My Insurance Reviewer_part 2

7/30/2019 My Insurance Reviewer_part 2

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Insurance

(Section 36424)

Section 36. A representation may be oral or written.

What is representation?

Representation refers to the factual statement made by the insured at the time of, prior to, the issuance of the

insurance policy to give information to the insurer and otherwise to induce him to enter into the insurance contact.

What is misrepresentation?

Misrepresentation refers to a statement:

1.) as a fact of something which is untrue;

2.) which the insurer stated

a) with knowledge that the fact is untrue with intent to deceive; or

b) positively to be true without knowing it to be true and which has the tendency to mislead

3.) is material to the risk.

Misrepresentation = insurance contract voidable at the option of the insurer.

Concealment vs. Misrepresentation

Concealment refers to the silence of the insured when he ought to speak while misrepresentation refers to the act

of the insured to give untrue statement. Misrepresentation may be viewed as an active form of concealment.

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

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

general.

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

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

statement of belief or expectation.

Kinds of Representation:

1) Oral or written ( Sec. 36)2) Made at the time of issuing the policy or before (Sec. 37)3) Affirmative or Promissory (Sec.39, 42)

What is an affirmative representation?

An affirmative representation is any allegation as to existence or non-existence of a fact when the contract begins.

Apromissory representation is a promise to be fulfilled after the contract has come into existence or any statement

as to what will happen during the existence of a contract.

When is a representation deemed a mere Expression of Opinion?

General Rule: a representation of the expectation, belief, opinion, or judgment of the insured, although false, will

NOT avoid the policy, even if such was material to the risk.


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Exception: Such representation will avoid the policy if there is a concurrence of materiality and fraudulence or

intent to deceive. However, if the representation is one of fact, the insurer need only prove the materiality of the

representation, because in such cases the intent to deceive is presumed.

ILLUSTRATION: The statement I am an intelligent student will produce the following effects:

a) Even if intelligence is material, if there was no intent to deceive and the insured was merely relying on hisown assessment of his abilities, the policy will not be avoided.

b) If intelligence is material and it was proven that there was intent on the part of the insured to mislead theinsurer as to his intelligence, the policy will be avoided.

c) If the statement was actually a statement of fact and not mere judgment, the policy will be avoided, aswhen the insured was not even a student to begin with ( assuming a student is intelligent is an opinion).

Fraudulent intent in this case is presumed.

Section 40. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an

implied warranty.

A representation cannot qualify as an express provision in a contract of insurance because it is not part of a

contract but only a collateral inducement to it. It may however qualify as an implied warranty.

Section 41. A representation may be altered or withdrawn before the insurance is effected, but not afterwards.

Section 42. A representation must be presumed to refer to the date on which the contract goes into effect.

Take Note:

There is NOfalse representation if at the time the contract takes effect the representation is TRUE even if FALSE at

the time it is made/represented.

There is false representation if the statement is TRUE at the time it is made/represented but FALSE at the time the

contract takes effect.

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

which he has upon the subject, and which he believes to be true, with the explanation that he does so on the

information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he

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

The insured is given discretion to communicate what he knows of a matter of which he has no personal knowledge.

If the representation turns out to be false, he is not responsible, provided he gives explanation that he does so on

the information of others.

De Leon: Where a party orders insurance, and afterwards receives information material to the risk, or has

knowledge of a loss, he must to communicate it to his agent as soon as it can be communicated. If he omits to do

so, the policy is avoided.

Effects: where information is obtained from:

1. Agent of the insuredinsured liable for the truth when: There is a duty in the ordinary course of business to communicate such information to his principal It is possible to make such communication before the making of the contract.

2. Agent of the insurersame principle applies although the situation does not occur frequently.Section 44. A representation is to be deemed false when the facts fail to correspond with its assertions or

stipulations.


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Sec. 44 defines misrepresentation Representations are not required to be literally true (unlike warranties); they need only be SUBSTANTIALLY

TRUE

In order that a policy shall be avoided, a representation relied upon must be false in a substantial andmaterial respect.

Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured party is

entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted

by this Code to the insurer is waived by the acceptance of premium payments despite knowledfe of the ground for

recission. (as amended by B.P. Blg. 874.)

General Rule: Any misrepresentation on a material point entitles the injured party to rescind the contract from the

time the representation becomes false.

Exceptions: The right to rescind on the ground of misrepresentation is deemed waived when the insurer accepts

premium payments despite knowledge of the misrepresentation.

Insured cannot be held liable for misrepresentation if:

a) he has no personal knowledge of the matter in questionb) he relies on the information of others andc) he believes such information to be true based on such external source, or i f he submits the information from

an external source in its entirety to the insurer.

Except: when the information relied upon proceeds from an agent of the insured, whose duty it is

to give the information

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

What is the test of materiality?

The materiality of the representation is to be determined not by the event, but solely by the probable and

reasonable influence of the facts upon the party to whom the representation is made, forming his estimates of the

disadvantages of the proposed contract or in making his inquiries.

The matter misrepresented must be of that character which the court can say would reasonably affect the insurers

judgment.

Concealment vs. Misrepresentation

CONCEALMENT MISREPRESENTATION

The insured withholds

information of material

facts from the insurer.

The insured makes

erroneous statement of

facts with the intent of

inducing the insurer to

enter into the insurance

contract.The materiality of

concealment is

measured by the

probable and

reasonable influence of

the facts upon the party

to whom the

representation is made.

The materiality of the

representation is

measured by the

probable and

reasonable influence of

the facts upon the party

to whom the

representation is made.


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Insurer has the right to

rescind the contract.

Insurer has the right to

rescind the contract.

Section 47. The provisions of this chapter apply as well to a modification of a contract of insurance as to its original

formation.

De Leon: Where the insurer is induced to modify the insurance policy as to the rate of premium by a

misrepresentation on the part of the insured in a material point, the insurer is entitled to rescind such modification.

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

chapter, such right must be exercised previous to the commencement of an action on the contract.

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

lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer

cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or

misrepresentation of the insured or his agent.1

What are the grounds for rescission?

1. Concealment2. MisrepresentationFalse representation3. Breach of Warranty

When does the insurer exercise his right to rescind?

Non-life Policy Must be exercised prior to the commencement of an action on the contract. The insurer is no longer

entitled to rescind a contract of insurance after the insured has filed an action to collect the

amount of the insurance.

