INSURANCE LAW

A. BASIC PRINCIPLES
1. Insurance Defined
1-a. Definition Agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability
1-b. Limitation Excludes life insurance which is a contract
upon condition, not one of indemnification
2. Laws Applicable
2-a. Main Law Insurance Code (P.D. 612)
2-b. Suppletory Laws
1. Civil Code of the Philippines (Arts. 789, 2011-2012)
2. GSIS Law
3. SSS Law
4. Act 2573 (Mutual Insurance on Work Animals)
5. RA 656 (Property Insurance Law)
6. RA 3124 (Industrial Life Insurance)
7. PD 317 (Insurance Cooperatives)
8. PD 1461 (Crop Insurance)
3. Implementing Office Insurance Commissioner
4. Jurisdiction
4-a. Insurance Commissioner
1. Adjudicate claims/complaints for amounts not
exceeding P100,000/claim
2. Liability of Reinsurer
3. Liability under Suretyship
4. Liability of a Mutual Benefit Association
5. Counterclaims against Insured
6. Cross-claims against co-party
7. Third-party claims by insurer against another
4-b. Regular Courts
1. Claims above 100T but less than 300T Municipal
Trial Court
2. Claims above 300T Regional Trial Court
3. see Republic Act 7691
5. Classes of Insurance
5-a. Life Insurance
1. Classifications
a. Individual [Secs. 179-183; 227, I.C.]
b. Group Life [Secs. 50; 228, I.C.]
c. Industrial Life [Secs. 229-231, I.C.]
2. Kinds
a. Ordinary payment every year until death
b. Limited Payment Policy payment for a
limited period. If the insured dies, his
beneficiary claims. If he survives, no claim
c. Endowment Policy payment for a limited
period. If the insured dies, his beneficiary
claims. If he outlives policy, he claims.
d. Term Insurance payment once that covers
a specified period. If insured dies,
beneficiary claims. If he survives, no claim.
5-b. Non-Life Insurance
1. Marine [Secs. 99-166, I.C.]
2. Fire [Secs. 167-173, I.C.]
3. Casualty [Sec. 174, I.C.]
5-c. Suretyship and Bonding [Secs. 175-178, I.C.]
6. Characteristics of Insurance Contract
6-a. Aleatory
6-b. Voluntary
6-c. Executory
6-d. Compensatory
6-e. Personal
6-f. Perfect good faith
6-g. Synallagmatic
7. Construction of Insurance Contracts
7-a. Laws/Jurisprudence
1. California Insurance Code
2. Statute is adopted along with its Construction
7-b. Provisions/Stipulations
1. Contract of Adhesion
2. Article 1377, Civil Code
7-c. Cases:

1. Constantino vs. Asia Life [87 Phil. 248]

2. Insular Life vs. Ebrado [80 SCRA 181]
3. Del Rosario vs. Equitable Insurance [118 Phil. 349]
B. ELEMENTS OF INSURANCE CONTRACT
1. Consent
1-a. Meeting of minds
1-b. Concurrence of offer and acceptance both as to the
object and consideration
1-c. Cognitive theory
2. Object
2-a. Assumption of loss, damage or liability by the insurer
[Art. 1174, Civil Code]
2-b. What May be Insured Against [Section 3, I.C.]
1. Contingent Event
a. Future
b. Resulting to loss, damage or liability
2. Unknown Event
a. Past, unknown to the parties
b. Resulting to loss, damage or liability
2-c. Kinds of Insurable Risks
1. Personal risks life, health, accident
2. Property risks loss, damage
3. Liability risks liability for injury to third persons
3. Cause or Consideration Payment of Premium
4. Insurable Interest necessary to prevent contract from
being waggering
C. PARTIES TO INSURANCE CONTRACT
1. Insurer
1-a. Definition [Sec. 184, I.C.]
1-b. Authorized to Transact Insurance Business [Sec. 6, I.C.]
1-c. Penal Provisions [Secs. 299; 419, I.C.]
2. Insured
2-a. Capacity to enter into contract
2-b. Insurable Interest
2-c. Not a public enemy [Section 7, I.C.]
1. Public enemy refers to a nation where the Philippines is at
war
2. It includes every citizen or subject of such nation [Filipinas
Cia de Seguros vs. Christian Huenefeld & Co., 89 Phil. 54]
3. Beneficiary
3-a. Rule
1. Designation of beneficiary is discretionary
2. Absence, payable to estate of insured
3-b. Kinds of Beneficiary
1. As to Succession
a. Primary beneficiary who is first entitled to
the proceeds of insurance
b. Secondary beneficiary who is entitled to the
proceeds of insurance in case the primary
beneficiary dies
2. As to Revocability
a. Revocable the insured reserves the right to make future
changes in the designation
b. Irrevocable such beneficiary cannot be changed by the
insured or other person without the consent of the
beneficiary
3-c. In Life Insurance
1. Designation of beneficiary is akin to donations and subject
to proscriptions on donations [Art. 739, Civil Code]
2. Grounds for Forfeiture if he participated in willfully
bringing about the death of insured as
c. Principal
d. Accomplice
e. Accessory [Sec. 12, I.C.]
3. Designation of disqualified beneficiary is void but does not
avoid insurance
3-d. In Property Insurance, beneficiary is required to have an
Insurable Interest in the property insured [Sec. 18, I.C.]
D. INSURABLE INTEREST
1. Definition/Elements
1-a. Relation, connection or concern of one person to
another, a thing or property

