Zarah Notes Insurance Law

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Commercial Law Review
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Law on Insurance
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INSURANCE CODE (P.D. 1460 as amended) *Insurer always comes up with already
made contract.
INTRODUCTION:
Q: Is there a contract?
A. Laws governing Insurance A: YES.
Insurance Code – primary law Importance of knowing whether the
New Civil Code – applied suppletorily contract is one of adhesion: In case of
specifically on law on obligations and doubt, the contract shall be interpreted
contracts strictly against the insurer and liberally
GSIS Act in favor of the insured.
Property Insurance Law Q: is this rule unfair?
Act 1498 A: NO. Because the contract was
already prepared by the insurer, the
B. General Concept of Insurance only thing that the insured can do is
Contract of Insurance is an agreement either take it wholly or leave it.
whereby one undertakes for a consideration 3. Aleatory – The obligation of the insurer
to indemnify another against loss, damage to pay the proceeds of the insurance
or liability arising from an unknown or arises only upon the happening of an
contingent event. (Sec. 2 par. 2) event which is uncertain, or which is to
*It is a contract of assumption of risk occur at an indeterminate time. (Article
Q: Who will take the risk? 2010 NCC)
A: Insurer *The insurer becomes liable upon the
Q: Who will be exposed to the risk? happening of the peril insured against.
A: Insured *One or both parties are reciprocally
bound to give or do something for
C. Characteristics consideration upon the happening of an
1. Risk Distributing Device – the device event which is uncertain or to which is
of insurance serves to distribute the risk to occur at an indeterminate time.
of economic loss among as many as 4. Contract of Indemnity - The insured
possible to those who are subject to the who has insurable interest over a
same kind of risk. property is only entitled to recover the
*The risk is distributed to the group of amount of actual loss sustained and the
persons having the same risk. burden is upon him to establish the
Q: Why is it a risk distribution device? amount of such loss.
A: Insurer has different policyholders *It is the basis of all property insurance.
that contribute to a common fund for *Life insurance is not a contract of
the same risk. The common fund will indemnity. Life is not subject to
indemnify the person who suffers loss pecuniary estimation; Life is precious.
for the same risk. General Rule: Insurance contract is a
Catch: not all policyholders will suffer contract of indemnity.
the same risk at the same time. Exception: Life insurance
2. Contract of Adhesion – Insurance is a 5. Uberrimae Fides Contract/Utmost
contract of adhesion considering that Good Faith – The contract of insurance
most of the terms of the contract do not is one of perfect good faith not for the
result from mutual negotiations insured alone but equally so for the
between the parties as they are insurer; in fact, it is more so for the latter
prescribed by the insurer in printed since its dominant bargaining position
form to which the insured may carries with it stricter responsibility.
“adhere” if he chooses but which he *Since there was an assumption of risk
cannot change. on the part of the insurer, it is their duty
to make an intelligent estimates that is
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DREIJIMENEZ| INSURANCE
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the reason why it requires the parties to against loss, damage or liability arising
the contract of insurance to disclose from an unknown or contingent event.”
conditions affecting the risk of which he 4. Scheme to distribute losses
is aware, or material fact, which the 5. Payment of premiums
applicant knows, and those, which he Sec. 77 of the Insurance Code states
ought to know. that: “An insurer is entitled to payment
*Material facts are facts needed by the of the premium as soon as the thing
insurer for the determination of whether insured is exposed to the peril insured
he will assume or not the risk. against. Notwithstanding any
agreement to the contrary, no policy or
D. Elements of Insurance contract of insurance issued by an
1. Existence of an insurable interest insurance company is valid and binding
Sec. 12 of the Insurance Code provides unless and until the premium thereof
that: “The interest of a beneficiary in a has been paid, except in the case of a life
life insurance policy shall be forfeited or an industrial life policy whenever the
when the beneficiary is the principal, grace period provision applies.”
accomplice, or accessory in willfully
bringing about the death of the insured; E. Right of Subrogation
in which event, the nearest relative of *This principle is a normal incident of
the insured shall receive the proceeds of indemnity property insurance as a legal
said insurance if not otherwise effect of payment; it inures to the insurer
disqualified.” without any formal assignment or any
Sec. 13 of the Insurance Code provides express stipulation to that effect in the
that: “Every interest in property, policy. Said right is not dependent upon nor
whether real or personal, or any relation does it grow out of any privity of contract.
thereto, or liability in respect thereof, of Payment to the insured makes the insurer
such nature that a contemplated peril an assignee in equity.
might directly damnify the insured, is *The insurer can only recover from the third
an insurable interest.” person what the insured could have
Sec. 14 of the Insurance Code provides recovered. Thus, there can be no recovery if
that: “An insurable interest in property the insurer voluntarily paid even if the loss
may consist in: is not covered by the policy.
(a) An existing interest; *The insured can no longer recover from the
(b) An inchoate interest founded on an offending party what was paid to him by
existing interest; or the insurer but he can recover any
(c) An expectancy, coupled with an deficiency, that is, if his damages is more
existing interest in that out of which the than what was paid. The deficiency is not
expectancy arises.” covered by the right of subrogation.
2. Risk of loss Cases when there is no right of
Sec. 51 paragraph g of the Insurance subrogation:
Code provides that: “ A policy of 1. The insured by his own act releases the
insurance must specify: x x x (g) The wrongdoer/third person liable for the
period during which the insurance is to loss
continue.” 2. Where the insurer pays the insured for a
3. Assumption of risks loss or risk not covered by the policy
Sec. 2 of the Insurance Code states that: 3. In life insurance
“xxx (1) A “contract of insurance” is an 4. For recovery of loss in excess of
agreement whereby one undertakes for insurance coverage
a consideration to indemnify another
CONTRACT OF INSURANCE:
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A. Requisites of a contract of Insurance has an insurable interest in the life of the

1. A subject matter in which the insured insured.
has an insurable interest Exceptions: Persons specified in Article 739
2. Event or peril insured against which in re Article 2012 of the New Civil Code.
may be any future contingent or *The designation of persons mentioned in
unknown event, past or future and a Article 739 is void but the policy is binding.
duration for the risk thereof *In property insurance, the beneficiary must
3. A promise to pay or indemnify in a have insurable interest on the property.
fixed or ascertainable amount Sec. 11 of the Insurance Code states that:
4. A consideration known as premium “The insured shall have the right to change
5. Meeting of the minds of the parties the beneficiary he designated in the policy,
unless he has expressly waived this right in
B. Perfection said policy.” *The designation is revocable
*An insurance contract is consensual unless the right to revoke is expressly
contract and is therefore perfected the waived in the policy.
moment there is a meeting of minds with Sec. 12 of the Insurance Code states that:
respect to the object and the cause or “The interest of a beneficiary in a life
consideration. insurance policy shall be forfeited when the
*What is being followed in insurance beneficiary is the principal, accomplice, or
contracts is what is known as the Cognition accessory in willfully bringing about the
Theory. death of the insured; in which event, the
Q: What is the crucial point? nearest relative of the insured shall receive
A: The point wherein there must be an the proceeds of said insurance if not
actual communication to the insured of the otherwise disqualified.”
approval of the application. *In life or health insurance, the insured
*In Great Pacific Life Assurance cannot assign the policy if the designation
Corporation v CA, the SC held that the of the beneficiary is irrevocable. Reason:
insured is the one making the offer by The irrevocable beneficiary has vested right.
submitting an application to the insurer and *If the insured refuses to pay the premiums,
the latter accepts the offer by approving the the designated irrevocable beneficiary may
application. Thus, mere submission of the continue the policy by paying premiums
application without the corresponding that are due. (Article 1236 NCC)
approval of the policy does not result in the Q: Despite irrevocable designation, may the
perfection of the contract of insurance. insured revoke the beneficiary?
A: YES. Under Article 42 of the Family
C. Parties to a contract of Insurance Code, Article 43 (4) of the Family Code,
Sec. 6 of the Insurance Code states that: Article 50 of the Family Code and Article 64
“Every person, partnership, association, or of the Family Code.
corporation duly authorized to transact 1. Rule on minors
insurance business as elsewhere provided Sec. 3 of the Insurance Code states that:
in this code, may be an insurer.” “Any minor of the age of eighteen years
Sec. 7 of the Insurance Code states that: or more, may, notwithstanding such
“Anyone except a public enemy may be minority, contract for life, health and
insured.” accident insurance, with any insurance
Beneficiary – person designated to receive company duly authorized to do
proceeds of policy when risk attaches. business in the Philippines, provided
General Rule: When one insures his own the insurance is taken on his own life
life, he may designate any person as the and the beneficiary appointed is the
beneficiary, whether or not the beneficiary minor's estate or the minor's father,
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mother, husband, wife, child, brother or derive pecuniary benefit, and by its
sister.” destruction he shall suffer pecuniary loss,
*This portion is repealed by RA 6809. damage or prejudice.”
Under RA 6809, minors are no longer *Insurable interest does not exist by legal
allowed to enter into insurance relationship or by virtue of law.
contracts. This rule is absolute.
2. Rule on married women B. Reason for the requirement of insurable
Sec. 3 of the Insurance Code provides interest
that: “The married woman or the minor *A policy issued to a person without the
herein allowed to take out an insurance requisite insurable interest in the subject
policy may exercise all the rights and matter is a mere wager policy or contract,
privileges of an owner under a policy.” hence, it is VOID.
*Under RA 7192, married women can Evil sought to be avoided: Temptation to
enter into insurance contracts without destroy the thing insured.
the assistance of their husbands. Reason: He has nothing to lose but
everything to gain.
D. Subject matter of Insurance
Sec. 3 of the Insurance Code states that: C. Insurable interest in Life Insurance
“Any contingent or unknown event, Sec. 10 of the Insurance Code provides
whether past or future, which may damnify that: “Every person has an insurable interest
a person having an insurable interest, or in the life and health:
create a liability against him, may be (a) Of himself, of his spouse and of his
insured against, subject to the provisions of children; (b) Of any person on whom he
this chapter.” depends wholly or in part for education or
Sec. 4 of the Insurance Code states that: support, or in whom he has a pecuniary
“The preceding section does not authorize interest;
an insurance for or against the drawing of (c) Of any person under a legal obligation to
any lottery, or for or against any chance or him for the payment of money, or
ticket in a lottery drawing a prize.” respecting property or services, of which
death or illness might delay or prevent the
E. Insurance not a wagering contract performance; and
Sec. 4 of the Insurance Code states that: (d) Of any person upon whose life any
“The preceding section does not authorize estate or interest vested in him depends.”
an insurance for or against the drawing of Q: May warehouseman insure the goods
any lottery, or for or against any chance or deposited in his warehouse?
ticket in a lottery drawing a prize.” A: YES. In case of loss of the goods the
*Wagering contract is not allowed because it warehouseman is liable to the owner of the
is against public policy. goods.
Reason: The insured should not be happy Q: May bottomry lender insures the
because of the loss he suffered. hypothecated vessel?
Q: What prevents insurance policy from A: YES. There is an insurable interest up to
being a wagering contract? the amount covered by the bottomry.
A: Insurable interest. Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.
INSURABLE INTEREST:
*In life insurance, persons prohibited to
A. Concept of Insurable Interest in General make donation to each other are also
*A person has an insurable interest in the prohibited to become beneficiaries of each
subject matter if he is so connected, so other.
situated, so circumstanced, so related, that
by the preservation of the same he shall
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*For disqualification purposes, what is insurance to an equivalent extent, until the

