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INSURANCE PD 1460 PRELIMINARIES A. Definition of Contract of Insurance B. Requisites of Insurance Contract C. Concealment and Representation D. Kinds of Policy E. Warranties in Insurance Contract F. Double Insurance G. Reinsurance Contract H. Marine Insurance I .Losses J .Abandonment K. Kinds of Insurance L. Motor Vehicle Insurane ------------------------------------WHAT LAWS GOVERN INSURANCE (a) Insurance Code (PD 1460 – whose affectivity date is 11 June 1978) (b) In absence of applicable provisions, the Civil Code; (c) In absence of applicable provisions in the Insurance Code and Civil Code, the general principles on the subject in the United States (Constantino vs. Asia Life Insurance, 87 Phil 248) WHAT IS A CONTRACT OF INSURANCE - It is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event; - A contract of suretyship shall also be deemed an insurance contract if made by a surety who or which is doing an insurance business; Doing an insurance business or transacting an insurance business is: (a) making or proposing to make as insurer any insurance contract;

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(b) making or proposing to make as surety contract of suretyship as a vocation and not merely incidental to any other legitimate business or activity of the surety; (c) doing any business including a reinsurance business, specifically as doing an insurance business within the hearing of the Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Code (section 2); NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE 1. 2. It is an ALEATORY contract – It is a contract of INDEMNITY for Non-Life – recovery is commensurate to the loss. It is an investment in life insurance – secured by the insured as a measure of economic security for him during his lifetime and for his beneficiary upon his death except one secured by the creditor on the life of the debtor; It is a PERSONAL contract It is EXECUTORY and CONDITIONAL on part of the insurer It is one of PERFECT GOOD FAITH It is a contract of ADHESION – insurance companies manage to impose upon the insured prepared contracts, which the insured cannot change. Consequently, they are to construed as follows: (a) In case there is no doubt as to the terms of the insurance contract, it is to be construed in its plain, ordinary, and popular sense; (b) If doubtful, ambiguous, certain, it is to be construed strictly against the insurer and liberally in favor of the insured because the latter has no voice in the selection of the words used, and the language used is selected by the lawyers of the Insurer (Qua Chee Gan vs. Law Union Rock Ins. Co. Ltd. 52 OG 1982)

3. 4. 5. 6.

Illustrations: a. P Bank obtained insurance against robbery, which excluded loss by any criminal act of the insured or any authorized representative. While transferring funds from one branch to another, the insured’s armored truck was robbed. The driver was assigned by a labor contractor with the insured, while the security guard was assigned by an agency contracted by the insured. Both driver and guard

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were found to be involved. Can the loss be excluded? HELD: The loss is excluded , the driver/guard although assigned by labor contractors – are authorized representatives. The terms are clear and unambiguous. (Fortune Insurance vs. CA, 244 SCRA 308). b. Personal Accident policies providing payment for “loss of hand”. The insurance policy defines it as amputation. The insured has an accident resulting in a temporary total disability but hand is not amputated. HELD: Insurer is not liable. (Ty vs. First National Surety and Assurance Company – 17 SCRA 364) But – In case where the policy provided loss of both, legs by amputation, a claim against the policy was allowed for a total paralysis to exclude total paralysis is contrary to public policy, public good and sound morality, as it would force the insured to have his legs amputated to be able to claim on the policy. (Panaton vs. Malayan – 2 Court of Appeals 783) Warranty in a fire insurance policy prohibited storage of oils having a flash point of below 300 Fahrenheit. Gasoline is stored. Is there a policy violation? HELD: The clause is ambiguous. In ordinary parlance oils means lubricants – not gasoline. There is no reason why gasoline could not be expressed clearly in the language public can readily understand. (Qua Chee Gan) An action to recover the amount of PHP 2,000.00 due to death by drowning where the policy provided for indemnity in the amount of PHP 1,000.00 to PHP 3,000.00 HELD: The interpretation of the obscure stipulation in contract must not favor the one who caused the obscurity. Hence, judgment for additional PHP 2,000.00 was affirmed. (Del Rosario vs. Equitable Insurance and Casualty Company, 8 SCRA 343) Denial of a claim on the ground that the insured vehicle was a “private” type vehicle on the ground that the policy issued to the insured was a common carrier’s liability, Insurance policy which covers a public vehicle for hire. HELD: Insurer is liable as it was aware all along that the vehicle of the insured was a private vehicle. (Fieldman Insurance vs. Mercedes Vargas vda De Songco, 25 SCRA 70) f.

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Denial of a claim for benefit due to the death of Flaviano Landicho in a plane crash under the GSIS policy on the ground of non payment of the premium. HELD: The policy contained a provision that the application for insurance is authority for GSIS to cause the deduction of premium from the insured’s salary. (Landicho vs. GSIS, 44 SCRA 7)

Other case reference: New Life Enterprises vs. CA, 207 SCRA 669 MARINE RISK NOTE IS NOT AN INSURANCE POLICY – Certainly it would be obtuse for us to even to entertain the idea that the insurance contract between Malayan and ABB Koppel was actually constituted by the Marine Risk Note alone. (Malayan Insurance Co. vs. Regis Brokerage Corporation Nov. 23 2007 G.R. No. 172156) WHAT ARE THE ELEMENTS OF AN INSURANCE CONTRACT 1. The insured should possess an interest of some kind, susceptible of pecuniary estimation – known as “insurable interest”. Generally – a person has insurable interest in the subject matter insured when: - He has such a relation or connection with or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. - It is necessary because its absence renders the contract void. This is based on the principle that insurance is a contract of indemnity. If the insured has no interest, he will not stand to suffer loss or injury by the happening of the event insured against. INSURANCE CONTRACT – [Loss covered by the insurance policy; Burden of proof to prove that same] Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is not covered by the insurance, except to the extent that the insured shall prove the loss or damage, happened independently of the existence of such abnormal conditions.

c.

d.

e.

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An Insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. (DBP Pool of Accredited Insurance Companies v. Radio Mindanao Network, Inc. Jan. 27, 2006, G.R. No. 147039) ETERNAL GARDENS MEMORIAL PARK CORPORATION vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY (G.R. No. 166245, April 9, 2008) Philamlife’s assumption of risk of loss without approving the application. - The question arises as to whether Philamlife assumed the risk of loss without approving the application. This question must be answered in the affirmative. It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that: Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that: When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,

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INSURANCE

ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.20 GULF RESORTS, INC., vs. PHILIPPINE CHARTER CORPORATION (G.R. No. 156167 May 16, 2005)

Provisions of insurance policy; no piecemeal construction or segregation of certain stipulations allowed; all parts should be reflective of clear intent of parties.- The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. Contract of insurance; payment of premium by the insured, an important element of the contract; Court’s finding that no premium payments with regard to earthquake shock coverage, except on the two swimming pools.- A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance contract exists where the elements concur. IN WHAT DOES A PERSON HAVE INSURABLE INTEREST IN (LIFE) Every person has an insurable interest in the Life and Health of: 1.himself, his spouse and of his children; 2.any person on whom he depends wholly or in fact for education or support or in whom he has pecuniary interest (Note article 195 of the Family Code specifying the persons obligated to support each other. Example – pecuniary interest-partners, employees); 3.any person under legal obligation to him for the payment of money, respecting property or services of which death or illness might delay or prevent performance. Example – Mortgagors, Debtors. 4.Any person upon whose life, any estate or interest vested in him depends (Example – Usufructuary X allows Y to receive fruits of the land of the former as long as he is alive. Y has insurable interest in life of X, because the death of X will terminate his right and cause him damage. (Section 10)

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WHAT IS THE BASIS OF INSURABLE INTEREST IN LIFE - It exist when there is reasonable ground founded on the relation of the parties, either pecuniary or contractual or by blood or by affinity to expect some benefit from the continuance of life of the insured; WHEN MUST INSURABLE INTEREST IN LIFE EXIST - Insurable interest in life must exist at the time of the effectivity of the policy and need not exist at the time of the death of the insured as life insurance is not a contract of indemnity. It is meant to give financial security to the insured or his beneficiaries (Section 19). However, insurable interest of a creditor on the life of the debtor must exist only at the time of effectivity but also at the time of the death of the debtor – as in this instance it is a contract of indemnity. His interest is capable of exact pecuniary measurement. WHAT IS THE EXTENT OF INSURABLE INTEREST IN ONE’S LIFE - He has unlimited interest in his own life or that of another person regardless of whether or not the latter has insurable interest. Provided, that if the beneficiary has no insurable interest, there is no fore or bad faith. But if he takes out a policy on the life of another and names himself as the beneficiary, he must have an insurable interest in the life of the insured; INSURABLE INTEREST – The insurable interest of every member of petitioner’s health care program in obtaining the health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense asising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract. (Philippine Health Care Providers Inc. V. Commissioner of Internal Revenue, Jun. 12 2008 G.R. 167330) IS THE CONSENT OF THE INSURED REQUIRED WHEN INSURANCE IS TAKEN

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The law does not require the consent of the person insured and such has been considered as not essential to the validity of the contract as long as there is insurable interest at the beginning;

IN WHAT DOES A PERSON HAVE INSURABLE INTEREST IN PROPERTY A person has insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured is an insurable interest (section 13). It may consist of: An existing interest An inchoate interest founded on an existing interest – (Defined: Interest in real estate which is not a present interest but which may ripen into a vested interest if not barred, extinguished, or divested.) An expectancy coupled with an existing interest in that out of which the expectancy arises;

(a) (b)

(c)

Note: Expectancy must be founded on an actual right to the thing or a valid contract for it; A carrier or depository of any kind has insurable interest in the thing held by him such to the extent of his liability but not to exceed the value thereof (Sections 13, 14, and 15); But, a mere contingent or expectant interest in anything, not founded on contract or actual right to the thing is not insurable – as there is no insurable interest (Section 16);

WHO IS BOUND BY A CONTRACT OF INSURANCE – The insurance contract between the insurer and the insured, under Article 1311 of the Civil Code is binding only upon the parties (and their assigns and heirs) who execute the same. INCHOATE RIGHT – The right to lay claim on the fun is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, the respondents’

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interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist. Hence, it would be premature to make the security deposit answerable for CISCO’s present obligation to Del Monte Motors. (Republic of the Philippines v. Del Monte Motors, Inc., Oct.9, 2006 G.R. No. 156956) WHAT IS THE TEST OR MEASURE OF INSURABLE INTEREST IN PROPERTY Whether one will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction; (Section 17)

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PROPERTY - based on pecuniary interest

COMPARE WITH INSURABLE INTEREST IN LIFE: 2002 BAR EXAM (N0.XVII) LIFE - not necessary – can be based on consanguinity or affinity - only at effectivity except that taken by a creditor in the life of the debtor - no limit exist based on debtor if

- exist at the time of effectivity and loss

INSURABLE INTEREST IN BANK DEPOSITS 2000 BAR EXAM (VIII - b) Q: BD has bank deposit of half a million pesos.Since the limit of trhe insurance coverage of the Philippine Deposit Insurance Corp Act ( 3591) is only one tenth of BD’s deposit, he would like some protec tion for the excess by taking out an insurance against all risks or contingencies of loss arising from any unsound or unsafe banking practices including unforeseen adverse effects of the continuing crisis involving the banking and financial sector in Asia. Does BD have insurable interest within the meaning of the Insurance Code? A: Yes, BD has insurable interest in his bank deposit. In case of loss of said deposit, more particularly to the extent of the amount in excess of the limit covered by the Philippine Deposit Insurance Corporation Act, BD will be damnified. He will suffer pecuniary loss of P400,000.00, that is, his bank deposit of half a million pesos minus P100,000.00 which is the maximum amount recoverable from the PDIC. MUST THE BENEFICIARY IN PROPERTY HAVE INSURABLE INTEREST ON THE PROPERTY INSURED? YES, as no contract or policy of insurance on property shall be enforceable. Except for the benefit of some person having insurable interest in the property insured; WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST must exist at the time the insurance takes effect and when the loss occurs but need not exits in the meantime (Section 19);

- limited to actual volume insured

IN RELATION TO THE NEED FOR THE EXISTENCE OF INSURABLE INTEREST, PLEASE NOTE: That a change in interest in any part of a thing insured accompanied by a corresponding change in the insurance suspends the insurance to an equivalent extent until interest in the thing and interest in the insurance is vested in the same person; No claim in insurance contract while it is suspended because it can happen that the insurable interest will be returned;

-

CHANGE OF INTEREST IN PROPERTY INSURED (Transfer or Sale of insured property) (1994 & 200 Bar Exams) A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20)

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Exceptions: 1) change of interest after the loss; 2) change of interest in one or more of several things separately insured; 3) change of interest by will or succession; and 4) transfer of interest by a partner, joint owner, or common owner, to another partner, joint owner or common owner. 1980 Bar Exam: A insures his house for P 10, 000 commencing January 1, 1952. On February 15, 1952, A sells the house to B for P15,000 without endorsing or transferring the fire policy to B. On April 20, 1952, the house is completely destroyed on account of the accidental fire. Can A or B collect the proceeds of the policy from the insurer? Explain and give reasons for your answer. (1952, 1959, 1980 Bar) ANSWER: Neither A, the seller, nor B, the buyer, can collect under the policy. A transfer of interest in property without any transfer of interest in the insurance suspends the latter until the interest in the property and in the insurance is vested in the same person. A has transferred his interest in the object of the insurance (the house) to B without a transfer of his interest in the insurance to B. As the interests in the object and in the insurance are in different persons at the time of the loss, none can recover under the policy. (3) (4) (5)

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A change of interest in one or more several distinct things, separately insured by one policy, does not avoid as to the others (Section 22); A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the insured; (Section 23) A transfer of interest by one or several partners, joint owners, or owners in common, who are jointly insured – to the others, does not avoid insurance even though it has been agreed that the insurance shall lease upon an allocation of the thing insured; There must be no stipulation against it – otherwise it is avoided; Transfer to strangers avoid the policy

Note: -

(6) When notwithstanding a prohibition, the consent of the insurer is obtained; (7) When the policy is so framed that it will insure to the benefit of whomsoever may become the owner during the continuance of the risk; CONTINUATION OF ELEMENTS 1. Insurable interest; 2. The insured is subject to risk of loss through the destruction or impairment of that interest by the happening of the designated risk; 3. The insurer assumes the risk of loss; 4. Such assertion is part of a general scheme to distribute actual loss among a large group of persons bearing somewhat similar risk; 5. As a consideration for the insurers promise, the insured makes a ratable contribution called a premium to the general insurance fund; WHAT MAY BE INSURED AGAINST Any unknown or contingent event, whether past or future, which may damnify a person having insurable interest or create a liability against him, may be insured against (Section 3);

WHAT CHANGE IS CONTEMPLATED An absolute transfer of the property not life, a lease/mortgage; EXCEPTIONS TO THE REQUIREMENTS OF INSURABLE INTEREST: (1) (2) Life, health or accident insurance because they are not contracts of indemnity and insurable interest is not required at the time of loss; A change of interest after occurrence of an injury and results in loss – does not affect the right of the insured to indemnity; - After a loss, the liability of the insurer is fixed

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Example: Insurance against damage, liability, unknown past event (in marine insurance – insurance is over the vessel against perils of the sea, lost or not lost), or future event like loss or theft of the object; - In relation to the insurance so secured, note: 1. The consent of the husband is not necessary for the validity of an insurance policy taken by a Married woman on her life and that of her children. Under art. 145 of the family code, she can also insure her separate property without the consent of the husband; 2. A minor may take out a contract for life, health and accident insurance with any company authorized to do business in the Philippines, provided it be taken out on his own life and the beneficiary named is his estate, father, mother, husband, wife, child, brother or sister. In so doing, the married woman/minor may exercise all the rights or privileges under the policy; But – What is the effect of the death of the original owner of a policy, which covers the life of a minor, ahead of the minor – all rights, title and interest in the policy shall automatically vest in the minor unless otherwise provided in the policy;

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enemy, and it is inconsistent to destroy its resources then pay it the value of what has been destroyed) may be insured; 2000 BAR EXAM (VIII - a) Q: May a member of the MORo Islamic Liberation Front ( MILF ) or it’s breakawy group, the Abu Sayaff, be insured with a company licensed to do business under the Insurance Code of the Philippines? Explain? A: A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business under the Insurance Code of the Philippines. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war. Such member if the MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines.

WHO MAY INSURE A MOrTGAGED PROPERTY Both the mortgagor and the mortgagee may take out separate policies with the same or different companies. The mortgagor – to the extent of his property, the mortgagee – to the extent of his credit; (section 8) INSURANCE INTEREST ON MORTGAGED PROPERTY (2005 BAR EXAM (N0. X - 2- a) Armando Geagonia v. CA 241 SCRA 154 SC RULING Condition 3 is what is known as “other insurance clause” which is a valid provision allowed by the insurance code in order to prevent in an increase in the moral hazard and to serve as a warranty that no other insurance exists. Its incorporation in fire policies prevents over insurance and adverts the perpetration of fraud. Its violation will thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. Double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. The court ruled that since the stocks in trade insured with PFIC were mortgaged property, separate insurances covering different insurable

WHAT CANNOT BE INSURED An insurance for or against the drawing of any lottery or for or against any chance or ticket in a lottery drawing or prize. Because gambling results in profit and insurance only seeks to indemnify the insured against loss (Section 4)

WHO ARE THE PARTIES TO A CONTRACT OF INSURANCE 1. INSURER – every person, partnership, association or corporation duly authorized to transact insurance business as provided in the code may be an insurer. It is the party who agrees to indemnify another upon the happening of specified contingency; 2. INSURED – party to be indemnified in case of loss (section 6). Anyone except a public enemy (a nation at war with Philippines and every citizen subject of such nation. Reason: the purpose of war is to cripple the power and exhaust the resources of the

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interests maybe obtained by the mortgagor and mortgagee. The insurable interests of a mortgagor and mortgagee are separate and distinct, thus no double insurance exists since the policies of PFIC do not cover the same interest as that covered under the policy of Country Banker’s Insurance Corp. The non-disclosure of the policies with PFIC was not fatal to Armando’s right to recover on his policy with Country Banker’s Insurance Corp.

