right to go after the insured. So any stipulation in the policy prohibiting the insured from transferring his right to claim the insurance or from transferring his money, it is null and void. How do you differentiate that with sec 20? Theres a provision on sec 20 about transferring of interest which suspends the insurance. That one is different because the transfer is the policy itself. But here you are not transferring the policy but only the money claim. Why is it null and void? Why is it not allowed? Because money claim is already property. And one of attributes of property ownership is free disposal or the right to transfer. So this stipulation is void because it hinders transmission of property. Second, this is void because its against public policy. Does the transfer of money claim affect the insurers liability? Does it affect the risk assumed by the insurer? No more. Why not? Because the loss has already occurred. Upon the occurrence of the loss, what is the effect? The rights and the liabilities of the parties are already fixed. Do you remember one of the exception in sec 20 regarding transfer of interest in the policy? If the transfer was made after loss same as sec 83. And also, when you transfer the claim, you are no longer
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talking about the insurance contract. The rule on prohibiting transfer of interest applies because the insurance contract is a personal contract. now, its no longer an insurance contract but a money claim. So any stipulation prohibiting the insured to transfer his money claim after the loss has occurred is null and void. But of course an exception is the case of life insurance because in life insurance you can assign the policy. Why is it allowed in life insurance policy? Because life insurance is not a contract of indemnity. What is required land is that you have insurable interest. If it is the peril insured against, then the insurer is liable. Example. If you insured your house against fire and the cause of the house is fire. The proximate cause is fire. Is the insurer liable? Yes. Example. You insured your vessel against fire and the policy provides that any loss arising from explosion is not covered in the policy (excepted peril:explosion). Assuming there was an explosion and the explosion was caused by fire. Is the insurer liable? Yes Why? What is the proximate cause? Fire. The immediate cause? Explosion Immediate cause means the cause which is nearest in time of the happening of the loss. So if the proximate cause was fire and the immediate cause is the explosion, and take note that the explosion is an excepted peril the insurer is still liable because the proximate cause is fire.
SEC 84
Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss which the peril insured against was only a remote cause.
If the proximate cause of the loss is the peril insured against then the insurer is liable. What do you understand by proximate cause? In torts, how is it defined? It is the natural and continuous sequence unbroken by any sufficient and intervening cause which produces the injury or damage, without which the damage would not have occurred. So it sets others in motion, although it may not be the cause which is nearest in time as far as the happening of loss is concerned. But in torts, they determine proximate cause for the purposes of determining liability. In insurance, its more of determining how the loss occurred or what brought about the loss. Rule 1 on sec 84: if the proximate cause of the loss is the peril insured against, the insurer is liable. Even if a peril not contemplated in the policy was the remote cause of the loss. So the insurer is liable if the proximate cause is the peril insured against, even if the remote cause is not the peril insured against. He insurer is not liable if the proximate cause is the not the peril insured against even if the remote cause was the peril insured against. So in short, what is important is to determine the proximate cause.
Example. If you insure your house against fire. The fire started in the house of your neighbor. Because of the fire, the structure of the building was weakened. There was a strong wind and it collapsed in you house. As a result of the collapse, the house was damaged. Take note, your house was not on fire. Na damage lang siya kay nay fire wall. Is the insurer liable? Yes. What is the proximate cause? Fire. What is the immediate cause? Falling of the building.
Example. If you insured your house against fire. The house of your neighbor; the structure is defective. As a result the building collapsed. Because of the collapse, fire started. So the house is destroyed by fire. Is the insurer liable? Yes. The insurer is not liable under sec 84 but is liable under sec 86. Provided that the proximate cause is not an excepted Kwin Transcripts Page 68
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peril. What is the proximate cause? Collapse What is the immediate cause? Fire. Why is the insurer not liable? Because the proximate cause was an excepted risk. But if the policy did not except explosion, is the insurer liable? Yes. Because the immediate cause is fire. So what do we have so far? Under sec 84, the insurer is liable if the approximate cause is the peril insured against. Never mind the remote cause or the immediate cause. Also under sec 86 if the proximate cause is an excepted peril even if the immediate cause is not an excepted peril, the insurer is not liable. But if the proximate cause is not an excepted peril and the immediate cause is peril insured, he is liable. SEC 85
An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.
Example. The neighbors house was on fire. The building insured was defective and weak. It cannot stand the heat from the fire. It collapsed. It did not collapse because of the fire but because of the defective structure. Is the insurer liable? No Proximate cause: collapse Remote cause: fire The fire is not a proximate cause nor an immediate cause. Therefore the insurer is not liable.
So in relation to sec 84, lets discuss sec 86. SEC 86

Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.
a loss, which would not have occurred but for such peril What kind of peril? It refers to a proximate cause.so di tana na mahitabo ang loss kung walay peril. Meaning kani na peril is the proximate cause. The proximate cause is an specially excepted in the contract. Meaning, the proximate cause is an excepted peril. What is the effect on the insurer? The insurer is not liable. Because it states there is that it is excepted although the immediate cause of the loss was a peril not excepted. Simply said, if the proximate cause is an excepted peril, even if the immediate cause is not an excepted peril (meaning it is a peril insured against), the insurer is not liable. Example. If you insured your boat against fire. There was an explosion and because of the explosion, the fire stated and totally destroyed the boat. The policy was for fire. Excepted was explosion. Is the insurer liable? No. What is the proximate cause? Explosion. What is the immediate cause? Fire.
