San Beda College of Law: Insurance Code

San Beda College of Law
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MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS 7. Personal each party having in view

the character, credit and conduct of
CONTRACT OF INSURANCE the other.
 An agreement whereby one
undertakes for a consideration to REQUISITES OF A CONTRACT OF
indemnify another against loss, damage INSURANCE (The Insurance Code of the
or liability arising from an unknown or Philippines Annotated, Hector de Leon,
contingent event. (Sec. 2, par. 2, IC) 2002 ed.)
1. A subject matter which the insured
DOING AN INSURANCE BUSINESS OR has an insurable interest.
TRANSACTING AN INSURANCE 2. Event or peril insured against which
BUSINESS (Sec. 2, par. 4) may be any future contingent or
1. Making or proposing to make, as unknown event, past or future and a
insurer, any insurance contract; duration for the risk thereof.
2. Making or proposing to make, as 3. A promise to pay or indemnify in a
surety, any contract of suretyship as fixed or ascertainable amount.
a vocation, not as a mere incident to 4. A consideration known as premium.
any other legitimate business of a 5. Meeting of the minds of the parties.
surety;
3. Doing any insurance business, 5 CARDINAL PRINCIPLES IN INSURANCE
including a reinsurance business; 1. Insurable Interest
4. Doing or proposing to do any 2. Principle of Utmost Good Faith
business in substance equivalent to  An insurance contract requires utmost
any of the foregoing good faith (uberrimae fidei) between
the parties. The applicant is enjoined to
II. CHARACTERISTICS OF AN INSURANCE disclose any material fact, which he
CONTRACT (The Insurance Code of the knows or ought to know.
Philippines Annotated, Hector de  Reason: An insurance contract is an
Leon, 2002 ed.) aleatory contract. The insurer relies on
1. Consensual it is perfected by the the representation of the applicant, who
meeting of the minds of the parties. is in the best position to know the state
2. Voluntary the parties may of his health.
incorporate such terms and 3. Contract of Indemnity
conditions as they may deem  It is the basis of all property
convenient. insurance. The insured who has insurable
3. Aleatory it depends upon some interest over a property is only entitled
contingent event. to recover the amount of actual loss
4. Unilateral imposes legal duties sustained and the burden is upon him to
only on the insurer who promises to establish the amount of such loss
indemnify in case of loss. (Reviewer on Commercial Law,
5. Conditional It is subject to Professors Sundiang and Aquino)
conditions the principal one of which Rules:
is the happening of the event a. Applies only to property
insured against. insurance except when the
6. Contract of indemnity Except life creditor insures the life of his
and accident insurance, a contract debtor.
of insurance is a contract of b. Life insurance is not a contract
indemnity whereby the insurer of indemnity.
promises to make good only the loss c. Insurance contracts are not
of the insured. wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
COMMERCIAL LAW COMMITTEE

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson OS Ramos  EDP: Beatrix I. Ramos  SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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 Most of the terms of the contract do e. For recovery of loss in excess of

not result from mutual negotiations insurance coverage
between the parties as they are
prescribed by the insurer in final printed CONSTRUCTION OF INSURANCE
form to which the insured may adhere CONTRACT
if he chooses but which he cannot  The ambiguous terms are to be
change. (Rizal Surety and Insurance Co., construed strictly against the insurer,
vs. CA, 336 SCRA 12) and liberally in favor of the insured.
5. Principle of Subrogation However, if the terms are clear, there is
 It is a process of legal substitution no room for interpretation. (Calanoc vs.
where the insurer steps into the shoes of Court of Appeals, 98 Phil. 79)
the insured and he avails of the latters
rights against the wrongdoer at the time III. DISTINGUISHING ELEMENTS OF AN
of loss. INSURANCE CONTRACT
 The principle of subrogation is a 1. The insured possesses an insurable
normal incident of indemnity insurance interest susceptible of pecuniary
as a legal effect of payment; it inures to estimation;
the insurer without any formal 2. The insured is subject to a risk of loss
assignment or any express stipulation to through the destruction or
that effect in the policy. Said right is not impairment of that interest by the
dependent upon nor does it grow out of happening of designated perils;
any private contract. Payment to the 3. The insurer assumes that risk of loss;
insured makes the insurer a subrogee in 4. Such assumption is part of a general
equity. (Malayan Insurance Co., Inc. v. scheme to distribute actual losses
CA, 165 SCRA 536; see also Art. 2207, among a large group or substantial
NCC) number of persons bearing somewhat
 Purposes: (The Insurance Code of the similar risks; and
Philippines Annotated, Hector de Leon, 5. The insured makes a ratable
2002 ed.) contribution (premium) to a general
1. To make the person who caused the insurance fund.
loss legally responsible for it.  A contract possessing only the first 3
2. To prevent the insured from elements above is a risk-shifting device.
receiving a double recovery from the If all the elements, it is a risk-
wrongdoer and the insurer. distributing device. (The Insurance Code
3. To prevent tortfeasors from being of the Philippines Annotated, Hector de
free from liabilities and is thus Leon, 2002 ed.)
founded on considerations of public
policy. IV. PERFECTION OF AN INSURANCE
 Rules: CONTRACT
1. Applicable only to property insurance.  An insurance contract is a consensual
2. The insurer can only recover from the contract and is therefore perfected the
third person what the insured could have moment there is a meeting of minds with
recovered. respect to the object and the cause or
3. There can be no subrogation in cases: consideration.
a. Where the insured by his own act  What is being followed in insurance
releases the wrongdoer or third party contracts is what is known as the
liable for the loss or damage; cognition theory. Thus, an acceptance
b. Where the insurer pays the insured the made by letter shall not bind the person
value of the loss without notifying the making the offer except from the time it
carrier who has in good faith settled came to his knowledge. (Enriquez vs.
the insureds claim for loss; Sun Life Assurance Co. of Canada, 41
c. Where the insurer pays the insured for Phil. 269)
a loss or risk not covered by the policy.
(Pan Malayan Insurance Company v. Binding Receipt
CA, 184 SCRA 54)  A mere acknowledgment on behalf of
d. In life insurance the company that its branch office had

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received from the applicant the 5. Interest of the insured in the

insurance premium and had accepted property if he is not the absolute
the application subject to processing by owner;
the head office. 6. Risk insured against; and
7. Duration of the insurance.
Cover Note (Ad Interim)
 A concise and temporary written  Persons entitled to recover on the
contract issued to the insurer through its policy (sec. 53): The insurance proceeds
duly authorized agent embodying the shall be applied exclusively to the proper
principal terms of an expected policy of interest of the person in whose name or
insurance. to whose benefit it is made, unless
Purpose: It is intended to give otherwise specified in the policy.
temporary insurance protection coverage  Kinds:
to the applicant pending the acceptance 1. OPEN POLICY value of thing insured
or rejection of his application. is not agreed upon, but left to be
 Duration: Not exceeding 60 days ascertained in case of loss. (Sec. 60)
unless a longer period is approved by  The actual loss, as determined,
Insurance Commissioner (Sec. 52). will represent the total indemnity
due the insured from the insurer
Riders except only that the total indemnity
 Printed stipulations usually attached shall not exceed the face value of
to the policy because they constitute the policy. (Development Insurance
additional stipulations between the Corp. vs. IAC, 143 SCRA 62)
parties. (Ang Giok Chip vs. Springfield, 2. VALUED POLICY definite valuation
56 Phil. 275) of the property insured is agreed by both
 In case of conflict between a rider parties, and written on the face of
and the printed stipulations in the policy. (Sec. 61)
policy, the rider prevails, as being a  In the absence of fraud or
more deliberate expression of the mistake, the agreed valuation will be
agreement of the contracting parties. paid in case of total loss of the
(C. Alvendia, The Law of Insurance in property, unless the insurance is for
the Philippines, 1968 ed.) a lower amount.
3. RUNNING POLICY contemplates
Clauses successive insurances and which provides
 An agreement between the insurer that the object of the policy may from
and the insured on certain matter time to time be defined (Sec. 62)
relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188) V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
Endorsements a. Individual life (Secs. 179183, 227)
 Any provision added to the contract b. Group life (Secs. 50, last par., 228)
altering its scope or application. (Prof. c. Industrial life (Secs. 229231)
De Leon, p.188) 2. Non-life insurance
a. Marine (Secs. 99166)
POLICY OF INSURANCE b. Fire (Secs. 167173)
 The written instrument in which a c. Casualty (Sec. 174)
contract of insurance is set forth. (Sec. 3. Contracts of bonding or suretyship
49) (Secs. 175178)
Note:
 Contents: (Sec. 51) 1. Health and accident insurance are
1. Parties either covered under life (Sec. 180) or
2. Amount of insurance, except in open casualty insurance. (Sec. 174).
or running policies; 2. Marine, fire, and the property aspect
3. Rate of premium; of casualty insurance are also referred to
4. Property or life insured; as property insurance.

