Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation [G.R. No. 156167 May 16, 2005]

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended only to petitioner’s two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that “In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged.

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on its properties. Respondent denied petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same premium it had

paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC.

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not extend to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches. In the subject policy, no premium payments were made with regard to earthquake shock coverage except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s insurance policies with AHAC.

UCPB v Masagana G.R. No. 137172. April 4, 2001

Facts:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent’s properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court’s declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the Respondent.

Masagana obtained from UCPB five (5) insurance policies on its Manila properties.

The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s claims under the argument that the fire took place before the tender of payment.

Hence Masagana filed this case.

The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26, which states:

26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the time the claims were filed. Most of the premiums have been paid for more than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.

The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a

later date and after the occurrence of the risk insured against.

UCPB filed a motion for reconsideration.

The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:

Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid…

An exception to this section is Section 78 which provides: Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss.

Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit an agreement granting credit extension. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.

The Tuscany case has provided another exception to Section 77 that the insurer may grant credit extension for the payment of the premium. If the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties.

It would be unjust if recovery on the policy would not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the fifth exception.

Great Pacific Life Assurance Corp vs Court of Appeals

Facts: A contract of group life insurance was executed between Grepalife and DBP. The former agreed to insure the lives of eligible housing loan mortgagors of DBP. Dr. Leuterio applied membership in the group life insurance plan. He answered in the application form that he has never consulted a physician for heart condition, high blood pressure, cancer, diabetes, lung, kidney, or stomach disorder or any other physical impairment, and that to the best of his knowledge he is in good condition. During the subsistence of the insurance he died from massive cerebral hemorrhage. Grepalife denied the claim because of concealment since it was discovered that he had high blood. His widow filed a claim.

Issue: Whether or not there was misrepresentaion so as to warrant denial of claim; Whether or not the widow of Leuterio is a real party in interest

Held: The Supreme Court ruled that there was no sufficient proof that the insured suffered from hypertension. It is a well-settled ruled that the fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. As regards the second issue, the widow can be regarded as real party in interest because in mortgage redemption insurance the mortgagor and not the mortgagee is the contracting party. The mortgagor merely assigns the proceeds to the mortgagee. Therefore, since by principle of succession the widow may claim.

Eternal Gardens Memorial Park Corporation vs.. Philippine American Life Insurance Company

FACTS:

Respondent insurance company entered into a Creditor Group Life Policy agreement with petitioner. Under said policy, the clients of Eternal who purchased burial lots from it on installments would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

As required under the said policy, Eternal submitted a list of all new lot purchasers, including the application of each purchaser and their corresponding unpaid balances. Included in this list is a certain John Chuang.

When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife which served as an insurance claim for Chuang’s death. Philamlife required that Eternal submit certain documents relative to its insurance claim for Chuang’s death. Eternal transmitted said documents which Philamlife was able to received. However, after more than one year, Philamlife did not anymore reply to Eternal’s insurance claim. This prompted Eternal to demand insurance claims. However, Philamlife denied the said claim, prompting Eternal to file a case before the RTC of Makati

ISSUE:

Whether or not Philamlife assured the risk of loss without approving the application.

HELD:

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, 270 SCRA 242 (1997), this Court held that: Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.

Makati Tuscany Condominium Corporation vs. Court of Appeals [GR 95546, 6 November 1992]

Facts: Sometime in early 1982, American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., (AIUI) issued in favor of Makati Tuscany Condominium Corporation (Tuscany) Insurance Policy AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by AHAC. On 10 February 1983, AHAC issued to Tuscany Insurance Policy No. AH-CPP9210596,which replaced and renewed the previous policy, for a term covering 1 March 1903 to 1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by AHAC. On 20 January 1984, the policy was again renewed and AHAC issued to Tuscany Insurance Policy AH-CPP-9210651 for

the period 1 March 1984 to 1 March 1985. On this renewed policy, Tuscany made two installment payments, both accepted by AHAC, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, Tuscany refused to pay the balance of the premium. Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy AH-CPP-9210651. In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy AH-CPP-9210651. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations: (2) Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy; and (3) Subject to no loss prior to premium payment. If there be any loss such is not covered. Tuscany further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85. After some incidents, Tuscany and AHAC moved for summary judgment. On 8 October 1987, the trial court dismissed the complaint and the counterclaim. Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision modifying that of the trial court by ordering Tuscany to pay the balance of the premiums due on Policy AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. Tuscany filed the petition.

Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance.

Held: NO. The subject policies are valid even if the premiums were paid on installments. The records

clearly show that Tuscany and AHAC intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those 3 years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to Tuscany. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full. Thus, while the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, the Court was not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy. So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. It appearing from the peculiar circumstances that the parties actually intended to make the three (3) insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (AH-CPP-9210651) in March 1985. Moreover, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

Edillon v Manila Bankers Life G.R. No. L-34200 September 30, 1982

Facts:

Carmen O, Lapuz applied with Manila Bankers for insurance coverage against accident and injuries. She gave the date of her birth as July 11, 1904. She paid the sum of P20.00 representing the premium for which she was issued the corresponding receipt. The policy was to be effective for 90 days.

During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.

Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy, filed her claim for the proceeds of the insurance. Her claim having been denied, Regina L. Edillon instituted this action in the trial court.

The insurance corporation relies on a provision contained in the contract excluding its liability to pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years" They pointed out that the insured was over sixty (60) years of age when she applied for the insurance coverage, hence the policy became void.

The trial court dismissed the complaint and ordered edillon to pay P1000. The reason was that a policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into.

The insured could not have been qualified under the conditions stated in said contract and should have asked for a refund of the premium.

Issue:

Whether or not the acceptance by the insurance corporation of the premium and the issuance of the corresponding certificate of insurance should be

deemed a waiver of the exclusionary condition of coverage stated in the policy.

Held: Yes. Petition granted.

Ratio:

The age of Lapuz was not concealed to the insurance company. Her application clearly indicated her age of the time of filing the same to be almost 65 years of age. Despite such information which could hardly be overlooked, the insurance corporation received her payment of premium and issued the corresponding certificate of insurance without question.

There was sufficient time for the private respondent to process the application and to notice that the applicant was over 60 years of age and cancel the policy.

Under the circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke the policy despite a departure from the exclusionary condition contained in the said policy constituted a waiver of such condition, similar to Que Chee Gan vs. Law Union Insurance.

The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants contrary to the requirements of the warranty in question.

It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.

To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing.

Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The company issued the policy upon the execution of a promissory note for the payment of the premium. A check given subsequent by the insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the policy, the insurer was held liable.

“... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note...”

Constantino vs. Asia Life Insurance Co. [GR# L-1669 August 31, 1950] Peralta vs. Asia Life Insurance Co. [GR# L-1670 August 31, 1950]

Facts: FIRST CASE: Respondent Corporation was paid P 176.04 as annual premium by Arcadio Constantino in exchange for policy no. 93212 on 1941 for P 3,000 which lasted for 20 years. Petitioner Paz Constantino was made beneficiary. However after the first payment, no further premiums were made. Thereafter the insured died on 1944. Later, due to the war (Japanese occupation) Respondent Corporation had to close down its branch in the country.

SECOND CASE: Similarly, Respondent Corporation issued on 1938 another insurance policy no. 78145 for Spouses Ruiz and Peralta also for P 3,000, lasting for 20 years. Regular payments were made however due also to the war, it became impossible to transact further payments. The insured nevertheless was able to borrow P 234 from the policy. Ruiz died on 1945. Peralta was the beneficiary.

In both cases the plaintiffs demanded payment but was refused due to Respondent Corporation’s refusal on the ground of non-payment of the premiums. The lower court favored Respondent.

Issues:

(1) Whether or not the beneficiaries are entitled to recover the amount insured despite non-payment caused by the Japanese occupation.

(2) Whether or not the periodic payments of the premiums, those after the first, is not an obligation of the insured so that it is not a debt enforceable by the action of the insurer.

Held:

(1) The beneficiaries are not entitled to recover for non-payment despite the presence of war.

