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INSURANCE CODE

(PD 1460)

Who is the officer in charged with the implementation

of laws of the Insurance Code?
The officer-in-charge is the Insurance
Commissioner of the Insurance Commission
What are the Administrative functions of the Insurance
Commissioner?
The Commissioner has the following functions:
A. Administrative function (CRISPFe)
1. To issue Certificate of authority to qualified
insurers
2. To Regulate the sale and issuance of variable
contracts, to license persons selling them and to
issue rules and regulations governing the same
3. To Issue rulings, instructions circulars, orders and
decisions for the enforcement of the provisions of
the code subject to approval of the Secretary of
Finance.
4. To stop the operation of an insolvent insurance
company and determine within 30 days whether
to rehabilitate or liquidate the company.
5. To impose appropriate fines and Penalties on
insurance companies and on their officers and
agents for refusal to comply with any order,
instruction of the Commissioner , or for
mismanagement
6. To see that all insurance laws are Faithfully
executed
B. Adjudicative function (Jurisdiction)
The Commissioner has the power to adjudicate claims and
complaints for amounts not exceeding P100k per claim
involving:
1. Loss, damage or liability of insurer under any
policy or insurance contract
2. Liability of a reinsurer
3. Liability under the contract of suretyship
4. Liability of a mutual benefit association to its
members
5. Counterclaims against the insured
6. Cross-claims against a co-party
7. Third party claims by the insurer against another
party.
This authority is concurrent with the courts, but
filing of the complaint with the Commissioner
shall preclude the civil courts from taking
cognizance.
The final order or decision of the Commissioner
shall have the force and effect of a judgment, and
may be appealed to the Court of Appeals within
15 days from notice of the award judgment, or of
denial of motion for reconsideration or new trial.

The decision may be subject of a writ of

execution
Claims in excess of P100k RTC
Cause of action commences from the time of the
denial of his claim by the insurer, express or
implied (Sun vs. CA 195 SCRA 193)

What is a Contract of Insurance?

"Contract of Insurance" is:
an agreement
whereby one undertakes for a consideration to
indemnify another
against (1) loss, (2) damage or (3) liability
arising from an (1) unknown or (2) contingent event.

What does the doing/transacting insurance business

mean?
"Doing an insurance business" or "transacting an insurance
business" shall include (RISO)
(a) doing any kind of business, including a Reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of
this Code;
(b) making or proposing to make, as insurer, any
Insurance contract;
(c) making or proposing to make, as surety, any contract
of Suretyship as a vocation and not as merely
incidental to any other legitimate business or activity
of the surety;
(d) Others - doing or proposing to do any business in
substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this
Code.
The fact that no profit is derived from the
making of insurance contracts, agreements
or transactions or that no separate or
direct consideration is received therefor,
shall not be deemed conclusive to show
that the making thereof does not
constitute the doing or transacting of an
insurance business.

What are the Characteristics of an Insurance Contract?

(C3UVAP2)
1. Consensual perfected by the meeting of minds
2. Conditional subject to conditions happening of the
event insured against and/or other conditions like
payment of premium
3. Contract of Indemnity promise of insurer to make
good a loss
4. Unilateral impose legal duties only on the insurer
who promises to indemnify in case of loss
5. Voluntary willingness of the parties
Note However that under the Motor Vehicle
Insurance, Third Party Liability Insurance is
mandatory for vehicle registration

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6.
7.

8.

Aleatory depends on some contingent event

Personal it binds only the parties to it and their
assignees
Note Stipulations pour autrui or a provision
in favor of a third person not a party to the
contract. Under this doctrine, a third person
is allowed to avail himself of a benefit
granted to him by the terms of the contract,
provided that the contracting parties have
clearly and deliberately conferred a favor
upon such person
Contract of perfect good faith for both parties
(uberrimae fidei)

What are the classes of Insurance?

1. Life Insurance
2. Non-life Insurance
a. Fire Insurance
b. Marine Insurance
c. Casualty Insurance
d. Suretyship

What are the Elements of Contract of Insurance

1. Insurable interest of the insured interest of some
kind susceptible of pecuniary or monetary estimation
2. Insured subject to loss through the destruction or
impairment of that interest by the happening of
designated perils
3. Insurer assumes the risk of loss
-Such assumption is part of a general scheme to
distribute actual losses among a large group of
persons bearing somewhat similar risk
4. Payment of premium ratable contribution to a
general insurance fund as consideration to the
insurers promise

What are the Requisites of contract of Insurance

1. Subject matter in which the Insured has an insurable
interest
2. Peril Insured against contingent or unknown event,
past or future and a duration for the risk thereof
3. A promise to damnify in a fixed or ascertainable
amount
4. Payment of premium
5. Meeting of minds of the parties
Note: No policy of insurance shall be issued
or delivered unless in the form previously
approved by the Insurance Commissioner.

What may be insured against?

1. A Future Contingent Event resulting in loss or
damages
e.g. destruction of a building from fire in Fire
Insurance or the death of the insured in a Life
Insurance policy
Note that the word Loss embraces injury or
damage. A loss may be partial or total

2.

3.

1.
2.
3.

A Past Unknown Event resulting in loss or damage

This is best exemplified in a Marine Insurance
where at the time the policy is executed, the
vessel subject of the insurance may have already
sunk, but that fact was unknown to the parties at
the time of the execution of the policy
Contingent Liability
This is best illustrated in Reinsurance where the
liability of the insurer is in turn insured by him
with a second insurer.
Note that Drawing of any lottery, or for/against any
chance or ticket in a lottery drawing a prize may not
be insured. A contract of insurance is a contract of
indemnity and not a wagering or gambling contract
Who are the parties to an Insurance Contract
Insurer
The Insured
Beneficiary
Insurer is the person, natural or juridical, who holds a
certificate of authority from the Insurance Commissioner
and who undertakes to indemnify another by a contract
of insurance
o Banks cannot be insurers
o Paid-up capital requirement for
insurance companies
P2M and a contributed
surplus of
P1M
for
life
insurance
P500k for non-life
insurance
P5M in case of reinsurance
co.
o For
Insurance
Cooperative,
recommendation from the Cooperative
Development Authority is required
o An Insurance agent should perform the
function for a compensation
Insured
Generally, any person with capacity to contract and
having an insurable interest in the life and property
insured may be the insured
A married woman may take insurance on her life or
on that of her children without need of her husbands
consent
A public enemy cannot be insured.
Public enemy means any citizen or juridical entity of
the country with which the Philippines may be at war
Effects of War on Insurance Contracts
1. War prevents an insurance contract from
being entered into between citizens and
juridical entities of the warring states

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2.

For existing insurance contracts, the rules

are:
a. Property Insurance war abrogates
the contract (Kentucky Rule)
b. Life Insurance war terminates the
policy, but the insured is entitled to
the equitable value of the policy
arising from the premiums actually
paid, when commercial relations are
resumed (U.S. Rule)

I. BENEFICIARY
The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the
policy

Beneficiary
The beneficiary is the person designated to receive
the proceeds of the policy when the risk attaches.
He may be the (1) insured himself in the property
insurance or (2) the insured or (3)a third person in life
insurance
The father or mother of a minor who is an insured or
beneficiary of a life policy, may exercise, for said
minor, all rights under the policy up to P20k without
the need of a court authority or a bond (sec 180)

A. Beneficiary of one who insures his own life

As a general rule, the insured who insures
own life may designate any person, including
estate as his beneficiary, whether or not
beneficiary has an insurable interest in the life of
insured

his
his
the
the

The Insured has the right to change the

designation of the beneficiary, unless he has
expressly designated an irrevocable beneficiary in his
policy

What are the effects if the designation of

beneficiary is irrevocable
The insured cannot
1. Assign the policy
2. Take the cash surrender value
3. Allow his creditors to attach or execute on the
policy
4. Add a new beneficiary or
5. Change the irrevocable designation to
revocable, even though the change is just and
reasonable
Ratio: The irrevocability of the designated
beneficiary and his heirs have acquired from the date of the

policy vested rights over the policy (Philam vs. Pineda 175
SCRA 201)

