Insurance Reviewer Finals

LIFTED from the Book of De Leon and Rodriguez not plagiarized you fuckers!
| Atty Villegas | 3B 2009-2010 1 | P a t i n o , E r i c a

Title I
MARINE INSURANCE

Sub-Title 1- A
DEFINITION

Sec. 99. Marine Insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, securities, choses in action,
evidences of debts, valuable papers, bottomry, and respondentia interests and
all other kinds of property and interests therein, in respect to, appertaining to
or in connection with
- any and all risks or perils of navigation, transit or transportation, or
- while being assembled, packed, crated, baled, compressed or
similarly prepared for shipment or
- while awaiting shipment, or during any delays, storage,
transhipment, or reshipment incident thereto,
- including war risks, marine builder's risks, and all personal property
floater risks;
(b) Person or property in connection with or appertaining to:
- a marine, inland marine, transit or transportation insurance,
- INC liability for loss of or damage arising out of or in connection
with the construction, repair, operation, maintenance or use of the
subject matter of such insurance
o but NOT including life insurance or surety bonds
o NOR insurance against loss by reason of bodily injury to any
person arising out of ownership, maintenance, or use of
automobiles;
(c) Precious stones, jewels, jewelry, precious metals:
- whether in course of transportation or otherwise;
(d) Bridges, tunnels and other instrumentalities of transportation and
communication
- EXCLUDING buildings, their furniture and furnishings, fixed
contents and supplies held in storage;
piers, wharves, docks and slips, and other aids to navigation and
transportation:
- INC dry docks and marine railways, dams and appurtenant facilities
for the control of waterways.

(2) "Marine protection and indemnity insurance," meaning insurance
against:
- legal liability of the insured for loss, damage, or expense
o incident to ownership, operation, chartering, maintenance,
use, repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways,
- including liability of the insured for personal injury, illness or death
or for loss of or damage to the property of another person.

Notes:

Major Divisions of Transportation Insurance
1. Ocean Marine Insurance
- Defined: An insurance against risk connected with navigation, to
which a ship cargo, freightage, profits or other insurable interest in
movable property, may be exposed during a certain voyage or a fixed
period of time
- Covers primarily insurance of sea perils
2. Inland Marine Insurance
- Covers primarily land transportation perils shipped by railroads,
trucks, airplanes, etc.
- Also risks of lake, river or other inland waterway transportation
outside those risks that fall w/in the ocean marine ins category.
Scope of Ocean Marine Insurance: Provides protection for:
1. Ships of hulls
2. Goods or cargoes
3. Earnings such as freight, passage money, commissions, or profits
4. Liability of the owner or any party interested in the property insured
Risks of Losses Covered in Ocean Marine Insurance
- All risks or losses EXC those repugnant to public policy or positively
prohibited
- A general marine ins which does not specify the risks assured is
valid and covers the usual risks
- All other perils extends only to marine damage of like kind
enumerated
- To sustain recovery on a marine policy loss must have resulted
from a risk insured against
Underwriters:
- Cannot assume risk of goods IF not given special notice, and will be
released from their contract if the subject insured is loaded
LIFTED from the Book of De Leon and Rodriguez not plagiarized you fuckers! | Atty Villegas | 3B 2009-2010 2 | P a t i n o , E r i c a

Marine Insurance COVERS:
- Not only property exposed to risks of marine navigation
- BUT ALSO those which are exposed to risks not connected with
marine navigation such as loss of or damage to:
o Aircraft, which has nothing to do with marine navigation
o Goods while being assembled, packed, crated, baled,
compressed or similarly prepared hence, NOT yet in the
course of transportation.
o Precious stones, jewels, jewelry, precious metals whether in
the course of transportation
o Bridges, tunnels, and other instrumentalities of
transportation and communication which have nothing to do
with marine aviation.
Property Covered
- May cover any property or interest enumerated in the section may
cover property exposed to risk of marine navigation or not
- Terms and merchandise includes all articles which are carried on
the ship for commercial purposes.
o They do NOT include the
! clothing of passengers
UNLESS shipped as part of the cargo
! NOR food or provisions intended for consumption
UNLESS included in the policy
- Freightage means all the benefits derived by the owner:
o From chartering of the ship for its employment for the
carriage
o EITHER of his own goods or those of others
o It will NOT be covered by a marine policy UNLESS
expressly indicated.
Risks Insured Against - Insured is liable for:
- All losses proximately caused by the perils covered by the marine
policy
- These risks are usually enumerated and may cover not only perils of
the sea but also fire, theft, jettison, detainments, or others that will
injure the goods insured
- Fire may not be considered a natural disaster since it almost always
arises.

Perils of the Sea
- Embraces those casualties due to the violent action of the winds or
waves
- Includes:
o shipwreck, foundering, stranding, collision, jettison
o Rusting of a cargo of steel pipes in the course of a voyage.
o Extraordinary causes connected with navigation
o Extends to barratry
- Perils include not only arrests caused by political acts of a seizing
state but also by ordinary legal processes such as lawsuit.
- Perils NOT Covered:
o Ordinary wear and tear or other damage usually incident to
the voyage ex. Violence of a tempest
o To be liable: the violence must be due to unusual violence in
the elements, and is not ordinarily to be expected as incident
to navigation. Ex. Violence by a mast or by a storm
- Perils of the sea is a RELATIVE TERM, its meaning may vary
with the circumstances

Perils of the Sea Perils of the Ship
Covers ONLY losses as are of
extraordinary nature or arise from
some overwhelming power which
cannot be guarded against by the
ordinary exertion of human skill of
prudence
A loss in the ordinary course of
events results FROM the
a. natural and inevitable
action of the sea
b. ordinary wear and tear
c. negligence of the ship
owner
GR: Everything which happens thru the:
- inherent vice of the thing or
- by the act of the owner, master or shipper
shall not be reputed a peril IF NOT otherwise borne in the policy

Perils of the Ship
- losses or damages resulting from:
1. Natural and inevitable action of the sea
2. The ordinary wear and tear of a ship
3. Negligent failure of the ships owner to provide the vessel with
proper equipment to convey cargo under ordinary conditions
- Perils of the sea and perils of the ship are two different things
- Perils of the ship must be expressly included in the policy in order to
for the insurer to be liable.

Inchmaree Clause
- Definition: Provision in the policy that the insurance shall cover loss
or damage to the hull or machinery:
o Through the negligence of the master, charter, mariners,
engineers, or pilots
o Through explosions, bursting of boilers, breakage of shafts
o Through any latent defect in the hull or machinery not
resulting form want of due diligence
All Risks Clause
- Insures against all causes of conceivable loss or damage EXCEPT:
o Those excluded from the policy
o Those caused by willful and fraudulent act of the insured
- Creates a special type of insurance which extends coverage to risks
not usually contemplated and avoids putting upon the insured the
burden of proof that the loss was due to the peril falling within the
policys coverage
- Includes: all losses during the voyage WHETHER arising from
marine peril or not (even pilferage losses during war)
- Burden of proof on covered peril
o In other types of policies: Initial burden is on the INSURED
to show that the loss arose from a covered peril
o BUT in an all risk policy: Burden is on the INSURER to
prove that the peril was an excluded peril
! Insured has no obligation to prove the precise cause
of loss or damage
- Burden of proof on condition of the cargo
o Initial Burden: INSURED to prove:
! That the cargo was in good condition when the
policy attached AND
! That the cargo was damaged when unloaded from
the vessel.
o Thereafter: Burden shifts to the INSURER to show the
exception to the coverage.
Other Risks
- Barratry: A willful act of the master or crew in pursuance of some
fraudulent or unlawful purpose without the consent of the owner and
to the prejudice of his interest. (Must be willful and intentional)
Ex: burning the ship, violation of revenue laws, unlawful selling of
the cargo
- Extraordinary acts of a sovereign authority in times of war:
restraining, detaining by kings
- All other perils, losses, and misfortunes risks which are of like
kinds with the particular risk which are enumerated in the preceding
part of the same clause of the contact

Perils MUST be the PROXIMATE CAUSE of the loss in order for the
insurer to be liable.

Classes/Scope of Inland Marine Insurance
- The risk must involve an element of transportation
- Either the property is actually in transit held by persons who are not
its owners, or at a fixed location but an important instrument of
transportation, or is a movable type of goods which is often at
different locations

4 Classes of Inland Marine Insurance
1. Property in transit
o Provides protection for property frequently exposed to loss
while it is in transportation from one location to another
2. Bailee liability
o Provides protection to persons who have temporary custody
of goods or personal property of others
3. Fixed Transportation Property
o Covers bridges, tunnels, and other instrumentalities of
transportation and communication
o They are insured because they are held to be an essential part
of the transportation system
4. Floater
o It provides insurance to follow the insured property
wherever it may be located subject always to the territorial
limits of the contract. (jewelry, works of art, equipment)


Sub-Title 1-B
INSURABLE INTEREST

Sec. 100. The owner of a ship has in all cases:
- an insurable interest in it,
o EVEN when it has been chartered by one who covenants to
pay him its value in case of loss:
o Provided, That in this case the insurer shall be liable for
ONLY that part of the loss which the insured cannot recover
from the charterer.

Notes:

Insurable Interest (II) of Ship-owner (SO)
- Owner has the II on the VESSEL to the extent of its value
- II continues EVEN IF:
o Vessel has been chartered (see codal)
o Owner has mortgaged the vessel to another

Insurable Interest of the Charterer
- Has an II in the vessel TO the extent that he is liable to be damnified
by its loss.

Insurable Interest and Sales Contracts
- In the case of a vessel
o II possessed:
! by owner
! If money has been borrowed by one who holds the
mortgage on the vessel (mortgagee)
! By the lessee of the vessel
- In the case of cargo
o The II is in the shipper or the consignee depending upon the
terms of sale
o FOB factory: the Buyer assumes responsibility when the
goods leave the factory
o FOB point of destination: Buyer does not assume
responsibility until the goods are received from the carrier
o CIF (cost, insurance, and freight): Seller assumes complete
responsibility for securing all necessary insurance
o C&F (cost and freight): The buyer procures his own
insurance
- In case of a vendee/consignee of goods in transit
o Vendee/consignee has such existing interest as may be the
subject of a valid contract of insurance
o II is based on a perfected contract of sale between him and
the shipper of the goods
o Contract whether FOB, CIF, C&F is immaterial and II exists
even w/o delivery since it VESTS in the vendee an equitable
title over the goods sufficient to be the subject of insurance.

Sec. 101. The insurable interest of the owner of the ship hypothecated by
bottomry is:
- ONLY the excess of its value over the amount secured by bottomry.

Notes:

Loan on Bottomry: is one which is payable only if the vessel given as
security for the loan completes in safety the contemplated voyage
Respondentia Loan: is a loan which is payable ONLY upon the safe arrival
in a port of the goods given as security
- Lender in Bottomry: is entitled to receive a high rate of interest to
compensate him for the risk of losing his loan
- Owner of the vessel: receives in case of loss no indemnity for his
loss, but does secure immunity from payment of the loan
Insurable Interest
- Owner: ONLY in the excess of the vessels value over the amount of
the bottomry
o BEC: when the bottomry is lost, the owner need not pay the
loan and is therefore benefited to the extent of the amount of
the loan
o Loss he suffers is ONLY: the difference between the actual
value of the vessel and the bottomry loan
- Lender on bottomry: to the extent of the loan.

Sec. 102. Freightage, in the sense of a policy of marine insurance, signifies:
- all the benefits derived by the owner, either from:
o the chartering of the ship or
o its employment for the carriage of his own goods or those of
others.


Notes:

Freightage defined: benefit which is to accrue to the owner of the vessel
from its use in the voyage contemplated or the benefit derived from the
employment of the ship

Sources of Freightage
- Chartering of the ship
- Employment for the carriage of his own goods
- Employment for the carriage of the goods of others

Sec. 103. The owner of a ship has an insurable interest in expected
freightage:
- which according to the ordinary and probable course of things he
would have earned
- but for the intervention of a peril insured against or other peril
incident to the voyage.

Notes:

II in Expected or Anticipated Freightage
- Owner of the ship contemplates:
o the legal owner and
o the charterer who expects to earn in the transportation of
goods
The freight money assured to the ship owner may be:
a. freight to be earned and payable upon the completion of the voyage
b. the hire of the vessel, payable by the charterer or
c. the benefit accruing to the owner from the use of his vessel in the
way of profits upon carriage of his own goods
SO has an II in the expected freightage
- Has an II if there is a risk of not being able to collect the same by the
happening of the peril insured against
- EVEN if the freight has been paid in advance
- BUT when agreement is that the freight is payable in any event (lost
or is not lost)
o The ship owner has NO II in such freight
o SHIPPER who has prepaid the freightage under the same
situation HAS an II on the same

II in Passage Money
- Passage Money: unlike freightage, is customarily payable in
advance and cannot be recovered if the vessel is lost before the
completion of the passage
- Passenger: has II in his advances of passage money
- Ship owner: Has NO II unless it is payable only upon the completion
of the voyage.

Sec. 104. The interest mentioned in the last section exists,
- in case of a charter party,
- when the ship has broken ground on the chartered voyage.
IF a price is to be paid for the carriage of goods, it exists when:
- they are actually on board, OR there is some contract for putting
them on board, AND
- both ship and goods are ready for the specified voyage.

