50381884 insurance reviewer

7/30/2019 50381884 Insurance Reviewer

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CHAPTER 1 INTRODUCTION

I. Origin and Growth of Insurance

1. Early maritime or marine insuranceVance:Origin of the modern commercial contract ofinsurance

Maritime transportation practices; Bottomry loan loan obtained for the value of

the vessel on a voyage and the lender wasrepaid only if the vessel subject of the loanarrived safely at its destination

Respondentia loan loan obtained as securityfor the value of the cargo t o be transported andthe lender was repaid only f cargo arrives safelyat destination

General average contribution owners ofcargo who benefited from the deliberatesacrifice of some goods to save the others froma sea peril, contribute to pay the loss suffered by

the sacrifice

Real and Hypothecary Nature of Maritime Law- The real and hypothecary nature refers to thisrelationship with the property attached. Real refersto a property relationship and hypothecary meansto pledge- Ship-owners liability is limited to the value of theship w/c is deemed pledged to answer for theliability- Risk-distributing scheme pooling of resources ofa big group to spread in an equitable manner theloss w/c would normally fall upon a single individual

exposed to the same risks-confine liability of owner, agent arising fromoperation of ship to the vessel, equipment, andfreight or insurance, if any so that if ship owner oragent abandoned ship, equipment, and freight, hisliability is extinguished.--Aboitiz Shipping v New India Insurance

The doctrine of limited liability limits the amount ofinterest in a vessel to itspro rata share in the lossbecause of the real and hypothecary nature ofmaritime law. Before it could be invoke, carrier hasto show that it exercised extraordinary diligence in

transporting its goods.

Carale BarksLimited liability insurance proceeds will takethe place of the vesselQ: If the value of the vessel is less than the voyageof goodsA: vessel is no longer liable for the excess

The real and hypothecary nature does not applywhen another law applies i.e. diligence ofcommon carrier

2. Development of insurance(refer to D2009 reviewer)

3. Insurance business in the Philippines(refer to D2009 reviewer)

4. Office of the Insurance Commission

PhilAm v ArnaldoThe Insurance Commissioner has administrativepower over insurance businesses. He has quasi-

judicial power over relations bet insurancecompanies and the insured public. Agents ofinsurance companies do not fall under this.--Republic v Del Monte MotorsIt is the duty of the Insurance Commissioner to hold

the security deposits under the InsuranceCommission for the protection of the public. Thesecurity deposits are, under the law, exempt fromexecution.

II. Laws Governing InsuranceInsurance Code as amended preceded by the

Insurance Act (Act 2427; Dec 11, 1914; copied from

California Insurance Act)

- Regardless of what law governs, the deficiencies

in the law will have to be supplemented by the

Sec. 414. The Insurance Commissioner shall havthe duty to see that all laws relating toinsurance, insurance companies and otherinsurance matters, mutual benefit associations,and trusts for charitable uses are faithfullyexecuted and to perform the duties imposedupon him by this Code, and shall,notwithstanding any existing laws to thecontrary, have sole and exclusive authorityto regulate the issuance and sale ofvariable contracts as defined in section twohundred thirty-two and to provide for the

licensing of persons selling such contractsand to issue such reasonable rules andregulations governing the same.

The Commissioner may issue such rulings,instructions, circulars, orders and decisionas he may deem necessary to secure theenforcement of the provisions of this Codesubject to the approval of the Secretary ofFinance. Except as otherwise specified, decisionmade by the Commissioner shall be appealableto the Secretary of Finance.

Sec. 415. In addition to the administrativesanctions provided elsewhere in this Code, the

Insurance Commissioner is hereby authorized, a

his discretion, to impose upon the insurance


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general principles prevailing on the subject in

American jurisprudence. Using the prevailing

principles the court ruled that the beneficiary

cannot be changed without his/her consent.

(Gercio v Sunlife; 1925)

- As the Philippine law was taken verbatim from the

law of California, in accordance with well settled

canons of statutory construction, the court should

follow in fundamental points, at least, the

construction placed by California courts on a

California law. (Ang Giok Chip v Springfield;

1931)

- US jurisprudence is persuasive in the construction

of the Insurance Code. (Philippine Health Care

Providers v Commissioner of Internal

Revenue; 2009)

The Civil Code

Art 2011 provides that NCC is suppletory to speciallaws which govern insurance contracts

Special Laws (GSIS, SSS, PDIC, etc)

CHAPTER 2 THE CONTRACT OF INSURANCE

A. Definitions

Carale Barks

Important to find out why an establishmentis doing the business of insurance or not

Why?

For purpose of determining what doing aninsurance business means, we have to scrutinizethe operations of the business as a whole. This isprudent and appropriate, taking into account theburdensome and strict laws, rules and regulationsapplicable to insurers and other entities engaged inthe insurance business (Phil. Health CareProviders v CIR)Example:

SECURITY FUND Chapter 5 - Sec 365 Only licensed companies and agents

B. Elements (IRDCR)1. Insurable interest

- interest in life or thing capable of pecuniaryestimation2. Risk of loss or damage

- insured is subjected to risk through thedestruction or

impairment of that interest by the happening ofdesignated

peril

3. Designated peril as cause (riskcoverage/qualifiers)- cause of damage or loss must be caused by thedesignated

perils stated in the contract4. Consideration: premium

- insurer undertakes to assume the risk of lossfor a

consideration(premium)- premium is a ratable contribution to a general

insurance fund5. Risk distributing scheme (because of definition ofinsurance business)- not risk-transferring scheme, the assumption of

risk is a partof the general schemes to distribute actual

losses among alarge group of persons bearing similar risks

C. Characteristics (SPACCIE)1. Synallagmatic Rights and obligations of theparties correlate and mutually correspond. Insurerassumes the risk of loss w/c insured might suffer inconsideration of payments under a risk-distributingscheme. Pooling of resources, legal reserve.2. Personal and uberrimae fidesPersonal each party has in view character, creditand conduct of otherUberrimae fides highest degree of good faithenjoined by law3 . Aleatory liability of insurer depends upon someevent w/c is uncertain, or w/c though certain, is tooccur at some future undetermined time4. Consensual and voluntary meeting of mind ofparties5. Contract of adhesion take it or leave it6. Indemnityfor non-life: you cant recover more than the valueof your loss

Sec 2.1 A contract of insurance is an agreement

whereby one undertakes for a consideration toindemnify another against loss, damage, or

liability arising from an unknown or contingent

event.

A contract of suretyship shall be deemed to be

an insurance contract, within the meaning of this

Code, only if made by a surety who or which, as

such, is doing an insurance business as

hereinafter provided.

Sec 175 defines surety as a guaranty of the

performance of an obligation

Sec 2.2The term doing an insurance business

or transacting an insurance business means:

a) making or proposing to make, as insurer, any

insurance contract

b) making or proposing to make, as surety, any

contract of suretyship as a vocation and not as

merel incidental to an other le itimate


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for life: investment measure of economic securityfor the insured during his lifetime and for thebeneficiaries during his death7 . Executory and conditional insurer has noobligation to pay until and unless the peril insuredagainst takes place

D. Contracts for Contingent ServicesI. Health Maintenance Organizations

- Org where members pay an annual fee andare entitled to preventive, diagnostic, andcurative medical services provided by itsduly licensed physicians, etc

Health Care Agreement is non-life insurance sinceit satisfies all the elements, and also by virtue ofSec 10 (which actually refers to life insurance). Andalso for fraud to be a ground of rescission underSec 27, there must be intent to defraud and notdone in good faith and also rescission must bemade before an action is filed. (PhilamCare v CA;2002)

In Philamcare Health Systems, Inc. v. CA, 19 weruled that a health care agreement is in the natureof a non-life insurance. It is an established rule ininsurance contracts that when their terms containlimitations on liability, they should be construedstrictly against the insurer. These are contracts ofadhesion the terms of which must be interpretedand enforced stringently against the insurer whichprepared the contract. This doctrine is equallyapplicable to health care agreements. 21 (BlueCross v Olivares; 2008)

HMO not doing the business of insuranceArguments:1. Primary object and purpose test (service vs.indemnity)2. History of HMOs (development of American

jurisprudence and also it helps make healthcaremore affordable) HMO already came but the lawremained the sameAlso not in conflict with Philam Care and Blue Crossbecause this is a tax case and does not involveliability between member and HMO. (PhilippineHealth Care Providers v Commission ofInternal Revenue; 2009)

II. Pre-Need

Carale Barks- No express stipulation that pre-need is

insurance- It is placed under insurance commission.

Does it make it an establishment doinginsurance?

