att 1447062620353 insurance reviewer

8/18/2019 ATT 1447062620353 Insurance Reviewer

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Crammer INSURANCE 1st Sem.; 2003

Helen C. Arevalo 2 Section 3D

P h i l am c a r e v . CA : Health care agreement is a contractof insurance. It has the following elements:

1.) The insured has an insurable interest (his ownhealth);

2.) The insured is subject to a risk of loss by thehappening of the designated peril (incurs expenses ofhospitalization/out-patient services);

3.) The insurer assumes the risk;4.) Such assumption of risk is part of a general

scheme to distribute actual losses among a large groupof persons bearing a similar risk; and

5.) In consideration of the insurer’s promise, theinsured pays a premium.

CHAPTER 1. THE CONTRACT OF INSURANCE

Title 1. What May Be Insured (Against)

Sec. 3. What may be insured (against):

1.) Any contingent or unknown event, whether pastor future, which may cause damage to a personhaving an insurable interest; or

2.) Any contingent or unknown event, whether pastor future, which may create a liability againstthe person insured.

Validity of insurance policy taken out bymarried women and minors: The consent of thehusband is not necessary for the validity of an insurancepolicy taken out by a married woman on her life or thatof her children.

Rights of insured married women and minors:The married woman or the minor herein allowed to takeout an insurance policy may exercise all rights and

privileges of an owner under a policy.All rights, title and interest in the policy of insurancetaken out by an original owner on the life or health of aminor shall automatically vest in the minor upon thedeath of the original owner, unless otherwise providedfor in the policy.

Art. 1174, CC: Fortuitous events. No person responsible forfortuitous events.

Art. 110, CC: Married women as administrators of paraphernalproperty. Either spouse may transfer the administration of hisor her exclusive property.

Art. 1327, CC: Who cannot give consent to contracts:1.) Unemancipated minors;2.) Insane or demented persons;3.) Deaf-mutes who do not know how to write.

Art. 1390, CC: Voidable contracts: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.

Sec. 4. Section 3 does not authorize an insurance foror against the drawing of any lottery, or for or

against any chance or ticket in a lottery drawing aprize.

Sec. 25: A policy contract executed by way of gambling orwagering is void.

Differences between a contract of insurance and a gamblingcontract:

Gambling InsuranceParties contemplate gain thru’mere chance.

Parties seek to distributepossible loss by reason of hismis-chance.

Gambler seeks fortune. Insured seeks to avoidmisfortune.

Increases inequality offortune.

Tends to equalize fortune.

Whatever one persons winsfrom a wager is lost by theother wagering party.

What one insured gains is notat the expense of anotherinsured.

When a party makes a wager,he creates a risk of loss tohimself where no such riskexisted previously.

Purchase of insurance doesnot create a risk of loss to thepurchaser. Reason hepurchases is because healready faces an existing risk

of economic loss.

Sec. 5. Applicability of Chapter 1 provisions to allkinds of insurance: All kinds of insurance are subjectto the provisions of this chapter so far as the provisionscan apply.

Title 2. Parties to the Contract:1.) Insurer;2.) Insured.

Sec. 6. Who may be an insurer: Every person,partnership, association, or corporation duly authorized

to transact insurance business as elsewhere provided inthis code.

Sec. 184: Insurer/insurance co.: Includes all individuals,partnerships, associations, or corporations including GOCCs,engaged as principals in the insurance business, except mutualbenefit associations. Unless the context otherwise requires, theterm shall also include professional reinsurers.

Sec. 185: Insurance corporations: Corporations formed ororganized:

1.) To save any person or persons or other corpsharmless from loss, damage or liability arising from anyunknown or future contingent event, or

2.) To indemnify or to compensate any person or

persons or other corps for any such loss, damage orliability, or

3.) To guarantee the performance of or compliancew/ contractual obligations or the payment of debts ofothers.

Sec. 187: Certificate of authority from the InsuranceCommissioner is required to transact insurance business.

Sec. 7. Who may be insured: Anyone except a publicenemy may be insured.

Requisites for one to be an insured:


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1.) He must be competent to enter into a contract;2.) He must possess an insurable interest in the

subject of insurance;3.) He must not be a public enemy.

Public enemy: Nation w/ whom the Phils is at war, and itincludes every citizen or subject of such nation.

F i li p i n a s Ci a d e S e g u r o s v . Ch r i s t e r n H u e n e f e l d &

Co . : Enemy corp. War – Policy ceased to be valid andenforceable. But premiums returned. Effect of war onexisting insurance contracts between Phils andcitizen/subject of public enemy: Policy ceases to be validand enforceable as soon as an insured becomes a publicenemy.

Sec. 8. Insurance taken by mortgagor in his ownname but loss payable to mortgagee (or assignspolicy to mortgagee) deemed to be upon his(mortgagor’s) interest, but mortgagee may perform anyact under contract of insurance w/c is to be performedby mortgagor.

Effects when mortgagor effects insurance in his own name andprovides that the loss be payable to the mortgagee:

1.) K deemed to be upon the interest of the m’or, hence hedoes not cease to be a party to the K;

2.) Ant act of m’or prior to the loss, w/c would otherwiseavoid the insurance affects the m’ee even if the propertyis in the hands of the m’ee;

3.) Any act w/c under the K of insurance is to be performedby the m’or nay be performed by the m’ee;

4.) In case of loss, the m’ee is entitled to the proceeds tothe extent of his credit;

5.) Upon recovery by the m’ee to the extent of his credit,the debt is extinguished.

Art. 2127, CC: Security of mortgage extends to indemnity from

insurance.

S an M i g u e l v . La w U n i o n R o c k I n s . Co . : Insurancepolicies issued in the name of mortgagee (SMB) only.Altho’ stated that merely m’ee, policies contained noreference to any other interest in the property. M’or(Dunn) sold property but no assignment of the policieswere made to the buyer (Harding). SMB liable toHarding?

No. Insurance applied to exclusively to properinterest of the person in whose name it is made. NeitherDunn or Harding can recover on policies. No change orassignment of the policies had been undertaken.Besides, owner’s interest not covered by the policies.

SMC only to recover to extent of its mortgage credit.

G r e p a l i f e v . CA : Group life insurance plan to insurelives of eligible housing loan m’ors of DBP. Grepalifeclaims that widow of member of group life insuranceplan is not a real party in interest so no jurisidiction.

Wrong! Widow may file suit. Rationale of grpinsurance policy of m’ors is a device for protection ofboth m’ee and m’or. Insurance is on the m’or’s interest.M’or continues to be a party to the contract. M’ee is nota party to the contract, simply an appointee of theinsurance fund. Insured is real party in interest. Since

may pass by transfer, will/succession, widow may filesuit.

Sec. 9. When transfer of insurance is made frommortgagor to mortgagee w/ assent of insurer w/imposition of additional obligations on assignee, themortgagor’s acts do not affect assignee’s rights.

This is an exception to the rule that all acts of the m’or affectsthe m’ee: when further obligations imposed on the m’ee.

Title 3. Insurable Interest

Sec. 10. Insurable interest in life and health:Every person has an insurable interest in the life and

health of:1.) Himself , of his spouse and of his children;2.) Any person on whom he depends wholly or in part

for education or support, or in whom he has apecuniary interest;

3.) Any person under a legal obligation to him for

the payment of money, or respecting property orservices, of w/c death or illness might delay orprevent the performance; and

4.) Any person upon whose life any estate orinterest vested in him depends.

Hot tip: Memorize this!

Insurable interest: Person deemed to have insurable interest insubject matter where he has a relation or connection with orconcern in it that he will derive pecuniary benefit or advantagefrom its preservation and will suffer pecuniary loss or damagefrom its destruction, termination, or injury by the happening ofthe event insured against.

Co l . C. Ca s t r o v . I n s u r a n c e Com m i s s io n e r : Castro

got insurance on the life of his driver. 3 months later,driver shot to death by “unknown” persons (Colonel isthat you?!!) Does er have insurable interest in hisdriver?

I think not, murderer! It must appear that:1.) There is a real concern in the life of the party

named whose death would be the cause ofsubstantial loss to those who are named asbeneficiaries (mere relationship insufficient).

2.) The destruction of the life of the insured wouldcause pecuniary loss to the complainant.

L i n c o l n N a t i o n a l L i f e v . Sa n J u a n : Er insured life ofee (tenant in er’s coconut land who goes by the name of

Misteryoso San Juan). Misteryoso very misteryoslydisappeared and a severed and rotting head was laterfound in jeep, purportedly his. Can er recover proceeds?

No way! Geez, these employers are sick, man!

El O r i e n t e v . P o s a d a s : El Oriente procured an insurancepolicy on the life of A. Velhagen (who had more than 35 yearsexperience in the cigar mfg business) for $50,000. Velhagenhad no interest/participation in the proceeds of the lifeinsurance. Did El Oriente had insurable interest over Velhagen’slife?