needed is only a preponderance of interest in the thing and the interest in the
evidence. insurance are vested in the same person.”
Sec. 25 of the Insurance Code states that:
D. Insurable interest in Property Insurance “Every stipulation in a policy of insurance
Sec. 13 of the Insurance Code states that: for the payment of loss whether the person
“Every interest in property, whether real or insured has or has not any interest in the
personal, or any relation thereto, or liability property insured, or that the policy shall be
in respect thereof, of such nature that a received as proof of such interest, and every
contemplated peril might directly damnify policy executed by way of gaming or
the insured, is an insurable interest. “ wagering, is void.”
Sec. 14 of the Insurance Code states that: 1. Insurable interest in case of mortgaged
“An insurable interest in property may property
consist in: Sec. 8 of the Insurance Code states that:
(a) An existing interest; “Unless the policy otherwise provides,
(b) An inchoate interest founded on an where a mortgagor of property effects
existing interest; or insurance in his own name providing
(c) An expectancy, coupled with an existing that the loss shall be payable to the
interest in that out of which the expectancy mortgagee, or assigns a policy of
arises.” insurance to a mortgagee, the insurance
*In general, a person has an insurable is deemed to be upon the interest of the
interest in the property, if he derives mortgagor, who does not cease to be a
pecuniary benefit or advantage from its party to the original contract, and any
preservation or would suffer pecuniary loss, act of his, prior to the loss, which would
damage or prejudice by its destruction otherwise avoid the insurance, will have
whether he has or has no title in, or lien the same effect, although the property is
upon, or possession of the property. in the hands of the mortgagee, but any
*Existence of insurable interest is a matter of act which, under the contract of
public policy, hence, the principle of insurance, is to be performed by the
estoppels cannot be invoked. mortgagor, may be performed by the
*In order for hope or expectancy to be mortgagee therein named, with the
insurable, it must be coupled with existing same effect as if it had been performed
interest out of which the expectancy arises. by the mortgagor.”
It must be founded on an actual right to the a. Standard or Union Mortgage
thing or upon a valid contract. Clause – subsequent acts of the
Sec. 19 of the Insurance Code states that: mortgagor cannot affect the rights of
“An interest in property insured must exist the assignee.
when the insurance takes effect, and when b. Open or Loss Payable Clause – acts
the loss occurs, but not exist in the of the mortgagor affect the
meantime; and interest in the life or health mortgagee.
of a person insured must exist when the Reason: Mortgagor does not cease to
insurance takes effect, but need not exist be a party to the contract.
thereafter or when the loss occurs.” Basis: Sec. 8 of the Insurance Code
Sec. 20 of the Insurance Code states that: states that: “Unless the policy
“Except in the cases specified in the next otherwise provides, where a
four sections, and in the cases of life, mortgagor of property effects
accident, and health insurance, a change of insurance in his own name
interest in any part of a thing insured providing that the loss shall be
unaccompanied by a corresponding change payable to the mortgagee, or assigns
in interest in the insurance, suspends the a policy of insurance to a mortgagee,
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the insurance is deemed to be upon Sec. 23 of the Insurance Code states

the interest of the mortgagor, who that: “A change on interest, by will or
does not cease to be a party to the succession, on the death of the insured,
original contract, and any act of his, does not avoid an insurance; and his
prior to the loss, which would interest in the insurance passes to the
otherwise avoid the insurance, will person taking his interest in the thing
have the same effect, although the insured.”
property is in the hands of the *This is by operation of law.
mortgagee, but any act which, under Sec. 24 of the Insurance Code states
the contract of insurance, is to be that: “A transfer of interest by one of
performed by the mortgagor, may several partners, joint owners, or
be performed by the mortgagee owners in common, who are jointly
therein named, with the same effect insured, to the others, does not avoid an
as if it had been performed by the insurance even though it has been
mortgagor.” agreed that the insurance shall cease
Sec. 9 of the Insurance Code states upon an alienation of the thing
that: “If an insurer assents to the insured.”
transfer of an insurance from a Sec. 57 of the Insurance Code provides
mortgagor to a mortgagee, and, at that: “A policy may be so framed that it
the time of his assent, imposes will inure to the benefit of whomsoever,
further obligation on the assignee, during the continuance of the risk, may
making a new contract with him, the become the owner of the interest
act of the mortgagor cannot affect insured.”
the rights of said assignee.” *The policy follows where the interest is.
2. Effect of change of interest in the thing Sec. 58 of the Insurance Code provides
insured that: “The mere transfer of a thing
Sec. 20 of the Insurance Code states insured does not transfer the policy, but
that: “Except in the cases specified in the suspends it until the same person
next four sections, and in the cases of becomes the owner of both the policy
life, accident, and health insurance, a and the thing insured.”
change of interest in any part of a thing Article 1306 of the New Civil Code
insured unaccompanied by a provides that: “The contracting parties
corresponding change in interest in the may establish such stipulations, clauses,
insurance, suspends the insurance to an terms and conditions as they may deem
equivalent extent, until the interest in convenient, provided they are not
the thing and the interest in the contrary to law, morals, good customs,
insurance are vested in the same public order, or public policy.
person.”
Sec. 21 of the Insurance Code states Insurable Insurable
that: “A change in interest in a thing Interest in Interest in
insured, after the occurrence of an injury Property Life
As to Limited to General
which results in a loss, does not affect
measure the actual Rule:
the right of the insured to indemnity for Insurable
value of
the loss.” the interest Interest in
Sec. 22 of the Insurance Code states in the life is
that: “A change of interest in one or property. unlimited.
more several distinct things, separately Exception:
In life
insured by one policy, does not avoid
insurance
the insurance as to the others.”
effected by
*This is a divisible policy. a creditor
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on the life the latter

of the must have
debtor. insurable
As to time The General interest
when insurable Rule: It is over the
insurable interest enough life of the
interest exists when that the insured.
must exist the insurable Q: In case where the designated
insurance interest beneficiary cannot claim the proceeds
takes effect exists at the due to the fact that such designation
and when time the
was void, who can claim the proceeds?
the loss policy
occurs but takes effect A: Insured.
not need and need
DEVICES FOR ASCERTAINING AND
exist in the not exist at
the time of CONTROLLING RISK AND LOSS:
meantime.
the loss.
*Concealment and representation are devices that
Exception:
Obligee are related to the formation of the contract whereas
must have warranties and condition are devices that are
insurable related to the execution of the contract.
interest at
the time A. Concealment
the policy 1. Concept
took effect Q: When is there concealment?
and at the Sec. 26 of the Insurance Code provides
time of that: “A neglect to communicate that
loss.
which a party knows and ought to
As to There must The
expectation be a legal expectation communicate, is called a concealment.”
of benefit to basis. of the 2. Duty to Communicate
be derived benefit to Sec. 28 of the Insurance Code states
be derived that: “Each party to a contract of
need not insurance must communicated to the
have any other, in good faith, all facts within his
legal basis.
knowledge which are material to the
As to the The General
beneficiary’s beneficiary Rule: The contract and as to which he makes no
interest must have beneficiary warranty, and which the other has not
insurable need not the means of ascertaining.”
interest have 3. Test of Materiality
over the insurable Sec. 31 of the Insurance Code provides
thing interest that: “Materiality is to be determined
insured. over the
not by the event, but solely by the
The policy life of the
is still insured if probable and reasonable influence of the
valid, only the insured facts upon the party to whom the
the himself communication is due, in forming his
designation secured the estimate of the disadvantages of the
was policy. proposed contract, or in making his
avoided Exception:
inquiries.”
because the If the life
*The fact disclosed may not be the
beneficiary insurance
has no was proximate cause of the loss still there is
insurable obtained breach because there is a vitiation of
interest. by the consent, the contract is voidable.
beneficiary, 4. Effect of Concealment
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Sec. 27 of the Insurance Code provides need not be communicated unless in

that: “A concealment whether answer to an inquiry, except as
intentional or unintentional entitles the prescribed by section fifty-one.”
injured party to rescind a contract of Sec. 35 of the Insurance Code provides
insurance.” that: “Neither party to a contract of
Sec. 29 of the Insurance Code provides insurance is bound to communicate,
that: “An intentional and fraudulent even upon inquiry, information of his
omission, on the part of one insured, to own judgment upon the matters in
communicate information of matters question. “
proving or tending to prove the falsity 6. Waiver of Information
of a warranty, entitles the insurer to Sec. 33 of the Insurance Code provides
rescind.” that: “The right to information of
*It vitiates the contract and entitles the material facts may be waived, either by
insurer to rescind, even if the death or the terms of the insurance or by neglect
loss is due to a cause not related to the to make inquiry as to such facts, where
concealed matter. they are distinctly implied in other facts
5. Matters which need not be of which information is communicated.”
communicated
Sec. 30 of the Insurance Code provides B. Representation
that: “Neither party to a contract of 1. Concept
insurance is bound to communicate Representations are factual statements
information of the matters following, made by the insured at the time of or
except in answer to the inquiries of the prior to the issuance of the policy to give
other: information to the insurer and
(a) Those which the other knows; otherwise induce him to enter into the
(b) Those which, in the exercise of insurance contract.
ordinary care, the other ought to know, *Representation per se is not wrong as
and of which the former has no reason long as such representation is true.
to suppose him ignorant; *The false representation may still be
(c) Those of which the other waives corrected as long as it is made before the
communication; issuance of the policy.
(d) Those which prove or tend to prove 2. Kinds of Representation
the existence of a risk excluded by a Sec. 36 of the Insurance Code provides
warranty, and which are not otherwise that: “A representation may be oral or
material; and written.”
(e) Those which relate to a risk excepted Sec. 37 of the Insurance Code provides
from the policy and which are not that: “representation may be made at
otherwise material.” the time of, or before, issuance of the
*Things need not be disclosed. policy.”
Sec. 32 of the Insurance Code provides Sec. 39 of the Insurance Code provides
that: “Each party to a contract of that: “A representation as to the future
insurance is bound to know all the is to be deemed a promise, unless it
general causes which are open to his appears that it was merely a statement
inquiry, equally with that of the other, of belief or expectation. “
and which may affect the political or Sec. 42 of the Insurance Code provides
material perils contemplated; and all that: “. A representation must be
general usages of trade.” presumed to refer to the date on which
Sec. 34 of the Insurance Code provides the contract goes into effect.”
that: “Information of the nature or 3. Test of Materiality
amount of the interest of one insured
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Sec. 46 of the Insurance Code provides

