LECTURE NOTES ON INSURANCE

2004
WHAT LAWS GOVERN INSURANCE
The laws governing insurance in the order of priority are (1) The Insurance Code [PD
146!whose effectivity date is "une 11# 1$%&' (() In the a)sence of applica)le
provisions# the Civil Code (() In the a)sence of applica)le provisions in the Insurance
Code and Civil Code# the general principles on the su)*ect in the +nited ,tates
(Constantino vs- .sia /ife Insurance# &% Phil (4&)
01a2ple3 4 applied for insurance with , Co2pany with offices in 5ontreal# Canada-
The application was 2ailed to , and on 6ove2)er (6# the insurer gave notice of
acceptance )y ca)le- 4 never received the ca)le and he died on Dece2)er (- The
Insurance Code is silent as to acceptance )y ca)le- The Civil Code shall apply and
under Article 1319, an acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge There was no valid contract
as ! died without knowing the acceptance of his application "#nri$ue% vs &un 'ife
Assurance of Canada, (1 )hil *+9,
WHAT IS A CONTRACT OF INSURANCE
. Contract of Insurance is an agree2ent where)y one underta7es for a
consideration to inde2nify another against loss# da2age or lia)ility arising fro2 an
un7nown or contingent event-
. Contract of ,uretyship shall also )e dee2ed an insurance contract if 2ade
)y a surety who or which is doing an insurance )usiness-
Doing an insurance )usiness or transacting an insurance )usiness is3
a) 2a7ing or proposing to 2a7e as insurer# any insurance contract8
)) 2a7ing or proposing to 2a7e# as surety# any contract of suretyship as a
vocation and not as 2erely incidental to any other legiti2ate )usiness or
activity of the surety8
c) doing any )usiness including a reinsurance )usiness# specifically
recogni9ed as doing an insurance )usiness within the 2eaning of the
Code8
d) doing or proposing to do any )usiness in su)stance e:uivalent to any of
the foregoing in a 2anner designed to evade the provisions of the Code-
(,ection ()
6;T0 < the fact that no profit is derived fro2 2a7ing of insurance contracts#
agree2ents or transactions or that no separate or direct consideration is received
shall not )e dee2ed C;6C/+,I=0 to show that the 2a7ing thereof does not
constitute the doing or transacting of an insurance )usiness-
NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE
1- IT I, .6 ./0.T;>? C;6T>.CT ! the lia)ility of the Insurer depends upon
the happening of a contingent event- It is not a wagering contract-
(- IT I, . C;6T>.CT ;@ I6D056IT? @;> 6;6!/I@0 < recovery is
co22ensurate to the loss- IT I, .6 I6=0,T506T I6 /I@0 I6,+>.6C0 < secured
)y the insured as a 2easure of econo2ic security for hi2 during his lifeti2e and for
his )eneficiary upon his death 0AC0PT one secured )y the creditor on the life of the
de)tor-
B- IT I, . P0>,;6./ C;6T>.CT ! an insurer contracts with reference to the
character of the insured and vice versa-
4- IT I, 0A0C+T;>? .6D C;6DITI;6./ ;6 T40 P.>T ;@ T40 I6,+>0> !
)ecause upon happening of the event or peril insured against# the conditions having
)een 2et# it has the o)ligation to e1ecute the contract )y paying the insured- IT I,
0A0C+T0D ;6 T40 P.>T ;@ T40 I6,+>0D after the pay2ent of the pre2iu2
C- IT I, ;60 ;@ P0>@0CT D;;D @.IT4 for )oth Insurer and Insured# )ut
2ore so for the I6,+>0># since its do2inant )argaining position i2poses a stricter
lia)ilityEresponsi)ility-
6- IT I, . C;6T>.CT ;@ .D40,I;6 < Insurance co2panies 2anage to
i2pose upon the insured prepared contracts which the insured cannot change-
Conse:uently# they are construed as follows3
a- In case there is no dou)t as to the ter2s of the insurance contract# it is
to )e construed in its P/.I6# ;>DI6.>?# .6D P;P+/.> ,06,0-
)- If D;+FT@+/# .5FID+;+,# +6C0>T.I6 it is to )e construed strictly
against the insurer and li)erally in favor of the insured )ecause the latter has no
voice in the selection of the words used# and the language used is selected )y the
lawyers of the Insurer- (G+. C400 D.6 v- /.H +6I;6 >;CI I6,- C;- /TD $&
Phil- &C)
I//+,T>.TI;6,3
a- P Fan7 o)tained insurance against ro))ery which e1cluded loss )y any
cri2inal act of the insured or any authori9ed representative- Hhile transferring funds
fro2 one )ranch to another# the insuredJs ar2ored truc7 was ro))ed- The driver was
assigned )y a la)or contractor with the insured# while the security guard was
assigned )y an agency contracted )y the insured- Foth driver and guard were found
to )e involved- Can the loss )e e1cludedK 40/D3 T40 /;,, I, 0AC/+D0D# the
D>I=0>ED+.>D ./T4;+D4 .,,ID60D F? /.F;> C;6T>.CT;>, < .>0
.+T4;>IL0D >0P>0,06T.TI=0,- T40 T0>5, .>0 C/0.> .6D
+6.5FID+;+, (@ortune Insurance v- C.# (44 ,C>. B&)-
)- Personal .ccident policies providing pay2ent for Mloss of handN- The
Insurance policy defines it as a2putation- Insured has an accident resulting in a
te2porary total disa)ility )ut hand is not a2putated- 40/D3 Insurer is not lia)le (T?
