Isurance Part Three

PART THREE
proximate cause of the loss was not the peril insured

against. Hence, there can be no recovery under the policy.
NON-LIFE INSURANCE
Hostile v. Friendly Fire
Topics
What may be insured against

Insurable interest
Non-life insurance policy
Premiums
Parties
Double insurance v reinsurance
Different kinds of non-life insurance
Hostile fire is the one covered by fire insurance
NO
liability
if
insured risk is only
a remote cause or
if proximate cause is an excepted peril
Concept of loss - injury, damage, liability, loss of
income or profits sustained by the insured in
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA 261)
That which in the natural and continuous sequence,

unbroken by any NEW INDEPENDENT cause, produces an
event without which the event would not have occurred.
Also called the EFFICIENT CAUSE, or one that sets the

others in motion
NOT equivalent to IMMEDIATE CAUSE
Proximate Cause: Examples

Fire causes an explosion which results in loss. Fire is the
proximate cause of the loss. If fire is a covered peril, the
insurer is liable.
A house is insured against fire. The house is destroyed due
to the falling of a wall. The wall fell due to fire. The insurer
is liable
peril not insured against

Illustration
An owner gets fire insurance for his house and all furniture
inside.
In the course of rescuing the furniture from fire, the furniture

is damaged due to water.
The insurer is liable to the owner although the damage is

not due to fire since it was in the course of rescuing the
furniture from fire that it suffered some damage.
If loss due to willful act or connivance of insured
Section 89 - insurer is not liable if insured, through his willful

act or connivance caused the loss
Ex. Arson, owner hiring other people to rob his property
If loss due to willful act or connivance of insured
Section 89 - if loss is through SIMPLE negligence of insured

or his agents, insurer is STILL LIABLE
Insurer is NOT liable if loss is caused by GROSS

negligence of insured
Bar 2007
Immediate Cause v. Proximate Cause
Immediate cause cause or peril which appears closest in

time to the loss
Immediate cause is NOT necessarily the proximate cause

and vice versa
Bar 2007
Alfredo took out a policy to insure his commercial building

against fire. A fire broke out and destroyed the building. It
was found that the proximate cause of the fire was
explosion but fire was the immediate cause of the loss.
There is no excepted peril in the policy. Can there be
recovery under the policy.
Alfredo cannot recover from the policy. Section 84 of the

Insurance Code provides that before there can be recovery
under property insurance, the proximate cause of the loss
must be the covered peril. In the instant case, the
If the fire was found to have been caused by Alfredos own

negligence, can he still recover from the policy?
ANSWER
I qualify. If the negligence was simple in nature then Alfredo

can still recover under the policy. However, if there was
gross negligence on the part of Alfredo then he is barred
from recovering under the policy.
Bar 2014
On February 21, 2013, Barrack entered into a contract of

insurance with Matino Insurance Company (Matino)
involving a motor vehicle. The policy obligates Matino to pay
Barrack the amount of Six Hundred Thousand Pesos
(P600,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2013
to February 26, 2014.
On April 16, 2013, at about 9:00 a.m., Barrack instructed his

driver, JJ, to bring the motor vehicle to a near by auto shop
for tune-up. However, JJno longer returned and despite
ANSWER
Insurer is liable if the thing is rescued from peril insured

against if in the course of rescue, the thing is exposed to a
Unknown Event- time of occurrence is unknown

Contingent Event- may
or may not happen
Hostile - occurs outside the confines or begins as a friendly

fire and becomes hostile by escaping from the place where
it ought to be
Proximate Cause
Which will damnify a person OR

create a liability against him
Requirement for recovery

Peril
insured
against must be
the
PROXIMATE
CAUSE of the loss
or damage (sec.
86)
Friendly - fire burns in a place where it is intended to burn
Section 87:
Loss in the course of rescue
WHAT MAY BE INSURED AGAINST
diligent efforts to locate the said vehicle, the efforts proved

futile. Resultantly, Barrack promptly notified Matino of the
said loss and demanded payment of the insurance
proceeds of P600,000.00.
In a letter dated July 5, 2013. Matino denied the claim,

reasoning as stated in the contract that "the company shall
not be liable for any malicious damage caused by the
insured, any member of his family or by a person in the
insureds service. Is Matino correct in denying the claim?
(4%)
Suggested Answer
No, Matino is wrong in denying the claim.
Under the Insurance Code, an insurance policy is intended

to cover losses due to acts of simple negligence. It is only
when the insured is guilty of willfull connivance in bringing
about the risk insured against or gross negligence that an
insurer can deny compensation.
In this case, the act of Barrack of allowing his driver to bring

the car for tune up is simple negligence, which should be
covered by an insurance policy.
JQ can recover since he has insurable interest over his own

condominium unit. MLQ cannot recover since it is required
that a beneficiary must have insurable interest over the
property.
Bar 2014
Further, the act of JJ, Barracks driver in running away with

the vehicle, cannot be considered as malicious damage. It is
a crime, which is an act covered by an insurance policy.
Hence, Matino cannot use this exlusionary clause to defeat
payment of proceeds.
A person is said to have an insurable interest in the subject

matter insured where he has a relation or connection with,
or concern in it that he will derive pecuniary benefit or
advantage from its preservation. Which among the following
subject matters is not considered insurable? (1%)
1)
2)
3)
4)
INSURABLE INTEREST
Concept, Section 13
Every interest in property, whether real or personal

(owner)
Any relation thereto (lessee, agent)
Liability in respect of property (carrier, depositary)
Which will directly damnify the insured when a

contemplated peril happens
Existing interest (owner)
Inchoate interest founded on an existing interest

(shareholder)
Expectancy coupled with

(usufructuary, expected profit)
an
existing
A partner in a firm on its future profits

A general creditor on debtors property
A judgment creditor on debtors property
A mortgage creditor on debtors mortgaged property
Suggested answer
(B) A general creditor on debtors property
Insurable interest in a
mortgaged property (Sec. 8)
Forms, Sec. 14
interest
Factual Expectation
Mere factual expectation of loss not arising from any legal

right or duty in connection with the SM does NOT constitute
an insurable interest.
NOTE: Factual expectation is enough basis in

insurance.
life
Both the mortgagor and the mortgagee have insurable

interest on the mortgaged property
The II of the mortgagor is to the full value of the SM
The II of the mortgagee is only up to the extent of the

indebtedness
Bar 2012
A house and lot is covered by a real estate mortgage (REM) in favor
of ZZZ Bank. The bank required that the house be insured. The
owner of the policy failed to endorse nor assign the policy to the
bank. However, the Deed of Real Estate Mortgage has an express
provision which says that the insurance policy is also endorsed with
the signing of the REM. Will this be sufficient?
A.
B.
Beneficiary is required to have insurable interest
C.
D.
Insurable interest is required before a person can

benefit from a property insurance (Sec. 18)
Bar 2000
JQ, the owner of a condominium insured the same against

fire with XYZ Company and made the loss payable to his
brother MLQ. In case of loss by fire, who can recover from
the policy. State the reason for your answer (5%)
ANSWER
Suggested Answer
The insurer is correct. The beneficiary in property insurance

must have insurable interest on the property.
The
companion-friend of A does not have insurable interest on
the house of A. Hence, he cannot recover from the fire
insurance policy.
Bar 2001
A is an elderly bachelor. He insured his house against fire.

He named his companion-friend as beneficiary. A died in a
fire which also destroyed his home. The insurer refused
payment to B due to absence of insurable interest on the life
of A. Is the insurer correct?
ANSWER
Bar 2014
Bar 1999
No, insurance policy must be expressly endorsed to the

bank so that the bank will have a right in the proceeds
of such insurance in the event of loss.
The express provision contained in the Deed of Real
Estate Mortgage to the effect that the policy is also
endorsed is sufficient.
Endorsement of Insurance Policy in any form is not
legally allowed.
Endorsement of the Insurance Policy must be in a
formal document to be valid.
A businessman obtained a fire insurance policy on his

stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to another person
who also insured the same stocks for P5 M. May the
businessman and the creditor obtain different insurance
policies on the same stocks?
D.
existing at the time of perfection for property insurance

but for life insurance both at the time of perfection and
at the time of loss.
existing at the time of perfection only.
ANSWER
ANSWER
C.
Yes. The businessman, as the owner and the creditor, as

the mortgagee have insurable interest over the stocks.
Hence, they may obtain separate policies on the same
stocks.
B.
existing at the time of perfection and at the time of
loss for property insurance but only at the time of perfection
for life insurance.
Change of ownership of property

Measure
Measure of insurable interest is the extent the insured

might be damnified by loss or injury (Sec. 17)
Section 25: Void stipulations payment of loss whether

insured has insurable interest or not or that policy shall
be proof of interest
INSURABLE INTEREST:
jurisprudence
Fire insurance taken on a property belonging to another is