that: “The materiality of a C. Remedies available in case of
representation is determined by the Concealment or False Representation
same rules as the materiality of a 1. When rescission by the insurer may be
concealment.” exercised
*Facts that may probably and Sec. 48 of the Insurance Code states
reasonably influence the other party in that: “Whenever a right to rescind a
forming his estimate. contract of insurance is given to the
4. Effect of Alteration or Withdrawal insurer by any provision of this chapter,
Sec. 41 of the Insurance Code provides such right must be exercised previous to
that: “A representation may be altered the commencement of an action on the
or withdrawn before the insurance is contract.
effected, but not afterwards.” After a policy of life insurance made
5. Time to which representation refers payable on the death of the insured shall
Sec. 42 of the Insurance Code states have been in force during the lifetime of
that: “A representation must be the insured for a period of two years
presumed to refer to the date on which from the date of its issue or of its last
the contract goes into effect.” reinstatement, the insurer cannot prove
6. Effect when representation is obtained that the policy is void ab initio or is
from third persons rescindible by reason of the fraudulent
Sec. 43 of the Insurance Code provides concealment or misrepresentation of the
that: “When a person insured has no insured or his agent.”
personal knowledge of a fact, he may General Rule: Prescriptive period: Any
nevertheless repeat information which time before the commencement of a
he has upon the subject, and which he court action on the contract.
believes to be true, with the explanation Exception: In case of life insurance
that he does so on the information of made payable on the death of the
others; or he may submit the insured.
information, in its whole extent, to the Q: How rescission is made?
insurer; and in neither case is he A: By sending notice of cancellation or
responsible for its truth, unless it rescission to the insured.
proceeds from an agent of the insured, Even if there is a court action, the
whose duty it is to give the insurer may raise concealment or
information.” representation as an affirmative defense.
7. When presumed false; effect of falsity 2. When Life insurance policy becomes
Sec. 44 of the Insurance Code provides incontestable
that: “A representation is to be deemed Sec. 48 of the Insurance Code states
false when the facts fail to correspond that: “Whenever a right to rescind a
with its assertions or stipulations.” contract of insurance is given to the
Sec. 45 of the Insurance Code states insurer by any provision of this chapter,
that: “If a representation is false in a such right must be exercised previous to
material point, whether affirmative or the commencement of an action on the
promissory, the injured party is entitled contract.
to rescind the contract from the time After a policy of life insurance made
when the representation becomes false. payable on the death of the insured shall
The right to rescind granted by this have been in force during the lifetime of
Code to the insurer is waived by the the insured for a period of two years
acceptance of premium payments from the date of its issue or of its last
despite knowledge of the ground for reinstatement, the insurer cannot prove
rescission.” that the policy is void ab initio or is
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rescindible by reason of the fraudulent any condition imposed by the

concealment or misrepresentation of the policy after the loss has
insured or his agent.” happened
a. Requisites for incontestability 7. The action was not brought
1. The insurance is a life insurance within the time specified.
policy payable on the death of 8.
the insured. D. Warranties
2. It has been in force during the 1. Concept; distinguished from
lifetime of the insured for at least representation
2 years from its date of issue or Warranty is a statement or promise set
of its last reinstatement. The forth in the policy or by reference
period of 2 years may be incorporated therein, the untruth or
shortened but it cannot be non-fulfillment of which in any respect,
extended by stipulation. and without reference to whether
*The defense should be insurer was in fact prejudiced by such
misrepresentation or concealment only. untruth or non-fulfillment , renders the
*If the insured dies within 2 year period, policy voidable.
the insurer may still rescind the Condition is a provision wherein
contract. If the insured died after the 2 certain things are mandated by the
year period, the insurer cannot rescind insurer to be complied with by the
the contract. insured in order for the latter to recover.
b. Theory and Object of Examples:
incontestability 1. Filing of the claim on time
After a policy of life insurance made 2. Notice of loss
payable on the death of the insured 3. Proof of loss
shall have been in force during the *The condition may be complied with
lifetime of the insured for a period of before or after the loss.
2 years from the date of its issue or
of its last reinstatement, the insurer Warranty Representation
cannot prove that the policy is void Part of the A collateral
ab initio or is rescindable by reason contract inducement
Written on the Need not be written
of the fraudulent concealment or
policy or in a
misrepresentation of the insured or
valid rider or
his agent. attachment
c. Defenses not barred by Generally Should be
incontestability conclusively established to be
1. The person taking the insurance presumed to be material
lacked insurable interest as material
required by law The fact Requires only to be
warranted must substantially true
2. The cause of the death of the
be strictly
insured is an excepted risk complied with
3. The premiums have not been
paid 2. Kinds of Warranties
4. The conditions of the policy 1. Express
relating to military or naval 2. Implied – warranties that are
service have been violated deemed included in the contract
5. The fraud is of a particularly although not expressly mentioned.
vicious type 3. Affirmative – asserts the existence
6. The beneficiary failed to furnish of a fact or condition at the time it is
proof of death or to comply with made.
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4. Promissory – the insured stipulates any rider, clause, warranty or endorsement

that certain facts or conditions shall issued after the original policy shall be
exists or thing shall be done or countersigned by the insured or owner,
omitted. which countersignature shall be taken as his
3. Time to which warranty refers agreement to the contents of such rider,
Sec. 68 of the Insurance Code provides clause, warranty or endorsement. Group
that: “A warranty may relate to the past, insurance and group annuity policies,
the present, the future, or to any or all of however, may be typewritten and need not
these.” be in printed form.”
4. Effect of Breach *Contract of insurance may be made in any
Sec. 74 of the Insurance Code states form but the policy of insurance must be in
that: “The violation of a material writing.
warranty, or other material provision of
a policy, on the part of either party B. Fine Print Rule
thereto, entitles the other to rescind.” Insurance is a contract of adhesion
Sec. 75 of the Insurance Code states considering that most of the terms of the
that: “A policy may declare that a contract do not result from mutual
violation of specified provisions thereof negotiations between the parties as they are
shall avoid it, otherwise the breach of an prescribed by the insurer in printed form to
immaterial provision does not avoid the which the insured may “adhere” if he
policy.” chooses but which he cannot change.
Sec. 76 of the Insurance Code states
that: “A breach of warranty without C. Contents of the Policy
fraud merely exonerates an insurer from Sec. 51 of the Insurance Code provides
the time that it occurs, or where it is that: “A policy of insurance must specify:
broken in its inception, prevents the (a) The parties between whom the contract
policy from attaching to the risk.” is made;
(b) The amount to be insured except in the
POLICY OF INSURANCE: cases of open or running policies;
A. Definition and Form (c) The premium, or if the insurance is of a
Sec. 49 of the Insurance Code states that: character where the exact premium is only
“The written instrument in which a contract determinable upon the termination of the
of insurance is set forth, is called a policy of contract, a statement of the basis and rates
insurance.” upon which the final premium is to be
Sec. 50 of the Insurance Code provides determined;
that: “The policy shall be in printed form (d) The property or life insured;
which may contain blank spaces; and any (e) The interest of the insured in property
word, phrase, clause, mark, sign, symbol, insured, if he is not the absolute owner
signature, number, or word necessary to thereof;
complete the contract of insurance shall be (f) The risks insured against; and
written on the blank spaces provided (g) The period during which the insurance
therein. Any rider, clause, warranty or is to continue.”
endorsement purporting to be part of the
contract of insurance and which is pasted or D. Papers attached to the policy and their
attached to said policy is not binding on the binding effect (rider, warranties, clause,
insured, unless the descriptive title or name endorsement)
Rider is an attachment to an insurance
of the rider, clause, warranty or
policy that modifies the conditions of the
endorsement is also mentioned and written
policy by expanding or restricting its
on the blank spaces provided in the policy.
Unless applied for by the insured or owner,
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benefits or excluding certain conditions The insured can recover the whole P1M
from the coverage. without proving the actual value of the
*Riders, together with other attachments to property.
the policy like clause, warranty or b. Warehouse valued for P1.5M
endorsements, are not binding on the Agreed valuation is P1M
insured unless the descriptive title or name The insurer can only recover P1M
thereof is mentioned and written on the 3. Running
blank spaces provided in the policy. Sec. 62 of the Insurance Code provides
Purpose: To modify the conditions or that: “A running policy is one which
provisions. contemplates successive insurances, and
Interpretation: In case of doubt, riders which provides that the object of the
prevail over the policy. policy may be from time to time
*Riders and the like shall be countersigned defined, especially as to the subjects of
by the insured or owner unless he was the insurance, by additional statements or
one who applied for the rider, clause, and indorsements.”
warranty. *Usually covers stock and goods in
*When the requirements for a rider are warehouse
complied with including clause, warranty Purpose: Avoidance of over and under
or endorsement, it is considered part of the insurance.
policy.
*It is a part of the original policy which is in F. Cover Notes
the nature of a conditional obligation. Sec. 52 of the Insurance Code provides
that: “Cover notes may be issued to bind
E. Kinds of Policy insurance temporarily pending the issuance
1. Open of the policy. Within sixty days after the
Sec. 60 of the Insurance Code states issue of the cover note, a policy shall be
that: “An open policy is one in which issued in lieu thereof, including within its
the value of the thing insured is not terms the identical insurance bound under
agreed upon, but is left to be ascertained the cover note and the premium therefor.
in case of loss.” Cover notes may be extended or renewed
*To put a threshold for purposes of beyond such sixty days with the written
premium. approval of the Commissioner if he
Advantage: actual valuation; the final determines that such extension is not
valuation is accurate value of the contrary to and is not for the purpose of
property violating any provisions of this Code. The
Disadvantage: hassle Commissioner may promulgate rules and
Example: regulations governing such extensions for
Warehouse valued for P1M the purpose of preventing such violations
At the time of loss the actual valuation and may by such rules and regulations
of the warehouse is P800,000 dispense with the requirement of written
The insured can only recover P800,000 approval by him in the case of extension in
2. Valued compliance with such rules and regulations.
Sec. 61 of the Insurance Code provides “
that: “A valued policy is one which *This is a preliminary contract of insurance.
expresses on its face an agreement that *The protection is temporary; limited to 60
the thing insured shall be valued at a days only
specific sum.” *In Pacific Timber Export Corporation v
Example: CA, the SC held that no separate premium
a. Warehouse valued for P1M is required for the cover note. As an
Agreed valuation is P1M exception, the parties may agree otherwise.
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one year shall be considered as if written for

