patino INSURANCE rev

Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) ‐ INSURANCE ‐ GENERAL PROVISIONS Sec 1. This Decree shall be known as the Insurance Code of 1978. Laws Governing Insurance 1. Insurance Code of 1978 (PD 1460) 2. Civil Code of the Philippines – Applies when the Insurance Code does not specifically provide for a particular matter in question. (Applies subsidiarily) 3. Special Laws a. Revised Government Service Insurance Act of 1977 b. Social Security Act of 1954 c. Code of Commerce Note: The general principles prevailing on the subject in the U.S., particularly in the State of California where our Insurance Code is based, applies suppletorily. Right of Subrogation of Insurer to Rights of Insured Against Wrongdoer • Basis of Right: Subrogation is a process of legal substitution; the insurer, after paying the amount covered by the insurance policy, steps into the shoes of the insured. It has its roots in equity. • Right of subrogation applicable only to property insurance: It does not apply to human insurance, as the value of human life is unlimited and no recovery from a third person can be deemed adequate. • Privity of contract or assignment by insured of claim is not essential in subrogation. Subrogation accrues simply upon payment of the insurance claim by the insurer. (Pan Malayan Insurance v. CA, 184 SCRA 54) • Loss or injury for risk must be covered by policy to entitle the insurer to subrogation. • Right of insurer against 3rd party is limited only to amount recoverable by the insured • Insurer can be subrogated only to such rights as the insured may have. • Exercise of right of subrogation by insurer is merely discretionary. Purposes of Subrogation in Insurance 1. To make the person who caused the loss legally responsible for it. 2. To prevent the insured from receiving double recovery from the wrongdoer and the insurer. 3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. Pan Malayan Insurance v. CA: Where the insurer pays the insured the value of the lost goods without notifying the carrier who has in good faith settled the claim for loss of the insured, the settlement is binding on both insurer and insured. The right to subrogation can no longer be exercised. (184 SCRA 54) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 There can be no subrogation in cases: a. Where the insured, by his own act, releases the wrongdoer or third party liable for the loss or damage; b. Where the insurer pays the insured the value of the loss without notifying the carrier who has, in good faith settled the insured’s claim for loss; c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54) d. In life insurance e. For recovery of loss in excess of insurance coverage Sec 2. Wherever used in this Code, the following terms shall have the respective meanings, unless the context otherwise requires: 1. “Contract of insurance” ‐ an agreement ‐ where one undertakes for a consideration ‐ to indemnify another ‐ against loss, damage, or liability ‐ arising from an unknown or contingent event. A contract of suretyship: shall be deemed to be an insurance contract ONLY if made by a surety who is doing an insurance business 2. The term "Doing an insurance business" or "transacting an insurance business", shall include: a. Making or proposing to make, as insurer, any insurance contract; b. Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other business; c. Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business; d. Doing or proposing to do any business equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. The fact: a. That no profit is derived from the making of insurance contracts, OR b. That no separate or direct consideration is received therefore, shall not be deemed conclusive to show that it does not constitute the doing or transacting of an insurance business. 3. "Commissioner" means the "Insurance Commissioner" Elements of Contract: 1. Subject matter = The thing insured 2. Consideration = Premiums paid 3. Object and purpose = Transfer and distribution of risk of loss, damage or liability arising from an unknown or contingent event. 1|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Elements of a Contract of Insurance 1. Insurable interest – The insured possesses an interest of some kind susceptible of pecuniary estimation. 2. Risk of loss – The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils. 3. Insurer assumes risk of loss 4. Scheme to distribute actual losses proportionally among a large group or substantial number of persons bearing a similar risk. An insurance contract therefore is a device which distributes the risk of loss among all the insured taken from a general fund contributed by all. 5. Consideration in the form of premiums – Insured makes a ratable contribution called a premium, to a general insurance fund. 6. Nature and Characteristics of Insurance Contracts 1. Aleatory: The liability of the insurer depends on some contingent event. It is an aleatory but not a wagering contract. 2. 3. A contract of indemnity for non‐life insurance; an investment in life insurance. In non‐life insurance, the insured can only be indemnified and not profit from the same. Rules on Indemnity: a. Applies only to property insurance except when the creditor insures the life of his debtor in so far as the latter’s debt is concerned b. Indemnity is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss c. A life insurance is NOT a contract of indemnity. It is considered an investment. d. Insurance contracts are not wagering contracts or gambling contracts A personal contract. Each party contracts having in view the character, credit and conduct of the other. 4. Unilateral – It is executory on the part of the insurer. It is executed as to the insured after his payment of the premium. (Beda and Jack Notes) (However, according to CLV: It is bilateral [p. 272]) 5. Conditional to the happening of the event insured against. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 It is one contracted in perfect good faith. Uberrimae Fides Contract The contract of insurance is one of perfect good faith not for the insured alone, but equally so for the insurer. It requires the parties to the contract to disclose conditions affecting the risk of which he is aware, or material fact, which the applicant knows, and those, which he ought to know. 7. It is a contract of adhesion/adherence. Insurance companies impose upon the insured prepared agreements in printed form which the insured may not change. Note: Fine Print Rule: Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12) Note: A contract only having the above first 3 elements is a risk‐shifting device but not a contract of insurance which is a risk‐distributing device. (DeLeon) Other Requisites of an Insurance Contract 1. Meeting of the minds between the parties 2. Parties must be competent to enter into the contract 3. Sec 226 Insurance Code: “No policy shall be issued or delivered w/in the RP unless in the form previously approved by the Insurance Commissioner” Use at your own risk  8. It is consensual. It is perfected by the meeting of the minds of the parties with respect to the object and the cause or consideration. (De Leon, p.17) HOWEVER: How a Contract of Insurance be Perfected: • A contract of insurance must be assented by both parties. It is only when the insurer accepts the application and communicates the same to the applicant that the contract of insurance is perfected. (Perez v. CA, Jan 2000) Also, premiums on the policy must be paid before the contract can be valid and binding. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil 269) • What is being followed in insurance contracts is what is known as the “cognition theory”. Thus, “an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge”. (Enriquez vs. Sun Life Assurance Co. of Canada, Id.) • CLV: Insurance contract is a formal and real (NOT consensual contract) because a policy is required to be issued, and the premium must be paid. (p. 272) 9. GR: Voluntary – Not compulsory and parties may incorporate such terms and conditions as they may deem convenient. (Exceptions: Motor vehicles, social insurance, business, those that result by operation of law) 10. It is property in legal contemplation since an insurance is a contract. Doctrine of Estoppel ‐ Where inequitable conduct is shown by an insurance firm, it is estopped from enforcing forfeitures or exemptions in its favor. ‐ If an insurance company had led the insured to believe that he could qualify under a certain insurance and the latter entered into a contract paying the premiums due, the insurer could not subsequently be permitted to contend that the insured was not qualified. 2|P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) c. Necessity of Affixing a Copy Thereof to Complaint: The right of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit the 3rd person or just the insurer. Insurance contract must be attached to the complaint in order for the court to ascertain the limits and real nature of the liability. (Travellers Insurance & Surety Corp v. CA, 272 SCRA 536) How Ambiguities are Construed: ‐ Terms and provisions of the contract should be interpreted together and not segregated. ‐ Ambiguities or obscurities must be strictly interpreted against the party that caused them. As an insurance policy is prepared solely by the insurer, the ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. CA, 98 Phil. 79) Fields of Insurance 1. Social (government) Insurance – It is compulsory and is designed to provide a minimum economic security for large groups of people, particularly those in the lower income groups. 2. Voluntary (private) Insurance – Not based on government compulsion but sought by the insured to meet a recognized need for protection. a. Commercial Insurance (Personal or Property insurance) b. Cooperative Insurance – Applied to associations. c. Voluntary Government Insurance Classification by Interests Protected 1. First‐party versus third‐party insurance: In first‐ party insurance, the contract is designed to indemnify the insured for loss he suffered directly. All insurance except liability can be fairly thought of as first‐party insurance. 2. All‐risk versus specified risk All risk: Reimburses the insured for damage to the ‐ subject mater of the policy from all causes except those specifically excepted in the policy. (Burden of proof is generally on the insurer to prove that the loss was caused by those excepted in the policy) ‐ Specified risk: Covers damage to the subject matter of the policy only if it results from specifically identified causes listed in the policy. (Burden of proof is generally on the insured to prove that the loss was caused by the specified risks) Types of Insurance Contracts under the Code 1. Life Insurance a. Individual Life – Insurance on human lives and insurance appertaining thereto or connected therewith; b. Group Life – A blanket policy covering a number of individuals. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Industrial Life – A form of life insurance under which the premiums are payable either monthly or oftener, if the face amount of insurance provided in any policy is not more than five hundred times that of the current statutory minimum daily wage in the City of Manila and if the words “industrial policy” are printed upon the policy as part of the descriptive matter. 2. Non‐Life Insurance a. Marine b. Fire c. Casualty 3. ‐ Contract of Suretyship or Bonding Suretyship, defined: An agreement whereby a party called the surety guarantees the performance by another called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. A suretyship contract is deemed an insurance contract ONLY when the surety is engaged in business as such and not merely an isolated transaction. (Suretyship as a vocation and not merely incidental to any other business) ‐ What Constitutes Doing or Transacting An Insurance Business ‐ Name or designation of the company or association is not determinative of whether the organization is an insurance company. ‐ The fact that no profit is derived or no separate or direct consideration is received, and the fact that the contract states that it is not an insurance policy, is NOT conclusive to show that it does not constitute the doing or transacting of an insurance business. (White Gold Marine Services, Inc. v. Pioneer Ins & Surety Corp, 464 SCRA 448) ‐ Principal object and purpose test should be used to determine the nature of the contract. o If the principal object is indemnity: The contract constitutes insurance. If the service is the principal object and the indemnity is merely incidental: It is not an insurance contract. (Jordan v. Group Health Association, 107 F. 2d 239) o The test depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in light of the circumstances under which the performance becomes a requisite. (White Gold Marine Services, Inc. v. Pioneer Insurance & Surety Corp, 464 SCRA 448) Title 1. What May Be Insured Sec 3. Any: ‐ contingent OR unknown event, ‐ whether past OR future, ‐ which may damnify a person having an insurable interest, OR create a liability against him, may be insured against. 3|P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) The consent of the husband is NOT necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children. Any minor of the age of 18 years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister (INAPPLICABLE now) Insurance for or against any lottery is VOID ‐ A person who purchases a ticket cannot insure himself against the failure of his ticket to win a prize. ‐ Contract of insurance is a contract of indemnity. Failure to win a prize would not cause one damage/loss nor create liability. ‐ Also, gambling may possibly result in profit and insurance only seeks to indemnify the insured against losses. The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy. Gambling Contract Parties contemplate gain though mere chance All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor ‐ GR: Shall automatically vest in the minor UPON the death of the original owner, ‐ EXC: Unless otherwise provided for in the policy. Gambler courts fortune What May be Insured: ‐ Contingent future event or past event yet unknown. ‐ A past event may be insured provided the loss is unknown to both parties and they expressly stipulated that prior loss is insured by the policy. (Ex. Marine Insurance Sec 109) ‐ Perils of Risk that may be Insured: Such event that may either (1) cause damage OR (2) create liability against the person insured. Subject Matter of Insurance: Property Insurance Risk of loss of the property involved Life, Health or The person involved Accident Insurance Risks involved in the use of Casualty Insurance property or the risk of loss or liability of the insured. Insurance Taken by Minors ‐ Insurance Contracts taken by minors are VOIDABLE. Hence, valid until annulled in a proper action in court. (Art 1390 NCC) ‐ RA 6809 lowered the age of majority to 18yrs old, therefore a person who is 18 yrs. of age may take a valid contract of insurance on his life or property without any restriction. Sec 4. The preceding section does not authorize an insurance: 1. For or against the drawing of any lottery or 2. For or against any chance or ticket in a lottery drawing a prize Concept of Lottery ‐ Lottery extends to all schemes for the distribution of prizes by chance. ‐ Elements: (1) Consideration; (2) Prize; and (3) Chance. (Uy v. Palomar, 27 SCRA 287) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 As soon as the party makes a wager, he creates a risk of loss to himself where no such risk existed previously. Contract of Insurance Parties seek to distribute possible loss by reason of mischance Insured seeks to avoid misfortune The purchase of insurance does not create a new and non‐existing risk of loss to the purchaser. Sec 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply. Note: It applies to marine, fire, casualty, life and other kinds of insurance Title 2. Parties To The Contract SEC 6. Every person, partnership, association, or corporation duly authorized to transact insurance business may be an insurer. Parties to a contract of insurance 1. INSURER ‐ Person who assumes the risk and who undertakes for consideration to indemnify another. (“Assurer” or “Underwriter”) • • • • • “Insurer” includes individuals, partnerships, associations, or corporations including GOCCs, excepting mutual benefit associations. Includes professional reinsurers. (Sec 184, Insurance Code) Every insurer must be duly authorized through a Certificate of Authority issued by the Insurance Commissioner to engage in the business of insurance The Certificate of Authority – Issued to those who posses the required capital assets and those who comply with all other requisites provided by law. The Commissioner may refuse to issue such certificate of authority if in his judgment “such refusal will best promote the interest of the people of this country” (Sec 187, Insurance Code) Insurance Businesses are affected with public interest. Hence, subject to regulation and control of the state. 4|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) 2. INSURED ‐ The party to be indemnified upon the occurrence of the loss. (“Assured”) • He must have capacity to contract, must possess an insurable interest in the subject of the insurance and must not be a public enemy. (Sec 7). • The insured is not always the person to whom the proceeds are paid as there may be a beneficiary designated in the policy. 3. BENEFICIARY ‐ A person designated to receive proceeds of policy when the risk attaches. • Cestui que vie and Beneficiary: Cestui que vie is the person on whose life the insurance is written. The beneficiary is the person designated to receive the proceeds of the policy when the risk attaches. • Kinds of Beneficiary: (a) Insured himself; (b) Third person who paid a consideration; or (c) Third person through mere bounty of insured. (In B and C, the beneficiary is not a party to the contract) Sec 7. ANYONE except a public enemy may be insured Capacity of Party Insured 1. He must be competent to enter into a contract; 2. He must possess an insurable interest in the subject of the insurance; and 3. He must not be a public enemy Public Enemy, defined: ‐ A nation with whom the Philippines is at war. ‐ Also includes every citizen or subject of such nation ‐ Even a corporation who’s controlling SHs are subjects of such nation (control test) can be considered an enemy corporation and cannot be insured. (Filipinas Cia de Seguros v. Christern Huenefeld & Co., 89 Phil 54) Effect of War on Existing Insurance Contracts 1. With respect to property insurance: An insurance policy ceases to be valid and enforceable as soon as an insured becomes a public enemy. (Filipinas Cia de Seguros v. Christern Huenefeld & Co., 89 Phil 54) 2. With respect to life insurance: The contract is not merely suspended but abrogated by the nonpayment of premiums. However, the insured is entitled to the cash or reserve value of the policy (if any), which is the excess of the premiums paid. (Gonzaga v. Crown Life Ins, 91Phil10, citing New York v. Statham, 93 U.S. 24) 3. Where loss occurs after end of war: The termination of the war does not revive the contract. Consequently, the insurer is not liable even if the loss is suffered by the insured after the end of the war. Sec 8. Where a mortgagor of property: 1. Effects insurance in his own name providing that the loss shall be payable to the mortgagee, or 2. Assigns a policy of insurance to a mortgagee Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  GR: (LEGAL EFFECTS OF THE ABOVE) 1. The insurance is deemed to be upon the interest of the mortgagor who does not cease to be a party to the original contract, and 2. Any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, 3. BUT any act which is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor. EXC: UNLESS the policy otherwise provides. Mortgagor and Mortgagee have separate insurable interests ‐ The mortgagor and the mortgagee each have an insurable interest in the property mortgaged (Sec 13). ‐ This interest is separate and distinct from the other. Hence, separate insurance policies taken on the same property does not amount to double insurance. Interest of the Mortgagor To the extent of property to its full value. (even if the mortgage debt equals such value) Ratio: Since he is the owner of the property and the loss of the same will not extinguish the debt Mortgagor cannot recover over the full amount of the loss. Interest of the Mortgagee Only to the extent of debt secured (Such interest continues until mortgage debt is extinguished) Ratio: He is not insuring the property but his interest or lien thereon. Mortgagee cannot recover in excess of the credit at the time of the loss nor the value of the property mortgaged. MORTGAGOR may take an insurance payable to: 1. To himself BUT the mortgagee has a lien on the proceeds by virtue of the mortgage 2. To the Mortgagee • In case of loss, the mortgagee is entitled to the extent of the credit; the remainder shall accrue to the mortgagor • Upon recovery of the mortgagee to the extent of his credit, the debt is extinguished. • Mortgagee has the obligation to collect the proceeds of the policy • Ways for the contract to be for the benefit of mortgagee a. When it is assigned with consent of insurer b. When the mortgagee becomes a pledgee c. Through a rider d. Standard mortgage clause e. Contract duty of mortgagor Rizal Commercial Banking v. CA: Mortgagee may still collect the proceeds even if the endorsements of the policy was not signed by the mortgagor – mortgagor is in estoppel since it was stipulated in the mortgage contract that a policy would be taken in favor of the mortgagee. (289 SCRA 292) 5|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) MORTGAGEE may take an insurance policy for his own interest • The mortgagee is entitled to the proceeds of the policy in case of loss to the extent of his credit. • If proceeds are equal or more than the amount of the credit: The mortgagor has no right to collect the balance of the proceeds of the policy. • If the proceeds are less – Then the mortgagee may still collect from the mortgagor for the deficiency • Upon payment, the insurer is subrogated to the rights of the mortgagee to the extent of the amount paid. The insurer may then collect from the mortgagor. • Hence, the payment of the insurance to the mortgagee by reason of the loss does not relieve the mortgagor from his principal obligation but only changes the creditor. • Note: In case of insurance of the mortgagee on behalf of the mortgagor, the same rules above apply with the exception that: o If there is a stipulation that the insurer shall be subrogated to the rights of the mortgagee – the payment of the policy will not discharge the debt. o If there is no such stipulation – the rule on subrogation does not apply except where the mortgagee insures only his interest. Assignment of the policy on the mortgaged property is NOT equivalent to payment of the mortgage loan. By such assignment, therefore, the mortgage indebtedness is not extinguished until such time as the mortgagee has collected the proceeds of the policy from the insurer after the occurrence of the loss. Mortgage Redemption Insurance, defined: A kind of life insurance procured by the mortgagor with the mortgagee as beneficiary up to the extent of the mortgage indebtedness. In case the mortgagor‐insured dies, the proceeds of such insurance will be applied to the payment of the mortgage debt. (Great Pacific Insurance v. CA, Oct. 13, 99) ‐ Here, the mortgagor is still the party to the contract, the mortgagee is merely the beneficiary. Union Mortgage Clause, defined: Creates a relation of insured and insurer between the mortgagee and the insurer independent of the contract with the mortgagor. Any act of the mortgagor can no longer affect the rights of the mortgagee, since the purpose of the clause is to provide an independent contract between the mortgagee and the insurer so that the mortgagee will be responsible only for its own acts. (Fidelity Phoenix v. Bronnan, 158 A. 124, 85 N.H. 291) Standard or Union Mortgage Clause Subsequent acts of the mortgagor cannot affect the rights of the assignee Open or Loss Payable Mortgage Clause (Sec. 8) Acts of the mortgagor affect the mortgagee. Reason: Mortgagor does not cease to be a party to the contract. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Sec 9. If an insurer: 1. Assents to the transfer of an insurance from a mortgagor to a mortgagee, AND, 2. At the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee. Assignment or Transfer of Insurance Policy • The effect of the assignment or transfer: To substitute the assignee/transferee in place of the original insured in respect to the right to claim indemnity or payment for a loss. • The assignee, unless he makes a new contract with the insurer, acquires no greater right under the insurance than the assignor had. Assignment of Specific Policies 1. Fire Insurance: Not subject to assignment being a strictly personal contract. 2. Marine Insurance: Generally assignable even w/o the consent of the insurer unless required by the terms of the policy. (Spring v. South Carolina, 8 Wheat 268) However, it is believed that it cannot be assigned unless with consent of the insurer. (DeLeon, p. 80) 3. Casualty Insurance: Assignable only w/ consent 4. Life Insurance: Freely assignable Title 3. Insurable Interest INSURABLE INTEREST IN LIFE INSURANCE Sec 10. Every person has an insurable interest in the life and health: a) Of himself, of his spouse and of his children; b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and d) Of any person upon whose life any estate or interest vested in him depends Insurable Interest (II): Interest which the law requires the owner of an insurance policy to have in the person or thing insured Insurable Interest in General GR: Insurable interest is pecuniary in nature. A ‐ person has an II where he has such a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event inured against. (44 C.J.S. 870) ‐ EXC: II in life insurance NEED NOT be pecuniary in nature 6|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) II is Necessary to Validity and Enforceability of Insurance Contract: ‐ The rule is that an II is necessary to the validity of an insurance contract whatever the subject matter of the policy. ‐ A policy without II is a mere wager policy and void on the grounds of public policy ‐ The II requirement is held not to apply to Industrial Life Insurance. (See Secs 229‐231) II in Life Insurance 1. A person has an unlimited interest upon his OWN LIFE • Beneficiary may be: (1) Himself; (2) His estate; or (3) A third person. • A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured, subject to the limitations under Art. 739 and Art. 2012 of the NCC. PROVIDED: There is no bad faith or fraud to enter into a wagering policy. (44 C.J.S. 903 citing Life Insurance 25 Cyc. 709) • Ratio: in essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181) • Policy is VOID if the insurance is a wager policy, such as when: 1. The policy is taken out at the request of the beneficiary 2. The premiums are paid by the beneficiary 3. The original proposal to take out insurance was that of the beneficiary 2. However, where a person takes a policy on the LIFE OF ANOTHER and names himself beneficiary, he must have an II in the life of the insured. • II in One’s Spouse and Children: The law presumes that a person has an II in the life of his spouse and his children whether they are legit/illegit, minors/legal age, or single/married. • Subsection (B) – ART 195 Family Code: Persons obliged to support each other (The ff. have an II in each other’s lives) a. Spouses b. Legitimate ascendants and descendants c. Parents and their legit/illegit children and the legit/illegit children of the latter d. Legitimate brothers and sisters whether half or full blood • In other cases, mere blood relationship does not create an II in the life of another. Also, relationship by affinity does not constitute an II. In such cases, there is II only when there exists some pecuniary interest. (Ex. A company has an II in the life of its officers and employees. But once the employee is separated: the II is lost.) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Note: II in life however, must be one in favor of the continuance of life and not an interest on its loss or destruction. (ex. Legatee prior to the death of testator has no II on the life of the latter as his interest accrues only upon the death of the testator) II Based on Some Legal Obligation • A person has an II in the life of another who is under a legal obligation to him for the payment of money, or respecting property or services and whose death or illness might delay or prevent the performance of the obligation. • Exists when there is a commercial or contractual relationship. II of the creditor on the life of the debtor: • ONLY to the extent of the amount of the debt AND the cost of carrying the insurance on the debtor’s debt. (De Leon) o The creditor will not be fully damnified if the insurance is limited only to the exact amount of the debt. However, the amount of the policy must not be disproportional to the amount of the debt – otherwise it is a mere wagering policy and hence VOID. (Cammack v. Lewis, 15 Wall US 643) • Perez: II of the creditor is limited only to the amount of the debt. (44 C.J.S. 909) • The creditor may not insure the life of his debtor unless the latter has a legal obligation to him for the payment of money. • If it was the debtor who took an insurance policy on his life for the benefit of the creditor – Full payment of the debt does not invalidate the policy; in such a case, the proceeds should go to the estate of the debtor. (Crotty v. Union Mut. L. Ins., 144 U.S. 64) When II Must EXIST: 1. In life or health insurance: When the insurance takes effect • Need not exist at the time of loss, after the loss or at the time of death • Ratio: Since life insurance is not a contract of indemnity but is meant to give financial security. • Ex. Husband may take a policy on his wife’s life although at the time of her death they had already been legally divorced. 2. If his interest is capable of exact pecuniary measurement – II must exist not only at the time the policy takes effect but also at the time of the of insured’s death (ex. Debtor’s death) • Ex. Policy taken by creditor on life of debtor 7|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Is Consent of the person whose life is insured necessary? • Not Necessary provided the person taking out the policy has II on the life of insured. (De Leon) • HOWEVER, there are contrary views stating that in addition to II, consent is required in insuring the life of another. (Rodriguez/Perez citing Vance, op. cit 207‐08; 3 Couch 2d. 232) Amount Insured in Life Insurance: ‐ GR: There is no limit in the amount the insured can insure upon his own life. ‐ EXC: In a creditor‐debtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is equal to the amount of the debt. Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because there is no more to indemnify. Sec 11. ‐ GR: The insured shall have the right to change the beneficiary he designated in the policy, ‐ EXC: UNLESS he has expressly waived this right in said policy. Beneficiary, defined: A person whether natural or juridical, for whose benefit the policy is issued and is the recipient of the proceeds of the insurance. Prohibited from becoming beneficiaries: (Void Donations) ART 739 NCC a. Between persons who were guilty of adultery/concubinage • There is no need for previous conviction for adultery or concubinage. The guilt of the insured and the beneficiary may be proved by preponderance of evidence. (Insular Life Ass v. Ebrado, 80 SCRA 181) • If the beneficiary however was in good faith – the beneficiary is entitled to the proceeds. b. Made between persons found guilty of the same criminal offense, in consideration thereof c. Made to a public officer or his wife, descendants and ascendants by reason of his office Vda. De Consuegra v. GSIS: In case no beneficiary is designated or where the designation is void in life insurance ‐ proceeds of the insurance will go to the estate of the insured. (37 SCRA 315) Exclusive recipient: ‐ GR: The proceeds of a life insurance belong exclusively to the beneficiary as an individual. ‐ EXC: Policies issued by the GSIS must be first applied to the obligations of the insured to the government. (Picar v. GSIS, 33 SCRA 324) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Right of Insured to Change Beneficiary in Life Insurance • The right must be exercised specifically in the manner provided in the policy or contract. Upon the death of the insured, the beneficiary’s right becomes fixed. • If right to change beneficiary waived ‐ The beneficiary acquires absolute and vested interest to all benefits which cannot be taken away w/o his consent. He becomes an irrevocable beneficiary. • Effects of Irrevocable Designation Of Beneficiary ‐ Insured cannot: 1. Assign the policy 2. Take the cash surrender value of the policy 3. Allow his creditors to attach or execute on the policy; 4. Add new beneficiary; or 5. Change the irrevocable designation to revocable, even though the change is just and reasonable. • Exception to Irrevocable Designation: Under Art 43(4), 50, and 64, of the Family Code: The innocent spouse may revoke the designation of the other spouse who acted in bad faith as beneficiary in any insurance policy, EVEN if such designation is irrevocable. • Art 106 of Family Code: After the decree of legal separation has become final, the innocent spouse may also revoke the designation of the offending spouse as beneficiary even if stipulated as irrevocable. Measurement of Vested Interest of Beneficiary in Policy • Vested interest of a beneficiary in a policy should be measured on its the full face value and not its cash surrender value. • In case the insured should discontinue paying the premiums, the beneficiary may continue paying the same. Where the Beneficiary dies ahead of the Insured 1. IF the Insured did NOT waive his right to change the beneficiary: Beneficiary has no vested right over the interest in the policy. The heirs of the beneficiaries cannot collect the proceeds. It goes to the estate of the insured. 2. IF waived: The beneficiary has a vested right on the policy. The heirs of the beneficiary are entitled, BUT UPON the death of the insured. ‐ Unless the proceeds are payable to the beneficiary only “if living,” in such case, it goes to the estate 3. In case of an insurance policy taken out by an original owner on the life or health of a MINOR: All rights, title and interest in the policy shall automatically vest in the minor upon the death of the original owner, unless otherwise provided in the policy. (Sec 3 par 5) Sec 12. The interest of a beneficiary in a life insurance policy shall be forfeited: ‐ WHEN the beneficiary is the principal, accomplice, or accessory in WILLFULLY bringing about the death of the insured; ‐ In which event, the nearest relative of the insured shall receive the proceeds of said insurance IF not otherwise disqualified 8|P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) The nearest relatives of the insured in the order of enumeration are the following: a. Legitimate children b. Parents c. Grandparents/ascendants nearest in degree d. Illegitimate children e. Surviving spouse f. Collateral relatives i. Brothers/sisters full blood ii. Brothers/sisters half blood iii. Nephews and Nieces g. In default of the above, the state shall be entitled to receive the insurance proceeds. Liability of Insurer on Death of Insured • Death at the hands of the law: “Death” in the provision covers death by legal execution • Death by Suicide o GR: The insurer is not liable in case the insured commits suicide intentionally with whatever motive, when in sound mind. o EXC: Suicide when insane does not discharge the insurer from his liability on the contract unless there is a provision to the contrary. • Death Caused by Beneficiary o GR: Intentional killing as to amount to a felony shall deprive the beneficiary from receiving the proceeds of the insurance policy o EXC: Section 12 does not apply when the killing by the beneficiary can be attributed to: (a) Self‐defense; (b) Accident; and (c) Insanity. • Death caused by violation of law: The mere fact that insured dies while committing a felony does not warrant denial of liability. In order to avoid liability the insurer must establish that the violation of law was the cause of the death of the insured. Sec. 13. ‐ Every interest in property, whether real or personal, or ‐ Any relation thereto, or ‐ Liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest. • Factual Expectation not arising from any legal right or duty in connection to the property is NOT an II. (Such is however sufficient in life insurance) Insurable interest in Life Generally must exist only at the time the policy takes effect and need not exist at the time of loss. Unlimited except in life insurance effected by creditor on life of debtor. The expectation of benefit to be derived from the continued existence of life need not have any legal basis whatever. A reasonable probability is sufficient without more. The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Limited to actual value of interest in property insured. An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis. The beneficiary must have insurable interest over the thing insured. Cha v. CA : Beneficiary in property insurance must have an II in the property insured. In such a case however, the insured may still recover from the insurer because what is unenforceable is ONLY the designation as beneficiary of a person who has no II and not the entire policy (277 SCRA 690). Sec 14. An insurable interest in property may consist in: a) An existing interest; b) An inchoate interest founded on an existing interest; or c) An expectancy, coupled with an existing interest in that out of which the expectancy arises. 