As a general rule: the proceeds of a life insurance

policy belong to the designated beneficiary to the
exclusion of the heirs of the insured (Picar vs GSIS 33
SCRA 324)
Exception: Persons Disqualified as Beneficiaries
A beneficiary in life insurance is like a donee, hence,
the civil code provision on the disqualifications of a
donee shall apply. Donations made between the
following persons are void
1. Donation between persons guilty of adultery
or concubinage
2. Donations between persons found guilty of
the same criminal offense, in consideration
thereof
3. Donations made to a public officer or his
wife, descendants and ascendants, by
reason of his office.
When does the interest of the beneficiary forfeited
The interest of the beneficiary in a life insurance policy
shall be forfeited when the beneficiary is the Principal,
Accomplice, or accessory in willfully bringing about the
death of the insured
In this event, he nearest relative of the
insured shall receive the proceeds of said
insurance if not otherwise disqualified
The nearest relatives of the insured in the
order of enumeration are the following:
1. Legitimate children
2. Parents
3. Grandparents illegitimate children
4. Surviving spouse
5. Brothers and sisters of the full blood
6. Brothers and sisters of the half blood
7. Nephews and nieces.
NOTES:
(a) Where a specified person is beneficiary, the
proceeds will inure to the beneficiary.
Q: A took out a life insurance policy and
designated his wife, B, as the sole beneficiary.
All the premiums of the policy were paid out from
his salaries. A died intestate leaving B and 3
children. Divide the proceeds of the policy (1961
Bar)
A: All of the proceeds of the policy will go to the
designated policy, B. The source of the premium
here is immaterial (Miravite, 2002ed., p200)
(b) If the premiums are paid from (1) salaries of the
insured or (2) other conjugal properties or funds,
and the beneficiary is the estate of the insured,
the proceeds of the life insurance policy is
considered conjugal.
B. Beneficiary of Life Insurance on the life of another
person.

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Where a policy is taken by a third person on the
life of the insured, and said third person designates
himself as the beneficiary, the third person must have
an insurable interest on the life of the insured, at the
time the policy became effective.
C. Beneficiary of Property Insurance
The beneficiary of the property insurance must have
an insurable interest over the subject matter of the
insurance existing at the time the policy was taken
and at the time the loss took place
II. INSURABLE INTEREST
What is insurable Interest as referred in the Code?
Insurable interest is a right or relationship
In regard to the subject matter of the insurance
Such that the insured will derive
1. pecuniary benefit or advantage from its
preservation and
2. will suffer pecuniary loss or damage
from its destruction or injury
- by the happening of the event insured against
A . Insurable Interest in Life
Define Insurable Interest in Life?
Insurable interest in life is the interest which a person has
1. In his life or
2. In the lives of other persons
a. Of his spouse and of his children
b. On whom he depends wholly or in part for
education or support (Wife insuring Husbands
life)
c. Under legal obligation to him to pay money, to
deliver property or to render service (Creditor
insuring the life of its Debtor)
d. Upon whose file any estate or interest vested
upon him. (Legatee of a usufruct insuring the life
of the usufructuary)
A corporation has an insurable interest in
the lives of its officers when the death or
illness of said officers would materially and
injuriously affect the corporation.
The corporation and the heirs of the
manager can insure the life of the managerdecedent in agreed proportion, since both
have insurable interest over the life of the
latter
When Insurable Interest should exist?
It must exist at the time the insurance is taken.
B. Insurable Interest in property

Rule: No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having
insurable interest in the property insured
Insurable interest
Life insurance
Property Insurance
Insurable interest must exist Insurable interest must exist at
only at the time the policy is the time the policy is taken and
taken
at the time the loss occurs
The beneficiary need not have The beneficiary must have an
an insurable interest on the insurable interest in the
insureds life
property insured
There is no limit to the amount Insurable interest is limited to
of insurable interest
the actual value of the interest
in the property

What is considered as an insurable interest in

property?
Insurable interest in property is every interest in property
whether real or personal, or any relation thereto, or liability in
respect thereof, of such a nature that the contemplated peril
might directly cause damage to the insured

What does insurable interest in property consist of

An insurable interest in property consist of
1. An existing interest
2. An inchoate interest founded on an existing interest
3. An expectance coupled with an existing interest in that
out of which the expectance arises

Examples of an insurable inchoate right in the property

1. Contractors interest to the completed building for
unpaid construction cost
2. Lessors interest on the improvements made by the
lessee
3. Naked owners interest over the property which
another person has beneficial title
Note: A mere contingent or expectant interest in anything,
not founded on an actual right to the thing, nor upon any
valid contract for it, is not insurable (e.g. property which
one expects to inherit or that of a general or unsecured
creditor insuring the property of his debtor who is alive
even though destruction of such property would render
worthless any judgment he might obtain note further in
the latter case, the creditor can insure the property of a
deceased debtor since all personal liability ceases with the
death of the debtor. The proceedings to subject the estate
to the payment of the debt of the deceased are against all
who have an interest in the property. Of course, an
unsecured creditor has an insurable interest in the life of
his debtor )
The vendee-consignee of goods in transit under a perfected
contract of sale is vested with an equitable title to the goods
even before receipt by him of the goods to constitute an

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insurable interest in the property (Fil Merchants vs CA 179
SCRA 638)
d.
A carrier or depositary of any kind has an insurable interest in a
thing held by him as such, to the extent of his liability but not
exceed the value thereof.

To what extent is the insurable interest of a mortgagor

in a mortgaged property? Of a mortgagee?
a. The mortgagor has an insurable interest on his property
as owner up to the full value of his property, irrespective
of any mortgage on said property in general.
b. The insurable interest of a mortgagee is up to the extent
of his credit.

What is the effect If the mortgagor assigns the policy

to the mortgagee with the insurers consent, but the
latter imposes new conditions on the assignee?
If at the time of the assent, the insurer imposes further
obligations on the assignee making a new contract with
him, the act of the mortgagor cannot affect the rights of
said assignee.

Take note of the distinctions between the assignment or

transfer of:
a. The Policy itself which transfers the fights to the
contract to another insured
b. The proceeds of the policy after the loss has
happened , which involves a money claim under, or a
right of action on the policy
c. The subject matter of the insurance, such as a
house insured under a fire policy which has the effect
of suspending the insurance (infra)

When insurable interest should exist?

It must exist at the time the policy is taken and at the time
the loss incurred but it need not exist in the meantime

NOTE: Each may take separate insurances over the

same property up to the extent of their respective
insurable interests.
Where the mortgagee independently of the mortgagor
insured his own interest in the mortgaged property, he is
entitled to the proceeds of the policy in case of loss
before payment of the mortgage. But in such case, the
mortgagee is not allowed to retain his claim against the
mortgagor but it passes by subrogation to the insurer to
the extent of the insurance paid. In other words, the
payment of the insurance to the mortgagee does not
relieve the mortgagor from his principal obligation but
only changes the creditor.

Ratio: To prevent a person from taking out an insurance

policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of
the property. In such a case, the contract of insurance is a
mere wager which is void. (Cha vs CA 277 SCRA 690)

When is an insurance on the interest of the mortgagor

The insurance is on the mortgagors interest where the
mortgagor takes insurance on the property in his own right
making the loss payable to the mortgagee
How?
The mortgagor may:
i. Take insurance on the property, and assign the
same to the mortgagee (this operates merely as
an equitable transfer of the policy so as to enable
the assignee to recover the proceeds)
ii. Constitute the mortgagee as beneficiary as his
interest may appear
NOTE: In case of fire, marine and casualty insurance,
the assignment must be with the consent of the
insurer because it is a personal contract. (Note that
life insurance may be freely assigned before or after
loss occurs to any person whether he has an
insurable interest or not)

What are the effects of insurance taken on the interest

of thee mortgagor?
The effects are:
a. Mortgagor continues to be a party to the contract
b. Any act by the mortgagor prior to the loss which would
avoid the policy, will thus avoid the policy, even if the
property is in the hands of the mortgagee
c. Any act which under the contract of insurance is to be
performed by the mortgagor (e.g. payment of

premium) may be performed by the mortgagee with

the same effect, as if performed by the mortgagor.
In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit, consequently, the
debt is extinguished.

What is the effect of a change of interest on the thing

insured?
A change in the interest in any part of a thing insured
unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the
insurance are vested in the same person.
Note: Mere transfer of a thing insured does not transfer the
policy but suspends it until the same person becomes the
owner of both the policy and the thing insured. For a
transferee to have an insurable interest over a policy
undertaken by the transferor, the insurance policy should
be assigned to him, when he bought the property.
A change of interest in a thing insured, after the
occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for the
loss
A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance; and
his interest in the insurance passes to the person

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taking his interest in the thing insured. Otherwise
stated, the insurance on property passes
automatically, upon the death of the insured , to the
heir, legatee or devisee who acquires interest in the
thing insured.

