75993046 Insurance Memory Aid

8/12/2019 75993046 Insurance Memory Aid

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INSURANCE CODE(P.D. No. 1460)I. GENERAL CONCEPTSCONTRACT OF INSURANCE

.An agreement whereby one undertakes for a consideration to indemnify another against loss, damage orliability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)

DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS(Sec. 2, par. 4)

1.Making or proposing to make, as insurer, any insurance contract;2.Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incidentto any other legitimate business of a surety;3.Doing any insurance business, including a reinsurance business;4.Doing or proposing to do any business in substance equivalent to any of the foregoingII. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippi

nes Annotated,Hector de Leon, 2002 ed.)1. Consensual it is perfected by the meeting of the minds of the parties.2.Voluntary the parties may incorporate such terms and conditions as they may deemconvenient.3. Aleatory it depends upon some contingent event.4. Unilateral imposes legal duties only on the insurer who promises to indemnifyin case of loss.5.Conditional It is subject to conditions the principal one of which is the happening of the event insuredagainst.

6.Contract of indemnity Except life and accident insurance, a contract of insurance is a contract ofindemnity whereby the insurer promises to make good only the loss of the insured.7.Personal each party having in view the character, credit and conduct of the other.REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector deLeon, 2002 ed.)

1. A subject matter which the insured has an insurable interest.

2. Event or peril insured against which may be any future contingent or unknownevent, past or future and aduration for the risk thereof.3. A promise to pay or indemnify in a fixed or ascertainable amount.4. A consideration known as premium.5. Meeting of the minds of the parties.5 CARDINAL PRINCIPLES IN INSURANCE

1. Insurable Interest2. Principle of Utmost Good Faith


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.An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant isenjoined to disclose any material fact, which he knows or ought to know..Reason: An insurance contract is an aleatory contract. The insurer relies on therepresentation of theapplicant, who is in the best position to know the state of his health.3. Contract of Indemnity.It is the basis of all property insurance. The insured who has insurable interest over a property is onlyentitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount ofsuch loss (Reviewer on Commercial Law, Professors Sundiang and Aquino).Rules:a.Applies only to property insurance except when the creditor insures the life ofhis debtor.b.Life insurance is not a contract of indemnity.c.Insurance contracts are not wagering contracts. (Sec. 4)4. Contract of Adhesion (Fine Print Rule)

.Most of the terms of the contract do not result from mutual negotiations betweenthe parties as they areprescribed by the insurer in final printed form to which the insured may adhereifhe chooses but which hecannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)5. Principle of Subrogation.It is a process of legal substitution where the insurer steps into the shoes ofthe insured and he avails of thelatters rights against the wrongdoer at the time of loss..The principle of subrogation is a normal incident of indemnity insurance as a le

gal effect of payment; itinures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Saidright is not dependent upon nor does it grow out of any private contract. Payment to the insured makes theinsurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536;see also Art. 2207, NCC).Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002ed.)

1.To make the person who caused the loss legally responsible for it.

2.To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.3.To prevent tortfeasors from being free from liabilities and is thus founded on considerations of publicpolicy..Rules:


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1. Applicable only to property insurance.


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2. The insurer can only recover from the third person what the insured could have recovered.3. There can be no subrogation in cases:a. Where the insured by his own act releases the wrongdoer or third party liablefor the loss or damage;b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faithsettled the insureds claim for loss;c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan InsuranceCompany v. CA, 184 SCRA 54)d. In life insurancee. For recovery of loss in excess of insurance coverage

CONSTRUCTION OF INSURANCE CONTRACT

.The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured.However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)

III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT

1. The insured possesses an insurable interest susceptible of pecuniary estimation;2.The insured is subject to a risk of loss through the destruction or impairment of that interest by thehappening of designated perils;3. The insurer assumes that risk of loss;4. Such assumption is part of a general scheme to distribute actual losses amonga large group or substantialnumber of persons bearing somewhat similar risks; and5. The insured makes a ratable contribution (premium) to a general insurance fund..

A contract possessing only the first 3 elements above is a risk-shifting device.If all the elements, it is a risk-distributing device. (The Insurance Code of the Philippines Annotated, Hector deLeon, 2002 ed.)IV. PERFECTION OF AN INSURANCE CONTRACT.An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting ofminds with respect to the object and the cause or consideration..What is being followed in insurance contracts is what is known as the cognition theory. Thus, anacceptance made by letter shall not bind the person making the offer except from

the time it came to hisknowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)

Binding Receipt

.A mere acknowledgment on behalf of the company that its branch office had received from the applicant theinsurance premium and had accepted the application subject to processing by thehead office.


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Cover Note (Ad Interim)

.A concise and temporary written contract issued to the insurer through its dulyauthorized agent embodyingthe principal terms of an expected policy of insurance..Purpose: It is intended to give temporary insurance protection coverage to theapplicant pending theacceptance or rejection of his application..Duration: Not exceeding 60 days unless a longer period is approved by InsuranceCommissioner (Sec. 52).

Riders

.Printed stipulations usually attached to the policy because they constitute additional stipulations betweenthe parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275).In case of conflict between a rider and the printed stipulations in the policy,the rider prevails, as being a

more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance inthe Philippines, 1968 ed.)

Clauses

.An agreement between the insurer and the insured on certain matter relating to the liability of the insurer incase of loss. (Prof. De Leon, p.188)

Endorsements

.Any provision added to the contract altering its scope or application. (Prof. DeLeon, p.188)

POLICY OF INSURANCE

.The written instrument in which a contract of insurance is set forth. (Sec. 49)

.Contents: (Sec. 51)

1. Parties

2. Amount of insurance, except in open or running policies;3. Rate of premium;4. Property or life insured;5. Interest of the insured in the property if he is not the absolute owner;6. Risk insured against; and7. Duration of the insurance.


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.Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusivelyto the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified inthe policy.

.Kinds:

1.OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec.60).The actual loss, as determined, will represent the total indemnity due the insured from the insurerexcept only that the total indemnity shall not exceed the face value of the policy. (Development InsuranceCorp. vs. IAC, 143 SCRA 62)

2.VALUED POLICY definite valuation of the property insured is agreed by both parti

es, and written on theface of policy. (Sec. 61).In the absence of fraud or mistake, the agreed valuation will be paid in case oftotal loss of theproperty, unless the insurance is for a lower amount.

3. RUNNING POLICY contemplates successive insurances and which provides that theobject of the policymay from time to time be defined (Sec. 62)V. TYPES OF INSURANCE CONTRACTS1. Life insurancea.

Individual life (Secs. 179183, 227)b.Group life (Secs. 50, last par., 228)c.Industrial life (Secs. 229231)2.Non-life insurancea.Marine (Secs. 99166)b.Fire (Secs. 167173)c.Casualty (Sec. 174)

3. Contracts of bonding or suretyship (Secs. 175178)Note:

1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174).2. Marine, fire, and the property aspect of casualty insurance are also referredto as property insurance.VI. PARTIES TO INSURANCE CONTRACT1.Insurer -Person who undertakes to indemnify another.


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2.Take the cash surrender value of the policy3.Allow his creditors to attach or execute on the policy;4.Add new beneficiary; or5.Change the irrevocable designation to revocable, even though the change is justand reasonable.


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.The insured does not even retain the power to destroy the contract by refusing to pay the premiums for thebeneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of theobligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)

VII. INSURABLE INTERESTA. In General.A person has an insurable interest in the subject matter if he is so connected,so situated, so circumstanced,so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction heshall suffer pecuniary loss, damage or prejudice.

