insurance code dizon
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INSURANCE CODE OF 19781
GENERAL PROVISIONS
Sec. 1. This Decree shall be known as “The Insurance Code of 1978.2”
A. Brief History
The business and contract of insurance in the Philippines are generally governed by the provisions of Presidential Decree No. 612 (PD 612), as amended, then known as the Insurance Code. The In-surance Code was ordained and instituted by Former President Fer-dinand E. Marcos (President Marcos) on 18 December 1974.
Prior to the enactment of PD 612, the applicable law was the Insurance Act which took effect on 1 July 1915. The Insurance Act was practically a verbatim copy of the California Insurance Act ex-cept for some provisions taken from the New York Insurance Law.
The Insurance Code had undergone several amendments since its promulgation on 18 December 1974. A substantial number of pro-visions were rendered obsolete by subsequent issuances of amenda-tory laws, decrees and executive orders. It then became imperative to consolidate, codify and integrate such amendatory laws, decrees and executive orders to harmonize their provisions for the proper guidance of the public and ef cient administration thereof. There likewise existed in the Insurance Code certain provisions which were impractical in application in the Philippines thereby necessitating revision in order to infuse exibility, keep pace with the changing needs and demands of industries in line with new risks and arising out of new international developments.
Thus, on 11 June 1978, then President Marcos signed Presi-dential Decree No. 1460 (PD 1460) for the purpose of consolidating and codifying all insurance laws embodied in PD 612 and various
1Presidential Decree No. 612 and related laws codi ed by Presidential Decree No. 1460.
2Inserted by virtue of Presidential Decree No. 1460.
2 THE INSURANCE CODE OF THE PHILIPPINES
laws, presidential decrees and executive orders. It is now known as the Insurance Code of 1978.
On 16 January 1981, Presidential Decree No. 1814 was signed into law amending certain sections of PD 1460 to: (i) ensure the due execution and performance of insurance contracts in the interests of the sound development of the national economy in view of the pre-vailing economic conditions during that time; and (ii) further assure reasonable insurance services for the protection of the interests of the policy holders and the public.
On 12 June 1985, Batas Pambansa Blg. 874 amended Sections 27, 45, 384 and 416 and inserted Section 180-A.
B. How Insurance Works3
“Life is a risk.” — A time proven cliché. The world is surround-ed by risks. There are risks everywhere. Some risks are minimal and can be lived with, but most are not. Thus, the need for insur-ance. But insurance does not work to protect one against the risks happening, instead, it covers the consequences of the happening.
Thus, insurance is something one buys hoping he never has to use. It is purchased to protect oneself from unexpected losses he cannot afford — the accident he hopes he never gets into, the re he prays never destroys his home, the storm he knows sooner or later is bound to batter his roof, the lawsuit that threatens to wipe out all his savings.
While it may seem complex, insurance is really quite simple: The payments (or premiums) of the many pay for the losses of a few. The premiums go into a large pool. The claims of the few are paid from that pool. Because there are more people contributing to the pool than there are making claims, there is always enough to pay the claims — even large single claims like when someone is perma-nently disabled as a result of a car collision, or many smaller claims like those resulting from a natural disaster.
Even when the pool comes close to emptying, there is another pool from which insurance companies can draw to pay claims. Some of the premiums are used by the insurance company to buy reinsur-ance — insurance for insurance companies. Sometimes losses are
3The Insurance Bureau of Canada, “How Insurance Works.”
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so big — like those resulting from an earthquake — that there is no way that an insurance company can cover the costs. Reinsurance is an extra layer of protection against large losses.
C. Imbued with Public Interest
The business of insurance is imbued with public interest. It is subject to regulations by the State, with respect not only to the rela-tions between the insurer and the insured, but also to the internal affairs of insurance companies.4
Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:
(1) A “contract of insurance” is an agreement where-by one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
A contract of suretyship shall be deemed to be an insur-ance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance busi-ness as hereinafter provided.
(2) The term “doing an insurance business” or “trans-acting an insurance business,” within the meaning of this Code, shall include:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a rein-surance business, speci cally recognized as constituting the doing of an insurance business within the meaning of this Code;
4Republic vs. Del Monte Motors, Inc., G.R. No. 156956, October 9, 2006.
INSURANCE CODE OF 1978GENERAL PROVISIONS
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PREFACE
Upon reaching the age of thirty (30) and after fi ve (5) academic years of teaching the subject, the author felt that it was time to collate his materials and sit down in writing his views and thoughts on the subject of insurance.
This book, although it consists of almost a thousand pages, rep-resents a simple discussion of the insurance law in the Philippines. A substantial proportion of the material is adapted from the legal provisions and jurisprudence, both here and abroad; opinions and annotations of authors, both local and foreign; and other published articles, both in the papers and in the internet. Some Supreme Court decided cases are reproduced herein in full for the readers to appre-ciate the correlation of insurance law principles with one another as well as with other laws, both substantive and remedial.
The author wrote this book in the hope that his humble work would be of great help to the law students, bar candidates and law practitioners.
E.V.M.D.
