insurance reviewer finals

8/12/2019 Insurance Reviewer Finals

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LIFTED from the Book of De Leon and Rodriguez not plagiarized you fuckers! | Atty Villegas | 3B 2009-2010 2 | P a t i n o , E r i c a

Marine Insurance COVERS:

- Not only property exposed to risks of marine navigation- BUT ALSO those which are exposed to risks not connected with

marine navigation such as loss of or damage to:

o Aircraft, which has nothing to do with marine navigationo Goods while being assembled, packed, crated, baled,

compressed or similarly prepared hence, NOT yet in the

course of transportation.

o Precious stones, jewels, jewelry, precious metals whether inthe course of transportation

o Bridges, tunnels, and other instrumentalities oftransportation and communication which have nothing to dowith marine aviation.

Property Covered

- May cover any property or interest enumerated in the section maycover property exposed to risk of marine navigation or not

- Terms and merchandise includes all articles which are carried onthe ship for commercial purposes.

o They do NOT include the! clothing of passengers

UNLESS shipped as part of the cargo! NOR food or provisions intended for consumption

UNLESS included in the policy- Freightage means all the benefits derived by the owner:

o From chartering of the ship for its employment for thecarriage

o EITHER of his own goods or those of otherso It will NOT be covered by a marine policy UNLESS

expressly indicated.Risks Insured Against - Insured is liable for:

- All losses proximately caused by the perils covered by the marinepolicy

- These risks are usually enumerated and may cover not only perils ofthe sea but also fire, theft, jettison, detainments, or others that will

injure the goods insured

- Fire may not be considered a natural disaster since it almost alwaysarises.

Perils of the Sea

- Embraces those casualties due to the violent action of the winds orwaves

- Includes:o shipwreck, foundering, stranding, collision, jettisono Rusting of a cargo of steel pipes in the course of a voyage.o Extraordinary causes connected with navigationo Extends to barratry

- Perils include not only arrests caused by political acts of a seizingstate but also by ordinary legal processes such as lawsuit.

- Perils NOT Covered:o Ordinary wear and tear or other damage usually incident to

the voyage ex. Violence of a tempest

o To be liable: the violence must be due to unusual violence ithe elements, and is not ordinarily to be expected as incident

to navigation. Ex. Violence by a mast or by a storm- Perils of the sea is a RELATIVE TERM,its meaning may vary

with the circumstances

Perils of the Sea Perils of the Ship

Covers ONLY losses as are of

extraordinary nature or arise from

some overwhelming power whichcannot be guarded against by the

ordinary exertion of human skill of

prudence

A loss in the ordinary course of

events results FROM the

a. natural and inevitableaction of the sea

b. ordinary wear and tearc. negligence of the ship

owner

GR:Everything which happens thru the:

- inherent vice of the thing or- by the act of the owner, master or shipper

shall not be reputed a peril IF NOT otherwise borne in the policy

Perils of the Ship

- losses or damages resulting from:1. Natural and inevitable action of the sea2. The ordinary wear and tear of a ship3. Negligent failure of the ships owner to provide the vessel with

proper equipment to convey cargo under ordinary conditions

- Perils of the sea and perils of the ship are two different things- Perils of the ship must be expressly included in the policy in order to

for the insurer to be liable.


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Inchmaree Clause

- Definition:Provision in the policy that the insurance shall cover lossor damage to the hull or machinery:

o Through the negligence of the master, charter, mariners,engineers, or pilots

o Through explosions, bursting of boilers, breakage of shaftso Through any latent defect in the hull or machinery not

resulting form want of due diligence

All Risks Clause

- Insures against all causes of conceivable loss or damage EXCEPT:o Those excluded from the policyo Those caused by willful and fraudulent act of the insured

- Creates a special type of insurance which extends coverage to risksnot usually contemplated and avoids putting upon the insured the

burden of proof that the loss was due to the peril falling within the

policys coverage- Includes: all losses during the voyage WHETHER arising from

marine peril or not (even pilferage losses during war)

- Burden of proof on covered perilo In other types of policies: Initial burden is on the INSURED

to show that the loss arose from a covered peril

o BUT in an all risk policy: Burden is on the INSURER toprove that the peril was an excluded peril

! Insured has no obligation to prove the precise causeof loss or damage

- Burden of proof on condition of the cargoo Initial Burden: INSURED to prove:

! That the cargo was in good condition when thepolicy attached AND

! That the cargo was damaged when unloaded fromthe vessel.

o Thereafter: Burden shifts to the INSURER to show theexception to the coverage.

Other Risks

- Barratry: A willful act of the master or crew in pursuance of somefraudulent or unlawful purpose without the consent of the owner andto the prejudice of his interest. (Must be willful and intentional)

Ex:burning the ship, violation of revenue laws, unlawful selling of

the cargo- Extraordinary acts of a sovereign authority in times of war:

restraining, detaining by kings

- All other perils, losses, and misfortunes risks which are of likkinds with the particular risk which are enumerated in the preceding

part of the same clause of the contact

Perils MUST be the PROXIMATE CAUSE of the loss in order for the

insurer to be liable.

Classes/Scope of Inland Marine Insurance

- The risk must involve an element of transportation- Either the property is actually in transit held by persons who are not

its owners, or at a fixed location but an important instrument of

transportation, or is a movable type of goods which is often atdifferent locations

4 Classes of Inland Marine Insurance

1. Property in transito Provides protection for property frequently exposed to loss

while it is in transportation from one location to another

2. Bailee liabilityo Provides protection to persons who have temporary custody

of goods or personal property of others

3. Fixed Transportation Propertyo Covers bridges, tunnels, and other instrumentalities of

transportation and communication

o They are insured because they are held to be an essential parof the transportation system

4. Floatero It provides insurance to follow the insured property

wherever it may be located subject always to the territoriallimits of the contract. (jewelry, works of art, equipment)


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Notes:

Freightage defined:benefit which is to accrue to the owner of the vessel

from its use in the voyage contemplated or the benefit derived from the

employment of the ship

Sources of Freightage

- Chartering of the ship- Employment for the carriage of his own goods- Employment for the carriage of the goods of others

Sec. 103.The owner of a ship has an insurable interest in expectedfreightage:

- which according to the ordinary and probable course of things hewould have earned

- but for the intervention of a peril insured against or other perilincident to the voyage.

Notes:

II in Expected or Anticipated Freightage

- Owner of the ship contemplates:o the legal owner ando the charterer who expects to earn in the transportation of

goods

The freight money assured to the ship owner may be:

a. freight to be earned and payable upon the completion of the voyage b. the hire of the vessel, payable by the charterer orc. the benefit accruing to the owner from the use of his vessel in the

way of profits upon carriage of his own goods

SO has an II in the expected freightage

- Has an II if there is a risk of not being able to collect the same by thehappening of the peril insured against

- EVEN if the freight has been paid in advance- BUT when agreement is that the freight is payable in any event (lost

or is not lost)o The ship owner has NO II in such freighto SHIPPER who has prepaid the freightage under the same

situation HAS an II on the same

II in Passage Money

- Passage Money:unlike freightage, is customarily payable inadvance and cannot be recovered if the vessel is lost before the

completion of the passage

- Passenger: has II in his advances of passage money- Ship owner: Has NO II unless it is payable only upon the completio

of the voyage.

Sec. 104.The interest mentioned in the last section exists,- in case of a charter party,- when the ship has broken ground on the chartered voyage.

IF a price is to be paid for the carriage of goods, it exists when:- they are actually on board, OR there is some contract for putting

them on board, AND

- both ship and goods are ready for the specified voyage.Notes:

When it exists in expected freightage

- Insured MUST have an inchoate right to freight (the peril insuredagainst is the only cause that could prevent him from ultimately

having a perfect right to it)

Where freight is the price to be paid for the

hire of the ship under a charter party

SO has an inchoate right to freight as

soon as there is an inception of

performance by the ship under the

charter party

Where the inchoate right to freight accrues

as soon as the goods are actually put on

board and where part of the goods has been

loaded and the balance is ready

There is an II in the whole freight

Where the ship owner has made a binding

contract for freight and the ship is inreadiness to receive the goods

SO has an II

- There is NO II in freight:o When there is no contract and no part of the goods expected

to be carried are on board o Where the vessel is a mere seeking ship or a vessel

looking for cargo to be transported S.O. has no II in the

freight to be earned on goods not loaded.