- Insurance based on phrase mobilization ofsavings in the declaration of policy

III. Warranties covering goods sold/servicesrenderedWarranty refers to the INHERENT QUALITY of thegoods/service

- Can be foreseenInsurance has nothing to do with the goodspurchased or its quality

E. General Classification of Insurance1. Life

a) Individual life; pure endowment

b) Group life

RA 9829 Pre-Need Code

Sec 4 (b) pre-need plans are contracts,

agreements, deeds, or plans for the benefit of

the planholders which provide for the

performance of future services, payment of

monetary considerations or delivery of other

benefits at the time of actual need or agreed

maturity date, as specified therein, in exchange

for cash or installment amounts with or without

interest or insurance coverage

(c) pre-need company refers to any

corporation registered with the Commission and

authorized/licensed to sell or offer to sell pre-

need plans

Sec 5 All pre-need companies, as defined under

this act, shall be under the primary and exclusive

supervision and regulation of the Insurance

Commission

Sec 179 Life insurance is insurance on humanlives and insurance appertaining thereto orconnected therewith.

Sec 180 An insurance upon life may be payableon the death of the person, or on his surviving aspecified period, or otherwise contingently on thcontinuance or cessation of life.Every contract or pledge for the payment ofendowments or annuities shall be considered a

Sec 50 Group insurance and group annuitypolicies, however, may be typewritten and neednot be in printed form.Sec 228 If a group life policy is on a plan ofinsurance other than term, it shall contain a nonforfeiture provision or provisions which in theopinion of the Commissioner is or are equitableto the insured or the policyholder: Provided, Thanothing herein contained shall be so construedas to require group life policies to contain the

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Pineda v CA & Insular LifeGroup insurance is essentially a single insurance

contract that provides coverage for many

individuals. In its original and most common form,

group insurance provides life or health insurance

coverage for the employees of one employer.

The coverage terms for group insurance are usually

stated in a master agreement issued by the insurer

to an employer. The employer acts as a functionary

in the collection and payment of premiums and in

performing related duties.

Although the employer may be the titular or named

insured, the insurance is actually related to the life

and health of the employee. EE is in the position of

a real party to the master policy, and even in a

non-contributory plan, the payment by the

employer of the entire premium is a part of thetotal compensation paid for the services of the

employee.

Group insurance traces its roots to insurance forthe employees of an employer. There iscontributory and non-contributory plan. Because ofthe control test, the employer is actually an agentof the insurer and not an agent of the employees.

Carale BarksNo medical exams needed usuallyRequires a certain number of people to be includedin the policy based on law of averages adeterminable % of members of group would diew/in contemplated period

c) Industrial Life Insurance

2. Non-lifea) Marine insurance:

b) Fire

c) Casualty/liability

d) Suretyship

3. Other Modes of C lassificationa) Private v public (voluntary and compulsory)

Carale Barks- public compulsory GSIS coverage, SSS

coverage- private ordinary insurance companies

b) First party insurance and third party insuranceCarale Barks

- 1st party it is the insured who suffers the loss ordamage. He

is the one paid by the insurance company- 3rd party insurance is for liability, payment is

made to 3rd

Sec 229 that form of life insurance underwhich the premiums are payable eithermonthly or oftener, if the face amount ofinsurance provided in any policy is not morethan five hundred times that of the currentstatutory minimum daily wage in the City of

Manila, and if the words industrial policy areprinted upon the policy as part of the descriptivematter [it] shall not lapse for non-payment ofpremium if such non-payment was due to thefailure of the company to send its representativeor agent to the insured at the residence of theinsured or at some other place indicated by himfor the purpose of collecting such premium:Provided, That the provisions of this paragraphshall not apply when the premium on the policy

Sec 99: all kinds of property and intereststherein in connection with any and all risks ofnavigation, transit or transportation, preparationfor shipping, while awaiting shipment, or duringdelays, storage, transhipment, or reshipment.-persons or property in connection with orappertaining to marine, inland marine, transit ortransportation insurance, including liability for

loss of or damage-bridges, tunnels and other instrumentalities oftransportation and communication, piers,wharves, docks and slips, and other aids tonavigation and transportation, including drydocks and marine railways, dams andappurtenant facilities for the control of thewaterways.-legal liability of the insured for loss, damage, orexpense incident to ownership, operation,chartering, maintenance, use, repair, orconstruction of any vessel, craft orinstrumentality in use of ocean or inland

Sec 167 As used in this Code, the term fireinsurance shall include insurance against lossby fire, lightning, windstorm, tornado orearthquake and other allied risks, when suchrisks are covered by extension to fire insurance

Sec 175 A contract of surety shipis anagreement whereby a party called the suretyguarantees the performance of another partycalled the principal or obligor of an obligation or

Sec 174 is insurance covering loss or liabilityarising from accident or mishap, excludingcertain types of loss which by law or custom are

considered as falling exclusively within the scopeof other types of insurance It includes but is


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person for the injury caused by the insured;casualty

insurance(sec 174)

4. Some life Insurance P lansa) whole life planordinary - insured agrees to pay premiums while helives; insurer agrees to pay face value upon deathof insured

limited payment insured pays premium only forspecified # of years after which he stops paying atall. Insurer pays when insured dies.

single premium insured pays one premium

joint-life 2 insured in one policy. Proceeds arepaid even when only one dies

universal life partial is for insurance and partial isfor investment

variable life performance of investment

- allows you to allocate a portion of your premiumsto a separate account comprised of variousinstruments and investment funds within theinsurance company's portfolio

b) term plan- insurers liability arises only upon death of insuredwithin agreed term of period- if insured survives, contract terminates

c) modified life combination of other kinds

d) pure endowment plan- if insured survives a period, he is paid proceeds.Should he die, insurer free from liability

e) endowment plan most common- if insured outlives specified period, he is paid theface value. If he dies, beneficiaries get theproceeds- premium is higher

F. Construction/Interpretation1. Literal/strict interpretation

Cardinal rule: interpret in favor of insured only in

case of DOUBT, not when intention is clear

expressed in policy

Rationale:

Cebu Shipyard v William Lines- ship burned while on repair, fault of

repairer, insurer still paysWhen the terms of a contract are clear itsstipulations control. Since William Lines is the onlyone insured then Cebu Shipyard cant be a co-insured. On the other hand, contracts of adhesionmust be construed taking in mind thecircumstances involved as well as equity and fairplay.

New Life Enterprises v CA

- same agent but different insurers, violationof other insurance clause

The provisions of an insurance contract, if clear andunambiguous, give no room for construction. Suchis the case in this other insurer clause even thoughit would be unfair and unjust especially since theagent of the insurer knew of the double-insurance.

First Quezon City Insurance v CA- dragged by bus while still boarding; insurer

paid 12K onlyIllustration of non-construction if clear sincecontract provides the limit that only 12k perpassenger but no more than 50k per accident.

Ty v First NationalBecause of definition of partial loss as amputationthere is no insurance coverage.

Misamis Lumber v Capital

- authorized repair limit of P150Because there is an express stipulation thatconsented repair liability is only up to P150 then it

is only up to that that insurer is liable.

Sun Insurance v CA(1991)

- insurance claim denied, filed MR.prescription runs after 1st rejection

Construction of words or terms in their plain andordinary meaning preclude the construction thatrejection refers to the final rejection of a claim andtherefore the contractual prescriptive period beginsduring the initial rejection.

Fortune Insurance v CA

Art 1370, CC: If the terms of a contract are

clear and leave no doubt upon the intention of

the contracting parties, the literal meaning of its

stipulations shall control.

If the words appear to be contrary to the evident

Art. 1305. A contract is a meeting of mindsbetween two persons whereby one binds himself,with respect to the other, to give something or torender some service.

Art. 1306. The contracting parties may establishsuch stipulations, clauses, terms and conditionsas they may deem convenient, provided they arenot contrary to law, morals, good customs, publicorder, or public policy.

Art. 1308. The contract must bind both


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- money, security, & payroll robberyinsurance; done by guard authorizedrepresentatives

A contract of insurance is a contract of adhesion,thus any ambiguity therein should be resolvedagainst the insurer, or it should be construedliberally in favor of the insured and strictly againstthe insurer. Limitations of liability should beregarded with extreme jealousy and must beconstrued in such a way as to preclude the insurerfrom non-compliance with its obligation. It goeswithout saying then that if the terms of thecontract are clear and unambiguous, there is noroom for construction and such terms cannot beenlarged or diminished by judicial construction.Because provisions cover both employees andauthorized representatives, it covers contractualemployees.