March 31, 2009
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CONTENTS
GENERAL PROVISIONS
Section 1 .................................................................................................. 1
A. Brief History ............................................................................ 1B. How Insurance Works ............................................................. 2C. Imbued with Public Interest ................................................... 3
Section 2 .................................................................................................. 3
A. Essential Elements of Insurance ............................................ 4B. Characteristics of an Insurance Contract .............................. 5C. Requisite of an Insurance Contract ....................................... 16D. Parties ...................................................................................... 19E. Consent .................................................................................... 20F. Theory of Cognition ................................................................. 23G. Defects of Consent ................................................................... 27H. Object ....................................................................................... 27I. Cause/Consideration ............................................................... 28J. Governing Law ........................................................................ 28K. Construction of the Insurance Code ....................................... 32L. Policy Construction ................................................................. 33
Case: QUA CHEE GAN vs. LA UNION AND ROCK INSURNACE CO. LTD. ................................. 38
M. Principle of Subrogation ......................................................... 43N. The Business of Insurance ...................................................... 50
Case: WHITE GOLD MARINE SERVICES INC. vs. PIONEER INSURANCE AND SURETY CORPORATION .......................................................... 52
O. Types of Insurance .................................................................. 56P. Classifi cation Under the Code ................................................ 59Q. Lending Investors vs. Insurance Companies ......................... 60
Chapter 1THE CONTRACT OF INSURANCE
Title 1WHAT MAY BE INSURED
Section 3 .................................................................................................. 62
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A. What may be Insured .............................................................. 62B. Minors ...................................................................................... 64C. Married Woman ...................................................................... 66
Section 4 .................................................................................................. 69
A. Drawing Lottery ...................................................................... 69B. Insurance is not Gambling ..................................................... 70C. Risk Management ................................................................... 71
Section 5 .................................................................................................. 73
Title 2PARTIES TO THE CONTRACT
Section 6 .................................................................................................. 74
A. Who may be an Insurer ........................................................... 74B. Certifi cate Authority ............................................................... 75C. Entities Prohibited to Act as an Insurer ................................ 76D. Separate License from an Insurance Agent ........................... 77
Section 7 .................................................................................................. 77
A. Who is a Public Enemy ........................................................... 78B. Control Test on the Corporations ........................................... 78C. Effect of War Generally .......................................................... 81D. Dealing with Dual Citizenship ............................................... 81E. Effect of Termination of War .................................................. 86
Case: FILIPINAS COMPAÑA DE SEGUROS vs. CHRISTERN, HUENEFELD AND CO., INC. .......... 86 CONSTANTINO vs. LIFE INSURANCE COMPANY .................................................................. 89 HIDALGO vs. MANUFACTURER’S LIFE INSURANCE COMPANY ........................................... 97
F. May a Public Enemy Be a Benefi ciary ................................... 102
Section 8 .................................................................................................. 103
Section 9 .................................................................................................. 103
A. Mortgagor and Mortgagee’s Interest ...................................... 103B. Mortgage Redemption Insurance ........................................... 105C. Types of Mortgage Clause ....................................................... 106D. Simple vs. Standard ................................................................ 107E. Proper Party to Bring the Suit ............................................... 111F. Effect of Assent of the Insurer to the Transfer of Insurance ............................................................................. 113
Case: GREAT PACIFIC LIFE ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 113
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Title 3INSURABLE INTEREST
Section 10 ................................................................................................. 120
A. Requirement of Insurable Interest ......................................... 120B. Moral Hazard in Life Insurance ............................................. 122C. In whose Life or Health does a Person Have an Insurable Interest ................................................................... 125D. Consent of Person Whose Life is Being Insured is not Estate Necessary ..................................................................... 135
Section 11 ................................................................................................. 135
A. Policy Owner, Insured and Benefi ciary ................................. 135B. Types of Benefi ciaries ............................................................. 136C. Revocable vs. Irrevocable ........................................................ 137D. Importance of Choosing a Benefi ciary ................................... 139E. Disqualifi ed to be Benefi ciaries .............................................. 141F. What if Benefi ciary Dies Before the Insured ......................... 144G. Paying Life Insurable Proceeds into a Trust ......................... 145
Section 12 ................................................................................................. 145
1) Rationale .................................................................................. 1452) Act Must be Felonious ............................................................. 1463) Nearest Relative as Benefi ciary ............................................. 147
Section 13 ................................................................................................. 149
Section 14 ................................................................................................. 150
A. Insurable Interest in Property ............................................... 150B. Title or Security Interest Not Required ................................. 151C. Exceptions to Insurable Interest ............................................ 154D. Stolen Property ........................................................................ 155E. Effects of War to Insurable Interest ....................................... 157F. Insurable Interest of Consignee, Factor or Agent ................. 158
Section 15 ................................................................................................. 158
Section 16 ................................................................................................. 159
Section 17 ................................................................................................. 160
Section 18 ................................................................................................. 161
1) Different Expressions ............................................................. 1612) Insurance not Invalid .............................................................. 163
Case: GARCIA vs. THE HONGKONG FIRE & MARINE INSURANCE CO., LTD. ............................ 163
Section 19 ................................................................................................. 167
A. Property and Liability Insurance ........................................... 168B. Life Insurance ......................................................................... 169
Section 20 ................................................................................................. 170
Section 21 ................................................................................................. 170
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Section 22 ................................................................................................. 170
Section 23 ................................................................................................. 170
Section 24 ................................................................................................. 170
A. Life and Health Insurance ...................................................... 171B. Change After the Occurrence of the Loss .............................. 172C. Change of Interest in One or More Several Distinct Things Separately Insured by One Policy ............... 173D. Change by Will or Succession ................................................. 173E. Transfer by One of Several Partners Joint Owners or Owners in Common ..................................... 173F. Policy Inures to the Benefi t of Whomsoever May Become the Owner .......................................................... 174
Section 25 ................................................................................................. 174
Title 4CONCEALMENT
Section 26 ................................................................................................. 176
1) Act of Withholding Information ............................................. 1762) Concealment Presupposes Knowledge ................................... 177
Section 27 ................................................................................................. 177
A. Grounds and Rationale for Rescission of Contract of Insurance ............................................................................. 177B. Intentional or Unintentional .................................................. 179C. Good Faith not a Defense ....................................................... 179
Case: GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS ................. 180
D. Waiver of Medical Examination ............................................. 185
Section 28 ................................................................................................. 187
A. Within the Knowledge ............................................................ 187B. Makes No Warranty ................................................................ 188
Section 29 ................................................................................................. 188
A. Truth of Warranty ................................................................... 188B. Intent to Deceive a Question of Fact ...................................... 188
Section 30 ................................................................................................. 189
