1 | I N S U R A N C E L A W ( A Q U I N O )

CHAPTER ONE: GENERAL CONCEPTS

CONTRACT OF INSURANCE agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

TEST: (2)

1. Determined by its purpose, effect, contents and import 2. Depends on the nature of the promise, act required to be

performed and the exact nature of agreement in the light of occurrence, contingency or circumstances where performance becomes a requisite.

SURETYSHIP agreement whereby one binds himself solidarily with the principal debtor.

PRE-NEED PLANS contracts, agreements, deeds or plans for the benefit of the planholders which provide for the performance of future service/s, payment of monetary considerations or delivery of other benefits at the time of actual need or agreed maturity date, in exchange for cash or installment amounts with or without interest or insurance coverage and includes life, pension, education, interment, and other plans, instruments, contracts or deeds.

VARIABLE CONTRACTS any policy on either a group / individual issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of a designated separate account in which amounts received in connection of such contracts shall have been placed and accounted for separately and apart from other investments and accounts.

DOING AN INSURANCE BUSINESS: (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 and not as merely incidental to any other legitimate business or activity of the surety;

3. Doing any kind of business, including reinsurance, specifically recognized as constituting the doing of an insurance business;

4. 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.

Fact that no profit is derived from the making of insurance contracts shall not be deemed conclusive to show that the making thereof does not constitute doing of insurance business.

BANCASSURANCE presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of such bank duly licensed by BSP.

MUTUAL INSURANCE COMPANIES Company owned by policyholders. Promotes the welfare of its members and the money collected from among them is solely for their own protection and member is both the insurer and insured.

APPLICABLE LAWS:

Insurance Code of the PH originally PD 602

Regulatory Provisions: (8)

1. Increase of the paid-up capital and net-worth requirements for insurers

2. New requirements for unimpaired capital or assets and reserved

3. New provisions on financial reporting framework 4. Adoption of corporate governance rules 5. Changes in the provisions on margin of solvency 6. Changes in the provisions on investments 7. Fixing the term of Insurance Commissioner to 6 years 8. Changes in the jurisdiction of the IC over insurance claims

RIGHT OF SUBROGATION if the plaintiffs property has been insured, and he has received indemnity from the insurance company

for the injury / loss arising out of the wrong / breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer who violated the contract. If amount paid is not enough, aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

ELEMENTS OF INSURANCE CONTRACTS: (5)

1. Insured has insurable interest 2. Insured is subject to a risk of loss by the happening of

designated peril 3. Insurer assumes the risk 4. Such assumption of risk is part of a general scheme to

distribute actual losses among a large group of persons bearing a similar risk (DISTRIBUTION OF LOSSES)

5. In consideration of the insurers promise, the insured pays a premium.

REQUISITES OF A VALID CONTRACT: (3)

1. Consent of contracting parties 2. Object certain which is the subject matter of the contract 3. Cause of the obligation which is established

RISK any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create liability against him, may be insured against..; not the same with fortuitous event.

REQUIREMENTS OF INSURABLE RISK: (6)

1. There must be a large number of homogenous exposure units 2. Loss must be accidental or unintentional 3. Loss must be determinable and measurable 4. Loss should not be catastrophic 5. Chance of loss must be calculable 6. Premium must be economically feasible

PRINCIPLE OF DE MINIMIS NON CURAT LEX while catastrophic losses are not insurable, the losses should also not be too miniscule or trivial.

PURE RISK possibility is either the person involved will suffer a loss or he wont; possibility that ones property may be destroyed / one may suffer economic loss because of premature death or injury.

SPECULATIVE RISK either result in gain or loss

PERIL specific cause of loss that is insured against

PAST EVENT only applicable in Marine Insurance

HAZARD: (3)

1. Physical refers to physical condition of the thing / person that increases the chance of loss

2. Moral involves dishonesty or character defects in the individual

3. Morale includes carelessness / indifference to a loss because of the existence of the insurance

LOSS end result of the risk insured against; involves diminution of value or disappearance of value resulting from a risk.

ASSUMPTION OF RISK insurer promises to pay the insured if the risk insured against occurs; promises to deliver the equivalent of the property that was lost.

NATURE & PURPOSE OF INSURANCE Insured sacrifices a present monetary loss in the form of premium payment in order to avoid a greater loss in the future.

HOW PEOPLE DEAL WITH RISKS: (5)

1. Risk avoidance 2. Risk retention 3. Risk transfer 4. Loss control 5. Insurance

HOW INSURANCE DEALS WITH RISK individuals trade present loss by way of premium payments with future recompense for greater loss.

2 | I N S U R A N C E L A W ( A Q U I N O )

RISK DISTRIBUTING DEVICE risk of loss is not actually transferred to the insurer but a number of people constituting the clients of the insurer contribute to a common fund by paying premiums. Insurer will get the amount to be paid to each insured in case of loss from this pool or common fund.

LAW OF LARGE NUMBERS the greater the number of exposures, the more closely will the actual results approach the probable results that are expected from an infinite number of exposures.

CHARACTERISTICS: (6)

1. Aleatory one of the parties or both reciprocally bind themselves to give / do something in consideration of what the other shall give / do upon the happening of an uncertain event or which is to occur at an indeterminate time; what the insured pays is not equal to what he will receive in case of loss.

2. Commutative what the insured paid for is the equivalent of what he got, that is, the promise of the insurer to indemnify the insured in case of loss.

3. Unilateral payment of premium is not traditionally imposed as obligation but an event that gives the contract obligatory force; it is the insurers obligation to pay the proceeds of the insurance in case of loss.

4. Personal contract is entered into with due consideration to the circumstances of the parties; character, credit and conduct of the person who insures a property are important considerations; insurer accepts the risk because of the insurability of the insured.

5. Consensual perfected by mere consent without the need of delivery or any formality.

6. Uberrimae Fidae contract is one of perfect good faith; both parties must perform obligations in good faith and avoid material concealment or misrepresentations.

7. Executory and Conditional contract is executory to the insurer and is subject to the main condition (among others): the happening of the event insured against.

GENERAL BENEFITS OF INSURANCE: (7)

1. Gives peace of mind 2. Keeps families and businesses together 3. Increases marginal utility of assets 4. Facilitates credit transactions 5. Stimulates savings 6. Provides investment capital 7. Provides incentive to business / individuals 8. Helps in loss prevention

PERFECTION contract is perfected by meeting of minds with respect to the object and consideration of the contract

Art. 1319: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer.

COGNITION THEORY insurance contract is perfected the moment the offeror learns of the acceptance of his offer by the other party.

INSURED MAKES THE OFFER insured submits application to the insurer; insurer accepts offer by approving the application and the contract is perfected upon receipt of notice by the insured of such approval.

EFFECT OF NON-ACCEPTANCE contract cannot be deemed perfected if there is only an offer to enter into an insurance contract through an application; there can be no contract if there is no meeting of the minds between the parties as to the object and consideration.

Mere delay by insurer does not estop him to deny the existence of the contract

Implied acceptance can be established only through other circumstances that will indicate such acceptance other than inaction or delay

Even if there is no perfected contract, insurer can be subject to tort liability for abuse of right / acting contrary to morals and good customs.

KINDS OF INSURANCE (SOCIAL INSURANCE CONTRACTS): (2)

1. Private insurance SSS 2. Government insurance GSIS

CLASSIFICATIONS: (3)

1. Life / health insurance 2. Property insurance 3. Liability insurance

SPECIAL TYPES: (6)

1. Marine 2. Casualty 3. Fire 4. Life 5. Compulsory Third Party Liability 6. Microinsurance

KINDS OF LIFE INSURANCE: (3)

1. Term temporary basis / for a limited period only 2. Whole life entire lifetime 3. Endowment Policy insured is paid a certain amount or the

face value of the policy if the insured survives a certain period and the beneficiary will get the proceeds if he doesnt survive.

