Professional Documents
Culture Documents
Sagmit
The insurer will not assume risk unless he gets something There was one case where San Miguel recovered twice. What
happened was there was refund. What happened was that he gave
PHIL HEALTHCARE vs. CIR the money he got back to the insurance company and collected from
the wrongdoer.
ISSUE: Is a healthcare agreement in the nature of a
contract of insurance? Just because the insurance company gave something, this does
not preclude the person from collecting the balance. He should not be
FACTS: Individuals enrolled in its health care programs pay made to sign an acquittal.
an annual membership fee.
They are entitled to various preventive, diagnostic and Take note that subrogation is only applicable in non-life, logically.
curative medical services provided by its duly licensed Life insurance is personal in nature. Only some people can get a policy
physicians, specialists and other professional technical staff using your own life.
participating in the group practice health delivery system at
a hospital or clinic owned, operated or accredited by it. Nature and Characteristics
The DST under Section 185 of the 1997 Tax Code is Aleatory
imposed on the privilege of making or renewing any policy Contract of indemnity for non-life and an investment
of insurance (except life, marine, inland and fire insurance), for life insurance
bond or obligation in the nature of indemnity for loss, Personal
damage, or liability. Executory and conditional on the part of the insurer
Uberrimae fides
RULING: The health care agreement is primarily a contract Adhesion
of indemnity. A health care agreement is in the nature of a
non-life insurance policy. Q: What is aleatory?
A: Dependent on chance
Q: Is a health care agreement a contract of insurance?
If so, then, there must be payment of doc stamps. Q: Why executory and conditional?
A: A health care agreement is a contract of indemnity. The A: Executory as to the insured and conditional as to the insurer.
investment is life because you cannot be indemnified for the death The contingency - the event may or may not happen.
of a loved one. But when a person suffers from a loss arising from
damage to property, there is restitution. Q: What is uberrimae fides?
A health care agreement is a non-life insurance policy. The A: Utmost good faith
health care provider in effect indemnifies the member for the
damage he suffers or for the expenses he experienced because of As you will see later, any concealment of information, even how
some health-related problem. So, this will make the health care little, may be a ground for rescinding a contract of insurance.
agreement a contract of insurance.
Hence, doc stamps should be paid every time there is a There was a SunLife case where this person failed to say that he
renewal of a health care agreement. was confined in a hospital. His cause of death was an airplane crash.
And yet, his claim was denied because there was concealment – Regulation of Insurance Business
whether the fact concealed was the cause of the death. Insurance business is impressed with public interest.
The Supreme Court said that it was material. If it was not The public must be protected against insolvency or unfair
concealed, he may not have been insured or the premium could treatment by insurers.
have been higher. But because there was concealment, the Insurance Commission is tasked to regulate the conduct
beneficiary was precluded from claiming the proceeds. of insurance business through licensing, examination,
investigation and revocation (Sec. 414-416).
Adhesion – if you are given a contract by the insurance
company, unless you want some additional clauses, the form itself SECTION 414. The Insurance Commissioner shall have the duty
is already prepared. In that sense, it is a contract of adhesion. to see that all laws relating to insurance, insurance companies and
other insurance matters, mutual benefit associations, and trusts for
Rule of Construction: charitable uses are faithfully executed and to perform the duties
Doubts are resolved in favor of the insured imposed upon him by this Code, and shall, notwithstanding any
Since a contract of insurance is a contract of adhesion, existing laws to the contrary, have sole and exclusive authority to
any obscure word or stipulation in the insurance policy regulate the issuance and sale of variable contracts as defined in
shall be resolved against the insurance company which section two hundred thirty-two and to provide for the licensing of
drafted the terms thereof (RIZAL SURETY V. CA, 336 persons selling such contracts, and to issue such reasonable rules and
SCRA 12) regulations governing the same.
The Commissioner may issue such ruling, instructions, circulars,
Since a contract of insurance is a contract of adhesion, all orders and decision as he may deem necessary to secure the
doubts must be resolved in favor of the insured, logically. It is like enforcement of the provisions of this Code, subject to the approval of
a contract of employment. the Secretary of Finance. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Statute of Limitations Finance.
General Rule: 10 YEARS from the time the cause of
action accrues. SECTION 415. In addition to the administrative sanctions
Exception: Period may be increased or decreased BUT provided elsewhere in this Code, the Insurance Commissioner is
In industrial life: cannot be shorter than SIX hereby authorized, at his discretion, to impose upon the insurance
YEARS companies, their directors and/or officers and/or agents, for any willful
In all other kinds of insurance: cannot be shorter failure or refusal to comply with, or violation of any provision of this
than ONE YEAR. Code, or any order, instruction, regulation, or ruling of the Insurance
Commissioner, or any commission or irregularities, and/or conducting
“Right of Action Accrues” business in an unsafe or unsound manner as may be determined by
Period is reckoned from the time of the denial of the the Insurance Commissioner, the following:
claim by the insurer (Vda de Gabriel v. CA ) (a) Fines not in excess of five hundred pesos a day; and
If there was no denial of the claim, right of action does (b) Suspension, or after due hearing, removal of directors and/or
not accrue officers and/or agents.