1. Art. 13: Insurable Interest in Property • Occurrence of loss may be uncertain: It is not necessary that the event insured against would subject the insured to loss. It is sufficient that it might do so. • Title or right to possession is NOT essential: A person already has an II if he is so situated with respect to the property that he will suffer direct pecuniary loss as the proximate result of its damage or destruction. It is not limited to legal or equitable title. • Legal expectancy is enough: The expectation of benefit to be derived from the continued existence of property must have a basis of legal right even if he has no title to the property insured. Insurable Interest in Property Must exist at the time the policy takes effect AND when the loss occurs Existing Interest 2. • Inchoate Interest Expectancy coupled w/ existing interest • Legal Title: ex. As owner, mortgagor or lessee Equitable Title: ex. Purchaser of undelivered property. Inchoate interest must be founded on an existing interest Ex. SH has an II in the corporation’s property Ex. Owner of a vessel has an II in expected freightage 9|P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) II in Property Exists When: 1. The insured possesses a legal title to the property insured, whether vested or contingent, defeasible or indefeasible; 2. The insured has equitable title of whatever character and in whatever manner acquired; 3. The insured possesses a qualified property or possessory right in the subject of the insurance; 4. The insured has a mere possession or right of possession; and 5. The insured has neither possession nor any other legal interest BUT stands in such relation to the property that he may suffer from its destruction or loss of a right dependent on its continued existence. Examples of II in Property • Consignee has insurable interest in said goods; • Owner of the property; • Buyer of undelivered property; • Seller of undelivered property; • Unpaid seller with a line on the property sold; • A mortgagee; • A building contractor has an II in the building before payment of the construction price (Lampano v. Jose, 30 Phil 538); • Right to receive rentals is sufficient II to support a fire policy on a property; • A donor who reserved to himself the right to use the property donated; • A lessor; • A lessee; and • A possessor allowed by the owner to use the property insured. • A partner can insure the properties of the partnership. Sec 15. A carrier or depository of any kind has an insurable interest ‐ in a thing held by him as such, ‐ to the extent of his liability but NOT to exceed the value thereof. Ratio: The loss of the thing may cause liability to the carrier or depository to the extent of its value. Lopez v. Del Rosario: A policy effected by a bailee or depository covering his own property and property belonging to others deposited with him, inures proportionately to him and the owners of the property deposited. (44 Phil 98) Note: Under the General Bonded Warehouse Act – warehouseman is required to insure the properties against fire. (Act No. 389, Sec. 6) Sec 16. A mere contingent or expectant interest in anything: ‐ not founded on an actual right to the thing, ‐ nor upon any valid contract for it, is not insurable. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Mere expectancy uncoupled with any legal right is not insurable: The policy on a mere contingent or expectant interest is VOID Examples: ‐ Son cannot insure property of his father while the latter is still alive. ‐ A person designated as a beneficiary in a will has no II in the designated property before the testator’s death GR: Unsecured creditor cannot insure property of his debtor who is alive, even though destruction of such property would render worthless any judgment he might obtain. EXC: 1. Upon death of debtor, since all personal liability ceases upon the death of the debtor 2. Upon judgment obtained against the debtor, however, creditor must show that the debtor has no other property to satisfy SEC 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. • • • Insurance Contract is one of indemnity, not a wagering policy Any policy that gives to the insured more than indemnity against his actual loss that may be suffered is in a nature of a wagering policy ‐ VOID Rule is not applicable to life insurance – since it is not a contract of indemnity Sec 18. No contract or policy of insurance ON PROPERTY shall be enforceable EXCEPT for the benefit of some person having an insurable interest in the property insured GR: Insurance cannot be enforced if the beneficiary is without II in the property insured. ‐ Principle of indemnity is applicable. An insurance taken out by a person on property in which he has no II is VOID. ‐ It has been held that fire insurance taken on property belonging to another is void, although the insurer had full knowledge of the fact of ownership (Fireman’s Fund Ins. Co. v. Cos, 175 P. 493) and even if insured subsequently acquired II. (Sec 19) ‐ Effect: In such a case, the premiums will be returned to the insured unless he is in pari delicto with the insurer (Arts 1411‐12 NCC) ‐ Doctrine of waiver or estoppel NOT applicable. (Colver v. Central States F. Ins. Co, 287 P. 266) EXC: Where the insurer erroneously issued a fire policy to cover a building not owned by the insured but the intention is to cover the merchandise in the building the insurer is liable on the policy. (Garcia v. Hongkong Fire & Marine Inc. Co, 45 Phil 248) 10 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Note: Where the partnership changed its partnership name, it does not affect the policy and its II on the merchandise insured. (Sharruf & Co. v. Baloise Fire Insurance Co, 64 Phil 254) Indemnity in Marine/fire insurance Liability Insurance Life Insurance Personal Accident Insurance Insurance Contracts A Contract of Indemnity (Amount is the maximum recoverable) A Contract of Indemnity NOT a Contract of Indemnity (No actual value ‐ life of person immeasurable) NOT a Contract of Indemnity • Those that provide specific periodic income to disabled persons – NOT a contract of indemnity • Those that cover medical expenses – Contracts of indemnity Health Care Agreement with a Health Maintenance Agreement Organization (HMO) is a contract of indemnity Health Insurance WHEN II MUST EXIST Sec 19. An interest in PROPERTY insured must exist: 1. When the insurance takes effect, AND 2. When the loss occurs, but not exist in the meantime; Interest in the LIFE OR HEALTH of a person insured must exist: When the insurance takes effect, but need NOT exist thereafter or when the loss occurs. II in Life Insurance ‐ GR: II is unlimited ‐ EXC: One taken by the creditor on the life of the debtor ‐ GR: Must exist only at the time of the execution of the contract (When insurance takes effect) ‐ EXC: One taken by the creditor on the life of the debtor (Use rule in property insurance) Reasonable probability is sufficient II II in Property Insurance II is limited to the actual value of the interest on the property Must exist both at the time of the execution of the contract as well as at the time of the loss. Expectation of benefit as a II is not valid unless it has a basis of legal right. In liability insurance: II necessarily exists when the liability of the insured to a third party attaches. (Sec 174) Note: In interest in property, II need not exist during the intervening period. Hence, the recovery will not be defeated even if during the intervening time it was sold to another, provided II exists at the time of execution and at the time of the loss. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Sec 20. A change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance: ‐ GR: Suspends the insurance to an equivalent extent, UNTIL the interest in the thing and the interest in the insurance are vested in the same person. ‐ EXC: 1. In the cases specified in the next four sections, AND 2. In the cases of life, accident, and health insurance. GR: Transfer of thing does not transfer the insurance policy, it merely suspends it to the extent of the interest transferred. ‐ “Transfer” must be absolute transfer or conveyance of the insured’s interest in the property insured. Ex. Absolute sale ‐ Not contemplated: Mortgage, lease, judgment debtor until his right of redemption is lost. ‐ The transfer must transfer the II on the property. EXC: Where change of interest does not affect the policy: 1. Life, accident, health insurance (Ratio: These are not contracts of indemnity, hence II is only needed at time of the execution of the contract). 2. Sec. 21: A change of interest in the thing insured after the occurrence of an injury which results in a loss. 3. Sec. 22: A change of interest in one or more of several things separately insured by one policy. 4. Sec. 23: A change of interest by will or succession on the death of the insured. 5. Sec. 24: A transfer of interest by one or several partners, joint owners, or owners in common, who are jointly insured to others. 6. Sec. 57: When a policy is so framed that it will inure to the benefit of whoever, during the continuance of the risk, may become the owner of the interest insured. 7. Art. 1306 NCC See Sec. 24: When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but is avoided. a. In case the policy is avoided, a subsequent reacquisition of the property before the loss will not revive the policy, (52 A.L.R. 838) unless the alienation is merely temporary. (45 C.J.S. 318) b. The policy will not be avoided, however, where the change of interest is effected with the knowledge and consent of the insurer. (55 C.J.S. 321) In the following cases, a transfer of interest in the thing insured carries with it a transfer of the policy: 1. Sec. 57: When by express stipulation of the parties, the policy is made to run with the subject matter, or when the risk is made to attach to the property inseparably, as when the insurance is on account of the “owners” or “for whom it may concern” or where the loss is payable to “bearer.”(1 Couch 2d, 35) 2. Sec. 23 3. Sec. 24 11 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec 21. A change in interest in a thing insured AFTER the occurrence of an injury which results in a loss does NOT affect the right of the insured to indemnity for the loss. Ratio: After loss occurs, the liability of the insurer becomes fixed and a subsequent change does not affect the right of the insured to indemnity. The insured has a right to assign his claim against the insurer as freely as any other money claim. Note: It is an exception as Sec 20 refers to change of interest in the thing insured before loss has occurred. Sec 22. A change of interest in one or more several distinct things separately insured by one policy does not avoid the insurance as to the others. • • • • • Things must be valued separately although included in a single policy Effect is dependent on divisibility of contract. Divisibility is a question of intention. When the gross sum or the entire premium insures the things in one policy ‐ the contract is indivisible. Where only one premium is paid for the entire shipment of goods, the insurance contract is indivisible. (Oriental Assurance Corp v. CA, 200 SCRA 459) Where the amount of the insurance agreed upon was merely apportioned among the various items to limit the extent of the risk, the contract is still indivisible. (Platt v. Minesota F. Ins. Co., 23 Minn 479) Sec 23. A change on interest by will or succession, on the death of the insured , 1. Does not avoid an insurance; AND 2. His interest in the insurance passes to the person taking his interest in the thing insured. • • The insurance on property passes automatically on the death of the insured to the heirs, legatees, devisees who acquired the interest in the thing The heirs may continue the policy and receive the proceeds by paying the premiums. Sec 24. A transfer of interest: BY one of several partners, joint owners, or owners in common, who are jointly insured, TO the others: ‐ does NOT avoid an insurance ‐ EVEN THOUGH it has been agreed that the insurance shall cease upon an alienation of the thing insured. Reason for the rule: Each partner is interested in the whole property and the hazard or the risk is not increased because the purchasing partner has acquired a greater interest in the property. (Hartford F. Ins. Co. v. Liddleli Co., 60 S.E. 104) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Exception to the Rule: A policy will be avoided by a sale of an interest by a partner to one of his co‐partners, without the consent of the insurer and before the loss occurs, where the policy contains such condition that “any sale will void the insurance.”(Hartford F. Ins. Co. v. Liddleli Co, Id) Effect of Transfer to Stranger: It is the alienation or transfer to a 3rd person that will avoid the policy. Such policy is avoided as to the selling partner but not to the others. Sec 25. 1. Every stipulation in a policy of insurance: a. For the payment of loss whether the person insured has or has not any interest in the property insured, or b. That the policy shall be received as proof of such interest, and 2. Every policy executed by way of gaming or wagering is VOID. • • • Section involves void stipulations and a void policy Wager Policy – Pretended insurance where the insured has no interest in the thing insured and can sustain no loss by the happening of the misfortune insured against Void because of express provision of law and of public policy: a. Since it will furnish strong temptation to bring about the event insured against. b. Also since the wagers suffer from no loss and yet they actually profit from it. Note: The defense of absence of II is available only to the insurer and may be raised by him alone. Title 4: Concealment Sec 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment Requisites: 1. Party knows the fact (a material fact) which he neglects to communicate 2. Such party is duty bound to disclose such fact 3. Such party makes no warranty of the fact concealed; and 4. The other party has no means of ascertaining such fact concealed. Notes: • Presence of bad faith is not necessary • Fact Concealed – MUST be MATERIAL to the risk • Where a warranty is made of the fact concealed, the non‐ disclosure of such fact is not concealment but constitutes a violation of warranty. (Title 7) 12 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Use at your own risk  Reason for Rule: Primary concerns of parties in a contract of insurance 1. Correct estimation of the risk 2. Precise limitation of the risk 3. Control of the risk 4. Determining whether the loss occurred 5. The nature of an insurance contract is that it is done in perfect good faith. (uberrimae fidae) Test of Materiality: It must be a fact of such nature that had the insurer known of it, he would not have accepted the risk or would have demanded a higher premium or different terms Sec 27. A concealment whether intentional or unintentional, entitles the injured party to rescind a contract of insurance When there is a warranty of such fact: There is no need to disclose facts covered by the warranty. It would be superfluous. Notes: • Ratio: Insurance Contracts are uberrimae fidae (of utmost good faith). In concealment, the party is misled or deceived into accepting the risk. • Duty to disclose is on both the insured and insurer. • It is not necessary to show actual fraud. ‐ Bad faith is not required. ‐ The duty is violated by the fact of concealment, even when there is no design to deceive. (Sun. Mut Ins. Co v. Ocean Ins., 107 U.S. 48) • Rescission is OPTIONAL on the part of the injured party • Principal question to determine whether there is concealment: “Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by a withholding of material information or facts within the assured’s knowledge or presumed knowledge?” (Argente v. West Coast Life, 51 Phil 725) • Applies to all kinds of insurance. • Good faith is not a defense in concealment. Concealment, whether intentional or unintentional entitles the injured to rescind. Sec 28. Each party to a contract of insurance must communicated to the other, in good faith: 1. All facts within his knowledge 2. Which are material to the contract and 3. As to which he makes no warranty, and 4. Which the other has not the means of ascertaining. Note: These matters that must be communicated even in the absence of inquiry. Knowledge of the fact concealed: 1. Must be proved by the party claiming 2. Must be present at the time the insurance takes effect. (Even if one had no knowledge at the time of the application but acquired knowledge prior to the policy’s effectivity – there is concealment) ‐ GR: Facts learned after the effectivity of the policy need not be disclosed ‐ EXC: In case of reinstatement of a lapsed policy, all facts known prior to reinstatement must be disclosed. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 “No means of Ascertaining”: If the other party merely neglects to make inquiries – the right to information is waived Effect of Failure of Insurer to Verify • The effect of concealment cannot be avoided by the allegation that the insurer could have known or discovered the fact concealed. • Insurance companies have no obligation to verify facts made in the application. It has the right to rely upon the statements of the insured as to the material facts. (De Leon v. Crown Life, June 39) Sec 29. An intentional AND fraudulent omission on the part of one insured : ‐ to communicate information of matters proving or tending to prove the falsity of a warranty ‐ entitles the insurer to rescind. • • • Facts of matters covered by the warranty does not have to be disclosed BUT matters proving or tending to prove the FALSITY of the warranty must be communicated Omission in this case is on the part of the insured Ex. Failure to communicate that the ship’s equipment is out of order entitles the insurer to rescind since it tends to prove the falsity of the warranty that the ship is seaworthy. Sec 30. ‐ GR: Neither party to a contract of insurance is bound to communicate information of the matters following: a) Those which the other knows; b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; c) Those of which the other waives communication; d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and e) Those which relate to a risk excepted from the policy and which are not otherwise material. ‐ EXCEPT in answer to the inquiries of the other. Matters Made the Subject of Special Inquiries are Material: ‐ GR: Matters made the subject of inquiry must be deemed material, even though otherwise they might not be so. Here, the insured is required to make full and true disclosure on questions asked. 13 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) ‐ ‐ • • Failure of an insured, in case of an apparently complete answer, to make full disclosure will avoid the policy. However, an answer incomplete on its face will NOT avoid the policy in the absence of bad faith (Vance, op.cit., p 376, De Leon p.136) Direct questions are considered material. Sec 30 enumerates the matters, which although material, need not be disclosed except in answer to the inquiries of the other party. Nature or amount of insured’s interest need not also be disclosed unless in answer to an inquiry. Effect of Knowledge of Agent ‐ GR: Knowledge of the agent is deemed to be knowledge of the principal ‐ EXC: Where the insurer’s agent fraudulently conspired with the insured, knowledge of the agent will not bind the insurer. (Insular Life Assur. Co. v. Feliciano, 74 Phil 468) Facts that a party ought to know: Those which are of public knowledge or so notorious that a presumption may reasonably exist that the insurer has knowledge. Sec 31. Materiality is to be determined: ‐ not by the event, ‐ but SOLELY by the probable and reasonable influence of the facts upon the party to whom the communication is due: o in forming his estimate of the disadvantages of the proposed contract, OR o in making his inquiries. Test of materiality: The effect which the knowledge of the fact in question would have on the making of the contract. The fact need not increase risk nor contribute to any loss or damaged suffered. It is sufficient that it would influence the parties in making the contract. • • Materiality from the standpoint of the insurer: If a probable and reasonable influence upon the insurer in assessing the risk involved and in making or omitting further inquiries is affected, and caused him to either reject the risk or to accept it only at a higher premium or on different terms Concealment need not, in order to be material, be of facts which bring about or contribute to, or are connected with the insured’s loss. (ex. The insured need not die from the very disease he failed to reveal). It is sufficient that his concealment has misled the insurer in forming its estimate of the disadvantages of the proposed policy or in making its inquiries. (Henson v. Philam Life, 50 O.G. 73428) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  If information acquired AFTER contract becomes binding and effective • There is no duty to disclose information even if the policy is yet to issue. • Concealment must take place at the time the contract is entered. If information acquired BEFORE contract becomes effective There is a duty to disclose Ex: Concealment of the fact that an applicant has cancer in a life insurance Sec 32. Each party to a contract of insurance is bound to know: 1. All the general causes ‐ which are open to his inquiry, equally with that of the other, and ‐ which may affect the political or material perils contemplated; and 2. All general usages of trade Notes: • Insured need not disclose public events such as that a nation is at war • Such information in Sec 32 are equally presumed to be known by both parties. Sec 33. The right to information of material facts may be waived, either: 1. by the terms of insurance or 2. by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. Right to information may be waived: 1. Expressly – By terms of insurance 2. Impliedly –By neglect to make inquiries. (ex. When material facts are unanswered or incompletely answered and the insurer does not make further inquiries, insurer waives its right to information and the policy may not be avoided on the ground of concealment) Note: If the applicant has answered the questions asked in the application, he is justified in assuming that no further information is desired. (Commonwealth Life v. Reder, 154 S.W. 906) When the answer is complete, the insurer may rely on the same. Sec 34. Information of the nature or amount of the interest of one insured: ‐ Need not be communicated UNLESS in answer to an inquiry, ‐ EXCEPT as prescribed by section 51 14 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) GR: Nature or amount of interest need not be communicated EXC: 1. Sec 51: Policy must specify the interest of the insured in the property only when he is not the absolute owner thereof. (ex. Trustee, mortgagee or building contractor must communicate EVEN IF no inquiry is made by the insurer) 2. When the insurer makes inquiry from the insured Sec 35. Neither party to a contract of insurance is bound to communicate, EVEN upon inquiry, information of his own judgment upon the matters in question • • • Duty to disclose is confined to material facts. Opinions, speculations, intentions or expectations need not be disclosed. EXC: In marine insurance, the belief or expectation of a third person, in reference to a material fact is material and must be communicated. (Sec 35; Sec 108) Title 5. Representation Sec 36. A representation may be oral or written Representation, defined: Oral or written statements of a material matter or fact made by the insured at the time of, or prior to, the issuance of the policy to induce the insurer to enter into the insurance contract Misrepresentation/False Representation, defined: ‐ Statement of a material point which is false and made to deceive the insurer into entering into an insurance contract. ‐ Statement: 1. As a fact of something which is untrue; 2. Which insured stated with knowledge that it is untrue and with intent to deceive OR which he stated positively as true without knowing it to be true and which has a tendency to mislead; and 3. Where such fact in either case is material to the risk • • Use at your own risk  Concealment of a material fact is equivalent to a false representation that such fact does not exist. (Argente vs. West Coast life Ins., Co. 51 Phil 725) There seems to be no need to distinguish since the rules applicable to both are similar: a. Both requires the fact concealed or misrepresented to be material b. Both entitles the injured party to rescind the contract at his option c. Both may be committed intentionally or unintentionally. Sec 37. A representation may be made: (1) at the time of, OR (2) before, issuance of policy. Notes: • Very nature of representation is that it precedes the execution of the contract. The insurer must be induced by the misrepresentation. • Representation however may be performed after the issuance of the policy when the purpose is to induce the insurer to modify an existing insurance contract. Sec 38. The language of a representation is to be interpreted by the same rules as the language of contracts Notes: • Constructed liberally in favor of insured • Representation need ONLY be substantially true and need not be literally true and accurate in every aspect • Warranties must be literally true, otherwise, the contract will fail Examples: ‐ Use of liquor = habitual drinking ‐ Free from illness = true despite inflammation of eyes ‐ Illness = serious ailments Effect of Misrepresentation: Renders the contract VOIDABLE at the option of insurer. Sec 39. ‐ GR: A representation as to the future is to be deemed a promise ‐ EXC: UNLESS it appears that it was merely a statement of belief or expectation. Form and Nature of Representation • It is the duty of the person applying for insurance to give all the information necessary regarding the risk • Information given (which can be communicated in any manner, oral or written) forms the basis of the contract • Representations are collateral inducements made to influence the insurer to accept the risk Kinds of Representation 1. Oral OR Written 2. Made before OR during the issuance of the policy 3. Affirmative OR Promissory Misrepresentation Active form of deceit Because insured makes an oral or written false statement to induce the insurer Concealment Passive form of deceit Because insured neglects or fails to disclose a material fact Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Affirmative representation: Any allegation as to the existence or non‐existence of a fact when the contract begins. Ex. He is in good health 15 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Promissory representation: Any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. Substantially a condition or warranty. Used in two senses: 1. Parol or oral promise made in connection with the insurance but not incorporated in the policy. The non performance of such promise cannot be shown by the insurer in defense to an action on the policy, but proof that the promise was made with fraudulent intent will serve to defeat the insurance. 2. Undertaking by insured inserted in policy but not specifically made in a warranty is also a promissory representation. Effect on Policy Expressions of Opinion or Expectation • A representation of opinion, expectation, intentional, belief, or judgment of the insured although false will not avoid the policy if there is no actual fraud. • To avoid liability, the insurer must prove both materiality of the insured’s opinion and the latter’s intent to deceive. IF Representation is one of: Fact Mere Expression of Opinion • Must prove to be false and material • Need not be in bad faith (intent to deceive presumed) • Must prove to be false and material • Must be made in bad faith (intention to deceive) Deemed to be a mere expression of opinion: Representation as to a future event or condition over which the insured has no control. (Bryant v. Ocean Ins, 22 Pick Mass. 200) Sec 40. A representation: • cannot qualify an express provision in a contract of insurance; • but it may qualify an implied warranty. Note: Representation is a mere collateral inducement to a contract – it is not part of the contract that is why it cannot qualify its express provisions Sec 41. A representation may be altered or withdrawn: ‐ before the insurance is effected, ‐ but NOT afterwards • • • May be done ONLY before the insurance is effected since the insurer has not yet been induced to issue the policy If the misrepresentation is withdrawn or corrected before the insurance takes effect, it is not rescissible anymore. After the insurance is effected as induced by the representation, it cannot anymore be altered or withdrawn. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Sec 42. A representation must be presumed to refer to the date on which the contract goes in effect. • • There is no false representation if it is true at the time the contract goes into effect but false at the time it was made. The contract can be rescinded ONLY when it is false at the time when the contract is effected. Sec 43. When a person insured has no personal knowledge of a fact: 1. He may nevertheless repeat information, • which he has upon the subject, and • which he believes to be true, • with the explanation that he does so on the information of others; OR 2. He may submit the information, in its whole extent, to the insurer; AND ‐ ‐ GR: In NEITHER case is he responsible for its truth, EXC: UNLESS it proceeds from an agent of the insured, whose duty it is to give the information. Note: The insured is given discretion to communicate what he knows of a matter which he has no personal knowledge ‐ GR: If it turns out to be FALSE – he is not responsible, provided he gives explanation that he does so on the information of others. ‐ EXC: He is responsible IF the information proceeds from an agent of the insured, whose duty is to give information to his principal. (Ratio: Knowledge of the agent is knowledge of the principal) o Failure to communicate information ‐ contract will be avoided Sec 44. A representation is deemed to be false when the facts fail to correspond with its assertions or stipulations GR: Unlike warranties, representation are not required to be literally true, only substantially true ‐ The representation is substantially true and valid even if there are some discrepancies which are minor and are not that material to the risk. ‐ Only in cases of substantial AND material misrepresentation, will the same avoid the contract. EXC: In marine insurance – insurer is required to state the exact and whole truth in relation to all matters he represents. Substantial truth is NOT sufficient. Sec 45. If a representation is false in a material point, whether affirmative or promissory: ‐ The injured party is entitled to rescind the contract ‐ From the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived: by the acceptance of premium payments DESPITE knowledge of the ground for rescission. 16 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Effect of False Representation • Fraud or intent to misrepresent is not essential for right to rescind • Representation may be intentional or unintentional • Representation is deemed false when it fails to correspond to the facts on a material point. Effect of Collusion or Fraud of Agent of Insurer: Collusion between agent and insured will vitiate the policy even though the agent is acting within the apparent scope of his authority. (Mutual Aid Union v. Blackwall, 196 S.W. 792) Sec 46. The materiality of a representation is determined by the same rules as the materiality of concealment • • • • See discussion on Section 31 on materiality (page 14) Materiality is a judicial question Concealment and misrepresentation give right to rescind Rules apply both to the insurer and insured Misrepresentation Active form of deceit Insured makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract Concealment Passive form of deceit Insured withholds information of material facts from the insurer Sec 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation The rules on concealment and misrepresentation applies to both the: 1. Original execution of the insurance policy 2. Any alteration or modification of the contract Note: Hence, when the insurer is falsely induced to modify the contract, he may rescind such modification. Sec 48. Whenever a right to rescind a contract of insurance is given to the insurer such right must be exercised previous to the commencement of an action on the contract. After a policy of LIFE insurance made payable on the death of the insured: ‐ shall have been in force during the lifetime of the insured ‐ for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. • Use at your own risk  However, a defense to an action that it was secured through concealment or misrepresentation is not in a nature of an action to rescind. Hence, not barred by the provision IN life insurance, • The defenses are available ONLY during the first two years of a life insurance policy • After the 2 years, the insurer cannot prove that the policy is void or rescissible by reason of concealment or misrepresentation. It becomes incontestable. • In case the policy is reinstated, the period of contestability should be counted from the reinstatement. Note: “during the lifetime”: Means that the policy is no longer considered in force after the insured has died. (Tan v. Cam 174 SCRA 403) Requisites of Incontestable Clause 1. It is a life insurance policy 2. Payable on death of the insured 3. In force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement (Note: Period may be shortened but cannot be extended by stipulation) When it becomes incontestable, insurer cannot claim that policy is: 1. Void ab initio (should be voidable) due to fraud in inducement (Art 1338 NCC) 2. Rescissible due to fraudulent concealment or misrepresentation of the insured or his agent. Incontestability is NOT absolute. It only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to the loss. Defenses not barred by incontestability clause: 1. Lack of insurable interest 2. Cause of death is an excepted risk 3. Non‐payment of premium 4. Conditions relating to military or naval service have been violated 5. Fraud is of a particularly vicious type (scheme to murder, insured substitutes a person for exam, beneficiary kills insured) 6. Beneficiary failed to furnish proof of death or to comply with any condition imposed by policy after loss happened 7. Action not brought within time specified. In NON‐LIFE Insurance • Insurer may rescind even after the loss and filing of claim provided it is done BEFORE the insured files an action against the insurer. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 17 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Title 6. The Policy Sec 49. The written instrument in which a contract of insurance is set forth is called a policy of insurance Sec 50. The policy shall be: 1. In printed form 2. Which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein Any rider, clause, warranty or endorsement: ‐ purporting to be part of the contract of insurance and ‐ which is pasted or attached to said policy GR: Is NOT binding on the insured, EXC: UNLESS the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Any rider, clause, warranty or endorsement issued AFTER the original policy: GR: Shall be countersigned by the insured or owner, ‐ which countersignature shall be taken as his agreement to the contents thereof. EXC: UNLESS applied for by the insured or owner. ‐ Group insurance and group annuity policies, however, may be typewritten and need not be in printed form. Policy of Insurance is Different from the Contract of Insurance • Policy ‐ Formal written instrument that evidences the contact. Form must be approved by insurance commissioner • Contract of Insurance ‐ The result of the policy which evinces it. May be verbal or in writing, or partly in writing and partly verbal. Form of Insurance Policy • No policy shall be delivered or issued w/in the RP unless in the form approved by the Insurance Commissioner. (Sec 226) • Failure to comply with the form does NOT invalidate the contract BUT the insurer who fails to obtain said approval may be prosecuted. • No application form, rider, clause warranty or endorsement shall be attached to, printed or stamped upon such policy unless the form has been approved by the Insurance Commissioner. (Sec 226) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Policy Controls Terms of Insurance Contracts ‐ Policy is essentially a contract. Its terms constitute the measure of the insurer’s liability. ‐ Policy must comply with the elements of an insurance contract in Sec 2 ‐ Compliance by insured with terms of policy is a condition precedent to the right of recovery Art 1332 NCC: Obligation to show that the terms of the policy had been fully explained to the insured who is unable to understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. A policy is a contract of adhesion Rule: Any ambiguity is resolved against the insurer ‐ (Same rule applies to suretyship agreements) ‐ Forfeitures are not favored ‐ Rule only applies when relationship is one‐sided and not when a person is a businessman of experience who is presumed to have assented to the provisions with full knowledge, and therefore, cannot claim he did not know its terms. ‐ However, if the terms are clear and unambiguous, there will be no need for construction. Jarque vs Smith, Bell: In case or repugnance between the written and printed portions of the policy, the written portions prevail. (56 Phil 758) Signature of the Parties: ‐ GR: Policy need ONLY be signed by insurer or his duly authorized agent. ‐ EXC: Where express warranties contained in a separate instrument forming part of the policy – The insured must sign (Sec. 70) Perfection of Contract ‐ A contract of insurance, must be assented to by the parties either in person or by their agents. ‐ This assent is manifested by the meeting of the offer and the acceptance upon the thing and the cause of the contract. ‐ The contract, to be binding, must have been a completed contract. (Great Pacific Assurance Corp v. CA, 89 SCRA 543) ‐ A contract is not perfected where the applicant for life insurance dies before its approval or it does not appear that the acceptance of the application ever came to the knowledge of the applicant. (Enriquez v. Sun Life Assurance, 41 Phil 269) ‐ Acceptance of a policy must be unconditional, but need not be by formal act. Retention of the policy without objection beyond reasonable time is deemed to be an acceptance. (Ang Giok Chip v. Springfield Fire, 56Phil373) ‐ Unreasonable delay in returning the premium raises a presumption of acceptance of the insurance application. (Gloria v. Phil Am Life, 73 O.G. no. 37 8660) ‐ Parties may impose pre‐conditions for perfection (ex. delivery of policy and payment of first premium). Until the conditions are fulfilled, the policy is not binding. 