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SC said: Yes, El Oriente had insurable interest over the life ofone of their employees (e.g. the Gen. Mgr, I think). This isbecause Velhagen had over 35 years of experience in thebusiness. This is an example of a “Key Man Insurance”…Velhagen was a key person in the company, that’s why thecompany had insurable interest over his life… Sir compared thiscase with the Castro case.

P h i l am c a r e v . CA : (supra) Health care agreement is aninsurance contract. Health (in this case his own) is aninsurable interest.

Sec. 11. Insured has right to change beneficiary unless waived

Beneficiary: A person, whether natural or juridical, for whosebenefit the policy is issued and is the recipient of the proceedsof the insurance.

Sec. 53: To whom insurance proceeds payable (infra).

Sec. 2012, CC: Disqualified beneficiaries: those forbidden from

receiving donation under Art. 739 cannot be named beneficiaryof a life insurance policy by the person who cannot make anydonation to him.

Art. 739, CC: Void donations:1.) Those made between persons who were guilty of

adultery or concubinage at the time of the donation;2.) Those made between persons found guilty 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.

Art. 43(4), FC: Revocation of irrevocable beneficiaries interminated marriages due to reappearance of absent spouse –allowed if innocent spouse and other in bad faith.

Art. 50, FC: Revocation of irrevocable beneficiary in marriages

declared void and those annulled by final judgment – allowedalso as in 43(4), FC.

Art. 64, FC: Revocation of irrevocable beneficiary in legalseparation – After final decree, innocent spouse may revokedesignation of offending spouse as beneficiary.Revocation/change in beneficiary to take effect upon writtennotification to insured.

N a r i o v . P h i l a m l i f e: Court authorization in a competentguardianship proceeding is needed in order to proceedw/ transaction (policy loan or surrender of policy) w/cinvolve a disposition or alienation of the property of theminor beneficiary. Written consent of father-guardian, ifw/o court authorization, is insufficient. Sir says this is no

longer so. Father/mother do not need court authorization sincethey are already guardians of their child.

SSS v . Da v a c : Disqualification of concubinage does notapply where concubine had no knowledge that she wassuch (meaning, where there is no proof that she knew ofthe previous marriage).

Ge r c i o v . S u n L i f e : Cannot change beneficiary in theabsence of stipulation expressly permitting such change.This was the old rule, it no longer holds true. Now, there is a

right to change beneficiary even w/o stipulation as long as theright had not been waived.

Sec. 12. Interest of beneficiary in a life insurance policyforfeited if beneficiary a principal, accomplice oraccessory in death of insured; nearest relative ofinsured to receive proceeds if not disqualified.

Sec. 13. Insurable interest in property is that w/c isof such nature that a contemplated peril will damnifyan insured

H a r v a r d i a n Co l l e g e v . Co u n t r y B a n k e r s : Even if notowners of the building and so w/o title to the propertyinsured, building used and in their possession for severayears w/ the knowledge and consent of the owner as thesite of their educational institution. They, therefore, hadan insurable interest in the building since they wouldhave directly benefited by the preservation of theproperty, and certainly suffered a pecuniary loss by itsbeing burned.

Test in determining insurable interest in property:

Whether one will derive pecuniary benefit or advantagefrom its preservation, or will suffer pecuniary loss ordamage from its destruction, termination or injury bythe happening of the event insured against.

Sec. 14. What an insurable interest in propertyconsists of:

1.) An existing interest;2.) An inchoate interest founded on an existing

interest; or3.) An expectancy, coupled w/ an existing interest in

that out of w/c the expectancy arises.

Existing interest: Legal or equitable title.

Inchoate interest: Interest w/c has not yet ripened.

Expectancy: Must be coupled w/ an existing interest in that outof w/c such expectancy arises.

T r a d e r s I n s u r a n c e v . G o l a n g c o : Even if not owner,can claim insurance proceeds since he still had insurableinterest therein. He was in legal possession andcollecting rentals from its occupant, and so he wasdirectly damnified by such loss.

F i li p i n o M e r c h a n t s v . CA : Tiekeng, consignee offishmeal and vessel, had insurable interest due toperfected sale. Such sale was the basis of insurable

interest.

Sec. 15. Insurable interest of a carrier or depositaryis extent of its liability

L o p e z v . D e l R o s a r i o : Del Rosario, warehouseman,liable to owner of stored goods (Lopez) for his share.She acted as the agent of Lopez in taking out theinsurance of the contents of the warehouse.


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Sec. 16. Contingent or expectant interest notfounded on actual right or valid contract notinsurable

Sec. 17. Measure of insurable interest in property– extent to w/c insured might be damnified byloss (Property insurance is strictly a contract ofindemnity)

S an M i g u e l v . La w U n i o n R o c k : (supra) SMC collectsonly to extent of mortgage credit.

Cha v . CA : Cha: lessees; CKS: lessors. Stipulation forconsent contrary to public policy. CKS has no insurableinterest.

Sec. 18. Unenforceability of property insurancecontract by one not having insurable interest

Ga r ci a v . H o n g K o n g F ir e & M a r i n e I n s . Co . :

Merchandise insured but insurance co. mistakenly issuedpolicy covering building where merchandise stored.Policy written in English w/c insured did not understand.Insured should be able to collect.

Sec. 19. Time when insurable interest must exist:1.) Property insurance: at time insurance takes effect

& at time of loss;2.) Life insurance: only at time insurance takes

effect.

T a i To n g Ch u a C h e v . I n s u r a n c e C omm i s si o n e r :

M’ee who insured mortgaged property of m’or cancollect proceeds of policy since allegation that mortgagedebt was already paid had not been proved.

Sec. 20. Effect of change of interest in thing insuredon contract of insurance:

General rule: insurance suspended until sameperson becomes owner of both policy and the thinginsured.

Exceptions:1.) Life, health and accident insurance;2.) The change of interest in the thing insured occurs

after the injury w/c results in a loss;3.) A change of interest in one or more of several

things separately insured by one policy; 4.) A change of interest by will or succession on the death

of the insured;5.) A transfer of interest by will or succession on the death

of the insured;6.) A transfer of joint interest by one of several partners,

joint owners or owners in common, who are jointlyinsured, to the other.

Sec. 58 (supra): Effect of transfer of thing insured – does notautomatically transfer policy – coverage merely suspended.

B a c h r a c h v . B r i t i s h Am e r i c a n A s s u r a n c e C o .:

Bachrach’s furniture shop burned down. One of thereasons claim denied was because Bachrach hadexecuted a chattel mortgage on the properties insured

w/o consent of the insurer. He should be able to claimproceeds of policy. There was no express provisionagainst the execution of a chattel mortgage on theproperty insured.

Sec. 21. Change in the thing insured afteroccurrence of injury resulting in loss does notaffect right to indemnity

Sec. 22. Change of interest in one or more distinctthings separately insured does not affectinsurance of others

Sec. 23. Change of interest by will or succession ofinsured does not avoid the insurance

Sec. 181: Allows life insurance policy to pass by transfer, will orsuccession to anyone w/ or w/o insurable interest.

Sec. 24. Transfer of interest by one of partners, joint owners or common owners who are jointlyinsured, to the others, does not avoid the

insurance

Sec. 25. Stipulation in policy for payment of losswhether insurable interest exists or not, or thatpolicy is proof of such interest, or policy onwagering is void (This provision is the authority forvoiding a contract for lack of insurable interest)

Title 4. Concealment

Sec. 26. What is concealment: A neglect tocommunicate that w/c a party knows and ought tocommunicate.

Requisites of concealment:1.) A party knows a fact w/c he neglects to

communicate or disclose to the other;2.) Such party concealing is duty bound to disclose

such fact to the other;3.) Such party concealing makes no warranty of the facts

concealed; and4.) The other party has no means of ascertaining the fact

concealed.

Four primary concerns of parties to an insurance contract:1.) The correct estimation of the risk w/c enables the

insurer to decide whether he is willing to assume it, andif so, at what rate of premium;

2.) The precise delimitation of the risk w/cdetermines the extent of the contingent duty to payundertaken by the insurer;

3.) Such control of the risk after it is assumed as willenable the insurer to guard against the increase of therisk because of change in conditions; and

4.) Determining whether a loss occurred, and if so, theamount of such loss.

Sec. 27. Intentional or unintentional concealmententitles injured party to rescind contract


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Law makes no distinction between intentional and unintentionalconcealment. There is no need to prove fraud to be able torescind.

Criterion in applying Sec. 27: Was the insurer misled ordeceived into entering a contract obligation or in fixing thepremium of insurance by the withholding of materialinformation or facts w/in the insured’s knowledge or presumedknowledge?

S at u r n i n o v . P h i la m l i f e : Concealed operation forcancer involving removal or right breast. Info givenobviously false as well as material. Insurer allowed torescind.

Materiality is to be determined not by the event, butsolely by the probable and reasonable influence of thefacts upon the party to whom the communication is duein forming his estimate of the proposed contract, or inmaking his inquiries.

Waiver of medical examination renders even morematerial info required concerning previous condition ofhealth and diseases suffered.

H e n s o n v . P h i la m l i f e : There is no need to prove intentto conceal to warrant rescission.

