NOTES IN INSURANCE LAW JUDGE MODESTO D. BAHUL JR.

Instructor, UB College of Law GROUNDS FOR RESCISSION OF AN INSURANCE CONTRACT:

1. CONCEALMENT (Sec. 26-27) 2. MISREPRESENTATION (Sec. 36 & 45) 3. BREACH OF WARRANTY (Sec. 74) CONCEALMENT (Secs. 26-25, IC) a neglect to communicate or disclose that which a party knows and ought to communicate to the other party.

When does it exist: When the assured (insured) had knowledge of a fact material to the risk, and honesty, good faith and fair dealing requires that he should communicate it to the assurer (insurer), but he withholds the same. CONCEALMENT (Secs. 26-25, IC)

Requisites: (Sec. 26 & 28) 1. a party knows the fact that he failed to disclose; 2. matter concealed must be material to risk insured against; 3. Such party is duty bound to disclose such fact to the other; 4. Such party makes no warranty of the fact concealed; and 5. The other party has no means of ascertaining the fact concealed. CONCEALMENT (Secs. 26-35, IC)

Legal Effect: - entitles the injured party to rescind (Sec. 27) *vitiates the contract ; contract is voidable at the option of the injured party Case: Saturnino vs. Philamlife, 7 SCRA 316 not necessary to show actual fraud Reason: IC is contract of perfect good faith. Concealment misleads or deceives the other party (to accept the risk, or in fixing the rate of premium, as to the insurer)

CONCEALMENT (Secs. 26-35, IC)

Must concealment be with fraudulent intent to entitle the injured party to rescind? - NO. Concealment, intentional or unintentional, has the same legal effect (Sec. 27). HOWEVER, if the fact concealed relates to matters proving or tending to prove the falsity of a warranty, concealment must be intentional and fraudulent (Sec. 29 - some sort of exception to Sec. 27 and 28 ). ex. marine insurance, implied warranty of seaworthiness concealment of the fact that communication equipment is not working must be intentional and fraudulent CONCEALMENT (Secs. 26-35, IC)

What if the cause of death of a person whose life is insured is not related to the concealed matter, will the contract still be vitiated? - YES. (Although not fraudulent or intentional, unintentional concealment vitiates an insurance contract)

Is rescission of a contract mandatory or automatic when there is concealment ? Case: NO. It is optional on the part of the injured party. (Sec. 27 & 29)

Argente vs. West Coast Life, 51 Phil. 725 CONCEALMENT (Secs. 26-35, IC)

What facts must be concealed even if not inquired into? (Sec. 28 DUTY TO DISCLOSE IN GOOD FAITH) All facts known by the party:

a) that are material to the contract (Secs. 26, 31, 34-35) [Cases: Sese vs. Philamlife (CA) 74 OG 5454; Sun Life vs. CA, 245 SCRA; see Sec. 31 Test of Materiality] b) the other party has no means of ascertaining the said facts (Secs. 30, 32, 33) c) as to which he/she makes no warranty (Secs. 67-76) superfluous to require disclosure; but note Sec. 29 - some sort of exception to this; covered by warranty but must be revealed CONCEALMENT (Secs. 26-35, IC)

TEST OF MATERIALITY (Sec. 31) Materiality is to be determined not by the event, but solely by the probable and reasonable (NOT ACTUAL) influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. (on the judgment of the parties in entering into an insurance contract)

CONCEALMENT (Secs. 26-35, IC)

TEST OF MATERIALITY (Sec. 31) Cases: Eguaras vs. Great Eastern, 33 Phil 263 - insured was invalid and in poor health, substituted by another person in the medical exam. Argente vs. West Coast Life, 51 Phil 725 concealment of cerebral congestion and Bells Palsy, even if not the cause of death, is material Insular Life vs. Feliciano, 74 Phil 468 Saturnino vs. Philamlife, 7 SCRA 316 Grepalife vs. CA, 89 SCRA 543 Vda. de Canilang vs. CA, 223 SCRA 443 (pp. 82-83, RR) CONCEALMENT (Secs. 26-35, IC)

*In life insurance, concealed facts usually relate to ailments or medical conditions. **Who must prove concealment/knowledge? - The party claiming existence of concealment. ***When to determine concealment? - At the time the insurance takes effect. ***Is good faith a defense in concealment? - NO. (See Musngi vs. West Coast Life, 61 Phil 864; Sunlife vs. CA, 245 SCRA 268) CONCEALMENT (Secs. 26-35, IC)

Test on what facts should be revealed in good faith even if not asked: If the applicant for insurance is aware of the existence of some circumstances which he knows would influence the insurer in acting on his application, good faith requires him to disclose such fact. (relate with Sese case) CONCEALMENT (Secs. 26-35, IC)

Effect of failure of insurer to verify:

*Insurer has right to rely on statements of the insured (Hector de Leon, citing De Leon vs. Crown Life, L-44842 [1939 C.A. case]) **BUT see Sec. 33 implied waiver by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated Case: read Ng Gan Zee vs. Asian Crusader, 122 SCRA 461 (pp. 84-85, Rodriguez) - citing Phoenix Mutual vs. Raddin, 120 US 183 CONCEALMENT (Secs. 26-35, IC)

Ng Gan Zee vs. Asian Crusader, 122 SCRA 461 - Misrepresentation as a defense to avoid liability is an affirmative defense (it must be proven positively by the party who claims it) -where upon the face of the application, a question appears to be not answered at all or imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the omission to answer more fully immaterial citing Phoenix Mutual vs. Raddin, 120 US 183 If the ailment and operation of the insured had such an important bearing on the question of whether the defendant would undertake the insurance or not, the court cannot understand why the insurer or its medical examiner did not make any further inquiries on such matters from the hospital before acting on the insurance application. The insurer was too eager to accept the application and receive the premium; it would be inequitable to allow the insurer to avoid liability. CONCEALMENT (Secs. 26-35, IC)

Matters that need not be revealed unless inquired into: (Sec. 30) a) those which the other party knows what he knows cannot deceive him b) those which in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant (Sec. 32 constructive notice of public events/general usages) c) those of which the other waives communication express or implied (Sec. 33) CONCEALMENT (Secs. 26-35, IC)

Matters that need not be revealed unless inquired into: d) those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material - NB: if material, disclose.