18 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Rules Concerning the Issuance by the Insurance Agent of a Receipt Pending Approval or Issuance of the Policy ‐ GR: Insurer agents do not have the authority to bind the insurers they represent. They can only issue binding receipts (a conditional acceptance of the insurer). ‐ If the act of acceptance of the risk and the giving of a receipt are within the scope of the agent’s authority, and nothing remains but to issue a policy, then the receipt will bind the company. Payment of Premiums ‐ There is no valid and binding insurance contract where no premium is paid unless credit is given or there is a waiver or some agreement obviated the necessity for prepayment of the premium. (Phil Phoenix Surety v. Woodworks, 92 SCRA 419) ‐ But where the premium has been previously paid, the contract is perfected upon approval of the application although the policy has not yet been issued, unless there is a stipulation to the contrary. (Ocampo v. GSIS, 78 Phil 216) Duty to Explain: • The insurer has a duty to explain the policy. If however the terms are clear, there is no more duty to explain. • In case the policy is in a language which the insured cannot understand, when fraud or mistake is alleged, the party seeking to enforce the contract has the burden of proof to prove that the terms of the contract had been fully explained. (Tang v. CA, 90 SCRA 236) DELIVERY of the Policy: Defined: The act of putting the insurance policy (the physical document) into the possession of the insured ‐ Evidence of making a contract ‐ Serves as communication of insurer’s acceptance ‐ Primarily a matter of intention (possession by insured prima facie evidence of delivery). Whether there was delivery, depends not upon its manual possession but upon the intention of the parties. Modes of delivery 1. Actual/constructive 2. In person, to a duly constituted agent or deposited in mail. Use at your own risk  Note: A stipulation that contract takes effect upon delivery is valid RIDER Rider, defined: A printed/typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy • It constitutes additional binding stipulations • When there is an conflict between a rider and the printed stipulations of the policy: rider prevails • It is binding if properly attached or referred to therein in a manner as to leave no doubt to the intention For a rider, clause, warranty or endorsement to be binding it must be: 1. Pasted or attached to the policy 2. Its descriptive title must be mentioned and written on the policy’s blank spaces Lack of Description: Any rider attached to a policy is not binding unless the descriptive title or name is also mentioned and written on the blank spaces provided. HOWEVER lack of description will not affect the other provisions except where without such rider the contract would be incomplete Rider, to be valid: ‐ GR: Must be countersigned by the insured IF executed after the original policy ‐ EXC: 1. If applied by the insured himself – no need to sign 2. Where the rider, etc. is physically attached to a policy contemporaneously with its execution and delivered to the insured so attached, and sufficient reference is made in the policy, the fact that it is w/o the signature of the insurer or of the insured will not prevent its inclusion. Other Papers Attached ‐ Warranties: Inserted to eliminate specific potential increases of hazard during the policy owing to actions of insured, or condition of the property. Clause: Agreement on certain matter relating to the ‐ liability of insurer in case of loss ‐ Endorsement: Provision altering the scope or application GROUP INSURANCE Effect of conditional/unconditional delivery of policy 1. When delivery is CONDITIONAL: Non‐performance of the condition prevents the contract from taking effect 2. Unconditional delivery • Consummates the contract • When premium still unpaid: ‐ It is not presumed that there was an extension of credit UNLESS there is a clear and express acceptance by insured of insurer’s offer to extend credit. ‐ Otherwise, policy will lapse for non‐payment of premium Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Defined: Coverage of a number of individuals by means of a single or blanket policy • Ex. Common form: Insurance for all employees of a single employer • Employer is issued a “master” policy, while the employees are issued a “certificate of participation” • For purposes of construction: All these instruments are considered part of the same contract • The employer becomes the agent of the insurer • Employees are real parties in interest to the policy. 19 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec 51. A policy of insurance must specify: a) The parties between whom the contract is made; b) The amount to be insured EXCEPT in the cases of open or running policies; c) The premium, or IF the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; d) The property or life insured; e) The interest of the insured in property insured, IF he is not the absolute owner thereof; f) The risks insured against; and g) The period during which the insurance is to continue. Names of parties • Incorrect spelling is of no importance and does not affect the policy. • Policy may refer to insured as “the insured”, “the owner”, “to whom it may concern” provided the identity of the party could sufficiently be established. • Error in the designation of the name in the absence of fraud does not invalidate the policy. Amount of insurance: Need not be specified in open (Sec. 61) or running (Sec. 62) policies Type of Insurance Amount of Insurance Fire and Casualty Maximum limit of insurer’s liability for loss or damage suffered. The amount is NOT necessarily the value of the property insured. Life, health, accident, Fixed sum payable death, injury Workmen’s Law by reference fixes the amount compensation Note: “Automatic increase clause” where the increase of the insurance shall depend upon the happening of an event, the amount insured by the policy at the time of its issuance necessarily includes the additional sum covered by the said clause because it was already determinable at the time the transaction was entered into and formed part of the policy. (CIR v. Lincoln Phil Life Ins, 379 SCRA 423) Premium • Rate of the premium which is the consideration of the contract must be specified, • The basis and the rate upon which the final premium is to be determined must be specified. • The rate of the premium increases as risk of loss increases Type of Insurance Life Insurance Fire Insurance Basis of Premium Average lifespan predicted from statistical mortality tables. Structure, construction, occupancy, use, location, facilities against fire, etc. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Interest of insured in property: Must be specified when the insured is not absolute owner. Risks insured against GR: All foreseeable risks/losses may be insured ‐ ‐ EXC: Those the insurance of which would be repugnant to public policy or positively prohibited or occasioned by insured’s own fraud or misconduct • Risk: The chance of loss • Peril: The contingency or unknown event which may cause a loss • Hazard: Condition or factor which may create or increase the chance of loss from a given peril (physical or moral) Term or duration of insurance • Period of time during which the insurer assumes the risk of loss. Also known as the life of the policy. • Insurer liable only when loss occurred during duration of insurance • Issued for 12 months: Annual Policies; • Issue for Less: Short Period Policies Requirements for risk to be insurable: 1. Important enough to warrant insurance 2. Permits a reasonable statistical estimate of the chance of loss 3. Loss should be fairly definite as to cause, time, place, and amount 4. No catastrophic loss 5. Risks must be accidental in nature Note: Requirements not absolute, insurability is a relative matter Kinds of Insurable Risk 1. Personal 2. Property (Direct and indirect losses) 3. Liability (3rd party risks) Sec 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within 60 days after the issue of the cover note: ‐ a policy shall be issued in lieu thereof, ‐ including within its terms the identical insurance bound under the cover note and the premium therefor. Cover notes may be extended or renewed beyond such 60 days: 1. With the written approval of the Commissioner 2. If he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner: ‐ May promulgate rules and regulations governing such extensions for the purpose of preventing such violations and 20 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) ‐ 3. May by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations. 4. Cover Note, defined: A written memorandum of the most important terms of a preliminary contract of insurance intended to give temporary protection pending the investigation of the risk by the insurer or until the issuance of a formal policy. (Also known as “binding slip”, “binding receipt”, “binder”) 5. 6. 6. 2 kinds of Preliminary Contracts: 1. Preliminary Contract of Present Insurance (Binding slip, binders, cover note) • A temporary contract of insurance usually issued after payment of first premium • It is a merely a written memorandum intended to give temporary protection pending the investigation of the risk. • It is subject to all conditions contained in the policy • Does NOT apply to life insurance, life insurance is effective only upon approval of the risk (Pacific Life Assurance Corp v. CA, 89 SCRA 543) 2. Preliminary Executory Contract of Insurance • Insurer makes a contract to insure subject matter at some subsequent time which may be definite or indefinite. • Under such contract, the right acquired by the insured is merely to demand delivery of a policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver such policy. 7. B. Note: • An insurance contract is a personal contract • Accordingly, where different persons have distinct interests in the same property, the insurance taken by one, in his own right, does not in any way inure to the benefit of others. (Lampano v. Jose, 30 Phil 537) ‐ ‐ 1. Premiums in Cover Notes: The fact that no separate premium was paid on the cover note before the loss insured against occurred, does not militate against its binding effect as an insurance contract. No separate premiums are intended or required to be paid on a cover note because the same does not contain particulars of the property insured that would serve as basis for the computation of premiums. It is not treated as a separate policy but integrated in the regular policy. (Pacific Timber Export Corp v. CA, 112 SCRA 199) 3. A. Ins Memo Cir No 3‐75, dated September 29, 1975 1. 2. Ins Com. Cir. Letter dated January 17, 1980: May impose a deposit premium equivalent to at least 25% of estimated premium, in no case less than P500 SEC 53. The insurance proceeds shall be APPLIED: ‐ GR: Exclusively to the proper interest of the person in whose name or for whose benefit it is made ‐ EXC: UNLESS otherwise specified in the policy. Lim v. Sun Life Assurance of Canada : When the provisional policy expressly states that it shall be effective only upon approval and issuance of the policy by the head office, such amounted nothing but an acknowledgment and not a preliminary insurance. (42 Phil 264) Rules on cover notes Cover notes shall not be issued unless in the form approved by Insurance Commission Cover notes are binding for a period not exceeding 60 days from issuance whether premium has been paid or not. Cover note may be cancelled by either party upon at least 7 days notice to the other party If not cancelled, regular policy of insurance shall be issued in lieu thereof within 60 days after issuance of the cover note Cover note may be extended with approval of Insurance Commission Approval may be dispensed with upon the certification of the president, VP or general manager of the insurer that the risks and the extension do not violate the insurance code 2. GR: 3rd persons have no right to the proceeds, EXC: Unless. There is a contract of trust, express or implied, between insured and 3rd persons. (Bonifacio Bros v. Mora, May 67) 3rd persons may also demand when there is a stipulation pour autrui. (Coquia v. Fieldman’s, Nov 68) Where the contract provides for indemnity against liability to 3rd persons. (Guingon v. Del Monte, Aug 67) Test Whether 3 rd Persons May Directly Sue the Insurer a. When the contract provides for indemnity against liability to third persons – The latter to whom the insured is liable, can directly sue the insurer. b. When the insurance is for indemnity against actual loss or paymen t – Third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons, the recourse being thus limited against the insured. Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily, pending the insurance of the policy. Cover note is deemed a contract of insurance Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 21 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) SEC 54. When an insurance contract is executed with an agent or trustee as the insured: ‐ the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other ‐ general words in the policy. • • The fact of agency must be indicated in the policy If the agent or trustee secures a policy w/o indicating his principal – Agent is deemed to have taken the insurance for his own benefit and the principal has no right of action against the insured The Agent to Bind its Principal 1. Agent must be authorized 2. Agent must act within the scope of his authority 3. Agent must disclose his principal 4. Agent must indicate by appropriate words that he is acting in a representative capacity Sec 55. To render an insurance effected by one partner or part‐owner, applicable to the interest of his co‐ partners or other part‐owners: it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. Note: Contract must show that it covers all shares of co‐ owners, otherwise it is for the sole benefit of the one named in the contract. Hence, limited only to the individual share of the co‐partner or co‐owner. Sec 56. • When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, • only he who can show that it was intended to include him can claim the benefit of the policy. Ex. “for partners of Romulo” – he must prove that he is one Sec 57. A policy may be so framed that: ‐ it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Notes: • The transfer of the property will NOT suspend the insurance and instead, the insurance is deemed transferred together with the property • This is an exception to Sec 20 • Example: Insurance is for “the owner” of the property insured SEC 58. The mere transfer of a thing insured: ‐ GR: Does NOT transfer the policy, BUT suspends it ‐ EXC: UNTIL the same person becomes the owner of both the policy and the thing insured. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Notes: • See discussion in Sec 20 (page 11) • Since a contract of insurance is a personal contract – it does not attach to the property unless so worded as in the case of sec 57 SEC 59. A policy is either: open, valued or running SEC 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. Notes: • The amount stated in the policy is not the value of the property BUT merely the maximum limit of the liability in case of total loss • The insurer pays the ACTUAL CASH value of the property as ascertained at the time of loss Sec 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum. Notes: • There are two values: Face value of the policy and the value of the thing insured. • In a valued policy, valuation of the property insured is CONCLUSIVE between the parties and in the absence of fraud or mistake, such value shall be paid in case of total loss. • The liability of the insurer under a life policy is measured by the face value of the policy. VALUED Policy Proof of value of thing is NOT necessary Value of the policy is agreed upon OPEN Policy Must prove value of thing Value is not agreed upon but left to be ascertained in case of loss Sec 62. A running policy is one: • which contemplates successive insurances, and • which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements. Running policies: Also known as “floating/blanket policy” is intended to provide indemnity for property which cannot be covered by specific insurance because of frequent change of location and quantity • Running policy is usually issued on a constantly changing quantity of stocks. (e.g. goods in a department store) • Insurance which contemplates that the risk is shifting, fluctuating, or varying • Ex: Store and all the inventory within, stocks in trade 22 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec 63. A condition, stipulation, or agreement in any policy of insurance: ‐ limiting the time for commencing an action thereunder to a period of less than 1 year from the time when the cause of action accrues, is VOID. ‐ Rule: Parties may validly agree to fix the period when the action on the policy should be brought PROVIDED: GR: The period is not less than 1 year from the time the ‐ cause of action accrues ‐ In case of industrial life insurance: Period cannot be less than 6 years after the cause of action accrues. (Sec 231[d]) Accrual Cause of Action: From the time the insured’s claim is rejected by the insurer and NOT from the time of the loss. (Eagle Star Ins v. Chia Yu, 96 Phil 696) • Should be construed as the rejection, in the first instance and not from the denial of the reconsideration. • When the agreement is contrary to Sec 63 and therefore void, or when no period to bring the action has been stipulated, the insured may bring the action: 1. If insurance is a written contract ‐ within 10 years from the time the cause of action accrues (Art 1144 NCC) 2. If insurance is an oral contract – within 6 years from the time the cause of action accrues (Art 1145) • In motor vehicle insurance, the period of prescription is 1 year from denial of the claim and not from the date of the accident. (Sec 384 as amended by B.P. 874) Note: The prescriptive period in the Carriage of Goods by Sea Act (1 year from delivery of goods) does not apply to an insurer whose liability is governed by the Insurance Code. In such a case, only the action against the Carrier is lost, the insured may still claim against the insurer.(Meyer Steel Pipe Corp v. CA, 274 SCAR 432) Where “action is filed – Filing in the following venues converts a claim into an action or suit: 1. Regular courts of justice 2. Office of Insurance Commissioner (For claims where the amount of the loss or damage excluding interests, costs, attorneys fees does not exceed in any single claim 100K – jurisdiction is concurrent w/ civil courts) 3. POEA or DOLE Bringing an action against the agent has no effect – It is not considered a suit against the insurer and hence, does not interrupt the prescriptive period. It does not have any legal effect except that of notifying the agent of the claim. Use at your own risk  Sec 64. • No policy of insurance other than life shall be cancelled by the insurer • Except upon prior notice thereof to the insured, and • • No notice of cancellation shall be effective UNLESS it is based on the occurrence, after the effective date of the policy, of one or more of the following: a) Non‐payment of premium; b) Conviction of a crime arising out of acts increasing the hazard insured against; c) Discovery of fraud or material misrepresentation; d) Discovery of willful or reckless acts or omissions increasing the hazard insured against; e) Physical changes in the property insured which result in the property becoming uninsurable; or f) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. Sec 65. All notices of cancellation mentioned in the preceding section shall be: 1. In writing, 2. Mailed or delivered to the named insured at the address shown in the policy, and 3. Shall state: a. Which of the grounds set forth in section 64 is relied upon and b. That, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based. Cancellation: The right to rescind, abandon, or cancel a contract of insurance. It is the termination of the policy before its expiration. Note: The ground must occur after the effective date of the policy A cancellation of non‐life insurance policy must have the following requirements: 1. There must be prior notice to the insured 2. Notice is based on the grounds in Sec 64 and shall so state them. 3. Notice must be in writing, mailed and delivered to the named insured at the address shown in the policy; and 4. If requested in writing by the insured, insurer must furnish the facts on which the cancellation is based. Cancellation shall be ineffective: 1. If there is no prior notice 2. IF it is not based on the grounds provided by Section 64 Prior Notice of Cancellation to Insured ‐ To prevent the cancellation of the policy, w/o allowing the insured ample opportunity to negotiate for other insurance. ‐ Notice must be given to the insured himself and not to or through any unauthorized person by the policy. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 23 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) ‐ The notice need not be delivered personally to the insured. It may be mailed. (Sec 65) (Malayan Insurance Co, Inc. v, Cruz‐Arnaldo , 154 SCRA 672) Sec 66. In case of insurance other than life, GR: The named insured shall be entitled to renew ‐ the policy UPON payment of the premium due on the effective date of the renewal. ‐ UNLESS the insurer: o at least 45 days in advance of the end of the policy period o mails or delivers to the named insured at the address shown in the policy o notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages. Any policy written for a term of less than one 1 year Any policy written for a term longer than 1 year or any policy with no fixed expiration date Shall be considered as if written for a term of one year. Shall be considered as if written for successive policy periods or terms of one year. Renewal may be: 1. Through extension (By provision) or 2. Through new contract As a New Contract or Extension: • A renewal of insurance by the payment of a new premium and the issuance of a receipt where there is no provision in the policy for its renewal, is a new contract on the same terms as the old one. • But where the renewal is in pursuance of a provision to that effect, it is but an extension of the old one. Period for Giving Notice of Non‐Renewal • IF the 45 day rule is not complied w/ ‐ the insurer may refuse to renew • If insurer does not comply with Sec 65 & 66 ‐ he must renew whether he likes it or not Note: Insurance company is bound by the greater coverage in earlier policy where insurer renews without informing insured of the reduced coverage. Title 7. Warranties Sec 67. A warranty is either express OR implied Warranty, defined: Statement or promise stated by the insured in the policy or incorporated therein by proper reference, the untruth or non‐fulfillment renders the policy voidable by insurer. May ALSO be made by insurer Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change of the condition of the property. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Kinds of Warranties Express Promise is clearly set forth in the policy or incorporated by reference Implied Where the assertion or promise is not expressly set forth but because of the general tenor of the terms of the policy or the from the very nature of the contract, a warranty is necessarily inferred Affirmative Insured asserts the existence of the matter at or before the issuance of the policy Promissory Promises that certain matters shall exist or will be done or omitted after the policy takes effect. Warranty Presumed Affirmative: Unless the contrary appears, courts will presume that warranty is affirmative When warranty is waived and estoppel arises: 1. When the policy contains a condition which renders it voidable at its inception and such is known by the insurer – it will be presumed to waive the conditions and to execute a binding contract 2. If there is information which could hardly be overlooked and the corporation received still the payment of premiums, it will be estopped. Warranty Included in the contract Always written in face of policy, actually or by reference Strictly complied with Falsity equates to breach of contract Presumed material Breach is a breach of contract Representation Mere collateral inducements May be written in a disconnected paper or oral Only substantial truth required Falsity equates to fraud Must be shown to be so Ground for rescinding Note: Before a representation will be considered a warranty, it must be expressly included or incorporated by clear reference in the policy and the contract must clearly show that the parties intended that the rights of the insured would depend on the truth or fulfillment of the warranty. Sec 68. A warranty may relate to the past, the present, the future, or to any or all of these Note: In the case of a promissory warranty, the same may refer only to events in the future Sec 69. No particular form of words is necessary to create a warranty. • • The use of the word “warranty” is not necessary to establish it. Whether it is constituted, depends on the intention of the parties, the nature of the contract or the words used thereto. 24 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) • • In case of doubt, a statement will be referred to as a representation rather than a warranty especially when the statement is contained in any instrument other than the policy. Warranties are strictly construed against the insurer. (America Home Assurance Company v. Tantuco, 366 SCRA 740) Sec 70. Without prejudice to Section 51, every express warranty made at or before the execution of a policy, must be contained: 1. In the policy itself, or 2. In another instrument signed by the insured and referred to in the policy as making a part of it. If contained in another instrument, must be signed by insured and referred to in the policy as making a part of it. Mere reference is not sufficient Warranty may ALSO be contained in a RIDER: A rider is a part of the policy and hence the warranty in the rider need not be signed by the insured UNLESS, such rider was issued after the original policy took effect. (Ang Giok Chip v. Springfield Fire, 56 Phil 375) Sec 71. A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof. Notes: • Must refer to a fact. An expression of an opinion is not, strictly speaking, a warranty of its truthfulness. Such statement if deemed a warranty at all, is merely a limited warranty as to the honesty and good faith of the insured. (First National Bank v. Hartford, 95 US 673) • Statements in the application or medical examination are representations ONLY if it is not incorporated in the policy or made part of it by reference. SEC 72. A statement in a policy which imparts that: ‐ it is intended to do or not to do a thing ‐ which materially affects the risk, is a warranty that such act or omission shall take place. Notes: • Sec 72 refers to a promissory warranty • Breach of promise as to future acts will not avoid a policy unless the promises are material to the risk. • Materiality: If it substantially increases the risk SEC 73. When, before the time arrives for the performance of a warranty relating to the future: 1. A loss insured against happens, or 2. Performance becomes unlawful at the place of the contract, or 3. Performance becomes impossible, the omission to fulfill the warranty does not avoid the policy. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  GR: The non‐performance of a promissory warranty entitles the other party to rescind the contract EXC: Omission to fulfill the same does not avoid the policy: 1. Loss occurs before time specified 2. Performance becomes unlawful before the time specified 3. Performance becomes impossible before the time specified Non‐performance may be barred by 1. Waiver of insurer – Express or implied. If implied, said conduct must be clearly indicative of a clear intent of the insurer to waive its right under the policy. (Pioneer Insurance & Surety Corp v. Yap, 61 SCRA 426) 2. Estoppel – One is precluded because of some action or inaction on his part. SEC 74. • The violation of a material warranty, or other material provision of a policy, • On the part of either party thereto, entitles the other to rescind. Notes: • Causal connection between the violation and the cause of the loss is not necessary. Thus, EVEN if the violation of a material warranty did not contribute or was not the direct cause to the loss, the other party may still rescind. (Young v. Midland Textile Ins. Co, 30 Phil 617) • • GR: Rescission can be done ONLY if breach is material EXC: The parties may expressly stipulate that the violation of a particular provision (although immaterial) in the policy shall avoid it. (Sec 75) Bachrach v. British American Ass Co : The keeping of alcohol and varnish which was necessary for the preservation of furniture does not violate the warranty prohibiting the storage of inflammable materials. (17 Phil 555) Young v. Midland Textile Ins: Keeping of substance which is necessary for the business, or small quantities needed for daily use is not a violation of the warranty prohibiting storage of inflammable materials. If it is incidental to the business, it does not avoid the policy. (30 Phil 617) SEC 75. ‐ A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does ‐ not avoid the policy. ‐ ‐ GR: Violation of an immaterial provision does not avoid the policy EXC: By stipulation by the parties 25 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Use at your own risk  SEC 76. Breach of warranty without fraud: 1. Merely exonerates an insurer from the time that it occurs, or 2. Where it is broken in its inception, prevents the policy from attaching to the risk. • GR: Fraud is not essential for breach of warranty. ‐ Mere violation without fraud entitles the other party to rescind. ‐ Falsity, not fraud is the basis of liability on a warranty RECAP: Grounds for Rescission of Insurance Contract 1. Concealment 2. False representation 3. Breach of material warranty 4. Breach of condition subsequent 5. Alteration of the thing insured. Breach WITHOUT Fraud Policy avoided only from the time of the breach Insured is entitled to: (1) Return of premiums at a pro rata rate from time of breach if it occurs after inception of the contract (2) When breach occurs during inception of contract, return all premiums (Here contract is void ab initio) Breach WITH Fraud • Policy is VOID ab initio • Insured is NOT entitled to premiums paid Conditions in Insurance Policies: • Insurers may impose any condition so long as it is not contrary to law, morals, good customs, public order, or public policy • One w/o the performance of which the contract does not become in existence. • May be condition precedent or subsequent Effects of Breach of Condition: 1. Condition precedent: Prevents the accrual of cause of action 2. Condition subsequent: Avoids the policy or entitles the insurer to rescind. Condition Warranty Limitation to the attachment Is not a limitation of the risk Non‐performance of which, Does not suspend or defeat the contract does not spring the operation of the contract into life The occurrence of breach temporarily renders the entire contract voidable. Exceptions in Insurance Policies: Certain risks inserted in a policy which the insurer is unwilling to assume and used for the purpose of withdrawing from the coverage of the policy. Effect of breach on Legal Relation of Parties • Breach of warranty renders the contract voidable • BUT the occurrence of the risk does not affect the validity of the contract Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 • Breach may be waived without consideration; but the insurer does not become liable for an excepted loss by waiver UNLESS such waiver amounts to a new contract on valuable consideration. The defense that the loss is excepted is not barred by the incontestable clause. Title 8. Premium Sec. 77. An insurer is entitled to payment of the premium: as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding: GR: Unless and until the premium thereof has been paid ‐ ‐ EXC: In the case of a life or an industrial life policy whenever the grace period provision applies. Premium, defined: The agreed price or consideration paid by the insured for undertaking to indemnify the former against a specified peril. Payment of premium – One of the essential elements of an insurance contract ‐ Non‐payment of premiums not merely suspends but puts an end to the insurance contract and the insurer has no right to collect the premium ‐ If no premium is paid, even if the thing insured is already exposed to the peril, the insurance is not effective and the insurer has no right to collect premium Non‐payment of 1 st premium • Prevents the contract from becoming binding UNLESS waived • Non payment of the balance of the premium does not produce the cancellation of the contract. (Phil. Phoenix Insurance v. Woodworks, 20 SCRA 1270) Non‐payment of subsequent premiums • Does not affect the validity of the contract UNLESS by express stipulation, it suspends the policy. • In case of life insurance – policyholder is entitled to a grace period to pay the premium after the first 26 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) ‐ ‐ 1. 2. 3. 4. 5. 6. 7. GR: If no premium is paid – contract is NOT effective. Any agreement to the contrary is void. (Cash and Carry Rule) EXC: In case of a life or industrial life policy whenever the grace period provision applies (Sec 77) When there is an acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment. (Sec 78) When the parties agree to payment in installments and partial payment has been made at the time of loss. (Makati Tuscany vs. CA, 215 SCRA 463) When insurer grants a credit extension or term. (Makati Tuscany vs. CA, Id) When estoppel bars the insurer from invoking Sec 77. (UCPB General Insurance Inc v. Masagana, June 15, 1999) Where the obligee has accepted the bond or suretyship contract in which case, such bond or suretyship becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. (Pacific Timber v. CA, 112 SCRA 199) In case of cover notes, payment of premium is not required. No excuse for non‐payment ‐ GR: Non‐payment cannot be excused even for a fortuitous event since the payment of a premium is of essence of a contract EXC: ‐ 1. Where the insurer has become insolvent and has suspended the business, or has refused w/o justification a valid tender of premiums. (Gonzales v. Asia Life, 92 Phil 197) 2. When the failure to pay was due to the wrongful act of the insurer or his agent as when the insurer induced the beneficiary under the policy to surrender it for cancellation by falsely representing that the insurance was illegal and void, and returning the premiums paid; or 3. Where the insurer has in any wise waived his right to demand payment. (Vance, op cit, pp 326‐331) Note: Failure to notify the insured of the insurer’s change of address did not work as forfeiture or waiver of the insurer’s right to have the premiums satisfied promptly. (Gonzaga v. Crown Life Insurance, Mar 54) Payment by Check: There is a valid payment even if check is encashed after the occurrence of the risk insured against. The subsequent effects of encashment would retroact to the date of the instruments and its acceptance by the creditor. On Partial Payments GR: Partial payment makes the policy effective during ‐ the whole period of the policy EXC: When the parties expressly stipulate that the policy ‐ will not be in force UNTIL the full payment of premium, the partial payment of the premium by the assured should not be considered payment. Rather, partial payment shall be considered as a deposit held in trust by the insurer until full payment. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Note: When there is not only a perfected contract but also a partially performed one as far as the payment of the premium was concerned – the obligation of the insurer to pay the amount of the policy became binding upon it. Payment of the premium to the insurance agent or broker is payment to the insurance company • Fraudulent misappropriation of the premiums by the agent is imputable to the insurance company • Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured, it is deemed to have authorized said agent to receive the premium in its behalf. • The insurer is also bound by its agent’s acknowledgement of receipt of payment of premium. (American Home Assurance Co. v. Chua, June 99) Assessment: Sum specifically levied upon a fixed and definite plan to pay losses and expenses. Premium vs. Assessment Premium Paid to meet ANTICIPATED losses Payment of premium after the first, is not enforceable against the insured NOT a debt. Assessment Paid to meet ACTUAL losses Unless otherwise agreed, are legally enforceable against the insured A debt Payment of Premium Ordinarily Not a Debt or Obligation In fire, casualty and marine insurance – The premium ‐ payable becomes a debt as soon as the risk attaches. In suretyship: It becomes a debt as soon as the contract ‐ or bond is perfected and delivered to the obligor. Devices Used to Prevent the Forfeiture of a Life Insurance after the Payment of the First Premium 1. Grace Period – After the payment of the first premium, the insured is entitled to a grace period of 30 days within which to pay the succeeding premiums 2. Cash Surrender Value – The amount the insurer agrees to pay to the holder of the policy if he surrenders it and releases his claim upon it. 3. Extended Insurance – Where the insurance originally contracted for is continued for such period as the amount available therefor will pay. In such a case, the insurance will be for the same amount as the original policy but for a period shorter than the period in the original contract. 4. Paid Up Insurance – No more payments are required and consists of insurance for life in such an amount as the sum available therefore, considered as a single and final premium. It results in a reduction of the original amount of insurance, but for the same period originally stipulated. 27 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) 5. 6. Automatic Loan Clause – A stipulation in the policy providing that upon default in payment of premium, the same shall be paid from the loan value of the policy until the value is consumed. In such a case, the policy is continued in force as fully and effectively as though the premiums had been paid by the insured from funds derived from other sources. Sec. 79. Reinstatement – Provision that the holder of the policy shall be entitled reinstatement of the contract at any time within 3 years from the date of default in the payment of premium, unless the cash surrender value has been paid, or the extension period expired, upon production of evidence of insurability satisfactory to the company and the payment of all overdue premiums and any indebtedness to the company upon said policy. (b) 1. Where the insurance is made for a definite period of time AND 2. The insured surrenders his policy: To such portion of the premium as corresponds ‐ with the unexpired time, at a pro rata rate, UNLESS a short period rate has been agreed upon and appears on the face of the policy, ‐ After deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; ‐ Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law. Note: Reinstatement is not an absolute right of the insured, but discretionary on the part of the insurer, which has the right to deny reinstatement if it were not satisfied as to the insurability of the insured, and if the latter did not pay all overdue premiums and other indebtedness to the insurer. (McGuire v. Manufacturer’s Life Ins, 87 Phil 370) Sec. 78. An acknowledgment in a policy or contract of insurance OR the receipt of premium: ‐ is CONCLUSIVE evidence of its payment, so far as to make the policy binding, ‐ notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. Effect of Acknowledgement of Receipt of Premium in Policy ‐ This section establishes a legal fiction of payment ‐ There is a waiver of the condition of prepayment since it is declared by law to be conclusive evidence of payment ‐ Conclusive Presumption extends ONLY to the question of the binding effect of the policy. ‐ As far as the payment of the premium itself is concerned, the acknowledgement is only prima facie evidence of the fact of such payment. Insurer may still dispute its acknowledgement but ONLY for the purpose of recovering the premium due and unpaid. Effect of Acceptance of Premium ‐ Acceptance of premium merely assures continued effectivity of the insurance policy in accordance with its terms. ‐ It does not stop the insurer from interposing any valid defense under the terms of the insurance policy where such insurer is not guilty of any inequitable act or representation. ‐ There is nothing inconsistent between acceptance of premium and the enforcement of the terms. (Stokes v. Malayan Insurance, 127 SCRA 766) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 A person insured is entitled to a return of premium , as follows: (a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against; Sec. 80. 1. If a peril insured against has existed, AND 2. The insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned. Sec. 81. A person insured is entitled to return of the premium when: 1. The contract is voidable, o on account of fraud or misrepresentation of the insurer, or of his agent, or o on account of facts, the existence of which the insured was ignorant without his fault; or 2. When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy. Sec. 82. In case of an over‐insurance by several insurers, the insured: ‐ is entitled to a ratable return of the premium, ‐ proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. 6 Instances When the Insured is Entitled to Recover Premiums Already Made: 1. When no part of the interest in the thing insured has been exposed to any of the perils insured against • • Whole premium may be returned The assumption of risk is one of the essential elements in the insurance contract – if there is no risk – premium may be recovered 28 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) • • • • 2. When the risk attaches: a. If risk is entire + contract is indivisible: insured is not entitled to return of premium if insurer is exposed to the peril however short b. If contract is divisible (involves several distinct risks) – the premium for the risk which does not attach can be claimed If the loss occurs before the effective date and an advance of the premium was made – insured is entitled to the return of the whole premium When the insured and insurer becomes public enemies – insured is entitled to the return of the premiums since war abrogates insurance contracts. (Filipinas Cia de Seguro v. Christern Huenfeld, 89 Phil 54) Examples: o Ship insured for the voyage – voyage did not commence o If the policy was in fact inoperative o When the application for insurance was rejected o When the applicant withdraws his application before it is accepted. 3. • • • 4. 5. • • • Pro rata premiums may be returned (Premium corresponding to the unexpired portion of the period) The rule does NOT apply: a. When the insurance is not for a definite period b. A short period has been agreed upon c. The policy is for life insurance policy Short Period: A stipulation in the policy stating the amount or rate of premium for specified short times, or premiums at short‐time rate. The short period rate applies only if the insured surrenders the policy and not when the insurer cancels the policy. In short period rates: (usually found in a table of figures stipulating the amount for the premium) The amount recoverable will not be the unexpired period BUT ONLY the balance after deducting the percentage to be retained by the insurer as stated in the table: PERIOD 1 or less 2 mos 3 mos 4 mos 5 mos 6 mos • ‐ ‐ % of Annual Rate 20% 30% 40% 50% 60% 70% PERIOD 7 mos 8 mos 9 mos 10 mos 11 mos % of Annual Rate 75% 80% 85% 90% 95% In Life Insurance It is an indivisible contract so insured cannot recover HOWEVER, he is entitled to receive to the “cash surrender value” AFTER 3 full annual premiums have been paid. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Whole premium may be returned When at the time the insurance is taken the insured, who was ignorant of the facts, did not have insurable interest in the thing insured, the insured is entitled to a return of the premium. When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy • • 6. Whole premium may be returned If the insurer is in fraud – The insured may rescind the contract and demand the return of the premiums paid by him. If the insured is in fraud – He is NOT entitled to return of the premium When the contract is voidable on account of facts, the existence of which the insured was ignorant of w/o his fault • • Where the insurance is made for a definite period of time and the insured surrenders his policy before the expiration of that period • Where the contract is voidable on account of fraud or misrepresentation of the insurer or his agent Whole premium may be returned Example: Insured a vessel but it was destroyed before the actual voyage In case of an over‐insurance by several insurers • • • Pro rata premiums may be returned Insurer is not entitled to the portion of the premium corresponding to the excess of the insurance over the insurable interest of the insured Return is only for the proportion which exceeds the insurable value of thing at risk. Where Insurance is Illegal ‐ GR: Premiums cannot be recovered EXC: But if they are not in pari delicto – innocent party ‐ may recover To whom should the premiums be returned: To the person who paid them. Thus, a premium cannot be recovered by a person having no contractual relation with the insurer notwithstanding the fact that the money with which the premium was paid was originally derived from such party. (Pioneer Reserve Life v. Smith, 21 S.W. 2d 968) Instances when premiums are not recoverable: 1. When the risk has already attached and the risk is entire and indivisible. (Jones v. St Paul Fire, 118 F 2d 237) 2. In life insurance. (Sec 79) 3. When the contract is rescindable or rendered void ab initio by the fraud of the insured. (Sec 81) 4. When the insured is guilty of misrepresentation. (Phil Nat Bank v. Phoenix Assurance, 72 OG (no. 33) 8130) 5. When the contract is illegal and the parties are in pari delicto. 29 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Title 9. Loss Loss in Insurance: The injury, damage or liability sustained by the insured in consequence of the happening of one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. It may be total, partial, or constructive in Marine Insurance. Losses for which the Insurer is Liable: 1. Loss of which a peril insured against was the proximate cause. (Sec 84) 2. Loss caused by efforts to rescue the thing insured from a peril insured against. (Sec 85) 3. Loss caused by a peril not insured against to which the thing insured was exposed in the course of rescuing the same from the peril insured against. (Sec 85) 4. Loss, the immediate cause of which was the peril insured against unless the proximate case thereof was excepted in the contract. (Sec 86) 5. Loss caused by the negligence of the insured. (Sec 87) Losses for which the Insurer is NOT Liable: 1. Loss by the insured’s willful act or gross negligence 2. Loss due to the connivance of the insured (Sec 87) 3. Loss where the excepted peril is the proximate cause. Sec. 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened,: GR: Is VOID IF made before the loss ‐ ‐ EXCEPT as otherwise provided in the case of life insurance. Effect of Agreement Not to transfer Claim of Insured After a Loss GR: The insured has an absolute right to transfer his claim against the insurer after a loss. A stipulation which prohibits against the transfer of the claim after the loss is against public policy – therefore VOID ‐ It is against public policy as it hinders the free transmission of property. ‐ The rights of the parties are already fixed after the loss and the assignment is merely a transfer of a chose of action ‐ The assignment involves no moral hazard. It does not increase the insurer’s risk EXC: 1. Sec 173. Which prohibits the transfer of a fire insurance policy to any person who acts as an agent of the issuing company and declares such transfer void insofar as it affects the creditors of the insured. 2. In the case of Life Insurance Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Sec. 84. Unless otherwise provided by the policy, an insurer ‐ of which a peril insured against is liable for a was the proximate cause, ‐ although a peril not contemplated loss: by the contract may have been a remote cause of the loss; is NOT liable which the peril insured against was for a loss: only a remote cause. Scope of the Peril: a. Loss of income b. Property damage c. Bodily Injury, death d. Legal liability to 3rd party Insurer is Liable: When the peril insured is the proximate cause ‐ Note that the insurer is still liable even if the proximate cause is not the peril insured against if the immediate cause is the peril insured against. (Sec 86) Insurer is NOT liable: When the peril insured is ONLY a remote cause Burden of proof: Insurer has the burden of proof to show that he is not liable Proximate Cause, defined: • That which in a natural and continuous sequence, unbroken by any efficient intervening cause, produces an injury w/o which the injury would not have occurred. • It is the efficient cause that sets the others in motion, to which the injury would not have occurred. • Proximate cause is not equivalent to “immediate cause”. Sec. 85. An insurer is liable: 1. Where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, IF: ‐ in the course of such rescue, the thing is exposed to a peril not insured against, ‐ which permanently deprives the insured of its possession, in whole or in part; or 2. Where a loss is caused by efforts to rescue the thing insured from a peril insured against. Extension of Principle of Proximate Cause 1. Where the loss took place while being rescued from the peril insured against • For as long as the loss occurred in the course of rescuing or by efforts to rescue from a peril INSURED against and provided that the property would have been lost by the peril insured against had there been no attempt to rescue it. ‐ the insurer is liable 30 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) • 2. However, if it did not take place in the “course of the rescue” nor “caused by efforts to recue” – insurer is not liable Where the loss is caused by efforts to rescue the thing insured from a peril insured against • Here, it is the efforts to rescue the thing that caused the loss. • The insured is bound to exercise a reasonable degree of care in removing the goods. Sec. 86. Where a peril is especially excepted in a contract of insurance: ‐ a loss, which would not have occurred but for such peril, is thereby excepted ‐ although the immediate cause of the loss was a peril which was not excepted. Where Proximate Cause is an Excepted Peril • The insurer is NOT liable if the proximate cause is an excepted peril even if the immediate peril is a peril not excepted • Insurer has the burden of proof that the risk causing the loss is excepted. (Paris‐Manila Perfume Co. v. Phoenix Assurance, 49 Phil 753) Immediate Cause Cause or condition nearest to the time and place of injury Proximate Cause Event which in a natural and continuous sequence, unbroken by any efficient intervening cause produces the injury. Burden of Proof in Accident Insurance: The insured or his beneficiary has the burden of proof in demonstrating that the cause of the loss is due to the covered peril. Once established, the burden then shifts to the insurer to show any excepted peril that may have been stipulated by the parties was the cause of the loss. Sec. 87. • An insurer is not liable: For a loss caused by the willful act or through the connivance of the insured; • BUT he is not exonerated: By the negligence of the insured, or of the insurance agents or others. Notes: • Loss in this case must be caused by the intentional/willful act of the insured. Ex. Insured intentionally caused the burning of the insured property. • Insurer is still liable for loss due to the negligence of the accused. GR: Negligence of the insured or his agents – insurer ‐ is LIABLE ‐ EXC: If the negligence on the part of the insured is so GROSS – insurer is NOT liable. (Tantamount to willful act) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Effect of Fraudulent Claim: • Fraud in the statement of loss operates to defeat recovery upon any part of the policy for the policy is avoided by any false and material representation in the statement of loss and all benefits thereunder are forfeited. (Tuason v. North China, 47 Phil 14) Fraud must be proved. An honest overvaluation will not be sufficient to avoid the policy. • When the difference between the claim and the loss is so great as to indicate false statement made intentionally and willfully, the same avoids the insurance policy. • In case the insured fraudulent overvalues the property insured in the claim for the loss, the insurance is avoided. In order to avoid the policy, the over‐valuation must be done knowingly and with fraudulent intent. • Fraud cannot be presumed but must be established by clear and convincing evidence. There must be positive proof of fraud. Burden is on the insurer. • Mere filing of such claim will exonerate the insurer if such clause is part of the contract. • However, honest misstatement or mistake will not exonerate the insurer Title 10. Notice of Loss Conditions After Loss that Must be Fulfilled: 1. Notice of loss given to the insurer (Sec 88) 2. When required by the policy, a preliminary proof of loss. (Sec 89) Sec. 88. In case of loss upon an insurance against fire, an insurer is exonerated IF 1. Notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, 2. Without unnecessary delay. Notice of loss: • Apprises the insurer of occurrence of the loss • Necessary for the insurer to be liable to pay the claim. • Purpose: is to enable the insurer to make the proper investigation and take such action as may be necessary to protect his interest • No particular form is needed Notice Must be Given without unreasonable delay – means “w/in reasonable time” a. Depends on the circumstances, construed in favor of insured b. Parties may stipulate the period but must not be unreasonably short In Fire Insurance Required Failure to give notice will defeat the right of the insured to recover In other Types of Insurance Not required Failure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so 31 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Proof of Loss Sec. 89. When a preliminary proof of loss is required by a policy, the insured: ‐ is not bound to give such proof as would be necessary in a court of justice; ‐ but it is sufficient for him to give the best evidence which he has in his power at the time. Proof of loss, defined: Formal evidence given to the insurer of the occurrence of the loss and the information necessary to determine its liability and the amount thereof. • No particular form is necessary • Failure to serve notice or proof may be excused when the circumstances are such as to make strict compliance with the requirement impossible (Ex. Insured died before the fire and the heirs did not know about the policy) Defects in Notice or Proof of Loss Sec. 90. All defects in a notice of loss, or in preliminary proof thereof: 1. Which the insured might remedy, and 2. Which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are WAIVED. Notes: • A general statement that proofs are defective is not sufficient to impose on the insured the duty to supply the defects not pointed out. (Ins. Co. of N. Am v. Hope, 58 Ill 75) • It is the duty of the insurer to indicate the defects in the proof of loss so that they may be supplied. His retention of the defective proof constitutes a waiver of his objections. Defects in the Notice or Proof of Loss are Waived: 1. If the policy required an affidavit of loss and a defective one is accepted – there is a waiver on such defect. 2. When the insurer denied liability on a ground other than the defect in the notice or proof of loss. 3. When the insurer recognizes the liability to pay the claim 4. When the insurer denies all liability under the policy 5. When the insurer joins in the proceedings for determining the amount of the loss by arbitration, making no objections on account of notice and preliminary proof. Sec. 91. Delay in the presentation to an insurer of notice or proof of loss is waived: 1. If caused by any act of him, or 2. If he omits to take objection promptly and specifically upon that ground. Note: By accepting payment of premium with full knowledge that the premises had been injured or destroyed, the insurer is estopped from claiming that notice was not given. (Emery v. Svea Fire Ins Co, 20 Pac 88) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Sec. 92. If the policy requires by way of preliminary proof of loss the certificate or testimony of a person other than the insured, it is sufficient for the insured: • to use reasonable diligence to procure it and • in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified. Notes: • Requirement in Sec 92 requires that the insured only exercise due diligence to procure the certificate or testimony • Also, such requirement in the policy must be liberally construed in favor of the insured Claims Settlement: The indemnification of the loss of the insured. In case of an unreasonable delay/denial in the payment of the insured’s claim by the insurer, the insured can recover: 1. Attorney’s fees 2. Expenses incurred by reason of the unreasonable withholding; 3. Interest at double the legal interest rate fixed by the monetary board; and 4. Amount of the claim. (Zenith Insurance Corp v. CA, 185 SCRA 398) Time for Payment of Claims 1. Life policies a. Maturing upon the expiration of the term – The proceeds are immediately payable to the insured, except if proceeds are payable in installments or annuities, which shall be paid as they become due. b. Maturing at the death of the insured, occurring prior to the expiration of the term stipulated – The proceeds are payable to the beneficiaries within 60 days after presentation of the claim and filing of proof of death (Sec 242) 2. Non Life Policies: The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss, w/n ascertainment is had or made (Sec 243) Effect of Refusal or Failure to Pay the Claim within the Time Prescribed GR: The insurer shall be liable for interest on the sum ‐ due at the rate of twice the ceiling prescribed by the Monetary Board, from the time payment is supposed to be made (twice of 12 % per annum or 24%) ‐ EXC: Unless such failure to pay is based on the ground that the claim is fraudulent. 32 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Title 11 Double Insurance Sec. 93. A double insurance exists where: ‐ the same person is insured ‐ by several insurers separately ‐ in respect to the same subject and interest. Double insurance is also known as “additional insurance” or “other insurance” Requisites: 1. Same person is insured 2. There are several insurers insuring separately 3. Same subject matter insured 4. Same interest insured 5. Same risk or peril insured against (b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; (c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. • Test of Double Insurance: Whether the insured, in case of the happening of the risk insured against, can be directly benefited by recovering on both policies; if he can, there is double insurance. Ex. If A insured a thing as a mortgagor/owner and B insured the same object as a mortgagee, there is no double insurance as the policy was obtained by different persons who did not have the same interest in the subject insured. Double Insurance (DI) • Double insurance is NOT contrary to law and the insurers may still be held liable up to the extent of the value of the thing insured but not to exceed the amount of the policies issued. • It is valid and reasonable, and in the absence of consent, waiver or estoppel on the part of the insurer, a breach will prevent recovery on the policy. (Sta Ana v. Commercial Union Assurance, 55 Phil 329) • A stipulation prohibiting DI is also valid in order to prevent over insurance and thus avert the perpetration of fraud. • Waiver of Double Insurance Violation: IF the insurer knows the existence of other insurances AND continued the policy – it amounts to a waiver of the annulment of the contract • An additional insurance obtained by a 3rd person in good faith and w/o the knowledge of the insured will NOT affect the insured’s rights under the policy Over Insurance: Exists when the insured insures the same property for an amount greater than the value of the property. Sec. 94. Where the insured is overinsured by double insurance: (a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  • • Since a contract of insurance is one of indemnity – the amount of recovery is limited to the value of the insured’s insurable interest. Sec 94 enunciates the Principle of Contribution: requires each insurer to contribute ratably to the loss or damage considering that the several insurances cover the same subject matter and interest against the same peril. Contribution Clause – stipulation that the insurance company shall not be liable to pay or contribute more than its ratable proportion of the loss or damage Double Insurance There must be several insurers The total of the sum of the policies need not exceed the II Over Insurance One insurer is sufficient Amount of the insurance is always beyond the value of the II Note: There can be no over insurance in life insurance because no value can be placed on human life. Title 12. Reinsurance Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. Note: In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies. Reinsurance Policy Contract of indemnity which one insurer makes with another to protect the first insurer from a risk it has already assumed. Reinsurance Treaty Merely an agreement between 2 insurance companies where one agrees to cede and the other to accept reinsurance business pursuant to the provisions of the treaty 33 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Double Insurance Insurer remains the insurer Subject matter is property Same interest and risk are insured The insured is the party in interest in all the contracts The insured has to give his consent Reinsurance Insurer becomes the insured, insofar as the reinsurer is concerned Subject is the insurer’s risk or liability Different risk and interest are insured The original insured has no interest in the contract of reinsurance which is independent of the original contract of insurance The consent of the original insured is not necessary Sec. 97. A reinsurance is presumed to be a contract of indemnity against liability, and NOT merely against damage. Nature of Contract of Reinsurance: A contract of indemnity – primarily insures the risk and not the property insured under the original policy. The reinsurer agrees to indemnify the insurer, not against actual payment made but against liabilities incurred. • • Other Terms: 1. Automatic Reinsurance: The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract. 2. Facultative Reinsurance: There is no obligation to cede or accept participation in the risk, each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable Ins & Casualty Co, 4 SCRA 343) 3. Reinsurance Compact: A contract where two or more insurance companies agree in advance that each will reinsure a party of any line of insurance taken by the other, and is a self‐executing contract. In such a case, reinsurance attaches automatically upon the acceptance of a risk by any one of the companies. 4. Retrocession: A transaction whereby the reinsurer, in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. When is Reinsurance Compulsory 1. When a non‐life insurer insures in any one risk or hazard the amount exceeding 20% of its net worth, the insurer needs reinsurance of the excess over said limit so that the retention of the insurer will be reduced to a maximum of 20% of its net worth. 2. When a foreign insurance company withdraws from the RP, it should cause its primary liabilities under policies insuring residents of the RP to be reinsured and assumed by another insurance company authorized to transact business in the RP. Sec. 96. Where an insurer obtains reinsurance except under automatic reinsurance treaties he must communicate: 1. All the representations of the original insured and also 2. All the knowledge and information he possesses whether previously or subsequently acquired which are material to the risk. • • Policy may be avoided where the reinsured conceals the fact that a loss has taken place or that the property is over‐insured Exception to Sec 96: in case of an Automatic Reinsurance Treaty since the contract is self‐ executing and the obligation attaches automatically. Here, the obligation to communicate is not necessary. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  • • Reinsurance is a contract of indemnity against the reinsured’s liability from the original contract BUT not exceeding the amount of the reinsurance When the reinsured becomes liable under the original policy ‐ reinsured may obtain payment from the reinsurer EVEN before paying the original insured. The contract of insurance is independent and separate from the contract of reinsurance. A reinsurer on payment of a loss, acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss. Sec. 98. The original insured has no interest in a contract of reinsurance. ‐ ‐ GR: Contract of reinsurance is solely between the reinsured and the reinsurer • The insured, unless the contract so provides, has no concern with the contract of reinsurance, and the reinsurer is not liable to the insured either as surety or otherwise. • The original insured has no right to sue the reinsurer on the contract of reinsurance EXC: 1. If the contract of reinsurance is made directly for the benefit of the reinsured’s policy holders, or 2. If the reinsurer assumed and agrees to perform reinsured’s contracts, the reinsurer becomes directly liable to the policy holder. Provided the original insured accepts and communicates acceptance to the reinsurer before revocation. Note: In an action on a contract of insurance, the reinsurer is entitled to avail itself of every defense the reinsured has against the original insured. Liability of Reinsurer to Reinsured • GR: The reinsurer is entitled to avail itself of every defense which the reinsured might urge in an action by the person originally insured. (Gibson v. Revilla, 92 SCRA 219) • The reinsurer is not liable to the reinsured for a loss under the original policy if the latter is not liable to the original insured or for an amount more than the sum actually paid to the insured. • Extent of Liability of the Reinsurer: Measured by the liability of the reinsured to the original policy holder provided this does not exceed the amount of reinsurance. 34 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Title I: MARINE INSURANCE Sub‐Title 1‐ A DEFINITION Sec. 99. Marine Insurance includes: (1) Insurance against loss of or damage to: a. Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein: in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks; b. c. Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, Including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance BUT NOT including life insurance or surety bonds NOR insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles; Precious stones, jewels, jewelry, precious metals whether in course of transportation or otherwise; Use at your own risk  Major Divisions of Transportation Insurance 1. Ocean Marine Insurance Defined by enumerating what matters are included An insurance against risk connected with navigation, to which a ship cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time Covers primarily insurance of sea perils Perils of Navigation, defined: Include perils in making landings in river navigation, and damage from rain in consequence of improper stowage, unless such was occasioned or acquiesced in by the insured. 2. Inland Marine Insurance Covers primarily land transportation perils shipped by railroads, trucks, airplanes, and other means of transportation. It also covers risks of lake, river or other inland waterway transportation outside those risks that fall w/in the ocean marine insurance category. Scope of Ocean Marine Insurance: Provides protection for: 1. Ships of hulls 2. Goods or cargoes 3. Earnings such as freight, passage money, commissions, or profits 4. Liability of the owner or any party interested in the property insured by reason of maritime perils. Risks of Losses Covered in Ocean Marine Insurance All risks or losses EXCEPT those repugnant to public policy or positively prohibited A general marine insurance which does not specify the risks assured is valid and covers the usual marine risks “All other perils” – Extends only to marine damage of like kind enumerated To sustain recovery on a marine policy – loss must have resulted from a risk insured against d. Bridges, tunnels and other instrumentalities of transportation and communication Piers, wharves, docks and slips, and other aids to navigation and transportation EXCLUDING buildings, their furniture and furnishings, fixed contents and supplies held in storage; INCLUDING dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) "Marine protection and indemnity insurance," meaning insurance against: legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, INCLUDING liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Underwriters: Cannot assume risk of goods IF not given special notice, and will be released from their contract if the subject insured is loaded Marine Insurance COVERS: Not only property exposed to risks of marine navigation BUT ALSO those which are exposed to risks not connected with marine navigation such as loss of or damage to: o Aircraft, which has nothing to do with marine navigation o Goods while being assembled, packed, crated, baled, compressed or similarly prepared hence, NOT yet in the course of transportation. o Precious stones, jewels, jewelry, precious metals whether in the course of transportation o Bridges, tunnels, and other instrumentalities of transportation and communication which have nothing to do with marine aviation. 