Insurance Laws Commercial Law: (Sec. 2, Par.2, Insurance Code)

COMMERCIAL LAW INSURANCE LAWS
Note: A contract of insurance is still a contract, thus it

must have all the essential elements of a valid contract as
enumerated in Art. 1318 of the NCC.
C ONTRACT OF I NSURANCE Nature of Insurance Contract (CVA-UCCP-PROU)

Consensual It is perfected by the meeting of the minds
of the parties (Art. 1315, NCC).
Contract of Insurance
An agreement whereby one undertakes for a Cognition Theory applies: The contract is perfected
consideration to indemnify another against loss, damage the moment the offeror learns of the acceptance of his
or liability arising from an unknown or contingent event offer by the other party (Art. 1319, NCC).
(Sec. 2, par.2, Insurance Code)
Voluntary The parties may incorporate such terms or
Governing Laws (Art. 2011, NCC) conditions as they may deem convenient, provided
they are not contrary to law morals, good customs,
Primary pubic order, or public policy (Art. 1306, NCC).
Special Laws Aleatory The insurers obligation is dependent on the
Insurance Code of 1978 (P.D. 1460, as amended) happening of an event, which is uncertain, or which is
Revised Government Service Insurance Act of 1977 to occur at an indeterminate time (Art. 2010, NCC).
(P.D. 1146, as amended) 5. Unilateral Imposes legal duties only on the insurer
Social Security Act of 1954 (RA 1161, as amended) who promises to indemnify another in case of loss;
Government Property Insurance Law (RA 656, as executed as to the insured after payment of premium
amended by PD 245 and executory on the part of the insurer until payment
Philippine Deposit Insurance Corporation Law (RA for a loss.
3591, as amended) 6. Conditional It is subject to conditions, the principal
Code of Commerce (Dizon, The Insurance Code of the one of which is the happening of the event insured
Philippines, 2009 ed.). against.
7. Contract of Indemnity Except life and accident
Suppletory insurance where the result is death, a contract of
Civil Code insurance is a contract of indemnity whereby the
General principles prevailing on the subject in the United insurer promises to make good only the loss of the
States, particularly in the State of California and New insured
York where our Insurance Code was based. 8. Personal Each party having in view the character,
credit and conduct of the other.
Elements of the Contract (PARIS): 9. Property Since an insurance policy is a contract, as
Payment of Premium the consideration for the such, it is property in legal contemplation.
insurers promise to undertake the risk of loss; 10. Risk Distributing Device The insurers assumption
Assumption of risk the insurer undertakes to assume of risk is part of a general scheme to distribute the loss
the risk of loss; among a large number of persons exposed to similar
Risk of loss The happening of designated events, risks, who contributes to a common fund from which
either unknown or contingent, past or future, will subject the losses incurred are compensated.
such interest to some kind of loss, whether in the form 11. Onerous There is valuable consideration called the
of injury, damage or liability; premium.
Insurable interest The insured has an insurable 12. Uberrimae Fidae The contract of insurance is one
interest in the life or thing insured, i.e. pecuniary of perfect good faith which requires both the insurer
interest; and the insured to disclose conditions affecting the risk
Scheme to distribute the losses the assumption of of which he is aware, or material fact, which the
risk is part of a general scheme to distribute the loss applicant knows, and those he ought to know.
among a large number of persons exposed to similar
risks. Classes of Insurance Contract (SC-C-LMF)
Life Insurance
Insurance on human lives and insurance appertaining
thereto or connected therewith which includes every
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2013 CENTRALIZED BAR OPERATIONS
contract or pledge for the payment of endowments or separate or direct consideration is received therefor, shall
annuities (Sec. 179 & Sec. 180). NOT be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an
Non-Life Insurance insurance business (Sec.2, par.4, Insurance Code).
Marine Insurance
An insurance against risks connected with navigation, Requisites of an Insurance Contract
to which a ship, cargo, freightage, profits, or other 1. Consent of the contracting parties;
insurable interest in movable property, may be 2. Object certain which is the subject matter of the
exposed during a certain voyage or a fixed period of contract;
time (Sec. 99, Ibid). 3. Cause of the obligation which is established; and
Fire insurance Insurable Interest - Relation between the insured and
A contract by which the insurer for a consideration the thing insured, to such extent that its loss thru the
agrees to indemnify the insured against loss of, or risk insured against shall directly damnify the insured
damage to, property by hostile fire, including loss by (Dizon, supra).
lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension Cardinal Principles in Insurance: (GIAS)
to fire insurance policies or under separate policies Principle of utmost Good faith (uberrimae fidae)
(Sec. 167, Ibid). Each party takes into consideration the character,
Casualty Insurance conduct and/or credit of the other and in making the
Insurance covering loss or liability arising from contract, each is enjoined by law to deal with the other
accident or mishap, excluding those falling under in utmost good faith. A violation of this duty gives the
other types of insurance such as fire or marine (Sec. aggrieved party the right to rescind the contract. Thus,
174, Ibid). both must not only perform their obligations in good
Compulsory Motor Vehicle Liability Insurance faith but they must also avoid material concealment or
(CMVLI) misrepresentations. The caveat emptor rule is generally
A specie of compulsory insurance that provides for inapplicable.
protection coverage that will answer for legal liability Contract of Indemnity The insured who has insurable
for losses and damages for bodily injuries or property interest over a property is only entitled to recover the
damage that may be sustained by another arising amount of actual loss sustained and the burden is upon
from the use and operation of motor vehicle by its him to establish the amount of such loss. Otherwise, the
owner. contract becomes an instrument of unjust enrichment
Suretyship (Solutio Indebiti, Art. 2154, NCC).
A contract of suretyship shall be deemed to be an Contract of Adhesion (Fine Print Rule) The policy is
insurance contract, within the meaning of the Code, presented to the insured already in its printed form, so
only if made by a surety who or which, as such, is that he either takes it or leaves it. Most of the terms of
doing an insurance business (Sec. 2, Insurance the contract do not result from mutual negotiations
Code). between the parties as they are prescribed by the
insurer in final printed form to which the insured may
Doing an Insurance Business: adhere if he chooses but which he cannot change
1. Making or proposing to make, as insurer, any (Rizal Surety & Insurance Co. v. CA, G.R. No. 112360,
insurance contract; July 18, 2000). It is for this reason that any ambiguity
2. Making or proposing to make, as surety, any contract therein is resolved in favor of the insured and against
of suretyship as a vocation and not as merely incidental the insurer.
to any legitimate business or activity of the surety;
3. Doing any kind of business, including reinsurance Note: Under Art. 1377, NCC, the interpretation of
business, specifically recognized as constituting the obscure words or stipulations in a contract shall not
doing of an insurance business within the meaning of favor the party who caused the obscurity. Thus, the
the code; insurer is under the obligation to make the meaning of
4. Doing or proposing to do any business in substance the contract clear if it desires to limit or restrict the
equivalent to any of the foregoing in a manner designed operation of the general provision of the contract.
to evade the provisions of this Code.
Principle of Subrogation It is the process of legal
Note: The fact that NO profit is derived from the making of substitution where the insurer steps into the shoes of
insurance contracts, agreements or transactions or that no the insured, when he paid the indemnity for the injury or

loss, and he avails of the latters rights against the 3. Where the insurer PAYS the insured for a loss or risk
wrongdoer. not covered by the policy (Pan Malayan Insurance
Company v. CA, G.R. No. 77397, April 3, 1990);
If the amount paid by the insurance company does not 4. In life insurance;
fully cover the injury or loss, the aggrieved party shall 5. For recovery of LOSS IN EXCESS of insurance
be entitled to recover the deficiency from the person coverage;
causing the loss or injury (Art. 2207, NCC).
What may be Insured Against/ Risk:
Note: The principle of subrogation is a normal incident 1. Any contingent or unknown event, whether past or
of indemnity insurance as a legal effect of payment; it future, which may damnify a person having an insurable
inures to the insurer without any formal assignment or interest or creates a liability against him may be insured
any express stipulation to that effect in the policy. Said against (Sec. 3, Insurance Code);
right is not dependent upon nor does it grow out of any 2. A past event may be insured provided the loss is
private contract. Payment to the insured makes the unknown to both parties and they expressly stipulated
insurer a subrogee in equity (Malayan Insurance Co., that prior loss is insured by the policy. A past event that
Inc. v. CA, G.R. No. L-36413, September 26, 1988). may be insured against is peculiar to Marine Insurance.
Under Sec. 109 of the Insurance Code, a person
Incapacity of the insured will not affect the capacity of insured by a contract of marine insurance is presumed
the subrogee because capacity is personal to the holder to have knowledge, at the time of insuring, of a prior
(Lorenzo Shipping v. Chubb and Sons, Inc, G.R. No. loss, if the information might possibly have reached him
147124, June 8, 2004). in the usual mode of transmission and at the usual rate
of communication;
Purposes of Subrogation: 3. Contingent liability e.g. Reinsurance.
1. To make the person who caused the loss legally
responsible for it; Note: Insurance for or against the drawing of any lottery,
2. To prevent the insured from receiving double recovery or for or against any chance or ticket in a lottery drawing a
from the wrongdoer and the insurer; and price is not allowed (Sec. 4, Insurance Code). It may
3. To prevent the tortfeasors from being free from result in profit which is not true in insurance which only
liability and is thus founded on considerations of public seek to indemnify the insured against losses.
policy.
Requisites for Recovery Upon Insurance (CLIP):
Rules on Subrogation: 1. The insured must have insurable interest in the
1. Applicable only to property insurance subject matter;
2. That interest is covered by the policy;
Reason: The value of human life is regarded as 3. There must be a loss; and
unlimited and therefore, no recovery from a third party 4. The loss must be proximately caused by the peril
can be deemed adequate to compensate the insureds insured against.
beneficiary.
Construction of Insurance Contract
2. The insurer can only recover from the third person 1. The terms in an insurance policy which are
what the insured could have recovered. ambiguous, equivocal, or uncertain are to be construed
Subrogation is NOT Applicable: strictly and most strongly against the insurer, and
1. Where the insured by his own act RELEASES the liberally in favor of the insured so as to effect the
wrongdoer or third party liable for the loss or damage; dominant purpose of indemnity or payment to the
insured.
Note: The insurer can only be subrogated to only such
rights as the insured may have (Manila Mahogany Mfg. Reason: The insured usually has no voice in the
Corp. v. CA, G.R. No. L-52756, October 12, 1987). selection or arrangement of the words employed and
that the language of the contract is selected with great
2. Where the insurer PAYS the insured the value of the care and deliberation by experts and legal advisers
loss without notifying the carrier who has in good faith employed by, and acting exclusively in the interest of,
settled the insureds claim for loss; the insurance company (Calanoc v. CA, et al., G.R. No.

L-8218, December 15, 1955). If the terms are clear, completed prior to the delivery of the policy depending on
there is no room for interpretation. the intention of the parties.
Provisions, conditions or exceptions in policies which Insurance contracts through correspondence follow the
tend to work a forfeiture of insurance policies should be cognition theory an acceptance made by letter shall not
construed most strictly against those for whose benefits bind the person making the offer except from the time it
they are inserted, and most favorably toward those came to his knowledge (Enriquez v. Sun Life Assurance
against whom they are intended to operate (Geagonia Co. of Canada, G.R. No. L-15774, November 29, 1920).
v. CA, G.R. No. L-114427, February 6, 1995).
2. Intentional as used in an accident policy excepting P ARTIES TO THE C ONTRACT

intentional injuries inflicted by the insured or any other
person, etc. implies the exercise of reasoning, 1. Insurer The party who assumes or accepts the risk
consciousness, and volition. Where a provision of the of loss and undertakes for a consideration to indemnify
policy excludes intentional injury, it is the intention of the the insured or to pay him a certain sum on the
person inflicting the injury that is controlling (Biagtan v. happening of a specified contingency or event. Every
The Insular Life Assurance Company, Ltd., G.R. No. person, partnership, association, or corporation duly
25579, March 29, 1972). authorized to transact insurance business may be an
insurer (Sec. 6, Insurance Code; Secs.184-187,
3. The terms accident and accidental, as used in Insurance Code)
insurance contracts have not acquired any technical
meaning, and are construed in their ordinary and May be:
common acceptation. Thus, the terms mean those that A Foreign or Domestic Insurance Company;
which happen by chance or fortuitously, without An individual partnership or association; or
intention or design, and which is unexpected, unusual, A natural person.
and unforeseen.
Insurance Corporation Corporation formed or
An accident is an event that takes place without ones organized to save any person or other corporations
foresight or expectation an event that proceeds from harmless from loss, damage, or liability arising from any
an unknown cause or is an unusual effect of a known unknown or future or contingent event or to indemnify or
cause and therefore, not expected (Finman General to compensate any person or persons or other
Assurance Corp. v. CA, G.R. No. 94588, July 2, 1992). corporation for any such loss, damage, or liability or to
guarantee the performance of or compliance with
4. An Authorized Driver clause limits the use of the contractual obligations or the payment of debt of others
insured vehicle to two persons only, namely: (1) the (Sec. 185, Insurance Code).
insured himself; or (2) any person on his (insureds)
permission (Villacorta v. Insurance Commissioner, G.R. It must have sufficient capital and assets required under
No. 54171, October 28, 1980). the Insurance code and the pertinent regulations
issued by the Commission (Sec. 186, Insurance
Perfection of an Insurance Contract (Offer and Code).
acceptance) It must have certificate of authority to operate issued by
An insurance contract is a consensual contract and is the Insurance commission which should be renewed
therefore perfected the moment there is a meeting of every year.
minds with respect to the object and the cause or
consideration. Foreign insurance corporations may be authorized
Delay in acceptance by the commission to engage in insurance business in
Mere delay by the insurer, although unreasonable, in the Philippines.
acting upon the application raises no implication of
acceptance nor does it estop the insurer to deny the 2. Insured The person in whose favor the contract is
existence of the contract (Aquino, supra. p. 17). operative and who is indemnified against, or is to
receive a certain sum upon the happening of a specified
Delivery of Policy contingency or event. Anyone EXCEPT a public enemy
The delivery of a policy is not, however, a prerequisite to may be insured (Sec. 7, Insurance Code).
a valid contract of insurance. The contract may be