However: it has been held that where any of the material representations is false, the insurers

tender of the premiums and notice that the policy is cancelled before commencement of thesuite, operates to rescind a contract of insurance.

Life Policy The defense is available only during the first two years of a life insurance policy. Or upon the first

two years after reinstatement.

What is an incontestability clause?

The principle of incontestability states that, after the requisites are shown to exist, the insurer shall beestopped from contesting the policy or setting up any defense, except as is allowed, on the grounds of

public policy.

In life insurance policies, the incontestability begins after two years from the time the policy took effect.After this period, the insurer is no longer allowed to declare the policy void or file an action for rescission onthe grounds of concealment of misrepresentation of the insured.

What are the requisites for the principle of incontestability?

1. The policy is a life insurance policy;2. It is payable on the death of the insured; and

1This was marked as VIP( Very Important Provision) in my book.


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3. It has been in force during the lifetime of the insured for a period of at least two years from the date of issueor its last reinstatement. This two-year period may be shortened but it cannot be extended by stipulation.

Defenses Not Barred by Incontestable Clause:

1. That the person taking the insurance lacked insurable interestas required by law.2. That the cause of the death of the insured is an excepted risk.3. That thepremiums have not been paid.4. That the conditions of the policy relating to military or naval service have been violated.5. That the fraud is of a particularly vicious type, as where the policy was taken out in furtherance of a

scheme to murder the insured, or where the insured substitutes another person for the medical

examination, or where the beneficiary feloniously kills the insured.

6. That the beneficiary failed to furnish proof of death or to comply with any conditions imposed by the policyafter the loss has happened.

7. That the action was not brought within the time specified.

Title 6

THE POLICY

Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance.2

Section 50. The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause,

mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on

the blank spaces provided therein.

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

or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause,

warranty or endorsement is also mentioned and written on the blank spaces provided in the policy.

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

policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement tothe 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.3

What is a policy?

Policy of insurance is the written document embodying the terms and stipulations of the contract of insurance

between the insured and the insurer.

The policy of insurance is signed only be the insurer or his duly authorized agent. It need not be signed by the insured except where express warranties are contained in the separateinstrument forming part of the policy. It is a contract of adhesion par excellence which is formed when one party with superior bargaining

power imposes its choice of terms on the other party.

Ambiguity in the policy of insurance is resolve against the insurer. However, the rule does not apply wherethe petitioner is an acute business man of experience who is presumed to have assented to the assailed

2Noted as VIP

3Noted as VIP


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provisions of the policy with full knowledge and, therefore, cannot claim he did not know its terms. (Gulf

Resorts, Inc. vs. Philippine Charter Insurance, Corp. 458 SCRA 550 [2005].)

A policy of insurance is different from the contract of insurance itself.When does the contract of insurance deemed perfected?

A contract of insurance, like other contracts, must be assented to by the parties either in person or by their agent.

The mere signing of an application for life insurance and the payment of the first premium do not bind theinsurer to issue a policy where there is no evidence of any contract between the parties that such acts

should constitute a contract of insurance (Badger vs. New York Life Ins., 7 Phil 381).

The contract is not perfected where the applicant for life insurance dies before approval or it does notappear that the acceptance of the application ever came to the knowledge of the applicant. ( Enriquez

vs. Sun Life Assurance, 41 Phil 269)

The acceptance of the insurance policy must be unconditional, but need not be by formal act.Cover Notes a written instrument issued to bind the Insurance temporarily pending the issuance of the policy.

Coverage then can begin depending on their terms.

Rider is a small printed or typed stipulation contained on a slip of paper attached to the policy and forming an

integral part of the policy.

When there is an inconsistency between a rider and the printed stipulations in the policy, the rider prevails, as being

the more deliberate expression of the agreement of the contracting parties.

Take note: Clause, rider, endorsement, warranty (C R E W)

The descriptive title or name of which must bementioned and written on the policy; and Countersigned by the insured or owner.

However, the lack of description will not affect the other provisions of the policy except where without such CREW,

the contract would be incomplete.

Further, as a general rule, where the CREW is physically attached to a policy of insurance contemporaneously with

its execution and delivered to the insured, the fact that it is without the signature of the insurer or of the insured will

NOTprevent its inclusion and construction as part of the insurance contract.

Warranties are inserted or attached to a policy to eliminate specific potential increases of hazard during the

policy term owing to (1) actions of the insured; (2) conditions of the property.

Clauseis an agreement between the insurer and the insured on certain matter relating to the liability of the insurer

in case of loss.

Endorsementis any provision added to an insurance contract altering tits scope or application.

What is the effect if the insured failed to read the policy?

Majority Ruleit is judicially recognized that the insured customarily accepts the policies without reading, itfollows that such acceptance is not negligence per se, and lot laches as will defeat his right to reformation.

Minority Rule that the one who accepts a contractual instrument is conclusively presumed to know andassents to its contents.

o Exceptions: If the insured could not have discovered the erroneous statement by such reading. If the insured is induced by fraud of the agent of the insurer not to read his policy. If insured is illiterate or unable to read English. Where the contract are long, complicated and difficult to understand even if read.

What is a group insurance?


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Generally speaking, a group insurance is the coverage of a number of individuals by means of a single or blanket

policy, which enable the insurer to sell its services at lower premium rates than the same type of insurance

protection on life policies sold to individual. It is generally construed as creating a contract between the employer

and the insurer but for the benefit of the insured employees.

The employer is the agent of the insurer in performing the duties of administering group insurance policies(Pineda vs. CA, supra)

Employees are the real parties in interest.Section 51. A policy of insurance must specify:

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

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

(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the

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

(d) The property or life insured;

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

(f) The risks insured against; and

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

What are the contents of the policy? (P A P Pl I R T)

1. Name of parties

2. Amount of insurance

3. Premiums

4. Property orlife insured

5. Interest of insured in property

6. Risk insured against

7. Term or duration of the insurance

Life of the policythe period of time during which the insurer assumes the risk of loss.

What are the kinds of insurable risks?

1. Personal Risksinvolving person, chiefly concerned with the time of death or disability.2. Property Risksinvolving loss or damage to property.

a. Direct Lossby fire, lightning, windstorm, flood and other forces of natureb. Indirect Lossloss of profits, rents or favourable leases

3. Liability Risks involving liability for the injury to the person or property of others. May also be called thirdparty risks.