1-b. He derives pecuniary advantage/benefit from its

preservation
1-c. He suffers pecuniary loss or damage from its destruction,
termination or injury
2. Distinctions
2-a. Pecuniary vs. non-pecuniary
2-b. Partial Loss
2-c. Amount of insurance coverage
1. Life no limit
2. Property extent to which the insured might be
damnified by the loss or injury [Section 17, I.C.]
2-d. Incontestability clause
2-e. Existence
1. Life at the time insurance takes effect
2. Property at the time insurance takes effect and at
the time of loss [Section 19, I.C.]
2-f. Subrogation
3. Insurable Interest in Life
3-a. Coverage In the life and health of
1. Himself, his spouse or his children;
2. Any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
3. Any person under legal obligation to him for the payment
of money, or respecting property or services, of which death
or illness might delay or prevent the performance; and
4. Any person upon whose life any estate or interest vested
in him depends [Section 10, I.C.]
3-b. When considered property Outside himself, spouse or
children, insurable interest must be pecuniary
4. Insurable Interest in Property
4-a. Definition any interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
damnify the insured [Sec. 13, I.C.]
4-b. Coverage
1. Existing interest
2. Inchoate interest founded on existing interest
3. Expectancy, coupled with an existing interest out of
which expectancy arises [Sec. 14, I.C.]
4-c. Inchoate Rights vs. Expectancy
1. Right is inchoate when the transmission of the property
depends on a period or an event that is certain to occur
2. Right is expectancy when the realization of income or
acquisition of right is conditional
5. Change of Interest
5-a. General Rule: Suspends policy [Sections 20 and 55, I.C.]
5-b. Exceptions
1. After occurrence of injury
2. One or more distinct things separately insured
under one policy
3. By will or succession
4. Transfer of interest from one partner, joint owner,
co-owner to others [Sections 21-22, I.C.]
5. Insurance is for the benefit of whomsoever during
the continuance of the policy [Section 57, I.C.]
E. POLICY
1. Types of Insurance Contract
1-a. Policy written instrument in which a Contract of
Insurance is set forth [Section 49, I.C.]
1-b. Binding Receipt acknowledgment that branch received
premium and accepted application subject to processing by
Head Office [Great Pacific Life vs. Court of Appeals, 89 SCRA
543]
1-c. Cover Note receipt whereby insurer agrees to contract
good for 60 days pending issuance of a regular policy
[Section 52, I.C.]
2. Kinds of Policy
2-a. Open Policy value of thing insured is determined at the
time of loss [Section 60, I.C.]
2-b. Valued Policy value of property or life insured is
determined at the time insurance is taken [Section 61, I.C.]

2-c. Running Policy contemplates successive insurance,

object defined from time to time [Section 62, I.C.]
3. Contents of Policy
3-a. Parties
3-b. Amount of insurance
3-c. Amount of Premium
3-d. Property or life insured
3-e. Insurable interest
3-f. Risks insured against
3-g. Insurance period [Section 51, I.C.]
4. Riders in Policy
4-a. Defined printed or typed stipulation contained on a
slip of paper attached to policy forming an integral part
thereof
4-b. Requirements for Validity
1. Title or name of rider mentioned in the policy
2. Counter-signed by the insured
3. If insured prepared the rider or made upon his
request, no signature necessary
4-c. Construction
1. In case of conflict between policy and rider, rider prevails
2. Reason: It is a more deliberate _expression of parties
agreement
5. Renewal of Policy
5-a. Non-life Insurance the insured has the right to renew
insurance contract under same terms and conditions unless
the insurer sent notice not to renew within 45 days prior to
its expiration
5-b. Life Insurance
6. Double Insurance and Over-Insurance
6-a. Double Insurance
1. Defined Exists where the same person is insured by
several insurers separately in respect to the same subject
and interest [Section 93, I.C.]
2. Requisites:
a. One and the same insured
b. One and the same insurable interest
c. One and the same risk or peril insured
against
d. Two or more insurers separately
3. Prohibitions
a. Double insurance may be prohibited under a policy
b. Purpose is to prevent over-insurance and thus avert the
perpetuation of fraud [Pioneer Insurance and Surety Corp.
vs. Yap, 61 SCRA 426]
4. Effects of Double Insurance
a. Insured can recover, before or after the loss, from the
insurers the excess premium paid
b. In case of loss, insurers are liable severally to the extent of
their coverage. Insured can recover from any of the insurers
to the extent of his loss
6-b. Over-Insurance
1. Defined There is over-insurance when the amount of the
insurance is beyond the value of the insureds insurable
interest
2. Distinctions with Double Insurance
a. Double insurance does not always result to over-insurance
b. Double insurance involves two or more insurers while
there may be over-insurance with one insurer only
6-c. Over-Insurance by Double Insurance [Section 94, I.C.]
7. Reinsurance
7-a. Defined one by which an insurer procures a third
person to insure him against loss or liability by reason of
such original insurance [Section 95, I.C.]
7-b. Distinction with Double Insurance
1. In double insurance, original insurer remains as insurer; in
reinsurance, the original insurer becomes an insured;
2. In double insurance, subject is property (same interest); in
reinsurance, subject is the original insurers risk (different
interest);
3. In double insurance, insured is the party to all the
contracts; in reinsurance, insured has no interest therein
7-c. Principles