KINDS OF PROPERTY INSURANCE: (4)

1. Fire 2. Allied 3. Marine 4. Casualty

MICROINSURANCE financial product / service that meets the risk protection needs of the poor where:

a. The amount of contributions, premiums, fees / charges, computed on a daily basis, doesnt exceed 7.5% of the current daily minimum wage rate for nonagricultural workers in MM

b. Maximum sum of guaranteed benefits is not more than 1,000 times of the current daily minimum wage rate for nonagricultural workers in MM

PRINCIPLE OF INDEMNITY:

GR: insured should not collect more than the actual cash value of the loss. This is to prevent the insured from unjust compensation

XPNS:

1. Life insurance because the amount to be paid can never be equal to the life of the insured

2. Valued policies under which the insurer will pay the valued fixed in the policy regardless of the actual cash value in case of total loss

MANIFESTED THROUGH THE FOLLOWING: (3)

1. Insurable interest is indispensable 2. Value of interest destroyed or damage is generally the measure

of indemnity 3. Co-insurance clause in marine insurance 4. Subrogation in property insurance

CHAPTER TWO: THE PARTIES

INSURED person who applied for and to whom an insurance policy is issued to cover his life, property or the life / property of other person/s in whose life / property he has insurable interest / liability to other persons.

ASSURED person who takes out an insurance on the insureds life

OWNER person who obtains the policy

CAPACITY voidable if one of the parties is a minor, insane person or incapacitated to enter into a contract. A capacitated person however, can validly enter into a contract insuring the life of any of the three.

3 | I N S U R A N C E L A W ( A Q U I N O )

Spouses the consent of the spouse is not necessary for the

validity of an insurance policy taken out by a married person on his or her life or that of his or her children (including life of a child who is not also the child of the other spouse).

EFFECT OF OWNERS DEATH all rights, title and interest in the policy of insurance taken out by the original owner on the life / health of the insured will automatically vest in the latter upon the formers death unless otherwise provided for in the policy.

PUBLIC ENEMY anyone is a state (and its citizens) at war with PH

INSURER every person, partnership, association, or corporation, government-owned / controlled corporations engaged as principals in the insurance business, excepting mutual benefit associations.

PROFESSIONAL REINSURER any person, partnership, etc. that transacts solely and exclusively reinsurance business.

REQUISITES TO BE AN INSURER:

1. Possess capital and assets required of an insurance corporation doing the same kind of business in the PH and invested in the same manner

2. Commissioner shall have granted him a CERTIFICATE OF AUTHORITY proving that he has complied with all the provisions of law (because insurance business involves public interest).

TERM OF CERTIFICATE:

1. Shall expire on the last day of December, 3 years following its date of issuance

2. Renewable every 3 years, subject to the companys continuing compliance.

GROUNDS FOR DISAPPROVAL OF APPLICATION: (4)

1. Refusal will best promote the interest of the people 2. There is evidence that the applicant company is not qualified 3. Grant of such authority appears to be unjustified in the light of:

a. Economic requirements b. Direction, administration, integrity and responsibility of the

organizers and administrators c. Financial organization and the amount of capital d. Reasonable assurance of the safety of the interests of the

policyholders and the public 4. Name of applicant belongs to any other known company

transacting a similar business in the PH misleading.

PROHIBITED ACTS: (9)

1. To transact in the PH both the business of life and non-life insurance concurrently unless authorized to do so;

2. Have equity in an adjustment company; 3. Negotiate any contract of insurance other than is plainly

expressed in the policy or other written contract issued to or to be issued as evidence thereof;

4. Directly / indirectly, by giving or sharing a commission, pay or allow or offer to pay or allow to the insured or to any employee of such insured, either as an inducement to the making of such insurance;

5. Give or offer to give any valuable consideration or inducement of any kind, not specified in the policy;

6. Make an discrimination against any Filipino giving him less advantageous rates, dividends or policy conditions that are accorded to other nationals;

7. Issue or circulate any sort misrepresenting the terms of any policy issued by any insurance company of the benefits or advantages promised;

8. Use any name or title of any policy or class of policies misrepresenting the true nature thereof;

9. Make any misleading representation or incomplete comparison of policies to any person insured for the purpose of inducing such person to lapse, forfeit or surrender his insurance.

BENEFICIARY can be a 3rd person unless he is the insured himself; he is not one of the contracting parties

3rd party beneficiary named in the policy has the right to file an action against the insurer in case of loss

No other party can recover the proceeds other than the beneficiary.

If there is a named beneficiary and valid designation, he is entitled to receive the proceeds and not the heirs of the insured.

Proceeds are the separate and individual property of the beneficiary, not the heirs of the person whose life was insured.

If there is no beneficiary, or when designation is void, laws of succession are applicable and shall form part of the estate of the deceased insured.

THIRD PARTIES insurer has no obligation to turn over the proceeds of the insurance to 3rd persons even if such are immediate relatives if there is a designated beneficiary.

USE OF CONJUGAL FUNDS if these are used to pay premiums, proceeds of the policy constitute community property if the policy was made payable to the deceaseds estate; one half belongs to the estate and the other half to the surviving spouse.

VESTED INTEREST OF THE BENEFICIARY should be measured on its full face value because in case of death of the insured, said beneficiaries are paid on the basis of its face value; beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options and that said vested right cannot be divisible at any given time.

Sec. 11: Insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in the said policy. Notwithstanding the foregoing, in the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable.

EFFECT IF IRREVOCABLE:

GR: Irrevocable beneficiary cannot be replaced.

XPN: Art. 64, Family Code: after finality of the decree of legal separation, the innocent spouse may revoke the designation as beneficiary in any insurance policy, even if stipulated as irrevocable. Written notification is required.

FORFEITURE OF BENEFICIARYS RIGHTS:

Interest of beneficiary shall be forfeited when he is the principal, accomplice, or accessory in willfully bringing about the death of the insured.

Proceeds of insurance shall be paid in accordance with the following rules: (3)

1. Forfeited share if the disqualified beneficiary shall pass on to the other beneficiaries;

2. If none, proceeds shall be paid in accordance with the policy contract;

3. If policy is silent, proceeds will be paid to the estate of the insured.

GROUNDS FOR DISQUALIFICATION: (3)

1. Those made between persons who were guilty of adultery or concubinage at the time of donation (conviction not needed; illegitimate children are still qualified);

2. Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

ASSIGNEE OF LIFE INSURANCE can be transferred even without the consent of the insurer; no formalities required; assignment of rights should be applied; delivery of policy may transfer ownership of policy of the insurance; notice is not necessary.

DOUBLE ASSIGNMENT: (2)

1. English Rule assignee who first gives notice is the one entitled to the proceeds if he has no notice of any prior assignment.

2. American Rule assignee under the first assignment has the preferable claim; first in time, stronger in right (what applies in this jurisdiction).

ASSIGNEE OF PROPERTY INSURANCE:

GR: 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 thing insured.

4 | I N S U R A N C E L A W ( A Q U I N O )

XPNS:

1. Insurers consent is not necessary even if successors-in-interest of the insured substitute the latter.

2. Transfer through will / succession and other instances of transfer by operation of law

3. Where there is transfer among partners.

INSURANCE AGENT person who for compensation solicits or obtains insurance on behalf of an insurance company or transmits for a person other than himself an application for a policy or contract of insurance to negotiate for such insurance; represents the insurer.

INSURANCE BROKER person who for compensation acts in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance on behalf of an insured other than himself; acts for and in behalf of the insured.

Insurance company who goes through an insurance agent / broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy at the time of issuance or delivery.

IC does not cover insurer-agent relationship.

CHAPTER THREE: INSURABLE INTEREST

CLASSES OF INSURABLE INTEREST IN LIFE INSURANCE: (4)

1. Blood relationship limited to insurable interest over the life of a spouse or his children. Does not include parents or siblings.

2. Business relationship any person whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest:

Education / support

Pecuniary interest one has insurable interest over the life of his partner or his employee; pecuniary benefit is derived by the person who will take out an insurance policy with the continued preservation of the life of the partner or employee.