Notes:

When it exists in expected freightage
- Insured MUST have an inchoate right to freight (the peril insured
against is the only cause that could prevent him from ultimately
having a perfect right to it)

Where freight is the price to be paid for the
hire of the ship under a charter party
SO has an inchoate right to freight as
soon as there is an inception of
performance by the ship under the
charter party
Where the inchoate right to freight accrues
as soon as the goods are actually put on
board and where part of the goods has been
loaded and the balance is ready
There is an II in the whole freight
Where the ship owner has made a binding
contract for freight and the ship is in
readiness to receive the goods
SO has an II

- There is NO II in freight:
o When there is no contract and no part of the goods expected
to be carried are on board
o Where the vessel is a mere seeking ship or a vessel
looking for cargo to be transported S.O. has no II in the
freight to be earned on goods not loaded.


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

Notes:
- One having a reasonable expectation of profits from a marine
adventure may take out insurance to protect such profits.
- HOWEVER: the interest must be a LEGAL INTEREST although
such interest may be contingent
- Owner of a Cargo: has an II not only on the cargo but also on the
expected profit from the sale of the cargo
- Interest in the thing involved should be based on Valuable
Consideration paid.

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

Notes:

- Ex. X charters a vessel of Y. Y will pay X 1M in case of loss. Y can
insure 1M.
Charterer has an II:
- To the extent of the value stipulated and
- In the profits he expects to earn by carrying the goods IN EXCESS
of the amount he agreed to pay for the charter of the vessel.
Charter Party: A contract by which an entire ship or some principal part is
lent by the owner to another person for a specified time or use
2 Types of Charter Parties
1. A Bareboat or Demise Charter
o The SO turns over full possession and control of his vessel to
the charterer who then provides a crew and the supplies
during the terms of the charter.
o SO is not required to provide a crew, so the charterer gets the
bareboat i.e. w/o a crew
o The charterer becomes in effect the owner for the voyage or
service stipulated SUBJECT to liability caused by damages.
o When the charter requires the SO to provide a crew and
master under the charterers direction the employees
become agents of the charterer
2. Contract of Affreightment
o The owner of the vessel leases part or all of its space to haul
goods for others
o A contract of special service to be rendered by the owner of
the vessel who retains the possession, command and
navigation of the ship, the charterer or freighter merely
having use of the space of the vessel.
Types:
Voyage Charter or Trip Charter Time Charter
- Contract for the carriage of goods
from one or more ports of loading to
other ports of unloading, on one or
on a series of voyages
- Employees remain in the employ of
the SO
- Contract for the use of a vessel for a
specified period of time or for the
duration of one or more specified
voyages.
- The owner of the time chartered
vessel also retains the employees

Sub-Title 1-C
CONCEALMENT

Sec. 107. In marine insurance each party is bound to communicate, in
addition to what is required by sec 28:
- all the information which he possesses,
- material to the risk,
- EXCEPT such as is mentioned in Section 30, and
- to state the exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to disclose.

Notes:

Concealment: The failure to disclose any material fact or circumstance
which in fact or law is within or which ought to be within the knowledge of
one party and of which the other has no actual or presumptive knowledge.
- Rule applies to BOTH the assured and underwriter
- The rule of misrepresentations and concealments are more strict in
cases of marine than of fire insurance because:
o Of the difference of the character of the property
o Of the greater facility the insurer possesses in obtaining
information as to its conditions

To constitute concealment it is sufficient that:
- The insured is in possession of the material fact concealed
- Although he may not be aware of it

Sec. 108. In marine insurance,:
- information of the belief or expectation of a third person, in
reference to a material fact, is material.

Notes:
- Further illustrates the stricter rules on concealment for marine ins.
Insured is bound to communicate the following:
1. beliefs of opinions of third persons or
2. expectations of third persons
ONLY requirement: information is in reference to a MATERIAL FACT

Sec. 109. A person insured by a contract of marine insurance:
- is presumed to have knowledge, at the time of insuring,
- of a prior loss,
- IF the information might possibly have reached him:
o in the usual mode of transmission and
o at the usual rate of communication.

Notes:
- Provision creates a rebuttable presumption on the part of the
insured of knowledge of a prior loss
- Reason for presumption: the quickness in the transmission of news
by means of modern communications.
- Rule is NOT applicable:
o The insured is NOT bound to use all accessible means of
information at the very last instant of time to ascertain the
condition of the property insured
o When there is no cause to expect information - insured will
not be liable.

Sec. 110. A concealment in a marine insurance, in respect to any of the
following matters,:
- does not vitiate the entire contract,
- but merely exonerates the insurer from a loss resulting from the risk
concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
Notes:
- GR: Concealment entitles the injured party to rescind the contract
- EXC: Concealment of facts under Sec 110 does not avoid the policy
IF the vessel be lost due to any of the cases in Section 110 which was
concealed:
- The insurer is NOT liable
IF the vessel be lost due to other perils of the sea (storm, etc)
- Insurer is liable. He is not exonerated from liability.

Sub-Title 1-D
REPRESENTATION

Sec. 111. IF a representation by a person insured by a contract of marine
insurance is intentionally false:
- in any material respect, or
- in respect of any fact on which the character and nature of the risk
depends,
the insurer may rescind the entire contract.

Notes:
- The rules governing representations with respect to insurance
policies generally have been held to apply to marine insurance

Representation is MATERIAL: where it would influence the judgment of a
prudent insurer in fixing the premium or in determining whether he would
take the risk

Effects of False Representation by Insured:
- Intentional: Misrepresentation of a material fact made with
fraudulent intent AVOIDS the policy
- Not Intentional : The insurer may ALSO rescind the contract but
ONLY from the time the representation becomes false.
Materiality of Representations
- Material:
o Age, equipment, earnings, condition or rating of a vessel
o That the vessel has to be repaired, that it arrived at the port
of destination, that it is at a certain time at a certain place
o Anything that concerns the state of the vessel at any period
of the vessel
- Immaterial:
o Nature and the amount of the cargo.

Sec. 112. The eventual falsity of a representation as to expectation:
- does NOT, in the absence of fraud, avoid a contract of marine
insurance.

Notes:
- Contemplates the eventual falsity of a representation as to
expectation of belief and NOT of positive facts
- Mere statements of belief:
o Statements of future facts or events which are in their nature
contingent and which the insurer is bound to know that the
insured could not have intended to state as known facts but
as to expectations or intentions.
o Time the vessel will sail, the nature of cargo, amount of
profits expected, designation of the vessel.
- UNLESS made with fraudulent intent their failure of fulfillment is
not ground for rescission

Sub-Title 1-E
IMPLIED WARRANTIES

Sec. 113. In every marine insurance:
- upon a ship or freight, or freightage, or
- upon any thing which is the subject of marine insurance,
a warranty is implied that the ship is seaworthy.

Notes:
- Warranty under Marine Insurance: A stipulation either expressed
or implied forming part of the policy as to some fact, condition or
circumstance related to the risk.
Implied warranty
- The warranties are implied as they exist by the mere fact that a
contract of insurance is entered into.
- Coverage of Warranty:
1. Vessel should not be unSW at the inception of the insurance
2. Voyage should not deviate from the agreed voyage
3. Should not be engaging in an illegal venture
4. That the ship will carry the requisite documents of nationality or
neutrality of the ship or cargo where such is expressly warranted.
5. That the insured has II
Admission of seaworthiness by the insurer may mean:
1. The warranty of seaworthiness is to be taken as fulfilled or
2. That the risk of unseaworthiness is assumed by the insurer
Implied warranty of seaworthiness (SW):
- Reason: The realistic fact that cargo owners cannot control the state
of the vessel
- This implied warranty attaches to whoever is insuring the cargo,
whether he be the SO or not.
- The fact that the unSWness of the ship was unknown to insured is
immaterial in ordinary marine insurance and may not be used as a
defense to recover of the policy.
- It is the obligation of the cargo owner to look for a reliable common
carrier
- The duty of SWness rests upon the common carrier simply for being
engaged in public services

Sec. 114. A ship is seaworthy when reasonably fit:
- to perform the service and
- to encounter the ordinary perils of the voyage contemplated by the
parties to the policy.

Notes:
- SWness is a relative term: depending on the nature of the ship,
voyage, service, etc.
- Vessel must be adequately equipped for the voyage and manned with
a sufficient number of competent officers.

Nature of
Ship
Vessel must be in a fit state as to repair, equipment, crew and
able to carry the cargo and in all other respects to perform
the voyage and to encounter ordinary perils.
Nature of
Voyage
Reasonable fitness to encounter the perils expected to arise
in the course of the voyage, vary naturally with the character
of the particular voyage.
Nature of
Service
Reasonably capable of safely carrying the cargo to its port of
destination.

Criterion of Seaworthiness
- Quality of its officers and crew
- Adaptability of the service in which they are employed
- Sufficient physical and mechanical condition


Sec. 115. An implied warranty of seaworthiness is complied with;
- IF the ship be seaworthy at the time of the of commencement of the
risk,
EXCEPT in the following cases:
(a) When the insurance is made for a specified length of time:
- the implied warranty is not complied with
- UNLESS the ship be seaworthy at the commencement of every
voyage it undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy,
description of the voyage, or established custom of the trade, is to be
transhipped at an intermediate port:
- the implied warranty is not complied with
- UNLESS each vessel upon which the cargo is shipped, or
transhipped, be seaworthy at the commencement of each particular
voyage.
Notes:
- GR: SWness is required only at the commencement of the risk
- EXC: The following must be SW at the commencement of every
voyage or commencement of each portion of such voyage
o Time Policy: When made for a specified length of time
o Cargo Policy: When insurance is upon cargo required to be
transshipped
o Voyage Policy: Where different portions of the voyage
contemplated differ in respect to the things required to make
the ship seaworthy
- SW relates to the vessels actual condition at the time of the
commencement of the voyage
- Time voyage
o provides coverage for a stipulated fixed period of time
o insured avoids the necessity of continually describing
separate voyages many of which are over similar routes
- Voyage policy - covers the subject matter

Sec. 116. A warranty of seaworthiness extends:
- NOT only to the condition of the structure of the ship itself,
BUT requires that - it be properly laden,
AND provided with
- a competent master, a sufficient number of competent officers and
seamen, and
- the requisite appurtenances and equipment, such as:
>ballasts, cables and anchors, cordage and sails, food, water, fuel
and lights, and
>other necessary or proper stores and implements for the voyage.

Notes:
- The ship is not unseaworthy because of some defect in loading or
storage which is easily curable by those on board and was cured
before the loss
- Carrying a cargo on deck raises a presumption of unSWness
o Can be overcome only by showing affirmatively that it did
not interfere with the due management of the vessel
o Reason: a ship may not be designed to carry substantial
amount of cargo on deck making it unstable.

Sec. 117. Where different portions of the voyage contemplated by a policy
differ in respect to the things requisite to make the ship seaworthy
therefor,
- a warranty of seaworthiness is complied with
- IF, at the commencement of each portion, the ship is seaworthy with
reference to that portion.

Notes:
- This is an exception to the rule that SWness should only exist only at
the time of the commencement of the risk
- Here the SWness is required at the commencement of each portion of
the voyage.
- The stages must be separate and distinct in order to have a different
degree of SWness for particular parts.

Sec. 118. When the ship becomes unseaworthy during the voyage to which
an insurance relates:
- an unreasonable delay in repairing the defect
- exonerates the insurer on ship or shipowner's interest from liability
from any loss arising therefrom.

Notes:

- If the vessel is SW at the start of the voyage and unSW during the
voyage such situation does not avoid the policy
- There is no implied warranty that the vessel will remain in a SW
condition throughout the life of the policy

- HOWEVER:
o When the vessel becomes unSW it is the duty of the master
as the SOs agent to exercise due diligence to make it SW
again
o an unreasonable delay in repairing the defect causing the
unSWness exonerates the insurer on ship
- Benefit of exoneration is given only to an insurer on ship or SOs
interest

Sec. 119. A ship which is seaworthy for the purpose of an insurance upon the
ship:
- may, nevertheless, by reason of being unfitted to receive the cargo,
- be unseaworthy for the purpose of the insurance upon the cargo.

Notes:
- SWness of a vessel is also to be determined with regard to the nature
of the cargo that the vessel is reasonably capable of safely conveying
the cargo to its port of destination.
- A ship which is unSW for the purpose of insurance upon the ship
may be unSW for the purpose of insurance upon the cargo

Sec. 120. Where the nationality or neutrality of a ship or cargo is expressly
warranted,
it is implied that:
- the ship will carry the requisite documents to show such nationality
or neutrality and
- that it will not carry any documents which cast reasonable suspicion
thereon.

Notes:
- Implied warranty under this section arises ONLY when the
nationality of the vessel or cargo is EXPRESSLY WARRANTED.

- Warranty of Nationality: does not mean that the vessel was built in
such country, but that the property belongs to a subject. It refers to
the beneficial ownership rather than legal title.
o Also requires that the vessel be conducted and documented
as of such nation. Breach will avoid the policy.

- Warranty of Neutrality: imports that the property insured is neutral
in fact, and shall be so in appearance and conduct; that the property
shall belongs to neutrals and that no act the insured shall be done
which can legally compromise its neutrality. Only covers the
insureds interest NOT of third persons.
o Requires that the insured property shall be accompanied by
documentary evidence of its neutral character.
o Submission when required, is not excused when lost by fault
of the master.