B. Life.Every person has an insurable interest in the life and health:

a.of himself, of his spouse and of his children;b.

of any person on whom he depends wholly or in part for education or support;c.of any person under a legal obligation to him to pay money or respecting property or services, ofwhich death or illness might delay or prevent performance; andd. of any person upon whose life any estate or interest vested in him depends. (Sec. 10).When it should exist: When the insurance takes effect; not thereafter or when the loss occurs..Amount:.GENERAL RULE: There is no limit in the amount the insured can insure his life.

.EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit ofinsurable interest is equal to the amount of the debt.Note: If at the time of the death of the debtor the whole debt has already beenpaid, the creditor can nolonger recover on the policy because the principle of indemnity applies.

C. Property.Every interest in property whether real or personal, or any relation thereto, orliability in respect thereof, ofsuch nature that the contemplated peril might directly damnify the insured (Sec.13), which may consist in:

1.an existing interest;2.any inchoate interest founded on an existing interest; or3.an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec.14).


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When it should exist: When the insurance takes effect and when the loss occurs,but need not exist in themeantime..Amount: The measure of insurable interest in property is the extent to which theinsured might bedamnified by loss or injury thereof. (Sec. 17)

INSURABLE INTEREST IN LIFE INSURABLE INTEREST INPROPERTYMust exist only at the time the policy takes effect and need not existat the time of lossMust exist at the time the policy takeseffect and when the loss occursUnlimited except in life insurance effected by creditor on life ofdebtor.Limited to actual value of interest inproperty insured.The expectation of benefit to be derived from the continuedexistence of life need not have any legal basis whatever. Areasonable probability is sufficient without more.An expectation of a benefit to bederived from the continued existenceof the property insured must have a

legal basis.The beneficiary need not have an insurable interest over the life ofthe insured if the insured himself secured the policy. However, if thelife insurance was obtained by the beneficiary, the latter must haveinsurable interest over the life of the insured.The beneficiary must have insurableinterest over the thing insured.

SPECIAL CASES

1.In case of a carrier or depositary.

A carrier or depository of any kind has an insurable interest in a thing held byhim as such, to the extent ofhis liability but not to exceed the value thereof (Sec. 15)

2.In case of a mortgaged property.The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interestis separate and distinct from the other.

a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the

mortgage debt equals such value. The reason is that the loss or destruction of the property insured will notextinguish the mortgage debt.b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the mortgagedebt is extinguished..The lessor cannot be validly a beneficiary of a fire insurance policy taken by alessee over his merchandise,and the provision in the lease contract providing for such automatic assignment


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is void for being contrary tolaw and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)


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STANDARD OR UNION MORTGAGECLAUSEOPEN OR LOSS PAYABLE MORTGAGE CLAUSESubsequent acts of the mortgagor cannotaffect the rights of the assigneeActs of the mortgagor affect the mortgagee. Reason: Mortgagordoes not cease to be a party to the contract. (Secs. 8 and 9)

Effects of Loss Payable Clause

a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party tothe contract.b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgageeeven if the property is in the hands of the mortgagee.c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed bythe mortgagee with the same effect.d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

.In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of theinsurance but he is not allowed to retain his claim against the mortgagor as theclaim is discharged but itpasses by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)

VIII. RISK.What may be insured against:

1. Future contingent event resulting in loss or damage Ex. Possible future fire

2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of avessel unknown to theparties3. Contingent liability Ex. ReinsuranceIX. PREMIUM PAYMENTS.Consideration paid an insurer for undertaking to indemnify the insured against aspecified peril..Basis of the right of the insurer to collect premiums: Assumption of risk.

.GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of

premium. Any agreement to the contrary is void. (Sec. 77)

.EXCEPTIONS:

1.In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)2.When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)


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3.Section 77 may not apply if the parties have agreed to the payment of the premium in installments andpartial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215SCRA 462)4.Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA259)5.Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307).Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are notpaid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)

Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence ofits payment, so far asto make the policy binding, notwithstanding any stipulation therein that it shall not be binding until thepremium is actually paid. (Sec. 78)

ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID

A. Whole:1.If the thing insured was never exposed to the risks insured against; (Sec. 79)2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec.81)3. If contract is voidable because of the existence of facts of which the insured was ignorantwithout his fault; (Sec. 81)4. When by any default of the insured other than actual fraud, the insurer neverincurredliability; (Sec. 81)

5. When rescission is granted due to the insurers breach of contract. (Sec. 74)


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B. Pro rata:1.When the insurance is for a definite period and the insured surrenders his policy before thetermination thereof;.Exceptions:a.policy not made for a definite period of timeb. short period rate is agreed uponc. life insurance policy2.When there is over-insurance (Sec. 82);Instances when premiums are not recoverable:

1. When the risk has already attached and the risk is entire and indivisible.2.In life insurance.3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.4. When the contract is illegal and the parties are in pari delicto.PREMIUM ASSESSMENTLevied and paid to meet anticipated losses. Collected to meet actual losses.

Payment is not enforceable againstthe insured.Payment is enforceable oncelevied unless otherwise agreed upon.Not a debt. It becomes a debt once properly levied unless otherwise agreed.

X. TRANSFER OF POLICY1. Life Insurance.It can be transferred even without the consent of the insurer except when thereis a stipulation requiring theconsent of the insurer before transfer. (Sec. 181).

Reason: The policy does not represent a personal agreement between the insured and the insurer.

2. Property insurance.It cannot be transferred without the consent of the insurer..Reason: The insurer approved the policy based on the personal qualification andthe insurable interest of theinsured.

3. Casualty insurance.It cannot be transferred without the consent of the insurer. (Paterson cited inde Leon p. 82).Reason: The moral hazards are as great as those of property insurance.

CHANGE OF INTEREST IN THE THING INSURED

.


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The mere (absolute) transfer of the thing insured does not transfer the policy,but suspends it until the sameperson becomes the owner of both the policy and the thing insured. (Sec. 58).Reason: Insurance contract is personal..GENERAL RULE: A change of interest in any part of a thing insured unaccompaniedby a correspondingchange of interest in the insurance suspends the insurance to an equivalent extent, until the interests in thething and the interest in the insurance are vested in the same person. (Sec. 20)

.EXCEPTIONS:

1. In life, health and accident insurance.(Sec. 20);2. Change in interest in the thing insured after occurrence of an injury which results in a loss.(Sec. 21);3. Change in interest in one or more of several distinct things separately insured by one policy.(Sec. 22);4. Change of interest, by will or succession, on the death of the insured. (Sec.23);

5. Transfer of interest by one of several partners, joint owners, or owners in common, who arejointly insured, to others. (Sec. 24);6. When a policy is so framed that it will inure to the benefit of whomsoever, during thecontinuance of the risk, may become the owner of the interest insured. (Sec. 57);7. When there is an express prohibition against alienation in the policy, in case of alienation, thecontract of insurance is not merely suspended but avoided. (Art. 1306, NCC).XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSSA. Four Primary Concerns of the Parties:1.

Correct estimation of the risk;2.Precise delimitation of the risk;


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3.Control of the risk;4. Determining whether a loss occurred and if so, the amount of such loss.B. Devices used for ascertaining and controlling risk and loss:1. Concealment A neglect to communicate that which a party knows and ought to communicate (Sec. 26).Requisites:a.A party knows a fact which he neglects to communicate or disclose to the other.b.Such party concealing is duty bound to disclose such fact to the other.c.Such party concealing makes no warranty as to the fact concealed.d.The other party has not the means of ascertaining the fact concealed.e. Material.Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealedmatter (Sec. 27).Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that,the concealment whether

intentional or unintentional entitles the injured party to rescind the contractof insurance.Test of Materiality: Determined not by the event, but solely by the probable andreasonable influence of thefacts upon the party to whom the communication is due, in forming his estimate of the advantages of theproposed contract, or in making his inquiries (Sec. 31)..Exception to Sec. 31:

a. Incontestability clauseb. Matters under Sec.110 (marine insurance)

.The waiver of medical examination in a non-medical insurance contract renders even more material theinformation required of the applicant concerning the previous conditions of health and diseases suffered.(Sunlife v. Sps. Bacani, 246 SCRA 268).

