insurance crammer

Crammer INSURANCE 1st Sem.; 2003

Helen C. Arevalo 1 Section 3D

GENERAL PROVISIONS Sec. 1. Name of Decree: The Insurance Code of 1978 Laws Governing Insurance:

1.) PD 1460: Insurance Code of 1978 Construction of Insurance Code follows that of the law of California (except for Ch. 5 w/c was taken from the law of New York).

2.) Arts. 2011 to 2012, CC: Insurance Hot tip: Art. 2012, CC: Any person forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him.

3.) Arts. 2021 to 2027, CC: Life Annuity 4.) Art. 2186, CC: Compulsory Motor Vehicle

Liability Insurance 5.) Arts. 43, par. 4, 50, 64, Family Code:

Revocation of irrevocable beneficiaries in terminated marriages.

Constantino v. Asia Life: Non-payment of premiums voids policy even if due to war. We follow the US Rule. Punctual payments important since insurer calculates on the basis of prompt payments. Time is of the essence. No premium, no insurance, Insular Life v. Ebrado: Person forbidden from receiving donation cannot be named beneficiary. Donations between persons guilty of adultery/concubinage void. Common-law spouse barred from receiving proceeds. Interpretation of Insurance Contracts: Strictly against insurer, liberally in favor of insured. Qua Chee Gan v. Law Union: Gasoline not specifically mentioned in prohibited articles. Oils usually means lubricants. Ambiguities or obscurities must be strictly interpreted against the party that caused them. K of insurance is a K of adhesion. Construed strictly against insurer, liberally in favor of insured. Ty v. Filipinas Cia de Seguros: Where insurance co. defines partial disability as loss of either hand by amputation, insured cannot recover for temporary disability. No ambiguity, literal meaning must apply. Sec. 2. Definition of Terms:

1.) Contract of insurance: An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Includes surety contract.)

Characteristics of an insurance contract:

1.) Consensual; 2.) Voluntary; 3.) Aleatory; 4.) Executory; 5.) Conditional; 6.) Personal.

Elements of insurance contract:

1.) Consent of parties a.) Insurer b.) Insured

2.) Object: Transfer or distribute risk of loss, damage, liability or disability from insured to insurer

3.) Cause/consideration: Premiums 4.) INSURABLE INTEREST: Insured possesses an interest

of some kind susceptible of pecuniary estimation. Classifications of insurance contracts:

1.) Life a.) Individual b.) Group life c.) Industrial life

2.) Non-life a.) Marine b.) Fire c.) Casualty

3.) Contracts of suretyship and bonding 2.) Doing/transacting an insurance business:

Includes: 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 reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code;

d.) Doing or proposing to any business in substance equivalent to the foregoing in a manner designed to evade the provisions of this Code.

Fact that no profit derived from contract/transaction is not deemed conclusive to show that no insurance business was transacted.

3.) Commissioner: The Insurance Commissioner.

Philamlife v. Ansaldo: The insurance commissioner has the authority to regulate the business of insurance (see definition above). The contract of agency is not include w/in the meaning of the insurance business and so the insurance commissioner has no jurisidiction. The quasi-judicial power of the Commish is limited by law to claims and complaints involving any loss, damage or liability for w/c an insurer may be answerable under any kind of policy or contract of insurance. Hence, this power does not cover the relationship affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company.



Philamcare v. CA: Health care agreement is a contract of insurance. It has the following elements:

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

2.) The insured is subject to a risk of loss by the happening of the designated peril (incurs expenses of hospitalization/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 group of persons bearing a similar risk; and

5.) In consideration of the insurers promise, the insured 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 past or future, which may cause damage to a person having an insurable interest; or

2.) Any contingent or unknown event, whether past or future, which may create a liability against the person insured.

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

Rights of insured married women and minors: The married woman or the minor herein allowed to take out an insurance policy may exercise all rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Art. 1174, CC: Fortuitous events. No person responsible for fortuitous events. Art. 110, CC: Married women as administrators of paraphernal property. Either spouse may transfer the administration of his or 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 for or against the drawing of any lottery, or for or

against any chance or ticket in a lottery drawing a prize. Sec. 25: A policy contract executed by way of gambling or wagering is void. Differences between a contract of insurance and a gambling contract:

Gambling Insurance Parties contemplate gain thru mere chance.

Parties seek to distribute possible loss by reason of his mis-chance.

Gambler seeks fortune. Insured seeks to avoid misfortune.

Increases inequality of fortune.

Tends to equalize fortune.

Whatever one persons wins from a wager is lost by the other wagering party.

What one insured gains is not at the expense of another insured.

When a party makes a wager, he creates a risk of loss to himself where no such risk existed previously.

Purchase of insurance does not create a risk of loss to the purchaser. Reason he purchases is because he already faces an existing risk of economic loss.

Sec. 5. Applicability of Chapter 1 provisions to all kinds of insurance: All kinds of insurance are subject to the provisions of this chapter so far as the provisions can 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 in this code. Sec. 184: Insurer/insurance co.: Includes all individuals, partnerships, associations, or corporations including GOCCs, engaged as principals in the insurance business, except mutual benefit associations. Unless the context otherwise requires, the term shall also include professional reinsurers. Sec. 185: Insurance corporations: Corporations formed or organized:

1.) To save any person or persons or other corps harmless from loss, damage or liability arising from any unknown or future contingent event, or

2.) To indemnify or to compensate any person or persons or other corps for any such loss, damage or liability, or

3.) To guarantee the performance of or compliance w/ contractual obligations or the payment of debts of others.

Sec. 187: Certificate of authority from the Insurance Commissioner is required to transact insurance business. Sec. 7. Who may be insured: Anyone except a public enemy may be insured. Requisites for one to be an insured:



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 it includes every citizen or subject of such nation. Filipinas Cia de Seguros v. Christern Huenefeld & Co.: Enemy corp. War Policy ceased to be valid and enforceable. But premiums returned. Effect of war on existing insurance contracts between Phils and citizen/subject of public enemy: Policy ceases to be valid and enforceable as soon as an insured becomes a public enemy. Sec. 8. Insurance taken by mortgagor in his own name but loss payable to mortgagee (or assigns policy to mortgagee) deemed to be upon his (mortgagors) interest, but mortgagee may perform any act under contract of insurance w/c is to be performed by mortgagor. Effects when mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee:

1.) K deemed to be upon the interest of the mor, hence he does not cease to be a party to the K;

2.) Ant act of mor prior to the loss, w/c would otherwise avoid the insurance affects the mee even if the property is in the hands of the mee;

3.) Any act w/c under the K of insurance is to be performed by the mor nay be performed by the mee;

4.) In case of loss, the mee is entitled to the proceeds to the extent of his credit;

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

Art. 2127, CC: Security of mortgage extends to indemnity from insurance. San Miguel v. Law Union Rock Ins. Co.: Insurance policies issued in the name of mortgagee (SMB) only. Altho stated that merely mee, policies contained no reference to any other interest in the property. Mor (Dunn) sold property but no assignment of the policies were made to the buyer (Harding). SMB liable to Harding?