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contract of the mortgagor. In such case, any act of the mortgagor can no longer affect the rights of the mortgagee – the insurance contract is now independent of that with the mortgagor; WHAT IS THE EFFECT OF INSURANCE PROCURED BY THE MORTGAGEE WITHOUT REFERENCE TO THE RIGHT OF THE MORTGAGOR a. The mortgagee may collect from the insurer upon the occurrence of the loss to the extent of his credit; b. Unless otherwise stated, the mortgagor cannot collect the balance of the proceeds after the mortgagee is paid; c. The insurer, after payment to the mortgagee, becomes subrogated to the rights of the mortgagee against the mortgagor and may collect the debt to the extent paid to the mortgagee; d. The mortgagee after payment cannot collect anymore from the mortgagor BUT if he is unable to collect in full from insurer, he can recover from the mortgagor; e. The mortgagor is not released from the debt because the insurer is subrogated in place of the mortgagee; 3. BENEFICIARY – the person who receives the benefits of an insurance policy upon maturity; property insurance – yes the insured himself but cant assign the proceeds; life insurance – not required to have insurable interest; WHO MAY BE BENEFICIARIES IN LIFE INSURANCE Anyone, except who are prohibited by law to receive donations from the insured. Note art. 739 of the Civil Code, hence the following cannot be designated as beneficiaries; 1. Those made between persons guilty of adultery or concubinage at the time of the designation; 2. Those guilty of the same criminal offense in consideration thereof; 2008 BAR EXAM

WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE PROPERTY MORTGAGED IN HIS OWN NAME BUT MAY THE LOSS PAYABLE TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM.

UNLESS THE POLICY PROVIDES OTHERWISE a. The insurance is still deemed to be upon the interest of the mortgagor who does not cease to be a party to the original contract. Hence, if the policy is cancelled, notice must be given to the mortgagor; b. Any act of the mortgagor, prior to loss, which would otherwise avoid the policy or insurance, will have the same effect although the property is in the hands of the mortgagee. Hence, if there is a violation of the policy by the mortgagor, the mortgagee cannot recover; c. Any act required to be done by the mortgagor may be performed by the mortgagee with the same effect if it has been performed by the mortgagor. Example: If notice of loss is required, the mortgagee may give it; d. Upon the occurrence of the loss, the mortgagee is entitled to recover to the extent of his credit and the balance if any to be paid to the mortgagor, since such is for both their benefits; e. Upon recovery by the mortgagee, his credit is extinguished; If on the other hand, (section 9), the insurer assents to the transfer of the insurance from the mortgagor to the mortgagee, and at the time of his assent, imposes further qualifications on the assignee, making a new contract with him, the acts of the mortgagor cannot affect the rights of the assignee – Note the Union Mortgage Clause – creates the relation of insured and insurer between mortgagee and the insurer independent of the

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On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1 Million with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on March 4, 2005 and in the police investigation, it was ascertained that Gemma Rivera participated as an accessory in the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting up as a defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with reasons. (4%) Answer: Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.Thus, the insurance company must still pay out the proceeds of the life insurance policy to the nearest qualified relative of the insured. 3. Those made to a public officer or descendants/ascendants by reasons of his office; his wife,

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Beneficiary in life and property insurance (2005 bar exams) Philippine American Life Insurance Company v. Pineda (175 SCRA 416) SC Ruling: Under the law, the beneficiary designated in a life insurance contract cannot be changed without his or her consent because of the beneficiary’s vested interest in the policy. In this regard, it is worth nothing that the beneficiary designation indorsement which forms part of the policy in the name of Rodolfo Dimayuga states that the designation of the beneficiaries is irrevocable and no right or privilege under the policy may be exercised, or agreement made with the insurance company to any change in or amendment to the policy without the consent of the said beneficiary. Accordingly, based on the provisions of the contract and the law applicable, it is only with the consent of all the beneficiaries that any change or amendment to the policy concerning the irrevocability of beneficiaries may be legally and validly effected. Insurable interest on property Spouses Nilo Cha v. CA Aug. 18, 1997 2009 bar exams SC RULING: 1. The lessor cannot validly be a beneficiary of the fire insurance policy taken by the spouses Cha. It has no insurable interest on the merchandize insured because it remains with the spouses. 2. The automatic assignment of the policy to the lessor is void for being contrary to law and public policy. The proceeds of the fire insurance policy rightfully belong to the spouses cha. 3. The insurer cannot be compelled to pay the proceeds of the policy to the lessor who has no insurable interest on the property insured. CAN THE BENEFICIARY BE CHANGED The insured shall have the right to change the beneficiary he designated – unless he has expressly waived the right in the policy (Section 11); If he has waived the right, the effect is to make the designation as irrevocable. Note that the designation of the guilty spouse as irrevocable beneficiary is revocable as the instance of the innocent spouse in cases of termination of: (1) a subsequent marriage; (2) nullification of marriage;

-

-

A prior conviction for adultery/concubinage is not required, it can be proven by proponderance of evidence in the same action nullifying the designation. Note the cases of Insular Life vs. Ebrado, 80 SCRA 181, where a common law wife of the insured who is married could not be named as a beneficiary and SSS vs. Davac, 17 SCRA 863, where the insured designated his second wife as a beneficiary was upheld as the latter was not aware of the first marriage; The disqualification does not extend to the children of the adultery or concubinage in view of the express recognition of the successional rights of illegitimate children (Art. 287, NCC and Art. 176, Family Code);

MUST THE BENEFICIARY HAVE INSURABLE INTEREST ON THE LIFE OF THE INSURED It is recognized that the insured may name anyone he chooses except those disqualified to receive donations as a beneficiary in his life insurance, even if he is a stranger and has no insurable interest in the life of the insured. The designation, however, must be in GOOD FAITH AND WITHOUT FRAUD OR INTENT TO ENTER INTO A WAGERING CONTRACT.

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(3) annulment of marriage; and (4) legal separation (Art. 34, (4) Family Code WHAT IS THE EXTENT OF THE INTEREST OF THE IRREVOCABLE BENEFICIARY IN A LIFE INSURANCE CONTRACT The beneficiary has a vested right that cannot be taken away without his consent. In fact should the insured discontinue payment of the premium, the beneficiary may continue paying. Neither can the insured get a loan or obtain the cash surrender value of the policy without his consent (Nario vs. Philamlife, 20 SCRA 434). Note: where the wife and minor children were named irrevocable beneficiaries, wife dies, the husband seeks to change the beneficiaries with the consent of the children. The consent is not valid due to minority. (Philamlife vs. Pineda, 170 SCRA 416). 2005 BAR EXAM (NO. IX -1) Q: What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain. (2%) A: The irrevocable beneficiary has a vested interest in the policy, including its incident such as the policy loan and cash surrender value. (Grogorio v. Sun Life Assurance Company of Canada, 48 Phil. 53 [1925]) 2005 BAR EXAM (NO. IX- 2) Q: Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering that the proceeds of the policy are sufficient for the three friends.Can Jacob still add Yob and Jojo as his beneficiaries? Explain. (2%) A: The insured cannot add other beneficiaries as this would diminish the interest of Diwata who is the irrevocably designated beneficiary. The insured can only do so with the consent of Diwata. WHAT IS THE INTEREST OF AN IRREVOCABLE BENEFICIARY IN AN ENDOWMENT POLICY His interest is contingent as benefits are to be paid only if the assured dies before the specified period. If the insured outlives the period, the benefits are paid to the insured;

DRAGON

WHAT IS THE EFFECT OF FAILURE TO DESIGNATE OR BENEFICIARY IS DISQUALIFIED The benefits of the policy shall accrue to the estate of the insured;

WHO RECOVERS IF BENEFICIARY PREDECEASES THE INSURED If the designation is irrevocable, the legal representatives of the beneficiary may recover unless it was stipulated that the benefits are payable only “if living.” If designation is revocable, and no change is made, the benefits passes to the estate of the insured. The rule holds also if benefits were payable “only if living” or “if surviving” and the beneficiary dies before the insured;

WHAT HAPPENS TO INTEREST OF THE BENEFICIARY IN LIFE INSURANCE WHERE HE WILLFULLY KILLS THE INSURED If the killing is willful, the interest is forfeited, if he is the principal, an accomplice, or an accessory. The nearest relative of insured gets the proceeds if not otherwise disqualified (Section 12). If not willful or felonious, the provision does not apply;

CONCEALMENT WHAT IS CONCEALMENT? Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 26);

WHAT IS THE EFFECT OF CONCEALMENT? Whether intentional or not, it entitles the injured party to rescind the contract of insurance (Section 27). Examples:

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(1) (2) The insured does not disclose sickness but dies of another cause. There is concealment because it is material to a determination of the assumption of risk by the insurer; The father of the insured obtained an insurance policy over his daughter, but did not disclose that she was a mongoloid child, the child dies of influenza, the concealment relieves the insurer of liability (Grepalife vs. CA 89 SCRA 543)

DRAGON

it will not affect or influence the party to enter into contract. However, in case of the reinstatement of a lapsed policy, facts known after effectivity but before reinstatement must be disclosed;

BASIS OF PROVISIONS ON CONCEALMENT/REPRESENTATION Fundamental characteristic of a contract of insurance that it is one of perfect/utmost good faith;

HOW IS THE MATERIALITY OF THE CONCEALMENT OR REPRESENTATION DETERMINED? Materiality is determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (Section 31);

2001 BAR EXAM (N0.XVI): A applied for a non-medical life insurance. The insured did not inform the insurer that one week prior to his application for insurance, he was examined and confined at St. Lukes hospital where he was diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable considering that the fact concealed had no bearing with the cause of death of the insured? Why? A: No. The concealed fact is material to the approval and issuance of the insurance policy. It is well settled that the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimate of the risks of the proposed insurance policy or in making inquiries. WHO MUST PROVE KNOWLEDGE OF THE FACT CONCEALED? The party claiming existence of concealment must prove that there was knowledge on the part of the party charged with concealment;

WHAT IS THE TEST OF MATERIALITY? The test of materiality is whether knowledge of the true facts could have influence a prudent insurer in determining whether to accept the risk or in fixing the premiums; MUST THERE BE A CAUSAL CONNECTION BETWEEN THE FACT CONCERNED AND THE CAUSE OF THE LOSS? Not necessary Concealment need not be material, be of facts which about or contribute to or are connected of the insured’s loss. It is immaterial that there is no causal relationship between the fact concealed and the loss sustained. It is sufficient that the non-revelation has misled the insurer in forming its estimate of disadvantage of fixing the premium. Examples: Insured concealed kidney disease and enlarged liver – later he died of thrombosis, is the insurer liable? No, since the fact concealed was material though the insured did not die therefrom (Henson vs. Philam 50 OG 73428). Insured had concealed that he had kidney disease. He dies in plane crash. The insurer is not liable (Sunlife vs. CA, 245 SCRA 269); WHAT FACTS MUST BE COMMUNICATED?

AS OF WHAT TIME MUST THE PARTY CHARGED WITH CONCEALMENT HAVE KNOWLEDGE OF THE FACT CONCEALED? Generally, a party must have knowledge of the fact concealed at the time of the effectivity of the policy. Note that even if a party did not know of the existence at the rime of application but before its effectivity, there is concealment; Information acquired after effectivity is not concealment and does not constitute ground to rescind the policy, as after the policy is issued, information subsequently acquired is no longer material as

-

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Each party to an insurance contract is bound to communicate to the other all facts that meet the following requisites: (a) (b) (c) (d) Such fact that must be within his knowledge – as concealment requires knowledge of the fact concealed by the party charged with concealment; Fact/s must be material to the contract – it must be of such nature that had the insurer known of it, it would not have accepted the risk or demanded a higher premium; That the other party had no means of ascertaining such fact/s; That the party with a duty to communicate makes no warranty (Section 28) – as the existence of a warranty make the requirement to disclose superfluous but – an intentional fraudulent omission on the part of the one insured to communicate information on a matter proving or tending to prove falsity of a warranty entitles the insurer to rescind (Section 29). (3)

DRAGON

Those of which the other waives communication. A waiver takes place either, by the terms of the insurance or by he neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated (section 33). Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material. Those which relate to the risk exempted from the policy, and which are not otherwise material (section 30).

(4)

(5)

SUNLIFE ASSURANCE CO. OF CANADA VS. CA, JUNE 22, 1995 (1996, 1997, and 2001 Bar Exams) Robert Bacani was issued life insurance non-medical policy for P100,000.00 with his mother as beneficiary. In his application, he concealed his confinement at the Lung Center of the Philippines for certain illness. He died of a plane crash. The insurance company refused to pay for breach of the insurance contract.RTC and CA granted the claim of the beneficiary because the concealed facts were not material or irrelevant to the cause of death. SC RULING: The SC reversed the ruling and held that the information which the insured failed to disclose was material and relevant to the approval and issuance of the policy. The facts concealed would have affected the insurer’s action on the application either by charging a higher rate of premium or rejecting the same. The insured need not die of the disease he concealed. It is sufficient that his non-disclosure misled the insurer in forming his estimate of the risk involved or in making inquiries. The contract of insurance can be rescinded by reason of concealment and this has to be exercised within the two year contestability period. REPRESENTATION

WHAT MATTER NEED NOT BE COMMUNICATED? Except in answer to the inquiries of the other: (1) Those which the other knows – as the insurer cannot say that it has been deceived or misled; Example: Insured discloses that he has tuberculosis to he agent of the insurer, who in turn omits to state the same in the application of the insured was deemed knowledge of the insurer (Insular Life Assurance Co. vs. Feliciano, 74 Phil 468). Insurer had surveyed the location and surrounding area of a building that it is to be insured against fire, an omission to state that there are neighboring buildings will not avoid policy; (2) Those which in the exercise of ordinary care, the other ought to know, and of which, the former has no reason to suppose him to be ignorant. The facts that the other ought to know as per section 32 are:

WHAT IS REPRESENTATION?

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Oral or written statement of a fact or a condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to take the risk (Section 36); WHEN MAY REPRESENTATION BE MADE Since it is an inducement to entering a contract – it must ordinarily be made at the same time as or before – the insurance of the policy (section 37). Note that it can also be made after the issuance of the policy when the purpose thereof is to induce the insurer to modify an existing insurance contract – as the provisions also apply to a modification (Same with concealment) HOW SHOULD REPRESENTATION BE CONSTRUED The language of a representation is to be interpreted by the same rules as the language of the contracts in general (section 38). Hence, it need not be literally true and correct/accurate in every respect, rather, it is sufficient if it is substantially or materially true. In case of a promissory representation, it is sufficient if it is substantially complied with;

DRAGON

No, it cannot qualify as an express provision in a contract (it is a collateral inducement to the contract but it may qualify an implied warranty (section 40); CAN A REPRESENTATION BE WITHDRAWN OR ALTERED Yes, as long as the insurance has not yet been effected and the insurer has not yet been induced to issue the policy. If withdrawn or altered afterwards, the contract can be rescinded as the insurer has already been led to issue the policy (section 41); TO WHAT DATE DOES A REPRESENTATION REFER It must be presumed to refer to the date on which the contract goes into effect (section 42); Note: There is no false representation if it is true at the time the contract takes effect although false at the time it is made; WHEN IS A REPRESENTATION SAID TO BE FALSE When the facts fail to correspond with its assertions or stipulations (Section 44);

WHAT ARE THE FORMS AND KINDS OF REPRESENTATION Representations may be Oral or Written and can either be: (a) Affirmative – which is an affirmation of a fact existing when the contract begins; Promissory – which is a statement by the insured concerning what is to happen during the term of the insurance; MUST THE INSURED COMMUNICATE INFORMATION OF WHICH HE HAS NO PERSONAL KNOWLEDGE BUT MERELY RECEIVES THE SAME FROM OTHERS? When a person has no personal knowledge of facts – he may or may not communicate such information to the insurer. If he does communicate, he is not responsible for its truth (section 43). Hence, there can be no misrepresentation; WHEN IS THE INSURED REQUIRED TO DISCLOSE INFORMATION FROM A 3RD PERSON IS A REPRESENTATION PART OF THE CONTRACT When the information material to the transaction was acquired by an agent of the insured, as knowledge of the agent is also knowledge of the principal;

(b)

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NOTES IN INSURANCE LAW

DRAGON

cannot prove that the policy is void ab initio or is subject to rescission by reason of a fraudulent concealment or misrepresentation of the insured or his agent (known as the incontestability clause); WHAT IS THE EFFECT OF MISREPRESENTATION ON A MATERIAL POINT? If it is false on material point, whether affirmative or promissory – the injured party is entitled to rescind the contract from the time the representation becomes false. However, the right to rescind is considered waived by the acceptance of premium payments despite knowledge of the ground to rescind (section 45); Examples: (a) Insurer was aware of the lack of the extinguishers required by the policy. But there is no waiver – if the insurer had no knowledge of the ground at the time of the acceptance of the premium; Unauthorized driver (Strokes vs. Malayan, 127 SCRA 766) WHAT IS THE THEORY AND OBJECT BEHIND THE INCONTESTABILITY CLAUSE (a) On the part of the insurer – an insurer has/should have a reasonable opportunity to investigate the statements which are made by the applicant an that after a definite period, it should no longer be permitted to question its validity; On part of the insured – its object is to give the greatest possible assurance that the beneficiaries would receive payment of the proceeds without question as to validity or the policy;

(b)

REQUISITES OF INCONTESTABILITY CLAUSE The requisites are: It is a life insurance policy; It is payable on the death of the insured; It has been in force during the lifetime of the insured for at least two years from date of issue/or last reinstatement; Tan vs. CA, 174 SCRA 403 – during the lifetime of the insured means that the policy is no longer in force if the insured dies. Facts: Philam issued policy on November 6, 1973. On April 26, 1975 the insured died. The beneficiaries claimed but the insurer denied the claim on September 11, 1975 and rescinded the policy on the ground of misrepresentation and concealment. Held: Insurer has two years from date of issue/reinstatement within which to contest the policy whether or not the insured still lives within the period; WHAT DEFENSES ARE NOT BARRED BY INCONTESTABILITY EVEN AFTER THE LAPSE OF 2 YEARS? (1) (2) (3) (4) non-payment of premiums; lack of insurable interest; that the cause of death was excepted or not covered by the terms of the policy; that the fraud was of a particular vicious type such as: (1) (2) (3)

(b)

HOW IS MATERIALITY DETERMINED? The same as concealment (Section 46) probable and reasonable influence of the facts upon the party to whom the representation is made in forming his estimate of the advantage/disadvantages of the contract or I making inquiries; WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE EXERCISED – (SEC 48) The right to rescind must be exercised previous to the commencement of an action on the contract (section 48). Note the case of Tan Chay Hing vs. West Coast Life Insurance Co., 51 Phil 80, where an insurer interposed the defense in an action to claim the proceeds that the contract is null and void. Section 48 was held to apply only when there is a contract to rescind. It is also qualified by 2nd paragraph of section 48 which provides that after a policy of life insurance 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 issue or its last reinstatement, the insurer

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a. policy was taken in furtherance of a scheme to murder the insured; b. where the insured substituted another for the medical examination; c. where the beneficiary feloniously killed the insured; violation of a condition in the policy relating to military or naval service in time of war; the necessary notice or proof of death was not given; action is not brought within time specified in the policy, which in no case should be less than 1 year as per section 63; 4. 5.