.The right to information of material facts may be waived, either by the terms ofthe insurance or by neglectto make inquiries as to such facts where they are distinctly implied in other facts of which information iscommunicated. (Sec.33)

.Where matters of opinion or judgment are called for, answers made in good faithand without intent todeceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on thosestatements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18,2002).


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2. Representations Factual statements made by the insured at the time of, or prior to, the issuance of thepolicy to give information to the insurer and induce him to enter into the insurance contract. They areconsidered an active form of concealment..Requisites of a false representation (misrepresentation):a.The insured stated a fact which is untrue.b.Such fact was stated with knowledge that it is untrue and with intent to deceiveor which he statespositively as true without knowing it to be true and which has a tendency to mislead.c. Such fact in either case is material to the risk..Characteristics:a. It is not a part of the contract but merely a collateral inducement to it.b. It may be oral or written.c. It is made at the same time of issuing the policy or before but not after.d. It may be altered or withdrawn before the insurance is effected but not afterwards.e. It always refers to the date the contract goes into effect..

Kinds:a. AFFIRMATIVE affirmation of a fact when the contract begins; andb. PROMISSORY promise to be performed after policy was issued..Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representationbecomes false.Test of Materiality: Same as that in concealment.

.Where the insured merely signed the application form and made the agent of the insurer fill the same forhim, it was held that by doing so, the insured made the agent of the insurer his

own agent and he wasresponsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)

3. Warranties Statement or promise by the insured set forth in the policy or byreference incorporatedtherein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was infact prejudiced by such untruth or non-fulfillment, renders the policy voidableby the insurer..Purpose: To eliminate potentially increasing hazards which may either be due tothe acts of the insured or to

the change to the condition of the property..Kinds:a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating tothe risk are or shall be true, or certain acts relating to the same subject havebeen or shall be done.


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b. IMPLIED -it is deemed included in the contract although not expressly mentioned. Example: In marineinsurance, seaworthiness of the vessel..Effects of breach of warranty:a. Material.GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the otherparty to rescind the contract. (Sec. 74).EXCEPTIONS:a. Loss occurs before the time of performance of the warranty.b. The performances becomes unlawful at the place of the contract.c. Performance becomes impossible. (Sec. 73)

b. Immaterial (ex. Other insurance clause).GENERAL RULE: It will not avoid the policy..EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)WARRANTY REPRESENTATIONPart of the contract Mere collateral inducementWritten on the policy, actually or byreferenceMay be written in the policy or may be oral.

Presumed material Must be proved to be materialMust be strictly complied with Requires only substantial truth and compliance

4. Conditions Events signifying in its broadest sense either an occurrence or anon-occurrence that altersthe previously existing legal relations of the parties to the contract. They maybe conditions precedent orconditions subsequent..Effect of breach:a. Condition precedent prevents the accrual of cause of actionb. Condition subsequent avoids the policy or entitles the insurer to rescind.

The insurer may also protect himself against fraudulent claims of loss and thishe attempts to do byinserting in the policy various conditions which take the form of conditions precedent. For instance, there areconditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage indicated bythe general description of the risk by excluding certain specified risk that otherwise would be included underthe general language describing the risks assumed..Effect: Limit the coverage of the contract.

RESCISSION.Grounds:

A. ConcealmentB. MisrepresentationC. Breach of material warrantyD. Breach of a condition subsequent.Waiver of the right to rescind: Acceptance of premium payments despite the knowl


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edge of the ground forrescission. (Sec. 45).Limitations on the right of the insurer to rescind:

1. Non-life such right must be exercised prior to the commencement of an actionon the contract;2. Life such right must be availed of during the first two years from the date of issue of policy or its lastreinstatement; prior to incontestability.(Sec. 48)CANCELLATION OF NON-LIFE INSURANCE POLICY

.Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date ofa non-life policy.

.Grounds:

1.Non-payment of premium;2.Conviction of a crime out of acts increasing the hazard insured against;

3.Discovery of fraud or material misrepresentation;4.Discovery of willful or reckless acts of omissions increasing the hazard insuredagainst;5.Physical changes in property making the property uninsurable; and6.Determination by the Insurance Commissioner that the continuation of the policywould violate theInsurance Code. (Sec. 64).Requirements:


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1.Prior notice of cancellation to the insured;2.Notice must be in writing, mailed or delivered to the named insured at the address shown in thepolicy;3.Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of theinsured, the insurer must furnish facts on which the cancellation is based;4.Grounds should have existed after the effectivity date of the policy.XII. INCONTESTABILITY CLAUSE.Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period..Requisites:

1.Life insurance policy2.Payable on the death of the insured

3.It has been in force during the lifetime of the insured for a period of at leasttwo years from the date of itsissue or of its last reinstatementNote: The period of 2 years may be shortened but it cannot be extended by stipulation.

.Incontestability only deprives the insurer of those defenses which arise in connection with the formation andoperation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)

BARRED DEFENSESOF THE INSURERDEFENSES NOT BARRED1. Policy is void ab initio2. Policy is rescindable by reason of thefraudulent concealment or misrepresentationof the insured or his agent1. That the person taking the insurance lacked insurableinterest as required by law;2. That the cause of the death of the insured is anexcepted risk;3. That the premiums have not been paid (Secs. 77,227[b], 228[b], 230[b]);

4. That the conditions of the policy relating to military ornaval service have been violated (Secs. 227[b],228[b]);5. That the fraud is of a particularly vicious type;6. That the beneficiary failed to furnish proof of death orto comply with any condition imposed by the policyafter the loss has happened; or7. That the action was not brought within the timespecified.


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XIII.A. OVER-INSURANCE results when the insured insures the same property for an amount greater than thevalue of the property with the same insurance company..Effect in case of loss:

1.The insurer is bound only to pay to the extent of the real value of the propertylost;2.The insured is entitled to recover the amount of premium corresponding to the excess in value of theproperty;B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect tosame subject and interest. (Sec. 93).Requisites:

1.Person insured is the same;2.Two or more insurers insuring separately;

3.Subject matter is the same;4.Interest insured is also the same;5.Risk or peril insured against is likewise the same..Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)

1. The insured, unless the policy otherwise provides, may claim payment fromthe insurers in such order as he may select, up to the amount for which the insurers are severally liable

under their respective contracts;2. Where the policy under which the insured claims is a valued policy, theinsured must give credit as against the valuation for any sum received by him under any other policywithout regard to the actual value of the subject matter insured;3. Where the policy under which the insured claims is an unvalued policy hemust give credit, as against the full insurable value, for any sum received by him under any policy;4. Where the insured receives any sum in excess of the valuation in the caseof valued policies, or of the insurable value in the case of unvalued policies,he must hold such sum intrust for the insurers, according to their right of contribution among themselves;

5. Each insurer is bound, as between himself and the other insurers, tocontribute ratably to the loss in proportion to the amount for which he is liable under his contract.