G. Cancellation of Policy a term of one year. Any policy written for a
Sec. 64 of the Insurance Code states that: term longer than one year or any policy
“No policy of insurance other than life shall with no fixed expiration date shall be
be cancelled by the insurer except upon considered as if written for successive
prior notice thereof to the insured, and no policy periods or terms of one year.”
notice of cancellation shall be effective
unless it is based on the occurrence, after H. Time to commence action on the policy;
the effective date of the policy, of one or effect of stipulation
more of the following: Q: When cause of action accrues?
(a) non-payment of premium; A: From the denial of the claim.
(b) conviction of a crime arising out of acts Sec. 63 of the Insurance Code provides
increasing the hazard insured against; that: “A condition, stipulation, or agreement
(c) discovery of fraud or material in any policy of insurance, limiting the time
misrepresentation; for commencing an action thereunder to a
(d) discovery of willful or reckless acts or period of less than one year from the time
omissions increasing the hazard insured when the cause of action accrues, is void.”
against;
PREMIUM:
(e) physical changes in the property insured
which result in the property becoming A. Concept
uninsurable; or Premium is the consideration paid to an
(f) a determination by the Commissioner insurer for undertaking to indemnify the
that the continuation of the policy would insured against a specified peril.
violate or would place the insurer in Q: Who pays the premium?
violation of this Code.” A: Insured
Prescriptive Period: Q: What is the consideration?
Oral = 6 years; written= 10 years A: Insured: premium; Insurer: Assumption
Sec. 65 of the Insurance Code states that: of risk
“All notices of cancellation mentioned in
the preceding section shall be in writing, B. Effect of non-payment of premium;
mailed or delivered to the named insured at exceptions Sec. 77 of the Insurance Code
the address shown in the policy, and shall states that: “. An insurer is entitled to
state (a) which of the grounds set forth in payment of the premium as soon as the
section sixty-four is relied upon and (b) thing insured is exposed to the peril insured
that, upon written request of the named against. Notwithstanding any agreement to
insured, the insurer will furnish the facts on the contrary, no policy or contract of
which the cancellation is based.” insurance issued by an insurance company
Sec. 66 of the Insurance Code states that: is valid and binding unless and until the
“In case of insurance other than life, unless premium thereof has been paid, except in
the insurer at least forty-five days in the case of a life or an industrial life policy
advance of the end of the policy period whenever the grace period provision
mails or delivers to the named insured at applies.”
the address shown in the policy notice of its *This is called as Cash and Carry Rule
intention not to renew the policy or to Sec. 78 of the Insurance Code states that:
condition its renewal upon reduction of “An acknowledgment in a policy or contract
limits or elimination of coverages, the of insurance or the receipt of premium is
named insured shall be entitled to renew conclusive evidence of its payment, so far as
the policy upon payment of the premium to make the policy binding,
due on the effective date of the renewal. notwithstanding any stipulation therein
Any policy written for a term of less than
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that it shall not be binding until the morals, good customs, public order, or
premium is actually paid.” public policy.”
General Rule: No insurance policy issued
or renewal is valid and binding until actual C. When insured entitled to return of
payment of premium. Any agreement to the premiums Sec. 79 of the Insurance Code
contrary is void. (Cash and Carry Rule) states that: “A person insured is entitled to a
Exceptions: return of premium, as follows:
1. In case of life and industrial life (a) To the whole premium if no part of his
whenever the grace period provision interest in the thing insured be exposed to
applies (Sec. 77); any of the perils insured against;
Requisites: (b) Where the insurance is made for a
a. Life and industrial life insurance definite period of time and the insured
b. There is a grace period surrenders his policy, to such portion of the
c. Grace period still exists premium as corresponds with the
2. Where there is an acknowledgment in unexpired time, at a pro rata rate, unless a
the contract or policy of insurance that short period rate has been agreed upon and
the premium had already been paid appears on the face of the policy, after
(Sec. 78); deducting from the whole premium any
Conclusive effect: the validity of the claim for loss or damage under the policy
contract/policy and its binding effect. which has previously accrued; Provided,
*No conclusive effect as to the payment That no holder of a life insurance policy
of premium. may avail himself of the privileges of this
*Acknowledgment results to estoppel paragraph without sufficient cause as
3. The rule laid down in Makati Tuscany otherwise provided by law.”
Condominium v CA to the effect that Sec. 80 of the Insurance Code states that:
Sec. 77 may not apply if the parties have “If a peril insured against has existed, and
agreed to the payment of the premium the insurer has been liable for any period,
in installments and partial payment has however short, the insured is not entitled to
been made at the time of the loss; return of premiums, so far as that particular
*By express agreement risk is concerned.”
Q: What was agreed upon? Sec. 81 of the Insurance Code states that:
A: Payment by instalment plan “A person insured is entitled to return of
4. Where a credit term was agreed upon the premium when the contract is voidable,
like the agreement in UCPB General on account of fraud or misrepresentation of
Insurance, Inc. v Masagana Telemart the insurer, or of his agent, or on account of
where the insurer granted a 60-90 day facts, the existence of which the insured was
credit term for the payment of the ignorant without his fault; or when by any
premiums despite full awareness of default of the insured other than actual
Sec.77; fraud, the insurer never incurred any
*By previous conduct/practice liability under the policy.”
*Insured = principle of equity; insurer = Sec. 82 of the Insurance Code states that:
estoppel. “In case of an over-insurance by several
5. Where the parties are barred by insurers, the insured is entitled to a ratable
estoppels return of the premium, proportioned to the
Article 1306 of the : “New Civil Code states amount by which the aggregate sum
that: “The contracting parties may establish insured in all the policies exceeds the
such stipulations, clauses, terms and insurable value of the thing at risk.”
conditions as they may deem convenient,
PERSONS ENTITLED TO RECOVER ON THE
provided they are not contrary to law,
POLICY AND CONDITIONS TO RECOVERY:
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A. Beneficiary 3. In cases where the marriage is declared

Sec. 11 of the Insurance Code provides void ab initio
that: “The insured shall have the right to 4. In cases of annulment
change the beneficiary he designated in the 5. In cases of legal separation
policy, unless he has expressly waived this
right in said policy.” B. Limitations on the appointment of
Sec. 12 of the Insurance Code provides beneficiary Article 2012 of the New Civil
that: “The interest of a beneficiary in a life Code states that: “Any person who is
insurance policy shall be forfeited when the forbidden from receiving any donation
beneficiary is the principal, accomplice, or under Article 739 cannot be named
accessory in willfully bringing about the beneficiary of a life insurance policy by the
death of the insured; in which event, the person who cannot make any donation to
nearest relative of the insured shall receive him, according to said article.”
the proceeds of said insurance if not *The prohibition applies only to life
otherwise disqualified.” insurance policy.
Sec. 53 of the Insurance Code states that: *Under Article 1236 of the New Civil Code,
“The insurance proceeds shall be applied the beneficiary may pay the premium even
exclusively to the proper interest of the against the will of the insurer.
person in whose name or for whose benefit Reason: Beneficiary has interest over the
it is made unless otherwise specified in the insurance policy.
policy.” Article 739 of the New Civil Code states
Sec. 56 of the Insurance Code states that: that: ”The following donations shall be
“When the description of the insured in a void:
policy is so general that it may comprehend (1) Those made between persons who were
any person or any class of persons, only he guilty of adultery or concubinage at the
who can show that it was intended to time of the donation;
include him can claim the benefit of the (2) Those made between persons found
policy.” guilty of the same criminal offense, in
Sec. 57 of the Insurance Code provides consideration thereof;
that: “A policy may be so framed that it will (3) Those made to a public officer or his
inure to the benefit of whomsoever, during wife, descendants and ascendants, by
the continuance of the risk, may become the reason of his office.
owner of the interest insured.” In the case referred to in No. 1, the action
Q: Who receives the proceeds? for declaration of nullity may be brought by
A: General Rule: Beneficiary the spouse of the donor or donee; and the
Exception: In case the designated guilt of the donor and donee may be proved
beneficiary is disqualified, it is the insured by preponderance of evidence in the same
who receive the proceeds. action.”
General Rule: The designation of the
beneficiary is revocable. C. Rule where insurance is made by an agent
Exception: Irrevocable or trustee
In irrevocable designation, the general rule Sec. 54 of the Insurance Code provides
is that the designated beneficiary cannot be that: “When an insurance contract is
changed. executed with an agent or trustee as the
Exceptions: insured, the fact that his principal or
1. The beneficiary consented to the change beneficiary is the real party in interest may
2. Under Art. 45 of the Family Code which be indicated by describing the insured as
substantially provides that the innocent agent or trustee, or by other general words
spouse has the authority to revoke the in the policy.”
designation of his beneficiary
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D. Rule where insurance if made by partner Sec. 93 of the Insurance Code provides
or part owner that: “A double insurance exists where the
Sec. 55 of the Insurance Code provides same person is insured by several insurers
that: “To render an insurance effected by separately in respect to the same subject and
one partner or part-owner, applicable to the interest.”
interest of his co-partners or other part- Requisites:
owners, it is necessary that the terms of the 1. The person insured is the same
policy should be such as are applicable to 2. There are two or more insurers insuring
the joint or common interest. “ separately
E. Notice and proof of loss 3. The subject matter is the same
Sec. 88 of the Insurance Code states that: 4. The interest insured is also the same
“In case of loss upon an insurance against 5. The risk or peril insured against is
fire, an insurer is exonerated, if notice likewise the same
thereof be not given to him by an insured,
or some person entitled to the benefit of the B. Distinguished from Over-insurance
insurance, without unnecessary delay.” Distinctions:
Sec. 89 of the Insurance Code states that: Double Insurance Over-Insurance
“When a preliminary proof of loss is When the amount of
required by a policy, the insured is not There may be no the insurance is
over-insurance as beyond the value of
bound to give such proof as would be
when the sum total the insured’s
necessary in a court of justice; but it is of the amounts of insurable interest
sufficient for him to give the best evidence the policies issued
which he has in his power at the time.” does not exceed the
Sec. 90 of the Insurance Code provides insurable interest of
that: “All defects in a notice of loss, or in the insured
preliminary proof thereof, which the There are always There may only be
several insurers one insurer involved
insured might remedy, and which the
insurer omits to specify to him, without
*There is over-insurance if the total amount
unnecessary delay, as grounds of objection,
exceeds the value of the thing insured.
are waived.”
Example:
In Fire Insurance, A insured his property to
that: “Delay in the presentation to an
X for 500,000, to Y for 1M and to Z for 1M
insurer of notice or proof of loss is waived if
totalling to P2.5M. The property valued
caused by any act of him, or if he omits to
only for 1M. In this situation there is over-
take objection promptly and specifically
insurance.
upon that ground.”
C. Stipulation against double insurance
that: “If the policy requires, by way of Q: Is double insurance legally prohibited?
preliminary proof of loss, the certificate or A: General Rule: NO.
testimony of a person other than the Exception: If prohibited by an “other
insured, it is sufficient for the insured to use insurance clause.”
reasonable diligence to procure it, and in Basis: Sec. 75 of the Insurance Code which
case of the refusal of such person to give it, provides that: “A policy may declare that a
then to furnish reasonable evidence to the violation of specified provisions thereof
insurer that such refusal was not induced shall avoid it, otherwise the breach of an
by any just grounds of disbelief in the facts immaterial provision does not avoid the
necessary to be certified or testified.” policy.”
DOUBLE INSURANCE:
D. Rules for payment where there is over-
A. Definition and requisites insurance by double insurance
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“Where the insured is over-insured by *The balance shall be returned.
double insurance: *As far as the excess payment is concern,
(a) The insured, unless the policy otherwise the excess shall be held in trust by the
provides, may claim payment from the insured.
insurers in such order as he may select, up
to the amount for which the insurers are REINSURANCE:
severally liable under their respective
*This is called a Liability Insurance
contracts;
(b) Where the policy under which the A. Definition
insured claims is a valued policy, the Sec. 95 of the Insurance Code provides
insured must give credit as against the that: “A contract of reinsurance is one by
valuation for any sum received by him which an insurer procures a third person to
under any other policy without regard to insure him against loss or liability by reason
the actual value of the subject matter of such original insurance.”
insured; Example:
(c) Where the policy under which the In fire insurance, A insured his property
insured claims is an unvalued policy he against fire to X, X reinsured his obligation
must give credit, as against the full to Y.
insurable value, for any sum received by Q: Can A recover to the reinsurer?
him under any policy; A: General Rule: NO
(d) Where the insured receives any sum in Reason: No privity of contract
excess of the valuation in the case of valued Exception: Stipulation stating that the
policies, or of the insurable value in the case policy is taken for the benefit of the insured
of unvalued policies, he must hold such of the first contract of insurance.
sum in trust for the insurers, according to (Stipulation pour autrui)
their right of contribution among Q: Can X recover from Y even if X has not
themselves; yet pay A?
(e) Each insurer is bound, as between A: YES. Immediately arises from the time
himself and the other insurers, to contribute the liability of X has occur.
ratably to the loss in proportion to the
amount for which he is liable under his B. Nature
contract.” Sec. 97 of the Insurance Code states that:
Formula: “A reinsurance is presumed to be a contract
Insurance Policy of indemnity against liability, and not
--------------------------- x Amount of loss merely against damage.”
Total of Policy taken Sec. 98 of the Insurance Code provides
that: “The original insured has no interest in
500000 a contract of reinsurance.”
X = --------- x 1M = 200,000 Q: Is reinsurance mandatory?
2.5M A: General Rule: NO
Exceptions:
1. Sec. 215 of the Insurance Code which
1M provides that: “No insurance company
Y = -------- x 1M = 400,000 other than life, whether foreign or
2.5M domestic, shall retain any risk on any
one subject of insurance in an amount
1M exceeding twenty per centum of its net
Z = -------- x 1M = 400,000 worth. For purposes of this section, the
2.5M term "subject of insurance" shall include
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all properties or risks insured by the insured, not his consent