Sec. 28. Duty of each party in an insurance contract to communicate to the other, in good faith all facts material to the contract and as to w/c he makes nowarranty, and w/c the other has no means ofascertaining (Insurance contract is a contract “uberrima fides” – meaning “of utmost good faith”) hottip: remember meaning of this crazy latin word!

Exception to duty to communicate: Those falling under Sec. 30

Test to determine whether one must communicate: If the

applicant is aware of the existence of some circumstance w/che knows would influence the insurer in acting upon hisapplication, good faith requires him to disclose thatcircumstance, though unasked.

Sec. 31: What is material (infra)

Sec. 107: Concealment in marine insurance – in addition tomatters in Sec. 28, all info material to the risk (except those inSec. 30) must be communicated.

Sec. 35 (infra): Mere opinion, judgment, or expectation notnecessary to be communicated.

F ie l d m a n ’ s I n s u r a n c e v . S o n g c o : Owner of an owner-type jeep persuaded by insurance agent to enter into a

common carrier insurance contract. After accident,insurance co. refused to pay up on the ground that thevehicle was not a common carrier.

Ins. Co. estopped. It knew all along that it was aprivate vehicle.

Sec. 29. Failure to communicate informationproving or intending to prove the falsity of awarranty entitles insurer to rescind – Here theconcealment must be intentional or fraudulent towarrant rescission.

Sec. 30. Matters w/c each party to insurancecontract is not bound to communicate:

1.) Those w/c the other knows;2.) Those w/c, in the exercise of ordinary care, the

other ought to know, and of which the formerhas no reason to suppose him ignorant;

3.) Those of w/c the other waives communication;

4.)

Those which prove or tend to prove theexistence of a risk excluded by the warranty,and w/c are not otherwise material; and

5.) Those w/c relate to a risk excepted from thepolicy and w/c are not otherwise material.

Exception: when the other inquires

I n s u l a r L i f e v . Fe l i c ia n o : Falsified answers due tocollusion between the insured and the insurance agentand medical examiner. Insurance company absolvedfrom liability.

Sec. 31. Materiality to be determined by influenceof facts on party in forming estimate of the risk,not by the event.

Test of materiality: If the knowledge of fact would cause theinsurer to reject the risk, or to accept it only at a higherpremium rate, that fact is material, though it may not evenremotely contribute to the contingency upon w/c the insurerwould become liable, or in any wise affect the risk.

Principal question to ask: Was the insurer misled or deceivedinto entering a contract obligation or in fixing the premium ofinsurance by the withholding of material information or factsw/in the insured’s knowledge or presumed knowledge? If so,then the contract is avoided, even if the cause of the loss w/csubsequently occurred be unconnected w/ the fact concealed.

S u n L i f e v . CA : Sorry!

Sec. 32. Each party bound to know:1.) General causes w/c…

a.)

are open to his inquiry, equally w/that of the other,

b.) may affect either the political ormaterial perils contemplated.

2.) General usages of trade.

Sec. 33. Right to information of material facts maybe waived by:

1.) Terms of insurance (expressly); or2.) Neglect to make inquiries where they are

directly implied in other facts alreadycommunicated (impliedly).

Ng Ga n Z e e v . A s i a n C r u s a d e r L i f e : Insured stated inhis application that he had a tumor removed from hisstomach. Yun pala, it was actually a portion of hisstomach w/c was removed. Ins. co. now refuses to payon ground on false information.

Pay up, damnum you! Can’t rescind the contract.Insured did not have sufficient knowledge to distinguishbetween a tumor and an ulcer. His statement was made


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in good faith. Ins. co. could have made an inquiry as tothe illness and operation. Its failure to do so constituteda waiver of the imperfection of the answer.

Sec. 34. Nature or amount of interest need not becommunicated.

Exceptions:

1.) In answer to an inquiry; or2.) When he is not the absolute owner (Sec. 51: items that

must be included in an insurance policy: (e) Interest ofinsured in property insured, if he is not the absoluteowner thereof.)

Sec. 35. Opinion or judgment of a party to a contract not required to be communicated

Sec. 108 (marine insurance): Info of the belief or expectationof a 3rd person w/ respect to material facts is material.

Title 5. Representation (Importance ofrepresentation: False representation entitles insured

party to rescind – Sec. 45)

Sec. 36. Representation may be oral or written Representation: A factual statement made by the insured at thetime of or prior to, the issuance of the policy to giveinformation to the insurer and otherwise induce him to enterinto the insurance contract.

Misrepresentation: A statement…1.) as a fact of something w/c is untrue;2.) w/c the insured stated w/ knowledge that it is untrue

and w/ an intent to deceive, or w/c he states as true w/oknowing it to be true and w/c has a tendency tomislead; and

3.) where such fact in either case is material to the risk.

Effect of misrepresentation: Renders insurance contractvoidable at the option of the insurer, although the policy is notthereby rendered void ab initio.

Sec. 37. Representation to be made at time of, orbefore issuance of a policy

Sec. 41: representation may be withdrawn or altered beforeeffectivity date.

Sec. 38. Language of communication the same ascontracts in general

Representations are construed liberally in favor of the insured.

Representations need not be literally true. It is sufficient if theyare substantially true.

Sec. 39. Representation as to the future deemed apromise unless merely a statement of belief orexpectation

Different kinds of representation:1.) Oral or written;2.) Made at time of issuance of the policy or before; and3.) Affirmative or promissory.

Affirmative representation: Any allegation as to the existence onon-existence of a fact when the contract begins.

Promissory representation: Any promise to e fulfilled after thecontract has come into existence or any statement concerningwhat is to happen during the existence of the insurance.

Sec. 40. Representation cannot qualify expressprovision of contract, but may qualify an impliedwarranty

Sec. 41. Representation may be altered orwithdrawn before insurance is effected, but notafterwards

Sec. 42. Representation refers to date ofeffectivity of contract

There is no false representation if the representation was trueat the time the contract takes effect altho’ it was false at thetime it was made. But there is false representation is although/true at the time it was made, it subsequently becomes false at

the time the contract took effect.

Sec. 43. Effect of representation when person hasno personal knowledge of facts:

1.) He may repeat info w/c…a.) He believes to be true,b.)

With the explanation that he does so on theinfo of others; or

2.) He may submit the info, in its whole extent tothe insurer.

3.) In either case he is not responsible for itstruth.

Exception: it proceeds from an agent of insured whose duty is to give information.

H a r d i n g v . Com m e r c i al U n i o n : Proposal form madeout by person authorized to solicit insurance is an act ofthe insurer. Facts, even if false, not warranted byinsured in the absence of willful misstatement.

Sec. 44. Misrepresentation: When facts fail tocorrespond to assertions or stipulations,representation is deemed false

Sec. 45. False representation in a material pointentitles insurer to rescind from time it becomesfalse. Right to rescind waived by acceptance ofpremium despite knowledge

Note that fraudulent intent here is immaterial.

M u s n g i v . W e s t Co a s t L i f e : Concealed that he sawseveral physicians for a number of ailments. He knewthat he was suffering from all these ailments yet heconcealed this. This concealment constituted fraudbecause the insurance company by reason of suchstatement accepted the risk w/c it would otherwise haverejected.


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Ed i l l o n v . M a n i l a B a n k e r s L i f e : There is was aprovision in the certificate of insurance excluding ins. co.of liability to persons under 16 or over 60 years of age.However, insured stated correctly her date of birthshowing that she was already 64 years old. She did notconceal her age, yet co. accepted her premium andissued the policy. Co. is estopped from disclaimingliability.

Co l l a d o v . I n s u l a r L i f e :

Accepting overdue premiums does NOT necessarilydeprive it of d right to cancel d policy in case of default.A reinstated policy should be viewed as a new K, & dperiod for contestability for fraud/ breach of warranty ind application runs from the time of reinstatement.

Sec. 46. Materiality of a representation is governedby same rules as materiality of concealment

Sec. 31: How materiality determined: not by event but y theinfluence of facts on other party in forming an estimate of therisk.

Sec. 47. Provisions of Chapter 1 applicable toamendment as well as to original contract

Sec. 48. Incontestable clause; Insurer’s right torescind; When must it be commenced:

1.) Non-life policy: before commencement of anaction;

2.) Life insurance policy: incontestable if in force 2years from date of issue or lastreinstatement.

Sections 227(b), 228(b) and 230(b) make the incontestableclause compulsory in all life insurance contracts.

S o l i m a n v . U . S . L i f e : Insurer is once again given 2years from date of reinstatement to investigate theveracity of the facts represented in the application forreinstatement.

Tan v . CA : Key phrase: “2 years”. Does not need to beduring lifetime of the insured. The phrase “during thelifetime” simply means that the policy is no longer inforce after the death.

T a n C h a y C h e n g v . W e s t C o a s t L i f e : Misrepresent-ations made. Tan Chay claims that co. cannot rescindbecause an axn for performance had already been filed.Trial court found for Tan Chay holding that an insurercannot avoid a policy unless it brings axn. to rescindbefore it is sued thereon.

