Insurance Reviewer

The question of whether a contract of insurance is perfected is NOT governed by the Insurance

Code but by the New Civil Code (re: perfection of contracts). The NCC applies in a suppletory

character.

SECTION 2 defines a contract of insurance. Sec. 2 (1) says that a contract of insurance is an

agreement whereby one undertakes for a consideration to indemnify another against loss,

damage or liability arising from an unknown or contingent event.

Suretyship is different from an insurance contract because there are three parties in suretyship

and when the surety pays, he is entitled to reimbursement. In insurance, when the insurer pays,

he is not entitled to reimbursement.

Underlying concept in insurance: it deals with a scheme of distribution of risk/loss.

An insurance contract has the following elements:

1. Insurable interest the insured possesses an interest of some kind susceptible of pecuniary estimation

2. Risk of loss the insured is subject to a risk of loss through the destruction or impairment of the above insurable interest by the happening of designated perils

3. Assumption of risk the insurer assumes the risk of loss mentioned above 4. Scheme to distribute losses the said assumption of risk is a part of a general scheme (plan) to distribute actual losses among a large group of persons bearing somewhat similar risks; and

5. Payment of premiums as consideration for the insurers promise to assume the risk and pay the losses from such risk, the insured makes a ratable contribution, called a premium, to a

general insurance fund

If you only have insurable interest, risk of loss and assumption of risk of loss, you do not have a

contract of insurance. It is a mere risk-distributing device. But if it has all of the five, it is a

contract of insurance whatever its name or form.

What if it involves services? Like Maxicare? (-- I did not get this part, sorry.)

The following are the characteristics of an insurance contract:

1. Aleatory it is an aleatory but not a wagering contract. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what

the other shall give or do upon the happening of an event which is uncertain, or which is to

occur at an indeterminate time (Art. 2010, NCC)

2. Unilateral a contract of insurance is wholly executed on the party of the insured by the payment of the premium, and remains executory on the part of the insurer, subject to the

condition of the happening of the event insured against.

3. Personal it is personal in the sense that each party to it, in entering into the insurance contract, takes into account the character, credit and conduct of the other.

4. Conditional the insurers liability is based on the happening of the event insured against 5. Indemnity is the basis

The general scheme/outline of the law on insurance

1. First it talks of who are the parties to the contract of insurance, the requisites to a valid

contract: object, consent, consideration (Sections 1 to 25)

a. Object insurable interest b. Consent what vitiates consent (Sec. 26)

c. Consideration premium 2. Then it proceeds to the perfected contract of insurance

3. Then the obligations under the contract of insurance

4. It then speaks of other types of insurance contracts

SECTION 4 prohibits insuring ones chance in a wagering contract, in any lottery or in gambling, whether or not gambling is permitted by law. What is prohibited is not only a chance

in lottery but all forms of gambling and wagering. See SECTION 25 which declares that every

policy executed by way of gambling or wagering is void.

SECTION 6 answers the question who may be an insurer?

SECTION 7 answers the question who may be insured? A public enemy is every citizen or subject of a nation at war with the Philippines. It does not include robbers, thieves, private

depredators, or riotous mobs. A local criminal can be insured if the insurer is willing to take

him as a good risk. The citizen of a country with which we do not have diplomatic relations is

not a public enemy and can be insured.

SECTION 8 speaks of a mortgage clause in an insurance contract. This is common in car

insurance. It may be provided therein that in case of loss, the proceeds will be paid to the

mortgagee. But it is still the mortgagor who is the insured so he is the only one who can sue

thereon.

Under the Civil Code, when the insurer pays, he is subrogated to the rights of the insured

against the wrongdoer.

SECTION 10 speaks of insurable interest in life and health. The general rule is that a person

may designate anyone to be his beneficiary. The exception is Art. 739 of the Civil Code in

relation to Art. 2012 (prohibited donations). See the case of Insular Life v. Ebrado, L-44059,

Oct, 28, 1977 which says that the reason for the exception is that a life insurance policy is no

different from a civil donation insofar as the beneficiary is concerned coz both are founded

upon the same consideration: liberality. Therefore the rule on prohibited donations apply in

cases life insurance.

When you insure the life of another, the consent of that person must be obtained and there must

also be insurable interest over the life of that person.

SECTION 11 says that the insured has the right to change beneficiary unless he has waived this

right in the said policy. Remember that if the designation of the beneficiary is irrevocable,

change of beneficiary can only be made with the consent of the said beneficiary.

SECTION 12 says that the interest of a beneficiary who is a principal, accomplice or accessory

to the killing of the insured will go the estate of the insured (intestacy). The beneficiary shall

not benefit from his criminal act.

(Yun lang nasa notes ko J - January)

DECEMBER 17, 2001 Peachy Selda

ANSWERS TO THE QUIZ:

1. (a) The obligation to pay here is conditional - upon completion of the building. He promised

to pay upon completion of the building; that is conditional , thats not unconditional. (b) Then it contains the option to do something other than the payment of money for the maker

is given the option to pay either in check or cash. Well, check is not cash, not money, so theres an option to do something. So, thats not negotiable. (c) Theres an acceleration clause, well thats express provision of the law. That is negotiable. The payees alternative, the law allows that the sum is uncertain because of the 18% interest in case of default Well, if a high penal interest is imposed in case of default the sum is uncertain-

thats the penalty. 2. Guzman cannot recover from Estrera because he is not a holder in due course. He was aware

that the power of attorney had been revoked so hes not a holder in due course. Therefore, Estrera can raise the defense that the check was filled up without authority.

3. Sison entrusted to his employee a check in favor of Jalandoni. Ilagan forged the endorsement

and encashed the check. The bank state the amount, the bank argue there is an estoppel, because

Sison did not represent to the bank that Ilagan was authorized to indorse the check. Theres no representation made; theres no estoppel. 4. Lopez issued a check payable to the order of Martin Martin indorsed in blank to Noble Noble indorsed by special endorsement to Ocampo, Ocampo delivered it to Paz. It turned out

that the bank account of Lopez was closed, so Paz to Lopez as drawer. Lopez argued he is not

liable because Martin failed to deliver the rice which was the consideration of the check. Can

Martin invoke this defense? Yes, because the check was originally payable to order it was

endorsed in blank, but then the next endorsement was a special endorsement so it was payable

to order again, it will only be payable to bearer if the last endorsement is an endorsement in

blank. But the last endorsement is a special endorsement and therefore to negotiate it delivery is

sufficient because Ocampo merely delivered it.

5. Reyes issued a check payable to Santos Trading, Torres, the cashier, was authorized to

endorse check in his behalf. He endorsed the check to Conson to pay for his personal debt. The

check was dishonored for lack of funds. When Conson asked Reyes to make for the check,

Reyes argued that Santos Trading did not deliver the supplies he purchased. Conson argued that

he is a holder in due course. Well, hes not a holder in due course because the check was payable to Santos trading and then pursued in order to pay for his personal debt. So we should

know that the title is defective. The check was payable to the corporation, therefore any

endorsement should be for the corporation. However here, he endorsed it to pay for his personal

debt.

BACK TO INSURANCE: (Note: jack did not go by sections in this lecture)

INSURABLE INTEREST IN PROPERTY

Sec. 13 deals with insurable interest in property.

Interest in property has the classic example, that is the ownership or any relation there to the

trustee or liability, like the third partys liability insurance for motor vehicle, so theres an insurable interest.

An insurable interest in property may consist of an existing interest. Again the classic example

is ownership with interest found in an existing interest, like stockholders can insure the

properties of the corporation because they have an existing interest as stockholders, and in quo

with interest because in case of dissolution of the corporation the assets will be distributed

among the stockholders by way of liquidating dividends.

This is common. A foreign corporation sets up a domestic subsidiary and usually there is one

insurance company abroad with which they insure the assets of their subsidiary here. They can

do that, an expectancy coupled with an existing interest in that out of which expectancy arise; in

the same way as farmers can insure their future crops.