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Sec. 105. One who has an interest in the thing- from which profits are expected to proceed- has an insurable interest in the profits.

Notes:

- One having a reasonable expectation of profits from a marineadventure may take out insurance to protect such profits.

- HOWEVER: the interest must be a LEGAL INTEREST althoughsuch interest may be contingent

- Owner of a Cargo:has an II not only on the cargo but also on theexpected profit from the sale of the cargo

- Interest in the thing involved should be based on ValuableConsideration paid.

Sec. 106 The charterer of a ship:- has an insurable interest in it,- to the extentthat he is liable to be damnified by its loss.

Notes:

- Ex. X charters a vessel of Y. Y will pay X 1M in case of loss. Y caninsure 1M.

Charterer has an II:

- To the extent of the value stipulated and- In the profits he expects to earn by carrying the goods IN EXCESS

of the amount he agreed to pay for the charter of the vessel.

Charter Party: A contract by which an entire ship or some principal part is

lent by the owner to another person for a specified time or use2 Types of Charter Parties

1. A Bareboat or Demise Chartero The SO turns over full possession and control of his vessel to

the charterer who then provides a crew and the suppliesduring the terms of the charter.

o SO is not required to provide a crew, so the charterer gets thebareboat i.e. w/o a crew

o The charterer becomes in effect the owner for the voyage orservice stipulated SUBJECT to liability caused by damages.

o When the charter requires the SO to provide a crew andmaster under the charterers direction the employees

become agents of the charterer

2. Contract of Affreightmento The owner of the vessel leases part or all of its space to haul

goods for others

o A contract of special service to be rendered by the owner ofthe vessel who retains the possession, command and

navigation of the ship, the charterer or freighter merelyhaving useof the space of the vessel.

Types:

Voyage Charter or Trip Charter Time Charter

- Contract for the carriage of goodsfrom one or more ports of loading toother ports of unloading, on one or

on a series of voyages

- Employees remain in the employ ofthe SO

- Contract for the use of a vessel for aspecified period of time or for theduration of one or more specified

voyages.

- The owner of the time charteredvessel also retains the employees

Sub-Title 1-C

CONCEALMENT

Sec. 107.In marine insurance each party is bound to communicate, inaddition to what is required by sec 28:

- all the information which he possesses,- material to the risk,- EXCEPT such as is mentioned in Section 30, and- to state the exact and whole truth in relation to all matters that he

represents, or upon inquiry discloses or assumes to disclose.

Notes:

Concealment:The failure to disclose any material fact or circumstance

which in fact or law is within or which ought to be within the knowledge ofone party and of which the other has no actual or presumptive knowledge.

- Rule applies to BOTH the assured and underwriter- The rule of misrepresentations and concealments are more strict in

cases of marine than of fire insurance because:o Of the difference of the character of the propertyo Of the greater facility the insurer possesses in obtaining

information as to its conditions

To constitute concealment it is sufficient that:

- The insured is in possession of the material fact concealed- Although he may not be aware of it


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Sec. 108. In marine insurance,:- information of the belief or expectation of a third person, in

reference to a material fact, is material.

Notes:

- Further illustrates the stricter rules on concealment for marine ins.Insured is bound to communicate the following:

1. beliefs of opinions of third persons or2. expectations of third persons

ONLY requirement: information is in reference to a MATERIAL FACT

Sec. 109.A person insured by a contract of marine insurance:

- is presumed to have knowledge, at the time of insuring,- of a prior loss,- IF the information might possibly have reached him:

o in the usual mode of transmission ando at the usual rate of communication.

Notes:

- Provision creates a rebuttable presumption on the part of theinsuredof knowledge of a prior loss

- Reason for presumption: the quickness in the transmission of newsby means of modern communications.

- Rule is NOT applicable:o The insured is NOT bound to use all accessible means of

information at the very last instant of time to ascertain the

condition of the property insured

o When there is no cause to expect information - insured willnot be liable.

Sec. 110.A concealment in a marine insurance, in respect to any of the

following matters,:- does not vitiate the entire contract,- but merely exonerates the insurer from a loss resulting from the risk

concealed:(a) The national character of the insured;

(b) The liability of the thing insured to capture and detention;

(c) The liability to seizure from breach of foreign laws of trade;(d) The want of necessary documents;

(e) The use of false and simulated papers.

Notes:

- GR:Concealment entitles the injured party to rescind the contract- EXC: Concealment of facts under Sec 110 does not avoid the policy

IF the vessel be lost due to any of the cases in Section 110 which was

concealed:

- The insurer is NOT liableIF the vessel be lost due to other perils of the sea (storm, etc)

- Insurer is liable. He is not exonerated from liability.Sub-Title 1-D

REPRESENTATION

Sec. 111.IF a representationby a person insured by a contract of marine

insurance is intentionally false:

- in any material respect, or- in respect of any fact on which the character and nature of the risk

depends,

the insurer may rescind the entire contract.

Notes:

- The rules governing representations with respect to insurancepolicies generally have been held to apply to marine insurance

Representation is MATERIAL: where it would influence the judgment of

prudent insurer in fixing the premium or in determining whether he would

take the risk

Effects of False Representation by Insured:

- Intentional:Misrepresentation of a material fact made withfraudulent intent AVOIDS the policy

- Not Intentional: The insurer may ALSO rescind the contract butONLY from the time the representation becomes false.

Materiality of Representations

- Material:o Age, equipment, earnings, condition or rating of a vesselo That the vessel has to be repaired, that it arrived at the port

of destination, that it is at a certain time at a certain place

o Anything that concerns the state of the vessel at any periodof the vessel

- Immaterial:o Nature and the amount of the cargo.


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Sec. 112.The eventual falsity of a representation as to expectation:

- does NOT, in the absence of fraud, avoid a contract of marineinsurance.

Notes:

- Contemplates the eventual falsity of a representation as toexpectation of belief and NOT of positive facts

- Mere statements of belief:o Statements of future facts or events which are in their nature

contingent and which the insurer is bound to know that the

insured could not have intended to state as known facts but

as to expectations or intentions.o Time the vessel will sail, the nature of cargo, amount of

profits expected, designation of the vessel.

- UNLESS made with fraudulent intent their failure of fulfillment isnot ground for rescission

Sub-Title 1-E

IMPLIED WARRANTIES

Sec. 113.In every marine insurance:- upon a ship or freight, or freightage, or- upon any thing which is the subject of marine insurance,

a warranty is implied that the ship is seaworthy.

Notes:

- Warranty under Marine Insurance:A stipulation either expressedor implied forming part of the policy as to some fact, condition or

circumstance related to the risk.

Implied warranty

- The warranties are implied as they exist by the mere fact that acontract of insurance is entered into.

- Coverage of Warranty:1. Vessel should not be unSW at the inception of the insurance2. Voyage should not deviate from the agreed voyage3. Should not be engaging in an illegal venture4. That the ship will carry the requisite documents of nationality or

neutrality of the ship or cargo where such is expressly warranted.

5. That the insured has II

Admission of seaworthiness by the insurer may mean:

1. The warranty of seaworthiness is to be taken as fulfilled or2. That the risk of unseaworthiness is assumed by the insurer

Implied warranty of seaworthiness (SW):

- Reason: The realistic fact that cargo owners cannot control the stateof the vessel

- This implied warranty attaches to whoever is insuring the cargo,whether he be the SO or not.

- The fact that the unSWness of the ship was unknown to insured isimmaterial in ordinary marine insurance and may not be used as a

defense to recover of the policy.

- It is the obligation of the cargo owner to look for a reliable commoncarrier

- The duty of SWness rests upon the common carrier simply for beingengaged in public services

Sec. 114.A ship is seaworthy when reasonably fit:

- to perform the service and- to encounter the ordinary perils of the voyage contemplated by the

parties to the policy.

Notes:

- SWness is a relative term: depending on the nature of the ship,voyage, service, etc.

- Vessel must be adequately equipped for the voyage and manned wita sufficient number of competent officers.

Nature of

Ship

Vessel must be in a fit state as to repair, equipment, crew and

able to carry the cargo and in all other respects to perform

the voyage and to encounter ordinary perils.

Nature ofVoyage

Reasonable fitness to encounter the perils expected to arisein the course of the voyage, vary naturally with the character

of the particular voyage.

Nature of

Service

Reasonably capable of safely carrying the cargo to its port of

destination.