Sec 85 on the other hand actually is an extension of the principle of proximate cause. Such that even if it was exposed to another peril not insured against, but if it was lost in the course of the rescuing it from the peril insured against. The insurer is still liable because being exposed on the peril insured against is still considered a proximate cause. The proximate cause of the loss was the peril insured against. Sec 85 says that if the thing is rescued or saved from the peril insured against and in the course lf the rescue, it was exposed to another peril which is not covered in the policy. And as a result, it was lost. Or it was lost during the effort in the process of saving it from the peril insured against, the insurer is still liable. Classic example is fire. If you insure your property against fire, and a fire occurred in your house. Normally you would take out your furniture and appliances. For example the policy was fire and because of the fire you brought out your furniture outside to safety. The properties were stolen. Is the insurer liable? Yes. What is the proximate cause of the loss? Fire.
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What is the immediate cause? Theft. Take note that it should happen/ must be lost 1. in the course of the rescue 2. during the effort to rescue So the insurer is liable. Exception however if in this case theft was specifically excepted. So if it is lost through theft but it was still in the course of the rescue. But if theft was specifically excepted in the policy, the insurer would not be liable. 53.06 9.24.10 Example. There was a case its about life and accident insurance The insured suffered an accidental shock which caused a wound. The wound got him tetanus causing hi great pain and delirium and intense agony. As a result the insured committed suicide. So the issue now is WON the insurer is liable under life and accident insurance. Is the insurer still liable? Yes. The court says that the proximate cause was the accident Example. He met an accident and it caused him hernia. (enlargement of the male organ) As a result he submitted himself to operation. The operation was unsuccessful and he died. Is the insurer liable? Yes. The accident was still the proximate cause. The proximate cause is the cause which started everything in motion, unbroken by any efficient intervening cause. In that case the court says that the accident was still the proximate cause. The court says that the proximate cause was the peril insured against and therefore the insurer is still liable. But fire has to be hostile fire. As distinguished from friendly fire. What is friendly fire? It is friendly when it is burning in the place where it is supposed to be or should be. Like fire in the lamp, stove Hostile fire is when it is burning in the place other than where it should be. Pwede sad what started out as a friendly fire then it turned into a hostile fire. Lets say there is a bomb thrown in you house. What is the proximate cause? Bomb. What is the immediate cause? Fire. Is the insurer liable? Yes. Unless if the proximate cause is an excepted peril.
SEC 87
An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.
Is the insurer liable for negligence/ loss arising from the negligence of the insured? Yes. Provided that the negligence does not amount to gross negligence. Because if its already gross negligence, that will already be equivalent to willful act. And the insurer is not liable for the willful act of the insured and his connivance with the agent. Willful act. Example. Fire. We have read so many stories of businesses going down no names please their last resort was to destroy the building intentionally for purposes of recovering insurance. They are not entitiled to anything if it is discovered that it is through willful act. But mere ordinary negligence does not exempt the insurer from liability. Why? Because thats the very reason why you obtained the insurance in the first place; to protect yourself from your own negligence.
What if you insure your house against fire, and the fire resulted from the faulty wiring and because of the faulty wiring theres fire, is the insurer liable? Yes. What if nag overheat imong electric fan. As a result, niexplode and theres fire. Is the insurer liable? Yes. So long as the proximate cause is not an excepted peril. What is the proximate cause? Overheating. What is the immediate cause? Fire.
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Example. So there was this case. He was playing with the handgun. He removed the magazine and pointed the gun to his head and pulled the trigger. According to the case of sun insurance office, that was still considered accident. Although there was negligence, it does not exonerate the insurer. The insurer is still liable. Example. He was drunk. He drank the wood alcohol which he thought was whisky. He died. Is the insurer still liable? Yes. It is still covered as accident. Although there is negligence, the insurer is still liable. But again the negligence must not be gross. Example. There was one case where the court said that there is already gross negligence therefore the insurer is not liable. It involves about insurance on boat or tugboat which was docked in the port. There was already an advice that there was an incoming storm and there will be big waves. And yet the crew did not bring boat to safety despite the advisory/warning. As a result, the tugboat was destroyed. The court said that in that case, there was already negligence. Example. What about you were cooking but nabiyaan nimo? Or namalantsa ka and you forgot to pull out? Or you smoked and you left the cigarette butt in the carpet? Its negligence but not gross. 1.07.15 NOTICEOF LOSS AND PROOF OF LOSS. After the loss has occurred, for the insured to be entitled to recover, what must he provide t the insurer? Provide a notice of loss. What is the purpose of notice of loss? 1. To inform the insurer that the loss has occurred 2. For the insurer to investigate whether its a covered peril 3. To determine the extent of the damage or liability 4. To take necessary step to prevent further damage or to protect his interest. Is there a particular form for the notice of loss? No. As a rule, the notice of loss cold be in any form, oral or written. Unless the policy itself expressly provides that it must be written/sworn statement/notorized/ etc, then that requirement must be complied. Time within which the notice of loss is given? When? It should be given without unnecessary delay or within reasonable time. What is reasonable time? Its a question of fact. Again, its a case to case basis. But if the policy itself expressly provides a period within which to provide a notice of loss, then that period should be complied with. If you fail to provide a notice of loss within the period then the insurer is relieved from liability. Aside from the notice of loss, what else? You also need to submit proof of loss What do you mean by proof of loss? What kind of proof of loss? Does it have top be something that stands in the trial court? Not necessarily. You are only required to give the best evidence that you have within your power at that time. So what proof of loss may consist of? Pictures, police reports, death and medical certificates. So its not necessary that it could stand trial in court, but only preponderance of evidence. What if there is a defect in the notice of loss or proof of loss. Can it be waived by the insurer? Yes.
Is suicide covered ? It depends. You have to make sure if the insured committed suicide while he was insane or sane. If he committed the act while he was sane, then clearly it is a willful act of the insured. The insurer will not be liable unless the policy provides that he can recover whether he is sane or insane.