No. Insurance applied to exclusively to proper interest of the person in whose name it is made. Neither Dunn or Harding can recover on policies. No change or assignment of the policies had been undertaken. Besides, owners interest not covered by the policies.

SMC only to recover to extent of its mortgage credit. Grepalife v. CA: Group life insurance plan to insure lives of eligible housing loan mors of DBP. Grepalife claims that widow of member of group life insurance plan is not a real party in interest so no jurisidiction. Wrong! Widow may file suit. Rationale of grp insurance policy of mors is a device for protection of both mee and mor. Insurance is on the mors interest. Mor continues to be a party to the contract. Mee is not a party to the contract, simply an appointee of the insurance fund. Insured is real party in interest. Since

may pass by transfer, will/succession, widow may file suit. Sec. 9. When transfer of insurance is made from mortgagor to mortgagee w/ assent of insurer w/ imposition of additional obligations on assignee, the mortgagors acts do not affect assignees rights. This is an exception to the rule that all acts of the mor affects the mee: when further obligations imposed on the mee.

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 a pecuniary interest;

3.) Any person under a legal obligation to him for the payment of money, or respecting property or services, of w/c death or illness might delay or prevent the performance; and

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

Hot tip: Memorize this! Insurable interest: Person deemed to have insurable interest in subject matter where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. Col. C. Castro v. Insurance Commissioner: Castro got insurance on the life of his driver. 3 months later, driver shot to death by unknown persons (Colonel is that you?!!) Does er have insurable interest in his driver? 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 of substantial loss to those who are named as beneficiaries (mere relationship insufficient).

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

Lincoln National Life v. San Juan: Er insured life of ee (tenant in ers coconut land who goes by the name of Misteryoso San Juan). Misteryoso very misteryosly disappeared and a severed and rotting head was later found in jeep, purportedly his. Can er recover proceeds? No way! Geez, these employers are sick, man! El Oriente v. Posadas: El Oriente procured an insurance policy on the life of A. Velhagen (who had more than 35 years experience in the cigar mfg business) for $50,000. Velhagen had no interest/participation in the proceeds of the life insurance. Did El Oriente had insurable interest over Velhagens life?



SC said: Yes, El Oriente had insurable interest over the life of one of their employees (e.g. the Gen. Mgr, I think). This is because Velhagen had over 35 years of experience in the business. This is an example of a Key Man Insurance Velhagen was a key person in the company, thats why the company had insurable interest over his life Sir compared this case with the Castro case. Philamcare v. CA: (supra) Health care agreement is an insurance contract. Health (in this case his own) is an insurable interest. Sec. 11. Insured has right to change beneficiary unless waived Beneficiary: A person, whether natural or juridical, for whose benefit the policy is issued and is the recipient of the proceeds of 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 beneficiary of a life insurance policy by the person who cannot make any donation 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 in terminated 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 allowed also as in 43(4), FC. Art. 64, FC: Revocation of irrevocable beneficiary in legal separation After final decree, innocent spouse may revoke designation of offending spouse as beneficiary. Revocation/change in beneficiary to take effect upon written notification to insured. Nario v. Philamlife: Court authorization in a competent guardianship proceeding is needed in order to proceed w/ transaction (policy loan or surrender of policy) w/c involve a disposition or alienation of the property of the minor beneficiary. Written consent of father-guardian, if w/o court authorization, is insufficient. Sir says this is no longer so. Father/mother do not need court authorization since they are already guardians of their child. SSS v. Davac: Disqualification of concubinage does not apply where concubine had no knowledge that she was such (meaning, where there is no proof that she knew of the previous marriage). Gercio v. Sun Life: Cannot change beneficiary in the absence 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 the right had not been waived. Sec. 12. Interest of beneficiary in a life insurance policy forfeited if beneficiary a principal, accomplice or accessory in death of insured; nearest relative of insured to receive proceeds if not disqualified. Sec. 13. Insurable interest in property is that w/c is of such nature that a contemplated peril will damnify an insured Harvardian College v. Country Bankers: Even if not owners of the building and so w/o title to the property insured, building used and in their possession for several years w/ the knowledge and consent of the owner as the site of their educational institution. They, therefore, had an insurable interest in the building since they would have directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. Test in determining insurable interest in property: Whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Sec. 14. What an insurable interest in property consists of:

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

interest; or 3.) 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 out of w/c such expectancy arises. Traders Insurance v. Golangco: Even if not owner, can claim insurance proceeds since he still had insurable interest therein. He was in legal possession and collecting rentals from its occupant, and so he was directly damnified by such loss. Filipino Merchants v. CA: Tiekeng, consignee of fishmeal and vessel, had insurable interest due to perfected sale. Such sale was the basis of insurable interest. Sec. 15. Insurable interest of a carrier or depositary is extent of its liability Lopez v. Del Rosario: Del Rosario, warehouseman, liable to owner of stored goods (Lopez) for his share. She acted as the agent of Lopez in taking out the insurance of the contents of the warehouse.



Sec. 16. Contingent or expectant interest not founded on actual right or valid contract not insurable Sec. 17. Measure of insurable interest in property extent to w/c insured might be damnified by loss (Property insurance is strictly a contract of indemnity) San Miguel v. Law Union Rock: (supra) SMC collects only to extent of mortgage credit. Cha v. CA: Cha: lessees; CKS: lessors. Stipulation for consent contrary to public policy. CKS has no insurable interest. Sec. 18. Unenforceability of property insurance contract by one not having insurable interest Garcia v. Hong Kong Fire & Marine Ins. Co.: Merchandise insured but insurance co. mistakenly issued policy 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.