DRAGON

Whether the concealment or representation is intentional or not, the injured party can rescind; Since insurance contracts are of utmost good faith – the insurer is also covered by the rules;

(5) (6) (7)

POLICY DEFINE POLICY It is the written instrument in which a contract of insurance is set forth (Section 49.); HOW IS IT CONSTRUED, WHAT IF THE INSURED DOES NOT UNDERSTAND THE CONTENTS OF THE POLICY? Generally in favor of the insured and against the insurer. The burden of proving that the terms of the policy have been explained is upon the party seeking to enforce it. The claim of the beneficiary that since the insured was illiterate and spoke Chinese only, she could not be held guilty of concealment because the application and policy was in English (Tang vs. CA, 90 SCRA 236); FORM OF THE POLICY It shall be printed and may contain blank spaces and any word, phrase, clause or mark, sign, symbol, signature, or number necessary to complete it shall be written in the blank spaces (Section 50). If there are riders, clauses, warranties or endorsements purporting to be part of the contract of insurance and which are pasted or attached to the policy is not binding on the insured – unless the descriptive title of the same is also mentioned and written on the blank spaces provided in the policy. Note: if pasted or attached to the original policy at the time it was issued – the signature of the insured is not necessary to make it binding. If after the original policy is issued, it must be counter-signed by the insured unless applied for by the insured; No rider, clauses, or warranties, or endorsements shall be attached, printed or stamped on the policy unless the form of such application has been approved by the insurance commissioner;

WHAT ARE THE EFFECTS OF INCONTESTABILITY? The insurer can no longer escape liability, tender the policy or be allowed to prove that the policy is void ab initio or may be rescinded by reason of concealment or misrepresentation by the agent of the insured or the insured;

DISTINGUISH CONCEALMENT FROM REPRESENTATION Concealment is the neglect of one party to communicate to the other material facts. The information he gives in compliance with his duty to reveal information is representation. Representation therefore is the communication required to comply with the prohibition against concealment; Concealment is the passive and misrepresentation is the active form of the same bad faith; CONCEALMENT AND REPRESENTATION COMPARED 1. 2. 3. In concealment – the insured withholds information of material facts, while in representation – the insured makes erroneous statements; In concealment and misrepresentation both give the insurer the right to rescind the contract of insurance; The materiality of concealment and representation are determined by the same rules;

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Riders – are forms attached to the policy when the company finds it necessary to alter or amend the applicant’s answer to any question in the application; Clauses – are forms containing additional stipulations; Warranties – are written statement/stipulations inserted on the face of the contract or incorporated by proper words or reference – where the insured contracts as to the existence of facts, circumstances or conditions – the truth of which are essential to the validity of the contract; Endorsements – are agreements not contained but may be written or attached to policy to change or modify a part thereof;

DRAGON

are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable. It is therefore not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The fortuitous event should be the proximate and only cause of the loss; While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not escape liability to respondent SMC. The records clearly show the failure of petitioners’ representatives to exercise the extraordinary degree of diligence mandated by law. To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss. There must have been no contributory negligence on the part of the common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.: . Carelessness and negligence of the insured or his agents constitute no defense on the part of the insurer. – One of the purposes for taking out insurance is to protect the insured against the consequences of his own negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of the insured or his agents constitute no defense on the part of the insurer. When the insured’s negligence is gross as to constitute a willful act, the insurer must be exonerated.- The question now is whether there is a certain degree of negligence on the part of the insured or his agents that will deprive him the right to recover under the insurance contract. We say there is. However, to what extent such negligence must go in order to exonerate the insurer from liability must be evaluated in light of the circumstances surrounding each case. When evidence show that the insured’s negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated. The United States Supreme Court has made a distinction between ordinary negligence and gross negligence or negligence amounting to misconduct and its effect on the insured’s right to recover under the insurance contract. According to the Court, while mistake and negligence of the master or crew are incident to navigation and constitute a part of the perils that the insurer is obliged to incur, such negligence or recklessness must not 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. WHAT ARE COVER NOTES?

WHAT MUST A POLICY SPECIFY? A policy must specify: (1) (2) (3) (4) (5) (6) (7) The parties whom the contract is made; The amount to be insured except in open or running policies; The premium, or if the premium is to be determined at the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; The property or life insured; The interest of the insured in the property insured, if not the absolute owner; The risks insured against; The period during which the insurance is to continue (Section 51); vs.

FGU INSURANCE CORPORATION CA ( G.R. No. 137775. March 31, 2005)

Fortuitous event; Definition. – Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) by definition,

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It is a written memorandum of the most important terms of a preliminary contract of insurance intended to give protection pending investigation by the insurer of the risk or until the insurance of the formal policy (Section 52). It is also known as binding slip or receipt or binder; EFFECTIVITY OF A COVER NOTE The effectivity of a cover note is 60 days – as within such period, a policy shall be issued including in its terms the identical assurance found under the cover rate and the premium therefore. It may however, be extended beyond 60 days and with the written approval of the Insurance Commissioner if he determines that it does not violate the Insurance Code; NOTE THE FOLLOWING RULES HAVE BEEN PROMULGATED BY THE INSURANCE COMMISSIONER: (1) A cover note is valid for 60 days whether or not a premium is paid but may be cancelled by either party upon at least 7 day notice to the other party; If the other note is not cancelled, a regular policy must be issued within 60 days from the date of issue of the cover note including within its terms the identical insurance; It may be extended with the written approval of the commissioner but may be dispensed with by a certification of the President, Vice-President or General Manager of the insurer that the risks involved and the extension do not violate the code; Insurance companies may impose a deposit premium equivalent to at least 25% of the estimated premium but in no case less than Php500.00;

DRAGON

time, as on acceptance of the application or issuance/delivery of the policy. (44 CJS 958) Example: (1) Agent issued a provisional policy acknowledging receipt of premiums and stating that the insurance shall be effective upon approval and issuance of the policy by the head office. There is no protection as it is a mere acknowledgement of the payment of premiums as the effectivity of the insurance is expressly provided (Lim vs. Sunlife, 41 Phil 265); In life insurance, a binding slip does not insure by itself as it was stated that it was subject to the approval of the insurer and the same was subsequently disapproved (Grepalife vs. CA, 89 SCRA 546);

(2)

IS PAYMENT OF A PREMIUM PAYMENT FOR THE COVER NOTE NECESSARY TO BE PROTECTED AGAINST RISK INSURED AGAINST? Cover note held to be binding despite the absence of a premium payment for its issuance. No separate premiums are intended or required to be paid on a cover note because they do not contain particulars of the property insured that would serve as the basis for the computation of premiums – such being the case no premium can be fixed. The cover notes should not be treated as a separate policy but should be integrated in the regular policy subsequently issued so that premiums on the regular policy should include that for the cover note (Pacific Timber vs. CA, 112 SCRA 199); 2009 BAR EXAM (IV) Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance policy covering persons between the ages of 50 to 75 who may be afflicted with serious and debilitating illnesses. Quirico applied for insurance coverage, stating that he was already 80 years old. Nonetheless, ALAC approved his application.Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds to pay the insurance premium. ALAC granted the request. Ten days after he received the cover note, Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy.

(2)

(3)

(4)

WHEN WILL A COVER NOTE GIVE ADEQUATE INSURANCE PROTECTION? It gives adequate insurance protection when it is a preliminary contract of present insurance and not a mere agreement to insure a future

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a. Can ALAC validly deny the claim on the ground that the insurance coverage, as publicly offered, was available only to persons 50 to 75 years of age? Why or why not? (2%) b. Did ALAC’s issuance of a cover note result in the perfection of an insurance contract between Quirico and ALAC? Explain. (3%) Answer: age. a. no. there was no concealment on the part of quirico as to his

DRAGON

MAY A 3RD PERSON SUE THE INSURER – No, in general rule unless there is stipulation. Unless otherwise specified in the policy, a 3RD person may sue if: (a) The insurance contract contain stipulation in favor of a 3 RD person, the latter though not a party may sue to enforce before the contract is revoked by the parties; Example: In case of Coquia vs. Fieldmens Insurance Co. 26 SCRA 179, the insurance company undertook to indemnify any authorized driver who was driving the motor vehicle insured. Coquia, while driving the insured motor vehicle met an accident and died. His heirs were allowed to sue the insurer, the policy being considered in the nature of a contract pour autrui and therefore the enforcement thereof may be demanded by a 3rd party whose benefit it was made; (b) The insurance contract provides for indemnity against liability to 3RD persons. Example: In the case of Guingon vs. Del Monte, 20 SCRA 1043, the insured procured insurance that would indemnify him against any and all sums, which he may be legally liable to pay in respect to the death or bodily injury to any person. A jeepney covered by the insurance had bumped Guingon and had caused his death. The insurance was held to be one for indemnity for liability to third persons (Third Party Liability), and therefore, such third person is entitled to sue the insurer. The test to determine whether a 3rd person may directly sue the insurer of the wrongdoer is: if the contract provides indemnity against liability to 3 RD persons, then the latter to whom the insured is liable may directly sue the insurer, on the other hand, if the insurance if for the indemnity against actual loss or payment – then the 3rd person cannot sue the insurer – recourse is against the insured alone. (2) If the 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 the agent/trustee or by general words in the policy (Section 54). If not indicated, it is as if the insurance is the taken out by

b. yes, one of the exception of the cash and carry rule is in life insurance when the grace period applies. in the case at bar, the issuance of the cover note shows that the insurer granted a grace period. WHOSE INTEREST IS INSURED (1) 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 (Section 53). Example: (a) In the case of Del Val vs. Del Val, 29 Phil 534, the designation of a sister as a sole beneficiary in life insurance cannot be defeated by the contention of the plaintiff that the proceeds belong to the estate of the insured was disregarded as insurance is to be governed by special law, not by the law covering donations or succession; (b) In the case of Bonifacio Bros. vs. Mara, G.R. No. 20853, 29 May 1967, action to recover cost of repairs and labor to a motor vehicle where the policy states loss is payable to H.S. Reyes, the mortgagee of the vehicle who had no knowledge of the fact that Mara had it repaired with Bonifacio Bros., where the court ruled that H.S. Reyes is the one entitled to the proceeds because a policy of insurance is a separate and independent contract between the insured and the insurer, and that third persons have no right to the proceeds of the insurance.

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NOTES IN INSURANCE LAW
the agent/trustee alone, consequently the principal has no right against the insurer; (3) If a partner or part owner effects insurance, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest so that it may be applicable to the interest of his co-partners/owners (Section 55). Consequently, the policy must state that the interest of all is insured, if not, it is only the interest of the one getting the policy that is insured; When the description of the insured in the 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 56). When a policy is 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 57). The proceeds become payable to who may be the owner at the time the loss or injury occurs. This is an exception to section 20. 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 (Section 58). Note the exceptions to this rule as found in sections 20-24 and 57; 

DRAGON
A Valued Policy is one, which expresses on its face that the thing insured shall be valued at a specified sum (Section 61). The valuation of the property insured is conclusive between the parties. In the absence of fraud or mistake, such value will be paid in case of a total loss; A Running Policy (Floating 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 (Section 62). This is also known as a Floating Policy – usually issued to provide indemnity for property, which cannot be covered by specific insurance because of a frequent change in location and quantity.



(4)

(5)

Example: Insurance procured by a retail establishment to cover its inventory that fluctuates in quantity, or is located in several areas; VALUED POLICY DISTINGUISHED FROM AN OPEN POLICY (1) (2) In a valued policy, proof of value of the thing after the loss is not necessary. In an open policy, the insured must prove the value of the thing insured; In a valued policy, the parties have conclusively stipulated that the property insured is valued at a specified sum. In an open policy, the value is not agreed but left to be ascertained upon loss; Note: this does not violate the principle that a contract of insurance is a contract of indemnity as long as the valuation is reasonable and is bonafide).

(6)

WHAT ARE KINDS OF INSURANCE POLICIES The kinds of policies are (1) Open, (2) Valued, or (3) Running (Section 59);  An Open Policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss (Section 60). What is mentioned, as the amount is not the value of the property but merely the maximum limit of the insurer’s liability. In case of loss, the insurer only pays the actual cash value at the time of loss;

OPEN AND VALUED POLICIES PROBLEM

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Suppose A constructed a house in 1990 at a cost of P 200,000.00 which he insured against fire to the said amount. The policy for P 200,000.00 was renewed every year. In 1995, when the said house was already P 400,000.00, ¼ of the house was burned or destroyed by fire. How much can he recover from the insurer? ANSWER: It depends. If the policy is a valued policy, A can recover only P 50,000.00. If a policy is an open policy, A can recover his actual loss of P 100,000.00. CAN THERE BE AGREEMENTS AS TO PRESCRIPTION OF AN ACTION OR LIMITATIONS ON THE PERIOD OF TIME TO BRING AN ACTION Yes, provided the period agreed upon should not be less than one year (Section 63). If less than one year, the agreement is void. The period so agreed shall be considered as having commenced from the time the cause of action accrues. Usually, the cause of action accrues from the date of the insurers rejection of the claim of the beneficiary or of the insured – since before rejection there is no necessity to bring suit. When no period is stipulated or if the stipulation is void, the period is within 10 years under article 1144, New Civil Code, it being a written contract (Eagle Star vs. Chia Yu 96 Phil 696, ACCFA vs. Alpha Insurance, 24 SCRA 151). If the insured asks for a reconsideration of the denial, the period is still counted from the time the claim is denied at the first instance – not reconsideration - as it gives the insured a scheme or devise to waste time until evidence that may be considered against him can be destroyed (Sun Life Office Ltd. Vs. CAR, 195 SCRA 193). The period does not run if action is brought against an agent of the insurer; WHAT IS THE PRESCRIPTIVE PERIOD OF MOTOR VEHICLE INSURANCE One year from denial of the claim – not date of accident – (Summit Guaranty vs. De Guzman, 15 SCRA 389); WHERE IS THE ACTION FILED The action may be filed in the following: (1) Courts; (6) (2)

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Insurance Commissioner, who has concurrent jurisdiction with courts for claims not exceeding Php100,000.00; (3) POEA/DOLE have the power to compel a surety to make good on a solidary undertaking in the same proceeding where the liability of the principal obligor is determined. Note that the claim becomes action upon filing with the court; CANCELLATION OF THE POLICY If policy other than life shall be cancelled by the insurer except upon prior notice thereof to the insured. No notice of cancellation shall be effective if not based on the occurrence, after effective date of one or more grounds: (Section 64) (1) (2) Non payment of premium; Conviction of a crime arising out of acts increasing the hazard insured against Discovery of material representation; Discovery of willful or reckless acts or omissions increasing the hazard insured against; Physical changes in the property insured which the result in the property being uninsurable; Determination by the insurance commissioner that continuation of the policy would place the insurer in violation of the code:

(3) (4)

(5)

FORM OF NOTICE OF CANCELLATION

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It must be in writing, mailed or delivered to the name insured at the address shown in the policy which shall state: (1) (2) The grounds relied upon as per section 64, and; That upon written request of the named insured, the insurer will furnish the facts on which cancellation is based (Section 65). FORM Notes: (1) A fire insurance policy is cancelled on October 15, 1981. The insurer’s clerk allegedly got notice of cancellation by mail but there was no proof that it was actually mailed and received. Insurer relies on the presumption of regularity. Held: Considering the strict language of the law that no policy can be cancelled without prior notice – it behooved on the insurer to make sure that cancellation was actually sent and received by the insured (Malayan vs. Arnaldo, 156 SCRA 762); A insured his building against fire and made the loss payable to mortgagee. Upon cancellation notice was sent to the mortgagee. Held: There was no valid notice of cancellation. The notice is personal to the insured and not to any unauthorized person (Saura Import Export vs. Philippine International Surety Co., Inc., 8 SCRA 143); -