So to recap, what are the instances where the insurer is liable? 1. Sec 84, if the cause of the loss is the peril insured against 2. If it is caused by efforts to rescue the thing insured from the peril insured against 3. If the immediate cause was the peril insured against, provided the proximate cause is not an excepted peril 4. If the loss in caused by the negligence of the insured
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When can it be waived be the insurer? Such as when the insurer fails to raise objections on the proof and notice of loss. Or when he denies recovery but on some other grounds, not on the grounds that there was no notice or the proof of loss was defective but the contract was null and void. Or when he accepts it and insurer makes partial payment. Regarding delay in the giving of notice of loss, is it an excuse by the fact that the insured died or is incapacitated? Yes. Example. The insured died and the beneficiary was not aware of the existence of the policy. So they were delayed in giving notice of loss. Is that excusable? Yes. Or incapacitated ang insured such that he was nota able to give the notice of loss in time, the delay according to the court is excused. What about if the preliminary proof of loss, the policy requires a certificate or testimony of a particular person like in life insurance, it needs a doctors certificate as to the cause of the death or testimony to a particular person as to the cause of the death What if you were not able to obtain the testimony or certificate, is that detrimental to your claim? No. provided you proved to exercise due diligence to procure it but to no avail. And also, you must furnish evidence that the reason why you were not able to obtain the testimony or the reason why that person did not give you the certificate is not because he does not believe on the facts to be testified or the facts to be certified but on some other reason. Like when you ask the doctor can you testify that the cause of death is like this? So that I can claim from the insurance company? What if the doctor refused to issue the certificate? Its ok. As long as you can prove that you have exercised due diligence in obtaining that. And also you must prove that the reason why that doctor refused to certify is because he does not believe that thats not the cause of death but some other reason. Like I was not paid my professional fee, or conflict of interest.
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October 1, 2010 Elements of double insurance: 1. Same insured 2. Several insurers 3. Same subject matter 4. Same interest 4. Same risk So if A obtains a fire insurance policy for his house from A co, B co and C co, there is double insurance. But if he insured his house by A against fire, B against earthquake and C against tornado, there is no double insurance because there are different risks. If the mortgagor and mortgagee insured the same property, there is no double insurance because there is different insurable interest. Is over insurance the same as double insurance? Can you say that if there is over insurance, there is double insurance? And if there is double insurance, there is over insurance? No. EXAMPLE: The value of the house is 1m and insured it with X co for 1.5. Is there over insurance? Yes. Is there double insurance? No. Double insurance does not always mean over insurance. And vice versa. A insured the property with X co for 300k, Y co for 200k and Z co for 500k. Is there over insurance? No. How are they different? D: always several insurers O: not necessary that there are several insurers D: total value of the policy may not always exceed the value of the interest O: total value of the policy always exceeds value of the interest What if there is double insurance and over insurance? What is the effect? Against whom can the insured recover? We have discussed this when we discussed return of premiums. SITUATION: Value 1m A B C 200k 400k 600k
The value of the house is 1m and you insured it with A, B, C. So we have here double insurance and over insurance.
Whats the rule? Against whom can the insured X recover? Under art 94, he can claim from ABC up to the extent of value of insurable interest, but in no case exceeding the face value of the policy. Unless the policy expressly provides for a PRORATA CLAUSE or CONTRIBUTION CLAUSE. So going back to the general rule, the insured X can go back to any of A B or C to the extent of the value of the interest. Why? Each of the insurers liability as far as the insured is concerned is solidary. But among themselves, their liability is joint. So if the policy is silent the rule is X can go after A B and C. But if the policy provides for a prorate clause, meaning the insured ca only recover from ABC to the extent of their respective liability. What do you mean by respective liability? The prorate contribution. Assuming if there is no prorate clause. And its a valued policy, what is the rule? If X goes after C, can C go after B? Yes. For how much? 400k Can he still go after A? No more.
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If its an open policy. So you have to determine the value of the property at the time of loss. If the value of the property at the time of the loss was 1.2m, same rule. You can go after any of A B or C. He can go after A for 200k, then to B for 200k and C for 600k. because the total amount that he recovered does not exceed yet 1.2m. But if there is no prorate clause then you have to determine how much really is their liability. Then we have the computation. DOUBLE INSURANCE. Is it prohibited? Is it null and void because? Is it contrary to law? No. So general rule double insurance is not contrary to law. Exception is when the policy otherwise provides. REINSURANCE. What is reinsurance? There is reinsurance when? Its a contract where the insurer obtains a third party to insure himself against loss or liability arising from the original contract of insurance EXAMPLE: A___orig contract____B_____reinsurance______C Insured | insurer reinsurer | reinsured | loss B is the original insurer of contract of insurance. In reinsurance, B the original insurer obtains another contract wherein the third person called the reinsurer undertakes to indemnify the reinsured against the loss or liability arising from the original contract of insurance. So meaning, reinsurance is insurance of insurance. What is the purpose? There is what we call that RETENTION LIMIT. means the limit wherein the insurer can assume risk. So up to that point land. Normally its a certain percentage of the assets of the insurance company. There is the rule that when you reach a certain percent then it is mandatory to obtain reinsurance. So instead of saying no to clients and avoid the complications of retention limit, you obtain reinsurance so that you can still issue and assume risk even if it already exceeds the retention limit. Second purpose is to distribute risks among several insurers. SEC 96
Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.