same insurer that customarily are necessary
considered by non-life company
underwriters to be subject to loss or D. Duty of reinsured to disclose facts
damage from the same occurrence of Sec. 96 of the Insurance Code provides
any hazard insured against. that: “Where an insurer obtains reinsurance,
Reinsurance ceded as authorized under except under automatic reinsurance treaties,
the succeeding title shall be deducted in he must communicate all the
determining the risk retained. As to representations of the original insured, and
surety risk, deduction shall also be also all the knowledge and information he
made of the amount assumed by any possesses, whether previously or
other company authorized to transact subsequently acquired, which are material
surety business and the value of any to the risk.“
security mortgage, pledged, or held
MARINE INSURANCE:
subject to the surety's control and for the
surety's protection.” A. Definition
2. Sec. 275 of the Insurance Code which Marine Insurance includes policies that
provides that: “Every foreign insurance covers risks connected with navigation, to
company desiring to withdraw from the which a ship, cargo, freightage, profits or
Philippines shall, prior to such other insurable interest in movable
withdrawal, discharge its liabilities to property, may be exposed during a certain
policyholders and creditors in this voyage or a fixed period of time.
country. In case of its policies insuring Basis: Sec. 99 of the Insurance Code.
residents of the Philippines, it shall
cause the primary liabilities under such B. Scope of marine insurance
policies to be reinsured and assumed by Sec. 99 of the Insurance Code provides
another insurance company authorized that: “Marine Insurance includes:
to transact business in the Philippines. (1) Insurance against loss of or damage to:
In the case of such policies as are subject (a) Vessels, craft, aircraft, vehicles, goods,
to cancellation by the withdrawing freights, cargoes, merchandise, effects,
company, it may cancel such policies disbursements, profits, moneys, securities,
pursuant to the terms thereof in lieu of choses in action, evidences of debts,
such reinsurance and assumption of valuable papers, bottomry, and
liabilities.” respondentia interests and all other kinds of
property and interests therein, in respect to,
C. Distinguished from double insurance appertaining to or in connection with any
Distinctions: and all risks or perils of navigation, transit
Reinsurance Double Insurance or transportation, or while being assembled,
Insurance of Involves same packed, crated, baled, compressed or
different interests interest similarly prepared for shipment or while
Insurer becomes an Insurer remains in awaiting shipment, or during any delays,
insured in relation to such capacity
storage, transhipment, or reshipment
reinsurer
Original insured has Insured in the 1st incident thereto, including war risks,
no interest in contract is a party in marine builder's risks, and all personal
reinsurance contract interest in the 2nd property floater risks;
contract (b) Person or property in connection with or
Subject of insurance Subject of insurance appertaining to a marine, inland marine,
is the original is property transit or transportation insurance,
insurer’s risk
including liability for loss of or damage
Consent of original Insured has to give
arising out of or in connection with the
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construction, repair, operation, maintenance has been said to action of the

or use of the subject matter of such include only such sea;
insurance (but not including life insurance losses as are of 2. From
extraordinary ordinary
or surety bonds nor insurance against loss
nature or arise wear and
by reason of bodily injury to any person
from some tear of the
arising out of ownership, maintenance, or overwhelming ship; and
use of automobiles); power which 3. From the
(c) Precious stones, jewels, jewelry, precious cannot be guarded negligent
metals, whether in course of transportation against by the failure of
or otherwise; ordinary exertion the ship’s
of human skill or owner to
(d) Bridges, tunnels and other
prudence, as provide the
instrumentalities of transportation and distinguished vessel with
communication (excluding buildings, their from the ordinary the proper
furniture and furnishings, fixed contents wear and tear of equipment
and supplies held in storage); piers, the voyage and to convey
wharves, docks and slips, and other aids to from injuries the cargo
navigation and transportation, including suffered by the under
vessel in ordinary
dry docks and marine railways, dams and
consequence of conditions.
appurtenant facilities for the control of her not being
waterways. unseaworthy.
(2) "Marine protection and indemnity Extraordinary Usual perils
insurance," meaning insurance against, or perils attendant to
against legal liability of the insured for loss, navigation
damage, or expense incident to ownership, *Only perils of the sea are assumed by
operation, chartering, maintenance, use, the insurer.
repair, or construction of any vessel, craft or 2. “all risks” marine insurance policy
instrumentality in use of ocean or inland means that all risks are covered unless
waterways, including liability of the expressly excepted. The burden rests on
insured for personal injury, illness or death the insurer to prove that the loss is
or for loss of or damage to the property of caused by a risk that is excluded.
another person.”
D. Insurable interest in marine insurance
*In Roque v IAC, the SC held that cargo can
1. Ship owner’s insurable interest
be the subject of marine insurance, and once
it is entered into, the implied warranty of
that: “The owner of a ship has in all
seaworthiness immediately attaches to
cases an insurable interest in it, even
whoever is insuring the cargo, whether he
when it has been chartered by one who
be the shipowner or not. Although he has
covenants to pay him its value in case of
no control over the vessel, the shipper has
loss: Provided, That in this case the
control in the choice of vessel.
insurer shall be liable for only that part
of the loss which the insured cannot
C. Risks or losses covered in marine
recover from the charterer.“
insurance
1. Perils of the sea vs. perils of the ship *The insurable interest of the shipowner
Perils of the Sea Perils of the Ship is over the value of the vessel and over
Include only those Is a loss which is in expected freightage.
casualties due to the ordinary course Measurement: Ownership
the unusual of events, results: *It does not matter whether the ship was
violence or 1. From the mortgaged or chartered.
extraordinary ordinary, a. Rule where vessel is chartered
causes connected natural and
with navigation. It inevitable
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Sec. 100 of the Insurance Code freightage which according to the