v- @irst 6ational ,urety and .ssurance Co2pany < 1% ,C>. B64) F+T < in a case
where the policy provided for loss of )oth legs )y a2putation# a clai2 against the
policy was allowed for a total paralysis to e1clude total paralysis is contrary to pu)lic
policy# pu)lic good and sound 2orality# as it would force the insured to have his legs
a2putated to )e a)le to clai2 on the policy (Panaton v- 5alayan < ( Court of
.ppeals %&B)-
c- Harranty in a fire insurance policy prohi)ited storage of oils having a
flash point of )elow B @ahrenheit- Dasoline is stored- Is there a policy violationK
40/D3 The clause is a2)iguous- In ordinary parlance oil 2eans lu)ricants < not
gasoline- There is no reason why gasoline could not )e e1pressed clearly in the
language the pu)lic can readily understand- (G+. C400 D.6 $& Phil- &C)
d- .n action to recover the a2ount of P4P (#- due to death )y
drowning where the policy provided for inde2nity in the a2ount of P4P 1#- to
P4P B#-- 40/D3 the interpretation of the o)scure stipulation in contract 2ust
not favor the one who caused the o)scurity- 4ence# *udg2ent for an additional P4P
(#- was affir2ed (Del >osario vs- 0:uita)le Insurance and Casualty Co2pany#
& ,C>. B4B)-
e- Denial of a clai2 on the ground that the insured vehicle was a private
MownerN type vehicle on the ground that the policy issued to the insured was a
Co22on CarrierJs /ia)ility Insurance Policy which covers a pu)lic vehicle for hire-
40/D3 Insurer is lia)le as it was aware all along that the vehicle of the insured was
a private vehicle- (@ield2ans Insurance v- 5ercedes =argas vda De ,ongco# (C
,C>. %)
f- Denial of clai2 for )enefit due to the death of @laviano /andicho in a
plane crash under a D,I, Policy on the ground of non pay2ent of the pre2iu2-
40/D3 The policy contained a provision that the application for insurance is authority
for D,I, to cause the deduction of pre2iu2 fro2 the insuredJs salary (/andicho v-
D,I,# 44 ,C>. %)
;T40> C.,0 >0@0>06C0,3 6ew /ife 0nterprises v- C.# (% ,C>. 66$
WHAT ARE THE ELEMENTS OF AN INSURANCE CONTRACT
1- The insured should possess an interest of so2e 7ind# suscepti)le of pecuniary
esti2ation < 7nown as Minsura)le interestN- D060>.//? < a person has insura)le
interest in the su)*ect 2atter insured when3
40 4., ,+C4 . >0/.TI;6 ;> C;660CTI;6 HIT4# ;> C;6C0>6 I6#
,+C4 ,+F"0CT 5.TT0> T4.T 40 HI// D0>I=0 P0C+6I.>? F060@IT ;>
.D=.6T.D0 @>;5 IT, P>0,0>=.TI;6 ;> HI// ,+@@0> P0C+6I.>? /;,,
;> D.5.D0 @>;5 IT, D0,T>+CTI;6# T0>5I6.TI;6 ;> I6"+>? F? T40
4.PP06I6D ;@ T40 0=06T I6,+>0D .D.I6,T-
It is necessary )ecause its a)sence renders the contract =;ID- This is )ased on the
principle that insurance is a contract of inde2nity- If the insured has no interest# he
will not stand to suffer loss or in*ury )y the happening of the event insured against-
IN WHAT DOES A PERSON HAVE INSURABLE INTEREST IN
a- 0very person has an insura)le interest in the /I@0 and 40./T4 of (1)
hi2self# his spouse and of his children (() any person on who2 he depends wholly
or in fact for education or support# or in who2 he has a pecuniary interest (6ote
.rticle 1$C of the @a2ily Code specifying the persons o)ligated to support each
other- 01a2ple!pecuniary interest!partners# e2ployees) (B) any person under a legal
o)ligation to hi2 for the pay2ent of 2oney# respecting property or services# of which
death or illness 2ight delay or prevent perfor2ance (01a2ples3 5ortgagors-
De)tors) (4) any person upon whose life# any estate or interest vested in hi2
depends (01a2ple3 +sufructuary A allows ? to receive fruits of the land of the for2er
as long as he is alive- ? has insura)le interest in the life of A# )ecause the death of A
will ter2inate his right and cause hi2 da2age)- (,ection 1)
WHAT IS THE BASIS OF INSURABLE INTEREST IN LIFE
It e1ists when there is reasona)le ground founded on the relation of the parties#
either pecuniary or contractual or )y )lood# or )y affinity to e1pect so2e )enefit fro2
the continuance of life of the insured-
WHEN MUST INSURABLE INTEREST IN LIFE EXIST
Insura)le interest in life 2ust e1ist at the ti2e of the effectivity of the policy and need
not e1ist at the ti2e of the death of the insured as life insurance is not a contract of
inde2nity-IT I, 50.6T T; DI=0 @I6.6CI./ ,0C+>IT? 0IT40> T; T40
I6,+>0D ;> 4I, F060@ICI.>I0, (,ection 1$)-4owever# insura)le interest of a
creditor on the life of a de)tor 2ust e1ist not only at the ti2e of effectivity )ut also at
the ti2e of the death of the de)tor< as in this instance it is a contract of inde2nity-4I,
I6T0>0,T I, C.P.F/0 ;@ 0A.CT P0C+6I.>? 50.,+>0506T
WHAT IS THE EXTENT OF INSURABLE INTEREST IN ONES LIFE
4e has unli2ited interest in his own life or that of another person regardless of
whether or not the latter has insura)le interest- Provided# that if the )eneficiary has
no insura)le interest# there is no force or )ad faith- F+T# if he ta7es out a policy on
the life of another and na2es hi2self as the )eneficiary# he 2ust have an insura)le
interest in the life of the insured-
IS THE CONSENT OF THE INSURED REQUIRED WHEN INSURANCE IS TAKEN
The law does not re:uire the consent of the person insured and such has )een
considered as not essential to the validity of the contract as long as there is
insura)le interest at the )eginning-
)- . person also has insura)le interest in property as 0=0>? I6T0>0,T I6
P>;P0>T?# H40T40> >0./ ;> P0>,;6./# ;> .6? >0/.TI;6 T40>0T;#
;> /I.FI/IT? I6 >0,P0CT T40>0;@# ;@ ,+C4 6.T+>0 T4.T .