1. Original insured has no interest in reinsurance [Section

98, I.C.]
2. Insurer is duty-bound to
a. Communicate to reinsurer all the representations of the
original insured and all the knowledge and information the
insurer possesses material to the risk
b. Exception: Automatic reinsurance treaty being a selfexecuting agreement between two or more insurance
companies whereby one will reinsure part of any line of
insurance taken by the other [Section 96, I.C.]
2. Reinsurer is entitled to avail of every defense which the
insurer can interpose against the person originally insured
3. If reinsurance is one of indemnity for losses suffered by
the insurer, original insured has no interest in the
reinsurance contract [Artex Development Co. vs. Wellington
Insurance Company, 51 SCRA 352]
4. If reinsurance contains a provision whereby the
reinsurer binds himself to pay the insured for any
loss which the insurer may become obliged to pay
under the original policy, then the reinsurer
becomes liable to the insured who may go against
both the insurer and the reinsurer.
F. PREMIUM
1. Premium defined agreed price for assuming and carrying
the risk
2. Effects of Non-payment of Premium
2-a. First Premium
1. Prevents contract from becoming binding notwithstanding
acceptance of the application [Constantino vs. Asia Life
Insurance Co., 87 Phil. 248;
2. But the non-payment of the balance of the premium does
not avoid the policy [Philippine Phoenix Surety & Insurance,
Inc. vs. Woodworks, Inc., 20 SCRA 1270]
3. Acknowledgment in the policy of receipt of premium is
conclusive evidence of payment [Section 78, I.C.]
2-b. Subsequent Premium
1. Does not ipso facto avoids the policy
2. It only entitles the insurer to cancel the contract of
insurance [Section 64, I.C.]
3. Return of Premiums
3-a. Total Refund
1. In property insurance where no part of interest in thing
insured was exposed to peril [Section 79(a), I.C.]
2. Contract is voidable due to fraud or misrepresentation by
insurer [Section 81, I.C.]
3. Contract is voidable because of the existence of facts of
which the insured was ignorant without his fault [Ibid]
5. Insurer never incurred liability [Ibid]
6. Rescission is granted due to the insurers breach of
contract
3-b. Partial Refund
1. Insurance is for a definite period and insured surrenders
policy prior to expiration of such period [Section 79(b), I.C.]
2. Pursuant to a short-period clause provision in the policy
3. In case of Over-Insurance
3-c. Cases:
1. Great Pacific Life Insurance Corporation vs. Court of
Appeals [184 SCRA 501]
2. Sison vs. Sun Life Assurance Company of Canada [47 O.G.
1954 (1949)]
G. DEFENSES
1. Defenses That Avoids Policy Insurer need not
cancel the policy. Any of these grounds ipso
facto negates a valid insurance contract. Thus
1-a. Lack of any of the essential requisites of contract
1. Consent, through the vices of consent
2. Insurable interest
3. Non-payment of first premium except when there is a
written acknowledgment thereof [Sections 77 and 78, I.C.]
1-b. Prescription failure to commence an action from
accrual of the right of action, that is, from denial of claim by
the insurer
1. If no stipulation, 10 years [Art. 1144, Civil Code]

2. If there is stipulation, same valid but in no case that it shall

be less than 1 year [Section 63, I.C.]
1-c. Violation of double insurance clause provision in a policy
[Pioneer Insurance and Surety Corporation vs. Yap, 61 SCRA
426]
2. Defenses that Give Ground to Cancel Policy Insurer
must first cancel the policy prior to the
commencement of an action thereon [Section
48, I.C.]. If the policy is cancelled, no recovery can be
made by the insured or his beneficiary
2-a. Grounds for Cancellation
1. Concealment [Section 27, I.C.]
a. Defined Neglect to communicate that which a party
knows and ought to communicate [Section 26, I.C.]
b. Characteristics
1. This is an omission
2. Must be shown to be material, that is, affects insurers
decision to enter into contract, in estimating degree of risk or
fixing the premium
3. Within the knowledge of insured but he makes no
warranty
4. May be intentional or unintentional
2. Misrepresentation [Section 45, I.C.]
a. Defined oral or written statement of a fact or condition
affecting risk made by insured to insurer tending to induce
the insurer to assume the risk
b. Characteristics
1. This is commission
2. Inducing factor to a contract
3. Must be shown to be material by the insurer
4. Insured makes no warranty
5. Always intentional
6. Requires substantial compliance
7. May be waived by acceptance of premium despite
knowledge thereof [Section 45, I.C.]
3. Violation of Warranty
a. Warranty Defined Statement in a policy of a matter
relating to the person or thing insured or to the risk as a fact
b. Characteristics
1. This is commission
2. It is part of the contract
3. Presumed material and requires strict compliance
4. Violation of a material warranty entitles either party to
rescind while violation of an immaterial warrants does not
avoid policy unless expressly declared [Sections 74 and
75, I.C.]
c. Kinds of Warranty
1. Express stated in the policy itself as a fact [Section
71, I.C.]
2. Implied derived from the very nature of the
contract
3. Affirmative asserts the existence of fact or
condition at the time it is made
4. Promissory referring to future acts partaking the
nature of a condition subsequent [Section 72, I.C.]
d. Cases:
1. Young vs. Midland Textile Ins. Co. [30 Phil. 617]
2. Qua Chee Gan vs. Law Union & Rock Insurance Co. [90 Phil.
85]
3. General Insurance & Surety Corp. vs. Ng Hua [106 Phil.
1117]
4. Non-payment of subsequent premium
5. Conviction of a crime arising out of acts increasing
the hazard insured against
6. Discovery of fraud or material misrepre-sentation
7. Discovery of willful or reckless acts or omissions
increasing the hazard insured against
8. Physical changes in the property insured which
resulted in property becoming uninsurable
9. Determination of Insurance Commis-sioner that the
continuation of policy violates or places the insurer
in violation of Insurance Code [Section 64, I.C.]
2-b. Procedures

1.

