TITLE 12 REINSURANCE Erika Joy Santos, Florenda Cayunda, Eric Marcos

Article 97 A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or
liability by reason of such original insurance.

EXAMPLE:

A insured his house with B Co for P 5,000,000.00 B Co in turn, insured its liability under the policy issued to A,
with C Co. The insurance contract between B Co and C Co is reinsurance.

A reinsurance policy is a contract of indemnity one insurer makes with another person to protect the first
insurer from risk it has already assumed.
Purpose: To reimburse the original insurer for a loss he may sustain upon his contract of insurance; it is a
guaranty to reimburse him for any sum he may be compelled to pay to the original insured.

RETROCESSION

It is an insurance made on a second and subsequent level, concerning the same original risks written by the
first ceding company.

EXAMPLE:

In the example given, in case C Co reinsures with D Co part of its risk under the reinsurance contract B Co, the
contract between C Co and D Co is retrocession.

Reinsurance vs Double Insurance

REINSURANCE DOUBLE INSURANCE

The insurer becomes the insured. The insurer remains as insurer
The subject matter is the insurers risk or liability. The subject matter is the property.
Different risk and interest is insured. The same interest and risk are insured.

Sec. 98 Where an insurer obtains reinsurance, except under reinsurance treaties, he must communicate all the
representations of the original insured, and also all the knowledge and information he possesses, whether
previously or subsequently acquired, which are material to the risk.

Duty of reinsured to disclose facts.

Where the underwriter is seeking to insure his risk, his duty to disclose all material facts is no less than the
similar duty imposed on a person seeking an original insurance. Thus, a policy may be avoided where the reinsured
conceals the fact that a loss has taken place or that the property is over-insured where he has knowledge thereof.

EXAMPLE:
X insurance company issued a fire policy covering a building owned by Y. Z insurance company accepted
reinsurance coverage under the policy. Thereafter, Y married H, an ex-convict for arson. All the members of the board
of directors of X company were invited as guests at the wedding and knew who H was. Subsequently, the building was
completely destroyed by fire.

May X (original insurer) recover from Z (reinsurer) notwithstanding that X did not disclose Hs previous
conviction for arson?

No. Generally, when a contract of insurancehas been entered into, the insured cannot be charged with
fraudulent concealment by reason of the fact that he fails to disclose matters material to the risk arising thereafter.
Section 98, however, covers knowledge or information by the insurer whether previously or subsequently acquired,
which are material to the risk.

Sec. 99 A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.

Nature of the contract of Reinsurance

- the subject of the contract of reinsurance is primary the insurers risk and not the property insured
under the original policy

one of, a contract of indemnity against liability

 - the reinsurer agrees to indemnify the insurer, not against actual payment made but against
liabilities incurred

separate from original insurance policy

- the contract of insurance is independent of and separate from the contract of reinsurance

based on original policy

- the policy of reinsurance, however, is necessarily based upon the original policy, and the rights of
the parties while, of course, fixed by the terms and conditions of the policy of reinsurance are yet greatly
affected by the terms and conditions of the original policy upon which the reinsurance contract is based

insurable interest requirement applicable

rule on subrogation applicable

Example:
A insured his building against fire with One Co, One Co., in turn, reinsured its risk with Two Co. The building
insured by A was burned but One Co.(insurer) could not pay because it was insolvent.
One Co., may collect from Two Co. (reinsurer) because reinsurance is a contract of indemnity against liability
of the insurer.

Extent of Liability of the Reinsurer

The liability of the reinsurer is measured by the liability of the reinsured to the original policyholder provided
this does not exceed the amount of reinsurance.

Sec. 100 The original insured has no interest in a contract of reinsurance.

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, Then, 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.

Art. 1311 xxx If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of
a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third
person. (1257a)

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)