Riskthe chance of loss, or the possibility of the occurrence of a loss, based on known and unknown factors.

Perilthe contingent or unknown event which may cause a loss.

Hazard the condition or factor, tangible or intangible, which may create or increase the change of loss from a

given peril.

Continue to Section 52 POLICY FORM OF LIFE INSURANCE POLICY

CHAPTER III (SECTIONS 226-227) 4

4I only include part of the provisions that are highlighted during the lectures. Please check your codal for the whole provision.


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Section 226. No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in

the form previously approved by the Commissioner, and no application form shall be used with, and no rider,

clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract

unless the form of such application, rider, clause, warranty or endorsement has been approved by the

Commissioner.

Insurance contracts are highly standardized through statutory or administrative regulations, voluntaryagreements, or customary practice.

Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the

following conditions:

xxxx

(b). A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the

insured for a period of two years from its date of issue as shown in the policy, or date of approval of last

reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating

to military or naval service in time of war;

xxxx

Cash Surrender Valueas applied to life insurance policy, is the amount that the insured, in case of default, after

the payment of at least three full annual premiums, is entitled to receive if he surrenders the policy and releases his

claim upon it.

The more premiums the insured has paid, the greater will be the cash surrender value, but the value isalways a lesser sum than the total amount of premiums paid.

What are the other required policy provisions?

1. Grace period provision to give the policy holder an additional period of time within which to pay apremium he has not paid on or before the due date.

2. Entire contract provisionthe policy is required to provide specifically that the policy, and also if desired bythe insurance company, the application, a copy of which is attached to the policy, shall constitute the

entire contract between the insurance company and the policy owner.

3. Misstatement of age provision the age provision of the insured is of basic importance in determining thecorrect premium rate.

4. Reinstatement provisionprovision to clarify the requirements for restoring a policy that has lapsed.

Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty

days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical

insurance bound under the cover note and the premium therefor.

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

he determines that such extension is not contrary to and is not for the purpose of violating any provisions of thisCode. 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.

What is a cover note or binder?


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It is a written memorandum of the most important items of a preliminary contract intended to give temporary

protection (to insured) pending the investigation of the risk by the insurer, or until the issue of the formal policy,

provided it is later determined that the applicant was insurable at the time it was given.

It is a binding contract and has full force and effect during its duration. Insurer not obliged to give cover notes but many do so in order to gain goodwill. Usually contain only the bare essentials of an insurance contract: i.e. the name of the parties, risk insured

against, amount of insurance, premium, property/life insured.

Issuance of cover notes is ordinarily a conclusive evidence of making a contractWhat are the rules on cover notes?

1. May be issued temporarily, pending the issuance of the policy;2. Isdeemed to be a contract of insurance within the meaning of Section 1 (1) of the Code;3. No cover note shall be issued or renewed unless in the prescribed form;4. Shall be valid and binding for a period not exceeding 60 days from the date of its issuance, whether or not

the premium therefore has been paid, but such cover not may be cancelled by either party upon at least

7 days notice to the other party;

5. If a cover not is not so cancelled, a policy of insurance shall, within 60 days after the issuance of suchcover note, be issued in lieu thereof. Such policy, shall include within its terms the identical insurance bond

under the cover note and the premium thereof;

6. A cover note may be extended or renewed baring the aforementioned period of 60 days with the writtenapproval of the Insurance Commission, provided that such approval may be dispense with upon

certification of the Pres, VP or GM of the insurance company concerned that the risk involved, the values

of such risks and/or the premiums therefor have not as yet been determined or established and that such

extension or renewal is not contrary to and is not for the purpose of violating any provisions of the Insurance

Code, or of any of the rulings, instructions, circulars, order or decisions of the Insurance Commissioner.

7. Insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of theestimated premium of the intended insurance coverage but in no case less then P500.00.

Section 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name

or for whose benefit it is made unless otherwise specified in the policy.5

Against the insured - Third person have no right either in a court of equity or in a court of law to theproceeds of the policy unless there be some contract of trust, express or implied between the insured and

third person.

Against the insurera third person, in the absence of any provision in the policy, has also no right to theproceeds thereof.

Section 54. When an insurance contract is executed with an agent or trustee as the insured, the fact that his

principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or

by other general words in the policy.

Section 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-

partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the

joint or common interest.

A partner has an insurable interest in the firm property which will support a policy taken out thereon for hisown benefit.

But a partner who insures partnership property in his own name limits the contract to his individual shareunless the terms of the policy clearly chow that the insurance was meant to cover also the share of the

other partner.

5Noted as VIP


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Section 56. When the description of the insured in a policy is so general that it may comprehend any person or any

class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.

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

risk, may become the owner of the interest insured.

Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person

becomes the owner of both the policy and the thing insured.

A purchaser of property who does not take the precaution to obtain a transfer of the policy of insurancecannot, in case of loss, recover upon suck contract, as the transfer of the property has the effect of

suspending the insurance until the purchaser becomes the owner of the policy as well as of the property

insured. (San Miguel Brewery vs. Law Union, supra)

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

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

Section 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued

at a specific sum.

Section 62. A running policy is one which contemplates successive insurances, and which provides that the object

of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements

or indorsements.

What are the kinds of policies?

1. Open orunvalued policyit is one which a certain agreed sum is written on the face of the policy not asthe value of the property insured, but as the maximum limit of the insurers liability, in case of destruction by

the peril insured against.

2. Valued policy it is one in which the parties expressly agree on the value of the subject matter of theinsurance. Thus there are two values:

a. the face value of the policyb. the value of the thing insured

3. Running Policy intended to provide indemnity for property which cannot well be covered by a valuedpolicy because of its frequent change of location and quantity, or for property of such a nature as not to

admit of gross valuation.

Section 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an

action thereunder to a period of less than one year from the time when the cause of action accrues, is void.6

When does the cause of action accrues?

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 accure UNTIL THE INSUREDS CLAIM IS FINALLY

REJECTED BY THE INSURER, because before such final rejection, there is no real necessity for binging suit.

The period is to be computed not from the time the loss actually occurs but from the time when the insuredhas a right to bring an action against the insurer.

6Noted as VIP


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Cause of Actionrequires as essential elements not only a legal right of the plaintiff and a correlative obligation of

the defendant but also AN ACT OR OMISSION OF THE DEFENDANT IN VIOLATION OF SAID LEGAL RIGHT, the cause

of action in favor of the insured does not accrue until the insurer refuses expressly or impliedly to comply with his

duty to pay the amount of the loss.