There is a right - someone has to do something. If he fails to SECTION 416. The Commissioner shall have the power to
do it, there is a violation of right. If there is a violation of right, adjudicate claims and complaints involving any loss, damage or liability
there is a cause of action. for which an insurer may be answerable under any kind of policy or
contract of insurance, or for which such insurer may be liable under a
Translated to insurance law, you should file a claim first with contract of suretyship, or for which a reinsurer may be sued under any
your insurance company. If your claim is denied, the 10-year contract of reinsurance it may have entered into; or for which a mutual
period starts to run. If there was no denial, then, you cannot say benefit association may be held liable under the membership
that the period has begun. There should be denial first. certificates it has issued to its members, where the amount of any
There are cases where after the denial, the insured will file a such loss, damage or liability, excluding interest, cost and attorney's
motion for reconsideration. In that instance, the period begins to fees, being claimed or sued upon any kind of insurance, bond,
run already. It is only the first denial that will start the prescriptive reinsurance contract, or membership certificate does not exceed in any
period. So, if you are denied, file the appropriate action. single claim one hundred thousand pesos.
The insurer or surety may, in the same action file a counterclaim
―Doing an insurance business” – MEMORIZE against the insured or the obligee.
making or proposing to make, as insurer, any The insurer or surety may also file a cross-claim against a party
insurance contract; for any claim arising out of the transaction or occurrence that is the
making or proposing to make, as surety, any contract subject matter of the original action or of a counterclaim therein.
of suretyship as a vocation and not merely incidental With leave of the Commissioner, an insurer or surety may file a
to any other legitimate business or activity of the third-party complaint against its reinsurers for indemnification,
surety. contribution, subrogation or any other relief, in respect of the
transaction that is the subject matter of the original action filed with
Take note that this must be done on a regular basis, as a the Commissioner.
vocation. It is not incidental and not as a one-shot deal when it The party filing an action pursuant to the provisions of this
comes to a surety agreement. section thereby submits his person to the jurisdiction of the
Commissioner. The Commissioner shall acquire jurisdiction over the
doing any kind of business, including a reinsurance person of the impleaded party or parties in accordance wit h and
business, specifically recognized as doing insurance pursuant to the provisions of the Rules of Court.
business The authority to adjudicate granted to the Commissioner under
this section shall be concurrent with that of the civil courts, but the
Reinsurance (we will tackle later on) - basically, you have an filing of a complaint with the Commissioner shall preclude the civil
insurance company which will answer the damage. courts from taking cognizance of a suit involving the same subject
Example: Fire insurance for P 10 M. But because P 10M is a matter.
huge amount, your insurance company will now contract with Any decision, order or ruling rendered by the Commissioner after
another entity saying that a portion of it, like P 5M of the P 10M will a hearing shall have the force and effect of a judgment. Any party may
be answered by such entity. The contract is between your appeal from a final order, ruling or decision of the Commissioner by
insurance company and another entity. filing with the Commissioner within thirty days from receipt of such
order, ruling or decision a notice of appeal to the Intermediate
doing or proposing to do any business in substance Appellate Court in the manner provided for in the Rules of Court for
equivalent to any of the foregoing appeals from the Regional Trial Court to the Intermediate Appellate
A n e nt it y ca n s t ill be de e m e d e nga ge d e v e n if he doe s Court.
not de riv e a ny profit from t he a ct iv it y As soon as a decision, order or ruling has become final and
executory, the Commissioner shall motu propio or on motion of the
Even if there is no profit, it is possible that you are still interested party, issue a writ of execution required the sheriff or the
engaged in insurance business. proper officer to whom it is directed to execute said decision, order or
award, pursuant to Rule thirty-nine of the Rules of Court.
For the purpose of any proceeding under this section, the Create a liability - expose the person to liability to third
Commissioner, or any officer thereof designated by him, persons. E.g. third party liability insurance
empowered to administer oaths and affirmation, subpoena The policy holder may not suffer any loss personally but a suit is
witnesses, compel their attendance, take evidence, and require the filed against him. Example: TPL. If he crashed his car and his
production of any books, papers, documents, or contracts or other passenger was injured or a pedestrian was bumped, he does not suffer
records which are relevant or material to the inquiry. In case of any loss but the pedestrian suffered loss or injury. The TPL is if he is
contumacy by, or refusal to obey a subpoena issued to any person, made liable to pay, he has something to answer for such liability.
the Commissioner may invoke the aid of any court of first instance
within the jurisdiction of which such proceeding is carried on, where So, there are 2 kinds of injury – direct and indirect.
such person resides or carries on his own business, in requiring the
attendance and testimony of witnesses and the production of Insurance by a married woman
books, papers, documents, contracts or other records. And such May take out an insurance on her life or that of her
court may issue an order requiring such person to appear before children or that of her husband without the consent of
the Commissioner, or officer designated by the Commissioner, there her husband (RA No. 7192)
to produce records, if so ordered or to give testimony touching the May take out insurance on paraphernal property
matter in question. Any failure to obey such order of the court may
be punished by such court as a contempt thereof. Q: How about conjugal property? How about property of the
A full and complete record shall be kept of all proceedings had absolute community?
before the commissioner, or the officers thereof designated by him, A: It is ok but both of you will benefit, not just you, even if you are
and all testimony shall be taken down and transcribed by a the one who paid the premiums.
stenographer appointed by the Commissioner.