If the reinsured or the original insurer obtains insurance, what is his obligation with respect to the reinsurer as far as the information? Disclose material facts. The reinsured has the obligation to disclose to the reinsurer all information concerning the original insured or any facts coming to his knowledge which has something to do with the original contract of insurance. Whats the purpose? Same principle as original contract of insurance. Those information are necessary for the reinsured to make decision on whether or not he will accept the risk of reinsurance. And if he would accept it, what extent of premium that he is going to charge. The law provides that the contract of reinsurance is a contract against indemnity of liability and not just a contract against loss and damage. What does it mean? When does the obligation of the reinsurer to the reinsured arise? The moment the reinsured becomes liable to insured. It simply means that the obligation of reinsurer as against the reinsured arises from the moment B incurred a liability towards A, even if B has not yet made payment to A. EXAMPLE: Assuming this a contract of fire insurance. The subject of fire insurance was razed by fire. At that point B becomes liable. Assuming B is insolvent, he cannot anymore pay A, can B go after C even if not B has not yet paid A? Yes. Because reinsurance is a contract of indemnity against liability. The fact that he is already liable to A, entitles B to go after C. Or C cannot raise as a defense to prevent recovery from B to C by saying, pay first A. The moment that B incurs liability, the liability of C also arises. But if B does not incur any liability to A, the liability of B to C does not also arise.
To what extent is the liability of C to B? The extent of liability of B to A. In no case can the liability of C to B exceed Bs liability to A.
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Nor can C assume risk different from the risk assumed by B towards A. So if what is assumed is by B is fire insurance lang, C cannot assume risk other than fire insurance. **The retention limit thats the time when you obtain reinsurance. This is the limit wherein you are allowed by law to assume risk. What is the effect if B becomes insolvent, assuming A knows that there is a contract of reinsurance, go after C? No. Because the contract of reinsurance is a distinct and separate contract from the original contract of insurance such that A cannot go after C and vise versa. A is not a privy to the contract between B and C. The only recourse of A is go after B. But C can raise defense against B which defense B himself may raise against A. EXAMPLE: There is fraud or misrepresentation or the original contract of insurance is illegal or null and void. Then B filed a claim against C. C can claim the same defense against A. The only exception when A can go against C is when the contract of reinsurance itself provides that the policy benefits the original policy owner or that the contract of reinsurance is payable to the original policy owner. But as a general rule, no. Because its a distinct and different contract from the original contract of insurance. So if C already indemnified B, is C entitled to rights of subrogation? Yes. Against whom? Against the wrongdoer. Case: phil am life insurance Insured A Insurer / reinsured Phil am Reinsurer AIRC The original contract of insurance was life insurance. There is a difference between reinsurance treaty and reinsurance policy. In reinsurance treaty the obligation is self executing. Its automatic. The moment that the insurer accepts risks arising from the original contract of insurance, these risks are automatically transferred to the reinsurer. Thats why if its a reinsurance treaty, the obligation to disclose information no longer applies because its no longer material on the part of the reinsurer in making a decision whether to accept or not because the moment there is reinsurance, the risk assumed is automatically ceded or transferred to the reinsurer. Whereas in the reinsurance policy, it would depend if the reinsurer would be willing to assume the risk. It would depend now on the nature of the risk assumed. Thats why the information concerning the original insured is necessary. So its more on the remittance of the premium. In reinsurance it spreads the risk of the reinsurer. Instead of just B assuming the risk, he lets somebody else assume the risk among persons who are similarly situated. Case: Malayan A______B_____C Term reinsurance The original insured sued the original insurer. Reinsurer intervened to prevent the insured from recovering from original insurer. Judge denied the intervention. The intervention is not operative. Even if there are defect and insurer was able to pay because insurer was not able to raise a defense against the insured, that would not preclude or estop the insurer from refusing the claim of the insurer by raising defense that there are defects in the original contract of insurance. The reinsurer can the raise the same which the reinsured himself may raise against the original insured. And besides, why would he intervene? Its only between the insured and the insurer/reinsured. Thats arising from the contract of insurance. The reinsurance has nothing to do with the original contract of insurance.
** C cannot just unilaterally rescind (preterminate) the contract except if the policy provides that any party may terminate the contract upon written notice. If the original contract of insurance is preterminated, what happens to the contract of reinsurance? No more. Case: The happening of the fire occurred within the period. Meaning the reinsured already incurred liability towards the original insured. So even if the reinsurer already sent notice of cancellation, his liability towards the reinsured would still be until the duration of the policy because the insured already incurred liability towards the original insured. There a provision in the contract that his liability subsists until the end of the term. Kwin Transcripts Page 75
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If there had been no provision and there was already cancelation before he incurred liability then the reinsurer is already liable. October 8, 2010 Well discuss the important provisions. So MARINE INSURANCE SEC 99
Marine Insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks; (b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles); (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; (d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person.