e) those which relate to a risk excepted from the policy, and which are not otherwise material. f) Nature or amount of insureds interest, except as prescribed by Sec. 51 [not an absolute owner of property insured trustee, mortgagee, building contractor] (Sec. 34) CONCEALMENT (Secs. 26-35, IC)

*Matters made subject of an inquiry are deemed material (although immaterial when not asked), hence, must be answered fully and truthfully. (Smith vs. Ins. Co., 49 N.Y. 211) ** What appears to be a complete answer but does not make full disclosure of fact inquired upon avoids the policy. e.g. fire insurance applicant is asked if property is encumbered and for what amount, answer discloses only 1 mortgage whereas there are actually 2 the policy is avoided (Rowne vs. Fifthburg, 7 Allen [Mass.] 57) de Leon CONCEALMENT (Secs. 26-35, IC)

*** An answer incomplete on its face will not defeat the policy in the absence of bad faith (Vance) where the insurer failed to make further inquiry. e.g. fire insurance applicant is asked if property is encumbered and for what amount, answer only stated yes without stating the amount of encumbrance, issuance of policy without further inquiry is a waiver of the omission to state the amount (Nichols vs. Fayette, 1 Allen [Mass.] 63) consistent with Sec. 33 and Ng Gan Zee ruling CONCEALMENT (Secs. 26-35, IC)

When is there no duty to disclose a fact unless asked? (SUMMARY) - When the fact relates to: 1) Matters known to, or ought to be known by the insurer, or of which he waives disclosure (Sec. 30) 2) Risks excepted from the policy and not, otherwise, material (Sec. 30) 3) Nature or amount of insureds interest, except as prescribed by Sec. 51 [not an absolute owner of property insured] (Sec. 34) CONCEALMENT (Secs. 26-35, IC)

What information or facts need not be communicated even if asked? - Opinion or judgment upon matters in question (Sec. 35)

MISREPRESENTATION (Sec. 36-48) (false representation) oral or written statement of a material matter or fact that is false and made by the insured at the time of or before the issuance of the policy to induce the latter to issue said policy. (Sec. 36, 37, & 45) purpose: to deceive Misrepresentation vs. concealment

- active form of deceit - passive form - oral/written false statement - Similarity: - neglect/failure to disclose material fact intentional or unintentional.

both pertain to material facts, and may be

MISREPRESENTATION (Sec. 36-48)

*Can concealment amount to misrepresentation? Yes. Concealment of a material fact is equivalent to a false representation that such fact does not exist. (Argente v. West Coast Life, 51 Phil 725) See also Musngi vs. West Coast Life (61 Phil 864) SC considered deceit by insured as both concealment and false representation, hence, the terms are used interchangeably; no need to distinguish them. MISREPRESENTATION (Sec. 36-48)

Kinds of Representation: 1) AFFIRMATIVE affirmation as to the existence or non-existence of fact when the contract begins. (e.g. affirmation of good health) 2) PROMISSORY promise by the insured concerning what is to happen during the existence of the insurance. (e.g. promise to install addl fire extinguishers in the insured bldg. at a stipulated date to comply with minimum insurance requirement) MISREPRESENTATION (Sec. 36-48)

Nature of Representations: mere collateral inducement (not part of the contract) What can it do? - Sec 40. it cannot qualify an express warranty (provisions already written in the contract; representations made before insurance took effect e.g. contract provides that all floors of the insured bldg. have fire sprinklers, representation before effectivity of insurance that some floors do

not have sprinklers cannot qualify the contractual provision; insured cannot recover if he fails to comply with promise to equip all floors), but it can qualify an implied warranty (e.g. representation that commn equipment of shipping vessel is defective qualifies the implied warranty of seaworthiness under Sec. 113; intentional failure to disclose will avoid the policy concealment) MISREPRESENTATION (Sec. 36-48)

When can representation be altered or withdrawn? - before insurance takes effect, otherwise, contract is rescissible on ground of misrepresentation (Sec. 41). What if the reference date of a representation? presumed to refer to the date on which the contract goes into effect (no misrepresentation if statement is true at the time insurance takes effect, even if false at the time it was made) MISREPRESENTATION (Sec. 36-48)

Can information from a 3rd person be relayed without being responsible for its truth? Gen. Rule: a party can only state facts of his personal knowledge Exception: a party may repeat information not of his personal knowledge if he believes it to be true, with the explanation he does so on the information of others (insured not liable if false) Exception to the exception: if information is from an agent of the insured whose duty is to give information (insured liable for the falsity of information; knowledge of agent is knowledge of principal) MISREPRESENTATION (Sec. 36-48)

Illustration: The owner of a vessel insured the cargo it was carrying for P500,000.00. His agent abroad told him that the value of the cargo was P500,00.00, although he (the agent) knew it to be only worth P100,00.00. The owner advanced the information to the insurer that the value of the cargo is P500,000.00 with the explanation that he does so on his agents information. Here, the insured is responsible for the truth of the information because it was the duty of the agent to disclose the true value of the cargo to his principal. MISREPRESENTATION (Sec. 36-48)

Must representation be literally true?

 No, it is sufficient that representation is SUBSTANTIALLY TRUE (unlike warranties that must be literally true). *Minor or immaterial discrepancies do not avoid the policy [Insular Life vs. Pineda, 40 O.G. No. 3, p. 285 (1939)] When is representation false? - Sec. 44 MISREPRESENTATION (Sec. 36-48)

Insular Life vs. Pineda, 40 O.G. No. 3, p. 285 (1939) Facts: The insured, in his application for insurance, answered no to the questions of whether he drank beer or other intoxicants, whether he suffered from any ailment of the lungs, and whether he had ever spat blood. Subsequently, the insured signed a statement that he did drink beer, but very seldom, that he had a chronic cough for many years, and that he had experienced a few sputums, slightly bloody.

Held: The policy is valid. We do not consider the allegedly conflicting statements as misrepresentations of material facts. The insured drank beer, but very seldom is almost similar to not at all. With respect to the few sputums, slightly bloody, we consider the statement as not inconsistent with not having spat blood, since traces of blood in insureds sputum could be due to some temporary and unimportant ailments as bloody tooth, a sore throat or a bad cold. MISREPRESENTATION (Sec. 36-48) contract (Sec. 45)

Effect: entitles the injured party to rescind the Is the right to rescind waivable?