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Additional or Other InsuranceClause

.A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of theproperty insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may declarethat a violation of a specified provision thereof shall avoid it, otherwise thebreach of an immaterial provisiondoes not avoid it..A stipulation against double insurance..Purposes:

1. To prevent an increase in the moral hazard2. To prevent over-insurance and fraud..To constitute a violation of the clause, there should have been double insurance.C. REINSURANCE a contract by which the insurer procures a third person to insurehim against loss or

liability by reason of an original insurance (also known as Reinsurance Cession).(Sec. 95).In every reinsurance, the original contract of insurance and the contract of reinsurance are covered byseparate policies.DOUBLE INSURANCE REINSURANCEInvolves the same interest Involves different interestInsurer remains in such capacity Insurer becomes the insured in relation to reinsurerInsured is the party in interest incontractsthe 2 Original insured has no interest in the reinsurance contract.

Subject of insurance is property Subject of insurance is the original insurers riskInsured has to give his consent Insureds consent not necessary

TERMS:

1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees tocede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. DeLeon, p. 306)2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed

share of the risk which has to be reinsured under the contract. (Prof. De Leon,p. 305)3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each partyhaving a free choice. But once the share is accepted, the obligation is absoluteand the liability thereunder canbe discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk


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reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)XIV.A. LOSS, IN INSURANCE.Injury or damage sustained by the insured in consequence of the happening of oneor more of the accidentsor misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify theinsured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)

Loss for which insurer is liable Loss for which insurer isnot liable1. Loss the proximate cause of which is the peril insured against (Sec. 84);2. Loss the immediate cause of which is the peril insured against exceptwhere proximate cause is an excepted peril;3. Loss through negligence of insured except where there was grossnegligence amounting to willful acts; and4. Loss caused by efforts to rescue the thing from peril insured against;5. If during the course of rescue, the thing is exposed to a peril not insuredagainst, which permanently deprives the insured of its possession, inwhole or in part (Sec. 85).1. Loss by insureds willfulact;2. Loss due to connivance of

the insured (Sec. 87);and3. Loss where the exceptedperil is the proximatecause.

Proximate Cause An event that sets all other events in motion without any intervening or independentcase, without which the injury or loss would not have occurred.

REQUISITES FOR RECOVERY UPON INSURANCE

1. The insured must have insurable interest in the subject matter;

2. That interest is covered by the policy;3. There must be a loss; and4. The loss must be proximately caused by the peril insured against.NOTICE OF LOSS

In fire insurance In other types of insuranceRequired

Not required


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Failure to give notice will defeat the Failure to give notice will not exoneratethe insurer, unless there isright of the insured to recover. a stipulation in the policy requiring the insured to do so.

B. CLAIMS SETTLEMENT.The indemnification of the loss of the insured.

TIME FOR PAYMENT OF CLAIMS

LIFE POLICIESNON LIFE POLICIESa. Maturing upon the expiration of the term The proceeds are immediately payable to theinsured, unless they are made payable ininstallments or as annuity, in which case, theinstallments or annuities shall be paid as theybecome due.b. Maturing at the death of the insured,occurring prior to the expiration of the termstipulated The proceeds are payable to thebeneficiaries within 60 days after presentation

and filing of proof of death.The proceeds shall be paid within 30 days after the receiptby the insurer of proof of loss, and ascertainment of theloss or damage by agreement of the parties or byarbitration but not later than 90 days from such receipt ofproof of loss whether or not ascertainment is had ormade.

.In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured canrecover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at

double the legal interest rate fixed by the Monetary Board; and 4) the amount ofthe claim. (Zenith InsuranceCorp. vs. CA, 185 SCRA 398)

XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384).Rules:

1. In the absence of an express stipulation in the policy, it being based on a written contract, the actionprescribes in 10 years.2. However the parties may validly agree on a shorter period provided it is notless than one year from the

time the cause of action accrues.3. The cause of action accrues from the rejection of the claim of the insured and not from the time of loss..It shall commence from the denial of the claim, not from the resolution of themotion for reconsideration,otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may beused against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)4. In CMVLI, the written notice of claim must be filed within 6 months from thedate of the accident otherwise


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the claim is deemed waived. The suit for damages either with the proper court orwith the InsuranceCommissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwiseclaimants right of action shall prescribe. (Sec. 384)PARTICULAR KINDS OF INSURANCE CONTRACTS

XVI. MARINE INSURANCE.Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or otherinsurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec.99)

.Coverage:

A.1.Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia,and interest in respect to all risks or perils of navigation;2.

Persons or property in connection with marine insurance;3.Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise;and4.Bridges, tunnels, piers, docks and other aids to navigation and transportation.(Sec. 99).Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty ofseaworthiness immediately attaches to whoever is insuring the cargo, whether hebe the shipowner or

not. (Roque v. IAC, 139 SCRA 596)B. Marine Protection and Indemnity Insurance.Classes of inland marine insurance: (Prof. De Leon, p. 325)

1.Property in transit provides protection to property frequently exposed to loss while it istransportation form one location to another.2.Bailee liability -insurance for those who have temporary custody of the goods.3.Fixed transportation property they are so insured because they are held to be an

essentialpart of the transportation system such as bridges, tunnels, etc.


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4.Floater provides insurance to follow the insured property wherever it may be located,subject always to the territorial limits of the contract..Insurable interest:

A.1.Shipownera.Over the vessel to the extent of its value, except that if chartered, the insurance is only up tothe amount not recoverable from the charterer. (Sec. 100).b.He also has an insurable interest on expected freightage. (Sec. 103).c.No insurable interest if he will be compensated by charterer for the value of the vessel, in caseof loss.2. Cargo owner.Over the cargo and expected profits (Sec. 105).

3. Charterer.Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage(Sec. 106).

B.In loans on bottomry and respondentia.Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a security,shall arrive safely at the port of destination.

1.Owner/Debtor.Difference between the value of vessel or goods and the amount of loan. (Sec. 101)

2. Creditor/lender.Amount of the loan

Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakesof the nature of an insurance coverage to the extent of the loan accommodation.

The same rule would apply tothe hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice JoseVitug, 1997 ed.)

PERILS OF THE SEA PERILS OF THE SHIPIncludes only those casualties due tothe:1. unusual violence; or2. extraordinary action of wind and


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wave; or3. Other extraordinary causesconnected with navigation.A loss which in the ordinary course of events, results from the:1. natural and inevitable action of the sea2. ordinary wear and tear of the ship or3. Negligent failure of the ships owner to provide the vessel withproper equipment to convey the cargo under ordinary conditions.

Note: It is only perils of the sea which may be insured against unless perils ofthe ship is covered by an all-riskpolicy.

SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES

A. All Risks Policy insurance against all causes of conceivable loss or damage,except: 1) as otherwiseexcluded in the policy; or 2) due to fraud or intentional misconduct on the partof the insured..The insured has the initial burden of proving that the cargo was in good condition when the policy attachedand that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the

insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA638)B. Barratry Clause.A clause which provides that there can be no recovery on the policy in case of any willful misconduct on thepart of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners,and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596)

C. Inchamaree Clause.

A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:

1.Negligence of the captain, engineers, etc.2.Explosions, breakage of shafts; and3.Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)D. Sue and Labor Clause.A clause under which the insurer may become liable to pay the insured, in additi

on to the loss actuallysuffered, such expenses as he may have incurred in his efforts to protect the property against a peril for whichthe insurer would have been liable. (Sec. 163)

MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSEDTHE LOSS (Sec. 110)

1.


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National character of the insured;


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2.Liability of the thing insured to capture or detention;3.Liability to seizure from breach of foreign laws;4.Want of necessary documents; and5. Use of false or simulated papers.Note: This should be related to the general rule regarding material concealment.DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)

MARINE INSURANCE OTHER PROPERTY INSURANCEThe information of the belief or expectation of 3rdpersons is material and must be communicatedThe information or belief of a 3rd party is notmaterial and need not be communicated unless itproceeds form an agent of the insured whose dutyit is to give informationThe concealment of any fact in relation to any of thematters stated in Sec. 110 does not vitiate the entirecontract but merely exonerates the insurer from a riskresulting from the fact concealedConcealment of any material fact will vitiate the

entire contract, whether or not the loss results forthe risk concealed.