states that: “The owner of a ship has ordinary and probable course of
in all cases an insurable interest in it, things he would have earned but for
even when it has been chartered by the intervention of a peril insured
one who covenants to pay him its against or other peril incident to the
value in case of loss: Provided, That voyage.”
in this case the insurer shall be liable *Supposed earnings may be subject
for only that part of the loss which to marine insurance.
the insured cannot recover from the 2. Charterer’s insurable
charterer.” Sec. 106 of the Insurance Code provides
Q: What is a charter party? that: “The charterer of a ship has an
A: A contract where the owner lends insurable interest in it, to the extent that
his whole vessel to a charterer for a he is liable to be damnified by its loss.”
particular voyage.
*Indemnity Principle applies E. Concealment
b. Rule where vessel hypothecated by 1. Meaning of concealment in marine
bottomry insurance
Sec. 101 of the Insurance Code *Definition of concealment in marine
which provides that: “The insurable insurance is the same as what defined in
interest of the owner of the ship Sec. 26 of the Insurance Code.
hypothecated by bottomry is only *However, concealment under the
the excess of its value over the marine insurance is more strict than the
amount secured by bottomry.” ordinary insurance
*Principle of Indemnity applies. Reason: Unpredictable risk
Q: What is bottomry? *In marine insurance, opinions and
A: it is a contract of loan which said expectations of third persons are
loan is used for the repair of the considered, whereas in ordinary
vessel. The payment of which is insurance as a general rule, opinions of
conditional. third persons are not necessary.
*The owner’s insurable interest is Exception: expert opinion.
the amount in excess of the value of 2. Duty to communicate
the ship over the amount secured by Sec. 107 of the Insurance Code which
the bottomry provides that: “In marine insurance each
*Owner incurs loss due to the party is bound to communicate, in
damage of the vessel but at the same addition to what is required by section
time he receives gain due to the twenty-eight, all the information which
extinguishment of his loan he possesses, material to the risk, except
obligation. such as is mentioned in Section thirty,
c. Insurable interest in freightage and to state the exact and whole truth in
Sec. 102 of the Insurance Code relation to all matters that he represents,
states that: “Freightage, in the sense or upon inquiry discloses or assumes to
of a policy of marine insurance, disclose.”
signifies all the benefits derived by 3. Opinions or expectations of third
the owner, either from the persons
chartering of the ship or its Sec. 108 of the Insurance Code which
employment for the carriage of his provides that: “In marine insurance,
own goods or those of others.” information of the belief or expectation
Sec. 103 of the Insurance Code of a third person, in reference to a
provides that: “The owner of a ship material fact, is material.”
has an insurable interest in expected
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4. When concealment does not vitiate the has also the control in the selection of
entire contract the vessel.
Sec. 110 of the Insurance Code states a. What constitutes seaworthiness
that: “A concealment in a marine Sec. 114 of the Insurance Code
insurance, in respect to any of the states that: “A ship is seaworthy
following matters, does not vitiate the when reasonably fit to perform the
entire contract, but merely exonerates service and to encounter the
the insurer from a loss resulting from ordinary perils of the voyage
the risk concealed: contemplated by the parties to the
(a) The national character of the insured; policy.”
(b) The liability of the thing insured to Q: What makes a vessel seaworthy?
capture and detention; A: Sec. 114. Fitness of the vessel is
(c) The liability to seizure from breach of the general test.
foreign laws of trade; *Warranty on the condition of the
(d) The want of necessary documents; ship
(e) The use of false and simulated Example:
papers.” Shipowner insured his vessel with X
insurer.
F. Representations On the part of the insurer, the inured
1. Effect of false representation by the warrants that his vessel is ship
insured worthy. The burden falls on the
Sec. 111 of the Insurance Code states shipowner/insured of proving
that: “If a representation by a person otherwise.
insured by a contract of marine *Seaworthiness depends on the
insurance, is intentionally false in any transaction entered into or
material respect, or in respect of any fact undertaken by the ship.
on which the character and nature of the Sec. 116 of the Insurance Code
risk depends, the insurer may rescind states that: “A warranty of
the entire contract.” seaworthiness extends not only to
2. Effect of false representation as to the condition of the structure of the
expectation ship itself, but requires that it be
Sec. 112 of the Insurance Code provides properly laden, and provided with a
that: “The eventual falsity of a competent master, a sufficient
representation as to expectation does number of competent officers and
not, in the absence of fraud, avoid a seamen, and the requisite
contract of marine insurance.” appurtenances and equipment, such
G. Implied warranties in marine insurance as ballasts, cables and anchors,
1. Seaworthiness cordage and sails, food, water, fuel
Sec. 113 of the Insurance Code provides and lights, and other necessary or
that: “In every marine insurance upon a proper stores and implements for
ship or freight, or freightage, or upon the voyage.”
any thing which is the subject of marine Requisites:
insurance, a warranty is implied that the 1. Condition of the structure of the
ship is seaworthy.” ship
*Charterer is also subject to warranty on 2. Properly laden and provided
seaworthiness because he has control in with a competent master
the selection of the ship to be leased. 3. Sufficient number of competent
*Bottomry lender is also subject to officers and seamen
warranty on seaworthiness because he 4. Requisite appurtenances and
equipment
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*In Delsan Transport case, the SC unless each vessel upon which
held that the issuance of certificate the cargo is shipped, or
of seaworthiness is not enough to transhipped, be seaworthy at the
prove seaworthiness of the ship. commencement of each
Example: particular voyage. (Cargo
Cargo owner insured his cargo Policy)”
Q: Does that implied warranty on Controlling: There must be
seaworthiness apply to cargo transhipment
owner? *The ship must be seaworthy in
A: YES. The cargo owner has the each particular voyage.
control in the selection of the vessel Sec. 117 of the Insurance Code
where his cargoes to be shipped. provides that: “Where different
Sec. 119 of the Insurance Code portions of the voyage contemplated
provides that: “A ship which is by a policy differ in respect to the
seaworthy for the purpose of an things requisite to make the ship
insurance upon the ship may, seaworthy therefor, a warranty of
nevertheless, by reason of being seaworthiness is complied with if, at
unfitted to receive the cargo, be the commencement of each portion,
unseaworthy for the purpose of the the ship is seaworthy with reference
insurance upon the cargo.” to that portion.” (Voyage Policy)
b. When complied with; exceptions *There is a single ship that
Sec. 115 of the Insurance Code completes the voyage however, the
provides that: “An implied warranty ship will undergo different degree of
of seaworthiness is complied with if perils.
the ship be seaworthy at the time of *The ship must be seaworthy upon
the of commencement of the risk, commencement of each level of
except in the following cases: peril.
(a) When the insurance is made for General Rule: The ship must be
a specified length of time, the seaworthy at the time of the
implied warranty is not commencement of the risk.
complied with unless the ship be Exceptions:
seaworthy at the commencement 1. Time policy
of every voyage it undertakes 2. Cargo policy
during that time; (Time Policy) 3. Voyage policy
Example: *In time policy, seaworthiness
The transaction is covered for commenced in every voyage.
one year from January 1, 2007 to *In voyage policy, no transhipment.
December 31, 2007. The voyage has different stages to
The ship will undertake 5 go through. Every stage of voyage
different voyages. the ship must be seaworthy.
The ship must be seaworthy at c. Rule where ship becomes
the commencement of each and unseaworthy in the course of the
every voyage. voyage
(b) When the insurance is upon the Sec. 118 of the Insurance Code
cargo which, by the terms of the provides that: “When the ship
policy, description of the voyage, becomes unseaworthy during the
or established custom of the voyage to which an insurance
trade, is to be transhipped at an relates, an unreasonable delay in
intermediate port, the implied repairing the defect exonerates the
warranty is not complied with insurer on ship or shipowner's
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interest from liability from any loss *Whether or not improper deviation
arising therefrom.” contributed to the loss is immaterial
2. Warranty that necessary documents are because there was already a breach
carried of implied warranty.
Sec. 120 of the Insurance Code states Sec. 126 of the Insurance Code
that: “Where the nationality or states that: “An insurer is not liable
neutrality of a ship or cargo is expressly for any loss happening to the thing
warranted, it is implied that the ship insured subsequent to an improper
will carry the requisite documents to deviation.”
show such nationality or neutrality and
that it will not carry any documents H. Loss
which cast reasonable suspicion 1. Kinds of losses
thereon.” a. Actual
3. Warranty against improper deviation Sec. 130 of the Insurance Code
a. Meaning of deviation provides that: “An actual total loss is
Sec. 123 of the Insurance Code cause by:
states that: “Deviation is a departure (a) A total destruction of the thing
from the course of the voyage insured;
insured, mentioned in the last two (b) The irretrievable loss of the thing
sections, or an unreasonable delay in by sinking, or by being broken up;
pursuing the voyage or the (c) Any damage to the thing which
commencement of an entirely renders it valueless to the owner for
different voyage.” the purpose for which he held it; or
*Deviation is either proper or (d) Any other event which
improper. effectively deprives the owner of the
*There is breach of warranty if the possession, at the port of
deviation is improper. destination, of the thing insured.”
b. When proper Sec. 132 of the Insurance Code
Sec. 124 of the Insurance Code states that: “An actual loss may be
provides that: “A deviation is presumed from the continued
proper: absence of a ship without being
(a) When caused by circumstances heard of. The length of time which is
over which neither the master nor sufficient to raise this presumption
the owner of the ship has any depends on the circumstances of the
control; case.”
(b) When necessary to comply with b. Constructive
a warranty, or to avoid a peril, Sec. 131 of the Insurance Code
whether or not the peril is insured provides that: “A constructive total
against; loss is one which gives to a person
*Whether or not the peril is covered insured a right to abandon, under
by the policy is immaterial. Section one hundred thirty-nine. “
(c) When made in good faith, and 2. Right to payment upon an actual total
upon reasonable grounds of belief in loss
its necessity to avoid a peril; or Sec. 135 of the Insurance Code states
(d) When made in good faith, for the that: “Upon an actual total loss, a person
purpose of saving human life or insured is entitled to payment without
relieving another vessel in distress.” notice of abandonment.”
*Warranty is against improper 3. Scope of insurance against actual total
deviation. loss
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Sec. 137 of the Insurance Code states *This is not automatic.

that: “An insurance confined in terms to *There is an option either to abandon it
an actual loss does not cover a or to recover only the partial loss.
constructive total loss, but covers any 5. Concept of abandonment and its
loss, which necessarily results in requisites
depriving the insured of the possession, Definition:
at the port of destination, of the entire Sec. 138 of the Insurance Code states
thing insured.” that: “Abandonment, in marine
4. When constructive total loss/partial insurance, is the act of the insured by
loss exists which, after a constructive total loss, he
Sec. 139 of the Insurance Code provides declares the relinquishment to the
that: “A person insured by a contract of insurer of his interest in the thing
marine insurance may abandon the insured.”
thing insured, or any particular portion *It is necessary to abandon the
thereof separately valued by the policy, surviving part of the thing.
or otherwise separately insured, and Formula:
recover for a total loss thereof, when the Constructive total loss + Abandonment
cause of the loss is a peril insured = Total loss
against: If there is only constructive total loss
(a) If more than three-fourths thereof in there is only partial loss.
value is actually lost, or would have to Requisites:
be expended to recover it from the peril; 1. There must be an actual
(b) If it is injured to such an extent as to relinquishment by the person
reduce its value more than three- insured of his interest in the thing
fourths; insured.
(c) If the thing insured is a ship, and the 2. There must be a constructive total
contemplated voyage cannot be lawfully loss
performed without incurring either an 3. The abandonment be neither partial
expense to the insured of more than nor conditional
three-fourths the value of the thing 4. It must be made within a reasonable
abandoned or a risk which a prudent time after receipt of reliable
man would not take under the information of the loss
circumstances; or 5. It must be factual and reasonable
(d) If the thing insured, being cargo or 6. It must be made by giving notice
freightage, and the voyage cannot be thereof to the insurer which may be
performed, nor another ship procured done orally or in writing
by the master, within a reasonable time 7. The notice of abandonment must be
and with reasonable diligence, to explicit and must specify the
forward the cargo, without incurring the particular cause of the abandonment
like expense or risk mentioned in the *The residual part is abandoned.
preceding sub-paragraph. But Reason: Principle of Indemnity
freightage cannot in any case be *If the requisites are satisfied the
abandoned unless the ship is also insurance company cannot refuse to
abandoned.” accept the abandonment.
Test: The loss is more than ¾ but less 6. Average
than 1. Average is any extraordinary or
*If there is partial loss, only partial can accidental expense incurred during the
be claimed. voyage for the preservation of the
*The extent of damage in constructive vessel, cargo, or both, and all damages
loss is so severe. to the vessel and cargo from the time it
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is loaded and the voyage commenced deliberately caused by