Perla v CA- bus figured in accident, passenger sued,

insurer paid 12K, injured wants 50KInsurance policy is the law between the parties andthe clear provision that consent of the insurer needbe obtained before paying any claims to entitle herto reimbursement is binding upon them.

Oriental Assurance v CA- logs boarded in 2 ships, 1 sank, not total

lossThe clear words that the insurance covers onlytotal loss is binding. Also Sec 139 covers anindivisible unit per policy and since only one of thetwo barges resulted in the destruction of the logsthe total ratio is only less than and does notreach the required for total loss.

2. Liberal Interpretation

Cardinal Rule: any obscurities or ambiguities inan insurance contract must be strictly construedagainst insurer, the party who made it

Rationale:Carry out the purpose of the contract which is toinsure against risk of loss, damage, or liability

Malayan Insurance v CA- arrest of civil authority in south africa

Because ambiguities are strictly construed againstthose who have caused them and also becauseexceptions against liability are strictly construedagainst insurer then arrest shall cover civil arrestas well.

Western Guaranty v CA

- 3rd party liability, all sums necessary fordischarge liability of insured in respect of

eventsLimitations on certain liabilities is not exhaustive ifnot expressly stipulated and will not precludeclaims of other forms of damages. This is becauselimitations in liability are strictly construed againstinsurer and contracts of adhesion construed strictlyagainst maker.

Qua Chee Gan v Law Union- Contract prohibits oils, in warehouse there

was gasolineAmbiguities construed strictly against thosecausing ambiguity. The term oils thereforeprecludes gasoline since the normal use of theword refers to lubricants.

Del Rosario v Equitable- Drowning, no corresponding payment

Though the policy covers death by drowning, it didnot specify the recoverable amount. The onlyamount referring to drowning is physical injuries bydrowning. Because there is an ambiguity as to therecoverable amount, it is construed in favor of theinsured.

Geagonia v CA- Different insurable interest since 1 is for

mortgagor other is for mortgagee ofproperty

Ambiguity in other insurance clause construedagainst insurer and therefore not covers insurancefor benefit of mortgagee as well as stipulation thatcondition only applies to claims for more than200k.

Sun Insurance v CA(1992)- Felix the guy who put a bullet on his head

Although there was negligence in the occurrence ofthe accident, because of strict construction againstinsurer, this does not mean the accident is not

covered unless there is an express exemption.

Rizal Surety v CA- fire insurance premises occupied by them

forming part of building. Annex included.Limitations of integral part of building and insidecompound of insured is liberally construed becauseof ambiguity and also because factual findings oftrial court and CA say so.

CHAPTER 3 INSURABLE INSTEREST

Art 1377The interpretation of obscure words or

stipulations in a contract shall not favor the party

who caused the obscurity.

Art. 1373. If some stipulation of any contractshould admit of several meanings, it shall beunderstood as bearing that import which is most


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A. Definition and purpose

Basis:

Carale BarksInsurable interest is in definition bec how can yousuffer loss when you have no interesy?Insurable interest to the extent that you aredamnifiedPurpose:

1. Prevents wagering2. Limits liability of insurer

May not be waived

B. Insurable interest in life/health:Sec 10 Every person has an insurable interest inthe life and health:a) Of himself, of his spouse and of his children;b) Of any person on whom he depends wholly or inpart for education or support, or in whom he has apecuniary interestc) Of any person under a legal obligation to him forthe payment of money, or respecting property orservices, of which death or illness might delay orprevent the performance; andd) Of any person upon whose life any estate orinterest vested in him depends.

Carale Barks

Insurable interest exists where there isreasonable ground founded on (1)relations ofthe parties either contractual or pecuniary, (2)or by blood and affinity, to expect some benefitor advantage from continuance of life ofinsured.

Insurable interest must exist at the time ofinception (life)Except: (Gercio v Sun Life) husband who tookout life policy for wife is still entitled toproceeds when she died even when they werealready divorced then

Non life insurable interest at inception andtime of loss

(a) own life- one has unlimited in his life so he candesignate anyone to be beneficiary- beneficiary need not have insurable interest in lifeof insured so long as not one of those prohibited inlaw

spouse should be legal, legitimate- mere love and affection will not be enough

to constitute insurable interest

children may be illegitimate, legitimate, minorsor of legal age, married or not

(b) life of person whom he depends forsupport

- Child may procure insurance on life of parent(here not a)

- child taken by person from orphanage w/insurable interest bec of expectation of support- no insurable interest in lives of cousins, nephews,aunts and other relatives. Not even in-laws.UNLESS: they have pecuniary interest so they fallunder (c)

(c) person who has legal obligation of whichdeath or illness might delay or prevent theperformanceCreditor can take life insurance for debtor- no insurable interest in secured debts- insurable interest in unsecured debts so if debtor

dies something will still answer for debt-limit of insurable interest: amount of debt- insurable interest must exist both at inception andat time of loss bec dedbt may have already beenpaid by then

ER can insure like of EE; if EE has already severedties with ER- El Oriente Fabrica v Posadas: contract isdeemed to indemnify ER for loss suffered due todeath, but ER no longer suffered loss of death sinceno more ties!

Sec 2.1 The contract of insurance is an

agreement whereby one undertakes for a

consideration to indemnify another against loss,

damage, or liability arising from an unknown or

Sec 25 Every stipulation in a policy of insurancefor the payment of loss whether the personinsured has or has not any interest in theproperty insured, or that the policy shall bereceived as proof of such interest, and every

Art. 195,FC. Subject to the provisions of thesucceeding articles, the following are obliged tosupport each other to the whole extent set forth inthe preceding article:

(1) The spouses;(2) Legitimate ascendants and descendants;

(3) Parents and their legitimate children and thelegitimate and illegitimate children of the

latter;(4) Parents and their illegitimate children and the

legitimate and illegitimate children of thelatter; and

(5) Legitimate brothers and sisters, whether offull or

half-blood


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- the loss was resignation, so should have insuredagainst resignation!

d) Of any person upon whose life any estateor interest vested in him depends.- usufrutory has insurable interest in life of nakedowner

Insurable interest in health:Philamcare v. CA: the insurable interest ofperson in obtaining health care agreement is hisown health

C. Insurable interest in property:1. Definition

- interest of such nature that a contemplated perilmight damnify the insured- he will be benefited by continuing existence ofthing or suffer pecuniary loss by its destruction

2. Amplified by:

Insurable interest in property may consist in(a) existing interest- actual interest- e.g. interest of the owner, mortgagee or lessee

(b) inchoate interest- interest exists but it is incomplete or unripeinterest; will ripen upon happening of an event- must be founded on ACTUAL existing interest- e.g. interest of stockholders with respect to

dividends in case of profits ad shares in the assets

(c) expectancy coupled with actual interest

- mere expectancy not enough. It must be coupledwith an actual interest

- e.g. farmer has insurable interest in the yield ofhis rice field bec of his existing right since heplanted the rice- a son has no insurable interest in a property of hisfather since he only has mere expectation.

Cha v CA-lessor-lessee. Contract says: LESSEE shall notinsure against fire the chattels in the leasedpremises without first obtaining the written consentand approval of the LESSOR. Otherwise policy isdeemed assigned and transferred to the LESSORfor its own benefit-lessor claims proceeds due to contract- Sec 18, Sec 25, Sec 17- insurable interest over merchandise remains withthe insured, the lessee. automatic assignment ofthe policy to lessor is void. Use sec 25.- without prejudice to any action of lessor to lesseefor liability for violating their lease contract.

--

Filipino Merchants Insurance v CAA perfected sales contract is enough to establish aninsurable interest although ownership has yet to betransferred through delivery.- consignee has insurable interest in the cargo becof the profit it will derive from it (pasok sa c)--Gaisano Cagayan v Insurance Co of NorthAmericaOwnership is not only basis for insurable interest inproperty since vendors lien is also consideredinsurable interest.- insurable interest is not title but substantialeconomic interest

3. Measure of insurable interest:

- being a contract of indemnity, measure ofinsurable interest in property is the extent to w/cthe insured might be damnified by the loss- indemnity principle: the insured may not recovera greater value than that of his actual loss4. When should insurable interest exist?

Sec 13 Every interest in property, whether realor personal, or any relation thereto, or liability inrespect thereof, of such nature that acontemplated peril might directly damnify theinsured, is an insurable interest.

Sec 18 No contract or policy of insurance onproperty shall be enforceable except for the

Sec 14 An insurable interest in property mayconsist in:a) An existing interestb) An inchoate interest founded on an existinginterest

Sec 16 A mere contingent or expectant interestin anything, not founded on an actual right to thething, nor upon any valid contract for it, is not

Art 777, CCThe rights to the succession are

transmitted from the moment of the death of the

Sec 15 A carrier or depository of any kind has aninsurable interest in a thing held by him as such,to the extent of his liability but not to exceed thevalue thereof.