Criterion of Seaworthiness

- Quality of its officers and crew- Adaptability of the service in which they are employed- Sufficient physical and mechanical condition


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Sec. 115.An implied warrantyof seaworthiness is complied with;

- IF the ship be seaworthy at the time of the of commencement of therisk,

EXCEPT in the following cases:

(a) When the insurance is made for a specified length of time:

- the implied warranty is not complied with- UNLESS the ship be seaworthy at the commencement of every

voyage it undertakes during that time;

(b) When the insurance is upon the cargowhich, by the terms of the policy,description of the voyage, or established custom of the trade, is to be

transhipped at an intermediate port:

- the implied warranty is not complied with- UNLESS each vessel upon which the cargo is shipped, or

transhipped, be seaworthy at the commencement of each particular

voyage.

Notes:

- GR: SWness is required only at the commencement of the risk- EXC: The following must be SW at the commencement of every

voyage or commencement of each portion of such voyageo Time Policy:When made for a specified length of timeo Cargo Policy:When insurance is upon cargo required to be

transshippedo Voyage Policy:Where different portions of the voyage

contemplated differ in respect to the things required to make

the ship seaworthy

- SW relates to the vessels actual condition at the time of thecommencement of the voyage

- Time voyageo provides coverage for a stipulated fixed period of timeo insured avoids the necessity of continually describing

separate voyages many of which are over similar routes- Voyage policy - covers the subject matter

Sec. 116.A warranty of seaworthiness extends:

- NOT only to the condition of the structure of the ship itself,BUT requires that - it be properly laden,AND provided with

- a competent master, a sufficient number of competent officers andseamen, and

- the requisite appurtenances and equipment, such as:

>ballasts, cables and anchors, cordage and sails, food, water, fue

and lights, and>other necessary or proper stores and implements for the voyage

Notes:

- The ship is not unseaworthy because of some defect in loading orstorage which is easily curable by those on board and was cured

before the loss

- Carrying a cargo on deck raises a presumption of unSWnesso Can be overcome only by showing affirmatively that it did

not interfere with the due management of the vessel

o Reason: a ship may not be designed to carry substantialamount of cargo on deck making it unstable.

Sec. 117.Where different portions of the voyagecontemplated by a policy

differ in respect to the things requisite to make the ship seaworthytherefor,

- a warranty of seaworthiness is complied with- IF, at the commencement of each portion, the ship is seaworthy with

reference to that portion.

Notes:

- This is an exception to the rule that SWness should only exist only athe time of the commencement of the risk

- Here the SWness is required at the commencement of each portion othe voyage.

- The stages must be separate and distinct in order to have a differentdegree of SWness for particular parts.

Sec. 118.When the ship becomes unseaworthy during the voyage to which

an insurance relates:- an unreasonable delay in repairing the defect- exonerates the insurer on ship or shipowner's interest from liability

from any loss arising therefrom.

Notes:

- If the vessel is SW at the start of the voyage and unSW during thevoyage such situation does not avoid the policy

- There is no implied warranty that the vessel will remain in a SWcondition throughout the life of the policy


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- HOWEVER:o When the vessel becomes unSW it is the duty of the master

as the SOs agent to exercise due diligence to make it SW

again

o an unreasonable delay in repairing the defect causing theunSWness exonerates the insurer on ship

- Benefit of exoneration is given only to an insurer on ship or SOsinterest

Sec. 119.A ship which is seaworthy for the purpose of an insurance upon the

ship:

- may, nevertheless, by reason of being unfitted to receive the cargo,- be unseaworthy for the purpose of the insurance upon the cargo.

Notes:

- SWness of a vessel is also to be determined with regard to the natureof the cargo that the vessel is reasonably capable of safely conveying

the cargo to its port of destination.

- A ship which is unSW for the purpose of insurance upon the shipmay be unSW for the purpose of insurance upon the cargo

Sec. 120.Where the nationality or neutrality of a ship or cargo is expresslywarranted,

it is implied that:

- the ship will carry the requisite documents to show such nationalityor neutrality and

- that it will not carry any documents which cast reasonable suspicionthereon.

Notes:

- Implied warranty under this section arises ONLY when thenationality of the vessel or cargo is EXPRESSLY WARRANTED.

- Warranty of Nationality:does not mean that the vessel was built insuch country, but that the property belongs to a subject. It refers to

the beneficial ownership rather than legal title.o Also requires that the vessel be conducted and documented

as of such nation. Breach will avoid the policy.

- Warranty of Neutrality: imports that the property insured is neutrain fact, and shall be so in appearance and conduct; that the propertyshall belongs to neutrals and that no act the insured shall be done

which can legally compromise its neutrality. Only covers the

insureds interest NOT of third persons.

o Requires that the insured property shall be accompanied bydocumentary evidence of its neutral character.

o Submission when required, is not excused when lost by faulof the master.

Sub-Title 1-F

THE VOYAGE AND DEVIATION

Sec. 121When the voyage contemplated by a marine insurance policy is

described by the places of beginning and ending,:

- the voyage insured is one which conforms to the course of sailing- fixed by mercantile usage between those places.

Sec. 122IF the course of sailing is not fixed by mercantile usage, the

voyage insuredby a marine insurance policy is:- that way between the places specified,- which to a master of ordinary skill and discretion, would mean the

most natural, direct and advantageous.

Sec. 123 Deviation:

- is a departure from the course of the voyage insured, mentioned inthe last two sections, or

- an unreasonable delay in pursuing the voyage or the commencementof an entirely different voyage.

Notes:

Deviation, defined:

- Any unexcused departure from the regular course or route of theinsured voyage or any other act which substantially alters the risk.

4 Cases of Deviation in marine insurance

1. Departure from the course of sailing fixed by mercantile usage(SEC 121)

2. Departure from the most natural, direct, and advantageous routebetween the places specified (SEC 122)

3. Unreasonable delay in pursuing the voyage (SEC 123)4. The commencement of an entirely different voyage (SEC 123)


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Sec. 124.A deviation is proper:

(a) When caused by circumstances over which neither the master nor theowner of the ship has any control;

(b) When necessary to comply with a warranty, or to avoid a peril, whether

or not the peril is insured against;

(c) When made in good faith, and upon reasonable grounds of belief in itsnecessity to avoid a peril; or

(d) When made in good faith, for the purpose of saving human life or

relieving another vessel in distress.

Sec. 125.Every deviationNOT specified in the last section is improper.

Notes:

- Deviation may be proper or improper- PROPER: cases enumerate in Sec 124- IMPROPER: those not enumerated in Sec 124- Insurer us not exonerated from liability for loss after proper

deviation since the effect is that there is no deviation made

When deviation is proper

- Justified deviation will not vitiate the policy, examples:o When compelled to head for another port by stress of weathero When necessary to the safety of the adventure or to escape a

capture

o When the water to the river to port is too shallow for his vessel toenter.

- Such compulsory deviations are risks impliedly assumed by theunderwriter

- A deviation to save property is NOT justified unless in distress - A deviation to save life is justified and is not a breach of warranty

rests on the ground of humanity

Sec. 126. An insurer is not liable for any loss

- happening to the thing insured subsequent to an improper deviation.Notes:

- Where there has been any deviation or charge of the risk w/o justcause (improper deviation) the insurer becomes immediately

absolved from further liability

- The fact that the deviation did not increase the risk, or in any waycontribute to the loss suffered is wholly IMMATERIAL

Sub-Title 1-G

LOSS

Sec. 127.A loss may be either total OR partial.

Sec. 128.Every loss which is not total is partial.

Sec. 129.A total loss may be either actual OR constructive.

Sec. 130. An actual total lossis caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;(c) Any damage to the thing which renders it valueless to the owner for the

purpose for which he held it; or

(d) Any other event which effectively deprives the owner of the possession,

at the port of destination, of the thing insured.

Sec. 131.A constructive total lossis:

- one which gives to a person insured a right to abandon,- under Section 139.

Sec. 132.An actual loss may be presumed:- from the continued absence of a ship without being heard of.