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It is a statement or promise stated in the policy or incorporated therein by reference, whereby the insured – expressly or impliedly (Section 67) contracts as to the past, present or future (Section 68) existence of certain facts, conditions or circumstances – the literal truth of which is essential to the validity of the contract;

No particular form of words is necessary to create a warranty (Section 69). What is essential is what the parties intend a statement to be and if so intended as a warranty it must be included as part of the contract; Note: (1) (2) Whether a warranty is constituted or not depends upon the intention of the parties, the nature of the contract, or the words used thereto; In case of doubt, the statement is presumed to be a representation not a warranty;

(2)

WHAT ARE THE KINDS OF WARRANTIES (1) (2) Affirmative – those that relate to matters that exist at or before the issuance of the policy; Promissory – those where the insured promises or undertakes that certain matters shall exist or will be done or will be omitted after the policy takes effect. It is a statement in the 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); Note that unless the contrary intention appears, the courts will presume that the warranty is merely an affirmative warranty. Express – a statement in a policy of a matter relating to the person or thing insured or to the risk as a fact (Section 71) and where the assertion or promise is clearly set forth in the policy or incorporated therein by reference. They can be affirmative or promissory warranties; An express warranty made at or before the execution of the policy should be contained (a) in the policy itself (b) in

IS THE INSURED HAVE THE RIGHT TO RENEW HIS POLCY Yes, in insurance other than life, the named insured, may renew the policy upon payment of the premium due on the effective date of the renewal, if, he has not been given notice by the insurer of the intention not to renew or to condition renewal upon reduction of limits or elimination of coverages by mail or delivery at least forty five days in advance of the end of the policy; WARRANTIES Defined

(3)

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another instrument signed by the insured and referred to in the policy as making a part of it (Section 70). This includes a rider – it is a part of the policy, it need not be signed unless the rider was issued after the original policy took effect; (4) Implied – where the assertion or promise is not expressly set forth in the policy but because of the general tenor of the terms of the policy or from the very nature of the insurance contract, a warranty is necessarily inferred or understood. Note that the law only provides for implied warranties in contracts of marine insurance. See section 113 (seaworthiness) and 126 (deviation);

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Note that a causal connection between the violation of the warranty is not necessary – So, even if the violation did act contribute in the loss – the other party may still rescind. Example: A insured building against fire. A warranty stated that no hazardous goods should be stored. A stored fireworks. The building was burned and the fireworks were discovered stored in the area not affected by the fire. The insurer was not held liable as the storage had increased the risk (Young vs. Midland Textiles Ins. – 30 Phil 617); THE NON PERFORMANCE OF A PROMISSORY WARRANTY DOES NOT AVOID THE POLICY WHEN BEFORE THE ARRIVAL OF THE TIME FOR PERFORMANCE (Section 73) (1) (2) (3) The loss insured against happens; The performance becomes unlawful at the place of the contract; The performance becomes impossible;

EFFECT OF VIOLATION OF A WARRANTY The violation of a material warranty, or other material provision of the policy, on the part of either party thereto, entitles the other to rescind (Section 74) Note that the insured can exercise the right also when the insurer violates a warranty, like when it refuses to grant a loan on the policy. But as far as the insured, Note also that: (1) While a policy may declare that a violation of a specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy (Section 75). Meaning ordinarily a breach of an immaterial provision does not avoid a policy, however, if stipulated that any breach avoids the policy, the policy is avoided; A breach of a warranty without fraud, merely exonerates an insurer from the time it occurs, or where it is broken at its inception, prevents the policy from attaching to the risk (Section 76). Meaning – that if the breach is without fraud – the policy is avoided only from the time of the breach it is still effective. Consequently, the insured is entitled to a pro-rate return of the premium paid under section 79 (b) or all premiums, if the breach occurs at the inception of the contract, as such is void ab initio and had never become binding;

DISTINGUISHING IT FROM REPRESENTATIONS WARRANTY - A warranty is part of the contract; - A warranty is expressly set forth in the policy or incorporated therein by reference; REPRESENTATION - Representation is merely a collateral inducement thereto; - A Representation my be oral or written in another statement;

(2)

- A warranty must strictly and literally performed;

- Representation must be substantially true;

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- A warranty is presumed material; - A breach of warranty is a breach of the contract itself - A representation must be shown to be so; - (mis)representation is a ground to rescind the contract;

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the premium has been paid by the obligor to the surety (Section 177);

EXCEPTIONS TO SECTION 77: UCPB GENERAL INSURANCE CO., INC. vs.MASAGANA TELAMART, INC. (G.R. No. 137172 April 4, 2001) 1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77) When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78) Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) If the insurer granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery should be allowed even the premium is paid after the loss but within the credit term. Where the parties are barred by estoppel.

PREMIUM DEFINED The agreed price for assuming and carrying the risk;

2. 3.

4. WHEN IS THE INSURER ENTITLED TO A PREMIUM? The insurer is entitled to the payment of a 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 is paid except in: (1) (2) In case of life or industrial life (life insurance policy where the premium is payable monthly or oftener) whenever the grace period applies (Section 77); When the insurer makes a written acknowledgement of the receipt of premium, such is conclusive evidence of the payment of the premium to make it binding notwithstanding any stipulation therein that it shall not be binding until the premium is paid (Section 78) HENCE, the effect of an acknowledgement in a policy or contract of insurance of the receipt of the premium – is that it is conclusive evidence of payment – so far as to make the policy binding. However, it is conclusive only to make the policy binding and not for the purpose of collecting premium, and; Where the obligee has accepted the bond or suretyship contract in which case such bond or suretyship contract becomes valid and enforceable irrespective of whether or not 5.

UCPB GENERAL INSURANCE CO. VS. MASAGANA TELEMART, APRIL 24, 2001 Ruling . It was established that UCPB had been issuing fire policies to Masagana and these policies were annually renewed. UCPB had been granting Masagana a 60 to 90-day credit term within which to pay the premium on the renewed policies. There was no valid notice of non-renewal of the policies. The premium were paid within the 60 to 90 day credit term and duly accepted by UCPB. It would be unjust and inequitable if Masagana cannot recover on the policies. UCPB is estopped from taking refuge under Section 77 since Masagana had relied in good faith on such practice. AMERICAN HOME ASSURANCE CO. VS. 28, 1999 SC RULING: ANTONIO CHUA, JUNE

(3)

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SC sustained/affirmed the decision of the RTC and CA because there was a valid check payment by Chua to the insurer. The renewal certificate issued to Chua contained the acknowledgment that premium has been paid. VIRGINIA A. PEREZ vs. CA (G.R. No. 112329 January 28, 2000) Only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. -Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils.7 A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service.8Under Article 1318 of the Civil Code, When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form: there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health.9 The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. In the case at bar, the following conditions were imposed by the respondent company for the perfection of the contract of insurance: (a) a policy must have been issued; (b) the premiums paid; and

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(c) the policy must have been delivered to and accepted by the applicant while he is in good health. The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant while he is in good health can hardly be considered as a potestative or facultative condition. On the contrary, the health of the applicant at the time of the delivery of the policy is beyond the control or will of the insurance company. Rather, the condition is a suspensive one whereby the acquisition of rights depends upon the happening of an event which constitutes the condition. In this case, the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good health. There was nonfulfillment of the condition, however, inasmuch as the applicant was already dead at the time the policy was issued. Hence, the non-fulfillment of the condition resulted in the non-perfection of the contract. No contract of insurance, unless unless the minds of the parties have met in agreement.- A contract of insurance, like all other contracts, must be assented to by both parties, either in person or through their agents and so long as an application for insurance has not been either accepted or rejected, it is merely a proposal or an offer to make a contract. The contract, to be binding from the date of application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement. Delay in acting on the application not unreasonable so as to constitute gross negligence for which the insurance corporation may be penalized. - Respondent corporation cannot be held liable for gross negligence. It should be noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first premium with his application. The corporation may not be penalized for the delay in the processing of the application papers. Moreover, while it may have taken some time for the application papers to reach the main office, in the case at bar, the same was acted upon less than a week after it was received. The processing of applications by respondent corporation normally takes two to three weeks, the longest being a month.12 In this case, however, the requisite medical examination was undergone by the deceased on November 1, 1987; the application papers were forwarded to the head office on November 27, 1987; and the policy was issued on December 2, 1987. Under these circumstances, we hold that

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NOTES IN INSURANCE LAW
the delay could not be deemed unreasonable so as to constitute gross negligence. WHAT IS THE EFFECT OF PARTIAL PAYMENT? Ordinarily, the obligation to pay premium when due is considered an indivisible obligation. Hence, forfeiture is not prevented by a part payment unless, payment by installment has been agreed upon or is the established practice – the basic principles of equity and fairness would not allow the insurer to collect and accept installments and later deny liability as premiums were not paid in full. (See Philippine Phoenix Surety and Ins. vs. Woodworks – 20 SCRA 1270, Makati Tuscany Condominium Corporation vs. CA, - payment by installment was agreed upon, note also Tibay vs. CA – 257 SCRA 126 – any partial payment when there is an agreement that the policy shall not be effective pending payment of full premium was in the concept of deposit.) PAYMENT TO INSURANCE AGENT OR BROKER is payment to the insurance company; WILL PAYMENT BY PROMISORY NOTE OR CHECK BE SUFFICIENT TO MAKE THE POLICY BINDING? No, art. 1249 2ND paragraph of the Civil Code, that such produces payment only when it is ENCASHED; (6) WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUMS PAID? 2000 BAR EXAM (IX – a) The insured is entitled to a return when: WHOM ARE THE PREMIUMS RETURNED (1) To the whole premium, when no part of the interest in the thing insured is exposed to any of the perils insured against (Section 79 –A); (2)

DRAGON
Where the insurance is made for a definite period of time and the insured surrenders his policy before the expiration of the period, here the insured only recovers a portion of the policy premiums corresponding with the unexpired time but it does not apply if: (a) the policy is not so definite; (b) a short period rate (insurance is for a period of less than a year and a rate has been agreed to if the policy is surrendered; Example: If the policy is in force for a month the insurer retains 20% of the premium) has been agreed upon; (c) the policy is a life insurance policy – it is indivisible but he has a cash surrender value; When the contract is voidable on account of fraud or misrepresentation of the insurer or the agent (Section 81); Where the contract is voidable on account of facts, the existence of which the insured was ignorant without his fault (Section 81); When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy; (Section 81); In case of over insurance. Here the insurance is in excess of the amount of the insurable interest of the insured and it is insured by several insurers, the insured is entitled to a RATABLE RETURN OF PREMIUM, proportional to the amount by which the aggregate sum insured in all the policies exceeds the insurable value;

(3)

(4)

(5)

Unless otherwise stated, they shall be returned to the insured who paid them;

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NOTES IN INSURANCE LAW
WHEN ARE THEY NOT RECOVERABLE Premiums cannot be recovered: (1) If the peril insured against has existed, and the insurer has been liable for any period, the period being entire and indivisible (Section 80); In life insurance – (Section 79-b) cash surrender value; When the insured is guilty of fraud or misrepresentation (Section 81);

DRAGON
Examples: (a) When the thing insured is water damaged due to efforts to put out a fire, the fire being a peril insured against (b) Theft by 3RD persons while the goods are brought out in the course of rescuing them from a fire, which is the peril insured against BUT – no loss if the goods are left out and are lost – it is now due to lack of reasonable care and vigilance; (C) A insures the contents of his house against fire. A fire breaks out, while removing the contents, they were stolen or they were broken or damaged, theft or breakage not being perils insured against;

(2) (3)

LOSS AND NOTICE OF LOSS WHAT ARE THE RULES TO DETERMINE WHETHER THE INSURER IS LIABLE FOR THE LOSS OF THE THING INSURED? 1. Loss of which a peril insured is the proximate cause. Although a peril not contemplated by the contract may have been a remote cause but the insurer is not liable for a loss of which the peril insured against was only a remote cause. (Section 84) Proximate cause- that which in natural and continuous sequence, unbroken by any efficient intervening cause, produces an injury and without which the injury would not have occurred) Example: In life insurance that covers death by accident, if the insured sustains an accident that renders him weak, while in said state, he contracts a cold that develops into pneumonia. The proximate cause is the accident, while the remote cause is the pneumonia, the insurer is liable; 2. Loss caused by efforts to rescue the thing insured from a peril insured against that would otherwise have caused a loss, if in the course if such rescue, the thing is exposed to 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 (Section 85). Here the principle of proximate cause is extended to loss incurred while saving the thing insured.

3. 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 86). The immediate cause is the CAUSE OR CONDITION NEAREST THE TIME AND PLACE OF THE INJURY. Here, the insurer will be liable if both the immediate cause and the proximate cause are not excepted. If the proximate cause is excepted and the immediate cause is not, the insurer is not liable. 4. An insurer is not liable for loss caused by the willful act or through the convenience of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agent or others (Section 87). Consequently, if the insured was merely negligent, the insurer is still liable as one of the principal reasons of procuring insurance is to protect himself against the consequences of his own negligence or that of his agents. 2007 BAR EXAM (IV) Alfredo took out a policy to insure his commercial building against fire. The broker for the insurance company agreed to give a 15-day credit within which to pay the insurance premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006, a fire broke out and destroyed the building owned by Alfredo.Reason briefly in (a), (b) and (c).

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a. May Alfredo recover on the insurance policy? Yes, Alfredo can recover on the insurance policy. Although Section 77 of the Insurance Code provides that in fire insurance, payment of premium is necessary for validity of the policy (also known as “cash and carry” provision), nonetheless, the rule has been modified by the decisions of the Supreme Court after the promulgation of the Insurance Code. Thus, in UCPB General Insurance v. Masagana Telemart, G.R. No. 137172, April 4, 2001, it was held that the insured should be allowed to recover on losses sustained even when premium was paid after the fact of loss, provided payment was received by the insurer during the credit period given to the insured. (See also South Sea Surety v. Court of Appeals, G.R. No. 102253, June 2, 1995; American Home Assurance v. Chua, G.R. No. 130421, June 28, 1999) where the Supreme Court ruled that is the check payment for premium was received by the insurer prior to the loss or within the credit period, the insured was allowed to recover. b. Would your answer in (a) be the same if it was found that the proximate cause of the fire was an explosion and that fire was but the immediate cause of loss and there is no excepted peril under the policy? Yes, recovering under an insurance contract is allowed if the cause of the loss was either the proximate or the immediate cause as long as an expected peril was not the proximate cause of the loss. (Section 86, Insurance Code of the Philippines.) The fire being the immediate cause for the loss of the commercial building, would warrant recovery under the policy. c. If the fire was found to have been caused by Alfredo's own negligence, can he still recover on the policy? Yes, he can still recover. The doctrine of contributory negligence does not in any way apply to rights under a contract of insurance, unless it is a case of willful act. (Section 87, Insurance Code of the Philippines) ADMISSION OF PRIVATE DOCUMENTS AS EVIDENCE – Before a private document is admitted in evidence, it must be authenticated either by the person who executed it, the person before whom its execution was acknowledged, any person who was present and saw executed, or who after its execution, saw it and recognized the signatures, or the person to whom the parties to the instruments had previously confessed execution thereof.

DRAGON

(sec.20 Rule 132 ROC as cited in Malayan Insurance Co., Inc. V. Philippine Nails and Wires Corporation, Apr.10, 2002 G.R. No. 138084)

ISSUANCE OF CLAIM FOR LOSS; FILING OF CLAIM WITHIN THE PERIOD A CONDITION PRECEDENT – The issuance of claim for loss or damages to cargo should be filed within 24 hours from the time the goods were received. The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action. (Philippine Charter Insurance Corp. v. Chemoil Lighterage Corp., Jun. 29, 2005 G.R. No. 136888) RECOGNIZING THAT THERE ARE PROBLEMS IN PROXIMATE CAUSE – NOTE THE FOLLOWING RULES: DETERMINING

(a) If there is a single cause which is an insured peril, clearly it is the proximate cause and there is liability;

(b) If there are concurrent causes (those happening together) with no excluded perils, there if liability if one of the causes is an insured peril, the others may be ignored; (c) If there are concurrent causes with an excepted peril (insured peril operate together to produce the loss) the claim will be outside the scope of the policy; (d) But if the results of the operation of the insured peril can be clearly separated from the effects of the excepted peril, the insurer is liable; (e) Where a number of causes operate one from the other, the original cause happens to be a peril, the insurer is liable.