Tai Tong Chua Che v. Insurance Commissioner: Mee who insured mortgaged property of mor can collect proceeds of policy since allegation that mortgage debt was already paid had not been proved. Sec. 20. Effect of change of interest in thing insured on contract of insurance:

General rule: insurance suspended until same person becomes owner of both policy and the thing insured.

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 jointly insured, to the other.

Sec. 58 (supra): Effect of transfer of thing insured does not automatically transfer policy coverage merely suspended. Bachrach v. British American Assurance Co.: Bachrachs furniture shop burned down. One of the reasons claim denied was because Bachrach had executed a chattel mortgage on the properties insured

w/o consent of the insurer. He should be able to claim proceeds of policy. There was no express provision against the execution of a chattel mortgage on the property insured. Sec. 21. Change in the thing insured after occurrence of injury resulting in loss does not affect right to indemnity Sec. 22. Change of interest in one or more distinct things separately insured does not affect insurance of others Sec. 23. Change of interest by will or succession of insured does not avoid the insurance Sec. 181: Allows life insurance policy to pass by transfer, will or succession to anyone w/ or w/o insurable interest. Sec. 24. Transfer of interest by one of partners, joint owners or common owners who are jointly insured, to the others, does not avoid the insurance Sec. 25. Stipulation in policy for payment of loss whether insurable interest exists or not, or that policy is proof of such interest, or policy on wagering is void (This provision is the authority for voiding a contract for lack of insurable interest) Title 4. Concealment Sec. 26. What is concealment: A neglect to communicate that w/c a party knows and ought to communicate. 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; and

4.) 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, and if so, at what rate of premium;

2.) The precise delimitation of the risk w/c determines the extent of the contingent duty to pay undertaken by the insurer;

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

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

Sec. 27. Intentional or unintentional concealment entitles injured party to rescind contract



Law makes no distinction between intentional and unintentional concealment. There is no need to prove fraud to be able to rescind. Criterion in applying Sec. 27: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts w/in the insureds knowledge or presumed knowledge? Saturnino v. Philamlife: Concealed operation for cancer involving removal or right breast. Info given obviously false as well as material. Insurer allowed to rescind. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due in forming his estimate of the proposed contract, or in making his inquiries. Waiver of medical examination renders even more material info required concerning previous condition of health and diseases suffered. Henson v. Philamlife: There is no need to prove intent to 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 no warranty, and w/c the other has no means of ascertaining (Insurance contract is a contract uberrima fides meaning of utmost good faith) hot tip: 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/c he knows would influence the insurer in acting upon his application, good faith requires him to disclose that circumstance, though unasked. Sec. 31: What is material (infra) Sec. 107: Concealment in marine insurance in addition to matters in Sec. 28, all info material to the risk (except those in Sec. 30) must be communicated. Sec. 35 (infra): Mere opinion, judgment, or expectation not necessary to be communicated. Fieldmans Insurance v. Songco: 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 the vehicle was not a common carrier. Ins. Co. estopped. It knew all along that it was a private vehicle. Sec. 29. Failure to communicate information proving or intending to prove the falsity of a warranty entitles insurer to rescind Here the concealment must be intentional or fraudulent to warrant rescission.

Sec. 30. Matters w/c each party to insurance contract 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 former has no reason to suppose him ignorant;

3.) Those of w/c the other waives communication; 4.) Those which prove or tend to prove the

existence 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 the policy and w/c are not otherwise material.

Exception: when the other inquires Insular Life v. Feliciano: Falsified answers due to collusion between the insured and the insurance agent and medical examiner. Insurance company absolved from liability. Sec. 31. Materiality to be determined by influence of facts on party in forming estimate of the risk, not by the event. Test of materiality: If the knowledge of fact would cause the insurer to reject the risk, or to accept it only at a higher premium rate, that fact is material, though it may not even remotely contribute to the contingency upon w/c the insurer would become liable, or in any wise affect the risk. Principal question to ask: Was the insurer misled or deceived into entering a contract obligation or in fixing the premium of insurance by the withholding of material information or facts w/in the insureds knowledge or presumed knowledge? If so, then the contract is avoided, even if the cause of the loss w/c subsequently occurred be unconnected w/ the fact concealed. Sun Life 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 or

material perils contemplated. 2.) General usages of trade.

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

1.) Terms of insurance (expressly); or 2.) Neglect to make inquiries where they are

directly implied in other facts already communicated (impliedly).

Ng Gan Zee v. Asian Crusader Life: Insured stated in his application that he had a tumor removed from his stomach. Yun pala, it was actually a portion of his stomach w/c was removed. Ins. co. now refuses to pay on ground on false information. Pay up, damnum you! Cant rescind the contract. Insured did not have sufficient knowledge to distinguish between a tumor and an ulcer. His statement was made



in good faith. Ins. co. could have made an inquiry as to the illness and operation. Its failure to do so constituted a waiver of the imperfection of the answer. Sec. 34. Nature or amount of interest need not be communicated. Exceptions:

1.) In answer to an inquiry; or 2.) When he is not the absolute owner (Sec. 51: items that

must be included in an insurance policy: (e) Interest of insured in property insured, if he is not the absolute owner 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 expectation of a 3rd person w/ respect to material facts is material.

Title 5. Representation (Importance of representation: 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 the time of or prior to, the issuance of the policy to give information to the insurer and otherwise induce him to enter into 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/o knowing it to be true and w/c has a tendency to mislead; and

3.) where such fact in either case is material to the risk. Effect of misrepresentation: Renders insurance contract voidable at the option of the insurer, although the policy is not thereby rendered void ab initio. Sec. 37. Representation to be made at time of, or before issuance of a policy Sec. 41: representation may be withdrawn or altered before effectivity date. Sec. 38. Language of communication the same as contracts in general Representations are construed liberally in favor of the insured. Representations need not be literally true. It is sufficient if they are substantially true. Sec. 39. Representation as to the future deemed a promise unless merely a statement of belief or expectation Different kinds of representation:

1.) Oral or written; 2.) Made at time of issuance of the policy or before; and 3.) Affirmative or promissory.