Occurrence of a valid ground after effectivity of the

policy
2. Written notice delivered to insured
a. At the address stated in policy
b. Stating the valid ground
3. Furnish facts to insured upon request [Section
65, I.C.]
2-c. Cases:
1. Saura Import-Export Company vs. Philippine International
Surety [8 SCRA 143]
2. Malayan Insurance Company vs. Arnaldo [154 SCRA 672]
3. Paulino vs. Capital Insurance [105 Phil. 1315]
3. Grounds to Defeat Recovery by Insured
3-a. Loss, damage or injury caused by an excepted risk
[Section 86, I.C.]
1. Losses Insurer Liable [Sections 84-86, I.C.]
a. Loss where the proximate cause is the insured peril
[Section 84, I.C.]
b. Loss caused by efforts to rescue the thing insured from
insured peril [Section 85, I.C.]
c. Loss caused by a peril not insured against to which the
thing insured was exposed in the course of its rescue from
the insured peril [Section 85,I.C.]
f. Loss, the immediate cause of which was the
insured peril if the proximate cause is not
an excepted peril [Section 86,I.C.]
g. Loss caused by the negligence of the insured
[Section 87,I.C.]
2. Losses Insurer Not Liable
a. Loss where the remote cause is an insured peril [Section
84, I.C.]. Remote cause is one where the effect is uncertain,
vague or does not necessarily follow [Blacks Law Dictionary,
p. 1164].
b. Loss where the proximate cause is an excepted peril even if
theimmediate cause is not an excepted peril [Section 86, I.C.]
c. Loss where the proximate cause is not an
excepted peril but the immediate cause is an
excepted peril
d. Loss caused by the willful act or through the
connivance of the insured [Section 87, I.C.]
3-b. Lack of notice/proof of loss [Section 88, I.C.]
1. Conditions
a. Notice of loss must given to insurer
b. When required by policy, a preliminary
proof of loss must likewise be given
c. Cases:
1. Bachrach vs. British American Assurance [17 Phil. 455]
2. Malayan Insurance vs. Arnaldo [154 SCRA 672]
2. Waiver of Insurer to Notice/Proof of Loss
a. Insurer recognizes liability
b. Insurer denies liability under policy
c. Failure to object [Section 90, I.C.]
d. Cases:
1. Pacific Timber vs. Yap, [112 SCRA 199]
2. Fernandez vs. National Life Insurance Company [105 Phil.
59]
3-c. Filing of fraudulent claim
1. Effect Operates to defeat recovery upon any part of the
policy [Tuason vs. North China Insurance Co., 47 Phil. 14]
2. Cases:
a. An honest overvaluation is not a fraudulent claim
[Carreron vs. Agcaoili, L-11156, 23 February 1961]
b. Claims more than 50% of actual loss is in bad faith and/or
fraudulent. Thus, the insured cannot recover [Tan It vs. Sun
Insurance, 51 Phil 212]
3-d. Suicide
1. Rules [Section 180-A, I.C.]
a. Insurer liable only after policy has been in force for a
period of two (2) years from date of issue or last
reinstatement unless policy provides a shorter period
b. Suicide in state of insanity is always compensable

2.

Exceptions The insurer is not liable if suicide

occurred within two (2) years after policy issuance
of policy or its last reinstatement
3-e. Grounds for cancellation of insurance contract may be
invoked to defeat recovery where the insurer failed to cancel
the contract prior to the commencement of an action thereon
by the insured [Argente vs. West Coast Life, 51 Phil. 725].
H. MARINE INSURANCE
1. Two Major Divisions of Transportation Insurance
1-a. Ocean Marine Insurance provides protection for
1. Ships or hulls
2. Goods or cargoes
3. Earnings such as freightage, passage, profits and
commissions [Sections 102, 105, I.C.]
4. Liability incurred by owner or any party interested in or
responsible for the insured property by reason of perils of
the sea
1-b. Inland Marine Insurance provides protection for
1. Property in transit
2. Bailees (persons having temporary custody of the
goods or property of others such as carriers,
warehouseman, laundrymen, keepers of garage)
liability
3. Fixed transportation property covering bridges,
tunnels and other instrumentalities of
transportation and communication
4. Floater insurance on property wherever they may
be located
2. Perils of the Sea
2-a. Principle: The insurer undertakes to insure against
perils of the sea, against perils of the ship. For perils of the
sea, the insured can hold the insurer liable. For perils of the
ship, the injured party must look to the shipowner for
redress.
2-b. Coverage
1. Unusual violence or extraordinary action of wind and
waves
2. Other extraordinary causes connected with navigation
2-c. Perils of the Ship loss in the ordinary course of events
resulting from
1. Natural and inevitable action of the sea
2. Wear and tear of the ship
3. Negligent failure of the shipowner to provide the
vessel with proper equipment to convey cargo
under ordinary conditions
3. Insurable Interest of:
3-a. Shipowner
1. General Rule: His insurable interest on the vessel is up to
the extent of its value [Section 100, I.C.]
2. Exceptions:
a. Loan on bottomry
1. Nature it is a loan secured by vessel payable only if the
vessel safely completed a contemplated voyage
2. Liability In case of loss of the vessel, the shipowner
receives no indemnity for loss but acquires immunity from
payment of the loan
3. Insurable Interests of Shipowner Excess of the value of
the vessel over the amount of bottomry loan [Section
101, I.C.]
b. Chartered vessels
1. Kinds of Charter Contracts
a. Affreightment use of the vessel only, either in whole or in
part, which may be: Time charter, that is, for a fixed period of
time or a Voyage charter, that is, for a particular voyage
b. Demise or Bareboat use of the whole vessel including
control over navigation and command of its master and crew
2. Insurable Interests The insurable Interest of the
shipowner on the:
a. Vessel to the extent of the loss which cannot be
recovered from the charterer
b. Freightage [Sections 102-103, I.C.]
3-b. Creditor or lender in bottomry Insurable interest is up
to the extent of the loan on bottomry