In case of partial loss valued policy 6/10 of P8,000 or

P4,800- the amount in proportion to his loss and the
market value of the property as against the to face
value of the policy.

A transfer of interest by one of several partners, joint

owners etc. who are jointly insured, will not avoid the
insurance even though it has been agreed that the
insurance shall cease upon an alienation of the thing
insured.

III CONCEALMENT
What is Concealment?
Concealment is a neglect to communicate that which a party
knows and ought to communicate to the other party.

A change of interest where there are several things

separately insured by one policy, does not avoid the
insurance as to the others
Example: A insured his car for P100k and jeep
for P85k under the single policy, the sale of one
will not affect the insurance of the car.
BUT if the car and jeep were not separately
valued in the policy , the sale of the jeep without
the insurers consent affects also the insurance
of the car

What stipulations are prohibited in an insurance

policy?
1. Stipulations for the payment of loss whether the person
insured has or has not any interest in the subject matter
of the insurance
2. Stipulation that the policy shall be received as proof of
insurable interest.

What is the amount of insurance?

The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury thereof.

In cases where the property is insured for less than its

true or market value, what are the rules to be followed?
In case of total loss: The property owner is entitled to
receive the face value of the policy but in no case
exceeding the market value of the property.
In case of partial loss: The property owner is entitled
only the amount in proportion to his loss and the market
value of the property as against the to face value of the
policy. Ratio An owner of property who insures the same
for less that its true value is co-insurer for the uninsured
portion of the property if the policy is a valued one.
HOWEVER if the policy is an open one, the owner can
collect the actual partial loss not exceeding the face
value of the policy
Example:
X has a property worth P10,000. He insures it against fire
for P8,000. How much shall he collect from then
insurance in case of total loss? If there is Partial loss
in the amount of P6,000?
In case of total loss P 8,000 face value of the policy
In case of partial loss - open policy P6,000 the actual
partial loss not exceeding the face value of the policy

What are the requisites for concealment?

For concealment to vitiate a contract of insurance, the following
must be present
1. the matter concealed must be material
2. there must be an obligation for the insured to reveal
the concealed matter to the insurer

What matters must be communicated even in the

absence of inquiry?
Each party to a contract of insurance must communicate in good
faith all facts within his knowledge only when:
1. They are material to the contract
2. The other has not the means of ascertaining the said
facts
3. As to which the party with the duty to communicate
makes no warranty.
What is the test of materiality?
A fact is material if knowledge of it would have affected the
decision of the insurer to enter into the contract, in estimating
the risk, or in fixing the premium
Note:
Matters relating to the health of the insured are material
and relevant to the approval and issuance of the life
insurance policy as they definitely affect the insurers action
on the application (Sunlife vs CA 245 SCRA 268)
It is well-settled that the insured need not die of the disease
he had failed to disclose to the insurer, as it is sufficient
that his non-disclosure misled the insurer in forming his
estimates of the risk of proposed insurance policy or in
making inquiries (ibid)
Lack of understanding by the illiterate insured of the
statements and her application as to her state of good
health does not negate the insurers right to rescind (Tang
vs CA 90 SCRA 236)
Concealment exists where the assured had knowledge of a
fact material to the risk, and honesty, good faith, and fair
dealing requires that he should communicate it to the
assured, but he designedly and intentionally withholds the
same.

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a.
b.
c.
d.
e.

What are the matters which one has no duty to

disclose?
Neither party to a contract of insurance is bound to
communicate information of the matters following, except in
answer to the inquiries of the other:
1. Those which are already known to the insurer
2. Those which, in the exercise of ordinary care, are
ought to be known to the insurer or his agent,
3. Those undisclosed facts which are not material
4. Those which each party is bound to know:
- general causes eg. public events; and
- general usages of trade - eg. rules of
navigation all risks connected with navigation)
5. Information or the nature or amount of the interest of
one insured except if insured is a lessee or a
mortgagee (read sec 51)
6. Those of which the insurer waives communication
The right to information of material facts may
be waived, either:
a. Expressly by the terms of the insurance
b. Impliedly by neglect to make inquiry as to
such facts, where they are distinctly implied
in other facts of which information is
communicated (Fact disclosed that one was
confined in the hospital. The insurer did not
inquire as to the cause of confinement, the
latter is in estoppel)
7. Judgment upon the matters in question eg. Opinion,
speculation or expectation (How long will you live?)

What are the consequences of concealment?

The rule is concealment whether intentional or unintentional
entitles the injured party to rescind a contract of insurance.
However, an intentional and fraudulent omission, on the part
of one insured, to communicate information of matters proving
or tending to prove the falsity of a warranty is required to entitle
the insurer to rescind
Note: Good faith is no defense in concealment
(Sunlife vs CA 245 SCRA 268)
Exceptions:
1. Incontestability clause:
In life insurance, after a policy has been in force for at
least two years, the insurer cannot rescind the policy
due to fraudulent concealment or misrepresentation of
the insured.
If the insured dies within two years from the effectivity
of the policy, rescission due to concealment or
misrepresentation of material matters may still be
invoked by the insurer, provided done within two years
from the effectivity of the policy
2.

Certain concealments in Marine Insurance

The following matters although concealed will not
vitiate the contract of marine insurance except when
they are caused the loss.

National character of insured

Liability of insured thing to capture or detention
Liability to seizure from breach of foreign laws
Want of necessary documents
Use of false or simulated papers
IV REPRESENTATION

What is representation?
A representation is an oral or written statement of a fact or
condition made by the insured at the time of or prior to the
issuance of the policy, affecting the risk made by the insured to
the insurer, tending to induce the insurer to assume the risk

Distinguish Misrepresentation with Concealment

Misrepresentation
Concealment
Insured makes a statement of Insured maintains silence
fact which is untrue
when he ought to speak

What are the kinds of representation?

1. Oral
2. Written
3. Affirmative representation
4. Promissory representation

What is an affirmative representation?

It is any allegation as to the existence or non-existence of a fact
when the contract begins
What is a promissory representation?
It is any promise to be fulfilled after the contract has come into
existence or any statement concerning what is to happen during
the existence of the insurance. A promissory representation is
substantially a condition or a warranty.
A promissory representation maybe:
1. Used to indicate a parole or oral promise made in
connection with the insurance, but not incorporated in
the policy.
- the non-performance of such a promise cannot be
shown by the insurer in defense of an action on the
policy, but proof that the promise was made with
fraudulent intent will serve to defeat the insurance
2. As an undertaking by the insured, inserted in the
policy but not specifically made a warranty.

Distinguish Warranty and Representation

Warranty
Representation
It is part of contracts
It
is
mere
collateral
inducement, but it may qualify
an implied warranty
It is expressly set forth in the It may be oral or written in
policy itself or incorporated another instrument
therein by reference
It is conclusively presumed It must be proved to be material

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material
It must be strictly complied with

It requires only substantial truth

or compliance

When is representation made?

A representation may be made at the time of or before issuance
of the policy. It may be altered or withdrawn before issuance of
the policy, but not afterwards
Note:
A representation must be presumed to refer to the date on
which the contract goes into effect
Hence:
1. There is NO FALSE representation if it is true at the
time the contract takes effect although false at the
time it was made.
2. There is FALSE representation if it is true at the time
it was made but false at the time the contract takes
effect in this case the insurer is entitled to rescind

When is a representation deemed to be false?

A representation is deemed to be false when the facts fail
to correspond with its assertions or stipulations.
What is misrepresentation?
A misrepresentation in insurance is a statement:
1. As a fact of something which is untrue
2. Which the insured states with knowledge that it is
untrue and with intent to deceive, or which he states
positively as true without knowing it to be true and
which has the tendency to mislead
3. where such fact in either case is material to the risk
NOTE:
An insured who has no personal knowledge of a fact may
communicated such information which he has, and
believes it to be true, upon the subject matter with the
explanation that said information was obtained from 3 rd
persons. In this case he is not responsible if the
information turns out to be false.
Except if the information proceeds from an agent of the
insured whose duty is to give information to his principal.
This is so because knowledge of the agent is also
knowledge of the principal

What is the effect of false representation or

misrepresentation|?
If the representation is false on a material point, the injured
party is entitled to rescind from the time when the representation
becomes false.
HOWEVER, the right to rescind given to the insurer is waived by
the acceptance of premium payments despite knowledge of the
ground of rescission

What is the test of materiality?