So sec 99 provides us for the coverage or what is covered in marine insurance policy. Previously in the old law, marine insurance is limited only to risks that apply only in marine navigation. Now, it expanded the coverage of marine insurance to include those risks which would have been properly covered by other forms of insurance. So if you look at it, there are things no longer elated like: 1. Insurance against loss or damage to aircraft -so if you insure your aircraft, it will now be subject to marine insurance 2. Loss or damage to goods or merchandize while being packed, crated or assembled. PVDD only for shipment -so the determining factor is if it is being packed for shipment -Before it should be in course of navigation/while goods are being boarded on the vessel. Now even if it is not yet in the vessel, it can be covered in marine insurance so long as it is for shipment 3. Loss or injury to persons in connection with marine transit -so the operator can now insure its passengers. -the only exception of loss or damage or bodily injury in land transportation. Because that is covered by
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compulsory vehicle third party liability 4. Loss or damage of precious stones/jewels/jewelry -this seems to be a misplaced provision because the law says whether in the course of transportation or not. It would have been ok if the jewelry was in the vessel while in sea. 5. Loss or damage to bridges or tunnels or other instrumentalities of transportation or communication Meaning under sec 99, it now expanded the meaning of marine insurance. What are the risk covered under marine insurance? 1. war risk 2. builders risk 3. perils of the sea WAR RISK What are considered as war risk? Perils directly due to hostile action or military maneuver or operational war. But it does not include aggravation or increase in maritime risk because of war. ex. the vessel is being blown up during war the vessel rammed against an enemy submarine the vessel exploded because it hit a drifting mine But not covered: If collide with ship already sunk after war If the vessel received destination that the port of destination has war and he returned top the port of origin and encountered risk. That will no longer be covered -but he can recover under some other form or risk BUILDERS RISK These are the risks arising from the launching of the ship as well as the damage of the ship. PERILS OF THE SEA What are considered as perils of the sea as opposed to perils of the ship? So any loss or damage arising from what strong or extraordinary or violent action of wind or waves. Ex. sank during the storm. Something which could not be foreseen or not attributable to the fault of anybody Example: What he insured as a risk is the perils of the sea. To recover, the peril of the sea must be the proximate cause of the loss. Marine insurance on the cargo. In the course of the voyage the perishable cargo started to rot. As a result the crew decided its necessary to jettison. The issue is WON the insured is entitled to recover. As opposed to the perils of the ship. What are the perils of the ship? Includes the: Natural wear and tear of the ship Defective machinery and equipment Failure or the owner to provide the proper equipment to carry cargo Natural and inevitable action of the sea. Why is it important to distinguish? Because as a rule marine insurance covers only perils of the sea. Not perils of the ship. Case: Cathay insurance co. Steel pipes were loaded in the cargo vessel. And during the voyage, they rusted. Is that peril of the sea or peril of the ship? Peril of the sea. liable. Why? During the voyage, the steel pipes rusted. The wear and tear refers to the ship, not to the cargo Case: A cargo consisting of sacks of rice. During the voyage, the water entered into the compartment where the sacks of rice were stored. The reason was a defective drain pipe. Is this a peril of the sea or peril of the ship? In that case, its already a peril of the ship. not liable Because its no longer because of the extraordinary acts of the wind and the wave. Its because of the failure of the ship owner to keep its vessel in a seaworthy condition. Case: Cargo consisting of logs loaded inside the barge. Carrier failed to provide cover over the logs. The ordinary splashes of seawater entered the barge. One of the hatches was left open. As a result the barge sunk Peril of the ship. not liable Take note, same as any other type of insurance, for the insured to recover, the peril of the sea must be the proximate cause of the loss.
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What is the proximate cause? Sea, going inside the cargo What is the immediate cause? Throwing because of rotting. Is this covered in the insurance policy? Yes. Is it still covered by peril of the sea? The peril insured against is peril of the sea. Because of the condition of the wind and the sea, it went inside the perishable cargo. Why did it rot? Because of the peril of the sea. So the burden of the insured is to prove loss or damage but after that the burden is shifted to the insurer to prove that the reason for the loss is an excepted risk. Theres no need for the insured to prove that the loss or damage was due to a particular risk because that will defeat the purpose of an all risk insurance policy. INSURABLE INTEREST. What is peculiar in marine insurance is if the vessel is chartered (rent a vessel-for entire boat or a particular voyage) Under the law, the insurable interest is not affected by the fact that it is chartered. Meaning he still retains insurable interest even if in the charter contract provides that the charterer is liable in case of loss and paythe owner a certain amount. Example. If the value of the vessel is 5m. and the vessel is chartered. And under the charter agreement, the charterer is liable to pay the owner of the vessel 2.5m in case something happens to the vessel. Can the owner of the vessel still insure the vessel? Yes. For how much? Still 5m. the insurable interest of the owner is not affected by the fact that it is chartered. Why 5m? Because its not sure that he can recover 2.5 from the charterer. What if he cannot recover? What is the vessel is lost? To what extent will he be indemnified? To the extent of 5m. However if he can recover from the charterer, that amount will be deducted from the amount that he can recover from the insurer. So if the insured was able to recover 1m from the charterer. Meaning he can only recover from the insurer 4m. because the extemt of his insurable interest is 5m. If he recovers 2.5m, then he can recover only 2.5m. Example. Cargo is insured in all risk policy. Some of the items were missing because they were stolen. Is it covered? Yes. Ordinarily, if it is not all risk, is it covered under perils of the sea? No. it has nothing to do with the perils of the sea. But as to what extent? Still 5m. What about the charterer? Can he insure the vessel? Yes. Does he have insurable interest? Yes. Because it would create liability.
-EVALUATIONSo the peril of the sea must be the proximate cause of the loss Case: A vessel was insured against the peril of the sea. It was shipwrecked due to a storm and led to a barbarous coast. And it was burned by the natives. Is it still covered under peril of the sea? Yes. What is the proximate cause? Peril of the sea. Immediate cause? Burning. We also have what we call an ALL RISK MARINE INSURANCE POLICY. Under this, as the name suggests, it covers all types of risk, whether related to marine peril or not. So if the policy is an al risk marine policy, the burden of the insured is only to prove thatthere was a loss and damage. And the burden now is shifted to the insurer that the loss arised from the excepted risk. What are excepted in an all risk marine policy are the WILLFUL, FRAUDULENT ACT OF THE INSURED or those SPECIFICALLY INCLUDED IN THE POLICY. All other risk related to marine peril or nopt is covered in an all risk policy.