Trial court wrong. Through fraud in its execution, thepolicy is void ab initio and therefore no valid contractwas ever made. Not an axn for rescission coz that wouldpresuppose the existence of a contract. Therefore, notbarred by Sec. 48.

P h i l am c a r e v . CA : (supra) Philamcare did not want thehealth care agreement to be considered an insurancecontract because the incontestability clause in Sec. 48

requires that any right to rescind must be exercisedbefore any axn is commenced on the contract, and w/in2-year period. But as we all know it is an insurancecontract so the incontestability clause applies.

Title 6. The Policy

Sec. 49. Policy: The written contract of insurance

Contract is the meeting of the minds. The policy is the formalwritten instrument evidencing the contract.

The best evidence that a contract has been entered intobetween the insurer and the insured is the delivery of the policyby the insurer to the insured.

Effects of delivery of policy: If delivery is conditional, non-fulfillment of the condition bars the contract from taking effect.If unconditional, the insurance becomes effective at the time ofdelivery.

En r i q u e z v . S u n l i f e : The contract of insurance was not

perfected. It had not been proved that the acceptance ofapplication ever came to the knowledge of the applicant.An acceptance of an offer of insurance not actually orconstructively communicated to the proposer does notmake a contract of insurance, as the locus poenitentiaeis ended when an acceptance has passed beyond thecontrol of the party.

Sec. 50. Formal requirements of a policy:1.) In printed form w/c may contain blank spaces;

and2.) Any word, phrase, clause, mark, sign, symbol,

signature, number or word necessary to completethe contract of insurance shall be written in the

blank spaces provided therein.Formal requirements of a rider, clause,

warranty, endorsement as part of the contract:1.) The descriptive title or name of the rider w/c is

pasted or attached to the policy must bementioned and written on the blank spacesprovided in the policy; and

2.) Unless applied for by the insured or owner, saidinsured or owner must countersign the rider.

Requirements of group insurance and groupannuity policies: May be typewritten and need not bein printed form.

Sec. 226: Form of policies, application, riders, clauses,

warranties or endorsements must be approved by theInsurance Commissioner.

Rider: A printed or typed stipulation contained on a slip ofpaper attached to the policy and forming an integral part of thepolicy. Riders are usually attached to the policy because theyconstitute additional stipulations between the parties.

If there is an inconsistency between the policy and the rider,the rider prevails, it being a more deliberate expression of theagreement of the parties.


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Warranties: Inserted or attached to a policy to eliminatespecific potential increases of hazard during the policy termowing to axns of the insured, or conditions of property.

Clauses: Agreements between the insurer and the insured oncertain matters relating to the liability of the insurer in case ofloss.

Endorsement: An endorsement is any provision added to an

insurance contract altering its scope or application.

Sec. 51. Substantive requirements in a contract ofinsurance: Policy must specify:

1.) The parties between whom the contract is made;2.) The amount to be insured except in the case of

open or running policies;3.) The premium, or if the insurance is of a

character where the exact premium is onlydeterminable upon the termination of thecontract, a statement of the basis and rates upon w/c the final premium is to be determined;

4.) The property/life insured;5.) The interest of the insured in property insured if

he is not the absolute owner thereof;6.) The risks insured against; and7.) The period during w/c the insurance is to

continue.

Kinds of insurable risks:1.) Personal : life or health;2.) Property: involves loss or damage to property;3.) Liability: involves liability of the insured for an injury

caused to a person or property of another.

Requirements in order that a risk be insurable:1.) The loss to be insured against must be important

enough to warrant the existence of an insurablecontract;

2.) The risk must permit a reasonable statistical estimate ofthe chance of loss in order to determine the amount ofpremium to be paid;

3.) The loss should be definite as to cause, time, place andamount;

4.) The loss is not catastrophic;5.) The risk is accidental in nature.

See Sections 227, 228 & 230 for additional matters to beincluded in individual, group and industrial life insurancepolicies.

Sec. 52. Rules on cover notes (binding receipts orslips, interim, temporary or provisional policies):

1.) Insurance companies doing business in the Phils

may issue cover notes to bind insurancetemporarily pending the issuance of thepolicy.

2.) A cover note shall be deemed to be a contract ofinsurance w/in the meaning of Sec. 1(1) of thisCode.

3.) No cover note shall be issued or renewed unlessin the form previously approved by the InsuranceCommission.

4.) A cover note shall be valid and binding for aperiod not exceeding 60 days from the date of itsissuance, whether or not the premium therefore

has been paid, but such cover note may becanceled by either party upon at least 7 daysnotice to the other party.

5.) If a cover note is not so canceled, a policy ofinsurance shall w/in 60 days after issuanceof the cover note be issued in lieu thereof .Such policy shall include w/in its terms theidentical insurance bound under the cover note

and premium therefor.6.) A cover note may be extended or renewed

beyond the aforementioned period of 60 days w/the written approval of the InsuranceCommission, provided that such written approvamay be dispensed w/ upon the certification of thepresident, VP, or gen mgr of the insurance co.concerned, that the risks involved, the values ofsuch risks, and the premiums therefore have notbeen determined or established and that suchextension or renewal is not contrary to and is notfor the purpose of violation of any provision of theInsurance Code.

7.) Insurance companies may impose on cover notesa deposit premium equivalent to at least 25% ofthe estimated premium of the intended insurancecoverage but in no case less than P500.

Cover note: Written memorandum of the most important termsof the preliminary contract of insurance, intended to givetemporary protection pending the investigation of the risk bythe insurer, or until the issue of a formal policy, provided it islater determined that the applicant was insurable at the time it

was given.

2 types of preliminary contracts of insurance:1.) Preliminary contract of present insurance; and2.) Preliminary executory contract.

Preliminary contract of present insurance: Insurer insures thesubject matter usually by what is known as a “binding slip” or

“binder” or “cover note” w/c is the contract to be effective untilthe formal policy is issued or the risk rejected.

Preliminary executory contract of insurance: Insurer makes acontract to insure the subject matter at some subsequent timew/c may be definite or indefinite. Under such an executorycontract, the right acquired by the insured is merely a right todemand the delivery of a policy in accordance w/ the termsagreed upon and the obligation assumed by the insurer is todeliver such policy.

G r e p a l i f e v . CA : Binding deposit receipt is merely anacknowledgment of receipt of premium. It is merely

conditional as the insurance co. may still approve orreject the application. It is not a temporary contract oflife insurance. Grepalife had disapproved of theapplication and so the binding deposit receipt nevercame into force.

P a c if i c T im b e r v . CA : Ins. co. refuses to pay since itclaims that the cover note was null and void due to theissuance of the policy.

Cover note is not a separate policy. It is integratedinto the regular policies subsequently issued. If it were aseparate policy, its purpose would be rendered


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meaningless. Cover note was w/ consideration. Noseparate premiums required.

Sec. 53. Insurance proceeds; to whom payable:The person in whose name or for whose benefit thepolicy was made.

Exception: Sec. 12: Forfeiture of proceeds by life insurance

beneficiary when he is principal, accomplice, or accessory inwillfully bringing about the death of the insured, in w/c case,proceeds will go to nearest relative of insured.

Art. 2127, CC: The security of a mortgage extends to theindemnity granted or owing the owner from the insurer.

B o n i f a c i o B r o s . V . M o r a : Insurance proceeds godirectly to person in whose name policy made. theproceeds cannot go directly to the dudes who repairedthe car in the absence of stipulation pour autrui incontract. Since the repairmen and autoparts shop haveno privity of contract w/ the ins. co., they have no causeof axn.

Co q u i a v . F i e ld m a n ’ s I n s u r a n c e : Where there is anexpress stipulation pour autrui (in event of driver, ins.co. will indemnify his personal representatives),enforcement of contract may be demanded by a 3rd party as they have a direct cause of action.

De l V a l v . D e l V a l :

Del Val died intestate. His beneficiary was his son,Andres. Andres got the proceeds and redeemd parcelsof land sold pacto de retro. Siblings say the proceedsshould got to the estate.

HELD: NO!!!! The proceeds of an insurance policybelong exclusively to the BENEFICIARY & not to theestate of the person whose life was insured, and thatsuch proceeds are the separate & individual property ofthe beneficiary, and not of the heirs of the person whoselife was insured.

RCBC v . CA :

Goyu took out a loan from RCBC. He mortgaged hisfactories to RCBC. His factories were insured & he toldthe insurance agent to endorse policies to RCBS.Factories were struck by fire. Goyu claimed proceed.MICO refused on the ground that policies were attached& proceeds were claimed by other creditors of Goyu.

HELD: RCBC won!Sec. 53 ordains that the insurance proceeds of theendorsed policies shall be applied exclusively to theproper interest of the person for whose benefit it wasmade. In this case, to the extent of Goyu's obligationw/ RCBC, the interest of Goyu in the policies had beenTRANSFERRED to RCBC effective as of the time of theendorsement.

There are other issues, but this is the one relevant tothis Section. (I hope-rosa)

Sec. 54. Insurance contract w/ agent or trustee asinsured: Fact that principal or beneficiary is the realparty in interest may be indicated in policy.