Sec 17The measure of an insurable interest inproperty is the extent to which the insured might

Sec 19 An interest in property insured must

exist when the insurance takes effect, and

when the loss occurs, but not exist in the

meantime; and interest in the life or health of aperson insured must exist when the insurance


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- insurable interest in property should exist both atthe (1) time the insurance takes effect and (2)when the loss occurs- insurable interest does not have to exist inbetween inception and occurrence of loss- in life, insurable interest must exist only at thetime of the inception except in some cases: life ofdebtor- so if insured property is sold and loss occurs whenownership was on another, then no more insurableinterest at time of loss, unless maybe there is rightof redemption

5. Change of interest

GR: absolute transfer of ownership (change ofinterest in thing) without transfer of interest inpolicy SUSPENDS the insurance until ownership ofthing is back in policy holder

EXCEPT:1. change of interest after loss does notaffect the policy

- after the loss occurs, liability of insurer becomesfixed and subsequent change of interest does notaffect the right of insured to indemnity- the extent of loss had already been fixed, so youcan definitely transfer it!!!

2. change of interest in policy insuring

several things separately

- application: single policy insures several distinctthings separately- conveyance of one or more of the separate thingsdoes not affect the policy in respect to the othersnot conveyed

3. change of interest on death of insured, bywill or succession

- insureds interest passes to his legal heirs. Theheir may continue the insurance on the property bypaying the premiums

4. transfer of interest by one of severalpartners or co-owners

- any transfer of interest does not avoid the policysince a co-owner or partner also as insurableinterest in the thing, only that the interest isincreased after the transfer

---Automatic transfer of interest

- GR: (sec 53 main part) upon maturity, proceedsgiven exclusively to proper interest of person inwhose name or for whose benefit it is made

Exception:- express stipulation in the policy that proceeds willinure to the benefit of person who may becomeowner of interest f insured, and the insurance isdeemed transferred together w/ the property

Sec 20 Except in the cases specified in the nextfour sections, and in the cases of life, accident,and health insurance, a change of interest inany part of a thing insured unaccompaniedby a corresponding change in interest inthe insurance, suspends the insurance toan equivalent extent, until the interest in the

Sec 21 A change in interest in a thing insured,after the occurrence of an injury which results ina loss, does not affect the right of the insured to

Sec 22 A change of interest in one or more

several distinct things, separately insured by one

policy, does not avoid the insurance as to the

Sec 23 A change of interest, by will orsuccession, on the death of the insured, does notavoid an insurance; and his interest in theinsurance passes to the person taking his

Art 777, CCThe rights to the succession are

transmitted from the moment of the death of the

Sec 24 A transfer of interest by one of several

partners, joint owners, or owners in common,

who are jointly insured, to the others, does notavoid an insurance even though it has been

agreed that the insurance shall cease upon an

Sec 53The insurance proceeds shall be appliedexclusively to the proper interest of the person inwhose name or for whose benefit it is madeunless otherwise specified in the policy.

Sec 57 A policy may be so framed that itwill inure to the benefit of whomsoever,during the continuance of the risk, may become

Sec. 181. A policy of insurance upon life or healthmay pass by transfer, will or succession to anyperson, whether he has an insurable interest ornot, and such person may recover upon itwhatever the insured mi ht have recovered.


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Property Insurance v Life Insurance1. Property is strictly indemnity, Life is notindemnity and is more an investment thananything else.2. Life can never be pecuniarily estimated.3. A lot of consequences:- in property insurable interest must exist at thetime the insurance takes effect and at the time ofthe loss- in life it must exist only in the beginning4. Commercial/financial is like property insurance5. Period of life is longer than property which isonly one year.

D. Double Insurance v Over Insurance

Requisites:1. Same person insured

2. Several insurers3. Subject matter insured is the same4. Interest insured is the same5. Risk/peril insured against is also the same

- not prohibited if policy does not contain anystipulation against double or additional insurance- additional insurance without insurers consentmay void the policy- Rationale: prevent situation where loss would eprofitable to insured

Overinsurance

- Overinsurance: amount of insurance is beyond thevalue of the insurable interest

Double Interest Over insurance

Several insurer Can only be one, or canbe many

Sum total of policiesneed not exceedinsurable interest:VALID

Amount of insurance isALWAYS beyond thevalue of insurableinterest - VOID

E. Multiple/Several Interests

-mortgagor and mortgagee each have separateand distinct insurable interest in the mortgagedpropertyInsurance taken by mortgagor

Geagonia v CAAs to a mortgaged property, the mortgagor and themortgagee have each an independentinsurable interest therein and both interestsmay be covered by one policy, or each maytake out a separate policy covering hisinterest, either at the same or at separatetimes. The mortgagor's insurable interest coversthe full value of the mortgaged property, eventhough the mortgage debt is equivalent to the fullvalue of the property. The mortgagee'sinsurable interest is to the extent of the debtsince the property is relied upon as security

thereof, and in insuring he is not insuring theproperty but his interest or lien thereon. Hisinsurable interest is prima facie the valuemortgaged and extends only the amount ofthe debt, not exceeding the value of themortgaged property.Note: Geagonia is an incorrect application of the

principle that it stated and against Sec 8 since it

considered an insurance taken by Mortgagor for

benefit of Mortgagee as insurable interest of

Mortgagee.

Sec 93 A double insurance exists where thesame person is insured by several insurersseparately in respect to the same subject and

Sec 94 Where the insured is overinsured by double

insurance:a) The insured, unless the policy otherwise

provides, may claim payment from theinsurers in such order as he may select, upto the amount for which the insurers areseverally liable under their respectivecontracts;

b) Where the policy under which the insuredclaims is a valid policy, the insured mustgive credit as against the valuation for anysum received by him under any other policywithout regard to the actual value of thesubject matter involved

c) Where the policy under which the insured

claims is an unvalued policy he must givecredit, as against the full insurable value, forany sum received by him under any policy

d) Where the insured receives any sum inexcess of the valuation in the case of valuedpolicies, or of the insurable value in the caseof unvalued policies, he must hold such sumin trust for the insurers, according to theirright of contribution among themselves

Sec 8 Unless the policy otherwise provides,

where a mortgagor of property effects insurancein his own name providing that the loss shall bepayable to the mortgagee, or assigns a policy ofinsurance to a mortgagee, the insurance isdeemed to be upon the interest of themortgagor, who does not cease to be aparty to the original contract, and any act ofhis, prior to the loss, which would otherwiseavoid the insurance, will have the same effect,although the property is in the hands of themortgagee, but any act which, under thecontract of insurance, is to be performed by themortgagor, may be performed by the mortgagee

therein named, with the same effect as if it hadbeen performed by the mortgagor.

Sec 9 If an insurer assents to the transfer of an

insurance from a mortgagor to a mortgagee,

and, at the time of his assent, imposes further


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Tai Tong Chuache v Insurance Commission-mortgage creditor obtained insurance formortgage property. Mortgagor also procured 3insurance policies. All shared in payment of loss- Perfect illustration of distinctiveness of insurableinterest of mortgagor and mortgagee where bothclaims were upheld by the court.

CHAPTER 4 PERFECTION OF CONTRACT OFINSURANCE

A. Offer and acceptance- perfection is meeting of the minds betweeninsured and insurer- the application of the would-be insured is only anoffer subject to acceptance of insurerDelay in acceptance tort theory

Carale BarksTort theory - No contract yet perfected becapplication has not yet been approved due to delayin insurers part

- Damages are paid to the would-be insureddue to delay in insurers part

- Why? Bec applicant was deprived ofopportunity to seek insurance from othersources

Tort theory is an exception to the requirement thata policy has to be issued before the insured can

recover from an insurer. It is applicable tocircumstances where there is fault or negligence onthe part of the insurer in processing the applicationof the would be insured. In such a case the wouldbe insured may recover on the basis of tort.

Perez v CA- Delay in forward of application bec of

agents faultFiling of application is offer and the issuance of apolicy is the acceptance. This case alsocontemplates the possibility of a claim through torttheory however because there was no negligence

in the processing of the application, the insurercould not be held liable.

Vda de Sindayen v Insular- aunt accepted policy and paid premium but

insured already dedAlthough there is a receipt of payment clause, theinsurer is bound by the acts of its agent who isauthorized to deliver the policy. Agent consideredthat of insured. The court here used in reverse Par2 Sec 306 of the code.