So, you have many examples of insurable interest.

Like the court said, the buyer of undelivered property in that Filipino Merchants case, that the

consignee of the goods that were stolen in the pier can be claimed and the defense of the

insurance company is the insurable terms of the buyer. He has equitable interest. The seller also

has an insurable interest because he still retains the legal title and unpaid salary with a lien on

the property.

A mortgage insurable interest on the property mortgaged, for example: a contractor who has not

been paid under the Civil Code has a lien on the building he constructed so he can insure that

building. In fact the Civil Code also says, until the construction is finished it is the contractor

who bears the risk of loss, so he can insure the building that he is constructing.

A lessor, a lessee can insure the premises he is leasing. Theres an interest in its preservation. Or even mere possessory rights is sufficient- like the case of a Jewish garment factory. They

send textiles to garment factories to be converted into finished dresses. These factories also

have insurable interest over the garment packed. The court also ruled that if textiles are

delivered to be dyed, that fellow who was hired to dye the textile should have insurable interest

on that.

The law provides that the carrier and the depository have insurable interest on the property

entrusted to them because they will be liable in case of loss.

On the other hand, a mere expectancy that is founded on the actual right is not insurable, like

the prospective heirs of somebody. Children cannot insure the properties of their parents, for

there is a mere expectancy.

The Court of Appeals has ruled that where you have a simulated deed of sale, the buyer has no

insurable interest because he is not actually the owner.

Heres the case of Chuck. There was this landlord who required his tenant to insure his stocks in trade. It is still ok to require it to insure. Usually it is the commercial centers part, in addition to

the basic rent. They charge 5% of your gross sales, so they want to make sure you always have

the stocks in trade so that if they get burned, you can replace them. But then the contract

provided that in case of losses, the proceeds should be payable to the lessor. The court says that

is void because theres no insurable interest in the stocks in trade. So, a review on the loan agreement was required in a case where a bank was found to require the borrower to insure the

building, but the building was not mortgaged. Moreover, a provision was placed that in case of

loss, the proceeds should be payable to the bank. That is void. You have no insurable interest

because you have no lien on the building. The building is insured, but its not mortgaged to you.

The Court of Appeals ruled that smuggled properties couldnt be insured because smuggled properties are subject to forfeiture under the law. To allow therefore its insurance is against

public policy.

Now, no contract of insurance shall be enforceable except for the benefit of the person having

an insurable interest in that property insured. Moreover, in property insurance, the insurable

interest must exist when the policy takes effect and when the loss occurs, but it need not exist in

the meanwhile.

If somebody insured his car and then sold it, but then it got lost, he cannot recover because he

no longer has any insurable interest. But if he redeemed it and the loss occurred after he has

redeemed the car, he can still collect.

This (inaudible) case was asked in the bar exam. The owner of the building insured the

building. Now, the building was mortgaged and the mortgage was foreclosed, but he failed to

redeem that. After the expiration of the period of redemption, the building was burned. The

court said he cannot collect. He had no more insurable interest. But if he still has the right of

redemption, he will also have insurable interest.

Insurance is a personal contract because it is not attached to the thing. That is why the law says

change of interest on the thing insured will suspend the insurance until interest in the insurance

is based on same person.

As a general rule, when a car is insured and it is sold, the insurance policy does not

automatically attach to the buyer unless you get the consent of the insurance company and it

issues an endorsement saying the policy is being assigned to the buyer. There are however

exceptions to that - in case of insurance upon life, accident or health, then a change of interest

inaudible the thing insured after the loss has occurred. Again, somebody insured the building.

The building was burned. He then assigned the proceeds of the policy because at that point in

time, the right to collect the proceeds has already accrued. There is now a chose in action which

can be assigned or a change of interest in one or some of several things separately insured by

one policy.

Heres a taxi company with a fleet of taxis, 20 units. The taxicabs were insured. The owner sold 3 of them. The policy will remain subsisting. It would remain with respect to the remaining 17

units of taxicabs.

A change of interest by succession because of death like, heres a father who insured his house. When he died, his children inherited the house. The policy will remain in force.

The transfer of interest by one of several partners or co-owners - like here are brothers who

inherited a building. They insured it. Then one of them bought out the other three, so he became

the exclusive owner. The policy remains in force so that if it is burned he can collect.

A stipulation for payment of loss whether or not the person insured having insurable interest is

void.

The policy or provision that executes by way of gaining or wagering is void.

In case the lessor requires the lessee to insure his stocks in trade and to provide that in case of

loss the proceeds be payable to him is of course void because he has no insurable interest in

stocks in trade.

Wagering, well, I mentioned to you the case of this fellow who got an ordinary manual laborer

earning minimum wage to insure his life with 6 insurance companies for fantastic amounts and

he named this person beneficiary and it was the person paying for the premiums. The Court of

Appeals disallowed the collection of the proceeds when that person died. This is a poor manual

laborer earning minimum wage. He was asked to insure his life with this well to do person as

beneficiary and this was this fellow paying for the premiums. The court said that this person is

actually wagering on the life of that manual laborer. He chose his life but the beneficiary is not

his relative. This total stranger who asked him to insure his life and was actually paying for the

premiums, he was actually wagering on his life.

After discussing the object of the contract, insurance next deals with consent, in the scheme of

the law. The law mentions what will vitiate consent concealment and misrepresentation.

CONCEALMENT

Concealment is the neglect to communicate that which a party knows and ought to

communicate. It need not be intentional or fraudulent to entitle the insured to rescind the policy.

Originally, the law requires that concealment must be intentional. But then Mambabatas

Pambansa Hernando Perez amended that to eliminate that requirement because the Supreme

Court says it is very difficult to prove fraudulent intent. Even if the concealment was not made

with fraudulent intent, the fact remains that the insurance company was misled into entering

into a contract, which it would have not entered into had it known the facts, or it would have

charged a higher premium.

To constitute concealment, there are four requisites:

The party making the concealment must have the knowledge of the fact concealed;

The fact concealed must be material to the policy;

The party making the concealment makes no warranty as to the fact concealed;

The other party does not have the means of ascertaining the fact concealed.

Concealment often happens in life insurance. Where the applicant for a life insurance did not

disclose that he was sick because he was not aware of it. Thus, theres no concealment. Now, when is the fact concealed material? The law said materiality is determined by the

probable influence of a fact upon the party to whom the communication is due, informing his

estimate of the disadvantages of the proofs. The contract makes inquiries. In other words, if the

fact had been disclosed, would the insurance company have issued the policy or would have it

willing, but for a higher premium?

Time and again, the courts have said that the failure to disclose serious ailments in life

insurance would constitute concealment. This would usually involve cancer, tuberculosis,

asthma, diabetes, high blood pressure, kidney ailments, liver disorders.

There was this Grepalife case where the parents insured the life of their daughter. However,

they did not disclose that their daughter was a mongoloid. The court said thats concealment, so that is a material fact that the baby was a mongoloid. (WARNING: this would be a result of late

childbirth when the mother is in her late thirties or early forties when you have the risk to have

mongoloid baby because the quality of the ovum starts deteriorating after age 25. So it is

advisable to get pregnant as early as possible!)

But the failure to disclose an ailment which is merely temporary and light is not material. That

will not be concealment - like the failure to disclose that the applicant for a life insurance has

cough or sore throat, or say when he was in high school he was playing basketball he broke his

leg, or the failure to disclose that when he gets drunk he has stomach discomforts. Thats minor and need not be disclosed. Then the party may conceal and makes no warranty. Why? If he

makes a warranty, the defense of the insurance company will be breach of warranty not

concealment. The insurance company will still escape liability but on the ground of breach of

warranty.