The length of time which is sufficient to raise this presumption:

- depends on the circumstances of the case.Notes:

Kinds of loss in Marine Insurance

o Total OR partialo Total loss may be: actual OR constructive

Actual loss: exists when the subject matter of the insurance is wholly

destroyed or lost or when it is damaged as no longer to exist in its originalcharacter

- Complete physical destruction is NOT essentialExamples of actual total loss:

- Where the ship is so badly damaged that it no longer exists as a shipbut is only a mass of material

- Where the vessel is completely burned or sinks deep in water and isbroken to pieces


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- Where the cargo of machinery insured sank with the vessel even ifpart was recovered but was so damaged that it has no value

- When the insured is effectively deprived of the use and possession ofthe property

Rules on Actual Loss:

- Actual loss may be presumed from the continued absence of the shipw/o being heard of

o length of time depends on the circumstanceso only thing to prove is that the vessel left the port

- When the cargo by decomposition or other chemical agency nolonger remains the same kind if thing as before actual loss

Constructive Total Loss

- Also known as technical total loss- Loss although not total is of such character that the insured is entitled

if he thinks fit, to treat it as total by abandonment

- Gives the insured the right to abandon the thing by relinquishing tothe insurer his interest in such thing.

- Insurer then acquires all the rights over the thing insured.Partial Loss

- When only part of the cargo or vessel is lost or damaged.Importance of distinction between actual and constructive total loss

- Total loss: abandonment is NOT necessary to recover total loss - Constructive Loss: abandonment is necessary to recover total loss

Sec. 133.When a ship is prevented, at an intermediate port,:

- from completing the voyage, by the perils insured against,the liability of a marine insurer on the cargo:

- continues after they are thus reshipped.Nothing in this section shall prevent an insurer:

- from requiring an additional premium- if the hazard be increased by this extension of liability.

Notes:

- Contemplates insurance upon cargo- If the original ship is disabled and the cargo is transferred to another

ship the change of ship will NOT discharge the underwriter- This rule will not be obligatory where resort must be had to distant

places to procure a vessel and there are serious impediments in the

way of putting the cargo on board.

Sec. 134.In addition to the liability mentioned in the last section, a marine

insurer is bound:

- for damages, expenses of discharging, storage, reshipment, extrafreightage, and all other expenses

- incurred in saving cargo reshipped pursuant to the last section,- up to the amount insured.

Nothing in this or in the preceding section shall render a marine insurer liabl

- for any amount in excess of the insured value OR,- IF there be none, of the insurable value.

Notes

- The expenses enumerated are those necessary to complete thetransportation of cargo reshipped.

- NOTE:liability CANNOT exceed the amount of the insuranceIn addition to the original liability(loss of damage of the goods) of the

insurer of the cargo reshipped, he is also liable for the ff:

- Damages- Expenses of discharging- Storage reshipment- Extra freightage- All other expenses in saving the cargo up to the amount insured

Sec. 135.Upon an actual total loss, a person insured is:

- entitled to payment w/o notice of abandonment.Notes:

Constructive

total loss

- Abandonment of the insured is necessary to recovertotal loss in the absence of the provision to the

contrary (notice is essential)

Actual total loss - The right of the insured to claim the whole insuranceis ABSOLUTE

- He need not give notice nor formally abandonanything to recover total loss


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Sec. 136.Where it has been agreed that:

- an insurance upon a particular thing, or class of things, shall be freefrom particular average,

a marine insurer is NOT liable:

- for any particular average loss not depriving the insured of thepossession,

- at the port of destination,- of the whole of such thing, or class of things,- EVEN though it becomes entirely worthless;

but such insurer is liable for:

- his proportion of all general average loss assessed upon the thinginsured.

Notes:

Average defined under the Code of Commerce

- Any extraordinary or accidental expense incurred during the voyagefor the preservation of the vessel, cargo, or both and all damages to

the vessel and cargo from the time it is loaded and the voyage

commenced until it ends and the cargo is unloaded- Gives owner the right to contribution from those benefitted thereby

o IF he is insured: he has the alternative of seeking indemnityform his insurer

o IF the owner neglects or waives his right to contribution: heloses his alternative

Kinds of Averages

1. Gross or General Averages (GA)o Damages and expenses which are deliberately caused by the

master of the vessel in order to save the vessel, the cargo orboth from a real and known risk

o GA loss must be borne equally by all the interests involved 2. Simple or Particular Averages

o Damages and expenses caused to the vessel or to her cargowhich have not inured to the common benefit and profit of

all the persons interested in the vessel and her cargo

o Losses which do not entitle the owners to receivecontribution from other owners

o Loss is suffered by and borne alone by the owner of thecargo or the vessel

Principle of General Average Contribution

- When it is decided by the master of a vessel acting for all theinterests concerned, to sacrifice any part of a venture exposed to a

common and imminent peril in order to save the rest

- The interest so saved are compelled to contribute proportionatelyto the owner of the interest sacrificed.

- A device for a limited distribution of lossRight of a party to claim general average contribution Requisites:

1. There must be a common danger to the vessel or cargo2. Part of the vessel or cargo was sacrificed deliberately3. The sacrifice must be for the common safety or for the benefit of all4. It must not be caused by any fault of the party asking the

contribution

5. It must be successful (resulted in the saving of the vessel/cargo)6. It must be necessary

Formalities prescribed under Art 813 and 814 of the Code of Commerce

must be complied with in order to incur the expenses and cause the damages

corresponding to gross average.

Liability of insurer for General Average:

- Section 136 Insurance Code: liable for his proportion of all generalaverage loss assessed upon the thing insured

- Article 859 Code of Commerce: obliged to pay for the indemnity othe gross average in so far as is required of each one of these objects

respectively- It simply places the insurer on the same footing as other persons wh

have an interest in the vessel or cargo

Formula for computing the liability:

Amount of insurance X General Average = Proportion of GAL for

Total amount or value Loss (GAL) which insurer is liable

Liability of Insurer for Particular Average

- Means any partial loss caused by the peril insured against which isnot the GA

- The insurer is liable for a particular average UNLESS the policyexcludes it BUT such insurer is liable for the GA loss even in theabsence of any agreement


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- It may be agreed that parties are free from payment of particularaverage in such case, insurer is liable only for the general average

Other Rules:

- General Average is never allowed UNLESS the loss or damage hasbeen incurred for the common safety of both vessel and cargo

- Refloating of the vessel which has accidentally run aground wassolely for the benefit of the vessel no common safety

Sec. 137.An insurance confined in terms to an actual loss:- does NOT cover a constructive total loss,- but covers any loss:

o which necessarily results in depriving the insured of thepossession, at the port of destination,

o of the entire thing insured.Notes:

- An insurance confined to Actual total loss or absolute total loss o Does NOT cover constructive total loss

- If against total loss onlyo It covers any total loss whether actual or constructive

Sub-Title 1-H

ABANDONMENT

Sec. 138.Abandonment,in marine insurance, is the act of the insured:

- by which, after a constructive total loss,- he declares the relinquishment to the insurer of his interest in the

thing insured.

Abandonment, defined:- The right given by law to the insured in case of constructive total

loss to relinquish to the insurer his interest in the thing insured.

Requisites for Valid Abandonment

1. There must be an actual relinquishment by the person insured of hisinterest in the thing insured (SEC 138)

2. There must be a constructive total loss (SEC 139)3. The abandonment be neither partial nor conditional (SEC 140)4. It must be made within a reasonable time after receipt of reliable

information of the loss (SEC 141)

5. It must be factual (SEC 142)6. It must be made by giving notice thereof to the insurer which may b

done orally or in writing (SEC 143)

7. The notice of abandonment must be explicit and must specify theparticular cause of the abandonment (SEC 144)

Right of Abandonment does NOT apply:

- In cases where the injury or average was occasioned by the SOsown fault

- ART 587 of Code of Commerce which speaks also of this right ofabandonment speaks only of situations where the fault or

negligence is committed solely by the captainNecessity for Abandonment

- When the loss is only technically total insured cannot claim thewhole insurance w/o showing due regard to the interest which the

underwriter may take in the abandoned property- When the underwriter by prompt action might be able to save some

portion of the property

o he is entitled to timely notice of abandonment and hecannot be held liable w/o it

- ABANDONMENT IS DISCRETIONARY: the insured may do so ihis own election

o IF he omits to abandon: he MAY nevertheless recover hisactual loss (SEC 155)


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Sec. 139.A person insured by a contract of marine insurance may abandon:

- the thing insured, or- any particular portion thereof separately valued by the policy, or

otherwise separately insured, and

recover for a total loss thereof,when the cause of the loss is a peril insured

against:(a) If more than three-fourths thereof in value is actually lost, or would have

to be expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

(c) If the thing insured is a ship, AND the contemplated voyage:

- cannot be lawfully performed- without incurring either:

o an expense to the insured of more than three-fourths thevalue of the thing abandoned OR

o a risk which a prudent man would not take under thecircumstances; or

(d) IF the thing insured, being cargo or freightage, and the voyage:

- cannot be performed,- nor another ship procured by the master,

o within a reasonable time and with reasonable diligence,o to forward the cargo,o without incurring the like expense or risk mentioned in the

preceding sub-paragraph.