3-c. Charterer: His insurable interest on the

a. Vessel to the extent he is liable to be damnified by the
loss of the vessel [Section 106, I.C.]
b. Freightage
3-d. Cargo Owner over the cargoes and on expected profits
on his cargoes
a. When ship is prevented from completing voyage due to
peril insured against, liability of insurer continues after
cargoes are reshipped [Section 133, I.C.]
b. Insurer is liable for damages, expenses of discharging,
storage, reshipment, extra freight and other expenses in
saving cargo thus reshipped [Section 134, I.C.]
4. Concealment
4-a. Definition Failure to disclose any material fact or
circumstance which is within or ought to be within the
knowledge of one party and of which the other has no actual
or presumptive knowledge [Section 107, I.C.]
4-b. Broader Concept Insured is bound to communicate the
following:
1. Facts within his knowledge material to the contract or risk
[Section 28,I.C.]
2. Beliefs or opinions of third persons
3. Expectations of third persons [Section 108, I.C.]
4-c. Effects of Concealment
1. General Rule: Entitles insurer to rescind the contract
[Section 27, I.C.]
2. Exception: Merely exonerates insurer from loss resulting
from the risk concealed
a. National character of the insured
b. Liability of the thing insured to capture and detention
c. Liability to seizure from breach of foreign laws
d. Want of necessary documents
e. Use of false and simulated papers [Section
110, I.C.]
5. Representation
5-a. Definition Statements made to give information to the
insurer and otherwise induct him to enter into the contract
5-b. False Representation
1. Coverage
a. Material fact with fraudulent intent
b. Material fact with no intent to defraud
c. As to expectation with fraudulent intent [Section 112, I.C.]
2. Effect Entitles insurer to rescind the contract [Section
110, I.C.]
5-c. Distinguished with Misrepresentation as to other
Insurance Contracts 1. Coverage The insurer must show that the
representations of the insured must be material AND
fraudulent [Insular Life Assurance Co. vs. Pineda, 40 O.G.
285]
2. Effect Entitles insurer to rescind the contract [Section
45, I.C.]
6. Implied Warranties
6-a. Nature These are warranties which are implied from
the very nature of maritime venture. Thus, these would no
necessity to have them explicitly mentioned in the contract
6-b. Four implied warranties
1. Vessel is seaworthy
2. Carriage of documents showing nationality or neutrality
when the same are expressly warranted [Section 120, I.C.]
3. Non-deviation from agreed voyage
4. Non-engagement in illegal venture
6-c. Seaworthiness
1. Definition a Ship is seaworthy when it is reasonably fit to
perform the service, and to encounter the ordinary perils of
the voyage contemplated by the parties to the policy [Section
114, I.C.].
2. When seaworthiness exists
a. General Rule: At the commencement of the risk [Section
115, I.C.]
b. Exceptions:
1. Time Policy Vessel must be seaworthy at the
commencement of every voyage

2. Transshipment of Cargoes each vessel upon which the

cargo is shipped/transshipped must be seaworthy at the
commencement of each particular voyage
3. Voyage Policy that contemplates different stages, the
vessel must be seaworthy at the commencement of each
stage
3. Criteria in determining seaworthiness
a. Nature of Vessel must be fit as to repair, equipment,
crew, cargoes and other respects to perform the voyage and
encounter the ordinary perils of the sea
b. Nature of Voyage
c. Nature of Service reasonably capable of safely carrying
the cargo to its port of destination
d. Cases:
1. Madrigal, Tiangco & Company vs. Hanson, Orth &
Stevenson, Inc., 103 Phil. 345
2. Roque vs. Intermediate Appellate Court, 139 SCRA 596
4. Scope of Implied Warranty
a. Seaworthiness must exist at the time of the
commencement of the risk
b. There is no implied warranty that vessel will remain
seaworthy throughout the voyage
c. If it becomes unseaworthy during the voyage, it is the duty
of the master to exercise diligence to make it seaworthy
again through avoidance of unnecessary delay in the repair
of the defects [Section 118,I.C.]
d. A ship may be seaworthy for purposes of insurance on the
ship but may be unseaworthy for purposes of insurance
upon the cargo [Section 119,I.C.]. In this case, the insurer of
the cargo is not liable [Go Tiaco vs. Union Society of Canton,
40 Phil. 40].
5. Effects of Unseaworthiness
a. At Commencement of the risk insurer is exonerated from
any liability arising from violation of the implied warranty
b. During the voyage and there is unreasonable delay in the
repair only the insurer on ship or shipowners interest are
exonerated from liability from any loss arising therefrom
[Ibid]
6-d. Voyage and Deviation
1. Course of Voyage
a. In conformity to the course of sailing fixed by mercantile
usage [Section 121, I.C.]
b. If no fixed mercantile usage, the most natural, direct and
advantageous way according to the ordinary skill and
discretion of the master of the vessel [Section 122, I.C.]
2. Deviation
a. Defined any unexcused departure from the regular
course or route of the insured voyage or any other act which
substantially alters the risk
b. How Deviation Made
1. Departure from the course of sailing fixed by mercantile
usage [Section 121, I.C.]
2. Departure from the most natural, direct and advantageous
route if the course of sailing is not fixed by mercantile usage
[Section 122, I.C.]
3. Unreasonable delay in pursuing the voyage [Section
123, I.C.]
4. Commencement of an entirely different voyage [Ibid]
c. Classification of Deviation as to its Cause or Purpose
1. Proper deviation
a. Caused by circumstances over which neither the master
nor the shipowner has any control;
b. Necessary to comply with a warranty, to avoid peril,
whether or not such peril is insured against;
c. Made in good faith and upon reasonable grounds of belief
in its necessity to avoid a peril;
d. Made in good faith for the purpose of saving human life or
relieving another vessel in distress [Section 124, I.C.]
2. Improve deviation all other deviations not
specified above [Section 125, I.C.]
d. Effect of Improper Deviation Insurer is not liable for any
loss happening to the thing insured subsequent to an
improper deviation [Section 126, I.C.]