Materiality is determined by the probable and reasonable

influence of the facts on the party to whom communication is
due, in forming his estimate of the contract, the risk and the
premium
NOTE:
When the original contract of insurance was modified by
reason of concealment or misrepresentation on the part of
the insured especially when modification pertains to
material points, upon discovery of such concealment or
misrepresentation, the insurer is allowed to rescind said
modification.
When is the right to rescind available?
In order that the insurer may rescind a contract of insurance,
such right must be exercised prior to the commencement of an
action on the contract. (Example, if the insured filed an action to
collect amount of the insurance, it can no longer rescind the
contract)
Incontestability clause
Incontestability means that after the requisites are shown to
exist, the insurer shall be estopped from contesting the policy or
setting up any defense, except when allowed on the ground of
public policy.
Requisites:
1. The policy is a life insurance policy
2. It is payable on the death of the insured
3. It has been in force during the lifetime of the insured
for at least 2 years from its date of issue or of its last
reinstatement
NOTE: The period of two years for contesting a life
insurance policy may be shortened but it cannot be
extended by stipulation
Effect when the policy becomes incontestable
When the policy of life insurance becomes incontestable, the
insurer may not refuse to pay the same by claiming that:
1. The policy is void ab initio (voidable)
2. It is rescissible by reason of the fraudulent
concealment of the insured or his agent or
3. It is rescissible by reason of the fraudulent
misrepresentations of the insured or by his agent
Defenses not barred by incontestable clause
The incontestability of a policy under the law is not absolute.
The insurer may still contest the policy on the following grounds:
1. That the person taking the insurance lacked insurable
interest as required by law;
2. The cause of the death of the insured is an excepted
risk;
3. That the premiums have not been paid
4. That the conditions of the policy relating to military or
naval service have been violated;
5. The fraud is of a particularly vicious type, as when the
policy was taken out in furtherance of a scheme to
murder the insured, or where the insured substitutes

6.
7.

another person for the medical examination or where

the beneficiary feloniously killed the insured;
The beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after
the loss has happened;
The action was not brought within the time specified.

V. WARRANTIES
What is a warranty?
A warranty is a statement or promise stated in the policy itself or
incorporated therein by reference, whereby the insured
expressly contracts as to the present or future existence or
certain facts, circumstances or conditions, the literal truth of
which is essential to the validity of the contract of insurance
What does warranty relate to?
It may relate to the past, the present, the future or to any or all of
these.

What are the kinds of warranties?

1. Affirmative warranty where the insured asserts the
existence of a matter at or before the issuance of the
policy
2. Promissory warranty where the insured promise or
undertakes that certain matters shall exist or will be
done or omitted after the policy takes effect
3. Express warranty where the assertion or promise is
clearly set forth in the policy or incorporated therein by
reference
4. Implied warranty where the assertion or promise is not
expressly set forth in the policy, but because of the
general tenor of the terms of the policy, or from the
very nature of the insurance contract, a warranty is
necessarily inferred or understood.

What is the required form to create a warranty?

There is no particular form or words necessary to create a
warranty. Whether a warranty is constituted or not depends
upon the intention of the parties, the nature of the contract or the
words used thereto. In case of doubt, the statement is
presumed to be a mere representation and not a warranty.

Note:
A statement in a policy, of a matter relating to the person or
thing insured, or to the risk as a fact is an express warranty. A
statement which is in the nature of an opinion or belief is not a
warranty
What is a promissory warranty?
It is a statement in a policy that a thing which is material to the
risk is intended to be done or not to be done after the policy
takes effect.
As a general rule: the non-performance of a promissory
warranty entitles the other party to rescind the contract:
Exceptions to the rule are:
1. Loss occurs before the time arrives for the
performance of the promissory warranty
2. Performance becomes unlawful before the time
arrives for the performance of the promissory warranty
3. Performance becomes impossible before the time
arrives for the performance of the promissory warranty

What happens when there is violation of material

warranty or to other material provisions of the policy?
All breaches of warranty give to the insurer the right to
rescind the contract. This rule is true even if the violation of the
material warranty did not contribute to the loss.
If fraud intervenes in the breach, the insurer is freed from
liability from the start, as the contract is fraud ab initio. The
insured is not entitled to the return of the premiums paid.
If there is no fraud in the breach, the insurer is freed from
the contract the moment the breach occurs, and is entitled
to retain the premiums corresponding to the period up to
the time of the breach. But if the breach was done at the
time of the inception of the policy, the insured cannot
recover for any loss arising thereafter, but all premiums
should be returned to the insured
VI. THE POLICY

When should an express warranty be made?

It should be made at or before the execution of a policy

Define Policy of Insurance.

A policy of insurance is the written instrument in which a
contract of insurance is set forth. It is the formal written
instrument evidencing the contract of insurance entered
between the insured and the insurer.

Where should an express warranty be contained?

Express warranty may be contained either:
1. In the policy itself
2. In another instrument signed by the insured and
referred to in the policy as making part of it. Mere
reference is not sufficient to give warranty.

What form is the policy be embodied?

The policy shall be in printed form which may contain blank
spaces on which words, numbers and other matters necessary
to complete the contract of insurance shall be written on.
However, group insurance and group-annuity policies may be
typewritten and need not be in printed form.

10
policy clearly show that the insurance was meant to cover also
the shares of the other partners.
What is a rider in a contract of insurance?
A rider is a printed or typed stipulation contained on a slip of
paper attached to the policy and forming an integral part of the
policy.

What is the effect of a rider, clause, warranty or

endorsement purporting to be a part of the contract
and pasted on the policy?
As a general rule, these attached papers become part of a
contract of insurance. However it will not bind the insured
unless it is properly referred to therein in the policy. If the rider,
etc. is issued after the original policy was in force, it shall not
bind the insured unless it is countersigned by the insured.

How are ambiguities in an insurance contract

construed?
Contract of insurance is a contract of adhesion, thus any
ambiguity therein should be resolved against the insurer,
otherwise stated, it should be construed liberally in favor of the
insured and against the insurer
In Cebu vs William 306 SCRA 762 the Supreme Court
held: although in this jurisdiction, contracts of adhesion
have been consistently upheld as valid per se as binding
as an ordinary contract, the court recognizes instances
when reliance on such contracts cannot be favored
especially where the facts and circumstances warrant
that subject stipulations be disregarded. The facts and
circumstances vis--vis the nature of the provision
sought to be enforced should be considered, bearing in
mind the principles of equity and fair play.

What are cover notes or interim policies?

Cover notes or interim policies or binding slips may be issued to
bind the parties temporarily pending the issue of the policy. It is
intended to give temporary protection pending the investigation
of the risk by the insurer or until the issue of formal policy.
These notes are good for 60 days only, unless renewed with the
written approval of the Insurance Commissioner
What are the contents of the policy?
A policy contains, among others the following
1. The parties
2. Amount of insurance (except in open or running
policies)
3. Rate of premium
4. The property or life insured
5. The interest of the insured in the property if he is not
the owner
6. Risk insured against
7. Duration of the insurance

In Rizal vs CA 336 SCRA 12, Supreme court said: it is

settled that the terms in an insurance policy, which are
ambiguous, equivocal, or uncertain are to be construed
strictly and most strongly against the insurer, and
liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the
insured, especially where forfeiture is involved, and the
reason for this is that the insured usually has no voice in
the selection or arrangement of the words employed and
that the language of the contract is selected with great
care and deliberation by experts and legal advisers
employed by and acting exclusively in the interest of the
insurance company.

What are the kinds/classes of policies in non-life

insurance?
1. Open or unvalued policy is one in which the value of
the thing insured is not agreed upon, but is left to be
ascertained in case of loss. In other words, it is one in
which a certain agreed sum is written on the face of
the policy not as the value of the property insured, but
as the maximum limit of recovery in case of
destruction the peril insured against.
2. Valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a
specified sum. In the absence of fraud or mistake,
such value will be paid in case of total loss of the
property, unless the insurance is for a lower amount.
3. Running policy is one which contemplates
successive insurances and which provides that the
subject of the policy may from time to time be defined

What are the requisites for a valid cancellation of nonlife insurance?