Lastly, when the other party has the means of ascertaining it - like if a typical application for

life insurance policy, theres a question there had you been by the way, theres that law on AIDS - theres a provision there that it is prohibited for an insurance company to refuse to insure the life of someone who suffered AIDS, provided that the applicant discloses that the

suffered from AIDS. I think thats quite questionable on constitutionality. Now the last requirement - does the other party have the means of ascertaining it? In the typical

application, theres a question there: Have you been hospitalized? And the applicant mention there, yes, I was hospitalized, say at the Makati Medical Center, and he gave the date, but then

he did not disclose for what ailment. In this case, theres no concealment because the insurer was already informed that he was hospitalized in a particular hospital, and even the date was

mentioned. The application will usually require the waiver of the confidentiality of his hospital

records. So with that lead, the insurance company could have inquired. If they did not do so,

they could not complain that there was concealment because they could have made inquiries

based on that lead.

(Side B) Insurance agents are very aggressive. They always want to close the deal. The

Supreme Court said that if the insurance agent fills up the application for the insured and then

the applicant signs it, he will bound if theres any concealment because by allowing the agent to fill up for him, he makes the agent of the insurance company his own agent for purposes of

filling out the insurance application. However, the law says, either party is required to disclose

that which the other party knows.

Now theres somebody applying for a fire insurance policy. So the insurance company sent its inspectors to the place. They saw that it is located in the slum area while the neighbors houses are made up of flimsy materials. Then they issued a policy. They cannot claim that you did not

disclose to us that your neighbors are squatters that their houses are not made up of hollow

blocks or concrete but are made up of plywood and cardboards which when your inspectors

went there, you know; or which in exercise of ordinary care, the other ought to know or has no

reason to suppose him ignorant.

Like during the gulf war, an insurance company insured an oil tanker there, which turned into a

loss. You cannot say why did you not tell us that the gulf war was going on, you should know.

There was a case decided by the Court of Appeals, where a nurse was living and residing in

Pampanga. She obtained a personal accident insurance policy, and the hospital where she was

assigned was located also in Pampanga. Now the insurance company was denying liability on

the ground that there was concealment you did not tell us that the peace and order situation in Pampanga is poor. The court said (this was in the 60s and 70s) its of public knowledge that Pampanga was the hot bed of the dissident movements and you should know. There was no

need for the insured to disclose that the Huk element were active in Pampanga.

And those in which the other waives communication or those which prove or tend to prove the

existence of a risk excluded or a risk excepted. For instance, your fire insurance policy usually

provides that it will not answer to loss due to rebellion, sedition, coup de etat, riot. If the insured

did not disclose that there are members of the NPA roaming in the place, exacting revolutionary

taxes from the establishments there, and burning the properties of those who refuse to comply.

The insurance cannot claim you did not disclose that to us, because loss was due to insurgency,

rebellion would be excluded anyway in the policy.

Now even if the loss was not due to a fact concealed, the insurance company is not liable - like

somebody who applied for a life insurance policy. He did not disclose he had kidney ailment

and he died in a plane crash. The insurance company is not liable although the death was not

due to kidney ailment. The fact remains that the insurance company was misled into issuing a

policy it would not otherwise have issued because that risk was not acceptable.

Information as to the nature of interest need not be disclosed except in property insurance, if the

insured is not the owner. If somebody is insuring properties of which he is not the owner, he

must disclose why he has insurable interest that would entitle him to insure it.

The party is not bound to communicate information of his own judgment. Do you think youre in good health and you will live long? Even if he does not answer that, it is still not

concealment.

MISREPRESENTATION

The other matter that would vitiate consent is misrepresentation. Misrepresentation is a

statement by an applicant about the subject matter being insured. In other words, these are

statements made to induce the other party to enter into a contract. They are not part of the terms

and conditions of the contract but rather, are statements to induce the party to enter into a

contract.

The law says, a representation is presumed to refer to the date on which the policy goes into

effect. That somebody insure his vessel for a trip say from Manila to Cebu on January 5 and he

represents, my vessel is in Manila, when actually the vessel is in Curimmao. There is no

misrepresentation, provided on the date the policy takes effect, the vessel is actually in Manila.

This is because the representation should be deemed to refer to the date when the policy takes

effect.

The representation cannot qualify an express provision on the policy, but may qualify an

implied warranty. You have implied warranties in marine insurance, which will be taken up

later on.

Now, representation is false when the facts do not correspond with the assertion. You have this

Ng Gan Zee case where a person applied for a life insurance policy with a question: Have you

ever applied for a life insurance policy or asked for the reinstatement of a lapse insurance policy

and your application was denied? He said no. It turned out however, that there was one time

where his policy lapsed and he applied for its reinstatement. Initially, his application was

disapproved but eventually it was approved but with a higher premium. The court said that there

was no misrepresentation because although initially the application for reinstatement was

disapproved, it was eventually approved.

The law says that if the insured has no personal knowledge of a fact, he may repeat the

information, which he has on the subject and which he believes to be true. The explanation is

based on the information of others.

In a typical application for a life insurance policy, theres a question there asking whether your parents/brothers have tuberculosis, heart ailments, etc. or if they died, or of what they died of.

Like somebody whose parents died of tuberculosis, they died when he was still a small child but

then his aunts/uncles told him that his father was a soldier, was a hero who died in the line of

duty and that was what he told. So theres no concealment, no misrepresentation. You have the Ng Gan Zee case again, where the insured was operated for tumor associated with

peptic ulcer. He was operated with peptic ulcer but then he said he was operated for tumor

associated with ulcer. The court said hes not guilty of misrepresentation because he relied on what the physician told him.

In determining whether representation is material, the test is the same as in the case of

concealment: would the insurance company have issued a policy had it known the fact or would

it have issued it and asked for a higher premium. Example, a typical question: Have you ever

consulted a physician? Said no, but actually hes a regular patient of a physician, so theres misrepresentation.

A typical misrepresentation is the failure to disclose the applicant is suffering from a serious

disease like tuberculosis, asthma, heart disease, kidney disorders, high blood pressure.

Theres a case where the applicant was a drug addict, but in the application is stated there that he never used morphine, cocaine or any prohibited drugs. There is misrepresentation. Where the

applicant knows he has tuberculosis and he asked somebody else in good health to take his

place during the examination. That is misrepresentation. In big banks, they have this bankers blanket policy to insure against loss due to defalcation by the tellers. In the application, the insurance would be interested to find out about their system of controls whether they have

adequate systems control. In one case, a bank was asked and it stated that all transactions are

pre-audited by an internal auditor. It turned out to be false. That is misrepresentation.

But when somebody was asked Do you take alcoholic drinks? Said No, but he would take small quantities of alcoholic drinks occasionally if theres party, well that is not material. That is not misrepresentation.

Or there was a question: Have you ever consulted a physician? Said No. Actually, he underwent

a test in the hospital, but the test showed that he was in perfect health. There is no

misrepresentation because he was in good health. Thus, it would not have affected the decision

of the insurance company to accept the application.

In one case where the policy says it is good only up to age 60. The insured stated there his date of birth and obviously, if you compute that, hes over 60, but the insurance company accepted the application and accepted the premiums. The Court said that the insurance company

is deemed to have waived the misrepresentation. The law provides that if the insurance

company is aware of the misrepresentation and it accepted the policy, it will be deemed to have

waived the misrepresentation.

Again, if theres a misrepresentation, even if the loss was not due to the fact misrepresented, the insurance company will not be liable. Again, in the case where a fellow misrepresented that hes in good health, but died in a plane crash, the insurance company was misled into issuing an

insurance policy it would not have otherwise issued. Thus, it is not liable for the value of the

insurance.

19 December 2001 Pepper

(Caveat: this is not a transcription of jacks lecture. We all thought were having a christmas party that day. This is a summary of our insurance reviewer and Agbayani.)

REPRESENTATION

SECTION 36. A representation may be oral or written.

SECTION 37. A representation may be made at the time of, or before, issuance of the policy.