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VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

1. Insurer - Person who undertakes to accomplice or accessory in
indemnify another. willfully bringing about the
 For a person to be called an death of the insured in which
insurance agent, it is necessary event, the nearest relative
that he should perform the of the insured shall receive
function for compensation. the proceeds of said
(Aisporna vs. CA, 113 SCRA 459) insurance if not otherwise
2. Insured - The party to be indemnified disqualified. (Sec. 12)
upon the occurrence of the loss. He must b. PROPERTY
have capacity to contract, must possess  The beneficiary of property
an insurable interest in the subject of insurance must have an insurable
the insurance and must not be a public interest in such property, which
enemy. must exist not only at the time
 A public enemy- a nation with the policy takes effect but also
whom the Philippines is at war when the loss occurs. (Sec. 13
and it includes every citizen or and 18).
subject of such nation. Effects of Irrevocable Designation Of
3. Beneficiary - A person designated to Beneficiary
receive proceeds of policy when risk  Insured cannot:
attaches. 1. Assign the policy
 Rules in the designation of the 2. Take the cash surrender value of
beneficiary: the policy
a. LIFE 3. Allow his creditors to attach or
i. A person who insures his own execute on the policy;
life can designate any person 4. Add new beneficiary; or
as his beneficiary, whether 5. Change the irrevocable
or not the beneficiary has an designation to revocable, even
insurable interest in the life though the change is just and
of the insured subject to the reasonable.
limitations under Art. 739  The insured does not even retain the
and Art. 2012 of the NCC. power to destroy the contract by
 Reason: in essence, a life refusing to pay the premiums for the
insurance policy is no beneficiary can protect his interest by
different form a civil paying such premiums for he has an
donation insofar as the interest in the fulfillment of the
beneficiary is concerned. obligation. (Vance, p. 665, cited in de
Both are founded on the Leon, p. 101, 2002 ed.)
same consideration of
liberality. (Insular Life vs. VII. INSURABLE INTEREST
Ebrado, 80 SCRA 181) A. In General
ii. A person who insures the life  A person has an insurable interest in
of another person and name the subject matter if he is so connected,
himself as the beneficiary so situated, so circumstanced, so
must have an insurable related, that by the preservation of the
interest in such life. (Sec. same he shall derive pecuniary benefit,
10) and by its destruction he shall suffer
iii. As a general rule, the pecuniary loss, damage or prejudice.
designation of a beneficiary B. Life
is revocable unless the  Every person has an insurable interest
insured expressly waived the in the life and health:
right to revoke in the policy. a. of himself, of his spouse and of
(Sec. 11) his children;
iv. The interest of a beneficiary b. of any person on whom he
in a life insurance policy depends wholly or in part for
shall be forfeited when the education or support;

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c. of any person under a legal INSURABLE INSURABLE

obligation to him to pay money INT INTEREST IN
or respecting property or ER PROPERTY
services, of which death or ES
illness might delay or prevent T
performance; and IN
d. of any person upon whose life LIF
any estate or interest vested in E
him depends. (Sec. 10) Must exist only at the Must exist at the
 When it should exist: When the time the policy takes time the policy
insurance takes effect; not thereafter or effect and need not takes effect and
when the loss occurs. exist at the time of when the loss
 Amount: loss occurs
GENERAL RULE: There is no limit in the Unlimited except in Limited to actual
life insurance value of interest in
amount the insured can insure his life. effected by creditor property insured.
EXCEPTION: In a creditor-debtor on life of debtor.
relationship where the creditor insures The expectation of An expectation of a
the life of his debtor, the limit of benefit to be derived benefit to be
insurable interest is equal to the amount from the continued derived from the
of the debt. existence of life need continued
Note: If at the time of the death of the not have any legal existence of the
debtor the whole debt has already been basis whatever. A property insured
paid, the creditor can no longer recover reasonable must have a legal
probability is basis.
on the policy because the principle of
sufficient without
indemnity applies. more.
The beneficiary need The beneficiary
C. Property not have an insurable must have
 Every interest in property whether interest over the life insurable interest
real or personal, or any relation thereto, of the insured if the over the thing
or liability in respect thereof, of such insured himself insured.
nature that the contemplated peril secured the policy.
might directly damnify the insured (Sec. However, if the life
13), which may consist in: insurance was
obtained by the
1. an existing interest;
beneficiary, the
2. any inchoate interest latter must have
founded on an existing insurable interest
interest; or over the life of the
3. an expectancy coupled with insured.
an existing interest in that
out of which the expectancy SPECIAL CASES
arises. (Sec. 14) 1. In case of a carrier or depositary
 When it should exist: When the  A carrier or depository of any kind has
insurance takes effect and when the loss an insurable interest in a thing held by
occurs, but need not exist in the him as such, to the extent of his liability
meantime. but not to exceed the value thereof
 Amount: The measure of insurable (Sec. 15)
interest in property is the extent to 2. In case of a mortgaged property
which the insured might be damnified by  The mortgagor and mortgagee each
loss or injury thereof. (Sec. 17) have an insurable interest in the
property mortgaged and this interest is
separate and distinct from the other.
a. Mortgagor As owner, has an
insurable interest therein to the
extent of its value, even though the
mortgage debt equals such value.
The reason is that the loss or
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destruction of the property insured the mortgagor as the claim is discharged

will not extinguish the mortgage but it passes by subrogation to the
debt. insurer to the extent of the money paid
b. Mortgagee His interest is only up by such insurer. (Palileo vs. Cosio)
to the extent of the debt. Such
interest continues until the mortgage VIII. RISK
debt is extinguished.  What may be insured against:
1. Future contingent event resulting in
 The lessor cannot be validly a loss or damage Ex. Possible future
beneficiary of a fire insurance policy fire
taken by a lessee over his merchandise, 2. Past unknown event resulting in loss
and the provision in the lease contract or damage Ex. Fact of past sinking
providing for such automatic assignment of a vessel unknown to the parties
is void for being contrary to law and 3. Contingent liability Ex.
public policy. (Cha vs. Court of Appeals, Reinsurance
227 SCRA 690)
IX. PREMIUM PAYMENTS
STANDARD OR OPEN OR LOSS  Consideration paid an insurer for
UNION PAYABLE undertaking to indemnify the insured
MORTGAGE MORTGAGE against a specified peril.
CLAUSE CLAUSE  Basis of the right of the insurer to
Subsequent acts Acts of the collect premiums: Assumption of risk.
of the mortgagor mortgagor affect
cannot affect the the mortgagee. GENERAL RULE: No policy issued by an
rights of the Reason: insurance company is valid and binding
assignee Mortgagor does until actual payment of premium. Any
not cease to be a agreement to the contrary is void. (Sec.
party to the 77)
contract. (Secs. 8
and 9) EXCEPTIONS:
1. In case of life or industrial life
Effects of Loss Payable Clause insurance, when the grace periods
a. The contract is deemed to be upon applies; (Sec. 77)
the interest of the mortgagor; hence, he 2. When the insurer makes a written
does not cease to be a party to the acknowledgment of the receipt
contract. premium; (Sec. 78)
b. Any act of the mortgagor prior to the 3. Section 77 may not apply if the
loss, which would otherwise avoid the parties have agreed to the payment
insurance affects the mortgagee even if of the premium in installments and
the property is in the hands of the partial payment has been made at
mortgagee. the time of the loss. (Makati
c. Any act, which under the contract of Tuscany Condominium Corp. v. CA,
insurance is to be performed by the 215 SCRA 462)
mortgagor, may be performed by the 4. Where a credit term has been
mortgagee with the same effect. agreed upon. (UCPB vs. Masagana
d. In case of loss, the mortgagee is Telemart, 308 SCRA 259)
entitled to the proceeds to the extent of 5. Where the parties are barred by
his credit. estoppel. (UCPB vs. Maagana
e. Upon recovery by the mortgagee to Telemart, 356 SCRA 307)
the extent of his credit, the debt is
extinguished.  Section 77 merely precludes the
parties from stipulating that the policy is
 In case a mortgagee insures his own valid even if the premiums are not paid.
interest and a loss occurs, he is entitled (Makati Tuscany Condominium Corp. v.
to the proceeds of the insurance but he CA, 215 SCRA 462)
is not allowed to retain his claim against
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Effect of Acknowledgment of Receipt

of Premium in Policy: Conclusive PREMIUM ASSESSMENT
evidence of its payment, so far as to
make the policy binding, notwithstanding Levied and paid to Collected to meet
any stipulation therein that it shall not meet anticipated actual losses.
be binding until the premium is actually losses.
paid. (Sec. 78)
Payment is not Payment is
enforceable against enforceable once
the insured. levied unless
otherwise agreed
ENTITLEMENT OF INSURED TO RETURN upon.
OF PREMIUMS PAID
A. Whole: Not a debt. It becomes a debt