VOID, although the insurer had full knowledge of fact of
ownership and even if insured subsequently acquired
insurable interest (Cha v. CA, 277 SCRA 690)
Where the real intention of insured was to insure his goods
for P15,000 but insurer mistakenly insured the building
where the goods were contained and not owned by insured,
in case of loss of goods insured was allowed to recover
(Garcia v. Hongkong, 45 Phil 122)
Illustration
A owns a car which is insured against theft
A sells the car to B. The policy was not included in the sale.
If the car is carnapped, neither A nor B can recover under

the policy.
A cannot recover because he does not own the car at the

time of the theft.
B cannot recover because he does not own the policy
Transfer of property by succession
When
insurable
property insurance
interest
must
exist
in
Time the insurance takes effect and when the loss

occurs, but NEED NOT exist in the meantime
Bar 2002
Distinguish insurable interest in property insurance from

insurable interest in life insurance (5%)
Section 20 and 58: A change of interest in any

part of a thing insured unaccompanied by a
corresponding change of interest suspends the
insurance until the interest in the thing and
interest in the insurance are vested on the
same person
When the insured dies, and the subject matter is transferred

by succession, the new owner of the thing will also own the
insurance. (Sec. 23)
Illustration
A owns a car which has theft insurance
A bequeath the car to B under his will
A dies
B now owns the car, together with the insurance policy
ANSWER
In property insurance, the expectation of benefit must have

a legal basis. In life insurance, insurable interest can be
based on mere factual expectation.
In property insurance, the actual value of the interest is the

limit of the insurance. There is no such limit in life
insurance except if insurable interest is capable of pecuniary
estimation.
In property insurance, insurable interest must exist when the

insurance takes effect and at the time of the loss but not in
the meantime. In life insurance, insurable interest must
exist only at the time the insurance takes effect.
Bar 2012
For both the Life Insurance and Property Insurance, the insurable
interest is required to be A.
B.
existing at the time of perfection of the contract and at

the time of loss.
existing at the time of perfection and at the time of loss
for property insurance but only at the time of perfection
for life insurance.
POLICY
KINDS
Open Value of thing is not agreed upon but is to be

ascertained at time of loss. The amount of the insurance
merely represents the insurers maximum liability.
Valued expresses on its face an agreement that the thing

shall be valued at a specific sum
Running successive insurances
TWO KINDS OF VALUES
Face value maximum amount which may be recovered

under the policy
Valuation- value of the subject matter agreed on by the

parties
Open v. Valued
Open - has a face value but has NO valuation of the thing.

Valuation is done after the loss
When the parties have agreed on installment payment

(Makati Tuscany case)
Valued - has both face value and valuation of the thing
When the insurer has renewed the insurance over the years
under a clear credit term arrangement (UCPB case)
In Suretyship where the obligee accepts the bond even if

premium has not been paid (Sec. 177)
Illustration: Open
Value of the building: to be determined at time of loss
Face Value: P10 Million
When there is a credit scheme
If the valuation is more than the face value, recovery is limited to

the face value
Illustration: Valued
Valuation of the car : P15 Million
Face Value
: P 10 Million
UCPB v. Masagana April 4, 2001 - insured is entitled to

proceeds even if he has not fully paid premiums when:
for years, insurer has been issuing fire

insurance policies to insured and the policies
were renewed
insurer has been granting 60-90 day credit

extension
no valid notice of non-renewal
premium was paid by insured within credit

extension period
GENERAL RULE: Recovery will be based on valuation

EXCEPTION: If valuation is obtained through fraud or
misrepresentation. Recovery is limited to the face value or
insurer may deny the claim
Bar 2007
Illustration: Running
As of June 1, 2014 value of goods P1 Million
Alfredo took out a policy to insure his commercial building.

The broker agreed to give a 15-day credit to Alfredo within
which to pay the premium. Upon delivery of the policy on
May 15, 2006, Alfredo issued a postdated check dated May
30, 2006. On May 28, 2006, fire destroyed the building.
May Alfredo recover from the policy?
ANSWER
As of June 10, 2014 - value of goods P500,000
PREMIUM
Alfredo can recover from the policy. In a decided case by

the Supreme Court, it was held that parties may agree on a
credit extension in paying the premium. The happening of
the peril during the credit extension will entitle the insured to
proceeds, less the unpaid premiums.
Cash and carry basis rule is followed
Section 77 - insurer is entitled to premium as soon as the

thing insured is exposed to the peril insured against
Premium - is the agreed price for assuming and carrying the

risk
Makati and American Assurance agreed that premiums will

be paid via three installments
General Rule: Cash and carry basis nonpayment of

the first premium prevents the contract from becoming
binding
Makati paid premiums for 3 consecutive years in three

installments
Premium must be paid in cash as a condition precedent

for non-life insurance policy to be valid and binding
On the 4th year, Makati paid only the 1st 2 installments.
American collected the 3rd installment
Makatis defense: Section 77 provides that no policy will be

effective unless the premium has been paid.
Since
premiums were paid on installments, there was no valid
policy.
Makati and American Assurance agreed that premiums will

be paid on three installments
After paying premiums for 3 consecutive years, Makati

refused to pay the third installment on the 4th year
American sought to collect the balance from Makati
SC: Section 77 merely precludes the parties from stipulating

that the policy is valid even if premiums are not paid, but
does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals,
good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed.
At the very least, both parties should be deemed in estoppel
to question the arrangement they have voluntarily accepted
In Suretyship, payment of premium is also necessary for

the contract to be binding
EXCEPT: if obligee has accepted the bond, suretyship is

binding even if premium has not been paid, subject to the
right of the insurer to recover the premium from its principal
(SEC. 177)
Exceptions to Cash and Carry Basis, Sec. 77
Life/industrial life when the grace period applies
whenever under the broker and agency agreements

with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days
from date of issuance of the policy.
An acknowledgment in a policy or contract of insurance or

the receipt of 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.
Premium by installment:
Makati Tuscany v. CA
Bar 2006
A Insurance Company issued an policy on the new car of B.

The premium of P60,000 was to be paid in 6 months. B paid
only the 1st two months installments. Despite demands, B
failed to pay the rest of the installments. Five months after
the issuance of the policy, the vehicle was carnapped. A
denied the claim of B since B did not pay the premium
resulting to cancellation of the policy. Can B recover from
A?
ANSWER
B can recover from A the proceeds of the policy less the

unpaid premiums. In a decided case by the Supreme Court,
it was held that when the parties agreed on payment of
premiums by installment, the policy becomes effective upon
payment of first installment. Absent any provision that nonpayment of subsequent installments will cause cancellation,
the policy between A and B continue to exist.
Bar 2010
Enrique obtained from Seguro Insurance Company a

comprehensive motor vehicle insurance to cover his top of
the line Aston Martin. The policy was issued on March 31,
2010 and, on even date, Enrique paid the premium with a
personal check postdated April 6, 2010.
On April 5, 2010, the car was involved in an accident that

resulted in its total loss.
On April 10, 2010, the drawee bank returned Enriques

check with the notation "Insufficient Funds." Upon
notification, Enrique immediately deposited additional funds
with the bank and asked the insurer to redeposit the check.
Enrique thereupon claimed indemnity from the insurer. Is

the insurer liable under the insurance coverage? Why or
why not? (3%)
Enrique cannot recover. In a decided case, the Supreme

Court said that an insurer and the insured may agree on a
credit scheme for payment of premiums, which will give rise
to a perfected contract of insurance. However, the insurer
must make payment within the period agreed on (UCPB v.
Masagana).
On September 25, 2013, Danny Marcial (Danny) procured

an insurance on his life with a face value of P5,000,000.00
from RN Insurance Company (RN), with his wife Tina
Marcial(Tina) as sole beneficiary. On the same day, Danny
issued an undated check to RN for the full amount of the
premium.
On October 5, 2013, Danny met a tragic accident and died.
Tina claimed the insurance benefit, but RN was quick to
deny the claim because at the time of Dannys death, the
check was not yet encashed and therefore the premium
remained unpaid.
Is RN correct? Will your answer be the same if the check is
dated October 15, 2013? (4%)
Suggested Answer
RN is correct in denying the claim.
P1,200,000.00
P24,000.00
B company P600,000.00 P12,000.00
TOTAL
P1,800,000.00
P36,000.00
Based on jurisprudence, an insurer can be held liable for loss if

the insurer and the insured agreed on a credit scheme
where is a definite period when premium should be fully
paid.
In this case, there was no clear credit extension period or

scheme since the check issue by Danny was undated.
Since there was no payment of premiums or even a definite
time when payment should be made, there was no valid
insurance policy at the time of Dannys death. Hence, there
can be no recovery of proceeds.
My answer will not be the same if the check was dated