3. Creditor 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.

4. Mortgage Redemption Insurance:

Debtors may be insured into this group life insurance

Device for the protection of both mortgagee and mortgagor

Mortgagee it has to enter into such form of contract so that in that in the event of unexpected demise of the mortgagor, proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.

Mortgagor pays the insurance premium, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and he continues to pay the contract.

INSURABLE INTEREST IN PROPERTY INSURANCE:

TEST: (2)

1. Can be determined by asking if the insured has interest in property, whether real or personal, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the said insured.

2. Whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction.

KINDS OF INSURABLE INTEREST: (3)

1. Existing interest includes the interest of an owner; title or ownership is not essential.

Following persons have insurable interest:

a. Lessee b. Depositary c. Usufructuary d. Borrower in commodatum

One has insurable interest if he is situated with respect to the property that he will suffer loss as the proximate result of its damage or destruction.

In sale of goods, unpaid seller retains insurable interest even if ownership has already been transferred to the vendee upon delivery.

Vendee or buyer has insurable interest over the goods even while the goods are in transit.

Insurable interest exists in the ff (person will suffer due to loss to a peril insured against): o When insured possess a legal title to the property insured o When he has equitable title of whatever character in

whatever manner acquired o When he possesses a qualified property or possessory

right in the subject of the insurance o When he has mere possession or right of possession o When he has neither possession of the property nor other

legal interest in it but stands in such a way that he will suffer from its destruction

2. Inchoate Interest founded on an existing interest, otherwise, loss of the property will not directly damnify the insured.

3. Expectancy coupled with existing interest; heir does not have insurable interest over the properties of his successor-in-interest.

AS TO: I.I. IN PROPERTY I.I. IN LIFE

EXTENT Only up to value of property

Unlimited except if secured by creditor

TIME OF EXISTENCE

At the time of perfection, and time of loss

At the time of perfection

NEED FOR LEGAL BASIS

Expectation of benefit must have legal basis

Expectation of benefit need not have legal basis

BENEFICIARYS INTEREST

Beneficiary must have i.i.

i.i. not necessary if insured took out the policy on his own life and designated another. Beneficiary must have i.i. if one took out an insurance on the life of another.

INSURABLE INTEREST OF BAILEE carrier may be damnified by the loss of the goods because he may be obligated to pay the shipper any damage to the property; similar to a depositary.

MORTGAGOR & MORTGAGEE:

Each have independent insurable interest therein and both interests may be covered by one policy, or each may take out a separate policy covering his interest, either at the same / separate time.

Mortgagors interest covers the full value of property

Mortgagees interest is only to the extent of the debt and in insuring, he is not insuring the property but his interest or lien thereon.

LOSS PAYABLE CLAUSE any act of the mortgagor which defeats his right will also defeat the right of the mortgagee.

UNION MORTGAGE CLAUSE there is a transfer of an insurance from the mortgagor to the mortgagee with the assent insurer.

GR: 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 in the insurance (object and policy) are vested in the same person (already owned by that person).

5 | I N S U R A N C E L A W ( A Q U I N O )

XPNS:

1. In cases of life, accident, health insurance 2. When consent is given in advance by the insurer and the policy

will inure to the benefit of anyone to whom the property is transferred.

CHANGE OF INTEREST will not suspend the insurance in these cases:

1. In a thing insured, after the occurrence of an injury which results in a loss

2. In one / more several distinct things, separately insured by one policy (insured separately)

3. By will or succession, on the death of the insured 4. Transfer of interest by one of several partners, joint owners, or

owners in common, who are jointly insured, to the others.

INSURABLE INTEREST OF BENEFICIARY IN PROPERTY INSURANCE beneficiary must have insurable interest in the property; it will be considered a wagering contract if he will be allowed to recover it even if he has no insurable interest.

INSURABLE INTEREST OF BENEFICIARY IN LIFE INSURANCE: (2)

1. When not necessary - if insured takes out an insurance on his own life and just designate anybody.

2. When necessary if insured takes out an insurance on the life of another designating him/herself or a 3rd person as beneficiary.

ASSIGNEE IN LIFE INSURANCE policy can be transferred even without the consent or notice of insurer.

ASSIGNEE IN PROPERTY INSURANCE necessary that the transferee has insurable interest over the thing insured.

A clause in agreement providing for automatic assignment of policy VOID

If transfer of property insurance is made after loss, insurable interest of beneficiary is no longer necessary.

CHAPTER FOUR: PREMIUM

PREMIUM REQUIRED FOR POLICY TO BE BINDING insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against. Contract is valid and binding when premium is paid.

EFFECT OF NON-PAYMENT obligation of insurer will not be valid and binding if 1st premium isnt paid; unpaid subsequent premiums will have the contract deemed to have lapsed.

GR: If insurance is unpaid = not valid = insurer has no liability = he has no right to demand for unpaid premiums

XPNS: (8)

1. Grace period applies in life and industrial life policy; period after the date of the premium is due during which the premium can be paid with no interest charged and the policy remaining in force.

2. Acknowledgement conclusive evidence of its payment to make policy binding, notwithstanding any stipulation therein that is shall not be binding until premium is actually paid.

3. Installment basis 4. Credit extension a 90-day credit extension may be given

under the broker and agency agreements with duly licensed intermediaries.

REQUISITES:

a. Credit extension must be provided for under the broker and agency agreements

b. Should not exceed 90 days from date of issuance of policy

ESTOPPEL may bar an insurer from taking refuge under sec. 77 if insured relied in good faith on a practice that they have been following with the insurer.

SALARY DEDUCTIONS FOR GOVERNMENT EMPLOYEES insurance is already binding although premium is paid through installment by a government employee. There should be authorization from government employee for the deduction.

SURETY already liable even if there is non-payment of premium if the obligee has already accepted the bond. Surety is entitled to payment of the premium as soon as the contract of suretyship is perfected and delivered to the obligor and no contract of premium has been paid.

XPN: when obligee has accepted the bond where it becomes valid and enforceable

VALID TENDER OF PAYMENT still binding if the non-payment was due to the fault of the insurer.

HOW TO PREVENT LAPSE: (4)

1. Grace period 2. Automatic policy loan and cash surrender value amount of

money the company agrees to pay to the holder of the policy if he surrenders it and releases his claims upon it. The more premiums paid, the greater the surrender value, but surrender value is always lesser sum than the total amount of premiums paid.

3. Dividends may either be:

Participating insured is entitled to the dividends available; policy must contain a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein; dividend shall be applied to the premiums due / payable.

Non-participating 4. Reinstatement Clause policy must contain a provision that

policyholder is entitled to have a policy reinstated at any time within 3 years from date of default of premium payment unless the cash surrender value has been duly paid or extension period has expired.

Not an absolute right will not be approved by just mere application; there should be evidence of insurability and payment of overdue premiums and any indebtedness to the company.

GROUNDS FOR RETURN OF PREMIUM: (6)

1. When the thing was not exposed to the peril insured against where risk is entire and contract is indivisible however, insured is not entitled to refund of premiums paid if property insured was exposed to the risk insured for any period.

2. Time policy amount paid is actually for the entire period and is spread to the entire term; premium corresponds to a certain unit/s of time.

3. Voidable policy refund is warranted if contract is voidable but should not be due to the insured or his agent. Should be on the account of fraud / misrepresentation of the insurer / his agents (insured acted in good faith).

4. When by any default of the insured other than actual fraud, the insurer never incurred liability under the policy.

5. When there is over-insurance by several insurers.

ADVANCE PAYMENT premium can be paid in advance.

CHAPTER FIVE: THE POLICY

CONSENSUAL insurance contract is perfected by mere consent of the parties and no formalities is required for its perfection. Absence of a policy does not bar the contract from coming into existence.

POLICY should be issued by the insurer

1. In printed form which may contain blank spaces; any word, phrase, clause, mark, sign, symbol, signature, number or word necessary to complete the contract of insurance should be written on the blank spaces provided.