1. If the thing insured was never once properly levied
unless otherwise
exposed to the risks insured
agreed.
against; (Sec. 79)
2. If contract is voidable due to the
X. TRANSFER OF POLICY
fraud or misrepresentation of
1. Life Insurance
insurer or his agents; (Sec. 81)
 It can be transferred even without the
3. If contract is voidable because of
consent of the insurer except when there
the existence of facts of which
is a stipulation requiring the consent of
the insured was ignorant without
the insurer before transfer. (Sec. 181)
his fault; (Sec. 81)
 Reason: The policy does not represent
4. When by any default of the
a personal agreement between the
insured other than actual fraud,
insured and the insurer.
the insurer never incurred
2. Property insurance
liability; (Sec. 81)
 It cannot be transferred without the
5. When rescission is granted due to
consent of the insurer.
the insurers breach of contract.
 Reason: The insurer approved the
(Sec. 74)
policy based on the personal
B. Pro rata:
qualification and the insurable interest
1. When the insurance is for a
of the insured.
definite period and the insured
3. Casualty insurance
surrenders his policy before the
 It cannot be transferred without the
termination thereof;
consent of the insurer. (Paterson cited
 Exceptions:
in de Leon p. 82)
a. policy not made for a
 Reason: The moral hazards are as
definite period of time
great as those of property insurance.
b. short period rate is
agreed upon
CHANE OF INTEREST IN THE THING
c. life insurance policy
INSURED
2. When there is over-insurance
 The mere (absolute) transfer of the
(Sec. 82);
thing insured does not transfer the
policy, but suspends it until the same
Instances when premiums are not
person becomes the owner of both the
recoverable:
policy and the thing insured. (Sec. 58)
1. When the risk has already
 Reason: Insurance contract is
attached and the risk is entire and
personal.
indivisible.
GENERAL RULE: A change of interest in
2. In life insurance.
any part of a thing insured
3. When the contract is rescindable
unaccompanied by a corresponding
or rendered void ab initio by the
change of interest in the insurance
fraud of the insured.
suspends the insurance to an equivalent
4. When the contract is illegal and
extent, until the interests in the thing
the parties are in pari delicto.
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and the interest in the insurance are a. A party knows a fact which he
vested in the same person. (Sec. 20) neglects to communicate or
disclose to the other.
b. Such party concealing is duty
bound to disclose such fact to
EXCEPTIONS: the other.
1. In life, health and accident c. Such party concealing makes no
insurance.(Sec. 20); warranty as to the fact
2. Change in interest in the thing concealed.
insured after occurrence of an d. The other party has not the
injury which results in a loss. means of ascertaining the fact
(Sec. 21); concealed.
3. Change in interest in one or e. Material
more of several distinct things  Effects: Entitles insurer to rescind,
separately insured by one policy. even if the death or loss is due to a
(Sec. 22); cause not related to the concealed
4. Change of interest, by will or matter (Sec. 27).
succession, on the death of the Note: Good Faith is not a defense in
insured. (Sec. 23); concealment. Sec. 27 clearly provides
5. Transfer of interest by one of that, the concealment whether
several partners, joint owners, intentional or unintentional entitles the
or owners in common, who are injured party to rescind the contract of
jointly insured, to others. (Sec. insurance.
24);
6. When a policy is so framed that Test of Materiality: Determined not by
it will inure to the benefit of the event, but solely by the probable
whomsoever, during the and reasonable influence of the facts
continuance of the risk, may upon the party to whom the
become the owner of the communication is due, in forming his
interest insured. (Sec. 57); estimate of the advantages of the
7. When there is an express proposed contract, or in making his
prohibition against alienation in inquiries (Sec. 31).
the policy, in case of alienation,  Exception to Sec. 31:
the contract of insurance is not a. Incontestability clause
merely suspended but avoided. b. Matters under Sec.110 (marine
(Art. 1306, NCC). insurance)
XI. ASCERTAINMENT AND CONTROL OF  The waiver of medical examination in

RISK AND LOSS a non-medical insurance contract
renders even more material the
A. Four Primary Concerns of the information required of the applicant
Parties: concerning the previous conditions of
1. Correct estimation of the risk; health and diseases suffered. (Sunlife v.
2. Precise delimitation of the risk; Sps. Bacani, 246 SCRA 268).
3. Control of the risk;
4. Determining whether a loss occurred  The right to information of material
and if so, the amount of such loss. facts may be waived, either by the terms
of the insurance or by neglect to make
B. Devices used for ascertaining and inquiries as to such facts where they are
controlling risk and loss: distinctly implied in other facts of which
1. Concealment A neglect to information is communicated. (Sec.33)
communicate that which a party knows
and ought to communicate (Sec. 26)  Where matters of opinion or judgment
 Requisites: are called for, answers made in good
faith and without intent to deceiver will
not avoid the policy even though they

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are untrue. Reason: The insurer cannot that purpose. (Insular Life Assur. Co. vs.
rely on those statements. He must make Feliciano, 74 Phil. 469)
further inquiry. (Philamcare Health
Systems vs. CA, G.R. No. 125678, March 3. Warranties Statement or promise
18, 2002). by the insured set forth in the policy or
by reference incorporated therein, the
2. Representations Factual untruth or non-fulfillment of which in
statements made by the insured at the any respect, and without reference to
time of, or prior to, the issuance of the whether insurer was in fact prejudiced
policy to give information to the insurer by such untruth or non-fulfillment,
and induce him to enter into the renders the policy voidable by the
insurance contract. They are considered insurer.
an active form of concealment.  Purpose: To eliminate potentially
 Requisites of a false representation increasing hazards which may either be
(misrepresentation): due to the acts of the insured or to the
a. The insured stated a fact which change to the condition of the property.
is untrue.  Kinds:
b. Such fact was stated with a. EXPRESS an agreement expressed in
knowledge that it is untrue and a policy whereby the insured stipulates
with intent to deceive or which that certain facts relating to the risk are
he states positively as true or shall be true, or certain acts relating
without knowing it to be true to the same subject have been or shall
and which has a tendency to be done.
mislead. b. IMPLIED - it is deemed included in the
c. Such fact in either case is contract although not expressly
material to the risk. mentioned. Example: In marine
 Characteristics: insurance, seaworthiness of the vessel.
a. It is not a part of the contract but  Effects of breach of warranty:
merely a collateral inducement to it. a. Material
b. It may be oral or written. GENERAL RULE: Violation of material
c. It is made at the same time of issuing warranty or of a material provision of a
the policy or before but not after. policy will entitle the other party to
d. It may be altered or withdrawn before rescind the contract. (Sec. 74)
the insurance is effected but not EXCEPTIONS:
afterwards. a. Loss occurs before the time of
e. It always refers to the date the performance of the warranty.
contract goes into effect. b. The performances becomes
 Kinds: unlawful at the place of the
a. AFFIRMATIVE affirmation of a fact contract.
when the contract begins; and c. Performance becomes
b. PROMISSORY promise to be impossible. (Sec. 73)
performed after policy was issued. b. Immaterial (ex. Other insurance
 Effect of Misrepresentation: the clause)
injured party is entitled to rescind from GENERAL RULE: It will not avoid the
the time when the representation policy.
becomes false. EXCEPTION: When the policy expressly
provides or declares that a violation
Test of Materiality: Same as that in thereof will avoid it. (Sec. 75)
concealment.
WARRANTY REPRESENTATION
 Where the insured merely signed the Part of the contract Mere collateral
application form and made the agent of inducement
the insurer fill the same for him, it was Written on the May be written in
held that by doing so, the insured made policy, actually or by the policy or may
the agent of the insurer his own agent reference be oral.
and he was responsible for his acts for