A transcribed copy of the evidence and proceeding, or any Insurance by a minor
specific part thereof, of any hearing taken by a stenographer
appointed by the Commissioner, being certified by such A property insurance taken by a minor is voidable or valid
stenographer to be a true and correct transcript of the testimony on until annulled (1390)
this hearing of a particular witness, or of a specific proof thereof, If contract is not disaffirmed, insurer cannot invoke
carefully compared by him from his original notes, and to be a minority to escape liability.
correct statement of evidence and proceeding had in such hearing
so purporting to be taken and subscribed, may be received as The one who is capacitated cannot use the minority of another
evidence by the Commissioner and by any court with the same person as a defense to defeat the performance of an obligation.
effect as if such stenographer were present and testified to the
facts so certified.
LIFE INSURANCE
Insurance on human lives and insurance appertaining
thereto or connected therewith (Sec. 179)
Classes
1. Individual – protection is based on individual application.
Before they ply the road, it is required before registration that 1. Agent offers a life insurance policy
the vehicle must have an insurance policy of this nature because 2. The proposed insured fills an application – representations and
this is supposed to cover injuries or death caused by that vehicle to concealments. Declarations based on the principle of uberrimei
third persons. fides. You pay the first premium – monthly, quarterly, semi-
Take note: death or bodily injury. Damage to property not annually, or annually.
covered. It falls under casualty because it is an accident,
regardless of whether it caused injury or death. It is still property Q: After your payment of the 1 st premium, are you already
insurance because what we are actually insuring is the vehicle or covered?
the owner of the vehicle, not the life of the person. It is only a A: Not yet because in this situation, the applicant becomes the
consequence. offeror and insurance company becomes the offeree.
Before the cancellation of the TPL by the insurer, it has to give
notice to the owner/operator but also to the LTO (private vehicle) 3. Upon approval, there is now a policy contract given to you. If
or LTFRB (common carrier). disapproved, the premium is returned to you.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 4
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
4. If the contingent happens, either the policyholder will get the â Is deemed a life insurance policy when one of the
proceeds or his beneficiary will get the proceeds. risks insured against is death of insured by accident
(Gallardo v. Morales )
Endowment – when you reach a certain age, you get the
proceeds. If you do not survive, your beneficiaries will get the Accident
proceeds. Either way, there is recovery. An event which happens without any human agency or, if
happening through human agency, an event which under
5. The claim is either granted or denied the circumstances, is unusual and not expected by the
person to whom it happens by reason of some violence or
Denial – this is when the prescriptive period begins to run. casualty to the insured without his design, consent or
Right + Violation of Right = Cause of Action voluntary cooperation ( Sun Insurance v. CA )
6. If you are denied, you go to the Insurance Commission or to Death by suicide: compensable?
the regular courts, depending on the amount of the claim General Rule: NO.
BASIS:
Q: When do you go to the Insurance Commissioner? Sec. 87 which provides that an insurer is not liable if
A: P 100,000 below. (concurrent with courts) loss is caused by willful act or connivance of the
insured; and
Q: How about regular courts? The Rules of Court which provides that a person is
A: Above P 100,000 presumed to intend the consequences of his
voluntary acts
Exactly P 100,000 – regular courts (dagdag ko lang to, so verify)
Suicide is not compensable. If there is a degree of wilfulness and
Jurisdiction: (double-check ) brings about the event, then, that will defeat the claim (Section 87).
MTC – P 300,000 and below If you jump from the 20th floor of a building, you actually expect
RTC – above P 300,000 something to happen.
Section 10(b) Ma’am’s opinion: What may be small for us may be big for other
Obligation to give support people. It may still induce other people to kill. But that is just an
Article 195, Family Code assumption
Spouses, legitimate ascendants and descendants
parents and their legitimate children and Q: What is facility of payment clause? (Ma’am’s Dream Bar Q )
legitimate or illegitimate children of the latter A: This is the only chance that a person will have to get the
parents and their illegitimate children and proceeds even if he not a designated beneficiary.
legitimate or illegitimate children of the latter Examples:
legitimate brothers and sisters whether of the full Group life (?) – the one who spent for the burial, you get up to P
or half blood 500.
Industrial life – if the beneficiary is disqualified, if the beneficiary
Article 196, Family Code is the estate, etc – a person who spent for the last illness of the
Brothers and sisters not legitimately insured or the burial will be entitled to recover from an industrial life
related,whether of the full or half blood, are policy.
likewise bound to support each other EXCEPT only The facility of payment clause covers precisely a situation where a
when the need for support of the brother or sister, person who does not fall under Section 10 spends for the insured and
being of age, is due to a cause imputable to the he is supposed to recover.
claimant’s fault or negligence. The purpose of industrial life is not in so much as an investment.