Public enemy Citizen or subject of a nation at war Persons who cannot be named Beneficiaries
with the Philippines and does not include robbers Any person who is forbidden from receiving any donation
thieves and other criminals. under Art. 739 cannot be named beneficiary of a LIFE
INSURANCE POLICY by the person who cannot make
Reason: The purpose of war is to cripple the power and any donation to him (Art. 2012, NCC), to wit:
exhaust the resources of the enemy, and it is a. Those who are guilty of adultery or concubinage
inconsistent that one country should destroy its enemys with the insured at the time of designation;
property and repay in insurance the value of what has b. Those who were found guilty with the insured of
been so destroyed, or that it should in such manner the same criminal offense, committed in consideration
increase the resources of the enemy, or render it aid of the designation;
(Filipinas Cia de Seguros v. Christern Huenfeld & Co., c. A public officer or his wife, descendants and
Inc., G.R. No. L-2294, May 25, 1951). ascendants designated by reason of his office (Art. 739,
NCC).
Insurance by a minor has been rendered moot and
academic by R.A. 6809 which reduced the majority age Note: This prohibition will apply ONLY to life insurance
from 21 to 18 years of age. Hence, a person who is 18 policies (Art. 2012, NCC).
years or more may enter into any kind of insurance
contract because he is already of legal age. (Sec. 3, The designation of persons mentioned in Art. 739 is void
par. 3, Insurance Code) but the policy is binding. The estate will get the proceeds.
Insurance by a married woman Right to change Beneficiary (Sec. 11)

A married woman may take out an insurance on her life
or that of her children without the consent of her General Rule:
husband (Sec. 3[2], Insurance Code), or that of her The insured shall have the right to change the beneficiary
husband, having an insurable interest in the latter (Sec. he designated in the policy.
10, Insurance Code).
The beneficiary acquires NO vested right but only an
Note: However, while either spouse may exercise any expectancy of receiving the proceeds under the
legitimate profession, occupation, business or activity insurance.
without the consent of the other, the latter may object on
valid, serious and moral grounds (Art. 73, Family The right may be exercised in the manner provided in the
Code). policy. The right ceases upon the insureds death. It may
not be exercised by his representatives.
3. Cestui que vie and Beneficiary Cestui que vie is
the person on whose life the insurance is written. The Exception: If the right to change the beneficiary is
beneficiary is the person designated to receive the EXPRESSLY WAIVED in the policy, then the insured has
proceeds of the policy when the risk attaches (De Leon, no power to make such change without the consent of the
supra.). beneficiary.
Illustration: A husband may take out a policy on his The beneficiary acquires a vested right in the policy. Such
wifes life, proceeds payable to their son. The husband beneficiary, to whom a policy of insurance upon life or
is the insured, the wife is the cestui que vie, and the son health has passed by transfer, will or succession, may
is the beneficiary. recover upon it whatever the insured might have
Kinds of Beneficiary: recovered (Sec. 181, Insurance Code).
a. Insured himself;
b. Third person who paid a consideration; or If the insured refuses to pay the premiums, the designated
c. Third person through mere bounty of insured. irrevocable beneficiary may continue the policy by paying
premiums that are due (Art. 1236, NCC).
In the second and third cases, the beneficiary is not a
party to the contract. Art. 1311 [2nd par.], NCC allows the Exception to the Exception:
contracting parties to include a stipulation in favor of a Under Arts. 43[4], 50 & 64 of the Family Code, the
third person not a party to the contract. 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 be stipulated

as irrevocable. This is to prevent circumvention of Art. 739
of the NCC.
Insurable Interest
Forfeiture of the Rights of a Beneficiary The relation between the insured and the event insured
The interest of a beneficiary in a life insurance policy shall against such that the occurrence of the event will cause
be forfeited when the beneficiary is the principal, substantial loss or harm of some kind to the insured.
accomplice, or accessory in willfully bringing about the
death of the insured; in which event, the nearest relative 1. Life Insurance Insurable interest in life exists when
of the insured shall receive the proceeds of said insurance there is reasonable ground founded on the relation of
if not otherwise disqualified (Sec. 12, Insurance Code). the parties, either pecuniary or contractual or by blood
or affinity, to expect some benefit or advantage from the
Note: The disqualification arises due to a willful act of the continuance of the life of the insured.
beneficiary.
2. Property Insurance Every interest in property,
Revocation of Designation of an Offending Spouse as whether real or personal, or any relation thereto, or
Beneficiary after the Decree of Legal Separation liability in respect thereof, of such nature that a
Under Art. 106 par. 4 of the Family Code, after the decree contemplated peril might directly damnify the insured.
of legal separation has become final, the innocent spouse
may revoke the designation of the offending spouse as a Purposes of Insurable Interest Requirement
beneficiary in any insurance policy, even if such 1. Based upon considerations which render wager
designation be stipulated as irrevocable. policies invalid. Without such insurable interest, the
contract would in effect be a mere wager or gambling
The revocation shall take effect only upon written contract which is void;
notification thereof to the insured (Art. 106 par. 4 Family 2. Measure of the upper limit of his provable loss under
Code). the contract.
When the beneficiary dies before the insured: Insurable Interest in Life Insurance
1. Should the beneficiary predecease the insured 1. Where the insured is also the cestui que vie
and such beneficiary is irrevocable, and hence has a (Insurance upon ones life)
vested interest in the policy, the legal representatives of
such beneficiary are entitled to the proceeds of the A person has an insurable interest in his own life and
insurance as assets of his or her estate, unless the health (Sec. 10[a], Insurance Code). The insured can
proceeds were made payable to the beneficiary only if make it payable to anyone he chooses, regardless of
living. whether or not such beneficiary has an insurable
2. On the other hand, where the beneficiary is interest in his (insureds) life.
REVOCABLE and therefore does not have vested
interest in the policy at the time of his death, his estate Upon the insureds death, the beneficiary shall be
or legal representatives derive no interest from or entitled to the full face value of the policy. It is assumed
through him, but the proceeds passes to the estate of that the insured would not designate as his beneficiary
the insured. a person whom he would not trust his life.
3. In case of an insurance policy taken out by an
original owner on the life or health of a MINOR, all 2. Where the insured is not the cestui que vie but is
rights, title and interest in the policy shall automatically the beneficiary (insurable interest in the life of
vest in the minor upon the death of the original owner, another)
unless otherwise provided for in the policy (Sec. 3, par. Where a person names himself beneficiary in a policy
5). he takes on the life of another, he must have insurable
interest in the life of the latter.
Note: In property Insurance, the beneficiary must have
insurable interest on the property. (Reviewer on Note: The purpose of the law in requiring that the
Commercial Law, Insurance Code, Sundiang, Sr., person procuring the insurance must have an insurable
Aquino, 5th ed., 2011, p. 91.) interest in the life of the insured is to take off all the
temptation to destroy the life of the insured because of
I NSURABLE I NTEREST
his life insurance. This also prevents the contract from

becoming a wagering contract (Dizon, supra). A business firm can take out a policy on the life of its
officers or employees whose services proved valuable
Sec. 10 specifies the person in whose life the to the business. The proceeds are not taxable income
insured has an insurable interest, to wit: but constitute indemnity to the employer for the loss
which the business suffers because of the death of a
a. On himself, of his spouse, and of his children the valued officer or employee.
insured beneficiary need not prove insurable interest
because he is presumed to have an insurable interest Consent of the Cestui que vie:
on the life his spouse or his children. 1. First View Consent is essential to the validity of
policy. It is believed that all such contracts (without the
The husband and wife as well as parent and child do consent of the insured) are contrary to public policy and
have some pecuniary interest in each others life void.
since they are legally obliged to support each other. 2. Second View Under our law (Sec. 10, Insurance
Code), the consent of the person insured is not
b. Of any person on whom he depends wholly or in part essential to the validity of the policy. So long as it could
for education or support, or in whom he has be proved that the assured has a legal insurable
pecuniary interest where the relationship is not as interest at the inception of the policy, the insurance is
close as those mentioned above, the insured- valid even without such consent. (De Leon, The
beneficiary will be like any other stranger i.e. he will Insurance Code of the Philippines Annotated, Hector
have to prove that he has some pecuniary interest in De Leon, 2010 ed.)
the life of the cestui que vie, otherwise the policy will
be void. Time of Existence
c. Of any person under legal obligation to him for the General Rule: Insurable interest in life or health must
payment of money, or respecting property or services exist when the insurance takes effect, but need not exist
of which death or illness might delay or prevent thereafter or when the loss occurs (Sec. 19, Insurance
performance. Code).
d. Of any person upon whose life or estate vested in him
depends. Exceptions:
1. When taken by the creditor on the life of the debtor,
3. Creditor of insured as beneficiary the creditor is required to have an insurable interest not
only at the time of the contract but also at the time of
A creditor may name himself as beneficiary in a policy the debtors death because in this case, it is considered
he takes on the life of his debtor. The death of the as a contract of indemnity, the insurance pertaining
debtor may either prevent payment if his estate is not solely on the unpaid debt of the deceased.
sufficient to pay his debts or delay such payment if an 2. When the insurance is taken by the employer on the
administrator has to be appointed to settle his estate. life of the employee (El Oriente Fabrica de Tabacos,
Inc. v. Posadas, G.R. No. 34774, September 21, 1931).
Hence, the creditors recovery upon the death of the
debtor should be limited to the amount of his interest, Note: The test is whether or not the person is interested in
i.e. the amount owing to him. the preservation of the insured life despite the insurance.
BUT if the debtor is the insured and the creditor is Insurable Interest in Property
named beneficiary, the creditor will be entitled to the An insurable interest in property may consist in:
WHOLE proceeds of the policy upon the debtors death, 1. An existing interest The existing interest in the
though his credit may be much less. property may be legal title or equitable title.
4. Business associate or employer of insured Examples of insurable interest arising from legal
title:
A person may take a policy on the life of his business a. Trustee, as in the case of the seller of
partner because the latters death may result in an property not yet delivered;
interruption of business operations which can in turn b. Mortgagor of the property mortgaged;
cause financial loss. c. Lessor of the property leased

subject matter of the insurance, and neither title nor a

Examples of insurable interest arising from beneficial interest is requisite to the existence thereof. It is
equitable title sufficient that the insured is so situated with reference to
a. Purchaser of property before delivery or the property that he would be liable to loss should it be
before he has performed the conditions of the sale; injured or destroyed by the peril against which it is
b. Mortgagee of property mortgaged; insured. Anyone has an insurable interest in property who
c. Mortgagor, after foreclosure but before the derives a benefit from its existence or would suffer loss
expiration of the period within which redemption is from its destruction (Gaisano Cagayan, Inc. v. Insurance
allowed. Company of North America, G.R. No. 147839, June 8,
2006).
2. An inchoate interest founded on an existing
interest Time of Existence
An interest in property insured must exist when the
Example: A stockholder has an inchoate interest in the insurance takes effect AND when the loss occurs, but
property of the corporation of which he is a stockholder, need not exist in the meantime (Sec. 19).
which is founded on an existing interest arising from his
ownership of shares in the corporation. Insurable Interest in
Insurable Interest in Life
Property
3. An expectancy, coupled with an existing interest Extent
in that out of which the expectancy arises Insurable interest is Insurable interest in life is
limited to the actual unlimited (save in life
Expectancy to be insurable must be coupled with an value of the interest insurance effected by a
existing interest (Sec. 14, Insurance Code) or founded thereon creditor on the life of the
on an actual right to the thing or upon any valid contract debtor)
for it (Sec. 16, Insurance Code). Existence of insurable interest
Must exist when the It is enough that interest
Example: Expected profits insurance takes effect exist at the time the policy
AND when the loss takes effect and need not
One who has an interest in the thing from which profits occurs, but need not exist at the time of the loss.
are expected to proceed has an insurable interest in the exist in the meantime.
profits (Sec. 105, Insurance Code). Basis of expectation
There must be legal Expectation of the benefit
Where profits are separately insured in a contract of basis derived need not have legal
marine insurance, the insured is entitled to recover, in basis
case of loss, a proportion of such profits equivalent to Insurable Interest
the proportion which the value of the property lost bears The beneficiary must If the insured secured the
to the value of the whole (Sec. 158, Insurance Code). have an insurable policy, the beneficiary need
interest in the thing not have insurable interest
When profits are valued and insured by a contract of insured. over the life of the insured;
marine insurance, a loss of them is conclusively if secured by the
presumed from a loss of the property out of which they beneficiary, the latter must
are expected to arise, and the valuation fixes their have insurable interest in
amount (Sec. 160, Insurance Code). the life of the insured.
Special Cases:
Measure of Insurable Interest in Property 1. In case of a carrier or depository
The measure of insurable interest in property is the A carrier or depository of any kind has an insurable
EXTENT to which the insured might be damnified by loss interest in a thing held by him as such, to the extent of
or injury thereof (Sec. 17, Insurance Code). his liability but not to exceed the value thereof (Sec. 15,
Insurance Code).
Insurable interest in property does not necessarily imply a
property interest in, or a lien upon, or possession of, the