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TRANSFER OF CLAIMS An agreement not to transfer the claim of the insured after the loss happens – is VOID if MADE BEFORE THE LOSS except as otherwise provided in case of life insurance (Section 33). This means that the insured has an absolute right to transfer his claim against the insurer AFTER THE LOSS occurs, what is prohibited is a transfer prior to the loss. This is so because such stipulation after the loss occurs shall hinder the transmission of property. Neither does it affect the insurer as its liability is already fixed and what is actually assigned is the money claim, not the contract itself. The exception in section 173 that provides that the transfer of a fire insurance policy to any person or company who acts as an agent for or otherwise represents the issuing company is prohibited and is void insofar as it affects other creditors of the insured; NOTICE AND PROOF OF LOSS Notice of loss must be given without unnecessary delay by the insured or some person entitled to the benefit of the insurance. IF NOT THEN, the insurer is exonerated (Section 88). WITHOUT UNNECESSARY DELAY – is within a reasonable time, depending on circumstances of a peculiar case, although courts have construed the requirement liberally in favor of the insured. PROOF OF LOSS If the policy requires Preliminary Proof of Loss (evidence given the insurer of the occurrence of the loss, its particulars, and data necessary to enable it to determine liability and the amount thereof) IT IS NOT NECESSARY that the insured give such proof – AS MAY OR WOULD BE NECESSARY IN A COURT OF JUSTICE WHAT IS SUFFICIENT is the BEST EVIDENCE which he has in his power at that time (Section 89)

DRAGON

WHEN ARE DEFECTS IN THE NOTICE OR PROOF LOSS DEEMED WAIVED BY THE INSURER 1. 2. When the insurer fails to specify to the insured any defect which the insured can remedy without delay; When the insurer denies liability on a ground other than that defect in the notice or proof of loss; Example: Denial is based on nullity of the contract (Section 90) WHEN IS DELAY IN THE GIVING OF NOTICE WAIVED 1. 2. If it is caused by any act of the insurer. If the insurer omits to make an objection promptly and specifically on that ground. – despite delay, the insurer does not object (Section 91);

REQUIREMENT OF CERTIFICATION OR TESTIMONY OF A THIRD PERSON In the giving of preliminary proof of loss, a certification or testimony of a third person other than the insured is required, it is sufficient for the insured to use REASONABLE DILIGENCE to procure it. In case of REFUSAL to give it, the insured can 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 – ONCE SHOWN or GIVEN the requirement may be dispensed with (Section 92). WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING OF NOTICE OF LOSS In property insurance, after the insured has received payment from the insurer of the loss covered by the policy, the insurance company is SUBROGATED to the rights of the insured against the wrongdoer or the

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NOTES IN INSURANCE LAW
person who has violated the contract. The right of subrogation accrues upon payment of the insurance claim. NOTE: Subrogation takes effect by operation of law and does not require the consent of the wrong doer (Fireman’s Fire Insurance vs. Jamilla & Company, 70 SCRA 323). THERE IS NO SUBROGATION IN: (a) Life insurance as it is not a contract of indemnity (b) When proximate cause of the loss is the insured himself (c) When the insurer pays to the insured a loss not covered by the policy;  The insured is no longer to collect from the wrongdoer if the amount that he received from the insurer has fully compensated for the loss; SUBROGATION (ART. 2207, NEW CIVIL CODE) PHILIPPINE AMERICAN GEN. INSURANCE CO. VS. CA & FELMAN SHIPPING LINES, JUNE 11,1997. SC RULING: It ordered Felman to pay Phialamgen P 755, 250.00 plus interest pursuant to Art. 2207 0f the Civil Code which provides: “Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract, the insurance company shall be subrogated to the right of the insured against the wrongdoer or the person who violated the contract.” DOUBLE INSURANCE When does double insurance exist? - Where the same person is insured by several insurers separately in respect to the same subject or interest (Section 91). 2005 BAR EXAM (N0. X – 2 -b)

DRAGON

Q: What is the nature of the liability of the several insurers in double insurance? Explain. (2%) A: In double insurance, the insurers considered as co-insurers. Each one is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. (Section 94(e), Insurance Code. REQUISITES OF DOUBLE INSURANCE 1. Same person is insured; 2. There are several insurers; 3. Subject insured is the same; 4. Interest insured is the same; 5. Risk of peril insured against is the same;  There is prohibition TO PREVENT OVER-INSURANCE, thus preventing fraud.

2008 BAR EXAM Terrazas de Patio Verde, a condominium building, has a value of P50 Million. The owner insured the building against fire with three (3) insurance companies for the following amounts:Northern Insurance Corp. 20M,Sounthern Insurance Corp.30M, Eastern Insurance Corp.50M. a. Is the owner's taking of insurance for the building with three (3) insurers valid? Discuss. (3%) b. The building was totally razed by fire. If the owner decides to claim from Eastern Insurance Corp. only P50 Million, will the claim prosper? Explain. (2%) Answer: A. Taking out insurance covering the same property, same insurable interest and same risk with three insurance companies is “double insurance” recognized under sec 93 of ICP. However, in American Home Assurance Corp vs. Chua June 28, 1999, the court referred to the common inclusion of the other insurance clause in the fire insurance policies requiring disclosure of co-insurance of the same property with other insurers.

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Answer: B Insured can recover from Eastern Inssurance Corp up to the extent of his loss. However, Eastern may refuse to pay if the policy contains an “ other insurance clause” stipulating that non-disclosure of double insurance will avoid the policy. ( Geagonia v. Country Bankers Insurance )6 February, 1995. As there is no indication of a contractual prohibition on double or other insurance, all insurance contracts over the building are deemed valid and enforceable. The law prohibits double or over-recovery, not double insurance. Since eastern insured the property up 50% the total coverage, it is liable for only 50% of the total actual loss. Eastern Insurance Corp, is liable to the extent of its coverage but may recover one half of the total indemnity from the co-insurers in the proportion of 60% ( Southern Insurance)- 40 % ( northern Insurance) EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE 1. Insured, unless the policy otherwise provide, 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. 2. 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 policy without regard to the actual value of the subject matter insured. 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 the policy. Where the insured receives any sum in excess of the valuation in case of a valued policy or the insurable value in case of an unvalued policy, he must hold such sum in trust for the insurers, according to their right of contribution among them; In relation paragraph (4) – Each insurer is bound, as between himself and the other insurers to contribute ratably to the loss in proportion to the amount for which it is liable under his contract. ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION – WHICH HAS ALREADY BEEN INCOPORATED IN ALMOST ALL

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POLICIES – that should there be other insurances covering the same property, the liability of the company would be limited to its ratable proportion of the loss or damage (Also known as CONTRIBUTION CLAUSE) TEST TO DETERMINE EXISTENCE OF DOUBLE INSURANCE - Whether the insured, in case of happening of the risk, can directly benefited by recovering on both policies? If yes – there is double insurance. IS DOUBLE INSURANCE VALID? - It depends, if there is prohibition in the policy then it is not valid, but if there is no prohibition, it is valid provided it must follow the provisions of the law. - If there is an OTHER INSURANCE CLAUSE – one that prevents other insurance on the property except without the consent of the company – THEN IT WILL PREVENT ENFORCEMENT OF THE POLICY, the policy will be NULL and VOID. If there is no OTHER INSURANCE CLAUSE, then double insurance is allowed but the provisions of Section 94 must be followed because property insurance is a contract of indemnity. DISTINGUSHING OVER INSURANCE FROM DOUBLE INSURACE DOUBLE INSURANCE there must be two or more insurers; the total amount of the policies need not exceed the value of the insurable interest; OVER INSURANCE one insurer sufficient; is

3.

4.

-

-

the value must always be in excess of the insurable interest;

5.

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REINSURANCE - occurs when an insurer procures a 3RD person to insure him against loss or liability by reason of such original insurance. (Section 95) WHEN IS REINSURANCE COMPULSORY? 1. When a non-life insurer insured in any one risk or hazard an amount exceeding 20% of its net worth, the insurer needs reinsurance of the excess over such limit (Section 215 (1)) 2. When a foreign insurance company withdraws from the Philippines, it should cause its primary liabilities under policies insuring residents of the Philippines to be reinsured by another company authorized to transact an insurance business in the Philippines; DOUBLE INSURANCE VS. REINSURANCE DOUBLE INSURANCE - the insurer remains an insurer - subject property matter is REINSURANCE insurer becomes the insured the subject matter is the insurer’s risk or liability different interest and risk are insured WHAT KIND OF CONTRACT IS REINSURANCE? -

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The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The parties must abide by the terms of the contract because such terms constitute the measure of the insurer’s liability and compliance therewith is a condition precedent to the insured’s right of recovery from the insurer. WHAT MUST BE COMMUNICATED WHEN THE ORIGINAL INSURER OBTAINS REINSURANCE? Except in automatic reinsurance treaties (when two or more insurance companies agree in advance that they will reinsure a part of any line of insurance taken by the other. Since such contracts are selfexecuting and the obligation attaches automatically, the information required to be communicated herein could not influence the reinsurer in deciding whether or not to accept the reinsurance because it is automatZ representations of the original insured;all information or knowledge he possesses whether previously or subsequently acquired, which are material to the risk (Section 96);

-

It is presumed to be a contract of indemnity against liability, and merely against damage (Section 97). As a RULE, the reinsurer is not liable to the reinsured for a loss under an original policy if the reinsured is not liable to the original policyholder.

- same interest and risk is insured with another

-

Note: The subject of the reinsurance contract is the insurers risk not the property insured in the original policy – Thus, it is not necessary that the insurer first pay on the claim on the original policy before claiming from the insurer; WHAT IS THE EXTENT OF LIABILITY OF THE REINSURER? The liability of the reinsurer is measured by the liability of the reinsured to the original policy holder PROVIDED, it does not exceed the amount of reinsurance;

DIFFERENTIATE DOUBLE INSURANCE, REINSURANCE & MUTUAL INSURANCE (for further discussion) NEW LIFE ENTERPRISES VS. CA , 207 SCRA 669 (1992) SC RULING:

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Example: A insures his house valued at 1 million to X insurance for 1.5 Million. X insurance reinsured with Z insurance for 1.2 million. The house burns. The liability of Z insurance is only up to 1 million, which is the liability of X Insurance. What if the original insured and insurance company settles for less, the liability of Z Insurance is still only up to what is paid by X Insurance OTHERWISE, the original insurer profits and thus violates that the principle that is a contract of indemnity. WHAT IS THE INTEREST OF THE ORIGINAL INSURED IN THE CONTRACT OF REINSURANCE? The original insured has no interest in the contract of reinsurance (section 98). Hence only the reinsured can claim against the reinsurer;

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crated, baled, compressed, or similarly prepared for shipment or while awaiting shipment or during any delays, storage, transshipment or reshipment incident thereto, (b) Person or property in connection with or appertaining to marine, island marine, transit or transportation insurance, including liability for loss or in connection with the construction, repair, operation, maintenance, use of the subject matter of the insurance. (But not including life insurance, or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of the ownership, maintenance, use of automobiles) (c) Precious stones, jewels, jewelry, precious metals whether in the course of transportation or otherwise; (d) Bridges, tunnels or other instrumentalities of transportation and communications (excluding buildings, their furniture and furnishings, fixed contents, and supplies held in storage), piers, wharves, docks, slips, and other aids to navigation and transportation including dry docks, marine railways, dams and appurtenant facilities for the control of waterways; AND – “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 in ocean or island waterways, including liability of the insured for personal injury, illness or death or for loss or damage to the property of another person (section 99). NOTE: That marine insurance is really TRANSPORTATION INSURANCE that is a kind of insurance that is concerned with the perils of property in (or incidental to) transit as opposed to property perils at a generally fixed location. But does not include normal motor vehicle insurance which is treated separately by law;

CLASSES OF INSURANCE MARINE INSURANCE WHAT IS MARINE INSURANCE? (a) Insurance against loss or damage to: Vessels, craft, aircraft, vehicles, goods freight, cargoes, merchandise effects, disbursements, profits, moneys, securities, loses in action, evidences of debt, valuable papers, bottomry or respondentia interest and all other kind 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,

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INSURANCE POLICY – [effect of failure to present insurance policy] – since the Marine insurance policy was never presented in evidence before the trial court or the Court of Appeals even, there is no legal basis to consider such document in the resolution of this case, x x x (Malayan Insurance Co. vs. Regis Brokerage Corporation Nov. 23 2007 G.R. No. 172156) MARINE RISK NOTE IS NOT AN INSURANCE POLICY – Certainly it would be obtuse for us to even to entertain the idea that the insurance contract between Malayan and ABB Koppel was actually constituted by the Marine Risk Note alone. (Malayan Insurance Co. vs. Regis Brokerage Corporation Nov. 23 2007 G.R. No. 172156)

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consequences of legal liability for loss or damage to property or for personal injury, illness or death of a person (Par.2, Section 99); WHAT RISKS ARE INSURED AGAINST? The basic risk insured against is commonly known as PERILS OF THE SEA (all kinds of marine casualties and damages done to the ship or goods at sea by the violent action of the winds or waves, one that could not be foreseen and is not attributable to the fault of anybody.

WHAT ARE NOT COVERED? WHAT ARE THE DIVISIONS OF TRANSPORTATION INSURANCE? 1. 2. Ocean Marine Insurance – pertaining primarily to sea perils of ships and cargoes; Inland Marine Insurance – pertaining primarily to land or overland (but sometimes) transportation of property shipped by railroads, motor trucks, airplanes, and other means of transportation. Includes four basic principles that are: (a) Property in transit – providing protection to property frequently exposed to loss while in transport from one place to another; (b) Bailee liability – providing protection to persons who have temporary custody of goods or personal property of others; (c) Fixed transportation property – providing protection to fixed property considered aids to the movement of property, like bridges and tunnels, and (d) Floater – providing protection to personal property (such as precious stones, jewelry, works of art) whenever it may be located subject always to territorial limits of the contract and need not necessarily be in the course of transportation. Generally, perils of the ship are not covered losses that result from: (a) natural and inevitable action of the sea; (b) ordinary wear and tear of the ship; (c) negligent failure of the ship owner to provide the vessel with the proper equipment to convey the cargo under ordinary conditions; -

WHO MUST CHECK ON THE SEA WORTHINESS OF A VESSEL? Since there is an implied warranty of seaworthiness, it becomes the obligation of the cargo owner or the insured to look for a reliable common carrier, which keeps it vessels seaworthy. The insured may have no control on the vessel but has full control in the choice of common carrier;

-

2008 BAR EXAM (IX –b) Q: On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping Company (CSC), sank on her voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is the insurer of the lost cargoes loaded on board the vessel which were consigned to Debenhams Company. After it indemnified Debenhams, Empire as subrogee filed an action for damages against CSC.

NOTE: Marine Insurance may be in form of property insurance, indemnifying the insured for loss or damage to property (Par.1, Section 99) or liability insurance, protecting the insured against the

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b) Assume that the vessel was not seaworthy as in fact its hull had leaked, causing flooding in the vessel. Will your answer be the same? Explain. (2%) A: When the vessel is not seaworthy, it is an exception to the hypothecary principle in maritime commerce. To limit its liability to the amount of the insurance proceeds, the carrier has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. The failure to discharge such a heavy burden precludes application of the limited liability rule and the carrier is liable to the full extent of the claims of the cargo owners (Aboitiz Shipping v. New India Assurance Company, G.R. No. 156978, 02 May 2006). 2008 EXAM (IX –c) Q:c) Assume the facts in question (b). Can the heirs of the three (3) crew members who perished recover from CSC? Explain fully. (3%) A: Yes, because the crew members died while performing their assigned duties, aggravated by the failure of the ship owner to ensure that the vessel is seaworthy. Workmen’s compensation has been classified by jurisprudence as an exception to the hypothecary nature of maritime commerce, Abueg v.San Diego, 77 Phil. 730 (1948), especially in this case where the vessel was not seaworthy at the time it sank. (a)

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Barratry – is willful act of the master and crew in pursuance of some fraudulent or unlawful purpose without the consent of the owner and to the prejudice of his interest. Example: Burning of the ship or unlawfully selling the cargo;

(b)

Inchamaree Clause – one that covers any loss other than a willful and fraudulent act of the insured and avoids putting upon the insured the burden of establishing that a loss was due to a peril within the policy’s coverage, whether arising from a marine peril or not provided the risk is not excluded;

WHAT CONSTITUTES INSURABLE INTEREST IN OCEAN MARINE INSURANCE? 1. The owner of a vessel has insurable interest in the vessel such shall continue even if the vessel has been chartered by one who covenants to pay the owner the value of the vessel upon loss but in case of loss, the owner is liable only for the part of the loss which the insured cannot recover from the charterer. (Section 100); 2. The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry. (Section 101);

WHAT PERILS ARE INSURED IN AN “ALL RISK POLICY” It is to be construed as creating a special insurance and extending to all risk than are usually contemplated and will cover all losses except such that may arise from intentional fraud, intentional misconduct, or that otherwise excluded. It may include all losses whether arising from a marine peril or not to include pilferage during a war (Filipino Merchant Insurance Co. vs. CA, 179 SCRA 638).

-

DEFINITION OF TERMS BOTTOMRY/RESPONDENTIA

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– is a loan payable only if the vessel given as a security for said loan arrives safely at port from contemplated voyage (bottomry) or a loan payable only upon the safe arrival in port of the goods given as a security (respondentia). this contracts are in the nature of a mortgage as the owner borrows money for the use, equipment or repair of the vessel for a definite term with the ship as security with maritime or extraordinary interest on account of the risks borne by the lender, it being stipulated that if a ship be lost during the voyage or within a limited period, the lender also loses his money (Note that the lender has insurable interest to the extent of loan);

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Example: Owner of a cargo transported on a vessel not only has insurable interest on the cargo but also on the expected profits from a future sale; 2. The charterer of a ship has insurable interest to the extent that he is liable to be damnified by its loss (Section 106).