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Presumed material Must be proved to of issue of policy or its last

be material reinstatement; prior to
Must be strictly Requires only incontestability. (Sec. 48)
complied with substantial truth
and compliance CANCELLATION OF NON-LIFE
4. Conditions Events signifying in its INSURANCE POLICY
broadest sense either an occurrence or a  Right of the insurer to abandon the
non-occurrence that alters the contract on the occurrence of certain
previously existing legal relations of the grounds after the effectivity date of a
parties to the contract. They may be non-life policy.
conditions precedent or conditions  Grounds:
subsequent. 1. Non-payment of premium;
 Effect of breach: 2. Conviction of a crime out of acts
a. Condition precedent prevents increasing the hazard insured
the accrual of cause of action against;
b. Condition subsequent avoids 3. Discovery of fraud or material
the policy or entitles the insurer misrepresentation;
to rescind
4. Discovery of willful or reckless acts
 The insurer may also protect himself
of omissions increasing the hazard
against fraudulent claims of loss and this
insured against;
he attempts to do by inserting in the
policy various conditions which take the 5. Physical changes in property making
form of conditions precedent. For the property uninsurable; and
instance, there are conditions requiring 6. Determination by the Insurance
immediate notice of loss or injury and Commissioner that the continuation
detailed proofs of loss within a limited of the policy would violate the
period. Insurance Code. (Sec. 64)
 Requirements:
5. Exceptions Provisions that may 1. Prior notice of cancellation to
specify excepted perils. It makes more the insured;
definite the coverage indicated by the 2. Notice must be in writing,
general description of the risk by mailed or delivered to the
excluding certain specified risk that named insured at the address
otherwise would be included under the shown in the policy;
general language describing the risks 3. Notice must state which of the
assumed. grounds set forth in Sec. 64 is
 Effect: Limit the coverage of the relied upon and upon request of
contract. the insured, the insurer must
furnish facts on which the
RESCISSION cancellation is based;
 Grounds: 4. Grounds should have existed
A. Concealment after the effectivity date of the
B. Misrepresentation policy.
C. Breach of material warranty
D. Breach of a condition subsequent XII. INCONTESTABILITY CLAUSE
 Waiver of the right to rescind:  Clause in life insurance policy that
Acceptance of premium payments stipulates that the policy shall be
despite the knowledge of the ground for incontestable after a stated period.
rescission. (Sec. 45)  Requisites:
 Limitations on the right of the 1. Life insurance policy
insurer to rescind: 2. Payable on the death of the insured
1. Non-life such right must be 3. It has been in force during the
exercised prior to the commencement of lifetime of the insured for a period
an action on the contract; of at least two years from the date
2. Life such right must be availed of of its issue or of its last
during the first two years from the date reinstatement
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40
Note: The period of 2 years may be 1. The insurer is bound only to pay to
shortened but it cannot be extended by the extent of the real value of the
stipulation. property lost;
2. The insured is entitled to recover the
amount of premium corresponding to
 Incontestability only deprives the the excess in value of the property;
insurer of those defenses which arise in
connection with the formation and B. DOUBLE INSURANCE exists where
operation of the policy prior to loss. same person is insured by several
(Prof. De Leon, p. 173 citing Wyatt and insurers separately in respect to same
Wyatt, p. 878) subject and interest. (Sec. 93)
 Requisites:
BARRED DEFENSES NOT 1. Person insured is the same;
DEFENSES BARRED 2. Two or more insurers insuring
OF THE INSURER separately;
1. Policy is 1. That the person 3. Subject matter is the same;
void ab initio taking the insurance 4. Interest insured is also the same;
2. Policy is lacked insurable 5. Risk or peril insured against is
rescindable by interest as required likewise the same.
reason of the by law;
fraudulent 2. That the cause of
 Effects: Where double insurance is
concealment or the death of the
misrepresentation of insured is an allowed, but over insurance results:
the insured or his excepted risk; (Sec. 94)
agent 3. That the 1. The insured, unless the policy
premiums have not otherwise provides, may claim
been paid (Secs. 77, payment from the insurers in such
227[b], 228[b], order as he may select, up to the
230[b]); amount for which the insurers are
4. That the severally liable under their
conditions of the
respective contracts;
policy relating to
military or naval 2. Where the policy under which the
service have been insured claims is a valued policy, the
violated (Secs. insured must give credit as against
227[b], 228[b]); the valuation for any sum received
5. That the fraud is by him under any other policy
of a particularly without regard to the actual value of
vicious type; the subject matter insured;
6. That the 3. Where the policy under which the
beneficiary failed to
insured claims is an unvalued policy
furnish proof of
death or to comply he must give credit, as against the
with any condition full insurable value, for any sum
imposed by the received by him under any policy;
policy after the loss 4. Where the insured receives any sum
has happened; or in excess of the valuation in the case
7. That the action of valued policies, or of the
was not brought insurable value in the case of
within the time unvalued policies, he must hold such
specified.
sum in trust for the insurers,
according to their right of
XIII. contribution among themselves;
A. OVER-INSURANCE results when the 5. Each insurer is bound, as between
insured insures the same property for an himself and the other insurers, to
amount greater than the value of the contribute ratably to the loss in
property with the same insurance proportion to the amount for which
company. he is liable under his contract.
 Effect in case of loss:

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Additional or Other Insurance Clause 2. Automatic reinsurance The

 A condition in the policy requiring the reinsured is bound to cede and the
insured to inform the insurer of any reinsurer is obligated to accept a fixed
other insurance coverage of the property share of the risk which has to be
insured. It is lawful and specifically reinsured under the contract. (Prof. De
allowed under Sec. 75 which provides Leon, p. 305)
that (a) policy may declare that a 3. Facultative reinsurance – There is no
violation of a specified provision thereof obligation to cede or accept
shall avoid it, otherwise the breach of an participation in the risk each party
immaterial provision does not avoid it. having a free choice. But once the share
 A stipulation against double is accepted, the obligation is absolute
insurance. and the liability thereunder can be
 Purposes: discharged only by payment. (Equitable
1. To prevent an increase in the Ins. & Casualty Co. vs. Rural Ins. &
moral hazard Surety Co., Inc. 4 SCRA 343)
2. To prevent over-insurance and
fraud. 4. Retrocession A transaction whereby
 To constitute a violation of the the reinsurer in turn, passes to another
clause, there should have been double insurer a portion of the risk reinsured. It
insurance. is really the reinsurance of reinsurance.
(Prof. De Leon, p. 305)
C. REINSURANCE a contract by which
the insurer procures a third person to XIV.
insure him against loss or liability by A. LOSS, IN INSURANCE
reason of an original insurance (also  Injury or damage sustained by the
known as Reinsurance Cession). (Sec. insured in consequence of the happening
95) of one or more of the accidents or
 In every reinsurance, the original misfortune against which the insurer, in
contract of insurance and the contract of consideration of the premium, has
reinsurance are covered by separate undertaken to indemnify the insured.
policies. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
261)
DOUBLE REINSURANCE
INSURANCE Loss for which Loss for which
Involves the same Involves different insurer is liable insurer is not
interest interest liable
Insurer remains in Insurer becomes the 1. Loss the 1. Loss by
such capacity insured in relation proximate cause of insureds willful
to reinsurer which is the peril act;
Insured is the party Original insured has insured against 2. Loss due
in interest in the 2 no interest in the (Sec. 84); to connivance of
contracts reinsurance 2. Loss the the insured (Sec.
contract. immediate cause of 87); and
Subject of Subject of insurance which is the peril 3. Loss
insurance is is the original insured against where the
property insurers risk except where excepted peril is
Insured has to give Insureds consent proximate cause is the proximate
his consent not necessary an excepted peril; cause.
3. Loss
TERMS: through negligence
of insured except
1. Reinsurance treaty Merely an
where there was
agreement between two insurance gross negligence
companies whereby one agrees to cede amounting to willful
and the other to accept reinsurance acts; and
business pursuant to provisions specified 4. Loss caused
in the treaty. (Prof. De Leon, p. 306) by efforts to rescue
the thing from peril