A. What Need to be Disclosed ..................................................... 189B. Public Character and Notoriety ............................................. 189C. Insurer’s Duty to Inquire ........................................................ 191D. Obligation in Good Faith ........................................................ 191E. Knowledge of Agent ................................................................ 192
Section 31 ................................................................................................. 192
A. Inducement to Enter Into a Contract .................................... 192B. Need Not be the Cause of the Loss ......................................... 193
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C. Matters of Inquiries ................................................................ 194
Section 32 ................................................................................................. 195
A. General Causes Open to Inquiry ............................................ 195B. Full Conversant in the Usual Course of Trade ..................... 196C. Rule on Judicial Notice ........................................................... 197
Section 33 ................................................................................................. 198
A. Right to Rely on the Truthfulness of Answers ...................... 198B. Imperfect Answers .................................................................. 199
Cases: NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION ....................... 199
C. No Waiver in Non-Medical Insurance .................................... 203
Section 34 ................................................................................................. 203
Section 35 ................................................................................................. 203
Title 5REPRESENTATION
Section 36 ................................................................................................. 207
A. Representation vs. Misrepresentation ................................... 207B. Representation vs. Warranty ................................................. 208C. Misrepresentation vs. Concealment ....................................... 208D. Orally or in Writing ................................................................ 208E. Representation in the Application Process ............................ 209
Section 37 ................................................................................................. 210
A. Time in Which Representation is Made ................................. 210B. Effect of Provisions .................................................................. 211C. Must be Made by the Insured ................................................. 211
Section 38 ................................................................................................. 211
A. Construction ............................................................................ 211B. Applicability of Rules on Interpretation of Contracts ........... 212C. Applicability of the Rules of Court ......................................... 213
Section 39 ................................................................................................. 214
A. Affi rmative vs. Promissory ..................................................... 214B. Statement of Belief or Expectation vs. Promissory Representation ........................................................................ 215
Section 40 ................................................................................................. 215
A. Representation vs. Warranty ................................................. 216B. Qualifying an Implied Warranty ............................................ 216C. Express Warranty Supersedes Representation ..................... 216
Section 41 ................................................................................................. 216
Section 42 ................................................................................................. 217
Section 43 ................................................................................................. 217
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A. No Personal Knowledge ......................................................... 217
Case: HARDING vs. COMMERCIAL UNION ASSURANCE COMPANY ............................ 218
B. Knowledge of Agent ................................................................ 226
Cases: THE INSULAR LIFE ASSURANCE CO., LTD. vs. FELICIANO ......................................... 228 THE INSULAR LIFE ASSURANCE CO., LTD. vs. FELICIANO ......................................... 231
C. Knowledge of Insured Corporation ........................................ 235
Section 44 ................................................................................................. 235
A. False Representation .............................................................. 235B. No Misrepresentation if Substantially True .......................... 236C. Need not be Intended .............................................................. 236D. Facts of Loss Not Material ...................................................... 236E. Mistake of Forgetfulness ........................................................ 237F. Misstatement of Age ............................................................... 237
Section 45 ................................................................................................. 237
A. Contract of Speculation ........................................................... 237
Case: SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY ........... 238
B. Kinds of Misrepresentation .................................................... 241C. No Misrepresentation ............................................................. 242D. Affi rmative Defense ................................................................ 242E. Waiver by Acceptance of Premiums ....................................... 243
Case: EDILLON vs. MANILA BANKERS LIFE INSURANCE CORPORATION .................................. 243
Section 46 ................................................................................................. 247
A. Determination of Materiality ................................................. 247B. Falsity of Answers ................................................................... 248
Section 47 ................................................................................................. 248
Section 48 ................................................................................................. 249
A. Previous to the Commencement of Action ............................. 249B. Presupposes Existence of Contract ........................................ 250
Cases: TAN CHAY HENG vs. WEST COAST LIFE INSURANCE COMPANY ................... 250 ARGENTE vs. WEST COAST LIFE INSURANCE COMPANY ................................. 258
C. Incontestability Clause ........................................................... 265
Cases: PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS ................................................ 266 TAN vs. COURT OF APPEALS ................................. 272
D. Not a License to Commit a Fraud .......................................... 278
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E. Mutual Advantage of Insurer and Insured ............................ 279F. Applicability of Reinstated Policies ........................................ 279G. Exceptions to Incontestability Clause .................................... 279H. Rationale of Imposter Defense ............................................... 280
Title 6THE POLICY
Section 49 ................................................................................................. 281
Section 50 ................................................................................................. 281
A. Forms of Insurance Contract .................................................. 282B. Rider, Clause, Warranty and Endorsement .......................... 292C. Counter-Signature of the Insured .......................................... 293D. Group Insurance ...................................................................... 294E. Group Annuity ......................................................................... 295
Case: COMMISSIONER OF INTERNAL REVENUE vs. LINCOLN PHILIPPINES LIFE INSURANCE COMPANY, INC. ........................................................ 295
Section 51 ................................................................................................. 300
A. Parties ...................................................................................... 300B. Amount of Insurance ............................................................... 305C. Premium .................................................................................. 306D. Property, Life or Liability Insured ......................................... 307E. Interest of the Insured in Property ........................................ 308F. Risk Insured Against .............................................................. 309G. Period During Which the Insured is to Continue .................. 309
Section 52 ................................................................................................. 309
A. Cover Notes ............................................................................. 309B. Preliminary Contract of Insurance ........................................ 311C. Binding Receipt ....................................................................... 311D. Separate Premiums Not Required ......................................... 313
Case: PACIFIC TIMBER EXPORT CORPORATION vs. COURT OF APPEALS ................................................ 313
Section 53 ................................................................................................. 318
A. Person Designated in the Policy ............................................. 318
Case: SUNLIFE ASSURANCE COMPANY OF CANADA vs. TORIBIO ............................................... 318
B. Third Party’s Right to Insurer ................................................ 328C. Not Solidary ............................................................................. 328
Cases: LAMPANO vs. JOSE .................................................. 329 BONIFACIO BROS. INC. vs. MORA ......................... 333 COQUIA vs. FIELDMEN’S INSURANCE CO., INC. .................................................................... 338 GUINGON vs. DEL MONTE ...................................... 343
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Section 54 ................................................................................................. 347
Case: LOPEZ vs. DEL ROSARIO ......................................... 347
Section 55 ................................................................................................. 352
Section 56 ................................................................................................. 353
Section 57 ................................................................................................. 353
Section 58 ................................................................................................. 353
Section 59 ................................................................................................. 354
Section 60 ................................................................................................. 354
Section 61 ................................................................................................. 354
Section 62 ................................................................................................. 354
A. Open and Valued Policies ....................................................... 354B. Running Policy ........................................................................ 356
Section 63 ................................................................................................. 356