C;6T05P/.T0D P0>I/ 5ID4T DI>0CT/? D.56I@? T40 I6,+>0D I, .6
I6,+>.F/0 I6T0>0,T (,ection 1B)- It 2ay consist of (1) .n e1isting interest
( 01a2ple3 Fy 2eans of a conditional deed of sale# . sold his house to F for P4P
(##-- F pays a down pay2ent of P4P C#-- Prior to full pay2ent and
e1ecution of an a)solute sale# . has insura)le interest in the house e:uivalent to the
)alance due hi2# while F has insura)le interest to the e1tent of the down pay2ent
)ecause loss of the house will 2ean that he suffers a loss of P4P C#- (() .n
inchoate interest founded on an e1isting interest (Defined3 interest in real estate
which is not a present interest )ut which 2ay ripen into a vested interest if not
)arred# e1tinguished# or divested- 01a2ple3 Interest in Corporate property arising
fro2 stoc7holdings )ut li2ited to its value (B) .n e1pectancy# coupled with an
e1isting interest in that out of which the e1pectancy arises-(01a2ple3 . ship owner
has insura)le interest in e1pected freight charges- @uture crops that a far2er will
grow on land )elonging to hi2 at the ti2e of the issuance of the policy) 6ote that the
e1pectancy 2ust )e founded on an actual right to the thing or a valid contract for it-
6ote also that a carrier or depository of any 7ind has insura)le interest in the thing
held )y hi2 as such to the e1tent of his lia)ility )ut not to e1ceed the value thereof
(,ections 1B# 14# 1C)-
Fut# a 2ere contingent or e1pectant interest in anything# not founded on contract or
actual right to the thing is not I6,+>.F/0 < as there is no insura)le interest (,ection
16)-
01a2ples3 (1) a son has no insura)le interest on a )uilding owned )y father despite
)eing designated as an heir in the will as the will does not produce any effect )efore
the testatorJs death (() the owner of land on e1pected crops has insura)le interest as
he owns the land
WHAT IS THE TEST OR MEASURE OF INSURABLE INTEREST IN PROPERTY
Hhether one will derive pecuniary )enefit or advantage fro2 its preservation or will
suffer pecuniary loss or da2age fro2 its destruction- (,ection 1%)
MUST THE BENEFICIARY IN PROPERTY INSURANCE HAVE INSURABLE
INTEREST ON THE PROPERTY INSURED
?0,# as no contract or policy of insurance on property shall )e enforcea)le 0AC0PT
for the )enefit of so2e person having insura)le interest in the property insured-
0A.5P/03 The owner insures his )uilding against fire na2ing his nephew as
)eneficiary- In case of loss < only the owner can recover < what is not enforcea)le is
the designation of )eneficiary < not the entire policy itself-
WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST
5ust e1ist at the ti2e the insurance ta7es effect and when the loss occurs )ut need
not e1ist in the 2eanti2e (,ection 1$)
0A.5P/0,3
1- If . insures his house on 5ay (( for 1 yr < and without assigning the policy#
he sold it to F < if a fire occurs after it is sold to F < . cannot recover- F cannot
recover also as he has no insura)le interest at the ti2e the insurance was procured-
(- .n unsecured creditor secures insurance over the house of his de)tor# .- The
house is )urned- The creditor cannot recover as he has no insura)le interest at the
ti2e the insurance was o)tained-
Hhat if . sold the house to the creditor )efore the lossK ,till no recovery as
there was no insura)le interest at the ti2e it too7 effect-
B- If . re!ac:uires the property fro2 F )efore the fire < . can recover on the
policy-
COMPARE WITH INSURABLE INTEREST IN LIFE
LIFE PROPERTY
1- not necessary < can )e )ased )ased on pecuniary interest
on consanguinity or affinity
(- only at effectivity e1cept that e1ist at the ti2e of effectivity and loss
ta7en )y a creditor in the life
of the de)tor
B- no li2it e1ist if )ased on de)tor li2ited to actual volu2e insured
creditor
I6 >0/.TI;6 T; T40 600D @;> T40 0AI,T06C0 ;@ I6,+>.F/0 I6T0>0,T#
P/,- 6;T03
That a change of interest in any port of a thing insured in acco2panied )y a
corresponding change of interest in the insurance suspends the insurance to an
e:uivalent e1tent until interest in the thing and interest in the insurance is vested in
the sa2e person-
0D-
. )uyer of a property insured )y the previous owner who has not o)tained a transfer
of the insurance policy in his na2e < cannot recover-
>0/.T0D G+0>? < 4ow a)out the seller < 6; < no insura)le interest at the ti2e of
loss < (,ec 1$)
H4.T C4.6D0 I, C;6T05P/.T0D
.n a)solute transfer of the property 6;T /I@0 . /0.,0 E 5;>TD.D0
0AC0PTI;6, <
1- /ife# 4ealth or accident insurance )ecause they are not contracts of inde2nity and
insura)le interest is not re:uired at the ti2e of loss-
(- . change of interest after occurrence of an in*ury and results in loss < does not
affect the right of the insured to inde2nity < (,ec (1)
- after loss < the lia)ility of the insurer is fi1ed
B- a change of interest in one or 2ore several distinct things# separately insured )y
one policy# does not avoid the insurance as to the others- (,ec (()
4- a change of interest )y will or succession on the death of the insured does not
avoid the insurance < his interest passes on the thing insured (,ec (B)
C- a transfer of interest )y one or several partners# *oint owners# or owners in
co22on# who are *ointly insured < to the others# does not avoid insurance even
though it has )een agreed that insurance shall lease upon an allocation of the thing
insured-
6;T0 <
- there 2ust )e not stipulation against it < otherwise it is avoided-
- transfer to strangers avoid the policy
6- when notwithstanding a prohi)ition# the consent of the insurer is o)tained
%- when the policy is so fraud that it will insure to the )enefit of who2soever 2ay
)eco2e the owner during the continuance of the ris7-
/.,T/? <
The following are void stipulations in property insurance <
.- a stipulation for the pay2ent of the loss whether the person insured has or has
not interest in the property insured < )ecause it is a contract of inde2nity-
F- ,tipulation that the policy shall )e received as proof of such interest < e1istence of
insura)le interest does not depend on the policy <
C- every policy issued )y way of gaining or wagering shall )e void-
Those insured without insura)le interest < as they do not suffer a da2age fro2 the
occurrence of the event insured against < they vested profit-
C;6TI6+.TI;6 ;@ 0/0506T, <
(- The insured is su)*ect to ris7 of loss through the destruction or i2pair2ent of that
interest )y the happening of the designated ris7s-
B- The Insurer assu2es the ris7 of loss
4- ,uch assertion is part of a general sche2e to distri)uted actual loss a2ong a
large group of persons )earing so2ewhat si2ilar ris7s
C- .s a consideration for the insurerJs pro2ise# the insured 2a7es a rata)le
contri)ution called a pre2iu2 to the general insurance fund-
WHAT MAY BE INSURED AGAINST
.6? +6I6;H6 ;> C;6TI6D06T 0=06T# H40T40> P.,T ;> @+T+>0#
H4IC4 5.? D.56I@? . P0>,;6 4.=I6D I6,+>.F/0 I6T0>0,T ;> C>0.T0
. /I.FI/IT? .D.I6,T 4I5# 5.? F0 I6,+>0D .D.I6,T (,ection B)
01a2ple3 Insurance against da2age# lia)ility#un7nown past event ( in 2arine
insurance < insurance over the vessel against perils of the sea# lost or not lost)# or
future event li7e loss or theft of the o)*ect
In relation to the insurance so secured# 6;T0 (1) The consent of the hus)and is not
necessary for the validity of an insurance policy ta7en )y a 5.>>I0D wo2an on her
life and that of her children- +nder .rticle 14C of the @a2ily Code# she can also
insure her separate property without the consent of the hus)and- (() . 2inor 2ay
ta7e out a contract for life# health and accident insurance with any co2pany
authori9ed to do )usiness in the Philippines# provided it )e ta7en out on his own life
and the )eneficiary na2ed is his estate# father# 2other# hus)and# wife# child# )rother
or sister- In so doing# the 2arried wo2an E 2inor 2ay e1ercise all the rights or
privileges under the policy-
6;T03 >. 6&$ lowering the age of 2inority fro2 (1!1&-
F+T < H4.T I, T40 0@@0CT ;@ T40 D0.T4 ;@ T40 ;>IDI6./ ;H60> ;@ .