General Rule: a clause in the policy to the effect that an action upon the policy must be brought within a certain

period is valid and will prevail over the general law on limitations of actions as prescribed by the Civil Code, if not

contrary to Sec. 63, IC.

Exceptions: In industrial life insurance policies, the period cannot be less than 6 years after the cause of action

accrues.

Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof

to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the

effective date of the policy, of one or more of the following:

(a) non-payment of premium;

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

(c) discovery of fraud or material misrepresentation; lawphi1.net

(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.7

Section 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to

the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section

sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on

which the cancellation is based.8

Cancellation is broadly regarded as the right to rescind, abandon, or cancel a contract of insurance. It is the

termination by either the insurer or the insured of a policy of insurance before its expiration.

Cancellation of non-life insurance policy.

The insured can cancel an insurance contract at his election by surrendering the policy, Such, surrender,however entitles him to the return of the premiums on the customary short-rate basis.

What are the form and sufficiency of notice of cancellation by the insurer? (P O W S)

1. There must beprior notice of cancellation to the insured;2. The notice must be based in the occurrence, after the effective date of the policy, of one or more of the

grounds mentioned;

3. It must be in writing, mailed or delivered to the named insured at the address shown in the policy; and4. It muststate which of the grounds set forth is relied upon.

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

the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention notto 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.

7Noted as VIP

8Noted as VIP


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General Rule: a renewal of insurance by the payment of a new premium and the issuance of a receipt therefor

where there is no provision in the policy for its renewal, is a new contract on the same terms as the old ones. But

where the renewal is in pursuance of a provision to that effect, it is not a new contract but an extension of the old

one.

TITLE 7

WARRANTIES

Section 67. A warranty is either expressed or implied.

What are the kinds of warranties?

1. Express warrantyis an agreement contained in the policy or clearly incorporated therein as part thereofwhereby the insured stipulate that certain facts relating to the risk are or shall be true or certain acts

relating to the same subjects have been or shall be done.

2. Implied warranty (marine insurance only)is a warranty which from the very nature of the contract or fromthe general tenor of the words, although no express warranty is mentioned, is necessarily embodied in the

policy as a part thereof and which binds the insured as though expressed in the contract.3. Affirmative warrantyis one which asserts the existence of a fact or condition at the time it is made.

a. the warranty is continuing if it is one that must be satisfied during the entire coverage period of theinsurance.

4. Promissory warranty (executory) is one where the insured stipulates that certain facts or conditionspertaining to the risk shall exist or that certain things with reference thereto shall be done or omitted.

Take Note: Unless the contrary intention appears, the courts will presume that the warranty is merely affirmative.

Section 68. A warranty may relate to the past, the present, the future, or to any or all of these.

Although the provision employs the term warranty, in general, in the case of a promissory warranty, thesame may refer only to future events.

Section 69. No particular form of words is necessary to create a warranty.

The word warranty used in an insurance contract does not necessarily constitute a warranty nor is the useof such word necessary to constitute a warranty.

In case of doubt, a statement will be construed as a representation rather than a warranty especially ifsuch statement is contained in any instrument other than the policy like an application which is, in itself,

collateral merely to the contract of insurance.

Warranties vs. Representations

Warranties Representations

Warranties are considered

parts of the contract

Representations are but

collateral inducements to

it

Warranties are always

written on the face of the

policy, actually or by

reference

Representations may be

written in totally

disconnected paper or

may be oral

Warranties must be strictly

complied with

Representations,

substantial truth only is

required


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The falsity or nonfulfillment

of a warranty operates as

a breach of contract

The falsity of a

representation renders the

policy void on the ground

of fraud

Warranties are presumed

material

The insurer must show the

materiality of a

representation in order to

defeat an action on thepolicy.

Section 70. Without prejudice to section fifty-one, every express warranty, made at or before the execution of a

policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the

policy as making a part of it.

In order that a stipulation may be considered a warranty, it must not only be clearly shown that the partiesintended it as such bit it must also form part of the contract itself or if contained in another instrument, it

must be signed by the insured and referred to in the policy as making the part of it.

The designation or non-designation of a clause as a warranty is not controlling. What is essential is the intentof the contracting parties to create a warranty, regardless of the form of words used.

Section 71. A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an

express warranty thereof.

Where statement can only be an expression of an opinion is not strictly speaking, a warranty of itstruthfulness. Such statement if deemed a warranty at all, is merely a limited warranty as to the honesty and

good faith of the insuredwarranty that the statement is his honest opinion or judgment.

Section 72. A statement in a policy which imparts that it is intended to do or not to do a thing which materially

affects the risk, is a warranty that such act or omission shall take place.

Section 72 refers to promissory warranty. Breach of promises or agreements as to future acts will not avoid a policy unless the promises are material

to the risk.

Section 73. When, before the time arrives for the performance of a warranty relating to the future, a loss insured

against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to

fulfill the warranty does not avoid the policy.

General Rule: A violation of a warranty avoids a contract of insurance.

Exceptions: For warranties relating to the future:

1. When loss occurs before time for performance.2. When performance becomes unlawful.3. When performance becomes impossible.

Section 74. The violation of a material warranty, or other material provision of a policy, on the part of either party

thereto, entitles the other to rescind.


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Section 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach

of an immaterial provision does not avoid the policy.

Section 76. A breach of warranty 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.

Fraud is not essential to entitle the insurer to rescind a contract for breach of warranty. Falsity, not fraud, is the basis of liability in warranty. If the breach of the warranty was WITHOUT FRAUDinsured is entitled to:

1. Return of premium paid at a pro-rata rate from the time of breach if it occurs after the inception ofthe contract

2. To all the premiums if it is broken during the inception of the contract. In this case the contract isvoid ab initio and never became binding.

3. If the breach of the warranty was WITH FRAUD policy is void ab initio and the insured is notentitled to the return of the premium paid.

Condition is an event signifying in its broadest sense either an occurrence or a non-occurrence that alters the

previously existing legal relations of the parties to the contract.

Condition precedent calls for the happening of some event or the performance of some actafter the terms of the contract have been agreed upon, before the contract shall be binding on

the parties.