2. May be an electronic document 3. Should be approved by the Insurance Commission

6 | I N S U R A N C E L A W ( A Q U I N O )

POLICY OF INSURANCE MUST SPECIFY / PARTS OF THE DECLARATION: (7)

1. Parties between whom the contract is made; 2. Amount to be insured except in the cases of open or running

policies; 3. Premium, or if exact premium is only determinable upon

termination of contract, a statement of the basis and rates upon which final premium is to be determined;

4. Property or life insured; 5. Interest of the insured in the property insured, if he is not the

absolute owner thereof; 6. Risk insured against; 7. Period during which the insurance is to continue.

INSURING AGREEMENTS specify what the insurer promises to do; describes the characteristics of the events covered under the contract

EXCLUSIONS limit the coverage provided under the insuring agreements; exclude specified perils, property, sources of liability, persons, losses, locations and time periods.

CONDITIONS define terms used in the other parts of the contract, prescribe conditions that must be complied before the insurer can be made liable and may describe the basis for computing the premium.

MARINE RISK NOTE acknowledgement confirming the specific shipment covered by its Marine Open Policy, the valuation of the cargo, and the chargeable premium. This is not the policy itself.

DESIGNATION OF THE BENEFICIARY:

GR: insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made.

XPN: otherwise specified

IDENTIFICATION OF THE INSURED:

AGENT OR TRUSTEE principal may be damnified (caused injury to) by the loss of the property that he owns that is under the care of a trustee or agent. The agent or trustee who takes care of the property may also be damnified by propertys loss. Both the principal and his agent can insure the property under the latters care.

PARTNER OR CO-OWNERS may have insurable interest of the property owned in common; terms of the policy should be expressly provided that the insurance are applicable to the joint or common interest. Express provision is very necessary.

INSURED IDENTIFIED IN GENERAL TERMS insured is not specifically identified; may comprehend any person or any class of persons, only ha who can show that it was intended to include him can claim the benefit of the policy; it is a question of proof.

POLICY FORM insurer is generally free to provide for the terms and conditions of the policies that it will issue so long as the same are not contrary to law, moral, customs and public policy; there are minimum requirements for the approval of insurance plans / forms for policy, certificate or contract, application, rider, clause, warranty or indorsements.

POLICIES WITH MINIMUM MANDATORY PROVISIONS: (4)

1. Individual life 2. Endowment insurance 3. Group life 4. Industrial life

REQUISITES FOR CLAUSE, RIDER, ENDORSEMENT, WARRANTY (CREW) NOT ORIGINALLY PART OF THE CONTRACT: (3)

1. The CREW is attached to the policy 2. The descriptive title or name of CREW is mentioned and written

on the blank spaces provided in the original printed policy form 3. If not applied for by the insured / owner, CREW shall be

countersigned by the insured.

ENDORSEMENT a written agreement attached to a policy to add or subtract insurance coverages.

RIDER an endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.

RULES IN CASE OF INCONSISTENCY:

1. Between written and printed portions of the policy written prevails

2. Between rider and printed clause rider prevails

CONTRACT OF ADHESION where only one party (insurer) prepares the written contract while the other party (insured) merely adheres to the contract.

Any doubt should be resolved against the insurer

PROOF party who seeks to prove such terms and conditions must present the policy during trial and formally offer it as evidence. Any person who relies on the policy as the basis of his cause of action must also attach the same to the complaint as an actionable document.

COVER NOTES interim or preparatory contracts of insurance. It may be necessary because the insurer may need more time to process the insurance application.

REQUISITES: (5)

1. Shall be issued or renewed only upon prior approval of the IC 2. Shall be valid and binding not more than 60 days from the date

of issuance 3. May be cancelled by either party upon prior notice to the other

of at least 7 days 4. Policy should be issued within 60 days after the issuance of the

cover note 5. The 60 day period may be extended upon written approval of

the IC.

ICs approval can only be dispensed with upon certification of the president, vice president, or general manager of the insurer that the risk involved.

No separate premium is required for the cover note.

KINDS OF PROPERTY INSURANCE POLICY: (3)

1. VALUED POLICY expresses agreed valuation of a thing insured on the face of the policy.

This valuation is binding on the parties; no party can establish a different valuation in case of loss.

The amount to be paid by the insurer as indemnity may not necessarily be related to the actual loss

Measure of indemnity is the agreed valuation and not the actual loss

2. OPEN / UNVALUED POLICY no valuation is stipulated; insured is only entitled to recover the amount of actual loss

3. RUNNING POLICY extent of the property insured shall be defined from time to time because of the nature of the business that is being insured.

PROBLEMS (from the book):

A Owns a house worth 600K, and insured the same with 3 fire insurance companies: X 400K, Y 200K, Z 600K.

Q: In the absence of any stipulation in the policies, from which insurance company may A recover in case of fire should destroy his house completely?

A: He can recover from any, any 2, or from all provided that the total amount recovered does not exceed his loss.

Q: If each of the policies is an open policy, and it was immediately determined after the fire that the value of the house was 2.4M, how much may he collect from X Y and Z?

A: He can recover full amount of coverage from each insurer if all policies are open policies total of 1.2M.

Q: If each insurance policy is a valued policy, and house was valued at 1M, how much would he recover from X if he has already obtained full amount of payment from Y and Z?

A: He can only recover 200k. The valuation of the property is binding on the parties and is no longer necessary to determine actual value thereof.

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Q: If in Q1, A was able to collect from Y and Z, may he keep the entire amount he was able to collect from said 2 companies?

A: No. He can only be indemnified for his loss. A must hold the excess amount of his insurable interest in the house, 200k, in trust for the insurers Y and Z.

Q: in Q1, what is the extent of the liability of the insurance companies among themselves?

A: Each insurer is bound to contribute pro-rata to the loss, in proportion to the amount for which he is liable under his contract.

(Amount of policy / Total insurance taken x loss = liability of insurer)

1. X = 200K (400K/1.2M x 600K) 2. Y = 100K (200K/1.2M x 600K) 3. Z = 300K (600K/1.2M x 600K)

CANCELLATION:

GR: No property insurance policy shall be cancelled by the insurer

XPN: upon prior notice to the insured

GR: No notice of cancellation shall be effective

XPN: on the following grounds: (6)

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

insured against 3. Discovery of fraud or material representation 4. Discovery of willful / reckless acts / omissions increasing the

hazard insured against 5. Physical changes in the property insured which result in the

property becoming uninsurable 6. Discovery of other insurance coverage that makes the total

insurance in excess of the value of the property insured. 7. Commissioner determines that continuation of the policy would

violate the Code.

REQUISITES OF CANCELLATION: (4)

1. Prior notice of cancellation to insured 2. Notice must be based on the occurrence after effective date of

the policy of one or more grounds 3. Must be in writing, mailed or delivered to named insured at the

address shown in the policy or to his authorized broker actual receipt is necessary.

4. Must state grounds

RENEWAL OF POLICY insured has the right to renew non-life policy by simply paying the premium due on the effective date of the renewal. He however, will not have the right to renew if notice of the intention not to renew is given by the insurer at least 45 days prior to expiration of the policy.

REFORMATION OF POLICY can happen when what was agreed upon is different from what is written in the policy. Court has the power to reform the contracts and give effect to them in the sense which the parties intended to be bound. It must be made clearly though that the minds of the contracting parties did actually meet in agreement to begin with.

Proof must be of the most satisfactory character, and it must clearly appear that the contract failed to express the real agreement between the parties.

MISTAKE it is also possible for the insured to recover even if there was a mistake, not necessary that there be reformation of the policy.

CHAPTER SIX: ASCERTAINING & CONTROLLING RISKS

CONCEALMENT a neglect to communicate that which a party knows and ought to communicate/

Each party to a contract must communicate to the other, in good faith, all facts within his knowledge which are material to

the contract and as to which he makes no warranty, and which the other has no means of ascertaining (uberrimae fidae).