Reason: The loss of the thing by the carrier or Standard or

depository may cause liability against him to the extent Open or Loss Payable
Union Mortgage
of its value. Mortgage Clause
Clause
Subsequent acts Acts of the mortgagor affect the
2. In case of a mortgaged property
of the mortgagor mortgagee.
The mortgagor and mortgagee each has an insurable
CANNOT affect
interest in the property mortgaged and this interest is
the rights of the Reason: Mortgagor does not
separate and distinct from the other. Therefore,
assignee. cease to be a party to the
insurance taken by one in his name only and in his
contract (Secs. 8 and 9,
favor alone does not inure to the benefit of the other.
Reason: It is as if Insurance Code).
the insurer made
a. Mortgagor As owner, has an insurable interest
a new and
therein to the extent of its value, even though the
independent
mortgage debt equals such value.
contract with the
mortgagee.
Reason: The loss or destruction of the property
insured will not extinguish the mortgage debt.
Effects of Loss Payable Clause:
Exception: Loan on Bottomry or Respondentia. 1. The contract is deemed to be upon the interest of the
mortgagor; hence, he does not cease to be a party to
Reason: The nature of a bottomry loan is that the the contract;
payment of the loan is conditional, subject to the safe 2. Any act of the mortgagor prior to the loss, which
arrival of the vessel at the port of destination. In the would otherwise avoid the insurance affects the
case of respondentia loan, the collateral is not the mortgagee even if the property is in the hands of the
vessel but the goods loaded thereon. Furthermore, mortgagee;
Sec. 101 of the Insurance Code provides that the 3. Any act, which under the contract of insurance is to
insurable interest of the owner of the ship be performed by the mortgagor, may be performed by
hypothecated by bottomry is only the excess of its the mortgagee with the same effect;
value over the amount secured by bottomry. 4. In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit;
b. Mortgagee His interest is only up to the extent 5. Upon recovery by the mortgagee to the extent of his
of the debt. Such interest continues until the credit, the debt is extinguished.
mortgage debt is extinguished.
Note: The rule on subrogation by the insurer to the right of
Reason: The property relied on as mortgaged is only the mortgagee does not apply in this case.
a security. In insuring the property, he is not insuring
the property itself but his interest or lien thereon. Reason: Premium payment has been made by the
mortgagor and not by the mortgagee.
Note: In case of an insurance taken by the mortgagee
alone and for his benefit, the mortgagee, after recovery Mortgage Redemption Insurance
from the insurer, is not allowed to retain his claim A life insurance taken pursuant to a group mortgage
against the mortgagor but it passes by subrogation to redemption scheme by the lender of money on the life of a
the insurer to the extent of the insurance money paid mortgagor, who mortgages the house constructed to the
(Palileo v. Cosio, G.R. No. L-7667, November 28, extent of the mortgage indebtedness, such that if the
1955). mortgagor dies, the proceeds of his life insurance will be
used to pay for his indebtedness and the deceaseds heirs
The lessor cannot validly be a beneficiary of a fire will thereby be relieved from paying the unpaid balance of
insurance policy taken by a lessee over his the loan (Great Pacific Life Assurance Corp. v. CA, G.R.
merchandise, and the provision in the lease contract No. 113899, October 13, 1999).
providing for such automatic assignment is void for
being contrary to law and public policy (Cha v. CA, G.R. Transfer or Interest, Policy or Claim
No. 124520, August 18, 1997).
In Insurance, the following may be transferred or
assigned:

a. The thing insured (Sec. 20, Insurance Code); Reason: No new party was introduced into the co-
b. The policy itself (Sec. 58, Insurance Code); ownership. It is the alienation to a stranger that will
c. The claim itself (Sec. 83, Insurance Code). suspend the policy not to a co-owner because the
former was not originally a party to the contract.
1. Change of Interest
f. When a policy is so
General Rule: framed that it will inure to the benefit of
A change of interest in any part of the thing insured, whomsoever, during the continuance of the risk,
unaccompanied by a corresponding change of interest may become the owner of the interest insured (Sec.
in the insurance, SUSPENDS the insurance to an 57, Insurance Code).
equivalent extent, until the interest in the thing and the
interest in the insurance are vested in the same person Reason: Art. 1306 of the NCC (Autonomy of
(Sec. 20, Insurance Code). Contracts)
Rationale: Insurance contract is personal. g. When there is a

prohibition against alienation or change of interest
Exceptions: without the consent of the insurer, in which case, the
a. In cases of life, policy is not merely suspended but avoided (Sec. 25,
accident, and health insurance (Sec. 20, Insurance Insurance Code).
Code).
2. Transfer of Policy
Reason: They are not regarded as contracts of
indemnity and therefore, insurable interest need exist In Life Insurance the policy may be transferred
only at the time the insurance is effected. without the consent of the insurer (Sec. 181, Insurance
Code).
b. Change of interest in
the thing insured after occurrence of an injury which Reason: The policy does not represent a personal
results in a loss (Sec. 21, Insurance Code). agreement between the insured and the insurer.
Reason: After the loss has happened, the liability of Exception: When notice to an insurer of a transfer is
the insurer becomes fixed. Therefore, the insured has expressly required in the policy (Sec. 182, Insurance
the right to assign his claim against the insurer as any Code).
other money claim.
In Property Insurance the policy may NOT be
c. Change in interest in transferred without the consent of the insurer.
one or more of several distinct things separately
insured by one policy (Sec. 22, Insurance Code). Reason: The insurer approved the policy based on the
personal qualification and the insurable interest of the
Reason: The contract is divisible. insured.
d. Change of interest, by Effect of Transfer without Consent: The insurance

will or succession, on the death of the insured (Sec. policy will be suspended and will not be avoided until
23). the interest in the thing and the interest in the insurance
are vested in the same person.
Reason: Art. 1311 of the NCC (Relativity of
Contracts) In Casualty Insurance the policy may NOT be
transferred without the consent of the insurer.
Whoever takes the property of the decedent will
automatically become the owner of the policy. Reason: The moral hazards are as great as those of
e. Transfer of interest by property insurance.
one of several partners, joint owners, or owners in
common, who are jointly insured, to others (Sec. 24, 3. Transfer of Claim
Insurance Code). Claim of insured after loss is transferable, and any
stipulation to the contrary is void.

1. A party knows a fact (a material fact) which he

Reasons: neglects to communicate or disclose to the other party;
a. Agreement hinders free transmission of property; 2. Such party concealing is duty bound to disclose such
b. Transfer does not involve a personal contract, fact to the other;
but a money claim or right of action; 3. Such party concealing makes no warranty as to the
c. Transfer involves no moral hazard. fact concealed; and
4. The other party has no means of ascertaining the fact
concealed.
D EVICES FOR A SCERTAINING
AND C ONTROLLING R ISK AND Test of Materiality: Determined not by the event, but
solely by the probable and reasonable influence of the
Four Primary Concerns of the Insurer (EDCA) facts upon the party to whom the communication is due, in
1. Correct estimation of risk which enables insurer to forming his estimate of the advantages of the proposed
determine if he will approve the policy application and if contract, or in making his inquiries (Sec. 31, Insurance
so at what premium rate (Concealment and Code).
Representation);
2. Precise delimitation of the risk which determines the Distinguished from Materiality in Marine Insurance:
extent of the contingent duty to pay undertaken by the Rules on concealment are stricter, due to the difference in
insurer (Exception); the character of the property, and the greater facility the
3. Control of risk to guard against increase of risk insurer possesses in obtaining information as to its
(Warranties and Conditions); conditions and surrounding circumstances which are often
4. Determine if loss occurs, and if so, the amount insured when absent or afloat (Armena v. The Atlantic Fire
thereof (Condition). Ins. Co., 90 N.Y. 450. cited in the Insurance Code of the
Philippines Annotated, Hector De Leon, 2010ed)
Devices Used for Ascertaining and Controlling Risks
and Loss (CREW-C) Thus, in addition to material facts, each party must
1. Concealment Neglect to communicate that which a disclose ALL the information he possesses which are
party knows and ought to communicate (Sec. 26, material to the information of the belief or expectation of a
Insurance Code). third person, in reference to a material fact.
2. Representation An oral or written statement of a
fact or condition affecting the risk made by the insured As a general rule, the fact of concealment on the part of
to the insurance company at the time or before the the insured gives the insurer the right to rescind the
issuance of the policy, tending to induce the insurer to contract of insurance.
assume the risk. BUT a concealment in a marine insurance in any of the
3. Warranties Statements or promises by the insured following matters enumerated under Sec. 110, ICP does
set forth in the policy itself or incorporated in it by proper NOT vitiate the entire contract, the insurer is exonerated
reference, the untruth or non-fulfillment of which in any only if the facts concealed is the cause of the loss. If the
respect, and without reference to whether the insurer cause is something else, the insurer will still be liable
was in fact prejudiced by such untruth or non-fulfillment (Dizon, supra.).
render the policy voidable by the insurer. The same
may be expressed, implied, affirmative or promissory. Effect of Concealment
4. Exception Exceptions make more definite the If there is concealment under Sec. 27, the remedy of the
coverage indicated by the general description of the risk insurer is rescission.
by excluding certain specified risks that otherwise would
be included under the general language describing the Important notes:
risks assumed. 1. The party claiming the existence of concealment must
5. Condition The insurer must also protect himself prove that there was knowledge of the fact concealed
against fraudulent claims of loss and this he attempts to on the part of the party charged with concealment.
do by inserting in the policy various conditions which 2. Good faith is not a defense in concealment.
make the form of either conditions precedent or Concealment, whether intentional or unintentional
subsequent. entitles the injured party to rescind the contract of
CONCEALMENT insurance (Sec. 27).
Requisites: 3. The matter concealed need not be the cause of loss.

4. To be guilty of concealment, a party must have 1. Affirmative An affirmation of fact existing when the
knowledge of the fact concealed at the time of the contract begins;
effectivity of the policy. 2. Promissory Statement by the insured concerning
5. Failure to communicate information acquired AFTER what is to happen during the term of the insurance;
the effectivity of the policy will NOT be a ground to 3. Oral or Written
rescind the contract.
Requisites of a False Representation
Reason: Information is no longer material as it will no (Misrepresentation):
longer influence the other party to enter into such contract. 1. The insured stated a fact which is untrue.
2. Such fact was stated with knowledge that it is untrue
Matters that need not be disclosed: and with intent to deceive or which he states positively
Neither party to a contract of insurance is bound to as true without knowing it to be true and which has a
communicate information of the following matters, tendency to mislead.
EXCEPT in answer to inquiries of the other: (KOWEE) 3. Such fact in either case is material to the risk.
1. Those which the other knows;
2. Those which, in the exercise of ordinary care, the Although false, a representation of the expectation,
other ought to know and of which, the former has no intention, belief, opinion, or judgment of the insured will
reason to suppose him ignorant; not avoid the policy if there is no actual fraud in
3. Those of which the other waives communication; inducing the acceptance of the risk, or its acceptance
4. Those which prove or tend to prove the existence of a at a lower rate of premium, and this is likewise the rule
risk excluded by a warranty, and which are not although the statement is material to the risk, if the
otherwise material; statement is obviously of the foregoing character, since in
5. Those which relate to a risk excepted from the policy such case the insurer is not justified in relying upon
and which are not otherwise material (Sec. 30, such statement, but is obligated to make further
Insurance Code). inquiry (Philamcare Health Systems, Inc. v. CA, G.R. No.
125678, March 18, 2002).
Note: Neither party is bound to communicate, even upon
inquiry, information of his own judgment. Test of materiality The same as concealment (Sec. 31,
Insurance Code).
The parties are bound to know all the general causes
which are open to his inquiry, equally with the other, and Effect of Misrepresentation:
all general usages of trade. 1. The injured party entitled to rescind from the TIME
when the representation becomes false (Sec. 45,
The right to information of material facts may be Insurance Code).
WAIVED: 2. When the insurer accepted the payment of premium
1. By the terms of the contract; with the knowledge of the ground for rescission, there is
2. By failure to make an inquiry as to such facts, a waiver of such right.
where they are distinctly implied in other facts from 3. There is no waiver of the right of rescission if the
which information is communicated. insurer had no knowledge of the ground therefor at the
time of acceptance of premium payment (Stokes v.
Matters that must be disclosed even in the absence of Malayan Insurance Co., Inc. G.R. No. L-34768,
inquiry: (M-No means-No war) February 24, 1984).
1. Those material to the
contract (Sec. 31, 34, 35, Insurance Code); Characteristics of misrepresentation:
2. Those which the other has 1. Not a part of the contract but merely a collateral
no means of ascertaining (Sec. 30, 32, 33, Insurance inducement to it;
Code); 2. Oral or written;
3. Those as to which the 3. Made at the time of, or before issuing the policy and
party with the duty to communicate makes no warranty. not after;
(Secs. 67-76, Insurance Code).
Exception: The insured wants the insurer to make a
REPRESENTATIONS modification of the policy.
Kinds of Representation: 4. Altered or withdrawn before the insurance is effected
but not afterwards;

5. Refers to the date the contract goes into effect. a. Loss occurs before the time arrives for the
performance of the warranty;
Concealment Misrepresentation b. The performance becomes unlawful at the place of
Act involved the contract; and
c. Performance becomes impossible (Sec. 73,
The insured withholds The insured makes Insurance Code).
information of material erroneous statements of
facts from the insurer. facts with the intent of 2. Immaterial (e.g. Other insurance clause)
inducing the insurer to General Rule:
enter into the insurance It will not avoid the policy.
contract.
Materiality Exception:
Same rules apply to determine materiality When the policy expressly provides or declares that a
violation thereof will avoid it (Sec. 75, Insurance Code).
Effect
Same effect and gives the insurer the right to rescind Warranty Representation
the contract, whether the concealment or
misrepresentation be intentional or not Nature
Part of the contract Mere collateral inducement
Note: Where the insurer merely signed the application Form
form and made the agent of the insured file the same for Written on the policy, May be written in the policy
her, it was held by doing so, the insured made the agent actually or by reference or may be oral.
of the insurer her own agent.
Materiality
Warranties Presumed material Must be proved to be
Purpose: To eliminate potentially increasing hazards material
which may either be due to the acts of the insured or to Compliance
the change of the condition of the property.
Must be strictly Requires only substantial
complied with truth and compliance
Basis: The insurer took into consideration the condition of
the property at the time of effectivity of the policy. Effect of falsity/ non-fulfillment
Falsity or non-fulfillment Falsity renders the policy
Kinds: operates as a breach of void on the ground of fraud
1. Express An agreement expressed in a policy contract
whereby the insured stipulates that certain facts relating
to the risk are or shall be true, or certain acts relating to Conditions
the same subject have been or shall be done. Effects of Breach:
2. Implied It is deemed included in the contract 1. Condition precedent Prevents the accrual of
although not expressly mentioned. cause of action
2. Condition subsequent Avoids the policy or entitles
Example: In marine insurance, seaworthiness of the the insurer to rescind
vessel, non-deviation from the agreed voyage or non-
indulgence in illegal ventures. The insurer may also protect himself against fraudulent
claims of loss by inserting in the policy various conditions
Effects of breach of warranty: which take the form of conditions precedent. For
1. Material instance, there are conditions requiring immediate notice
General Rule: Violation of material warranty or of a of loss or injury and detailed proofs of loss within a limited
material provision of a policy will entitle the other party period.
to rescind the contract (Sec. 74, Insurance Code).
Exception:
Condition Warranty