Condition subsequent is that which pertains not to the attachment of the risk and the inceptionof the policy, but to the contract of insurance after the risk had attached and during the existence

thereof.

Warranties vs. Conditions

Warranties Conditions

Warranty does not

suspend or defeat the

operation of the contract,but the breach affords

either the remedy

expressly provided in the

contract or that furnished

by law

Condition precedent is

one without the

performance of which thecontract although in form

executed by the parties

and deliver, does not

spring into life.

Exceptionsare inserted in a contract of insurance for the purpose of withdrawing from the coverage of the policy.

TITLE 8

PREMIUM

Section 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.


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What is premium?

The agreed price for assuming and carrying the risk that is, the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril.

If only premium is paid for several things not separately valued or separately insured, making for only onecause or consideration, the insurance contract is entire or indivisible, not several, or divisible as to the times

insured.

What is an assessment?

An assessment is the sum specifically levied by mutual insurance companies or associations , upon a fixed and

definite plan, to pay losses and expenses.

Premium vs. Assessment

Premium Assessment

Are levied and paid to

meet anticipated loss

Collected to meet actual

loss

Payment of premium, after

the first, is not enforceable

against the insured

Unless otherwise agreed

upon, are legally

enforceable once leviedNot a debt If properly levied, is a debt

In fire, casualty and marine insurancethe premium payable become a debt as soon as the risk attaches.Non payment of the balance of the premium due does not produce the cancellation of the contract of

insurance in the sense that it can no longer be enforced. A contrary rule would place exclusively on the

hands of the insured the right to decide whether the contract should stand or not.

In life insurancethe premiums becomes a debt only when the case of the first premium, the contact hasbecome binding, and in the case of subsequent premiums, when the insurer has continued the insurance

after maturity of the premium, in consideration of the insureds express or implied promise to pay.

What is the effect of non-payment of premium?

1. First premium non payment, unless waived, prevents the contract from becoming bindingnotwithstanding the acceptance of the application nor the issuance of the policy. But non-payment of thebalance of the premium due does not produce the cancellation of the contract.

2. Subsequent premiums non payment does not affect the validity of the contracts, unless by expressstipulation, it is provided that the policy shall in that even be suspended or shall lapse.

Take Note: Even the act of God, rendering the payment of the premium by the insured wholly impossible will not

prevent the forfeiture of the policy when the premium remains unpaid.

Except: when the non-payment has in some way been induced by the condition, conduct or default of the insurer.

cash-and carry basis - the premium must be paid in cash as a condition precedent for a non-life insurance policy

to be valid and binding, and an agreement to grant the insured credit extension of the premium is void.

However, Makati Tuscany vs. CA and the second UCPB case says otherwise. Hence, credit extensionagreements may be valid.

What are the exceptions to Sec. 77? (Li A Ai Ac E)

1. In the case of a life or an industrial policy whenever the grace period provision applies (Sec. 77)2. When there is an acknowledgementin a policy or contract of insurance of receipt of premium even if there

is a stipulation therein that it shall not be binding until the premium is actually paid. (Sec. 78)

3. When there is an agreementallowing the insured to pay the premium in instalments and partial paymenthas been made at the time of loss (Makati Tuscany Case)


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4. When there is an agreementto grant the insured credit extension for the payment of the premium, and lossoccurs before the expiration of the credit term; and

5. When estoppel bars the insurer from invoking Sec. 77 to avoid recovery on a policy providing a credit termfor the payment of the premiums, as against the insured who relied in good faith in such extension.

Section 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 shallnot be binding until the premium is actually paid.

What is the effect of acknowledgment of receipt of premium in policy?

Insurer cannot deny the truth of the receipt of the premium even if it is unpaid.

The conclusive presumption extends only to the questions of the binding effect of the policy. Law established a legal fiction of payment (prima facie evidence of payment). Thus insurer presumed to

have waived the condition of prepayment.

Section 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.

Section 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.

Section 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.

Section 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.

When does the insured entitled to recover premiums?

1. When no part of the thing insured has been exposed to any of the perils insured against.2. When the insurance is for a definite period and the insured surrenders his policy before the termination

thereof.

3. When the contract is voidable because of the fraud or misrepresentation of the insurer or his agent.4. When the contract is voidable because of the existence of facts of which the insured was ignorant without

his fault.5. When the insurer never incurred any lability under the policy because of the default of the insured other

than actual fraud.

6. When there is over-insurance.7. When rescission is granted die to the insurers breach of contract.

Take note: No. 1,3,4 and 5 the insured is entitled to a return of the entire premium.

General Rule: when the insurance is void because it is illegal the premiums cannot be recovered.


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Exception: The parties are not in pari delicto, the law will allow an innocent insured to take again his premiums as

when the insured was ignorant of the facts which rendered the insurance illegal.

TITLE 9

LOSS

Section 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is

void if made before the loss except as otherwise provided in the case of life insurance.

What is a claim?

Claimis a demand for the satisfaction of a loss suffered within the purview of an insureds policy.

Before a loss has occurred, an insurance policy, EXCEPT life insurance policy, is not assignable without theconsent of the insurer on the theory that the policy is personal contract between the insured and insurer.

After a loss has occurred, the insured has an absolute right to transfer or assign his claim against the insurer.A stipulation which attempts to prohibit such transfer of a policy is VOID.

Section 84. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was

the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the

loss; but he is not liable for a loss which the peril insured against was only a remote cause.

What is a loss?

Loss may be defined as the injury, damage or liability sustained by the insured in consequence of the happening of

one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify

the insured.

What is the scope of loss?

1. Life insurancebodily injury including death2. Property insuranceproperty damage or destruction3. Liability insuranceincome, profits and legal liability to third party

What are the extent of loss?

1. Total2. Partial3. Constructive total

What is proximate cause?

Proximate cause is that which, in natural and continuous sequence, unbroken by any new independent cause,

produces an event and without which the event would not have occurred.

Proximate cause is not, therefore, equivalent to immediate causeSection 85. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise

have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which

permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue

the thing insured from a peril insured against.


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The insured is bound to exercise a reasonable degree of care in removing the goods. The necessity forremoval is to be determined not by the result alone but by the circumstances as they appear to the

interested persons at the time of the fire.

Section 86. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred

but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not

excepted.

Section 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but

he is not exonerated by the negligence of the insured, or of the insurance agents or others.