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insured against; NON-LIFE

5. If during LIFE POLICIES POLICIES
the course of
rescue, the thing is a. Maturing The proceeds shall
exposed to a peril upon the be paid within 30
not insured against, expiration of the days after the
which permanently term The receipt by the
deprives the insured proceeds are insurer of proof of
of its possession, in immediately loss, and
whole or in part payable to the ascertainment of
(Sec. 85). insured, unless the loss or damage
they are made by agreement of the
Proximate Cause An event that sets all payable in parties or by
other events in motion without any installments or as arbitration but not
intervening or independent case, without annuity, in which later than 90 days
which the injury or loss would not have case, the from such receipt of
occurred. installments or proof of loss
annuities shall be whether or not
paid as they ascertainment is
REQUISITES FOR RECOVERY UPON become due. had or made.
INSURANCE b. Maturing at
1. The insured must have insurable the death of the
interest in the subject matter; insured, occurring
2. That interest is covered by the policy; prior to the
3. There must be a loss; and expiration of the
4. The loss must be proximately caused term stipulated
by the peril insured against. The proceeds are
payable to the
beneficiaries
NOTICE OF LOSS within 60 days
In fire insurance In other types of after presentation
insurance and filing of proof
of death.
Required Not required
Failure to give Failure to give  In case of an unreasonable delay in

notice will defeat notice will not the payment of the insureds claim by
the right of the exonerate the the insurer, the insured can recover: 1)
insured to recover. insurer, unless attorneys fees; 2) expenses incurred by
there is a
reason of the unreasonable withholding;
stipulation in the
policy requiring the 3) interest at double the legal interest
insured to do so. rate fixed by the Monetary Board; and 4)
the amount of the claim. (Zenith
Insurance Corp. vs. CA, 185 SCRA 398)
B. CLAIMS SETTLEMENT
 The indemnification of the loss of the XV. PRESCRIPTIVE PERIOD (Secs. 63 &
insured. 384)
 Rules:
TIME FOR PAYMENT OF CLAIMS 1. In the absence of an express
stipulation in the policy, it being based
on a written contract, the action
prescribes in 10 years.
2. However the parties may validly agree
on a shorter period provided it is not less
than one year from the time the cause of
action accrues.
3. The cause of action accrues from the
rejection of the claim of the insured and
not from the time of loss.

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It shall commence from the denial of  Classes of inland marine insurance:
the claim, not from the resolution of the (Prof. De Leon, p. 325)
motion for reconsideration, otherwise it 1. Property in transit provides
can be used by the insured as a scheme protection to property
or device to waste time until the frequently exposed to loss while
evidence which may be used against him it is transportation form one
is destroyed. (Sun Insurance Office, Ltd. location to another.
v. CA, 195 SCRA) 2. Bailee liability - insurance for
4. In CMVLI, the written notice of claim those who have temporary
must be filed within 6 months from the custody of the goods.
date of the accident otherwise the claim
is deemed waived. The suit for damages
3. Fixed transportation property
they are so insured because they
either with the proper court or with the
are held to be an essential part
Insurance Commissioner should be filed
of the transportation system
within 1 year from the date of the denial
such as bridges, tunnels, etc.
of the claim by the insurer, otherwise
claimants right of action shall prescribe. 4. Floater provides insurance to
(Sec. 384) follow the insured property
wherever it may be located,
PARTICULAR KINDS OF INSURANCE subject always to the territorial
CONTRACTS limits of the contract.
 Insurable interest:
XVI. MARINE INSURANCE A.
 Insurance against risks connected with 1. Shipowner
navigation, to which a ship, cargo, a. Over the vessel to the
freightage, profits or other insurable extent of its value, except
interest in movable property, may be that if chartered, the
exposed during a certain voyage or a insurance is only up to the
fixed period of time. (Sec. 99) amount not recoverable
 Coverage: from the charterer. (Sec.
A. 100).
1. Vessels, goods, freight, cargo, b. He also has an insurable
merchandise, profits, money, interest on expected
valuable papers, bottomry and freightage. (Sec. 103).
respondentia, and interest in respect c. No insurable interest if he
to all risks or perils of navigation; will be compensated by
2. Persons or property in connection charterer for the value of
with marine insurance; the vessel, in case of loss.
3. Precious stones, jewels, jewelry and 2. Cargo owner
precious metals whether in the  Over the cargo and expected
course of transportation or profits (Sec. 105).
otherwise; and 3. Charterer
4. Bridges, tunnels, piers, docks and  Over the amount he is liable
other aids to navigation and to the shipowner, if the ship is
transportation. (Sec. 99) lost or damaged during the
 Cargo can be the subject of voyage (Sec. 106).
marine insurance, and once it is
entered into, the implied B.
warranty of seaworthiness In loans on bottomry and respondentia
immediately attaches to  Repayment of the loan is subject to
whoever is insuring the cargo, the condition that the vessel or goods,
whether he be the shipowner or respectively, given as a security, shall
not. (Roque v. IAC, 139 SCRA arrive safely at the port of destination.
596) 1. Owner/Debtor
B. Marine Protection and Indemnity
Insurance
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 Difference between the value B. Barratry Clause

of vessel or goods and the  A clause which provides that there
amount of loan. (Sec. 101) can be no recovery on the policy in case
2. Creditor/lender of any willful misconduct on the part of
 Amount of the loan the master or crew in pursuance of some
unlawful or fraudulent purpose without
Note: If a vessel is hypothecated by consent of owners, and to the prejudice
bottomry, only the excess is insurable, of the owners interest. (Roque vs. IAC,
since a loan on bottomry partakes of the 139 SCRA 596)
nature of an insurance coverage to the
extent of the loan accommodation. The C. Inchamaree Clause
same rule would apply to the  A clause which makes the insurer
hypothecation of the cargo by liable for loss or damage to the hull or
respondentia. (Pandect of Commercial machinery arising from the:
Law and Jurisprudence, Justice Jose 1. Negligence of the captain,
Vitug, 1997 ed.) engineers, etc.
PERILS OF THE PERILS OF THE 2. Explosions, breakage of shafts; and
SEA SHIP 3. Latent defect of machinery or hull.
Includes only those A loss which in the (Bar Review Materials in Commercial
casualties due to ordinary course of Law, Jorge Miravite, 2002 ed.)
the: events, results
1. unusual from the:
D. Sue and Labor Clause
violence; or 1. natural and
2. extraordinary inevitable action of  A clause under which the insurer may
action of wind and the sea become liable to pay the insured, in
wave; or 2. ordinary wear addition to the loss actually suffered,
3. Other and tear of the ship such expenses as he may have incurred
extraordinary causes or in his efforts to protect the property
connected with 3. Negligent against a peril for which the insurer
navigation. failure of the ships would have been liable. (Sec. 163)
owner to provide
the vessel with
MATTERS ALTHOUGH CONCEALED, WILL
proper equipment
to convey the cargo NOT VITIATE THE CONTRACT EXCEPT
under ordinary WHEN THEY CAUSED THE LOSS (Sec.
conditions. 110)
1. National character of the insured;
Note: It is only perils of the sea which 2. Liability of the thing insured to
may be insured against unless perils of capture or detention;
the ship is covered by an all-risk policy. 3. Liability to seizure from breach of
foreign laws;
SPECIAL MARINE INSURANCE 4. Want of necessary documents; and
CONTRACTS AND CLAUSES 5. Use of false or simulated papers.
A. All Risks Policy insurance against all Note: This should be related to the
causes of conceivable loss or damage, general rule regarding material
except: 1) as otherwise excluded in the concealment.
policy; or 2) due to fraud or intentional
misconduct on the part of the insured. DISTINCTIONS ON CONCEALMENT
 The insured has the initial burden of (Commercial Law Reviewer, A.F.
proving that the cargo was in good Agbayani, 1988 ed.)
condition when the policy attached and
that the cargo was damaged when MARINE INSURANCE OTHER
unloaded from the vessel; thereafter, PROPERTY
the burden then shifts to the insurer to INSURANCE
show the exception to the coverage. The information of the The information or
(Filipinas Merchants Insurance vs. Court belief or expectation belief of a 3rd party
of Appeals, 179 SCRA 638) of 3rd persons is is not material and
material and must be need not be