-

Example: A charters B’s vessel on condition that A would pay B in case of loss the amount 300,000.00. A has insurable interest to the extent of 300,000.00 CONCEALMENT IN MARINE INSURANCE

3. The owner of a vessel also has insurable interest in expected freightage, which according to the ordinary course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. (Section 102) Freightage – are the benefits derived by the owner from: (a) (b) chartering of a ship; its employment for the carriage of his own goods or those of others (Section 102)

-

IT EXIST (a) In case of a charter party – when the ship has broken ground on the intended voyage (b) if a price is to be paid for the carriage of goods, when they are actually on board or there is contract to put them on board AND the vessel and goods are ready for specified voyage (Section 104); ARE THERE PERSONS/PARTIES OTHER THAN THE OWNER WHO HAS INSURABLE INTEREST? YES; 1. One who has an interest in the thing from which profits are expected to proceed, has insurable interest on the profits (Section 105);

A party is bound to communicate, in addition to what is required by section 28 (facts within his knowledge, material to the contract, other party has not the means of ascertaining, as to which party with a duty to communicate makes no warranty) information that he possesses, that are material to the risk AND, to state the EXACT and WHOLE TRUTH in relation to all matters that he represents , or upon inquiry discloses or assumes to disclose EXCEPT those that the insurer knows or those in the exercise of ordinary care, the other ought to know, and which the former has no reason to suppose him to be ignorant under Section 30 (Section 107);

NOTE: That the rules on concealment in marine insurance are stricter as it is sufficient that the insured is in POSSESSION OF THE MATERIAL FACT, ALTHOUGH HE IS UNAWARE OF IT. Example: If an agent fails to notify principal of the loss of the cargo and the latter, after the loss but ignorant thereof, secured insurance lost or not lost, the insurance will be void due to concealment;

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A party is also bound to communicate, the information belief or expectation of a 3rd person, in reference to a material fact, is material. Note: under section 35 such is not required to be communicated in ordinary insurance (section 108); PRESUMPTION OF A PRIOR LOSS Insured in marine insurance is presumed to have knowledge, at the time of insuring, or prior, if information might possibly reached him in the usual mode of transportation and the usual rate of communication (section 109) and need not be communicated (section 35); - A causal connection between the fact concealed and cause of loss is not necessary for the insurer to rescind;

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has to be communicated;

-

The concealment of any of the matters stated in section 110 merely exonerates the insurer from loss, if the results from the fact concealed;

REPRESENTATION IN MARINE INSURANCE If the representation 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 (Section 111). But the eventual falsity of a representation as to an expectation does not in the absence of fraud avoid the contract (section 112).

EFFECT OF CONCEALMENT While concealment as a rule entitles the injured party to rescind, the rule must yield to section 110 – as it does not vitiate the contract but merely exonerates the insurer from a loss resulting from the risks concealed as related to: the national character of the insured; the liability of the thing insured to capture and detention; the liability to seizure from breach of laws of foreign laws of trade; the want of necessary documents ; the use of false/simulated documents

-

(a) (b) (c) (d) (e)

Example: statement as to time of sailing, nature of the cargo or amount of profits; WHAT ARE THE IMPLIED WARRANTIES IN MARINE INSURANCE? 2000 BAR EXAM (IX – b) 1. In every contract of marine insurance upon a ship or freight, freightage or upon anything which is the subject of marine insurance, there is an implied warranty that the ship is sea worthy (section 113);  A ship is sea worthy when it is reasonably fit to perform the service and encounter the ordinary perils of the voyage, contemplated by the parties (section 114). Note that it is relative and is made to depend on the circumstances.

Example: The vessel is seized due to lack of documents, the insurer is exonerated. If the vessel is lost due to storm, the insurer is liable despite concealment due to lack of; DISTINGUISHING ORDINARY CONCEALMENT FROM THAT IN MARINE INSURANCE Ordinary Insurance - Opinion or belief of a 3RD person or own judgment of the insured is not material Marine Insurance Belief or expectation of 3RD person in reference to a material fact is material and

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 The implied warranty of seaworthiness complied with as a general rule when it is seaworthy at the time of the commencement of the risk except: (a) when the insurance is made for a specified length of time, it must be seaworthy at the commencement of every voyage it undertakes at that time; (b) when the insurance is upon cargo, which by the terms of the policy description of the voyage, or established custom of trade, it is required to be transshipped at an immediate port in which case – each vessel upon which the cargo is shipped or transshipped must be seaworthy at the commencement of each particular voyage (section 115); (c) where different portions of the voyage contemplated in the policy differ in respect to the things requisite to make the ship seaworthy, I which case it must be seaworthy at the commencement of each portion (section 117); Example: The voyage will pass thru rivers – then seas – the warranty is not complied with if at the time it goes out to sea – it is not seaworthy to encounter the perils of the sea; TO WHAT DOES THE WARRANTY OF SEAWORTHINESS EXTEND TO:  The warranty of seaworthiness extends not only to the condition of the structure of the ship, but it requires that: (a) it be properly laden or loaded with cargo; (b) is provided with a competent master, sufficient number of officers and seamen; (c) it must have the requisite equipment and appurtenances like ballast, cables, anchors, cordage, sails, food, water, fuel, lights and other necessary and proper stores and implements for the voyage (section 116); 3. 

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Note that when a ship becomes unseaworthy during the voyage – it will not avoid the policy – as long as – there is no unreasonable delay in repairing the defect. Otherwise – the insurer is exonerated on the ship or the ship owners’ interest from any liability from any loss arising therefrom (section 118). Hence, if loss is not one due to the defect or peril was not increased by the defect insurer is liable; Also, while a ship may be seaworthy for purposes of insurance on it, it may by reason of being unfitted to receive cargo, be unseaworthy for the purpose of insurance on the cargo (section 119).



Example: A cargo of wheat was laden on a ship which had a port hole insecurely fastened at the time of lading. The port hole was foot above the water line, and in the course of the voyage, water entered the cargo area and damaged the wheat. The ship was deemed unworthy with reference to the cargo, hence the insurer of the cargo was not liable (Steel vs. Stateline Steamship, cited Go Tiaco vs. Union Society of Canton, 40 Phil 40) ; 2. It shall carry the requisite documents to show its nationality or neutrality and that it shall not carry any document that will cast reasonable suspicion on the vessel (section 120). This warranty arises only when nationality or the neutrality of the vessel or cargo is expressly warranted; That the vessel shall not make any improper deviation from the intended voyage;

HOW IS THE INTENDED VOYAGE DETERMINED (a) (b) When its is described by places of beginning and ending, the voyage is the course of sailing fixed by mercantile usage between those places (section 121); When its is not fixed by mere usage, the voyage is the way between the places specified which to a master of ordinary

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will and discretion would seem the most natural, direct and advantageous (section 122); WHAT IS DEVIATION is a departure from the course of the voyage as defined by section 121 and 122 or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage (section 123); WHEN IS DEVIATION PROPER (a) When it is caused by circumstances over which neither the master nor the owner of the ship has any control; Example: An ailment strikes the crew of the vessel; When necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured against; Example: When repairs are necessary or to avoid getting caught in a conflict; When made in good faith, for the purpose of saving human life or relieving another vessel in distress; Example: When assistance is given 2005 BAR EXAM (N0. XIV -1 - a)

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*** ANY DEVIATION THAT IS NOT INCLUDED IS NOT PROPER (SECTION 124 AND 125)

Q: On a clear weather, M/V Sundo, carrying insured cargo, left the port of Manila bound for Cebu. While at sea, the vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest island where it stayed for seven days. The vessel ran out of provisions for its passengers. Consequently, the vessel proceeded to Leyte to replenish its supplies. a) Assuming that the cargo was damaged because of such deviation, who between the insurance company and the owner of the cargo bears the loss? Explain. A: The Insurance company should bear the loss. Since the deviation was cured by a strong typhoon, it was caused by circumstances beyond the control of the captain, and also to avoid a peril whether or not insured against. Deviation is therefore proper. (Section 145(a), Insurance Code) CONSEQUENCE OF IMPROPER DEVIATION

(b)

(c)

2005 BAR EXAM (N0. XIV -1- b) Q: Under what circumstances can a vessel properly proceed to a port other than its port of destination? Explain. (4%) A: A vessel can properly proceed to a port other than its port of destination in the following cases: 1. When caused by circumstances over which neither the master or the owner of the ship has any control; 2. When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; 3. When made in good faith, and upon reasonable grounds of belief In the necessity to avoid peril; 4. When made in good faith for the purpose of saving human life or relieving another vessel in distress. (Section 124, Insurance Code) 4.



Insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation (section 126). This applies whether the risk has been increased or diminished.

That the vessel does not or will not engage in any illegal venture;

LOSS IN MARINE INSURANCE Losses in marine insurance may be partial or total (section 127). A loss that is not total is partial (section 128);

BURDEN OF PROOF AS TO LOSS OR DAMAGE – The burden of proof” contemplated by the aforesaid provision actually refers to the “burden of

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evidence” (Burden of going forward). As applied in this case it refers to the duty of the insured to show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss was caused by an excepted risk in order to escape any liability under the contract. (DBP Pool of Accredited Insurance Companies v. Radio Mindanao Network, Inc. Jan. 27, 2006, G.R. No. 147039) KINDS OF TOTAL LOSSES a total loss may be actual or constructive (section 129)

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the cargo reshipped up to the amount insured – nothing shall render the insurer liable for an amount in excess of the insured value or if none, of the insurable value (section 134);



Upon actual total loss, the insured is entitled to payment without notice of abandonment (section 135) and if the insurance is confined to an actual loss it will not cover a constructive loss, but will cover any loss, which necessarily results in depriving the insured of possession, at the port of destination of the entire thing insured (section 137);

(1) If it is an Actual Total Loss it may be caused by: a. b. total destruction of the thing insured; the irretrievable loss of the thing which renders it valueless to the owner for the purpose that he held it; c. any other event which effectively deprives the owner of the possession at the port of destination of the thing insured (section 130) Example: When palay was rendered valueless because they began to germinate, thus it no longer remains as the same thing, it was an actual total loss. (Pan Malayan vs. CA 201 SCRA 382)  An actual total loss can also be presumed from the continued absence of the ship without being heard of (section 132). The length of time which is sufficient to raise these presumption depends on the circumstances of the case; If the vessel be prevented, at an immediate port, from completing the voyage, by the perils insured against, the liability of the marine insurer on the cargo continues after they are reshipped (section 133) and the liability extends to damages, expenses of discharging, storage, shipment, extra freightage and all other expenses incurred in saving

(2) It is a constructive total loss when the person insured is given a right to abandon under section 139 (section 131); ORIENTAL ASSURANCE CORP., VS. CA AND PANAMA SAWMILL CO., INC. 200 SCRA 459 (1991) SC RULING: The policy in question shows that the subject matter insured was the entire shipment of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the terms insured. The logs on the two barges were not separately valued or separately valued or separately insured. Only one premium was paid for the entire shipment, making only one cause or consideration. The insurance contract should be considered indivisible. Under the Insurance Code, a total loss may either be an actual loss or a constructive total loss. The appellate court treated the loss suffered by Panama as a constructive total loss, and for the purpose of computing the more than three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the logs in the other. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208 pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code. In the absence of either actual or



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constructive total loss, there can be no recovery by Panama against Oriental Assurance. 2005 BAR EXAM (N0. X -1- a) Q: M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against “constructive total loss.” Due to a typhoon, it sank near Palawan. Luckily, there were no casualties, only injured passengers. The shipowner sent a notice of abandonment of his interest over the vessel to the insurance company which then hired professionals to afloat the vessel for P900,000.00. When re-floated, the vessel needed repairs estimated at P2,000,000.00. The insurance company refused to pay the claim of the shipowner, stating that there was “no constructive total loss.” a) Was there “constructive total loss” to entitle the shipowner to recover from the insurance company? Explain. A: There was constructive total loss. When the vessel sank, it was likely that it would be totally lost because of the improbability of recovery. (Arnold’s Law of Marine Insurance and Average, 16 th ed., Vol. II, pp. 954955) Suggested Alternative Answer: There was no constructive total loss. The loss is not more than ¾ the value of the vessel which was insured for P40,000,000.00. The cost of refloating is P900,000.00 and the needed repairs amount P2,000,000.00, or a total of only P2,900,000.00 which does not constitute more than ¾ the value of the vessel. THE DOCTRINE OF LIMITED LIABILITY – [when not applicable] – The doctrine of limited liability under Article 587 of the Code of Commerce is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the ship owner and the captain. It has already been established that the sinking of the M/V Central Bohol had been caused by the fault or negligence of the Ship Captain and the crew, as shown by the improper stowage of the cargo logs. “Closer supervision on the part of the ship owner could have prevented this fatal miscalculation.” As such, the ship owner was equally negligent. It cannot escape liability by virtue of the limited liability rule. (Central Shipping Company, Inc. v. Insurance Company of North America, Sept. 20, 2004, G.R. No. 150751)

DRAGON

ABANDONMENT – is the act of the insured by which, after a constructive total loss, he desires to the insurer the relinquishment in its favor his interest in the thing insured (section 138); 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 a total loss – when the cause of loss is a peril insured against if: 1 .more than ¾ thereof in value is actually lost or would have to be expended to recover it form the peril insured against; 2 .if it is injured to such extent as to reduce its value by more than ¾ of value; 3 .if the thing injured is a ship and contemplated voyage cannot lawfully be performed without incurring either an expense to the insured of more than ¾ the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; 4 .if the insured is freightage or cargo – and the voyage cannot be performed – nor another ship cannot be procured by the master – within a reasonable time with reasonable diligence – to forward the cargo without incurring the like expense or risk mentioned in item (c) but, freightage cannot be abandoned unless the ship is abandoned (section 139); Abandonment must neither be partial nor conditional (section 140). Hence, it must be total and absolute; Abandonment must be made within a reasonable time after receipt of reliable information of the loss but, where the information is of doubtful character, the insured is entitled to a reasonable time to make an inquiry (section 141). This is to enable the insurer to take steps to preserve the property;

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 If the information proves incorrect or thing insured is restored when the abandonment was made that there was then in fact no total loss – the abandonment becomes ineffectual (section 142); (2)

DRAGON
Acts done in good faith by those who were agents of the insured in respect to the thing insured subsequent to the loss are at the risk of the insurer and for his benefit (section 148). The agents of the insured become agents of the insurer. This retroacts to the date of the loss when abandonment is effectively made;

HOW NOTICE OF ABANDONMENT IS MADE By giving notice, oral or written notice to the insurer but if orally given, a written notice of such must be submitted within seven days from giving oral notice (section 143). The notice must be explicit and specify the particular cause of the abandonment but need start only enough to show that there is probable cause therefore and need not be accompanied by proof of interest or of loss (section 144). The requirement as the explicitness of the notice is due to the fact that abandonment can only be sustained upon the cause specified in the notice (section 145);

EFFECTIVITY OF ABANDONMENT (1) Abandonment becomes effective upon the acceptance of the insurer. Acceptance may either be express or implied from the conduct of the insurer. The mere silence of the insurer for an unreasonable length of time after notice shall be construed acceptance (section 150). Once accepted, it is conclusive between the parties. The loss is admitted together with the sufficiency of the abandonment (section 151). It is also irrevocable upon acceptance and upon its being made unless the ground upon which is made proves to be unfounded (section 152). Thus, if the insurer accepts the abandonment, it cannot raise any question as to insufficiency of the form under section 143, time for giving notice under section 141, or right to abandon under 139. The only exception the is under section 152 when the ground is unfounded which is defined in section 142 and/or as related to section 145; No abandonment of freightage unless ship is also abandoned; On an accepted abandonment involving a ship, freightage earned previous to the loss belongs to the insurer of the freightage, that subsequently earned belongs to the insurer of the ship (section 153). Example: The contemplated voyage of the transport of cargo is from point X to point Y. In between, a loss occurs and the ship is abandoned. The freightage already earned from point X until the point of loss, belongs to the insurer of the freightage. If the ship is subsequently repaired, and

2005 BAR EXAM (N0. X - 1- b) Q: b) Was it proper for the shipowner to send a notice of abandonment to the insurance company? Explain. (5%) A: It was proper for the shipowner to send a notice of abandonment to the insurance company, because there was reliable information of the loss of the vessel.(Section 141, Insurance Code) EFFECTS OF ABANDONMENT (2) (1) It is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity (section 146) Note though, if the insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage as if there has been a formal abandonment. Here the insurer has opted to pay for total actual loss notwithstanding the absence on actual abandonment;

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continues on to point Y the freightage due belongs to the insurer of the ship; (3) If abandonment is not accepted despite its validity, the insurer is liable upon an actual total loss, deducting from the amount any proceeds of the thing insured that may have come to the hands of the thing insured (section 154). This is due the fact that under section 149, which provides that if notice is properly given, it does not prejudice the insured, if the insurer refuses to accept the abandonment; (b)

DRAGON
that are incurred by the vessel from the time it puts out to the sea until it reaches its destination General or gross average is an expense or damage suffered deliberately in order to save the vessel or its cargo or both from real and known risk. Thus, all persons having an interest in the vessel and cargo or both at the occurrence of the average shall contribute. Example: Jettisoning of cargo;

IF ABANDONMENT IS NOT MADE OR OMMITTED The fact that abandonment is not made or is omitted does not prejudice the insured as he may nevertheless recover his actual loss (section 155); As a rule when 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 a particular average loss not depriving the insured of the possession, at the port of destination, of the whole 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 (section 136); 2009 BAR EXAM (VII) Global Transport Services, Inc. (GTSI) operates a fleet of cargo vessels plying interisland routes. One of its vessels, MV Dona Juana, left the port of Manila for Cebu laden with, among other goods, 10,000 television sets consigned to Romualdo, a TV retailer in Cebu. When the vessel was about ten nautical miles away from Manila, the ship captain heard on the radio that a typhoon which, as announced by PAG-ASA, was on its way out of the country, had suddenly veered back into Philippine territory. The captain realized that MV Dona Juana would traverse the storm’s path, but decided to proceed with the voyage. True enough, the vessel sailed into the storm. The captain ordered the jettison of the 10,000 television sets, along with some other cargo, in order to lighten the vessel and make it easier to steer the vessel out of the path of the typhoon. Eventually, the vessel, with its crew intact, arrived safely in Cebu. a. Will you characterize the jettison of Romualdo’s TV sets as an average? If so, what kind of an average, and why? If not, why not? (3%)