Enriquez v Sun Life

- insurer sent letter of acceptance but wasnot mailed. Insured died.

Notice of acceptance occurs upon cognition of theacceptance as provided for in Art 1262 of the civilcode. Acceptance made by letter shall not bindofferor except from time it came to its knowledge.

B. Premium PaymentSec 77 An insurer is entitled to payment of thepremium as soon as the thing insuredisexposed to the peril insured against.Notwithstanding any agreement to thecontrary, no policy or contract of insurance issuedby an insurance company is valid and bindingunless and until the premium thereof has beenpaid, except in the case of a life or anindustrial life policy whenever the grace periodprovision applies.

Sir: 77 is only for property insurance because of theuse of the word thing and also because a graceperiod will only apply after the payment of the firstpremium; but may apply to life insurance if nopayment of first premium made.

Sec 78 An acknowledgment in a policy orcontract of insurance of the receipt of premium isconclusive evidence of its payment, so far as tomake the policy binding, notwithstanding anystipulation therein that it shall not be bindinguntil the premium is actually paid.

Sec 64 No policy of insurance other than life shallbe cancelled by the insurer except upon priornotice thereof to the insured, and no notice of

cancellation shall be effective unless it is based onthe occurrence, after the effective date of thepolicy, of one or more of the following:

(a) non-payment of premium;(b) conviction of a crime arising out of acts

increasing the hazard insured against;(c) discovery of fraud or material

misrepresentation;(d) discovery of willful or reckless acts or

omissions increasing the hazard insured against;(e) physical changes in the property insured

which result in the property becoming uninsurable;or

(f) a determination by the Commissioner thatthe continuation of the policy would violate orwould place the insurer in violation of this Code.

Sec 66 In case of insurance other than life, unlessthe insurer at least forty-five days in advance ofthe end of the policy period mails or delivers to thenamed insured at the address shown in the policynotice of its intention not to renew the policy or tocondition its renewal upon reduction of limits orelimination of coverages, the named insured shallbe entitled to renew the policy upon payment of

Art 2176 Whoever by act or omission causes

damage or injury to another, there being fault or

negligence, is obliged to pay for the damage


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the premium due on the effective date of therenewal. Any policy written for a term of less thanone year shall be considered as if written for a termof one year. Any policy written for a term longerthan one year or any policy with no fixed expirationdate shall be considered as if written for successivepolicy periods or terms of one year.

Sec 306The premium, or any portion thereof,which an insurance agent or insurance brokercollects from an insured and which is to be paid toan insurance company because of the assumptionof liability through the issuance of policies orcontracts of insurance, shall be held by the agentor broker in a fiduciary capacity and shall not bemisappropriated or converted to his own use orillegally withheld by the agent or broker.

Any insurance company which delivers to aninsurance agent or insurance broker a policy orcontract of insurance shall be deemed to haveauthorized such agent or broker to receive on itsbehalf payment of any premium which is due onsuch policy or contract of insurance at the time ofits issuance or delivery or which becomes duethereon.

Velasco v Apostol- premium paid after accident took place

Illustration of the old Insurance Act which expresslyallowed credit extensions.

Valenzuela v CA- insurer jealous of agent wants to get a

share. Insurer asks agent to pay premiumsof insured.

Under Section 77 of the Insurance Code, theremedy for the non-payment of premiums is to putan end to and render the insurance policy notbinding.

Tibay v CA- out of 3K,only 600 was paid

Policy is not binding. Phoenix and Tuscany areimplied and express waivers respectively. Phoenixis implied because it sued for payment of premiumand Tuscany is express because there was expressagreement to pay in installments. Sec 77 is basedon the fact that insurance is a risk-distributing

device.

Makati Tuscany v CA- Makati Tuscany paid only 2 installments out

of 4.This is actually a case to collect unpaid premiumsby the insurer after the lapse of the coverageperiod. Three years of payment by installmentspeaks of intent of insurer to answer for risk even ifpayment by installment. This is another exceptionto Sec 77.

South Sea Surety v CA- Insured logs lost when ship capsized. Agent

received payment.Only two exceptions to Sec 77: 1) Life/IndustrialLife where grace period applies and 2) A writtenacknowledgement of the receipt of the premium. Itis also an illustration of Sec 306 par 2.

Areola v CA- Dont mess with a lawyer! Company

cancelled contract bec payment was noreceived!

Act of employee to receive premium is binding onthe insurer and the insurer must answer for themalfeasance of employee in appropriating forhimself the premiums. The reinstatement of thepolicy does not preclude the recovery of damagessince the injury has already been inflicted and thedamage done.

UCPB General Insurance v MasaganaTelamart

- Premium not paid before loss occurred infire. UCPB has been granting insured 60-90day credit

Casus omissus of Sec 72 of Insurance Act and Sec77 of Insurance Code. Exceptions to Sec 77 are:1) life/industrial life policy when the grace periodapplies2) acknowledgement in policy/contract of thereceipt of premium3) payment by installment as in Makati Tuscany4) credit extension granted by insurer5) estoppel

Sir: Other exceptions are 1) Cover notes as inPacific Timber and 2) Oral Contracts

American Home Assurance v Chua- Check payment was made but was

encashed after the lossPayment by check if agent issues receipt is bindingon insurer even if not yet encashed. Also admissionof loss adjuster of prior knowledge of other insurerswill render inutile the other insurance clause.

C. Non-default options in life insuranceSec 227

(f) A provision specifying the options to which thepolicyholder is entitled to in the event of default ina premium payment after three full annualpremiums shall have been paid. Such option shallconsist of:

(1) A cash surrender value payableupon surrender of the policy which shall not be lessthan the reserve on the policy, the basis of whichshall be indicated, for the then current policy yearand any dividend additions thereto, reduced by asurrender charge which shall not be more thanone-fifth of the entire reserve or two and one-half


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per centum of the amount insured and anydividend additions thereto;

(2) One or more paid-up benefits on a planor plans specified in the policy of such value asmay be purchased by the cash surrender value;

(h) A table showing in figures cash surrendervalues and paid-up options available under thepolicy each year upon default in premiumpayments, during at least twenty years of thepolicy beginning with the year in which the valuesand options first become available, together with aprovision that in the event of the failure of thepolicyholder to elect one of the said options withinthe time specified in the policy, one of said optionsshall automatically take effect and no policyholdershall ever forfeit his right to same by reason of hisfailure to so elect;

def. Cash Surrender Value: is the accumulatedreserve on the policy after at least three fullannual premiums and is payable upon surrenderof the policy.

- it is a portion of the reserve in a life policywhich accumulates from premiumovercharges over the years

- premium payment is uniform all throughoutbut the risk is lesser when insured wasyounger, thus cost of protection was smallerand there is an excess amount paid

- The cash surrender value is an amount w/cthe insurance company holds in trust for theinsured to be delivered to him upondemand. It is therefore a liability of thecompany to the insured (ManufacturersLife v Meer)

- To get CSV: surrender policy and contract isterminated

def. Extended Insurance(shorter period): is a formof non-default option which uses the CSV as aSINGLE SINGLE SINGLE premium and extends theinsurance contract until the CSV can afford.

- Face value of insurance remains the samebut only within the term covered by value ofCSV

- During extended period: insured canrecover if he dies or he can reinstate hispolicy

- After extended period: contract terminatesand cannot even reinstate

def. Paid-up Insurance (smaller face value): is aform of non-default option where the total CSV istreated as a SINGLE SINGLE SINGLE premium andwill cover an entire period that the CSV canpurchase except that it only covers the paid upvalue.

- obligation to pay premiums is deemedconsummated forever and can reinstate thepolicy anytime

- better option if insured is young and thenjust reinstate the policy later

def. Automatic Premium Loan: is a form of non-default option where the CSV is used as payment ofthe premium but only as a loan with interest asillustrated in Manufacturers Life Insurance v Meer.It is also provided for in Sec 227 (g)

- insurer lends/advances to the insured w/oneed of application amount necessary topay overdue premium

- insurance continues in force for periodcovered by CSV

---Manufacturers Life Insurance v Meer

- BIR wants to tax insurance company duringwar.

In applying automatic premium loan, insurer ineffect loaned person the amount due and paid hispremium with it.

The cash surrender value is an amount w/c theinsurance company holds in trust for the insured tobe delivered to him upon demand. It is therefore aliability of the company to the insured. When thecompanys credit for advances is paid out of theCSV, that value and the companys liability isdiminishedpro tanto. Net assets of insurerincreased since decrease in liability meanscorresponding increase in net assets.