October 15, 2014.
If the check was properly dated, this means that there was a
valid credit extension scheme or period between the parties.
Hence, there was a valid policy and there should be
payment of proceeds, less the amount of premiums.
When is insured entitled to return of premium?
Whole premium if object was never exposed to peril,

unless it is an indivisible policy
E.g. insured pays in advance the annual

premium, loss occurs before date of effectivity.
Insured is entitled to reimbursement of whole
premium
Pro- rated premium surrender policy before period is

up
In this case, Enriques check bounced on April 6. He only

funded the check on April 10 or 4 days late than the date of
the check. Thus, there was no perfected contract of
insurance which can cover the April 5 accident. Enrique
cannot recover under the policy.
Bar 2014
Amount of insurance
Premiums Paid
A company
Suggested Answer
Insurer
E.g. A insures his house for 1 year but returns

the policy after 3 months. A is entitled to of
the premiums.
If the contract is voidable and subsequently annulled

under the provisions of the Civil Code or on account of
fraud / misrepresentation of insure/agent, facts insured
was ignorant of, default of insured other than fraud
E.g. Agent represents that A can be insured

even if his age disqualifies him. Insured is
entitled to return of premium.
Over insurance by several insurers, other than life
ratable return of premium
ADDITIONAL PREMIUMS
Section 84. An insurer may contract and accept payments,

in addition to regular premium, for the purpose of paying
future premiums on the policy or to increase the benefits
thereof.
NOTE!
A person insured is not entitled to a return of premium if the

policy is annulled, rescinded or if a claim is denied by
reason of fraud.
RATABLE RETURN
OVERINSURANCE
OF
PREMIUM
IN
CASE
OF
Sec. 82 premiums to be returned when there is over

insurance by several insurers shall be proportioned to the
amount by which the aggregate sum insured in all policies
exceeds the insurable value of the thing at risk
Insurer- Bancassurance
Section 375. The term bancassurance shall mean the

presentation and sale to bank customers by an insurance
company of its insurance products within the premises of
the head office of such bank duly licensed by the Bangko
Sentral ng Pilipinas or any of its branches under such rules
and regulations which the Commissioner and the Bangko
Sentral ng Pilipinas may promulgate.
To engage in bancassurance arrangement, a bank is not

required to have equity ownership of the insurance
company. No insurance company shall enter into a
bancassurance arrangement unless it possesses all the
requirements as may be prescribed by the Commissioner
and the Bangko Sentral ng Pilipinas.
No insurance product under this section, whether life or nonlife, shall be issued or delivered unless in the form
previously approved by the Commissioner.
Section 376. Personnel tasked to present and sell insurance

products within the bank premises shall be duly licensed by
the Commissioner and shall be subject to the rules and
regulations of this Act.
"Section 377. The Commissioner and the Bangko Sentral ng

Pilipinas shall promulgate rules and regulations to effectively
supervise the business of bancassurance.
Illustration: P1.5M house
How to compute:
STEP 1: Determine amount overinsured
Amount overinsured =
Amount of insurance value of property
P1.8 P1.5M = P300,000
STEP 2: Get the ratio of overinsurance

insurance
with the total amount of
P300,000/P1,800,000.00 = 1/6
Ratable Return
STEP 3: Multiply the ratio to the amount of premium paid to every
insurer
A= 1/6 of P24,000 = P4,000 from A Company
B= 1/6 of P12,000 = P2,000 from B Company
Bar 2000
Name at least three instances when an insured is entitled to

a return of the premium paid.
Insurer-Mutual Benefit Association and Trusts for Charitable

Uses
PARTIES
Insurer
InsuredBeneficiary
Section 403. Any society, association or corporation,

without capital stock, formed or organized not for profit but
mainly for the purpose of paying sick benefits to members,
or of furnishing financial support to members while out of
employment, or of paying to relatives of deceased members
of fixed or any sum of money, irrespective of whether such
aim or purpose is carried out by means of fixed dues or
assessments collected regularly from the members, or of
providing, by the issuance of certificates of insurance,
payment of its members of accident or life insurance
benefits out of such fixed and regular dues or assessments,
but in no case shall include any society, association, or
corporation with such mutual benefit features and which
shall be carried out purely from voluntary contributions
collected not regularly and /or no fixed amount from
whomsoever may contribute, shall be known as a mutual
benefit association within the intent of this Code.
Mutualization and Demutualization
The beneficiary
Section 18 - no contract or policy on property shall be

enforceable except for the benefit of some person having an
insurable interest in the property insured
Mutualization A a shareholder-owned company is

converted into a mutual organization, typically through
takeover by an existing mutual organization. A mutual
organization is customer-owned.
Demutualization -customer-owned mutual organization or

cooperative changes form to a joint, stock company,
sometimes called stocking for privatization.
Compare with Life Insurance
Where the beneficiary is not required to have insurable

interest over the cestui que vie
It is only the insured who must have insurable interest over

the cestui que vie
Mutualization
Section 280. A domestic mutual life insurance company

doing business in the Philippines may convert itself into an
incorporated
stock
life
insurance
company
by
demutualization. To that end, it may provide and carry out a
plan for the conversion by complying with the requirements
of this title.
"The conversion of a domestic mutual life insurance

company to an incorporated stock life insurance company
shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.
"The Commissioner shall promulgate such rules and

regulations as he or she may deem necessary to carry out
Insurer
Before issuing such certificate of authority, the

Commissioner must be satisfied that the name of the
company is not that of any other known company
transacting a similar business in the Philippines, or a name
so similar as to be calculated to mislead the public. The
Commissioner may issue rules and regulations on the
use of names of insurance companies and other
supervised persons or entities.
the provisions of this title, after due consultation with

representatives of the insurance industry.
"All converted insurers under the provisions of this title shall

be subject to all other applicable provisions of this Code.
The provisions of the Corporation Code shall apply in a
suppletory manner.
Bar 2005
Bar 1999
Mutual Benefit Association
Section 408. "A mutual benefit association shall only

maintain free and unassigned surplus of not more than
twenty percent (20%) of its total liabilities as verified by the
Commissioner. Any amount in excess shall be returned to
the members by way of dividends, enhancing the equity
value or providing benefits in kind and other relevant
services. In addition, subject to the approval of the
Commissioner, a mutual benefit association may allocate a
portion for capacity building and research and development
such as developing new products and services, upgrading
and improving operating systems and equipment and
continuing member education.
TRUST BUSINESS IN GENERAL
"Section 429. An insurance company may engage in limited

trust business, consisting of managing funds pertaining only
to retirement and pre-need plans, provided it has secured a
license to do so from the Bangko Sentral ng Pilipinas. This
trust business shall be separate and distinct from the
general business of the insurance company and shall be
subject to rules and regulations as may be promulgated by
the Bangko Sentral ng Pilipinas in consultation with the
Commissioner.
CHAPTER IX REGISTRATION, RESPONSIBILITIES AND

OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS
Section 430. The Commissioner shall have the power to

register as a self-regulatory organization, or otherwise
grant licenses, and to regulate, supervise, examine,
suspend or otherwise discontinue, as a condition for the
operation of organizations whose operations are related to
or connected with the insurance market such as, but not
limited to, associations of insurance companies, whether life
or non-life, reinsurers, actuaries, agents, brokers, dealers,
mutual benefit associations, trusts, rating agencies, and
other persons regulated by the Commissioner, which are
engaged in the business regulated by this Code.
The Commissioner may prescribe rules and regulations

which are necessary or appropriate in the public interest or
for the protection of investors to govern self-regulatory
organizations and other organizations licensed or regulated
pursuant to the authority granted hereunder including, but
not limited to, the requirement of cooperation within and
among all participants in the insurance market to ensure
transparency and facilitate exchange of information.
X borrowed from CCC Bank. She mortgaged her house and

lot in favor of the bank. X insured her house. Tt1e bank also
got the house insured.
A.
B.
C.
Is this double insurance? Explain your answer. (3%)

Is this legally valid? Explain your answer. (3%)
In case of damage, can X and CCC Bank separately
claim for the insurance proceeds? (4%)
Answer
A.
No, this is not double insurance. Double insurance

exists when the same person is insured by several
insurers in respect of the same subject and interest
The insured in the two policies are different and they
have different interests. Xs interest is as the owner of
the house and lot while CCCs interest is as the
mortgagee and is limited to the amount of the debt.
Yes, this is legally valid. Both the mortgagee and the
owner have insurable interests over the property. Either
party may obtain a property insurance policy on the
same property because both stand to suffer loss in
case the house and lot is destroyed or damaged.
Yes, both X and CCC can claim under their insurance
policies. X can claim to the extent of the value of the
property. CCC can claim to the extent of the unpaid
debt in favor of X, that is secured by the property.
B.
C.
Over-insurance
OVER- INSURANCE amount of insurance is beyond the value
of insureds insurable interest
How to collect in case of over-insurance by double

insurance, Sec. 96
The insured, unless the policy otherwise provides, may

claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are severally
liable under their respective contracts;
Valued Policy- any sum received by him under any other

policy shall be deducted from the value of the policy without
regard to the actual value of the subject matter insured;
Unvalued Policy- any sum received by him under any policy

shall be deducted against the full insurable value, for any
sum received by him under any policy;
Policy is unvalued, determine actual loss and collect

from insurance in such order as he may select
If insured receives amount more than loss, hold sum in

trust according to the right of contribution
Each insurer must contribute ratably to the loss in

proportion to the amount for which he is liable
Double Insurance v. Over-insurance