Affirmative representation: Any allegation as to the existence or non-existence of a fact when the contract begins. Promissory representation: Any promise to e fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. Sec. 40. Representation cannot qualify express provision of contract, but may qualify an implied warranty Sec. 41. Representation may be altered or withdrawn before insurance is effected, but not afterwards Sec. 42. Representation refers to date of effectivity of contract There is no false representation if the representation was true at the time the contract takes effect altho it was false at the time 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 has no 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 the

info of others; or 2.) He may submit the info, in its whole extent to

the insurer. 3.) In either case he is not responsible for its

truth. Exception: it proceeds from an agent of insured

whose duty is to give information. Harding v. Commercial Union: Proposal form made out by person authorized to solicit insurance is an act of the insurer. Facts, even if false, not warranted by insured in the absence of willful misstatement. Sec. 44. Misrepresentation: When facts fail to correspond to assertions or stipulations, representation is deemed false Sec. 45. False representation in a material point entitles insurer to rescind from time it becomes false. Right to rescind waived by acceptance of premium despite knowledge Note that fraudulent intent here is immaterial. Musngi v. West Coast Life: Concealed that he saw several physicians for a number of ailments. He knew that he was suffering from all these ailments yet he concealed this. This concealment constituted fraud because the insurance company by reason of such statement accepted the risk w/c it would otherwise have rejected.



Edillon v. Manila Bankers Life: There is was a provision 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 birth showing that she was already 64 years old. She did not conceal her age, yet co. accepted her premium and issued the policy. Co. is estopped from disclaiming liability. Collado v. Insular Life: Accepting overdue premiums does NOT necessarily deprive it of d right to cancel d policy in case of default. A reinstated policy should be viewed as a new K, & d period for contestability for fraud/ breach of warranty in d application runs from the time of reinstatement. Sec. 46. Materiality of a representation is governed by same rules as materiality of concealment Sec. 31: How materiality determined: not by event but y the influence of facts on other party in forming an estimate of the risk. Sec. 47. Provisions of Chapter 1 applicable to amendment as well as to original contract Sec. 48. Incontestable clause; Insurers right to rescind; When must it be commenced:

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

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

Sections 227(b), 228(b) and 230(b) make the incontestable clause compulsory in all life insurance contracts. Soliman v. U.S. Life: Insurer is once again given 2 years from date of reinstatement to investigate the veracity of the facts represented in the application for reinstatement. Tan v. CA: Key phrase: 2 years. Does not need to be during lifetime of the insured. The phrase during the lifetime simply means that the policy is no longer in force after the death. Tan Chay Cheng v. West Coast Life: Misrepresent-ations made. Tan Chay claims that co. cannot rescind because an axn for performance had already been filed. Trial court found for Tan Chay holding that an insurer cannot avoid a policy unless it brings axn. to rescind before it is sued thereon. Trial court wrong. Through fraud in its execution, the policy is void ab initio and therefore no valid contract was ever made. Not an axn for rescission coz that would presuppose the existence of a contract. Therefore, not barred by Sec. 48. Philamcare v. CA: (supra) Philamcare did not want the health care agreement to be considered an insurance contract because the incontestability clause in Sec. 48

requires that any right to rescind must be exercised before any axn is commenced on the contract, and w/in 2-year period. But as we all know it is an insurance contract 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 formal written instrument evidencing the contract. The best evidence that a contract has been entered into between the insurer and the insured is the delivery of the policy by 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 of delivery. Enriquez v. Sunlife: The contract of insurance was not perfected. It had not been proved that the acceptance of application ever came to the knowledge of the applicant. An acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract of insurance, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the party. Sec. 50. Formal requirements of a policy:

1.) In printed form w/c may contain blank spaces; and

2.) Any word, phrase, clause, mark, sign, symbol, signature, number or word necessary to complete the 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 be mentioned and written on the blank spaces provided in the policy; and

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

Requirements of group insurance and group annuity policies: May be typewritten and need not be in printed form. Sec. 226: Form of policies, application, riders, clauses, warranties or endorsements must be approved by the Insurance Commissioner. Rider: A printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. Riders are usually attached to the policy because they constitute 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 the agreement of the parties.



Warranties: Inserted or attached to a policy to eliminate specific potential increases of hazard during the policy term owing to axns of the insured, or conditions of property. Clauses: Agreements between the insurer and the insured on certain matters relating to the liability of the insurer in case of loss. Endorsement: An endorsement is any provision added to an insurance contract altering its scope or application. Sec. 51. Substantive requirements in a contract of insurance: 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 only determinable upon the termination of the contract, 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; and 7.) 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 insurable contract;

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

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

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

See Sections 227, 228 & 230 for additional matters to be included in individual, group and industrial life insurance policies. Sec. 52. Rules on cover notes (binding receipts or slips, interim, temporary or provisional policies):

1.) Insurance companies doing business in the Phils may issue cover notes to bind insurance temporarily pending the issuance of the policy.

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

3.) No cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.

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

has been paid, but such cover note may be canceled by either party upon at least 7 days notice to the other party.

5.) If a cover note is not so canceled, a policy of insurance shall w/in 60 days after issuance of the cover note be issued in lieu thereof. Such policy shall include w/in its terms the identical 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 Insurance Commission, provided that such written approval may be dispensed w/ upon the certification of the president, VP, or gen mgr of the insurance co. concerned, that the risks involved, the values of such risks, and the premiums therefore have not been determined or established and that such extension or renewal is not contrary to and is not for the purpose of violation of any provision of the Insurance Code.

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

Cover note: Written memorandum of the most important terms of the preliminary contract of insurance, intended to give temporary protection pending the investigation of the risk by the insurer, or until the issue of a formal policy, provided it is later 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; and 2.) Preliminary executory contract.