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What is the extent of his insurable interest? Under this problem its 2.5. HYPOTHECATED/SUBJECT TO A LOAN ON BOTTOMRY/RESPONDENTIA Now. What about if the vessel is hypothecated or subject to a loan on bottomry or loan on respondenntia? Bottomry if the collateral is vessel. Respondentia if the collateral is cargo. Under this type of loan, the condition is that it is payable only upon the safe arrival of the collateral. Such that if the vessel is lost or the cargo is lost, the loan is extinguished. Normally this is subject to a high interest rate because of the risk assumed by the lender. Assuming it is lost, you dont get paid. So the issue now is what is the extent of the owner of the vessel or the owner of the cargo subject to a loan on bottomry or loan on respondentia? Assuming he obtained a loan. The value of the vessel is 10m. he obtained a loan for 5m, loan on bottomry. For how much can the owner of the vessel insure it? 10 or 5? Only for 5. Why 5m? Because if something happens to the vessel, the loan is extinguished. Meaning you have benefited already from the loan of 5m. So you get to recover only 5m. the total is 10m What about the lender? Can he insure the vessel or the cargo? Yes. Does he have insurable interest? Yes. Same as the creditor. To the extent of the loan. Because if something happens to the vessel or to the cargo then the loan will be extinguished. For how much? 5m. So in short the insurable interest (owner) to the extent of the difference between the value of the vessel less the loan. So if the value is 15m and the debt is 10, for how much can you insure it? 5m. But the lender only to the extent of the loan. Because that is the amount that he will be damnified. EXPECTED FREIGHTAGE. The owner of the vessel has insurable interest on the expected freightage. What is the basis of insurable interest on the freightage? Future earnings on the basis of expectancy arising from an existing interest. So the owner of the vessel has the right to insure the expected freightage. Same later on that the owner of the cargo has also the right to insure the expected profits other than the cargo. What is the basis of insurable interest? Expectancy founded on an existing right. CONCEALMENT. What is peculiar in marine insurance regading concealment? In marine insurance as compared to other types of insuranceyou recall that in other types of insurance are you required to disclose information coming from a third person? Or expectation or belief of the third person? No. but you have the option top disclose. If you dont there is no concealment. But in marine insurance, even information coming from third person or expectation or belief of a third person which are material to the risk, you are required to disclose. So if you have knowledge from 3rd p that that area has many pirates, you are required to disclose. If you did not disclose that and that is material, then that is concealment.
Another difference regarding concealment; in ordinary insurance, so long as you conceal the fact that is material, whether or not it is the cause of the loss, there is concealment. Its not necessary that the fact concealed be the cause of the loss. But in marine insurance, if you conceal certain information, refer to sec 110 SEC 110
A concealment in a marine insurance, in respect to any 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; (e) The use of false and simulated papers.
So same principle as in the case of respondentia.
GR in marine insurance, if you concealed these facts (above), there is no concealment. You will not be liable for concealment. You will only be liable for concealment if the cause of the loss is due to the concealed facts.
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Why? Because it is presumed that these information are not material. It only becomes material if the fact concealed becomes the cause of the loss. Example. You conceal the fact of the nationality of the insured. You represented that the vessel is British in nationality. Assuming during war, it was captured by an enemy and upon investigation it was discovered that the nationality was American. Is the insurer liable? No because the fact concealed was the cause of the loss. But even if you concealed the part that it is not American and in the middle of the pacific ocean, it sank because of the storm. Is the insurer still liable? Yes. Because the fact concealed was not the cause of the loss. In summary, what is the difference between concealment of marina and ordinary insurance. M: stricter because you are required to disclose information coming from the third person. M: if the fact concealed pertains to sec 110, there is no concealment. Unless if the fact concealed is the cause of the loss. In which case, the insurer is not liable. Example.
(c) The liability to seizure from breach of foreign laws of trade;
If the risk that is assumed by the insurer is only interisland shipping, then that vessel is seaworthy. But is what is contemplated is coverage for international voyage, that vessel is no longer considered sea worthy. Or a vessel would be seaworthy to navigate a river but not a bay nor ocean. Seaworthiness is not limited only to the structure of the vessel. But it includes that the vessel must be manned by a competent crew. It must have the necessary navigational equipment etc It must have the necessary supplies, food, fuel, lights etc., So that is still covered by the implied warranty of sea worthiness. GR on seaworthiness: the implied warranty is complied if the ship is seaworthy at the commencement of the voyage/risk. Prior or subsequent unseaworthiness does not affect the implied warranty of seaworthiness. Example. If you insured the vessel for a voyage from Cebu to manila. If the vessel is seaworthy at the time it commences voyage from Cebu, then you already complied with seaworthiness, regardless if prior to that it was damaged. From the moment the voyage commented it is already seaworthy. Or in the middle of the voyage it was damaged, it doesnt matter so long as it is seaworthy. GR: Under 115 Exception: SEC 115
An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of commencement of the risk, except in the following cases: (a) 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; (b) 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.
You were bringing smuggled goods and concealed them. You were caught. It resulted to the loss of the vessel. There is concealment because it is the cause of the loss. WARRATIES What are the implied warranties of marine insurance? We have the popular seaworthiness. Seaworthy is define in sec 114 and 116 SEC 114
A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy.
it must be seaworthy at the time of the voyage 1. time policy 2. cargo policy
SEC 116
A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage.
In sec 114, it says reasonably fit to perform or encounter the perils contemplated in policy. Meaning if the policy contemplates or assumes the risk, or a vessel may be seaworthy for an interisland shipping but it is not seaworthy for international waters.