Double Insurance
Same person is insured by several insurers in respect

of the same subject and interest (Sec. 95)
Requisites:
1.
2.
3.
4.
5.
insured is the same

two or more insurers insuring separately
same subject matter
interest insured is the same
risk or peril insured against is the same
The contention of the insurer is untenable. First, there is no

law prohibiting double insurance. Second, there was no
double insurance here because the insured in the two
policies are different. The two insured also have different
interests on the property.
Bar 2012
Self-Regulatory Organizations
A businessman obtained a fire insurance policy on his

stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer refused to
pay claiming that double insurance is contrary to law. Is this
contention tenable?
ANSWER
Trust Business
When does double insurance exist? (2%)
Bar 2005
What is the nature of liability of several insurers in double

insurance (2%)
ANSWER
In double insurance, the insurers are considered as coinsurers. Each one is bound to contribute ratably to the loss
in proportion to the amount for which he is liable under his
contract (Sec. 96e)
Kinds of Non-Life Insurance

MARINE
Sections 99 and 100 concept
Peril covered perils of the sea or perils of navigation

casualties due to unusual violence or extraordinary action of
wind and wave or other extraordinary causes connected
with navigation must be the PROXIMATE CAUSE
Peril of the ship is NOT covered
Bar 2012
X insured the building she owns with two (2) insurance companies for
the same amount. In case of damage, A.
B.
C.
D.
X can not claim from any of the two (2) insurers because with
the double insurance, the insurance coverage becomes
automatically void.
the two (2) insurers will be solidarily liable to the extent of the
loss.
the two (2) insurers will be proportionately liable.
X can choose who he wants to claim against.
ANSWER: D
Peril of the Ship v. Peril of the Sea
Roque v. IAC sinking of barge

circumstances (SHIP)
without extra-ordinary
Go Tiaco v. Union loss results from natural and inevitable

action of the sea, from the ordinary wear and tear of the ship
or from negligence of owner to provide with proper
equipment (SHIP)
Cathay v. CA rusting of steel pipes in the course of the

voyage in view of the toll on cargo of wind, water and salt
conditions (SEA)
Reinsurance
Contract by which an insurer procures a third person to insure
him against loss or liability by reason of an original insurance
Illustration
A gets B to insure his building against fire for P10 Million.
B (insurer) can get C (reinsurer) to reinsure him for P5

Million out of the P10 Million insurance in favor of A. Thus,
Bs liability shall be limited to P5 Million. While C, the
reinsurer has to give the insurer the other P5 M.
Reinsurance
v.
Double Insurance
Bar 2011
Perils of the ship, under marine insurance law, refer to loss
which in the ordinary course of events results from
A.
B.
C.
D.
natural and inevitable actions of the sea.

natural and ordinary actions of the sea.
unnatural and inevitable actions of the sea.
unnatural and ordinary actions of the sea.
Answer
A. natural and inevitable actions of the sea.
Is ship owners insurer liable in case of loss if:
insurer becomes
the insured
subject of
insurance is the
original insurers
risk
Insurer remains
the insurer
subject of
insurance is
property
vessel is chartered (Sec. 102)
YES. liable only for part of the loss which insured

cannot recover from charterer
Insurance of owner full value of property but

recovery shall be limited to amount not paid by
charterer
Insurance of charterer extent of his liability in

case of loss
Illustration
insurance of a
different interest
insurance of the
same interest
original insured is
not a party
insured is the
party in interest
in all contracts
A and B enter into a charter agreement.

A's vessel is valued at P1 Million.
Per agreement, Bs insurer shall be liable up to P500,000 in
case of loss. A has an insurance of P1 M.
In case of loss:
As insurer = P500,000
Bs insurer = P500,000
Can ship owner get insurance for:
consent of original
insured is not
necessary
Insured has to
give his consent
Expected freightage (Sec. 105)
Expected freightage which in the ordinary and

probably course of things he would have earned
but for the intervention of the peril insured against
Important that insured must have an inchoate right

to freightage which cannot be defeated
Expected profits (Sec. 107) YES.
FIRE
Fire Insurance insurance against loss by fire, lightning,

windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire
insurance policies or under separate policies
Bar 2014
On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire

insurance policy from Ilocano Insurance covering its
machineries and equipment effective for one (1) yearor until
May 14, 1997. The policy expressly stated that the insured
properties were located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite."
Before its expiration, the policy was renewed on "as is"
basis for another year or until May 13, 1998. The subject
properties were later transferred to Pace Factory also in
PEZA. On October 12, 1997, during the effectivity of the
renewed policy, a fire broke out at the Pace Factory which
totally burned the insured properties.
The policy forbade the removal of the insured properties

unless sanctioned by Ilocano. Condition 9(c) of the policy
provides that "the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence
of any loss or damage, obtains the sanction of the company
signified by endorsement upon the policy x x x (c) if the
property insured is removed to any building or place other
than in that which is herein stated to be insured." PAM
claims that it has substantially complied with notifying
Ilocano through its sister company, the RBC, which, in fact,
referred PAM to Ilocano for the insurance coverage. Is
Ilocano liable under the policy? (4%)
Fire must be the proximate cause, and must be hostile in

nature
Measure of Indemnity
If there is a valuation shall be conclusive as between

parties in adjusting partial or total loss in the absence of
FRAUD
If there is NO valuation - the expense it would be to the

insured to REPLACE the thing lost or injured in the condition
in which it was at the time of injury
Loss and its amount may be determined on the basis of

such proof as may be offered by insured which need not be
of such persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo)
How valuation is made
Sec. 174 independent appraiser examines the property

and fixes the value
Valuation shall be inserted in the policy
GENERAL RULE: Valuation shall be the basis for indemnity in

case of total loss
EXCEPT: If there is a change increasing the risk without the

consent of insurer or if there's fraud on the part of insured.
Partial loss full amount of the partial loss
Parties may agree that instead of payment, insurer may

repair, rebuild or replace property
Suggested Answer
Ilocano is liable under the policy.
Under the Insurance Code, any alteration in the use or

condition of a thing insured which is limited by the policy, but
does not increase the risk will not affect the validity of the
policy.
In this case, although the policy forbade the transfer of the

goods without the consent of the insurer, the transfer of the
goods did not increase the risk of fire. Hence, the transfer
will not exonerate Ilocano.
Further, PAM should be deemed to have substantially

complied with the consent requirement when it notified the
agent of Ilocano. Hence, Ilocano was wrong in denying the
claim.
Illustration
Subject matter is a house

Independent appraiser values it at P10 Million
The valuation is attached to the policy
If house is totally destroyed by fire, the valuation of P10
M will be given
If the house is half-destroyed, the indemnity will be half
of P10 Million or P5 M.
If the valuation is based on some fraud on the part of
the insured, e.g. adding fixtures which are not part of
the house OR there is an alteration increasing the
hazard such as converting in to an ammunition factory,
the valuation is not used.
Parties may agree that instead of paying the amount,
insurer will rebuild the house.
When alteration can exonerate insurer
The use or condition of a thing is altered

Policy prohibits or limits the alteration
Made without the consent of the insurer, by means
within the control of the insured
increasing the risks = Insurer can rescind the K
When alteration does not affect policy
The use or condition of a thing insured is altered

Policy prohibits it or limits it
It does not increase the risk
Act which does not violate the policy
any act of the insured subsequent to the execution of

the policy
Act does not violate its provisions, even though it
increases the risk and is the cause of the loss
No effect on policy
CASUALTY INSURANCE
Sec. 176 insurance covering loss or liability arising from

accident or mishap excluding certain types of loss which fall
exclusively within the scope of other types of insurance such
as fire or marine
Casualty Insurance
Employers liability
Motor Vehicle Liability
Plate glass insurance
Burglary and theft insurance
Personal accident and health insurance (when death is NOT

one of the risks insured against)
Motor Vehicle Liability Insurance
Motor vehicle any vehicle propelled by any power other

than muscular power using the public highways, with certain
exceptions
Section 387 unlawful for any land transportation owner or

operator to operate the same in public highways unless
there is a policy of insurance or guaranty in cash or bond to
indemnify the death or bodily injury of a third party or
passenger
What happens to the P10 million debt of Mario to Armando?