- Yes, by the acceptance of premium payments despite knowledge of the ground for rescission (Sec. 45). Cases on misrepresentation: 1. Eguaras vs. Great Eastern Life (33 Phil. 263) The insured was substituted by another person during the medical exam required by insurer before it consented to the contract; the contract was held ipso facto void and ineffective per Art. 1270 of the Civil Code. MISREPRESENTATION (Sec. 36-48)

Cases on misrepresentation: 2. Argente vs. West Coat (51 Phil. 725) In an action on a life insurance policy where the evidence conclusively shows that the answers to the questions concerning diseases were untrue, the truth or falsity of the answer becomes the determining factor. If the policy was procured by fraudulent representations, the contract of insurance apparently set forth therein was never legally existent. It can

fairly be assumed that had the true facts been disclosed by the assured, the insurance would have never been granted. 3. Insular Life vs. Feliciano (74 Phil. 468) When the insured signed the application for insurance in blank and authorized the solicitor agent and/or the medical examiner of the Company to write the answers for him, he made them his own agents for that purpose, and he was responsible for their acts in that connection. If they falsified the answers for him, he could not evade the responsibility for the falsification. He was not supposed to sign the application in blank. He knew that the answers to the questions therein contained would be the basis of the policy, and for that very reason, he was required with his signature to vouch for the truth thereof. 4. Saturnino vs. Philamlife (7 SCRA 316) MISREPRESENTATION (Sec. 36-48)

When may the right to rescission be exercised? - When the right to rescind exists, the same must be exercised prior to the commencement of an action on the contract (Sec. 48). (Hence, it can be done even after the loss and filing of the claim, provided it is done before the insured files an action against the insurer.) *However, a defense to an action to recover insurance that the insurance was secured through concealment or misrepresentation is not in the nature of an action to rescind, hence, not barred by Sec. 48 (but note that Sec. 48 does not distinguish; but concealment/ misrepresentation is an affirmative defense). **Insurer cannot rescind after action is filed, but can avoid policy by reason of concealment/misrepresentation. Cases: 1. Tan Hay Cheng vs. West Coast (51 Phil. 80) the right to rescind was not exercised by the insurer before the action was filed in court by the beneficiary, but the misrepresentations of the insured were pleaded as defense in the said action the same were not barred under Sec. 48. 2. Argente vs. West Coast Life (51 Phil 725) A failure to exercise the right (of rescission), cannot, of course, prejudice any defense to the action which the concealment may furnish. (EXCEPT IF INCONTESTABILITY CLAUSE APPLIES, see Tan vs. CA, 174 SCRA 403) Where any of the material representations are false, the insurers tender of the premium and notice that the policy is cancelled, before the commencement of the suit thereon, operate to rescind the contract of insurance (citing Rankin vs. Amazon Insurance, 1891, 89 Col. 203) MISREPRESENTATION (Sec. 36-48)

BUT note the WAIVER of right to rescind if insurer accepts premiums despite knowledge of ground to rescind. MISREPRESENTATION (Sec. 36-48)

What is the so-called incontestability period in life insurance policies? - In life insurance, where the policy, which is payable on the death of the insured, has been in force during the lifetime of the insured for a period of two years from the date of issue or of its last reinstatement, the insurer cannot prove that the policy is void or rescissible by reason of concealment or misrepresentation (Sec. 48, par. 2 sort of EXCEPTION to par. 1). - By stipulation, the period of 2 years can be shortened but it cannot be extended. MISREPRESENTATION (Sec. 36-48)

Case: Tan vs. CA (174 SCRA 403) Facts: Tan Lee Siong insured his life with Philamlife for which a policy was issued by the latter on November 6, 1973. Upon Siongs death on April 26, 1975, the beneficiaries (Siongs children), filed a claim with Philamlife, which denied the claim and rescinded the policy by reason of alleged misrepresentations and concealment by Siong in his application. The beneficiaries filed a complaint against Philamlife on November 27, 1975 contending that Philamlife no longer had the right to rescind the contract as the same must have been done during the lifetime of the insured, within two years and prior to the commencement of the action. Ruling: The contentions are without merit. The so-called incontestability clause precludes the insurer from raising the defense of false representations and concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the lifetime of the insured. MISREPRESENTATION (Sec. 36-48)

Case: Tan vs. CA (174 SCRA 403) Ruling: The policy was in force from November 23, 1973 to April 26, 1975, or for only about one year and 5 months. Considering that the insured died before the two-year period had lapsed, Philamlife is not barred from proving that the policy is void by reason of the insureds concealment or misrepresentation. Moreover, Philamlife rescinded the contract and refunded the premiums paid on Sept. 11, 1975 previous to the commencement of the action on November 27, 1975. The insurer has two years from the date of issuance of the insurance contract or from its last reinstatement within which to contest the policy, whether or not the insured still lives within the said period. After two years, the defenses of concealment and misrepresentation, no matter how patent or well founded, no longer lie.

MISREPRESENTATION (Sec. 36-48)

DEFENSES NOT BARRED BY INCONTESTABILITY CLAUSE: (can be pleaded as defense by the insurer even after the incontestability period) 1. lack of insurable interest of the insured; 2. the cause of death of the insured is an excepted risk; 3. the premiums have not been paid [Sec. 77, 227 (b), 220 (b), 230 (b)]; 4. the conditions of the policy relating to military or naval service have been violated [Sec. 227 (b), Sec. 228 (b)]; 5. the fraud is of a particularly vicious type; 6. the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; or 7. the action was not brought within the time specified. MISREPRESENTATION (Sec. 36-48)

Period to file action on a policy: General Rule: - within 10 years from accrual of cause of action (denial of claim, not time of loss) [Art. 1144, Civil Code] Exception: if period is limited to not less than one year (Sec. 63) [ if less than 1 year, stipulation is void; apply general rule] WARRANTY

- Statement or promise set forth in the policy or by reference incorporated therein, the falsity or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such falsity or non-fulfillment, renders the policy voidable. (must be literally true) Kinds (Sec. 67): 1) Express those set forth in the policy; and 2) Implied only found in marine insurance; deemed included in the contract although not expressly mentioned .

Effect (Sec. 74 - 76): WARRANTY

Gives the right to rescind.

Distinctions:

WARRANTY 1. part of the contract 2. written in the policy, in the policy

vs.