May an agent undertake a contract of insurance in

favor of its principal?
Yes. The agent or trustee when making an insurance contract
for and in behalf of his principal should indicate that he is merely
acting in a representative capacity by signing as such agent or
trustee, or by other general terms in the policy

May a partner in a partnership insure partnership

property?
Yes. Insurable interest in the property of a partnership exists in
both partnership and the partners and a partner has an
insurable interest in the firms property which will support a
policy taken out thereof for his own benefit

What extent does the contract of insurance cover

undertaken by a partner?
A partner who insures partnership property in his own name
limits the contract to his individual share unless the terms of the

11
1.
2.

Written prior notice to the insured, stating the facts

and
For any of the following grounds
a. Non-payment of premium
b. Conviction of a crime arising out of acts
increasing the hazard insured against
c. Discovery
of
fraud
or
material
misrepresentation
d. Discovery of willful or reckless acts or
omissions increasing the hazard insured
against
e. Physical changes in the property insured
which result in the property becoming
uninsurable
f. A determination by the commissioner that
the policy would violate the insurer
VII PREMIUM

Define premium.
Premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril

When is the insurer entitled to payment of the

premium?
As soon as the thing insured is exposed to the peril insured
against
What is the effect of the nonpayment of premium?
The policy or contract of insurance is not valid and binding.
Is this absolute?
No. The exceptions are the following:
1. Life and Industrial Life policy whenever the grace
period provision applies(sec 77)
2. Written acknowledgment of the receipt of premium by
insurer (sec 78)
3. Payment in installments of the premium and partial
payment made at the time of loss
4. Credit extension for the payment of premium
5. Estoppel reliance in good faith on the practice of the
insurance company
NOTES:
Grace period:
Life insurance 30 days or 1 month within which the payment of
any premium after the first may be made
Industrial life insurance -4 weeks and where the premiums are
payable monthly, either 30 days or 1 month
Written acknowledgment in a policy or contract of insurance of
the receipt or premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually
paid

Effect of nonpayment
1. Of First premium prevents the inception of the policy
2. Of subsequent premiums- it does not affect the validity
of the contract unless, by express stipulation, it is
provided that the policy shall in any event be
suspended or shall lapse.
When is the insured entitled to recover premiums?
The insured is entitled to a return of the whole premium:
1. If the thing insured was never exposed to the risk
insured against
2. When the contract is voidable due to the fraud or
misrepresentation of the insurer or his agent
3. When the contract is voidable because of the
existence of facts of which the insured is ignorant
without his fault
4. When the insurer never incurred any liability under the
policy because of the default of the insured other than
actual fraud
The insured is entitled to a ratable return of premium on the
following cases:
1. Where the insurance is made for a definite period of
time and the insured surrenders policy before
termination
2. Where there is over-insurance by several insurers
NOTES
Where the insurance is for a definite period of time and the
insured cancels his policy by surrendering the policy, the insured
is entitled to recover the premiums already paid equivalent to
the unexpired term at a pro rata rate
Exception to this rule:
a. Where the insurance is not for a definite period
b. Where the policy is a life policy
c. Where a short period rate has been agreed upon
Short period rate is that percentage, as agreed
upon by the parties and appearing on the face of
the policy, which the insurer shall retain from the
premium in the event that the policy is
surrendered by the insured for cancellation.
The premiums to be returned where there is over-insurance by
several insurers shall be proportioned to the amount by which
the aggregate sum insured in all the policies exceeds the value
of the thing
Example:
X insures his house which has an insurable value of
P1,500,000 as follows:
Insurer
Amt of Insurance
Premiums paid
A Co.
P 1,200,000
P 24,000
B. Co
600,000
12,000
Aggregate sum
P1,800,000.
In this case, there is an over insurance of P300,000, the
amount by which the aggregate sum insured in the two
policies exceeds the insurable value of the house. The
proportion is P300k to P1800k or 1/6. Hence, 1/6 of P24k

12
or P4k is what A co must return; and 1/6 of P12k or P2k is
what B co must return

IX. REINSURANCE
VIII DOUBLE INSURANCE
When does double insurance exists?
A double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and
interest
What are its requisites?
There is no double insurance unless the following requisites
exist:
1. The person insured is the same
2. Two or more insurers insuring separately
3. The subject matter is the same
4. The interest insured is also the same and
5. The risk or peril insured against is likewise the same

Distinguish Double Insurance from Over-insurance

Double Insurance
Over-Insurance
In double insurance, there may There is over-insurance when
be no over-insurance as when
the amount of the insurance is
the sum total of the amounts of beyond the value of the
the policies issued does not
insureds insurable interest
exceed the insurable interest of
the insured
There are always several
There may be only one insurer
insurers
involved
THEREFORE, double insurance and over-insurance may exist at
the same time or neither may exist at all

What is the binding effect of stipulation against double

insurance?
A policy which contains no stipulation against additional
insurance is not invalidated by the procuring of such insurance.
However, a stipulation that insurance shall be avoided if
additional insurance is procured without the insurers consent is
valid and reasonable, and any breach thereof will prevent a
recovery on the policy

What are the effects of Double insurance?

The insured can insure with two or more companies
unless prohibited by prior policy
Where he is allowed, but over-insurance results, he can
claim in case of loss, only up to the agreed valuation (in
valued policy) or up to the full insurable value (in open
policy) from any, some or all insurers, without prejudice
to the insurers ratably apportioning the payments
The insured can also claim a ratable return of the
premiums on the over-insured amount
Unrevealed other insurances, when required, is a
material concealment/misrepresentation and gives to the
insurer the right to rescind

What is a contract of reinsurance?

Reinsurance is a contract by which an insurer procures a third
person to insure him against loss or liability by reason of such
original insurance
What is the nature of contract of reinsurance?
A reinsurance is presumed to be a contract of indemnity against
liability and not merely against damage.
The subject of the contract of reinsurance is the insurers risk
and not the property insured under the original policy. The
reinsurer agrees to indemnify the insurer , not against the actual
payment made but against liabilities incurred

Distinguish Reinsurance and Double Insurance

Reinsurance
Double Insurance
The insurer becomes the The insurer remains as the
insured in relation to the insurer
reinsurer
The subject of the insurance is The subject of the insurance is
the original insurers risk
the property
It is an insurance of different It involves the same interest
interest
The original insured has no The insured is the party in
interest in the contract of interest in all the contracts
reinsurance
which
is
independent of the original
contract of insurance

Distinguish Reinsurance and Co-insurance

Co-insurance is the percentage in the value of the insured
property which the insured himself assumes or undertakes to
act as insurer to the extent of the deficiency in the insurance of
the insured property. In case of loss or damage, the insurer will
be liable only for such proportion of the loss or damage as the
amount of insurance bears to the designated percentage of the
value of the property insured.
Reinsurance is where the insurer procures a third party,
called the reinsurer, to insure him against liability by reason of
such original insurance. Basically, a reinsurance is an
insurance against liability which the original insurer may incur in
favor of the original insured

Distinguish Reinsurance and Reinsurance Treaty

Reinsurance
Reinsurance Treaty
A reinsurance policy is a A reinsurance treaty is merely
contract of indemnity one an agreement between two

13
insurer makes with another to
protect the first insurer from a
risk it has already assumed
It is a Contract of insurance

insurance companies where

one agrees to cede and the
other to accept reinsurance
business pursuant to provisions
specified in the treaty.
It is a contract for insurance

What are the matters which the reinsured must

communicate to the reinsurer?
The insurer who obtains reinsurance, except under automatic
reinsurance treaties, must communicate the following to the
reinsurer:
a. All the representations of the original insured
b. All the knowledge and information he possesses,
whether previously or subsequently acquired, which
are material to the risk
What does automatic reinsurance treaties refer to?
This refers to a case when two or more insurance companies
agree in advance that each will reinsure a part of any line of
insurance taken by the other, such contract is self executing and
the obligation attaches automatically on acceptance of a risk by
the reinsured. In this case, the obligation to communicate is not
necessary due to the self-executing and automatic feature of
such insurance.
What is meant by facultative reinsurance agreement?
A facultative reinsurance agreement is a contract wherein the
reinsurer may or may not accept participation in the risk insured.
The term facultative is used in reinsurance contracts and it is
so used in this particular case merely to define the right of the
reinsurer to accept or not to accept participation in the risk
insured. But once the share is accepted, the obligation is
absolute and the liability assumed thereunder can be
discharged by the one and only way payment of the share of
losses. There is neither alternative nor substitute prestation
(Equitable Insurance vs Rural Insurance 4 SCRA 343)