Effects Rescission in life policy

Limitation to the Does not have that effect The defenses mentioned are available only during the first
attachment of the risk two years of a life insurance policy, provided that after a
policy of insurance made payable on the death of the
Non-performance of Does not suspend or defeat insured shall have been in force during the lifetime of the
which, although in form the operation of the insured for a period of 2 years from the date of its issue or
executed by the parties contract its last reinstatement, the insurer cannot prove that the
and delivered, does not policy is void ab initio or is rescindable by the reason of
spring into life. fraudulent concealment or misrepresentation of the
The occurrence of breach temporarily renders the insured or his agent (Incontestability Clause) (Sec. 48,
entire contract voidable. Insurance Code).
Exceptions: Provisions that may specify excepted perils. Purpose of Incontestability Clause
It makes more definite the coverage indicated by the To assure that after the specified period, the policy owner
general description of the risk by excluding certain may rely upon the insurance company to carry out the
specified risks that otherwise would be included under the terms of the contract, regardless of irregularities in
general language describing the risk assumed. connection with the application which may later be
discovered.
An insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of Requisites (LiP-2):
proving that the loss comes within the purview of the 1. It must be a Life insurance policy;
exception or limitation. If a proof is made of a loss 2. It must be Payable on the death of the insured; and
apparently within a contract of insurance, the burden is 3. It must be in force during the lifetime of the insured
upon the insurer to prove that the loss arose from a cause for at least 2 years from its date of issue or of its last
of loss which is excepted or for which it is not liable, or reinstatement.
from a cause which limits its liability (DBP Pool of
Accredited Insurance Companies v. Mindanao Network, The period of two years may be shortened but it cannot
G.R. No. 147039, January 27, 2006). be extended by stipulation.
Note: Breach of warranty or of a condition renders the The incontestability clause precludes the insurer from
contract defeasible at the option of the insurer; but if he so raising the defense of false representations or
elects, he may waive his privilege and power to rescind by concealment of material facts insofar as health and
the mere expression of an intention so to do. In that event previous diseases are concerned if the insurance has
his liability under the policy continues as before been in force for at least two years during the insureds
(Prudential v. Trans-Asia, G.R. 151890, June 20, 2006). lifetime (Tan v. CA, G.R. No. 48049, June 29, 1989).
Grounds (FAB-BreC): Defenses not barred by incontestability clause: (FELT-

1. Concealment; Vicious-PMs)
2. False representation; 1. That the person taking the insurance lacked insurable
3. Breach of material warranty; interest as required by law;
4. Breach of a condition subsequent; 2. That the cause of the death of the insured is an
5. Alteration of the thing insured. excepted risk;
3. That the premiums have not been paid;
Rescission in non-life policy 4. That the conditions of the policy relating to military or
The insurer must exercise the right to rescind the contract naval service have been violated;
BEFORE the insured has filed an action to collect the 5. That the fraud is of a particular vicious type;
amount of insurance. 6. That the beneficiary failed to furnish proof of death or
to comply with any conditions imposed by the policy
A defense to an action to recover insurance that the policy after the loss has happened;
was obtained through false representation, fraud and 7. That the action was not brought within the time
deceit is NOT in the nature of an action to rescind and specified.
therefore not barred by the provision (Sec. 45).
There is no limit for interposing this defense.
T HE P OLICY

The rider, endorsement, clause, or warranty was issued

Policy of Insurance AFTER the issuance of the policy:
The written instrument in which a contract of insurance is
set forth (Sec. 49, Insurance Code). It is not necessary for If the insured applied for the rider, endorsement, clause,
the perfection of the contract. or warranty, his counter-signature is NOT necessary;
If the same is not applied for by the insured, riders and the
Note: An insurance contract may be verbal or in writing, like shall be countersigned by the insured or owner.
or partly in writing and partly verbal. However, the law
provides that no policy of insurance shall be issued or Note: When the requirements for a rider are complied
delivered unless in the form previously approved by the with, it is considered as part of the policy.
Insurance Commission (Sec. 226, Insurance Code).
x x x any rider, clause, warranty or endorsement pasted or
Contents of Policy (R2AP2ID): attached to the policy is considered part of such policy or
1. Parties; contract of insurance (CIR v. Lincoln Philippine Life
2. Amount of insurance, except in open or running Insurance, G.R. No. 119176, March 19, 2002).
policies;
3. Rate of premium; Rule in Case of Conflict between Rider and Printed
4. Property or the life insured; Stipulations of a Policy
5. Interest of the insured in the property if he is NOT the When there is an inconsistency between a rider and the
absolute owner; printed stipulations in the policy, the rider prevails as being
a more deliberate expression of the agreement of the
BUT if he is the absolute owner, information of the contracting parties. This principle applies to the
nature or amount of his interest need not be interpretation of clauses, warranties, or indorsements
communicated unless in answer to an inquiry (Sec. 34, which are attached to policies to vary their terms (De
Insurance Code). Leon, The Insurance Code of the Philippines Annotated,
2006 ed).
6. Risk insured against;
7. Duration of the insurance. Binding Receipt
A mere acknowledgment on behalf of the company that its
Rider branch office had received from the applicant the
An attachment to an insurance policy that modifies the insurance premium and had accepted the application
conditions of the policy expanding or restricting its benefits subject to processing by the head office.
or excluding certain conditions from the coverage
Cover Note (Ad Interim)
Requisites: A concise and temporary written contract issued by the
The rider, clause, warranty or endorsement is attached to insurer through its duly authorized agent embodying the
the policy; principal terms of an expected policy of insurance.
The descriptive title or name of the rider, clause, warranty
or endorsement is mentioned and written on the blank Purpose: It is intended to give temporary insurance
spaces provided in the original printed policy form; and protection coverage to the applicant pending the
If not applied for by the insured or owner, the rider, clause, acceptance or rejection of his application.
warranty or endorsement shall be countersigned by the
insured. Rules on Cover Notes:
1. The cover note is valid for 60 days, after which the
Counter-signature of the insured on a rider, policy must be issued.
endorsement, clause, or warranty 2. The period may be extended or renewed beyond 60
If the rider, endorsement, clause or warranty was issued days with the written approval of the Commissioner if he
SIMULTANEOUSLY with the policy, the counter-signature determines that such extension is not contrary to and is
of the insured is NOT necessary. However, the not for the purpose of violating any provisions of the
descriptive title or name of the rider must be written on the Code.
blank spaces provided in the policy. The approval of the Insurance Commissioner may be
dispensed with upon the certification of the
president, vice-president, or general manager of the

insurance company concerned that the risk involved, trust, express or implied, between the insured and third
the values of such risks and/ or the premiums person (Bonifacio Bros., Inc. v. Mora, G.R. No. L-
therefor has not yet been determined or 20853, May 29, 1967).
established, or such extension or renewal is not 3. Where the contract insurance provides for indemnity
contrary to and is not for the purpose of violating against liability to third persons, then third persons, to
any provisions of the Insurance Code, or of any whom the insured is liable, can sue the insurer
rulings, instructions, or circulars of the Insurance (Guingon v. del Monte, et al., G.R. No. L-21806, August
Commissioner (Ins. Memo Cir. No. 3-75, dated 17, 1967).
September 29, 1975, effective Oct. 21, 1976).
Insurance Procured by an Agent
3. No separate premiums are intended or required to be The insurance inures to the benefit of the principal.
paid on a cover note because cover notes do not
contain particulars of the property insured that would Requisites:
serve as basis for the computation of premiums. Thus, 1. Agent must be authorized;
no premium could be fixed and paid on the cover note 2. Must act within the scope of his authority;
(Pacific Timber Export Corporation v. CA, G.R. No. L- 3. Must disclose his principal;
38613, February 25, 1982). 4. Indicate by appropriate words that he is acting in a
4. Cover notes should not be treated as separate representative capacity.
policies but should be integrated to the regular policies
subsequently issued so that the premiums on the Test to determine whether a Third Person may directly
regular policies include the consideration for the cover Sue the Insurer of the Wrongdoer
notes (Pacific Timber Export Corporation v. CA, G.R. Where the contract provides for INDEMNITY AGAINST
No. L-38613, February 25, 1982). LIABILITY to third persons, then the latter to whom the
insured is liable, can directly sue the insurer.
Kinds of Insurance Policies:
1. Open Policy One in which the value of the thing On the other hand, where the insurance is for INDEMNITY
insured is not agreed upon, but is left to be ascertained AGAINST ACTUAL LOSS OR PAYMENT, then third
in case of loss (Sec. 60, Insurance Code). persons cannot proceed against the insurer, the contract
2. Valued Policy One which expresses on its face being solely to reimburse the insured for liability actually
agreement that the thing insured shall be valued at a discharged by him through payment to third persons, said
specified sum (Sec. 61, Insurance Code). third persons recourse being, thus limited to the insured
3. Running Policy One which contemplates alone (Guingon v. Del Monte, Ibid).
successive insurances and which provides that the
object of the policy may be from time to time defined, Cancellation of Non-life Policy
especially as to the subjects of insurance, by additional The right of the insurer to cancellation of a policy of
statements or endorsements (Sec. 62, Insurance insurance other than life is covered by Secs. 64 and 65 of
Code). the Insurance Code.
General Rule: The insurance proceeds shall be applied Requisites (WANG):

exclusively to the proper interest of the person in whose 1. Prior notice of cancellation to the insured;
name or for whose benefit it is made. A third person may 2. Notice must be based on the occurrence after the
not sue the insurer directly. effective date of the policy of one or more of the
grounds mentioned;
Exception: If the insurance contract was intended to 3. Notice must be in writing, mailed or delivered to the
benefit third persons (Art. 1311, NCC), the latter may insured at the address shown in the policy;
directly claim from the insurer. Thus: 4. Notice must state the grounds relied upon provided in
1. If the insurance contract contain some stipulation in Sec. 64 of the Insurance Code and upon request of the
favor of a third person (stipulation pour autrui), the latter insured to furnish facts on which cancellation is made.
although not a party to the contract may enforce the
stipulation in his favor before it is revoked by the Grounds (NC-FraPV):
contracting parties (Coquia v. Fieldmens Ins. Co., et al, 1. Non-payment of premiums;
G.R. No. L-23276, November 29, 1968). 2. Conviction of a crime out of acts increasing the
2. A third person has no right in law or equity to the hazard insured against;
proceeds of an insurance unless there is a contract or 3. Fraud or material misrepresentation;

4. Willful or reckless acts or omissions increasing the

risk insured against; Note: The conclusive presumption extends only to the
5. Physical changes in the property insured making it question on the binding effect of the policy. As far as the
uninsurable; payment of the premium itself is concerned, the
6. Determination by the Insurance Commissioner that acknowledgment is only a prima facie evidence of the fact
the policy would violate the Insurance Code. of such payment. The insurer may still dispute its
acknowledgment but only for the purpose of receiving the
premium due and unpaid (De Leon, supra).
P REM IUM
Effect of acceptance of premium
General Rule: Acceptance of premium within the stipulated period for
Cash and Carry Rule - No insurance policy issued or payment thereof, including the agreed grace period,
renewal is valid and binding until actual payment of the merely assures continued effectivity of the insurance
premium. Any agreement to the contrary is void (Sec. 77, policy in accordance with its terms.
Insurance Code).
Where an insurer authorizes an insurance agent or broker
Reason: The insurer upon issuance of the policy, is to deliver a policy to the insured, it is deemed to have
immediately exposed to liability for the risks insured authorized said agent to receive the premium in its behalf.
against, hence it is entitled to be paid premium for The insurer is bound by its agents acknowledgment of the
extending protection to the insured immediately upon such receipt of payment of premium.
exposure.
The acceptance by the insurer of premium payments after
Exceptions (LACIE): he has knowledge of a ground for rescission will bar him
1. In case of life and industrial life whenever the grace from rescinding the policy (Sec. 2, B.P. 874).
period provision applies (Sec. 77, Insurance Code).
2. Where there is an acknowledgment in the contract or Payment of the premium by post-dated check
policy of insurance that the premium had already been Delivery of a promissory note or a check will not be
paid (Sec. 78, Insurance Code). sufficient to make the policy binding until the said note or
3. If the parties have agreed to the payment of the check has been converted into cash. This is consistent
premium in installments and partial payment has been with Art. 1249 of the NCC.
made at the time of the loss (Makati Tuscany
Condominium v. CA, G.R. No. 95546, November 6, Note: Payment by means of a check or note, accepted by
1992). the insurer, bearing a date PRIOR to the loss, assuming
4. Where a credit term was agreed upon (UCPB availability of the funds thereof, would be sufficient even if
General Insurance, Inc. v. Masagana Telamart, G.R. it remains unencashed at the time of the loss. The
No. 137172, April 4, 2001). subsequent effects of encashment would retroact to the
5. Where the parties are barred by estoppel. date of the instrument and its acceptance by the creditor
(Vitug, Pandect of Commercial Law and Jurisprudence,
Note: Sec. 77 merely precludes the parties from 2006ed).
stipulating that the policy is valid even if the premiums are
not paid (Makati Tuscany Condominium Corp. v. CA, Entitlement of insured to return of premiums paid:
supra). 1. Whole
a. If the thing insured was never exposed to the
Effect of Acknowledgment of Receipt of Premium in risks insured against (Sec. 79, Insurance Code);
Policy: Conclusive evidence of its payment, in so far as to b. If contract is voidable due to fraud or
make the policy binding, notwithstanding any stipulation misrepresentation of the insurer or his agents (Sec.
therein that it shall not be binding until the premium is 81, Insurance Code);
actually paid (Sec. 78). c. If contract is voidable because of the existence of
facts of which the insured was ignorant without his
Reason: When the policy contains such written fault (Sec. 81, Insurance Code);
acknowledgement, it is presumed that the insurer has d. When by any default of the insured other than
waived the condition of prepayment. It hereby creates a actual fraud, the insurer never incurred liability (Sec.
legal fiction of payment. 81, Insurance Code); and