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45
communicated communicated commencement of the risk. Prior or

unless it proceeds subsequent unseaworthiness is not a
form an agent of breach of the warranty nor is it material
the insured whose that the vessel arrives in safety at the
duty it is to give
end of her voyage.
information
EXCEPTIONS:
The concealment of Concealment of any
any fact in relation to material fact will 1. In the case of a time policy, the ship
any of the matters vitiate the entire must be seaworthy at the
stated in Sec. 110 contract, whether commencement of every voyage she
does not vitiate the or not the loss may undertake
entire contract but results for the risk
merely exonerates the concealed.
2. In the case of cargo policy, each
insurer from a risk vessel upon which the cargo is
resulting from the fact shipped or transshipped, must be
concealed seaworthy at the commencement of
IMPLIED WARRANTIES each particular voyage
1. Seaworthiness of the ship at the 3. In the case of a voyage policy
inception of the insurance (Sec. contemplating a voyage in different
113); stages, the ship must be seaworthy
2. Against improper deviation (Sec. at the commencement of each
123, 124, 125); portion
3. Against illegal venture;
4. Warranty of neutrality: the ship will  Applicability of implied warranty of
carry the requisite documents of seaworthiness to cargo owners: It
nationality or neutrality of the ship becomes the obligation of a cargo owner
or cargo where such nationality or to look for a reliable common carrier,
neutrality is expressly warranted; which keeps its vessels in seaworthy
(Sec. 120) conditions. The shipper may have no
5. Presence of insurable interest. control over the vessel but he has
control in the choice of the common
 While the payment by the insurer for carrier that will transport his goods
the insured value of the lost cargo (Roque v. IAC, 139 SCRA 596).
operates as a waiver of the insurers
right to enforce the term of the implied Deviation
warranty against the assured under the  A departure from the course of the
marine insurance policy, the same voyage insured, or an unreasonable delay
cannot be validly interpreted as an in pursuing the voyage or the
automatic admission of the vessels commencement of an entirely different
seaworthiness by the insurer as to voyage. (Sec.123)
foreclose recourse against the common  Instances:
carrier for any liability under the 1. Departure of vessel from the
contractual obligation as such common course of the sailing fixed by
carrier. (Delsan Transportation Lines vs. mercantile usage
CA, 364 SCRA 24) 2. Departure of vessel from the
most natural, direct and
Seaworthiness advantageous route if not fixed
 A relative term depending upon the by mercantile usage
nature of the ship, voyage, service and 3. Unreasonable delay in pursuing
goods, denoting in general a ships voyage
fitness to perform the service and to 4. Commencement of an entirely
encounter the ordinary perils of the different voyage (Secs. 121-123)
voyage, contemplated by the parties to  Kinds:
the policy (Sec. 114). 1. Proper -
GENERAL RULE: The warranty of a. When caused by circumstances outside
seaworthiness is complied with if the the control of the ship captain or ship
ship be seaworthy at the time of the owner;

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46
b. When necessary to comply with a

warranty or to avoid a peril; GENERAL PARTICULAR
c. When made in good faith to avoid a Has inured to the Has not inured to the
peril; common benefit and common benefit and
d. When made in good faith to save profit of all persons profit of all persons
human life or to relieve another vessel interested in the interested in the
in distress (Sec. 124) vessel and cargo vessel and her cargo.
 Effect: In case of loss, the To be borne equally To be borne alone by
by all of the interests the owner of the
insurer is still liable. concerned in the cargo or the vessel,
2. Improper - Every deviation not venture. as the case may be.
specified in Sec. 124 (Sec. 125). Requisites for the
 Effect: In case of loss or right to claim
damage, the insurer is not liable. contribution:
(Sec. 126) 1. Common
danger to the
vessel or
LOSS cargo;
1. Total: 2. Part of the
a. Actual - vessel or cargo
i. Total destruction; was sacrificed
ii. Irretrievable loss by sinking; deliberately;
iii. Damage rendering the thing 3. Sacrifice must
valueless; or be for the
iv. Total deprivation of owner of common safety
possession of thing insured. or for the
(Sec. 130) benefit of all;
b. Constructive - 4. Sacrifice must
i. Actual loss of more than ¾ be made by
of the value of the object; the master or
ii. Damage reducing value by upon his
more than ¾ of the value of authority;
the vessel and of cargo; and 5. It must be not
iii. Expense of transshipment be caused by
exceed ¾ of value of cargo. any fault of
(Sec. 131, in relation to Sec. the party
139) asking the
 In case of constructive contribution;
total loss, insured may: 6. It must be
1. Abandon goods or successful, i.e.
vessel to the insurer and resulted in the
claim for whole insured saving of the
value (Sec. 139), or vessel or
2. Without abandoning cargo; and
vessel, claim for partial Necessary.
actual loss. (Sec. 155)
2. Partial: That which is not total (Sec. RIGHT OF INSURED IN CASE OF
128). GENERAL AVERAGE
GENERAL RULE: The insured may either
AVERAGE hold the insurer directly liable for the
 Any extraordinary or accidental whole of the insured value of the
expense incurred during the voyage for property sacrificed for the general
the preservation of the vessel, cargo, or benefit, subrogating him to his own right
both, and all damages to the vessel and of contribution or demand contribution
cargo from the time it is loaded and the from the other interested parties as soon
voyage commenced until it ends and the as the vessel arrives at her destination
cargo unloaded. EXCEPTIONS:
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47
1. After the separation of interests  If an insurer refuses to accept a valid

liable to contribution abandonment, he is liable upon an actual
2. When the insured has neglected or total loss, deducting form the amount
waived his right to contribution any proceeds of the thing insured which
may have come to the hands of the
FPA Clause (Free From Particular insured. (Sec.154)
Average)
A clause agreed upon in a policy of CO-INSURANCE
marine insurance in which it is stated  A marine insurer is liable upon a
that the insurer shall not be liable for a partial loss, only for such proportion of
particular average, such insurer shall be the amount insured by him as the loss
free therefrom, but he shall continue to bears to the value of the whole interest
be liable for his proportion of all general of the insured in the property insured.
average losses assessed upon the thing (Sec. 157)
insured. (Sec. 136)  When the property is insured for less
ABANDONMENT than its value, the insured is considered
 The act of the insured by which, after a co-insurer of the difference between
a constructive total loss, he declared the the amount of insurance and the value of
relinquishment to the insurer of his the property.
interest in the thing insured. (Sec. 138)
 Requisites for validity:  Requisites:
1. There must be an actual 1. The loss is partial;
relinquishment by the person insured 2. The amount of insurance is less than
of his interest in the thing insured the value of the property insured.
(Sec. 138);
2. There must be a constructive total  Rules:
loss (Sec. 139); 1. Co-insurance applies only to marine
3. The abandonment be neither partial insurance
nor conditional (Sec. 140); 2. Logically, there cannot be co-
4. It must be made within a reasonable insurance in life insurance.
time after receipt of reliable 3. Co-insurance applies in fire insurance
information of the loss (Sec. 141); when expressly provided for by the
5. It must be factual (Sec. 142); parties.
6. It must be made by giving notice
thereof to the insurer which may be CO-INSURANCE REINSURANCE
done orally or in writing (Sec. 143); A percentage in the Situation where the
and value of the insured insurer procures a 3rd
7. The notice of abandonment must be property which the party called the
explicit and must specify the insured himself reinsurer to insure
particular cause of the abandonment assumes to act as him against liability
insurer to the extent by reason of an
(Sec. 144).
of the deficiency in original insurance.
the insurance of the Basically, reinsurance
 Effects: insured property. In is an insurance
1. It is equivalent to a transfer by the case of loss or against liability which
insured of his interest to the insurer damage, the insurer the original insurer
with all the chances of recovery and will be liable only for may incur in favor of
indemnity (Transfer of Interest) such proportion of the original insured.
(Sec.146) the loss or damage as
2. Acts done in good faith by those who the amount of the
insurance bears to
were agents of the insured in respect
the designated
to the thing insured, subsequent to percentage of the
the loss, are at the risk of the full value of the
insurer and for his benefit. (Transfer property insured.
Of Agency)(Sec.148) (Bar Review
Materials in
Commercial Law,