Explain. (3%)
At a glance
Insurable interest is property insurance must exist at the

time of the issuance and at the time of the loss although
it need not exist in between these times
A beneficiary in property insurance must have insurable

interest over the property
It is possible that two or more persons may have

insurable interest over the same object. As in the case of
owner and lessee, mortgagor and mortgagee.
In such cases, two or more separate insurance policies

may be obtained. This is not double insurance since they
dont have the same insured and they have different
interests.
Suggested Answer
Armando cannot recover from either policy. Under Section

89 of the Insurance Code, an insurer is exonerated when
the loss is caused by the willful act of the insured.
The loan will remain, but it will be considered as unsecured.
In Life Insurance
WHEN
General Rule: Paid immediately upon maturity of the

policy (death, survival, cessation or continuance of life)
Exceptions:
The covered peril must be the proximate cause before

there can be recovery under the policy.
Instances when there can be return of premiums.
proceeds are payable in installments
Payment of premiums must be on cash and carry basis.
annuity
Important exceptions to cash and carry: credit extension

and installment payment
Marine insurance covers only perils of the sea and NOT

perils of the ship.
In marine, the following persons can get insurance policies:

owner, charterer, for freightage, for expected profits.
Fire insurance covers hostile fire
Failure to give written notice of loss in fire

unreasonable delay will exonerate the insurer.
Indemnity in fire may either be based on valuation OR

payment of cost to restore the object at the time of loss
If maturity is due to death
Proceeds are paid within 60 days from

presentation of the claim and proof of death
Delay = interest unless due to fraudulent claim
Proof of death v. Notice of Death

with
Notice of death is not enough, there must be proof of

death
Proof of death - death certificate

TO WHOM
PART FOUR:
PAYMENT OF PROCEEDS
AND FILING OF CLAIMS
Basic Rule in Recovery
Sec. 89. An insurer is not liable for a loss caused by the

willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.
Bar 2010
General rule: paid to designated beneficiaries
Exception: Facility of payment clause in group life and

industrial life
Facility of Payment : Group Life
There is no designated beneficiary
pay not exceeding P500.00
to any person equitably entitled for incurring funeral or

other expenses incident to the last illness or death of
the insured
Facility of Payment: Industrial
To secure a loan of P10 million, Mario mortgaged his

building to Armando. In accordance with the loan
arrangements, Mario had the building insured with First
Insurance Company for P10 million, designating Armando
as the beneficiary.
Armando also took an insurance on the building upon his
own interest with Second Insurance Company for P5 million.
The building was totally destroyed by fire, a peril insured
against under both insurance policies. It was subsequently
determined that the fire had been intentionally started by
Mario and that in violation of the loan agreement, he had
been storing inflammable materials in the building.
How much, if any, can Armando recover from either or both
insurance companies? (2%)
If beneficiary:
does not surrender policy with proof of death

during period stated in the policy OR
is the estate of insured OR
is a minor OR
dies before the insured OR
is legally incompetent to give valid release
proceeds may be given to:
the executor or administrator of insured OR
any of insureds relative by blood as legal

adoption or by marriage OR
any person who incurred expenses

maintenance, medical attention or burial
for
Claim against one motor vehicle only
NON-LIFE INSURANCE
WHEN
if occupant of a vehicle, claim against insurance of

vehicle
otherwise, claim against offending vehicle
Bar 2012
within 30 days after proof of loss is received by insurer

and ascertainment of loss is made
Ascertainment of loss
made either by agreement between parties or by

arbitration
If no ascertainment is made or can be had within 60

days from receipt of proof of loss, insurer must pay
within 90 days after receipt of proof
A.
Refusal to pay within period unless due to a fraudulent

claim = interest
C.
X is a passenger of a jeepney for hire being driven by Y. The jeepney

collided with another passenger jeepney being driven by Z who was
driving recklessly. As a result of the collision, X suffered injuries. Both
passenger jeepneys are covered by Comprehensive Motor Vehicular
Insurance Coverage. If X wants to claim under the "no fault indemnity
clause", his claim will lie against the insurer of the jeepney being driven by Z
who was the one at fault.
the claim shall lie against the insurer of the passenger
jeepney driven by Y because X was his passenger.
X has a choice against whom he wants to make his
claim.
None of the above.
B.
D.
ILLUSTRATION
A presents proof of loss of car by theft and insurer

ascertains amount of loss on January 1, 2000
Proceeds must be paid 30 days after January 1, 2000.

Otherwise, interest must be paid.
A presents proof of theft on January 1, 2000 but parties

cannot agree on amount of loss by March 1, 2000 (within 60
days from Jan.1).
Proceeds must be paid within 90 days from January 1, 2000.

Otherwise, interest will accrue.
MOTOR VEHICLE LIABILITY
Death certificate and evidence to establish payee

OR medical report and evidence of medical and
hospital disbursement.
Bar 2014
On May 26, 2014, Jess insured with Jack Insurance (Jack)

his 2014 Toyota Corolla sedan under a comprehensive
motor vehicle insurance policy for one year. On July 1,
2014, Jess car was unlawfully taken. Hence, he
immediately reported the theft to the Traffic Management
Command (TMC) of the Philippine National Police (PNP),
which made Jess accomplish a complaint sheet as part of
its procedure. In the complaint sheet, Jess alleged that a
certain Ric Silat(Silat) took possession of the subject vehicle
to add accessories and improvements thereon.
However, Silat failed to return the subject vehicle within the

agreed 3-day period. As a result, Jess notified Jack of his
claim for reimbursement of the value of the lost vehicle
under the insurance policy. Jack refused to pay claiming that
there is no theft as Jess gave Silat lawful possession
of the car. Is Jack correct? (4%)
Procedure for filing claims
Accident
Within six months, file written notice of claim.
Filed after six months = waived claim
Notice must contain nature, extent, duration of injuries certified by a licensed physician
Suggested answer
Jack is wrong.
Jeff obtained a comprehensive motor vehicle

insurance policy, which should cover all kinds of
losses for whatever reason, except gross negligence.
The policy should cover the loss of the car, although it

was not really unlawfully taken by Silat. The fact
remains that there was loss of vehicle and the
proceeds for the loss should be paid to Jeff.
Insurer gets notice
Ascertain nature and truth of claim

If parties agree, pay claim within 5 calendar days
If no agreement is reached
Insurer must pay under no-fault indemnity clause

Delay, Proof, Subrogation
Reasonable Delay in
Payment
No fault Indemnity Clause:
Section 391
death or injury of 3rd party
without necessity of proving fault or negligence of any kind
if total indemnity of one person shall not exceed P15,000.
Proofs of loss are submitted under oath.
police report of accident ; and
delay due to investigation to ascertain the truth of

information it received that insured was not insurable at
time of application (Chuy v. Philamlife)
delay caused by determination of actual beneficiary and

claims of creditors (RCBC v. CA)
Preliminary Proof of Loss
best evidence which insured has
not evidence in ordinary courts
purpose : Apprise insurer of loss and

make
proper investigation while evidence is still
fresh and to prevent further loss
Bar 2011
NOTICE OF LOSS IN FIRE
Must be written
Must be given without unnecessary delay
Otherwise, the insurer is exonerated
NOTICE IN OTHER NON-LIFE POLICIES
The Commissioner may specify the period for the

submission of the notice of loss.
when insurer pays for the loss
payment to insured operates as an equitable

assignment to the insurer of all remedies which insured
may have for the recovery
subrogation is limited to the amount
by the insured
T Shipping, Co. insured all of its vessels with R Insurance,

Co. The insurance policies stated that the insurer shall
answer for all damages due to perils of the sea. One of the
insured's ship, the MV Dona Priscilla, ran aground in the
Panama Canal when its engine pipes leaked and the oil
seeped into the cargo compartment. The leakage was
caused by the extensive mileage that the ship had
accumulated. May the insurer be made to answer for the
damage to the cargo and the ship?
A. Yes, because the insurance policy covered any or all damage

arising from perils of the sea.
B. Yes, since there appears to have been no fault on the part of
the shipowner and shipcaptain.
Subrogation
Barratry includes every wrongful act committed by a vessel

master or crew, to the prejudice of the owner or the
charterer.
C. No, since the proximate cause of the damage was the breach
of warranty of seaworthiness of the ship.
D. No, since the proximate cause of the damage was due to
ordinary usage of the ship, and thus not due to a peril of the sea.
recoverable
Answer
Marine
What may be insured against
Only covers loss due to perils of the sea and not perils of the
ship
In case there is a bottomry, insurable interest of the ship

owner is limited to excess of its value over the amount
secured by bottomry.
D. No, since the proximate cause of the damage was due to

ordinary usage of the ship, and thus not due to a peril of the
sea.
Who can insure?
Freightage all benefits derived by the owner either from

chartering the ship or its employment for the carriage of his
own goods or those of others (102)
Charterer of the ship has insurable interest on the ship to the

extent that he is damnified by the loss (106)
Bar 2010
Paolo, the owner of an ocean-going vessel, offered to

transport the logs of Constantino from Manila to Nagoya.
Constantino accepted the offer, not knowing that the vessel
was manned by an irresponsible crew with deep-seated
resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of
the sea and barratry. The logs were improperly loaded on
one side, thereby causing the vessel to tilt on one side. On
the way to Nagoya, the crew unbolted the sea valves of the
vessel causing water to flood the ship hold. The vessel
sank.
Constantino tried to collect from the insurance company
which denied liability, given the unworthiness of both the
vessel and its crew.
Constantino countered that he was not the owner of the
vessel and he could therefore not be responsible for
conditions about which he was innocent.
General insurer is liable for proportion of the loss

assessed (136)
Particular insurer is liable unless there is a stipulation

exempting the insurer (136)
General Average
Goods of A valued at 1 M are disposed
Disposition saves the goods of B (1 M) and C (1 M)
The 1 M loss of A will be shared by B and C in proportion to

the value of the goods belonging to them which are saved.
The 1 M loss will be divided by three
Particular Average
If the goods of A are disposed
But disposition did not inure to the common benefit of other