It is more of answering the obligations of the insured.
Blood relationship, affinity: enough?
In cases not falling under 195 and 196, mere blood Ma’am’s Caveat: Other people are ok with P 200,000. There is that
relationship or affinity does not create insurable danger of bringing about the event.
interest
Examples: uncle, aunt, nephew, niece, cousins, PARTIES
son-in-law, brother-in-law, stepchildren
Section 10 (c)
Pecuniary Interest
Debtor-Creditor
Employer-Employee - El Oriente v. Posadas Insurer: Section 6
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 6
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
Right to dividends if participating policy 227(e); those made to a public officer or his spouse,
230(e) descendants and ascendants by reason of his office
If you were not able to pay the premium, even after the Q: What if living together and both are single?
grace period, you will be in default. What happens to your A: No. Can you donate? That is the same as donation. You cannot
policy? You can reinstate your policy as long as, in the case of donate to your common-law spouse or your spouse. There is an
the individual life, you reinstate within 3 years from default. element of intimidation, force or undue influence.
In industrial, 2 years. You pay the overdue premiums and
you show that you are still insurable. If the beneficiary is disqualified
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 7
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
The estate of the insured will be entitled to the due to absence of insurable interest on the life of A. Is
proceeds of the life insurance policy. the insurer correct?
Answer
It does not mean that the insurance policy will not pay. It will The insurer is wrong. B as the beneficiary is entitled to
pay to the estate of the insured. collect the proceeds. As a beneficiary in a life insurance
policy, B is not required to have insurable interest on the
Bar 1998 life of A. A had insurable interest on his own life and the
A was issued a policy on whole life plan for P20,000. A policy was taken on his life.
is married to B with whom he has 3 legitimate children.
However, A designated his common-law wife C as the There is a 2nd part as to this question. The house was also
beneficiary in his policy and referred to C as his legal insured and the beneficiary was B. Can you argue in that manner? It
wife. When A died, both B and C claimed the proceeds is different in property insurance. You are supposed to own the
of the insurance. Who is entitled to the proceeds? property or you have an interest in the property before you can
(5%) recover in case of loss.
Answer
The estate of A is entitled to the proceeds. C is a LIFE INSURANCE POLICY
disqualified beneficiary because of the illicit relation
she had with A. Form
GENERAL RULE: printed form
Rules on Beneficiaries EXCEPTIONS: group life and annuity contracts which may
If beneficiary WILLFULLY causes the death of the be typewritten
insured/cestui, the nearest relatives of the insured will
get the proceeds Contains blanks where word, phrase, clause, mark, sign
necessary to complete the policy are placed
Bar 2008
On January 1, 2000, Antonio Rivera secured a life This is a contract of adhesion. There are blanks because some
insurance from SOS Insurance Corp. for P1 Million with would like to put specific provisions covering them – covering death by
Gemma Rivera, his adopted daughter, as the suicide, death by accident or at the end of it all, he wants to recover
beneficiary. Antonio Rivera died on March 4, 2005 and the premiums he paid as well as the proceeds.
in the police investigation, it was ascertained that
Gemma Rivera participated as an accessory in the Contents (Sec. 51)
killing of Antonio Rivera. Can SOS Insurance Corp. Parties
avoid liability by setting up as a defense the amount to be insured
participation of Gemma Rivera in the killing of Antonio premium
Rivera? Discuss with reasons. (4%) life insured
Answer risks
SOS cannot avoid liability merely because Gemma was period of effectivity
an accessory to the death of Antonio. Under the law,
when the beneficiary willfully causes the death of the It is possible that the one who got the policy and is paying the
cestui, the nearest relatives of the insured will be premium is not the cestui que vie.
entitled to the proceeds. More often than not, when we talk about life insurance, we are
not very much particular as to the date of effectivity because maturity
Guard against misleading questions! What is the rule under will depend upon the happening of the event – death. Unlike in
the law? property insurance, it can be one year.
If the beneficiary participated in the killing, the proceeds will
go to the nearest relatives. If the beneficiary dies ahead, the Required Provisions
proceeds will go to the estate of the one who pays the premium, Grace period provision – provision which gives the
not to the estate of the beneficiary. insured additional time to pay his premiums from the due
If there is no designated beneficiary, as in the case of GSIS, it date
is the estate of the insured which is entitled to the proceeds. Clarifies the right to collect if death happens within the
grace period
Rules on Beneficiaries Individual life – 30 days/1 month
If beneficiary dies ahead of the insured/cestui, the Group life – 30 days/1 month
estate of the insured will get the proceeds Industrial life – 4 weeks or if payable monthly –
If beneficiary is not designated, insured’s estate 30 days/1 month
will get the proceeds
Even if there is a deadline for the payment of premium, there is
NOTE!! such a thing as grace period – you are given leeway or allowance.