But freightage cannot in any case be abandoned:

- UNLESS the ship is also abandoned.Notes:

3 Rules on when Constructive Total Loss

- English Rule: When the subject matter of the insurance is sodamaged as not to be worth when repaired, the cost of the repairs

- American Rule: When it is so damaged that the cost of repairs wouldexceed !of the value of thing. (Fifty Per Cent Rule)

- Philippine Rule: Insured may not abandon the thing insuredUNLESS The loss or damage is more than "of its value (SEC 139)

Abandonment where insurance divisible and where indivisible

- W/N a contract is entire OR severable: a question of intention to bedetermined by the language employed by the parties

- Only that portion of the thing which is separately valued by thepolicy may be separately abandoned as it is deemed separatelyinsured

- When the insurance is indivisible: the basis for determiningconstructive total loss is the ENTIRE SHIPMENT

Criterion as to Extent of Loss

- The extent of injury to the vessel: considered with reference to itsgeneral market value immediately before the disaster

- HOWEVER, if it involves a VALUED POLICY: the value stipulateshall be taken as the basis of the estimate

- ALSO: the expenses incurred or to be incurred by the insured inrecovering the thingare taken into account

Sec. 140.An abandonment must be NEITHER partial NOR conditional.

Notes:

- Abandonment MUST be total and absolute covers the wholeinterest

- IF only a part of a thing is covered by the insurance the insuredneed ONLY abandon that part.

Sec. 141.An abandonment must be made:

- w/in a reasonable time after receipt of reliable information of the los- BUT where the information is of a doubtful character

o the insured is entitled to a reasonable time to make inquiry.Notes:

Abandonment Must be Made within Reasonable Time (RT)

- Once the insured receives a notice of loss he must elect whether hewill abandon and give notice of such abandonment w/in RT

- Further RT to make inquiry: in order that the insurer may not beprejudice with the delay and may take immediate steps for the

preservation of such property

- RT is relative: it is based on the facts and circumstances of each case- After the property passes beyond the control of the insured an

abandonment is too late


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Sec. 142.Where:- the information upon which an abandonment has been made proves

incorrect, OR

- the thing insured was so far restored when the abandonment wasmade that there was then in fact no total loss,

the abandonment becomes ineffectual.

Notes:

Existence of loss at time of abandonment

- The right of the insured to abandon depends upon the state of facts atthe TIME OF THE OFFER TO ABANDON and NOT upon

o The state disclosed by the information receivedo NOR upon the state of loss at a prior or subsequent time

Effect of Subsequent Events:

- IF the abandonment is made good :o The rights of the parties are fixed ando Do not become changed by subsequent events

- IF the abandonment is NOT made good:o Subsequent circumstance will not affect it so as

retroactively, to impart to it a validity which it has not at itsorigin (whaaatt!! labo see p359 de leon)

Insured CANNOT abandon:

- When the thing insured is safe- When he knew at the time of his offer to abandon that the vessel has

been repaired

- In such cases the invalidity of the abandonment is NOT cured by thesubsequent loss of the thing

IF the abandonment is valid:

- A subsequent recovery of the property will not entitle the insured towithdraw the abandonment

Instances justifying abandonment:

- in cases of capture, seizure, detention, restraint by blockade orembargo

- funds cannot be raised with no fault of the owner- where the voyage is absolutely lost - where under urgent necessity the master makes a sale of the insured

property

Information which authorized the insured to abandon need NOT be

direct or positive:

- The information must be of such facts and circumstances as to rendeit highly probable that a constructive total loss has occurred

- Protest of the master, a newspaper report, report of pilot is sufficientSec. 143. Abandonment is made by:

- giving notice thereof to the insurer,- which may be done orally, or in writing;

Provided,That IF the notice be done orally:

- a written notice of such abandonment shall be submitted- within 7 days from such oral notice.

Notes:

Form of Notice of Abandonment

- law requires no particular form for giving notice- notice may be made orally UNLESS the policy requires it to be in

writing

By whom and to whom notice made- Notice may be made BY:

o The insured or his authorized agento Note: An agent having authority to insure hasprima facie

authority to abandon

- Notice may be made TO:o The underwriter or his authorized agent

Sec. 144.A notice of abandonment must be:

- explicit, and- must specify the particular cause of the abandonment,- BUT need state ONLY enough to show that there is probable cause

therefor, and

- need NOT be accompanied with proof of interest or of loss.Notes:

- Notice of abandonment must be explicit and not left as a matter ofinference from some equivocal acts

- There must be intention to abandon- The use of the word abandon is not necessary- BUT there is no abandonment even when notice has been given: IF

the insured continues to claim and use the property as his own


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Sec. 145.An abandonment can be sustained:- ONLY upon the cause specified in the notice thereof.

Notes:

- The insured must state sufficient grounds for the abandonment tomake it valid

- He cannot avail himself of any ground other than that stated- If the grounds is proved to be unfounded and the information upon

which it was made is proved to be incorrect abandonment is

ineffective

- If he assigns an insufficient cause proof of other causes will not beadmitted

Sec. 146. An abandonment is equivalent to:

- a transfer by the insured of his interest to the insurer,- with all the chances of recovery and indemnity.

Notes:

- Effect of abandonment: insurer acquires all the rights(which includesrights of action against 3rdperson) which the insured possessed

- The rights acquired is also SUBJECT to prior rights of third persons- The execution of a formal instrument is not necessary to effect an

abandonment an accepted abandonment produces all the effects

Sec. 147.IF a marine insurer pays for a loss as if it were an actual total loss,he is entitled to:

- whatever may remain of the thing insured, or- its proceeds or salvage,

as if there had been a formal abandonment.

Notes:

- GR:An election and notice of abandonment is a condition precedentto a claim for constructive total loss

- HOWEVER In this section: The interest of the insured over thething will be transferred to the insurer notwithstanding the lack of

abandonment as if a formal abandonment has been made

- The acceptance by the insured of the payment is deemed an offer ofabandonment on his part

Sec. 148.Upon an abandonment,:

- acts done in good faitho by those who were agents of the insured in respect to the

thing insured,

- subsequent to the loss,are at the risk of the insurer and for his benefit.

Notes:

- Upon abandonment, agents of the insured become the agents of theinsurer

- The abandonment when made relates back to the time of the loss the title of the insurer becomes vested as of that date and isresponsible for the reasonable expenses incurred in an attempt to

save the vessel and the wages of the seamen

Sec. 149. Where notice of abandonment is properly given,:- the rights of the insured are not prejudiced- by the fact that the insurer refuses to accept the abandonment.

Notes:- Acceptance is not necessary if the abandonment is proper- The insureds right to abandon is ABSOLUTE when justified by

circumstances

Sec. 150.The acceptance of an abandonment may be either:

- express or- implied from the conduct of the insurer.

The mere silence of the insurerfor an unreasonable length of time AFTER

notice:- shall be construed as an acceptance.

Notes:

Form of Acceptance of Abandonment

- May be express or implied- IMPLIED: By conduct

o Mere silence and acts to preserve property after notice! GR:NOT implied acceptance! UNLESS if made for an unreasonable length of tim

o Example: when the insurer refused the abandonment buttakes possession of the same for the purpose of making

repairs AND retained for an unreasonable time


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Sec. 151.The acceptance of an abandonment, whether express or implied:- is conclusive upon the parties, and- admits the loss and the sufficiency of the abandonment.

Sec. 152.An abandonment once made and accepted is irrevocable:- UNLESS the ground upon which it was made proves to be

unfounded.

Notes:

Acceptance of Abandonment has the Following Effects:1. Acceptance is conclusive upon the parties2. Loss is admitted3. The sufficiency of the abandonment is admitted4. It is irrevocable unless the ground upon which it was made proved to

be unfounded

- Acceptance stops the insurer from questioning the form or right ofabandonment

- W/N the insured has a right to abandon is IMMATERIAL when it isaccepted and there is no fraud

Sec. 153.On an accepted abandonment of a ship:

- freightage earned previous to the losso belongs to the insurer of said freightage;

- but freightage subsequently earnedo belongs to the insurer of the ship.