Does the original insured has interest in a contract of

reinsurance?
None. The original insured has no interest in a contract of
reinsurance.
Reinsurance is a contract solely between the reinsured and the
reinsurer and creates no privity of contract between the
reinsurer and the original insured. However, if the contract of
reinsurance is made directly for the benefit of the reinsureds
policyholders or if the reinsurer assumes and agrees to perform
the reinsureds contracts, the reinsurer becomes directly liable
to the policyholders. It is necessary for the original insured to
accept and communicate acceptance of such benefit to the
reinsurer before revocation
NOTE:
A reinsurer is entitled to avail of every defense which the
reinsured may avail of against the original insured (Gibson
vs Revilla 38 SCRA 219)

X. LOSS
Define loss in contract of insurance
Loss is the injury or damage sustained by the insured from the
perils insured against
What is Proximate cause?
Proximate cause is the active efficient cause which sets in
motion a train of events which in turn brings about a result
without the intervention of any force operating and working
actively from a new and independent force
What is a remote cause?
Remote cause is a cause that does not necessarily or
immediately produce an event or injury
When is the insurer liable for losses?
The insurer is liable for:
1. Loss the proximate cause of which is the peril insured
against although the peril not contemplated by the
contract may not have been a remote cause of the
loss
2. Loss the immediate cause of which is the peril insured
against except where the proximate cause is an
excepted peril
3. Loss through the negligence of the insured or of the
insureds agents or others, and
4. Loss in the course of efforts to rescue the thing from
the peril insured against although the cause of loss is
not a peril insured against..

When is the insurer liable for losses?

1. Loss by the insureds willful act
2. Loss due to connivance of the insured; and
3. Loss where the excepted peril is the proximate cause

What are the prerequisites for the recovery of loss in

insurance against fire?
1. Notice of loss which must be immediately given
unless delay is waived expressly or impliedly by the
insurer
2. Proof of loss according to the best evidence
obtainable. Delay may also be waived expressly or
impliedly by the insurer
All defects in a notice of loss, or in
preliminary proof thereof, which the insured
might remedy, and which the insurer omits
to specify to him, within reasonable time, as
grounds of objection, are waived.

When is the insurer of property against fire exonerated

from liability?
When no notice is given by the insured or by any other person
entitled to the benefit of the insurance, within a reasonable time.

14
1.

What kind of proof is needed for preliminary proof of

loss?
When preliminary proof of loss is required in the policy, it is
sufficient that the insured gives the best evidence which he has
in his power and not evidence necessary in a court of justice.
2.
XI. PAYMENT OF CLAIMS
A. Life Insurance
1. Where insured outlives maturity date, the
claim is payable immediately on maturity of the
policy. This is true in endowment insurance
2. Where policy matures by Insureds death, the
claim is payable within 60 days after presentation
of the claim and filing of proof of death of the
insured. In case of unreasonable delay, the
insured is entitled to (1) Attorneys fees (2)
expenses incurred by reason of
the
unreasonable withholding (3) interest at the legal
interest rate (6%) per annum as fixed by the
monetary board (4)amount of the claim., (5)
moral damages if bad faith or fraud is present
and (6) exemplary damages if the act is wanton
and oppressive.
3. Please note that for cases involving loss or
injury, any person having any claim upon the
policy shall, without delay present a written notice
of claim within six (6) months from date of
accident to the insured, otherwise, the claim shall
be deemed waived. Action or suit for recovery of
damages due to loss or injury must be brought, in
proper cases, with the Commissioner of the
Courts within one (1) year from denial of claim,
otherwise, the claimants right of action shall
prescribe
B. Property Insurance
1. If amount of loss is determined by agreement
or by arbitration, the claim is payable within 30
days after proof of loss is received by the insurer.
2. If ascertainment of loss is not made within 60
days, the claim is payable within 90 days from
receipt of proof of loss by the insurer, if not paid,
unreasonable delay is presumed (Cathay vs CA
174 SCRA 11)
3. Please note the 1 year prescriptive period to file
an action after denial of claim.
The prescriptive period is not suspended by the
filing of a request for reconsideration after denial
of claim (Sun vs CA 195 SCRA 193)
C. Compulsory Motor vehicle liability Insurance

The insurance company will indemnify any

authorized driver who is driving the motor vehicle
of the insured and in the event of death of said
driver, the company shall likewise indemnify his
personal representatives and the company may
at his option make indemnity payable directly to
the claimants or heirs of claimants. In other
words, under the compulsory vehicle liability
insurance, direct payments may be made by the
insurer to an accident victim of an insured vehicle
Pour autrui clauses inure to the benefit of any
person injured by the person insured as if he
were named in the policy

Note:
Article 2207 of the Civil Code makes it clear that the insurance
company that has paid the indemnity for the injury or loss
sustained by the property insured shall be subrogated to the
rights of the insured against the wrongdoer or the person who
has violated the contract. The insurer who pays the insured is
an assignee in equity of the insured against the offender.
(Malayan vs CA 165 SCRA 536)
As a general rule: Payment by the insurer to the insured for
loss under the policy entitles the insurer to be subrogated to the
rights of the insured against the wrongdoer.
The exceptions are:
1. Where the insured releases the wrongdoer from
liability
2. Where the insurer pays without notifying the carrier,
which in good faith had already paid the insured, and
3. Where the insurer pays the insured for a loss which is
not included in the risk insured against, by the policy
(Pan Malayan vs. CA 184 SCRA 54)
Where the insured was paid by the insurer, the latter is
subrogated to all rights of the former against the wrongdoer. If
the insured after being paid by the insurer, releases the
wrongdoer without the insurers consent, the insurer loses his
right of subrogation against the wrongdoer. The insurer will
however be entitled to recover from the insured what the insured
originally received from the insurer as the proceeds of the policy
(Manila vs. CA 154 SCRA 650)

CLASSES OF INSURANCE
MARINE INSURANCE
-Insurance against risks connected with navigation, to
which a ship, cargo, freightage, profits or others insurable
interest in movable property, may be exposed during a certain
voyage or a fixed period of time.
Coverage of Marine Insurance:
1. Loss or damage to aircraft
2. Loss or damage to goods & merchandise for shipment
3. Persons in connection w/ marine insurance

15
4.
5.

Precious stones, jewels, jewelry, precious metals

Bridges, tunnels, & other instrumentalities of navigation

Perils of Navigation
-perils in making landings in river navigation and
damage from rain in consequence of improper stowage.
War risks
-perils due directly to some hostile action, military
maneuver, operational war danger
Builders risks
-damage to ways from launching as well as damage to
the ship.
Perils of the sea
-all kinds of marine casualties & damages done to the
ship or goods at sea by the violent action of the winds or waves;
not foreseen & not attributable to the fault of anybody.
Perils of the ship
-losses or damages resulting from:
a) natural and inevitable action of the sea
b) ordinary wear and tear of ship
c) negligent failure of the ship's owner to provide the vessel
w/ proper equipment to convey the cargo under ordinary
conditions.
Inchmaree clause
-provision in the policy that the insurance shall cover
loss of, damage to, the hull or machinery through negligence of
the master, charterers, engineers, or pilots, or through
explosions, bursting of boilers, breakage of shafts, or through
any latent defect in the machinery or hull not resulting from want
of due diligence.

1)

Insurable Interest in Marine Insurance:

Shipowner
over the vessel, except that if chartered, the
insurance is only up to the amount not recoverable
from the charterer
.- he also has an insurable on expected freightage; no
insurable interest if he will be compensated by
charterer in case of loss.

2)

Cargo owner
over the cargo & expected profits

3)

Charterer
over the amount he is liable to the shipowner, if the
ship is lost or damaged during the voyage.

Loan on Bottomry/Respondentia
-loan in which under any condition whatever, the
repayment of the sum loaned, and of the premium stipulated,

depends upon the safe arrival in port of the goods on which it is

made, or of the price they may receive in case of accident.