Sub-Title 1-F
THE VOYAGE AND DEVIATION

Sec. 121 When the voyage contemplated by a marine insurance policy is
described by the places of beginning and ending,:
- the voyage insured is one which conforms to the course of sailing
- fixed by mercantile usage between those places.

Sec. 122 IF the course of sailing is not fixed by mercantile usage, the
voyage insured by a marine insurance policy is:
- that way between the places specified,
- which to a master of ordinary skill and discretion, would mean the
most natural, direct and advantageous.

Sec. 123 Deviation:
- is a departure from the course of the voyage insured, mentioned in
the last two sections, or
- an unreasonable delay in pursuing the voyage or the commencement
of an entirely different voyage.

Notes:
Deviation, defined:
- Any unexcused departure from the regular course or route of the
insured voyage or any other act which substantially alters the risk.
4 Cases of Deviation in marine insurance
1. Departure from the course of sailing fixed by mercantile usage
(SEC 121)
2. Departure from the most natural, direct, and advantageous route
between the places specified (SEC 122)
3. Unreasonable delay in pursuing the voyage (SEC 123)
4. The commencement of an entirely different voyage (SEC 123)

Sec. 124. A deviation is proper:
(a) When caused by circumstances over which neither the master nor the
owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether
or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its
necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or
relieving another vessel in distress.

Sec. 125. Every deviation NOT specified in the last section is improper.

Notes:
- Deviation may be proper or improper
- PROPER: cases enumerate in Sec 124
- IMPROPER: those not enumerated in Sec 124
- Insurer us not exonerated from liability for loss after proper
deviation since the effect is that there is no deviation made
When deviation is proper
- Justified deviation will not vitiate the policy, examples:
o When compelled to head for another port by stress of weather
o When necessary to the safety of the adventure or to escape a
capture
o When the water to the river to port is too shallow for his vessel to
enter.
- Such compulsory deviations are risks impliedly assumed by the
underwriter
- A deviation to save property is NOT justified unless in distress
- A deviation to save life is justified and is not a breach of warranty
rests on the ground of humanity

Sec. 126. An insurer is not liable for any loss
- happening to the thing insured subsequent to an improper deviation.

Notes:
- Where there has been any deviation or charge of the risk w/o just
cause (improper deviation) the insurer becomes immediately
absolved from further liability
- The fact that the deviation did not increase the risk, or in any way
contribute to the loss suffered is wholly IMMATERIAL

Sub-Title 1-G
LOSS

Sec. 127. A loss may be either total OR partial.

Sec. 128. Every loss which is not total is partial.

Sec. 129. A total loss may be either actual OR constructive.

Sec. 130. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession,
at the port of destination, of the thing insured.

Sec. 131. A constructive total loss is:
- one which gives to a person insured a right to abandon,
- under Section 139.

Sec. 132. An actual loss may be presumed:
- from the continued absence of a ship without being heard of.
The length of time which is sufficient to raise this presumption:
- depends on the circumstances of the case.

Notes:
Kinds of loss in Marine Insurance
o Total OR partial
o Total loss may be: actual OR constructive

Actual loss: exists when the subject matter of the insurance is wholly
destroyed or lost or when it is damaged as no longer to exist in its original
character
- Complete physical destruction is NOT essential
Examples of actual total loss:
- Where the ship is so badly damaged that it no longer exists as a ship
but is only a mass of material
- Where the vessel is completely burned or sinks deep in water and is
broken to pieces

- Where the cargo of machinery insured sank with the vessel even if
part was recovered but was so damaged that it has no value
- When the insured is effectively deprived of the use and possession of
the property
Rules on Actual Loss:
- Actual loss may be presumed from the continued absence of the ship
w/o being heard of
o length of time depends on the circumstances
o only thing to prove is that the vessel left the port
- When the cargo by decomposition or other chemical agency no
longer remains the same kind if thing as before actual loss
Constructive Total Loss
- Also known as technical total loss
- Loss although not total is of such character that the insured is entitled
if he thinks fit, to treat it as total by abandonment
- Gives the insured the right to abandon the thing by relinquishing to
the insurer his interest in such thing.
- Insurer then acquires all the rights over the thing insured.
Partial Loss
- When only part of the cargo or vessel is lost or damaged.
Importance of distinction between actual and constructive total loss
- Total loss: abandonment is NOT necessary to recover total loss
- Constructive Loss: abandonment is necessary to recover total loss

Sec. 133. When a ship is prevented, at an intermediate port,:
- from completing the voyage, by the perils insured against,
the liability of a marine insurer on the cargo:
- continues after they are thus reshipped.
Nothing in this section shall prevent an insurer:
- from requiring an additional premium
- if the hazard be increased by this extension of liability.

Notes:
- Contemplates insurance upon cargo
- If the original ship is disabled and the cargo is transferred to another
ship the change of ship will NOT discharge the underwriter
- This rule will not be obligatory where resort must be had to distant
places to procure a vessel and there are serious impediments in the
way of putting the cargo on board.

Sec. 134. In addition to the liability mentioned in the last section, a marine
insurer is bound:
- for damages, expenses of discharging, storage, reshipment, extra
freightage, and all other expenses
- incurred in saving cargo reshipped pursuant to the last section,
- up to the amount insured.
Nothing in this or in the preceding section shall render a marine insurer liable
- for any amount in excess of the insured value OR,
- IF there be none, of the insurable value.

Notes
- The expenses enumerated are those necessary to complete the
transportation of cargo reshipped.
- NOTE: liability CANNOT exceed the amount of the insurance

In addition to the original liability(loss of damage of the goods) of the
insurer of the cargo reshipped, he is also liable for the ff:
- Damages
- Expenses of discharging
- Storage reshipment
- Extra freightage
- All other expenses in saving the cargo up to the amount insured

Sec. 135. Upon an actual total loss, a person insured is:
- entitled to payment w/o notice of abandonment.

Notes:

Constructive
total loss
- Abandonment of the insured is necessary to recover
total loss in the absence of the provision to the
contrary (notice is essential)
Actual total loss - The right of the insured to claim the whole insurance
is ABSOLUTE
- He need not give notice nor formally abandon
anything to recover total loss


Sec. 136. Where it has been agreed that:
- an insurance upon a particular thing, or class of things, shall be free
from particular average,
a marine insurer is NOT liable:
- for any particular average loss not depriving the insured of the
possession,
- at the port of destination,
- of the whole of such thing, or class of things,
- EVEN though it becomes entirely worthless;
but such insurer is liable for:
- his proportion of all general average loss assessed upon the thing
insured.

Notes:

Average defined under the Code of Commerce
- 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 is unloaded
- Gives owner the right to contribution from those benefitted thereby
o IF he is insured: he has the alternative of seeking indemnity
form his insurer
o IF the owner neglects or waives his right to contribution: he
loses his alternative
Kinds of Averages
1. Gross or General Averages (GA)
o Damages and expenses which are deliberately caused by the
master of the vessel in order to save the vessel, the cargo or
both from a real and known risk
o GA loss must be borne equally by all the interests involved
2. Simple or Particular Averages
o Damages and expenses caused to the vessel or to her cargo
which have not inured to the common benefit and profit of
all the persons interested in the vessel and her cargo
o Losses which do not entitle the owners to receive
contribution from other owners
o Loss is suffered by and borne alone by the owner of the
cargo or the vessel

Principle of General Average Contribution
- When it is decided by the master of a vessel acting for all the
interests concerned, to sacrifice any part of a venture exposed to a
common and imminent peril in order to save the rest
- The interest so saved are compelled to contribute proportionately
to the owner of the interest sacrificed.
- A device for a limited distribution of loss
Right of a party to claim general average contribution Requisites:
1. There must be a common danger to the vessel or cargo
2. Part of the vessel or cargo was sacrificed deliberately
3. The sacrifice must be for the common safety or for the benefit of all
4. It must not be caused by any fault of the party asking the
contribution
5. It must be successful (resulted in the saving of the vessel/cargo)
6. It must be necessary

Formalities prescribed under Art 813 and 814 of the Code of Commerce
must be complied with in order to incur the expenses and cause the damages
corresponding to gross average.

Liability of insurer for General Average:
- Section 136 Insurance Code: liable for his proportion of all general
average loss assessed upon the thing insured
- Article 859 Code of Commerce: obliged to pay for the indemnity of
the gross average in so far as is required of each one of these objects
respectively
- It simply places the insurer on the same footing as other persons who
have an interest in the vessel or cargo

Formula for computing the liability:

Amount of insurance X General Average = Proportion of GAL for
Total amount or value Loss (GAL) which insurer is liable

Liability of Insurer for Particular Average
- Means any partial loss caused by the peril insured against which is
not the GA
- The insurer is liable for a particular average UNLESS the policy
excludes it BUT such insurer is liable for the GA loss even in the
absence of any agreement

- It may be agreed that parties are free from payment of particular
average in such case, insurer is liable only for the general average
Other Rules:
- General Average is never allowed UNLESS the loss or damage has
been incurred for the common safety of both vessel and cargo
- Refloating of the vessel which has accidentally run aground was
solely for the benefit of the vessel no common safety

Sec. 137. An insurance confined in terms to an actual loss:
- does NOT cover a constructive total loss,
- but covers any loss:
o which necessarily results in depriving the insured of the
possession, at the port of destination,
o of the entire thing insured.

Notes:
- An insurance confined to Actual total loss or absolute total loss
o Does NOT cover constructive total loss
- If against total loss only
o It covers any total loss whether actual or constructive

Sub-Title 1-H
ABANDONMENT

Sec. 138. Abandonment, in marine insurance, is the act of the insured:
- by which, after a constructive total loss,
- he declares the relinquishment to the insurer of his interest in the
thing insured.

Abandonment, defined:
- The right given by law to the insured in case of constructive total
loss to relinquish to the insurer his interest in the thing insured.
Requisites for Valid Abandonment
1. There must be an actual relinquishment by the person insured of his
interest in the thing insured (SEC 138)
2. There must be a constructive total loss (SEC 139)
3. The abandonment be neither partial nor conditional (SEC 140)
4. It must be made within a 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 insurer which may be
done orally or in writing (SEC 143)
7. The notice of abandonment must be explicit and must specify the
particular cause of the abandonment (SEC 144)
Right of Abandonment does NOT apply:
- In cases where the injury or average was occasioned by the SOs
own fault
- ART 587 of Code of Commerce which speaks also of this right of
abandonment speaks only of situations where the fault or
negligence is committed solely by the captain
Necessity for Abandonment
- When the loss is only technically total insured cannot claim the
whole insurance w/o showing due regard to the interest which the
underwriter may take in the abandoned property
- When the underwriter by prompt action might be able to save some
portion of the property
o he is entitled to timely notice of abandonment and he
cannot be held liable w/o it
- ABANDONMENT IS DISCRETIONARY: the insured may do so in
his own election
o IF he omits to abandon: he MAY nevertheless recover his
actual loss (SEC 155)

Sec. 139. A person insured by a contract of marine insurance may abandon:
- the thing insured, or
- any particular portion thereof separately valued by the policy, or
otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril insured
against:
(a) If more than three-fourths thereof in value is actually lost, or would have
to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-
fourths;
(c) If the thing insured is a ship, AND the contemplated voyage:
- cannot be lawfully performed
- without incurring either:
o an expense to the insured of more than three-fourths the
value of the thing abandoned OR
o a risk which a prudent man would not take under the
circumstances; or
(d) IF the thing insured, being cargo or freightage, and the voyage:
- cannot be performed,
- nor another ship procured by the master,
o within a reasonable time and with reasonable diligence,
o to forward the cargo,
o without incurring the like expense or risk mentioned in the
preceding sub-paragraph.
But freightage cannot in any case be abandoned:
- UNLESS the ship is also abandoned.

Notes:

3 Rules on when Constructive Total Loss
- English Rule: When the subject matter of the insurance is so
damaged as not to be worth when repaired, the cost of the repairs
- American Rule: When it is so damaged that the cost of repairs would
exceed ! of the value of thing. (Fifty Per Cent Rule)
- Philippine Rule: Insured may not abandon the thing insured
UNLESS The loss or damage is more than " of its value (SEC 139)

Abandonment where insurance divisible and where indivisible
- W/N a contract is entire OR severable: a question of intention to be
determined by the language employed by the parties
- Only that portion of the thing which is separately valued by the
policy may be separately abandoned as it is deemed separately
insured
- When the insurance is indivisible: the basis for determining
constructive total loss is the ENTIRE SHIPMENT

Criterion as to Extent of Loss
- The extent of injury to the vessel: considered with reference to its
general market value immediately before the disaster
- HOWEVER, if it involves a VALUED POLICY: the value stipulated
shall be taken as the basis of the estimate
- ALSO: the expenses incurred or to be incurred by the insured in
recovering the thing are taken into account

Sec. 140. An abandonment must be NEITHER partial NOR conditional.

Notes:
- Abandonment MUST be total and absolute covers the whole
interest
- IF only a part of a thing is covered by the insurance the insured
need ONLY abandon that part.

Sec. 141. An abandonment must be made:
- w/in a reasonable time after receipt of reliable information of the loss
- BUT where the information is of a doubtful character
o the insured is entitled to a reasonable time to make inquiry.