Note:Title becomes vested at the TIME OF THE LOSS

Sec. 154.If an insurer refuses to accept a valid abandonment:- he is liable as upon actual total loss,- deducting from the amount any proceeds of the thing insured which

may have come to the hands of the insured.

Notes:

- The insureds right to abandon is absolute when justified by thecircumstances and no acceptance is necessary

When an insurer declines to accept:

- A Proper Abandonment: Insurer is liable for the total loss LESS anyproceeds received on account of the damaged property (ex. Sale)

- An Improper Abandonment: Insured may nevertheless recover to theextent of the damage proved

Sec. 155.If a person insured omits to abandon, he may nevertheless recover

his actual loss.

Notes:

- Abandonment is discretionary: failure to do so would still entitle theinsured to recover his actual loss

Sub-Title 1-I

MEASURE OF INDEMNITY

Sec. 156.A valuation in a policy of marine insurance is conclusivebetweethe parties thereto in the adjustment of either a partial or total loss IF:

- the insured has some interest at risk, and- there is no fraud on his part;

EXCEPT that when a thing has been:- hypothecated by bottomry or respondentia,- before its insurance, and- without the knowledge of the person actually procuring the

insurance,

he may show the real value.

BUT a valuation fraudulent in fact, entitles the insurer to rescind the contract

Notes:

- SEC 156 refers to VALUED marine policies- The insured value must be taken to be that stated in the policy- When there is no insurable interest or when there is fraud on the part

of the insuredo Valuation is NOT conclusiveo The insurer has the right to rescind

- When the thing insured is hypothecated by bottomry or respondentiao Right to rescind is available ONLY if the violation is

fraudulent in fact


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Sec. 157.A marine insurer is liable upon a partial loss:

- ONLY for such proportion of the amount insured by him- as the loss bears to the value of the whole interest of the insured in

the property insured.

Notes:

- IF the value of the property or interest of the insured EXCEEDSthe amount of the insurance: he is considered the co-insurer for the

amount determined by the [difference between the value of theinsurance and the value of the property]

- In Fire Insurance: rule is different:o No co-insurance: insurer is liable for the FULL amounto UNLESS policy expressly provides for co-insurance

FORMULA:

(Partial) Loss X Amount of = Amount of

Value of Thing Insured Insurance Recovery

Sec. 158.Where profits are separately insured in a contract of marine

insurance the insured is entitled to recover, in case of loss:

- a proportion of such profits equivalent to- the proportion which the value of the property lost bears to the value

of the whole.

Notes:

- The profits to be realized must be separately insured from the vesselor cargo

FORMULA:

Value of Property Lost X Amount of = Amount ofValue of Whole Property Profit Recovery

Insured

Sec. 159.In case of a valued policy of marine insurance on freightage or

cargo:- IF a part only of the subject is exposed to the risk,- the evaluation applies only in proportion to such part.

Notes:

- In case only a portion of the cargo was insured under a valued polic the valuation applies only in proportion of such part

- Under a valued policy, when a portion only of the cargo is carried bthe vessel: valuation will be reduced proportionally

- Insurer is bound to return such portion of the premium ascorresponds with the portion of the cargo which had been exposed to

the risk

- Franchise Clause:stipulation that unless the damage reaches adesignated percentage of the value of such cargo no amount will b

paid by the insurer

Sec. 160.When profits are valued and insuredby a contract of marineinsurance:

- a loss of them is conclusively presumedFROM a loss of theproperty out of which they are expected to arise, and

- the valuation fixes their amount.Notes:

- Where the profits are separately insured from the property: theinsured is entitled:

o IF partial loss: merely to partial indemnity for the profits los o IF total loss: nothing total profits are also lost

- Loss of the Profits is conclusively presumed from the Loss of theProperty

- In such case, the valuation agreed upon in the policy fixes theamount of recovery


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Sec. 161.In estimating a loss under an open policyof marine insurance the

following rules are to be observed:(a) The value of a ship is:

- its value at the beginning of the risk,- including all articles or charges:

o which add to its permanent value oro which are necessary to prepare it for the voyage insured;

(b) The value of the cargo is:

- its actual cost to the insured, when laden on board, or- where the cost cannot be ascertained:

o its market value at the time and place of lading,- adding the charges incurred in purchasing and placing it on board,

but

- without referenceo to any loss incurred in raising money for its purchase, oro to any drawback on its exportation, oro to the fluctuation of the market at the port of destination, oro to expenses incurred on the way or on arrival;

(c) The value of freightage is:

- the gross freightage, EXCLUSIVE of primage,- without reference to the cost of earning it; and

(d) The cost of insurance is in each case to be added to the value thusestimated.

Notes:

- Provision contemplates an OPEN marine policy- Drawback in par B:refers to the allowance made by the govt

upon the duties on imported merchandise when the importer, instead

of selling here, re-exports it or the refunding of such duties is alreadypaid ( it is excluded in determining the value of the cargo)

- Primage in par C:refers to a small allowance or compensationpayable

o to the master or owner of the vesselfor the use of his cablesand ropes to discharge, and for his care and trouble bestowed

on the shippers goods

o to the marinersfor lading and unlading in any portIn Determining the loss under an open policy of marine insurance the

REAL VALUE of the thing insured must be proved in each case

- Value of Vessel: value is to be taken as of the commencement of therisk (NOT at the time it was built)

- Value of Cargo: either the actual cost when laden on board OR themarket value (see codal for distinction)

o Expected profits are NOT considered since they can becovered by a separate insurance

- Value of Freightage: Gross freightage (NOT net freightage)o Reason:Gross freightage can be easily and exactly

determined

Sec. 162.IF cargo insured against partial loss:- arrives at the port of destination in a damaged condition,

the loss of the insured is deemed to be the same proportion:

- of the value which the market price at that port, of the thing sodamaged,

- bears to the market price it would have brought if sound.Notes:

- The provision applies: if the cargo is insured against partial loss + itsuffers damage + its market value at the port of destination is

reduced

FORMULAS:

Market Price (MP) MP in Damaged State = Reduction in Valu

in Sound State (Depreciation)

Reduction in Value X Amount of = Amount of

Market Price in Sound State Insurance Recovery

Sec. 163.A marine insurer is liable for:- all the expenses attendant upon a loss- which forces the ship into port to be repaired; and

where it is stipulated in the policy that the insured shall labor for the recover

of the property, the insurer is liable:

- for the expense incurred thereby,- such expense, in either case, being in addition to a total loss, if that

afterwards occurs.


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Notes:

GR:Marine Insurer is NOT liable for more than the amount of the policyEXC:Expenses that are borne by the insurer in addition to total loss:

- Port of Refuge Expenses sec163- when the ship has to make porto for the repairs of the damages suffered by the vesselo for saving the vessel

- Sue and Labor Clause:expenses for the recovery of the propertyif the policy stipulated and imposes upon the insured the duty to

make such recover

Sec. 164.A marine insurer is liable for a loss falling upon the insured:

- through a contribution in respect to the thing insured,- required to be made by him towards a general average loss called for

by a peril insured against;

provided, that the liability of the insurer shall be limited:

- to the proportion of contribution attaching to his policy value- where this is less than the contributing value of the thing insured.

Sec. 165.When a person insured by a contract of marine insurance has a

demand against others for contribution,he may:- claim the whole loss from the insurer,- subrogating him to his own right to contribution.

But no such claim can be made upon the insurer:

- after the separation of the interests liable to the contribution,- nor when the insured, having the right and opportunity to enforce the

contribution from others, has neglected or waived the exercise of thatright.

Notes:

- When the person liable to contribute to a general average is insured:o He may hold the insurer liable for his contributiono Up to the value of the policy

- GR: Insurer is Liable for any general average (GA) losso The insured may either:

! hold the insurer directly liable for the insured valueof the property sacrificed or

! demand contribution from the other interestedparties as soon as the vessel arrives at her destination

o in other words: the insured need not wait for an adjustmentof the average

- EXC:No recovery of GA loss against insurero After the separation of the interests (cargo) liable to

contribution has been removed from the vessel

o When the insured has neglected or waived his right tocontribution

Liability of Marine Insurer for any GA loss is LIMITED

- Limited to the proportion of contribution attaching to his policyvalue where this is less than the contributing value of the thinginsured.

- It shall be less than the proportion of the GA loss assessed upon thething insured where its contributing value is more than the amount othe insurance.