P;/IC? H4IC4 C;=0>, T40 /I@0 ;@ . 5I6;># .40.D ;@ T40 5I6;>! all
rights# title and interest in the policy shall auto2atically vest in the 2inor unless
otherwise provided in the policy-
WHAT CANNOT BE INSURED
.n insurance for or against the drawing of any lottery or for or against any chance or
tic7et in a lottery drawing a pri9e- F0C.+,0 D.5F/I6D >0,+/T, I6 P>;@IT .6D
I6,+>.6C0 ;6/? ,00I, T; I6D056I@? T40 I6,+>0D .D.I6,T /;,,
(,ection 4)-
WHO ARE THE PARTIES TO A CONTRACT OF INSURANCE
1- I6,+>0> ! 0very person# partnership# association or corporation duly
authori9ed to transact insurance )usiness as provided in the Code 2ay )e an
insurer- It is the party who agrees to inde2nify another upon the happening of
specified contingency (,ection 6)-
(- I6,+>0D < Party to )e inde2nified in case of a loss (,ection %)- .nyone
e1cept a pu)lic ene2y (is a nation at war with the Philippines and every citi9en or
su)*ect of such nation- H4? < the purpose of war is to cripple the power and
e1haust the resources of the ene2y# and it is inconsistent to destroy itJs resources
then pay it the value of what has )een destroyed) 2ay )e insured-
WHO MAY INSURE A MORTGAGED PROPERTY
Foth the 5ortgagor and 5ortgagee 2ay ta7e out separate policies with the sa2e or
different co2panies- The 2ortgagor < to the e1tent of the value of his property# the
2ortgagee < to the e1tent of his credit (,ection &)-
H4.T .>0 T40 C;6,0G+06C0, H40>0 T40 5;>TD.D;> I6,+>0, T40
P>;P0>T? 5;>TD.D0D I6 4I, ;H6 6.50 F+T 5.I0, T40 /;,, P.?.F/0
T; T40 5;>TD.D00 ;> .,,ID6, T40 P;/IC? T; 4I5-
+6/0,, T40 P;/IC? P>;=ID0, ;T40>HI,0
a- The insurance is still dee2ed to )e upon the interest of the 2ortgagor who
does not cease to )e a party to the original contract- 406C0# if the policy is
cancelled# notice 2ust )e given to the 2ortgagor-
)- .ny act of the 2ortgagor# prior to loss# which would otherwise avoid the policy
or insurance# will have the sa2e effect# although the property is in the hands of the
2ortgagee- 406C0# if there is a violation of the policy )y the 2ortgagor # the
2ortgagee cannot recover-
c- .ny act re:uired to )e done )y the 2ortgagor 2ay )e perfor2ed )y the
2ortgagee with the sa2e effect as if it has )een perfor2ed )y the 2ortgagor-
01a2ple3 if notice of loss is re:uired# the 2ortgagee 2ay give it-
d- +pon the occurrence of the loss# the 2ortgagee is entitled to recover to the
e1tent of his credit# and the )alance# if any# is to )e paid to the 2ortgagor# since such
is for )oth their )enefits-
e- +pon recovery )y the 2ortgagee# his credit is e1tinguished-
I@ ;6 T40 ;T40> 4.6D# (,ection $)# the Insurer assents to the transfer of the
insurance fro2 the 2ortgagor to the 2ortgagee# and at the ti2e of his assent#
i2poses further :ualifications on the assignee# 2a7ing a new contract with hi2# the
acts of the 5;>TD.D;> cannot affect the rights of the assignee < 6;T0 +6I;6
5;>TD.D0 C/.+,0 < Creates the relation of insured and insurer )etween the
2ortgagee and the insurer independent of the contract of the 2ortgagor- In such
case# any act of the 2ortgagor can no longer affect the rights of the 2ortgagee < the
insurance contract is now independent of that with the 2ortgagor-
H4.T I, T40 0@@0CT ;@ I6,+>.6C0 P>;C+>0D F? T40 5;>TD.D00
HIT4;+T >0@0>06C0 T; T40 >ID4T ;@ T40 5;>TD.D;>-
a- The 2ortgagee 2ay collect fro2 the insurer upon occurrence of the loss to the
e1tent of his credit-
)- +nless# otherwise stated# the 2ortgagor cannot collect the )alance of the
proceeds# after the 2ortgagee is paid-
c- The insurer# after pay2ent to the 2ortgagee# )eco2es su)rogated to the
rights of the 2ortgagee against the 2ortgagor and 2ay collect the de)t to the e1tent
paid to the 2ortgagee-
d- The 2ortgagee after pay2ent cannot collect any2ore fro2 the 2ortgagor
F+T if he is una)le to collect in full fro2 the insurer# he can recover fro2 the
2ortgagor-
e- The 2ortgagor is not released fro2 the de)t )ecause the insurer is
su)rogated in place of the 2ortgagee-
B- F060@ICI.>? < the person who receives the )enefits of an insurance policy
upon its 2aturity-
H4; 5.? F0 . F060@ICI.>I0, I6 /I@0 I6,+>.6C0
.nyone# e1cept those who are prohi)ited )y law to receive donations fro2 the
insured- 6ote .rticle %B$ of the Civil Code# hence the following cannot )e designated
as )eneficiaries (1)Those 2ade )etween persons guilty of adultery or concu)inage at
the ti2e of the designation (()Those found guilty of the sa2e cri2inal offense in
consideration thereof (B) Those 2ade to a pu)lic officer or his wife# descendants E
ascendants )y reason of his office-
. P>I;> C;6=ICTI;6 @;> .D+/T0>? E C;6C+FI6.D0 I, 6;T >0G+I>0D# it
can )e proven )y a preponderance of evidence in the sa2e action nullifying the
designation- 6ote the cases of Insular /ife vs- 0)rado# & ,C>. 1&1# where a
co22on law wife of the insured who is 2arried could not )e na2ed as a )eneficiary
and ,,, vs- Davac# 1% ,C>. &6B# where the insured designated his second wife as
a )eneficiary was upheld as the latter was not aware of the first 2arriage-
The dis:ualification does not e1tend to the children of the adultery or concu)inage in
view of the e1press recognition of the successional rights of illegiti2ate children
(.rticle (&%#6CC and .rticle 1%6# @a2ily Code)-
5+,T T40 F060@ICI.>? 4.=0 I6,+>.F/0 I6T0>0,T ;6 T40 /I@0 ;@ T40
I6,+>0D
It is recogni9ed that the insured 2ay na2e anyone he chooses# e1cept those
dis:ualified to receive donations# as a )eneficiary in his life insurance# even if he is a
stranger and has no insura)le interest in the life of the insured- The designation#
however# 2ust )e in D;;D @.IT4 .6D HIT4;+T @>.+D ;> I6T06T T; 06T0>
I6T; . H.D0>I6D C;6T>.CT- (01a2ple3 "ose o)tains several life insurance
policies that he cannot afford- 6a2ed as )eneficiary is "uan# the spouse or children