REMEDY: Whether intentional or unintentional entitles the injured party to RESCIND a contract of insurance.

There would still be concealment even if the insured had no knowledge of the duty to disclose.

TEST OF MATERIALITY only material facts are required to be disclosed those that will affect insurers action on his application, either by approving it with higher premium, or rejecting the policy; those that will affect the decision of the insured to enter into the contract (probable and reasonable influence of the facts).

CAUSATION NOT NECESSARY matters concealed need not be the cause of loss facts concealed need not have a bearing on the cause of death of insured.

REQUISITES FOR CONCEALMENT: (4)

1. Party involved must know the fact concealed or at least he ought to know the same.

2. Fact concealed should be material. 3. No warranty is extended by the party regarding the fact

concealed. 4. The other party doesnt have the means of ascertaining.

KNOWLEDGE OF THE AGENT OF INSURED can only be imputed to the insured on the following circumstances:

1. It was the duty of the agent to acquire and communicate information of the facts in question

2. It was possible for the agent, in the exercise of reasonable diligence, to have made such communication before the making of the insurance contract.

NO MATERIAL CONCEALMENT WHEN: (9)

1. Matters are known to the other party. 2. In the exercise of ordinary care, one party ought to know, and of

which the other party has no reason to suppose him ignorant. 3. When there is waiver of communication. 4. When matters are those which prove / tend to prove the

existence of risk excluded by a warranty and which are not material.

5. When matters are those which relate to a risk accepted from the policy and which are not material.

6. When the matter involves general causes that are open to inquiry of each party and which may affect the political or material perils.

7. When matter is included in general usages of trade 8. Information of the nature or amount of the insured property is

not disclosed unless in answer to an inquiry. 9. When what is involved is information of the partys own

judgment upon the matters in question.

JUDGMENT OR OPINION neither party is bound to disclose information of his own judgment upon matters in question. Opinions need not be communicated.

KNOWLEDGE OF THE INSURER when the insurer at the time of issuance of policy, had knowledge of existing facts which would actually invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is estopped from asserting breach of such conditions.

KNOWLEDGE OF THE FACT CONCEALED actual knowledge of the insured is not necessary to give the insurer the right to avoid the policy on the ground of concealment.

WAIVER OF INSURER when upon the face of the application a question appears to be not answered at all or be imperfectly answered and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial.

REPRESENTATION statements made to give information to the insurer to induce him to enter into the insurance contract. It is a collateral communication made to the other party in writing / word of mouth.

REMEDY: in case of misrepresentation or false representation, aggrieved party can rescind.

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XPNS: (3)

o When there is a waiver o When an action has already been commenced on the

contract o When the incontestable clause applies o Insurer can still rescind the policy even if it accepted the

premium despite knowledge of the ground for rescission provided that other defenses are not available like the incontestability clause.

TIME OF REPRESENTATION made at the time of, or before, issuance of the policy.

NATURE OF REPRESENTATION: (2)

1. Affirmative 2. Promissory

KINDS OF REPRESENTATION: (2)

1. Written 2. Oral

REPRESENTATION AS TO AGE a misstatement of age of the insured does not avoid the policy. The only result is that benefits that will be paid will be equal to what the premium paid by the insured would have purchased if the aged has been correctly stated.

DISTINCTIONS & SIMILARITIES:

CONCEALMENT REPRESENTATION

Involves omission nondisclosure

Involves positive assertion / affirmation

Concealment cannot refer to future acts

Can pertain to the future because it can be promissory

Test of materiality applies Same test applies

Remedy: rescind Remedy: rescind

INTERPRETATION representations are construed liberally in favor of the insured and are required to be only substantially true.

WARRANTIES an affirmation of fact or promise that forms part of the terms and conditions of the policy. It may relate to the past, present, future.

KINDS OF WARRANTIES: (4)

1. Express 2 ways: a. Must be contained in the policy itself b. May be expressed in another instrument provided

that the separate instrument is signed by the insured and referred to in the policy.

2. Implied natural element of the contract imposed by law and are part of the policy without the need to be stated in the policy.

3. Affirmative affirmation of the fact that exist at the time they are made; undertaking that some positive allegation of fact is true.

4. Promissory stipulates that certain things shall be done or specified conditions shall exist during the currency of life of the insurance contract. One party is bound by executory stipulation.

BREACH OF WARRANTY BY THE INSURED renders the contract defeasible. In order to avoid the policy, the insurer must prove such breach consistent with the rule that any violation must be established by the person who is making such allegation.

REMEDY: Rescission

BREACH WITHOUT FRAUD merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.

WARRANTY REPRESENTATION

Part of the contract Not part of the contract but a collateral inducement

Written on the policy / rider Can be oral / in writing

Presumed to be material Must be established to be material

There must be strict compliance Must be substantially true

CONDITIONS in the nature of collateral terms. They do not relate to the risk covered or statement of facts but are in the nature of collateral promises or stipulations

INCONTESTABLE CLAUSE Whenever a right to rescind a contract of insurance is given to the insurer, such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent (fuck this shit. I dont understand.)

WHEN NOT APPLICABLE: (3)

1. Non-payment of premium 2. Violation of conditions of the policy relating to military or naval

service in times of war 3. Property insurance

DEFENSES OF INSURED AGAINST REVOCATION: (4)

1. Guaranteed insurability clause 2. Failure to invoke before commencement of the action 3. Waiver 4. Estoppel

CHAPTER SEVEN: LOSS AND NOTICE OF LOSS

LOSS injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured.

Pecuniary detriment consisting of the total cash value of the property in case of total loss or the reduction of the value thereof in case of partial loss. (Property insurance)

In life insurance, loss is when the person insured dies; in health insurance, loss occurs in case of injury to or disability of the insured.

PROXIMATE CAUSE that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.

REMOTE CAUSE that cause which some independent force merely took advantage of to accomplish something which is not the natural effect thereof.

EFFICIENT CAUSE the proximate cause of the loss is that cause proximate to the loss, not necessarily in time, but in efficiency

IMMEDIATE CAUSE suggests proximity in time to the loss.

RULES UNDER THE IC:

1. Insurer is liable if the peril insured against is the proximate cause of the loss; the liability is present even if it is accompanied by a remote cause or an immediate cause and whether or not such causes (R & I) are excepted perils.

2. Insurer in not liable if the peril insured against is the remote cause.

3. Insurer is liable if the thing insured is damaged because it was being rescued from the peril insured against.

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4. Insurer is liable for damages cause by a peril not insured

against to which the thing was exposed while the same was being rescued from a peril insured against.

5. Insurer is liable if the peril insured against is the immediate cause of the loss if the proximate cause is not an exempted peril.

6. Insurer is not liable if the peril insured against is the immediate cause but the proximate cause is an excepted peril.

CONCURRENT CAUSES the issue is whether the insurer is liable if the peril insured against is only one of the concurrent causes. When the insurance policy provides coverage for losses produced by some causes, and excludes coverage for losses from other causes, courts frequently hold that coverage extends to the loss even though an excluded element is a contributory cause.

Recovery may be allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been excepted risk.

Where two proximate causes join in causing an injury one of which is insured against, the insurer is liable under the policy irrespective of the eventuality that there is another concurrent proximate cause which constitutes an uncovered risk.

NEGLIGENT AND INTENTIONAL ACTS OR OMISSIONS

Insurer is not liable for losses caused by intentional acts of the insured

Insurer is liable if the loss was caused through negligence.

Such negligence or recklessness must be of such gross character as to amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from liability under the insurance contract.

NOTICE OF LOSS parties may agree on a stipulation in the policy that notice should be given within a certain period from the time of the loss. Parties may agree that the absence of notice of loss within the period agreed upon will extinguish the loss.

A claim within the period of giving notice is already deemed compliance with the requirement.

In fire insurance, notice of loss is mandatory.

Notice may be given by the insured or the beneficiary.