7. Loss
7-a. A thing is lost
1. When it perishes
2. Goes out of commercial
3. Disappears in such away that its existence is
unknown or cannot be recovered [Art. 1189, Civil
Code]
7-b. Classification of Losses
1. Total Loss, which may either be:
a. Actual loss
b. Constructive Loss
2. Partial Loss one which is not total [Section 129, I.C.]
7-c. Actual Loss
1. Nature Exists when the subject matter of the insurance is
wholly destroyed, lost or when it is so damaged as no longer
to exist in its original character. Complete physical
destruction is not necessary to constitute actual total loss.
2. Presumption a vessel not heard of at all within a
reasonable time after sailing or after last seen is presumed
actual loss [Section 132, I.C.]
3. Causes of actual total loss
a. Total destruction of the thing insured;
b. Irretrievable loss of the thing by sinking or by being
broken up;
c. Damage to the thing that renders it
valueless to the owner for the purpose for
which he held it;
d. Any event which effectively deprives the
owner of the possession of the thing insured
at the port of destination [Section 130, I.C.]
4. Effect Insurer is liable for the whole of the amount
insured even without notice of abandonment
[Section 135, I.C.]
5. Cases:
a. PMC vs. Union Insurance Society of Canton, 42 Phil. 378
b. Pan Malayan Insurance Corporation vs. FAO, 201 SCRA
382
7-d. Constructive Total Loss
1. Nature One in which the loss, although not actually total,
is of such a character that the insured is entitled, if he thinks
fit, to treat it as a total loss by abandonment [Section 131 in
relation to Section 139, I.C.].
2. Principles
a. There is only a constructive total loss if there is
abandonment.
b. If there is constructive total loss without abandonment,
loss is treated as partial loss only [Section 155, I.C.] EXCEPT
when the insurer pays for an actual total loss [Section
147, I.C.]
c. Freightage cannot be abandoned unless the vessel is also
abandoned.
3. Grounds of Constructive Total Loss a. More than in value is actually loss or would have to be
expended to recover it from the peril
b. At least in value is reduced
c. Contemplated voyage of vessel cannot be lawfully
performed without incurring either an expense of more than
value of the thing insured or a risk a prudent man would
not take under the circumstances
d. Cargo cannot be forwarded without incurring either an
expense of more than of its value or a risk a prudent man
would not take under the circumstances [Section 139, I.C.]
4. Abandonment
a. Defined 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 [Section 138 I.C.]
b. Requisites
1. Constructive total loss [Section 139, I.C.]
2. Actual relinquishment by insured of thing insured to the
insurer [Section 138, I.C.]
3. Absolute, that is, not partial nor conditional [Section
140, I.C.]

4. Within a reasonable time after reliable information of the

loss [Section 141, I.C.]
5. Basis of abandonment is factual; otherwise, it is ineffectual
[Sections 142 and 145, I.C.]
6. Notice of abandonment to the insurer, either oral or
written. In case of oral notice, written notice must be given
within 7 days from such oral notice [Section 143, I.C.]
7. Notice of abandonment must be explicit specifying the
particular cause [Section 144, I.C.]
c. Effects
1. Interest of the insured on the subject matter of insurance
is transferred to the insurer who becomes entitled to all the
rights which the insured possessed in the property insured
[Section 146, I.C.]
2. Agents of the insured become the agents of the insurer, the
latter becoming responsible for all their in connection with
the insured property and for all the expenses and liabilities
in respect thereto [Section 148,I.C.]
3. Insurer becomes liable as if there was an actual total loss
5. Acceptance of Abandonment
a. How Made
1. Express, which may either oral or written
2. Implied from the conduct of insurer such as silence
for an unreasonable length of time from notice
[Section 150, I.C.]
b. Effects
1. Conclusive upon the parties
2. Irrevocable unless the ground upon which the
abandonment is made proves to be unfounded [Section
152, I.C.]
3. If abandonment is properly made, acceptance of
insurer is not necessary. Rights of insured cannot be
prejudiced by refusal of insurer to accept [Section
149, I.C.]
6. Cases
a. Oriental Assurance Corporation vs. Court of Appeals, 200
SCRA 459
b.
7-e. Average
1. Defined Any extraordinary or accidental expense
incurred during the voyage for the preservation of the vessel,
cargo or both
2. Kinds of Averages
a. Gross or General include damages and expenses which
are deliberately caused by the master of the vessel or upon
his authority in order to save the vessel, cargo or both from a
real and known risk
b. Simple or Particular include 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 cargo
3. Liability for Averages
a. Gross or General loss is borne equally by all the interests
concerned in the venture [Section 136, I.C.]. Principle:
sacrifice some to save the rest.
1. Rule : Insurer is liable to insured with right to subrogation
[Section 165,I.C.]
2. Exceptions: Where insured waived or neglected his right
to contribution or after separation of the interest liable to
contribution [Ibid]
b. Simple or Particular
1. General Rule : Insurer is liable to the loss suffered by the
owner of the cargo or of the vessel, as the case may be
2. Exception : If the policy excepted simple or particular
average.
3. Exception to Exception: Insurer is liable to simple average
even if excluded by policy if the insured is deprived of
possession of property insured at the port of destination
[Section 136, I.C.]
4. Requisites of General Average
a. Common danger to vessel or cargo
b. Deliberate sacrifice of part of vessel or cargo
c. For common safety and benefit of all