D. ReinstatementSec 227 (j) A provision that the policyholder shallbe entitled to have the policy reinstated at anytime within three years from the date of default ofpremium payment unless the cash surrender value

has been duly paid, or the extension period hasexpired, upon production of evidence of insurabilitysatisfactory to the company and upon payment ofall overdue premiums and any indebtedness to thecompany upon said policy, with interest rate notexceeding that which would have been applicableto said premiums and indebtedness in the policyyears prior to reinstatement.

Andres v Crown Life Insurance- Was not able to pay all past due premiums

Failure to pay full premium due will result in non-reinstatement of policy unless there is a clear and

positive waiver on the part of the insurer.

E. REFUND

Sec 79 A person insured is entitled to a return ofpremium, as follows:

(a) To the whole premium ifno part of hisinterest in the thing insured be exposed toany of the perils insured against;

(b) Where the insurance is made for a definiteperiod of time and the insured surrenders his


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policy, to such portion of the premium ascorresponds with the unexpired time, at a pro ratarate, unless a short period rate has been agreedupon and appears on the face of the policy, afterdeducting from the whole premium any claim forloss or damage under the policy which haspreviously accrued; Provided, That no holder of alife insurance policy may avail himself of theprivileges of this paragraph without sufficient causeas otherwise provided by law.

Sec 80 If a peril insured against has existed, andthe insurer has been liable for any period, howevershort, the insured is not entitled to return ofpremiums, so far as that particular risk isconcerned.

Sec 81 A person insured is entitled to return of thepremium when the contract is voidable, onaccount of fraud or misrepresentation of theinsurer, or of his agent, or on account of facts, theexistence of which the insured was ignorantwithout his fault; or when by any default of theinsured other than actual fraud, the insurernever incurred any liability under the policy.

Sec 82 In case of an over-insurance by severalinsurers, the insured is entitled to a ratablereturn of the premium, proportioned to theamount by which the aggregate sum insuredin all the policies exceeds the insurable valueof the thing at risk.

---Grepalife v CA

- insurer asks for more payment and anothermedical exam even after the premium waspaid. Insured asked for refund

The fact that the policy was inoperative orineffectual from the beginning, the company wasnever exposed to the risk hence it is not entitled tothe premium.

Cases where refund is possible:1. if no part of his interest in the thing insured

be exposed to any of the perils insuredagainst, refund whole premium(79)

- ex: Grepalife v CA

2. insurance is made for a definite period of

time and the insured surrenders his policy,to such portion of the premium ascorresponds with the unexpired time, at apro rata rate(79)

3. contract is voidable, on account of fraud ormisrepresentation of the insurer, or of hisagent, or on account of facts, the existenceof which the insured was ignorant withouthis fault (81)

- car was already lost at time of insurance

4. any default of the insured other than actualfraud, the insurer never incurred anyliability under the policy.(81)

over-insurance by several insurers, the insured isentitled to a ratable return of the premium,proportioned to the amount by which theaggregate sum insured in all the policies exceedsthe insurable value of the thing at risk

CHAPTER 5 THE POLICY, THE PARTIES ANDTHEIR RIGHTS

A. Insurance Policy

Sec 49The written instrument in which a

contract of insurance is set forth, is

called a policy of insurance.

Sec 50The policy shall be in printed form

which may contain blank spaces; and any

word, phrase, clause, mark, sign, symbol,signature, number, or word necessary to

complete the contract of insurance shall

be written on the blank spaces provided

therein.

Any rider, clause, warranty or

endorsement purporting to be part of the

contract of insurance and which is pasted

or attached to said policy is not binding on

the insured, unless the descriptive title orname of the rider, clause, warranty or

endorsement is also mentioned and

written on the blank spaces provided in

the policy.

Unless applied for by the insured or owner,

any rider, clause, warranty or

endorsement issued after the original

policy shall be countersigned by the

insured or owner, which countersignature

shall be taken as his agreement to the

contents of such rider, clause, warranty or

endorsement.

Group insurance and group annuity

policies, however, may be typewritten and

need not be in printed form.


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Sec 51 A policy of insurance must specify:

(a) The parties between whom the

contract is made;

(b) The amount to be insured except in

the cases of open or running policies;

(c) The premium, or if the insurance isof a character where the exact premium is

only determinable upon the termination of

the contract, a statement of the basis and

rates upon which the final premium is to

be determined;

(d) The property or life insured;

(e) The interest of the insured in

property insured, if he is not the absoluteowner thereof;

(f) The risks insured against; and

(g) The period during which the

insurance is to continue.

Sec 226 No policy, certificate or contract

of insurance shall be issued or deliveredwithin the Philippines unless in the form

previously approved by the Commissioner,

and no application form shall be used with,

and no rider, clause, warranty or

endorsement shall be attached to, printed

or stamped upon such policy, certificate or

contract unless the form of such

application, rider, clause, warranty or

endorsement has been approved by the

Commissioner.

Sec 52 Cover notes may be issued to bind

insurance temporarily pending the

issuance of the policy. Within sixty days

after the issue of the cover note, a policy

shall be issued in lieu thereof, including

within its terms the identical insurance

bound under the cover note and the

premium therefore.

Cover notes may be extended or renewed

beyond such sixty days with the written

approval of the Commissioner if he

determines that such extension is not

contrary to and is not for the purpose ofviolating any provisions of this Code. The

Commissioner may promulgate rules and

regulations governing such extensions for

the purpose of preventing such violations

and may by such rules and regulations

dispense with the requirement of written

approval by him in the case of extension in

compliance with such rules and

regulations.

A provisional policy that only acts as a

receipt of premium payment is not enough

to bind the insurer during the interim

period. The provisional policy to be a

binding contract must have been complete

that leaves nothing to be done, nothing to

be completed, nothing to be passed upon,

or determined before it shall take effect.(Lim v Sun Life Assurance)

A conditional binding receipt cannot bind

the insurer unless the conditions set forth

are met. (Great Pacific Life v CA)

If a loss occurs during the period coveredby a cover note and an insurance policy is

later on given accounting for the loss

during the cover notes, the insurance

company is still liable by virtue of the

cover note. (Pacific Timber Export v

CA)


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Types of non-life insurance policies

Sec 59 A policy is either open, valued, or

running.

Sec 60 An open policy is one in which the

value of the thing insured is not agreedupon, but is left to be ascertained in case

of loss.

Sec 61 A valued policy is one which

expresses on its face an agreement that

the thing insured shall be valued at a

specific sum.

Sec 62 A running policy is one which

contemplates successive insurances, and

which provides that the object of the policy

may be from time to time defined,

especially as to the subjects of insurance,

by additional statements or indorsements.

Sec 156 A valuation in a policy of marine

insurance is conclusive between the

parties thereto in the adjustment of either

a partial or total loss, if the insured has

some interest at risk, and there is no fraud

on his part; except that when a thing has

been hypothecated by bottomry or

respondentia, before its insurance, and

without the knowledge of the person

actually procuring the insurance, he may

show the real value. But a valuation

fraudulent in fact, entitles the insurer to

rescind the contract.

Sec 161 In estimating a loss under an

open policy of marine insurance the

following rules are to be observed:

(a) The value of a ship is its value at

the beginning of the risk, including all

articles or charges which add to its

permanent value or which are necessary

to prepare it for the voyage insured;

(b) The value of the cargo is its actual

cost to the insured, when laden on board,or where the cost cannot be ascertained,

its market value at the time and place of

lading, adding the charges incurred in

purchasing and placing it on board, but

without reference to any loss incurred in

raising money for its purchase, or to any

drawback on its exportation, or to the

fluctuation of the market at the port of

destination, or to expenses incurred on the

way or on arrival;

(c) The value of freightage is the gross

freightage, exclusive of primage, without

reference to the cost of earning it; and

(d) The cost of insurance is in each

case to be added to the value thus

estimated.

Sec 171 If there is no valuation in the

policy, the measure of indemnity in an

insurance against fire is the expense it

would be to the insured at the time of the

commencement of the fire to replace the

thing lost or injured in the condition in

which at the time of the injury; but if there

is a valuation in a policy of fire insurance,

the effect shall be the same as in a policyof marine insurance.

Is an illustration of a co-insurance clause

except that in a co-insurance clause it is

necessary to establish the actual value of

the property at the time of the loss. It is

also an illustration of an open insurance


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where the liability of the insurer is only

equivalent to the loss at the time of the

loss. (Development Insurance v IAC)

In a valued policy the value is simply the

cost of the property and not necessarily

the cost of acquisition. In the absence of

fraud on the part of the insured, if the

insurer agrees on the value stated then he

shall be bound by it. (Harding v

Commercial Union Assurance)

Parties: Insurer

Sec 6 Every person, partnership,association, or corporation duly authorized

to transact insurance business as

elsewhere provided in this code, may be

an insurer.