Notice will be considered immediate if given as soon as circumstances permitted the insured, in the exercise of reasonable diligence, to communicate it. (within a reasonable time)

It is sufficient that there is substantial compliance.

PROOF OF LOSS it is not required for the insured to submit a preliminary proof of loss unless there is a stipulation in the policy requiring submission of proof of loss.

Give the best evidence which he has in his power to submit at that time.

If the claim is denied and the insured is constrained to file a case in court, the burden of proof is on the insured to prove his loss because the same is art of his cause of action. (preponderance of evidence)

DEFECTS IN NOTICE AND PROOF

All defects in a notice of loss or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.

3 CASES WHEN DELAY IS EXCUSED:

1. Delay is attributable to the insurer 2. No prompt objection 3. There was objection but not specifically on the ground that

there was delay of notice or proof of loss.

CHAPTER EIGHT: CLAIMS SETTLEMENT AND SUBROGATION

CLAIMS SETTLEMENT: The liability of the insurer attaches the moment the risk insured against causes loss to the insured. Section 247 No insurance company doing business in the Philippines shall refuse, without just cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim settlement practices. INSURANCE ADJUSTING the function of loss payment. ADJUSTER

Employed by the insurer to settle in behalf of the insurer the claim of the insured.

Evaluates the insurance claim and makes the proper recommendation to the insurer.

Does not assume personal liability.

Independent Adjuster any person, partnership, association or corporation which, for money, commission or any other thing of value, acts for or on behalf of an insurer in the adjusting of claims arising under insurance contracts or policies issued by such insurer.

Public Adjuster - any person, partnership, association or corporation which, for money, commission or any other thing of value, acts for or on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims of the said insured arising under insurance contracts or policies, or which advertises for or solicits employment as an adjuster of such claims.

UNFAIR CLAIMS SETTLEMENT PRACTICES any of the following, if committed by an insurance company without just cause and performed with such frequency as to indicate general business practice, may result in the suspension or revocation of their Certificate of Authority:

1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue;

2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies;

4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear; or

5. Compelling policyholders to institute suits to recover amounts due under its policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them.

LIFE INSURANCE POLICY

Proceeds shall be paid immediately upon maturity of the policy; except when the policy provides that the proceeds are payable in instalments or as an annuity, in which case, they may be paid as they become due.

Policy maturing by the death of the insured proceeds shall be paid within 60 days after presentation of claim and filing of the proof of the insureds death; shall include the discounted value of all premiums paid in advance of their due dates, but are not due and payable at maturity.

Refusal or failure to pay the claim within the time prescribed Beneficiary may collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal is based on the ground that claim is fraudulent.

NON-LIFE INSURANCE POLICY

Paid within 30 days after proof of loss is received by the insurer and ascertainment of loss or damage is made either by agreement between the insured and the insurer or by arbitration.

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If ascertainment of loss is not made within 60 days after such

receipt by the insurer of the proof of loss loss or damage shall be paid within 90 days after receipt of proof of loss.

Unreasonable refusal or failure to pay loss or damage assured may collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the MB, unless such failure or refusal is based on the ground that claim is fraudulent.

Double interest 12% (double the legal interest of 6%)

Insurer must settle the claim even without the participation of an adjuster. Assessment of adjusters is not a prerequisite in the settlement of the insurance claim.

UNREASONABLE DENIAL OR WITHHOLDING OF CLAIM

Prima facie evidence of unreasonable delay in payment Failure to pay any such claim within the time prescribed.

Interest and Damages insurance company shall be adjudged to pay attorneys fees, other expenses incurred by the insured by reason of such unreasonable denial or withholding of payment, interest of 12%, and the amount of the claim.

The delay must be wanton, oppressive, or malevolent. Evidences and circumstances must show that the refusal was wilful and without reasonable cause as the facts appear to a reasonable and prudent man.

No unreasonable or unjustified delay or refusal interest is 6% per annum from the time of demand.

Mere denial of the claim does not warrant of the award of moral and exemplary damages and attorneys fees.

FRAUDULENT CLAIM

Insurer may justifiably reject a claim that is fraudulent. Denial of the claim is also justified if the loss is grossly overvalued. o Insurer is not obligated to pay the insured or beneficiary

who submitted such fraudulent claim.

Criminally liable under Sec 251: o Person who presented the fraudulent claim; o Caused the filing of the fraudulent claim; o Prepared or made the fraudulent claim with intent to

present or use the same, or allow it to be presented in support of any such claim;

o Subscribed any writing with intent to present or use the same, or to allow it to be presented in support of any such claim.

Insured is not entitled to a return of premium. (Sec 82 of IC, as amended by RA10607)

Padding a claim = fraud (United Merchants Corp vs. Country Bankers Insurance Corp)

PRESCRIPTIVE PERIOD

IC does not provide for a prescriptive period for the filing of a complaint for the recovery of proceeds of the insurance.

In the case of Compulsory Third Party Liability Insurance 1 year

Parties may stipulate a prescriptive period in the policy, subject to the limitation under Sec 63: A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period to a period of less than 1 year from the time when the cause of action accrues, is void.

The right of the insured to the payment of his loss accrues from the happening of the loss. The cause of action in an insurance contract does not accrue until the insureds claim is finally rejected by the insurer.

Prescriptive period stipulated is not tolled if the insured sends a letter to the insurer asking for clarification of the grounds for cancellation of policy.

If no prescriptive period is provided for in the policy, the prescriptive period is 10 years from the rejection of the claim by the insurer. (Article 1144 of the NCC)

SUBROGATION

Subrogation is an arm of equity that may guide or even force one to pay a debt for which an obligation was incurred but which was in whole or in party paid by another.

Payment by the assurer to the assured operates as an equitable assignment to the assurer of all remedies which the assured

may have against the third party whose negligence or wrongful act caused the loss. (Article 2207, NCC)

The insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.

REQUISITES OF SUBROGATION:

1) Insurance involved is property insurance; 2) There is a loss arising from the risk insured against; 3) Insured received indemnity from the insurer for the loss; 4) Indemnity is covered by the face value of the policy.

NO SUBROGATION in the following instances:

1. The assured by his own act releases the wrongdoer, or third party liable for the loss or damage, from liability.

2. Insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assureds claim for loss.

3. Insurer pays the assured for a loss which is not a risk covered by the policy.

4. Life insurance 5. If the claim of the insured against a third party is limited, the

right of subrogation of the insurer is likewise limited. (e.g. cases where the assured is limited by a bill of lading in common carriers)

2) If the amount recoverable by the insured from the person who caused the loss is more than the face value of the policy, the insurer can only recover from the person who caused the loss the amount that it actually paid to the insured.

3) If the claim of the insured is subject to a prescriptive period, the claim of the insurer is also subject to the same prescriptive period.

4) Whether or not the insurer should exercise the rights of the insured to which it had been subrogated lies solely within the formers sound discretion.

CHAPTER NINE: DOUBLE INSURANCE

DOUBLE INSURANCE exists where the same person is insured by several insurers separately in respect to the same subject and interest.

REQUISITES

1. Same person is insured; 2. Two or more insurers insured the person separately; 3. Insurance is over the same subject 4. Same interest is involved; 5. Same peril is insured against.

There can be double insurance in life insurance, but there can never be over-insurance. Any amount would be inadequate because of the intrinsic value of life.

NO GENERAL PROHIBITION AGAINST DOUBLE INSURANCE

XPN: The insurance policy can be rescinded upon discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured. (Section 64(f), IC, as amended by RA 10607)

Taking other insurance coverage is not prohibited provided that the total insurance is not in excess of the value of the property insured.

Taking of another insurance policy over the same property may also be prohibited by stipulation in the Other Insurance Clause. It may appear in different forms, including: o A condition that states that procurement of additional

insurance without the consent of the insurer renders void the policy ipso facto.

o A provision that requires the insured to disclose the existence of any other insurance on the property. Otherwise, the contract may be avoided for material concealment.