d. Made by master or upon his authority

e. Not caused by party asking for contribution
f. Successful, that is, resulted in the saving of
the vessel and/or cargo and
g. Necessary [Jarque vs. Smith Bell and Company, 56 Phil.
758]
8. Measure of Indemnity
8-a. Kinds of Marine Insurance Policies
1. Valued Policy Value of the property insured is
determined at the time the insurance is taken
a. Rules:
1. Valuation in the policy is conclusive upon the parties
2. Exception : Insurer may show real value if the thing
insured was hypothecated by bottomry or respondentia
before it was insured without the knowledge of the person
who procured the insurance [Section 156,I.C.]
b. Total Loss
1. Valuation in policy is basis of recovery by the insured
2. In loss of profits, loss is conclusively presumed from loss
of the property of which the profits are expected to arise
[Section 160, I.C.]
3. In loss of cargo, valuation is followed except where only
part of the cargo or freightage is exposed to peril, the
valuation applies only in proportion to such part [Section
159, I.C.]
c. Partial Loss
1. If a property is insured less than its value, the insured
becomes a reinsurer for the difference [Section 157, I.C.]
FORMULA: Partial Loss/Value of Property x Insurance
2. In loss of profits, recovery is based on the portion of such
profits as the value of the property lost bears to the value of
the whole property [Section 158, I.C.]
FORMULA: Value of Property lost/Value of the Whole
Property x Profits
2. Open Policy Value of property is left to be
ascertained at the time of loss
a. Rules in Valuation in Case of Total Loss
[Section 161, I.C.]:
1. Value of ship is its value at the beginning of the risk
including articles or charges adding to its permanent value
or necessary to prepare it for voyage plus the insurance
2. Value of cargo is its actual cost to the insured when loaded,
in the absence, the FMV thereof, plus the insurance in both
cases
3. Value of freightage is the gross freightage exclusive of
primage, plus insurance
b. In case of partial loss
1. If a property is insured less than its value, the insured
becomes a reinsurer for the difference [Section 162, I.C.]
FORMULA: Loss In Value/Value before Loss x Insurance
2. In case of general average, liability of insurer is limited to
the proportion which the general average bears to the ratio
of the insurance over the total value of properties insured
[Section 165, I.C.]
FORMULA: Insurance/total value of Properties covered by
Insurance x value of property lost thru general average
3. Vessel
a. Anchors full liability of the insurer
b. Cost of the old materials is deducted towards the cost of
the new materials. Insurer is liable for only 2/3 of the
remaining cost of repairs after such deduction [Section
166, I.C.]
I. FIRE INSURANCE
I. Definition Contract of indemnity by which the insurer
agrees to indemnify the insured against loss or damage
arising from fire.
2. Extended Coverage
2-a. When Applicable applies when explicitly extended by
policy
2-b. Scope of Extension
1. Lightning, windstorm, tornado, earthquake and other risks
[Section 167,I.C.]

2. Not only to direct, but also to indirect and consequential

losses like:
a. Physical damage caused to other property which is not
covered by the basic insurance policy
b. Loss of earnings due to interruption of business due to
damage to property insured
c. Extra expense or additional charges incurred by the
insured following the damage or destruction of property
insured
3. Alterations
3-a. Kinds of Alteration
1. Alteration Entitling Insurer to Rescind Contract
[Section 168, I.C.]
a. Use or condition of thing is specifically
limited or stipulated in policy.
b. Use or condition is altered
c. Alteration is without consent of insurer
d. Alteration is made by means within the
control of the insured
e. Alteration increases the risk
2. Alteration Not Affecting Insurance [Section 169, I.C.]
a. Alteration not affecting the risk
b. Alteration not limited or specified in the
policy [Section 170,I.C.]
c. Alteration with the consent of the insurer,
there being novation
d. Alteration beyond the control of the insured
3-b. Measure of Indemnity
1. Valued Policy
a. Valuation of property at the time insurance is taken is
conclusive to the parties [Section 171, I.C.]
b. If property is insured for less than its value, there is no coinsurance unless provided in the policy
2. Open Policy Valuation of property is made at the time of
loss which is the cost to replace the property insured in the
condition immediately preceding the peril insured against
[Ibid]
3-c. Other Considerations
1. Clauses Common to Fire Insurance
a. Co-insurance clause
b. Option to Rebuild clause
2. Limitations to Transfer
a. Applies to pledge, hypothecation or other transfer of fire
insurance policy or rights thereunder
b. In favor of any person or company acting as agent or
otherwise representing the insurer in so far as it affects the
creditors of the insured [Section 173, I.C.]
3. Kinds of Fire
a. Friendly fire
b. Hostile or enemy fire
3-c. Cases
1. Galian vs. State Assurance Company, 29 Phil. 413
2. General Insurance vs. Ng Hua, 106 Phil. 117
J. CASUALTY INSURANCE
I. Definition Includes all forms of insurance against loss or
liability arising from accident or mishap which are not
within the scope of other types of insurance, namely: marine,
fire, suretyship and life [Section 174,I.C.]
2. Terminologies
2-a. Accident or mishap means an event that takes place
without ones foresight or expectation. It proceeds from an
unknown cause, or an unusual effect of a known cause, and
therefore not expected.
2-b. Liability is the financial responsibility of one party to
another as a consequence of doing or failing to do something.
This may arise from negligence or a contractual obligation.
3. Two (2) General Divisions of Casualty Insurance
3-a. Loss/Damage Insurance insurance against specified
perils which may bring about loss or damage to the person of
the insured or to his property like:
1. Personal accident
2. Motor vehicle loss or damage