Only the insured or policyholder in life insurance is If the contingency happens during the grace period, there can be
required to have insurable interest on the life of the recovery. Ex: Premium must be paid today (Nov. 10). Grace Period,
cestui. any kind, is 30 days or 1 month. If A will die 2 weeks from now, he is
covered. What will happen is that unpaid premium will be deducted
Example: A will get a life insurance policy as to her wife and from the proceeds, as long as within the grace period. After the grace
make the proceeds payable to an orphanage. In the same period, it has already lapsed.
situation, the beneficiary may be the neighbour, who can bring
about the event. Entire contract provision – The policy shall constitute the
entire contract between the parties
Rule: Do not get a beneficiary which does not have an
insurable interest. Misstatement of age provision – if the age of the insured
is misstated, the amount payable shall be as such
The only person required to have an insurable interest is the premium would have purchased at the correct age
one paying the premium.
Usually, when there is misrepresentation, based on the principle
The beneficiary may or may not have insurable interest of uberrimei fides, the innocent party can move for rescission but not if
on the life of the cestui. What is vital is that the the misrepresentation is as regards to age.
beneficiary is not disqualified under the law to get the
proceeds. Reinstatement provision – clarifies the requirements for
restoring a policy to premium-paying status after it has
Bar 2000 lapsed.
A is an elderly bachelor who took out an individual life
insurance policy on his life. The designated beneficiary Individual – within 3 years from default
is B a companion-friend. A died in a fire which also Group – no reinstatement
destroyed his home. The insurer refused payment to B Industrial – within 2 years from default
You have a deadline to pay the premium. If you are not able provision, automatically, the insurance company will pay the premium
to pay, there is a grace period. If you are not able to pay for you since you already have a reserve. It does not lapse and more
thereafter, it has now lapsed. There is such a thing as expensive.
reinstatement provision. Within the period provided under the law,
the person whose policy has lapsed may move for reinstatement. Kinds of Policies
Policy dividend options – if the policy is participating, 2. Limited Payment Life – premiums are payable only during a
the policyholder is entitled to a share of the surplus. limited period of years (10,15,20 years). After the period, the
insurance is deemed fully paid. Proceeds are payable upon
Exemption from claims of creditors – protection death of insured.
against execution But can be subject under settlement
This is advisable if it will take some time before you will be able
Proceeds of a life insurance policy are exempted from claims to pay. If you have money now, you go for Limited Payment Life.
of creditors.
Exception to this rule: Endowment – the policyholder is still 3. Term Insurance – provides coverage only if the insured dies
alive. Because he survived the period, he earns. That is during a limited period.
income subject to income taxation. It is not, strictly speaking, If the insured dies within the period, the beneficiary gets
exempt from execution because it is does not proceed from the proceeds. If the insured survives the period, the contract
death. He earned it because he invested, just like saving in a is terminated.
bank.
This is also common. If the cestui que vie dies during a limited
Income tax treatment – proceeds of life insurance period, then, there can be recovery. If he dies after that, then, there
policies are generally tax exempt. However, is no recovery.
endowment proceeds and cash surrender values are
treated as income and are taxable. 4. Endowment Policy – insured gets a sum of money if he
survives a specified period. If insured dies within the period,
Same thing: if endowment, subject to income tax, except the beneficiary gets the proceeds.
those proceeds which are obtained because of death of the
cestui que vie. This is the more expensive one because there is recovery either
way. This is not exempt from income tax.
Surrender options – if the policyholder cannot continue
paying the premiums, he has some options which will 5. Life Annuity – debtor binds himself to pay an annual
not put to waste what he has paid. However, these pension or income during the life of one or more determinate
options are available only upon payment of at least 3 persons in consideration of a capital consisting of money or
annual premiums other property, whose ownership is transferred to him at once
with the burden of income.
If you do not want to reinstate and your policy has already
lapsed, there is a surrender option provision in the insurance There is someone with money and gives his money or capital to
policy. an insurance company. The insurance company becomes a debtor
because he is obligated to give pension to the appointed person or the
Surrender Options one who gave the money.
Dependent on the cash surrender value
Cash Surrender Value 227(f); 230(f) and (g) 6. Accident Insurance – may be life or non-life insurance.
payment of at least 3 annual premiums
not less than the reserve on the policy * If death is one of the risks insured against, it is classified
as life insurance.
You surrender your policy and you will get cash. There must
be payment of at 3 annual premiums before you can avail of this When is the insurance contract perfected?
option. If you take a look at the policy, there is a table. More often At the time the insured-applicant has knowledge of the
than not, you will not get anything from 0 to 3 years. approval of his application.
Extended Insurance When a person applies for a life insurance policy, he is supposed
At least three annual premiums to pay the first premium at the time of the application.
limited time, same face value
When is the policy effective? Remember that case where there
You purchase a new policy using the cash surrender value. was an old woman who asked her lawyer to check if her application for
The difference – limited time covered, but same face value. If your life insurance policy had been approved. When it was checked, it was
old policy covered during your life time for P 1M, this one, you are not yet clear if it was approved. In the meantime, the old woman
covered for 10 years for P 1M. Recovery is the same but the period died. Can the beneficiary recover? Was she aware that her
of coverage is shorter. application approved? The one making the offer in that situation is the
applicant. Just like in obligations and contracts, the moment you know
Paid-Up Insurance that the offer was accepted, there is a perfected contract. The offeror
At least three annual premiums must first know that her application was approved before the contract
same period, lower proceeds is perfected. In this case, the woman died without knowing that her
application was approved. The evidence was when she asked her
Same period – you are covered for the entire lifetime – but the lawyer to check. So, she did not yet receive the approval.
proceeds are lower. If before you are covered for your entire If the applicant was not aware of the approval, there is no
lifetime P 1M, this time, you care covered for your entire lifetime perfected contract of insurance.
but for only P 500,000.