- In such case the INSURER is liable to contribute ratably with theINSURED to the indemnity of the GA

FORMULA:

Amount of Insurance X Proportion of GA loss assessed = Limit of

Value of the Thing upon the thing insured Liability of Insure

Sec. 166.In the case of a partial loss of ship or its equipment:

- the old materials are to be applied towards payment for the new.UNLESS otherwise stipulated in the policy, a marine insurer is liable:

- for ONLY two-thirds of the remaining cost of repairs after suchdeduction,

- EXCEPT that anchors must be paid in full.Notes:

- Here, there is a deduction from the cost of repairs one-third new foold on the theory that new materials render the vessel much morevaluable than it was before the loss

- The 1/3 therefore is upon the burden of the insured- The 2/3 then shall be upon the burden of the insurer- This section qualifies the rule in Sec 157 (page 19)


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Title 2

FIRE INSURANCE

Sec. 167.As used in this Code, the term "fire insurance"shall include

insurance against loss by:

- fire,- lightning, windstorm, tornado or earthquake and other allied risks,

o when such risks are covered by:! extension to fire insurance policies or! under separate policies.

Notes:

Fire Insurance, defined: A contract of indemnity by which the insurer for a

consideration, agrees to indemnify the insured against loss of, or damage to,

a property by hostile fire.- Indemnity is its sole purpose

What Fire Insurance Includes

- By stipulation, the policy may extend not only to loss due to fire butalso due to allied lines (lightning, windstorm, etc.)

- To include Allied Risks Extended Coverage:o A fire policy does NOT automatically cover all other risks, it

must be stipulated

o Covered by extension to fire insurance policies OR underseparate policies

o SUBJECT to the payment of premiums under separatepolicies (SEC 167)

o MAY also be attached by endorsements (SEC 50)- May also include Indirect or Consequential Losses

o GR:A standard fire contract is an agreement to indemnifyfor DIRECT loss

o EXC:The consequencesof direct loss may be greater thanthe damage itself and the policy may be extended to cover

such consequential losses

o Special coverage also known as loss of profits insuranceor business interruption insurance

- Kinds of Indirect Losseso Physical Damage: ex. As a result of the fire, goods are

spoiled, papers cannot be recopied

o Loss of Earnings: Interruption of businesso Extra Expense: additional expenditure or charges incurred b

the insured following the damage or destruction of theproperty by an insured peril (ex. Cost doing business at

another location)

Fire, defined- The active principle of burning, characterized by the heat and light

combustion. (Fire is always caused by combustion)

- Combustion or spontaneous combustion may be so rapid as toproduce fire, but until it does so, combustion cannot be said to be

fire. it MUST produce a flame, a glow, or incandescence

- Combustion which produces heat but no visible glow or light is NOfire

- Heat, steam, smoke evidence of fire but unless it is accompaniedby ignition, it is not fire

- Fire is NOT:o A natural disaster or calamity since it always arises.o An act of God unless caused by lightning or natural disaster

not attributed by human agencyRules in Order to Recover under the Fire Policy

- Fire must be the PROXIMATE CAUSE of loss in order to recoverunder the fire policy

- Fire MUST be HOSTILE and NOT friendlyo Friendly Fire, defined: One which burns in a place where i

is intended to burn and employed for the ordinary purpose o

lighting, heating or manufacturing! Examples: Fire burning in a stove or lamp, gas lamp

o Hostile Fireis when:1. Burns at a place where it is NOT intended to burn2. Starts as a friendly fire but becomes hostile if it should

escape from the place where it is intended to be (proper

place) and becomes uncontrollable OR

3. Starts as a friendly fire but becomes hostile because ofthe unsuitable material used to light it and it becomes

inherently dangerous and uncontrollable. (Ex. Fire in the

furnace caused by the heat from the fire to the walls bycracking and blisters)


23/41


Fire due to Abnormal Conditions or Extraordinary Circumstances

- A fire insurance policy MAYo RESTRICT its coverage to losses under ordinary

circumstances and

o EXCLUDE those due to extraordinary circumstance orabnormal conditions (ex. War, invasion, rebellion)

- HOWEVER, if the fire is completely unrelated to the extraordinarycircumstance insurer is STILL LIABLE

Ocean Marine Insurance Fire Policy

Insurance on a vessel engaged in

navigation is a marine policy

although it insures against fire risksonly

BUT where the hazard is fire alone

and the vessel is an unfinished

vessel, never afloat, especially in theabsence of an express agreement that

it shall have the incidents of marine

policy

Rules on constructive loss AND

abandonment applies

Does NOT apply

In case of partial loss the thing

insured for less than its actual value the insured is a co-insurer of the

uninsured portion

The insured may ONLY become a

co-insurer in fire insurance when itis EXPRESSLY agreed upon

Sec. 168.An alteration in the use or condition of a thing insured:

- from that to which it is limited by the policy- made without the consent of the insurer,- by means within the control of the insured, and- increasing the risks,

entitles an insurer to rescind a contract of fire insurance.

Sec. 169.An alteration in the use or condition of a thing insured:

- from that to which it is limited by the policy,- which does not increase the risk,

does not affect a contract of fire insurance.

Notes:

Alteration in thing insured entitles insurer to RESCIND provided:

1. The use or condition of the thing is specifically limited or stipulatedin the policy

2. Such use or condition as limited by the policy is altered3. The alteration is made without the consent of the insurer4. The alteration is made by means within the control of the insured5. The alteration increases the risks

When alteration does NOT avoid the insurance contract:1. Where Risk of Loss is NOT increased

o GR:does not affect the insurance contracto EXC:when the policy provides that a violation of specified

provisions shall avoid it increase of risk is NOT necessary

to enable the insurer to escape

2. Where questioned articles required by insureds business: Even ifthe policy prohibits certain materials to be kept in the premises -when these are necessary or ordinarily used in the business

conducted policy is not avoided

3. Where insured property would be useless if questioned acts wereprohibited: Repairs and similar acts although it may expose theproperty to additional risk will not avoid the policy

Increase of risk of hazard in general

- Implied undertaking of insured: Every contract of insurance is madewith reference to the conditions surrounding the subject matter of th

risk and the premium is fixed with reference thereto. There is thus a

implied promise on the part of the insured not to change theseconditions.

- Character of the increase in risk: There is an increase of risk whenthe insured property is put to some new use, and the new useincreases the chance of loss.

o Mere negligent acts temporarily endangering the propertynor the temporary acts or conditions which have ceased prio

to the occurrence of the loss will not violate the policyo Increase must be of a SUBSTANTIAL CHARACTER

Alterations Avoiding the Policy

- Where risk of loss increased: Policy is avoided by any alteration inthe use or condition of the property insured increasing the risk.

o Ex. Firecrackers placed in a liquor store- Where the increase in risk no longer exists at the time of loss: The

insurer would STILL be liable UNLESS there is a breach of

warranty


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Where insured has no Control or Knowledge of Alteration

- The insurer is NOT exonerated when alteration is occasioned byaccident or which he has no control of

- Every act of the insureds tenant substantially and permanentlyaffecting the conditions of the property as to increase the risk is

PRESUMED to be known by the insured.

Sec. 170. A contract of fire insurance is NOT affectedby any act of the

insured- subsequent to the execution of the policy,- which does not violate its provisions,- EVEN though it increases the risk and is the cause of the loss.

Notes:

- An exception to the rule in Section 168- An act of the insured EVEN if it increases the risk does NOT affect

the contract UNLESS there is a corresponding violation of the

provisions of the policy

Sec. 171.If there is no valuationin the policy, the measure of indemnity inan insurance against fire is:

- the expense it would be to the insured at the time of thecommencement of the fire

- to replace the thing lost or injured in the condition in which it was atthe time of the injury;

but IF there is a valuationin a policy of fire insurance,:- the effect shall be the same as in a policy of marine insurance.