Misrepresentation

Statement as a fact of something which is untrue and which the insured states with knowledge

that it is untrue and with an intent to deceive, or which he states positively as true without

knowing it to be true and which has a tendency to mislead, where such fact in either case is

material to the risk.

SECTION 38. The language of a representation is to be interpreted by the same rules as the

language of contracts in general.

SECTION 39. A representation as to the future is to be deemed a promise, unless it appears that

it was merely a statement of belief or expectation.

SECTION 40. A representation cannot qualify an express provision in a contract of insurance,

but it may qualify an implied warranty.

SECTION 41. A representation may be altered or withdrawn before the insurance is effected,

but not afterwards.

SECTION 42. A representation must be presumed to refer to the date on which the contract

goes into effect.

SECTION 43. When a person insured has no personal knowledge of a fact, he may nevertheless

repeat information which he has upon the subject, and which he believes to be true, with the

explanation that he does so on the information of others; or he may submit the information, in

its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it

proceeds from an agent of the insured, whose duty it is to give the information.

Distinction between ordinary and marine insurance as to information from others

1. Ordinary Insurance it is within the discretion of the insured to transmit information of a fact of which he has no personal knowledge. If he chooses to do so, he shall not be responsible for

its truth unless it proceeds from an agent of the insured, whose duty it is to give the information

2. Marine Insurance information of the belief or expectation of a third person in reference to a material fact is material. The insured is not given the discretion to transmit or withhold

information. He is required to give such information whether the third person is his agent or not.

Harding v Commercial Union Assurance Company

Harding bought a car worth P2,800. The agent of an insurance company appraised it and

declared its present value to be P3,000. Harding had the car insured. The car was subsequently damaged because of fire. The insurer refused to pay saying that the cars value is only P2,800 and not P3,000. Held: Insurer liable. Where it appears that the proposal form, while signed by

the insured was made out by the agent of the insurer, the facts stated in the proposal even if

incorrect will not be regarded as warranted by the insurer, in the absence of willful

misstatement. Under such circumstances, the proposal is to be regarded as the act of the insurer.

SECTION 44. A representation is to be deemed false when the facts fail to correspond with its

assertions or stipulations.

Representations are not required to be literally true unlike warranties. It is sufficient that they

are substantially true.

Insular Life Co. v Pineda

It is not misrepresentation for the insured to state that he did not drink beer or other intoxicants

if he drank very seldom.

SECTION 45. If a representation is false in a material point, whether affirmative or promissory,

the injured party is entitled to rescind the contract from the time when the representation

becomes false. The right to rescind granted by this Code to the insurer is waived by the

acceptance of premium payments despite knowledge of the ground for rescission.

Egueras v GREPALIFE

A sickly person filed an application for life insurance. During the medical examination

conducted by the insurer to determine the fitness of the applicant, a robust and healthy person

appeared pretending to be the applicant. Held: The contract is avoided on the ground of

fraudulent misrepresentation.

Musngi v West Coast Life Assurance Inc.

Garcia was insured by West Coast twice since 1931. In both policies, he answered in the

negative when asked if he consulted any doctor. It turned out that he actually consulted a

number of physicians for different ailments. When he died, the insurance company refused to

pay. Held: Refusal to pay is justified. The concealment and false statements constituted fraud

because the insurance company accepted the risk on the strength of such statements which it

would otherwise have rejected.

Edillon v Manila Bankers Life Insurance Co.

In April 1969, Lapuz applied for insurance stating her date of birth to be July 11, 1904

(meaning 65 years old na siya). She died in a car accident. The insurance company refused

payment saying that the certificate of insurance contained a provision excluding liability to pay

claims to persons under 16 and over 60. Held: Lapuzs age was not concealed. Her application form reveals her true age and the company had all the time to process the application form and

notice that Lapuz was already 64 years old.

Stokes v Malayan Insurance Co.

Adolfson had a subsisting insurance policy when his car collided with another vehicle. Stokes,

an Irish citizen who had no Philippine drivers license, was the one driving the car. He had a valid Irish license but he had been in the Philippines for more than 90 days when the collision

occurred. Adolfson claimed on the policy contending that Stokes was an authorized driver.

Held: Insurance company not liable. When an insurer is called upon to pay in case of loss or

damage, it has the right to demand strict compliance with the contract. In this case, Stokes may

not be considered an authorized driver under the policy because authority must come not only

from the insured but also the law. Stokes is not authorized under the law to drive because he has

no license.

Gonzales La O v Yek Tong Lin Fire Insurance

Gonzales was issued two fire insurance policies with provisions prohibiting Gonzales from

entering into other insurance contracts. Fire broke out. Yek refused to pay because Gonzales

violated the prohibition. Gonzales however was able to prove that Yek knew of the violation

long before the fire but did not make any effort to rescind the policies and even collected

premiums on the policies. Held: The action of the insurer constituted waiver of the right to

annul the insurance policies.

Tan Chay Heng v West Coast Life Insurance

Tan Caeng declared in his application that he was single, a merchant, healthy and not a drug

user when he was actually marries, a laborer , suffering form tuberculosis and addicted to drugs.

Upon his death, the designated beneficiary tried to collect from the insurer but the latter denied

liability. The beneficiary contends that the insurer cannot now rescind the contract because an

action for collection has already been filed. Held: Insurers action is not for rescission and therefore not barred. Rescission contemplates the existence of a contract. What is involved in

the case at bar is a contract which is void ab initio because the defense was fraud in its

execution.

*In marine insurance, the misrepresentation must be false.

SECTION 46. The materiality of a representation is determined by the same rules as the

materiality of a concealment.

Test of materiality

Probable and reasonable influence of the facts upon the party of whom the representation is

made in forming his estimate of the disadvantages of the proposed contract or in making his

inquiries

SECTION 47. The provisions of this chapter apply as well to a modification of a contract of

insurance as to its original formation.

SECTION 48. Whenever a right to rescind a contract of insurance is given to the insurer by any

provision of this chapter, such right must be exercised previous to the commencement of an

action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in

force during the lifetime of the insured for a period of two years from the date of its issue or of

its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible

by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

* this provision applies to concealment, misrepresentation and falsity of warranties.

When insurer may exercise his right to rescind:

1. Non-life policy prior to the commencement of an action on the contract

2. Life policy a period of two years from the date of issue or last reinstatement of the policy (aka incontestable clause)

Tan v CA

Tan was issued a policy by PHILAMLife in November 1973. He died in April 1975.

PHILAMLife refused payment and in September 1975 notified the beneficiaries that it is

rescinding the contract on the ground of misrepresentation. The beneficiaries contend that

rescission should be done during the lifetime of the insured. Held: PHILAMLife can still rescind. The phrase during the lifetime only means that the policy is no longer in force after the insured died. The key phrase is for a period of two years. Where the insured died less than 2 years after the date of issue or last reinstatement, the policy could never become incontestable.

Paulino v Capital Insurance Co.

There is a difference between termination by the insured and by the insurer. Termination by the

insured requires only a request of such termination. Termination by the insurer requires the

refund of the portion of the premium proportional to the unexpired term of the policy.

THE POLICY

SECTION 49. The written instrument in which a contract of insurance is set forth, is called a

policy of insurance.

The Policy is the measure of insurers liability

Ty v Filipina Compania

Where an insurance policy defines partial disability as loss of either hand by amputation through the bones of the wrist, the insured cannot recover under the same policy for temporary disability caused by fracturing of the hand. (loss of legs includes permanent paralysis of both legs, Panaton v Malayan Co. Inc)

Del Rosario v Equitable Insurance and Casualty Inc.

Equitable issued an accident policy on the life of the insured, binding itself to pay P1000 to

P3000. The insured died. Held: Liable for P3000. Art 1377, Civil Code: The interpretation of

the obscure provisions of a contract should not favor the party that caused the obscurity.