Since the insured is the one making the offer, the
Automatic Premium Loan Accrued dividends submission of the application WITHOUT the approval of
Parties agree that in case of default insurer the policy does not result in a perfected contract of
advances the premium not subject to repayment insurance (Grepalife v. CA)
De Lim v. Sun Life – the applicant paid the premium manager swears under oath that there is no circumvention of any of
upon filing of application but he dies before the the provisions of the Insurance Code.
approval
HOLDING: NO perfected contract of insurance If the person dies during the existence of the cover note, there
can be recovery.
If insured died during the period of provisional policy
which is conditioned upon approval of application, PREMIUM
beneficiary is NOT entitled to proceeds.
Concept
Even if the insurer has approved the application via a Agreed price for assuming the risk
letter, there is no perfected contract if there is no The right to premium arises the moment the
evidence that the applicant knew of the approval property/object is exposed to risk
(Enriquez v. SunLife, 41 Phil 629) Cash and carry basis - based on section 77 which provides
that the moment the thing insured is exposed to the peril,
The insured is presumed to have understood the the insurer has the right to payment of premium.
application and the contract of insurance ( Tang v. CA,
90 SCRA 236) Bar Question: What is the cash and carry basis?
The insured is Chinese. The contract was in English. He does When is non-payment excused?
not understand English. The Supreme Court ruled that when you insolvent insured
sign a contract, it is understood that you have understood the insurer’s negligence or fault
content. That is not a valid argument. insurer waives the right to payment
There was one case where the policy was delivered in the Waiver – even if the insurance policy was issued, you still have
house of the aunt. The applicant died. At the time of the delivery not yet paid. Or it was indicated in the insurance policy that you have
of the policy, he must be in a state of good health but the agent already paid you have not actually paid.
still delivered. The Supreme Court said that at that time, the aunt
did not even know that the applicant has died. So, she received it war does not suspend the policy and does not excuse
in good faith. So, there is a binding contract of insurance. non-payment of premiums
Reconcile with the acceptance rules – it seems inconsistent. Constantino vs. Asia Life, 87 Phil 248
However, here, the agent was negligent. He should have first
checked if the applicant was in good health. The agent merely Remember the 3 schools of thought: New York, Connecticut and
relied on the representation of the aunt, who also did not know and the United States.
it was proven. We apply the United States - Non-payment due to the effects of
war does not merely suspend but puts an end to the insurance
Cover Notes v. Binding Receipt contract if the time of the payment is particularly of the essence of the
contract. Insurance companies not only calculate on the premium but
COVER NOTE: Temporary insurance policies intended on the compounding interest upon them. It is the basis that that they
to cover the insured while application is being are entitled to offer assurance at the favorable rate that they put. So,
evaluated it will put an end to the insurance contract. The insurance contract is
abrogated. (not mentioned in class – added note )
A cover note is a form of goodwill. While your application is
being evaluated, you are already covered. Premium
If insured fails to pay 1st premium, insurer cannot
BINDING RECEIPT: acknowledgment of receipt of ask for specific performance but can only rescind the
premium and application subject to evaluation. NOT contract since there is no creditor-debtor relationship
the same as cover note ( Great Pacific v. CA, 89 SCRA
543) You applied for a life insurance policy and you did not pay the
It is merely a receipt acknowledging that the first premium first premium. Can a case for collection be filed against you?
was paid. But just because the person paid the first premium, it When it comes to life insurance policy, NO, it cannot be filed
does not mean that there was already a perfected contract of against you. Here, specific performance is not an option. Only
insurance. Payment of premium is not an indicator of a perfected rescission is allowed.
contract of insurance.
Special Rule in Industrial Life if premiums are not paid
Cover note is a valid insurance if: If insured failed to pay because the insurance agent did
Issued and renewed with prior approval of the not collect in the address provided in the policy – policy
Insurance Commissioner will NOT lapse
Valid and binding for not more than 60 days, unless the Except: if 12 weeks or 3 months have lapsed from end of
insurance commission has approved an extension grace period
based on valid grounds
If a policy holder does not pay the premium within the period and
It can be extended with the approval of the Insurance the grace period, it will result to a lapsed policy.