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Jorge Miravite, 2002

ed.) ALTERATION AS A SPECIAL GROUND
FOR RESCISSION BY INSURER
 Requisites:
XVII. FIRE INSURANCE 1. The use or condition of the thing
 A contract by which the insurer for a is specifically limited or
consideration agrees to indemnify the stipulated in the policy;
insured against loss of, or damage to, 2. Such use or condition as limited
property by hostile fire, including loss by by the policy is altered;
lightning, windstorm, tornado or 3. The alteration is made without
earthquake and other allied risks, when the consent of the insurer;
such risks are covered by extension to 4. The alteration is made by means
fire insurance policies or under separate within the control of the insured;
policies. (Sec. 167) 5. The alteration increases the risk;
(Sec. 168) and
6. There must be a violation of a
 Prerequisites to recovery:
policy provision. (Sec. 170)
1. Notice of loss must be immediately
given, unless delay is waived expressly or
Fall-of-building clause
impliedly by the insurer
 A clause in a fire insurance policy that
2. Proof of loss according to best
if the building or any part thereof falls,
evidence obtainable. Delay may also be
except as a result of fire, all insurance
waived expressly or impliedly by the
by the policy shall immediately cease.
insurer
Option to rebuild clause
HOSTILE FIRE FRIENDLY FIRE  A clause giving the insurer the option
One that escapes One that burns in a
to reinstate or replace the property
from the place place where it was
where it was intended to burn
damaged or destroyed or any part
intended to burn and ought to be thereof, instead of paying the amount of
and ought to be. the loss or the damage.
Insurer is liable Insurer is not liable  The insurer, after electing to rebuild,
cannot be compelled to perform this
Measure of Indemnity undertaking by specific performance
1. Open policy: only the expense because this is an obligation to do, not
necessary to replace the thing lost or to give. Remedy: Art. 1167, NCC.
injured in the condition it was at the
time of the injury XVIII. CASUALTY OR ACCIDENT
2. Valued policy: the parties are bound INSURANCE
by the valuation, in the absence of fraud  Insurance covering loss or liability
or mistake arising from accident or mishap,
excluding those falling under other types
Note: It is very crucial to determine of insurance such as fire or marine. (Sec.
whether a marine vessel is covered by a 174)
marine insurance or fire insurance. The
determination is important for 2 reasons:  Classifications:
1. Rules on constructive total loss 1. Insurance against specified perils
and abandonment applies only which may affect the person and/or
to marine insurance; property of the insured. (accident or
health insurance)
2. Rule on co-insurance applies  Examples: personal accident,
primarily to marine insurance; robbery/theft insurance
3. Rule on co-insurance applies to 2. Insurance against specified perils
fire insurance only if expressly which may give rise to liability on the
agreed upon. (Commercial Law part of the insured for claims for
Reviewer, Aguedo Agbayani, injuries to or damage to property of
1988 ed.) others. (third party liability insurance)
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49
 Insurable interest is based on the of action against the insurer (Sec. 53,
interest of the insured in the safety of Bonifacio Bros. v. Mora, 20 SCRA 261).
persons, and their property, who may
maintain an action against him in case of  The insurer is not solidarily liable with
their injury or destruction, respectively. the insured. The insurers liability is
 Examples: workmens compensation, based on contract; that of the insured is
motor vehicle liability based on torts. Furthermore, the
 In a third party liability (TPL) insurers liability is limited by the
insurance contract, the insurer assumes amount of the insurance coverage (Pan
the obligation by paying the injured third Malayan Insurance Corporation v. CA,
party to whom the insured is liable. Prior 184 SCRA 54).
payment by the insured to the third
person is not necessary in order that the
obligation may arise. The moment the
insured becomes liable to third persons,
the insured acquires an interest in the INTENTIONAL vs. ACCIDENTAL AS
insurance contract which may be USED IN INSURANCE POLICIES
garnished like any other credit. (Perla 1. Intentional Implies the exercise of
Comapnia de Seguro, Inc vs. Ramolete, the reasoning faculties, consciousness
205 SCRA 487) and volition. Where a provision of the
 Aside from compulsory motor vehicle policy excludes intentional injury, it is
liability insurance, the Insurance Code the intention of the person inflicting the
contains no other provisions applicable injury that is controlling. If the injuries
to casualty insurance. Therefore, such suffered by the insured clearly resulted
casualty insurance are governed by the from the intentional act of the third
general provisions applicable to all types person, the insurer is relieve from
of insurance, and outside of such liability as stipulated. (Biagtan v. the
statutory provisions, the rights and Insular Life Assurance Co. Ltd., 44 SCRA
obligations of the parties must be 58, 1972)
determined by their contract, taking into 2. Accidental That which happens by
consideration its purpose and always in chance or fortuitously, without intention
accordance with the general principles or design, which is unexpected, unusual
of insurance law. and unforeseen.
 In burglary, robbery and theft NO ACTION CLAUSE

insurance, the opportunity to defraud  A requirement in a policy of liability
the insurer the moral hazard is so insurance which provides that suit and
great that insurer have found it final judgment be first obtained against
necessary to fill up the policies with the insured; that only thereafter can the
many restrictions designed to reduce the person injured recover on the policy.
hazard. Persons frequently excluded are (Guingon vs. Del Monte, 20 SCRA 1043)
those in the insureds service and
employment. The purpose of the XIX. COMPULSORY MOTOR VEHICLE
exception is to guard against liability LIABILITY INSURANCE (CMVLI)
should theft be committed by one having  A species of compulsory insurance
unrestricted access to the property. that provides for protection coverage
(Fortune Insurance vs. CA, 244 SCRA 208) that will answer for legal liability for
losses and damages for bodily injuries or
Right of a third party injured to sue the property damage that may be sustained
insurer by another arising from the use and
1. Indemnity against liability A third operation of motor vehicle by its owner.
party injured can directly sue the  Purpose: To give immediate financial
insurer. assistance to victims of motor vehicle
2. Indemnity for actual loss or accidents and/or their dependents,
reimbursement after actual payment by especially if they are poor regardless of
the insured A third party has no cause the financial capability of motor vehicle

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50
owners or operators responsible for the 3. Claim may be made against one motor
accident sustained (Shafer v. Judge, vehicle only
RTC, 167 SCRA 386). 4. Proper insurer from which to claim -
 Claimants/victims may be a a. In case of an occupant: Insurer
passenger or a 3rd party of the vehicle in which the occupant is
 It applies to all vehicles whether riding, mounting or dismounting from;
public and private vehicles. b. In any other case: Insurer of the
Note: It is the only compulsory insurance directly offending vehicle. (Sec. 378)
coverage under the Insurance Code.
 The claimant is not free to choose
from which insurer he will claim the no
fault indemnity as the law makes it
mandatory that the claim shall lie
against the insurer of the vehicle in
which the occupant is riding, mounting
Method of coverage or dismounting from. That said vehicle
1. Insurance policy might not be the one that caused the
2. Surety bond accident is of no moment since the law
3. Cash deposit itself provides that the party paying may
recover against the owner of the vehicle
Passenger Any fare-paying person responsible for the accident. (Perla
being transported and conveyed in and Compania de Seguros, Inc. v. Ancheta,
by a motor vehicle for transportation of 169 SCRA 144)
passengers for compensation, including
persons expressly authorized by law or  This no-fault claim does not apply to
by the vehicles operator or his agents to property damage. If the total indemnity
ride without fare. (Sec. 373[b]) claim exceeds P5,000 and there is
controversy in respect thereto, the
Third Party Any person other than the finding of fault may be availed of by the
passenger, excluding a member of the insurer only as to the excess. The first
household or a member of the family P5,000 shall be paid without regard to
within the second degree of fault. (Prof. De Leon, p. 716)
consanguinity or affinity, of a motor
vehicle owner or land transportation  The essence of the no-fault indemnity
operator, or his employee in respect of insurance is to provide victims of
death or bodily injury arising out of and vehicular accidents or their heirs
in the course of employment. (Sec. immediate compensation although in
373[c]) limited amount, pending final
determination of who is responsible for
No-Fault Clause the accident and liable for the victims
 A clause that allows the victim injuries or death. (Ibid.)
(injured person or heirs of the deceased)
to an option to file a claim for death or SPECIAL CLAUSES
injury without the necessity of proving A. Authorized Driver Clause
fault or negligence of any kind.  A clause which aims to indemnify the
 Purpose: To guarantee compensation insured owner against loss or damage to
or indemnity to injured persons in motor the car but limits the use of the insured
vehicle accidents. vehicle to the insured himself or any
 Rules: person who drives on his order or with
1. Total indemnity - maximum of P5,000 his permission (Villacorta v. Insurance
2. Proofs of loss - Commissioner)
a. Police report of accident;  The requirement that the person
b. Death certificate and evidence driving the insured vehicle is permitted
sufficient to establish proper payee; in accordance with the licensing laws or
c. Medical report and evidence of other laws or regulations to drive the
medical or hospital disbursement. motor vehicle (licensed driver) is