Jarque v Union Fire Insurance

Types rider prevails over printed clause in case of inconsistency.

SECTION 50. The policy shall be in printed form which may contain blank spaces; and any

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

contract of insurance shall be written on the blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance

and which is pasted or attached to said policy is not binding on the insured, unless the

descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and

written on the blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued

after the original policy shall be countersigned by the insured or owner, which countersignature

shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and need not be in

printed form.

Rider a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part thereof. They usually contain additional stipulations between the

parties.

Warranties are inserted or attached to the policy to eliminate specific potential increases of hazard during the policy term owing to actions of the insured or conditions of property.

Clauses agreements between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss

Examples of Clauses:

1. Three-fourths clause where the insurer is liable only for of the loss or damage 2. Loss payable clause where the loss, if any, is payable to the named party or parties, as their interest may appear

3. Change of ownership clause where insurance will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured

Enriquez v Sun Life Assurance of Canada

Herrer applied life annuity with SunLife. He paid the sum of P6,000 and was given a receipt.

His application was approved. A letter notifying him of the approval was made but there was no

proof that it was actually mailed or accepted by Herrer. Herrer died. Held: SunLife not liable.

The contract of insurance was not perfected absent any showing that acceptance of the

application ever came to the knowledge of the applicant.

Tang v CA

In September 1965, Lee Su Guat, an illiterate who spoke only Chinese, applied for life

insurance. The application was in English. Lee Su Guat declared that she was of good health.

The application was approved. A second application was filed in November 1965 and

subsequently accepted. Lee Su Guat died in April 1966 of lung cancer. The insurer denied

liability. The beneficiary claims that since the insured was illiterate and the policy was in

English, the insurer must show that it had fully explained the terms of the policy to the insured,

otherwise, the insurer will not be guilty of misrepresentation. Held: Insurer not liable. It was

under no obligation to prove that the terms of the insurance contract was fully explained to the

other party.

SECTION 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;

(b) The amount to be insured except in the cases of open or running policies;

(c) The premium, or if the insurance 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 which

the final premium is to be determined;

(d) The property or life insured;

(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

(f) The risks insured against; and

(g) The period during which the insurance is to continue.

SECTION 52. Cover notes may be issued to bind insurance temporarily pending the issuance of

the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu

thereof, including within its terms the identical insurance bound under the cover note and the

premium therefor.

Cover notes may be extended or renewed beyond such sixty days with the written approval of

the Commissioner if he determines that such extension is not contrary to and is not for the

purpose of violating any provisions of this Code. The Commissioner may promulgate rules and

regulations governing such extensions for the purpose of preventing such violations and may by

such rules and regulations dispense with the requirement of written approval by him in the case

of extension in compliance with such rules and regulations.

GREPALIFE v CA

Ngo filed an application with GREPALIFE for a policy on the life of his 1-year old daghter. He

submitted an application form and gave the premium to the insurers agent for which a binding deposit receipt was issued to him. The application was denied but the agent, instead of notifying

Ngo wrote back the insurer, strongly recommending the acceptance of the application. The chils

died in the meantime. Ngo claimed on the binding deposit receipt saying that it constituted a

temporary contract of life insurance. Held: Insurer not liable. A binding deposit receipt was

merely an acknowledgement of receipt of the application for processing by the insurance

company. A binding receipt is manifestly merely conditional and does not insure outright.

Pacific Timber Corp v CA

Pacific secured temporary insurance for the exportation of logs. A cover note was issued

securing the cargo. Marine policies were subsequently issued on the cargo but prior to such

issuance, some of the logs were lost. Pacific now claims against the insurer. The insurer denies

liability contending that the loss may not be considered as covered under the cover note because

such became null and void by virtue of the issuance of the marine policy because of lack of

consideration. Held: Insurer liable. Cover note issued for consideration. No separate premiums

are required on cover notes. (?)

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the

person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Exceptions:

1. Art 739, Civil Code

a. between persons guilty of adultery or concubinage

b. in favor of a public officer, his spouse or child, by reason of his office

c. between persons guilty of a crime in consideration thereof

2. Section 12, Insurance Code

When the beneficiary is the principal, accessory or accomplice in willfully bringing about the

death of the insured

Bonifacio Brothers v Mora

Mora mortgaged his car to Reyes with thew condition that the former will insure the car with

the latter as beneficiary. Mora complied. The car figured in an accident and was brought for

repairs to Bonifacio Motors. Materials for the repair were provided by Ayala Auto Parts. The

car having been delivered to Mora without the costs of repair being paid, Bonifacio and Ayala

filed a complaint against the insurer for collection. Held: Payment must be made to Reyes.

Bonifacio and are not named beneficiaries. Their recourse is to collect from whoever brought

the car to them for repairs.

Coquia v Fieldmans Insurance Co. Inc. Fieldman issued in favor of Manila Yellow Taxicab insurance policies in favor of fare-paying

passengers, drivers and/or conductors. A driver met an accident while driving a cab. His heirs

filed a claim against Fieldman. Fieldman refused to pay on the ground that the heirs have no

contractual relationship with the company. Held: Fieldman liable. Although in general only

parties to a contract may bring an action based thereon, this rule is subject to exceptions. Article

1311, Civil Code (contracts pour atrui): If a contract shuold contain a stipulation in favor of a

third person, he may demand its fulfillment provided he communicated his acceptance to the

obligor before its revocation.

Lampano v Jose

A is a building contractor of the house of B. A insured his interest in the house for P7,800. His

interest is actually only P7,000. The house is burned. Held: B is not entitled to the P800 in

excess of the interest of A.

SECTION 54. When an insurance contract is executed with an agent or trustee as the insured,

the fact that his principal or beneficiary is the real party in interest may be indicated by

describing the insured as agent or trustee, or by other general words in the policy.

SECTION 55. To render an insurance effected by one partner or part-owner, applicable to the

interest of his co-partners or other part-owners, it is necessary that the terms of the policy

should be such as are applicable to the joint or common interest.

SECTION 56. When the description of the insured in a policy is so general that it may

comprehend any person or any class of persons, only he who can show that it was intended to

include him can claim the benefit of the policy.

SECTION 57. A policy may be so framed that it will inure to the benefit of whomsoever,

during the continuance of the risk, may become the owner of the interest insured.

SECTION 58. The mere transfer of a thing insured does not transfer the policy, but suspends it

until the same person becomes the owner of both the policy and the thing insured.

Quimson says compare this with section 20.

SECTION 59. A policy is either open, valued or running.

SECTION 60. An open policy is one in which the value of the thing insured is not agreed upon,

but is left to be ascertained in case of loss.

SECTION 61. A valued policy is one which expresses on its face an agreement that the thing

insured shall be valued at a specific sum.

SECTION 62. A running policy is one which contemplates successive insurances, and which

provides that the object of the policy may be from time to time defined, especially as to the

subjects of insurance, by additional statements or indorsements.

SECTION 63. A condition, stipulation, or agreement in any policy of insurance, limiting the

time for commencing an action thereunder to a period of less than one year from the time when

the cause of action accrues, is void.

SECTION 64. No policy of insurance other than life shall be cancelled by the insurer except

upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it

is based on the occurrence, after the effective date of the policy, of one or more of the

following:

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(e) physical changes in the property insured which result in the property becoming uninsurable;

or

(f) a determination by the Commissioner that the continuation of the policy would violate or

would place the insurer in violation of this Code.

SECTION 65. All notices of cancellation mentioned in the preceding section shall be in writing,

mailed or delivered to the named insured at the address shown in the policy, and shall state (a)

which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written

request of the named insured, the insurer will furnish the facts on which the cancellation is

based.

Saura Import-Export Co. v Philippine International Surety

Actual notice of cancellation in a clear and equivocal manner, preferable in writing, should be

given by the insurer to the insured so that the latter may given an opportunity to obtain another

insurance for his protection. Notice should be personal on the insured.