INSURABLE INTEREST ON VESSEL HYPOTHECATED

BY BOTTOMRY IN CASE OF
1.Owner/debtor
-difference between the actual value of the vessel and the
loan on bottomry.
2.Creditor
-amount of the loan

RIGHT OF INSURER & LENDER IN CASE OF LOSS:

value of what may be saved/salvaged shall be divided
between the lender & insurer, in proportion to the
legitimate interest of each one.

Freightage
benefits derived by the owner, either from:
a) chartering of the ship
b) its employment for the carriage of his own goods or
those of others.

a)
b)

Time when Insurable Interest on Freightage exists:

In case of a charter party, from the time the vessel has
broken ground on the chartered voyage
If no charter party & price is to be paid for the carriage of
goods, from the time said goods are actually on board the
vessel or from the time both ship & goods are ready for
specified voyage.

In Marine Insurance, insured is required to reveal all

information which he possesses material to the risk.

1.
2.
3.
4.
5.

CONCEALMENT THAT DOES NOT VITIATE THE

CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS:
national character of the insured
liability of the thing insured to capture and detention
liability to seizure from beach of foreign laws of trade.
want of necessary documents
use of false & simulated papers

EFFECT OF CONCEALMENT OF MATTERS:

exonerates the insurer from a loss
EFFECT IF MISREPRESENTATION IS INTENTIONALLY
FALSE:
rescission of contract by insurer
EFFECT OF FALSITY OF REPRESENTATION AS TO
EXPECTATION:
non-avoidance of a contract of insurance

a)
b)
c)

IMPLIED WARRANTIES IN MARINE INSURANSE:

the ship is seaworthy
no improper deviation from the agreed voyage will be made
vessel will not engage in illegal venture

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d)

where nationality or neutrality of a ship or cargo is

expressly warranted

Seaworthiness
relative term depending of the NATURE of the ship,
the VOYAGE, & the SERVICE in which she is at the
time engaged.
Reasonable fitness to perform the service & to
encounter the ordinary perils of the voyage
contemplated by the parties.
EFFECT OF VIOLATION OF IMPLIED WARRANTY OF
SEAWORTHINESS:
insurer will not be liable for a loss

WHEN
REQUIREMENT
OF
SEAWORTHINESS
SATISFIED:
General Rule:
Seaworthiness of the vessel is required only at the
commencement of the risk.
Exceptions:
1. insurance is made for a specified length of time
2. insurance is upon the cargo required to be
transshipped at an immediate port

a)
b)
c)

a)
b)
c)

COURSE OF THE VOYAGE INSURED:

one agreed upon by the parties
in the absence of agreement, the course of sailing fixed by
mercantile usage
if the course of sailing is not fixed by mercantile usage, one
which to a master of ordinary skill and direction, would
seem the most natural, direct & advantageous
DEVIATION as defined is:
departure from the course of the voyage insured
unreasonable delay in pursuing the voyage
commencement of an entirely different voyage

DEVIATION IS PROPER:
a) when caused by circumstances over which neither the
master nor the owner of the ship has any control
b) when necessary to comply with warranty, or to avoid a
peril, whether or not the peril is insured against
c) when made in good faith, & upon reasonable grounds of
belief in its necessity to avoid a peril
d) when made in good faith, for the purpose of saving human
life, or relieving another vessel in distress.
EFFECT OF IMPROPER DEVIATION:
insurers become immediately absolved from further
liability
Loss
A. TOTAL

1.

Actual total loss ( exists when the subject matter of the

insurance is wholly destroyed or lost or when it is so
damaged as no longer to exist in its original charter) is
caused by:
a. total destruction of the thing insured
b. irretrievable loss of the thing by sinking, or by leaving
broken up
c. any damage to the thing which renders it valueless
d. other event which effectively deprives the owner of the
possession

2.

Constructive total loss ("technical total loss")

one that gives to a person insured a right to abandon

B.

PARTIAL LOSS
loss other than a total loss

presumption of actual loss: continued absence of a ship

without being heard.

CONTINUATION OF LIABILITY OF INSURER:

whenever the ship upon which the cargo insured was
loaded cannot continue the voyage due to the peril
insured against, & cargo is loaded on another vessel

ABANDONMENT - necessary only in Constructive Total

Loss
Average
extraordinary/accidental expense incurred during the
voyage for the preservation of the vessel, cargo, or
both and all damages to the vessel & cargo from the
time it is loaded and the voyage commenced until it
ends & the cargo unloaded.

1.

KINDS OF AVERAGE:
GROSS/GENERAL AVERAGES
include all the damages & expenses which are
deliberately caused in order to save the vessel, its
cargo, or both at the same time, from real & known
risk.

Requisites to the Right to claim general average contribution:

a. common danger to the vessel/cargo
b. part of the vessel/ cargo was sacrificed deliberately
c. sacrifice must be for common safety/benefit of all
d. must be made by the master or upon his authority
e. not be caused by any fault of the party asking the
contribution
f. must be successful
g. must be necessary
2.

SIMPLE/PARTICULAR AVERAGE
includes all the expenses & damages caused to the
vessel or to her cargo which have not inured to the
common benefit & profit of all the persons interested
in the vessel & her cargo.

17
-

Partial loss caused by a peril insured against, which is

not a general average loss

5.

''FPA CLAUSE"
a situation wherein the insured & insurer stipulated in
the policy that the vessel/cargo insured shall be free
from particular average
effects:
a. if damage to the thing insured is a PARTICULAR
average, the insurer shall not be liable UNLESS
the loss suffered is total
b. if damage to the thing insured is a GENERAL
average, insurer shall be liable whether the loss
is partial or total or for the condition of the
insured for his proportion of all general average
losses assessed upon the thing insured which
was saved.

6.

There is an ACTUAL TOTAL LOSS if the insured is

effectively deprived of the use & possession of the
property, whether by seizure/capture followed by
condemnation/theft.

1.
2.
3.
4.
5.
6.
7.

1.
2.
3.
4.

Abandonment
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
effect: insured is surrendering to the insurer whatever
is left of the property insured, & resorting to the policy
for indemnity, insurer then becomes the owner of
whatever may remain of the insured thing & the
insured may recover a total loss.
REQUISITES FOR VALID ABANDONMENT:
actual relinquishment by the person insured of his interest
in the thing insured
constructive total loss
abandonment must be neither partial nor conditional
made within a reasonable time after receipt of reliable
information of the loss
factual
made by giving notice to the insurer which may be done
orally or in writing
notice of abandonment must be explicit & must specify the
particular cause of the abandonment
WHEN ABANDONMENT MAY BE MADE:
if more than 3/4 of the value of the thing insured is actually
lost
if more than 3/4 of the value of the thing insured would
have to be expended to recover it from the peril
if it is injured to such an extent as to reduce its value by
more than 3/4
if the thing is insured is a ship & the contemplated voyage
cannot be lawfully performed without incurring an expense
to be insured of more than 3/4 the value of the thing
abandoned.

If the thing insured is a ship and the contemplated voyage

cannot be lawfully performed without incurring risk which a
prudent man would not take under the circumstances
If the thing insured, being cargo or freightage, the voyage
cannot be performed nor another ship procured by the
master within reasonable time & with reasonable diligence

1.

RIGHT OF RECOVERY WHEN:

abandonment is made
recovery of TOTAL LOSS, insurer acquires all interest
of the insured

2.

no abandonment
recovery only of ACTUAL LOSS

When abandonment becomes ineffectual:

information which formed the basis of abandonment
proved to be incorrect & there was in fact no total loss

Form of Notice of Abandonment

no particular form; may be made orally unless
required to be in writing, even notice by telegraph is
sufficient if it complies with requirements
if done orally, insured must submit to the insurer within
7 days from such oral notice, a written notice of the
abandonment.

1.
2.
3.

EFFECTS OF ACCEPTANCE OF ABANDONMENT

becomes irrevocable UNLESS the ground upon which it
owes made proven to be unfounded
conclusive upon parties
admission of the loss & sufficiency of abandonment

a)
b)

HOW ACCEPTANCE OF ABANDONMENT MADE:

express
implied from the acts of the insurer
mere silence of the insurer for an unreasonable length
of time after notice shall be construed as acceptance

EFFECT OF VALUATION:
conclusive between the parties provided
a) the insured has some interest at the risk
b) there is no fraud on his part.