Preliminary contract of present insurance: Insurer insures the subject matter usually by what is known as a binding slip or binder or cover note w/c is the contract to be effective until the formal policy is issued or the risk rejected. Preliminary executory contract of insurance: Insurer makes a contract to insure the subject matter at some subsequent time w/c may be definite or indefinite. Under such an executory contract, the right acquired by the insured is merely a right to demand the delivery of a policy in accordance w/ the terms agreed upon and the obligation assumed by the insurer is to deliver such policy. Grepalife v. CA: Binding deposit receipt is merely an acknowledgment of receipt of premium. It is merely conditional as the insurance co. may still approve or reject the application. It is not a temporary contract of life insurance. Grepalife had disapproved of the application and so the binding deposit receipt never came into force. Pacific Timber v. CA: Ins. co. refuses to pay since it claims that the cover note was null and void due to the issuance of the policy. Cover note is not a separate policy. It is integrated into the regular policies subsequently issued. If it were a separate policy, its purpose would be rendered



meaningless. Cover note was w/ consideration. No separate premiums required. Sec. 53. Insurance proceeds; to whom payable: The person in whose name or for whose benefit the policy was made. Exception: Sec. 12: Forfeiture of proceeds by life insurance beneficiary when he is principal, accomplice, or accessory in willfully 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 the indemnity granted or owing the owner from the insurer. Bonifacio Bros. V. Mora: Insurance proceeds go directly to person in whose name policy made. the proceeds cannot go directly to the dudes who repaired the car in the absence of stipulation pour autrui in contract. Since the repairmen and autoparts shop have no privity of contract w/ the ins. co., they have no cause of axn. Coquia v. Fieldmans Insurance: Where there is an express 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. Del Val v. Del Val: Del Val died intestate. His beneficiary was his son, Andres. Andres got the proceeds and redeemd parcels of land sold pacto de retro. Siblings say the proceeds should got to the estate. HELD: NO!!!! The proceeds of an insurance policy belong exclusively to the BENEFICIARY & not to the estate of the person whose life was insured, and that such proceeds are the separate & individual property of the beneficiary, and not of the heirs of the person whose life was insured.

RCBC v. CA: Goyu took out a loan from RCBC. He mortgaged his factories to RCBC. His factories were insured & he told the 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 the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of Goyu's obligation w/ RCBC, the interest of Goyu in the policies had been TRANSFERRED to RCBC effective as of the time of the endorsement. There are other issues, but this is the one relevant to this Section. (I hope-rosa)

Sec. 54. Insurance contract w/ agent or trustee as insured: Fact that principal or beneficiary is the real party in interest may be indicated in policy. Insurance may be taken by a person:

1.) personally, or 2.) through his agent or trustee.

If taken thru agent or trustee, should indicate that he is merely acting in a representative capacity since insurance is to be applied exclusively to the interest of the person in whose name and for whose benefit it is made. Sec. 55. Policy terms should be made applicable to joint interest to render insurance effected by one partner or part owner applicable to co-partners or part owners Sec. 56. Who can claim policy benefits in case of a general description of insured: he who can show that it was intended to include him (that he is the person described; or that he belongs to the class of persons comprehended in the policy). Sec. 57. A policy can be framed to inure to the benefit of whomsoever becomes the owner of the interest insured San Miguel v. Law Union Rock: (supra) Since policy made out only in name of SMC and not framed to cover owner or his assignees, assignee/owner could not claim under the policy. Sec. 58. Transfer of thing insured does not automatically transfer policy; coverage suspended until owner of policy and owner of interest are one and the same San Miguel v. Law Union Rock: (supra) Transfer of ownership over property insured does not mean assignee can recover under policy on that property unless so stipulated (w/c it wasnt). Sec. 59. A policy is either open, valued or running Sec. 60. What an open policy is: One in w/c the value of the thing insured is not agreed upon, but is left to be ascertained 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 the maximum limit of the insurers liability. See Sec. 161: open policy rules in marine insurance; and Sec. 171: open policy rules in fire insurance. Dev. Ins. Corp. v. IAC: In an open policy, in event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company shall limited to the actual loss and in no case shall exceed the amount of the policy.



Sec. 61. What a valued policy is: One w/c expresses on its face an agreement that the thing insured shall be valued at a specified sum. It is one in w/c the parties expressly agree on the value of the subject 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 (sometimes called floating, adjustable, blanket or declaration policy): One w/c contemplates successive insurances, and w/c provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements. This kind of policy is intended to provide indemnity for property w/c cannot well be covered by a valued policy because of its frequent change of location and quantity, or for property of such nature as not to admit of a gross valuation. It also denotes 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 monthly wages reported;

2.) He avoids cancellations that would otherwise be necessary to keep insurance adjusted to the value of each location, and for w/c cancellations he would be charged the expensive short rate;

3.) He is saved the trouble of watching his insurance and the 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 of action 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 action must be brought w/in 10 years (written contract) or 6 years (oral contract). You can stipulate a period when an action based on the insurance contract can be brought. In the absence of stipulation, the period is 10 years. However, if you do stipulate and you limit the period to less than one year, the stipulation is void. New Life Enterprises v. CA: Remember the case with the clarificatory letter. Also, the contract had a stipulation that an axn should be commenced within a year d cause of axn accrued.

HELD: The stipulation in the k was EQUAL to 1 year (to commence an axn), the prohibition is for LESS than 1 yr. Therefore, the stipulation was valid. The SC said that 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; or 6.) A determination by the Commissioner that the

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

Cancellation: The right to rescind, abandon or cancel a contract of insurance. Non-payment of premium: refers to premiums subsequent to the first premium because the law speaks of non-payment after the effective date of the policy. Remember, if you do not pay the 1st policy, no policy is valid and binding. Therefore, the 1st premium is the condition precedent to the effectivity of the insurance. So any premium after the effective date of the policy must 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 days prior to effectivity of cancellation.

2.) Sec. 381: for cancellation of CTPL policy by vehicle owner or operator notice to LTO also needed plus replacement of CTPL policy or bond efore cancellation effective.

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

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

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 or delivered to the insured at the address shown in the policy;

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

5.) If so requested by the insured, it is the duty of the insurer to furnish the facts on which the cancellation is based.



Saura v. Phil International Co.: Notice of cancellation by insurer to mee alone is not effective as to mor/ owner. There must be actual and personal notice. Malayan Insurance v. Arnaldo: Notice was not effectively made. No proof was presented that the notice was actually mailed to and received. A valid cancellation requires:

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 entitled to renew contract by payment of premium unless notified 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 itself or incorporated in it by proper reference, the untruth or non-fulfillment of w/c in any respect and w/o reference to whether the 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); or 4.) Implied (Sec. 67).

Express warranty: An agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured stipulates that certain facts relating to the risk are or shall be true or certain acts relating to the same subjects have been or shall be done. Implied warranty: Warranty w/c from the very nature of the contract or from the general tenor of the words, altho no express warranty is mentioned, is necessarily embodied in the policy 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 or condition at the time it is made. Promissory warranty: One where the insured stipulates that certain facts or conditions pertaining to the risk shall exist or that 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, present or to the future, or any or all of them Sec. 69. No particular form of words necessary to create a warranty When insured stipulates something in the policy or even in the application form, it is not always a warranty. It depends on his intention. 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 the contract.