Insurance may be taken by a person:1.) personally, or2.) through his agent or trustee.

If taken thru’ agent or trustee, should indicate that he is merelyacting in a representative capacity since insurance is to beapplied exclusively to the interest of the person in whose nameand for whose benefit it is made.

Sec. 55. Policy terms should be made applicable to joint interest to render insurance effected by onepartner or part owner applicable to co-partners orpart owners

Sec. 56. Who can claim policy benefits in case of ageneral description of insured: he who can show thatit was intended to include him (that he is the persondescribed; or that he belongs to the class of persons

comprehended in the policy).

Sec. 57. A policy can be framed to inure to thebenefit of whomsoever becomes the owner of theinterest insured

S an M i g u e l v . La w U n i o n R o c k : (supra) Since policymade out only in name of SMC and not framed to coverowner or his assignees, assignee/owner could not claimunder the policy.

Sec. 58. Transfer of thing insured does notautomatically transfer policy; coverage suspendeduntil owner of policy and owner of interest are one

and the same

S an M i g u e l v . La w U n i o n R o c k : (supra) Transfer ofownership over property insured does not meanassignee can recover under policy on that propertyunless so stipulated (w/c it wasn’t).

Sec. 59. A policy is either open, valued or running Sec. 60. What an open policy is: One in w/c the valueof the thing insured is not agreed upon, but is left to beascertained in case of loss.

It is one in w/c a certain agreed sum is written on the face of

the policy not as the value of the property insured, but as themaximum limit of the insurer’s liability.

See Sec. 161: open policy rules in marine insurance; and Sec.171: open policy rules in fire insurance.

De v . I n s . Co r p . v . I A C: In an open policy, in event ofloss, whether total or partial, it is understood that theamount of the loss shall be subject to appraisal and theliability of the company shall limited to the actual lossand in no case shall exceed the amount of the policy.


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Sec. 61. What a valued policy is: One w/c expresseson its face an agreement that the thing insured shall bevalued at a specified sum.

It is one in w/c the parties expressly agree on the value of thesubject matter of the insurance.

See Sec. 156: Valued policy rules in marine insurance; and Sec.

157: Valued policy rules in fire insurance.

Sec. 62. Meaning of a running policy (sometimescalled floating, adjustable, blanket or declaration policy):One w/c contemplates successive insurances, and w/cprovides that the object of the policy may be from timeto time defined, especially as to the subjects ofinsurance, by additional statements or indorsements.

This kind of policy is intended to provide indemnity for propertyw/c cannot well be covered by a valued policy because of itsfrequent change of location and quantity, or for property ofsuch nature as not to admit of a gross valuation. It alsodenotes insurance w/c contemplates that the risk is shifting,fluctuating or varying, and w/c covers a class of property rather

than any particular thing.

Advantages of a running policy:1.) The insured is neither underinsured nor overinsured at

any time, the premium being based on the monthlywages reported;

2.) He avoids cancellations that would otherwise benecessary to keep insurance adjusted to the value ofeach location, and for w/c cancellations he would becharged the expensive short rate;

3.) He is saved the trouble of watching his insurance andthe danger of being underinsured in spite of his care,thru’ oversight or mistake; and

4.) The rate is adjusted to 100% insurance.

Sec. 63. Stipulations limiting commencement of an

action to less than 1 year from the time cause ofaction accrues are void

Sec. 231(d): Industrial life policy; Void if less than 6 years.

Sec. 229: Industrial life insurance:1.) Premiums payable monthly or oftener;2.) Face amount not more than 500 times minimum wage in

the City of Manila;3.) “industrial policy” printed on contract.

Art. 1144 & 1445, CC: If no period agreed upon, the actionmust be brought w/in 10 years (written contract) or 6 years(oral contract).

You can stipulate a period when an action based on theinsurance contract can be brought. In the absence ofstipulation, the period is 10 years. However, if you do stipulateand you limit the period to less than one year, the stipulation isvoid.

New L i f e En t e r p r i s e s v . CA :

Remember the case with the clarificatory letter. Also,the contract had a stipulation that an axn should becommenced within a year d cause of axn accrued.

HELD: The stipulation in the k was EQUAL to 1 year (tocommence an axn), the prohibition is for LESS than 1yr. Therefore, the stipulation was valid. The SC saidthat the 1 year should be reckoned from the 1st rejexn,NOT the rejexn after the denial of M4recon.

Sec. 64. Cancellation of a policy (other than life)by the insurer to be effective requires prior notice

and occurrence of enumerated conditions:1.) Non-payment of premium;2.) Conviction of a crime arising out of acts

increasing the hazard insured against;3.) Discovery of fraud or material

misrepresentation;4.) Discovery of willful/reckless acts/omissions

increasing the hazard insured against;5.) Physical changes in the property insured w/c

result in the property becoming uninsurable; or6.) A determination by the Commissioner that the

continuation of the policy would violate or wouldplace the insurer in violation of this Code.

Cancellation: The right to rescind, abandon or cancel a contractof insurance.

Non-payment of premium: refers to premiums subsequent tothe first premium because the law speaks of non-payment afterthe effective date of the policy. Remember, if you do not paythe 1st policy, no policy is valid and binding. Therefore, the 1st premium is the condition precedent to the effectivity of theinsurance. So any premium after the effective date of the policymust refer to the premiums after the 1st one has been paid.

Sec. 79(b): (infra) Cancellation by insured implied.

Compare with Sec. 66: (infra) non-renewal of non-life policy

Rules in Compulsory Motor Vehicle Liability:1.) Sec. 380: for written notice of cancellation of CTPL by

insurer – written notice to LTO also needed 15 daysprior to effectivity of cancellation.

2.) Sec. 381: for cancellation of CTPL policy by vehicleowner or operator – notice to LTO also needed plusreplacement of CTPL policy or bond efore cancellationeffective.

Sec. 65. Conditions for cancellation (by insurer) ofpolicy (other than life):

1.) There must be prior notice of cancellation to theinsured;

2.) The notice must be based on the occurrence,after the effective date of the policy, of one or

more of the grounds mentioned in Sec. 64;3.) The notice must be in writing, mailed ordelivered to the insured at the address shown inthe policy;

4.) It must state which of the grounds set forth inSec. 64 is relied upon; and

5.) If so requested by the insured, it is the dutyof the insurer to furnish the facts on which thecancellation is based.


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S au r a v . P h i l I n t e r n a t i o n a l Co . : Notice of cancellationby insurer to m’ee alone is not effective as to m’or/owner. There must be actual and personal notice.

M a l a y a n I n s u r a n c e v . Ar n a l d o : Notice was noteffectively made. No proof was presented that the noticewas actually mailed to and received. A valid cancellationrequires:

1.) Prior notice to insured;2.) Notice must be based on grounds mentioned;3.) Must be in writing, mailed or delivered to the

insured;4.) Must state ground for cancellation.

Sec. 66. In non-life insurance, insured is entitledto renew contract by payment of premium unlessnotified by insurer 45 days prior to expiry date

Title 7. Warranties

Sec. 67. A warranty is express or implied

Warranty: A statement or promise set forth in the policy itselfor incorporated in it by proper reference, the untruth or non-fulfillment of w/c in any respect and w/o reference to whetherthe insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.

Different kinds of warranty:1.) Affirmative (Sec. 68);2.) Promissory (Sec. 72);3.) Express (Sec. 67); or4.) Implied (Sec. 67).

Express warranty: An agreement contained in the policy orclearly incorporated therein as part thereof whereby the insured

stipulates that certain facts relating to the risk are or shall betrue or certain acts relating to the same subjects have been orshall be done.

Implied warranty: Warranty w/c from the very nature of thecontract or from the general tenor of the words, altho’ noexpress warranty is mentioned, is necessarily embodied in thepolicy as part thereof and w/c binds the insured as tho’expressed in the contract.

Affirmative warranty: One w/c asserts the existence of a fact orcondition at the time it is made.

Promissory warranty: One where the insured stipulates thatcertain facts or conditions pertaining to the risk shall exist orthat certain things w/ reference thereto shall be done or

omitted. It is the nature of a condition subsequent.

Sec. 68. A warranty may relate to the past, presentor to the future, or any or all of them

Sec. 69. No particular form of words necessary tocreate a warranty

When insured stipulates something in the policy or even in theapplication form, it is not always a warranty. It depends on hisintention. Sometimes a statement made by the insured is not

meant to be a warranty but a representation. In case of doubt,such statement is only considered a representation.

Difference between a warranty and a representation:

Warranties Representations

Considered parts of thecontract.

Collateral inducements to thecontract.

Always written on the face ofthe policy, actually or byreference.

May be written in a totallydisconnected paper, or mayeven be oral.

Must be strictly complied w/. Substantial truth onlyrequired.

Falsity/non-fulfillmentoperates as a breach ofcontract.

Falsity renders policy void onthe ground of fraud.

Presumed material. Insurer must show themateriality in order to defeataxn on policy.