35 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) PROPERTY COVERED May cover any property or interest enumerated in the section which may cover property exposed to risk of marine navigation or not The scope may be enlarged in scope by special agreement of the parties. “Terms and merchandise” includes all articles which are carried on the ship for commercial purposes. They do NOT include: 1. Clothing of passengers UNLESS shipped as part of the cargo 2. NOR food or provisions intended for consumption UNLESS included in the policy “Freightage” means all the benefits derived by the owner: o From chartering of the ship for its employment for the carriage EITHER of his own goods or those of others o It will NOT be covered by a marine policy UNLESS expressly indicated. RISKS INSURED AGAINST ‐ Insured is liable for: All losses proximately caused by the perils covered by the marine policy These risks are usually enumerated and may cover not only perils of the sea but also fire, theft, jettison, detainments, or others that will injure the goods insured Fire may not be considered a natural disaster – since it almost always arises from some act of man or by human means. (Phil Home Assurance Corp v. CA, 257 SCRA 468) PERILS OF THE SEA: Embraces those casualties due to the violent action of the winds or waves, or to other extraordinary causes connected with navigation Perils Covered Perils NOT Covered • Shipwreck, foundering, stranding, • Ordinary collision, jettison wear and tear or other • Rusting of a cargo of steel pipes in the damage course of a voyage. (Cathay Insurance v. usually CA, 151 SCRA 710) incident to • Extraordinary causes connected with the voyage navigation ex. Violence • Extends to barratry: Any willful of a tempest misconduct on the part of the master of • When the crew in pursuance of some unlawful or violence is fraudulent purpose without the consent not unusual and to the prejudice of the owners or • Not only arrests caused by political acts unexpected. of a seizing state but also by ordinary legal processes such as lawsuit on ownership and possession of the goods. (Malayan Ins v. CA, 270 SCRA 242) Test to be Liable for Perils of the SEA: The violence must be due to unusual violence in the elements, and is not ordinarily to be expected as incident to navigation. Ex. Violence by a mast or by a storm. “Perils of the sea” is a RELATIVE TERM, its meaning may vary with the circumstances Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Perils of the Sea Must be the PROXIMATE Cause of the Loss – The insurer is liable only for such losses or damages proximately caused by the perils insured against. Perils of the Sea Perils of the Ship A loss in the ordinary course of Covers ONLY losses as events results FROM the are of extraordinary a. Natural and inevitable action nature or arise from of the sea some overwhelming b. Ordinary wear and tear power which cannot be c. Negligence of the ship owner guarded against by the to provide the vessel with proper equipment to convey ordinary exertion of cargo under ordinary human skill or prudence conditions A marine policy usually Perils of the ship must be expressly included in the covers perils of the sea policy for the insurer to be liable. only Generally, Everything which happens thru the: 1. Inherent vice of the thing or 2. The act of the owner, master or shipper shall not be reputed a peril IF NOT otherwise borne in the policy (Roque v. IAC, 139 SCRA 596) Burden of Seaworthiness: The law provides for an implied warranty of SWness in every contract of marine insurance. It becomes the obligation of the cargo owner or insured to look for a reliable common carrier. (Roque v. IAC, 139 SCRA 596) INCHMAREE CLAUSE, defined: Provision in the policy that the insurance shall cover loss or damage to the hull or machinery: • Through the negligence of the master, charter, mariners, engineers, or pilots • Through explosions, bursting of boilers, breakage of shafts • Through any latent defect in the hull or machinery not resulting from want of due diligence ALL RISKS CLAUSE: Insures against all causes of conceivable loss or damage EXCEPT: 1. Those excluded from the policy 2. Those caused by willful and fraudulent act of the insured Creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of proof that the loss was due to the peril falling within the policy’s coverage Includes all losses during the voyage WHETHER arising from marine peril or not (even pilferage losses during war) Burden of proof on covered peril o In other types of policies: Burden is on the INSURED to show that the loss arose from a covered peril o BUT in an “all risk” policy: Burden is on the INSURER to prove that the peril was an excluded peril. Insured has no obligation to prove the precise cause of loss or damage 36 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Burden of proof on condition of the cargo o Initial Burden: INSURED to prove:  That the cargo was in good condition when the policy attached AND  That the cargo was damaged when unloaded from the vessel. o Thereafter: Burden shifts to the INSURER to show the exception to the coverage. OTHER RISKS • Barratry, defined: A willful act of the master or crew in pursuance of some fraudulent or unlawful purpose without the consent of the owner and to the prejudice of his interest. (Must be willful and intentional) Ex: burning the ship, violation of revenue laws, unlawful selling of the cargo • War Risks: Extraordinary acts of a sovereign authority in times of war: restraining, detaining by kings. It extends only to perils due directly to some hostile action, military maneuver or operational war danger, and does not include the aggravation or increase of maritime risks because of war operations. (Queen Ins Co v. Glove & Rutgers Fire Ins, 263 US 487) • “All other perils, losses, and misfortunes” – risks which are of like kinds with the particular risk which are enumerated in the preceding part of the same clause of the contact Classes/Scope of Inland Marine Insurance The risk must involve an element of transportation Either the property is actually in transit held by persons who are not its owners, or at a fixed location but an important instrument of transportation, or is a movable type of good which is often at different locations 4 Classes of Inland Marine Insurance 1. Property in Transit: Provides protection for property frequently exposed to loss while it is in transportation from one location to another 2. Bailee liability: Provides protection to persons who have temporary custody of goods or personal property of others 3. Fixed Transportation Property Covers bridges, tunnels, and other instrumentalities of transportation and communication They are insured because they are held to be an essential part of the transportation system 4. Floater: It provides insurance to follow the insured property wherever it may be located subject always to the territorial limits of the contract. (jewelry, works of art, equipment) Use at your own risk  Sub‐Title 1‐B INSURABLE INTEREST Sec. 100. The owner of a ship has in all cases an insurable interest in it, • EVEN when it has been chartered by one who covenants to pay him its value in case of loss: • Provided, That in this case the insurer shall be liable for ONLY that part of the loss which the insured cannot recover from the charterer. Insurable Interest (II) of Ship‐Owner (SO) Owner has the II in the VESSEL to the extent of its value II continues EVEN IF: • Vessel has been chartered (see Sec 100) • Owner has mortgaged the vessel to another Insurable Interest of the Charterer: Has an II in the vessel TO the extent that he is liable to be damnified by its loss. Possession of Insurable Interest in Sales Contracts In the case of a In the case of cargo vessel II possessed: The II is in the shipper or the 1. By owner consignee depending upon the terms 2. By one who holds of sale the mortgage on a. FOB factory: the Buyer assumes the vessel responsibility when the goods (mortgagee), if leave the factory money has been b. FOB point of destination: Buyer borrowed does not assume responsibility 3. By the lessee, if until the goods are received from the vessel is the carrier c. CIF (cost, insurance, and freight): leased Seller assumes complete responsibility for securing all necessary insurance d. C&F (cost and freight): The buyer procures his own insurance In case of a vendee/consignee of goods in transit • Vendee/consignee has such existing interest as may be the subject of a valid contract of insurance • II is based on a perfected contract of sale between him and the shipper of the goods • Contract whether FOB, CIF, C&F is immaterial and II exists even w/o delivery since it VESTS in the vendee an equitable title over the goods sufficient to be the subject of insurance. Sec. 101. The insurable interest of the owner of the ship HYPOTHECATED BY BOTTOMRY is only the excess of its value over the amount secured by bottomry. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 37 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Loan on Bottomry: is one which is payable only if the vessel given as security for the loan arrives safely at port from contemplated voyage. Note: Owner of the vessel receives in case of loss, no indemnity for his loss, but does secure immunity from payment of the loan Respondentia Loan: is a loan which is payable ONLY upon the safe arrival in a port of the goods given as security Insurable Interest of the following persons: 1. Owner: ONLY in the excess of the vessel’s value over the amount of the bottomry • Ratio: When the vessel is lost, the owner need not pay the loan and is therefore benefited to the extent of the amount of the loan • Hence, the Loss he suffers is ONLY: the difference between the actual value of the vessel and the bottomry loan 2. Lender on Bottomry: Has II in the vessel to the extent of the loan. Sec. 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from: 1. The chartering of the ship or 2. Its employment for the carriage of his own goods or those of others. Freightage defined: Benefit which is to accrue to the owner of the vessel from its use in the voyage contemplated or the benefit derived from the employment of the ship Sources of Freightage Chartering of the ship Employment for the carriage of his own goods Employment for the carriage of the goods of others Sec. 103. The owner of a ship has an insurable interest in expected freightage: which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. II in Expected or Anticipated Freightage “Owner of the ship” contemplates: • The legal owner and • The charterer who expects to earn in the transportation of goods The freight money assured to the ship owner may be: a. Freight to be earned and payable upon the completion of the voyage b. The hire of the vessel, payable by the charterer or c. The benefit accruing to the owner from the use of his vessel in the way of profits upon carriage of his own goods Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  SO has an II in the expected freightage Has an II in expected freightage which he may not be able to collect in case of the intervention of the peril insured against. The rule is the same EVEN if the freight has been paid in advance BUT when agreement is that the freight is payable in any event (lost or is not lost) • The ship owner has NO II in such freight (New Orleans v. WR Grace Company, 26 F 2 967) • SHIPPER who has prepaid the freightage under the same situation – HAS an II on the same II in Passage Money: Passage Money unlike freightage, is customarily payable in advance and cannot be recovered if the vessel is lost before the completion of the passage • Passenger: Has II in his advances of passage money • Ship owner: Has NO II unless it is payable only upon the completion `of the voyage. Sec. 104. The interest mentioned in the last section exists: Scenario When II Exists In case of a When the ship has broken ground on the charter party chartered voyage It exists when: IF a price is to 1. They are actually on board, OR there be paid for the is some contract for putting them on carriage of board, AND 2. Both ship and goods are ready for goods the specified voyage. When II exists in expected freightage: Insured MUST have an inchoate right to freight – the peril insured against is the only cause that could prevent him from ultimately having a perfect right to it. Scenario Where freight is the price to be paid for the hire of the ship under a charter party Where the inchoate right to freight accrues as soon as the goods are actually put on board and where part of the goods has been loaded and the balance is ready Where the SO has made a binding contract for freight and the ship is ready to receive the goods Whether II Exists SO has an inchoate right to freight as soon as there is an inception of performance by the ship under the charter party There is an II in the whole freight SO has an II When there is NO II in Expected Freightage: 1. When there is no contract and no part of the goods expected to be carried are on board 2. Where the vessel is a mere “seeking ship” or a vessel looking for cargo to be transported – S.O. has no II in the freight to be earned on goods not loaded. 38 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 105. One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits. • • • • One having a reasonable expectation of profits from a marine adventure may take out insurance to protect such profits. (Patapsco Ins v. Coulter, 3 Pet US 222) HOWEVER the interest in the goods out of which profits are expected must be a LEGAL INTEREST although such interest may be contingent. (French v. Hope, 16 Pick 397) o Perez: Interest in the thing may be legal or equitable. (Buck v. Chesapeake, 1 Pet 151) Ex. Owner of a Cargo has an II not only on the value of the merchandise but also on the expected profit from the sale of the same Interest in the thing involved should be based on valuable consideration paid. 2. • • • Charter Party, defined: A contract by which an entire ship or some principal part is lent by the owner to another person for a specified time or use 2 Types of Charter Parties 1. A Bareboat or Demise Charter • The SO turns over full possession and control of his vessel to the charterer who then provides a crew and the supplies during the terms of the charter. SO is not required to provide a crew, so the charterer gets the “bareboat” i.e. w/o a crew The charterer becomes in effect the owner for the voyage or service stipulated SUBJECT to liability caused by damages. The charterer is treated as owner pro hac vice of the vessel, the charterer assuming in large measure the customary rights and liabilities of the SO in relation to third parties. Hence, the master of the vessel is the agent of the charterer and not the SO. It is the charterer who is liable for the expenses of the voyage as well as the wages of the seamen. (Litonjua Shipping Company v. National Seaman Board, 176 SCRA 189) • • • • Time Charter - - Contract for the use of a vessel for a specified period of time or for the duration of one or more specified voyages. The owner of the time chartered vessel also retains the employees Sub‐Title 1‐C CONCEALMENT Sec. 107. In marine insurance each party is bound: 1. To communicate in addition to what is required by sec 28 all the information which he possesses material to the risk EXCEPT such as is mentioned in Section 30 and 2. To state the exact and whole truth in relation to all matters that he represents or upon inquiry discloses or assumes to disclose. Concealment: The failure to disclose any material fact or circumstance which in fact or law is within or which ought to be within the knowledge of one party and of which the other has no actual or presumptive knowledge. Rule applies to BOTH the assured and underwriter The rules as to misrepresentations and concealments are more strict in cases of marine insurance. To constitute concealment it is sufficient that the insured is in possession of the material fact concealed although he may not be aware of it. (Proudfoot v. Montefiore, LR 2QB 511) Ex. If the agent failed to notify his principal of the loss of the cargo and the latter after the loss was ignorant thereof, secured insurance “lost or not,”such insurance shall be void on the ground of concealment. Sec. 108. In marine insurance: information of the belief or expectation of a third person in reference to a material fact is MATERIAL. • Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Contract of Affreightment The owner of the vessel leases part or all of its space to haul goods for others A contract of special service to be rendered by the owner of the vessel who retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space of the vessel. Types: Voyage Charter or Trip Charter Contract for the carriage of goods from one or more ports of loading to other ports of unloading, on one or on a series of voyages Employees remain in the employ of the SO Sec. 106 The charterer of a ship: has an insurable interest in it, to the extent that he is liable to be damnified by its loss. Charterer has an II: 1. To the extent of the value stipulated and 2. In the profits he expects to earn by carrying the goods IN EXCESS of the amount he agreed to pay for the charter of the vessel. Use at your own risk  Section further illustrates the stricter rule on concealment in marine insurance 39 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) • In MARINE Insurance: Insured is bound to communicate the following: 1. Beliefs of opinions of third persons or 2. Expectations of third persons Note: Both must be in reference to a MATERIAL FACT Sec. 109. A person insured by a contract of marine insurance: at the time of insuring is presumed to have knowledge of a prior loss if the information might possibly have reached him: • in the usual mode of transmission and • at the usual rate of communication. Provision creates a rebuttable presumption on the part of the insured of knowledge of a prior loss Reason: The quickness in the transmission of news by means of modern communications. When Rule is NOT applicable: The insured is NOT bound to use all accessible means of information at the very last instant of time to ascertain the condition of the property insured. Thus, when having no cause to expect information, the insured will not be guilty of negligence, which will vitiate the policy. (Neptune Ins Co v. Robinson, 11 Gill & [Md.] 250) Sec. 110. A concealment in a marine insurance, in respect to any of the following matters: Does not vitiate the entire contract, BUT merely exonerates the insurer from a loss resulting from the risk concealed: (a) The national character of the insured; (b) The liability of the thing insured to capture and detention; (c) The liability to seizure from breach of foreign laws of trade; (d) The want of necessary documents; (e) The use of false and simulated papers. Remedy in Case of Concealment GR: Concealment entitles the injured party to rescind the contract EXC: Concealment of facts under Sec 110 does not avoid the policy ab initio BUT merely exonerates the insurer from a loss resulting from the risk concealed. Vessel Lost Due To Any of the cases in Sec 110, which was concealed Other perils of the sea (storm, etc) Effect The insurer is NOT liable Insurer is liable. He is not exonerated from liability. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Ordinary Insurance The party to a contract need not communicate information of his own judgment much less what he learns from a third person Insured must be aware of the material fact concealed Causal connection between the fact concealed and the cause of the loss is not necessary to entitle the other party to rescind the contract Marine Insurance Insured is bound to communicate the following: Beliefs of opinions of third persons or expectations of third persons in reference to a material fact To constitute concealment it is sufficient that the insured is in possession of the material fact concealed although he may not be aware of it Concealment of any of the matters mentioned in Sec 110 exonerates the insurer only If the loss resulted from the risk concealed Sub‐Title 1‐D REPRESENTATION Sec. 111. IF a representation by a person insured by a contract of marine insurance is intentionally false: 1. In any material respect, or 2. In respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract. Note: The rules governing representations with respect to ordinary insurance policies generally have been held to apply to marine insurance Representation is MATERIAL where it would influence the judgment of a prudent insurer in fixing the premium or in determining whether he would take the risk Effects of False Representation of a Material Fact by the Insured: Intentional Not Intentional Misrepresentation of a The insurer may ALSO rescind material fact made with the contract but ONLY from the fraudulent intent AVOIDS time the representation becomes the policy false. Examples of Representation: Material: • Age, equipment, earnings, condition or rating of a vessel • That the vessel has to be repaired, that it arrived at the port of destination, that it is at a certain time at a certain place • Anything that concerns the state of the vessel at any period of the voyage Immaterial : Nature and the amount of the cargo. 40 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 112. The eventual falsity of a representation as to expectation: does NOT, in the absence of fraud, avoid a contract of marine insurance. Note: Section contemplates the eventual falsity of a representation as to expectation of belief and NOT of positive facts Representation as to Expectation or Intention: Statements of future facts or events which are in their nature contingent and which the insurer is bound to know that the insured could not have intended to state as known facts but as to expectations or intentions. • Ex. Time the vessel will sail, the nature of cargo, amount of profits expected, designation of the vessel. • Rule: UNLESS made with fraudulent intent, their failure of fulfillment is not ground for rescission Sub‐Title 1‐E IMPLIED WARRANTIES Warranty under Marine Insurance, defined: A stipulation either expressed or implied forming part of the policy as to some fact, condition or circumstance related to the risk. (Hearn v. Equitable Safety Ins. Co, 30 Wall 494) Implied warranties in Marine Insurance These warranties are implied as they exist by the mere fact that a contract of insurance is entered into. Coverage of Warranty: The INSURER will NOT be liable under the policy in case the following are violated: 1. Vessel should be seaworthy at the inception of the insurance 2. Voyage should not deviate from the agreed voyage 3. Vessel should not engage in an illegal venture 4. That the vessel shall carry the requisite documents of nationality or neutrality and shall NOT carry any document which cast reasonable suspicion on the vessel, when such nationality or neutrality of the vessel or cargo is expressly warranted. 5. That the insured has II Waiver of Implied Warranties by the Insurer • Express Waiver: Could be done only in writing in the policy and in the clearest language. (Phil American general Ins Co v. Cam 273 SCRA 262) • Implied Waiver: Such as payment of the claim without questioning the SWness of the vessel. (Delsan Transport Lines v. Cam 369 SCRA 24) Sec. 113. In every marine insurance: upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Use at your own risk  Warranty of Seaworthiness (SWness) • Ratio for Warranty: The realistic fact that cargo owners cannot control the state of the vessel • This implied warranty attaches to whoever is insuring the cargo, whether he be the SO or not. • The fact that the unSWness of the ship was unknown to insured is immaterial in ordinary marine insurance and may not be used as a defense to recover of the policy. The insurer will NOT be liable for a loss occasioned thereby whether such fact was known or unknown to the insured. (Richelieu v. Boston M, 136 US 408) • It is the obligation of the cargo owner to look for a reliable common carrier Admission of seaworthiness by the insurer: • If admitted, the insurer cannot raise the issue of SWness without showing concealment or misrepresentation by the insured. • It may mean two things: 1. That the warranty of seaworthiness is to be taken as fulfilled or 2. That the risk of unSWness is assumed by the insurer. (Phil American General Insurance Co v. CA, 273 SCRA 262) Sec. 114. A ship is seaworthy when reasonably fit: 1. To perform the service and 2. To encounter the ordinary perils of the voyage contemplated by the parties to the policy. SWness is a relative term depending on the nature of the ship, the voyage, the service in which she is at the time engaged. (American Merchant Marine Ins v. Margaret Ford Corp) Generally, the vessel must be adequately equipped for the voyage and manned with a sufficient number of competent officers. Nature of Ship Nature of Voyage Nature of Service Vessel must be in a fit state as to repair, equipment, crew and able to carry the cargo and in all other respects to perform the voyage and to encounter ordinary perils. Reasonable fitness to encounter the perils expected to arise in the course of the voyage, vary naturally with the character of the particular voyage. Reasonably capable of safely carrying the cargo to its port of destination. Criterion of Seaworthiness: 1. Quality of its officers and crew 2. Adaptability of the service in which they are employed 3. Sufficient physical and mechanical condition 4. Extent of its fuel and provisions supply (San Miguel v. Heirs of S. Inguito, 384 SCRA 87) Note: Warranty of SWness does not require an absolute guaranty that the vessel will safely meet all possible perils. Perfect vessel is not required. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 41 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 115. An implied warranty of seaworthiness is complied with: GR: If the ship be seaworthy at the time of the commencement of the risk EXCEPT in the following cases: The implied warranty is (a) When the insurance is not complied with UNLESS the ship be seaworthy at made for a specified length of time: the commencement of every voyage it undertakes during that time; (b) When the insurance is The implied warranty is not complied with UNLESS upon the cargo which, by each vessel upon which the terms of the policy, the cargo is shipped, or description of the voyage, or transhipped, be seaworthy established custom of the trade, is to be at the commencement of transhipped at an each particular voyage. intermediate port - GR: SWness is required only at the commencement of the risk EXC: The following must be SW at the commencement of every voyage or commencement of each portion of such voyage: 1. Time Policy: When made for a specified length of time (Sec 115a) 2. Cargo Policy: When insurance is upon cargo required to be transshipped (Sec 115b) 3. Voyage Policy: Where different portions of the voyage contemplated differ in respect to the things required to make the ship seaworthy (Sec 117) Note: The unexplained sinking of a vessel creates the presumption of unSWness. The shipper cannot escape liability by presenting a certificate showing that at the time of docking and inspection, the vessel was fit for voyage. SW relates to the vessel’s ACTUAL condition at the time of the commencement of the voyage. (Delsan Transport Lines v. CA, 369 SCRA 24) SCOPE OF SEAWORTHINESS Sec. 116. A warranty of seaworthiness extends: 1. Not only to the condition of the structure of the ship itself, 2. BUT requires that it be properly laden, and 3. Provided with (a) a competent master, (b) a sufficient number of competent officers and seamen, and 4. Provided with the requisite appurtenances and equipment, such as: • ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and • other necessary or proper stores and implements for the voyage. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Note: The ship is not unseaworthy because of some defect in loading or storage which is easily curable by those on board and was cured before the loss Carrying a Cargo on Deck raises a presumption of unSWness • Presumption can be overcome only by showing affirmatively that it did not interfere with the due management of the vessel • Reason: A ship may not be designed to carry substantial amount of cargo on deck making it unstable. (Phil American General Insurance Co v. CA, 273 SCRA 262) VOYAGE POLICY Sec. 117. Where different portions of the voyage contemplated by a policy differ in respect to the things requisite to make the ship seaworthy therefor: a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion. • • • Where a policy contemplates a voyage in different stages during which the subject matter insured will be exposed to different degrees or kinds of perils, the vessel must be SW at the commencement of each portion of the voyage. (Northwestern SS v. Maritime Co, 161 D Ed 166) This is an exception to the rule that SWness should only exist only at the time of the commencement of the risk The stages must be separate and distinct in order to have a different degree of SWness for particular parts. (Quebec Mar Ins v. Commercial Bank, LR 3 PC 234) Sec. 118. When the ship becomes unseaworthy during the voyage to which an insurance relates: an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom. Where Ship Becomes unSW during Voyage GR: If the vessel is SW at the commencement of the voyage and unSW during the voyage – such situation does not avoid the policy. [Ratio: There is no implied warranty that the vessel will remain in a SW condition throughout the life of the policy] EXC: When the vessel becomes unSW during the voyage – it is the duty of the master as the SO’s agent to exercise due diligence to make it SW again. (Paddock v. Franklin Ins Co, 11 Pick 234) • An unreasonable delay in repairing the defect causing the unSWness exonerates the insurer from the loss caused by such negligence. • Benefit of exoneration is given only to an “insurer on ship or SO’s interest” EXC to EXC: The contract of insurance is NOT affected as to any other risk or loss covered by the policy and NOT caused or increased by such particular defect. (Union Ins of Philadelphia v. Smith, 124 SCRA 405) – Insurer is still liable 42 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 119. A ship which is seaworthy for the purpose of an insurance upon the ship: may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo. SWness as to Cargo • SWness of a vessel is also to be determined with regard to the nature of the cargo that the vessel is reasonably capable of safely conveying the cargo to its port of destination. • A ship which is SW for the purpose of insurance upon the ship may be unSW for the purpose of insurance upon the cargo. • In such a case, the insurer of the cargo shall not be liable. Sec. 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied: 1. That the ship will carry the requisite documents to show such nationality or neutrality and 2. That it will not carry any documents which cast reasonable suspicion thereon. Note: Implied warranty under this section arises ONLY when the nationality or neutrality of the vessel or cargo is EXPRESSLY WARRANTED. Warranty of Nationality: does not mean that the vessel was built in such country, but that the property belongs to a subject thereof. It refers to the beneficial ownership rather than legal title. • Also requires that the vessel be conducted and documented as of such nation. Breach will avoid the policy. • Warranty is continuing and a change in nationality is a breach but not when the contract for sale and transfer to an alien is at a future date. Warranty of Neutrality: Imports that the property insured is neutral in fact, and shall be so in appearance and conduct; that the property shall belongs to neutrals and that no act the insured shall be done which can legally compromise its neutrality. • Warranty covers the insured’s interest in the property intended to be covered by the policy and NOT of third persons. • Requires that the insured property shall be accompanied by documentary evidence of its neutral character and not papers which compromise such character. • Submission when required, is not excused when lost by fault of the master. Sub‐Title 1‐F THE VOYAGE AND DEVIATION Scenario Sec. 121. When the voyage contemplated by a marine insurance policy is described by the places of beginning and ending Sec. 122. IF the course of sailing is not fixed by mercantile usage The voyage insured by a marine insurance policy is: One which conforms to the course of sailing fixed by mercantile usage between those places. That way between the places specified, which to a master of ordinary skill and discretion, would mean the most natural direct and advantageous. Course of the Voyage Insured: 1. The one agreed upon by the parties 2. In the absence of agreement, the course of sailing fixed by mercantile usage, and 3. If the same is not fixed by mercantile usage, then the most direct and advantageous course Sec. 123. Deviation is: 1. A departure from the course of the voyage insured, mentioned in the last two sections, or 2. An unreasonable delay in pursuing the voyage or 3. The commencement of an entirely different voyage. Deviation, defined: Any unexcused departure from the regular course or route of the insured voyage or any other act which substantially alters the risk. 4 Cases of Deviation in marine insurance 1. Departure from the course of sailing fixed by mercantile usage (Sec 121) 2. Departure from the most natural, direct, and advantageous route between the places specified if no course has been fixed by mercantile usage (Sec 122) 3. Unreasonable delay in pursuing the voyage (Sec 123) 4. The commencement of an entirely different voyage (Sec 123) Sec. 124. A deviation is proper: (a) When caused by circumstances over which neither the master nor the owner of the ship has any control; (b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; (c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or (d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress. Sec. 125. Every deviation NOT specified in the last section is improper. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 43 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Types of Deviation: Proper Cases enumerate in Sec 124 Insurer is not exonerated from liability for loss since the effect is that no deviation was made Improper Those NOT enumerated in Sec 124 Insurer is exonerated When deviation is proper: • Justified deviation or caused by actual necessity will not vitiate the policy, • Examples: When compelled to head for another port by stress of weather When necessary to the safety of the adventure or to escape a capture When the water to the river to port is too shallow for his vessel to enter. • Such compulsory deviations are risks impliedly assumed by the underwriter Note: While deviation to save property is NOT justified unless to save another vessel in distress, a deviation to save life is justified and is not a breach of warranty (rests on the grounds of humanity). (De Leon citing Burgeos v. Equitable marine Ins, 126 Mass 70) Sec. 126. An INSURER is not liable for any loss happening to the thing insured subsequent to an improper deviation. Effect of Improper Deviation Where there has been any deviation or charge of the risk w/o just cause (improper deviation) – the insurer becomes immediately absolved from further liability The fact that the deviation did not increase the risk, nor in any way contribute to the loss suffered – is wholly IMMATERIAL. [Bar ‘58] Sub‐Title 1‐G LOSS Sec. 127. A loss may be either total OR partial. Use at your own risk  Sec. 130. An actual total loss is caused by: (a) A total destruction of the thing insured; (b) The irretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or (d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured. Actual Total Loss: Exists when the subject matter of the insurance is wholly destroyed or lost or when it is damaged as no longer to exist in its original character. (Vance, p935) Note: Complete physical destruction is NOT essential to constitute an actual total loss. Such a loss may exist where the form and specie of the thing is destroyed although the materials of which it consisted still exist. (Pan Malayan Insurance Corp v. CA, 201 SCRA 382) Examples of actual total loss: • Where the ship is so badly damaged that it no longer exists as a ship but is only a mass of material. (Vance, p935) • When the cost of salvage, repair and reconstruction was more than the original cost of the vessel or its value at the time of the policy was issued. (Phil Mfg v. Union Insurance, 42 Phil 378) • Where the vessel is captured and condemned • Where the vessel is completely burned or sinks deep in water and is broken to pieces • Where the cargo of machinery insured sank with the vessel even if part was recovered but was so damaged that it has no value. • By the process of decomposition or chemical agency, the cargo no longer remains the same kind of thing as before. (ex. Cement submerged in water becomes concrete)(Pan Malayan Insurance Corp v. CA, 201 SCRA 382) • When the insured is effectively deprived of the use and possession of the property, provided the owners cannot recover the same. (Monroe British v. Mar Ins 52 Fed 777) Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon, under Section 139. Sec. 128. Every loss which is not total is partial. Sec. 129. A total loss may be either actual OR constructive. Kinds of loss in Marine Insurance 1. Total (actual/absolute or constructive/technical) or 2. Partial ‐ When only part of the cargo or vessel is lost or damaged. Constructive Total Loss: One of which the loss although not total is of such character that the insured is entitled if he thinks fit, to treat it as total by abandonment. (45 CJS 1150) Also known as “Technical Total Loss” Gives the insured the right to abandon the thing by relinquishing to the insurer his interest in such thing. Insurer then acquires all the rights over the thing insured. Note: When the loss is total, the underwriter is liable for the whole of the amount insured. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 44 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Use at your own risk  Importance of distinction between actual and constructive total loss Total loss: Abandonment is NOT necessary to recover total loss Constructive Loss: Abandonment is necessary to recover total loss Liability of Insurer in case of Transshipment Loss or damage caused by the perils insured against + expenses necessary to complete the transportation of cargo reshipped Limitation: Liability CANNOT exceed the amount of the insurance Sec. 132. • An actual loss may be presumed from the continued absence of a ship without being heard of. • The length of time which is sufficient to raise this presumption depends on the circumstances of the case. Sec. 135. Upon an actual total loss, a person insured is entitled to payment w/o notice of abandonment. Presumption of Actual Total Loss: To lay a foundation for the presumption, it is enough to prove that the vessel was not heard of at her port of departure after she sailed without calling witnesses from her port of destination to show that she never arrived there. BUT plaintiff must prove that when the vessel left her port of outfit she was bound on the voyage insured. (38 CJS 1178) Sec. 133. When: A ship is prevented, at an intermediate port, from completing the voyage, By the perils insured against, the liability of a marine insurer on the cargo continues after they are thus reshipped. Nothing in this section shall prevent an insurer: from requiring an additional premium if the hazard be increased by this extension of liability. Liability of Insurer in Case of Reshipment: Contemplates insurance upon cargo GR: If the original ship is disabled and the cargo is transferred to another ship, the transshipment will NOT discharge the underwriter for the loss caused by a peril insured against. (Salisbury v. St Louis Mar Ins, 66 Am Dec 687) EXC: This rule will not be obligatory where resort must be had to distant places to procure a vessel and there are serious impediments in the way of putting the cargo on board. (Bryant v. Commonwealth Ins, 6 Pick Mass 13) Sec. 134. In addition to the liability mentioned in the last section, a marine insurer is bound: For: Damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses Incurred in: Saving cargo reshipped pursuant to the last section, Up to: The amount insured. Nothing in this or in the preceding section shall render a marine insurer liable for any amount in excess: 1. Of the insured value OR, 2. IF there be none, of the insurable value. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Constructive Total Loss Abandonment of the insured is necessary to recover total loss in the absence of the provision to the contrary (notice is essential) - - Actual Total Loss The right of the insured to claim the whole insurance is ABSOLUTE He need not give notice nor formally abandon anything to recover total loss (Gordon v. Massachusetts Fire & Marine Ins, 2 Pick. Mass 249) Sec. 136. Where it has been agreed that an insurance upon a particular thing, or class of things, shall be free from particular average: A marine insurer is NOT BUT such insurer liable: is liable for: - For any particular average loss - Not depriving the insured of the His proportion of all general average loss possession, at the port of destination, of the whole of such assessed upon the thing, or class of things, thing insured. - EVEN though it becomes entirely worthless; Average, defined: Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo is unloaded. (Art 806, Code of Commerce) Gives owner the right to contribution from those benefitted thereby o IF he is insured: he has the alternative of seeking indemnity from his insurer, subrogating the latter to his right of contribution o IF the owner neglects or waives his right to contribution: He loses his alternative. (Sec 165 Insurance Code) Kinds of Averages: Gross or General Averages (GA) Damages and expenses which are deliberately caused by the master of the vessel or upon his authority, in order to save the vessel, the cargo or both from a real and known risk. (Art 811 Code of Commerce) Simple or Particular Averages (PA) All damages and expenses caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and her cargo. (Art 809, Code of Commerce) 45 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Gross or General Averages (GA) GA loss must be borne equally by all the interests involved Insurer is liable for the GA loss even in the absence of any agreement Simple or Particular Averages (PA) Loss is suffered by and borne alone by the owner of the cargo or the vessel. Owners do not receive contribution from other owners. Insurer is liable for a particular average UNLESS the policy excludes Principle of General Average Contribution When it is decided by the master of a vessel acting for all the interests concerned, to sacrifice any part of a venture exposed to a common and imminent peril in order to save the rest, the interests so saved – are compelled to contribute PROPORTIONATELY to the owner of the interest sacrificed. A device for a limited distribution of loss. Right of a party to claim General Average contribution – Requisites: 1. There must be a common danger to the vessel and cargo. 2. Part of the vessel or cargo was sacrificed deliberately 3. The sacrifice must be for the common safety of both vessel and cargo (Compagnie de Comemrce v. Hamburg Amerika, 36 Phil 590) 4. It must be made by the master or upon his authority 5. It must not be caused by any fault of the party asking the contribution 6. It must be successful (resulted in the saving of the vessel/cargo) 7. It must be necessary (International Harvester v. Hamburg‐American Line, 42 Phil 845) Formalities to incur General Average (Art 813‐ 814 Code of Commerce) 1. There must be an assembly of the sailing mate and other officers with the captain including those with interests in the cargo 2. There must be a resolution of the captain 3. The resolution shall be entered in the log book, with the reasons and motives and the votes for and against the resolution 4. The minutes shall be signed by the parties 5. Within 24 hours upon arrival at the first port the captain makes, he shall deliver one copy of these minutes to the maritime judicial authority thereat Use at your own risk  Liability of insurer for GENERAL AVERAGE: Section 136 Insurance Code: “liable for his proportion of all general average loss assessed upon the thing insured” Article 859 Code of Commerce: “obliged to pay for the indemnity of the gross average in so far as is required of each one of these objects respectively” It simply places the insurer on the same footing as other persons who have an interest in the vessel or cargo Formula for computing the liability: Amount of insurance X General Average = Total amount or value Loss (GAL) Proportion of GAL for which insurer is liable Liability of Insurer for PARTICULAR AVERAGE Means any partial loss caused by the peril insured against which is not the GA It may be agreed that parties are free from payment of particular average – in such case, insurer is liable only for the general average and not for particular average unless such particular average has the effect of depriving the insured of the possession at the port of destination of the whole thing insured. If there is a stipulation that the insurance shall be free from particular average: If the damage The insurer shall not be liable unless the loss is total i.e., the insured is deprived of is a particular the whole of such thing. average The insurer shall be liable whether the If the damage loss is partial or total or the contribution of the insured for his proportion of all is a general general average losses assessed. average Sec. 137. An insurance confined in terms to an actual loss: Does NOT But covers cover Any loss which necessarily results in A constructive depriving the insured of the possession, total loss at the port of destination, of the entire thing insured. • • An insurance confined to “Actual Total Loss” or Absolute Total Loss” ‐ Does NOT cover constructive total loss If against “Total Loss Only” ‐ It covers any total loss whether actual or constructive Note: Formalities prescribed under Art 813 and 814 of the Code of Commerce must be complied with in order to incur the expenses and cause the damages corresponding to gross average. (Phil Home Assurance Corp v. CA, 257 SCRA 468) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 46 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sub‐Title 1‐H ABANDONMENT Sec. 138. Abandonment, in marine insurance, is the act of the insured: by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured. Abandonment, defined: The right given by law to the insured in case of constructive total loss to relinquish to the insurer his interest in the thing insured. Requisites for Valid Abandonment 1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec 138) 2. There must be a constructive total loss (Sec 139) 3. The abandonment be neither partial nor conditional (Sec 140) 4. It must be made within a reasonable time after receipt of reliable information of the loss (Sec 141) 5. It must be factual (Sec 142) 6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec 143) 7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec 144) Right of Abandonment does NOT apply: • In cases where the injury or average was occasioned by the SO’s own fault • Art 587 of Code of Commerce which speaks also of this right of abandonment – speaks only of situations where the fault or negligence is committed solely by the captain. Where the SO is likewise to be blamed, Art 587 will not apply. (Phil Am General Insurance v. CA, 273 SCRA 262) Necessity for Abandonment • When the loss is only technically total – insured cannot claim the whole insurance w/o showing due regard to the interest which the underwriter may take in the abandoned property • When the underwriter by prompt action might be able to save some portion of the property, he is entitled to timely notice of abandonment – and he cannot be held liable w/o it • ABANDONMENT IS DISCRETIONARY: the insured may do so in his own election. IF he omits to abandon: he MAY nevertheless recover his actual loss (Sec 155) Effect of Abandonment: The insurer becomes the owner of whatever may remain of the insured thing and the insured may recover a total loss. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Sec. 139. A person insured by a contract of marine insurance may abandon: 1. The thing insured, or 2. Any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a TOTAL LOSS thereof, when the cause of the loss is a peril insured against: (a) If more than 3/4 thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than 3/4; (c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either: 1. An expense to the insured of more than 3/4 the value of the thing abandoned OR 2. A risk which a prudent man would not take under the circumstances; or (d) IF the thing insured, being cargo or freightage, and the voyage: 1. Cannot be performed, 2. Nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding sub‐paragraph. But freightage cannot in any case be abandoned: UNLESS the ship is also abandoned. 3 Rules on when Constructive Total Loss • English Rule: When the subject matter of the insurance is so damaged as not to be worth when repaired, the cost of the repairs • American Rule: When it is so damaged that the cost of repairs would exceed ½ of the value of thing. (Fifty Per Cent Rule) • Philippine Rule: Insured may not abandon the thing insured UNLESS The loss or damage is more than ¾ of its value (Sec 139) Abandonment where Insurance Divisible and where Indivisible‐ W/N a contract is entire OR severable is a question of intention to be determined by the language employed by the parties: When the insurance is DIVISIBLE Only that portion of the thing which is separately valued by the policy may be separately abandoned as it is deemed separately insured When the insurance is INDIVISIBLE The basis for determining constructive total loss is the ENTIRE SHIPMENT 47 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Use at your own risk  Cargo covered by one policy loaded on different vessels – how constructive total loss determined: In case the insurance covers a single shipment under one policy and one premium, the contract is indivisible. The fact that the subject matter is loaded on board different vessels will not alter the situation. In such case, the constructive total loss will be determined on the basis of the total shipment and not on the basis of those loaded on one vessel alone. (Oriental Assurance Corp v. CA, 200 SCRA 459) Abandonment Must be FACTUAL Sec. 142. Where: 1. The information upon which an abandonment has been made proves incorrect, OR 2. The thing insured was so far restored when the abandonment was made that there was then in fact no total loss, the abandonment becomes ineffectual. Criterion as to Extent of Loss ‐ The extent of injury to the vessel: GR: Considered with reference to its general market value immediately before the disaster EXC: The value stipulated shall be taken as the basis of the estimate when expressly provided for in the policy. (45 CJS 1151) Existence of loss at time of abandonment The right of the insured to abandon depends upon the state of facts at the TIME OF THE OFFER TO ABANDON and NOT upon the state disclosed by the information received nor upon the state of loss at a prior or subsequent time. (Orient Mut Ins v. Adams, 123 US 67) Note: The expenses incurred or to be incurred by the insured in recovering the thing are taken into account Effect of Subsequent Events: IF the abandonment is IF the abandonment is VALID INVALID The rights of the parties Subsequent circumstance will are fixed and do not not affect it so as retroactively, become changed by to impart to it a validity, which subsequent events. it has not at its origin. ex. If after a valid ex. When the insured knew that abandonment was made, the vessel has been successfully the insured property was repaired at the time he recovered, the insured abandoned the same, the cannot withdraw the invalidity of the abandonment abandonment is not cured by the subsequent loss of the thing insured. (Bradlie v. Maryland Ins, 12 Pet 378) Sec. 140. An abandonment must be NEITHER partial NOR conditional. Abandonment as Total GR: Abandonment MUST be total and absolute – covers the whole interest insured EXC: IF only a part of a thing is covered by the insurance – the insured need ONLY abandon that part. Abandonment as Unconditional: Unfettered by contingencies and limitations. Sec. 141. An abandonment must be made: GR: W/in a reasonable time after receipt of reliable information of the loss EXC: BUT where the information is of a doubtful character the insured is entitled to a reasonable time to make inquiry. Abandonment Must be Made within Reasonable Time (RT) Once the insured receives a notice of loss – he must elect whether he will abandon and give notice of such abandonment w/in RT Ratio: In order that the insurer may not be prejudiced by the delay and may take immediate steps for the preservation of such property RT is relative: it is based on the facts and circumstances of each case. (44 Am Jur 2d 541) After the property passes beyond the control of the insured – an abandonment is too late (45 CJS 1157) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Instances justifying abandonment: In cases of capture, seizure, detention, restraint by blockade or embargo When funds cannot be raised with no fault of the owner When the voyage is absolutely lost When under urgent necessity, the master makes a sale of the insured property (45 CJS 1152) Information which authorized the insured to abandon need NOT be Direct nor Positive Protest of the master, a newspaper report, report of pilot is sufficient. The information must be of such facts and circumstances as to render it highly probable that a constructive total loss has occurred. BUT the information and facts need not be the same. (38 CJS 1155) Sec. 143. Abandonment is made by: GIVING NOTICE thereof to the insurer, which may be done orally, or in writing; Provided, That if the notice be done orally a written notice of such abandonment shall be submitted within 7 days from such oral notice. 48 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Form of Notice of Abandonment • Law requires no particular form for giving notice • Notice may be made orally UNLESS the policy requires it to be in writing Notice may be made BY: • The insured or his authorized agent • An agent having authority to insure has prima facie authority to abandon Notice may be made TO: The underwriter or his authorized agent Sec. 144. A notice of abandonment: 1. Must be explicit, and 2. Must specify the particular cause of the abandonment, 3. BUT need state only enough to show that there is probable cause therefor, and 4. Need NOT be accompanied with proof of interest or of loss. • • • • Sec. 145. An abandonment can be sustained ONLY upon the cause specified in the notice thereof. The execution of a formal instrument is not necessary to effect abandonment – An accepted abandonment produces all the effects. Retroactive Effect: The effect of abandonment retroacts to the time of the loss. Sec. 147. IF a marine insurer pays for a loss as if it were an actual total loss, he is entitled to: 1. Whatever may remain of the thing insured, or 2. Its proceeds or salvage, as if there had been a formal abandonment. - Notice of abandonment must be explicit and not left as a matter of inference from some equivocal acts There must be intention to abandon, apparent from the communication to the insurer. The use of the word “abandon” is not necessary There is no abandonment even when notice has been given: IF the insured continues to claim and use the property as his own. (Louisville Underwriters v. Ponce, 19 SW 10) Use at your own risk  GR: An election and notice of abandonment is a condition precedent to a claim for constructive total loss EXC: HOWEVER in this section: The interest of the insured over the thing will be transferred to the insurer notwithstanding the lack of abandonment – as if a formal abandonment has been made. [Effect: Insurer is entitled to whatever may remain of the thing insured or its proceeds or salvage] Ratio: The acceptance by the insured of the payment is deemed an offer of abandonment on his part Sec. 148. Upon an abandonment, acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the INSURER and for his benefit. Transfer of Agency to Insurer Before Abandonment: Captain or master continued to be the agent of the insured. Upon Valid Abandonment: Agents of the insured become the agents of the insurer Proof of Other Causes NOT Admissible The insured must state sufficient grounds for the abandonment to make it valid He cannot avail himself of any ground other than that stated If the grounds is proved to be unfounded and the information upon which it was made is proved to be incorrect – abandonment is ineffective If he assigns an insufficient cause – proof of other causes will not be admitted The abandonment when made, relates back to the time of the loss (Retroacts) – If effectual, the title of the INSURER becomes vested as of that date and is responsible for the reasonable expenses incurred in an attempt to save the vessel and the wages of the seamen Effect of VALID Abandonment Sec. 146. An abandonment is equivalent to: A transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity. Sec. 149. Where notice of abandonment is properly given: the rights of the insured are NOT prejudiced by the fact that the insurer refuses to accept the abandonment. • • Insurer acquires all the rights (which includes rights of action against 3rd persons), which the insured possessed in the thing insured. The rights acquired is also SUBJECT to prior rights of third persons. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 • • Acceptance is NOT necessary to recover a total loss if the abandonment is properly made. (29 F Supp 210) The insured’s right to abandon is ABSOLUTE when justified by circumstances. 49 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 150. The acceptance of an abandonment may be either: 1. Express or 2. Implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time AFTER notice shall be construed as an acceptance. Mere silence and acts to preserve property after notice GR: NOT implied acceptance EXC: UNLESS if made for an unreasonable length of time Ex: When the insurer refused the abandonment but takes possession of the property for the purpose of making repairs AND retained it for an unreasonable time Effects of Acceptance of Abandonment Sec. 151. The acceptance of an abandonment, whether express or implied: 1. Is conclusive upon the parties, and 2. Admits: (a) the loss and (b) the sufficiency of the abandonment. Sec. 152. GR: An abandonment once made and accepted is irrevocable EXC: Unless the ground upon which it was made proves to be unfounded. Summary of Effects of Acceptance of Abandonment 1. Acceptance is conclusive upon the parties 2. Loss is admitted 3. The sufficiency of the abandonment is admitted 4. It is irrevocable unless the ground upon which it was made proved to be unfounded • • • Acceptance fixes the rights of the parties. Acceptance stops the insurer from questioning the form or right of abandonment W/N the insured has a right to abandon is IMMATERIAL when it is accepted and there is no fraud. (New Orleans Ins Co v. Piaggio, 16 Wall US 378) Rights of the Insurer to Freightage Sec. 153. On an accepted abandonment of a ship: • Freightage earned previous to the loss: belongs to the insurer of said freightage; • But freightage subsequently earned: belongs to the insurer of the ship. Ratio: Insurer of the ship becomes the owner thereof after abandonment and his title becomes vested at the TIME OF THE LOSS. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Effect of Refusal to Accept A Valid Abandonment Sec. 154. If an insurer refuses to accept a valid abandonment: he is liable as upon actual total loss, deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured. Recap: The insured’s right to abandon is absolute when justified by the circumstances and no acceptance is necessary When an insurer declines to accept: A Proper An Improper Abandonment Abandonment Insurer is liable for the total loss Insured may LESS any proceeds received on nevertheless recover to account of the damaged property the extent of the damage (ex. Sale) proved Sec. 155. If a person insured omits to abandon he may nevertheless recover his actual loss. Abandonment is DISCRETIONARY: Failure to do so would still entitle the insured to recover his actual loss Applicable Section: • Sec 154: Where a valid abandonment has been made but the insurer refuses to accept the same without any valid reason. • Sec 155: When the insured fails to make an abandonment Sub‐Title 1‐I MEASURE OF INDEMNITY Sec. 156. IF: 1. The insured has some interest at risk, and 2. There is no fraud on his part; GR: A valuation in a policy of marine insurance is conclusive between the parties thereto in the adjustment of either a partial or total loss EXCEPT: a. That when a thing has been hypothecated by bottomry or respondentia, before its insurance, and without the knowledge of the person actually procuring the insurance, he may show the real value. b. A valuation fraudulent in fact, entitles the insurer to rescind the contract. Section 156 refers to VALUED marine policies Object of Valued Polices: To avoid the necessity of proving its actual value in case of loss Effect: The insured value must be taken to be that stated in the policy. Neither party can give evidence of the real value of the thing insured. 50 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) GR: Valuation is CONCLUSIVE EXC: Scenario When the insured has no II When there is fraud on the part of the insured That when a thing has been hypothecated by bottomry or respondentia, before the insurance and w/o the knowledge of the insured Illustration: Vessel valued at 1M was insured for 800K and is damaged to the extent of 500K: Effect/Remedy Contract is void Rescind the contract He may show the real value. He cannot rescind unless the valuation is fraudulent Effect of Overvaluation: If fraudulent entirely, avoids the insurance whether done at the time of making the contract or at the time of submitting proof of loss. BUT the mere fact of overvaluation, even though great is not alone sufficient proof of fraud. It must be alleged and clearly proved by the insurer. (Co Teng v. Goodyear, GR No. 37777‐R, Oct 73) Insured a Co‐Insurer in Marine Insurance Sec. 157. A marine insurer is liable upon a partial loss: only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. Co‐Insurance, defined: Form of insurance in which the person who inures his property for less than the entire value is understood to be his own insurer for the difference which exists between the true value of the property and the amount of insurance. (44 CJS; Bar 94) The principle of co‐insurance in Sec 157 applies only where the (a) insurance is taken is less than the actual value of the thing insured and (b) the loss is partial. IF the value of the property or interest of the insured EXCEEDS the amount of the insurance: Marine Insurance Fire Life Insurance Insurance • He is considered the There is NO co‐insurer even in the There is NO co‐insurance. co‐ absence of an Insurer is liable insurance agreement in the since the for the FULL policy to that effect. measure of amount unless • He shall be liable for the policy indemnity the amount expressly upon life or determined by the provides for co‐ health is the difference between insurance sum fixed in the value of the the policy. insurance and the value of the property Liability Upon Partial Loss in Marine Insurance: (Partial) Loss Value of Thing Insured X Use at your own risk  Amount of Insurance = Amount of Recovery Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 500K/1M X • • 800K = 400K The insurer’s liability is only 400K Insured is co‐insurer to the balance of the loss of 100K Burden of Proving Under‐Insurance: In order that the principle of co‐insurance can apply, the insurer must prove that the value of the property insured is more than the amount of the policy obtained or stated otherwise, the property must be under‐insured. In case the insurer should fail to do so, there cannot be any pro‐rata sharing of the loss under the policy and the recovery under the policy is the actual loss except that it cannot exceed the face value of the policy. (Developmental Insurance Corp v. IAC, 143 SCRA 62) Loss of Profits Separately Insured Sec. 158. Where profits are separately insured in a contract of marine insurance: the insured is entitled to recover, in case of loss a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole. Note: The profits to be realized must be separately insured from the vessel or cargo Value of Property Lost X Amount of Value of Whole Property Profit Insured = Amount of Recovery Illustration: Expected profits are insured for P50K. The value of he whole cargo is P250K and partial loss is 200K. 200K/250K X 50K = 40K can be recovered from insurer Sec. 159. In case of a valued policy of marine insurance on freightage or cargo: if a part only of the subject is exposed to the risk, the evaluation applies only in proportion to such part. When only part of a cargo or freightage insured exposed to risk • Where cargo is insured under a valued policy, when a portion only of the cargo is carried by the vessel: valuation will be reduced proportionally • Insurer is bound to return such portion of the premium as corresponds with the portion of the cargo which had been exposed to the risk Franchise Clause: Stipulation that unless the damage reaches a designated percentage of the value of such cargo – no amount will be paid by the insurer. However, should the loss reach such percentage, the insured will be entitled to the full amount of the loss. 51 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 160. When profits are valued and insured by a contract of marine insurance: • A loss of them is conclusively presumed FROM a loss of the property out of which they are expected to arise, and • The valuation fixes their amount. Where the profits are separately insured from the property: Loss of Property What Insured is Entitled: IF partial loss Partial indemnity for the profits lost IF total loss Nothing – total profits are also lost Sec. 161. In estimating a loss under an OPEN POLICY of marine insurance the following rules are to be observed: (a) Value of the SHIP Its value at the beginning of the risk, Including all articles or charges: which add to its permanent value or which are necessary to prepare it for the voyage insured; (b) Value of the CARGO BUT without reference 1. To any loss incurred in • Its actual cost to the raising money for its insured, when laden on purchase, or board, OR where the cost 2. To any drawback on its cannot be ascertained its exportation, or market value at the time 3. To the fluctuation of the and place of lading, market at the port of • Adding the charges destination, or incurred in purchasing 4. To expenses incurred on and placing it on board, the way or on arrival; (c) Value of Freightage The gross freightage, Without reference to the EXCLUSIVE of primage cost of earning it; • • (d) The cost of insurance is in each case to be added to the value thus estimated. In Determining the loss under an open policy of marine insurance – the REAL VALUE of the thing insured must be proved in each case Value of Vessel Value of Cargo Value of Freightage Value is to be taken as of the commencement of the risk (NOT at the time it was built) • Either the actual cost when laden on board OR the market value (see codal for distinction) • Expected profits are NOT considered since they can be covered by a separate insurance Gross freightage (NOT net freightage) Reason: Gross freightage can be easily and exactly determined Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  “Drawback” in par B: Refers to the allowance made by the gov’t upon the duties on imported merchandise when the importer, instead of selling here, re‐exports it or the refunding of such duties if already paid (it is excluded in determining the value of the cargo) “Primage” in par C: (Excluded from gross freightage) Refers to a small allowance or compensation payable 1. To the master or owner of the vessel for the use of his cables and ropes to discharge, and for his care and trouble bestowed on the shipper’s goods 2. To the mariners for lading and unlading in any port Liability for Demurrage: Compensation for the detention of the vessel beyond the time agreed on for loading or unloading or for sailing. Essentially, it is a claim for damages for failure to accept delivery. Liability exists only when expressly stipulated in the contract. (Magellan v. CA, 201 SCRA 102) Sec. 162. IF cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be: the same proportion of the value which the market price at that port, of the thing so damaged, bears to the market price it would have brought if sound. Note: The provision applies: if the cargo is insured against partial loss and it suffers damage as a result of which its market value at the port of destination is reduced FORMULAS: Market Price (MP) – MP in Damaged = Reduction in Value in sound state state (Depreciation) Reduction in Value X Market Price in Sound State Amount of = Amount of Insurance Recovery Illustration: Cargo worth 100K is insured for partial loss for 80K. They were damages during transit and upon arrival at port, had reduced its market value from 100k to 90K. 100K – 90K = 10K x 80K = 8K 100K 100K Sec. 163. A marine insurer is liable for: 1. All the expenses attendant upon a loss which forces the ship into port to be repaired; and 2. Where it is stipulated in the policy that the insured shall labor for the recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either case, being in addition to a total loss, if that afterwards occurs. 52 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) - GR: Marine Insurer is NOT liable for more than the amount of the policy EXC: Expenses that are borne by the insurer in addition to total loss: 1. “Port of Refuge Expenses” sec163 ‐ when the ship has to make port For the repairs of the damages suffered by the vessel or for saving the vessel Ex. Expenses of launching or raising the vessel or of towing or navigating it into port for her safety 2. “Sue and Labor Clause”: A distinct and independent contract having reference to charges not covered by insurance, adopted for the purpose of permitting the insured to take every means for the recovery of property without waiving his right to abandon, and bind the insurer to reimburse the insured for the reasonable amount of the expenses incurred. (American Merchant Marine Ins v. Liberty Sand & Gravel CO, CCA NJ 282 F 514) Sec. 164. A marine insurer is liable for: • A loss falling upon the insured through a contribution in respect to the thing insured, required to be made by him towards a general average loss called for by a peril insured against; • Provided, that the liability of the insurer shall be limited: to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. Sec. 165. When a person insured by a contract of marine insurance has a demand against others for contribution GR: He may claim the whole loss from the insurer, subrogating him to his own right to contribution. EXC: But no such claim can be made upon the insurer: 1. After the separation of the interests liable to the contribution, 2. Nor when the insured, having the right and opportunity to enforce the contribution from others, has neglected or waived the exercise of that right. When the person liable to contribute to a general average is insured: He may hold the insurer liable for his contribution up to the value of the policy. (Bar 2000) Liability of Insurer for Contributed in GA GR: Insurer is Liable for any general average (GA) loss. The insured may either: (Bar 2000) a. Hold the insurer directly liable for whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or b. Demand contribution from the other interested parties as soon as the vessel arrives at her destination Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Note: In other words: the insured need not wait for an adjustment of the average - EXC: No recovery of GA loss against insurer: a. After the separation of the interests liable to contribution (ex. After the cargo liable for contribution has been removed from the vessel); or b. When the insured has neglected or waived his right to contribution Note: The liability of every portion of the cargo to contribute to GA continues until it has been completely separated from the rest of the cargo, and from the whole adventure, so as to leave no community of interest remaining. (Wilcox v. Weil, 24 F 2d 589) Liability of Marine Insurer for any GA loss is LIMITED Limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. The liability shall be less than the proportion of the GA loss assessed upon the thing insured where its contributing value is more than the amount of the insurance. In such case the INSURER is liable to contribute ratably with the INSURED to the indemnity of the GA FORMULA: Amount of Insurance X Proportion of = Limit of Liability Value of the Thing GA loss assessed of Insurer upon the thing insured Sec. 166. In the case of a partial loss of ship or its equipment: the old materials are to be applied towards payment for the new. - • GR: A marine insurer is liable for ONLY 2/3 of the remaining cost of repairs after such deduction, EXCEPT 1. That anchors must be paid in full. 2. Unless otherwise stipulated in the policy, Here, there is a deduction from the cost of repairs “one‐ third new for old” on the theory that new materials render the vessel much more valuable than it was before the loss The 1/3 therefore is upon the burden of the insured The 2/3 then shall be upon the burden of the insurer This section qualifies the rule in Sec 157 (page 19) 53 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Title 2 FIRE INSURANCE Sec. 167. As used in this Code, the term "fire insurance" shall include insurance against loss by: • Fire, • Lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. Fire Insurance, defined: A contract of indemnity by which the insurer for a consideration, agrees to indemnify the insured against loss of, or damage to, a property by hostile fire. Nature of Fire Insurance: Essentially a contract of Indemnity. Fire, defined • The active principle of burning, characterized by the heat and light combustion. (Fire is always caused by combustion) (Sec 3 Fire Code PD 1185) • Combustion or spontaneous combustion may be so rapid as to produce fire, but until it does so, combustion cannot be said to be fire. – it MUST produce a flame, a glow, or incandescence • Combustion which produces heat but no visible glow or light is NOT fire • Heat, steam, smoke – evidence of fire but unless it is accompanied by ignition, it is not fire • Fire is NOT a natural disaster or calamity since it always arises. It cannot be an act of God unless caused by lightning or natural disaster or casualty not attributed to human agency. (Phil Homes Assurance Corp v. CA, 257 SCRA 468) Risks or Losses Covered by Fire Insurance GR: Insurance covers losses caused by fire EXC: By stipulation, the policy may extend not only to loss due to fire but also due to “allied lines” (lightning, windstorm, etc.) Note: A fire policy does NOT automatically cover all other risks, it must be stipulated To include “Allied Risks” – “Extended Coverage”: 1. It must be expressly covered by extension to fire insurance policies OR under separate policies 2. It is SUBJECT to the payment of premiums under separate policies (SEC 167) 3. The coverage may also be attached by endorsements (SEC 50) May also include “Indirect or Consequential Losses” GR: A standard fire contract is an agreement to indemnify for DIRECT loss EXC: The consequences of direct loss may be greater than the damage itself – and the policy may be extended to cover such consequential losses Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Note: Special coverage also known as “Loss of Profits insurance or Business Interruption Insurance” Examples of Indirect Losses 1. Physical Damage: ex. As a result of the fire, goods are spoiled, papers cannot be recopied 2. Loss of Earnings: Interruption of business 3. Extra Expense: Additional expenditure or charges incurred by the insured following the damage or destruction of the property by an insured peril (ex. Cost doing business at another location) Rules in Order to Recover under the Fire Policy: 1. Fire must be the PROXIMATE CAUSE of loss in order to recover under the fire policy 2. Fire MUST be HOSTILE and NOT “friendly” Friendly Fire One which burns in a place where it is intended to burn and employed for the ordinary purpose of lighting, heating or manufacturing Examples: Fire burning in a stove or lamp, gas lamp Hostile Fire 1. Burns at a place where it is NOT intended to burn 2. Starts as a friendly fire but becomes hostile if it should escape from the place where it is intended to be (proper place) and becomes uncontrollable OR 3. Starts as a friendly fire but becomes hostile because of the unsuitable material used to light it and it becomes inherently dangerous and uncontrollable. (Ex. Fire in the furnace caused by the heat from the fire to the walls by cracking and blisters) Fire due to Abnormal Conditions or Extraordinary Circumstances A fire insurance policy MAY • RESTRICT its coverage to losses under ordinary circumstances and • EXCLUDE those due to extraordinary circumstance or abnormal conditions (ex. War, invasion, rebellion) (Del Castillo v. Metropolitan Ins Co, 85 Phil 678) HOWEVER, if the fire is completely unrelated to the extraordinary circumstance – insurer is STILL LIABLE. (Fil Compania de Seguros v. Tan Chuaco, 85 Phil 279) Marine Insurance Insurance on a vessel engaged in navigation is a marine policy although it insures against fire risks only Rules on constructive loss AND abandonment applies In case of partial loss of the thing insured for less than its actual value – the insured is a co‐insurer of the uninsured portion Fire Policy Where the hazard is fire alone and the vessel is an unfinished vessel, never afloat, especially in the absence of an express agreement that it shall have the incidents of marine policy Said rules does NOT apply The insured may ONLY become a co‐insurer in fire insurance – when it is EXPRESSLY agreed upon 54 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 168. An alteration in the use or condition of a thing insured: 1. From that to which it is limited by the policy 2. Made without the consent of the insurer, 3. By means within the control of the insured, and 4. Increasing the risks, entitles an insurer to rescind a contract of fire insurance. Sec. 169. An alteration in the use or condition of a thing insured: from that to which it is limited by the policy, which does not increase the risk, does not affect a contract of fire insurance. Alteration in thing insured entitles insurer to RESCIND, provided: 1. The use or condition of the thing is specifically limited or stipulated in the policy 2. Such use or condition as limited by the policy is altered 3. The alteration is made without the consent of the insurer 4. The alteration is made by means within the control of the insured 5. The alteration increases the risks Note: When the risk is increased, the insured must pay a premium based upon the increased risk. Accordingly, if the insured does not pay, the insurer is entitled to rescind the contract. (Young v. Midland Textile Ins Co 30 Phil 617) Increase of risk of hazard in general • Implied undertaking of insured: Every contract of insurance is made with reference to the conditions surrounding the subject matter of the risk and the premium is fixed with reference thereto. There is thus an implied promise on the part of the insured not to change these conditions. • Character of the increase in risk: There is an increase of risk when the insured property is put to some new use, and the new use increases the chance of loss. (Graley v. American Eagle Tire, 257 NYS 5668) Mere negligent acts temporarily endangering the property nor the temporary acts or conditions which have ceased prior to the occurrence of the loss – will not violate the policy Increase must be of a SUBSTANTIAL CHARACTER Alterations Avoiding the Policy 1. Where risk of loss increased: Policy is avoided by any alteration in the use or condition of the property insured increasing the risk. Ex. Firecrackers placed in a liquor store 2. Where the increase in risk no longer exists at the time of loss: The insurer would STILL be liable UNLESS there is a breach of warranty Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  When alteration does NOT avoid the insurance contract: 1. Where Risk of Loss is NOT increased GR: Does not affect the insurance contract EXC: When the policy provides that a violation of specified provisions shall avoid it – increase of risk is NOT necessary to enable the insurer to escape 2. Where questioned articles required by insured’s business: Even if the policy prohibits certain materials to be kept in the premises ‐ when these are necessary or ordinarily used in the business conducted, the policy is not avoided. (ex. Benzene kept in a furniture company) (Bachrach v. British American Assur Co, 17 Phil 55) 3. Where insured property would be useless if questioned acts were prohibited: Repairs and similar acts although it may expose the property to additional risk will not avoid the policy since the property would be useless to the insured if such acts were prohibited. Where insured has no Control or Knowledge of Alteration The insurer is NOT exonerated when alteration is occasioned by accident or cause over which he has no control. Every act of the insured’s tenant substantially and permanently affecting the conditions of the property as to increase the risk is PRESUMED to be known by the insured. Sec. 170. A contract of fire insurance is NOT affected by: • Any act of the insured subsequent to the execution of the policy, • Which does not violate its provisions, • EVEN though it increases the risk and is the cause of the loss. Note: If the policy does NOT contain any prohibition limiting the use or condition of the thing insured, an alteration in said use or condition does not constitute a violation of the policy. An exception to the rule in Section 168 An act of the insured EVEN if it increases the risk – does NOT affect the contract UNLESS there is a corresponding violation of the provisions of the policy Sec. 171. 1. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is: The expense it would be to the insured at the time of the commencement of the fire To replace the thing lost or injured in the condition in which it was at the time of the injury; but 2. If there is a valuation in a policy of fire insurance,: The effect shall be the same as in a policy of marine insurance. 55 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Open Fire Policy [Measure of Indemnity]: 1. Amount of Actual Loss Sustained: In the absence of express valuation in a fire insurance policy, the insured is ONLY entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss by a preponderance of evidence. (Tan Chuco v. Yorkshire Fire & Life, 14 Phil 346) Fire insurance is a contract of indemnity. 2. Limit to amount: Indemnity shall NOT EXCEED the cost to repair, or to replace the thing insured with materials of like kind and quality with proper deduction for depreciation considering the age or condition of the thing before the loss 3. For personal property: MARKET VALUE is the actual loss • • If the actual loss is MORE than the face value of the policy: The face value is the limit of insurer’s liability Burden of Proof: on the INSURED to establish the amount of such loss by preponderance of evidence Valued Fire Policy: The valuation is CONCLUSIVE between them in the adjustment of partial or total loss in the absence of fraud if the insured has an insurable interest. (Harding v. Commercial Union, 38 Phil 484) Note: In LIFE INSURANCE: the sum fixed is the amount to the paid: Principle of Indemnity does NOT apply Sec. 172. Whenever the insured desires to have a valuation named in his policy, insuring any building or structure against fire, he may require such building or structure: 1. To be examined by an independent appraiser and 2. The value of the insured's interest therein may then be fixed as between the insurer and the insured. • • The cost of such examination shall be paid for by the insured. A clause shall be inserted in such policy stating substantially that the value of the insured's interest in such building or structure has been thus fixed. In the absence of any change increasing the risk: 1. Without the consent of the insurer or 2. Of fraud on the part of the insured Scenario How/What Paid The whole amount so insured In case of a total loss upon the insured's interest in under such policy such building or structure, as stated in the policy upon which the insurers have received a premium, shall be paid In case of a partial The full amount of the partial loss shall be so paid loss: In case there are 2 or Each policy shall contribute pro more policies rata to the payment of such covering the insured's whole or partial loss. interest therein Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 • • Use at your own risk  But in no case shall the insurer be required to pay more than the amount thus stated in such policy. This section shall not prevent the parties from stipulating in such policies concerning the repairing, rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed. How Valuation is Made: Valuation of insured’s interest in the thing may be made by an independent appraiser and therefore confirmed by the parties Insurer’s Liability in Valued Policy • In the absence of any change increasing the risk, w/o the insurer’s consent or of fraud on the part of the insured. The LIABILITY OF THE INSURER is: In case of The whole amount so insured and TOTAL loss stated in the policy In case of The full amount of the partial loss PARTIAL loss UNLESS there is a co‐insurance clause • • In case there are 2 or more policies: each policy shall contribute PRO RATA Total loss of the insured building exists: when the result of the fire is such as to render the property wholly unfit for use as a building however valuable it may be as mere material “Option to Rebuild or Repair Clause” The parties may stipulate that instead of paying the amount of the loss – insurer has an option to repair or rebuild the property insured In order to protect the insurer from unfairness in the appraisal Must be exercised: (1) w/in the time specified OR (2) w/in reasonable time if no time specified Choice made to exercise right has NO effect UNLESS communicated to the insured UNLESS there is a stipulation limiting the cost – insurer may be compelled to perform his undertaking to rebuild even though the cost may exceed the amount of insurance Arbitration Clause: Policy may provide that in case of dispute – arbitration may be resorted to as a condition precedent to court litigation. The submission to arbitration is usually made a condition precedent to any claim against the insurer. Insured NOT a co‐insurer under a fire policy in the absence of stipulation The insurer in case of partial loss is required to give full indemnity for such loss up to the amount written in the policy even though the property be very inadequately insured (Diff. rule in marine insurance– no need for stipulation ) “Co‐Insurance Clause”: Clause requiring the insured to maintain insurance to an amount equal to the value or specified percentage of the insured property under penalty of becoming co‐insurer to the extent of such deficiency 56 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) - - Purpose: To prevent the property owners from taking out such small amount of insurance and thereby reducing the premium payments made. Effect: This results in reducing in case of partial loss to but a portion of the sum named in the policy, though in case of total loss, the insurer is liable for the amount named in the policy. Sec. 173. No policy of fire insurance shall be pledged, hypothecated, or transferred • To any person, firm or company who acts as agent for or otherwise represents the issuing company, and • Any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured. • • • • After the loss has occurred, the insured has the right to assign his rights The right to pledge, hypothecate or transfer a fire insurance policy may be done EVEN without the consent of, or notice to, the insurer What is being assigned is NOT the contract BUT the claim under or a right of action on the policy under the insurer Limitation: Cannot be done in favor of a representative of the issuing company. Prima Facie Evidence of Arson 1. If the fire started simultaneously in more than one part of the building or establishment 2. If substantial amount of flammable substances or materials are stored within the building not of the offender nor for household use 3. If gasoline, kerosene, petroleum or other flammable or combustible substances or materials soaked therewith or containers thereof, or any mechanical, electrical, chemical, or electronic contrivance designed to start a fire, or ashes or traces of any of the foregoing are found in the ruins or premises of the burned building or property 4. If the building or property is insured for substantially more than its actual value at the time of the issuance of this policy 5. If during the lifetime of the corresponding fire insurance policy more than two fires have occurred in the same or other premises owned or under control of the offender and/or insured 6. If shortly before the fire, a substantial portion of the effects insured and stored in a building or property had been withdrawn from the premises except in the ordinary course of business 7. If a demand for money or other valuable consideration was made before the fire in exchange for the desistance of the offender or for the safety of the person or property of the victim (Section 6 of PD 1613: Prima Facie Evidence of Guilt) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Title 3 CASUALTY INSURANCE Sec. 174. Casualty insurance is: • Insurance covering loss or liability arising from accident or mishap, • EXCLUDING certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It INCLUDES, but is not limited to: 1. Employer's liability insurance, 2. Motor vehicle liability insurance, 3. Plate glass insurance, 4. Burglary and theft insurance, 5. Personal accident and 6. Health insurance as written by non‐life insurance companies, and 7. Other substantially similar kinds of insurance. Casualty Insurance: Includes all forms of insurance against loss or liability arising from accident or mishap excluding certain types of loss or liability which are not within the scope of other types of insurance: marine, fire, suretyship, and life. Casualty to mean “Accident”: A violent mishap proceeding from an unknown or unexpected cause Note: Except with respect to Compulsory Motor Vehicle Liability Insurance, the Insurance Code contains no other provision applicable to casualty insurance. Hence, Casualty insurance shall be governed: • By the terms of the contract not violative of the laws and • By the general provisions applicable to all types of insurance 2 General Divisions of Casualty Insurance 1. Insurance against perils which affect the person or property of the insured (Ex. accident, health, motor vehicle, theft, etc.) 2. Insurance against perils which give rise to liability for claims for injuries to others or for damage to their property (Ex. Workmen’s compensation, motor vehicle, professional liability) Liability Insurance: A contract of indemnity for the benefit of the insured and those in privity with him or those to whom the law upon the grounds of public policy extends the indemnity against liability (policy refers to legal liability – damages) Liability Insurable • Quasi‐delict or non‐fulfillment of contract • Criminal Negligence (Note: Deliberate criminal acts are not insurable) 57 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Insurable Interest in Liability Insurance • Liability Insurance must be supported by an II • II in Liability insurance: Interest in the safety of persons, freedom from damage of property • II does NOT depend on whether there is legal or equitable interest in property BUT whether he may be charged by law with the liability against which insurance is taken out Insurance Against 3 rd Party Liability Liability attaches when liability of the insured to the injured 3rd party attaches REGARDLESS of actual loss (Republic Glass v. Quam 435 SCRA 480) The injured party may directly sue the insurer of the party at fault Insurance Against Actual Loss Liability attaches ONLY when actual loss is sustained by the insured Injured party may not directly sue the insurer. Recourse is limited to the insured alone Right of Injured Person to Sue Insurer of Party at Fault: Depends on whether the contract intended to benefit the 3rd persons OR only the insured • Purpose for allowing injured to sue: to protect him for the insolvency of the insured • Rule applies only to 3rd party Liability • DOES NOT APPLY to Insurance against Actual Loss: The contract being solely to reimburse the insured for liability actually discharged In this case, the 3rd party’s recourse is limited to the insured alone Prior payment of the insured is necessary for that the obligation of the insurer may arise Basis and Extent of Insurer’s Liability • Direct liability of the insurer under a liability contract does not mean that the insurer can be held solidarily liable with the insured • The liability of insurer to 3rd persons is based on contract • The liability of insured to 3rd persons is based on tort. (Malayan Insurance v. CA, 165 SCRA 136) Personal Accident and Health Insurance as Written by Non Life Insurance Personal Accident Health Insurance to indemnify the insured against Indemnifies expense, loss of time and suffering from expenses accidents causing him physical injury and losses occasioned The Insured’s beneficiary has the burden to by disease prove that the cause is a covered peril. THEN the burden shifts to the insurer to prove that it is an excepted peril. • • Accident and Health are often combined in the same policy If both are issued by a life insurance company or it is in addition to a life policy or one of the risks insured is death – it may be considered a life insurance Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 • Use at your own risk  When one of the risks insured in a personal accident insurance is death of the insured by accident, such insurance may also be regarded as life insurance. (Gallardo v. Morales, 107 Phil 903) “Accident,” defined: Used not in its technical meaning but in its common acceptation – that which happens by chance w/o intention or design. 1. It happens from known or unknown cause unusual and unexpected – • Takes place without foresight or expectation – an event that proceeds from an unknown cause or is an unusual effect of a known cause and therefore, not expected • It is an event which happens without human agency or, if with human agency – it must be unusual and not expected. (Filipino Merchants Ins Co v. CA, 179 SCRA 638) 2. May be attributable to fault or negligence – The terms do not exclude events resulting in loss due to fault or negligence of third persons. Accident is not necessarily synonymous with no fault. It may be utilizes simply to distinguish intentional or malicious acts from negligent or careless acts of man. (Pan Malayan Insurance v. CA, 184 SCRA 54) Accident and Accidental means (A & AM): Essentially the same GR: Death or injury does not result from A&AM if it is the natural result of the insured’s voluntary act, unaccompanied by anything unforeseen except the death or injury EXC: There is no accident when a deliberate act is performed UNLESS some additional, unexpected, independent and unforeseen cause occurs which produces or brings about the result of injury or death. In other words, when the death or injury is NOT the natural and probable result of the insured’s voluntary act. Suicide and Willful Exposure to Needless Peril • Both are in pari matere since both signify disregard for one’s life • “Voluntary exposure to a known danger” is held to negate the accidental character of whatever followed from the known danger. • But the mere act of pointing the gun to his temple believing that the gun was not loaded and subsequently dying when he pulled the trigger is still accidental. (Sun Insurance Office v. CA, 211 SCRA 554) Meaning of “Intentional” as used in accident policy • Implies the exercise of reasoning faculties, consciousness, volition • Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injury is caused by an intentional act of a 3rd person ‐ Insurer is RELIEVED. (Biagtan v. Insular Life Assurance, 44 SCRA 58) 58 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Effect of “No action” clause in policy of liability • Requires that suit and final judgment must first be obtained against the insured before recovery on the policy may be made. It expressly disallows suing the insurer as a co‐defendant of the insured in a suit to determine the latter’s liability to the third person. • HOWEVER the rules of court allows this and the rules of court prevails over any insurance contract. • The no action clause in the policy cannot prevail over the ROC provisions aimed at avoiding multiplicity of suits. (Guingon v. Del Monte 20 SCRA 1043) Employer’s Liability Insurance, defined: Liability for damages caused to workers arising from injuries by reason of defective conditions of machinery, etc, IF the defect is ATTRIBUTABLE TO: • Negligence of the employer of his agents, • Negligence of the employer’s superintendent or one having authority over the workmen; or • Some act or omission by a fellow workman in obedience to the employer’s by‐laws, or instructions from authority Workmen’s Compensation Insurance, defined: Compensation for loss resulting from injuries, disablement or death of workmen through industrial accident, casualty or disease Under this Act, injury or sickness is COMPENSABLE: 1. As personal injury from accident arising out of and in the course of employment 2. Illness directly caused by employment 3. As sickness which is the result of the nature of the employment 4. As sickness aggravated by the nature of employment. (Fedillo v.Workmen’s Compensation Commission 134 SCRA 60) Under the Labor Code: Employer is required to make monthly contribution to the State Insurance Fund from which the State guarantees payments of benefits for death or injuries of his employees Public Liability Insurance, defined: Insurance which indemnifies against liabilities on account of injuries to the person or property of another Motor Vehicle Liability Insurance, defined: Insurance against passenger and 3rd party liability for death or bodily injuries and damage to property arising from motor vehicle accidents Motor vehicle liability is different from insurance for loss or damage on the motor vehicle itself “Authorized Driver Clause”: • The insurer is NOT liable if at the time of the collision, the driver did not have a valid license. (Tanco Jr v. Phil Guaranty CO, 15 SCRA 313) • The insurance of a driver w/o previous examination does not necessarily imply that the license issued is invalid – Insurer is STILL liable. (CCC Ins Corp v. CA, 31 SCRA 264) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 • • An alien being in the RP for more than 90 days needs a Philippine driver’s license in order to drive a motor vehicle – it is needed to be considered an “authorized driver.” (Stokes v. Malayan, 127 SCRA 766) Expiration of a temporary operator’s permit negates one from being an authorized driver – Insurer NOT liable. (Gutierrez v. Capital Ins & Surety CO , 130 SCRA 100) Plate Glass Insurance, defined: Insurance against loss from accidental breaking of plate‐glass windows, doors, show cases, etc Burglary and Theft Insurance Insurance to cover loss of property through burglary, robbery of theft “Theft” under the Insurance Code is NOT the same as “theft” under the RPC – Policy covers only what is commonly thought of as theft Title 4 SURETYSHIP Sec. 175. A contract of suretyship is an agreement: whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee . It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206. Suretyship, defined: An agreement whereby one undertakes to answer under specified terms and conditions, for the debt, default or miscarriage or another Note: A suretyship contract is deemed an insurance contract ONLY when the surety is engaged in business as such and not merely an isolated transaction (As a vocation & Not incidental) It also includes recognizances, stipulations, bonds or undertakings under Act No. 536 • Execution of such shall be sufficient when executed or guaranteed by any corporation organized under the laws of the Philippines and authorized to become a surety upon official recognizances, etc. • The Act also requires that such be approved by the head of Department, court, judge, officer, board or body required to approve accept the same 59 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 176. The liability of the surety or sureties: 1. Shall be joint and several with the obligor and 2. Shall be limited to the amount of the bond. 3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (As amended by Presidential Decree No. 1455). Suretyship Requires the acceptance of the obligee to be valid and enforceable Risk‐Shifting device – the premium paid like a service fee Nature of Liability of Surety 1. Solidary: Liability in suretyship is SOLIDARY (joint and several) between the surety and the obligor (surety is also primarily liable) 2. Limited or Fixed: It is limited to the amount of the bond. 3. Contractual Liability is determined strictly by the terms of the contract of suretyship in relation of the principal contract. A surety is merely a collateral contract and its basis is the principal contract which it secures. Any misrepresentation made by the applicant cannot defeat the rights of the obligee The bond is contractual in nature and is ordinarily restricted only to the obligation expressly assumed Liability under a surety bond is determined by the terms set out in the bond and not by its abstract nature or its title or caption. (Eastern Assurance v. IAC, 179 SCRA 561) To indemnify the surety against loss, an “Indemnity Agreement” is executed by the obligor in favor of the surety Note: In the absence of doubt, the surety’s liability must be determined by the terms as they appear within the 4 corners of a surety contract. The surety’s obligation cannot be extended by implication or enlarged by construction beyond the terms f the agreement. (US Tobacco v. Manila Surety, Nov 56) To hold a Surety Liable on a Counter‐bond; Requisites: 1. The filing of an application therefor with the court having jurisdiction of the action; 2. The presentation thereof before the judgment becomes executory (or before the trial or before appeal is perfected); 3. The attachment in said application of the facts showing the applicant’s right to damages and the amount thereof; 4. The giving of due notice of the application to the attaching creditor and his surety or sureties and 5. The holding of a proper hearing at which the attaching creditor and sureties may be heard on the application. (Zaragoza v. Fidelino, 163 SCRA 443) Payment of Premiums Sec. 177. Suretyship An accessory contract There are 3 parties (surety, obligor, obligee) A credit accommodation assuming primary liability Surety is entitled to reimbursement from the principal Bond can only be cancelled by or with the consent of the obligee or by the commissioner or by a court Property Insurance A principal contract There are only 2 parties (insured, insurer) A contract of Indemnity No right of recovery unless the insurer is subrogated May be unilaterally cancelled either by the insured or by the insurer on the grounds in Sec 64 Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Property Insurance No need for any acceptance Risk Distributing device – the premium paid as a ratable contribution to a common fund Guaranty, defined: When a person called a guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. Suretyship Surety assumes liability as a regular party Surety is primarily liable Surety is not entitled to the benefit of exhaustion of the debtor’s assets. Surety pays when the debtor does not pay Guaranty Liability of the guarantor depends upon an independent agreement to pay if the primary debtor fails to do so Guarantor is secondarily liable Guarantor has the benefit of exhaustion of the debtor’s assets Guarantor pays when the debtor cannot pay The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. - - GR: No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid EXC: Where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee: • The surety shall collect only a reasonable amount, NOT exceeding 50% of the premium due thereon as service fee • Plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non‐acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. 60 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) In the case of a continuing bond: The obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be. Premium Payment in Suretyship GR: Unless the premium is paid, the insurance contract is not valid EXC: 1. When the bond or suretyship contract is issued and accepted by the creditor or obligee – Bond is valid regardless of whether the premium is paid 2. In cases of a continuing bond Note: Premium becomes a debt as soon as the contract is perfected and delivered to the obligor IF the contract is not accepted or filed with the obligee If the non‐ acceptance is due to the surety’s fault IF the bond is continuing IF premium is already paid The surety can STILL collect a reasonable amount NOT EXCEEDING 50% of the premium + service fee, stamps or taxes NO service fee, stamps or taxes shall be collected – premium refunded Obligor shall pay the subsequent annual premium as it falls due until it is cancelled Obligor cannot recover it on the ground that the surety was not able to pay the indebtedness secured by it. (Arranz v. Manila Fidelity and Surety, 101 Phil 272) Types of Surety Bonds Contract Bonds: Bonds connected with construction and supply contracts Fidelity Bonds: Pays the employer for loss growing out of dishonest acts of his employees Judicial Bonds Performance Bond – covering faithful performance on a contract Payment Bond – covering payment of laborers Industrial Bond – Required by private employers to cover loss through dishonesty of employees Public Official Bond – Required of public officers for faithful performance of their duties – condition for entering upon their office Those required in judicial proceedings Sec. 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Title 5 LIFE INSURANCE Sec. 179. Life insurance is insurance on human lives AND insurance appertaining thereto or connected therewith. Sec. 180. An insurance upon life may be made payable: 1. On the death of the person, or 2. On his surviving a specified period, or 3. Otherwise contingently on the continuance or cessation of life. Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code. In the absence of a judicial guardian: The father, or in the latter's absence or incapacity, the mother, Of any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor any right under the policy: without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not EXCEED P 20,000. Such right may include, but shall not be limited to: obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy. Life Insurance, Defined (see codal definition) Mutual agreement where a party agrees to pay a given sum on the happening of a particular event contingent on the duration of human life A contract to make specific payments upon the death of a person whose life has been insured. Parties Involved in a Policy of Life Insurance 1. Owner of the policy 2. The person who’s life is the subject of the policy (cestui que vie) and 3. The beneficiary to whom the proceeds are paid Note: One person may occupy all 3 positions NATURE OF LIFE INSURANCE: Not a contract of Indemnity Liability absolutely certain: It contemplates the certain payment of a specified sum at an uncertain time • Premiums are calculated in accordance with the assured’s life expectancy under a specified mortality table • In fire and marine insurance – There is merely a risk of loss (NOT certain) 61 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) • • • In Life insurance – the event upon which payment is to be made is absolutely certain Insured merely gets what he paid in premiums plus interest less expenses (what insurer holds in quasi trust for the insured) Therefore only in premature death does the payment embrace the element of indemnity Amount of Insurance Generally Without Limit: There is no limit as to the amount of insurance since there is difficulty in fixing any sort of pecuniary value upon life Life Policy is a Valued Policy: Life insurance is treated substantially as a valued policy, death being the loss Direct Pecuniary Loss Not Required: There is no obligation to show as a condition precedent to recovery, a direct pecuniary loss as a result of the death • Life insurance is not a contract of indemnity but a form of investment • The measure of recovery is therefore the face value of the policy and not the value of the insured’s life • There is no way of showing whether the loss of life resulted in an equivalent economic loss Life Insurance vs. Fire and Marine Insurance LIFE MARINE and FIRE Not a contract of indemnity BUT Contract of Indemnity a contract of Investment A Valued Policy May be open or valued May be transferred or assigned The transferee must have to any person EVEN if he has NO an II on the thing insured II Consent of insurer is not Consent (in the absence of essential in the validity of the waiver) is essential in assignment, UNLESS expressly assigning the policy required II in the life and death of a II on property must exits person must ONLY exist AT the NOT ONLY time the insurance takes effect. - At the time the No need to exist at the time of insurance takes effect loss (EXC. That effected by the BUT ALSO creditor on the life of debtor) - At the time of the loss II need not have any legal basis II must have a legal basis (Sec 19) Contingency contemplated Contingency may or may (death) is certain not occur Liability to make payment is certain – ONLY the time to pay is Contingency may or may not (UNLESS written for a term) not happen May be cancelled by May not be cancelled by the either party and usually insurer for a 1 year term “Loss” cannot be determined by Can be determined – any cash value – Beneficiary has Beneficiary is required to no obligation to prove actual submit proof of actual financial loss pecuniary loss as a condition precedent to collection Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Art 2012 NCC: A person who is forbidden from receiving any donation cannot be named a beneficiary of a life insurance policy Exemption of Life Insurance Policies From Execution ‐ All benefits, privileges or annuities out of any life insurance are exempt from execution REGARDLESS of the amount of the premiums paid Application of Exemption to Accident Insurance GR: Life Insurance is distinct and different from an accident insurance BUT when one of the risks insured is death by accident – it can be regarded as life insurance Health insurance may also be regarded as life insurance in certain instances – it may be issued by a life or non life insurance company Burden of Proof: In an accident insurance: the insured’s beneficiary has the burden of proving that the cause of death is due to the covered peril. Then the burden shifts to the insurer to show whether it falls under an excepted peril KINDS OF LIFE INSURANCE POLICIES 1. Whole life or Ordinary Life Policies: (regular life or straight life) • The insured agrees to pay annual, semi‐annual or quarterly premiums while he lives • The insurer agrees to pay the face value of the policy upon the death of the insured. • Alternative form of payment: “Cash Surrender Value” ‐ In case it is cancelled by the owner or it lapses through nonpayment ‐ The insured is entitled to receive to the “cash surrender value” AFTER 3 full annual premiums have been paid. 2. Limited Payment Life Policy: • Insured agrees to pay premiums ONLY for a specified number of years (10,15, or 20yrs). • Insurance payable upon the death of the insured. • If he survives such period, he stops paying any further premium. • If the insured should die within the specified period – his beneficiary is entitled to all the proceeds of the policy w/o any liability for the unpaid premiums 3. Term Insurance Policy: • Insurer’s liability arises ONLY upon the death of the insured within the agreed term or period. • IF he survives the period – the contract terminates and the insurer is NOT liable • Premium is usually lower (since there is a possibility that the insurer will not be liable) 4. Endowment Policy: • Insurer agrees to pay a certain sum to the insured if he outlives a designated period or if he dies w/in such period, to some other person indicated • IF he dies before that time – the proceeds are paid to the beneficiary • Premium is higher since the cash value of the policy grow more rapidly 62 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) 5. Life Annuity: • Aleatory contract of life indemnity • The debtor binds himself to pay an annual pension or income during the life of one or more persons in consideration of capital consisting of money or property whose ownership is transferred to him at once with the burden of the income • “Upside‐down application of the life insurance principle” Life insurance: Estate is created at death (insurer starts paying upon death) Annuity: Estate is liquidated at death (insurer stops paying upon death) Annuity Contracts Insures against economic problems resulting from a long life rather than an early death Looks at transiency Lump sum is paid to the insurer immediately and the annuitant receives the payments as long as he lives Ordinary Life Policies Looks at longevity The insured pays to the insurer an annuity and his beneficiary receives the lump sum payment. Scope of Life Insurance: Risks Covered: GR: All causes of death would be covered EXC: When expressly excluded by law, the policy, or public policy Ex. When the beneficiary is a principal, accessory or accomplice in bringing about the death of the insured Losses which results from the death of the insured – “death” includes: • Actual Death – “casket death” • Living Death – permanent disability • Retirement Death ‐ living beyond the limit of earning capacity Note: A life insurance policy may expressly exclude death by assault or murder or as a result of injuries intentionally inflicted by the third person. (Kanapi v. Insular Life Assurance, 94 Phil 397) Group Life Insurance – “Mortgage Redemption Insurance” ‐ Device for the protection of both the mortgagee and mortgagor Industrial Life Insurance Policy: That form of life insurance under which the premiums are payable weekly or under which premiums are payable monthly or oftener, if the face value of the insurance is not more than 500 times that of the current statutory daily wage in the City of Manila, and if the words “industrial life” insurance are printed on the policy. (Sec 229, par 1) Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Note: An industrial life insurance shall not lapse by the non‐ payment of premiums where the insurer failed to send its representative or agent to the insured at the residence or some other place indicated for such purpose. However , this does not apply when the premium on the policy remains unpaid for a period of 3 months after grace period has expired. (Sec 229 par 2) Sec. 180‐A. The insurer in a life insurance contract shall be liable in case of suicides ONLY: 1. When it is committed AFTER the policy has been in force for a period of 2 years from the date of its issue OR of its last reinstatement, UNLESS the policy provides a shorter period 2. Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission. Insurer is LIABLE in case of suicide in the following cases: 1. Suicide is committed after the policy has been in force for a period of 2 years from the date of its issue or last reinstatement o Note: Policy CANNOT provide for a period of more than 2 years 2. Suicide is committed after a shorter period provided in the policy 3. When the suicide is committed in the state of insanity regardless of the date of commission Insurer is NOT liable in the following cases 1. Suicide is not by reason of insanity and is committed within the 2 year period 2. Suicide is by reason of insanity but is not among the risks assumed by the insurer regardless of the date of commission (excepted risk) 3. The insurer can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide exclusion in the policy Burden of Proving Suicide: Incumbent upon the party alleging suicide as a defense to prove it by clear and convincing proof. (Edralin v. Insular Life Co, CA 73 OG 976) Sec. 181. A policy of insurance upon life or health may pass: by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. 