1) Prescription Under the Civil Code ......................................... 3562) Prescription by Agreement ..................................................... 357
Cases: ANG vs. FULTON ....................................................... 357 FILIPINO MERCHANT INSURANCE COMPANY, INC. vs. ALEJANDRO ........................... 361 MAYER STEEL PIPE CORPORATION vs. COURT OF APPEALS ................................................ 367
3) Oral Contract of Insurance ..................................................... 3704) Cause of Action ........................................................................ 3705) Denial of Reconsideration ....................................................... 371
Section 64 ................................................................................................. 372
Section 65 ................................................................................................. 373
Case: MALAYAN INSURANCE CO. vs. ARNALDO .......... 373
Section 66 ................................................................................................. 382
Title 7WARRANTIES
Section 67 ................................................................................................. 383
A. Primary Concerns ................................................................... 383B. Devices to Ascertain and Control Risk and Loss ................... 383C. Construction of Warranty ....................................................... 385
Case: AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISE, INC. ................................ 385
Section 68 ................................................................................................. 392
A. Past, Present of Future ........................................................... 392B. Affi rmative or Promissory ...................................................... 393
Section 69 ................................................................................................. 393
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Section 70 ................................................................................................. 394
Case: ANG GIOK CHIP vs. SPRINGFIELD FIRE & MARINE INSURANCE .......................................... 394
Section 71 ................................................................................................. 402
1) Express and Implied Warranty .............................................. 4032) Implied Warranty and Representation .................................. 4033) Express Warranty and Representation ................................. 4034) Forms of Express Warranty ................................................... 404
Section 72 ................................................................................................. 405
Section 73 ................................................................................................. 405
A. Effect of Non-Compliance ....................................................... 405B. When Compliance Dispense With .......................................... 406
Section 74 ................................................................................................. 406
A. Effect of Breach ....................................................................... 406B. Expressly Included .................................................................. 407
Case: YOUNG vs. THE MIDLAND TEXTILE INSURANCE COMPANY ........................................... 407
Section 75 ................................................................................................. 411
Case: GEAGONIA vs. COURT OF APPEALS ..................... 412
Section 76 ................................................................................................. 420
Title 8PREMIUM
Section 77 ................................................................................................. 422
Cases: ARCE vs. THE CAPITAL INSURANCE & SURETY CO., INC. ..................................................... 423 ACME SHOE RUBBER & PLASTIC CORPORATION vs. THE COURT OF APPEALS .... 425 THE MANUFACTURERS LIFE INSURANCE CO. vs. MEER .............................................................. 429
Section 78 ................................................................................................. 434
A. Exceptions to Cash and Carry Basis ...................................... 434B. Payment by Installments ........................................................ 437C. Credit Agreement ................................................................... 438
Case: UCPB GENERAL INSURANCE CO., INC. vs. MASAGANA TELEMART, INC. ................................ 439
D. Payment by Promissory Notes or Bill of Exchange ............... 456E. Acknowledgement of Receipt if Premium .............................. 456
Section 79 ................................................................................................. 456
Section 80 ................................................................................................. 457
Section 81 ................................................................................................. 457
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Section 82 ................................................................................................. 457
A. Return of Entire Premium ...................................................... 457B. Return of Portion of Premium ................................................ 460C. No Return of Premium ............................................................ 461
Case: GREAT PACIFIC LIFE INSURANCE CORPORATION vs. COURT OF APPEALS ............. 461
Title 9LOSS
Section 83 ................................................................................................. 466
A. Loss Under the Civil Code ..................................................... 466
Section 84 ................................................................................................. 469
A. Proximate Cause ..................................................................... 470B. Burden of Proof ....................................................................... 471
Case: COUNTRY BANKERS INSURANCE CORPORATION vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE ............................ 471
Section 85 ................................................................................................. 479
Section 86 ................................................................................................. 479
Section 87 ................................................................................................. 480
A. Willful Act and Negligence ..................................................... 480B. Negligence or Misconduct ....................................................... 480C. Agreement to Indemnity ......................................................... 481
Cases: FGU INSURANCE CORPORATION vs. THE COURT OF APPEALS ....................................... 481 SUNRISE INSURANCE OFFICE, LTD. vs. COURT OF APPEALS ................................................ 494
Title 10NOTICE OF LOSS
Section 88 ................................................................................................. 499
A. Condition ................................................................................. 499B. Requisite for Recovery ............................................................ 499C. Notice in Fire Insurance ......................................................... 500
Section 89 ................................................................................................. 500
Section 90 ................................................................................................. 500
Section 91 ................................................................................................. 500
Case: PACIFIC TIMBER EXPORT CORPORATION vs. COURT OF APPEALS ................................................ 501
Section 92 ................................................................................................. 506
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Title 11DOUBLE INSURANCE
Section 93 ................................................................................................. 507
A. When Double Insurance Exists .............................................. 507B. Same Subject Matter, Same Interest, and Same Risk .......... 508
Case: GEAGONIA vs. COURT OF APPEALS ..................... 508
C. Prohibition Against Double Insurance ................................... 516
Cases: SANTA ANA vs. COMMERCIAL UNION ASSURANCE COMPANY, LTD. ............................... 517 GENRERAL INSURANCE & SURETY CORPORATION vs. NG HUA .................................... 522
D. Waiver of Annulment .............................................................. 524
Section 94 ................................................................................................. 524
A. Over Insurance by Double Insurance .................................... 525B. Recovery from Insurers ........................................................... 525C. Cannot Recover Doubly ........................................................... 525D. Refund of Premiums ............................................................... 526
Title 12REINSURANCE
Section 95 ................................................................................................. 529
A. Protection if Insurer ................................................................ 529B. Functions of Reinsurance ....................................................... 530C. Types Reinsurance .................................................................. 531D. Contracts ................................................................................. 533E. Applicability of Rules on Representation and Concealment ............................................................................ 533F. Retrocession ............................................................................. 533G. Importance of Reinsurance ..................................................... 534H. Rules on Reinsurance Under the Insurance Code ................. 535I. Reinsurance vs. Double Insurance ......................................... 538J. Policy vs. Treaty ...................................................................... 538
Section 96 ................................................................................................. 538
Section 97 ................................................................................................. 539
Section 98 ................................................................................................. 539
A. Indemnity Against Liability ................................................... 539B. Defense of Reinsured Available to Reinsurer ........................ 540
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Chapter IICLASSES OF INSURANCE
Title IMARINE INSURANCE
Sub-Title 1- ADEFINITION
Section 99 ................................................................................................. 541
A. General Principles ................................................................... 542B. Coverage .................................................................................. 543C. Hull Insurance and Marine Cargo Policy .............................. 545D. Kinds of Marine Policies ......................................................... 546E. Assignment of Policy ............................................................... 547F. Perils of the Sea vs. Perils of the Ship ................................... 548
Cases: LA RAZON SOCIAL “GO TIAOCO Y HERMANOS” vs. UNION INSURANCE SOCIETY OF CANTON, LTD. ................................... 551 MALAYAN INSURANCE CORPORATION vs. COURT OF APPEALS ................................................ 556