Notes:

Abandonment Must be Made within Reasonable Time (RT)
- Once the insured receives a notice of loss he must elect whether he
will abandon and give notice of such abandonment w/in RT
- Further RT to make inquiry: in order that the insurer may not be
prejudice with the delay and may take immediate steps for the
preservation of such property
- RT is relative: it is based on the facts and circumstances of each case
- After the property passes beyond the control of the insured an
abandonment is too late


Sec. 142. Where:
- the information upon which an abandonment has been made proves
incorrect, OR
- the thing insured was so far restored when the abandonment was
made that there was then in fact no total loss,
the abandonment becomes ineffectual.

Notes:

Existence of loss at time of abandonment
- The right of the insured to abandon depends upon the state of facts at
the TIME OF THE OFFER TO ABANDON and NOT upon
o The state disclosed by the information received
o NOR upon the state of loss at a prior or subsequent time
Effect of Subsequent Events:
- IF the abandonment is made good :
o The rights of the parties are fixed and
o Do not become changed by subsequent events
- IF the abandonment is NOT made good:
o Subsequent circumstance will not affect it so as
retroactively, to impart to it a validity which it has not at its
origin (whaaatt!! labo see p359 de leon)
Insured CANNOT abandon:
- When the thing insured is safe
- When he knew at the time of his offer to abandon that the vessel has
been repaired
- In such cases the invalidity of the abandonment is NOT cured by the
subsequent loss of the thing
IF the abandonment is valid:
- A subsequent recovery of the property will not entitle the insured to
withdraw the abandonment
Instances justifying abandonment:
- in cases of capture, seizure, detention, restraint by blockade or
embargo
- funds cannot be raised with no fault of the owner
- where the voyage is absolutely lost
- where under urgent necessity the master makes a sale of the insured
property

Information which authorized the insured to abandon need NOT be
direct or positive:
- The information must be of such facts and circumstances as to render
it highly probable that a constructive total loss has occurred
- Protest of the master, a newspaper report, report of pilot is sufficient

Sec. 143. Abandonment is made by:
- giving notice thereof to the insurer,
- which may be done orally, or in writing;
Provided, That IF the notice be done orally:
- a written notice of such abandonment shall be submitted
- within 7 days from such oral notice.

Notes:

Form of Notice of Abandonment
- law requires no particular form for giving notice
- notice may be made orally UNLESS the policy requires it to be in
writing
By whom and to whom notice made
- Notice may be made BY:
o The insured or his authorized agent
o Note: An agent having authority to insure has prima facie
authority to abandon
- Notice may be made TO:
o The underwriter or his authorized agent

Sec. 144. A notice of abandonment must be:
- explicit, and
- must specify the particular cause of the abandonment,
- BUT need state ONLY enough to show that there is probable cause
therefor, and
- need NOT be accompanied with proof of interest or of loss.

Notes:
- Notice of abandonment must be explicit and not left as a matter of
inference from some equivocal acts
- There must be intention to abandon
- The use of the word abandon is not necessary
- BUT there is no abandonment even when notice has been given: IF
the insured continues to claim and use the property as his own

Sec. 145. An abandonment can be sustained:
- ONLY upon the cause specified in the notice thereof.

Notes:
- The insured must state sufficient grounds for the abandonment to
make it valid
- He cannot avail himself of any ground other than that stated
- If the grounds is proved to be unfounded and the information upon
which it was made is proved to be incorrect abandonment is
ineffective
- If he assigns an insufficient cause proof of other causes will not be
admitted

Sec. 146. An abandonment is equivalent to:
- a transfer by the insured of his interest to the insurer,
- with all the chances of recovery and indemnity.

Notes:
- Effect of abandonment: insurer acquires all the rights(which includes
rights of action against 3
rd
person) which the insured possessed
- The rights acquired is also SUBJECT to prior rights of third persons
- The execution of a formal instrument is not necessary to effect an
abandonment an accepted abandonment produces all the effects

Sec. 147. IF a marine 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 had been a formal abandonment.

Notes:
- GR: An election and notice of abandonment is a condition precedent
to a claim for constructive total loss
- HOWEVER In this section: The interest of the insured over the
thing will be transferred to the insurer notwithstanding the lack of
abandonment as if a formal abandonment has been made
- The acceptance by the insured of the payment is deemed an offer of
abandonment on his part

Sec. 148. Upon an abandonment,:
- acts done in good faith
o 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.

Notes:
- Upon abandonment, agents of the insured become the agents of the
insurer
- The abandonment when made relates back to the time of the loss
the title of the insurer becomes vested as of that date and is
responsible for the reasonable expenses incurred in an attempt to
save the vessel and the wages of the seamen

Sec. 149. Where notice of abandonment is properly given,:
- the rights of the insured are not prejudiced
- by the fact that the insurer refuses to accept the abandonment.

Notes:
- Acceptance is not necessary if the abandonment is proper
- The insureds right to abandon is ABSOLUTE when justified by
circumstances

Sec. 150. The acceptance of an abandonment may be either:
- 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 as an acceptance.

Notes:
Form of Acceptance of Abandonment
- May be express or implied
- IMPLIED: By conduct
o Mere silence and acts to preserve property after notice
! GR: NOT implied acceptance
! UNLESS if made for an unreasonable length of time
o Example: when the insurer refused the abandonment but
takes possession of the same for the purpose of making
repairs AND retained for an unreasonable time

Sec. 151. The acceptance of an abandonment, whether express or implied:
- is conclusive upon the parties, and
- admits the loss and the sufficiency of the abandonment.

Sec. 152. An abandonment once made and accepted is irrevocable:
- UNLESS the ground upon which it was made proves to be
unfounded.

Notes:

Acceptance of Abandonment has the Following Effects:
1. Acceptance is conclusive upon the parties
2. Loss is admitted
3. The sufficiency of the abandonment is admitted
4. It is irrevocable unless the ground upon which it was made proved to
be unfounded
- Acceptance stops the insurer from questioning the form or right of
abandonment
- W/N the insured has a right to abandon is IMMATERIAL when it is
accepted and there is no fraud

Sec. 153. On an accepted abandonment of a ship:
- freightage earned previous to the loss
o belongs to the insurer of said freightage;
- but freightage subsequently earned
o belongs to the insurer of the ship.

Note: Title becomes vested at the TIME OF THE LOSS

Sec. 154. If an insurer refuses to accept a valid abandonment:
- he is liable as upon actual total loss,
- deducting from the amount any proceeds of the thing insured which
may have come to the hands of the insured.

Notes:
- The insureds right to abandon is absolute when justified by the
circumstances and no acceptance is necessary
When an insurer declines to accept:
- A Proper Abandonment: Insurer is liable for the total loss LESS any
proceeds received on account of the damaged property (ex. Sale)
- An Improper Abandonment: Insured may nevertheless recover to the
extent of the damage proved

Sec. 155. If a person insured omits to abandon, he may nevertheless recover
his actual loss.

Notes:
- Abandonment is discretionary: failure to do so would still entitle the
insured to recover his actual loss

Sub-Title 1-I
MEASURE OF INDEMNITY

Sec. 156. A valuation in a policy of marine insurance is conclusive 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 on his part;
EXCEPT that when a thing has been:
- hypothecated by bottomry or respondentia,
- before its insurance, and
- without the knowledge of the person actually procuring the
insurance,
he may show the real value.
BUT a valuation fraudulent in fact, entitles the insurer to rescind the contract.

Notes:
- SEC 156 refers to VALUED marine policies
- The insured value must be taken to be that stated in the policy
- When there is no insurable interest or when there is fraud on the part
of the insured
o Valuation is NOT conclusive
o The insurer has the right to rescind
- When the thing insured is hypothecated by bottomry or respondentia:
o Right to rescind is available ONLY if the violation is
fraudulent in fact


Sec. 157. A marine insurer is liable upon a partial loss:
- ONLY for such proportion of the amount insured by him
- as the loss bears to the value of the whole interest of the insured in
the property insured.

Notes:
- IF the value of the property or interest of the insured EXCEEDS
the amount of the insurance: he is considered the co-insurer for the
amount determined by the [difference between the value of the
insurance and the value of the property]
- In Fire Insurance: rule is different:
o No co-insurance: insurer is liable for the FULL amount
o UNLESS policy expressly provides for co-insurance

FORMULA:

(Partial) Loss X Amount of = Amount of
Value of Thing Insured Insurance Recovery

Sec. 158. Where profits are separately insured in a contract of marine
insurance the insured is entitled to recover, in case of loss:
- a proportion of such profits equivalent to
- the proportion which the value of the property lost bears to the value
of the whole.

Notes:
- The profits to be realized must be separately insured from the vessel
or cargo

FORMULA:

Value of Property Lost X Amount of = Amount of
Value of Whole Property Profit Recovery
Insured

Sec. 159. In case of a valued policy of marine insurance on freightage or
cargo:
- IF a part only of the subject is exposed to the risk,
- the evaluation applies only in proportion to such part.

Notes:
- In case only a portion of the cargo was insured under a valued policy
the valuation applies only in proportion of such part
- Under a valued policy, when a portion only of the cargo is carried by
the vessel: valuation will be reduced proportionally
- Insurer is bound to return such portion of the premium as
corresponds with the portion of the cargo which had been exposed to
the risk
- Franchise Clause: stipulation that unless the damage reaches a
designated percentage of the value of such cargo no amount will be
paid by the insurer

Sec. 160. When profits are valued and insured by a contract of marine
insurance:
- a loss of them is conclusively presumed FROM a loss of the
property out of which they are expected to arise, and
- the valuation fixes their amount.

Notes:
- Where the profits are separately insured from the property: the
insured is entitled:
o IF partial loss: merely to partial indemnity for the profits lost
o IF total loss: nothing total profits are also lost
- Loss of the Profits is conclusively presumed from the Loss of the
Property
- In such case, the valuation agreed upon in the policy fixes the
amount of recovery


Sec. 161. In estimating a loss under an open policy of marine insurance the
following rules are to be observed:
(a) The value of a ship is:
- its value at the beginning of the risk,
- including all articles or charges:
o which add to its permanent value or
o which are necessary to prepare it for the voyage insured;
(b) The value of the cargo is:
- its actual cost to the insured, when laden on board, or
- where the cost cannot be ascertained:
o its market value at the time and place of lading,
- adding the charges incurred in purchasing and placing it on board,
but
- without reference
o to any loss incurred in raising money for its purchase, or
o to any drawback on its exportation, or
o to the fluctuation of the market at the port of destination, or
o to expenses incurred on the way or on arrival;
(c) The value of freightage is:
- the gross freightage, EXCLUSIVE of primage,
- without reference to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the value thus
estimated.

Notes:
- Provision contemplates an OPEN marine policy
- Drawback in par B: refers to the allowance made by the govt
upon the duties on imported merchandise when the importer, instead
of selling here, re-exports it or the refunding of such duties is already
paid ( it is excluded in determining the value of the cargo)
- Primage in par C: refers to a small allowance or compensation
payable
o to the master or owner of the vessel for the use of his cables
and ropes to discharge, and for his care and trouble bestowed
on the shippers goods
o to the mariners for lading and unlading in any port
In Determining the loss under an open policy of marine insurance the
REAL VALUE of the thing insured must be proved in each case
- Value of Vessel: value is to be taken as of the commencement of the
risk (NOT at the time it was built)
- Value of Cargo: either the actual cost when laden on board OR the
market value (see codal for distinction)
o Expected profits are NOT considered since they can be
covered by a separate insurance
- Value of Freightage: Gross freightage (NOT net freightage)
o Reason: Gross freightage can be easily and exactly
determined

Sec. 162. IF cargo insured against partial loss:
- 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.

Notes:
- The provision applies: if the cargo is insured against partial loss + it
suffers damage + its market value at the port of destination is
reduced

FORMULAS:

Market Price (MP) MP in Damaged State = Reduction in Value
in Sound State (Depreciation)

Reduction in Value X Amount of = Amount of
Market Price in Sound State Insurance Recovery

Sec. 163. A marine insurer is liable for:
- all the expenses attendant upon a loss
- which forces the ship into port to be repaired; and
where it is stipulated in the policy that the insured shall labor for the recovery
of the property, the insurer is liable:
- for the expense incurred thereby,
- such expense, in either case, being in addition to a total loss, if that
afterwards occurs.


Notes:
GR: Marine Insurer is NOT liable for more than the amount of the policy
EXC: Expenses that are borne by the insurer in addition to total loss:
- Port of Refuge Expenses sec163- when the ship has to make port
o for the repairs of the damages suffered by the vessel
o for saving the vessel
- Sue and Labor Clause: expenses for the recovery of the property
if the policy stipulated and imposes upon the insured the duty to
make such recover

Sec. 164. A marine insurer is liable for a loss falling upon the insured:
- through a contribution in respect to the thing insured,
- required to be made by him towards a general average loss called for
by a peril insured against;
provided, that the liability of the insurer shall be limited:
- to the proportion of contribution attaching to his policy value
- where this is less than the contributing value of the thing insured.

Sec. 165. When a person insured by a contract of marine insurance has a
demand against others for contribution, he may:
- claim the whole loss from the insurer,
- subrogating him to his own right to contribution.
But no such claim can be made upon the insurer:
- after the separation of the interests liable to the contribution,
- nor when the insured, having the right and opportunity to enforce the
contribution from others, has neglected or waived the exercise of that
right.