REPRESENTATION 1. mere collateral inducement 2. may or may not be written actually or by reference

3. conclusively presumed material

3. must proved to be material

4. must be strictly complied with

4. require only substantial truth and compliance

[Next Topic: Sec. 49-98 - The Policy] THE POLICY

POLICY OF INSURANCE the written instrument in which a contract of insurance is written (Sec. 49). Form: printed form approved by Insurance Commissioner (otherwise, insurer shall be prosecuted for use of unapproved form, but contract is valid) Contents: 1. parties; 2) amount of insurance, except in open and running policies; 3) rate of premium; 4) property or life insured; 5) interest of the insured in the property, if he is not the owner; 6) risk insured against; 7) duration of insurance. THE POLICY

How is a policy construed? - Any ambiguity in the policy is interpreted IN FAVOR of the INSURED and AGAINST the INSURER. (CONTRACT OF ADHESION; relate to discussions under Sec. 2) What is the rule if the language is not understood by the insured? - see Art. 1332 of Civil Code; Tang vs. CA, 90 SCRA 236 Rule if language not understood by insured

Art. 1332, Civil Code: When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. *Tang vs. CA, 90 SCRA 236 (1979) insured is illiterate and spoke only Chinese; IC in English. Claim denied due to concealment and misrepresentation on her health. SC sustained denial of claim because fraud or mistake not alleged. THE POLICY

COVER NOTE a concise and temporary written contract issued to the insured by the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. It is also known as BINDING SLIP, BINDER, or BINDING RECEIPT - It is intended to give insurance protection coverage to the applicant pending the acceptance or rejection of his application, not exceeding 60 days unless a longer period is approved by the Insurance Commissioner (Sec. 52). Insurance Commissioners RULES ON COVER NOTES :

a) Valid and binding for 60 days whether or not premium is paid but may be cancelled upon notice of at least 7 days (see PTEC vs. CA, 112 SCRA 199); b) If not so cancelled, regular policy must be issued within 60 days from issue of cover notes with identical terms as the note and the premium therefor c) 60-day period to issue policy may be extended with approval of I.Commissioner, unless VP or gen.manager certifies that IC or existing circular/rules will not be violated by extension (no need for I.Cr approval) d) Insurance companies may impose on cover notes a DEPOSIT PREMIUM of at least 25% of estimated premium but not less than P500.00 Case on COVER NOTES :

Pacific Timber vs. CA, 112 SCRA 199 no separate premium intended or required to be paid on a Cover Note. - A Cover Note in its real sense is a contract, not a mere application, which is an offer. *Doctrine: where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and the policy is valid. Cases in which COVER NOTES are not treated as temporary contract:

1) De Lim vs. Sun Life Assurance, 41 Phil. 263 provisional policy was issued stipulating expressly that insurance shall be effective only when application approved and policy is issued

(there was no preliminary or temporary insurance). Acceptance of application was only conditional; so in life insurance, binding slip or receipt does not insure of itself. 2) Great Pacific Life vs. CA, 89 SCRA 543 Binding receipt was issued merely as acknowledgment of application and premium. Rules on riders, clauses, warranties and endorsements:

1. To be binding, they must be pasted or attached to the policy, and their descriptive title or name must be mentioned and written on the policys blank spaces; 2. No need for insured signature if attached to the policy when issued; 3. Must be countersigned by insured if executed after issue of the policy, unless applied for by insured himself; 4. Must be in form approved by Insurance Commissioner (Sec. 226); 5. In case of repugnance between written and printed portions of policy, written portion prevails; inconsistency between printed clause (in the policy) and the type rider, the latter prevails. (Jarque v. Smith, 56 Phil. 758) THE POLICY

GROUNDS FOR CANCELLATION OF THE POLICY (EXCEPT LIFE INSURANCE POLICY) Sec. 64:

1. non-payment of premium 2. conviction of a crime out of acts increasing the hazard insured against; 3. discovery of fraud or material misrepresentation; 4. discovery of willful or reckless acts or omissions increasing the risk insured against; 5. physical changes in the property insured making it uninsurable 6. determination by the Insurance Commissioner that the policy would violate the Insurance Code. To whom are proceeds paid?

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

1) Del Val vs. Del Val, 29 Phil. 534 proceeds belong to designated son, not the estate; it is not a donation to be collated by son-beneficiary to compute legitime. Life insurance is a special contract, destination of proceeds is determined by special law, not the law on donations or succession. Cases: 2) Bonifacio Brothers vs. Mora, 20 SCRA 261 loss payable clause - It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a 3rd person (known as STIPULATION POUR AUTRUI or a provision in favor of a 3rd person not a party to the contract; see Art. 1311, Civil Code) Cases: 3) Guingon vs. Del Monte, 20 SCRA 1043 Can a 3rd party sue the insurer? - The right of a person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit 3rd persons also, or only the insured. - The TEST applied is: a) where the contract provides for indemnity against liability to 3rd persons, then 3rd persons to whom insured is liable can sue the insurer; Cases: 3) Guingon vs. Del Monte, 20 SCRA 1043 Can a 3rd party sue the insurer? - The TEST applied is: b) where the contract is for indemnity against actual loss or payment, 3rd persons cannot sue the insurer, the contract being solely to reimburse the insured for liability discharged by him thru payment to 3rd persons; 3rd persons recourse is to the insured alone. Cases: 3) Guingon vs. Del Monte, 20 SCRA 1043 Can a 3rd party sue the insured jointly with the insurer despite a no action clause? To whom are proceeds paid? To whom are proceeds paid? To whom are proceeds paid? To whom are proceeds paid?

*No action clause stipulation that suit and final judgment be first obtained against the insured before person injured can recover on the policy (disallows insured and insurer as codefendants). - Yes. A no action clause cannot prevail over the Rules of Court provisions (Joinder of causes of action and of parties) aimed at avoiding multiplicity of suits. Cases: 4) Coquia vs. Fieldmens Insurance, 26 SCRA 178 3rd party can sue the insurer directly in a contract pour autrui. *Can insurance be deemed transferred with the property insured? - No, because of the personal character of insurance contracts (see Sec. 20), except when insurance is so framed as to inure to the benefit of whomsoever becomes the owner of the interest insured (Sec. 57, exception to Sec. 20) KINDS OF POLICIES: To whom are proceeds paid?