e. When rescission is granted due to the insurers premiums had been paid by the insured from funds
breach of contract (Sec. 74, Insurance Code). derived from other sources.
6. Reinstatement Provision that the holder of the
2. Pro rata policy shall be entitled to reinstatement of the contract
a. When the insurance is for a definite period and at any time within three years from the date of default in
the insured surrenders his policy before the the payment of premium, unless the cash surrender
termination thereof; value has been paid, or the extension period expired,
upon production of evidence of insurability satisfactory
Exceptions: to the company and the payment of all overdue
i. Policy not made for a definite period of time; premiums and any indebtedness to the company upon
ii. Short period rate is agreed upon; said policy (Perez, Reviewer on Insurance, Insolvency
iii. Life insurance policy and Code of Commerce, 2000 ed).
7. Estoppel Bars insurer from taking refuge under
b. When there is over-insurance Sec. 77, since respondent relied in good faith on such
i. In case of over-insurance by double practice.
insurance, the insurer is not liable for the total
amount of the insurance taken, his liability being
limited to the property insured. Hence, the insurer D OUBLE I NSURANCE
is not entitled to that portion of the premium
corresponding to the excess of the insurance over Double insurance exists where the same person is
the insurable interest of the insured. insured by several insurers separately, in respect to the
ii. In case of over-insurance by several same subject and interest (Sec. 93, Insurance Code).
insurers, the insured is entitled to a ratable return of
the premium, proportioned to the amount by which Requisites (TIRIS):
the aggregate sum insured in all the policies 1. Same insured person;
exceeds the insurable value of the thing at risk 2. Same subject matter;
(Sec. 82, Insurance Code). 3. Same interest insured;
4. Same risk or peril insured against; and
Devices Used to Prevent the Forfeiture of a Life 5. Two or more insurers insuring separately.
Insurance after the Payment of the First Premium:
1. Grace period After the payment of the first Over-Insurance
premium, the insured is entitled to a grace period of Exists when the insured insures the same property for an
thirty days within which to pay the succeeding amount GREATER than the value of that property.
premiums.
2. Cash Surrender Value The amount the insurer Effect in case of loss:
agrees to pay to the holder of the policy if he surrenders 1. The insurer is bound only to pay the extent of the
it and releases his claim upon it. real value of the property lost;
3. Extended Insurance Where the insurance 2. The insured is entitled to recover the amount of
originally contracted for is continued for such period as premium corresponding to the excess in value of the
the amount available therefor will pay when it will property.
terminate. In such a case, the insurance will be for the
same amount as the original policy but for a period Effects of over insurance by double insurance (Sec.
shorter than the period in the original contract. 94, Insurance Code):
4. Paid Up Insurance No more payments are 1. The insured, unless the policy otherwise
required, and consist of insurance for life in such an provides, may claim payment from the insurers in such
amount as the sum available therefore, considered as a order as he may select, up to the amount for which the
single and final premium, will purchase. It results to a insurers are severally liable under their respective
reduction of the original amount of insurance, but for the contracts;
same period originally stipulated. 2. Where the policy under which the
5. Automatic Loan Clause A stipulation in the policy insured claims is a valued policy, the insured must give
providing that upon default in payment of premium, the credit as against the valuation for any sum received by
same shall be paid from the loan value of the policy until him under any other policy without regard to the actual
that value is consumed. In such a case, the policy is value of the subject matter insured;
continued in force as fully and effectively as though the

3. Where the policy under which the insurable interest policies issued does not
insured claims is an unvalued policy, he must give exceed the insurable
credit, as against the full insurable value, for any sum interest of the insured
received by him under any policy;
Number of insurers
4. Where the insured receives any sum in
excess of the valuation in the case of valued policies, or There may only be one There are always several
of the insurable value in the case of unvalued policies, insurer involved insurers
he must hold such sum in trust for the insurers,
according to their right of contribution among The ratable contribution of each insurer will be determined
themselves; based on the following formula:
5. Each insurer is bound, as between
himself and the other insurers, to contribute ratably to Amount of policy
the loss in proportion to the amount for which he is X loss = liability of insurer
liable under his contract. Total insurance taken
Principle of Contribution or Contribution Clause Reinsurance

It is required that each insurer contribute ratably to the A contract by which the insurer procures a third person to
loss or damage considering that the several insurances insure him against loss or liability by reason of an original
cover the same subject matter and interest against the insurance (Sec. 95, Insurance Code) also known as
same peril. Reinsurance Cession.
Additional or Other Insurance Clause In every reinsurance, the original contract of insurance
A condition in the policy requiring the insured to inform the and the contract of reinsurance are covered by separate
insurer of any other insurance coverage of the property policies.
insured. It is lawful and specifically allowed under Sec. 75
which provides that (a) policy may declare that a violation Limit of Single Risk
of a specified provision thereof shall avoid it, otherwise No insurance company other than life, shall retain any risk
the breach of an immaterial provision does not avoid it. on any one subject of insurance in an amount exceeding
20% of its net worth (Sec. 215, Insurance Code).
Purpose
Double Insurance is not prohibited by law. The reasons Double Insurance Reinsurance
why it may be required that its existence be disclosed are: Interest
1. To prevent an increase in the moral hazard; and
2. To prevent over-insurance and fraud. Involves the same interest Involves different interest
Subject
x x x the prohibition applies only in case of double Subject of insurance is Subject of insurance is the
insurance. The Court ruled that in order to constitute a property original insurers risk
violation of the clause, the other insurance must be upon
Insurer
the same subject matter, the same interest therein, and
the same risk. Thus, even though the multiple insurance Insurer remains in such Insurer becomes the
policies involved were all issued in the name of the same capacity insured in relation to
assured, over the same subject matter and covering the reinsurer
same risk, it was ruled that there was no violation of the Insured
other insurance clause since there was no double Insured is the party in Original insured has no
insurance (Malayan Insurance Co., Inc. v. Philippine First interest in the 2 contracts interest in the reinsurance
Insurance Co., G.R. No. 184300, July 11, 2012). contract (Sec. 98,
Insurance Code)
Over-Insurance Double Insurance
Insureds consent
Amount of insurance
Insured has to give his Insureds consent not
When the amount of the There may be no over- consent necessary
insurance is beyond the insurance as when the sum Other Terms:
value of the insureds total of the amounts of the

1. Reinsurance treaty Merely an agreement

between two insurance companies whereby one agrees When the Insurer is not Liable (WCE)
to cede and the other to accept reinsurance business 1. Loss by the insureds willful act or gross negligence;
pursuant to provisions specified in the treaty. 2. Loss due to the connivance of the insured (Sec. 87,
2. Automatic reinsurance The reinsured is bound Insurance Code); and
to cede and the reinsurer is obligated to accept a fixed 3. Loss where the excepted peril is the proximate cause.
share of the risk which has to be reinsured under the
contract. Proximate Cause
3. Facultative reinsurance There is no obligation That which in a natural and continuous sequence,
to cede or accept participation in the risk each party unbroken by any new independent cause, produces an
having a free choice. But once the share is accepted, event and without which the event would not have
the obligation is absolute and the liability thereunder occurred.
can be discharged only by payment (Equitable Ins. &
Casualty Co. v. Rural Ins. & Surety Co., Inc., G.R. No. Notice of Loss
L-17436, January 31, 1962). Purposes:
4. Retrocession A transaction whereby the 1. To give the insurer information by which he may
reinsurer, in turn, passes to another insurer a portion of determine the extent of his liability;
the risk reinsured. It is really the reinsurance of 2. To afford the insurer a means of detecting any fraud
reinsurance (De Leon, supra). that may have been practiced upon him;
3. To operate as a check upon extravagant claims.
L OSS In fire insurance In other types of

/CMVLI insurance
Required Not required
Loss in Insurance
The injury, damage or liability sustained by the insured in Effect of failure to furnish
consequence of the happening of one or more of the Failure to give notice will
perils against which the insurer, in consideration of the Failure to give notice not exonerate the insurer,
premium, has undertaken to indemnify the insured. It may will defeat the right of unless there is a stipulation
be total, partial, or constructive in Marine Insurance the insured to recover. in the policy requiring the
(Secs. 127-131, Insurance Code). insured to do so.
Loss is Satisfied (PaReRe) Defects in the notice or proof of loss are waived when
1. Payment of loss; the insurer:
2. Reinstatement (repair or restoration) of the property 1. Writes to the insured that he considers
lost or damaged; the policy null and void as the furnishing of notice or
3. Replacement (substitution) with another or similar proof of loss would be useless;
property. 2. Recognizes his liability to pay the claim;
3. Denies all liability under the policy;
When Insurer is Liable for Loss (PIN-RP) 4. Joins in the proceedings for determining the amount
1. Loss the proximate cause of which is the peril insured of the loss by arbitration, making no objections on
against (Sec. 84, Insurance Code); account of notice and preliminary proof; or
2. Loss the immediate cause of which is the peril 5. Makes objection on any ground other than formal
insured against except where the proximate cause is an defect in the preliminary proof.
excepted peril (Sec. 86, Insurance Code);
3. Loss through the negligence of the insured except Claims Settlement
where there was gross negligence amounting to willful The indemnification of the loss of the insured
act (Sec. 87, Insurance Code);
4. Loss caused by efforts to rescue the thing insured In case of an unreasonable delay/denial in the payment of
from a peril insured against (Sec. 85, Insurance Code); the insureds claim by the insurer, the insured can recover:
5. Loss caused by a peril NOT insured against to which 1. Attorneys fees;
the thing insured was exposed in the course of rescuing 2. Expenses
the same from the peril insured against (Sec. 85, incurred by reason of the unreasonable withholding;
Insurance Code).

3. Interest at double refusal or failure to pay is based on the ground that the
the legal interest rate fixed by the monetary board; and claim is fraudulent (Ibid; Secs. 242, 243, Insurance Code).
4. Amount of the
claim (Zenith Insurance Corp. v. CA, G.R. No. 85296,
May 14, 1990; Sec. 244). P RESCRIPTIVE P ERIOD
Time for Payment of Claims Rules:

Life Policies Non-Life Policies 1. The parties to a contract of insurance may validly
a. Maturing upon the The proceeds shall be paid agree that an action on the policy should be brought
expiration of the within 30 days after the within a limited period of time, provided such period is
term The receipt by the insurer of NOT less than 1 year from the time the cause of action
proceeds are proof of loss, and accrues. If the period agreed upon is less than 1 year
immediately ascertainment of the loss or from the time the cause of action accrues, such
payable to the damage by agreement of agreement is void (Sec. 63, Insurance Code).
insured, except if the parties or by arbitration a. The stipulated prescriptive period shall begin to
proceeds are but not later than 90 days run from the date of the insurers rejection of the
payable in from such receipt of proof claim filed by the insured or beneficiary and not from
installments or of loss, whether or not the time of the loss.
annuities, which ascertainment is had or b. In case the claim was denied by the insurer but
shall be paid as made (Sec. 243, Insurance the insured filed a petition for reconsideration, the
they become due. Code). prescriptive period should be counted from the date
the claim was denied at the first instance and not
b. Maturing at the from the denial of the reconsideration (Sun Life
death of the Office, Ltd. v. CA, G.R. No. 89741, March 13, 1991).
insured, occurring
prior to the 2. If there is no stipulation or the stipulation is void, the
expiration of the insured may bring the action within 10 years in case the
term stipulated contract is written.
The proceeds are 3. In CMVLI, the written notice of claim must be filed
payable to the within 6 months from the date of the accident;
beneficiaries within otherwise, the claim is deemed waived even if the same
60 days after: is brought within one year from its rejection (Vda. De
presentation of Gabriel v. CA, G.R. No. 103883, November 14, 1996).
claim and filing of 4. The suit for damages, either with the proper court or
proof of death (Sec. with the Insurance Commissioner, should be filed within
242, Insurance 1 year from the date of the denial of the claim by the
Code). insurer; otherwise, claimants right of action shall
prescribe (Sec. 384, Insurance Code).
Effect of Refusal or Failure to Pay the Claim within the
Time Prescribed
General Rule: Secs. 242, 243 and 244 of the Insurance
Code provide that the insurer shall be liable to pay interest
twice the ceiling prescribed by the Monetary Board
which means twice 12% per annum (legal rate of interest
prescribed in CB No. 416) or 24% per annum interest on
the proceeds of the insurance from the date following the
time prescribed in Secs. 242 or 243, until the claim is fully
satisfied (Prudential Guarantee and Assurance, Inc v.
Trans-Asia Shipping Lines, Inc. G.R. No. 151890, June
20, 2006).
Exception: Refusal or failure to pay the loss or damage

will entitle the assured to collect interest UNLESS such

S PECIAL K INDS OF I NSURANCE Cargo can be the subject of marine insurance, and once it
is entered into, the implied warranty of seaworthiness
M ARINE I NSURANCE immediately attaches to whoever is insuring the cargo,
whether he be the ship owner or not (Roque v. IAC, G.R.
No. L-66935, November 11, 1985).
Sec. 99. Marine Insurance includes:
Insurance against loss of or damage to: MARINE PROTECTION AND INDEMNITY INSURANCE
Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements, Measure of Indemnity:
profits, moneys, securities, choses in action, Valued policy The parties are bound by the valuation, if
evidences of debts, valuable papers, bottomry, and the insured had some interest at risk and there is no
respondentia interests and all other kinds of property fraud.
and interests therein, in respect to, appertaining to or
in connection with any and all risks or perils of Exception: When a thing has been hypothecated by
navigation, transit or transportation, or while being bottomry or respondentia, before its insurance, and
assembled, packed, crated, baled, compressed or without the knowledge of the person actually procuring
similarly prepared for shipment or while awaiting the insurance, he may show the real value (Sec. 156,
shipment, or during any delays, storage, Insurance Code).
transshipment, or reshipment incident thereto,
including war risks, marine builder's risks, and all Open policy The following rules shall apply in
personal property floater risks; estimating a loss:
Person or property in connection with or appertaining to a. Value of the ship value at the beginning of the risk;
a marine, inland marine, transit or transportation b. Value of the cargo actual cost when laden on board
insurance, including liability for loss of or damage or market value at the time and place of lading;
arising out of or in connection with the construction, c. Value of freightage gross freightage exclusive of
repair, operation, maintenance or use of the subject primage;
matter of such insurance (but not including life d. Cost of insurance in each case, to be added to the
insurance or surety bonds nor insurance against loss estimated value (Sec. 161, Insurance Code).
by reason of bodily injury to any person arising out of
ownership, maintenance, or use of automobiles); Major divisions of transportation insurance:
Precious stones, jewels, jewelry, precious metals, 1. Ocean Marine Insurance
whether in course of transportation or otherwise; Scope:
Bridges, tunnels and other instrumentalities of a. Ships Or Hulls
transportation and communication (excluding b. Goods Or Cargoes
buildings, their furniture and furnishings, fixed c. Earnings Such As Freight
contents and supplies held in storage); piers, d. Liability Incurred By Reason Of Maritime Perils
wharves, docks and slips, and other aids to
navigation and transportation, including dry docks 2. Inland Marine Insurance
and marine railways, dams and appurtenant facilities Classes:
for the control of waterways. a. Property in transit provides
protection to property frequently exposed to loss
"Marine protection and indemnity insurance," meaning while it is being transported from one location to
insurance against, or against legal liability of the insured another.
for loss, damage, or expense incident to ownership, b. Bailee liability insurance for
operation, chartering, maintenance, use, repair, or those who have temporary custody of the goods.
construction of any vessel, craft or instrumentality in use c. Fixed transportation property
of ocean or inland waterways, including liability of the they are so insured because they are held to be an
insured for personal injury, illness or death or for loss of essential part of the transportation system such as
or damage to the property of another person. bridges, tunnels, etc.
d. Floater provides insurance to
Note: Marine Insurance is not limited to insurance that follow the insured property wherever it may be
secures vessels and its cargoes against the perils of
navigation.