Notes:
- When the person liable to contribute to a general average is insured:
o He may hold the insurer liable for his contribution
o Up to the value of the policy

- GR: Insurer is Liable for any general average (GA) loss
o The insured may either:
! hold the insurer directly liable for the insured value
of the property sacrificed or
! demand contribution from the other interested
parties as soon as the vessel arrives at her destination
o in other words: the insured need not wait for an adjustment
of the average

- EXC: No recovery of GA loss against insurer
o After the separation of the interests (cargo) liable to
contribution has been removed from the vessel
o When the insured has neglected or waived his right to
contribution
Liability of Marine Insurer for any GA loss is LIMITED
- Limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing
insured.
- It shall be less than the proportion of the GA loss assessed upon the
thing insured where its contributing value is more than the amount of
the insurance.
- In such case the INSURER is liable to contribute ratably with the
INSURED to the indemnity of the GA

FORMULA:

Amount of Insurance X Proportion of GA loss assessed = Limit of
Value of the Thing upon the thing insured Liability of Insurer

Sec. 166. In the case of a partial loss of ship or its equipment:
- the old materials are to be applied towards payment for the new.
UNLESS otherwise stipulated in the policy, a marine insurer is liable:
- for ONLY two-thirds of the remaining cost of repairs after such
deduction,
- EXCEPT that anchors must be paid in full.

Notes:
- Here, there is a deduction from the cost of repairs one-third new for
old on the theory that new materials render the vessel much more
valuable than it was before the loss
- The 1/3 therefore is upon the burden of the insured
- The 2/3 then shall be upon the burden of the insurer
- This section qualifies the rule in Sec 157 (page 19)


Title 2
FIRE INSURANCE

Sec. 167. As used in this Code, the term "fire insurance" shall include
insurance against loss by:
- fire,
- lightning, windstorm, tornado or earthquake and other allied risks,
o when such risks are covered by:
! extension to fire insurance policies or
! under separate policies.

Notes:

Fire Insurance, defined: A contract of indemnity by which the insurer for a
consideration, agrees to indemnify the insured against loss of, or damage to,
a property by hostile fire.
- Indemnity is its sole purpose

What Fire Insurance Includes
- By stipulation, the policy may extend not only to loss due to fire but
also due to allied lines (lightning, windstorm, etc.)
- To include Allied Risks Extended Coverage:
o A fire policy does NOT automatically cover all other risks, it
must be stipulated
o Covered by extension to fire insurance policies OR under
separate policies
o SUBJECT to the payment of premiums under separate
policies (SEC 167)
o MAY also be attached by endorsements (SEC 50)
- May also include Indirect or Consequential Losses
o GR: A standard fire contract is an agreement to indemnify
for DIRECT loss
o EXC: The consequences of direct loss may be greater than
the damage itself and the policy may be extended to cover
such consequential losses
o Special coverage also known as loss of profits insurance
or business interruption insurance

- Kinds of Indirect Losses
o Physical Damage: ex. As a result of the fire, goods are
spoiled, papers cannot be recopied
o Loss of Earnings: Interruption of business
o Extra Expense: additional expenditure or charges incurred by
the insured following the damage or destruction of the
property by an insured peril (ex. Cost doing business at
another location)
Fire, defined
- The active principle of burning, characterized by the heat and light
combustion. (Fire is always caused by combustion)
- Combustion or spontaneous combustion may be so rapid as to
produce fire, but until it does so, combustion cannot be said to be
fire. it MUST produce a flame, a glow, or incandescence
- Combustion which produces heat but no visible glow or light is NOT
fire
- Heat, steam, smoke evidence of fire but unless it is accompanied
by ignition, it is not fire
- Fire is NOT:
o A natural disaster or calamity since it always arises.
o An act of God unless caused by lightning or natural disaster
not attributed by human agency
Rules in Order to Recover under the Fire Policy
- Fire must be the PROXIMATE CAUSE of loss in order to recover
under the fire policy
- Fire MUST be HOSTILE and NOT friendly
o Friendly Fire, defined: One which burns in a place where it
is intended to burn and employed for the ordinary purpose of
lighting, heating or manufacturing
! Examples: Fire burning in a stove or lamp, gas lamp
o Hostile Fire is when:
1. Burns at a place where it is NOT intended to burn
2. Starts as a friendly fire but becomes hostile if it should
escape from the place where it is intended to be (proper
place) and becomes uncontrollable OR
3. Starts as a friendly fire but becomes hostile because of
the unsuitable material used to light it and it becomes
inherently dangerous and uncontrollable. (Ex. Fire in the
furnace caused by the heat from the fire to the walls by
cracking and blisters)


Fire due to Abnormal Conditions or Extraordinary Circumstances
- A fire insurance policy MAY
o RESTRICT its coverage to losses under ordinary
circumstances and
o EXCLUDE those due to extraordinary circumstance or
abnormal conditions (ex. War, invasion, rebellion)
- HOWEVER, if the fire is completely unrelated to the extraordinary
circumstance insurer is STILL LIABLE

Ocean Marine Insurance Fire Policy
Insurance on a vessel engaged in
navigation is a marine policy
although it insures against fire risks
only
BUT where the hazard is fire alone
and the vessel is an unfinished
vessel, never afloat, especially in the
absence of an express agreement that
it shall have the incidents of marine
policy
Rules on constructive loss AND
abandonment applies
Does NOT apply

In case of partial loss the thing
insured for less than its actual value
the insured is a co-insurer of the
uninsured portion
The insured may ONLY become a
co-insurer in fire insurance when it
is EXPRESSLY agreed upon

Sec. 168. An alteration 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 risks,
entitles an insurer to rescind a contract of fire insurance.

Sec. 169. An alteration in the use or condition of a thing insured:
- from that to which it is limited by the policy,
- which does not increase the risk,
does not affect a contract of fire insurance.

Notes:

Alteration in thing insured entitles insurer to RESCIND provided:
1. The use or condition of the thing is specifically limited or stipulated
in the policy
2. Such use or condition as limited by the policy is altered
3. The alteration is made without the consent of the insurer
4. The alteration is made by means within the control of the insured
5. The alteration increases the risks

When alteration does NOT avoid the insurance contract:
1. Where Risk of Loss is NOT increased
o GR: does not affect the insurance contract
o EXC: when the policy provides that a violation of specified
provisions shall avoid it increase of risk is NOT necessary
to enable the insurer to escape
2. Where questioned articles required by insureds business: Even if
the policy prohibits certain materials to be kept in the premises -
when these are necessary or ordinarily used in the business
conducted policy is not avoided
3. Where insured property would be useless if questioned acts were
prohibited: Repairs and similar acts although it may expose the
property to additional risk will not avoid the policy
Increase of risk of hazard in general
- Implied undertaking of insured: Every contract of insurance is made
with reference to the conditions surrounding the subject matter of the
risk and the premium is fixed with reference thereto. There is thus an
implied promise on the part of the insured not to change these
conditions.
- Character of the increase in risk: There is an increase of risk when
the insured property is put to some new use, and the new use
increases the chance of loss.
o Mere negligent acts temporarily endangering the property
nor the temporary acts or conditions which have ceased prior
to the occurrence of the loss will not violate the policy
o Increase must be of a SUBSTANTIAL CHARACTER
Alterations Avoiding the Policy
- Where risk of loss increased: Policy is avoided by any alteration in
the use or condition of the property insured increasing the risk.
o Ex. Firecrackers placed in a liquor store
- Where the increase in risk no longer exists at the time of loss: The
insurer would STILL be liable UNLESS there is a breach of
warranty

Where insured has no Control or Knowledge of Alteration
- The insurer is NOT exonerated when alteration is occasioned by
accident or which he has no control of
- Every act of the insureds tenant substantially and permanently
affecting the conditions of the property as to increase the risk is
PRESUMED to be known by the insured.

Sec. 170. A contract of fire insurance is NOT affected by any 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.

Notes:
- An exception to the rule in Section 168
- An act of the insured EVEN if it increases the risk does NOT affect
the contract UNLESS there is a corresponding violation of the
provisions of the policy

Sec. 171. If there is no valuation in the policy, the measure of indemnity in
an insurance against fire 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;
but IF there is a valuation in a policy of fire insurance,:
- the effect shall be the same as in a policy of marine insurance.

Notes:
Open Fire Policy [Measure of Indemnity]:
- 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
- The insured is ONLY entitled to recover the amount of actual loss
- Limit to amount: Indemnity shall NOT EXCEED the cost to repair,
or to replace the thing insured with materials of like kind and
quality with proper deduction for depreciation considering the age or
condition of the thing before the loss
- For personal property: MARKET VALUE is the actual loss
- If the actual loss is MORE than the face value of the policy:
o The face value is the limit of insurers liability
- Burden of Proof: on the INSURED to establish the amount of such
loss by preponderance of evidence

Valued Fire Policy
- The valuation is CONCLUSIVE between them in the adjustment of
partial or total loss in the absence of fraud

In LIFE INSURANCE: the sum fixed is the amount to the paid: Principle of
Indemnity does NOT apply

Sec. 172. Whenever the insured desires to have a valuation named in his
policy, insuring any building or structure against fire, he may require:
- such building or structure to be examined by an independent
appraiser and
- the value of the insured's interest therein may then be fixed as
between the insurer and the insured.
The cost of such examination shall be paid for by the insured.
A clause shall be inserted in such policy stating substantially that:
- the value of the insured's interest in such building or structure has
been thus fixed.
In the absence of any change increasing the risk without:
o the consent of the insurer or
o of fraud on the part of the insured,
- then in case of a total loss under such policy,
o the whole amount so insured upon the insured's interest in
such building or structure, as stated in the policy upon which
the insurers have received a premium, shall be paid,
- and in case of a partial loss:
o the full amount of the partial loss shall be so paid,
- and in case there are two or more policies covering the insured's
interest therein:
o each policy shall contribute pro rata to the payment of such
whole or partial loss.
- But in no case shall the insurer be required to pay more than the
amount thus stated in such policy.
This section shall not prevent the parties from:
- stipulating in such policies concerning the repairing, rebuilding or
replacing of buildings or structures wholly or partially damaged or
destroyed.


Notes:

How Valuation is Made
- Valuation of insureds interest in the thing - may be made by an
independent appraiser and therefore confirmed by the parties

Insurers Liability in Valued Policy
- In the absence of any change increasing the risk, w/o the insurers
consent or of fraud on the part of the insured. The LIABILITY OF
THE INSURER is:
In case of
TOTAL loss
The whole amount so insured and stated in the
policy
In case of
PARTIAL loss
The full amount of the partial loss UNLESS there
is a co-insurance clause
- In case there are 2 or more policies: each policy shall contribute PRO
RATA
- Total loss of the insured building exists: when the result of the fire is
such as to render the property wholly unfit for use as a building
however valuable it may be as mere material

Option to Rebuild or Repair Clause
- The parties may stipulate that instead of paying the amount of the
loss insurer has an option to repair or rebuild the property insured
- In order to protect the insurer from unfairness in the appraisal
- Must be exercised: (1) w/in the time specified OR (2) w/in
reasonable time if no time specified
- Choice made to exercise right has NO effect UNLESS
communicated to the insured
- UNLESS there is a stipulation limiting the cost insurer may be
compelled to perform his undertaking to rebuild even though the cost
may exceed the amount of insurance

Arbitration Clause
- Policy may provide that in case of dispute arbitration may be
resorted to as a condition precedent to court litigation

Insured NOT a co-insurer under a fire policy in the absence of
stipulation
- The insurer in case of partial loss is required to give full indemnity
for such loss up to the amount written in the policy even though the
property be very inadequately insured (diff. rule in marine)
- Co-Insurance Clause: Clause requiring the insured to maintain
insurance to an amount equal to the value or specified percentage of
the insured property under penalty of becoming co-insurer to the
extent of such deficiency
- This results in reducing in case of partial loss to the portion of the
sum named in the policy.

Sec. 173. No policy of fire insurance shall:
- be pledged, hypothecated, or transferred
- to any person, firm or company who acts as agent for or
otherwise represents the issuing company, and
any such pledge, hypothecation, or transfer hereafter made:
- shall be void and of no effect
- insofar as it may affect other creditors of the insured.

Notes:
- After the loss the insured has the right to assign his rights
- The right to pledge, hypothecate or transfer a fire insurance policy
may be done EVEN without the consent of, or notice to, the insurer
- What is being assigned is NOT the contract BUT the claim under or
a right of action on the policy under the insurer
- Limitation: (see bold words in codal)


Title 3
CASUALTY INSURANCE

Sec. 174. Casualty insurance is insurance:
- covering loss or liability arising from accident or mishap,
- EXCLUDING certain types of loss which:
o by law or custom are
o considered as falling exclusively within the scope of other
types of insurance such as fire or marine.
It INCLUDES, but is not limited to:
- employer's liability insurance,
- motor vehicle liability insurance,
- plate glass insurance,
- burglary and theft insurance,
- personal accident and
- health insurance as written by non-life insurance companies, and
- other substantially similar kinds of insurance.