until it ends and the cargo unloaded. the master of the vessel
*Expenses for maritime transaction. or upon his authority, in
a. Kinds of average: order to save the vessel,
i. Particular her cargo, or both at the
Sec. 136 of the Insurance same time from a real or
Code provides that: “Where known risk.
it has been agreed that an - It must be borne equally
insurance upon a particular by all of the interests
thing, or class of things, shall concerned in the venture.
be free from particular b. Requisites of general average
average, a marine insurer is 1. There must be a common danger
not liable for any particular to the vessel or cargo
average loss not depriving 2. Part of the vessel or cargo was
the insured of the possession, sacrificed deliberately
at the port of destination, of 3. The sacrifice must be for the
the whole of such thing, or common safety of for the benefit
class of things, even though of all
it becomes entirely 4. It must be made by the master or
worthless; but such insurer is upon his authority
liable for his proportion of all 5. It must be successful, i.e.,
general average loss assessed resulted in the saving of the
upon the thing insured.” vessel or cargo
- Includes all damages and 6. It must be necessary
expenses caused to the c. Insurer’s liability for general
vessel or to her cargo average
which have not inured to The insurer of the vessel or cargo
the common benefit and that are saved is liable for general
profit of all persons average contribution and not for
interested in the vessel particular average. Only the insurer
and her cargo. of the damaged cargo or vessel is
- It refers to those losses liable for particular average if
which occur under such covered by the policy.
circumstances as do not Q: If there is a stipulation exempting
entitle the unfortunate the insurer for a particular average
owners to receive loss, does it extend to general
contribution from other average loss?
owners concerned in the A: NO.
venture as where a vessel Basis: Article 859 of the Code of
accidentally runs Commerce; Article 812 of the Code
aground and goes to of Commerce
pieces after the cargo is Reason: Equity
saved. Q: Are there a mandatory co-insurance in marine
Recourse: Go after the insurer insurance?
*Stipulation exempting the insurer A: YES.
for a particular average loss is Basis: Sec. 157 of the Insurance Code provides
possible and valid. that: “A marine insurer is liable upon a partial loss,
ii. General only for such proportion of the amount insured by
- Includes damages and him as the loss bears to the value of the whole
expenses which are interest of the insured in the property insured.”
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*There is a co-insurance when the property is A: Direct losses are losses that pertain to the
insured for less than its value, the insured is physical destruction of the thing insured.
considered a co-insurer for the difference between Q: What are indirect losses?
the amount of insurance and the value of the A: Indirect losses pertain to consequential
property. losses.
Requisites: Q: Are consequential losses compensable?
1. The loss is partial A: General Rule: NO in standard fire policy
2. The amount of insurance is less than the Except: If there is an agreement
value of the property insured. *The liability of the insurer is to pay for
Formula: direct losses only
Loss Friendly Fire – fire that burns in a place
------- x Insurance = Insurer’s Liability where it is supposed to burn.
Value Hostile Fire – fire that escapes and burns in
Example: a place where it is not supposed to be.
A’s insurable interest = P500,000
Insured Amount = P300,000 C. Effect of alteration in the thing
Loss = P300,000 Sec. 168 of the Insurance Code provides
Q: Would the whole P300,000 be recovered from that: “An alteration in the use or condition
the insurer? of a thing insured from that to which it is
A: NO. Only 180,000 will be recovered and the limited by the policy made without the
balance of 120,000 will be suffered by the insured consent of the insurer, by means within the
as a co-insurer. control of the insured, and increasing the
Computation: risks, entitles an insurer to rescind a
300,000 contract of fire insurance.”
----------- x 300,000 = 180,000 Sec. 169 of the Insurance Code states that:
500,000 “An alteration in the use or condition of a
If the loss is 500,000, the insured can recover the thing insured from that to which it is
whole 300,000 because there is a total loss and not limited by the policy, which does not
partial loss. increase the risk, does not affect a contract
*In fire insurance, there has to be an express of fire insurance.”
stipulation to that effect. Q: If the policy is silent as to the use or
condition of the thing insured, are there
FIRE INSURANCE: implied warranty in fire insurance?
A: General Rule: YES. The insured has the
A. Definition and scope of fire insurance
insurable interest in the thing insured.
Exception: If the policy expressly provides
that: “As used in this Code, the term "fire
for the use of condition of the thing insured.
insurance" shall include insurance against
loss by fire, lightning, windstorm, tornado
D. Measure of indemnity
or earthquake and other allied risks, when
such risks are covered by extension to fire
that: “If there is no valuation in the policy,
insurance policies or under separate
the measure of indemnity in an insurance
policies.”
against fire is the expense it would be to the
insured at the time of the commencement of
B. Risks or losses covered
the fire to replace the thing lost or injured in
Q: What are allied risks?
the condition in which at the time of the
A: lightning, windstorm, tornado or
injury; but if there is a valuation in a policy
earthquake, tsunami.
of fire insurance, the effect shall be the same
Q: What are direct losses?
as in a policy of marine insurance.”
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1. Open Policy: only the expense necessary person who might be injured may not sue
to replace the thing lost or injured in the the insurer.
condition it was at the time of the injury. - Liable for actual loss, the third party has
2. Valued Policy: the parties are bound by no direct recourse with the insurer but only
the valuation, in the absence of fraud or to the insured. The insured has recourse to
mistake. the insurer.
E. Co-insurance clause C. Insurable interest

General Rule: Applies primarily to marine *Insurable interest is based on the interest of
insurance. the insured in the safety of persons and
Exception: Co-insurance applies to fire their property, who may maintain an action
insurance if expressly agreed upon. against him in case of their injury or
destruction, respectively.
CASUALTY INSURANCE:
A. Concept D. Meaning of “accident” and “accidental” in

Sec. 174 of the Insurance Code states that: casualty insurance
“Casualty insurance is insurance covering *The terms “accident” and “accidental” as
loss or liability arising from accident or used in insurance contracts, have not
mishap, excluding certain types of loss acquired any technical meaning. They are
which by law or custom are considered as construed by the courts in the ordinary and
falling exclusively within the scope of other common acceptation. Thus, the terms have
types of insurance such as fire or marine. It been taken to mean that which happens by
includes, but is not limited to, employer's chance or fortuitously, without intention or
liability insurance, motor vehicle liability design, which is unexpected, unusual and
insurance, plate glass insurance, burglary unforeseen. The terms do not, without
and theft insurance, personal accident and qualification, exclude events resulting in
health insurance as written by non-life damage or loss due to fault, recklessness or
insurance companies, and other negligence of third parties.
substantially similar kinds of insurance.” *It is something that the insured did not
Q: What is the subject matter of the casualty foresee or though foreseen cannot be
insurance? avoided.
A: Life, property, liability and health *Accident or not, it must be taken from the
brought by accident. viewpoint of the victim.
B. Third Party Liability Insurance E. Basis and extent of insurer’s liability

*Casualty insurance ay provide for third *The beneficiary is not designated, the
party liability in the nature of stipulation proceeds will be given to the victims.
pour autrui for personal injury and even *The third party has direct recourse against
damage to property, in which case, the third the insurer. The insurer is purely liable.
party may directly sue the insurer upon the
SURETYSHIP:
occurrence of the loss. However, the insurer
is not solidarily liable with the insured or A. Definition
the tortfeasor for the latter’s obligation. Sec. 175 of the Insurance Code states that:
*Insurance against specified perils which “A contract of suretyship is an agreement
may give rise to liability on the part of the whereby a party called the surety
insured for claims for injuries to or damage guarantees the performance by another
to property of others. party called the principal or obligor of an
*If there is no stipulation in favor of third obligation or undertaking in favor of a third
person but the insurance is an insurance party called the obligee. It includes official
against liability to third persons, any third recognizances, stipulations, bonds or
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undertakings issued by any company by otherwise contingently on the continuance

virtue of and under the provisions of Act or cessation of life.
No. 536, as amended by Act No. 2206.” Every contract or pledge for the payment of
endowments or annuities shall be
B. Nature of Liability of surety considered a life insurance contract for
Sec. 176 of the Insurance Code provides purpose of this Code.
that: “The liability of the surety or sureties In the absence of a judicial guardian, the
shall be joint and several with the obligor father, or in the latter's absence or
and shall be limited to the amount of the incapacity, the mother, or any minor, who is
bond. It is determined strictly by the terms an insured or a beneficiary under a contract
of the contract of suretyship in relation to of life, health or accident insurance, may
the principal contract between the obligor exercise, in behalf of said minor, any right
and the obligee.” under the policy, without necessity of court
authority or the giving of a bond, where the
C. Distinctions between suretyship and interest of the minor in the particular act
property insurance involved does not exceed twenty thousand
Suretyship Property Insurance pesos. Such right may include, but shall not
Accessory contract Principal Contract be limited to, obtaining a policy loan,
There are three There are two surrendering the policy, receiving the
parties: surety, parties: insurer and
proceeds of the policy, and giving the
obligor and oblige insured
Credit Contract of minor's consent to any transaction on the
accommodation indemnity policy.”
Surety can recover Insurer has no such
from principal right; only right of B. Kinds of Life Insurance
subrogation 1. Ordinary Life, General Life or Old
Bond can be May be cancelled Line Policy – insured pays a fixed
cancelled only with unilaterally either premium every year until he dies.
consent of obligee, by insured or
Surrender value after 3 years.
Commissioner, or insurer on grounds
court provided by law 2. Group Life – essentially a single
Requires acceptance No need of insurance contract that provides
of obligee to be valid acceptance by any courage for money individuals.
third party 3. Limited Payment Policy – insured pays
Risk-shifting device, Risk-distributing premium for a limited period. If he dies
premium paid being device, premium within the period, his beneficiary is
in the nature of a paid as a ratable
paid; if he outlives the period, he does
service fee contribution to a
common fund not get anything.
4. Endowment Policy – pays premium for
specified period. If he outlives the
LIFE INSURANCE: period, the face value of the policy is
paid to him; if not, his beneficiaries
A. Definition
receive the benefit.
5. Term Insurance – insurer pays once
that: “. Life insurance is insurance on
only, and he is insured for a specified
human lives and insurance appertaining
period. If he dies within the period, his
thereto or connected therewith.”
beneficiaries benefits. If he outlives the
period, no person benefits from the
“An insurance upon life may be made
insurance.
payable on the death of the person, or on
6. Industrial Life – life insurance entitling
his surviving a specified period, or
the insured to pay premiums weekly, or
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where premiums are payable monthly COMPULSORY MOTOR VEHICLE LIABILITY

or oftener. INSURANCE:
A. Reason for the requirement

C. Liability of insurer in case of suicide
Purpose: To give immediate financial
Sec. 180-A of the Insurance Code states
assistance to victims of motor vehicle
that: “The insurer in a life insurance
accidents and/or their dependents,
contract shall be liable in case of suicides
especially if they are poor regardless of the
only when it is committed after the policy
financial capability of motor vehicle owners
has been in force for a period of two years
or operators responsible for the accident
from the date of its issue or of its last
sustained.
reinstatement, unless the policy provides a
Q: What is the mandatory reason for this
shorter period: Provided, however, That
type of insurance?
suicide committed in the state of insanity
A: To allow the registration or renewal of
shall be compensable regardless of the date
registration of any motor vehicle.
of commission.”
*Recovery of the proceeds depends on the
B. Scope of coverage required
commission of the suicide.
*In case of suicide, the insured may recover
“It shall be unlawful for any land
only after two years from the date the
transportation operator or owner of a motor
policy was issued or last reinstatement.
vehicle to operate the same in the public
*In case of suicide committed in the state of
highways unless there is in force in relation
insanity, it is compensable regardless of the
thereto a policy of insurance or guaranty in
date of the commission.
cash or surety bond issued in accordance
with the provisions of this chapter to
D. Right to assign life insurance policy
indemnify the death, bodily injury, and/or
damage to property of a third-party or
“A policy of insurance upon life or health
passenger, as the case may be, arising from
may pass by transfer, will or succession to
the use thereof.”
any person, whether he has an insurable
interest or not, and such person may
“The Land Transportation Commission
recover upon it whatever the insured might
shall not allow the registration or renewal of
have recovered. “
registration of any motor vehicle without
first requiring from the land transportation
“Notice to an insurer of a transfer or
operator or motor vehicle owner concerned
bequest thereof is not necessary to preserve
the presentation and filing of a
the validity of a policy of insurance upon
substantiating documentation in a form
life or health, unless thereby expressly
approved by the Commissioner evidencing
required.“
that the policy of insurance or guaranty in
cash or surety bond required by this chapter
E. Measure of indemnity
is in effect.”
“Unless the interest of a person insured is
C. Persons subject to the requirement
susceptible of exact pecuniary
measurement, the measure of indemnity
that: “Every land transportation operator
under a policy of insurance upon life or
and every owner of a motor vehicle shall,
health is the sum fixed in the policy.”
before applying for the registration or
General Rule: Life policy is always valued
renewal of registration of any motor
Exception: If the creditor insured the life of
vehicle, at his option, either secure an
the debtor.
insurance policy or surety bond issued by
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any insurance company authorized by the I. Private Cars