IMPLIED WARRANTIES

1.Seaworthiness of the ship at the inception of the insurance (Sec. 113);2.Against improper deviation (Sec. 123, 124, 125);3.Against illegal venture;4.Warranty of neutrality: the ship will carry the requisite documents of nationali

ty or neutrality of theship or cargo where such nationality or neutrality is expressly warranted; (Sec.120)5.Presence of insurable interest..While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurersright to enforce the term of the implied warranty against the assured under themarine insurance policy, thesame cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the insurer asto foreclose recourse against the common carrier for any liability under the con

tractual obligation as suchcommon carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)

Seaworthiness

.A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general aships fitness to perform the service and to encounter the ordinary perils of thevoyage, contemplated by the


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parties to the policy (Sec. 114)..GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of thecommencement of the risk. Prior or subsequent unseaworthiness is not a breach ofthe warranty nor is itmaterial that the vessel arrives in safety at the end of her voyage.

.EXCEPTIONS:

1.In the case of a time policy, the ship must be seaworthy at the commencement ofevery voyage she mayundertake2.In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must beseaworthy at the commencement of each particular voyage3.In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy atthe commencement of each portion.Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a

cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shippermay have no control over the vessel but he has control in the choice of the common carrier that will transporthis goods (Roque v. IAC, 139 SCRA 596).

Deviation

.A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or thecommencement of an entirely different voyage. (Sec.123).

Instances:

1. Departure of vessel from the course of the sailing fixed by mercantile usage2.Departure of vessel from the most natural, direct and advantageous route if notfixed by mercantileusage3. Unreasonable delay in pursuing voyage4. Commencement of an entirely different voyage (Secs. 121-123).Kinds:1. Proper a.

When caused by circumstances outside the control of the ship captain or ship owner;b.When necessary to comply with a warranty or to avoid a peril;c.When made in good faith to avoid a peril;d.When made in good faith to save human life or to relieve another vessel in distress (Sec. 124).


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Effect: In case of loss, the insurer is still liable.2. Improper -Every deviation not specified in Sec. 124 (Sec. 125).


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.Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)

LOSS

1. Total:a. Actual i.Total destruction;ii.Irretrievable loss by sinking;iii. Damage rendering the thing valueless; oriv. Total deprivation of owner of possession of thing insured. (Sec. 130)b. Constructive i.Actual loss of more than of the value of the object;ii. Damage reducing value by more than of the value of the vessel and of cargo;andiii. Expense of transshipment exceed of value of cargo. (Sec. 131, in relation to Sec. 139).In case of constructive total loss, insured may:1. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. 139), or2. Without abandoning vessel, claim for partial actual loss. (Sec. 155)

2. Partial: That which is not total (Sec. 128).AVERAGE

.Any extraordinary or accidental expense incurred during the voyage for 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 commenceduntil it ends and the cargo unloaded.

GENERAL PARTICULARHas inured to the common benefit and profit of all

persons interested in the vessel and cargoHas not inured to the common benefit and profit of allpersons interested in the vessel and her cargo.To be borne equally by all of the interestsconcerned in the venture.To be borne alone by the owner of the cargo or thevessel, as the case may be.Requisites for the right to claim contribution:1. Common danger to the vessel or cargo;2. Part of the vessel or cargo was sacrificeddeliberately;3. Sacrifice must be for the common safetyor for the benefit of all;

4. Sacrifice must be made by the master orupon his authority;5. It must be not be caused by any fault ofthe party asking the contribution;6. It must be successful, i.e. resulted in thesaving of the vessel or cargo; andNecessary.

RIGHT OF INSURED IN CASE OF GENERAL AVERAGE


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.GENERAL RULE: The insured may either hold the insurer directly liable for the whole of the insured value ofthe property sacrificed for the general benefit, subrogating him to his own right of contribution or demandcontribution from the other interested parties as soon as the vessel arrives ather destination

.EXCEPTIONS:

1.After the separation of interests liable to contribution2.When the insured has neglected or waived his right to contributionFPA Clause (Free From Particular Average)

.A clause agreed upon in a policy of marine insurance in which it is stated thatthe insurer shall not be liablefor a particular average, such insurer shall be free therefrom, but he shall continue to be liable for hisproportion of all general average losses assessed upon the thing insured. (Sec.136)

ABANDONMENT

.The act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurerof his interest in the thing insured. (Sec. 138)

.Requisites for validity:

1.There must be an actual relinquishment by the person insured of his interest inthe 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 be done orallyor in writing (Sec. 143);and


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7.The notice of abandonment must be explicit and must specify the particular causeof the abandonment(Sec. 144)..Effects:

1.It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recoveryand indemnity (Transfer of Interest)(Sec.146)2.Acts done in good faith 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. (Transfer Of Agency)(Sec.148).If an insurer refuses to accept a valid abandonment, he is liable upon an actualtotal loss, deducting formthe amount any proceeds of the thing insured which may have come to the hands ofthe insured. (Sec.154)

CO-INSURANCE

.A marine insurer is liable upon a partial loss, only for such proportion of theamount insured by him as theloss bears to the value of the whole interest of the insured in the property insured. (Sec. 157).When the property is insured for less than its value, the insured is considereda co-insurer of the differencebetween the amount of insurance and the value of the property.

.

Requisites:

1. The loss is partial;2. The amount of insurance is less than the value of the property insured..Rules:

1. Co-insurance applies only to marine insurance2. Logically, there cannot be co-insurance in life insurance.3. Co-insurance applies in fire insurance when expressly provided for by the parties.CO-INSURANCE REINSURANCEA percentage in the value of the insured property which the

insured himself assumes to act as insurer to the extent of thedeficiency in the insurance of the insured property. In case ofloss or damage, the insurer will be liable only for suchproportion of the loss or damage as the amount of theinsurance bears to the designated percentage of the fullvalue of the property insured. (Bar Review Materials inCommercial Law, Jorge Miravite, 2002 ed.)Situation where the insurer procures a 3rdparty called the reinsurer to insure him againstliability by reason of an original insurance.


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Basically, reinsurance is an insurance againstliability which the original insurer may incur infavor of the original insured.

XVII. FIRE INSURANCE.A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, ordamage to, property by hostile fire, including loss by lightning, windstorm, tornado or earthquake and otherallied risks, when such risks are covered by extension to fire insurance policies or under separate policies.(Sec. 167)

.Prerequisites to recovery:

1. Notice of loss must be immediately given, unless delay is waived expressly orimpliedly by the insurer2. Proof of loss according to best evidence obtainable. Delay may also be waivedexpressly or impliedly bythe insurerHOSTILE FIRE FRIENDLY FIREOne that escapes from the place where it was intended

to burn and ought to be.One that burns in a place where it was intended toburn and ought to beInsurer is liable Insurer is not liable

Measure of Indemnity

1. Open policy: only the expense necessary to replace the thing lost or injuredin the condition it was at thetime of the injury2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistakeNote: It is very crucial to determine whether a marine vessel is covered by a ma

rine insurance or fireinsurance. The determination is important for 2 reasons:

1.Rules on constructive total loss and abandonment applies only to marine insurance;2.Rule on co-insurance applies primarily to marine insurance;3.Rule on co-insurance applies to fire insurance only if expressly agreed upon. (CommercialLaw Reviewer, Aguedo Agbayani, 1988 ed.)