1. Open Policy value of the thing is not agreed upon, but left to be ascertained at the time of loss (Sec. 60). - the amount stated in the policy is not the value of the property insured but merely the maximum limit of insurers liability in case of total loss; the insurer only pays the actual value of the property as ascertained at the time of loss. 2. Valued Policy definite valuation is agreed upon by both parties, and written on the face of the policy (Sec. 61). valuation of property insured in conclusive in the absence of fraud or mistake 3. Running Policy contemplate successive insurance and provides that the subject of the policy may from time to time be defined (Sec. 62). floating policy; intended to provide indemnity for property which cannot be covered by specific insurance because of its frequent change in location and quantity (e.g. stocks-in-trade) Requisites for cancellation of policy other than life insurance: (Sec. 64-65)

1. There must be prior notice thereof to the insured; 2. Said notice must be based on grounds as provided by Section 64 and shall so state the grounds; 3. Said notice must be in writing, mailed or delivered to the named insured at the address shown in the policy *See Saura Import vs. Phil. Intl Surety, 8 SCRA 143 personal notice, not just any person unauthorized in the policy

PREMIUM (Sec. 77 to 82)

Premium is the agreed price or consideration paid by the insured to the insurer for undertaking to indemnify the former against a specified peril.

payment thereof is an essential requisite of an insurance contract; the insurance contract is not valid and binding if the premium is not paid.

*CASH AND/TO CARRY RULE see Sec. 77 PREMIUM (Sec. 77 to 82)

Effect of non-payment of premium: General Rule: (Sec. 77) No insurance policy is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary. Effect of non-payment of premium:

EXCEPTIONS to the General Rule: (see UCPB General Insurance vs. Masagana Telemart, G.R. No. 137172, April 2, 2001 - Resolution of the Motion for Reconsideration of the Decision in the same case) 1) in case of life or industrial life policies when the GRACE PERIOD applies [Sec. 227 (a); Sec. 228 (a) for individual life and or endowment insurance or group life insurance, the policyholder is entitled to either 30 days or one month within which the payment of any premium after the first may be made. Sec. 230 (a) - for industrial life, the grace period is four weeks and where the premiums are payable monthly, either 30 days or one month.] Effect of non-payment of premium:

EXCEPTIONS to the General Rule: (UCPB vs. Masagana, G.R. No. 137172, April 2, 2001 ) 2) [Sec. 78] an ACKNOWLEDGMENT in a policy or contract of insurance of the receipt of premium is CONCLUSIVE evidence of its payment to make the policy binding, although the policy contains stipulation that it shall not be binding until premium is actually paid.

3) if the parties have agreed to the payment of premium in INSTALLMENTS and PARTIAL PAYMENT has been made at the time of loss (Makati Tuscany vs. Court of Appeals, 215 SCRA 462). Effect of non-payment of premium:

EXCEPTIONS to the General Rule: (UCPB vs. Masagana, G.R. No. 137172, April 2, 2001 )

4) if the insurer has granted the insured a CREDIT TERM for the payment of the premium and loss occurs before the expiration of the term (recovery should be allowed even though the premium s paid after the loss but within the credit term). (Makati Tuscany vs. Court of Appeals, 215 SCRA 462). 5) ESTOPPEL (ie. unjust and inequitable not to allow recovery by the insured under the circumstances where the insurer has consistently allowed a 60- to 90-day credit term for the payment of premiums despite full awareness of Section 77). Payment of Premium:

*Where failure to pay was due to the wrongful act of the insurer, (e.g. insurer or his agent refused the tender of payment of a premium properly made by the insured), the insurer is necessarily ESTOPPED from avoiding the policy for non-payment of premium. Payment by check: There was valid payment of premium even if check was encashed after the occurrence of the fire (American Home Assurance vs. Chua, 309 SCRA 250). Payment of Premium:

*A partial payment of the premium made the policy effective during the whole period of the policy (see Phil. Phoenix Surety vs. Woodworks Inc., 20 SCRA 1270), except where the parties expressly stipulated that the policy is not in force until the premium has been fully paid, in which case, the partial premium must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been paid (Tibay vs. CA, 257 SCRA 126, May 24, 1996). **Payment of premium to the insurance agent or broker is payment to the insurance company (Malayan Inc. vs. Cruz Arnaldo, 154 SCRA 672). Payment of Premium:

*The branch managers fraudulent act of misappropriating the premiums paid by the petitioner-insured is directly imputable to respondent insurance company. The agents receipt of said premiums is receipt by private respondent insurance company, which, by provision of law, is bound by the acts of its agents (Areola vs. CA, 236 SCRA 643). Return of Premiums:

When is the insured entitled to return of premiums: (Secs. 79, 81, 82)

1. when no part of the interest in the thing insured has been exposed to any of the perils insured against (Sec. 79) [full return of premiums]; 2. where the insurance is made for a definite period of time and the insured, for sufficient cause, surrenders his policy before the expiration of that period (Sec. 79) [ratable return of premium] except in life insurance (because it is an indivisible contract, but in this case, the insured is

entitled to receive cash surrender value of his policy after payment of three full annual premiums); Return of Premiums:

When is the insured entitled to return of premiums: (Secs. 79, 81, 82)

3. when the contract is voidable on account of the fraud or misrepresentation of the insurer or of his agent (Sec. 81) [full return of premium]; 4. when the contract is voidable on account of facts, the existence of which the insured was ignorant of without his fault (Sec. 81) [full return of premium]; 5. when by default of the insured other than actual fraud, the insurer never incurred any liability under the policy (Sec. 81) [full return of premium]; and 6. in case of an over-insurance by several insurers (Sec. 82) [ratable return of premium.] CASE: Great Pacific Life Insurance vs. CA, 184 SCRA 501 (April 23, 1990 ) Return of Premiums:

- Since the policy was in fact inoperative or ineffectual from the beginning, the company was never at risk, hence, it is not entitled to keep the premium. CAUSES OF LOSS: LOSS injury or damage sustained by the insured from perils insured against.

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

- it is the efficient cause that sets others in motion, to which the loss is to be attributed although other and incidental causes may be nearer in time to the result and operate more immediately in producing the loss.