of "ose are not na2ed as )eneficiaries- The pre2iu2s are paid )y "uan# who did not
have insura)le interest in the life of "ose- In this case the policies are void )ecause
they were entered into as wagering contracts)
C.6 T40 F060@ICI.>? F0 C4.6D0D
The insured shall have the right to change the )eneficiary he designated < unless he
has e1pressly waived the right in the policy (,ection 11)
If he has waived the right# the effect is to 2a7e the designation as irrevoca)le- 6ote
though that the designation of the guilty spouse as irrevoca)le )eneficiary is
revoca)le at the instance of the innocent spouse in cases of ter2ination of (1) a
su)se:uent 2arriage (() nullification of 2arriage (B) annul2ent of 2arriage# and (4)
legal separation (.rticle 4B (4) @a2ily Code)
H4.T I, T40 0AT06T ;@ T40 I6T0>0,T ;@ T40 I>>0=;C.F/0
F060@ICI.>? I6 . /I@0 I6,+>.6C0 C;6T>.CT
The )eneficiary has a vested right that cannot )e ta7en away without his consent- In
fact should the insured discontinue pay2ent of the pre2iu2# the )eneficiary 2ay
continue paying- 6either can the insured get a loan or o)tain the cash surrender
value of the policy without his consent (6ario vs- Phila2life# ( ,C>. 4B4)- 6ote
where the wife and 2inor children were na2ed irrevoca)le )eneficiaries# wife dies#
the hus)and see7s to change the )eneficiaries with the consent of the children- The
consent is not valid due to 2inority (Phila2life vs- Pineda# 1% ,C>. 416)-
H4.T I, T40 I6T0>0,T ;@ .6 I>>0=;C.F/0 F060@ICI.>? I6 .6
06D;H506T P;/IC?
4is interest is contingent as )enefits are to )e paid hi2 only if the assured dies
)efore the specified period- If the insured outlives the period# the )enefits are paid to
the insured-
H4.T I, T40 0@@0CT ;@ T40 @.I/+>0 T; D0,ID6.T0 ;> F060@ICI.>? I,
DI,G+./I@I0D
The )enefits of the policy shall accrue to the estate of the insured-
H4; >0C;=0>, I@ F060@ICI.>? P>0D0C0.,0, T40 I6,+>0D
I@ D0,ID6.TI;6 I, I>>0=;C.F/0# the legal representatives of the )eneficiary
2ay recover unless it was stipulated that the )enefits are paya)le only MI@ /I=I6DN-
I@ D0,ID6.TI;6 I, >0=;C.F/0# and no change is 2ade# the )enefits passes to
the estate of the insured- The rule holds also if )enefits were paya)le M only if livingN
or Mif survivingN and the )eneficiary dies )efore the insured-
H4.T 4.PP06, T; I6T0>0,T ;@ T40 F060@ICI.>? I6 /I@0 I6,+>.6C0
H40>0 40 HI//@+//? II//, T40 I6,+>0D
If the 7illing is HI//@+/# the interest is forfeited if he is the principal# an acco2plice#
or an accessory- The 60.>0,T >0/.TI=0 ;@ I6,+>0D D0T, T40 P>;C00D,
I@ 6;T ;T40>HI,0 DI,G+./I@I0D (,ection 1()- If not willful or felonious# the
provision does not apply-
OUTLINE OF GENERAL PROVISIONS
I- I6,+>.6C0 .6D H4.T I, D;I6D .6 I6,+>.6C0 F+,I60,, [('
II- C4.>.CT0>I,TIC, .6D 0/0506T,3 Insura)le Interest! (a) Hhy it is
necessary ()) Hhat it consists of ()-1) In /ife [1' ()-() In Property [1B#14#1C# 16' (c)
Hhen it 2ust e1ist [1%#1&#1$' (d) 0ffect of a change [(#(1#((#(B#(4'
III- C;6T>.CT ;@ I6,+>.6C03 (a) Hhat 2ay )e insured against [B' ())
Hhat cannot )e insured against [4'- (c) =oid stipulations [(C'! .pplica)ility [C'
I=- P.>TI0,3 (a) Insurer [6' ()) Insured [%# &#$' (c) Feneficiary [11#1('
CONCEALMENT
H4.T I, C;6C0./506T
Conceal2ent is a neglect to co22unicate that which a party 7nows and ought to
co22unicate (,ection (6)
H4.T I, T40 0@@0CT ;@ C;6C0./506T
Hhether intentional or not# it entitles the in*ured party to rescind the contract of
insurance (,ection (%)- 6ote though that the right to rescind is optional on the part
of the in*ured party- >escission is an option )ecause it 2isleads or deceives the
insurer into accepting the ris7 or accepting it at the rate of pre2iu2 agreed upon-
01a2ples3 (1) The insured does not disclose sic7ness )ut dies of another cause-
There is conceal2ent )ecause it is 2aterial to a deter2ination of the assu2ption of
ris7 )y the insurer- (() The father of the insured o)tained an insurance policy over his
daughter# )ut did not disclose that she was a 2ongoloid child# the child dies of
influen9a# the conceal2ent relieves the insurer of lia)ility (Drepalife vs- C. &$ , C4B)
F.,I, ;@ P>;=I,I;6, ;6 C;6C0./506T E >0P>0,06T.TI;6
@unda2ental characteristic of a contract of insurance that it is one of P0>@0CT
E+T5;,T D;;D @.IT4-
H4; 5+,T P>;=0 I6;H/0DD0 ;@ T40 @.CT C;6C0./0D
The party clai2ing the e1istence of conceal2ent 2ust prove that there was
7nowledge on the part of the party charged with conceal2ent- 01a2ple3 If the
Insured stated that there was no hereditary taint (illness that has affected 2e2)ers
of the fa2ily) on either side of the fa2ily to 2y 7nowledge < I6 ;>D0> T; P>;=0 E
,4;H C;6C0./506T < the insurer 2ust prove that the hereditary taint alleged to
e1ist was 7nown to the insured-
., ;@ H4.T TI50 5+,T T40 P.>T? C4.>D0D HIT4 C;6C0./506T 4.=0
I6;H/0DD0 ;@ T40 @.CT C;6C0./0D
Denerally# a party 2ust have 7nowledge of the fact concealed at the ti2e of the
effectivity of the policy- 6ote that even if a party did not 7now of the e1istence at the
ti2e of application )ut )efore its effectivity# there is conceal2ent-
Infor2ation ac:uired after effectivity is not conceal2ent and does not constitute
ground to rescind the policy# as after the policy is issued# infor2ation su)se:uently
ac:uired is no longer 2aterial as it will not affect or influence the party to enter into
contract- 4owever# in case of the reinstate2ent of a lapsed policy# facts 7nown after
effectivity )ut )efore reinstate2ent 2ust )e disclosed-
4;H I, T40 5.T0>I./IT? ;@ C;6C0./506T ;> >0P>0,06T.TI;6
D0T0>5I60D
5ateriality is deter2ined not )y the event# )ut solely )y the pro)a)le and reasona)le
influence of the facts upon the party to who2 the co22unication is due# in for2ing
his esti2ate of the disadvantages of the proposed contract or in 2a7ing his in:uiries
(,ection B1)-
H4.T I, T40 T0,T ;@ 5.T0>I./IT?