The insurance company has the burden of proving that the loss is caused by the risks excepted. The insurer is not liable for a loss cause by the intentional act of the insured or through his connivance.

What is the effect if the loss is cause by negligence?

1. Where there is ordinary negligence it is a basic rule in insurance that the carelessness and negligence ofthe insured or his agents constitute no defense on the part of the insurer.

2.

Where there is gross negligence the consequence of which must have been palpably obvious to him atthe time, will relieve the insurer from liability.

TITLE 10

NOTICE AND PROOF LOSS

Section 88. In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to

him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay.

Section 89. When a preliminary proof of loss is required by a policy, the insured is not bound to give such proof as

would be necessary in a court of justice; but it is sufficient for him to give the best evidence which he has in hispower at the time.

What are the conditions after loss?

1. Notice after loss must be given to the insurer; and2. When required by the policy, a preliminary proof of loss must be given.

What is a notice of loss?

Notice of loss is the more or less formal notice given the insurer by the insured or claimant under a policy of the

occurrence of the loss insured against.

What are the purposes of the notice of loss?

to appraise the insurance company with the occurrence of the loss, so that it may gather information andmake proper investigation while the evidence is stil l fresh; and

take such action as may be necessary to protect its interest from fraud or imposition; in the case of property insurance to prevent further loss to the property.What is the time for giving notice of loss?

The notice must be given without unnecessary delay. What constitutes a reasonable time for giving notice

depends on the circumstance of the particular case although the courts construe the requirement of immediate

notice liberally in favor of the insured.


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What is the meaning and nature of proof of loss?

Proof of loss is the more or less formal evidence given the company by the insured or claimant under a policy of the

occurrence of the loss, the particulars thereof and the date necessary to enable the company to determine its

liability and the amount thereof.

Loss and its amount may be determined in the basis of such proof as may be offered by the insured whichneed not be of such persuasiveness as is required in judicial proceedings.

May be given orally or in writing.Notice of loss vs. Proof of loss

Notice of Loss Proof of Loss

Intended merely to give

the insurer information

upon which he may act

promptly in protecting the

property from further loss

for which he may be liable

or to enable him to take

any other immediate steps

that his interests mayrequire.

Much more formal

requirement intended to:

1. Give the insurerinformation by

which he may

determine the

extent of his

liability;

2. Afford him ameans of

detecting any

fraud that may

have been

practiced upon

him;

3. Operate as checkupon extravagant

claims.

Section 90. 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.

When is there a waiver by the insurer?

1. Write to the insured that he considers the policy null and void as the furnishings of the notice or proof of losswould be vain and useless.

2. Recognizes his liability to pay the claim.3. Denies all liability under the policy.4. Joins in the proceedings for determining the amount of the loss or arbitration, making no objections on

account of notice and preliminary proof.

5. Makes objections on any ground other than formal defect in the preliminary proof.Section 91. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of him, or

if he omits to take objection promptly and specifically upon that ground.

How does waiver for the presentation of notice made?

1. By an act of the insurer; and2. By failure to take objection promptly and specifically upon that ground.

Section 92. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other

than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of


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such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any

just grounds of disbelief in the facts necessary to be certified or testified.

Due diligence is required for the procurement of certificate or testimony of the person other than theinsured.

The insured must furnish reasonable evidence to the insurer that the persons refusal was not induced byany just grounds of disbelief of said person in the truth of the facts necessary to be certified or testified but,because of other grounds.

TITLE 11

DOUBLE INSURANCE

Section 93. A double insurance exists where the same person is insured by several insurers separately in respect to

the same subject and interest.9

What are the requisites of double insurance? ( T R I P S)

1. The person insured is the same;2. Two or moreinsurers insuring separately;3. The subject matter is the same;4. The interest insured is also the same; and5. The risk or peril insured against is likewise the same.

What is an over-insurance?

Over-insurance is when amount insured is over the value of the property the insured is over insured by double

insurance

Double insurance vs. Over-insurance

Double Insurance Over-Insurance

There may be no over-

insurance as when the

sum total of the amountsof the policies issued does

not exceed the insurable

interest of the insured

There is over-insurance

when the amount of the

insurance is beyond thevalue of the insureds

insurable interest

There is always several

insurers

They may be only one

insurer

Prohibition against additional insuranceWhen a policy contains a prohibition against additional insuranceon the property insured without the insurers consent, such provision being valid and reasonable, a

violation thereof by the insured avoids the policy.

Section 94. Where the insured is over-insured 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;

9Noted as VIP


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(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.

The insured can recover no more than the amount of his insurable interest whether the insurance iscontained in one policy or in several policies.

What is the principle of contribution?

The principle of contribution requires each insurer to contribute ratably to the loss or damage considering that the

several insurances cover the same subject matter and interest against the same peri l.

The principle apply only where there is over-insurance by double insurance, that is, the insurance iscontained in several policies the total amount of which is in excess of the insurable interest of the insured.

Computes as:Amount of policy x Loss = Liability of insurer

Total insurance taken

TITLE 12

REINSURANCE

Section 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.

What is a contract of reinsurance?

It is a contract whereby thereinsurer, agrees to indemnify another, the reinsured (original insurer), either in whole or

in part, against loss or liability which the latter may sustain or incur under a separate and original contract of

insurance with a third party, the original insured.

Sometime called treaties The reinsurance of a reinsurance is calledretrocession

Reinsurance vs. Double Insurance

Reinsurance Double Insurance

The insurer becomes the

insured, insofar as the

reinsurer is concerned

The insurer remains as the

insurer of the original

insured

The subject of the

insurance is the original

insurers risk

The subject of the

insurance is property

Is an insurance of different

interest

Insurance of the same

interest

The original insured has no

interest in the contract of

reinsurance which is

independent of the

original contract of

The insures is the party in

interest in all the contracts


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insurance

The consent of the original

insured is not necessary

The insured has to give his

consent

Section 96. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he mustcommunicate 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.

Automatic Reinsurance Treatiesthe ceding company (reinsured) is bound to cede and the reinsurer is obligated

to accept a fixed share of the risk which has to be reinsured under the contract.

Facultative Reinsurance Treatiesthere is no obligation either to cede or to accept participation in the risk insured,

each party having a free choice.