63 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) II of Assignee is NOT required in Life Insurance • All life insurance policies are declared by law to be assignable regardless of whether the assignee has an II on the life of the insured. (Sun Life Assur of Canada v. Ingersoll, 41 Phil 331) • A provision in this policy denying the right to assign the same w/o the consent of the insurer is VOID • Ratio: The contract of life insurance not being one of indemnity does not require II • HOWEVER, the courts will not permit the process of assignment to be used as a cloak to hide an illegal intent to make contracts on human life. (Mutual Aid Union v. White, 204 SW 137) Use at your own risk  The measure of indemnity in a life policy: The amount specified in the policy Life policies are valued policies This is so since “life” cannot be given any exact pecuniary estimation EXC: The II of a creditor in the life of the debtor is susceptible of exact pecuniary estimation. Chapter VI COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE Sec. 373. For purposes of this chapter: Necessity of Consent of Beneficiary in Assignment – depends on whether there is a waiver of the “Right to Change the Beneficiary” IF NOT waived IF waived Beneficiary has no vested right The beneficiary has a over the interest in the policy. vested right on the policy. The heirs of the beneficiaries cannot collect the proceeds It goes to the estate of the The heirs are entitled BUT insured UPON the death of the insured. Policy can be assigned EVEN Policy CANNOT be W/O the consent of the assigned w/o the consent beneficiary of the beneficiary a) b) "Passenger" is any fare paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare. c) Sec. 182. Notice to an insurer of a transfer or bequest thereof: GR: is NOT necessary to preserve the validity of a policy of insurance upon life or health, EXC: UNLESS thereby expressly required. • • • If notice is NOT required by policy: such is NOT essential to the validity of the assignment If notice is required by policy: An assignment w/o such notice shall have no effect in so far as the insurer is concerned: The insurer shall be relieved from liability except when such notice is waived by the insurer Payment to the old beneficiary – he will hold it in trust for the new one The Assignment is still binding upon the assignor (insured) and the assignee Whether or not required by the policy: IF the assignment is done with the consent of the insurer – The consent creates a NOVATION The assignee takes the new contract free of defenses available to the insurer "Motor Vehicle" is any vehicle as defined in section 3, paragraph (a) of R.A. No. 4136 Otherwise known as the "Land Transportation and Traffic Code." – [Any vehicle propelled by any power other than muscular power using the public highways, with certain exceptions.] "Third‐Party" is any person other than a passenger as defined in this section and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course of employment. d) "Owner" or "motor vehicle owner" means the actual legal owner of a motor vehicle, in whose name such vehicle is duly registered with the Land Transportation Commission; e) "Land transportation operator" means the owner or owners of motor vehicles for transportation of passengers for compensation, including school buses; f) "Insurance policy" or "Policy" refers to a contract of insurance against passenger and thirty‐party liability for death or bodily injuries and damaged to property arising from motor vehicle accidents. Sec. 183. UNLESS the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 64 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 374. It shall be UNLAWFUL for any land transportation operator or owner of a motor vehicle: To operate the same in the public highways UNLESS there is in force in relation thereto 1. A policy of insurance or 2. Guaranty in cash or 3. Surety bond issued in accordance with the provisions of this chapter: • To indemnify the death, bodily injury, and/or damage to property • Of a third‐party or passenger, as the case may be, • Arising from the use thereof. • • • Property damage to third‐parties is no longer included in CMVLI (Sec 374 as amended by PD 1455 and 1814) The insurer’s liability accrues immediately upon the occurrence of the injury or even upon which the liability depends. (Shafer v. Judge of RTC Olongapo, 167 SCRA 386) The victims of a vehicular accident may sue directly the insurer of the vehicle that hit them but only up to the extent provided by the third party liability insurance in accordance with the CMVLI law. Own Damage Coverage v. Third Party Liability Coverage: Own Damage Coverage: Means the insurer had assumed to reimburse the costs of repairing the damage to the insured vehicle. Coverage to the insured motor vehicle is not required by law. Third Party Liability: Pertains to liabilities arising from the death of, or bodily injuries by, third parties. (Pan Malayan Ins Corp v. CA, 184 SCA 54) Motor Vehicle Liability Insurance: A protection coverage that will answer for legal liability for losses and damages for bodily injuries that may be sustained by another arising from the use and operation of a motor vehicle by its owner It is obtained to a certain extent on compulsory basis by a motor vehicle owner Comprehensive Motor Vehicle Insurance (CMVLI) Policy ‐ Covers death or bodily injury of a third party or passenger (mandatory under CMVLI) and (own) damage to or theft of vehicle insured. Meaning of Motor Vehicle (Section 3(a) of RA 4136, a motor vehicle shall mean) GR: Any vehicle propelled by any power other than ‐ muscular power using the public highways ‐ EXC: Road rollers, trolley cars, street sweepers, sprinklers, lawn mowers, bull dozers, graders, forklifts, amphibian trucks, cranes not used in public highways, vehicles which run only on rails or tracks and tractors trailers and traction engines of all kinds used exclusively for agricultural purposes ‐ Trailers when propelled, intended to be propelled by attachment to a motor vehicle shall be classified as separate motor vehicle with no power rating Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Prerequisite Regarding the Operation and Registration of Motor Vehicles ‐ Sec 374 enjoins a land transportation operator (LTO) or a motor vehicle owner (MVO) to operate his vehicle in public highways UNLESS there is in force a policy or guaranty in cash or surety bond to indemnify the death or bodily injury of the third party or passenger Spirit Behind or Need for Compulsory Third Party Liability Insurance ‐ To assure victims of motor vehicle accidents and or their dependents, especially when they are poor, immediate financial assistance of indemnity regardless of the financial capability of motor vehicle owners or operators ‐ The insurer’s liability immediately accrues UPON the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. (Shafer v. Judge, 167 SCRA 386) The insured need not wait for the decision of the court finding the other party guilty of reckless imprudence. ‐ It does NOT depend upon in the recovery of judgment by the insured party against the insured. ‐ DIRECT LIABILITY OF INSURER: An injured party in a motor vehicle accident may directly sue the insurer of the offending vehicle covered by a third party liability insurance. (BUT ONLY to the extent provided by the third party liability insurance) o DIRECT NOT SOLIDARY: This does not mean however that the insurer can be held solidarily liable with the insured. The liability of the insurer is based on contract and that of the insured is based on tort. (Malayan Insurance v. CA, 165 SCRA 536) PD No 1814: Deleted property damage from ‐ compulsory coverage o Insurance only covers death of or bodily injury involved in vehicular accidents o The parties however, may agree upon a separate insurance to cover damage to property Effect of Insured’s Violation of Policy Condition on Insurer’s Liability to Third‐party Claim ‐ The insurer’s liability attaches during the effectivity of the policy in the absence of any showing that the same has been cancelled with proper notice to all parties ‐ The insurer may NOT raise as a defense that the owner of the motor vehicle has violated the contract to escape liability – This would defeat the very purpose of the contract. Persons Subject to the CMVLI Requirement 1. Motor Vehicle Owner (MVO) – the actual legal owner of the vehicle under whose the name the vehicle is registered 2. Land Transportation Operator (LTO) – the owner of the motor vehicle being used for conveying passengers for compensation 65 | P a t i ñ o , E r i c a Use at your own risk  COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Sec. 375. The Commissioner shall furnish the Land Transportation Commissioner with a list of insurance companies authorized to issue the policy of insurance or surety bond required by this chapter. Sec. 376. The Land Transportation Commission shall NOT allow the registration or renewal of registration of any motor vehicle without first requiring from the land transportation operator or motor vehicle owner concerned: the presentation and filing of a substantiating documentation in a form approved by the Commissioner evidencing that the policy of insurance or guaranty in cash or surety bond required by this chapter is in effect. No Registration or Renewal if There is no CMVLI: The LTC shall not register or renew registration of motor vehicle without a CMVLI, guaranty in cash or surety bond in that event, the: said cash deposit shall be replenished or such surety bond shall be restored within 60 days after impairment or expiry, as the case may be, by such land transportation operator, OTHERWISE, he shall secure the insurance policy required by this chapter. The aforesaid cash deposit may: be invested by the Commissioner in readily marketable government bonds and/or securities. (2) In the case of an owner of a motor vehicle,: the insurance or guaranty in cash or surety bond shall cover liability for death or injury to third parties in an amount NOT LESS than that set forth in the following scale in any one accident: Sec. 377. Every land transportation operator and every owner of a motor vehicle shall: Before applying for the registration or renewal of registration of any motor vehicle, At his option, either: 1. Secure an insurance policy or surety bond issued by any insurance company authorized by the Commissioner or 2. Make a cash deposit in such amount as herein required as limit of liability for purposes specified in section 374 (1) In the case of a land transportation operator, the insurance guaranty in cash or surety bond shall cover liability for death or bodily injuries of third‐parties and/or passengers arising out of the use of such vehicle in the amount NOT less than P12,000 per passenger or third party and an amount, for each of such categories, in any one accident of NOT less than that set forth in the following scale: Motor Vehicle Authorized Amount To be Paid Capacity 26 or more passengers P 50,000 12 to 25 passengers P 40,000 6 to 11 passengers P 30,000 5 or less passengers P5,000 X authorized capacity. Provided, however, That such cash deposit made to, or surety bond posted with, the Commissioner shall be resorted to by him in cases of accidents: the indemnities for which to third‐parties and/or passengers are not settled accordingly by the land transportation operator and, Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 I. Private Cars II. Other Private Vehicles 1. Bantam P 20,000 1. 2. Light P 20,000 2. 3. Heavy P 30,000 3. 4. Tricycles, motorcyles, and scooters Vehicles with an unladen weight of 2,600 kilos or less Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos Vehicles with an unladen weight over 3,930 kilos P20,000 P 20,000 P 30,000 P 50,000 The Commissioner may, if warranted set forth schedule of indemnities for the payment of claims for death or bodily injuries with the coverages set forth herein. • • A LTO must take out a CMVLI, (or give a surety bond or cash deposit in lieu thereof) the amount of which depends on the authorized capacity of the vehicle, but cannot be less than 12K The amounts above are merely the minimum required, the operator or owner may secure higher amounts in their CMVLI and may add other risks. Substitutes for CMVLI Policy – MVO’s and LTO’s may either: 1. Post a surety bond with the Insurance Commissioner who shall be made the obligee or creditor in the bond 2. Make a cash deposit with the Insurance Commissioner in the amount required as limits of indemnity 66 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Note: After they have been proceeded against by the Commissioner – such deposit should be replenished or surety bond restored by the MVO or LTO in the right amount w/in 60 days after impairment or expiry Scope and Coverage Required ‐ For Owners of Private Motor Vehicles: Coverage must be comprehensive against third party liability for death or bodily injuries. ‐ For Operators of Land Transportation: Coverage must also be comprehensive against BOTH passenger and third party liabilities. (Insurer may insure other risks at his option) ‐ Sec 377 prescribes the minimum limits of indemnity of the comprehensive coverage o P12,000 for any one accident for all damages arising out of death or bodily injury (MINIMUM amount) o For Private cars: amount of the CMVLI depends upon the weight of the motor vehicle o Since that enumerated are only the minimum amounts – the operator or owner may add other risks o Any excess: deemed to have been taken out voluntarily ‐ Comprehensive Motor Vehicle Insurance Policy: would cover o Death or bodily injury of a third party or passenger (mandatory under CMVLI) o Property damage to third parties o Own damage to or theft of the vehicle insured Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall: be paid WITHOUT the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section: (i) The total indemnity in respect of any person shall NOT exceed P 5,000 (NOTE: Now 15K ‐ Mem Circular 4‐2006 july 26, 2006) (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident; and (b) Death certificate and evidence sufficient to establish the proper payee; or (c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed • • • (iii) Claim may be made against one motor vehicle ONLY. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  No‐fault Indemnity Claim ‐ A CMVLI is subject to this No‐Fault Indemnity where the insurer maybe held liable without the necessity of proving fault or negligence of any kind. ‐ “No fault” connotes that the victim of a tort can recover his loss from his insurer w/o regard to his own contributory fault ‐ It will guarantee the compensation or indemnity ‐ Under this, the insurer may be held liable without the necessity of proving fault PROVIDED: 1. The claim is for death or injury to a third party or passenger 2. The total indemnity in respect to any one person does NOT exceed P15,000 3. Proofs required by law are submitted (police reports, death certificate, medical report) ‐ Claim Subject to Certain Conditions: The insurer shall pay w/o the necessity of proving fault or negligence o “No‐fault claim” does NOT apply to property damage o IF the claim EXCEEDS 15k – the finding of fault may be availed by the insurer as to the EXCESS ‐ Claim Against Insurer of Vehicle in which Victim is an Occupant: claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from o Victim may claim pending the determination of who is responsible for the accident o The plaintiffs are not free to choose from which insurer they will claim the indemnity. Law makes it mandatory that the claim shall be made from the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. o “Occupant” includes both passenger and 3rd party ‐ Claim Against Insurer of Vehicle Responsible for Accident: In any other case (if victim is not an occupant) the claim shall lie against the insurer of the directly offending vehicle. Sec. 379. NO land transportation operator or owner of motor vehicle shall: be unreasonably denied the policy of insurance or surety bond required by this chapter by the insurance companies authorized to issue the same, otherwise, the Land Transportation Commission shall require from said land transportation operator or owner of the vehicle, o in lieu of a policy of insurance or surety bond, o a certificate that a cash deposit has been made with the Commissioner o in such amount required as limits of indemnity in SEC 377 o to answer for the passenger and/or third‐party liability of such land transportation operator or owner of the vehicle. No insurance company may issue the policy of insurance or surety bond required under this chapter unless so authorized under existing laws. 67 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) The authority to engage in the casualty and/or surety lines of business of an insurance company: that refuses to issue or renew, without just cause, the insurance policy or surety bond therein required shall be withdrawn immediately. Note: No operator or owner shall be unreasonably denied a CMVLI or surety bond by the insurance company. The authority of such insurance company which refuses to issue or renew said CMVLI without just cause shall be withdrawn. Sec. 380. No cancellation of the policy shall be valid: UNLESS written notice thereof is given: 1. To the land transportation operator or owner of the vehicle and 2. To the Land Transportation Commission at least 15 days prior to the intended effective date thereof. Upon receipt of such notice, the Land Transportation Commission: GR: Shall order the immediate confiscation of the plates of the motor vehicle covered by such cancelled policy. EXC: Unless it receives evidence of a 1. New valid insurance or guaranty in cash or surety bond as prescribed in this chapter, or 2. An endorsement of revival of the cancelled one, The same may be re‐issued ONLY upon presentation of: 1. A new insurance policy or 2. That a guaranty in cash or surety bond has been made or posted with the Commissioner and which meets the requirements of this chapter, or 3. An endorsement or revival of the cancelled one. Sec. 381. IF the cancellation of the policy or surety bond is contemplated by the land transportation operator or owner of the vehicle, he shall: BEFORE the policy or surety bond ceases to be effective, 1. Secure a similar policy of insurance or surety bond to replace the policy or surety bond to be cancelled OR make a cash deposit in sufficient amount with the Commissioner and without any gap, file the required documentation with the Land Transportation Commission, and 2. Notify the insurance company concerned of the cancellation of its policy or surety bond. Duty of MVO or LTO contemplating cancellation of his cover 1. Give to the insurance or surety company concerned a written notice of his intention to cancel 2. Secure, before the insurance or bond ceases to be effective, another similar bond or insurance to replace that one cancelled Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 3. Use at your own risk  W/o making such replacement in no. 2, make a cash deposit and secure a certification from the Insurance Commissioner regarding the deposit made and filing such certificate with the LTO Effect of Cancellation of Cover ‐ Upon receipt of the notice of cancellation, the LTO shall order the confiscation of the plates of the vehicle concerned ‐ UNLESS it received any of the following: 1. Evidence or proof of a new CMVLI cover (policy, cash deposit or surety bond) 2. Signed duplicate of an endorsement of addendum issued by the insurer to show revival or continuance of the CMVLI 3. Certification issued by the Insurance Commissioner that a cash deposit has been made to him Sec. 382. In case of change of ownership of a motor vehicle, OR change of the engine of an insured vehicle: there shall be no need of issuing a new policy UNTIL the next date of registration or renewal of registration of such vehicle, and provided that the insurance company shall agree to continue the policy, • Such change of ownership or such change of the engine shall be indicated in a corresponding endorsement by the insurance company concerned, and • A signed duplicate of such endorsement shall, within a reasonable time, be filed with the Land Transportation Commission. Sec. 383. In the settlement and payment of claims, the indemnity: • Shall NOT be availed of by any accident victim or claimant AS an instrument of enrichment by reason of an accident, • BUT AS an assistance or restitution insofar as can fairly be ascertained. Sec. 384. Any person having any claim upon the policy issued pursuant to this Chapter shall: without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed: within 6 months from date of accident, OTHERWISE, the claim shall be deemed WAIVED. Action or suit for recovery of damage due to loss or injury: must be brought, in proper cases with the Commissioner OR the Courts within 1 year from denial of the claim, otherwise, the claimant's right of action shall prescribe. 68 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Notice of claim within 6 months by insured from date of accident is an indispensable pre‐requisite to sue under the insurance contract (Art 384) ‐ The delay in reporting the loss by the insured must be promptly raised by the insurer in objecting to the claims. Use at your own risk  Sec. 385. Sec. 388. Any land transportation operator or owner of motor vehicle or any other person violating any of the provisions of the preceding sections shall be punished by a fine of NOT LESS than P 500 but NOT MORE than P 1,000 and/or imprisonment for NOT MORE than 6 months. - The insurance company concerned shall forthwith: 1. Ascertain the truth and extent of the claim and 2. Make payment within 5 working days AFTER reaching an agreement. The violation of SEC 377 by a land transportation operator shall be a sufficient cause for the revocation of the certificate of public convenience issued by the Board of Transportation covering the vehicle concerned. If no agreement is reached, the insurance company shall: pay only the "no‐fault" indemnity provided in SEC 378 without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit claim or document releasing it from liability under the policy of insurance or surety bond issued. Sec. 389. Whenever any violation of the provisions of this chapter is committed by a corporation or association or by a government office or entity: the executive officer or officers of said corporation, association or government office or entity who shall have knowingly permitted OR failed to prevent said violation shall be held liable as principals. In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter: the adjudication of such dispute shall be within the original and exclusive jurisdiction of the Commissioner subject to the limitations provided in section 416. Malus System Under CMVLI ‐ The vehicle owner who suffered an accident resulting in a loss is required to pay a SURCHARGE upon renewal of his coverage in addition to the basic premium ‐ Equivalent to the product of the amount of the loss paid multiplied by the rate of premium for the vehicle ‐ Surcharge shall no case be less than P30 Sec. 386. It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums. Sec. 387. No government office or agency having the duty of implementing the provisions of this chapter nor any official or employee thereof shall act as agent in procuring the insurance policy or surety bond provided for herein. The commission of an agent procuring the said policy or bond shall in NO case exceed 10% of the amount of the premiums therefor. Certificate of Cover ‐ The MVO or LTO procuring a CMVLI cover shall also be issued in addition to the policy, a “certificate of cover” ‐ It will serve as the substantiating documentation as proof of the insurance upon such motor vehicle Limitations with Respect to CMVLI Cover Solicitation 1. No gov’t officer or agency having the duty of implementing the provisions of the insurance code on CMVLI shall act as agent in procuring the insurance policy/surety bond/cash deposit 2. No official or employee of such office shall similarly act as such agent 3. The commission of an agent shall in NO case EXCEED 10% of the amount of the premiums Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 FORMULA: Surcharge = Amount of loss paid X Rate of Premium for the Vehicle “Standard Authorized Driver Clause” ‐ Motor vehicle policy contains a “Standard Authorized Driver Clause” that the person driving the insured’s vehicle is an authorized driver ‐ The vehicle is limited to be used by 2 persons o The insured himself o Any person on his permission (required to have a driver’s license) ‐ The main purpose of the “Authorize Driver Clause” is that a person other than the insured owner, who drives the vehicle on the insured’s order or with his permission must be a duly licensed driver and has no disqualification to drive a vehicle ‐ The requirement DOES NOT APPLY when the person driving is the insured himself. He has the right to recover damage thereto even if he has no driver’s license or the same had expired. ‐ If the driver is NOT an authorized driver (no license) – on the part of the insured is a bar to recovery under the insurance contract ‐ Expiration of permit to drive bars recovery under the policy as the driver is not considered to be an “authorized driver.”(Gutierrez v. Capital, 130 SCRA 618) 69 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) “Theft Clause” • When the car is unlawfully and wrongfully taken without the owner’s consent or knowledge such taking constitutes theft and it is the “theft clause” and not “authorized driver clause” • There is no need for a prior conviction for the crime of theft to make an insurer liable under the theft clause of the policy. (Ass’n of Baptists v. Fieldmens’s Ins, 124 SCRA 618) Presumption as to the genuineness of a driver’s license: A license that bears all the earmarks of duly issued license is a public document which is presumed genuine. (CCC Insurance v. CA, 31 SCRA 264) Title 11 CLAIMS SETTLEMENT Sec. 241. (1) No insurance company doing business in the Philippines shall refuse, without just cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim settlement practices. Any of the following acts by an insurance company, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices: (a) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue; (b) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies; (c) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies; (d) Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear; or (e) Compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them. (2) Evidence as to numbers and types of valid and justifiable complaints to the Commissioner against an insurance company, and the Commissioner's complaint experience with other insurance companies writing similar lines of insurance shall be admissible in evidence in an administrative or judicial proceeding brought under this section. (3) If it is found, after notice and an opportunity to be heard, that an insurance company has violated this section, each instance of non‐compliance with paragraph (1) may be treated as a separate violation of this section and shall be considered sufficient cause for the suspension or revocation of the company's certificate of authority. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Use at your own risk  Unfair Claims Settlement Practices Claims Settlement: The indemnification of the loss suffered by the insured. Sec 241: Enumerates the grounds considered as sufficient cause for the suspension or revocation of an insurance company’s certificate of authority which is designed to eliminate unfair claim settlement practice. Insurer’s obligation to respect insured’s decision to compromise 3 rd party claim While the policy do not impose on the insurer the duty to settle the claim at all costs, there is an implied duty on his part to give due consideration to the interest of the insured in its exercise of the option to reject a compromise settlement and proceed with litigation Requires strict observance of the standards of good faith and fair dealing on the part of the insurer Sec. 242. The proceeds of a life insurance policy: GR: Shall be paid immediately upon maturity of the policy, EXC: Unless such proceeds are made payable in installments or as an annuity, in which case the installments, or annuities shall be paid as they become due: Provided, however, That in the case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty days after presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall include the discounted value of all premiums paid in advance of their due dates, but are not due and payable at maturity. Life Insurance Losses 1. Definiteness of death: The settlement of the claims is usually taken care of by the life insurance agent. In life insurance there is no specialized claim adjuster. The definiteness of the death peril and the amount of the insurance payable makes it possible for the agent to arrange for the payment. If questioned, the legal dept of the company will provide legal advice. 2. Proof of death: Payment is not demanded upon death but upon submission of proof of death. 3. Nature of Claim: They are death claims. Payment of lump sum/face value upon death 4. Income benefit provision: Policies may provide an income benefit upon the survival of the insured to a fixed date or age. 70 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) Time for payment of claims in life policies 1. Policies maturing upon the expiration of the term set forth: proceeds are immediately payable or if installments, when they become due 2. Policies maturing at the death occurring prior to the expiration of the term stipulated: payable 60 days after the filing of claim and proof of death 60 day period is procedural in nature It is the suspensive condition of death that renders the policy matured and not the filing of proof of death, delay in the presentation of proof does not delay the maturity of the policy nor the liability of the company to pay the proceeds Sec. 243. • 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 30 days after proof loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; • but if such ascertainment is not had or made within 60 days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within 90 days after such receipt. • Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. Fire Insurance Losses 1. Obligations of the insured: Policy imposes definite obligations immediately upon the occurrence of the loss Notice of loss & filing of Proof of loss: conditions before the insurer may be held liable After the fire, the insured is required to do everything reasonable to prevent further damage to the property insured. If he fails to protect his property – he cannot claim. 2. Options of settlement of the insurer: Fire insurance usually provides 2 options: a. Payment of damages for the loss b. Restoration of the subject matter to its former conditions  Here, the amount of damages recoverable for a breach is not limited to the amount of insurance but also obtaining a contractor etc. 3. Sufficiency of Proof of Loss: The insurer and the insurance commissioner have the right to reject proof of loss BUT cannot have an arbitrary standard of satisfaction. Substantial compliance should always be deemed sufficient. Liability Insurance Losses 1. Difference from other losses – The adjustment of liability claims differs from direct damage claims in that the claimant is not the insured. Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 2. 3. 4. Use at your own risk  Claim for personal injuries – Determining an adequate amount to compensate for a personal injury is not a simple process for it concerns so many uncertain factors. Direct property damage claim – The extent of a claim for damages to property is measured by the amount of the loss occasioned the property owner. Measure of loss: value between the damaged and undamaged condition. Cost of repair may serve as a measure of damages – there is no legal obligation to restore a property to its original condition if the cost of repair exceeds the value of the property . Property damage liability claim o Fire claim: usually includes only payment for the direct damage to the property unless additional coverage is purchased to provide for the indirect results of the loss or use of property o In property damage liability claim: loss of use may be included. (ex. Rental cost) Time for payment of claims in non‐life policies Sec 243: refers to insurance policies other than life Proceeds shall be paid 30 days after receipt of the insurer of proof of loss and ascertainment of loss by agreement of arbitration BUT not later than 90 days whether ascertainment is had Effect where claim is fraudulent All benefits will be forfeited if the claim is fraudulent Same effect when there is a serious discrepancy between the actual loss and the loss claimed (more than 50% of the true value of the property) such indicates that the false statements were willfully made. The burden of proving fraud is on the insurer Effect of false statements innocently made The rights of the insured are not prejudiced by false statements inadvertently and innocently made Reference to Arbitration 1. Where arbitration not required should insurer deny liability A stipulation providing for arbitration a condition precedent for court action is valid BUT if in the course of the settlement of loss, the company should in any case refuse to pay, it will be deemed to have waived the condition precedent with reference to arbitration 2. Where arbitration limited to amount of insurer’s liability Clause provides: “dispute as to the amount of company’s liability” was deemed to be limited to the “amount” and not the existence and non‐existence of the liability 3. Where arbitration required only when there is dispute 71 | P a t i ñ o , E r i c a COMMERCIAL LAW REVIEW | Atty. Villegas (2009)/ Atty. Jimenez (2011) 4. 5. Where settlement by arbitration not invoked Arbitration as a condition precedent is deemed waived where none of the parties to the contract invoked the same or made reference in the negotiation proceedings and in the action filed in court Where insured voluntarily submitted to arbitration If a party commences an action but subsequently agreed to arbitrate, in the absence of fraud or mistake, he is estopped and bound by the arbitration award Right of insurer to subrogation 1. Subrogation a normal incident of indemnity insurance – The equitable right of subrogation as the legal effect of payment inures to the insurer w/o any formal assignment of any express stipulation to that effect in the policy When the insurance company pays, such payment operates as an equitable assignment to the insurer and all the remedies that the insured may have for the recovery thereof The principle of subrogation does not apply to life and accident policies 2. Limit of recovery A subrogee cannot succeed to a right not possessed by the subrogor. The rights to which the subrogee succeeds are the same as but not greater than the subrogor. The insurer can recover only the amount that is recoverable by the insured and only if the insured likewise could have recovered. • 2. Presumption of unreasonable delay There is prima facie presumption of unreasonable delay if the insurer fails to pay any such claim w/in the time prescribed 3. Conflicting resolutions of trial court and commissioner The insurance commissioner has the discretion to impose upon the erring insurance company penalties in sec 415 The findings of the trial court will not necessarily foreclose the administrative case before the commissioner or vice versa since the quantum of evidence, the procedure and the relief are different o Civil case: preponderance of evidence (of greater weight) o Administrative case: substantial evidence (that which a reasonable mind might accept as adequate to justify the conclusion) The insurance commissioner is not restrained from exercising its regulatory power, from making its own findings as long as it is supported by substantial evidence 4. Damages, recoverable a. Attorney’s fees b. Other expenses incurred by the insured by reason of the unreasonable denial or withholding of payment c. Interest twice the ceiling of the MB of the amount of the claim due d. The amount of the claim 5. Propriety of award of moral and exemplary damages and attorney’s fees ‐ Award of moral and exemplary damages are governed by the civil code (see torts notes) Sec. 244. • In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied; Insurance Code | Lifted from De Leon 06, Rodriguez, Perez ‘10 Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. Liability of insurer to pay damages and interests 1. Finding unreasonable delay The court or the commissioner must still make a finding that the payment of the claim has been unreasonably denied or withheld before the insured shall be entitled to collect damages and interest of 24% If there is no such finding = judgment shall bear only the legal rate of 12% for the delay Because of the possibility of differences of opinions the mere fact that the evidence justified the payment of the claim does not necessarily mean that the insurer in contesting payment acted w/o justification Where the delay is due to the investigation the insurer conducted to ascertain the truth of the information – delay is justified. Loan repayable from collection not deemed payment of insurance It is customary for insurers to lend to their assured the amount of the loss payable only out of money collected on account of the loss. Such advancement is not considered as payment of loss, the insurer is not therefore subrogated to the rights of the insured who is not divested of his right to file the suit • Use at your own risk  72 | P a t i ñ o , E r i c a