The test of 2ateriality is whether 7nowledge of the true facts could have influenced a
prudent insurer in deter2ining whether to accept the ris7 or in fi1ing the pre2iu2s
5+,T T40>0 F0 . C.+,./ C;660CTI;6 F0TH006 T40 @.CT C;6C0>60D
.6D T40 C.+,0 ;@ /;,,
Conceal2ent need not# in order to )e 2aterial# )e of facts which )ring a)out or
contri)ute to# or are connected of the insuredJs loss- It is I55.T0>I./ that there is
no causal relationship )etween the fact concealed and the loss sustained- IT I,
,+@@ICI06T T4.T T40 6;6!>0=0/.TI;6 4., 5I,/0D T40 I6,+>0> I6
@;>5I6D IT, 0,TI5.T0 ;@ DI,.D=.6T.D0 ;> @IAI6D T40 P>05I+5-
01a2ples3 Insured concealed 7idney disease and enlarged liver < /ater he died of
thro2)osis# is the insurer lia)leK 6;# since the fact concealed was 2aterial though
the insured did not die therefro2- 4enson v- Phila2 < C ;D %B4(&- Insured had
concealed that he had 7idney disease- 4e dies in plane crash- The I6,+>0> not
lia)le (,unlife vs- C. < (4C ,C>. (6$)
H4.T @.CT, T406 5+,T F0 C;55+6IC.T0D
0ach party to an insurance contract is )ound to co22unicate to the other all facts
that 2eet the following re:uisites3
(1) ,uch facts that 2ust )e within his 7nowledge < as conceal2ent re:uires
7nowledge of the fact concealed )y the party charged with conceal2ent-
(() @actEs 2ust )e 2aterial to the contract < it 2ust )e of such nature that had the
insurer 7nown of it# it would not have accepted the ris7 or de2anded a higher
pre2iu2
(B) That the other party had no 2eans of ascertaining such factEs
(4) That the party with a duty to co22unicate 2a7es no warranty (,ection (&) as
the e1istence of a warranty 2a7es the re:uire2ent to disclose superfluous F+T <
an intentional and fraudulent o2ission on the part of the one insured to co22unicate
infor2ation on a 2atter P>;=I6D ;> T06DI6D T; P>;=0 T40 @./,IT? ;@ .
H.>>.6T? entitles the insurer to rescind (,ection ($)- 01a2ple3 Harranty that the
ship is seaworthy < T40 I6T06TI;6./ .6D @>.+D+/06T ;5I,,I;6 ;@ T40
I6,+>0D T; state that the shipJs co22unications e:uip2ent is out of order will
entitle the insurer to rescind-
H4.T 5.TT0>, 600D 6;T F0 C;55+6IC.T0D
01cept in answer to the in:uiries of the other3
(1) Those which the other 7nows < as the insurer cannot say that it has )een
deceived or 2isled- 01a2ple3 Insured discloses that he has tu)erculosis to the agent
of the insurer# who in turn o2its to state the sa2e in the application of the insured
was dee2ed 7nowledge of the insurer (Insular /ife .ssurance Co vs- @eliciano# %4
Phil 46&)- Insurer had surveyed the location and surrounding area of a )uilding that
is to )e insured against fire# an o2ission to state that there are neigh)oring )uildings
will not avoid policy-
()) Those# which# in the e1ercise of ordinary care# the other ought to 7now# and of
which# the for2er has no reason to suppose hi2 to )e ignorant- The facts that the
other ought to 7now as per ,ection B( are3 (1) all the general causes which are open
to his in:uiry# e:ually with that of the other# and which 2ay affect the political or
2aterial perils conte2plated- 01a2ple3 pu)lic events li7e the fact that a nation at
war# or laws or political conditions in other countries- 4ere# the source of infor2ation
is e:ually open to the insurer# who is therefore presu2ed to 7now the2# and ()) all
the general uses of trade- 01a2ples3 >ules of navigation# 7inds of seasons# all the
ris7s of navigation-
c) Those of which the other waives co22unication- . waiver ta7es place either#
)y the ter2s of the insurance or )y the neglect to 2a7e in:uiries as to such facts
where they are distinctly i2plied in other facts of which infor2ation is co22unicated
(,ection BB)- 01a2ple3 where an application for insurance is 2ade in writing and the
:uestions therein are unanswered or inco2pletely answered < and the insurer
without further in:uiries# issues the policy- It there)y waives all right to a disclosure
or to a 2ore co2plete answer- If :uestion as7s whether the insured has su)2itted
hi2self to any infir2ary# sanitariu2 or hospital for consultation or treat2ent- Insured
replies that he was confined at the Gue9on 5e2orial 4ospital for five days due to
influen9a- There is no waiver and shall constitute conceal2ent as the answer was
co2plete and could )e relied upon )y the insurer- If the insured answered MyesN# the
answer would have )een inco2plete and a2)iguous- This would constitute a waiver
as the insured did not 2a7e any further in:uiry- (6ote 6g Dan Lee vs- .sian
Crusader /ife .ssurance# 1(( ,C>. 461)
I,,+03 Is the waiver of a 2edical e1a2ination tanta2ount to a waiver of 2aterial
infor2ation- 6;# )ecause waiver of 2edical e1a2ination is 2ade when the insured
represents hi2self to )e in good health- It is reasona)le to assu2e that had the
insured revealed 2aterial infor2ation < the insurer would not have waived the
e1a2ination- 01a2ple3 . o)tained a non!2edical insurance- In the policy# it was
stated that . never had cancer < )ut ( 2onths prior she was operated on for cancer
< the )eneficiaries clai2ed pay2ent stating that there was no 2aterial
2isrepresentation in view of the waiver of the 2edical e1a2ination- The
2isrepresentation was to )e ta7en into consideration )efore issuing the policy# it was
.Js representation that she had a clean )ill of health that led the insurer not to
re:uire a 2edical e1a2ination (,aturnino v- Phil!.2 < % ,C>. B16)
d) Those which prove or tend to prove the e1istence of a ris7 e1cluded )y a