Notes:

Casualty Insurance; defined: (1
st
paragraph of codal) Includes all forms of
insurance against loss or liability arising from accident or mishap excluding
certain types of loss or liability which are not within the scope of other types
of insurance: marine, fire, suretyship, and life.
- Casualty insurance shall be governed:
o by the terms of the contract not violative of the laws and
o by the general provisions applicable to all types of insurance
- Casualty to mean Accident: A violent mishap proceeding from an
unknown or unexpected cause
2 General Divisions of Casualty Insurance
1. Insurance against perils which affect the person or property: (Ex.
accident, health, motor vehicle, theft, etc.)
2. Insurance against perils which give rise to liability for claims for
injuries to others or for damage to their property (Ex. Workmens
compensation)

Liability Insurance
- Definition: A contract of indemnity for the benefit of the insured and
those in privity with him or those to whom the law upon the grounds
of public policy extends (policy refers to legal liability damages)

- Liability Insurable
o Quasi-delict or non-fulfillment of contract
o Criminal Negligence
! Deliberate criminal acts are not insurable
- Insurable Interest in Liability Insurance
o Liability Insurance must be supported by an II
o II: safety of persons, freedom from damage or property
o Does NOT depend on whether there is legal or equitable
interest in property
o BUT whether he may be charged by law with the liability
against which insurance is taken out
- When liability insurance in policy payable

Insurance Against Liability Insurance Against Actual Loss
Liability attaches when
liability of the insured to the
injured 3
rd
party attaches
REGARDLESS of actual loss
Liability attaches ONLY when
actual loss is sustained by the
insured

- Right of Injured Person to Sue Insurer of Party at Fault
o Depends on whether the contract intended to benefit the 3
rd

persons OR only the insured
o Purpose for allowing injured to sue: to protect him for the
insolvency of the insured
o Rule applies ONLY to 3
rd
party Liability
o DOES NOT APPLY to Insurance against Actual Loss
! The contract being solely to reimburse the insured
for liability actually discharged
! In this case, the 3
rd
partys recourse is limited to the
insured alone
! Prior payment of the insured is necessary for that the
obligation of the insurer may arise
- Basis and Extent of Insurers Liability
o The liability of insurer is not solidary with the insured
o His liability of insurer to 3
rd
persons is based on contract
o Liability of insured is based on tort.
- Effect of No action clause in policy of liability
o Requires that suit and final judgment must first be obtained
against the insured before recovery on the policy may be
made

o It expressly disallows suing the insurer as a co-defendant of
the insured HOWEVER the rules of court allows this and
the rules of court prevails over any insurance contract

Employers Liability Insurance
- Employers Liability, Defined: Liability for damages caused to
workers arising from injuries by reason of defective conditions of
machinery, etc, IF the defect is ATTRIBUTABLE TO:
o Negligence of the employer of his agents
o Negligence of the employers superintendent or one having
authority over the workmen
o Some act or omission by a fellow workman in obedience to
the employers by-laws, or instructions from authority

Workmens Compensation Insurance
- Workmens Compensation, defined: Compensation for loss resulting
from injuries, disablement or death of workmen through industrial
accident, casualty or disease
- Act, injury or sickness is COMPENSABLE:
1. As personal injury from accident arising out of and in the course
of employment
2. Illness directly caused by employment
3. As sickness which is the result of the nature of the employment
4. As sickness aggravated by the nature of employment
- Under the Labor Code: employer is required to make monthly
contribution to the State Insurance Fund from which the State
guarantees payments of benefits for death or injuries of his
employees

Public Liability Insurance
- Insurance which indemnifies against liabilities on account of injuries
to the person or property of another

Motor Vehicle Liability Insurance
- Insurance against passenger and 3
rd
party liability for death or bodily
injuries and damage to property arising from motor vehicle accidents
- Motor vehicle liability is different from insurance for loss or damage
on the motor vehicle itself
- Authorized Driver Clause:
o The insurer is NOT liable if at the time of the collision, the
driver did not have a valid license
o The insurance of a driver w/o previous examination does not
necessarily imply that the license issued is invalid Insurer
is STILL liable
o An alien being in the RP for more than 90 days needs a
Philippine drivers license in order to drive a motor vehicle
it is needed to be considered an authorized driver
o Expiration of a temporary operators permit negates one
from being an authorized driver Insurer NOT liable

Plate Glass Insurance
- Insurance against loss from accidental breaking of plate-glass
windows, doors, show cases, etc

Burglary and Theft Insurance
- Insurance to cover loss of property through burglary, robbery of theft
- Theft under the Insurance Code is NOT the same as theft under
the RPC Policy covers only what is commonly thought of as theft
- In robbery policies the policy sometimes provides that:
o entry must be by violence in order to prevent in the insured
from setting up an apparent robbery
o that for a store it must be in the presence of a specified
number of employees
- The opportunity to defraud the insurer is so great thats why insurers
fill their policies with restrictions

Personal Accident and health Insurance as Written by Non Life
Insurance
- Personal Accident: Insurance to indemnify the insured against
expense , loss of time and suffering from accidents causing him
physical injury
o Burden of Proof: The Insureds beneficiary has the burden to
prove that the cause is a covered peril. THEN the burden
shifts to the insurer to prove that it is an excepted peril.
- Health Insurance: Indemnifies expenses and losses occasioned by
disease
- Accident and Health are often combined in the same policy
- Major Medical: The expanded coverage for catastrophic medical
expense
- If both is issued by a life insurance company or it is in addition to a
life policy or one of the risks insured is death it may be considered
a life insurance

- Accident: used not in its technical meaning but in its common
acceptation that which happens by chance w/o intention or design
o It happens from known or unknown cause unusual and
unexpected w/o foresight or expectation (w/o human
agency; if w/ human agency it must be unusual to and not
expected)
o May be attributable to fault or negligence
- Accident and Accidental means (A&AM): essentially the same
o GR: death or injury does not result from A&AM if it is the
natural result of the insureds voluntary act, unaccompanied
by anything unforeseen except the death or injury
o EXC: There is no accident when a deliberate act is
performed UNLESS
! Some additional, unexpected, independent and
unforeseen cause occurs the death or injury is
NOT the natural and probable result of the insureds
voluntary act
- Suicide and Willful Exposure to Needless Peril
o Both are in pari matere since both signify disregard for ones
life
o Voluntary exposure to a known danger is held to negate
the accidental character
o But the mere act of pointing the gun to his temple believing
that the gun was not loaded is still accidental
- Meaning of Intentional as used in accident policy
o Implies the exercise of reasoning faculties, consciousness,
volition
o If the injury is caused by an intentional act of a 3
rd
person -
Insurer is RELIEVED

Title 4
SURETYSHIP

Sec. 175. A contract of suretyship is 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 third party called the
obligee.
It includes official recognizances, stipulations, bonds or undertakings issued
by any company by virtue of and under the provisions of Act No. 536, as
amended by Act No. 2206.
Notes:

Suretyship, defined: An agreement whereby one undertakes to answer under
specified terms and conditions, for the debt, default or miscarriage or another
- A suretyship contract is deemed an insurance contract ONLY when
the surety is engaged in business as such and not merely an isolated
transaction (As a vocation & Not incidental)

Scope
- It also includes recognizances, stipulations, bonds or undertakings
under Act No. 536
- Execution of such shall be sufficient when executed or guaranteed by
any corporation organized under the laws of the Philippines and
authorized to become a surety
- The Act also requires that such be approved by the head of
Department, court, judge, officer, board or body required to approve
accept the same

Sec. 176. The liability of the surety or 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 Presidential Decree No. 1455).

Notes:
- Liability in suretyship is SOLIDARY (joint and several) between the
surety and the obligor (surety is also primarily liable)
- HOWEVER, it is LIMITED to the amount of the bond
- It is a collateral contract and its basis is the principal contract
- Any misrepresentation made by the applicant cannot defeat the rights
of the oblige
- The bond is contractual in nature and is ordinarily restricted only to
the obligation expressly assumed
- Liability under a surety bond is determined by the terms set out in
the bond and not by it abstract nature or its title of caption
- Indemnity Agreement: To indemnify the surety against loss
this agreement is executed in favor of the surety


Suretyship Property Insurance
An accessory contract A principal contract
There are 3 parties (surety, obligor,
oblige)
There are only 2 parties (insured,
insurer)
A credit accommodation assuming
primary liability
A contract of Indemnity
Surety is entitled to reimbursement
from the principal
No right of recovery unless the
insurer is subrogated
Bond can only be cancelled by or
with the consent of the obligee or by
the commissioner or by a court
May be unilaterally cancelled either
by the insured or by the insurer on
the grounds in Sec 64
Requires the acceptance of the
obligee to be valid and enforceable
No need for any acceptance
Risk-Shifting device the premium
paid like a service fee
Risk Distributing device the
premium paid as a ratable
contribution to a common fund
Guaranty: When a person called a guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do
so.
Suretyship Guaranty
Surety assumes liability as a
regular party
Liability of the guarantor depends upon
an independent agreement to pay if the
primary debtor fails to do so
Surety is primarily liable Guarantor is secondarily liable
Surety is not entitled to the benefit
of exhaustion of the debtors assets
pays when the debtor does not pay
Guarantor has the right

pays when the debtor cannot pay

Sec. 177. The surety is entitled to payment of the premium:
- as soon as the contract of suretyship or bond
- is perfected and delivered to the obligor.
No contract of suretyship or bonding shall be valid and binding:
- unless and until the premium therefor has been paid,
- except where the obligee has accepted the bond, in which case
o the bond becomes valid and enforceable
o irrespective of whether or not the premium has been paid by
the obligor to the surety:

- Provided, That if the contract of suretyship or bond is not accepted
by, or filed with the oblige:
o the surety shall collect only reasonable amount,
o not exceeding 50% of the premium due thereon as service
fee
o plus the cost of stamps or other taxes imposed for the
issuance of the contract or bond:
- Provided, however, That if the non-acceptance of the bond be due to
the fault or negligence of the surety
o no such service fee, stamps or taxes shall be collected.

In the case of a continuing bond:
- the obligor shall pay the subsequent annual premium as it falls due
- until the contract of suretyship is cancelled:
o by the obligee or
o by the Commissioner or
o by a court of competent jurisdiction,
as the case may be.

Notes:
Premium Payment in Suretyship
- GR: Unless the premium is paid, the insurance contract is not valid
- EXC:
1. When the bond or suretyship contract is issued and accepted by
the creditor or obligee bond is valid regardless of whether the
premium is paid
2. In cases of a continuing bond
- Premium becomes a debt as soon as the contract is perfected and
delivered to the obligor

IF the contract is not accepted
or filed with the obligee

The surety can STILL collect a reasonable
amount NOT EXCEEDING 50% of the
premium + service fee, stamps or taxes
If the non-acceptance is due to
the suretys fault
NO service fee, stamps or taxes shall be
collected premium refunded
IF the bond is continuing Obligor shall pay the subsequent annual
premium as it falls due until it is cancelled
IF premium is already paid Obligor cannot recover it on the ground
that the surety was not able to pay the
indebtedness secured by him


Types of Surety Bonds
Contract Bonds
- Bonds connected with
construction and
supply contracts
Performance Bond covering faithful
performance on a contract
Payment Bond covering payment of laborers
Fidelity Bonds
- Pays the employer for
loss growing out of
dishonest acts of his
employees
Industrial Bond required by employers to
cover loss through dishonesty of employees
Public Official Bond required of public
officers for faithful performance of their duties
condition for entering upon their office
Judicial Bonds Those required in judicial proceedings

Sec. 178. Pertinent provisions of the Civil Code of the Philippines:
- shall be applied in a suppletory character whenever necessary in
interpreting the provisions of a contract of suretyship.

Title 5
LIFE INSURANCE

Sec. 179. Life insurance is insurance on human lives AND insurance
appertaining thereto or connected therewith.

Sec. 180. An insurance upon life may be made payable:
- on the death of the person, or
- on his surviving a specified period, or
- otherwise contingently on the continuance or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall
- be considered a life insurance contract for purpose of this Code.
In the absence of a judicial guardian:
- the father, or
- in the latter's absence or incapacity, the mother, or
- any minor, who is an insured or a beneficiary under a contract of life,
health or accident insurance,
may exercise, in behalf of said minor:
- any right under the policy,
- without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not
EXCEED P 20,000.

Such right may include, but shall not be limited to:
- obtaining a policy loan, surrendering the policy, receiving the
proceeds of the policy, and giving the minor's consent to any
transaction on the policy.

Notes:

Life Insurance, Defined (see codal definition)
- Mutual agreement where a party agrees to pay a given sum on the
happening of a particular event contingent on the duration of human
life
- A contract to make specific payments upon the death of a person
whose life has been insured.