Reinsurance treaty vs. Reinsurance Policy

Reinsurance Treaty Reinsurance Policy

Merely an agreementbetween two insurance

companies where one

agrees to cede and the

other to accept

reinsurance business

pursuant to provisions

specified in the treaty

Contract for indemnityone insurer makes with

another to protect the first

insurer from risk it has

already assumed

Contracts FOR insurance Contracts OF insurance

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

damage.

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

The subject if the contract of reinsurance is the primary insurers risk and not the property insured under theoriginal policy.

Reinsurance contract is one of indemnity against liability. It is separate from original insurance policy. The terms and conditions of the policy of reinsurance are greatly affected by the terms and conditions of

the original policy upon which the insurance contract is based.

The doctrine of insurable interest applies to reinsurance just as it does to any insurance contract. The rule on subrogation also applied.

CHAPTER II

CLASSES OF INSURANCE

TITLE I

MARINE INSURANCE

Section 99. Marine Insurance includes:


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(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,

disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers,

bottomry, and respondentia interests and all other kinds of property and interests therein, in

respect to, appertaining to or in connection with any and all risks or perils of navigation, transit

or transportation, or while being assembled, packed, crated, baled, compressed or similarlyprepared for shipment or while awaiting shipment, or during any delays, storage, transhipment,

or reshipment incident thereto, including war risks, marine builder's risks, and all personal

property floater risks;

(b) Person or property in connection with or appertaining to a marine, inland marine, transit or

transportation insurance, including liability for loss of or damage arising out of or in connection

with the construction, repair, operation, maintenance or use of the subject matter of such

insurance (but not including life insurance or surety bonds nor insurance against loss by reason

of bodily injury to any person arising out of ownership, maintenance, or use of automobiles);

(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or

otherwise;

(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding

buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers,

wharves, docks and slips, and other aids to navigation and transportation, including dry docks

and marine railways, dams and appurtenant facilities for the control of waterways.

(2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of

the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance,

use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways,

including liability of the insured for personal injury, illness or death or for loss of or damage to the property

of another person.10

What is transportation insurance?

Transportation insurance which is concerned with the perils of property in (or incidental to) transit as opposed to

property perils at a generally fixed location.

What are the major division of transportation insurance?

1. Ocean marine insurancethe oldest written forms of insurance and has to do primarily with the insuranceof sea perils.

2. Inland marine insurance covers primarily the land or over the land transportation perils of propertyshipped by railroads, motor trucks, airplanes, and other means of transportation.

Take Note: The insurance covered by Sec. 99 may be in the form of:

property insurance indemnifying the insured for loss or damage to property; liability insurance protecting the insured against liability for loss or damage to property or for personal injury,

illness or death of another person.

What are the scope of ocean marine insurance?

1. Ship or hulls

10Highlighted in my book


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2. Goods or cargoes113. Earning such as freight, passage, money, commissions, or profits4. Liability (known as protection and indemnity insurance)

What is the meaning of perils of the sea?

It is also known as perils of navigation. It includes only those casualties due to the unusual violence or

extraordinary action of wind and wave, to other extraordinary causes connected with navigation.

What is the meaning of perils of the ship?12

It is a loss in the ordinary course of event which results from:

The natural and inevitable action of the sea Ordinary wear and tear of the ship The negligent failure of the ships owner to provide the vessel with proper equipment to convey the cargo

under ordinary conditions.

What is barratry?

A willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without

the consent of the owners, and to the prejudiceof the owners interest.

What is an all risk marine insurance policy?

Marine insurance policy insures against all cause of conceivable loss or damage, except as otherwise excluded in

the policy or due to fraud or intentional misconduct on the part of the insured.

What are the classes (scope) of inland marine insurance?

1. Property in transit protection for property frequently expose to loss while it is in transportation from onelocation to another.

2. Bailee liability protection to person who have temporary custody of the goods or personal property ofothers.

3. Fixed transportation property covers bridges, tunnels and other instrumentalities of transportation andcommunication.

4. Floaterprovides insurance to follow the insured property wherever it may located, subject always to theterritorial limits of the contract.

Section 100. The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one

who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that

part of the loss which the insured cannot recover from the charterer.

Section 101. The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value

over the amount secured by bottomry.

What is a loan on bottomry?

One which is payable only of the vessel, given as security for loan, completes in safety the contemplated voyage?

Where the vessel is bottomed, the owner has an insurable interest only in the excess of its value over theamount of the bottomry loan. The insurable interest of the lender on the bottomry in the vessel given as

security is to the extent of the loan.

11Presumed to be shipped under deck. If goods are shipped on deck, they are not covered by the policy unless special notice of the stowage is given to the

underwriter and he accepts the enhanced risk.12

The insurer does not undertake to insure against perils of the ship.


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o Ex. Value of the Xs vessel is 2M, he borrowed 800K to Y by way of loan of bottomry. So X mayaffect insurance on the vessel only for 1.2M while y has an insurable interest of 800k

Section 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner,

either from the chartering of the ship or its employment for the carriage of his own goods or those of others.

What is freightage?

It is the benefit which is to accrue to the owner of the vessel from its use in the voyage contemplated or the benefit

derived from the employment of the ship.

1. the chartering of the ship;2. its employment for the carriage of his own goods;3. its employment for the carriage of the goods of others.

Section 103. The owner of a ship has an insurable interest in expected freightage which according to the ordinary

and probable course of things he would have earned but for the intervention of a peril insured against or other peril

incident to the voyage.

Section 104. The interest mentioned in the last section exists, in case of a charter party, when the ship has broken

ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually

on board, or there is some contract for putting them on board, and both ship and goods are ready for the

specified voyage.

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

interest in the profits.

Section 106. The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its

loss.

What is a charter party?

A charter party is a contract by which an entire ship or some principal part thereof is lent by the owner to another

person for a specified time or use.

What are the type of charter parties?

1. Bareboat or demise charter the shipowner turns over full possession and control of his vessel to thecharterer, who then undertakes to provide a crew and victuals ad supplied and fuel for her during the term

of the charter.

2. Contract of affreightment a contract of special service to be rendered by the owner of the vessel whoretains the possession, command and navigation of the ship, the charterer of freighter merely having use of

the space in the vessel in return for the payment of the charter hire or freight.

Section 107. In marine insurance each party is bound to communicate, in addition to what is required by section

twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in Section

thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or

assumes to disclose.

What is concealment in marine insurance?