owners of goods
Suggested Answer
Only A and his insurer will suffer the loss
The insurer is not liable because the vessel violated the

implied warranty of seaworthiness. The loss was also
caused by a peril of the ship and not peril of the sea.
Other owners and their insurers will not contribute in As loss
Is the insurance company liable? Why or why not? (3%)
What is "barratry" in marine insurance? (2%)
Average
Reshipment
Insured peril prevents a ship from completing voyage at an

intermediate port, liability of the marine insurer continues
after reshipment without prejudice to insurer's right to collect
more premiums (133)
In case of reshipment, the insurer of goods is liable for
damages, expenses of discharging, storage, reshipment
and other expenses (134)
For a constructive total loss to exist in marine insurance, it is

required that the person insured relinquish his interest in the
thing insured. This relinquishment must be
A.
B.
C.
D.
actual.
constructive first and if it fails, then actual.
either actual or constructive.
constructive.
Answer:
A. actual.
Abandonment
Kinds of loss in marine
Loss in marine
It is made orally or in writing. If orally, written notice shall be

submitted within 7 days from oral notice (143)
Has the effect of transferring by the insured of his interest, to

the insurer with all chances of recovery and indemnity (146)
Partial
Total
Actual
Bar 2011
Constructive
X Shipping, Co., insured its vessel MV Don Teodoro for

Php100 Million with ABC Insurance, Co. through T, an agent
of X Shipping. During a voyage, the vessel accidentally
caught fire and suffered damages estimated at Php80
Million. T personally informed ABC Insurance that X
Shipping was abandoning the ship.
Later, ABC insurance denied X Shippings claim for loss on

the ground that a notice of abandonment through its agent
was improper. Is ABC Insurance right?
A.
B.
Yes, since X Shipping should have ratified its agents action.

No, since T, as agent of X Shipping who procured the
insurance, can also give notice of abandonment for his
principal.
Yes, since only the agent of X Shipping relayed the fact of
abandonment.
No, since in the first place, the damage was more than 34
of the ship's value.
Total v Partial Loss
Every loss which is not total is partial (128)
Total loss may either be actual or constructive
Actual loss may be presumed from the continued absence

of a ship without being heard of (132)
Actual Loss, 130
total destruction of the thing
irretrievable loss of thing by sinking or being broken up
damage which renders thing valueless for the purpose it is

held
C.
D.
other event which effectively deprives owner of possession

of the thing at the port of destination
Answer
Constructive Total Loss, 133
Also called technical total loss
Loss which gives the person the right to abandon under

Section 141
When there can be abandonment - SECTION 141
>3/4 of the value is actually lost or would have to be spent to

recover it from peril
If the vessel is injured to such an extent as to reduce its

value to >3/4
If insurer pays for loss as if there was actual total loss, BUT there
was no formal abandonment,Insurer is entitled to whatever may
remain of the thing insured or its proceeds of salvage (147)
Who is entitled to freightage in case of abandonment?
If the thing is a ship, and the voyage cannot be performed

without incurring either expense to the insured of >3/4 the
value of the thing abandoned or a risk which a prudent man
would not take under the circumstances
If the thing is cargo or freightage, voyage cannot be
performed, nor another ship be procured within a
reasonable time and with reasonable diligence to forward
the cargo, without incurring like expenses or risk >3/4 of the
value of the vessel.
B. No, since T, as agent of X Shipping who procured the

insurance, can also give notice of abandonment for his
principal.
freightage earned before the loss belongs to the

insurer of the freightage
Freightage earned after the loss belongs to the

insurer of the ship
Insurer refuses valid abandonment
the rights of the insured are not prejudiced by refusal of

insurer to accept abandonment
Abandonment
Neither partial nor conditional (140)
Must be made within a reasonable time after receipt of

reliable information of loss (141)
Insurer is still liable for actual total loss deducting any

amount given to the insured
If information on loss is incorrect or thing is restored and

there is no total loss, abandonment is ineffectual (141)
Acceptance of abandonment may be express or implied.

Mere silence is acceptance
Insured refuses to abandon
Bar 2011
If insured fails to abandon, he can recover actual loss
Illustration
A insures a vessel with B for P1 Million

The vessel's value is reduced to P200,000 due to a
peril of the SEA
TWO CHOICES OF A: Abandon or claim actual loss
o If A abandons
A must immediately give a written

notice of abandonment to B
If B accepts the abandonment, it

must give A P1 Million
B now has all the right with respect to

the vessel
HOWEVER,
freightage
earned
before loss will belong to the insurer
of the goods
Freightage earned after the loss will

belong to the insurer of the vessel
If A does not abandon BUT
B still gives A P1 Million
B will now have the right over the vessel, what remains
of it and proceeds of salvage
A can recover ACTUAL loss or P800,000 since the

vessel is reduced to 20% of its former value of P1
Million
Total
Constructive
Actual
Insured must abandon to getInsured

full amount
>3/4 rule
gets full amount
Measure of Indemnity
Valuation is conclusive between parties in determining total or

partial loss EXCEPT if there is fraud
Marine insurer is liable for partial loss only for such proportion
of the amount insured by him as the loss bears to the value of
the whole interest.
How to estimate loss in open policy (161)
Value of the ship value at the beginning of risk including

articles which adds to its value or to prepare it for the voyage
Value of the cargo actual cost to insured when laden on

board OR market value at the time and place of lading
Value of the freightage is the gross freightage, exclusive of

primage
Cost of insurance shall be added to the estimated value
Effect of an Other Insurance Policy Clause
Generally allowed
Only subject to possible stipulation that insurer must be informed

or must consent to additional insurance policies on the same
property
Bar 2011
If an insurance policy prohibits additional insurance on the

property insured without the insurer's consent, such provision
being valid and reasonable, a violation by the insured
A.
B.
reduces the value of the policy.

avoids the policy.
C.
D.
offsets the value of the policy with the additional

insurancess value.
forfeits premiums already paid.
Answer
B. avoids the policy.
Litigation of Claims
(e) Enlist the aid and support of, and/or deputize any and all
enforcement agencies of the government in the
implementation of its powers and functions under this Code;
Administrative Powers
(f) Issue cease and desist orders to prevent fraud or injury to

the insuring public;
(g) Punish for contempt of the Commissioner, both direct

and indirect, in accordance with the pertinent provisions of
and penalties prescribed by the Rules of Court;
(h) Compel the officers of any registered insurance

corporation or association to call meetings of stockholders
or members thereof under its supervision;
Powers of the Commissioner
Insurance Commissioner
Section 437. The Insurance Commissioner shall be appointed by

the President of the Republic of the Philippines for a term of six
(6) years without reappointment and who shall serve as such
until the successor shall have been appointed and qualified. If
the Insurance Commissioner is removed before the expiration of
his term of office, the reason for the removal must be published.
Adjudicatory Powers
(i) Issue subpoena duces tecum and summon witnesses to

appear in any proceeding of the Commission and, in
appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax
returns, and books of accounts of any entity or person under
investigation as may be necessary for the proper disposition
of the cases before it, subject to the provisions of existing
laws;
Single claims of P5 Million or below (excluding cost,

attorneys fees and interest)
This jurisdiction is concurrent with the regular courts
(j) Suspend or revoke, after proper notice and hearing, the

license or certificate of authority of any entity or person
under its regulation, upon any of the grounds provided by
law;
Adjudicatory Powers
does not cover the relationship between the insurance company

and its agents/brokers but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.
(k) Conduct an examination to determine compliance with

laws and regulations if the circumstances so warrant as
determined by appropriate rules and regulations;
(l) Investigate not oftener than once a year from the last
date of examination to determine whether an institution is
conducting its business on a safe and sound basis:
Provided, That, the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;
(m) Inquire into the solvency and liquidity of the institutions

under its supervision and enforce prompt corrective action;
(n) To retain and utilize, in addition to its annual budget, all

fees, charges and other income derived from the regulation
of insurance companies and other supervised persons or
entities;
(o) To fix and assess fees, charges and penalties as the