warranty# and which are not otherwise 2aterial- 01a2ple3 The insurance only covers
loss due to hi*ac7ing or terroris2- . warranty has )een 2ade )y the insured that loss
due to perils of the sea is e1cluded- Conse:uently# the fact that the vesselJs engines
have )een fitted with used parts need not )e disclosed as the seaworthiness of the
vessel is not 2aterial-
e) Those which relate to a ris7 e1e2pted fro2 the policy# and which are not
otherwise 2aterial (,ection B)- 01a2ple3 Policy covers against loss )y theft- There
is no need to disclose that the area where the o)*ect is located is earth:ua7e prone
area if loss due to earth:ua7es is not covered )y the policy-
;T40> 5.TT0>, T4.T D; 6;T 600D T; F0 C;55+6IC.T0D <
a- Infor2ation of the nature or a2ount of the interest of one insured need not )e
co22unicated unless in answer to in:uiry# e1cept as prescri)ed )y ,ection C1 as the
e1tent of the interest of the insured in property insured 2ust )e specified if he is not
the a)solute owner- .lso < a trustee# 2ortgagee or )uilding contractor 2ust
co22unicate his particular insura)le interest in the property even if no in:uiry is
2ade- (,ection B4)
)- 6either party to a contract is )ound to co22unicate even upon in:uiry any
infor2ation of his own opinion or *udg2ent upon the 2atters :uestion (,ection
BC)-;nly 2aterial facts are re:uired < not opinions# speculations or e1pectations#
0AC0PT in 2arine insurance < where the )elief or the e1pectation of a B
rd
person in
reference to a 2aterial fact is 2aterial and 2ust )e co22unicated- 01a2ple3 The
insured is re:uired to disclose an opinion of 2arine e1perts as to seaworthiness of a
vessel (,ee ,ection 1&)
REPRESENTATIONS
H4.T I, . >0P>0,06T.TI;6
;ral or written state2ent of a fact or a condition affecting the ris7 2ade )y the
I6,+>0D to the insurance co2pany# tending to induce the insurer to ta7e the ris7
(,ection B6)
H406 5.? . >0P>0,06T.TI;6 F0 5.D0
,ince it is an induce2ent to entering a contract < IT 5+,T ;>DI6.>I/? F0 5.D0
.T T40 ,.50 TI50 ., ;> F0@;>0 < the issuance of the policy (,ection B%)-
6ote that it can also )e 2ade after the issuance of the policy when the purpose
thereof is to induce the insurer to 2odify an e1isting insurance contract < as the
provisions also apply to a 5;DI@IC.TI;6 (sa2e with C;6C0./506T)
4;H ,4;+/D . >0P>0,06T.TI;6 F0 C;6,T>+0D
The language of a representation is to )e interpreted )y the sa2e rules as the
language of contracts in general (,ection B&)- 406C0 # it need not )e literally true
and correct E accurate in every respect# >.T40># it is sufficient if it is su)stantially or
2aterially true- In case of a pro2issory representation# it is sufficient if it is
su)stantially co2plied with- 01a2ples3 (1) 4 )ought a car for P4P (#&- and
spent P4P $- for repairs < 4 gave it to H as a gift- H secures insurance and
says the price is around P4P 4#-# though the present actual value is a)out
P4P B#-- Is H guilty of 2isrepresentation )ecause she did not pay for the carK
6;# )ecause the literal truth is not necessary- The insurer can value the car
independently-
H4.T .>0 T40 @;>5, .6D II6D, ;@ >0P>0,06T.TI;6
>epresentations 2ay )e ;>./ or H>ITT06 and can either )e3
.@@I>5.TI=0! which is an affir2ation of a fact e1isting when the contract )egins-
01a2ple3 That the insured is of good health at the ti2e of the contract-
P>;5I,,;>? < which is a state2ent )y the insured concerning what is to happen
during the ter2 of the insurance- 01a2ple3 That the insured will install additional fire
e1tinguishers at a stipulated future date- . representation as to the future is to )e
dee2ed a pro2ise# unless it was 2erely a state2ent of )elief or e1pectation-
I, . >0P>0,06T.TI;6 P.>T ;@ T40 C;6T>.CT
6o# it cannot :ualify as an e1press provision in a contract ( it is a collateral
induce2ent to the contract) F+T it 2ay :ualify an i2plied warranty( ,ection 4)-
01a2ple3 +nder ,ection 11B < it is i2plied that a ship is seaworthy- . representation
)y the insured that its co22unication syste2 is defective will G+./I@? the warranty-
4ence# insured can still recover in case of loss-
C.6 . >0P>0,06T.TI;6 F0 HIT4D>.H6 ;> ./T0>0D
?es# as long as the insurance has not yet )een effected and the insured has not yet
)een induced to issue the policy- If withdrawn or altered afterwards# the contract can
)e rescinded as the insurer has already )een led to issue the policy (,ection 41)-
T; H4.T D.T0 D;0, . >0P>0,06T.TI;6 >0@0>
It 2ust )e presu2ed to refer to the date on which the contract goes into effect
(,ection 4()- 6;T03 there is no false representation if it is T>+0 at the ti2e the
contract ta7es effect although false at the ti2e it is 2ade- 01a2ple3 Insured states at
application that vessel is in T;I?; )ut is really in 4;6DI;6D# there is no false
representation if at issuance vessel is already in T;I?;- C;6=0>,0/?# there is a
false representation# if it is true at the ti2e it is 2ade )ut false at the ti2e the contract
ta7es effect- 01a2ple3 Insured states that he has never )een affected with
pneu2onia at application# )ut if in the 2eanti2e# he is afflicted with pneu2onia
)efore the policy ta7es effect# and he does not disclose # there is a false
representation-
H406 I, . >0P>0,06T.TI;6 ,.ID T; F0 @./,0
Hhen the facts fail to correspond with its assertions or stipulations (,ection 44)
5+,T T40 I6,+>0D C;55+6IC.T0 I6@;>5.TI;6 ;@ H4IC4 4., 6;
P0>,;6./ I6;H/0DD0 F+T 50>0/? >0C0I=0, T40 ,.50 @>;5 ;T40>,
Hhen a person has no P0>,;6./ I6;H/0DD0 ;@ . @.CT, < 40 5.? ;> 5.?