Co-insurance
form of insurance in which the person who insures his
property for less than the entire value is understood to
be his own insurer for the difference which exists
between value of property and amount of insurance

1.

REQUISITES FOR APPLICATION:

insured taken is less than the actual value of the thing
insured
loss is partial

2.

MARINE INSURANCE
There is always co-insurance

No

FIRE INSURANCE
co-insurance UNLESS

18
expressly stipulated in the
policy

2.

Fire insurance
- a contract by which the insurer for a consideration
agrees to indemnify the insured against loss, or damage to,
property by fire, but may include loss by lightning, windstorm,
tornado & earthquake & other allied risks, when such risks are
covered by extension to fire insurance policies/ under separate
policies

Alteration
alteration in the use or condition of thing insured will
entitle the insurer to rescind the contract provided
following requisites are present:
a) use or condition of the thing is specifically
limited/stipulated in the policy.
b) such case/condition as limited by the policy is
altered
c) the alteration is made without the consent of the
insurer
d) alteration is made by means within the control of
the insured
e) the alteration increases the risk
f) violation of a policy provision

Co-insurance clause
clause requiring the insured to maintain insurance to
an amount equal to a specified percentage of the
value of the insured property under penalty of
becoming co-insurer to the extent of such deficiency

Fall-off Building Clause

clause in fire insurance policy that if the building or
any part thereof falls, except as a result of fire, all
insurance by the policy shall immediately cease.

Option to Rebuild Clause

option of insurer to repair, rebuild or replace
buildings/structures wholly or partially damaged or
destroyed, instead of the payment of the loss.
Alternative obligation, either pay the amount of the
loss/ rebuild the building damaged

Casualty Insurance
includes all forms of instrument against loss or liability
arising from accident/mishap other than those within
the scope of other types of insurance

1.

GENERAL DIVISION OF CASUALTY INSURANCE:

insurance against specified hazards which may affect the
person/property of the insured
e.g. personal accident, robbery/theft, damage to or
loss of motor vehicle

insurance against specified hazards which may give rise to

liability on the part of the insured for claims for injuries to
others/damages to their property
e.g. workmen's compensation, motor vehicle liability
LIFE INSURANCE

Usual object is to provide fund

for the benefit of the
estate/heirs beneficiaries of
insured after the death of the
insured

ACCIDENT/HEALTH
INSURANCE
Protect against not a loss of life
but a loss of time, earning
capacity and expenses

Suretyship
contract whereby a person binds himself solidarily with
principal debtor for the fulfillment of an obligation

1.
2.
3.

NATURE OF LIABILITY OF SURETY:

solidary
limited to the amount of the bond
determined by the terms of the contract of suretyship in
relation to the principal contract between obligor and
obligee

SURETY
insurer of debt
Undertakes to pay if principal
does not pay
primary
No such rights

GUARANTOR
insurer of solvency of debtor
Binds himself to pay if principal
is unable to pay
Secondary
Can not be compelled to pay
the creditor unless the latter
has exhausted all the
properties of the debtor

SURETY
Accessory contract
3 parties: surety, obligor and
obligee
Credit accommodation
Surety can recover from
principal
Bond can be cancelled only
with consent of the oblige,
commissioner or the court
Risk-shifting device premium
paid being in the nature of a
service fee
Requires acceptance of the
oblige to be valid

PROPERTY INSURANCE
Principal contract
2 parties: insurer and insured

a)
b)

Contract of Indemnity
No such right, only right of
subrogation
May be cancelled unilaterally
either by insured or insurer on
grounds provided by law
Risk-distributing
device,
premium paid as a ratable
contribution to a common fund
No need for acceptance by any
third party

WHEN SURETY ENTITLED TO SERVICE FEE ONLY:

when contract of suretyship/ bond is not accepted by
obligee
when contract of suretyship/ bond is not filed with obligee

19

1.
2.
3.

TYPES OF SURETY BONDS

Contract bonds
a. Performance bonds
b. Payment bonds
Official
Judicial

Life Insurance
insurance payable on the death of a person or on his
surviving a specified period or otherwise contingently
on the continuance or cessation of life.
Nature:
1. liability absolutely certain
2. amount of insurance generally no limit
3. direct pecuniary loss not required

1.

KINDS OF LIFE INSURANCE

GENERAL, ordinary or old line life insurance
fixed for a premium payable, without condition, at
stated intervals, a sum certain is to be paid on death,
without condition

2.

limited payment life insurance

specified premiums are to be paid for a specified
period or until the death of insured if it occurs before
the expiration of such period, and under which insurer
is obligated to pay a specified sum on the death of the
insured

3.

ENDOWMENT INSURANCE
contract to pay a certain sum to the insured if he lives
a certain length of time, or if he dies before that time,
to some other person indicated as beneficiary

4.

TERM LIFE INSURANCE

insurance for a term of years only, or until insured
shall have arrived at a certain age

5.

ADVANCE INSURANCE
contract which provides for the payment to the insured
of a lump sum immediately, in consideration of his
agreement to make certain periodical payments to the
insurer for a specified period, or for that end of the
period, the performance of insured's obligation being
secured by mortgage or deed of trust

6.

TONTINE INSURANCE
form of life insurance by which the policyholder under
the same plan, that no dividends, return premium, or
surrender value shall be received for a term of years
called the "tontine period," the entire surplus from all
sources being allowed to accumulate to the end of
that period, and then divided among all who have
maintained their insurance in force and who have
survived.

"No-fault" Clause
any claim for death or injury shall be paid up to p5,000
without necessity of proving negligence or fault,
provided the following proofs of loss under oath are
submitted:
1. police report of accident
2. death certificate and evidence sufficient to establish
proper payee
3. medical report and evidence of medical or hospital
disbursement

CLAIMS UNDER CMVLI

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

AUTHORIZED DRIVER CLAUSE

the clause means that it indemnifies the insured owner
against loss or damage to the car but limits the use of
the insured vehicle to the insured himself or any
person who drives on his order or with his permission
the requirement that the person driving the insured
vehicle is permitted in accordance with the licensing
laws or other laws or regulations to drive the motor
vehicle. It is applicable only if the person driving is
other than the insured
where the car is unlawfully and wrongfully taken
without the owner's consent or knowledge, such
taking constitutes theft, and thus, it is the theft clause
and not the "authorized driver clause" that should
apply.

Cooperation Clause
clause in an automobile insurance policy which
provides in essence that the insured shall give all such
information and assistance as the insurer may require,
usually requiring attendance at trials or hearings

LIABILITY OF INSURER IF INSURED WAS

COMMITTING A FELONY:
liabilities arising out of acts of negligence, which are
also criminal, are also insurable on the ground that
such acts are accidental. Thus, a motor insurance
policy covering the insureds liability for accidental
injury caused by his negligence, even though gross
and attended by criminal consequences such as
homicide through reckless imprudence, will not be
void as against public policy. But liability
consequences of deliberate criminal acts are not
insurable

JURISDICTION OF THE INSURANCE COMMISSIONER

Original exclusive jurisdiction with the Insurance
Commissioner

20
-

Notice of claim must be filed within six months from

the date of accident. Otherwise the claim shall be
deemed waived. Action or suit must be brought in
proper cases, with the Commission or the courts
within one year from the denial of the claim, otherwise
the claimant's right of action shall prescribe

1.
2.

FUNCTIONS OF THE COMMISSIONER:

Adjudicatory functions
Administrative Functions
includes suspension or revocation of license, power to
examine books and records

EFFECT OF DEATH OF INSURED THROUGH SUICIDE:

in life insurance contract, the insurer is liable in case
of suicide in the following cases:
1. if committed after two years from the date of the
policy's issue or its last reinstatement
2. if committed after a shorter period provided in the
policy

3.

if committed in a state of insanity regardless of the

date of the commission unless suicide is an excepted
peril

Any stipulation extending the 2-year period is null and

void

COMPULSORY
MOTOR
VEHICLE
LIABILITY
INSURANCE (CMVLI)
is a protection coverage that will answer for legal
liability for losses and damages for bodily injuries or
property damage that may be sustained by another
arising from the use and operation of motor vehicle by
its owner
Purpose: to give immediate financial assistance to victims of
motor vehicle and/or their dependents, especially if they are
poor regardless of the financial capability of motor vehicle
owners or operators responsible for the accident sustained.
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