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Concealment in marine insurance is the failure to disclose any material fact or circumstances which in fact or law is

within, or which ought to be within the knowledge of one party and of which the other has no actual or

presumptive knowledge.

Section 108. In marine insurance, information of the belief or expectation of a third person, in reference to a

material fact, is material.

Section 109. A person insured by a contract of marine insurance is presumed to have knowledge, at the time of

insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at

the usual rate of communication.

Section 110. A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the

entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed:

(a) The national character of the insured;

(b) The liability of the thing insured to capture and detention; lawphi1.net

(c) The liability to seizure from breach of foreign laws of trade;

(d) The want of necessary documents;

(e) The use of false and simulated papers.

Section 111. If a representation by a person insured by a contract of marine insurance, is intentionally false in any

material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may

rescind the entire contract.

Section 112. The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a

contract of marine insurance.

Section 113. In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject

of marine insurance, a warranty is implied that the ship is seaworthy.

Section 114. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of

the voyage contemplated by the parties to the policy.

What constitute seaworthiness?

Seaworthiness is a relative term depending upon the nature of the ship, the voyage, and the serive in which she is

at the time engaged.

What is the criterion of seaworthiness?

The warranty of seaworthiness is not an absolute guaranty that the vessel will sagely meet all possible perils. A perfect vessel or one impervious to the assaults of the elements is not required; nor is the best and most

skilful forms of construction required, but only such as is sufficient for the kind of vessels insured with

reference to their physical and mechanical condition, the extent of its fuel and provisions supply, the

quality of its officers and crew, and its adaptability for the service in which they are employed.

Section 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of


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commencement of the risk, except in the following cases:

(a) When the insurance is made for a specified length of time, the implied warranty is not complied

with unless the ship be seaworthy at the commencement of every voyage it undertakes during that

time;

(b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage,or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is

not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy

at the commencement of each particular voyage.

The unexplained sinking of a vessel creates the presumption of unseaworthiness.What is a time policy?

A time policy provide coverage for a fixed period of time, at the expiration of which the insurance will lapse.

What is a voyage policy?

A voyage policy covers the subject matter for the voyage named in the policy until the specified voyage ends,regardless of the time it takes to complete the voyage.

Section 116. A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but

requires that it be properly laden, and provided with a competent master, a sufficient number of competent

officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors,

cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the

voyage.

Section 117. Where different portions of the voyage contemplated by a policy differ in respect to the things

requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the

commencement of each portion, the ship is seaworthy with reference to that portion.

It is sufficient if at the commencement of each stage she is seaworthy for the purpose of that stage.Section 119. A ship which is seaworthy for the purpose of an insurance upon the ship may, nevertheless, by reason

of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo.

Section 120. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship wil l

carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which

cast reasonable suspicion thereon.

Section 123. Deviation is a departure from the course of the voyage insured, mentioned in the last two sections, or

an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.

What is deviation?

It is an unexcused departure from the regular course or route of the insured voyage or any other act which

substantially alters the risk.

Section 124. A deviation is proper:


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

control;

(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;

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

(d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.

Section 130. An actual total loss is cause by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

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

thing insured.

What is the meaning of actual loss?

An actual loss exists when the subject matter of the insurance is wholly destroyed or lost or when it is so damaged

as no longer to exist in its original character.

Section 131. A constructive total loss is one which gives to a person insured a right to abandon, under Section one

hundred thirty-nine.

What is the meaning of constructive loss?

A constructive loss, or, as it is sometimes called technical total loss is one which the loss, although not actually

total, is of such a character that the insured is entitles, if he thinks fit, to treat it as total by abandonment.

Take Note: In case of actual loss, no abandonment is necessary; but if the loss is merely constructively total, an

abandonment become necessary in order to recover as for a total loss.

Section 132. An actual loss may be presumed from the continued absence of a ship without being heard of. The

length of time which is sufficient to raise this presumption depends on the circumstances of the case.

Section 136. Where it has been agreed that an insurance upon a particular thing, or class of things, shall be free

from particular average, a marine insurer is not liable for any particular average loss not depriving the insured of the

possession, at the port of destination, of the whole of such thing, or class of things, even though it becomes entirely

worthless; but such insurer is liable for his proportion of all general average loss assessed upon the thing insured.

What is an average?

Average is any extraordinary or accidental expense incurred during the voyage for the preservation for the vessel,

cargo, or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenceduntil it ends and the cargo unloaded.

What are the kinds of averages?

1. Gross or general averagesinclude damages and expenses which are deliberately cause by the master ofthe vessel or upon his authority, in order to save the vessel, her cargo, or both at the time from a real and

known risk.

Must be born equally by all of the interest concerned in the venture.


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2. Simple or particular averages include all damages and expenses cause to the vessel or to her cargowhich have not inured to the common benefit and the profit of all the persons interested in the vessel and

her cargo.

Section 138. Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he

declares the relinquishment to the insurer of his interest in the thing insured.

What is abandonment?

Abandonment is the act of an insured in notifying the insurer that owing to damage done to the subject of the

insurance, he elects to take the amount of the insurance in the place of the subject thereof, the remnant of which

he cedes to the insurer.

What are the requisites for a valid abandonment? ( G F R A N C E )

1. There must be an actual relinquishmentby the person insured of his interest in the thing insured (Sec. 138);2. There must be an constructive total loss (Sec. 139);3. The abandonment be neither partial nor conditional (Sec 140);4. It must be made within areasonable time after receipt of reliable information of the loss (Sec. 141);5. It must be factual (Sec. 142);6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143);

and

7. The notice of abandonment must be explicitand must specify the particular cause of the abandonment(Sec. 144).

Section 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular

portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof,

when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it

from the peril;

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

(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without

incurring either an expense to the insured of more than three-fourths the value of the thing abandoned or a

risk which a prudent man would not take under the circumstances; or

(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship

procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo,

without incurring the like expense or risk mentioned in the preceding sub-paragraph. But freightage cannot

in any case be abandoned unless the ship is also abandoned.

The insured may not abandon the thing unless the loss or damage is more than three-fourths of its value.

Section 140. An abandonment must be neither partial nor conditional.

Section 141. An abandonment must be made within a reasonable time after receipt of reliable information of the

loss, but where the information is of a doubtful character, the insured is entitled to a reasonable time to make

inquiry.


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Section 142. Where the information upon which an abandonment has been made proves incorrect, or the thing

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