Commissioner may find reasonable in the exercise of
regulation; and
(p) Exercise such other

as well as those which
necessary or incidental
Commission to achieve
Code.
To impose penalties on insurers:
Fines not less than Five thousand pesos a (P5,000.00) and

not more than Two hundred thousand pesos (P200,000.00);
and
Suspension, or after due hearing, removal of directors

and/or officers and/or agents.
At least once a year to examine the affairs, financial

condition and method of business of insurers
To issue licenses/registrations/authority to the ff:
Domestic or foreign insurer (247)
To see that all laws relating to insurance, insurance companies and

other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code
has sole and exclusive authority to regulate the issuance and sale
of variable contracts as defined in Section 238 hereof and to provide
for the licensing of persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.
Issue such rulings, instructions, circulars, orders and decisions as

may be deemed necessary to secure the enforcement of the
provisions of this Code to ensure the efficient regulation of the
insurance industry in accordance with global best practices and to
protect the insuring public. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Finance.
(a) Formulate policies and recommendations on issues

concerning the insurance industry, advise Congress and
other government agencies on all aspects of the insurance
industry and propose legislation and amendments thereto;
(b) Approve, reject, suspend or revoke licenses or

certificates of registration provided for by this Code;
(c) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;
(d) Prepare, approve, amend or repeal rules, regulations

and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations and
orders;
powers as may be provided by law

may be implied from, or which are
to the express powers granted the
the objectives and purposes of this
Reinsurance Broker (license) (Sec. 310)
Insurance Agent and Broker (license) (Sec. 299)
To issue licenses/registrations/authority to the ff:
Resident agent
registration)
Non-life company underwriter (certificate of registration)
Adjusters Actuary
Grounds to revoke agents license
Has willfully violated any provision of this Code; or
Has intentionally made a material misstatement in the

application to qualify for such license; or
SECTION 251. It is unlawful to:
Has obtained or attempted to obtain a license by fraud or

misrepresentation; or
(a) Present or cause to be presented any fraudulent claim for the

payment of a loss under a contract of insurance; and
Has been guilty of fraudulent or dishonest practices; or
Has misappropriated or converted to his own use or illegally

withheld moneys required to be held in a fiduciary capacity;
or
(b) Fraudulently prepare, make or subscribe any writing with intent to

present or use the same, or to allow it to be presented in support of
any such claim. Any person who violates this section shall be
punished by a fine not exceeding twice the amount claimed or
imprisonment of two (2) years, or both, at the discretion of the court.
of
foreign
insurer
(certificate
Unfair Claims Settlement Practices
Not attempting in good faith to effectuate prompt, fair and

equitable settlement of claims submitted in which liability has
become reasonably clean; or
of
Compelling policyholders to institute

suit
to recover amounts due under its
policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits
brought
by
them
Unlawful Claims
Appeal of Insurance Commission cases
Has not demonstrated trustworthiness and competence to

transact business as an insurance agent or insurance
broker in such manner as to safeguard the public; or
If Administrative functions- File a Memorandum of Appeal

within 15 days to the Secretary of Finance (Rule IX, Section
1 of Insurance Memorandum Circular 1-93)
Has materially misrepresented the terms and conditions of

policies or contracts of insurance which he seeks to sell or
has sold; or
If Adjudicatory functions- Court of Appeals (depending on

mode of appeal)
At a glance
Has failed to pass the written examination prescribed, if not

otherwise exempt from taking the same.
Period to pay claims in life and non-life (60 days; 30-60-90

rule)
"In addition to the foregoing causes, no license to act as

insurance agent or insurance broker shall be renewed if the
holder thereof has not been actively engaged as such agent
or broker in accordance with such rules as the
Commissioner may prescribe.
Facility of payment clause
Notice of loss in fire insurance
At a glance
Actual loss
Constructive loss- > rule on abandonment
At a glance
Jurisdiction of the insurance commissioner
Jurisdiction of regular courts
Unfair claims settlement practices
Suspension or Revocation of certificate of authority on the ff

grounds:
Insurer is in an unsound condition
Insurer failed to comply with the provisions of law

or regulations obligatory upon it
Framework
Insurer's condition or method of business is hazardous to

the public or its policyholders
PART FIVE
Insurer's paid up capital or available assets or security

deposits is impaired or is deficient
GROUNDS FOR RESCISSION

PDIC LAW
Margin of solvency is deficient
GROUNDS
Commission of any of unfair settlement practices
Concealment
Misrepresentation
Knowingly misrepresenting to claimants pertinent facts

or policy provisions relating to coverage at issue
Breach of warranty, express or implied
Other grounds - Section 64-65
Failing to acknowledge with reasonable promptness

pertinent communications with respect to claims
arising under its policies
CONCEALMENT
CONCEALMENT
Failing to adopt and implement reasonable standards

for the prompt investigation of claims arising under its
policies
neglect to communicate that which a party knows

and ought to communicate.
May be intentional or unintentional
Requisites of Concealment
party knows the fact which he neglects

communicate or disclose
(b) party concealing is duty bound to
to
disclose such fact to the other
A applied for non-medical life insurance. He did not inform

the insurer that he was examined and confined at St. Lukes
Hospital where he was diagnosed for lung cancer. A died in
a plane crash. Is the insurer liable considering that the fact
concealed had no bearing with the cause of death of A?
Answer
The insurer is not liable. The concealed fact is material to

the approval and issuance of the policy. According to a
decided case, the insured need not die of the disease he
failed to disclose to the insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimate of the
risks of the proposed insurance policy or in making further
inquiries.
All facts within his knowledge
Bar 2011
Material to the contract
Other party has no means of ascertaining
He makes no warranty
An insured, who gains knowledge of a material fact already

after the effectivity of the insurance policy, is not obliged to
divulge it. The reason for this is that the test of concealment
of material fact is determined
Information which prove or tend to prove falsity of

warranty
Bar 2011
A. at the time of the issuance of the policy.

B. at any time before the payment of premium.
C. at the time of the payment of the premium.
D. at any time before the policy becomes effective.
Answer
D. at any time before the policy becomes effective.
WAIVER OF RIGHT TO INFORMATION
By terms of insurance OR
Neglect to make inquiries
Requisites of Concealment
a)
party concealing makes no warranty as to concealed fact
b)
other party has no means of ascertaining the fact concealed
WHAT MUST BE COMMUNICATED
WHAT NEED NOT BE COMMUNICATED
Those which the other knows
Those which, in the exercise of ordinary case, the other

ought to know and which the other has no reason to
suppose him ignorant
WHAT NEED NOT BE COMMUNICATED
Those of which the other waives communication
Those which prove or tend to prove the existence of a

risk excluded by a warranty, and which are not
otherwise material; and
Those which relate to a risk excepted from the policy,

and which are not otherwise material
What need not be communicated
General causes open to his inquiry which may affect the

political or material perils contemplated (32)
General usages of trade (32)
What need not be communicated
Nature or amount of interest, except in answer to an

inquiry (34)
TEST OF MATERIALITY
Determined not by event
Probable and reasonable influence of facts upon the

party to whom communication is due in forming his
estimate of the disadvantages of the proposed contract
OR in making his inquiries
TEST OF MATERIALITY
Assessment of risk, in making/omitting further

inquiries, cause him to reject the risk or accept it at
higher premium rate/different terms
Materiality
Sunlife v. CA, 245 SCRA 268 - where the applicant

concealed prior medical history and he died in a plane
crash, there was still concealment notwithstanding the
apparent lack of relation between the fact concealed and the
cause of death
Bar 2001
concealment entitles the unguilty party to

rescind
CONCEALMENT
In Marine Insurance
in addition to Section 28
all information he possesses material to the risk

except those in Section 30
CONCEALMENT
In Marine Insurance
state exact and whole truth in relation to all matters that

he represents
information of belief or expectation of a third person as

to a material fact is MATERIAL
insured is presumed to know prior loss at time of

insuring
Concealment in Marine Insurance
General Rule: Concealment entitles the innocent party to

rescind
Exception: Section 110
Information of his own judgment (35)
Section 110
Concealment as to following does NOT vitiate the entire
contract but exonerates the insurer from loss resulting from risk
concealed.
(a) national character of insured
(b) liability of thing insured to capture and detention
Section 110
c) liability to seizure from breach of foreign laws of trade
an investigation into the claim and came out withthe

following findings:
(d) the want of necessary document

(e) the use of false and simulated papers
INCONTESTABILITY
LIFE INSURANCE
CLAUSE
IN
Section 48, 2nd par if life insurance has been in force during
the lifetime of the insured for a period of 2 years from DATE OF
ISSUE or LAST REINSTATEMENT
the insurer cannot prove that the policy is void ab initio or is
rescindible
by reason of fraudulent concealment or misrepresentation of
the insured or his agent.
1. Sotero did not personally apply for insurance coverage,

as she was illiterate.
2. Sotero was sickly since 1990.
3. Soterodid not have the financial capability to pay the

premium on the policy.
4. Sotero did not sign the application for insurance.
5. Aban was the one who filed the insurance application and
designated herself as the beneficiary.
Bar 2014
For the above reasons and claiming fraud, Ilocos Life

denied Abans claim on April 16, 1997, but refunded the
premium paid on the policy. (6%)
(A) May Sotero validly designate her niece as beneficiary?
(B) May the incontestability period set in even in cases of

fraud as alleged in this case?
Illustration
A is issued a life insurance policy on April 2, 2000
He conceals the fact that he has tuberculosis
A dies on April 3, 2002.
(C) Is Aban entitled to claim the proceeds under the policy?
Insurance company must pay.