Sec. 70. An express warranty must be in the policyitself or in another document signed by the insuredand made part of the policy

A n g G io k Ch i p v . S p r i n g f i e l d F ir e & M a r i n e I n s . :

It is well settled that a rider attached to a policy is apart of the contract, to the same extent and with likeeffect as if actually embodied therein. In the secondplace, an express warranty must appear upon the faceof the policy, or be clearly incorporated therein andmade a part thereof by explicit reference, or by wordsclearly evidencing such intention.

Sec. 71. Express warranty: A statement in the policyrelating to the person or thing insured, or to the riskas a fact

Sec. 72. Promissory warranty: to do or not to do a

thing that materially affects the risk

An act or omission is material to the risk if it increases the risk.Under the law, only substantial increase of risk forfeits thepolicy.

Sec. 73. Breach of warranty; effect: Avoids contractof insurance.

Exceptions:1.) When loss occurs before time for

performance;2.) When performance becomes unlawful;3.) When performance becomes impossible.

Sec. 74. Violation of a material warranty or other

material provision by either parties entitles otherparty to rescind

Y o u n g v . M i d l a n d T e x t i l e I n s . : Even if (storage offirecrackers) not cause of the event insured against(fire), violation of warranty terminates the contract.Compliance with terms of contract is condition precedentto right of recovery.

Sec. 75. If specifically stipulated, a violation of aspecified provision shall avoid a policy, otherwise


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a breach of immaterial provision does not avoidthe policy

Ge n I n s u r a n c e v . N g H u a : Stipulation that failure togive notice that any other insurance was obtained wouldresult in forfeiture of the benefits. The rebel didn’t givenotice that he had insurance on the same goods w/another co. Breach of warranty. Insurer entitled to

rescind. Materiality of non-disclosure of other insurancepolicies is undoubted.

Sec. 76. Breach of warranty, w/o fraud,exonerates insurer or prevents policy fromattaching to risk depending on when breachoccurred

Breach of warranty…1.) Without fraud: policy avoided only from time of the

breach and hence, the insured is entitled to:a.) a return of premiums paid at the pro rata rate from

the time of the breach if it occurs after the inceptionof the contract; or

b.) to all the premiums if it is broken during theinception of the contract.

2.) With fraud: policy avoided ab initio and the insurer isnot entitled to the return of the premium paid.

Title 8. Premium

Sec. 77. Insurer entitled to premium from momentrisk attached; policy binding only when premiumpaid; Exceptions (a life insurance policy where thegrace period applies)

Premium: The agreed price for assuming and carrying the risk.It is the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril.

Assessment: A sum specifically levied by mutual insurancecompanies or associations, upon a fixed and definite plan, topay losses and expenses.

Difference between a premium and an assessment:

Premium Assessment

Levied and paid to meetanticipated losses.

Collected to meet actuallosses.

Payment of premium, afterthe 1st, is not enforceableagainst the insured.

Legally enforceable oncelevied.

Not a debt. Is a debt (if properly levied).

Effect of non-payment of premiums:

1.) Non-payment of the 1st premium unless waived preventsthe contract from becoming binding notwithstanding theacceptance of the application nor the issuance of the policy. Butnon-payment of the balance of the premium due does notproduce the cancellation of the contract.2.) Non-payment of subsequent premiums does not affectthe validity of the contracts unless by express stipulation, it isprovided that the policy in that event be suspended or shalllapse.

Secs. 227(a), 228(a), 230(a): In the case of life or endowmentinsurance, group life insurance and industrial life insurance, thepolicy holder is entitled to a grace period of 30 days.

Sec. 78 (infra): acknowledgement of receipt of premium inpolicy is binding.

Sec. 177: Surety bond premiums.

Sec. 52 (supra): rules on cover notes.

Sec. 306(2): delivery of policy to agent presumes authority tocollect premium.

P h i l . P h o en i x v . W o o d w o r k s # 1 : Partial payment,balance unpaid. No cancellation of contract. Contracthad been perfected and partially performed. Candemand payment of balance.

P h i l . P h o en i x v . W o o d w o r k s # 2 : No payment at all.Policy must be deemed to have lapsed.

V a l e n z u e l a v . CA : Valenzuela, agent, is not liable for

unpaid premiums. The policies having lapsed, there is nomore contract or obligation.

S o u t h S e a Su r e t y v . CA : Agent, in receiving check forthe insurance premium prior to the occurrence of therisk insured against, acted as agent holding theinsurance co. liable. Delivery of policy to agent meanshe’s authorized to receive payment of any premium.Premiums paid to agent so co. liable for proceeds.

A r e o l a v . CA : Agent’s receipt is ins. co.’s receipt.Agent’s failure to remit not a defense, co. is liable forfraudulent acts of its employees.

T i b a y v . CA : Partial payment does not make contractvalid, binding and enforceable. There was an expressstipulation for payment of premium in full. Cannotcollect on policy.

UCPB v . M a s a g a n a T e lam a r t : UCPB is in estoppel forhaving received 60-90 day credit term.

Sec. 78. Legal fiction of payment of premium forpurposes of making policy binding: Acknowledgmentin policy of receipt of premium is conclusive evidence ofpayment for purpose of making policy binding.

Am e r i ca n H om e A s su r a n c e v . CA : Check received as

payment for renewal of policy and a renewal certificatedelivered. Fire occurred. Official receipt for paymentissued. There is valid payment of premium even if thecheck was encashed after the fire.

Sec. 79. When insured entitled to return ofpremiums:

1.) When no part of thing insured has beenexposed to any of the perils insured against(whole premium returned);

2.) When the insurance is for a definite period and


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the insured surrenders his policy beforetermination thereof (such portion as correspondsw/ unexpired time, at a pro rata rate,returned).

Exceptions:a.)

Short period rate agreed upon and appearson face of policy (exception to pro rata rate).

b.) Life insurance (exception to applicability of

this section).3.) When the contract is voidable because of fraud or

misrepresentations of the insurer or his agent (Sec. 81infra);

4.) When the contract is voidable because of the existenceof facts of w/c the insurer was ignorant w/o his fault(Sec. 81 infra);

5.) When the insurer never incurred any liability under thepolicy because of default of the insured other thanactual fraud (Sec. 81 infra);

6.) When there is overinsurance (Sec. 82 infra);7.) When rescission is granted due to the insurer’s breach of

contract.

Short period rate clause: A clause w/c appears in most fire

insurance policies providing that in the event the policy issurrendered by the insured for cancellation, the company shallretain a premium for the time the policy has been in force.

There is no right to recovery of premiums in life insurancebecause it is not a divisible contract. It is not an insurance forany single year, w/ a privilege of renewal from year to year bypaying the annual premium. It is an entire contract of insurancefor life subject to discontinuance and forfeiture for non-payment of any of the stipulated premiums.

G r e p a l i f e v . CA : Late payment. Letter sent to insuredsaying policy not in force. Insurer must return premium.policy inoperative/ineffectual from the beginning. Co.never at risk and so not entitled to keep premium.

Sec. 80. Insured not entitled to return of premiumswhen risk already attached and insurer liable forany period

Ma k a t i T u s c a n y v . CA : Where the risk is entire and thecontract is indivisible, the insured is not entitled to arefund of the premiums paid where the insurer wasexposed to the risk for any period, however brief ormomentary.

Sec. 81. Insured entitled to return of premiumwhen:

1.) Contract voidable due to insurer’s fault; or

2.) Insurer never incurred liability due to: a.)

Insured’s ignorance of facts orb.)

Default other than fraud

G r e p a l i f e v . CA : (supra) Never at risk; not entitled tokeep premiums.

Sec. 82. Insured entitled to ratable return of premiumin case of over-insurance.


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Title 9. Loss

S ec . 8 3 . A g r e em e n t n o t t o t r a n s f e r c l a i m a f t e r l o s s

h a p p e n e d i s v o i d .

Exception: Life insurance

Limitation on the Transfer: Sec 173: Transfer of FIRE policy to

agents of insurer is void if in fraud of creditors

Rationale: Against public policy for it hinders the freetransmission of property from one person to another.

Why should the agreement be void when it is a personalcontract? After loss has been suffered, it is no longer a personalcontract which is being assigned but a money claim OR a rightof action under the policy. There is no moral hazard becausethe insurer’s risk cannot be increased anymore since the losshas already occurred.

Sec. 84. Insurer liable if peril insured against isproximate cause.

Loss: Injury or damage sustained by the insured in

consequence of the happening of one or more of the accidentsor misfortunes against which the insurer, in consideration of thepremium, has undertaken to indemnify the insured.

Liability of Insurer for Loss: Depends on:1.) Whether the insured suffers a loss; and2.) The extent of the loss.

Insurer liable only for a loss PROXIMATELY caused by the perilsinsured against although a peril not insured against may havebeen the remote cause of the loss.

Proximate cause: That which, in natural & continuoussequence, unbroken by any new independent cause, producesan event and without which the event would not have occurred.

It is the efficient cause – one that sets others in motion – towhich the loss is attributed, although other & incidental causesmay be nearer in time to the result & operate moreimmediately in producing the loss.

Proximate cause is NOT synonymous to immediate cause.