When Payable:
1. On the death of the person
2. On his surviving a specified period or
3. Otherwise contingently on the continuation or cessation of life

Nature of Life Insurance Not a contract of Indemnity
- Liability absolutely certain: it contemplates certain payment of a
specified sum at a uncertain time
o Premiums are calculated in accordance with the assureds
life expectancy under a specified mortality table
! In fire and marine insurance there is merely a risk
of loss (NOT certain)
! In Life insurance the event upon which payment is
to be made is absolutely certain
o Insured merely gets what he paid in premiums plus interest
less expenses (what insurer holds in quasi trust for the
insured)
o Therefore only in premature death does the payment
embrace the element of indemnity
- Amount of Insurance Generally Without Limit: There is no limit as
to the amount of insurance since there is difficulty in fixing any sort
of pecuniary value upon life
- Life Policy is a Valued Policy: Life insurance is treated substantially
as a valued policy, death being the loss
- Direct Pecuniary Loss Not Required: There is no obligation to show
as a condition precedent to recovery, a direct pecuniary loss as a
result of the death

o Life insurance is a form of investment
o The measure of recovery is therefore the face value and not
the value of the insureds life
o There is no way of showing whether the loss of life resulted
in an equivalent economic loss

Life Insurance vs. Fire and Marine Insurance
LIFE INSURANCE MARINE and FIRE Insurance
Not a contract of indemnity BUT a
contract of Investment
Contract of Indemnity
A Valued Policy May be open or valued
May be transferred or assigned to
any person EVEN if he has NO II
The transferee must have an II on the
thing insured
Consent of insurer is not essential in
the validity of the assignment,
UNLESS expressly required
Consent (in the absence of waiver) is
essential in assigning the policy
II in the life and death of a person
must ONLY exist
- AT the time the insurance
takes effect
No need to exist at the time of loss
(EXC. That effected by the creditor
on the life of debtor)
II on property must exits NOT
ONLY
- At the time the insurance
takes effect BUT ALSO
- At the time of the loss
II need not have any legal basis II must have a legal basis (Sec 19)
Liability to make payment is certain
ONLY the time to pay is not
(UNLESS written for a term)
Contingency: may or may not
happen
May not be cancelled by the insurer May be cancelled by either party and
usually for a 1 year term (Sec 65,66)
Loss cannot be determined by any
cash value Beneficiary has no
obligation to prove actual financial
loss
Can be determined Beneficiary is
required to submit proof of actual
pecuniary loss as a condition
precedent to collection

Art 2012 NCC: a person who is forbidden from receiving any
donation cannot be named a beneficiary of a life insurance policy

Exemption of Life Insurance Policies From Execution
- All benefits, privileges or annuities out of any life insurance are
exempt from execution REGARDLESS of the amount of the
premiums paid
Application of Exemption to Accident Insurance
- GR: Life Insurance is distinct and different from an accident
insurance
- BUT when one of the risks insured is death by accident it can be
regarded as life insurance
- Health insurance may also be regarded as life insurance in certain
instances it may be issued by a life or non life ins. Company
- Burden of Proof:
o In an accident insurance: the insureds beneficiary has the
burden of proving that the cause of death is due to the
covered peril
o Then the burden shifts to the insurer to show whether it falls
under an excepted peril

Kinds of Life Insurance Policies
1. Whole life or Ordinary Life Policies: (regular life or straight life)
o The insured agrees to pay annual, semi-annual or
quarterly premiums while he lives
o The insurer agrees to pay the face value of the policy upon
the death of the insured.
o Alternative form of payment: Cash Surrender Value
! In case it is cancelled by the owner or it lapses
through nonpayment - The insured is entitled to
receive to the cash surrender value AFTER 3 full
annual premiums have been paid.
2. Limited Payment Life Policy:
o Insured agrees to pay premiums ONLY for a specified
number of years (10,15, or 20yrs).
o Insurance payable upon the death of the insured.
o If he survives such period, he stops paying any further
premium.
o If the insured should die within the specified period his
beneficiary is entitled to all the proceeds of the policy w/o
any liability for the unpaid premiums
3. Term Insurance Policy:
o Insurers liability arises ONLY upon the death of the insured
within the agreed term or period.
o IF he survives the period the contract terminates and the
insurer is NOT liable
o Premium is usually lower (since there is a possibility that the
insurer will not be liable)

4. Endowment Policy:
o Insurer agrees to pay a certain sum to the insured if he
outlives a designated period or if he dies w/in such period, to
some other person indicated
o IF he dies before that time the proceeds are paid to the
beneficiary
o Premium is higher since the cash value of the policy grow
more rapidly
5. Life Annuity:
o The debtor binds himself to pay an annual pension or income
during the life of one or more persons in consideration of
capital consisting of money or property whose ownership is
transferred to him at once with the burden of the income
o Upside-down application of the life insurance principle
! Life insurance: estate is created at death (insurer
starts paying upon death)
! Annuity: Estate is liquidated at death (insurer stops
paying upon death)

ANNUITY CONTRACTS ORDINARY LIFE POLICIES
Insures against economic problems
resulting from a long life rather than
an early death

Looks at transiency Looks at longevity
Lump sum is paid to the insurer
immediately and the annuitant
receives the payments as long as he
lives
The insured pays to the insurer an
annuity and his beneficiary receives
the lump sum payment.

Scope of Life Insurance: Risks Covered:
- GR: All causes of death would be covered
- EXC: When expressly excluded by law, the policy, or public policy
o Ex. When the beneficiary is a principal, accessory or
accomplice in bringing about the death of the insured
- Losses which results from the death of the insured death
includes:
o Actual Death casket death
o Living Death permanent disability
o Retirement Death - living beyond the limit of earning
capacity

Group Life Insurance Mortgage Redemption Insurance
- Device for the protection of both the mortgagee and mortgagor

Sec. 180-A. The insurer in a life insurance contract shall be liable in case of
suicides:
- ONLY when it is committed AFTER the policy has been in force for
o a period of 2 years from the date of its issue OR of its last
reinstatement,
o UNLESS the policy provides a shorter period:
Provided, however, That suicide committed in the state of insanity:
- shall be compensable regardless of the date of commission.

Notes:

Insurer is LIABLE in case of suicide in the following cases:
1. Suicide is committed after the policy has been in force for a period of
2 years from the date of its issue of last reinstatement
o Policy CANNOT provide for a period of more than 2 years
2. Suicide is committed after a shorter period provided in the policy
3. When the suicide is committed in the state of insanity regardless of
the date of commission (UNLESS suicide is an excepted risk)
Insurer is NOT liable in the following cases
1. Suicide is not by reason of insanity and is committed within the 2
year period
2. Suicide is by reason of insanity but is not among the risks assumed
by the insurer regardless of the date of commission (excepted risk)
3. The insurer can show that the policy was obtained with the intention
to commit suicide even in the absence of any suicide exclusion in the
policy

Sec. 181. A policy of insurance upon life or health may pass:
- by transfer, will or succession to any person,
- whether he has an insurable interest or not, and
- such person may recover upon it whatever the insured might have
recovered.

Notes:


II of Assignee is NOT required in Life Insurance
- All life insurance policies are declared by law to be assignable
- A provision in this policy denying the right to assign w/o the consent
of the insurer is VOID
- The contract not being one of indemnity does not require II
- HOWEVER, the courts will not permit the process of assignment to
be used as a cloak to hide an illegal intent to make contracts on
human life.
Necessity of Consent of Beneficiary in Assignment depends on whether
there is a waiver of the Right to Change the Beneficiary
! IF NOT waived: beneficiary has no vested right over the interest in
the policy. The heirs of the beneficiaries cannot collect the proceeds
o It goes to the estate of the insured
o Policy can be assigned EVEN W/O the consent of the
beneficiary
! IF waived: the beneficiary has a vested right on the policy.
o The heirs are entitled BUT UPON the death of the insured.
o Policy CANNOT be assigned w/o the consent of the
beneficiary

Sec. 182. Notice to an insurer of a transfer or bequest thereof:
- is NOT necessary to preserve the validity of a policy of insurance
upon life or health,
- UNLESS thereby expressly required.

Notes:

- If notice NOT required by policy: such is NOT essential to the
validity of the assignment
- If notice is required by policy: An assignment w/o such notice shall
have no effect in so far as the insurer is concerned
o The insurer shall be relieved from liability
o Payment to the old beneficiary he will hold it in trust for
the new one
o EXC: when such notice is waived by the insurer
o Note: the Assignment is still binding upon the assignor
(insured) and the assignee
- Whether or not required by the policy: IF the assignment is done
with the consent of the insurer The consent creates a NOVATION
o The assignee takes the new contract free of defenses
available to the insurer

Sec. 183. UNLESS the interest of a person insured is susceptible of exact
pecuniary measurement,
- the measure of indemnity under a policy of insurance upon life or
health
- is the sum fixed in the policy.

Notes:
- The measure of indemnity in a life policy: is the amount specified in
the policy
- Life policies are valued policies
- This is so since life cannot be given any exact pecuniary
estimation
- EXC: The II of a creditor in the life of the debtor is susceptible of
exact pecuniary estimation.


Chapter VI
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

Sec. 373. For purposes of this chapter:

(a) "Motor Vehicle" is any vehicle as defined in section 3, paragraph (a) of
R.A.No. 4136 Otherwise known as the "Land Transportation and Traffic
Code." [Any vehicle propelled by any power other than muscular power
using the public highways, with certain exceptions.]
(b) "Passenger" is 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 vehicle's operator or
his agents to ride without fare.
(c) "Third-Party" is any person other than a passenger as defined in this
section and shall also exclude a member of the household, or a member of
the family within the second degree of consanguinity or affinity, of a motor
vehicle owner or land transportation operator, as likewise defined herein, or
his employee in respect of death, bodily injury, or damage to property arising
out of and in the course of employment.
(d) "Owner" or "motor vehicle owner" means the actual legal owner of a
motor vehicle, in whose name such vehicle is duly registered with the Land
Transportation Commission;
(e) "Land transportation operator" means the owner or owners of motor
vehicles for transportation of passengers for compensation, including school
buses;
(f) "Insurance policy" or "Policy" refers to a contract of insurance against
passenger and thirty-party liability for death or bodily injuries and damaged
to property arising from motor vehicle accidents.

Sec. 374. It shall be UNLAWFUL for any land transportation operator or
owner of a motor vehicle:
- to operate the same in the public highways
- UNLESS there is in force in relation thereto
o a policy of insurance or
o guaranty in cash or
o surety bond
issued in accordance with the provisions of this chapter
to indemnify the death, bodily injury, and/or damage to property
- of a third-party or passenger, as the case may be,
- arising from the use thereof.

Sec. 375. The Commissioner shall furnish the Land Transportation
Commissioner with:
- a list of insurance companies authorized to issue the policy of
insurance or surety bond required by this chapter.

Sec. 376. The Land Transportation Commission shall NOT allow the
registration or renewal of registration of any motor vehicle:
- without first requiring from the land transportation operator or motor
vehicle owner concerned
o the presentation and filing of a substantiating documentation
o in a form approved by the Commissioner
o evidencing that the policy of insurance or guaranty in cash or
surety bond required by this chapter is in effect.

Sec. 377. Every land transportation operator and every owner of a motor
vehicle shall:
- before applying for the registration or renewal of registration of any
motor vehicle,
- at his option, either:
o secure an insurance policy or surety bond
! issued by any insurance company authorized by the
Commissioner or
o make a cash deposit in such amount as herein required
as limit of liability for purposes specified in section 374

(1) In the case of a land transportation operator, the insurance guaranty
in cash or surety bond shall cover
- liability for death or bodily injuries of third-parties and/or passengers
- arising out of the use of such vehicle
- in the amount NOT less than P12,000 per passenger or third party
- and an amount, for each of such categories, in any one accident of
NOT less than that set forth in the following scale:

Motor Vehicle Authorized Capacity Amount To be Paid
26 or more passengers P 50,000
12 to 25 passengers P 40,000
6 to 11 passengers P 30,000
5 or less passengers P5,000 X authorized capacity.


Provided, however, That such cash deposit made to, or surety bond posted
with, the Commissioner shall be resorted to by him in cases of accidents:
- the indemnities for which to third-parties and/or passengers are not
settled accordingly by the land transportation operator and,
in that event, the:
- said cash deposit shall be replenished or such surety bond shall be
restored
- with 60 days after impairment or expiry, as the case may be,
- by such land transportation operator,
- OTHERWISE, he shall secure the insurance policy required by this
chapter.
The aforesaid cash deposit may:
- be invested by the Commissioner
- in readily marketable government bonds and/or securities.

(2) In the case of an owner of a motor vehicle,:
- the insurance or guaranty in cash or surety bond
- shall cover liability for death or injury to third parties
- in an amount NOT LESS than that set forth in the following scale in
any one accident:

The Commissioner may, if warranted
- set forth schedule of indemnities for the payment of claims for death
or bodily injuries with the coverages set forth herein.

Sec. 378. Any claim for death or injury to any passenger or third party
pursuant to the provisions of this chapter shall:
- be paid WITHOUT the necessity of proving fault or negligence of any
kind;
Provided, That for purposes of this section:
(i) The total indemnity in respect of any person shall NOT exceed P 5,000
(NOTE: Now 15K - Mem Circular 4-2006 july 26, 2006)
(ii) The following proofs of loss, when submitted under oath, shall be
sufficient evidence to substantiate the claim:
(a) Police report of accident; and
(b) Death certificate and evidence sufficient to establish the proper
payee; or
(c) Medical report and evidence of medical or hospital disbursement
in respect of which refund is claimed
(iii) Claim may be made against one motor vehicle ONLY.

In the case of an occupant of a vehicle, claim shall lie:
- against the insurer of the vehicle in which the occupant is riding,
mounting or dismounting from.
In any other case, claim shall lie:
- against the insurer of the directly offending vehicle.
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.

Sec. 379. NO land transportation operator or owner of motor vehicle shall:
- be unreasonably denied the policy of insurance or surety bond
required by this chapter by the insurance companies authorized to
issue the same,
- otherwise, the Land Transportation Commission shall require from
said land transportation operator or owner of the vehicle,
o in lieu of a policy of insurance or surety bond,
o a certificate that a cash deposit has been made with the
Commissioner
o in such amount required as limits of indemnity in SEC 377
o to answer for the passenger and/or third-party liability of
such land transportation operator or owner of the vehicle.
No insurance company may issue the policy of insurance or surety bond
required under this chapter:
- unless so authorized under existing laws.
I. Private Cars II. Other Private Vehicles

1. Bantam P 20,000 1. Tricycles, motorcyles, and
scooters
P20,000
2. Light P 20,000 2. Vehicles with an unladen
weight of 2,600 kilos or less
P 20,000
3. Heavy P 30,000 3. Vehicles with an unladen
weight of between 2,601 kilos
and 3,930 kilos
P 30,000
4. Vehicles with an unladen
weight over 3,930 kilos
P 50,000

The authority to engage in the casualty and/or surety lines of business of an
insurance company:
- that refuses to issue or renew,
- without just cause,
the insurance policy or surety bond therein required shall be withdrawn
immediately.