Contracts of insurance are contracts of indemnity within the terms and condition found therein. An insurance company for certain considerations guarantee the insured against loss or damage as may be stipulated, and when called to pay, the insurer may insist on the fulfillment of said stipulations. Failure of the insured to do so disqualifies recovery for the loss. Thus the terms of the policy determines the insurer’s liability. Compliance to the terms of the policy is a must as it is a condition precedent to the right of recovery. Therefore, from the terms of the policy it is clear that non-payment of premium produces avoidance (forfeiture of the policy).

Moreover, since act 2427, Philippine law on insurance and the Civil Code) are mostly based from the Civil Code of California, An intention to supplement our laws with the prevailing principles of the US arises. Thus, Prof. Vance of Yaled declares that the United States Rule

must be followed, where “the contract is not merely suspended but is abrogated by reason of non-payment of premiums since the time of payments is peculiar to the essence of the contract.” Further it would be unjust to permit the insurer to retain the reserve value of the policy or the excess of premiums paid over the actual risk when the policy was still effective as held in the Statham Case which was more logical and juridically sound. In said case it was hold that promptness of payment is essential in the business of life insurance since all calculations of the company is based on the hypothesis of prompt payments. Forfeiture for non-payment is necessary to protect said business from embarrassment otherwise confusion would abound. And that delinquency cannot be tolerated nor redeemed except at the option of the company. Lastly parties contracted both for peace and war times since the policies contained also wartime days. It follows that the parties contemplated uninterrupted operation of the contract even if armed conflict ensues.

(2) The annual premium is not a debt, nor is it an obligation which the insurer can maintain an action against the insured; nor its settlement governed by the rules on payment of debts.

A contract of insurance is sui generis. This means though the insured may hold the insurer to the contract by the fulfillment of the condition, the latter has no power or right to compel the insured to maintain the contract relation longer than the insured may desire. It is optional upon the insured.

The Insurance Code

Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires:

(1) A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.

(2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

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

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

In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business.

(3) As used in this code, the term "Commissioner" means the "Insurance Commissioner".

Chapter 1

THE CONTRACT OF INSURANCE

Title 1

WHAT MAY BE INSURED

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

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

Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.

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

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

Sec. 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

Sec. 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

Title 2

PARTIES TO THE CONTRACT

Sec. 6. Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, may be an insurer.

Sec. 7. Anyone except a public enemy may be insured.

Sec. 8. Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

Sec. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.

Title 3

INSURABLE INTEREST

Sec. 10. 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, or in whom he has a pecuniary interest;

(c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and

(d) Of any person upon whose life any estate or interest vested in him depends.

Sec. 11. The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy.

Sec. 12. The interest of a 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 the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

Sec. 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.

Sec. 14. An insurable interest in property may consist in:

(a) An existing interest;

(b) An inchoate interest founded on an existing interest; or

(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

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

Sec. 16. A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

Sec. 20. Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.

Sec. 21. A change in interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.

Sec. 22. A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others.

Sec. 23. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.

Sec. 24. A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured.

Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

Title 6

THE POLICY

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

Sec. 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein.

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

pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

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

Sec. 51. A policy of insurance must specify:

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

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

(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined;

(d) The property or life insured;

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

(f) The risks insured against; and

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

Sec. 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefore.

Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The Commissioner may

promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations.

Sec. 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Sec. 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.

Sec. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.

Sec. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.

Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.

Sec. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.

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

Sec. 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss.

Sec. 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.

Sec. 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.

Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.

Sec. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a) non-payment of premium;

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

(c) discovery of fraud or material misrepresentation;

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

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

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

Sec. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

Sec. 66. In case of insurance other than life, unless the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policy

upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.

Title 8

PREMIUM

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

Sec. 78. An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

Sec. 79. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

Sec. 80. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.

Sec. 81. A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.

Sec. 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

Title 11

DOUBLE INSURANCE

Sec. 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.

Sec. 94. Where the insured is overinsured by double insurance:

(a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;

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

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

(d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the

insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;

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

Title 12

REINSURANCE

Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.

Sec. 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.

Sec. 97. A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.

Sec. 98. The original insured has no interest in a contract of reinsurance.