Collateral inducements to the contract.

Always written on the face of the policy, actually or by reference.

May be written in a totally disconnected paper, or may even be oral.

Must be strictly complied w/. Substantial truth only required.

Falsity/non-fulfillment operates as a breach of contract.

Falsity renders policy void on the ground of fraud.

Presumed material. Insurer must show the materiality in order to defeat axn on policy.

Sec. 70. An express warranty must be in the policy itself or in another document signed by the insured and made part of the policy Ang Giok Chip v. Springfield Fire & Marine Ins.: It is well settled that a rider attached to a policy is a part of the contract, to the same extent and with like effect as if actually embodied therein. In the second place, an express warranty must appear upon the face of the policy, or be clearly incorporated therein and made a part thereof by explicit reference, or by words clearly evidencing such intention. Sec. 71. Express warranty: A statement in the policy relating to the person or thing insured, or to the risk as 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 the policy. Sec. 73. Breach of warranty; effect: Avoids contract of 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 other party to rescind Young v. Midland Textile Ins.: Even if (storage of firecrackers) not cause of the event insured against (fire), violation of warranty terminates the contract. Compliance with terms of contract is condition precedent to right of recovery. Sec. 75. If specifically stipulated, a violation of a specified provision shall avoid a policy, otherwise



a breach of immaterial provision does not avoid the policy Gen Insurance v. Ng Hua: Stipulation that failure to give notice that any other insurance was obtained would result in forfeiture of the benefits. The rebel didnt give notice that he had insurance on the same goods w/ another co. Breach of warranty. Insurer entitled to rescind. Materiality of non-disclosure of other insurance policies is undoubted. Sec. 76. Breach of warranty, w/o fraud, exonerates insurer or prevents policy from attaching to risk depending on when breach occurred 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 inception of the contract; or

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

2.) With fraud: policy avoided ab initio and the insurer is not entitled to the return of the premium paid.

Title 8. Premium Sec. 77. Insurer entitled to premium from moment risk attached; policy binding only when premium paid; Exceptions (a life insurance policy where the grace 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 insurance companies or associations, upon a fixed and definite plan, to pay losses and expenses. Difference between a premium and an assessment:

Premium Assessment Levied and paid to meet anticipated losses.

Collected to meet actual losses.

Payment of premium, after the 1st, is not enforceable against the insured.

Legally enforceable once levied.

Not a debt. Is a debt (if properly levied). Effect of non-payment of premiums: 1.) Non-payment of the 1st premium unless waived prevents the contract from becoming binding notwithstanding the acceptance of the application nor the issuance of the policy. But non-payment of the balance of the premium due does not produce the cancellation of the contract. 2.) Non-payment of subsequent premiums does not affect the validity of the contracts unless by express stipulation, it is provided that the policy in that event be suspended or shall lapse.

Secs. 227(a), 228(a), 230(a): In the case of life or endowment insurance, group life insurance and industrial life insurance, the policy holder is entitled to a grace period of 30 days. Sec. 78 (infra): acknowledgement of receipt of premium in policy is binding. Sec. 177: Surety bond premiums. Sec. 52 (supra): rules on cover notes. Sec. 306(2): delivery of policy to agent presumes authority to collect premium. Phil. Phoenix v. Woodworks #1: Partial payment, balance unpaid. No cancellation of contract. Contract had been perfected and partially performed. Can demand payment of balance. Phil. Phoenix v. Woodworks #2: No payment at all. Policy must be deemed to have lapsed. Valenzuela v. CA: Valenzuela, agent, is not liable for unpaid premiums. The policies having lapsed, there is no more contract or obligation. South Sea Surety v. CA: Agent, in receiving check for the insurance premium prior to the occurrence of the risk insured against, acted as agent holding the insurance co. liable. Delivery of policy to agent means hes authorized to receive payment of any premium. Premiums paid to agent so co. liable for proceeds. Areola v. CA: Agents receipt is ins. co.s receipt. Agents failure to remit not a defense, co. is liable for fraudulent acts of its employees. Tibay v. CA: Partial payment does not make contract valid, binding and enforceable. There was an express stipulation for payment of premium in full. Cannot collect on policy. UCPB v. Masagana Telamart: UCPB is in estoppel for having received 60-90 day credit term. Sec. 78. Legal fiction of payment of premium for purposes of making policy binding: Acknowledgment in policy of receipt of premium is conclusive evidence of payment for purpose of making policy binding. American Home Assurance v. CA: Check received as payment for renewal of policy and a renewal certificate delivered. Fire occurred. Official receipt for payment issued. There is valid payment of premium even if the check was encashed after the fire. Sec. 79. When insured entitled to return of premiums:

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

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



the insured surrenders his policy before termination thereof (such portion as corresponds w/ unexpired time, at a pro rata rate, returned).

Exceptions: a.) Short period rate agreed upon and appears

on 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. 81 infra);

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

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

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

contract. Short period rate clause: A clause w/c appears in most fire insurance policies providing that in the event the policy is surrendered by the insured for cancellation, the company shall retain a premium for the time the policy has been in force. There is no right to recovery of premiums in life insurance because it is not a divisible contract. It is not an insurance for any single year, w/ a privilege of renewal from year to year by paying the annual premium. It is an entire contract of insurance for life subject to discontinuance and forfeiture for non-payment of any of the stipulated premiums. Grepalife v. CA: Late payment. Letter sent to insured saying 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 premiums when risk already attached and insurer liable for any period Makati Tuscany v. CA: Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid where the insurer was exposed to the risk for any period, however brief or momentary. Sec. 81. Insured entitled to return of premium when:

1.) Contract voidable due to insurers fault; or 2.) Insurer never incurred liability due to:

a.) Insureds ignorance of facts or b.) Default other than fraud

Grepalife v. CA: (supra) Never at risk; not entitled to keep premiums. Sec. 82. Insured entitled to ratable return of premium in case of over-insurance.