Notes:

Open Fire Policy [Measure of Indemnity]:

- The expense it would be to the insured at the time of thecommencement of the fire to replace the thing lost or injured in the

condition in which it was at the time of the injury- The insured is ONLY entitled to recover the amount of actual loss- Limit to amount: Indemnity shall NOT EXCEED the cost to repair,

or to replace the thing insured with materials of like kind andqualitywith proper deduction for depreciation considering the age or

condition of the thing before the loss

- For personal property:MARKET VALUE is the actual loss- If the actual lossis MORE than the face valueof the policy:

o The face value is the limit of insurers liability

- Burden of Proof: on the INSURED to establish the amount of suchloss by preponderance of evidence

Valued Fire Policy

- The valuation is CONCLUSIVE between them in the adjustment ofpartial or total loss in the absence of fraud

In LIFE INSURANCE: the sum fixed is the amount to the paid: Principle of

Indemnity does NOT apply

Sec. 172.Whenever the insured desires to have a valuation named in his

policy, insuring any building or structure against fire, he may require:- such building or structure to be examined by an independent

appraiser and

- the value of the insured's interest therein may then be fixed asbetween the insurer and the insured.

The cost of such examination shall be paid for by the insured.

A clause shall be inserted in such policy stating substantially that:

- the value of the insured's interest in such building or structure hasbeen thus fixed.

In the absence of any change increasing the risk without:

o the consent of the insurer oro of fraud on the part of the insured,

- then in case of a total lossunder such policy,o the whole amount so insured upon the insured's interest in

such building or structure, as stated in the policy upon whicthe insurers have received a premium, shall be paid,

- and in case of a partial loss:o the full amount of the partial loss shall be so paid,

- and in case there are two or more policies covering the insured'sinterest therein:

o each policy shall contribute pro rata to the payment of suchwhole or partial loss.

- But in no case shall the insurer be required to pay more than theamount thus stated in such policy.

This section shall not prevent the parties from:- stipulating in such policies concerning the repairing, rebuilding or

replacing of buildings or structures wholly or partially damaged or

destroyed.


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Notes:

How Valuation is Made

- Valuation of insureds interest in the thing - may be made by anindependent appraiser and therefore confirmed by the parties

Insurers Liability in Valued Policy

- In the absence of any change increasing the risk, w/o the insurersconsent or of fraud on the part of the insured. The LIABILITY OFTHE INSURER is:

In case of

TOTAL loss

The whole amount so insured and stated in the

policy

In case ofPARTIAL loss

The full amount of the partial loss UNLESS thereis a co-insurance clause

- In case there are 2 or more policies: each policy shall contribute PRORATA

- Total loss of the insured building exists: when the result of the fire issuch as to render the property wholly unfit for use as a building

however valuable it may be as mere material

Option to Rebuild or Repair Clause

- The parties may stipulate that instead of paying the amount of theloss insurer has an option to repair or rebuild the property insured

- In order to protect the insurer from unfairness in the appraisal- Must be exercised: (1) w/in the time specifiedOR (2) w/in

reasonable timeif no time specified

- Choice made to exercise right has NO effect UNLESScommunicated to the insured

- UNLESS there is a stipulation limiting the cost insurer may becompelled to perform his undertaking to rebuild even though the cost

may exceed the amount of insurance

Arbitration Clause

- Policy may provide that in case of dispute arbitration may beresorted to as a condition precedent to court litigation

Insured NOT a co-insurer under a fire policy in the absence of

stipulation

- The insurer in case of partial loss is required to give full indemnityfor such loss up to the amount written in the policy even though the

property be very inadequately insured (diff. rule in marine)

- Co-Insurance Clause: Clause requiring the insured to maintaininsurance to an amount equal to the value or specified percentage ofthe insured property under penalty of becoming co-insurer to the

extent of such deficiency

- This results in reducing in case of partial loss to the portion of thesum named in the policy.

Sec. 173.No policy of fire insurance shall:

- be pledged, hypothecated, or transferred- to any person, firm or company who acts as agent for or

otherwise represents the issuing company, and

any such pledge, hypothecation, or transfer hereafter made:- shall be void and of no effect- insofar as it may affect other creditors of the insured.

Notes:

- After the loss the insured has the right to assign his rights- The right to pledge, hypothecate or transfer a fire insurance policy

may be done EVEN without the consent of, or notice to, the insurer

- What is being assigned is NOT the contract BUT the claim under ora right of action on the policy under the insurer

- Limitation: (see bold words in codal)


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Title 3

CASUALTY INSURANCE

Sec. 174.Casualty insurance is insurance:

- covering loss or liability arising from accident or mishap,- EXCLUDING certain types of loss which:

o by law or custom areo considered as falling exclusively within the scope of other

types of insurance such as fire or marine.It INCLUDES, but is not limited to:

- employer's liability insurance,- motor vehicle liability insurance,- plate glass insurance,- burglary and theft insurance,- personal accident and- health insurance as written by non-life insurance companies, and- other substantially similar kinds of insurance.

Notes:

Casualty Insurance; defined: (1stparagraph of codal) Includes all forms of

insurance against loss or liability arising from accident or mishap excludingcertain types of loss or liability which are not within the scope of other types

of insurance: marine, fire, suretyship, and life.

- Casualty insurance shall be governed:o by the terms of the contract not violative of the laws ando by the general provisions applicable to all types of insurance

- Casualty to mean Accident: A violent mishap proceeding from anunknown or unexpected cause

2 General Divisions of Casualty Insurance

1. Insurance against perils which affect the person or property: (Ex.accident, health, motor vehicle, theft, etc.)

2. Insurance against perils which give rise to liability for claims forinjuries to others or for damage to their property (Ex. Workmens

compensation)

Liability Insurance

- Definition: A contract of indemnity for the benefit of the insured andthose in privity with him or those to whom the law upon the groundsof public policy extends (policy refers tolegal liability damages)

- Liability Insurableo Quasi-delict or non-fulfillment of contracto Criminal Negligence

! Deliberate criminal acts are not insurable- Insurable Interest in Liability Insurance

o Liability Insurance must be supported by an IIo II: safety of persons, freedom from damage or propertyo Does NOT depend on whether there is legal or equitable

interest in propertyo BUT whether he may be charged by law with the liability

against which insurance is taken out

- When liability insurance in policy payableInsurance Against Liability Insurance Against Actual Loss

Liability attaches when

liability of the insured to theinjured 3rdparty attaches

REGARDLESS of actual loss

Liability attaches ONLY when

actual loss is sustained by theinsured

- Right of Injured Person to Sue Insurer of Party at Faulto Depends on whether the contract intended to benefit the 3 rd

persons OR only the insured

o Purpose for allowing injured to sue: to protect him for theinsolvency of the insured

o Rule applies ONLY to 3rdparty Liabilityo DOES NOT APPLY to Insurance against Actual Loss

! The contract being solely to reimburse the insuredfor liability actually discharged

! In this case, the 3rdpartys recourse is limited to theinsured alone

! Prior payment of the insured is necessary for that thobligation of the insurer may arise

- Basis and Extent of Insurers Liabilityo The liability of insurer is not solidary with the insuredo His liability of insurer to 3rdpersons is based on contracto Liability of insured is based on tort.

- Effect of No action clause in policy of liabilityo Requires that suit and final judgment must first be obtained

against the insured before recovery on the policy may be

made


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o It expressly disallows suing the insurer as a co-defendant ofthe insured HOWEVER the rules of court allows this andthe rules of court prevails over any insurance contract

Employers Liability Insurance

- Employers Liability, Defined: Liability for damages caused toworkers arising from injuries by reason of defective conditions of

machinery, etc, IF the defect is ATTRIBUTABLE TO:

o Negligence of the employer of his agentso Negligence of the employers superintendent or one having

authority over the workmen

o Some act or omission by a fellow workman in obedience tothe employers by-laws, or instructions from authority

Workmens Compensation Insurance

- Workmens Compensation, defined: Compensation for loss resultingfrom injuries, disablement or death of workmen through industrial

accident, casualty or disease

- Act, injury or sickness is COMPENSABLE:1. As personal injury from accident arising out of and in the course

of employment

2. Illness directly caused by employment3. As sickness which is the result of the nature of the employment4. As sickness aggravated by the nature of employment

- Under the Labor Code: employer is required to make monthlycontribution to the State Insurance Fund from which the Stateguarantees payments of benefits for death or injuries of his

employees

Public Liability Insurance

- Insurance which indemnifies against liabilities on account of injuriesto the person or property of another

Motor Vehicle Liability Insurance

- Insurance against passenger and 3rdparty liability for death or bodilyinjuries and damage to property arising from motor vehicle accidents

- Motor vehicle liability is different from insurance for loss or damageon the motor vehicle itself

- Authorized Driver Clause:o The insurer is NOT liable if at the time of the collision, the

driver did not have a valid license

o The i

insurance reviewer finals

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