G. Barratry ................................................................................... 564H. Inchmaree Clause ................................................................... 564I. All Risks Policy ........................................................................ 565
Case: FILIPINO MERCHANTS INSURANCE CO., INC. vs. COURT OF APPEALS ......................... 566
J. Wages of Mariners and Property on Board ........................... 572
Sub-Title 1-BINSURABLE INTEREST
Section 100 ............................................................................................... 573
A. Requirement of Insurable Interest ......................................... 573B. Charter Party .......................................................................... 574C. Kinds of Charter ...................................................................... 575D. Charterer’s Liability ............................................................... 576E. Charterer’s Interest ................................................................ 577F. Charterer’s Loss of Hire .......................................................... 577
Section 101 ............................................................................................... 578
A. Respondentia and Bottomry ................................................... 578B. Payment is Conditional ........................................................... 578C. Insurable Interest of Lender .................................................. 578D. Insurable Interest of Borrower ............................................... 579E. Not Subject to Usury Law ....................................................... 580F. Interest of Lender and Underwriter ...................................... 580
Section 102 ............................................................................................... 580
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Section 103 ............................................................................................... 580
Section 104 ............................................................................................... 580
A. Existence of Interest in Freightage ........................................ 580B. Ship Owner’s Interest on Freight ........................................... 581C. Partial Lost on Freight ........................................................... 582D. Arrival in Bulk ........................................................................ 582
Section 105 ............................................................................................... 582
Section 106 ............................................................................................... 583
Sub-Title 1-CCONCEALMENT
Section 107 ............................................................................................... 583
Section 108 ............................................................................................... 584
Section 109 ............................................................................................... 584
A. Stricter Application of Rules on Concealment and Representation ........................................................................ 584B. Required Disclosure ................................................................ 584C. Belief or Expectation of Third Person .................................... 585
Section 110 ............................................................................................... 585
Sub-Title 1-DREPRESENTATION
Section 111 ............................................................................................... 586
Section 112 ............................................................................................... 586
A. High Degree of Good Faith ..................................................... 586B. Matter of Fact or Expectation ................................................ 587
Sub-Title 1-EIMPLIED WARRANTIES
Section 113 ............................................................................................... 587
A. Implied Seaworthiness ............................................................ 587B. Express and Implied Warranties ........................................... 588
Section 114 ............................................................................................... 588
A. General Term .......................................................................... 588B. When is a Ship Seaworthy ...................................................... 589C. Presumption of Seaworthiness ............................................... 591D. Must be in Navigation ............................................................ 592
Section 115 ............................................................................................... 592
Section 116 ............................................................................................... 592
Section 117 ............................................................................................... 592
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A. Relative Term .......................................................................... 593B. Seaworthy at the Time of Sailing ........................................... 593
Section 118 ............................................................................................... 594
Section 119 ............................................................................................... 595
Section 120 ............................................................................................... 597
A. Warranty Not a Representation ............................................. 597B. Neutrality ................................................................................ 598C. Documents of Nationality or Neutrality ................................ 599
Sub-Title 1-FTHE VOYAGE AND DEVIATION
Section 121 ............................................................................................... 599
Section 122 ............................................................................................... 599
A. Covered Voyage ....................................................................... 599B. Common Usage ........................................................................ 599
Section 123 ............................................................................................... 600
A. Concept of Deviation ............................................................... 600B. Distinguished from Breach of Warranty ................................ 601C. Goods on Board ........................................................................ 601
Section 124 ............................................................................................... 602
Section 125 ............................................................................................... 602
Section 126 ............................................................................................... 602
A. Proper and Improper Deviation ............................................. 602B. Effect of Deviation ................................................................... 602C. What Constitute Deviation ..................................................... 604
Sub-Title 1-GLOSS
Section 127 ............................................................................................... 605
Section 128 ............................................................................................... 605
Section 129 ............................................................................................... 606
Section 130 ............................................................................................... 606
Section 131 ............................................................................................... 606
Section 132 ............................................................................................... 606
A. Actual and Constructive Loss ................................................. 606B. Right to Abandon .................................................................... 607C. Loss of Vessel ........................................................................... 608
Section 133 ............................................................................................... 609
Section 134 ............................................................................................... 609
A. Reshipment .............................................................................. 609
xix
B. Lien of Finder or Salvor .......................................................... 609C. Loss of Value ........................................................................... 610
Section 135 ............................................................................................... 610
Section 136 ............................................................................................... 611
A. Rules on Average ..................................................................... 611B. Particular and General ........................................................... 614C. Free From Particular Average Clause ................................... 615
Case: PHILIPPINE HOME ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 619
Section 137 ............................................................................................... 626
Sub-Title 1-HABANDONMENT
Section 138 ............................................................................................... 627
Section 139 ............................................................................................... 627
Section 140 ............................................................................................... 627
Section 141 ............................................................................................... 628
A. Restrictions on Abandonment ................................................ 628B. The Three-Fourth Rule ........................................................... 628
Section 142 ............................................................................................... 629
Section 143 ............................................................................................... 629
Section 144 ............................................................................................... 629
Section 145 ............................................................................................... 629
Section 146 ............................................................................................... 630
Section 147 ............................................................................................... 630
Section 148 ............................................................................................... 630
Section 149 ............................................................................................... 630
Section 150 ............................................................................................... 630
Section 151 ............................................................................................... 631
Section 152 ............................................................................................... 631
Section 153 ............................................................................................... 631
Section 154 ............................................................................................... 631
Section 155 ............................................................................................... 631
1. Effect of Non-Acceptance ........................................................ 6312. Annulment of Abandonment .................................................. 6323. Election of the Insured ............................................................ 632
Sub-Title 1-IMEASURE OF INDEMNITY
Section 156 ............................................................................................... 632
xx