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o A warranty that there is no other existing insurance over

the same property.

OVER-INSURANCE

There is over-insurance if the insured takes out an insurance over the property insured in an amount which is in excess of the value of his insurable interest.

It may exist even if there is only one insurer and one policy, or even in double insurance.

It doesnt follow, however, that there will be over-insurance if there is double insurance.

RULES IN CASE OF OVER-INSURANCE BY DOUBLE INSURANCE

It is necessary to determine from whom and how much can the insured recover and the rights of the insurers inter se.

Insured cannot recover more than what he lost.

This is true only with respect to property insurance.

Section 96 of the IC provides: 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, any sum received by him under any other policy shall be deducted from the value of the 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, any sum received by him under any policy shall be deducted 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 ratable to the loss in proportion to the amount for which he is liable under his contract.

Section 96 applies if there was prior consent of the insurers in taking the insurance or double insurance; not prohibited in the policy even if the total coverage is in excess of the value of the property.

Where the policy under which the insured claims is an unvalued policy, any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any policy. (modification for 96(b))

CHAPTER TEN: REINSURANCE

REINSURANCE

One by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.

An agreement between two parties, called the reinsured and reinsurer, respectively, whereby the reinsurer agrees to accept a certain fixed share of the reinsureds risk upon terms set out in the agreement.

Presumed to be a contract of indemnity against liability, and not merely against damage.

PARTIES

Reinsured original insurer; ceding company; direct-writing company

Reinsurer

ORIGINAL INSURED HAS NO INTEREST IN A CONTRACT OF REINSURANCE:

Original insured cannot file an action to recover from the reinsurer even if he has difficulty in recovering from the original insurer.

The original insured may be allowed to directly sue the reinsurer if the reinsurance policy contains a stipulation pour autrui in favor of the original insured.

Reinsurer not a party in an action against the insurer.

The original insured may likewise directly sue the reinsurer if the insurer-reinsured assigns the proceeds of the reinsurance policies to the original insured.

DOUBLE INSURANCE VS. REINSURANCE

DOUBLE INSURANCE REINSURANCE

1. The insurer remains in such capacity only.

1. Insurer becomes an insured.

2. Only one insured. 2. Two separate insured.

3. Subject matter is the property insured.

3. Subject matter is the liability of the insured.

4. Same interest as insured. 4. Involves separate interests.

5. Same peril is insured against in separate policies.

5. Different perils are insured against in separate policies.

REINSURANCE VS. CO-INSURANCE

REINSURANCE CO-INSURANCE

1. Two separate contracts are involved.

1. Only one contract.

2. The liability is fixed in a separate contract between different parties.

2. Obligation on the part of the insured is fixed by law or in a clause stipulated upon.

3. Insured will not shoulder part of the loss contemplated by the reinsurance contract.

3. Insured will share in the loss contemplated by the original contract.

4. Not mandated by law in marine insurance.

4. Co-insurance is provided by law in marine insurance.

KINDS

1. Facultative Reinsurance an optional, case-by-case method used when the ceding company receives an application for insurance. The reinsurer is under no obligation to accept the insurance.

Advantage: flexibility, since the reinsurance contract can be made to fit a particular case.

Facultative used to define the right of the reinsurer to accept or not to accept participation in the risk insured. Once the share is accepted, the obligation is absolute and the liability can be discharged only by payment of the share of the losses.

Insurer must communicate: 1. Representations of the original insured, and 2. Knowledge and information he possesses whether previously or subsequently acquired.

2. Automatic Treaty

Involves a prior agreement between the insurer and the reinsurer that the reinsurer is compelled to accept what is being ceded by the insurer.

The reinsurer will no longer decide whether to accept the insurance or not. Hence, representations or other information need not be disclosed by the insurer because the reinsurer is compelled to accept what is being ceded. a) Quotashare Treaty insurer and reinsurer agree to

share losses and premiums based on some proportion. b) Surplus-share Treaty reinsurer accepts in excess of the

ceding companys retention limit up to a maximum amount.

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c) Excess-of-loss Treaty losses in excess of the retention

limit are paid by the reinsurer up to some maximum limit. Often used for catastrophic loss.

d) Reinsurance Pool it is an organization of insurers that underwrites reinsurance on a joint basis.

Before entering into a treaty, the reinsured must give information on: a) The standing and reputation of the reinsured; b) Experience and quality of its management; c) General underwriting policy of the reinsured; d) Companys limit of retention and their relationship with the

total premium income; e) Different areas from which the business is derived.

INSURABLE INTEREST The reinsured has no interest in the property or life that is originally insured. Insurable interest is complied with by the fact that the reinsured has issued the original policy and accepted liability to its original insured.

OBLIGATION AND MEASURE OF LIABILITY:

The reinsurer is obligated to pay the insurer the moment the latter is exposed to liability. The extent of the liability of the reinsurer is measured by the extent of the liability of the reinsured under the original policy and the amount of the reinsurance.

GOOD FAITH:

The foundation of reinsurance are the following:

1. Full information, so far as possessed by the reinsured as to the risk on which the reinsurance is requested;

2. Full information as to the amount retained by the reinsured on the identical property which the reinsurance is requested.

BORDEREAU the policy form shows loss history and premium history with respect to specific risks.

CANCELLATION same grounds as ordinary insurance policies.

CHAPTER ELEVEN: MARINE INSURANCE

KINDS OF MARINE INSURANCE:

1. OCEAN MARINE INSURANCE

Defines MI as an insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time.

KINDS OF OCEAN MARINE INSURANCE:

1. Insurance over the vessel, craft and other conveyances Different policies over the vessel include:

Hull policies for the loss/damage to the vessel; further classified according to vessel/nature of water being navigated.

Builders risk policy relates to construction, conversion, and repair of the hull.

Port risk only policy covers perils to which the vessel might be exposed while in port.

Fleet Policies fleet of ships

Full form policy total and partial loss

Total loss only policy total loss only and is resorted to for obtaining favorable premium rate.

2. Insurance against liability protects the owner against liability to other persons. i. Running down clause insures liability for collision ii. Marine protection and indemnity insurance against

legal liability of the insured for loss, damage, or expense, including liability of the insured for personal injury, illness or death or for loss/damage to the property of another.

iii. Excess protection and indemnity insurance damage/liability in excess of the value of the ship

which is the limit of liability under the real and hypothecary nature of maritime law and its consequent limited liability rule. This includes when ship owner itself was negligent.

iv. Water Pollution Liability 3. Insurance over the cargo insure that goods are being

shipped against loss or damages. i. Trip or Single Risk Cargo Policy particular shipment

of goods ii. Open Cargo Policy insures all its shipments

described in the policy, irrespective of route, time of shipment or class of approved vessel.

4. Insurance over freightage and income may cover loss of freightage for failure to complete the voyage or delivery of the goods.

5. Compulsory Passenger and Cargo Liability Insurance

6. MARINA RULES compulsory insurance of P200, 000 for each passenger is imposed on ship-owners/ operators. In addition, an insurance coverage for each survivor of a maritime accident of P500, 000 is likewise required.

PERIOD COVERED attaches from the time the passenger sets foot on the boarding gangway or ladder leading to the deck, continues during the entire course of the voyage covered by the ticket until the passenger shall have left the disembarking gangway at the port of destination.

CLAIMS SETTLEMENT the insurance company shall pay any claim for death or bodily injury sustained by a manifested passenger without the necessity of proving fault or negligence on the part of the car carrier. Immediate payment upon presentation of the ff proofs:

a. Death death certificate and sufficient evidence to establish the proper payee.

b. Bodily injury resulting in permanent disability certification from a licensed physician.

7. INLAND MARINE INSURANCE

MI may likewise cover risks that do not relate to navigation itself or transit of goods and passengers. a. Insurance policies over goods that are being imported or

exported i. Goods being assembled, packed, crated, baled,

compressed or similarly prepared for shipment or while awaiting shipment;

ii. Bailee policies for goods in storage. b. Insurance over means of and infrastructure for

transportation and communications c. Personal property floaters protection follows the insured

properties wherever they may be found or located.