3-b. Liability Insurance insurance against specified perils

which may give rise to liability on the part of the insured for
claims for injuries to others or damage to their property such
as Employees Compensation and Motor vehicle liability.
4. Insurable Liability those arising from commission of
quasi-delict and contractual obligation are insurable. If
liability arises from a crime, qualify:
4-a. If commission is accidental, covered.
4-b. If deliberate, not covered.
5. Cases:
5-a. Villacorta vs. Insurance Commissioner, 100 SCRA 470
[Authorized Driver Clause vs. Theft]
5-b. Association of Baptists vs. Fieldmans Insurnace Co., 124
SCRA 618 [Theft and Necessity of Conviction]
5-c. Stokes vs. Malayan Insurance Company, 124 SCRA 766
[Drivers License of Aliens]
5-d. Palermo vs. Pyramid Insurance Company, 161 SCRA 677
[Applicability of Authorized Driver Clause]
5-e. CCC Insurance Corporation vs. Court of Appeals, 31 SCRA
264 [Presumption on License]
5-f. Pan Malayan Insurance Corporation vs. Court of Appeals ,
184 SCRA 54 [Subrogation]
5-g. Filipino Merchants Insurance Company vs. Court of
Appeals, 179 SCRA 638 [Burden of Proof on All Risks
Clause]
5-h. Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554 [Negligence Resulting to Death]
5-i. Finman General Assurance Corporation vs. Court of
Appeals, 213 SCRA 493 [Death due to Stabbing]
K. SURETYSHIP
1. Definition agreement whereby a party called the
surety guarantees the performance by another
called the principal or obligator, of an obligation or
undertaking in favor of a third person called the
obligee [Section 175, I.C.]
2. Nature of Liability liability is joint and several. This
means that upon default of the obligor in complying
with his obligation, the surety becomes primarily
liable to the obligee who has the right to demand
payment under the terms and conditions agreed
upon [Ibid, see also Art. 2047-2084, 12071222, Civil Code].
3. Rules on Premiums
3-a. Contract of suretyship not valid and binding unless and
until payment of the premium.
3-b. Premium becomes a debt as soon as the contract of
suretyship or bond is perfected and delivered to the obligor.
3-c. Where contract of suretyship or bond was accepted by
obligee, it is valid even if premium has not been paid.
3-d. Where contract of suretyship or bond was not accepted
by obligee, the surety shall collect only a reasonable amount
of premium, except where such non-acceptance is due to the
fault of surety, no service fee, stamps and taxes may be
collected.
3-e. In continuing bond, either for a term exceeding one year
or with no fixed expiration date, obligor shall pay annual
premium as it falls due until the contract is cancelled
[Section 177, I.C.]
L. LIFE INSURANCE
1. Definition
1-a. Insurance on human lives and insurance appertaining
thereto or connected therewith [Section 179, I.C.]
1-b. Mutual agreement by which a party agrees to pay a
given sum on the happening of a particular event contingent
on the duration of human life, in consideration of the
payment of a smaller sum immediately or on periodical
payments by the other party.
1-c. Essentially, it is a contract to make specific payments
upon the death of a person whose life is insured.
2. When Payable
2-a. Upon the death of a person
2-b. Upon the survival of the insured during a specified
period

2-c. Contingently, on the cessation of life or on the

continuance of life [Section 180, I.C.]
3. Parties to Life Insurance
3-a. Owner of Policy who
1. Has the power to name or change beneficiary, if
designation is not irrevocable. Otherwise, the consent of
beneficiary irrevocably designated is required.
2. Has the power to assign policy
3. Has the obligation to pay premiums
3-b. Person whose life is subject of policy, also known as
the Cestui Que Vie
3-c. Beneficiary, to whom the proceeds are payable.
However, the policy upon life or health may pass by transfer,
will or succession to any person and such person may
recover upon it whatever the insured might have recovered
[Section 182, I.C.]
4. Types of Insurance Policy
4-a. Ordinary Life Policy one in which the insured is
required to pay a certain fixed premium annually or at more
frequent intervals throughout the life of the insured and the
beneficiary is entitled to proceeds thereof upon death of the
insured.
4-b. Limited Payment Life Policy premium is payable only
during a limited period, after which the insurance is fully
paid for. If insured dies within the specified period, his
beneficiary collections.
4-c. Term Insurance Policy one which provides coverage
only if the insured dies during a limited period. If insured
dies within the period specified, policy is paid to beneficiary.
If insured survives within such period, contract is
terminated.
4-d. Endowment Policy the insurer binds himself to pay a
fixed sum to the insured if he survives for a specified period,
or if he dies within such period, to some other person
indicated.
4-e. Life Annuity contract whereby the insurer binds
himself to pay an annual pension or income during the life of
one or more determinate persons in consideration of a
capital consisting of money or other property, whose
ownership is transferred to him at once with the burden of
the income.
5. Cases:
5-a. Biagtan vs. Insular Life Assurance Company, 44 SCRA 58
[Accidental Benefit Clause]
5-b. Kanapi vs. Insular Life Assurance Company, 94 Phil. 397
[Double Indemnity Clause]
5-c. Calano vs. Court of Appeals, 98 Phil. 79 [Military and
Naval Service Clause]
5-d. Abella Vda. De Diaz vs. Asia Life Insurance Company, 48
OG 4435 [Exemption from Execution]
5-e. Nario vs. Philamlife, 20 SCRA 434
5-f. Bank of the Philippine Islands vs. Posadas, 56 Phil. 215
[Refund of Premium]
5-g. Del Val vs. Del Val, 29 Phil. 234 [Entitlement to the
Insurance Proceeds]
6. Suicide
6-a. When Insurer Liable
1. If policy is silent, insurer is liable if policy has been in force
for a period of two years from issuance or last reinstatement
2. If policy provides for shorter period, such provision
applies
3. Regardless of the period, if committed during state of
insanity
6-b. When Insurer Not Liable
1. Suicide committed during the period of sanity, provided, it
is within the two (2) year period from issuance of policy or
its last reinstatement, if policy does not provide for a shorter
period
2. Suicide committed during the period of sanity and within a
period not exceeding two (2) years as specified in the policy
PREPARED/SUMMARIZED BY:
ATTY. HENRY C. FILOTEO, CPA