TIME POLICY The coverage is for 1 year. And in the 1 year, the vessel would undertake 12 voyages. To comply with sea warranty of seaworthiness, it is necessary that the vessel must be seaworthy for each of the voyage. CARGO POLICY Here, the insured is cargo. It required that the cargo be transshipped. Ibalhin siya from one voyage to another. Kwin Transcripts Page 80
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To comply with the implied sea warranty, it is required that the vessel is seaworthy at the commencement of each particular voyage. Example. The cargo is to be shipped from manila to zamboanga but from manila, muagi sa sa batangas. Then from batangas, ngadto na sa zamboanga. So there is transshipment. The implied warranty of sea vessel is that it is seaworthy from manila to batangas and from batangas to zamboanga. Take note that the implied warranty of seaworthiness is not applied only to the owner of the vessel. It applies also to the cargo. The moment that you obtained a marine insurance for your cargo, you made an implied warranty that the vessel you loaded your cargo on is seaworthy. While you dont have control on the vessel, but you have control over the choice of the vessel to which you load your cargo. Meaning you still have to comply on the implied warranty on seaworthiness. Case: A vessel broke its shack in the middle of the vayage. It was brought to port A but in port A it was not properly repaired within reasonable time. While it is there, there is a leak. Because of the leak, the vessel sank. So the issue is WON the insurer is liable. The insurer is still liable. Although there was a delay in repairing the defective shack, but the cause of the loss was not caused by the defective shack. Therefore you only determine whether the vessel is seaworthy at the commencement of the voyage. If subsequently it becomes unworthy look if it was repaired immediately or not. If not, look at the cause of the loss. But if from the very beginning it was not seaworthy, then the insurer is not liable. Another implied warranty is that the vessel would not take IMPROPER DEVIATION. Deviation means departure from the designated course or route of vayage. Another implied warranty is that the vessel would NOT UNDERTAKE ILLEGAL VENTURE. Now I mentioned that you already comply the warranty of seaworthiness so long that at the commencement of the voyage, the vessel is sea worthy. it doesnt matter that latter on in the voyage it becomes unseaworthy. It doesnt mean that there is breach of the entire warranty. But what happens if it becomes unseaworthy? No more obligation for the insured? There is. There may be no breach of implied warranty but there is a duty on the part to the insured to undertake the necessary repairs without unreasonable delay. What if I didnt repair the defect? Is the insurer exonerated right away? The insurer will be exonerated if the vessel is lost and the cost of the loss is the defect that you didnt repair.- sec 118 SEC 118
When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom.
And the vessel makes a warranty of its NATIONALITY. This is applied only if it makes an express warranty and say American ko. If it makes that express warranty, then it also makes the implied warranty that it carries with it the NECESSARY DOCUMENTS.
Back to deviation. In deviation, you depart from the course of the voyage insured. Or there is unreasonable delay in pursuing the voyage. Or you commence an entirely different voyage. Thats sec 123. SEC 123
Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.
So if you have a seaworthy vessel upon voyage but in the middle of the voyage the machine was damaged. You didnt repair it. There was a storm causing the vessel to sink. Is the insurer liable? Yes. because the cause of the loss was not the defect.
Example. You depart from an agreed voyage. If the voyage is from manila to Iloilo and you are requitred to pass along the Mindoro straight. You passed linapakan straight instead. That is deviation. Of you unreasonably delay in pursuing the voyage. You stopped in a port for an unreasoble length of time.- niadto pa sa red light district.
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What is the effect? If you make an improper deviation, the insurer is not liable. If something happens during an improper deviation, the insurer will not be liable. Are there exceptions to the improper deviations? Yes. A deviation is proper if 1. when it is caused by circumstances either which neither the master or owner of the ship has no control. -example. Going to the destination you received that here are pirates. You made a deviation. That is proper.\ 2. when it is necessary to comply with the warranty or to avoid the peril, whether or not the peril is insured against. -example. There is an implied warranty that the vessel must have a captain or a radio operator. During the voyage, the radio operator dies. So you need to drop by 1 port to get a new radio operatr. 3. when it is necessary in good faith to avoid a peril. -example. Take shelter in 1 port to let the storm pass 4. when made in good faith for purpose of saving human lives 5. when receiving a call that another vessel is in distress. And if the deviation is proper, the insurer is liable provided that the risk is covered. So what if theres constructive loss? You have two options. 1. abandon the goods or the vessel to the insurer. And recover from insurer as if there is total loss. -So if you abandon you relinquish all your rights to the vessel or to the cargo. What ever is salvaged or recovered belongs to theinsurer. 2. if you dont want to abandon, you can recover partial loss from the insurer and you are entitled to whatever is the salvage. But take note you can only exercise right of abandonment if there is constructive loss. If it does not exceed 75%, (must be more than 75%) So what are the requisites for abandonment? 1. there must be constructive loss and 2. you actually relinquish your right. 3. it must be made within a reasonable length of time 4. there is notice 5. must specify the particular cause of abandonment -like when you say, the actual loss is more than
Next is on MEASURE OF INDEMNITY. So under sec 156, of theres a valuation in the policy, that valuation is conclusive between parties. Same as in valued policy. SEC 156
A valuation in a policy of marine insurance in conclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud on his part; except that when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
LOSS. Loss of the vessel or the cargo could either be total or partial. Loss that is total copuld either be actual or contructive. When is there is actual loss? When it is totally destroyed. Or it sank. Irretrievable loss by sinking or broken out. Damage rendering the thing valueless. Or other event which deprives the owner of possession. In constructive loss, the degree or extent of the damage entitles the insured to exercise the right of abandonment. When can he abandon? When the actual damage is more than of the value of the vessel. Or if the damage will reduce the value of the vessel to more than . Or in case of goods, the expenses for transshipment would be of the value. Or in case of the cargo, for example out of the 1000 logs, you can recover only 250, you can consider it as a constructive loss.
SEC 157.
A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured.