Malayan Insurance Co. v Cruz Arnaldo

Cancellation of policy requires:

1. prior notice of cancellation to the insured

2. cancellation based, on the occurrence after effective date of the policy, of one or more of the

ground mentioned

3. notice must be in writing, mailed or delivered to the insured at the address stated in the policy

4. notice must state the ground/s for cancellation

SECTION 66. In case of insurance other than life, unless the insurer at least forty-five days in

advance of the end of the policy period mails or delivers to the named insured at the address

shown in the policy notice of its intention not to renew the policy or to condition its renewal

upon reduction of limits or elimination of coverages, the named insured shall be entitled to

renew the policy upon payment of the premium due on the effective date of the renewal. Any

policy written for a term of less than one year shall be considered as if written for a term of one

year. Any policy written for a term longer than one year or any policy with no fixed expiration

date shall be considered as if written for successive policy periods or terms of one year.

January 3, 2002 Kelly

WARRANTIES

v Warranties may either be express or implied. Express if it is stated in the policy. Implied,

where there are implied warranties in a marine insurance for example, that the vessel that it

would not deviate.

v Warranties are different from representations because warranties are part of the terms and

conditions of the policy while representations are not part of the policy but statements made to

induce someone to enter into a contract.

v Warranty may relate to the past, present or the future or to any or all of them.

PAST: Somebody applying for life insurance warrants that he was never hospitalized for a heart

ailment

PRESENT: warrants he is in good health

FUTURE: common in a fire insurance policy there will be a warranty there that the insured will

not store inflammable materials.

v The law says that the warranty must be contained in the policy or in another statement signed

by the insured and referred to in the policy (known as a rider). But the SC has said that the rider

is valid even if it was not signed by the insured if it is attached to the policy, because it is

deemed to be contained in the policy because usually the rider, they just paste them in the

policy.

v The law says if before the time for the performance of a warranty relating to the future, a loss

insured against occurs or becomes unlawful or performance becomes unlawful or impossible

the omission will not avoid the policy.

a) Loss occurs. For instance, heres somebody applying for a fire insurance policy. The insurance company sent their inspectors to the place and said you know this is not a nice

neighborhood. There are squatters in the vicinity, the houses are made of plywood. Well ok we

can insure your property but we have to take steps to minimize risks so, we will insure provided

you put up a firewall. We will give you 30 days to put up a firewall. Since he was given 30 days

to put up a firewall, if fire occurs during the 30-day period, the insurance company will be liable

because the period for him to put up the firewall has not yet expired.

b) Performance becomes unlawful. When you insure the property and the insurer says too many

occupants, this is risky. You better reduce the occupants. However, before he could file a case

to eject his tenants a house rental law was passed prohibiting the ejectment of tenants so failure

to comply with the condition will be excused.

c) Performance becomes impossible. Like when you were supposed to put up a fire wall but

then cement disappeared from the market, could not buy cement so that will be excused.

As you will see, in all these things in the last two, the matters are beyond the control of the

insured.

v Breach of Warranty. When there is breach of warranty, the insurance company can invoke

that to avoid liability and the fact that it is there in the policy will exempt insurance company

from liability. You dont discuss or argue anymore whether it is material or not. The fact that it was there in the policy means the insurance company considers it material.

Example (Double Insurance): Its common in fire insurance policy that there will be a requirement there that if the insured obtain other fire insurance policies he must disclose. If he

does not disclose the insurance company will not be liable. And that obligation applies not only

to policies already existing when he applied for the policy but even to policies he might obtain

in the future. When somebody insures his building against fire, lets say with MGU Insurance, then six months later he insures it with Malayan if he does not disclose that then both of them

will avoid liability because both parties will invariably contain that provision that you must

disclose if you have other insurance policies.

Example (No Double Insurance): In one case where the insured are stocks in trade but the

stocks in trade insured with different companies were different. So there is no double insurance.

So there is no breach of warranty even if he does not disclose that he has obtained other

insurance. Or if he insured the building and there is a provision there he must disclose if he had

other insurance but then he obtained other insurance lets say for the stocks in trade so there is no need to disclose.

Example (No Double Insurance) For the court has said in the Geagonia case where the owner of

the stock in trade insured them. The policy provided that in case of loss the policy is payable to

him but then he mortgaged them and because of that the mortgagee required him to insure the

stocks in trade and to put in the policy that in case of loss the proceeds will be payable to the

mortgagee. A fire occurred so the one who insured the stocks first refused to pay. He said he

obtained another insurance policy but he did not tell us. The court said, no! there is no violation

because the interest insured in the policy are different because the first one in case of loss, the

proceeds will be payable to the mortgagor. The second one the proceeds will be payable to the

mortgagee. So since the interest are different there is no need to disclose.

v If there is breach of warranty, even if the loss was not due to the breach of the warranty, the

insurance company is not liable because the fact remains that it was exposed to a risk which it

was not willing to assume.

Example: In a fire insurance policy there is a provision there you will not store inflammable

materials and this fellow brought fireworks in his house on new years eve then the cook who was in the kitchen was negligent and a fire started in the kitchen. It has nothing to do with the

fireworks. The insurance company will not be liable because the fact remains that it was

exposed to a risk it was not willing to assume. That is no longer the risk which it agreed to

insure so it will not be liable.

Exception (Merely Incidental to the Business): However, even if there is a warranty the

presence of the prohibited material is merely incidental to normal course of business it is

understood that it is not covered by the prohibition. For example, here is somebody who has a

store that sells furniture. He insured his property against fire. There was a prohibition against

inflammable materials and he has there some alcohol that is used for retouching the varnish of

the furniture so that is incidental. That Qua Chee Gan case where the warehouse that was

insured there was gasoline there but that was the consumption of motor vehicles of the

warehouseman for two days. That is incidental to the business. Or a drugstore that was insure

and among the articles in the drugstore were moth balls which were highly inflammable but

because it was a drugstore is selling pharmaceutical products so that is incidental to the business

so there is no violation.

v Waiver. Now if the insurance company was aware that there was a breach of warranty but

despite that it continued the policy, it accepted the renewal premium, then it waives the

violation.

v The law says a breach of warranty without fraud merely exempts the insurer from the time it

occurred or when it is broken it prevents the (?) to attach to the risk. So in other words, here is

somebody insures his house against fire January 1st to December 31st and there is a warranty

that he would not store inflammable materials. September a fire broke out. Then on December

31st another fire broke out at that time there were fireworks stored in his house so the insurance

company liable for the fire that occurred in December 31st but it will be liable for the fire that

occurred in September because at that the time there were no fireworks there was no breach of

warranty at that time.

When there is a breach from the very beginning when the policy will not attach. If from the very

beginning there were inflammable materials there.

v Section 77 the insurer is entitled to the payment of the premium as soon as the thing insured is

exposed to the peril and says notwithstanding any agreement to the contrary no policy or

contract of insurance is valid and binding unless and until the premium has been paid except in

case of life or industrial life policy where grace period provision applies.

So the SC has said in a number of cases if the premium is not paid the policy is not valid and

binding because they said, you know insurance involve this actuarial scheme that everybody

chips in to a common pot and this is important for calculating the risk because if everybody will

delay the payment, the actuarial computations will be the out of (?) because insurance company

meanwhile invest the premiums so thats the rule. The trouble is the decisions made many exceptions.

v Exceptions

First, under the Section 78 an acknowledgement in the policy that the premium has been paid is

conclusive evidence of payment to make the policy binding. So, even if the premium was not

actually paid there is a provision there in the policy that is saying that when payment is

acknowledged, then that is binding for purposes of making it effective but it is only for that

purpose but for purposes of actually collecting the premium that will not apply so if loss occurs

the insurance company will still be liable but it can still collect the premium. It can deduct the

premium from the proceeds of the policy.