Section 157 ............................................................................................... 632
Section 158 ............................................................................................... 634
Section 159 ............................................................................................... 634
Section 160 ............................................................................................... 634
Section 161 ............................................................................................... 634
Section 162 ............................................................................................... 634
A. Primage and Demurrage ........................................................ 635B. Partial Loss of the Cargo ........................................................ 635
Section 163 ............................................................................................... 636
Section 164 ............................................................................................... 637
Section 165 ............................................................................................... 637
Section 166 ............................................................................................... 637
Title 2FIRE INSURANCE
Section 167 ............................................................................................... 639
A. Coverage .................................................................................. 639B. Extension or Under Separate Policies ................................... 640C. Fire Following Earthquake ..................................................... 640D. Friendly Fire/Hostile Fire ....................................................... 641E. Direct and Indirect Losses ...................................................... 641F. Lightning ................................................................................. 642G. Double Insurance .................................................................... 642
Section 168 ............................................................................................... 643
Section 169 ............................................................................................... 643
Section 170 ............................................................................................... 643
Section 171 ............................................................................................... 643
Section 172 ............................................................................................... 644
A. Measure of Indemnity ............................................................. 644B. Repair, Rebuild and Replace .................................................. 645
Case: ONG GUA CAN vs. THE CENTURY INSURANCE CO., LTD. ............................................. 645
Section 173 ............................................................................................... 647
Title 3CASUALTY INSURANCE
Section 174 ............................................................................................... 648
A. Direct Result of Accident ........................................................ 648B. Direct Suit Against the Insurer .............................................. 649C. Not Solidarily Liable ............................................................... 649
xxi
D. Accidental Means .................................................................... 650
Title 4SURETYSHIP
Section 175 ............................................................................................... 654
Section 176 ............................................................................................... 654
Section 177 ............................................................................................... 654
Section 178 ............................................................................................... 655
A. Three Party Contract .............................................................. 655B. Guaranty vs. Surety ................................................................ 655C. Credit Accommodation ............................................................ 656
Case: PHILIPPINE PRYCE ASSURANCE CORPORATION vs. COURT OF APPEALS ............. 656
Title 5LIFE INSURANCE
Section 179 ............................................................................................... 664
Section 180 ............................................................................................... 664
A. Concept of Life Insurance ....................................................... 664B. Parties to the Contract ............................................................ 665C. Types of Life Insurance ........................................................... 666
Section 180-A............................................................................................ 669
Section 181 ............................................................................................... 670
Section 182 ............................................................................................... 670
Section 183 ............................................................................................... 671
Chapter IIITHE BUSINESS OF INSURANCE
Title 1INSURANCE COMPANIES, ORGANIZATION,
CAPITALIZATION AND AUTHORIZATION
Section 184 ............................................................................................... 672
Section 185 ............................................................................................... 672
Section 186 ............................................................................................... 672
Section 187 ............................................................................................... 673
Section 188 ............................................................................................... 674
Section 189 ............................................................................................... 675
Section 190 ............................................................................................... 676
Section 191 ............................................................................................... 677
Section 192 ............................................................................................... 678
xxii
Section 193 ............................................................................................... 678
Title 2MARGIN OF INSOLVENCY
Section 194 ............................................................................................... 680
Section 195 ............................................................................................... 681
Title 3ASSETS
Section 196 ............................................................................................... 682
Section 197 ............................................................................................... 683
Title 4INVESTMENTS
Section 198 ............................................................................................... 685
Section 199 ............................................................................................... 686
Section 200 ............................................................................................... 686
Section 201 ............................................................................................... 689
Section 202 ............................................................................................... 689
Section 203 ............................................................................................... 690
Section 204 ............................................................................................... 690
Section 205 ............................................................................................... 691
Section 206 ............................................................................................... 691
Section 207 ............................................................................................... 692
Section 208 ............................................................................................... 692
Section 209 ............................................................................................... 694
Title 5RESERVES
Section 210 ............................................................................................... 695
Section 211 ............................................................................................... 695
Section 212 ............................................................................................... 696
Section 213 ............................................................................................... 696
Section 214 ............................................................................................... 696
Title 6LIMIT OF SINGLE RISK
Section 215 ............................................................................................... 697
xxiii
Title 7REINSURANCE TRANSACTIONS
Section 216 ............................................................................................... 698
Section 217 ............................................................................................... 698
Section 218 ............................................................................................... 698
Section 219 ............................................................................................... 698
Section 220 ............................................................................................... 699
Section 221 ............................................................................................... 699
Section 222 ............................................................................................... 700
Title 8ANNUAL STATEMENT
Section 223 ............................................................................................... 701
Section 224 ............................................................................................... 701
Section 225 ............................................................................................... 701
Title 9POLICY FORMS
Section 226 ............................................................................................... 702
Section 227 ............................................................................................... 702
Section 228 ............................................................................................... 704
Section 229 ............................................................................................... 708
Section 230 ............................................................................................... 708
Section 231 ............................................................................................... 711
Title 10VARIABLE CONTRACTS
Section 232 ............................................................................................... 714
Section 233 ............................................................................................... 715
Section 234 ............................................................................................... 715
Section 235 ............................................................................................... 715
Section 236 ............................................................................................... 715
Section 237 ............................................................................................... 716
Section 238 ............................................................................................... 717
Section 239 ............................................................................................... 717
Section 240 ............................................................................................... 717
xxiv
Title 11CLAIMS SETTLEMENT