8. AVIATION INSURANCE insurance over an aircraft is included in Marine Insurance. a. Aircraft Hull Policy covers all risks ground and flight

PERIOD COVERED MI policies must state the period covered by the insurance.

1. Warehouse to Warehouse Clause 2. Lost or not lost clause covered even if they may have been

destroyed already at the time of the issuance of the policy. 3. At and from clause effective while the vessel is at and from

a designated port.

9. RISKS INSURED AGAINST a. All Risk Policy insures against all conceivable causes of

loss or damage except as otherwise excluded in the policy or one due to fraud or intentional misconduct on the part of the insured. It covers all losses during voyage whether arising from a marine peril or not. i. USUAL EXCLUSIONS:

1. Free of Capture and Seizure (FC&S) clause losses caused by war, piracy, or any lawful or unlawful taking/seizure of the vessel/cargo.

2. Strikes, riots and civil commotion (SR&CC) clause

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b. Named Perils Policy - specifies the perils insured against

in the Perils Clause i. Perils of the sea refers only to fortuitous accidents

or casualties of the seas; do not include the natural and ordinary action of the sea or wave which may result in what may be described as wear and tear; restricted to accidents/misfortunes only as proceed from mere sea-damage.

ii. Perils of the ship results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ships owner to provide the vessel with proper equipment.

iii. Perils: 1. Fire and related perils 2. Jettison where the goods are thrown overboard

to save other cargoes/the ship. 3. Barratry an act committed by the master o crew

of the ship for some unlawful or fraudulent purpose contrary to their duty to the ship owner.

4. Assailing Thieves theft of cargo committed by force and does not include clandestine (done secretly) theft, pilferage (stealing things of little value), or theft by passengers or crew.

5. All other like perils

CLAUSES THAT MODIFY COVERAGE:

1. Inch Maree Clause included in a hull policy to cover loss or damage through the bursting of the boiler, breaking of shafts or through latent defects of the machinery and equipment, hull or its appurtenances and faults or errors in the navigation or management of the vessel. Must be expressly provided for.

2. Running Down Clause makes insurer liable in collision cases. 3. Delay Clause exempts insurer from liability if there was delay

in the voyage. 4. Sue and Labor (S&L) clause requires insured and his

representative to take all reasonable steps that are necessary to limit or reduce an imminent loss.

5. Protection & Indemnity (P&I) Clause insures the ship owner from liability for damages cause by the ship to wharves, piers & other harbor installations.

6. Institute War Clause (IWC) insurance covers risks covered by FC&S.

7. Memorandum Clause list of goods for which insurer will be liable unless damage exceeds a stated percentage of total value.

INSURABLE INTEREST IN MARINE INSURANCE consistent with the general rule on insurable interest.

INSURABLE INTEREST OVER THE SHIP:

A. Ship owner because of ownership B. Charterer to the extent that he is liable to be damnified by its

loss. C. Lender on Bottomry up to the extent of the loan. D. Mortgagee because he will be damnified by its loss.

INSURANCE OVER CARGO both ship owner and shipper have insurable interest.

A. Goods in transit buyer or consignee has insurable interest over the goods even if there still is no transfer of ownership while in transit.

INSURANCE OVER FREIGHTAGE AND INCOME ship owner has an insurable interest over the expected freightage, and the charterer may likewise have the same.

When interest exists insurable interest over expected freightage arises:

If there is a charter party ship has broken ground on the chartered voyage.

In carriage of goods goods are actually on board or there is some contract for putting them on board, and both ship and goods are ready for voyage.

ADVANCE FREIGHTAGE ship owner has no insurable interest over the freightage if the shipper or chatterer had already paid the

freightage in advance & without obligation to refund the same in case of loss.

PROFITS one who has interest in the thing from which profits are expected has an insurable interest in the profits.

CONCEALMENT

Each party is bound to communicate all the information which he possesses material to the risk.

Information of the belief or expectation of a third person, in reference to a material fact, is material. (Sec 110) Example: if a third person believes there is something

wrong with the engine, the insured is bound to disclose the same belief because it has reference to a material fact.

Presumption a person insured by a contract of MI is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication.

General rule: the insurer may rescind the insurance contract even if the risk concealed is not the cause of the loss.

EXCEPTIONS:

Sec. 112: A concealment in a Marine Insurance, in respect to any of the ff matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed:

1. National character of the insured 2. Liability of the thing insured to capture and detention 3. Liability to seizure from breach of foreign laws of trade 4. Want of necessary documents 5. Use of false and simulated papers

Concealment in ordinary insurance vs. Concealment in marine insurance

Ordinary Insurance Marine Insurance

Belief and expectations of third persons need not be disclosed

Beliefs and expectations of third persons as to material facts should be disclosed.

General rule is that the insurer is always exonerated even if the matter concealed is not the cause of the loss.

In cases enumerated in Sec112, the insurer is exonerated only if the same are the causes of the loss.

REPRESENTATION statements made to give information to the insurer and otherwise induce him to enter in the insurance contract.

Representation in marine insurance is material if it will affect the decision of the insurer to take the risk or to fix the premium and other terms and conditions of the policy.

Section 113. If a representation by a person insured by a contract of MI, is intentionally false in any material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract.

Expectations of the insured are not material unless it will amount to a promissory representation. It is true if it is made in good faith; the contract will be avoided if there is fraud.

IMPLIED WARRANTIES

1. WARRANTY OF SEAWORTHINESS a. Able to withstand the rigors of the voyage and that it has

been properly laden, provided with competent crew and equipped with appropriate appurtenances and equipment.

b. Reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy. (Sec 116)

c. Cargo worthiness A ship, seaworthy for the purpose of insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo. (Sec 121)

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d. Waiver warranty of seaworthiness is waived if the insurer paid the insured the value of the lost cargoes. But this waiver does not mean that the insurer can no longer raise the fact that the vessel is not seaworthy when said insurer will exercise its right of subrogation against the party who is at fault.

e. When must the ship be seaworthy 1. Voyage policy at the commencement of the voyage. 2. Time policy at the commencement of every voyage

commenced during the stipulated time. 3. Voyage in stages at the commencement of each

portion or stage. 4. Port policy at the time vessel is exposed to any risk

at the port. 5. Cargo policy and the goods are to be transshipped

at the commencement of each particular voyage.

GR: only the commencement of the voyage is the reckoning point to determine if the implied warranty of seaworthiness was complied with. If the vessel becomes unseaworthy after the commencement of the voyage, there is no breach of warranty. Exception: When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or ship owners interest from liability from any loss arising therefrom. (Sec 120)

2. DOCUMENTS OF NATIONALITY OR NEUTRALITY

a. The vessel has the requisite documents of nationality or neutrality if nationality or neutrality is expressly warranted;

b. The vessel will not carry documents that will cause reasonable suspicion on its nationality or neutrality if nationality or neutrality is expressly warranted.

c. It is the presence and absence of these documents that will case suspicion that are impliedly warranted.

3. LEGALITY

There is an implied warranty that the adventure is a lawful one and that so far as the insured can control the matter, the adventure shall be carried out in a lawful matter.

4. VOYAGE & DEVIATION

The course of the voyage shall be determined in the ff order:

Course agreed upon by the parties;

If nothing was agreed upon, one which conforms to the course of sailing fixed by mercantile usage;

If there is no mercantile usage, one which a master of ordinary skill and discretion would find to be the most natural, direct and advantageous.

Deviation departure from the course of voyage insured; or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. In case of improper deviation, insurer will not be liable. Proper deviation (Sec126)

Caused by circumstances over which neither the master nor ship owner has any control;

Necessary to comply with a warranty, to avoid a peril, whether or not the peril is insured against;

Made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril;

Made in good faith for the purpose of saving human life or relieving another vessel in distress.

LOSS injury or damage sustained by the insure