Sec. 380. No cancellation of the policy shall be valid:
- UNLESS written notice thereof is given to
o the land transportation operator or owner of the vehicle and
o to the Land Transportation Commission
- at least 15 days prior to the intended effective date thereof.
Upon receipt of such notice, the Land Transportation Commission:
- unless it receives evidence of a
o new valid insurance or guaranty in cash or surety bond as
prescribed in this chapter, or
o an endorsement of revival of the cancelled one,
- shall order the immediate confiscation of the plates of the motor
vehicle covered by such cancelled policy.
The same may be re-issued ONLY upon:
- presentation of a new insurance policy or that a guaranty in cash or
surety bond
o has been made or posted with the Commissioner and
o which meets the requirements of this chapter,
- or an endorsement or revival of the cancelled one.

Sec. 381. IF the cancellation of the policy or surety bond is contemplated by
the land transportation operator or owner of the vehicle, he shall:
BEFORE the policy or surety bond ceases to be effective,
- secure a similar policy of insurance or surety bond to replace the
policy or surety bond to be cancelled OR
- make a cash deposit in sufficient amount with the Commissioner
and without any gap,
- file the required documentation with the Land Transportation
Commission, and
- notify the insurance company concerned of the cancellation of its
policy or surety bond.

Sec. 382. In case of change of ownership of a motor vehicle, OR change of
the engine of an insured vehicle:
- there shall be no need of issuing a new policy UNTIL the next date
of registration or renewal of registration of such vehicle, and
- provided that the insurance company shall agree to continue the
policy,
such change of ownership or such change of the engine shall:
- be indicated in a corresponding endorsement by the insurance
company concerned, and
- a signed duplicate of such endorsement shall, within a reasonable
time, be filed with the Land Transportation Commission.

Sec. 383. In the settlement and payment of claims, the indemnity shall:
- NOT be availed of by any accident victim or claimant AS an
instrument of enrichment by reason of an accident,
- BUT AS an assistance or restitution insofar as can fairly be
ascertained.

Sec. 384. Any person having any claim upon the policy issued pursuant to
this Chapter shall:
- without any unnecessary delay,
- present to the insurance company concerned a written notice of claim
setting forth:
o the nature, extent and duration of the injuries sustained as
certified by a duly licensed physician.
Notice of claim must be filed:
- within 6 months from date of accident,
- OTHERWISE, the claim shall be deemed WAIVED.
Action or suit for recovery of damage due to loss or injury must be brought,
in proper cases:
- with the Commissioner OR the Courts
- within 1 year from denial of the claim,
- otherwise, the claimant's right of action shall prescribe.

Sec. 385. The insurance company concerned 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, the insurance company shall:
- pay only the "no-fault" indemnity provided in SEC 378


- without prejudice to the claimant from pursuing his claim further,
- in which case, he shall not be required or compelled by the insurance
company to execute any quit claim or document releasing it from
liability under the policy of insurance or surety bond issued.
In case of any dispute in the enforcement of the provisions of any policy
issued pursuant to this chapter:
- the adjudication of such dispute shall be within the original and
exclusive jurisdiction of the Commissioner
- subject to the limitations provided in section 416.

Sec. 386. It shall be unlawful for a land transportation operator or owner of
motor vehicle:
- to require his or its drivers or other employees to contribute in the
payment of premiums.

Sec. 387. No government office or agency having the duty of implementing
the provisions of this chapter nor any official or employee thereof:
- shall act as agent in procuring the insurance policy or surety bond
provided for herein.
The commission of an agent procuring the said policy or bond:
- shall in NO case exceed 10% of the amount of the premiums
therefor.

Sec. 388. Any land transportation operator or owner of motor vehicle or any
other person violating any of the provisions of the preceding sections:
- shall be punished by a
o fine of NOT LESS than P 500 but NOT MORE than P 1,000
o and/or imprisonment for NOT MORE than 6 months.
The violation of SEC 377 by a land transportation operator shall be:
- a sufficient cause for the revocation of the certificate of public
convenience issued by the Board of Transportation covering the
vehicle concerned.

Sec. 389. Whenever any violation of the provisions of this chapter is
committed by a corporation or association, or by a government office or
entity:
- the executive officer or officers of said corporation, association or
government office or entity
- who shall have knowingly permitted, OR failed to prevent, said
violation shall be held liable as principals.

NOTES:

Meaning of Motor Vehicle (Section 3(a) of RA 4136, a motor vehicle shall
mean)
! Any vehicle propelled by any power other than muscular power
using the public highways
! BUT excepting: road rollers, trolley cars, street sweepers, sprinklers,
lawn mowers, bull dozers, graders, forklifts, amphibian trucks,
cranes not used in public highways, vehicles which run only on rails
or tracks and tractors trailers and traction engines of all kinds used
exclusively for agricultural purposes
! Trailers when propelled, intended to be propelled by attachment to a
motor vehicle shall be classified as separate motor vehicle with no
power rating
Meaning of Motor Vehicle Liability Insurance
! A protection coverage that will answer for legal liability for losses
and damages for bodily injuries or property damage that may be
sustained by another arising from the use and operation of a motor
vehicle by its owner
! It is obtained to a certain extent on compulsory basis by a motor
vehicle owner
Prerequisite Regarding the Operation and Registration of Motor
Vehicles
! Sec 374 enjoins a land transportation operator (LTO) or a motor
vehicle owner (MVO) NOT to operate his vehicle in public
highways UNLESS there is in force a policy or guaranty in cash or
surety bond to indemnify the death or bodily injury of the third party
or passenger
! The LTO will register or renew the registration of a motor vehicle
ONLY if there is such policy or guarantee.
Spirit Behind or Need for Compulsory Third Party Liability Insurance
! To assure victims of motor vehicle accidents and or their dependents,
especially when they are poor, immediate financial assistance of
indemnity regardless of the financial capability of motor vehicle
owners or operators
! The insurers liability immediately accrues UPON the occurrence of
the injury or event upon which the liability depends
! It does NOT depend upon in the recovery of judgment by the insured
party against the insured.
! The victim may directly sue the insurer (BUT ONLY to the extent
provided by the third party liability insurance)

! PD No 1814: deleted property damage from compulsory coverage
o insurance only covers death of or bodily injury involved in
vehicular accidents
o Own damage : Means that the insurer had assumed to
reimburse the costs of repairing the damage to the insured
vehicle
! coverage to the insured motor vehicle is not required
by law.
o The parties however, may agree upon a separate insurance to
cover damage to property
Effect of Insureds Violation of Policy Condition on Insurers Liability
to Third-party Claim
! The insurers liability attaches during the effectivity of the policy in
the absence of any showing that the same has been cancelled with
proper notice to all parties
! The insurer may NOT raise as a defense that the owner of the motor
vehicle has violated the contract to escape liability This would
defeat the very purpose of the contract.
Persons Subject to the CMVLI Requirement
1. Motor Vehicle Owner (MVO) the actual legal owner of the
vehicle under whose the name the vehicle is registered
2. Land Transportation Operator (LTO) the owner of the motor
vehicle being used for conveying passengers for compensation
Substitutes for CMVLI Policy MVOs and LTOs may either:
1. Post a surety bond with the Insurance Commissioner who shall be
made the obligee or creditor in the bond
2. Make a cash deposit with the Insurance Commissioner in the amount
required as limits of indemnity
! After they have been proceeded against by the Commissioner such
deposit should be replenished or surety bond restored by the MVO or
LTO in the right amount w/in 60 days after impairment or expiry

Scope and Coverage Required
! For Owners of Private Motor Vehicles: Coverage must be
comprehensive against third party liability for death or bodily
injuries.
! For Operators of Land Transportation: Coverage must also be
comprehensive against BOTH passenger and third party liabilities.
(Insurer may insure other risks at his option)
! Sec 377 prescribes the minimum limits of indemnity of the
comprehensive coverage
o P12,000 for any one accident for all damages arising out of
death or bodily injury (MINIMUM amount)
o For Private cars: amount of the CMVLI depends upon the
weight of the motor vehicle
o Since that enumerated are only the minimum amounts the
operator or owner may add other risks
o Any excess: deemed to have been taken out voluntarily
! Comprehensive Motor Vehicle Insurance Policy: would cover
o Death or bodily injury of a third party or passenger
(mandatory under CMVLI)
o Property damage to third parties
o Own damage to or theft of the vehicle insured
Duty of MVO or LTO contemplating cancellation of his cover
1. Give to the insurance or surety company concerned a written notice
of his intention to cancel
2. Secure, before the insurance or bond ceases to be effective, another
similar bond or insurance to replace that one cancelled
3. W/o making such replacement in no. 2, make a cash deposit and
secure a certification from the Insurance Commissioner regarding the
deposit made and filing such certificate with the LTO
Effect of Cancellation of Cover
! Upon receipt of the notice of cancellation, the LTO shall order the
confiscation of the plates of the vehicle concerned
! UNLESS it received any of the following:
1. Evidence or proof of a new CMVLI cover (policy, cash deposit or
surety bond)
2. Signed duplicate of an endorsement of addendum issued by the
insurer to show revival or continuance of the CMVLI
3. Certification issued by the Insurance Commissioner that a cash
deposit has been made to him


No-fault Indemnity Claim
! No fault connotes that the victim of a tort can recover his loss from
his insurer w/o regard to his own contributory fault
! It will guarantee the compensation or indemnity
! Under this, the insurer may be held liable without the necessity of
proving fault PROVIDED:
1. The claim is for death or injury to a third party or
passenger
2. The total indemnity in respect to any one person does
NOT exceed P5,000
3. Proofs required by law are submitted (police reports,
death certificate, medical report)
! Claim Subject to Certain Conditions: The insurer shall pay w/o the
necessity of proving fault or negligence
o No-fault claim does NOT apply to property damage
o IF the claim EXCEEDS 5k the finding of fault may be
availed by the insurer as to the EXCESS
! Claim Against Insurer of Vehicle in which Victim is an Occupant:
claim shall lie against the insurer in which the occupant is riding,
mounting or dismounting from
o Victim may claim pending the determination of who is
responsible for the accident
o Law makes it mandatory that the claim shall be made from
the insurer of the vehicle
o Occupant includes both passenger and 3
rd
party
! Claim Against Insure of Vehicle Responsible for Accident: In any
other case (if victim is not an occupant) the claim shall lie against the
insurer of the directly offending vehicle.

Notice of claim within 6 months by insured from date of accident is an
indispensable pre-requisite to sue under the insurance contract (Art 384)
! Any delay in reporting the loss must be promptly raised by the
insurer
Certificate of Cover
! The MVO or LTO procuring a CMVLI cover shall also be issued in
addition to the policy, a certificate of cover
! It will serve as the substantiating documentation as proof of the
insurance upon such motor vehicle

Limitations with Respect to CMVLI Cover Solicitation
1. No govt officer or agency having the duty of implementing the
provisions of the insurance code on CMVLI shall act as agent in
procuring the insurance policy/surety bond/cash deposit
2. No official or employee of such office shall similarly act as such
agent
3. The commission of an agent shall in NO case EXCEED 10% of the
amount of the premiums

Limitations as to the Use of
Insured Vehicle

It does NOT cover:
Master
Private
Vehicle
Policy
Master
Commercial
Vehicle
Policy
Master Land
Transportation
Operators
Policy
Master
Motorcycle
Policy
Use for hauling and or
carrying of logs, lumber,
sand, gravel, bottled
beverages, gasoline products
and other inflammable
materials

x

x

x

x
Use for racing, pacemaking,
reliability trial or speed
testing or for any purpose in
connection with the motor
trace

x

x

x

x
Use for the carriage of
passengers or for hire or
reward
x x

x
Use for any purpose in
connection with the motor
trade

x

x

Malus System Unser CMVLI
! The vehicle owner who suffered an accident resulting in a loss is
required to pay a SURCHARGE upon renewal of his coverage in
addition to the basic premium
! Equivalent to the product of the amount of the loss paid multiplied
by the rate of premium for the vehicle

! Surcharge shall no case be less than P30

FORMULA:
Surcharge = Amount of loss paid X Rate of Premium for the Vehicle

Standard Authorized Driver Clause
! Motor vehicle policy contains a Standard Authorized Driver
Clause that the person driving the insureds vehicle is an authorized
driver
! The vehicle is limited to be used by 2 persons
o The insured himself
o Any person on his permission (required to have a drivers
license)
! The main purpose of the Authorize Driver Clause is that a person
other than the insured owner, who drives the vehicle on the insureds
order or with his permission must be a duly licensed driver and has
no disqualification to drive a vehicle
! The requirement DOES NOT APPLY: when the person driving is
the insured himself
! If the driver is NOT an authorized driver (no license) on the part of
the insured is a bar to recovery under the insurance contract
Theft Clause
! When the car is unlawfully and wrongfully taken without the
owners consent or knowledge such taking constitutes theft and it is
the theft clause and not authorized driver clause


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LIFTED from the Book of De Leon and Rodriguez not plagiarized you fuckers!

| Atty Villegas | 3B 2009-2010 1 | P a t i n o , E r i c a

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