IMMEDIATE CAUSE the cause or condition nearest to the time and place of injury. LOSS FOR WHICH INSURER IS LIABLE:

1. loss the proximate cause of which is the peril insured against (Sec. 84); 2. loss the immediate cause of which is the peril insured against, except where the proximate cause is an excepted peril; 3. loss through negligence of insured or his agents, except where such negligence was gross as to be sufficient evidence of fraudulent intent, or reckless amounting to a willful act (Sec. 87); 4. loss caused by efforts to rescue the thing from the peril insured against (Sec. 85); 5. loss from exposure to peril not insured against, which permanently deprives the insured of its possession in whole or in part, if such loss occur in the course of rescue of the thing insured from a peril insured against that would otherwise have caused a loss Sec. 85); LOSS FOR WHICH INSURER IS NOT LIABLE:

1. loss by the insureds willful act (Sec. 87); 2. loss due to connivance of the insured (Sec. 87); 3. loss where the proximate cause is an excepted peril. Double Insurance (Sec. 93 94):

DOUBLE INSURANCE exists where the same person is insured by several insurers separately in respect to the same subject matter and interest. Requisites: 1. the same person is insured; 2. there are several insurers; 3. the subject matter is the same; 4. the interest insured is the same; 5. the risk or peril insured against is also the same. Double Insurance (Sec. 93 94):

*Double insurance or additional is not prohibited per se; it is prohibited only if it is so stipulated in the policy.

**The purpose of this prohibition is to prevent over-insurance, and thus, avert the perpetration of fraud.

***The prohibition is considered waived if despite knowledge of the existence of other insurances, the insurer preferred to issue or continue with the policy. OVER-INSURANCE:

OVER-INSURANCE exists when the amount of insurance is beyond the value of the insureds insurable interest. (see rules on over-insurance by double insurance in Sec. 94. bottomline: the insured cannot recover more than the value of his insurable interest.)

Double Insurance 1. two or more insurers 2. total amount of insurance may not exceed insurable interest of the insured insured.

vs.

Over-insurance

1. one or more insurers 2. amount of insurance is always beyond the insurable interest of the

REINSURANCE (Sec. 95-98)

- a contract by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. *It is a contract of indemnity against liability (not merely against damage Sec. 97) by which the another insurer, the reinsurer, protects the first (or original insurer) from the risk the latter has already assumed. REINSURANCE (Sec. 95-98)

**The original insured has no interest in a contract of insurance (Sec. 98).

***However, if the contract of reinsurance is made directly for the benefit of the reinsureds policyholders, or if the reinsurer assumes and agrees to perform the reinsureds contract, the reinsurer becomes directly liable to the policyholders, but in this case, it is necessary for the original insured to accept and communicate acceptance of such benefit to the reinsurer before revocation. REINSURANCE (Sec. 95-98) vs. REINSURANCE 1) insurance involves different interests 2) the insurer becomes the

DOUBLE INSURANCE

1) same interest and risk is insured with another insurer 2) the insurer remains as insurer insured (of the reinsurer)

3) insured in the 1st contract is 3) original insured has no a party in interest in subsequent contracts 4) subject of insurance is property risk assumed by the 5) to be binding, the insured has to give his consent MARINE INSURANCE interest in the reinsurance contract 4) subject of insurance is the original insurer 5) consent of the original insured is not necessary

MARINE INSURANCE covers persons or property exposed to risks of marine navigation, or risks not connected to marine navigation. (see complete definition and properties covered in Sec. 99.) PERILS OF THE SEA or perils of navigation embrace all those casualties due to the violent action of the winds or waves.

- Included in this phrase are shipreck, foundering (breaking down), stranding, collision, and every specie of damage done to the ship or goods at sea by the violent action of the winds and waves. MARINE INSURANCE

PERILS OF THE SEA (perils of navigation)

The rusting of a cargo of steel pipes in the course of a voyage is a peril of the sea (Cathay Insurance vs. CA, 151 SCRA 710, June 30, 1987). In our jurisdiction, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means (Philippine Home Assurance vs. CA, 257 SCRA 468, June 20, 1996). MARINE INSURANCE

PERILS OF THE SHIP are losses or damages resulting from: 1. the natural and inevitable action of the sea; 2. the ordinary wear and tear of a ship; or 3. the negligent failure of the ships owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions. Marine insurance policies usually cover perils of the sea only, and not perils of the ship; the latter must be expressly included in the policy before the insurer may be held liable for loss due to perils of the ship. MARINE INSURANCE

INCHMAREE CLAUSE is a provision in the policy that the insurance shall cover loss or damage to the hull or machinery, through the negligence of the master, charters, mariners, engineers, or pilots or through explosions, bursting of boilers, breakage of shafts, or through any latent defect in the hull or machinery not resulting from want of due diligence. MARINE INSURANCE

Matters although concealed will not vitiate the contract, but exonerates the insurer if they caused the loss (Sec. 110): 1. national character of the insured 2. liability of the thing insured to capture and detention 3. liability to seizure from breach of foreign laws of trade 4. want of necessary documents 5. use of false and simulated papers. MARINE INSURANCE

ALL RISKS CLAUSE a provision in a policy that extends the coverage thereof to all risks whatsoever including losses by an accidental cause of any kind.

It creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policys coverage. MARINE INSURANCE

BARRATRY is a willful act of the master of the crew in pursuance of some fraudulent or unlawful purpose, without the consent of the owner, and to the prejudice the latters interest. Examples of barratrous acts: bumping the ship, violation of revenue laws subjecting the ship to penalties, or unlawfully selling the cargo. INSURABLE INTEREST IN MARINE INSURANCE

1) SHIPOWNER over the vessel, except that if chartered, the insurance is only up to the amount not recoverable from the charterer (Sec. 100); and if hypothecated by a bottomry loan, the insurable interest is only up to the excess of the value of the vessel over the loan (Sec. 101). - - also has insurable interest on expected freightage, except when freightage shall be paid whether or not the vessel is lost (Sec. 103).

2) CARGO OWNER over cargo and expected profits (Sec. 105)

3) CHARTERER over the amount for which he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. 106).