LIABILITY FOR AVERAGES AVERAGE DEFINED – is any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel or cargo from the time it is loaded and the voyage commenced until it ends and the cargo is unloaded; KINDS OF AVERAGES (a) Particular or simple average – is a damage or expense caused to the vessel, cargo, or which has not inured to the common benefit and profit of all persons interested in the cargo or the vessel. This damage or expense is borne ordinarily by the owner of the vessel or cargo that gives rise to the expenses or suffered the damage; Example: Damage sustained by a cargo from the time it is loaded to the time it is unloaded or additional expenses

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b. Against whom does Romualdo have a cause of action for indemnity of his lost TV sets? Explain. (3%) IN CASE OF GENERAL AVERAGE LOSS The insurer is liable for the loss falling upon the insured, though a contribution in respect to the thing insured when required to be made by him towards a general average loss called for a peril insured against but liability is limited to the proportion of the contribution attaching to his policy value where this is less than the contributing value of the thing insured (section 164). Meaning that the insured can hold his insurer liable for contribution up to the value of the policy;

DRAGON

SUBROGEE – x x x right to recovery derives from the contractual subrogation as an incident to an insurance relationship and not from any proximate injury to it inflicted by the respondents x x x (Malayan Insurance Co. vs. Regis Brokerage Corporation Nov. 23 2007 G.R. No. 172156) SUBROGATION – [meaning] Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers the situation under which an insurer that has paid loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to enforce payment. (Lorenzo Shipping Corp. v. Chubb and Sons, Inc. Et Al. Jun 8, 2004 G.R. No. 147724) SUBROGEE – The rights to which the subrogee succeeds the same as, but not greater than, those of the person for whom he is substituted – he cannot acquire any claim, security, or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if insured likewise could have recovered. However when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The person substituted (the insurer) will succeed to all the rights of the creditor(the insured), having reference to the debt due the latter. (Lorenzo Shipping Corp. v. Chubb and Sons, Inc. Et Al. Jun 8, 2004 G.R. No. 147724)

RIGHT OF SUBROGATION When a person injured in a contract of marine insurance has a demand against the others for contribution, he may claim the whole loss from his insurer subrogating the insurer to his own right to contribution but no such claim can be made upon the insurer if: there is separation of the interest liable to contribution; Example: When the cargo liable for contribution has been removed from the vessel (b) when the insured having the right and opportunity to enforce contribution from others, has neglected or waived the exercise of the right (section 165). Meaning that the insured has a choice of recovery on the happening of a general average loss. They are: (1) Enforcing the contribution against interested parties; or (2) Claiming from the insurer. If it be the latter, subrogation takes place;

-

(a)

DELSAN TRANSPORT LINES, INC. vs. CA and AMERICAN HOME ASSURANCE CORPORATION (G.R. No. 127897 November 15, 2001) Common Carriers; Failure to deliver cargo; Payment by insurance company of insurable value of the goods; Insurance company subrogated to the rights of the assured against the common carrier. The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance

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policy. However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.8 Article 2207 of the New civil Code provides that: Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

DRAGON

on his part. If there is fraud in valuation, it entitles the insurer to rescind as it is an exception as to conclusiveness (Section 156); 2.If however, hyphotecated by the bottomry or respondentia – before insurance and without knowledge of the person securing it – he may show the real value: 3.An insurer is liable upon a partial loss – only for such proportion of the amount insured by him – as the loss bears to the whole interest of the insured (section 157). The effect is that the insured is deemed a co-insurer if the value of the insurance is less than the value of the property. This applies even in the absence of a stipulation in the contract and is also known as the average clause. I The two requisites for the application of the average clause: (1) (2) insurance is for less than actual value; the loss is partial

Presentation of marine insurance policy not necessary for insurance company to go after the vessel-owner.- The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. MEASURE OF INDEMNITY IN MARINE INSURANCE IF THE POLICY IS VALUED; 1.A valuation in the policy of marine insurance is exclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk and there is no fraud

Note: That co-insurance exist in Marine Insurance: In Fire Insurance, there is no co-insurance unless expressly stipulated (sections 171-172). In life insurance, there is none also as value is fixed in the policy (section 183) 4.In case profits are separately insured in a contract of marine insurance (see section 105) , the insured can recover in case of a loss (and under section 160, there is a conclusive presumption of a loss from the loss of the property out of which they were expected to arise, and the valuation fixes their amount), a proportion of such profits equivalent to proportion of the value of the property lost bears to the value of the whole (section 158).

(1)

IF THE POLICY IS OPEN

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(a) The value of the ship is the value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured; The value of the cargo is its actual cost to the insured, when laden on board where the cost cannot be ascertained, its Market Value at the time and place of lading. Adding the charges incurred in purchasing and placing it on board – but without reference to any loss incurred in raising money for its purchase or any DRAWBACK on its EXPROPRIATION or FLUCTUATION of the market at the port of destination or expenses incurred on the way or on arrival; The formula is: (a) (b)

DRAGON

(b)

Market price in sound state less market price in damaged state equals reduction in value; Reduction in value divided by market price in sound state multiplied with the amount of insurance equals the amount of recovery;

FIRE INSURANCE COVERAGE IN FIRE INSURANCE Insurance against fire includes loss or damage due to lightning, windstorm, tornado, earthquake or other allied risks when such risks are covered by extensions to the fire insurance policy or under separate policies (section 167). Hence, while it is not limited to loss or damage due to fire, coverage as to other risks is not automatic; 2001 BAR EXAM (N0.XVII) Q: JQ, owner of the condominium unit, insured the same against fire with XYZ Insurance Corp. and made the loss payable to his brother. MLQ. In case of loss by fire of the said condominium unit, who may recover on the fire insurance policy? State the reasons for your answer? A: JQ can recover on the fire insurance policy for the loss of the said condominium unit. He has the insurable interest as owner-insured. As beneficiary in the fire insurance policy, MLQ cannot recover on the fire insurance policy. For the beneficiary to recover on the fire or property insurance policy, it is required that he must have insurable interest in the property insured. In this case, MLQ does not have insurable interest in the condominium unit. FIRE DEFINED In insurance, it is defined as the active principle of burning, characterized by heat and light combustion. Combustion without

Drawback – government allowance upon duties on imported merchandise when the importer re-exports instead of selling it; (c) Value of freightage is the gross freightage, exclusive or primage without reference to the cost of earning it;

Primage – compensation paid by the shipper to the master of the vessel for his care and trouble bestowed on the goods of the shipper, which he retains in the absence of a contrary stipulation with the owner of the vessel; (d) The cost of insurance is in each case to be added to the value thus estimated (section 161);

IF THE CARGO INSURED AGAINST PARTIAL LOSS If it arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port of the thing so damaged bears to the market price it would have brought if sound (section 162). Meaning if reduction in value is 1/5, then amount of recovery on the insurance is also 1/5.

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visible light or glow is not fire. Example: Damage caused by smoke from a lamp when no ignition occurred outside the lamp. To allow recovery, it must be the proximate of the damage or loss and fire must be hostile if it: burns at a piece where it is not intended to burn; starts as a friendly fire but becomes hostile if it should escape from the place where it is intended to burn and becomes uncontrollable; c. is a friendly fire which becomes HOSTILE by not escaping from its proper place but because of the unsuitable material used to light it and it becomes inherently dangerous and uncontrollable; -as opposed to friendly fire – one that burns in a place where it is intended to burn and employed for the ordinary purpose of lighting, heating, or manufacturing. But the policy itself may limit or restrict coverage to losses under ordinary conditions but not those due to extra-ordinary circumstances or abnormal conditions like war, invasion, rebellion, civil war or similar case. In these cases recovery is still possible; ALTERATION DEFINED Is a change in the use or condition of a thing insured from that to which it is limited by the policy, made without the consent of the insurer, by means within the control of the insured, and increasing the risk, which entitles the insurer to rescind the contract of insurance (section 168); -From the foregoing definition, the REQUISITES must be present to constitute an alteration so as to allow the rescission of the contract to wit: (a) The use or condition of the thing insured is specifically limited or stipulated in the policy but under section 170, the contract of insurance is not affected by an act of the insured subsequent to the execution of the policy, which does not violate its provisions even though it increases the risk and is the cause of the loss; a. b.

DRAGON

Example: (1) If the insured stored thinner, paints and varnish. A fire subsequently occurs and there is no express prohibition as to storage of such items, even if the risk is increased, the insurer is still liable (Bachrach vs. British Assurance, 17 Phil 555); (2) The policy states that the 1st floor is unoccupied, it is later occupied. There is no alteration that entitles the insurer to rescind, the description of the house cannot be said to be a limitation as to use (Hodges vs. Capital Insurance 60 O.G. 2227) There is an alteration in the said use or condition; The alteration is without the consent of the insurer; The alteration is made by means within the insured’s control. If the alteration be by accident or means beyond the control of the insured, the requisite is not met. Example: The alteration is made by a tenant with the consent or knowledge of the insured, the insurer cannot rescind; (e) The alteration increases the risk of loss but under section 169 any alteration in the use or condition of the thing insured from that to which is limited by the policy, which does not increase the risk does not affect the contract; (b) (c) (d)

BUT THERE MUST NOT BE ANY VIOLATION OF THE CONTRACT OTHERWISE The basis for rescission is that payment of the premium is based on the risk as assessed at the time of the issuance of the policy when the risk is increased without a corresponding increase in premium is paid;

MEASURE OF INDEMNITY IN FIRE INSURANCE In an open policy, it is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which it was at the time of the injury.

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In a valued policy, it is the same as in marine insurance, the valuation as agreed upon by the parties is conclusive in the adjustment of either a partial or total loss in the absence of fraud (section 171).

DRAGON
includes employer’s liability, workmen’s compensation, public liability, motor vehicle liability, plate glass liability, burglary and theft, personal accident and health insurance as written by non-life companies and other substantially similar insurance (section 174);

HOW IS VALUATION MADE (1) Whenever the insured would like to have a valuation stated in a policy insuring a building or structure against fire, it may be made by an independent appraiser, who is paid by the insured and the value may be fixed between the insurer and the insured; Subsequently, the clause is then inserted in the policy that said valuation has thus been fixed; In case of loss, provided there is no change increasing the risk without the consent of the insured or fraud on the part of the insured, the insurer will pay the whole amount so insured and stated in the policy is paid. If it is a partial loss, the whole amount of the partial loss is paid. In case there are 2 or more policies, each shall contribute pro-rata to the total or partial loss but the liability of the insurers cannot be more than the amount stated in the policy; Or the parties may stipulate that instead of payment, the option to repair, rebuild or replace the property wholly or partially damaged or destroyed shall be exercised. (Section 172).  No policy of fire insurance shall be pledged, hypothecated or transferred to any person, firm or company that acts as agent for or otherwise represents the issuing company, such shall be void and of no effect insofar as it may affect other creditors of the insured (section 173) DEFINITIONS EMPLOYER’S LIABILITY is insurance obtained by the employer against liability to an employee for damages caused or arising from injuries by reason of his employment;

(2) (3)

WORKMEN’S COMPENSATION is insurance secured by an employer for the benefit of his employees and laborers for loss resulting from injuries, disablement, or death through industrial accident, casualty, or disease in connection with their employment. Note that most if not all types of this insurance is underwritten by the GSIS or the SS.

(4)

PUBLIC LIABILITY is insurance against liability of the insured to pay damages for accidental bodily injury or damage to property arising from an activity of the insured defined in the policy;

MOTOR VEHICLE LIABILITY is insurance against loss or injury arising from the use of a motor vehicle by its owner as opposed loss or damage to the vehicle itself. Coverage for both may however be contained in the policy;

CASUALTY INSURANCE CASUALTY INSURANCE DEFINED Generally, it is one that covers loss or liability arising from an accident or mishap excluding those that fall exclusively within other types of insurance like fire or marine. It

PLATE GLASS

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is insurance that indemnifies the insured against loss caused by the accidental breaking of plate glass, windows, doors or show cases; -

DRAGON
An agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a 3RD party called the obligee (section 175); Includes – official recognizance’s, bonds or undertakings issued by any company under act no. 536, as amended by act no. 2206 (government transactions – by authorized companies)

BURGLARY AND THEFT is insurance against loss of property through burglary and theft; 

PERSONAL ACCIDENT is insurance against expense, loss of time and suffering from accidents that cause a physical injury;

WHAT IS THE LIABILITY OF THE SURETY It is joint and several (solidary) with the obligor but limited to the amount of the bond and determined strictly by the terms of the contract in relation to the principal contract between obligor – obligee (section 176);

SUN INSURANCE OFFICE vs. CA July 17, 1992 (1993 and 1994 Bar exams) X was issued a personal accident insurance for P200,000. Two months later, he died of a bullet wound in his head. He was playing with his hand gun from which he removed the magazine. He pointed his gun to his temple and fired. The insurance company refused to pay the beneficiary. Was there suicide or accident? SC Ruling: 1. X was negligent but it should not prevent the beneficiary from recovery because there is nothing in the policy that exempts the insurer of the responsibility to pay indemnity if the insured is shown to have contributed to his own accident.t 2. The death is accidental. Accident happens by chance without intention or design and which is unexpected or unforeseen. HEALTH is insurance for indemnity for expenses or loss occasioned by sickness or disease;

IS A SURETYSHIP CONTRACT VALID AND BINDING WHERE THE PREMIUM HAS NOT YET BEEN PAID? Generally, payment of the premium is a condition precedent. Hence the bond is not valid. An exception is when it is issued and accepted by the obligor, it is valid despite non payment of the premium (Section 177);

WHAT OTHER LAWS GOVERN A SURETYSHIP CONTRACT? In the absence of specific provisions, civil code provisions apply in a suppletory character if necessary to interpret the contract provisions (Section 178); DISTINGUISHED WITH GUARANTY (1) A surety assumes liability as a regular party to the agreement, a guarantor’s liability depends on an independent agreement to pay if primary debtor fails to pay; A surety is primarily liable, a guarantor is secondarily liable; A surety is not entitled to exhaustion, a guarantor is entitled to exhaustion;

SURETYSHIP DEFINITION

(2) (3)

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NON-NECESSITY OF A DEMAND ON THE SURETY – Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principal’s default. (Intra -Strata Assurance Corporation, Et Al. v. Republic of the Philippines, Etc., Jul. 9, 2008 G.R. No. 156571) REPUBLIC vs. CA and R & B SURETY AND INSURANCE COMPANY, INC. (G.R. No. 103073 March 13, 2001) Surety of Sureties; Liability of; Joint and several with the obligor; Limited to the total amount of the bond. -Section 176 of the Insurance Code provides: "SECTION 176. The liability of the surety of sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee, (as amended by P.D. No. 1455)." LIFE INSURANCE DEFINITION Is insurance on human lives and insurance appertaining thereto or connected therewith (section 179); ANNUITY -

DRAGON
premiums are payable for life and the insurer agrees to pay the face value upon the death of the insured;

LIMITED PAYMENT LIFE insured pays premiums for a limited period after which he stops with a guarantee by the insurer that upon death the face amount is to be paid – if death occurs while payment is not complete – beneficiary acts face amount;

TERM POLICY insurer is liable only upon death of the insured within the agreed term or period. If insured survives the insurer is not liable;

ENDOWMENT protection is for a limited period, if the insured is still alive at the end of the period, the value of the policy is paid to him. If he dies before the end period, it is paid to the beneficiaries;

WHEN IS IT PAYABLE - An insurance upon life may be made payable upon: (a) death of the person; or (b) his surviving a specified period; or (c) otherwise, contingently on the continuance cessation of life; COMMON KINDS WHOLE LIFE/ORDINARY LIFE/STRAIGHT LIFE (2)

where the insured or a named person/s is paid a sum or sums periodically during life or a certain period (note that contracts for the payment of endowment or annuities are considered as life insurance contracts);

DISTINGUISHING LIFE INSURANCE FROM PAYMENT OF ANNUITY or (1) In life insurance, it is payable upon the death of the insured, while in annuity, it is payable during the lifetime of the annuitant; In life insurance, the premium is paid in installments, while in annuity, annuitant pays a single premium;

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(3) In life insurance, there is lump sum payment upon death, while in annuity, annuities are paid until death;

DRAGON
Yes, it may pass by transfer, will or succession to any person, whether he has insurable interest or not. (Section 181); Effect, the person to whom it is transferred may recover upon it whatever the insured might have recovered; Note while there is no need for the assignee/transferee to have insurable interest, it should not be used to circumvent the law prohibiting insurance without insurable interest. Thus, an assignment contemporaneous with issuance may invalidate the policy unless made in good faith;

-

WHAT RISKS ARE COVERED? (1) Generally - all causes of death are covered unless excluded by law, by policy or public policy. Examples: a. By law – beneficiary is the principal, accomplice or accessory in bringing death of the insured;



IS NOTICE TO THE INSURER OR TRANSFER OR BEQUEST REQUIRED? It is not necessary to preserve the validity of the policy unless thereby expressly required (Section 181);

b. By policy – when it does not cover assault, murder or injuries inflicted intentionally by a 3RD person but where the insured is not the intended victim, insurer is liable (Calanoc vs. CA, 98 Phil 79). What must be considered is that death or injury is not the natural or probable result of the insured’s voluntary act (Finman General Assurance Corporation vs. CA, 213 SCRA 493) as opposed to an act of the insured to confront burglars (Balagtan vs. Insular Life Assurance Company, 44 SCRA 58). c. By public policy – when the insured is executed for a crime committed;

IS THE CONSENT OF THE BENEFICIARY REQUIRED? Yes, if he designated as an irrevocable beneficiary as he has acquired a vested right;

WHAT IS THE MEASURE OF INDEMNITY IN LIFE INSURANCE? Unless the interest of a person insured is susceptible of pecuniary estimation, the amount stated or specified in the policy is the measure of indemnity (section 183). Hence a life insurance policy has been held to be a valued policy;

(2)

Suicide, if committed after the policy has been in force for a period of two years from date of issue or last reinstatement unless policy provides a shorter period but it is nevertheless compensable if committed in the state of insanity regardless of date of commission (Section 180-A)

BUSINESS INSURANCE ORGANIZATION, CAPITALIZATION AND AUTHORIZATION REQUIREMENTS FOR A CERTIFICATE OF AUTHORITY FROM THE INSURANCE COMMISSION

IS A LIFE INSURANCE POLICY TRANSFERABLE OR ASSIGNABLE?