Commission. You do not need to pay extra for this because it is But in industrial life, if the failure to pay was due to the non-
goodwill, whether or not the application is eventually approved. collection by the insurance agent, the policy holder is excused because
the fish vendor, market vendor, ice cream vendor do not have time to
No separate premium is required for the cover note go to the insurance company. Usually, an insurance agent goes to
(Pacific Timber v. CA ) them. If the reason why the policy holder was not able to pay is
7-day notice to the other party is required to cancel the because of the negligence of the agent, the policy holder is excused
cover note except if it has been 3 months or 12 weeks from the lapse of the grace
Policy must be issued within 60 days from issuance of period. This means 4 weeks plus 3 months equals 4 months. But one
cover notes has to establish that the failure to pay was due to the neglect of the
agent.
Within the 60-day period of the cover note, the application
must have been evaluated – whether approved or not. At a glance
Only the insured must have insurable interest on the life
60-day period may be extended upon written approval if the cestui
of IC
Written approval is dispensed when president, VP or The one gets the proceeds is not required to have insurable
general manager that the renewal is not to circumvent interest on the life of the cestui que vie. Be able to differentiate it to
the insurance code (Ins. Memo Circular 3-75) propertly life later.
The written approval of the Insurance Commissioner can be Suicide is generally not compensable unless: mentally ill
dispensed with if the president, the vice-president or the general or committed after the policy has existed for more than
two years from issuance
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 10
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
If the beneficiary is disqualified because he Basically, without proximate cause, there would be no loss. It is
participated in the death of the cestui, the nearest also known as the efficient cause because it started everything,
relatives of the insured will recover. In all other cases, leading to loss.
it is the estate of the insured which can recover Immediate cause – it is the happening immediately before the
loss. It is possible that the happening before the loss is not the
Emphasis: Willfully causing the death. proximate cause.
If the cestui dies during the grace period, there can be Proximate Cause: Examples
recovery • Fire causes an explosion which results in loss. Fire is the
If the cestui dies during the duration of the cover proximate cause of the loss. If fire is a covered peril, the
notes, there can be recovery insurer is liable.
The measure of recovery in life insurance is the face
value of the policy. Except when insurable interest is The explosion is the immediate cause. The fire is the proximate
capable of pecuniary estimation cause.
Allied risks are covered only if they are categorically mentioned in
PART THREE : NON-LIFE INSURANCE the policy. Explosion is an allied risk of fire.
Loss – not necessarily total loss. It need not be total wreck. Illustration
• An owner gets theft insurance for his car.
Proximate Cause • In the course of rescuing the car from thieves, the car
• That which in the natural and continuous sequence, suffers damages.
unbroken by any NEW INDEPENDENT cause, produces • The insurer is liable to the owner although the damage is
an event without which the event would not have not due to theft since it was in the course of rescuing the
occurred. car from theft that it suffered some damage.
• Also called the EFFICIENT CAUSE, or one that sets the
others in motion Another example: things rescued from fire but said things got wet
• NOT equivalent to IMMEDIATE CAUSE and were damaged. That is covered – loss in the course of rescue.
If loss due to wilful act or connivance of insured policy using their life, even if your parents do not really support you.
• Section 87 - insurer is not liable if insured, through his Even if you are richer than your parents, that is not an argument
willful act or connivance caused the loss because under the law, that is an expectation. That is enough basis
for life insurance.
• Ex. Arson, owner hiring other people to rob his But in property insurance, it is not enough that you expect only.
property Simulated robbery You must have an insurable interest. How will you know you have
insurable interest? Look at the concept – will you fall under any of
SECTION 87. An insurer is not liable for a loss caused by the those and in what form?
willful act or through the connivance of the insured; but he is not
exonerated by the negligence of the insured, or of the insurance Pure expectancy will not suffice.
agents or others. Example: Your neighbour’s house was robbed. Maybe I will
suffer loss. So, I will ensure my neighbour’s house against theft.
In this case, there can be no recovery. Another example: Your building is near a gas station. You insure
the gas station agains fire.
• Section 87 - if loss is through SIMPLE negligence of These will not suffice.
insured or his agents, insurer is STILL LIABLE
• Insurer is NOT liable if loss is caused by GROSS In cases of property insurance, you must have an insurable
negligence of insured interest because it is easy to bring about the event when it comes to
property. It is easier to burn the house of your neighbour than to kill
There are 2 kinds of negligence – simple and gross. The your neighbour. When required?
reason why we get property insurance because there will be times Perfection of the contract of insurance
that we will be negligent. The only question is – was the Beneficiary is required to have insurable interest
negligence simple or gross? Insurable interest is required before a person can benefit
If simple negligence, there can be recovery. If gross from a property insurance (Sec. 18)
negligence, that is tantamount to a wilful act. And based on
Section 87, there can be no payment. SECTION 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person having an
Q: Leaving a candle burning? Is that simple negligence? insurable interest in the property insured.
(No definite answer )
Only one who has insurable interest in the property can recover.
BAR 2007
• If the fire was found to have been caused by Alfredo’s BAR 2000
own negligence, can he still recover from the policy? • A is an elderly bachelor who insured his house against
ANSWER fire. He named his companion-friend as beneficiary. A
• I qualify. If the negligence was simple in nature then died in a fire which also destroyed his home. The insurer
Alfredo can still recover under the policy. However, if refused payment to B due to absence of insurable interest
there was gross negligence on the part of Alfredo then on the life of A. Is the insurer correct?
he is barred from recovering under the policy. ANSWER
• The insurer is correct. The beneficiary in property
INSURABLE INTEREST Non-life insurance insurance must have insurable interest on the property.