located, subject always to the territorial limits of the

contract.
Insurable Interest Perils of the Sea Perils of the Ship

1. Ship Owner
Includes only those A loss which in the ordinary
a. Over the vessel to the extent of its value, provided casualties due to the: course of events, results
that if chartered, the recovery is only up to the 1. Unusual violence; from the:
amount not recoverable from the charterer; or 1. Natural and inevitable
b. He also has an insurable interest on expected 2. Extraordinary action of the sea;
freightage (Sec. 103, Insurance Code); action of wind and 2. Ordinary wear and tear
c. No insurable interest if he will be compensated by wave; or of the ship; or
charterer for the value of the vessel, in case of loss.
3. Other extraordinary 3. Negligent failure of the
causes connected ships owner to provide
2. Cargo owner
with navigation. the vessel with proper
a. Over the cargo and expected profits (Sec.
equipment to convey the
105, Insurance Code). cargo under ordinary
conditions.
3. Charterer
Over the amount he is liable to the ship owner, if the
ship is lost or damaged during the voyage (Sec. 106, Special Marine Insurance Contracts and Clauses
Insurance Code); 1. All-Risks Policy insurance against all causes of
Over his expected profits or freightage if he accepts conceivable loss or damage.
cargoes from other persons for a fee;
Over his own cargo or his clients cargo. Except:
As otherwise excluded in the policy; or
4. Owner/ Debtor (where the vessel or cargo is
Due to fraud or intentional misconduct on the part of the
hypothecated by bottomry or respondentia) insured (Choa Tiek Seng v. CA, G.R. No. 84507,
Difference between the value of vessel or goods and March 15, 1990).
the amount of loan (Sec. 101, Insurance Code).
In loans on bottomry and respondentia, repayment of The insured has the initial burden of proving that the
the loan is subject to the condition that the vessel or cargo was in good condition when the policy attached
goods, respectively, given as a security, shall arrive and that the cargo was damaged when unloaded from
safely at the port of destination. the vessel; thereafter, the burden shifts to the insurer to
If a vessel is hypothecated by bottomry, only the excess show the exception to the coverage (Filipino Merchants
is insurable, since a loan on bottomry partakes of the Insurance v. CA, G.R. No. 85141, November 28, 1989).
nature of an insurance coverage to the extent of the
loan accommodation. The same rule would apply to 2. Barratry Clause
the hypothecation of the cargo by respondentia A clause which provides that there can be no recovery
(Vitug, supra.). on the policy in case of any willful misconduct on the
part of the master or crew in pursuance of some
5. Creditor/ Lender
unlawful or fraudulent purpose without consent of
Amount of the loan (Dizon, supra.). owners, and to the prejudice of the owners interest
(Roque v. IAC, Ibid).
Risk Insured Against
It is only perils of the sea which may be insured against 3. Inchmaree Clause
unless perils of the ship are covered by an all-risk policy. A clause which makes the insurer liable for loss or
damage to the hull or machinery arising from the:
a. Negligence of the captain, engineers, etc.
b. Explosions, breakage of shafts; and
c. Latent defect of machinery or hull (Miravite,
supra.).

4. Warranty of neutrality: The ship will carry the

4. Sue and Labor Clause requisite documents of nationality or neutrality of the
A clause under which the insurer may become liable to ship or cargo where such nationality or neutrality is
pay the insured, in addition to the loss actually suffered, expressly warranted (Sec. 120, Insurance Code); and
such expenses as he may have incurred in his efforts to 5. Presence of insurable interest.
protect the property against a peril for which the insurer
would have been liable (Sec. 163, Insurance Code). Note: While the payment by the insurer for the insured
Note: Such clause constitutes an exception to the value of the lost cargo operates as a waiver of the
principle that an insurance contract is one of indemnity insurers right to enforce the term of the implied warranty
(where the insurer promises to make good only the loss against the insured under the marine insurance policy, the
of the insured) since the insurer is liable to pay same cannot be validly interpreted as an automatic
additional expenses for the protection of the property admission of the vessels seaworthiness by the insurer as
against an insured peril. to foreclose recourse against the common carrier for any
liability under the contractual obligation as such common
Matters, although concealed, will NOT vitiate the carrier (Delsan Transportation Lines v. CA, G.R. No.
contract except when they caused the loss 127897, November 15, 2001).
1. National character of the insured;
2. Liability of the thing insured to capture or detention; Seaworthiness
3. Liability to seizure from breach of foreign laws of A relative term depending upon the nature of the ship,
trade; voyage, service and goods, denoting in general a ships
4. Want of necessary documents; and fitness to perform the service and to encounter the
5. Use of false or simulated papers (Sec. 110, ordinary perils of the voyage, contemplated by the parties
Insurance Code). to the policy (Sec. 114, Insurance Code).
Distinctions on Concealment General Rule: The warranty of seaworthiness is complied

Other Property with if the ship be seaworthy at the time of the
Marine Insurance
Insurance commencement of the risk. Prior or subsequent
Information of 3rd persons unseaworthiness is not a breach of the warranty nor is it
The information or the The information or belief of material that the vessel arrives in safety at the end of her
belief or expectation of a 3rd party is not material voyage.
3rd persons in reference and need not be
to a material fact is communicated, unless it Exceptions:
material and must be proceeds from an agent of 1. In the case of a TIME POLICY, the ship must be
communicated. the insured whose duty is seaworthy at the commencement of every voyage she
to give information. may undertake during the period of the coverage.
Effect of concealment 2. In the case of CARGO POLICY, each vessel upon
The concealment of any Concealment of any which the cargo is shipped or transshipped, must be
fact in relation to any of material fact will vitiate the seaworthy at the commencement of each particular
the matters stated in entire contract, whether or voyage.
Sec. 110 does not vitiate not the loss results from the 3. In the case of a VOYAGE POLICY contemplating a
the entire contract but risk concealed. voyage in different stages, the ship must be seaworthy
merely exonerates the at the commencement of each stage of the voyage.
insurer from a risk
resulting from the fact Implied warranty of seaworthiness applied to cargo
concealed owner It becomes the obligation of a cargo owner to
look for a reliable common carrier, which keeps its
Implied Warranties vessels in seaworthy conditions. The shipper may have
1. Seaworthiness of the ship at the inception of the no control over the vessel but he has control in the
insurance (Sec. 113, Insurance Code); choice of the common carrier that will transport his
2. Against improper deviation (Sec. 123, 124, 125, goods (Roque v. IAC, G.R. No. L-66935, Ibid).
Insurance Code);
3. Against illegal venture; Deviation
Departure from the course of the voyage insured, or an
unreasonable delay in pursuing the voyage, or the

commencement of an entirely different voyage (Sec.123, c. Expense of transshipment exceeds of value of

Insurance Code). cargo (Sec. 131, in relation to Sec. 139, Insurance
Code).
Instances:
1. Deviation from the agreed voyage; In case of constructive total loss, insured may:
2. Departure of vessel from the course of the sailing a. Abandon goods or vessel to the insurer and claim
fixed by mercantile usage; for whole insured value (Sec. 139, Insurance
3. Departure of vessel from the most natural, direct and Code); or
advantageous route if not fixed by mercantile usage; b. Without abandoning vessel, claim for partial actual
4. Unreasonable delay in pursuing voyage; and loss (Sec. 155, Insurance Code).
5. Commencement of an entirely different voyage
(Secs. 121-123, Insurance Code). B. Partial Loss- that which is not total (Sec. 128,
Insurance Code).
Kinds of Deviation:
1. Proper Abandonment
a. When caused by circumstances outside the control of Act of the insured by which, after a constructive total loss,
the ship captain or ship owner; he declared the relinquishment to the insurer of his
b. When necessary to comply with a warranty or to interest in the thing insured (Sec. 138, Insurance Code).
avoid a peril (real peril);
c. When made in good faith to avoid a peril (non- Requisites for validity (PEN FACT):
existing/ assumed peril); 1. There must be an actual relinquishment by the
d. When made in good faith to save human life or to person insured of his interest in the thing insured (Sec.
relieve another vessel in distress (Sec. 124, 138, Insurance Code);
Insurance Code). 2. There must be a constructive total loss (Sec. 139,
Insurance Code);
Effect: In case of loss, the insurer is still liable. 3. The abandonment must be neither partial nor
conditional (Sec. 140, Insurance Code);
2. Improper - Every deviation not specified in Sec. 124 4. It must be made within a reasonable time after receipt
(Sec. 125, Insurance Code). of reliable information of the loss (Sec. 141, Insurance
Code);
Effect: In case of loss or damage subsequent to an 5. It must be factual (Sec. 142, Insurance Code);
improper deviation, the insurer is not liable (Sec. 126, 6. It must be made by giving notice thereof to the
Insurance Code). insurer which may be done orally or in writing (Sec.
143, Insurance Code); and
Loss 7. The notice of abandonment must be explicit and must
A. Total specify the particular cause of the abandonment (Sec.
1. Actual 144, Insurance Code).
a. Total destruction;
b. Irretrievable loss by sinking or by being broken up; Effects:
c. Damage rendering the thing valueless to the owner 1. Transfer of Interest It is equivalent to a transfer by
for the purpose for which he held it; or the insured of his interest to the insurer with all the
d. Other event which effectively deprives the owner chances of recovery and indemnity (Sec.146, Insurance
of the possession, at the port of destination, of the Code).
thing insured (Sec. 130, Insurance Code). 2. Transfer of Agency Acts done in good faith by
those who were agents of the insured in respect to the
2. Constructive one which gives to a person thing insured, subsequent to the loss, are at the risk of
insured a right to abandon: the insurer and for his benefit (Sec.148, Insurance
a. Actual loss of more than of the value of the Code).
object;
b. Damage reducing, by more than , the value of the If an insurer refuses to accept a valid abandonment, he
vessel and of cargo; and is liable upon an actual total loss, deducting from the
amount any proceeds of the thing insured which may

have come to the hands of the insured (Sec. 154, caused by any fault of
Insurance Code). the party asking the
contribution;
Average 6. It must be
Any extraordinary or accidental expense incurred during successful, i.e.
the voyage for the preservation of the vessel, cargo, or resulted in the saving
both, and all damages to the vessel and cargo from the of the vessel or
time it is loaded and the voyage commenced until it ends cargo; and
and the cargo unloaded. 7. It must be
necessary.
Kinds of Averages:
Simple or Particular Average Includes all expenses Right of the Insured in case of General Average
and damages caused to the vessel or cargo which have General Rule:
not inured to the common benefit of all persons When the parties agree that the insurance shall be free
interested in the vessel or cargo. Insurer has no liability from a particular average, the insurer is liable only for a
if the parties stipulated that his liability is for general general average loss, unless such particular average loss
average only. Unless such particular average loss has has the effect of depriving the insured of possession at the
the effect of depriving the insured of the possession at port of destination of the whole of the thing insured (Sec.
the port of destination of the whole of the thing insured. 136, Insurance Code)
General or Gross Average Includes all the damage
and expenses which are deliberately caused in order to The insured may either hold the insurer directly liable for
save the vessel, its cargo or both, from real and known the whole of the insured value of the property sacrificed
risks. Liability of insurer is his portion. for the general benefit, subrogating him to his own right of
contribution, or demand contribution from the other
General Average v. Particular Average interested parties as soon as the vessel arrives at her
General Particular destination (Sec 165, Insurance Code).
To whom inures
Has inured to the Limit of Liability
Has not inured to the
common benefit and The insurers liability for the general average loss is
common benefit and profit
profit of all persons limited to the proportion of contribution attaching to his
of all persons interested in
interested in the vessel policy value where this is less than the contributing value
the vessel and her cargo.
and cargo of the thing insured (Sec. 164, Insurance Code).
By whom borne
To be borne equally by The liability of the insurer shall be less than the amount of
To be borne alone by the
all of the interests the insurance. In case the required contributory value
owner of the cargo or the
concerned in the exceeds that policy value, the insured is liable to
vessel, as the case may be.
venture. contribute ratably with the insurer to the indemnity of the
Requisites general average (De Leon, supra.).
Requisites for the right
to claim contribution: The insurer is liable for any general average loss (Sec.
1. Common danger to 136, Insurance Code) where it is payable or has been
the vessel or cargo; paid by the insured in consequence of a peril insured
2. Part of the vessel or against, as fixed in the policy.
cargo was sacrificed
deliberately; The insurer shall be liable upon a partial loss, only for
3. Sacrifice must be such proportion of the amount insured by him as the loss
for the common bears to the value of the whole interest of the insured on
safety or for the the property insured (Sec. 157, Insurance Code).
benefit of all;
4. Sacrifice must be The valuation in the policy is conclusive between the
made by the master parties thereto in the adjustment of either a partial or total
or upon his authority; loss, if the insured has some interest at risk and there is
5. It must be not be no fraud on his part (Sec. 156, Insurance Code).