Sec 157 talks about co insurance. You already know what coinsurance means. In marine insurance, that is automatic. If you insure your property for less than its value then co-insurance will apply. But the insurer must prove that under insured ang property. SEC 158
Where profits are separately insured in a contract of marine insurance, the insured is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole.
SEC 159
In case of a valued policy of marine insurance on freightage or cargo, if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part.
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SEC 160
When profits are valued and insured by a contract of marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they are expected to arise, and the valuation fixes their amount.
158-160 Talks about insurance on profits. Aside from the vessel or cargo you can insure profits. Like profits on a cargo. What is the effect if aside from insuring your cargo, you also insure your profits? The law provides that if the cargo is lst out of which the profits arise , carries with it the presumption that you have lost the profits too. Example. You insured your cargo for 1k and you insured the expected profit for10k. you lost the cargo. Of course you can recover the value the cargo. Can you also recover the value of the profits? Yes. But what if partial lang and nawa. How much can you recover on the insurance of the profits? Proportion. If the cargo is 100k, out of the cargo of 100k, you insure the profits of 10k. Assuming that, half of the cargo was damaged or lost, how much can you recover. What about insurance on the profits? 5k (one half) You can also recover insurance of the cargo for 50k. So you can recover insurance on the cargo. You can recover insurance on the profits. Why do you insure the profits? Do you have insurable interest on the profits? Yes. Expectancy founded on an existing right. Do you recall when we were discussing insurable interest. Its still the same principle. Its still an expectancy founded on the existing right. What is existing right? As owner of the cargo. And proof on the profits is not necessary. So whether sold or not sold, it is still expected. If there is loss, you did not profit anything. Because the extent that you can recover is the extent of your interest.
Example. Georges question. Your vessel is 10m. you obtained a loan on bottomry for 5m. can you still insure you vessel? Yes. For how much? 5m only. You can recover 5m from insurer and you cannot pay in your loan which is a gain of 5m.
FIRE INSURANCE Covers only fire arising from hostile fire. GR covers only loss arising from fire. But it could also cover those arising from allied risk. Like fire arising from lightning, tornado or windstorm. PVDD if specifically covered in insurance policy, upon payment of additional premium. Its very important to determine whether a marine vessel is covered by a marine or fore insurance. It could be a marine insurance but it includes risk arising from fire. Or its just a fire insurance. Because there are marine policies that are different from fire insurance. Example. The rule on constructive loss or abandonment applies only to marine insurance. It does not apply in fire insurance. The rule on co-insurance does automatically applies to marine insurance but not in fire insurance, unless stipulated. ART 168
An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
ART 169
An alteration in the use or condition of a thing insured from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance. chanrobles virtual law library
ART 170
A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss.
ART 168-170 It talks about the alteration of the use or condition of the thing insured. It is limited in the policy but you altered the use without the consent of insurer. And the alteration increased the risk. What is the result? It entitles the insurer to rescind the contract.
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Example. The house is insured against fire. It is specified in the policy that the house shall be used only for residential. Later on you converted the house to a boarding house. So there is an alteration on the use of the property insured. And the use is specifically limited in the policy. The alteration increases the risk. It entitles the insurer to rescind the contract. But if under 169, if the alteration does not increase the risk, it does not affect the contract of insurance. But take note, this one will apply only if the policy did not expressly state that the violation of the condition would avoid the policy. Like when the policy say, the use of this house is limited only to residential. And you alter the use. (it did not say that any violation will avoid the insurance) So from residential, you made it to commercial, like a bookstore. But it did not increase the risk Is the insurer liable? Yes. Unless the policy states that any violation will avoid the policy. Example. ART 170 The policy is for fire. There is no prohibition against storing of inflammable materials. After the effectivity, you insured inflammable materials. The building was destroyed by fire. Is the insured entitled to recover? Did it increase the risk? Yes. Is the insurer liable? Yes. Because the policy did not contain prohibition. But if in our previous example on breach of warranty Because the policy contains warranty that you will not store inflammable materials. Breach will entitle the insured to rescind. So what is important is what is provided in the policy. And we have there the discussion of fire insurance on coinsurance. GR no co insurance. EXPT, when there is co insurance clause. LIFE INSURANCE Liability of insurer in certain cause of death. Like what if he died in suicide, what if he died in the hands of the law, or he was killed by the beneficiary If he committed suicide, is the insurer liable? (parang incontestability clause) It depends. If the suicide was committed 2 years after the insurance of the policy or after 2 years after its last reinstatement, the insurer is liable, whether sane or insane (not good. Encourage) This is an exception to the rule that the insurer will not be liable by the willful act of the insured. If the insured committed suicide while insane, it is regardless of the period when he committed suicide. Except expressly except risk arising from suicide whether sane or insane. Or it could be less than 2 years if the insurer provides for a shorter period. Take note that the 2 years can be shortened but it cannot be made longer. It cannot be extended. In the hands of the law. Like when the insured died because of electric chair or gas chamber. Killing of beneficiary. Is the insurer still liable? Yes. But the beneficiary is not entitled to recover. Where will it go? Nearest relative of the insured.
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And the last on, letter d.

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IN EXERCISE OF ORDINARY CARE SHOULD KNOW Relate that to sec 32 SEC 32

WAIVER OF COMMUNICATION SEC 33

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party, the third party can go after the insurer.

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Amt recoverable 2m 2m (underinsured) 1m ( of agreed valuation) 1m ( of agreed valuation)

Amt recoverable from insurer 1m 1m

Amt recoverable from insurer 2m 2m 1m 1m

Amt recoverable 1.5m 7.5k ( of value at loss) 2m (limit:face value)

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