Section 241 ............................................................................................... 719
Section 242 ............................................................................................... 720
Section 243 ............................................................................................... 720
Section 244 ............................................................................................... 721
Title 12EXAMINATION OF COMPANIES
Section 245 ............................................................................................... 725
Section 246 ............................................................................................... 725
Title 13SUSPENSION OR REVOCATION OF AUTHORITY
Section 247 ............................................................................................... 726
Title 14APPOINTMENT OF CONSERVATOR
Section 248 ............................................................................................... 727
Title 15PROCEEDINGS UPON INSOLVENCY
Section 249 ............................................................................................... 729
Section 250 ............................................................................................... 731
Section 251 ............................................................................................... 731
Title 16CONSOLIDATION AND MERGER OF INSURANCE COMPANIES
Section 252 ............................................................................................... 732
Section 253 ............................................................................................... 732
Section 254 ............................................................................................... 732
Section 255 ............................................................................................... 733
Section 256 ............................................................................................... 733
Section 257 ............................................................................................... 733
Section 258 ............................................................................................... 734
Section 259 ............................................................................................... 734
Section 260 ............................................................................................... 734
Section 261 ............................................................................................... 734
xxv
Title 17MUTUALIZATION OF STOCK LIFE INSURANCE COMPANIES
Section 262 ............................................................................................... 735
Section 263 ............................................................................................... 735
Section 264 ............................................................................................... 736
Section 265 ............................................................................................... 737
Section 266 ............................................................................................... 738
Section 267 ............................................................................................... 739
Section 268 ............................................................................................... 740
Section 269 ............................................................................................... 740
Section 269-A............................................................................................ 740
Section 270 ............................................................................................... 743
Section 271 ............................................................................................... 743
Section 272 ............................................................................................... 745
Title 18WITHDRAWAL OF FOREIGN INSURANCE COMPANIES
Section 273 ............................................................................................... 747
Section 274 ............................................................................................... 747
Section 275 ............................................................................................... 747
Section 276 ............................................................................................... 747
Section 277 ............................................................................................... 748
Section 278 ............................................................................................... 748
Section 279 ............................................................................................... 748
Title 19PROFESSIONAL REINSURERS
Section 280 ............................................................................................... 749
Section 281 ............................................................................................... 750
Title 20HOLDING COMPANIES
Section 282 ............................................................................................... 751
Section 283 ............................................................................................... 752
Section 284 ............................................................................................... 752
Section 285 ............................................................................................... 752
Section 286 ............................................................................................... 752
Section 287 ............................................................................................... 753
xxvi
Section 288 ............................................................................................... 753
Section 289 ............................................................................................... 753
Section 290 ............................................................................................... 754
Section 291 ............................................................................................... 754
Section 292 ............................................................................................... 754
Section 293 ............................................................................................... 755
Section 294 ............................................................................................... 755
Section 295 ............................................................................................... 757
Section 296 ............................................................................................... 757
Section 297 ............................................................................................... 757
Section 298 ............................................................................................... 757
Chapter IV SALES AGENCIES AND TECHNICAL SERVICES
Title 1INSURANCE AGENTS AND INSURANCE BROKERS
Section 299 ............................................................................................... 759
Section 300 ............................................................................................... 760
Section 301 ............................................................................................... 760
Section 302 ............................................................................................... 760
Section 303 ............................................................................................... 761
Section 304 ............................................................................................... 761
Section 305 ............................................................................................... 761
Section 306 ............................................................................................... 762
Section 307 ............................................................................................... 763
Section 308 ............................................................................................... 763
Section 309 ............................................................................................... 763
Title 2REINSURANCE BROKERS
Section 310 ............................................................................................... 765
Section 311 ............................................................................................... 765
Section 312 ............................................................................................... 766
Title 3RESIDENT AGENTS
Section 313 ............................................................................................... 767
Section 314 ............................................................................................... 767
xxvii
Section 315 ............................................................................................... 767
Section 316 ............................................................................................... 767
Section 317 ............................................................................................... 767
Title 4NON-LIFE COMPANY UNDERWRITER
Section 318 ............................................................................................... 769
Section 319 ............................................................................................... 769
Section 320 ............................................................................................... 769
Section 321 ............................................................................................... 770
Section 322 ............................................................................................... 770
Title 5ADJUSTERS
Section 323 ............................................................................................... 771
Section 324 ............................................................................................... 771
Section 325 ............................................................................................... 771
Section 326 ............................................................................................... 772
Section 327 ............................................................................................... 772
Section 328 ............................................................................................... 772
Section 329 ............................................................................................... 772
Section 330 ............................................................................................... 772
Section 331 ............................................................................................... 773
Section 332 ............................................................................................... 773
Section 333 ............................................................................................... 773
Section 334 ............................................................................................... 773
Title 6ACTUARIES
Section 335 ............................................................................................... 774
Section 336 ............................................................................................... 774
Section 337 ............................................................................................... 774
Section 338 ............................................................................................... 775
Title 7RATING ORGANIZATION AND RATE MAKING
Section 339 ............................................................................................... 776
Section 340 ............................................................................................... 776
xxviii
Section 341 ............................................................................................... 776