Sec. 85. Insurer’s liability for loss: 1.)

Loss from peril not insured against to whichthing was exposed in rescuing it from perilinsured against; and

2.)

Loss caused by efforts to rescue thing insuredfrom a peril insured against.

Insurer is liable when:

1.)

Loss took place while being rescued from the perilinsured against;

2.) Loss took place when, while in the course of rescue,thing is exposed to a peril not insured against, whichpermanently deprived the insured of possession of thething;

3.) Loss is caused by efforts to rescue the thing insuredfrom a peril insured against.

Sec. 86. Insurer liable for loss, the immediatecause of which was the peril insured against

unless the proximate cause was excepted incontract

Even if the proximate cause is not the peril insured against, theinsurer may still be held liable if the immediate cause is theperil insured against.

3 kinds of causes:

1.)

Remote;2.) Proximate; and3.) Immediate

Sec. 87. Insurer not liable for loss caused by willful actor with connivance of insured; Insurer liable fornegligence of insured

Insurer is not liable for loss when:1.) Loss was caused by willful act of insured; or2.) Through the connivance of the insured.

Exception to the Rule:Sec 180-A (Suicide Clause): Insurer liable if:

1.) Suicide committed AFTER 2 yrs from date of issue; or

2.)

Committed anytime in state of insanity

Insurer is liable for negligence of insured.

Contributory negligence on part of insured does NOT mitigateinsurer’s liability. It has no application to insurance contracts.

Title 10. Notice of Loss

Sec. 88. In fire insurance, failure of insured/assured to give notice of loss without unnecessarydelay exonerates insurer

Sec. 89. Preliminary proof of loss if required by policy

need not be that required by a court of law; bestevidence enough

Condition that MUST be Complied with BEFORE loss occurs:Compliance with terms of the policy. The terms of the contractconstitute the measure of the insurer’s liability & non-compliance therewith by the insured bars his right of recovery.

Condition that MUST be Complied with AFTER loss occurs:1.) Notice of loss must be given to insurer without delay

(immediately given)2.) When required by the policy, preliminary proof of loss

(may be given later)

These requirements are NOT exclusive. Certificate of attending

physician as part of proof of death is required in some life &accident policies.

Notice of loss: More or less formal notice given by the insuredor claimant under a policy of the occurrence of the loss insuredagainst.

Purpose: To apprise the insurance company with the occurrenceof the loss, so that it may gather info & make properinvestigation while evidence is still fresh & take such action asmay be necessary to protect its interest. In property insuranceit prevents further loss to the property.


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Effect if notice of loss not given: Insurer is exonerated.

When notice of loss must be given: Without unnecessary delay;within reasonable time.

Proof of loss: More or less formal evidence of the occurrence ofloss given the company by the insured or claimant under apolicy of the occurrence of the loss, the particulars thereof andthe data necessary to enable the company to determine its

liability and the amount thereof.

Purpose:1.) To give insurer info by which he may determine extent

of his liability;2.) To afford him a means of detecting any fraud that may

have been practiced upon him;3.) To operate as a check upon extravagant claims

Form of notice and proof of loss: WALA! It may be given orallyor in writing. However, its advisable to give it in writing for theprotection of the insured or beneficiaries. Para its not yourword against theirs.

Sec. 90. Defects in notice or preliminary proof of loss

waived if insurer omits to specify them as grounds ofobjections

Sec 90 presupposes that notice of loss & proof of loss havealready been given. It is the DUTY of the insurer to specify tothe insured all defects in the notice of loss or in the preliminaryproof as grounds for its objection without necessary delay.Otherwise, same shall be deemed WAIVED. There is waiver when the insurer:

1.) Writes to the insured that he considers the policy null& void so that furnishing of notice or proof of losswould be useless

2.) Recognizes his liability to pay claim3.) Denies liability under the policy4.) Joins in the proceedings for determining amt of loss by

arbitration without making objections to the notice &preliminary proof

5.) Makes no objections on any ground other than aformal defect in the preliminary proof

General statement that proof is defective is NOTsufficient. Insurer must specify what those defects are inorder that insured may remedy them.

Malayan Insurance v. Arnaldo: Malayan deniedliability on ground that the certification issued bythe Integrated National Police given by Pinca(insured) was not a persuasive proof of theamount of loss. Was notice given sufficient?

YES. Loss & its amount may be determined onthe basis of such proof as may be offered by theinsured, which need not be of such persuasivenessas is required in judicial proceedings. Thecertification was sufficient. Failure of insurer tospecify defects of proof & w/o unnecessary delayis deemed waiver of all objections to notice andproof of loss.

Pacific Bank v. CA: Letters were sent as notice ofloss but the subsequent required written noticeand pertinent docs had not been submitted as per

the contract. Since the required claim togetherwith the relevant docs which contains thenecessary info to ascertain the amount of loss)had not been complied with, ins. co. cannot bedeemed to have finally rejected insured’s claimand therefore, no cause of action had yet arisen.Compliance is a requirement s i n e q u a n o n to rightto maintain action as prior thereto no violation of

petitioner’s right can be attributable to the ins. co.Before final rejection, there is no real necessity forbringing suit. Action was premature.

Sec. 91. Delay in notice or proof of loss waived if causedby insurer or if he fails to object promptly

2 cases of waiver by the insurer of delay in presentation ofnotice or proof of loss:

1.) Delay is caused by an act of the insurer2.) Insurer omits to take objection promptly & specifically

upon ground of delay

Pacific Timber v. CA: No marine policy yet BUT cover

note issued. Insured logs were lost. Pacific Timberimmediately filed claim. Insurer requested anadjustment company to inspect & assess the lossBUT later denied the claim. Was notice given byPacific Timber on time?

YES. The defense of delay raised by insurercannot be sustained. The law requires that thisground of delay be promptly & specificallyasserted when a claim on the insurance agreementis made. (1) Insurer had enough time todetermine if Pacific was guilty of delay BUT failedto raise the issue. (2) Delay was never raised inthe proceedings which took place with theInsurance Commissioner.

Sec. 92. If required by policy as a preliminary proof ofloss, the certificate or testimony of person other thaninsured satisfies it if insured used reasonable diligenceto procure it; If person refuses to give it, thenreasonable evidence to insurer enough provided refusalis not based on disbelief in facts

Where the policy requires, by way of preliminary proof of loss,the certificate/testimony of a person other than the insured, theinsured is merely required to exercise due diligence to procureit.

If he fails to procure certificate BUT has exercised duediligence, he would be considered to have complied with the

requirement.

If the third person refuses: Insured must furnishreasonable evidence that the refusal was made NOT cozof disbelief on the part of the third person in the factsnecessary to be certified BUT coz of other grounds.

Title 11. Double Insurance

Sec. 93. When double insurance exists: 1.) Person insured is the same;


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2.)

Interest insured is the same;3.) Risk OR peril insured against is the same;4.)

Subject matter insured is the same; and5.)

Two or more insurers insure separately.

Double insurance is NOT the same as over insurance.

Double insurance Over insurance

There may be no overinsurance as when the sumtotal of the amts of thepolicies issued does notexceed the insurable interestof the insured.

Amount of insurance isbeyond the insured’s insurableinterest

Always Several insurers May only be one insurerinvolved

Stipulation in policy that double insurance is prohibited &violation of stipulation will result in avoidance of the policy isVALID and reasonable.

Purpose of prohibition against double insurance: To preventover insurance & thus avert the perpetration of fraud. Thepublic & insurer are interested in preventing the situation inwhich a loss would be profitable to the insured.

Reason for prohibition of over insurance: An insurance contractis strictly a contract of indemnity & the insured can’t profit.The hazard in this is that the insured may be tempted to causethe peril.

Pioneer Ins. v. Yap: Yap took a fire insurance policyfor his building from Pioneer Insurance whichprovided that notice shall be given to Pioneer ofsubsequently effected policies, otherwise, allbenefits shall be forfeited. He procured anotherfire insurance policy for the same property with

Federal Insurance WITHOUT notifying Pioneer.When the building burned down, Pioneer deniedYap’s claim for violation of the notice requirement.Is Pioneer free from liability?

YES. By plain terms of the policy, otherinsurance effected without the consent of Pioneerwould ipso facto avoid the contract. PURPOSE: toprevent over-insurance & thus avert theperpetration of fraud. The public, as well as theinsurer, is interested in preventing the situation inwhich a loss would be profitable to the insured.

Geagonia v. CA: Geagonia obtained a fire insurancepolicy over its stock-in-trade from Country

Banker’s Insurance. The policy provided that (1)insurer be notified of other policies, otherwise,benefits shall be forfeited; (2) nullity shall only beto the extent exceeding P200T of the total policiesobtained. Geagonia obtained a policy from PhilFirst Insurance without notice. He now filed aclaim for P100T. Is Country Banker’s Insuranceliable?

YES. #1 only refers to double insurance. Therewas no double insurance in this case coz thesecond insurance was procured by Geagonia’screditor-mortgagee which has a distinct &

separate insurable interest. Non-discloure of theformer policies were NOT fatal to Geagonia’s rightto recover on the policy. Country Banker’sInsurance is also liable coz it was willing toassume the risk provided that the TOTAL insurancedoes not exceed P200T.