6;T co22unicate such infor2ation to the insurer- If he does co22unicate# he is not
responsi)le for its truth (,ection 4B)- 4ence# there can )e no 2isrepresentation
H406 I, T40 I6,+>0D >0G+I>0D T; DI,C/;,0 I6@;>5.TI;6 @>;5 . B
>D
P0>,;6
Hhen the infor2ation 2aterial to the transaction was ac:uired )y an agent of the
insured# as 7nowledge of the agent is also 7nowledge of the principal- 01a2ple3 If a
ship captain is aware of a defect that affects the seaworthiness# that defect 2ust )e
co22unicated as the ship captain is under o)ligation to disclose it to the owner-
H4.T I, T40 0@@0CT ;@ 5I,>0P>0,06T.TI;6 ;6 . 5.T0>I./ P;I6T
If it is false on a 2aterial point# whether affir2ative or pro2issory < the in*ured party
is entitled to rescind the contract fro2 the ti2e the representation )eco2es false-
4;H0=0># the right to rescind is considered waived )y the acceptance of pre2iu2
pay2ents despite 7nowledge of the ground to rescind (,ection 4C) 01a2ple3 Insurer
was aware of the lac7 of e1tinguishers re:uired )y the policy- F+T there is no waiver
< if the insurer had no 7nowledge of the ground at the ti2e of the acceptance of the
pre2iu2- 01a2ple3 +nauthori9ed driver- (,to7es vs- 5alayan 1(% ,C>. %66)
4;H I, 5.T0>I./IT? D0T0>5I60D
The sa2e as conceal2ent (,ection 46) pro)a)le and reasona)le influence of the
facts upon the party to who2 the representation is 2ade in for2ing his esti2ate of
the advantageEdisadvantages of the contract or in 2a7ing in:uiries-
H406 I, T40 >ID4T T; >0,CI6D ,+PP;,0D T; F0 0A0>CI,0D < (,ec 4&)
The right to rescind 2ust )e e1ercised P>0=I;+, to the co22ence2ent of an
action on the contract (,ection 4&)- 6ote the case of T.6 C4.? 4I6D vs- H0,T
C;.,T /I@0 I6,+>.6C0 C;# C1 P4I/ &# where an insurer interposed the
defense in an action to clai2 the proceeds that the contract is null and void- ,ection
4& was held to apply only when T40>0 I, . C;6T>.CT T; >0,CI6D-
IT I, ./,; G+./I@I0D F? (
6D
P.> ;@ ,0CTI;6 4& H4IC4 P>;=ID0, that after
a policy of life insurance paya)le on the death of the insured shall have )een in force
during the lifeti2e of the insured for a period of ( years fro2 the date of issue or its
last reinstate2ent# the insurer cannot prove that the policy is =;ID .F I6ITI; or is
su)*ect to rescission )y reason of a fraudulent conceal2ent or 2isrepresentation of
the insured or his agent ( I6;H6 ., T40 I6C;6T0,T.FI/IT? C/.+,0)
H4.T I, T40 T40;>? .6D ;F"0CT F04I6D T40 I6C;6T0,T.FI/IT? C/.+,0
;n the part of the I6,+>0> < an insurer hasEshould have a reasona)le opportunity
to investigate the state2ents which are 2ade )y the applicant and that after a
definite period# it should no longer )e per2itted to :uestion its validity-
;n the part of the I6,+>0D < its o)*ect is to give the greatest possi)le assurance
that the )eneficiaries would receive pay2ent of the proceeds without :uestion as to
validity of the policy-
H4.T .>0 T40 >0G+I,IT0,
The re:uisites are (1)It is a life insurance policy (()It is a paya)le on the death of the
insured (B) It has )een in force during the lifeti2e of the insured for .T /0.,T TH;
?0.>, fro2 date of issue E or last reinstate2ent- 6;T03 T.6 vs- C. < 1%4 ,C>.
4B! D+>I6D T40 /I@0TI50 ;@ T40 I6,+>0D 50.6, T4.T T40 P;/IC? I, 6;
/;6D0> I6 @;>C0 I@ T40 I6,+>0D DI0,- @acts3 Phila2 issued policy on
6ove2)er 6# 1$%B- ;n .pril (6# 1$%C the insured died- The )eneficiaries clai2ed )ut
the insurer denied the clai2 on ,epte2)er 11# 1$%C and rescinded the policy on the
ground of 2isrepresentation and conceal2ent- 40/D < Insurer has two years fro2
date of issue E reinstate2ent within which to contest the policy whether or not the
insured still lives within the period-
H4.T D0@06,0, .>0 6;T F.>>0D F? I6C;6T0,T.FI/IT? 0=06 .@T0> T40
/.P,0 ;@ ( ?0.>,
The defenses that are not )arred are (1) non!pay2ent of pre2iu2s (() lac7 of
insura)le interest (B) that the cause of death was e1cepted or not covered )y the
ter2s of the policy (4) that the fraud was of a particular vicious type such as (a) policy
was ta7en in furtherance of a sche2e to 2urder the insured ()) where the insured
su)stituted another for the 2edical e1a2ination (c) where the )eneficiary feloniously
7illed the insured (C) violation of a condition in the policy relating to 2ilitary or naval
service in ti2e of war (6) the necessary notice or proof of death was not given (%)
action is not )rought within ti2e specified in the policy# which in no case should )e
less than 1 year as per ,ection 6B-
WHAT ARE THE EFFECTS OF INCONTESTABILITY
The insurer can no longer escape lia)ility tender the policy or )e allowed to prove
that the policy is void a) initio or 2ay )e rescinded )y reason of conceal2ent or
2isrepresentation )y the agent of the insured or the insured-
DISTINGUISH CONCEALMENT FROM REPRESENTATION
Conceal2ent is the neglect of one party to co22unicate to the other 2aterial facts-
The infor2ation he gives in co2pliance with his duty to reveal infor2ation is
representation- >epresentation therefore# is the co22unication re:uired to co2ply
with the prohi)ition against conceal2ent-
Conceal2ent is the passive and 2isrepresentation is the active for2 of the sa2e )ad
faith-
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1- In conceal2ent < the insured withholds infor2ation of 2aterial facts# while in
representation < the insured 2a7es erroneous state2ents
(- In conceal2ent and 2isrepresentation )oth give the insurer the right to
rescind the contract of insurance
B- The 2ateriality of conceal2ent and representation are deter2ined )y the
sa2e rules
4- Hhether the conceal2ent or representation is intentional or not# the in*ured
party can rescind
C- ,ince insurance contracts are of ut2ost good faith < the insurer is also
covered )y the rules