Next, in that Makati Tuscany case where this condominium there was insured and then where

the insurance company agreed to give the insured time to pay in 12 equal monthly installments.

The Makati Tuscany paid a few installments and then it stopped. So the insurance company

sued and the defense of Makati Tuscany is that the policy is void under Section 77 because the

premium has not been paid therefore you cannot sue us to recover the premium and you should

refund the installments we have paid. The courts said no! because you know insurance is

becoming very competitive. I met Charlie Uy in a cocktail party and said you know everybody is complaining that insurance is a cut throat competition business. What cut throat competition

are you talking about? Its not cut throat competition, its killing fields out there! So when you have a client like San Miguel Corporation, Filipinas Shell, PLDT which pays more than 1

billion in premiums you will allow them to say we will let you pay in 12 installments. So, the

court said it is not void to stipulate that the premiums be paid in installments and if you have

such a stipulation then you can sue to collect installments which were not paid.

Third, Section 77 says also life and industrial life. The law provides and that is incorporated in

the policies that in subsequent premiums the insured is given a grace period of at least 30 days.

So, in life insurance policies you at least have 30 days to pay the subsequent premiums because

at times you will announcements in newspapers that because of a typhoon in that place the

insurance company is giving the insure there 60 days. So at least now in that Tibay case,

Malayan allowed payment of premiums in installment but there was an express provision that

the policy will not be binding until the premiums have been fully paid. The court said, this is

different from Makati Tuscany. Because here there is stipulation that while the premium will be

paid in installments the policy will not be binding until the premiums are fully paid. So the

insurance company will not liable for the loss that occurs before premium has been fully paid.

So based on Section 77, Makati Tuscany, Section 78, the court said that there are 3 exceptions

to the rule that the policy is not binding until the premiums are fully paid.

First, in life and industrial life where a grace period is given.

Secondly, Section 78 when theres an admission in the policy that the premiums have been paid.

Then, Makati Tuscany which says that the parties can stipulate that the premiums be paid in

installments.

v Then you have this UCPB General Insurance Corp v. Masagana Dela(?)mart. Masagana

Delamart had been insuring its business with UCPB since 1988 and every year they would give

Masagana 60 to 90 days credit to pay and that is common. Now, 1992 the problem was that a

loss occurred within the usual 60-day period. A fire raised the premises. The next day masagana

paid the premium and UCPB accepted the premium. The following day they filed a claim, you

should now return the premium. Now they were claiming that the premium was not paid when

the loss occurred therefore they were not liable. In a decisions of the second division penned by

Justice Pardo reiterated Arce and another case, the premium was not yet paid and therefore the

insurance was not binding, UCPB not liable. A motion for reconsideration was filed and the

case was elevated to court en banc. In a split decision, Chief Justice Davide reversed the

decision. He said that heretofore there were three exceptions when policy should be binding

even if the premiums are not paid: 1) life and industrial life insurance policy where a grace

period is given; 2) when there is an acknowledgement in the policy that the premiums were

paid; 3) Makati Tuscany, where there is an agreement that the premiums will be paid in

installments; and now, he said, there are now two additional exceptions:

First, if the insurance company agreed to grant credit. The courts said that section 77 does not

say that the contract will be void and that it is not against the law, good customs, morals public

policy for the parties to stipulate that credit will be given. He said that is the 4th exception.

Thats why Justice Pardo dissented and also Justice Vitug, the commercial law expert, dissent, he believes it is not valid and binding. But that was the majority decision.

Then Chief Justice Davide said that theres a fifth exceptionEstoppel. For many years the insurance company had been granting credit to the insured. So it made them believe that they

will always be given credit and so it is now in estoppel. The court said that is the fifth

exception.

v Cash Surrender Value. Your book mentions that there are some of the devices which will be

made in order to temper the harshness of forfeiture in the policy because the premium has not

been paid. This is usually in connection with the life insurance policies. You have the cash

surrender value because if you insured your life from age 21 to age 60 you will be paying the

same premium every year. But in the early years the risk of the insured dying is less compared

if he is age 60. So at that point in time he is paying more than what would correspond to the risk

the insurance company is assuming and that excess is the cash surrender value. If you look at

the life insurance policy there is a table there indicating the cash surrender value so you can

surrender the policy and get the cash surrender value or you can even get a policy loan cheap money you can borrow money with 6% interest. I used to borrow the cash surrender value of

my life insurance policy and pay 6% interest a year and then put the money in time deposit. I

will get more and then I could claim the interest as a tax deduction but now the insurance

increased interest of 14% so it doesnt pay anymore. v Paid up insurance. So, the insured defaulted. They can say, ok, the fellow stopped paying how much cash surrender value does he have? P6000. How much insurance can that buy up to

the end of his policy? P20,000. Ok we will apply that. He is insured up to the end of the policy.

Or extended insurance, they can say, he has cash P60,000 we will apply that as premium. For

how long can you extend the life insurance policy with that P60,000? Good for 1 years. They

will still insure you for 1 years even though he stopped paying the premiums. And then the

insured can also apply for reinstatement of the life insurance policy but they will require that he

must undergo medical examination again to show that he is insurable and then he must pay the

premiums in arrears.

v Refund of Premium. Section 79 deals with the refund of the premium. It says the insured is

entitled to a return of the premium if no part of his interest was exposed in the peril insure

against. Like you insured a shipment of rice but the rice was never shipped, so he is entitled to a

refund on the premium. Or the insurance made for a definite period and the insured surrenders

his policy, he is entitled to a partial refund as corresponds to his unexpired time after deducting

any loss previously paid. If you look at your motor vehicle insurance policy there is a provision

there that if you surrender the policy and ask that it be cancelled you will given a refund but it

will not be pro rated. In other words, if you surrender in 6 months, you will not get 50% of the

premium. You might probably get less than 40%. There is a table there. And if there was a loss

before, they paid, that will be deducted first from your refund. If you are entitled to a refund of

10,000 but then they previously paid 2,000 that will be deducted first and you get only 8000. In

life insurance that will not apply. In other words, somebody paid a premium in one year, then

after 3 months he changed his mind, he surrenders the policy, he cannot ask for partial refund

because insurance on human life is indivisible. The insurance company is already exposed to

the risk of loss, it has already earned the premium. The law says if the peril insured against

existed no mater how short the period, the insured is not entitled to return on the premium. Here

is somebody who insured his vessel for a trip from Manila to Cebu then, while the vessel was

near Romblon he decided to have the policy cancelled. He cannot ask for a partial refund. He

cannot say, well let us compute the distance from Manila to Cebubecause the insurance company has already been exposed to the risk of loss it has already earned the premium. In case

the insured is entitled to refund, where the contract is voidable due to fraud of the insurer then

he will be entitled to the return of the entire premium. But if is it the fault on the part of insured

other than actual fraud, and insurer never incurred liability then the premium will be refunded.

For instance, this fellow was insuring his property against fire. The insurers inspector says well your neighborhood is near the squatters area, we will insure it provided you build a fire wall.

They did not build a firewall and that was a condition precedent so he will entitled to a refund.

But if there was fraud on his part he is not entitled to refund. That is the penalty the law

imposes upon the insured for committing fraud. Like he insured a building and they did not

send inspectors, they relied good faith and he misrepresented that his building has a fire

sprinkler system. So they said that is safe! In turned out it was not so, there is fraud and he is

not entitled to refund of the premium.

v Over Insurance. That case of over insurance, when insured is to be entitled to a ratable return

of the premium. Example here is building worth P10M. He insured with MGU insurance for

10M, Malayan for 5M and Pioneer for 5M, it is over insured by 10M. Lets say that he paid 10T premium to MGU, 5T to Malayan and 5T to Pioneer. So he is entitled to a refund from of

P5,000 from MGU, of P2,500 from Malayan and P2,500 from Pioneer.