Commissioner or make a cash deposit in (a) Bantam : Twenty thousand pesos;
such amount as herein required as limit of (b) Light : Twenty thousand pesos;
liability for purposes specified in section (c) Heavy : Thirty thousand pesos;
three hundred seventy-four. II. Other Private Vehicles
(1) In the case of a land transportation (a) Tricycles, motorcyles, and scooters :
operator, the insurance guaranty in cash or Twelve thousand pesos;
surety bond shall cover liability for death or (b) Vehicles with an unladen weight of
bodily injuries of third-parties and/or 2,600 kilos or less : Twenty thousand pesos;
passengers arising out of the use of such (c) Vehicles with an unladen weight of
vehicle in the amount not less than twelve between 2,601 kilos and 3,930 kilos : Thirty
thousand pesos per passenger or third party thousand pesos;
and an amount, for each of such categories, (d) Vehicles with an unladen weight over
in any one accident of not less than that set 3,930 kilos : Fifty thousand pesos.
forth in the following scale: The Commissioner may, if warranted, set
(a) Motor vehicles with an authorized forth schedule of indemnities for the
capacity of twenty-six or more passengers: payment of claims for death or bodily
Fifty thousand pesos; injuries with the coverages set forth herein.”
(b) Motor vehicles with an authorized
capacity of from twelve to twenty-five D. No-Fault indemnity claim
passengers: Forty thousand pesos; Sec. 378 of the Insurance Code provides
(c) Motor vehicles with an authorized that: “Any claim for death or injury to any
capacity of from six to eleven passengers: passenger or third party pursuant to the
Thirty thousand pesos; provisions of this chapter shall be paid
(d) Motor vehicles with an authorized without the necessity of proving fault or
capacity of five or less passengers: Five negligence of any kind; Provided, That for
thousand pesos multiplied by the purposes of this section:
authorized capacity. (i) The total indemnity in respect of any
Provided, however, That such cash deposit person shall not exceed fifteen
made to, or surety bond posted with, the thousand pesos;
Commissioner shall be resorted to by him in (ii) The following proofs of loss, when
cases of accidents the indemnities for which submitted under oath, shall be
to third-parties and/or passengers are not sufficient evidence to substantiate
settled accordingly by the land the claim: (a) Police report of
transportation operator and, in that event, accident; and
the said cash deposit shall be replenished or (b) Death certificate and evidence
such surety bond shall be restored with sufficient to establish the proper
sixty days after impairment or expiry, as the payee; or (c) Medical report and
case may be, by such land transportation evidence of medical or hospital
operator, otherwise, he shall secure the disbursement in respect of which
insurance policy required by this chapter. refund is claimed;
The aforesaid cash deposit may be invested (iii) Claim may be made against one
by the Commissioner in readily marketable motor vehicle only. In the case of an
government bonds and/or securities. occupant of a vehicle, claim shall lie
(2) In the case of an owner of a motor against the insurer of the vehicle in
vehicle, the insurance or guaranty in cash or which the occupant is riding,
surety bond shall cover liability for death or mounting or dismounting from. In
injury to third parties in an amount not less any other case, claim shall lie against
than that set forth in the following scale in the insurer of the directly offending
any one accident: vehicle. In all cases, the right of the
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party paying the claim to recover months from date of accident, otherwise,
against the owner of the vehicle the claim shall be deemed waived. Action
responsible for the accident shall be or suit for recovery of damage due to loss or
maintained.“ injury must be brought, in proper cases,
Q: How does the law protects the victim? with the Commissioner or the Courts within
A: By the provision under the NO FAULT one year from denial of the claim,
INDEMNITY CLAUSE. otherwise, the claimant's right of action
*No fault clause applies only to bodily shall prescribe.”
physical injuries or death not to property
CLAIMS SETTLEMENT:
damage.
Q: From whom should the injured recover? A. Unfair claim settlement practices
A: (a) In the case of an occupant of a vehicle, Sec. 241 of the Insurance Code states that:
claim shall lie against the insurer of the “(1) No insurance company doing business
vehicle in which the occupant is riding, in the Philippines shall refuse, without just
mounting or dismounting from; (b) If not an cause, to pay or settle claims arising under
occupant, claim shall lie against the insurer coverages provided by its policies, nor shall
of the directly offending vehicle; (c) In all any such company engage in unfair claim
cases, the right of the party paying the claim settlement practices. Any of the following
to recover against the owner of the vehicle acts by an insurance company, if committed
responsible for the accident shall be without just cause and performed with such
maintained. frequency as to indicate a general business
Examples: practice, shall constitute unfair claim
a. A passenger rode Y taxi cab. The taxi settlement practices:
cab is insured by X company under the (a) knowingly misrepresenting to claimants
compulsory motor vehicle liability pertinent facts or policy provisions relating
insurance. The taxi collided against a to coverage at issue;
MERALCO post. (b) failing to acknowledge with reasonable
The passenger can claim against X promptness pertinent communications with
company without proving fault or respect to claims arising under its policies;
negligence. Only documents that prove (c) failing to adopt and implement
the happening of the incident. reasonable standards for the prompt
b. Passenger 1 received P15,000 under the investigation of claims arising under its
no fault clause. His actual expenses policies;
amount to P50,000. (d) not attempting in good faith to
Q: Can he still recover the balance? effectuate prompt, fair and equitable
From whom? settlement of claims submitted in which
A: YES. Against the offending vehicle liability has become reasonably clear; or
but this time he is required to prove (e) compelling policyholders to institute
fault or negligence. suits to recover amounts due under its
policies by offering without justifiable
E. Notice of claim reason substantially less than the amounts
Sec. 384 of the Insurance Code states that: ultimately recovered in suits brought by
“Any person having any claim upon the them.
policy issued pursuant to this Chapter shall, (2) Evidence as to numbers and types of
without any unnecessary delay, present to valid and justifiable complaints to the
the insurance company concerned a written Commissioner against an insurance
notice of claim setting forth the nature, company, and the Commissioner's
extent and duration of the injuries sustained complaint experience with other insurance
as certified by a duly licensed physician. companies writing similar lines of insurance
Notice of claim must be filed within six shall be admissible in evidence in an
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administrative or judicial proceeding agreement between the insured and the

brought under this section. insurer or by arbitration; but if such
(3) If it is found, after notice and an ascertainment is not had or made within
opportunity to be heard, that an insurance sixty days after such receipt by the insurer
company has violated this section, each of the proof of loss, then the loss or damage
instance of non-compliance with paragraph shall be paid within ninety days after such
(1) may be treated as a separate violation of receipt. Refusal or failure to pay the loss or
this section and shall be considered damage within the time prescribed herein
sufficient cause for the suspension or will entitle the assured to collect interest on
revocation of the company's certificate of the proceeds of the policy for the duration
authority.” of the delay at the rate of twice the ceiling
General Rule: Upon maturity of the policy prescribed by the Monetary Board, unless
Exception: Annuities payment such failure or refusal to pay is based on the
ground that the claim is fraudulent.”
B. Claims for life insurance policies
Sec. 242 of the Insurance Code provides D. Delay in payment of claims
that: “The proceeds of a life insurance Sec. 244 of the Insurance Code provides
policy shall be paid immediately upon that: “In case of any litigation for the
maturity of the policy, unless such proceeds enforcement of any policy or contract of
are made payable in installments or as an insurance, it shall be the duty of the
annuity, in which case the installments, or Commissioner or the Court, as the case may
annuities shall be paid as they become due: be, to make a finding as to whether the
Provided, however, That in the case of a payment of the claim of the insured has
policy maturing by the death of the insured, been unreasonably denied or withheld; and
the proceeds thereof shall be paid within in the affirmative case, the insurance
sixty days after presentation of the claim company shall be adjudged to pay damages
and filing of the proof of the death of the which shall consist of attorney's fees and
insured. Refusal or failure to pay the claim other expenses incurred by the insured
within the time prescribed herein will person by reason of such unreasonable
entitle the beneficiary to collect interest on denial or withholding of payment plus
the proceeds of the policy for the duration interest of twice the ceiling prescribed by
of the delay at the rate of twice the ceiling the Monetary Board of the amount of the
prescribed by the Monetary Board, unless claim due the insured, from the date
such failure or refusal to pay is based on the following the time prescribed in section two
ground that the claim is fraudulent. hundred forty-two or in section two
The proceeds of the policy maturing by the hundred forty-three, as the case may be,
death of the insured payable to the until the claim is fully satisfied; Provided,
beneficiary shall include the discounted That the failure to pay any such claim
value of all premiums paid in advance of within the time prescribed in said sections
their due dates, but are not due and payable shall be considered prima facie evidence of
at maturity.” unreasonable delay in payment.”
C. Claims for non-life insurance policies

“The amount of any loss or damage for
which an insurer may be liable, under any
policy other than life insurance policy, shall
be paid within thirty days after proof loss is
received by the insurer and ascertainment
of the loss or damage is made either by
Page 32

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hange E hange E

A. Requisites of a contract of Insurance has an insurable interest in the life of the

*For disqualification purposes, what is insurance to an equivalent extent, until the

the insurance is deemed to be upon Sec. 23 of the Insurance Code states

on the life the latter

Sec. 27 of the Insurance Code provides need not be communicated unless in

Sec. 46 of the Insurance Code provides

rescindible by reason of the fraudulent any condition imposed by the

4. Promissory – the insured stipulates any rider, clause, warranty or endorsement

one year shall be considered as if written for

A. Beneficiary 3. In cases where the marriage is declared

Sec. 94 of the Insurance Code states that:

all properties or risks insured by the insured, not his consent

construction, repair, operation, maintenance has been said to action of the

Sec. 100 of the Insurance Code freightage which according to the

Sec. 137 of the Insurance Code states *This is not automatic.

is loaded and the voyage commenced deliberately caused by

E. Co-insurance clause C. Insurable interest

A. Concept D. Meaning of “accident” and “accidental” in

B. Third Party Liability Insurance E. Basis and extent of insurer’s liability

undertakings issued by any company by otherwise contingently on the continuance

where premiums are payable monthly COMPULSORY MOTOR VEHICLE LIABILITY

A. Reason for the requirement

any insurance company authorized by the I. Private Cars

administrative or judicial proceeding agreement between the insured and the

C. Claims for non-life insurance policies

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