Title 9. Loss Sec. 83. Agreement not to transfer claim after loss happened is void. 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 free transmission of property from one person to another. Why should the agreement be void when it is a personal contract? After loss has been suffered, it is no longer a personal contract which is being assigned but a money claim OR a right of action under the policy. There is no moral hazard because the insurers risk cannot be increased anymore since the loss has already occurred. Sec. 84. Insurer liable if peril insured against is proximate cause. Loss: Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortunes against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. Liability of Insurer for Loss: Depends on:

1.) Whether the insured suffers a loss; and 2.) The extent of the loss.

Insurer liable only for a loss PROXIMATELY caused by the perils insured against although a peril not insured against may have been the remote cause of the loss. Proximate cause: That which, in natural & continuous sequence, unbroken by any new independent cause, produces an event and without which the event would not have occurred. It is the efficient cause one that sets others in motion to which the loss is attributed, although other & incidental causes may be nearer in time to the result & operate more immediately in producing the loss. Proximate cause is NOT synonymous to immediate cause. Sec. 85. Insurers liability for loss:

1.) Loss from peril not insured against to which thing was exposed in rescuing it from peril insured against; and

2.) Loss caused by efforts to rescue thing insured from a peril insured against.

Insurer is liable when:

1.) Loss took place while being rescued from the peril insured against;

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

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

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

unless the proximate cause was excepted in contract Even if the proximate cause is not the peril insured against, the insurer may still be held liable if the immediate cause is the peril insured against. 3 kinds of causes:

1.) Remote; 2.) Proximate; and 3.) Immediate

Sec. 87. Insurer not liable for loss caused by willful act or with connivance of insured; Insurer liable for negligence of insured Insurer is not liable for loss when:

1.) Loss was caused by willful act of insured; or 2.) 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 mitigate insurers 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 unnecessary delay exonerates insurer Sec. 89. Preliminary proof of loss if required by policy need not be that required by a court of law; best evidence enough Condition that MUST be Complied with BEFORE loss occurs: Compliance with terms of the policy. The terms of the contract constitute the measure of the insurers 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 insured or claimant under a policy of the occurrence of the loss insured against. Purpose: To apprise the insurance company with the occurrence of the loss, so that it may gather info & make proper investigation while evidence is still fresh & take such action as may be necessary to protect its interest. In property insurance, it prevents further loss to the property.



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 of loss given the company by the insured or claimant under a policy of the occurrence of the loss, the particulars thereof and the 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 orally or in writing. However, its advisable to give it in writing for the protection of the insured or beneficiaries. Para its not your word against theirs. Sec. 90. Defects in notice or preliminary proof of loss waived if insurer omits to specify them as grounds of objections Sec 90 presupposes that notice of loss & proof of loss have already been given. It is the DUTY of the insurer to specify to the insured all defects in the notice of loss or in the preliminary proof 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 loss would be useless

2.) Recognizes his liability to pay claim 3.) Denies liability under the policy 4.) 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 a formal defect in the preliminary proof

General statement that proof is defective is NOT sufficient. Insurer must specify what those defects are in order that insured may remedy them. Malayan Insurance v. Arnaldo: Malayan denied liability on ground that the certification issued by the Integrated National Police given by Pinca (insured) was not a persuasive proof of the amount of loss. Was notice given sufficient?

YES. Loss & its amount may be determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. The certification was sufficient. Failure of insurer to specify defects of proof & w/o unnecessary delay is deemed waiver of all objections to notice and proof of loss. Pacific Bank v. CA: Letters were sent as notice of loss but the subsequent required written notice and pertinent docs had not been submitted as per

the contract. Since the required claim together with the relevant docs which contains the necessary info to ascertain the amount of loss) had not been complied with, ins. co. cannot be deemed to have finally rejected insureds claim and therefore, no cause of action had yet arisen. Compliance is a requirement sine qua non to right to maintain action as prior thereto no violation of petitioners right can be attributable to the ins. co. Before final rejection, there is no real necessity for bringing suit. Action was premature. Sec. 91. Delay in notice or proof of loss waived if caused by insurer or if he fails to object promptly 2 cases of waiver by the insurer of delay in presentation of notice or proof of loss:

1.) Delay is caused by an act of the insurer 2.) 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 Timber immediately filed claim. Insurer requested an adjustment company to inspect & assess the loss BUT later denied the claim. Was notice given by Pacific Timber on time?

YES. The defense of delay raised by insurer cannot be sustained. The law requires that this ground of delay be promptly & specifically asserted when a claim on the insurance agreement is made. (1) Insurer had enough time to determine if Pacific was guilty of delay BUT failed to raise the issue. (2) Delay was never raised in the proceedings which took place with the Insurance Commissioner. Sec. 92. If required by policy as a preliminary proof of loss, the certificate or testimony of person other than insured satisfies it if insured used reasonable diligence to procure it; If person refuses to give it, then reasonable evidence to insurer enough provided refusal is 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, the insured is merely required to exercise due diligence to procure it. If he fails to procure certificate BUT has exercised due diligence, he would be considered to have complied with the requirement. If the third person refuses: Insured must furnish reasonable evidence that the refusal was made NOT coz of disbelief on the part of the third person in the facts necessary to be certified BUT coz of other grounds. Title 11. Double Insurance Sec. 93. When double insurance exists:

1.) Person insured is the same;



2.) Interest insured is the same; 3.) Risk OR peril insured against is the same; 4.) Subject matter insured is the same; and 5.) Two or more insurers insure separately.

Double insurance is NOT the same as over insurance.

Double insurance Over insurance There may be no over insurance as when the sum total of the amts of the policies issued does not exceed the insurable interest of the insured.

Amount of insurance is beyond the insureds insurable interest

Always Several insurers May only be one insurer involved

Stipulation in policy that double insurance is prohibited & violation of stipulation will result in avoidance of the policy is VALID and reasonable. Purpose of prohibition against double insurance: To prevent over insurance & thus avert the perpetration of fraud. The public & insurer are interested in preventing the situation in which a loss would be profitable to the insured. Reason for prohibition of over insurance: An insurance contract is strictly a contract of indemnity & the insured cant profit. The hazard in this is that the insured may be tempted to cause the peril. Pioneer Ins. v. Yap: Yap took a fire insurance policy for his building from Pioneer Insurance which provided that notice shall be given to Pioneer of subsequently effected policies, otherwise, all benefits shall be forfeited. He procured another fire insurance policy for the same property with Federal Insurance WITHOUT notifying Pioneer. When the building burned down, Pioneer denied Yaps claim for violation of the notice requirement. Is Pioneer free from liability?