4) LENDER ON BOTTOMRY over the vessel given as security to the extent of the loan MARINE INSURANCE LOAN ON BOTTOMRY is a loan secured by a vessel that is payable only if such vessel given as security for the loan arrives at a port from the contemplated voyage. LOAN ON RESPONDENTIA - is a loan secured by goods transported by a vessel that is payable only upon the safe arrival in a port of such goods given as security FREIGHTAGE signifies all the benefits derived by the owner, either from the chartering of the ship, or its employment for the carriage of his own goods or those of others (Sec. 102). IMPLIED WARRANTIES MARINE INSURANCE

1) the vessel is seaworthy (Sec. 113); 2) the vessel shall not make any improper deviation from the agreed voyage; 3) the vessel shall not engage in an illegal venture; and 4) the vessel shall carry the requisite documents to show its nationality or neutrality and shall not carry any document which cast reasonable suspicion on the vessel, when such nationality or neutrality of the vessel or cargo is expressly warranted. MARINE INSURANCE

When is a ship SEAWORTHY? - When it is reasonably fit to perform the service, and to encounter the ordinary perils of the voyage as contemplated by the parties. DEVIATION a departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage, or the commencement of an entirely different voyage (Sec. 123). MARINE INSURANCE

WHEN DEVIATION IS PROPER: - any deviation other than the following is improper (Sec. 125), in which case, insurer is not liable for loss (Sec. 126) 1) when caused by circumstances over which neither the master nor the owner of the ship has 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 its necessity to avoid a peril; or 4) when made in good faith, for the purpose of saving human life or relieving another vessel in distress (Sec. 124). MARINE INSURANCE: KINDS OF LOSS

1. Total loss may be actual or constructive. A) actual total loss (Sec. 130) is caused by: 1. total destruction of the thing insured; 2. irretrievable loss of the thing by sinking or being broken up; 3. any damage to the thing that renders it valueless; or 4. any other event that effectively deprives the owner of the possession, at the port of destination, of the thing insured.

MARINE INSURANCE: KINDS OF LOSS

1. Total loss may be actual or constructive. B) constructive total loss, or technical total loss - (Sec. 131, in relation to Sec. 139) one which gives the insured the right to abandon the thing insured by relinquishing to the insurer his interest in such thing, entitling him to recover for total loss thereof. (In turn, the insurer acquires all the rights over the thing insured, and it can salvage, repair, or sell the same, or recover from those who caused the loss.) MARINE INSURANCE: KINDS OF LOSS

1. Total loss may be actual or constructive. B) constructive total loss, or technical total loss 1. actual loss or expense to recover the thing insured from the peril is more than of the value of the thing insured; 2. reduction of the value of the thing insured by more than due to injury or damage; 3. if the insured is a ship, when due to a designated peril, the expense to complete the contemplated voyage exceeds of the value of the ship; 4. if the insured is cargo or freightage, when due to a designated peril, the cost of transshipment exceeds of the value of the thing insured. MARINE INSURANCE: KINDS OF LOSS

1. Total loss may be actual or constructive. A) actual total loss B) constructive total loss/technical total loss *Note: Freightage cannot be abandoned unless the ship is also abandoned (Sec. 139). 2. Partial loss any loss which is not total (i.e. where only part of the cargo is lost, or only a portion of the vessel is damaged). *What is the 2/3 rule in partial loss? See Sec. 166

MARINE INSURANCE: AVERAGES

AVERAGE any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded (Art. 806, Code of Commerce). MARINE INSURANCE: General vs. Particular Average

GENERAL AVERAGE (GROSS AVERAGE) includes all damages and expenses which are deliberately caused by the master of the vessel or upon his authority, in order to save the vessel, its cargo or both at the same time, for a real and known risk (Art. 809, Code of Commerce). It gives rise to the right of the owner to contribution from those benefited thereby, or if he is insured, he has the alternative of seeking indemnity from his insurer, subrogating the latter to his right of contribution. However, if the owner has the right to demand contribution, but he waives or neglects the exercise of such right, he loses his alternative (Sec. 165). General vs. Particular Average

PARTICULAR AVERAGE (SIMPLE AVERAGE) any partial loss caused by the peril insured against, which is not a general average, thus, it is borne alone by the owner of the cargo or vessel. - It includes all damages and expenses caused to the vessel or her cargo, which have not inured to the common benefit and profit of all persons interested in the vessel or her cargo. - It refers to losses that occur under circumstances as do not entitle the unfortunate owners to receive contribution from other owners concerned in the venture, as when a vessel accidentally runs aground and breaks to pieces after the cargo is saved. General Rule: an insurer is liable for a particular average Exception: when the policy excludes it

Requisites of General Average Contribution:

1. there must be a common danger to the vessel or the cargo 2. part of the vessel or cargo was sacrificed deliberately (i.e. jettison) 3. the sacrifice must be for common safety or for the benefit of all 4. it must be made by the master of the vessel or upon his authority 5. it must not be caused by any fault of the party asking the contribution 6. it must be successful (i.e. resulted in the saving of the vessel or cargo) 7. it must be necessary MARINE INSURANCE: ABANDONMENT

ABANDONMENT in marine insurance, it is the act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured (Sec. 138). Effect of Abandonment: - It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (Sec. 146) Requisites of valid abandonment:

1. there must be an actual relinquishment by the person insured of his interest in the thong insured (Sec. 138) 2. there must be constructive total loss (see Sec. 139, rules) 3. abandonment is neither partial nor conditional (Sec. 140) 4. it must be made within reasonable time after receipt of reliable information of the loss (Sec. 141) 5. it must be factual (Sec. 142) 6. it must be made by giving notice thereof to the insure, which may be done orally or in writing (Sec. 143); and 7. the notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144). Requisites of valid abandonment:

1. there must be an actual relinquishment by the person insured of his interest in the thong insured (Sec. 138) 2. there must be constructive total loss (see Sec. 139, rules) 3. abandonment is neither partial nor conditional (Sec. 140) 4. it must be made within reasonable time after receipt of reliable information of the loss (Sec. 141) 5. it must be factual (Sec. 142) 6. it must be made by giving notice thereof to the insure, which may be done orally or in writing (Sec. 143); and 7. the notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144). FIRE INSURANCE

- It does not only cover loss or damage due to fire, but when expressly stipulated, it may also those due to lightning, windstorm, tornado, or earthquake, and other allied risks (Sec. 167). For the insured to recover from the insurer, fire must be the proximate cause of the loss, and fire must be HOSTILE, and not FRIENDLY. FIRE INSURANCE

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. (e.g. fire burning in a stove or lamp)

HOSTILE FIRE a fire which: a) burns at a place not intended to burn; or b) starts as a friendly fire but becomes hostile if its should escape from the place where it is intended to be and becomes uncontrollable; or c) is a friendly fire, which becomes hostile not by escaping from its proper place but because of the unsuitable material used to light it and it becomes inherently dangerous and uncontrollable. (e.g. fire in a furnace resulting in damages caused by the heat from such fire to the walls by cracking and blisters) ALTERATION OF THE THING INSURED

Elements and Effect of ALTERATION in use and condition of the thing insured: - an alteration in the use or condition of the 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 risks, entitles the insurer to rescind a contract of fire insurance (Sec. 168). (N.B.: underlined are the elements; italicized is the effect)

* Insurer cannot rescind if alteration does not violate the contract even if it increases the risk. However, even if alteration does not increase the risk, when the policy provides that a violation of specified provisions shall avoid it, the insurer may avoid liability. FALL-OF-THE BUILDING CLAUSE and CASUALTY INSURANCE

FALL-OF-THE BUILDING CLAUSE clause in a fire insurance policy which provides that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease.