Section 342 ............................................................................................... 777
Section 343 ............................................................................................... 777
Section 344 ............................................................................................... 778
Section 345 ............................................................................................... 778
Section 346 ............................................................................................... 778
Section 347 ............................................................................................... 778
Section 348 ............................................................................................... 778
Section 349 ............................................................................................... 779
Section 350 ............................................................................................... 779
Section 351 ............................................................................................... 780
Section 352 ............................................................................................... 780
Section 353 ............................................................................................... 780
Section 354 ............................................................................................... 780
Section 355 ............................................................................................... 781
Section 356 ............................................................................................... 781
Section 357 ............................................................................................... 781
Section 358 ............................................................................................... 781
Section 359 ............................................................................................... 782
Section 360 ............................................................................................... 782
Section 361 ............................................................................................... 782
Section 362 ............................................................................................... 782
Section 363 ............................................................................................... 783
Title 8PROVISION COMMON TO AGENTS, BROKERS,
AND ADJUSTERS
Section 364 .............................................................................................. 784
Chapter VSECURITY FUND
Section 365 ............................................................................................... 785
Section 366 ............................................................................................... 785
Section 367 ............................................................................................... 785
Section 368 ............................................................................................... 786
Section 369 ............................................................................................... 787
Section 370 ............................................................................................... 787
Section 371 ............................................................................................... 787
xxix
Section 372 ............................................................................................... 788
Chapter VICOMPULSORY MOTOR VEHICLE
LIABILITYINSURANCE
Section 373 ............................................................................................... 789
Section 374 ............................................................................................... 790
Section 375 ............................................................................................... 790
Section 376 ............................................................................................... 790
Section 377 ............................................................................................... 790
Section 378 ............................................................................................... 792
Section 379 ............................................................................................... 792
Section 380 ............................................................................................... 793
Section 381 ............................................................................................... 793
Section 382 ............................................................................................... 794
Section 383 ............................................................................................... 794
Section 384 ............................................................................................... 794
Section 385 ............................................................................................... 794
Section 386 ............................................................................................... 795
Section 387 ............................................................................................... 795
Section 388 ............................................................................................... 795
Section 389 ............................................................................................... 795
A. Compulsory Motor Vehicle Liability Insurance .................... 795B. Accrual of Liability .................................................................. 796C. Right to Sue Insurer Directly ................................................ 796D. The No-Fault Clause ............................................................... 797
Cases: PERLA COMPANIA DE SEGUROS, INC. vs. ANCHETA ................................................................... 798 VDA. DE MAGLANA vs. CONSOLACION ............... 801 GOVERNMENT SERVICES INSURANCE SYSTEM vs.COURT OF APPEALS ........................... 806
E. Authorized Driver Clause ....................................................... 813
Cases: VILLACORTA vs. THE INSURANCE OMMISSION ............................................................... 814 PALERMO vs. PYRAMID INSURANCE, CO., INC. ..................................................................... 818 TANCO vs. THE PHILIPPINE GUARANTY COMPANY .................................................................. 821 GUTIERREZ vs. CAPITAL INSURANCE AND SURETY CO. ...................................................... 824
F. Presumption of Regularity in Issuance of License ................ 827
xxx
G. Joy Ride/Theft Clause ............................................................. 827
Case: ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC. vs. FIELDMAN’S INSURANCE CO., INC. ..................... 828
H. Expired License ....................................................................... 830I. Period to File Claim ................................................................ 831
Chapter VIIMUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
Title 1MUTUAL BENEFIT ASSOCIATIONS
Section 390 ............................................................................................... 832
Section 391 ............................................................................................... 833
Section 392 ............................................................................................... 833
Section 393 ............................................................................................... 834
Section 394 ............................................................................................... 834
Section 395 ............................................................................................... 835
Section 396 ............................................................................................... 835
Section 397 ............................................................................................... 835
Section 398 ............................................................................................... 835
Section 399 ............................................................................................... 836
Section 400 ............................................................................................... 836
Section 401 ............................................................................................... 837
Section 402 ............................................................................................... 837
Section 403 ............................................................................................... 837
Section 404 ............................................................................................... 837
Section 405 ............................................................................................... 837
Section 406 ............................................................................................... 838
Section 407 ............................................................................................... 838
Section 408 ............................................................................................... 839
Section 409 ............................................................................................... 839
Title 2TRUSTS FOR CHARITABLE USES
Section 410 ............................................................................................... 840
Section 411 ............................................................................................... 840
Section 412 ............................................................................................... 840
Section 413 ............................................................................................... 840
xxxi
Chapter VIIITHE INSURANCE COMMISSIONER
Title 1ADMINISTRATIVE AND ADJUDICATORY POWERS
Section 414 ............................................................................................... 841
Section 415 ............................................................................................... 841 Section 416 ............................................................................................... 842
A. Regulatory Powers .................................................................. 844B. Duty to Hold Security Deposits .............................................. 844C. Commissioner’s Interpretation to Great Respect .................. 845D. Contract Between the Insurer and Its Agents ...................... 846E. Quasi-Judicial Powers ............................................................ 847F. Jurisdiction .............................................................................. 848
Title 2FEES AND OTHER SOURCES OF FUNDS
Section 417 ............................................................................................... 849
Section 418 ............................................................................................... 851
MISCELLANEOUS PROVISIONS
Section 419 ............................................................................................... 852
Section 420 ............................................................................................... 852
Section 421 ............................................................................................... 852
Section 422 ............................................................................................... 852
Section 423 ............................................................................................... 852
Section 424 ............................................................................................... 852
Subject Index ............................................................................................ 853
Case Index ................................................................................................ 873