YES. By plain terms of the policy, other insurance effected without the consent of Pioneer would ipso facto avoid the contract. PURPOSE: to prevent over-insurance & thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a loss would be profitable to the insured. Geagonia v. CA: Geagonia obtained a fire insurance policy over its stock-in-trade from Country Bankers Insurance. The policy provided that (1) insurer be notified of other policies, otherwise, benefits shall be forfeited; (2) nullity shall only be to the extent exceeding P200T of the total policies obtained. Geagonia obtained a policy from Phil First Insurance without notice. He now filed a claim for P100T. Is Country Bankers Insurance liable?

YES. #1 only refers to double insurance. There was no double insurance in this case coz the second insurance was procured by Geagonias creditor-mortgagee which has a distinct &

separate insurable interest. Non-discloure of the former policies were NOT fatal to Geagonias right to recover on the policy. Country Bankers Insurance is also liable coz it was willing to assume the risk provided that the TOTAL insurance does 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 insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;

2.) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured;

3.) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;

4.) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

5.) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which 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 insurable interest of the insured. Example: P6M house. Insured with: X: P4M Y: P2M Z: P6M

1.) Insured can collect payment from each insurer in such order as he may select, up to the amount for which each is liable under its contract. e.g. XYorZ, YXorZ, OR Z only.

2.) If insured already collects P4M from X, he must credit against the valuation of P6M for P4M already received by him without regard to his actual loss. He may recover the difference of P2M from Y or Z or from both so long as he does NOT recover more than P2M. If the insured 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 the value of loss by showing proof of the amount & extent of loss then follow same steps. Just remember that the insured cannot collect more than the value of the loss.



4.) Insurer is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

Formula: Amount of policy x Loss = Liability of insurer

Total insurance

Pro-rata Contribution: X: P4M x P6M = P2M P12M Y: P2M x P6M = P1M P12M Z: P4M x P6M = P3M P12M

If the insured received P6M from Z, X & Y are liable to reimburse Z for their respective shares. However, if there is a pro-rata clause in the policy, where the insurer is liable only for his ratable proportion of the loss, the insured cannot exercise his right under the 1st policy & he may claim only such amt corresponding to his ratable proportion of the loss. If the insured collects more then the ratable liability of the insurer: The insured should hold the excess IN TRUST for the insurers. Formula to Pro-rate: EXCESS x pro-rata contribution (fraction) = Share of insurer from excess Title 12. Reinsurance Sec. 95. Reinsurance: contract whereby one party (reinsurer) agrees to indemnify another (reinsured/original insurer), either in whole or in part, 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 an insured as far as the reinsurer is concerned

Original insurer remains an insurer

SUBJECT: original insurers risk

SUBJECT: Property

Insurance of different interest Insurance of SAME interest Original insured has no interest in the K of reinsurance which is independent of the original K of insurance

Insured is the party in interest in all the contract

Consent of original insured NOT necessary

Consent of original insured necessary

Reinsurance & surety risks shall be deducted in determining the risk retained.

To relieve the insurer from liability under an insurance contract, the insurer must reinsure the risk with a reinsurance company. Read with Sec. 215 retention limits of non-life companies not exceeding 20% of net worth on any one risk. 20% of net worth= MAX liability for ONE subject of insurance EXCEPT life insurance companies Read with Sec. 222 life insurance company cannot reinsure whole risk on one life or all its insurance in force without consent of Ins. Commissioner

Reinsurance Policy Reinsurance Treaty contract of indemnity one insurer makes with another to protect the 1st insurer from a risk it has already assumed.

merely an agreement between two insurance companies whereby one agrees to cede & the other to accept reinsurance business pursuant to provisions specified in the treaty

Contracts OF insurance Contracts FOR insurance Philamlife v. Auditor General: Philamlife & Airco entered into a reinsurance treaty with Airco as reinsurer of Philamlife. Central Bank collected forex margin from the reinsurance premiums. Philamlife contends that it is not liable for the tax since pre-existing obligations were expressly exempt from margin fee. Is the reinsurance treaty 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 to Airco a fixed & obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides is that Philamlife agrees to reinsure. The treaty speaks of a probability & not a reality. For without reinsurance, no premium is due. Sec. 96. Requirement when insurer obtains reinsurance: Communicate all

1.) Representations, 2.) Knowledge & 3.) Information

he possesses that are material to the risk Things that insurer-reinsured must communicate to the reinsurer:

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

2.) All the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.

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



necessary due to the self-executing and the automatic feature of such reinsurance treaty. Sec. 97. Reinsurance presumed indemnity contract against liability and not merely against damage Nature of reinsurance contract: Reinsurer agrees to indemnify insurer NOT against actual payment but against liabilities incurred. Thus, it is by no means necessary that the insurer shall first have paid a loss accruing, as a condition precedent to his demanding payment of the reinsurer. Reason: SM of contract is the INSURERS RISK and NOT the property insured under the original policy. Sec. 98. Original insured (in insurance contract) has no interest in reinsurance contract Reinsurance contract: Contract between reinsured & reinsurer by which the later agrees to protect the former from risks already 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 avail itself of every defense which the reinsured might urge in an action by the person originally insured. e.g. reinsurer not liable if reinsured not liable to original insured. Reinsurer liable only to 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 against losses suffered by reason of the policies carried by him the original insured has ABSOLUTELY no interest in the contract & is a total stranger to it.

2.) If the reinsurance contract contains a stipulation assigning the right of the insurer in favor of the insured, then the insured may go after the reinsurer as an assignee. But the insured-assignee will have no rights greater than that vested in the insurer-assignor.

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

Artex Dev. Corp. v. Wellington Insurance: Wellington issued an insurance policy over the buildings, stocks, & machinery of Artex. Later, Wellington reinsured 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 was undergoing financial difficulties, it should be allowed to go after Alexander & Alexander for the balance. Can Artex recover from Alexander (reinsurer)?

NO. Artex NOT being a party or privy to Wellingtons reinsurance contracts, could not directly demand enforcement of such reinsurance contracts.

UNLESS there is a specific grant in or assignment of the reinsurance contract in favor of the insured or a

insurance crammer

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