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ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER.Requisites:

1. The use or condition of the thing is specifically limited or stipulated in the policy;2. Such use or condition as limited by the policy is altered;3. The alteration is made without the consent of the insurer;4. The alteration is made by means within the control of the insured;5.The alteration increases the risk; (Sec. 168) and6.There must be a violation of a policy provision. (Sec. 170)Fall-of-building clause

.A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, allinsurance by the policy shall immediately cease.

Option to rebuild clause

.

A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any partthereof, instead of paying the amount of the loss or the damage..The insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specificperformance because this is an obligation to do, not to give. Remedy: Art. 1167,NCC.

XVIII. CASUALTY OR ACCIDENT INSURANCE.Insurance covering loss or liability arising from accident or mishap, excluding

those falling under other typesof insurance such as fire or marine. (Sec. 174)

.Classifications:

1. Insurance against specified perils which may affect the person and/or property of the insured. (accident orhealth insurance).Examples: personal accident, robbery/theft insurance2. Insurance against specified perils which may give rise to liability on the part of the insured for claims for

injuries to or damage to property of others. (third party liability insurance).Insurable interest is based on the interest of the insured in the safety of persons, and their property, whomay maintain an action against him in case of their injury or destruction, respectively..Examples: workmens compensation, motor vehicle liability.In a third party liability (TPL) insurance contract, the insurer assumes the obl


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igation by paying the injuredthird party to whom the insured is liable. Prior payment by the insured to the third person is not necessary inorder that the obligation may arise. The moment the insured becomes liable to third persons, the insuredacquires an interest in the insurance contract which may be garnished like any other credit. (Perla Comapniade Seguro, Inc vs. Ramolete, 205 SCRA 487).Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisionsapplicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisionsapplicable to all types of insurance, and outside of such statutory provisions,the rights and obligations of theparties must be determined by their contract, taking into consideration its purpose and always in accordancewith the general principles of insurance law..In burglary, robbery and theft insurance, the opportunity to defraud the insurerthe moral hazard is sogreat that insurer have found it necessary to fill up the policies with many restrictions designed to reduce thehazard. Persons frequently excluded are those in the insureds service and employm

ent. The purpose of theexception is to guard against liability should theft be committed by one havingunrestricted access to theproperty. (Fortune Insurance vs. CA, 244 SCRA 208)

Right of a third party injured to sue the insurer

1. Indemnity against liability A third party injured can directly sue the insurer.2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no causeof action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261)..

The insurer is not solidarily liable with the insured. The insurers liability isbased on contract; that of theinsured is based on torts. Furthermore, the insurers liability is limited by theamount of the insurancecoverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).

INTENTIONALvs. ACCIDENTALAS USED IN INSURANCE POLICIES

1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a provisionof the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling.If the injuries suffered by the insured clearly resulted from the intentional ac

t of the third person, the insurer isrelieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co.Ltd., 44 SCRA 58, 1972)2. Accidental That which happens by chance or fortuitously, without intention ordesign, which is unexpected,unusual and unforeseen.NO ACTION CLAUSE

.A requirement in a policy of liability insurance which provides that suit and fi


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nal judgment be first obtainedagainst the insured; that only thereafter can the person injured recover on thepolicy. (Guingon vs. Del Monte,20 SCRA 1043)


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XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI).A species of compulsory insurance that provides for protection coverage that will answer for legal liability forlosses and damages for bodily injuries or property damage that may be sustainedby another arising from theuse and operation of motor vehicle by its owner..Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or theirdependents, especially if they are poor regardless of the financial capability of motor vehicle owners oroperators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA386)..Claimants/victims may be a passengeror a 3rd party.It applies to all vehicles whether public and private vehicles.Note: It is the only compulsory insurance coverage under the Insurance Code.

Method of coverage

1. Insurance policy2. Surety bond3. Cash depositPassenger Any fare-paying person being transported and conveyed in and by a motor vehicle fortransportation of passengers for compensation, including persons expressly authorized by law or by thevehicles operator or his agents to ride without fare. (Sec. 373[b])

Third Party Any person other than the passenger, excluding a member of the household or a member of thefamily within the second degree of consanguinity or affinity, of a motor vehicleowner or land transportation

operator, or his employee in respect of death or bodily injury arising out of and in the course of employment.(Sec. 373[c])

No-FaultClause

.A clause that allows the victim (injured person or heirs of the deceased) to anoption to file a claim for deathor injury without the necessity of proving fault or negligence of any kind..Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents.

.Rules:

1. Total indemnity -maximum of P5,0002. Proofs of loss a.Police report of accident;b. Death certificate and evidence sufficient to establish proper payee;c. Medical report and evidence of medical or hospital disbursement.3. Claim may be made against one motor


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vehicle only4. Proper insurer from which to claim a.In case of an occupant: Insurer of the vehicle in which the occupant is riding,mounting ordismounting from;b. In any other case: Insurer of the directly offending vehicle. (Sec. 378).The claimant is not free to choose from which insurer he will claim the no faultindemnityas the law makesit mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding, mountingor dismounting from. That said vehicle might not be the one that caused the accident is of no moment sincethe law itself provides that the party paying may recover against the owner of the vehicle responsible for theaccident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)

.This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000 andthere is controversy in respect thereto, the finding of fault may be availed ofby the insurer only as to theexcess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon,p. 716)

.The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their heirsimmediate compensation although in limited amount, pending final determination of who is responsible for theaccident and liable for the victims injuries or death. (Ibid.)

SPECIAL CLAUSES

A. Authorized Driver Clause.A clause which aims to indemnify the insured owner against loss or damage to the

car but limits the use ofthe insured vehicle to the insured himself or any person who drives on his orderor with his permission(Villacorta v. Insurance Commissioner).The requirement that the person driving the insured vehicle is permitted in accordance with the licensinglaws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the persondriving is other than the insured.

B. Theft Clause.

A clause which includes theft as among the risks insured against..Where the car is unlawfully and wrongfully taken without the owners consent or knowledge, such takingconstitutes theft, and thus, it is the theft clauseand not the authorized driver clause that should apply(Palermo v. Pyramids Ins., 161 SCRA 677).


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C. Cooperation Clause.A clause which provides in essence that the insured shall give all such information and assistance as theinsurer may require, usually requiring attendance at trials or hearings.

XX. SURETYSHIP.An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation orundertaking in favor of an obligee. (Sec. 175).It is essentially a credit accommodation..It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec.

.When the contract is primarily drawn up by 1 party, the benefit of doubt goes tothe other party(insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in

fidelity bonding, is thus treated like non-life insurance in some respects.

Nature of liability of surety

1.Solidary;2.Limited to the amount of the bond;3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contractbetween the obligor and the obligee. (Sec. 176)SURETYSHIP PROPERTY INSURANCE

Accessory contract Principal contract3 parties: surety, obligor and oblige 2 parties: insurer and insuredCredit accommodation Contract of indemnitySurety can recover from principal Insurer has no such right; only right of subrogationBond can be cancelled only with consent of obligee,Commissioner or courtMay be cancelled unilaterally either by insured or insureron grounds provided by lawRequires acceptance of obligee to be valid No need of acceptance by any third partyRisk-shifting device; premium paid being in thenature of a service fee

Risk-distributing device; premium paid as a ratablecontribution to a common fund

XXI. LIFE INSURANCE.Insurance on human lives and insurance appertaining thereto or connected therewith which includes everycontract or pledge for the payment of endowments or annuities. (Sec. 179)

.