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51
applicable only if the person driving is Credit Contract of

other than the insured. accommodation indemnity
Surety can recover Insurer has no such
B. Theft Clause from principal right; only right of
 A clause which includes theft as subrogation
among the risks insured against. Bond can be May be cancelled
cancelled only with unilaterally either by
 Where the car is unlawfully and consent of obligee, insured or insurer on
wrongfully taken without the owners Commissioner or grounds provided by
consent or knowledge, such taking court law
constitutes theft, and thus, it is the Requires No need of
theft clause and not the authorized acceptance of acceptance by any
driver clause that should apply (Palermo obligee to be valid third party
v. Pyramids Ins., 161 SCRA 677). Risk-shifting device; Risk-distributing
premium paid being device; premium paid
in the nature of a as a ratable
service fee contribution to a
C. Cooperation Clause common fund
 A clause which provides in essence XXI. LIFE INSURANCE
that the insured shall give all such  Insurance on human lives and
information and assistance as the insurer insurance appertaining thereto or
may require, usually requiring connected therewith which includes
attendance at trials or hearings. every contract or pledge for the
XX. SURETYSHIP payment of endowments or annuities.
 An agreement whereby a surety (Sec. 179)
guarantees the performance by the  Kinds: (Bar Review Materials in
principal or obligor of an obligation or Commercial Law, Jorge Miravite, 2002
undertaking in favor of an obligee. (Sec. ed.)
175)
 It is essentially a credit
1. Ordinary Life, General Life or Old
Line Policy - Insured pays a fixed
accommodation.
premium every year until he dies.
 It is considered an insurance contract
Surrender value after 3 years.
if it is executed by the surety as a
vocation, and not incidentally. (Sec. 20 2. Group Life Essentially a single
 When the contract is primarily drawn insurance contract that provides
up by 1 party, the benefit of doubt goes coverage for many individuals.
to the other party (insured/obligee) in Examples: In favor of employees,
case of an ambiguity following the rule mortgage redemption insurance.
in contracts of adhesion. Suretyship, 3. Limited Payment Policy insured
especially in fidelity bonding, is thus pays premium for a limited period.
treated like non-life insurance in some If he dies within the period, his
respects. beneficiary is paid; if he outlives the
period, he does not get anything.
Nature of liability of surety 4. Endowment Policy pays premium
1. Solidary; for specified period. If he outlives
2. Limited to the amount of the bond; the period, the face value of the
3. It is determined strictly by the terms policy is paid to him; if not, his
of the contract of suretyship in beneficiaries receive the benefit.
relation to the principal contract 5. Term Insurance insurer pays once
between the obligor and the obligee. only, and he is insured for a
(Sec. 176) specified period. If he dies within
the period, his beneficiaries
SURETYSHIP PROPERTY benefits. If he outlives the period,
INSURANCE no person benefits from the
Accessory contract Principal contract insurance.
3 parties: surety, 2 parties: insurer and
obligor and oblige insured
6. Industrial Life - life insurance
entitling the insured to pay

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52
premiums weekly, or where insured, in which event, the nearest

premiums are payable monthly or relative of the insured shall receive the
oftener. proceeds of said insurance if not
otherwise disqualified. (Sec. 12)
Mortgage Redemption Insurance EXCEPTIONS:
 A life insurance taken pursuant to a 1. Accidental killing
group mortgage redemption scheme by 2. Self-defense
the lender of money on the life of a 3. Insanity of the beneficiary at the
mortgagor who, to secure the loan, time he killed the insured
mortgages the house constructed from
the use of the proceeds of the loan, to  If the premiums paid came from
the extent of the mortgage indebtedness conjugal funds, the proceeds are
such that if the mortgagor dies, the considered conjugal. If the beneficiary is
proceeds of his life insurance will be other than the insureds estate, the
used to pay for his indebtedness to the source of premiums would not be
lender assured and the deceaseds heirs relevant. (Del Val v. Del Val, 29 Phil 534)
will thereby be relieved from paying the
unpaid balance of the loan. (Great  The measure of indemnity in life or
Pacific Life Assurance Corp. vs. Court of health insurance policy is the sum fixed
Appeals, 316 SCRA 677) in the policy except when a creditor
insures the life of his debtor. (Sec. 183)
LIABILITY OF INSURER IN CERTAIN IS THE CONSENT OF THE BENEFICIARY
CAUSES OF DEATH OF INSURED NECESSARY TO THE ASSIGNMENT OF A
1. Suicide LIFE INSURANCE POLICY?
 Insurer is liable in the following cases:  It depends. If the designation of the
1. If committed after two years beneficiary is irrevocable, the
from the date of the policys beneficiarys consent is essential because
issue or its last reinstatement; of his vested right. If the designation is
2. If committed in a state of revocable, the policy may be assigned
insanity regardless of the date of without such consent because the
the commission unless suicide is beneficiary only has a mere expectancy
an excepted peril. (Sec. 180-A) to the proceeds. (The Insurance Code of
3. If committed after a shorter the Philippines Annotated, Hector de
period provided in the policy Leon, 2002 ed.)
 Any stipulation extending the 2-year
period is null and void. Cash Surrender Value
2. At the hands of the law (E.g. by legal  As applied to a life insurance policy, it
execution) is the amount the insured in case of
 It is one of the risks assumed by the default, after the payment of at least 3
insurer under a life insurance policy in full annual premiums, is entitled to
the absence of a valid policy exception. receive if he surrenders the policy and
(Vance,p.572 cited in de Leon, p. 107) releases his claims upon it.
Note: Justice Vitug believes that death
by suicide (if the insured is sane) or at LIFE INSURANCE FIRE INSURANCE
the hands of the law obviates against
recovery as being more in consonance Contract of Contract of indemnity
with public policy and as being implicit investment not of
indemnity
under Section 87, ICP. (Pandect of Valued policy Open or valued policy
Commercial Law and Jurisprudence, May be transferred The insurable
1997 ed. P. 191) or assigned to any interest of the
3. Killing by the beneficiary person even if he transferee or
GENERAL RULE: The interest of a has no insurable assignee is essential
beneficiary in a life insurance policy interest
shall be forfeited when the beneficiary is Consent of insurer is Consent of insurer
not essential to must be secured in the
the principal accomplice or accessory in validity of absence of waiver
willfully bringing about the death of the assignment

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53
Contingency that is Contingency insured

contemplated is a against may or may
certain event, the not occur
only uncertainty
being the time when
it will take place
A long-term May be cancelled by
contract and cannot either party and is
be cancelled by the usually for a term of
insurer one year
Beneficiary is under Insured is required to
no obligation to submit proof of his
prove actual actual pecuniary loss
financial loss as a condition
precedent to
collecting the
insurance.
XXII. VARIABLE CONTRACT  The Insurance Commissioner has no

 Any policy or contract on either a jurisdiction to decide the legality of a
group or individual basis issued by an contract of agency entered into between
insurance company providing for benefits an insurance company and its agent. The
or other contractual payments or values same is not covered by the term doing
thereunder to vary so as to reflect or transacting insurance business under
investment results of any segregated Sec 2, ICP, neither is it covered by Sec.
portfolio of investment. 416 of the same Code which grants the
Commissioner adjudicatory powers
XXIII. INSURANCE COMMISSIONER (Philippine American Life Insurance Co.
 Main agency charged with the v. Ansaldo, 234 SCRA 509).
enforcement of the Insurance Code and
other related laws. 2. ADMINISTRATIVE/REGULATORY
 Functions: a. Enforcement of insurance laws
1. ADJUDICATORY/QUASI-JUDICIAL b. Issuance, suspension or
a. Exclusive original jurisdiction revocation of certificate of
Any dispute in the enforcement of any authority
policy issued pursuant to Chapter VI c. Power to examine books and
(CMVLI). (Sec. 385, par. 2) records, etc.
b. Concurrent original jurisdiction d. Rule-making authority
(with the RTC) Where the maximum e. Punitive
amount involved in any single claim is
P100,000 (Sec. 416), except in case of
maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP
129; admiralty & maritime jurisdiction)
 Where the amount exceeds
P100,000, the RTC has
jurisdiction.

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I. GENERAL CONCEPTS 7. Personal  each party having in view

COMMERCIAL LAW COMMITTEE

 Most of the terms of the contract do e. For recovery of loss in excess of

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received from the applicant the 5. Interest of the insured in the

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VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

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c. of any person under a legal INSURABLE INSURABLE

destruction of the property insured the mortgagor as the claim is discharged

Effect of Acknowledgment of Receipt

A. Whole: Not a debt. It becomes a debt

XI. ASCERTAINMENT AND CONTROL OF  The waiver of medical examination in

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Presumed material Must be proved to of issue of policy or its last

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Additional or  Other Insurance Clause 2. Automatic reinsurance  The

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insured against; NON-LIFE

Failure to give Failure to give  In case of an unreasonable delay in

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 Difference between the value B. Barratry Clause

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communicated communicated commencement of the risk. Prior or

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b. When necessary to comply with a

1. After the separation of interests  If an insurer refuses to accept a valid

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Jorge Miravite, 2002

 In burglary, robbery and theft NO ACTION CLAUSE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

applicable only if the person driving is Credit Contract of

COMMERCIAL LAW COMMITTEE

premiums weekly, or where insured, in which event, the nearest

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Contingency that is Contingency insured

XXII. VARIABLE CONTRACT  The Insurance Commissioner has no

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I. GENERAL CONCEPTS 7. Personal each party having in view

Additional or Other Insurance Clause 2. Automatic reinsurance The