Sec 184 For purposes of this Code, the

term "insurer" or "insurance company"

shall include all individuals, partnerships,

associations, or corporations, including

government-owned or controlled

corporations or entities, engaged as

principals in the insurance business,

excepting mutual benefit associations.

Unless the context otherwise requires, the

terms shall also include professional

reinsurers defined in section two hundred

eighty. "Domestic company" shall include

companies formed, organized or existingunder the laws of the Philippines. "Foreign

company" when used without limitation

shall include companies formed,

organized, or existing under any laws

other than those of the Philippines.

Sec 185 Corporations formed or organized

to save any person or persons or other

corporations harmless from loss, damage,

or liability arising from any unknown or

future or contingent event, or to indemnify

or to compensate any person or persons or

other corporations for any such loss,

damage, or liability, or to guarantee theperformance of or compliance with

contractual obligations or the payment of

debt of others shall be known as

"insurance corporations".

The provisions of the Corporation Law shal

apply to all insurance corporations now or

hereafter engaged in business in thePhilippines insofar as they do not conflict

with the provisions of this chapter.

Parties: Agents and Brokers

Sec 299 requires the licensing of agents

and brokers and prohibits them from

practicing and receiving commissions

without said license.

Sec 300 Any person who for

compensation solicits or obtains insurance

on behalf of any insurance company or

transmits for a person other than himself

an application for a policy or contract of

insurance to or from such company or

offers or assumes to act in the negotiatingof such insurance shall be an insurance

agent within the intent of this section and

shall thereby become liable to all the

duties, requirements, liabilities and

penalties to which an insurance agent is

subject.


18/43

Sec 301 Any person who for any

compensation, commission or other thing

of value acts or aids in any manner in

soliciting, negotiating or procuring the

making of any insurance contract or in

placing risk or taking out insurance, on

behalf of an insured other than himself,

shall be an insurance broker within theintent of this Code, and shall thereby

become liable to all the duties,

requirements, liabilities and penalties to

which an insurance broker is subject.

Sec 306 states that premiums received by

agents shall be held in trust and that if

agent is authorized to deliver a policy thenhis receipt of premium payment is receipt

of insurer.

Parties: Insured

Sec 7 Anyone except a public enemy may

be insured.

Sec 54 When an insurance contract is

executed with an agent or trustee as the

insured, the fact that his principal or

beneficiary is the real party in interest may

be indicated by describing the insured as

agent or trustee, or by other general words

in the policy.

Sec 55To render an insurance effected by

one partner or part-owner, applicable to

the interest of his co-partners or other

part-owners, it is necessary that the terms

of the policy should be such as are

applicable to the joint or common interest.

Sec 56 When the description of the

insured in a policy is so general that it may

comprehend any person or any class of

persons, only he who can show that it was

intended to include him can claim the

benefit of the policy.

Sec 57 A policy may be so framed that it

will inure to the benefit of whomsoever,

during the continuance of the risk, may

become the owner of the interest insured.

RA 6809 Sec 4 Upon the effectivity of this

Act, existing wills, bequests, donations,

grants, insurance policies and similarinstruments containing references and

provisions favorable to minors will not

retroact to their prejudice.

Art 110 FC The spouses retain the

ownership, possession, administration and

enjoyment of their exclusive properties.

Either spouse may, during the marriage,

transfer the administration of his or her

exclusive property to the other by means

of a public instrument, which shall be

recorded in the registry of property of the

place where the property is located.

Art 111 FC A spouse of age may

mortgage, encumber, alienate or

otherwise dispose of his or her exclusive

property, without the consent of the other

spouse, and appear alone in court to

litigate with regard to the same.


19/43

Art 1390 NCCThe following contracts are

voidable or annullable, even though there

may have been no damage to the

contracting parties:

1) those where one of the parties is

incapable of giving consent to a contract;

2) Those where the consent is vitiated by

mistake, violence, intimidation, undue

influence or fraud.

These contracts are binding, unless they

are annulled by a proper action.

Corporation where majority stockholders

are public enemies are disqualified frombeing insured. (Filipanas Cia de

Seguros v Huenefeld)

Parties: Beneficiaries

Sec 11The insured shall have the right to

change the beneficiary he designated in

the policy, unless he has expressly waived

this right in said policy.

Art 739 NCCThe following donations shall

be void:

1) Those made between persons who were

guilty of adultery or concubinage at the

time of the donation;

2) Those made between persons foundguilty of the same criminal offense, in

consideration thereof;

3) Those made to a public officer or his

wife, descendants and ascendants, by

reason of his office.

In the case referred to in No. 1 the action

for declaration of nullity may be brought

by the spouse of the donor or donee; and

the guilt of the donor and donee may be

proved by preponderance of evidence in

the same action.

Art 2011 NCCThe contract of insurance

is governed by special laws. Matters not

expressly provided for in such special laws

shall be regulated by this Code.

Art 2012 NCC Any person who is

forbidden from receiving any donation

under Art 739 cannot be namedbeneficiary of a life insurance policy by the

person who cannot make any donation to

him, according to said article.

Illustration of prohibitin in Art 2012 in

relation to Art 739. No criminal conviction

for adultery or concubinage is necessary

as guilt may be established bypreponderance of evidence in the same

proceeding for declaration of nullity as

provided for in the Art 739. Also used

Matabuena v Cervantes. (Insular v

Ebrado)

When second marriage in good faith, the

two spouses split the insurance proceeds.(Consuegra v GSIS)

There being no proof of knowledge of prior

marriage, there can be no

concubinage/adultery. Proceeds from SSS

do not form part of the estate of the

insured and therefore the beneficiary


20/43

stated is the one entitled to the proceeds if

he/she is not disqualified. (SSS v Davac)

Under code of commerce a life insurance

does not form part of the estate. The civil

code is unavailing as it has no provision

specifically for life insurance. A repurchase

under the name of all the heirs is not

enough to establish that the person

repurchasing had the intent to donate the

share of the others to them. (Del Val v

Del Val)

The beneficiary of a life insurance cannot

be changed without the consent of thebeneficiary as the beneficiary has

proprietary rights over the insurance. Of

course this was before the Insurance Code.

(Gercio v Sun Life Assurance)

Under the Insurance Act an insurance

contract cant be changed from

irrevocable to revocable if:

1) There is a stipulation stating that it is

irrevocable and no contingency is given to

change such stipulation

2) The consent of ALL beneficiaries was

not obtained, and in the case of minor

children with respect to their father, the

father cant act in behalf of his children as

there is a conflict of interest. (PhilAm Lifev Pineda)

Sec 12The interest of a beneficiary in a

life insurance policy shall be forfeited

when the beneficiary is the principal,

accomplice, or accessory inwillfully

bringing about the death of the insured;

in which event, the nearest relative of the

insured shall receive the proceeds of said

insurance if not otherwise disqualified.

Sir: Bakit kasama ang accessory (after the

fact) kung tapos na ang boxing?

VI. Rescission: concealment,

misrepresentation & breach of

warranties

.

Basis/Rationale

1. Uberrimae fidei

2. Risk management

3. Ground for rescission

Concealment

Sec 26 A neglect to communicate that

which a party knows and ought to

communicate, is called a concealment.

Sec 27 A concealment whether intentional

or unintentional entitles the injured party

to rescind a contract of insurance.

Sec 28 Each party to a contract of

insurance must communicate to the other,in good faith, all facts within his knowledge

which are material to the contract and as

to which he makes no warranty, and which

the other has not the means of

ascertaining.


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Sec 29 An intentional or fraudulent

omission, on the part of the insured, to

communicate information of matters

proving or tending to prove the falsity of a

warranty, entitles the insurer to rescind.

Sec 30 Neither party to a contract of

insurance is bound to communicate

information of the matters following,

except in answer to the inquiries of the

other:

a) Those which the other knows

b) Those which, in the exercise of ordinary

care, the other ought to know, and of

which the former has no reason tosuppose him ignorant

c) Those of which the other waives

communication

d) Those which prove or tend to prove the

existence of a risk excluded by a warranty,

and which are not otherwise material; and

e) Those which relate to a risk excepted

from the policy and which are not

otherwise material.

Sec 32 Each party to a contract of

insurance is bound to know all the general

causes which are open to his inquiry,

equally with that of the other, and which

may affect the political or material perils

contemplated,

Sec 33 The rights of information of

material facts may be waived, either by

the terms of the insurance or by neglect to

make inquiry as to such facts, where they

are distinctly implied in other facts of

which information is communicated.