Although there was
concealment, the policy has been in force during the lifetime
of A for 2 years from April 2, 2000.
Suggested Answer
(B) May the incontestability period set in even in cases of

fraud as alleged in this case?
The incontestability clause shall not apply because the

niece did not have insurable interest on the life of her aunt.
Hence, she cannot use the clause to recover.
Suggested Answer
(c) Is Aban entitled to claim the proceeds under the policy?
No Aban is not entitled to the proceeds because she was

the one who obtained the policy on the life of her aunt and
she does not have insurable interest. Hence, the policy is
void.
MISREPRESENTATION
MISREPRESENTATION
Representations factual statements made by the

insured at the time of, or prior to the issuance of the
policy
MISREPRESENTATION
Statement
(a) as a fact of something which is untrue
When Incontestability Clause DOES NOT apply
Person has no insurable interest
Cause of death is an excepted peril
Premiums have not been paid
Conditions of the policy relating to military or naval service

have been violated
When
Incontestability
DOES NOT apply
Fraud of a vicious type is present when policy was taken out
Beneficiary failed to furnish proof of death or to comply with

any condition imposed by the policy after the loss has
happened
That the action was not brought within time specified
Bar 2012
The "incontestability clause" in a Life Insurance Policy

means ---
Clause
A.
that life insurance proceeds cannot be claimed two (2) years
after the death of the insured.
B.
that two (2) years after date of issuance or reinstatement of
the life insurance policy, the insurer cannot anymore prove that the
policy is void ab initio or rescindable by reason of fraudulent
concealment or misrepresentation of the insured.
C.
that the insured can still claim from the insurance policy
after two (2) years even though premium is not paid.
(b) which the insured stated with knowledge that it

is untrue and with an intent to deceive, or which he
states positively as true without knowing it to be true and which
has a tendency to mislead, and
(c) where such fact in either case is material to the
risk
D.
that the insured can only claim proceeds in a life insurance
policy two (2) years after death.
Bar 2014
On July 3, 1993, Delia Sotero (Sotero) took out a life

insurance policy from Ilocos Bankers Life Insurance
Corporation (Ilocos Life) designating Creencia Aban(Aban),
her niece, as her beneficiary. Ilocos Life issued Policy No.
747, with a face value of P100,000.00, in Soteros favor on
August 30, 1993, after the requisite medical examination
and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a claim for the
insurance proceeds on July 9, 1996. Ilocos Life conducted
Test of Falsity & Materiality
Sec. 44 when the facts fail to correspond with

or stipulations
its
assertion
Sec. 45 materiality is determined using the same test in

concealment (Sec. 31)
Misrepresentation as a ground to rescind
entitled to rescind from the time the representation

becomes false
right to rescind by insurer is waived by acceptance of

premiums despite knowledge of ground to rescind
Misrepresentations
in Life Insurance
no rescission
proceeds shall be such as the premium would have

purchased at the correct age
when made in good faith upon reasonable grounds

to avoid a peril
Misrepresentation
in Marine Insurance
in good faith to save human life or to relieve

another vessel
entitles the insurer to rescind
eventual falsity of a representation as to expectation

without fraud, does NOT avoid a marine insurance
contract
Bar 2011
Shipowner X, in applying for a marine insurance policy from

ABC, Co., stated that his vessel usually sails middle of
August and with normally 100 tons of cargo. It turned out
later that the vessel departed on the first week of September
and with only 10 tons of cargo. Will this avoid the policy that
was issued?
as
to
Proper Deviation, 124
caused by circumstances outside the control of the master

or owner
when necessary to comply with a warranty or to avoid peril
Proper Deviation, 124
Age
Bar 2011
A. Yes, because there was breach of implied warranty.

B. No, because there was no intent to breach an implied
warranty. C. Yes, because it relates to a material
representation.
D. No, because there was only representation of intention.
Bar 2011
T, the captain of MV Don Alan, while asleep in his cabin,

dreamt of an Intensity 8 earthquake along the path of his
ship. On waking up, he immediately ordered the ship to
return to port. True enough, the earthquake and tsunami
struck three days later and his ship was saved. Was the
deviation proper?
Bar 2011
A. Yes, because the deviation was made in good faith and

on a reasonable ground for believing that it was necessary
to avoid a peril.
B. No, because no reasonable ground for avoiding a peril

existed at the time of the deviation.
C. No, because T relied merely on his supposed gift of

prophecy.
D. Yes, because the deviation took place based on a

reasonable belief of the captain.
Answer
D. No, because there was only representation of intention.
Answer
Breach of Warranty
B. No, because no reasonable ground for avoiding a peril

existed at the time of the deviation.
Warranty
Nationality
Either express or implied
May relate to the past, present or future
Implied Warranties in Marine Insurance
Section 120 - where the nationality or neutrality of the ship is

expressly warranted, it is impliedly warrantied that the ship
will carry the requisite documents to show such nationality
or neutrality and it will not carry any document which will
cast suspicion thereon.
Other
Ground
non life insurance
Seaworthiness - 113
Nationality or neutrality 120
Improper deviation -121
Illegal ventures
Bar 2000
What warranties are implied in marine insurance? (2%)
Seaworthiness
Section 114 - a ship is seaworthy if reasonably fit to perform

the service, and to encounter the ordinary perils of the
voyage contemplated by the parties to the policy
Seaworthiness
Section 116 - extends not only to the seaworthiness of the

ship itself but requires that it be properly laden, provided
with competent master, sufficient number of competent
officers and seamen, requisite appurtenances and
equipment and other implements for the voyage
Improper Deviation
Section 123 - deviation is a departure from the course of the

voyage insured or unreasonable delay in pursuing the
voyage or the commencement of an entirely different
voyage
for
Rescission
in
nonpayment of premium

conviction of a crime arising out of acts increasing the
hazard insured against
discovery of fraud / material misrepresentation
Other Ground for Rescission in non life insurance
discovery of willful or reckless acts or omissions

increasing the hazard insured against
physical changes in the property becoming uninsurable
Discovery of other insurance coverage that makes the
total insurance in excess of the value of the property insured
determination by Insurance Commissioner that
continuation of the policy would violate or would place the
insurer in violation of the Insurance Code
Notice of Cancellation
In writing
Mailed or delivered to named insured at address shown

in the policy OR
or to his broker provided the broker is authorized in

writing by the policy owner to receive the notice of
cancellation on his behalf
Notice of Cancellation
Shall state
grounds relied on
upon written request, insurer will furnish fact

on which cancellation is based
Rescission must be exercised
Before the commencement of any action on the

contract
In which motor vehicle liability insurance notice of

cancellation must be sent to the land transportation
owner/operator and the LTO at least 15 days before date
of effectivity

Isurance Part Three

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Isurance Part Three

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PART THREE

proximate cause of the loss was not the peril insured

Hostile v. Friendly Fire

What may be insured against

Hostile fire is the one covered by fire insurance

That which in the natural and continuous sequence,

Also called the EFFICIENT CAUSE, or one that sets the

NOT equivalent to IMMEDIATE CAUSE

Proximate Cause: Examples

peril not insured against

In the course of rescuing the furniture from fire, the furniture

The insurer is liable to the owner although the damage is

If loss due to willful act or connivance of insured

Section 89 - insurer is not liable if insured, through his willful

Ex. Arson, owner hiring other people to rob his property

If loss due to willful act or connivance of insured

Section 89 - if loss is through SIMPLE negligence of insured

Insurer is NOT liable if loss is caused by GROSS

Immediate Cause v. Proximate Cause

Immediate cause cause or peril which appears closest in

Immediate cause is NOT necessarily the proximate cause

Alfredo took out a policy to insure his commercial building

Alfredo cannot recover from the policy. Section 84 of the

If the fire was found to have been caused by Alfredos own

I qualify. If the negligence was simple in nature then Alfredo

On February 21, 2013, Barrack entered into a contract of

On April 16, 2013, at about 9:00 a.m., Barrack instructed his

Insurer is liable if the thing is rescued from peril insured

Unknown Event- time of occurrence is unknown

Hostile - occurs outside the confines or begins as a friendly

Which will damnify a person OR

Requirement for recovery

Friendly - fire burns in a place where it is intended to burn

WHAT MAY BE INSURED AGAINST

diligent efforts to locate the said vehicle, the efforts proved

In a letter dated July 5, 2013. Matino denied the claim,

Under the Insurance Code, an insurance policy is intended

In this case, the act of Barrack of allowing his driver to bring

JQ can recover since he has insurable interest over his own

Further, the act of JJ, Barracks driver in running away with

A person is said to have an insurable interest in the subject

Every interest in property, whether real or personal

Any relation thereto (lessee, agent)

Liability in respect of property (carrier, depositary)

Which will directly damnify the insured when a

Existing interest (owner)

Inchoate interest founded on an existing interest

Expectancy coupled with

A partner in a firm on its future profits

Mere factual expectation of loss not arising from any legal

NOTE: Factual expectation is enough basis in

Both the mortgagor and the mortgagee have insurable

The II of the mortgagor is to the full value of the SM

The II of the mortgagee is only up to the extent of the

Beneficiary is required to have insurable interest

Insurable interest is required before a person can

JQ, the owner of a condominium insured the same against

The insurer is correct. The beneficiary in property insurance

A is an elderly bachelor. He insured his house against fire.

No, insurance policy must be expressly endorsed to the

A businessman obtained a fire insurance policy on his

existing at the time of perfection for property insurance

Yes. The businessman, as the owner and the creditor, as