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
(a) Qualified by Philippines Laws to transact insurance business; (b) Has a name that is not in anyway similar to another company; (c) If organized as a stock corporation, it should have a paid up capital of no less that Php5,000,000.00; (d) If it is organized as a mutual company (one whose capital funds are not contributed by stockholders but by policy holders) it must have available cash assets of at least Php5,000,000.00 above all liabilities for losses reported, expenses, taxes, legal reserves of all outstanding risks, and the contributed surplus fund equal to the amounts required of stock corporations (Php1,000,000.00 if a life insurance company or Php500,000.00, if a non life insurance company). (e) If a foreign insurance company, it must appoint a resident agent, deposit securities and maintain a legal reserve (Section 184-193); MARGIN OF SOLVENCY The margin of solvency is the excess of the value of insurance company’s admitted assets exclusive of its paid up capital. In case of a domestic insurance company and the excess of the value of its admitted assets in the Philippines exclusive of security deposits over the amount of its liabilities, unearned premiums, and reinsurance reserves in the Philippines (Section 194); The required margin is in case of life insurance companies is two percent (2%) of the total amount of its insurance in force as of the preceding calendar year on all policies except term insurance and in case of non life insurance companies, at least ten percent (10%) of total amount of its net premium during the preceding calendar year but in no case to be less than Php500,000.00. If not met, the insurance company is (a) not permited to take on any risk and no dividends can be declared (section 195).

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It is to provide protection or coverage to answer for bodily injury or property damage that may be sustained by another arising from the use of motor vehicle. Please note though that what is now compulsory is death of bodily injury arising from motor vehicle accidents as per amendment to the insurance code by PD 1814 and PD 1455 brought about by insurance losses due to padded claims for property damage. Hence, property damage is now optional; HOW IS ITS COMPULSORY NATURE ENFORCED? - The compulsory nature of the insurance is enforced by prescribing that any land transportation operator (owner/s or motor vehicles for transportation of passengers for compensation, including school buses) or owner of a motor vehicle (actual legal owner of a motor vehicle in whose name the vehicle is registered with the LTO) would be considered as unlawfully operating a motor vehicle (is any vehicle as defined in Section (3) RA 4136 which is propelled by any power other than muscular power using public high ways with exceptions: (a) road rollers, holley cars, street sweepers, sprinkles, lawn movers, bulldozers, graders, forklifts, amphibian trucks or cranes not used on public highways; (b) Those that run on rails or trucks; (c) Tractor, trailers (when propelled or intended to be propelled by an attachment to a motor vehicle is classified as a motor vehicle without power rating), traction engines of all kinds used exclusively for agricultural purposes) Unless there is: (1) policy of insurance (contract of insurance against passenger or 3RD party liability for death or body injury arising from motor vehicle accidents); or (2) guaranty in cash; or surety bond Compliance by the motor vehicle owner or the land transportation operator is monitored as the Land Transportation Office shall not allow registration or renewal of registration without compliance with section 374 (section 376);

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COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE CONCEPT OF COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
DISTINGUISHED FROM OWN DAMAGE COVERAGE AND COMPREHENSIVE MOTOR VEHICLE INSURANCE (a) (b) (c) Third party liability answers for liabilities arising from death or bodily injury to 3RD persons or passengers; Own damage insurance answers for reimbursement of the cost of repairing the damage to vehicle of the insured; Comprehensive insurance answers for all liabilities/damages arising from the use/operation of a motor vehicle it includes third party own damage, theft and property damage;

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policy of insurance, they will be required to show proof of a cash deposit with the commissioner, but the authority of the insurance company to engage in casualty or surety lines of business shall be withdrawn immediately (section 379);

CANCELLATION OF THE POLICY (a) By the insurer – requires written notice to motor vehicle owner/land transportation operator at least 15 days prior to intended effective date. If so canceled, the Land Transportation Office may order the immediate confiscation of license plates unless it receives a new valid insurance/surety/proof of cash deposit or revival by endorsement of the cancelled policy (Section 130); By the insured – the motor vehicle owner/land transportation operator shall secure a similar policy or surety before the cancelled policy/surety ceases to be effective or make a cash deposit and file the same or proof thereof with the Land Transportation Office (Section 381);

WHEN DOES THE LIABILITY OF THE INSURER ACCRUE? in an insurance policy that directly insures against liability, the insurers liability accrues immediately upon the occurrence of the injury upon which liability depends, and does not depend on the recovery of judgment by the injured party against the insured. Hence, there is no need for the insured to wait for a decision of the court finding him guilty of reckless imprudence. The occurrence of an injury for which the insured may be liable immediately gives rise to insurer liability (Shafer vs. Judge, 167 SCRA 386). In fact a third party can bring a claim or an action directly against the insurer as the general purpose of the statute is to protect the injured against the insolvency of the insured; (b)

EFFECT OF CHANGE IN OWNERSHIP OR CHANGE IN ENGINE There is no need to issue a new policy until the next date of registration provided the insurer shall agree to continue the policy and such change shall be indicated in a second duplicate which is filed the Land Transportation Office; OTHER PROHIBITED ACTS (1) (2) The motor vehicle owner or the Land Transportation Operator cannot require driver/s/employees to contribute to the payment of the premium (section 385); Any government office or agency having the duty to implement the provisions, official or employee thereof shall not act as an agent in procuring the policy or surety bond and in no case shall the commission of the procuring agent exceed 10% of the premiums paid (section 387);

NATURE OF THE LIABILITY OF THE INSURER It is not solidary with the insured. The liability of the insurer is based on contract, while that of the insured is based on tort. (Malayan Insurance vs. CA, 165 SCRA 536);

WHO CAN ISSUE POLICY OR SURETY BOND? Those authorized by the commissioner in the list furnished to the Land Transportation Office (Section 375). If the Motor Vehicle Owner or the Land Transportation Operator is unable to obtain or is unreasonably denied the

PENALTIES FOR VIOLATION

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
The penalties for a violation by the Motor Vehicle Owner or the Land Transportation Operator is a fine of not less than Php500.00 nor more than Php1,000.00 and/or imprisonment for not more than 6 months. If a Land Transportation Operator violates section 377 (minimum limits of coverage) it is sufficient cause for revocation of a certificate of public convenience (section 388); If the violation is committed by a corporation/association or government office/entity, the executive officer/s who shall have knowingly permitted or failed to prevent the violation shall be held liable as principals (Section 389); WHAT IS NO FAULT INDEMNITY? -

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but the filing with the insurance commissioner shall preclude filing with the court (Section 385);

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PAYMENT OF CLAIMS A claim for payment must be filed without any unnecessary delay, within 6 month from the date of accident by giving written notice setting forth the nature, extent and duration of the injuries as certified by a duly licensed physician (section 384); -

A no fault indemnity claim is a claim for payment for death or injury to a passenger of third party without necessity of proving fault or negligence. This is payable by the insurer provided: (a) indemnity in respect of one person shall not exceed Php5,000.00; (b) the necessary proof of loss under oath to substantiate the claim is submitted, these are: police report of accident and either the death certificate and sufficient evidence to establish the payee or medical report and evidence of medical or hospital disbursement in respect of which refund is made;

AGAINST WHOM IS THE PAYMENT CLAIMED EFFECT OF FAILURE TO FILE CLAIM WITHIN PERIOD The failure to file a claim will be deemed a waiver. If a claim is filed but denied, an action must be brought within 1 year from date of denial with the Insurance Commissioner or the Court, otherwise the right of action will be deemed as having prescribed; a claim under the no fault indemnity clause may be made against one motor vehicle insurer only as follows: (a) in case of an occupant of a vehicle – against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from; (b) in any other case, from the insurer of the directly offending vehicle; (c) in all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained; INTERPRETATION OF THE AUTHORIZED DRIVER CLAUSE The authorized driver clause is interpreted to refer to the insured or any person driving on the order of the insured or with his permission provided, such person is permitted to operate a motor vehicle in accordance with our licensing laws or regulations and who is not otherwise disqualified;

WHAT SHALL INSURANCE COMPANY DO UPON FILING OF THE CLAIM? It shall forthwith ascertain the truth and extent of the claim and make payment within 5 working days after reaching an agreement. If no agreement is reached, it must nevertheless pay the no fault indemnity (Section 378) without prejudice to a further pursuit of the clam – in which case he shall not be required or compelled to execute a quit claim or release from liability. Note though that in case of dispute as to enforcement of policy provisions, the adjudication shall be within the original and exclusive jurisdiction of the commissioner subject to section 416, which provides for concurrent jurisdiction

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
NOTE THE FOLLOWING JURISPRUDENCE (1) (2) If license is expired, person is not authorized to operate a motor vehicle (Tarco Jr. vs. Phil Guaranty, 15 SCRA 313); Issued a temporary operators permit or a temporary vehicle receipt, a person is authorized to operate a motor vehicle, but if it has expired, it is as if he has no license (Guiterez vs. Capital Insurance, 130 SCRA 618, PEZA vs. Alikpala, 160 SCRA 31); A tourist with license but in the country for more than 90 days, is not authorized to operate a motor vehicle because it is as if he has no license (Strokes vs. Malayan, 127 SCRA 766); A drivers license that bears all the earmarks of a duly issued license is presumed genuine; A license is not necessary, where the insured himself is the driver (Paterno vs. Pyramid Insurance, 161 SCRA 677, 1986 BAR) VEHICLE Insurance) LIABILITY

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May the ANSWER:

Is the contention of the insurance company correct? insurer be held solidarily liable with X

No. When an insurance policy insures directly against liability, the insurer’s liability accrues immediately upon the occurrence of the injury. No. The insurer cannot be held solidarily liable with X because its liability is based on a contract while that of X is based on torts. (Vda. De Maglana vs. Consolacion, August 6, 1992) VDA. DE MAGLANA VS. CONSOLACION SC RULING: Where an insurance policy insures directly against liability, the insurer’s liability accrues immediately upon the occurrence of the injury or even upon which the liability depends, and does not depend upon the recovery of judgment by the insured party against the insured. The underlying reason behind the third party liability of the Compulsory Motor Vehicle Liability Insurance is to protect the injured person against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy. However, the direct liability of the insurer under the indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract and the liability of the insured is based on tort. If the insurer was to be held solidarily liable with the insured under the indemnity contract against third party liability, then this would violate the principles underlying solidary obligation and insurance contracts. In fine, the court concludes that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. As such, petitioners have the option either to claim the 15, 000 from AFISCO , the P 5,000 had already been paid under the no-fault clause, and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage. 2.COMPREHENSIVE MOTOR VEHICLE INSURANCE ( 1993 & 2000 Bar Exam)

(3)

(4) (5)

COMPULSORY MOTOR INSURANCE(ThirdPartyLiability

The purpose of this kind of insurance is to indemnify the death or injury of a third person or passenger from the use of the motor vehicle. The injured party can sue immediately and directly the insurance company. This will protect the injured person against the insolvency of the insured. It allows the passenger to recover from the insurer of the vehicle where he was riding. 1996 BAR EXAM PROBLEM 1.While driving his car, X sideswiped A causing injuries to the latter. A sued X and the third party liability insurer for the damage sustained by A. 2. The insurance company moved to dismiss the complaint contending that theliability of X has not yet been determined with finality.

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
SC RULING: The liability of the insurance company s direct and solidary with the operator but only up to the amount stated in the policy and accrues immediately upon the occurrence of the accident. Any amount awarded beyond the amount stated in the policy is the sole responsibility of the carrier. PERLA COMPANIA DE SEGUROS, INC. VS. COURT OF APPEALS 208 SCRA 487 (1992) SC RULING: Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner’s consent or knowledge, such taking constitutes theft, and therefore it is the “theft clause” and not the “authorized driver clause that should apply. Clearly, the risk against accident is distinct from the risk against theft. The “authorized driver” clause in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. In the present case the loss of the insured vehicle did not result from accident where intent was involved; the loss was caused by theft, the commission of which was attended by intent. It is worthy to note that there is no casual connection between the possession of a valid driver’s license and the loss of the vehicle. To rule otherwise would render car insurance practically a sham since the insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow. 3. AUTHORIZED DRIVER RULE (1991 Bar Exams) For purposes of recovery, the driver of the vehicle must be in possession of a valid, subsisting and professional driver’s license. But this rule will not apply if the one driving the vehicle at the time of the accident was the owner of the vehicle. (Palermo v. Pyramids Ins., 161 SCRA 677) PALERMO V. PYRAMIDS INSURANCE CO., INC., MAY 31, 1988

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Since the driver of the insured motor vehicle at the time of the accident was the insured himself, he was an ”authorized driver” under the policy. Any infraction of the Motor Vehicle Law which prohibits a person from operating a motor vehicle on the highway without a license or with an expired license, subjects him to penal sanctions under the Motor Vehicle Law but does not bar recovery under the insurance contract. The requirement that the driver be permitted in accordance with law and regulations to drive the motor vehicle and is not disqualified from driving such vehicle by order of a Court of law or by reason of any enactment or regulation applies only when the driver is driving on the insured’s order or permission, such as a regular driver, a friend, a member of the family, or the employee of a car service or repair shop. It doe not apply when the person driving is the insured himself. 4. NON-FAULT CLAUSE IN COMPULSORY MOTOR INSURANCE POLICY (2000 Bar Exam) VEHICLE

Proof of fault or negligence is not necessary for the payment of any claim for death or injury to a passenger or to a third party. The maximum amount of indemnity is P 10, 000.00 upon submission of death certificate, medical certificate and police report. The purpose is in order to give immediate assistance to the victim of motor vehicle accidents and/or the dependents specially if they are poor, regardless of the financial capability of the owner of the motor vehicle or operator responsible for the accident. This does not include property damage. - The claim is collected from the insurer of the vehicle where the claimant is riding, mounting or dismounting. In all other cases, the claim is against the insurer of the offending vehicle. - The insurer who pays the claim can ask reimbursement from the offending vehicle. - The recovery by the insured from the insurer is direct and not dependent on the recovery against the insurer by the insured party. NECESSITY TO REGULATE INSURANCE COMPANIES COVERING PUBLIC UTILITY VEHICLES – The present case shows a clear public necessity to regulate the proliferation of such insurance companies. Because of the PUV

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
operators’ complaints, the LTFRB thus assessed the situation. It found that in order to protect the interests of the riding public and to resolve problems involving the passenger insurance coverage of PUV’s, it had to issue Memorandum Circular No. 2001-001 accrediting PAMI and PAIC II as the two groups allowed to participate in the program. Memorandum Circular No. 2001-001 required that “[a]ll public utility vehicles whose LTO license plate, as per latest LTO Official Receipt, with an EVEN middle number (0, 2, 4, 6 and 8) shall be insured with UCPB insurance (PAMI) while those with an ODD middle number (1, 3, 5, 7 and 9) shall be insured with Great Domestic Insurance (PAIC II) x x x .” It should be stressed that PUV’s, as common carriers, are engaged in a business affected with public interest. Under Article 1756 of the Civil Code, in cases of death or injuries to passengers, common carriers are presumed to be at fault and are required to compensate the victims, unless they observed extraordinary diligence. To assure this compensation, PUV’s are required to obtain insurance policies. (Eastern Assurance and Surety Corporation [easco] v. Land Transportation Franchising and Regulatory Board, Oct. 7, 2003 G.R. No. 149717) OTHER PROVISIONS 1.Chapter VII – Mutual Benefit Associations (Section 390. Any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and or no fixed amount from whomsoever may contribute, shall be known as a mutual benefit association within the intent of this Code. Any society, association, or corporation principally organized as labor union shall be governed by the Labor Code notwithstanding any mutual benefit feature provisions in its charter as incident to its organization.) and trust for charitable institutions (Sec. 410. The term "trust for

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charitable uses", within the intent of this Code, shall include, all the real or personal properties or funds, as well as those acquired with the fruits or income therefrom or in exchange or substitution thereof, given to or received by any person, corporation, association, foundation, or entity, except the National Government, it instrumentalities or political subdivisions, for charitable, benevolent, educational, pious, religious, or other uses for the benefit of the public at large or a particular portion thereof or for the benefit of an indefinite number of persons.) (Sections 396 to 413); 2.Chapter VIII – Insurance Commissioner (Section 414 – Administrative Functions, Section 415 – Power to impose fines/suspensions – Section 415, Adjudicatory Powers – Note: it is concurrent with courts but the filing with the commissioner shall preclude civil courts from taking cognizance of a suit over the same subject matter. Decisions are appealable to the CA within 30 days by notice of appeal (Section 416); WHITE GOLD MARINE SERVICES, INC., vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., . [G.R. No. 154514. July 28, 2005] Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest.[17] Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs. A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than the P & I Club and the members. By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business. The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 187[20] of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was

BY : MELANIE

BUMACAS

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NOTES IN INSURANCE LAW
cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission. The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called.

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BY : MELANIE

BUMACAS

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