Except that when a thing has been hypothecated by Value

bottomry or respondentia, before its insurance, and
without the knowledge of the person actually procuring the Co-Insurance Reinsurance
insurance, he may show the real value. But a valuation The insured procure The insurer procures a 3rd
fraudulent in fact entitles the insurer to rescind the insurance at less than the person to insure him
contract (Ibid). value of the insured against loss or liability by
property and is deemed to reason of such original
Exceptions: be co-insurer as to the insurance. In case of loss,
1. After the separation of interests liable to contribution; deficiency. In case of loss, the reinsurer will pay the
and the insured and insures insurer for the risk
2. When the insured has neglected or waived his right to shares the same pro rata. reinsured (Miravite, Bar
contribution (Sec. 165, Insurance Code). Review Materials in
Commercial Law, 2007 ed.)
FPA Clause (Free From Particular Average) F IRE I NSURANCE

A clause agreed upon in a policy of marine insurance in
which it is stated that the insurer shall not be liable for a A contract by which the insurer for a consideration agrees
particular average, and such insurer shall be free to indemnify the insured against loss of, or damage to,
therefrom, but he shall continue to be liable for his property by hostile fire, including loss by lightning,
proportion of all general average losses assessed upon windstorm, tornado or earthquake and other allied risks,
the thing insured (Sec. 136, Insurance Code). when such risks are covered by extension to fire
insurance policies or under separate policies (Sec. 167,
Exception: When there is a total deprivation on the part Insurance Code).
of the insured of the possession of the thing insured.
Note: The liability of an insurer is to pay for direct loss
Co-Insurance only. The insurer may be liable to pay for consequential
A marine insurer is liable upon a partial loss, only for such losses if covered by extension to such fire policies or
proportion of the amount insured by him as the loss bears insured under separate policy.
to the value of the whole interest of the insured in the
property insured (Sec. 157, Insurance Code). Hostile Fire Friendly Fire
One that escapes from
When the property is insured for less than its value, the One that burns in a place
the place where it was
insured is considered a co-insurer of the difference where it was intended to
intended to burn and
between the amount of insurance and the value of the burn and ought to be
ought to be.
property. Insurer is liable Insurer is not liable
Requisites: Risks Covered:

1. The loss is partial; 1. Direct losses
2. The amount of 2. Indirect or Consequential losses:
insurance is less than the value of the property insured. a. Physical damages
b. Loss of Earnings
Rules: c. Extra Expenses
Co-insurance applies only to marine insurance
Logically, there cannot be co-insurance in life insurance; Note: Only if expressly covered by the policy
Co-insurance applies in fire insurance ONLY when
expressly stipulated by the parties. Business Interruption Insurance Loss suffered
consisting of loss of earnings comprising of the net
The formula to determine the extent of the insurers profits that could have been realized had the business
liability is: continued and expenses that continue despite the
interruption of the business
Loss
X Insurance = Insurers Liability

Extra Expense Insurance Covers extraordinary Clause in a fire insurance policy that if the building or any
expenses that may be incurred in an effort to avoid any part thereof falls, except as a result of fire, the policy shall
interruption of service immediately cease.
Rent Insurance Protects the insured from loss of rental
income Option to Rebuild Clause
Clause giving the insurer the option to reinstate or replace
Prerequisites to Recovery: the property damaged or destroyed or any part thereof,
1. Notice of loss Must be immediately given, unless instead of paying the amount of the loss or the damage.
delay is waived expressly or impliedly by the insurer;
and The insurer, after electing to rebuild, cannot be compelled
2. Proof of loss According to best evidence to perform this undertaking by specific performance
obtainable. Delay may also be waived expressly or because this is an obligation to do, not to give.
impliedly by the insurer.
Remedy: Art. 1167, NCC.
Measure of Indemnity
1. Open policy Only the expense necessary to
replace the thing lost or injured in the condition it was at
the time of the injury C ASU ALTY AND A CCIDENT
2. Valued policy The parties are bound by the I NSURANCE
valuation, in the absence of fraud or mistake
Note: It is VERY CRUCIAL to determine whether a Insurance covering loss or liability arising from accident or
marine vessel is covered by a marine insurance or fire mishap, excluding those falling under other types of
insurance. The determination is important for 3 reasons: insurance such as fire or marine (Sec. 174, Insurance
1. Rules on constructive total loss and Code).
abandonment Applies only to marine insurance;
2. Rule on co-insurance Applies Classifications:
primarily to marine insurance; 1. Accident or health insurance Insurance against
specified perils which may affect the person and/or
3. Rule on co-insurance Applies to fire
property of the insured.
insurance ONLY if expressly agreed upon
(Commentaries and Jurisprudence on the Commercial
Examples: Personal accident, Robbery/Theft insurance
Laws of the Philippines Agbayani, 1988ed).
2. Third party liability insurance Insurance against
Alteration as a special ground for rescission by
specified perils which may give rise to liability on the
insurer
part of the insured for claims for injuries to or damage to
Requisites:
property of others.
1. The use or condition of the thing is specifically limited
a. Insurable interest is based on the interest of the
or stipulated in the policy;
insured in the safety of persons, and their property,
2. Such use or condition as limited by the policy is
who may maintain an action against him in case of
altered;
their injury or destruction, respectively.
3. The alteration is made without the consent of the
b. In a third party liability (TPL) insurance contract,
insurer;
the insurer assumes the obligation by paying the
4. The alteration is made by means within the control of
injured third party to whom the insured is liable. Prior
the insured;
payment by the insured to the third person is not
5. The alteration increases the risk (Sec. 168, Insurance
necessary in order that the obligation may arise. The
Code); and
moment the insured becomes liable to third persons,
6. There must be a violation of a policy provision (Sec.
the insured acquires an interest in the insurance
170, Insurance Code).
contract which may be garnished like any other credit
(Perla Compania de Seguros, Inc v. Ramolete, G.R.
Fall-of-Building Clause
No. L-60887, November 13, 1991).

c. Aside from compulsory motor vehicle liability intentional act of the third person, the insurer is relieved
insurance, casualty insurance are governed by the from liability as stipulated (Biagtan v. the Insular Life
general provisions applicable to all types of Assurance Co. Ltd., supra).
insurance, and outside of such statutory provisions, 2. Accidental That which happens by chance or
the rights and obligations of the parties must be fortuitously, without intention or design, which is
determined by their contract, taking into consideration unexpected, unusual and unforeseen.
its purpose and always in accordance with the
general principles of insurance law. No Action Clause
d. In burglary, robbery and theft insurance, the Requirement in a policy of liability insurance which
opportunity to defraud the insurer the moral hazard provides that suit and final judgment be first obtained
is so great that insurer have found it necessary to against the insured; that only thereafter can the person
fill up the policies with many restrictions designed to injured recover on the policy (Guingon v. Del Monte, G.R.
reduce the hazard. Persons frequently excluded are No. L-21806, August 17, 1967).
those in the insureds service and employment. The
purpose of the exception is to guard against liability A no action clause must yield to the provisions of the
should theft be committed by one having unrestricted Rules of Court regarding multiplicity of suits (Shafer v.
access to the property (Fortune Insurance v. CA, RTC, G.R. No. 78848, November 14, 1988).
G.R. 115278, May 23, 1995).
e. Right of a third party injured to sue the insurer of
party at fault depends on whether the contract of
insurance is intended to benefit third persons also or C OM PULSORY M OTOR V EHICLE
only the insured. L IABILITY I NSURANCE (CMVLI)
Tests applied:
1. Indemnity against third party liability A species of compulsory insurance that provides for
Injured third party can directly sue the insurer. protection coverage that will answer for legal liability for
losses and damages for bodily injuries or property
Purpose: To protect injured person against the damage that may be sustained by another arising from the
insolvency of the insured who causes such injury. use and operation of motor vehicle by its owner
2. Indemnity against actual loss or Purpose: To give immediate financial assistance to

payment Third party has no cause of action against victims of motor vehicle accidents and/ or their
the insurer. The third persons recourse is limited to the dependents, especially if they are poor regardless of the
insured alone (Sec. 53; Bonifacio Bros. v. Mora, G.R. financial capability of motor vehicle owners or operators
No. L-20853, May 29, 1967). responsible for the accident sustained (Shafer v. Judge,
RTC, Ibid).
Note: The insurer is NOT solidarily liable with the insured.
The insurers liability is based on contract; that of the Claimants/victims may be a passenger or a 3rd party.
insured is based on torts. Furthermore, the insurers
liability is limited by the amount of the insurance coverage It applies to all vehicles whether public and private
(Pan Malayan Insurance Corporation v. CA, G.R. No. vehicles.
77397, April 3, 1990).
Note: It is the only compulsory insurance coverage under
Intentional v. Accidental as Used in Insurance the Insurance Code.
Policies
Not given any technical meaning and construed in their Methods of coverage:
ordinary and common acceptation. 1. Insurance policy;
2. Surety bond; or
1. Intentional Implies the exercise of the reasoning 3. Cash deposit
faculties, consciousness and volition. Where a provision
of the policy excludes intentional injury, it is the intention Passenger
of the person inflicting the injury that is controlling. If the Any fare-paying person being transported and conveyed
injuries suffered by the insured clearly resulted from the in and by a motor vehicle for transportation of passengers

for compensation, including persons expressly authorized b. In any other case: Insurer of the directly
by law or by the vehicles operator or his agents to ride offending vehicle (Sec. 378);
without fare (Sec. 373[b]). 5. In all cases, the right of the party paying
the claim to recover against the owner of the vehicle
Third Party responsible for the accident shall be maintained.
Any person other than the passenger, excluding a
member of the household or a member of the family within Note: The claimant is not free to choose from which
the second degree of consanguinity or affinity, of a motor insurer he will claim the no fault indemnity as the law
vehicle owner or land transportation operator, or his makes it mandatory that the claim shall lie against the
employee in respect of death or bodily injury arising out of insurer of the vehicle in which the occupant is riding,
and in the course of employment (Sec. 373[c]). mounting or dismounting from. That said vehicle might not
be the one that caused the accident is of no moment since
Coverage the law itself provides that the party paying may recover
In accordance with Sec. 377 of the Insurance Code, IMC against the owner of the vehicle responsible for the
No.4-2006, dated July 26, 2006 provides for third party accident (Perla Compania de Seguros, Inc. v. Ancheta,
liability coverage of P100,000 with an additional P100,000 G.R. No. L-49699, August 8, 1988).
coverage for passenger liability for public utility vehicle.
This means that the maximum liability per accident is now This no-fault claim does NOT apply to property damage. If
P100,000 (plus another P100,000 if a common carrier) the total indemnity claim exceeds P15,000.00 and there is
irrespective of the number of victims. The parties may controversy in respect thereto, the finding of fault may be
however enter into an insurance contract which provides availed of by the insurer only as to the excess. The first
for a bigger coverage. P15,000.00 shall be paid without regard to fault.
The essence of the no-fault indemnity insurance is to
The circular likewise provides a schedule of indemnity for provide victims of vehicular accidents or their heirs
death and bodily injuries. Death indemnity is P70,000 immediate compensation although in limited amount,
while the indemnity for burial and funeral expenses is pending final determination of who is responsible for the
P30,000. accident and liable for the victims injuries or death.
No Fault Clause Special Clauses

Clause that gives the victim (injured person or heirs of the 1. Authorized Driver Clause A clause which aims to
deceased) an option to file a claim for DEATH or INJURY indemnify the insured owner against loss or damage to
without the necessity of proving fault or negligence of any the car, but limits the use of the insured vehicle to the
kind. insured himself or any person who drives on his order
or with his permission (Villacorta v. Insurance
Purpose: To guarantee compensation or indemnity to Commissioner, G.R. No. 54171, October 28, 1980).
injured persons in motor vehicle accidents.
2. Theft Clause A clause which includes theft as
Rules: among the risks insured against.
1. No Fault Indemnity: P15,000.00 for all
motor vehicles (Insurance Memorandum Circular No. 4- x x x the taking of a vehicle by another person without
2006, July 26, 2006); the permission or authority from the owner thereof is
2. Proofs of loss: sufficient to place it within the ambit of the word theft as
a. Police report of accident; contemplated in the policy, and is therefore,
b. Death certificate and evidence sufficient to establish compensable (Paramount Insurance Corp. v.
proper payee; Remondeulaz, G.R. No. 173773, November 28, 2012).
c. Medical report and evidence of medical or hospital
disbursement; 3. Cooperation Clause A clause which provides in
3. Claim may be made against one motor essence that the insured shall give all such information
vehicle only; and assistance as the insurer may require, usually
4. Proper insurer from which to claim - requiring attendance at trials or hearings.
a. In case of an occupant: Insurer of the
vehicle in which the occupant is riding, mounting or Claims Settlement
dismounting from; Any person having any claim upon the CMVLI policy shall
without unnecessary delay present to the insurance

company concerned a written notice of claim within six (6)