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Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

1.Ordinary Life, General Life or Old Line Policy -Insured pays a fixed premium every year until he dies.Surrender value after 3 years.2.Group Life Essentially a single insurance contract that provides coverage for many individuals.Examples: In favor of employees, mortgage redemption insurance.3.Limited Payment Policy insured pays premium for a limited period. If he dies within the period, hisbeneficiary is paid; if he outlives the period, he does not get anything.4.Endowment Policy pays premium for specified period. If he outlives the period, the face value of thepolicy is paid to him; if not, his beneficiaries receive the benefit.5.Term Insurance insurer pays once only, and he is insured for a specified period.If he dies within theperiod, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance.6.

Industrial Life -life insurance entitling the insured to pay premiums weekly, orwhere premiums arepayable monthly or oftener.Mortgage Redemption Insurance

.A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the lifeof a mortgagor who, to secure the loan, mortgages the house constructed from theuse of the proceeds of theloan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his lifeinsurance will be used to pay for his indebtedness to the lender assured and the

deceaseds heirs will therebybe relieved from paying the unpaid balance of the loan. (Great Pacific Life Assurance Corp. vs. Court ofAppeals, 316 SCRA 677)

LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED

1. Suicide.Insurer is liable in the following cases:1.If committed after two years from the date of the policys issue or its last reinstatement;

2.If committed in a state of insanity regardless of the date of the commission unless suicide is anexcepted peril. (Sec. 180-A)3. If committed after a shorter period provided in the policy.Any stipulation extending the 2-year period is null and void.2. At the hands of the law (E.g. by legal execution)


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.It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policyexception. (Vance,p.572 cited in de Leon, p. 107)Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviatesagainst recovery as being more in consonance with public policy and as being implicit under Section 87, ICP.

(Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)

3. Killing by the beneficiary.GENERAL RULE: The interest of a beneficiary in a life insurance policy shall beforfeited when the beneficiaryis the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, thenearest relative of the insured shall receive the proceeds of said insurance ifnot otherwise disqualified. (Sec.12).EXCEPTIONS:

1. Accidental killing

2. Self-defense3. Insanity of the beneficiary at the time he killed the insured.If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary isother than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534)

.The measure of indemnity in life or health insurance policy is the sum fixed inthe policy except when acreditor insures the life of his debtor. (Sec. 183)

IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCEPOLICY?

.It depends. If the designation of the beneficiary is irrevocable, the beneficiarys consent is essential becauseof his vested right. If the designation is revocable, the policy may be assignedwithout such consent becausethe beneficiary only has a mere expectancy to the proceeds. (The Insurance Codeof the Philippines Annotated,Hector de Leon, 2002 ed.)

Cash Surrender Value

.As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of atleast 3 full annual premiums, is entitled to receive if he surrenders the policyand releases his claims upon it.

LIFE INSURANCE FIRE INSURANCEContract of investment not of indemnity Contract of indemnity


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Valued policy Open or valued policyMay be transferred or assigned to any person even ifhe has no insurable interestThe insurable interest of the transferee or assignee isessentialConsent of insurer is not essential to validity ofassignmentConsent of insurer must be secured in the absence ofwaiverContingency that is contemplated is a certain event,the only uncertainty being the time when it will takeplaceContingency insured against may or may not occurA long-term contract and cannot be cancelled by theinsurerMay be cancelled by either party and is usually for aterm of one yearBeneficiary is under no obligation to prove actualfinancial lossInsured is required to submit proof of his actualpecuniary loss as a condition precedent to collectingthe insurance.

XXII. VARIABLE CONTRACT

.Any policy or contract on either a group or individual basis issued by an insurance company providing forbenefits or other contractual payments or values thereunder to vary so as to reflect investment results of anysegregated portfolio of investment.

XXIII. INSURANCE COMMISSIONER.Main agency charged with the enforcement of the Insurance Code and other relatedlaws..Functions:

1. ADJUDICATORY/QUASI-JUDICIALa. Exclusive original jurisdiction Any dispute in the enforcement of any policyissued pursuant toChapter VI (CMVLI). (Sec. 385, par. 2)b. Concurrent original jurisdiction (with the RTC) Where the maximum amount involved in any singleclaim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction ofthe RTC. (BP 129; admiralty & maritime jurisdiction).Where the amount exceeds P100,000, the RTC has jurisdiction..

The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered intobetween an insurance company and its agent. The same is not covered by the term doing or transactinginsurance businessunder Sec 2, ICP, neither is it covered by Sec. 416 of the same Code which grants theCommissioner adjudicatory powers (Philippine American Life Insurance Co. v. Ansaldo, 234 SCRA 509).

2. ADMINISTRATIVE/REGULATORY


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a.Enforcement of insurance lawsb.Issuance, suspension or revocation of certificate of authorityc.Power to examine books and records, etc.d.Rule-making authoritye.PunitiveINSURANCE CODE(PD 1460)

Who is the officer in charged with the implementation of laws of the Insurance Code?The officer charged is the Insurance Commissioner of the Insurance Commission

What are the Administrative functions of the Insurance Commissioner?The Commissioner has the following functions:

A.

Administrative function (CRISPFe)1.To issue Certificate of authority to qualified insurers2. To Regulate the sale and issuance of variable contracts, to license persons selling them andto issue rules and regulations governing the same3. To Issue rulings, instructions circulars, orders and decisions for the enforcement of theprovisions of the code subject to approval of the Secretary of Finance.4. To stop the operation of an insolvent insurance company and determine within30 dayswhether to rehabilitate or liquidate the company.5. To impose appropriate fines and Penalties on insurance companies and on their

officers andagents for refusal to comply with any order, instructionof the Commissioner , orformismanagement6.To see that all insurance laws are Faithfully executedB. Adjudicative function (Jurisdiction)The Commissioner has the power to adjudicate claims and complaints for amounts not exceeding P100kper claim involving:1.Loss, damage or liability of insurer under any policy or insurance contract2.

Liability of a reinsurer3.Liability under the contract of suretyship4.Liability of a mutual benefit association to its members5.Counterclaims against the insured6.Cross-claims against a co-party7. Third party claims by the insurer against another party.


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.This authority is concurrent with the courts, but filing of the complaint with the Commissionershall preclude the civil courts from taking cognizance..The final order or decision of the Commissioner shall have the force and effectof a judgment, andmay be appealed to the Court of Appeals within 15 days from notice of the awardjudgment, or ofdenial of motion for reconsideration or new trial.

.The decision may be subject of a writ of execution.Claims in excess of P100k RTC.Cause of action commences from the time of the denial of his claim by the insurer, express or

implied (Sun vs. CA 195 SCRA 193)

What is a Contract of Insurance?

"Contract of Insurance" is:

-an agreement-whereby one undertakes for a consideration to indemnify another-against (1) loss, (2) damage or (3) liability-arising from an (1) unknown or (2) contingent event.

What does the doing/transacting insurance business mean?"Doing an insurance business" or "transacting an insurance business" shall include (RISO)

(a) doing any kind of business, including a Reinsurance business, specifically recognized as constitutingthe doing of an insurance business within the meaning of this Code;

(b) making or proposing to make, as insurer, any Insurance contract;(c) making or proposing to make, as surety, any contract of Suretyship as a vocation and not as merelyincidental to any other legitimate business or activity of the surety;(d) Others -doing or proposing to do any business in substance equivalent to anyof the foregoing in amanner designed to evade the provisions of this Code.


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.The fact that no profit is derived from the making of insurance contracts, agreements ortransactions or that no separate or direct consideration is received therefor, shall notbe deemed conclusive to show that the making thereof does not constitute the doing ortransacting of an insurance business.