Sec 34 Information of the nature or

amount of the interest of one insured need

not be communicated unless in answer to

an inquiry, except as prescribed by section

fifty-one.

Sec 35 Neither party to a contract of

insurance is bound to communicate, even

upon inquiry, information of his own

judgment upon the matters in question.

Sec 31 Materiality is to be determined not

by the event, but solely by the probableand reasonable influence of the facts upon

the party to whom the communication is

due, in forming his estimate of the

disadvantages of the proposed contract, or

in making his inquiries.

The interim between 1978 and 1985 still

does not require that concealment be

made intentionally. Intentional and

unintentional cancel each other out

leading to just concealment. As such sinus

tachycardia should have been revealed.

(Canilang v CA)

Fact of being a mongoloid is a material

fact that needs to be stated. (Great

Pacific Life v CA 79)

Mere possibility of previous hypertension

not enough to establish that there was

concealment. (Great Pacific Life v CA

99)


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Misrepresentation

Sec 36 A representation may be oral or

written.

Sec 37 A representation made may be at

the time of, or before, issuance of thepolicy.

Sec 41 A representation may be altered or

withdrawn before the insurance is

effected, but not afterwards.

Sec 42 A representation must bepresumed to refer to the date on which the

contract goes into effect.

Sec 39 A representation as to the future is

to be deemed a promise, unless it appears

that it was merely a statement of belief or

expectation.

Sec 43 When a person insured has no

personal knowledge of a fact, he may

nevertheless repeat information which he

has upon the subject, and which he

believes to be true, with the explanation

that he does so on the information of

others; or he may submit the information,

in its whole extent, to the insurer; and in

neither case is he responsible for its truth,

unless it proceeds from an agent of the

insured, whose duty is to give the

information.

Sec 44 A representation is to be deemed

false when the facts fail to correspond with

its assertions or stipulations.

Sec 45 If a representation is false in a

material point, whether affirmative or

promissory, the injured party is entitled to

rescind the contract from the time when

the representation becomes false. The

right to rescind granted by this Code to the

insurer is waived by the acceptance of

premium payments despite knowledge of

the ground for rescission.

Sec 227(d) A provision that if the age ofthe insured is considered in determining

the premium and the benefits accruing

under the policy, and the age of the

insured has been misstated, the amount

payable under the policy shall be such as

the premium would have purchased at the

correct age

Sec 46 The materiality of a representation

is determined by the same rules as the

materiality of a concealment.

If policy requires that they be informed of

other insurers in writing then violation of

this would be tantamount to fraud.

(Pacific Banking v CA)

Posing as someone for medical exam is

misrepresentation DUH! (Equaras v

Great Eastern)


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Intent to defraud necessary for there to be

misrepresentation. Overstatement by 20%

of price on 70% of stocks done in good

faith. (Qua v Law Union)

The insurer is not entitled to rescission for

misrepresentation of age if the birth date

on the policy leads to the conclusion that

the insured is beyond the age covered by

policy in which case the insurer is deemd

to have waived any requirement. (Edillon

v Manila Bankers)

No misrepresentation as to the price of the

Studebaker because it was based onopinion of dealer. Also no

misrepresentation as to cost because

although it was acquired free it doesnt

mean there was no cost. (Harding v

Commercial Union)

The incontestable clause

Sec 48 Whenever a right to rescind a

contract of insurance is given to the

insurer by any provision of this chapter,

such right must be exercised previous to

the commencement of an action on the

contract.

Sec 227(b) A provision that the policy

shall be incontestable after it shall have

been in force during the lifetime of the

insured for a period of two years from its

date of issue as shown in the policy, or

date of approval of last reinstatement,

except for non-payment of premium and

except for violation of the conditions of the

policy relating to military or naval service

in time of war

The incontestability clause is construed as

two years from creation of policy or

reinstatement. Disregard provision on life.

(Tan v CA)

This case is no longer applicable because

of the amendment in 227 that it also

applies to void whereas in Tan Chay it

does not. (Tan Chay v West Coast Life)

Warranties

Kinds

1. Express

Sec 71 A statement in a policy of

matter relating to the person or thing

insured, or to the risk, as a fact, is an

express warranty thereof.

2. Implied (marine only)

3. Affirmative

Sec 68 A warranty may relate to the

past, the present, the future, or to any or

all of these.

4. Promissory

Sec 72 A statement in a policy

which imparts that it is intended to do or

not to do a thing which materially affects

the risk, is a warranty that such act or

omission shall take place.

Sec 73 When, before the time

arrives for the performance of a warranty

relating to the future, a loss insured

against happens, or performance becomes


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unlawful at the place of the contract, or

impossible, the omission to fulfill the

warranty does not avoid the policy.

Sec 69 No particular form of words is

necessary to create a warranty.

Sec 70 Without prejudice to section fifty-

one, every express warranty, made at or

before the execution of a policy, must be

contained in the policy itself, or in another

instrument signed by the insured and

referred to in the policy as making a part

of it.

Sec 74 The violation of a material

warranty, or other material provision of a

policy, on the part of either party thereto,

entitles the other to rescind.

Sec 75 A policy may declare that a

violation of specified provisions thereofshall avoid it, otherwise the breach of an

immaterial provision does not avoid the

policy.

Sec 76 A breach of warranty without fraud

merely exonerates an insurer from the

time that it occurs, or where it is broken in

its inception, prevents the policy fromattaching to the risk.

Warranties in fire insurance

Sec 168 An alteration in the use or

condition of a thing insured from that to

which it is limited by the policy made

without the consent of the insurer, by

means within the control of the insured,

and increasing the risks, entitles an insurer

to rescind a contract of life insurance.

Sec 169 An alteration in the use or

condition of a thing insured from that to

which it is limited by the policy, which

does not increase the risk, does not affect

a contract of fire insurance.

Sec 170 A contract of fire insurance is not

affected by any act of the insured

subsequent to the execution of the policy,

which does not violate its provisions, eventhough it increases the risk and is the

cause of the loss.

Storage of hazardous materials

Alteration in use or condition

Sole ownership clause

Other insurance clause

Violation of the other insurer clause avoids

contract without further action if provided

for. (Pioneer v Yap)

With regard to other insurer clause,notification to the agent is not notification

to the insurer. (New Life Enterprises v

CA)

Condition that filing of claim before filing

of case is valid and binding upon parties.

(Pacific Banking v CA)


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Knowing that there are only 2 fire

extinguishers despite the warranty of 11

and yet issuing the policy nonetheless

constitutes a waiver on the part of the

insurer. (Qua Chee Gan v Law Union)

Storing excludes small quantities intended

for daily use or consumption. To place 3

boxes of fireworks in the bodega for future

sale is storing. The fact that the fireworks

did not cause the fire does not affect the

right to rescind the contract. (Young v

Midland Textile Insurance)

Grounds & exercises of rights

Sec 63 A condition, stipulation, or

agreement in any policy of insurance,

limiting the time for commencing an action

thereunder to a period of less than one

year from the time when the cause of

action accrues, is void.

Sec 64 No policy of insurance other than

life shall be cancelled by the insurer

except upon prior notice thereof to the

insured, and no notice of cancellation shall

be effective unless it is based on the

occurrence, after the effective date of the

policy, of one or more of the following:

a) non-payment of premium

b) conviction of a crime arising out of acts

increasing the hazard insured against

c) discovery of fraud or material

misrepresentation

d) discovery of willful or reckless acts or

omissions increasing the hazard insured

against

e) physical changes in the property

insured which result in the property

becoming uninsurable

f) a determination by the Commissioner

that the continuation of the policy would

violate or would place the insurer in

voilation of this Code

Sec 65 All notices of cancellation

mentioned in the preceding section shall

be in writing, mailed or delivered to the

named insured at the address shown inthe policy, and shall state (a) which of the

grounds set forth in section sixty-four is

relied upon and (b) that, upon written

request of the named insured, the insurer

will furnish the facts on which the

cancellation is based.

Sec 170 A contract of fire insurance is notaffected by any act of the insured

subsequent to the execution of the policy,

which does not violate its provisions, even

though it increases the risk and is the

cause of the loss.

Sec 380 No cancellation of the policy shall

be valid unless written notice thereof isgiven to the land transportation operator

or owner of the vehicle and to the Land

Transportation Commission at least fifteen

days prior to the intended effective date

thereof.

Upon receipt of such notice, the Land

Transportation Commission, unless it

receives evidence of a new valid insurance


26/43

or guaranty in cash or surety bond as

prescribed in this chapter, or an

endorsement of revival of the cancelled

50381884 insurance reviewer

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