months from the date of the accident, otherwise the claim
will be deemed waived. An agreement whereby a surety guarantees the
performance by the principal or obligor of an obligation or
Sec. 384 of the Insurance Code provides for two (2) undertaking in favor of an oblige (Sec. 175, Insurance
periods: Code).
1. Six (6) months
Period for the filing of the notice of claim; It is considered an insurance contract if it is executed by
2. One (1) year the surety as a vocation, and not incidentally (Sec. 20,
Period for bringing an action or suit in the proper Insurance Code).
cases.
Nature of liability of surety
There is absolutely nothing in the law which mandates 1. Solidary;
that the two periods must always concur, as the law 2. Limited to the amount of the bond;
makes use of the phrase in the proper cases. 3. It is determined strictly by the terms of the
contract of suretyship in relation to the principal contract
1. In agreement - The between the obligor and the obligee (Sec. 176,
insurance company shall ascertain the truth and extent Insurance Code).
of the claim and make payment within five (5) working
days. Suretyship Property Insurance
2. No agreement Insurer to Classification
pay only under the no fault indemnity without prejudice Accessory contract Principal contract
of the claimant for pursuing his claim further. Number of parties
He shall not be required to execute any quit claim or 3 parties: surety, obligor 2 parties: insurer and
document releasing it from liability under the policy of and oblige insured
insurance or surety bond issued. Nature
Credit accommodation Contract of indemnity
Cancellation of CMVLI Recovery
No cancellation of the policy shall be valid unless written Surety can recover from Insurer has no such right;
notice therefor is given to the Land Transportation principal only right of subrogation
Commission (Sec. 380[1], Insurance Code).
Cancellation
Bond can be cancelled May be cancelled
Cancellation by Insurer Upon receipt of notice the LTC
only with consent of unilaterally either by insured
shall order the immediate confiscation of plates of the
obligee, Commissioner or insurer on grounds
motored vehicle, unless it receives evidence of either
or court provided by law
revival of the cancelled policy or upon the presentation
Acceptance
of a new policy issued.
Cancellation by insured He shall secure a similar Requires acceptance of No need of acceptance by
policy of insurance or surety bond to secure that which obligee to be valid any third party
was cancelled before the latter becomes ineffective, Scheme
and without any gap file with the LTC and notify the Risk-shifting device; Risk-distributing device;
insurance company concerned of the cancellation. premium paid being in premium paid as a ratable
the nature of a service contribution to a common
Change of Ownership fee fund
Transfer of ownership does not suspend the policy
provided that: Sec. 175 of the Insurance Code defines a suretyship as a
The insurance company shall agree to continue such contract or agreement whereby a party, called the surety,
policy; guarantees the performance by another party, called the
The change of ownership or of the engine shall be principal or obligor, of an obligation or undertaking in favor
indicated in an endorsement by the insurer; of a third party, called the obligee. It includes official
Signed duplicate of the endorsement filed with the LTC. recognizances, stipulations, bonds or undertakings issued
under Act 536, as amended.
S URETYSHIP

Although the contract of a surety is in essence secondary b. If committed in a state of insanity regardless of
only to a valid principal obligation, the surety becomes the date of the commission unless suicide is an
liable for the debt or duty of another although it possesses excepted peril (Sec. 180-A, Insurance Code);
no direct or personal interest over the obligations nor does c. If committed after a shorter period provided in the
it receive any benefit therefrom. And notwithstanding the policy.
fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party Note: Any stipulation extending the 2-year period is
to the undertaking (First Lepanto-Taisho Insurance null and void.
Corporation v. Chevron Philippines, Inc., G.R. No.
177839, January 18, 2012). 2. At the hands of the
law (e.g. by legal execution)
It is one of the risks assumed by the insurer under a life
L IFE I NSURANCE insurance policy in the absence of a valid policy
exception (Vance, p.572 cited in De Leon, supra).
Insurance on human lives and insurance appertaining
thereto or connected therewith which includes every Miravite also opines that the beneficiary of an insured
contract or pledge for the payment of endowments or who is executed for a crime he committed cannot
annuities (Sec. 179). recover from the insurer for 2 reasons:
His death is caused through his connivance, and
Kinds: Any stipulation to render the insurer liable under these
1. Ordinary Life, General Life or Old Line Policy circumstances would be contrary to public policy (Miravite,
Insured pays a fixed premium every year until he dies. supra).
Surrender value after 3 years.
2. Limited Payment Policy Insured pays premium for 3. Killing by the
a limited period. If he dies within the period, his beneficiary
beneficiary is paid; if he outlives the period, he does not General Rule:
get anything. The interest of a beneficiary in a life insurance policy
3. Endowment Policy Insured pays premium for shall be forfeited when the beneficiary is the principal,
specified period. If he outlives the period, the face accomplice or accessory in willfully bringing about the
value of the policy is paid to him; if not, his beneficiaries death of the insured, in which event, the nearest relative
receive the benefit. of the insured shall receive the proceeds of said
4. Term Insurance Insurer pays once only, and he is insurance, if not otherwise disqualified (Sec. 12,
insured for a specified period. If he dies within the Insurance Code).
period, his beneficiaries benefit. If he outlives the
period, no person benefits from the insurance. Exceptions:
5. Industrial Life Life insurance entitling the insured a. Accidental killing;
to pay premiums weekly, or where premiums are b. Self-defense;
payable monthly or more often (but not less than c. Insanity of the beneficiary at the time he killed the
weekly), if the face value is P2,000 or less, and the insured
words industrial policy printed upon the policy.
6. Variable Contract Policy or contract on either If the premiums paid came from conjugal funds, the
group/ individual basis issued by an insurance company proceeds are considered conjugal. If the beneficiary is
providing for benefits or other contractual payments or other than the insureds estate, the source of premiums
values thereunder to vary so as to reflect investment would not be relevant (Del Val v. Del Val, G.R. No. L-
results of any segregated portfolio of investment 9374, February 16, 1915).
(Miravete, supra.).
The proceeds of life insurance policy payable to the
Liability of Insurer in Certain Causes of Death of insured persons estate, on which the premiums were paid
Insured by the conjugal partnership, constitute community
1. Suicide property, and belong one-half to the husband exclusively
Insurer is liable in the following cases: and the other half to the wife, exclusively. If the premiums
a. If committed after two years from the date of the were paid partly with paraphernal and partly conjugal
policys issue or its last reinstatement; funds, the proceeds are in like proportion paraphernal in

part and conjugal in par (Bank of the Philippine Islands v. which in no case shall be less than Two Hundred Million
Posadas, G.R. No. L-9374, February 16, 1915). (P200,000,000.00)
Reason: A natural person cannot be placed in the same Reinsurance Companies Capitalization of Two
footing as a juridical person. Billion (P2,000,000,000.00) paid in cash, of which at
least 50% consists of paid up capital and the remaining
Accidental Death Benefit Clause portion thereof as contributed surplus which in no case
Gives the beneficiaries additional benefits if the death of shall be less than Four Hundred Million
the insured is through accidental means (P400,000,000.00)
Cash Surrender Value 2. Filing of Necessary

As applied to a life insurance policy, it is the amount the Documents
insured, in case of default, after the payment of at least 3 A certified copy of the last annual statement showing
full annual premiums, is entitled to receive if he surrenders the condition and affairs of such company
the policy and releases his claims upon it.
If incorporated under Philippine laws, a copy of the
articles of incorporation and by-laws, and amendments
G OVERNM ENT R EGULATION OF thereto, certified by the SEC to be a copy of that which
I NSURANCE B USINESS is filed in its office.
3. Additional requirements for

Requisites Prior to Operation: foreign corporations
1. Certificate of authority and payment of fees In addition to the requirements imposed on domestic
No insurance company, whether domestic or foreign, insurance companies, the following requirements must
can transact any business in the Philippines until after it be fulfilled by foreign corporations:
shall have obtained a certificate of authority for that a. Secure a license from the SEC to do
purpose from the Insurance Commissioner upon business in the Philippines by following the
application therefor and payment by the company requirements of the Corporation Code;
concerned of the fees prescribed by the Code (Sec. b. File a copy of the SEC certificate
187, Insurance Code). showing that it is duly registered in accordance with
paragraph 1;
The Insurance Commissioner has the discretion to c. If incorporated, it must file a certified
refuse the issuance of a certificate of authority on the copy of its articles of incorporation and its by-laws,
very broad ground that such refusal will best promote certified by the SEC as a copy of that filed in its office;
the interest of the people of this country. d. If not incorporated, file a certificate
setting forth the nature and character of the business,
No certification can be granted until the the location of its principal office, the names of the
Commissioner is satisfied that: persons composing the partnership or association,
a. The applicant is qualified under the amount of the capital employed and the names of
Philippine laws to transact business in the country; the persons who are managing the business. The
b. The grant of such authority of certificate must be verified by the affidavit of the chief
the organizers and administrators, the financial officer, or the manager or agent of the company
organization and the amount of capital reasonably accompanied by a copy of the written articles of said
assure the safety and interests of the policy holders company, if any;
and the public. e. Must fulfill the same capital
requirements as domestic companies and in addition,
2. Capital Requirements must deposit with the Commissioner securities for the
(Department of Finance D.O. No. 27-06) benefit and security of its policyholders and creditors.
3. Life or Non-life Insurance Companies Security deposits shall be (1) answerable for all the
Capitalization of One Billion (P1,000,000,000.00) paid in obligations of the depositing insurer under its
cash, of which at least 50% consists of paid up capital insurance contracts; (2) at all times free from any
and the remaining portion thereof as contributed surplus liens or encumbrance; and (3) exempt from levy by

any claimant (Republic v. Del Monte Motors, G.R. No.

156956, October 9, 2006). Main agency charged with the enforcement of the
Insurance Code and other related laws.
The right to lay claim on the fund is dependent on the
solvency of the insurer and is subject to all other Functions:
obligations of the company arising from its insurance 1. Adjudicatory/ Quasi-judicial
contracts. Thus, claimants interest is merely a. Exclusive original
inchoate. Being a mere expectancy, it has no jurisdiction -
attribute of property (Ibid). Any dispute in the enforcement of any policy issued
pursuant to Chapter VI (CMVLI) (Sec. 385, par. 2).
f. Must set aside an amount corresponding to b. Concurrent original
the legal reserves of the policies written in the jurisdiction (with the RTC) -
Philippines and invest the same only in such classes Where the maximum amount involved in any single
of Philippine securities as described by the Code claim is P100,000.00 (Sec. 416), EXCEPT in case of
which securities cannot be taken out of the country maritime insurance which is within the jurisdiction of
without the written consent of the Commissioner; the MTC or the RTC depending on the value involved
(BP 129; admiralty & maritime jurisdiction).
g. File with the Commissioner a written power
of attorney designating some person who must be a Where the amount exceeds P100,000.00, the RTC
resident of the Philippines as its general agent, on has jurisdiction.
whom any notice or summons or legal processes may
be served It must also sign an agreement that in case The filing of a complaint with the Commissioner shall
it shall be without any agent, the service upon the preclude civil courts form taking cognizance of the case.
Insurance Commissioner shall have the same effect
as if made on the company. A decision which has become final may be the subject
of a writ of execution which may be served and
Requisites for Continuance in Business: enforced by a Sheriff (Sec. 416).
1. Reserve Requirements
a. Every life insurance company must make an The Insurance Commissioner has no jurisdiction to
annual valuation of its policies, unpaid dividends and decide the legality of a contract of agency entered into
other obligations outstanding on December 31 of the between an insurance company and its agent. The
preceding year. The aggregate net value so same is NOT covered by the term doing or transacting
ascertained of the policies of the company is deemed insurance business under Sec. 2, ICP, neither is it
its reserve liability to provide for which it must hold covered by Sec. 416 of the same Code which grants the
funds in secure investments equal to such net value. Commissioner adjudicatory powers (Philippine
b. Every non-life insurance company must ascertain American Life Insurance Co. v. Ansaldo, G.R. No.
reserve for unearned premiums on its outstanding 76452, July 26, 1994).
policies equal to 40% of the gross premiums received 2. Administrative/ Regulatory
on policies having not more than 1 year to run and a. Enforcement of insurance laws;
pro rate on all gross premiums received on policies b. Issuance, suspension or revocation of certificate
having more than 1 year to run. of authority;
c. Power to examine books and records, etc.;
2. Margin of Solvency d. Rule-making authority; and
Margin of solvency is the excess value of an Insurance e. Punitive
companys admitted assets exclusive of its paid up
capital, in case of a domestic company, or an excess of
the value of its admitted assets in the Philippines,
exclusive of its security deposits, in case of a foreign
company, over the amount of its liabilities, unearned
premiums and reinsurance reserves in the Philippines
(Sec. 194).
I NSURANCE C OMMISSIONER


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COMMERCIAL LAW INSURANCE LAWS

Note: A contract of insurance is still a contract, thus it

C ONTRACT OF I NSURANCE Nature of Insurance Contract (CVA-UCCP-PROU)

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAW

2. Intentional as used in an accident policy excepting P ARTIES TO THE C ONTRACT

SAN BEDA COLLEGE OF LAW

Insurance by a married woman Right to change Beneficiary (Sec. 11)

SAN BEDA COLLEGE OF LAW

insurance policy, EVEN if such designation be stipulated

his life insurance. This also prevents the contract from

SAN BEDA COLLEGE OF LAW

subject matter of the insurance, and neither title nor a

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Reason: The loss of the thing by the carrier or Standard or

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Rationale: Insurance contract is personal. g. When there is a

d. Change of interest, by Effect of Transfer without Consent: The insurance

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1. A party knows a fact (a material fact) which he

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Effects Rescission in life policy

Grounds (FAB-BreC): Defenses not barred by incontestability clause: (FELT-

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The rider, endorsement, clause, or warranty was issued

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General Rule: The insurance proceeds shall be applied Requisites (WANG):

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4. Willful or reckless acts or omissions increasing the

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Principle of Contribution or Contribution Clause Reinsurance

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1. Reinsurance treaty Merely an agreement

L OSS In fire insurance In other types of

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Time for Payment of Claims Rules:

Exception: Refusal or failure to pay the loss or damage

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located, subject always to the territorial limits of the

Insurable Interest Perils of the Sea Perils of the Ship

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4. Warranty of neutrality: The ship will carry the

Distinctions on Concealment General Rule: The warranty of seaworthiness is complied

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commencement of an entirely different voyage (Sec.123, c. Expense of transshipment exceeds of value of

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Except that when a thing has been hypothecated by Value

FPA Clause (Free From Particular Average) F IRE I NSURANCE

Requisites: Risks Covered:

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2. Indemnity against actual loss or Purpose: To give immediate financial assistance to