What are the Characteristics of an Insurance Contract? (C3UVAP2)1.Consensual perfected by the meeting of minds2.Conditional subject to conditions happening of the event insured against and/orother conditionslike payment of premium3.Contract of Indemnity promise of insurer to make good a loss4.Unilateral impose legal duties only on the insurer who promises to indemnify incase of loss5.

Voluntary willingness of the parties.Note However that under the Motor Vehicle Insurance, Third Party Liability Insurance ismandatory for vehicle registration

6.Aleatory depends on some contingent event7.Personal it binds only the parties to it and their assignees.Note Stipulations pour autrui or a provision in favor of a third person not a party to

the contract. Under this doctrine, a third person is allowed to avail himself ofa benefitgranted to him by the terms of the contract, provided that the contracting parties haveclearly and deliberately conferred a favor upon such person8.Contract of perfect good faith for both parties (uberrima fides)What are the classes of Insurance?1.Life Insurance2.Non-life Insurance

a.Fire Insuranceb.Marine Insurancec.Casualty Insuranced.SuretyshipWhat are the Elements of Contract of Insurance


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1.Insurable interest of the insured interest of some kind susceptible of pecuniaryor monetaryestimation2.Insured subject to loss through the destruction or impairment of that interest by the happeningof designated perils3.Insurer assumes the risk of loss4.Such assumption is part of a general scheme to distribute actual losses among alarge group ofpersons bearing somewhat similar risk5.Payment of premium ratable contribution to a general insurance fund as consideration to theinsurers promiseWhat are the Requisites of contract of Insurance1.Subject matter in which the Insured has an insurable interest2.Peril Insured against contingent or unknown event, past or future and a duration

for the riskthereof3.A promise to damnify in a fixed or ascertainable amount4.Payment of premium5.Meeting of minds of the partiesNote: No policy of insurance shall be issued or delivered unless in the form previouslyapproved by the Insurance Commissioner.What may be insured against?

1.A Future Contingent Event resulting in loss or damages-e.g. destruction of a building from fire in Fire Insurance or the death of theinsured in a LifeInsurance policy-Note that the word Lossembraces injury or damage. A loss may be partial or total

2.A Past Unknown Event resulting in loss or damage-This is best exemplified in a Marine Insurance where at the time the policy is executed, the vessel

subject of the insurance may have already sunk, but that fact was unknown to theparties at thetime of the execution of the policy

3.Contingent Liability-This is best illustrated in Reinsurance where the liability of the insurer is inturn insured by himwith a second insurer.


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.Note that Drawing of any lottery, or for/against any chance or ticket in a lottery drawing a prizemay not be insured. A contract of insurance is a contract of indemnity and not awagering orgambling contract


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Who are the parties to an Insurance Contract

1.Insurer2.The Insured3.Beneficiary.Insurer is the person, natural or juridical, who holds a certificate of authority from theInsurance Commissioner and who undertakes to indemnify another by a contract ofinsurance

oBanks cannot be insurersoPaid-up capital requirement for insurance companies.P2M and a contributed surplus ofP1M for life insurance P500k for non-life insurance

.P5M in case of reinsurance co.oFor Insurance Cooperative, recommendation from the Cooperative DevelopmentAuthority is requiredoAn Insurance agent should perform the function for a compensation.Insured

Generally, any person with capacity to contract and having an insurable interestin he lifeproperty insured may be the insured

A married woman may take insurance on her life or on that of her children without need ofher husbands consentA public enemy cannot be insured. Public enemy means any citizen or juridical entity of the country with which thePhilippinesmay be at warEffects of War on Insurance Contracts

1.War prevents an insurance contract from being enter into between citizens and juridical

entities of the warring states2.For existing insurance contracts, the rules are:a.Property Insurance war abrogates the contract (Kentucky Rule)b. Life Insurance war terminates the policy, but the insured is entitled to theequitable value of the policy arising from the premiums actually paid, whencommercial relations are resumed (U.S. Rule)I. BENEFICIARYThe insurance proceeds shall be applied exclusively to the proper interest of th


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

.Beneficiary

The beneficiary is the person designated to receive the proceeds of the policy when the riskattaches. He may be the (1) insured himself in the property insurance or (2) the insured or (3)a thirdperson in life insurance The father or mother of a minor who is an insured or beneficiary of a life policy, mayexercise, for said minor, all rights under the policy up to P20k without the need of a court authority ora bond (sec 180)A.Beneficiary of one who insures his own lifeAs a general rule, the insured who insures his own life may designate any person, including hisestate as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the

insured

The Insured has the right to change the designation of the beneficiary, unless he has expresslydesignated an irrevocable beneficiary in his policy

What are the effects if the designation of beneficiary is irrevocableThe insured cannot

1.Assign the policy

2.Take the cash surrender value

3.Allow his creditors to attach execute on the policy

4.Add a new beneficiary or

5.Change the irrevocable designation to revocable, even though the change is just and

reasonable

Ratio: The irrevocability of the designated beneficiary and his heirs have acquired from the date

of the policy vested rights over the policy (Philam vs. Pineda 175 SCRA 201)


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As a general rule: the proceeds of a life insurance policy belong to the designatedbeneficiary to the exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA324) Exception: Persons Disqualified as BeneficiariesA beneficiary in life insurance is like a donee, hence, the civil code provisionon the disqualifications ofa donee shall apply. Donations made between the following persons are void

1.Donation between persons guilty of adultery or concubinage2.Donations between persons found guilty of the same criminal offense, in considerationthereof3.Donations made to a public officer or his wife, descendants and ascendants, by reason of hisoffice.When does the interest of the beneficiary forfeitedThe interest of the beneficiary in a life insurance policy shall be forfeited when the beneficiary is the

Principal, Accomplice, or accessory in willfully bringing about the death of theinsured.In this event, he nearest relative of the insured shall receive the proceeds ofsaidinsurance if not otherwise disqualified.The nearest relatives of the insured in the order of enumeration are the following:

1.Legitimate children

2.Parents3.Grandparents illegitimate children4.Surviving spouse5.Brothers and sisters of the full blood6.Brothers and sisters of the half blood7. Nephews and nieces.NOTES:(a) Where a specified person is beneficiary, the proceeds will inure to the bene

ficiary.Q: A took out a life insurance policy and designated his wife, B, as the sole beneficiary. All thepremiums of the policy were paid out from his salaries. A died intestate leavingB and 3 children.Divide the proceeds of the policy (1961 Bar)A: All of the proceeds of the policy will go to the designated policy, B. The source of the premiumhere is immaterial (Miravite, 2002ed., p200)(b) If the premiums are paid from (1) salaries of the insured or (2) other conju


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galproperties or funds, and the beneficiary is the estate of the insured, the proceeds of the lifeinsurance policy is considered conjugal.B.Beneficiary if Life Insurance on the life of another person.Where a policy is taken by a third person on the life of the insured, and said third persondesignates himself as the beneficiary, the third person must have an insurable interest on the life ofthe insured, at the time the policy became effective.

C.Beneficiary of Property InsuranceThe beneficiary of the property insurance must have an insurable interest over the subject matter ofthe insurance existing at the time the policy was taken and at the time the losstool place

II. INSURABLE INTERESTWhat is insurable Interestas referred in the Code?-Insurable interest is a right or relationship-In regard to the subject matter of the insurance-Such that the insured will derive

1. pecuniary benefit or advantage from its preservation and2. will suffer pecuniary loss or damage from its destruction or injury-by the happening of the event insured againstA .Insurable Interest in LifeDefine Insurable Interest in Life?

Insurable interest in life is the interest which a person has

3. In his life or4. In the lives of other personsa.

Of his spouse and o

75993046 Insurance Memory Aid

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