Sec. 94. Consequences of over-insurance in case of

double insurance:1.) The insured, unless the policy otherwise

provides, may claim payment from the insurersin such order as he may select, up to theamount for which the insurers are severallyliable under their respective contracts;

2.) Where the policy under which the insuredclaims is a valued policy, the insured mustgive credit as against the valuation for any sumreceived by him under any other policy withoutregard to the actual value of the subjectmatter insured;

3.) Where the policy under which the insuredclaims is an unvalued policy he must givecredit, as against the full insurable value, for anysum received by him under any policy;

4.) 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 sum intrust for the insurers, according to their rightof contribution among themselves;

5.) Each insurer is bound, as between himselfand the other insurers, to contribute ratably to the loss in proportion to the amount forwhich he is liable under his contract.

Sec 94 applies only when there is over-insurance by double

insurance, that is, the insurance is contained in several policies& the total amount of which is in excess of the insurableinterest of the insured.

Example: P6M house.Insured with:X: P4MY: P2MZ: P6M

1.) Insured can collect payment from each insurer in suchorder as he may select, up to the amount for whicheach is liable under its contract. e.g. XYorZ, YXorZ, ORZ only.

2.) If insured already collects P4M from X, he must creditagainst the valuation of P6M for P4M already receivedby him without regard to his actual loss. He mayrecover the difference of P2M from Y or Z or from bothso long as he does NOT recover more than P2M. If theinsured is fully indemnified for his loss by one insurer,he cannot file subsequent claims against the others.

3.) In case of an open or unvalued policy, ascertain thevalue of loss by showing proof of the amount & extentof loss then follow same steps. Just remember thatthe insured cannot collect more than the value of theloss.


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4.) Insurer is bound to contribute ratably to the loss inproportion to the amount for which he is liable underhis contract.

Formula: Amount of policy x Loss = Liability of insurerTotal insurance

Pro-rata Contribution:X: P4M x P6M = P2M

P12M

Y: P2M x P6M = P1MP12M

Z: P4M x P6M = P3MP12M

If the insured received P6M from Z, X & Y are liable toreimburse Z for their respective shares. However, if there is apro-rata clause in the policy, where the insurer is liable only forhis ratable proportion of the loss, the insured cannot exercisehis right under the 1st policy & he may claim only such amtcorresponding to his ratable proportion of the loss.

If the insured collects more then the ratable liability of theinsurer: The insured should hold the excess IN TRUST for theinsurers.

Formula to Pro-rate:EXCESS x pro-rata contribution (fraction) = Share ofinsurer from excess

Title 12. Reinsurance

Sec. 95. Reinsurance: contract whereby one party(reinsurer) agrees to indemnify another(reinsured/original insurer), either in whole or inpart, against loss or liability which the latter

(reinsured) may sustain or incur under a separate& original contract of insurance with a third party(original insured).

Difference between Reinsurance and Double

insurance

Reinsurance Double Insurance

Original insurer becomes aninsured as far as thereinsurer is concerned

Original insurer remains aninsurer

SUBJECT: original insurer’srisk

SUBJECT: Property

Insurance of different interest Insurance of SAME interest

Original insured has nointerest in the K ofreinsurance which isindependent of the original Kof insurance

Insured is the party in interestin all the contract

Consent of original insuredNOT necessary

Consent of original insurednecessary

Reinsurance & surety risks shall be deducted in determining therisk retained.

To relieve the insurer from liability under an insurancecontract, the insurer must reinsure the risk with areinsurance company.

Read with Sec. 215 – retention limits of non-lifecompanies – not exceeding 20% of net worth on any onerisk. 20% of net worth= MAX liability for ONE subject ofinsurance EXCEPT life insurance companies

Read with Sec. 222 – life insurance company cannotreinsure whole risk on one life or all its insurance inforce without consent of Ins. Commissioner

Reinsurance Policy Reinsurance Treaty

contract of indemnityone insurer makes withanother to protect the 1st insurer from a risk it hasalready assumed.

merely an agreement betweentwo insurance companieswhereby one agrees to cede &the other to accept reinsurancebusiness pursuant to provisionsspecified in the treaty

Contracts OF insurance Contracts FOR insurance

P h i la m l i f e v . A u d i t o r G e n e r a l :

Philamlife & Aircoentered into a reinsurance treaty with Airco as reinsurerof Philamlife. Central Bank collected forex margin fromthe reinsurance premiums. Philamlife contends that it isnot liable for the tax since pre-existing obligations wereexpressly exempt from margin fee. Is the reinsurancetreaty a pre-existing obligation?

NO. Philamlife is liable to pay the forex margin.Payment of premium is NOT a pre-existing obligation.NOTHING in the treaty obligates Philamlife to remit toAirco a fixed & obligatory sum by way of reinsurancepremiums. All that the reinsurance treaty provides is

that Philamlife agrees to reinsure. The treaty speaks ofa probability & not a reality. For without reinsurance, nopremium is due.

Sec. 96. Requirement when insurer obtains reinsurance:Communicate all

1.)

Representations,2.) Knowledge &3.)

Informationhe possesses that are material to the risk

Things that insurer-reinsured must communicate to thereinsurer:

1.) All the representations of the original insured;and

2.) All the knowledge and information he possesseswhether previously or subsequently acquiredwhich are material to the risk.

Exception: In case of automatic reinsurance treaty.

Automatic reinsurance treaty: An agreement between 2or more insurance companies that each will reinsure apart of any line of insurance taken by the other; suchcontract is self-executing and the obligation attachesautomatically on acceptance of a risk by the reinsured.In this case, the obligation to communicate is not


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necessary due to the self-executing and the automaticfeature of such reinsurance treaty.

Sec. 97. Reinsurance presumed indemnity contractagainst liability and not merely against damage

Nature of reinsurance contract: Reinsurer agrees toindemnify insurer NOT against actual payment but

against liabilities incurred. Thus, it is by no meansnecessary that the insurer shall first have paid a lossaccruing, as a condition precedent to his demandingpayment of the reinsurer.

Reason: SM of contract is the INSURER’S RISK and NOTthe property insured under the original policy.

Sec. 98. Original insured (in insurance contract) has nointerest in reinsurance contract

Reinsurance contract: Contract between reinsured & reinsurerby which the later agrees to protect the former from risksalready assumed. The insured, unless the contract so provides,has no concern with the contract of reinsurance & the reinsurer

is NOT liable to the insured either as surety or otherwise.

Liability of reinsurer to reinsured: Reinsurer is entitled to availitself of every defense which the reinsured might urge in anaction by the person originally insured. e.g. reinsurer not liableif reinsured not liable to original insured. Reinsurer liable onlyto the extent that reinsured is liable.

Liability of reinsurer to original insured:1.) If the K is only between the insurer & reinsurer,

contemplating only an indemnity to the insurer againstlosses suffered by reason of the policies carried by himthe original insured has ABSOLUTELY no interest in thecontract & is a total stranger to it.

2.) If the reinsurance contract contains a stipulationassigning the right of the insurer in favor of the

insured, then the insured may go after the reinsurer asan assignee. But the insured-assignee will have norights greater than that vested in the insurer-assignor.

3.) If the reinsurance K contains a provision whereby thereinsurer binds himself to pay the insured for any losswhich the insurer may become obliged to pay underthe original policy, then reinsurer becomes liable to asuit by the insured under the K of insurance. Insuredmay go against BOTH the insurer & reinsurer.

Artex Dev. Corp. v. Wellington Insurance: Wellingtonissued an insurance policy over the buildings,stocks, & machinery of Artex. Later, Wellingtonreinsured the risk with Alexander & Alexander.When fire gutted the insured properties,

Wellington paid Artex BUT left an unpaid balance.Artex then manifested that since Wellington wasundergoing financial difficulties, it should beallowed to go after Alexander & Alexander for thebalance. Can Artex recover from Alexander(reinsurer)?

NO. Artex NOT being a party or privy toWellington’s reinsurance contracts, could notdirectly demand enforcement of such reinsurancecontracts.

UNLESS there is a specific grant in or assignment ofthe reinsurance contract in favor of the insured or amanifest intention of the contracting parties to thereinsurance K to grant such benefit to the insured, theinsured NOT being privy to the reinsurance K, has NOCAUSE OF ACTION against the reinsurer. The stipulationpour autrui MUST be clearly expressed.

Artex’ right as insured to sue Wellington as

insurer directly & solely should not be affected orcurtailed in any way, by Wellington’s filing a third-party complaint or separate suit against itsreinsurer.

CHAPTER II – CLASSES OF INSURANCE

Title 1. Marine Insurance

Subtitle 1-A. Definition

Sec. 99. Marine insurance includes:1.) Insurance against loss of or damage to:

a.) Vessels, craft, aircraft, disbursements,profits, moneys, securities, choses inaction, evidences of debt, valuablepapers, bottomry, and respondentiainterests and all other kinds of propertyand interests therein, in respect

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