The agreement not to transfer the claim after the (?) is void because at that time his liability has

already accrued. That is now a chose in action.

v Now, the insurer is liable for loss the proximate cause of which is the peril insured against

even in the immediate cause if not the peril insured against. Like fire insurance policy, fire

broke out in the house of the neighbor of the insured. As a result of that a wall collapsed from

his neighbors house and damages his property. So the proximate cause is the fire but immediate cause is the collapse of the wall. Or loss, the immediate cause of which is the peril

insured against although the proximate cause may not be the peril insured against. Like faulty

wiring caused fire. The proximate cause is the faulty wiring, the immediate cause is the fire so

the insurance will be liable. The loss caused by the negligence of the insured. Common in motor

vehicle insurance damage coverage. This fellow was driving negligently and he bumped the car

of another. So the insurance company will be liable.

Proximate cause in insurance has more or less the same meaning as Proximate cause in quasi-

delict like in the Vda. de Bataclan case. And the insurer is liable for the thing insured is rescued

from the peril insured against that would otherwise have caused a loss if in the course of such

rescue the thing is exposed to a peril not insured against that would deprived the owner

possession in whole or in part or is caused by the efforts to rescue the insured from the perils

insured against. Like somebody who insures his house and his appliances against fire. The

neighbors house caught fire. He started bringing out his appliances and valuables to bring them to a safer place but the proverbial looters came and took them so the insurance company will be

liable. So the loss occurred because of efforts to save them from the fire or caused by efforts to

rescue the thing insured from the peril insured against. So again, this fellow insured his house

against fire then his neighbors house caught fire and then the firemen arrived and then they pointed their hoses to his house to prevent the fire from spreading there and some of his

furniture were soiled living room set, the piano so he can collect because they got soiled due to

the efforts to prevent fire from spreading to his house.

v Peril Especially Excepted. The loss which would have occurred on such peril excepted

although the immediate cause was a peril which was not excepted. Example, fire insurance

policies usually provide it will not cover loss due to riots, insurgency rebellion. In 1989 where

there was a coup d etat there was that store in the premises of Insular Life which was hit by shell and it burned and the people there were claiming that their properties were damaged, xxx

advised them to file a claim with their insurance companies. It is not covered. So the immediate

cause was the fire but the proximate cause was the rebellion which is excepted from policy so

the insurance company will be not liable. The fire was caused by the rebellion. There was a case

that was referred to me, the lawyer who handled it, he raised the defense that the NPAs were

demanding revolutionary taxes and they did not pay one day the problem occurred but how do

you prove that it was the NPAs who burned the property? The court said that was not

sufficiently shown. Because of you talk of rebellion you have to show that it is politically

motivated, it is part of the scheme to overthrow the government and its hard to prove that because these people will not admit that they just arrived there one day and they just burned the

place. I said, the lawyer should have invoked instead riot. Riot has a peculiar definition in

insurance. In English jurisprudence, every phrase, every word in insurance is being interpreted

by the English courts. For the American and English jurisprudence, riot does not mean labo-

labo. It means any act of violence by a group of armed men, thats riot. They should invoked riot. There was a rural bank in Compostela. One day the members of the NPA raided and it

forced the safe open. They got the money. They were trying to claim from the insurance

company. They said riot! So it is not liable.

v The insurer will not be liable for certain losses.

1) Losses caused by the connivance of insured. Like he asks somebody to steal his car. Then he

files a claim.

2) Loss caused by the willful act of the insured. Arson. He set his house on fire so he could file

a claim against his insurance policy.

3) For negligence if it amounts to bad faith, in other words it is so gross, gross negligence

amounting to bad faith. American Jurisprudence will say negligence is gross if it is something

that would be obvious to a reasonable man. For example, here is somebody who insured his car

for damage and he went to a gasoline station to put gasoline. There was a big sign there no smoking and then he lit a cigarette so his car caught fire that would be negligence amounting to bad faith because it is so obvious. Lets say he insured his house against fire and he watching a movie and smoking a cigarette when he fell asleep (walang ka storya storya naman to

pinapanood ko!) the cigarette fell and the rug caught fire that would be covered. There was a

man, somebody imported some material/chemical that were quite inflammable. Then he arrived

at the premises of the company then the was employee was supposed to open the van little by

little, let the fuse come out. And then, it was early in the morning and he said ano ba to ang dilim dilim ah! so he flicked his lighter and there was an explosion and he died. There was gross negligence. You should know na highly inflammable, nagsindi ka ng lighter. The loss, the

proximate cause of which is the excepted peril even though the immediate cause is a peril

insured against. In the case of the rebellion which caused the fire. The proximate cause there is

the rebellion but the immediate cause is the fire and that is not covered under the policy.

v Case: There was this case of this Fortune insurance company. The insured a pay roll against

robbery. They asked a security guard agency to transport the payroll. And so the security guard

agency provided the armored car, driver and security guard. The payroll policy had a provision

that insurance company will not be liable if the loss was caused by an employee or authorized

representative of the insured. The one who stole the money was the driver of the armored car

and the security guard. The claim was filed. The insurance company rejected the claim there

was a litigation which reached the SC. The insured argued that the guard and driver are not our

employees. They were the employees of the security guard agency. Neither were the are

representatives because the security guards were independent contractors. They were not our

employees, they were not our authorized representatives therefore were not liable. The court said no! What is the purpose of that provision? What the provision is saying is that the

insurance company is not willing to assume the risk of loss caused by the person who has

immediate custody and safekeeping of the money because the risk is too high. They had

immediate access and custody of the money so the should be considered your representative

therefore the insurance company is NOT liable.

Jan 7, 2002 (Monday) Che Bassig

Losses for which the insurance coverage includes:

Losses caused by the connivance of the seller and injury suffered by the negligence that

amounts to bad faith; the loss the proximate insured cause of which is an accepted error; loss for

which the risks insured against is the remote cause of the loss. For instance you have this person

who insured his house against fire, the neighbors house caught fire, the neighbors flock to his

house and cause damage, he cannot recover because the fire is the remote cause of the damage

on his house.

Sec. 91

The insured must give notice without unnecessary delay. If proof is required, he must bring

with him the necessary proof whenever a loss is incurred. Usually when you file a claim most

people rely on the insurance agent.

If the insurance company has rejected the claim, but he did not invoke delay in filing as a

ground of objection or any other grounds, then it would be waived as a defense in a case suit.

This is normal for a claim of motor vehicle insurance. The insurance company will ask police

report, a photograph of the damaged portion, and get estimates from an accredited shop. If the

insurance company did not tell the insured that he needs, for the example photographs, he

cannot latter on say that the insured failed to substantiate the loss with a photograph.

Delay will also be excused is caused by a misrepresentation by the insurance agent that he will

take care of everything.

Sec.92

He cannot obtain despite reasonable delays suffered to show that the reason why he cannot

produce such certificate because the certificate required by court not available. For example fire

insurance, the insurance company will ask report of investigator.

You have this case where the person insured his premises he was leasing it to a restaurant, by

new years eve, he and his cook went out to look at the fire works, he neglected the gas range,

and a fire broke out. He went to file a claim, the arson investigator conducted an investigation

but never submitted his report. The investigator immigrated to the US and his whereabouts

unknown. It is enough to show that they cannot submit report of arson, not because the fire was

caused by arson but that the investigator immigrated.

In case of loss and the insurance company pays, it is subrogated to the rights of the insured and

he can collect from the wrongdoer. But if the insured has done any act which prevents the

insurance company from running after the wrongdoer, then the insurance company will be

relieved from liability because he will be prejudiced. For example the insured in a motor vehicle insurance settled with the wrongdoer by accepting P2,500 in settlement. Then he filed a

claim with the insurance company. The insurance company will be subrogated to his rights

against the wrongdoer. The wrongdoer can raise the defense against the insurance company that

there was a settlement. The insurance company therefore cannot be liable- in fact they can get

the money from the insured on the theory of payment by mistake. Also in one case, where an