CASUALTY INSURANCE insurance covering loss or liability arising from accident or mishap, excluding those falling under the other types of insurance as fire or marine (Sec. 174). FALL-OF-THE BUILDING CLAUSE and CASUALTY INSURANCE

FALL-OF-THE BUILDING CLAUSE clause in a fire insurance policy which provides that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease.

CASUALTY INSURANCE insurance covering loss or liability arising from accident or mishap, excluding those falling under the other types of insurance as fire or marine (Sec. 174). COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (see Sec. 373)

Methods of Coverage: 1) Insurance policy 2) Surety Bond 3) Cash Bond COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (Sec. 373)

NON-FAULT CLAUSE any claim for death or injury shall be paid up to P5,000 without necessity of proving fault or negligence, provided the following proofs or loss under oath are submitted (Sec. 378): 1. death certificate and evidence sufficient to establish proper payee; 2. police report; 3. medical report and evidence of medical or hospital reimbursement. The claim is collected from the insurer of the vehicle in which the claimant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (Sec. 373) AUTHORIZED DRIVER CLAUSE this clause means that it indemnifies the insured owner against loss or damage to the car but limits the use of the incurred vehicle to the insured himself or any person who drives in his order or with his permission (Villacorta vs. Insurance Commissioner; Perla Compania de Seguro vs. CA) COOPERATION CLAUSE clause in an automobile insurance policy, which provides in essence, that the insured shall give all such information and assistance as the insurer may require, usually requiring attendance at trials or hearings. THIRD PARTY LIABILITY INSURANCE

THIRD PARTY LIABILITY INSURANCE insurance secured by the assured/insured to protect third parties up to the limit stated in the policy, but third party victim is not all affected by the limitation in the schedule of indemnity which binds only the contracting party (Sec. 78, iii) PASSENGER (in CMVLI) any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicles operator or his agents to ride without fare *Sec. 373 (b), CMVLI]. THIRD PARTY LIABILITY INSURANCE THIRD PARTY is any person other than a passenger (as defined in Sec. 373) and shall also exclude a member of the household or family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined in Sec. 373, or his employee in respect of death or bodily injury arising out of and in the course of employment (Sec. 373).

OWN DAMAGE vs. THIRD PARTY LIABILITY COVERAGE: Own damage coverage means that the insurer had assumed to reimburse the costs of repairing the damage to the insured vehicle. Third party liability coverage pertains to liabilities arising from the death of, or bodily injuries suffered by third parties. SURETYSHIP & FIDELITY BOND SURETYSHIP an agreement whereby a surety guarantees the performance by another of an undertaking or an obligation in favor of a third party (Sec. 175). It is essentially a credit accommodation.

FIDELITY BOND contract of insurance against loss from misconduct. FIDELITY GUARANTY INSURANCE a contract whereby, one for a consideration, agrees to indemnify the insured against loss arising from the want of integrity, fidelity, or honesty of employees, or other persons holding positions of trust. LIFE INSURANCE Insurance on human life and insurance appertaining thereto or connected therewith, which includes every contract or pledge for the payment of endowments or annuities (Sec. 179).

Kinds:

1) Ordinary Life, General Life, or Old Line Policy insurer pays a premium every year until he dies; cash surrender value after 3 years. 2) Limited Payment Policy insured pays premium for a limited period; if he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. 3) Endowment Policy insured pays premium for a specified period; if he outlives the period, the face value of the policy is paid to him; if not, his beneficiary receives the benefit. Kinds: 4) Term Insurance insured pays once only, and he is insured for a specified period; if he dies within the period, his beneficiaries benefit; if not, no person benefits from the insurance. LIFE INSURANCE

5) Industrial Life life insurance entitling the insured to pay premiums weekly, or monthly, or oftener.

6) Variable Contract any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or value thereunder to vary so as to reflect investment results of any segregated portfolio of investment. Kinds: 4) Term Insurance insured pays once only, and he is insured for a specified period; if he dies within the period, his beneficiaries benefit; if not, no person benefits from the insurance. LIFE INSURANCE

5) Industrial Life life insurance entitling the insured to pay premiums weekly, or monthly, or oftener.

6) Variable Contract any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or value thereunder to vary so as to reflect investment results of any segregated portfolio of investment. DEATH THROUGH SUICIDE Effect of death of insured through suicide:

- The insurer in a life insurance contract shall be liable in case of suicide by the insured committed after the policy has been in force for a period of two (2) years from the date of issuance or its last reinstatement, unless the policy provides a shorter period, provided, however, that suicide committed in a state of insanity shall make the insurer liable regardless of the date of the commission of the suicide (Sec. 180-A). *Insurer is not liable if suicide is within the incontestability period, but liable all the time if suicide is during insanity. LIFE INSURANCE

DEATH IN THE HANDS OF THE LAW the beneficiary of an insured, who is executed for a crime the latter committed cannot recover from the insurer for two (2) reasons: a) his death is caused through his connivance; and b) any stipulation to render the insurer liable under these circumstances would be contrary to public policy. KILLING OF THE INSURED BY THE BENEFICIARY the beneficiary, who is a principal, accomplice, or accessory to the killing of the insured cannot recover by reason of public policy. Exceptions: 1) accidental killing; 2) killing was in done in self-defense; and 3) beneficiary was insane at the time he killed the insured. INTENTIONAL vs. ACCIDENTAL (as used in Insurance)

INTENTIONAL as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, implies the exercise of the reasoning facilities, consciousness, and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of a 3rd person, the insurer is relieved from liability as stipulated (Biagtan vs. The Insular Life Assurance Co., 44 SCRA 58, 1972).

ACCIDENTAL the terms accident and accidental as used in insurance contract, have not acquired any technical meaning. They are construed by the courts in the ordinary and common acceptation. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen. The terms, without qualification, exclude events resulting in damage or loss due to fault, recklessness or negligence of 3rd parties. The concept is not necessarily synonymous with no fault. It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts (Pan Malayan vs. CA, 184 SCRA 54)