The companion-friend of A does not have insurable
Concept, Section 13 interest on the house of A. Hence, he cannot recover from
Every interest in property, whether real or personal the fire insurance policy.
(owner)
Any relation thereto (lessee, agent) BAR 2001
Liability in respect of property (carrier, depositary) • JQ, the owner of a condominium insured the same against
Which will directly damnify the insured when a fire with XYZ Company and made the loss payable to his
contemplated peril happens brother MLQ. In case of loss by fire, who can recover
from the policy. State the reason for your answer (5%)
SECTION 13. Every interest in property, whether real or ANSWER
personal, or any relation thereto, or liability in respect thereof, of • JQ can recover since he has insurable interest over his
such nature that a contemplated peril might directly damnify the own condominium unit. MLQ cannot recover since it is
insured, is an insurable interest. required that a beneficiary must have insurable interest
over the property.
Forms, Section 14
Existing interest (owner) Insurable interest in a mortgaged property (Sec. 8)
Inchoate interest founded on an existing interest • Both the mortgagor and the mortgagee have insurable
(shareholder) Ex. Dividends of a shareholder interest on the mortgaged property
• The II of the mortgagor is to the full value of the SM
Ex: Shareholder in Company A – you have 1,000 shares. You • The II of the mortgagee is only up to the extent of the
have an interest as to the properties belonging to the company. indebtedness
But can you actually say what is that interest? You cannot say ½ of
the building belongs to you. It is only upon dissolution and ___(?). SECTION 8. Unless the policy otherwise provides, where a
You have an existing interest but still inchoate. mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of
Expectancy coupled with an existing interest insurance to a mortgagee, the insurance is deemed to be upon the
(usufructuary, expected profit) interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would
SECTION 14. An insurable interest in property may consist in: otherwise avoid the insurance, will have the same effect, although the
(a) An existing interest; property is in the hands of the mortgagee, but any act which, under
(b) An inchoate interest founded on an existing interest; or the contract of insurance, is to be performed by the mortgagor, may
(c) An expectancy, coupled with an existing interest in that out of be performed by the mortgagee therein named, with the same effect
which the expectancy arises. as if it had been performed by the mortgagor.
Factual Expectation Both the mortgagor and the mortgagee can get an insurance
• Mere factual expectation of loss not arising from any policy on the same property. In a mortgage, the property is used as a
legal right or duty in connection with the SM does NOT security for payment of a debt. The owner naturally can insure the
constitute an insurable interest. property up to that extent.
• NOTE: Factual expectation is enough basis in life If the worth of the house is P 1M, the value of the policy can be
insurance. up to P 1M.
If the debt covered by the mortgage is P 200,000, the mortgagee
In life insurance, you expect your parents to support you can insure the property only up to P 200,000.
(Article 195 of the Family Code). That is enough bases to get a
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 12
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
BAR 1999 insurable interest must exist only at the time the
• A businessman obtained a fire insurance policy on his insurance takes effect.
stocks for P5 M. Three months later, a fire broke out
and destroyed the grocery and stocks. The insurer Change of Ownership of Property
denied the claim since the stocks were mortgaged to Section 20 and 58: A change of interest in any part of
another person who also insured the same stocks for a thing insured unaccompanied by a corresponding
P5 M. May the businessman and the creditor obtain change of interest suspends the insurance until the
different insurance policies on the same stocks? interest in the thing and interest in the insurance are
ANSWER vested on the same person
• Yes. The businessman, as the owner and the creditor,
as the mortgagee have insurable interest over the Illustration
stocks. Hence, they may obtain separate policies on • A owns a car which is insured against theft
the same stocks. • A sells the car to B. The policy was not included in the
sale.
Measure • If the car is carnapped, neither A nor B can recover under
Measure of insurable interest is the extent the insured the policy.
might be damnified by loss or injury (Sec. 17) • A cannot recover because he does not own the car at the
Section 25: Void stipulations – payment of loss time of the theft.
whether insured has insurable interest or not or that • B cannot recover because he does not own the policy
policy shall be proof of interest
No one can recover. Insurable interest must exist at the time of
In life insurance, the measure of recovery is the face value. In the issuance of the insurance policy and at the time of the loss.
property insurance, the measure of recovery is the extent of the Until the ownership over the policy and ownership over the
insurable interest. You cannot say face value of the property property is vested in one person, the policy is suspended.
because it varies – owner, mortgagee, lessee, agent.
Transfer of Property by Succession
SECTION 25. Every stipulation in a policy of insurance for the When the insured dies, and the subject matter is
payment of loss whether the person insured has or has not any transferred by succession, the new owner of the
interest in the property insured, or that the policy shall be received thing will also own the insurance. (Sec. 23)
as proof of such interest, and every policy executed by way of
gaming or wagering, is void. Illustration
• A owns a car which has theft insurance
Insurable Interest: Jurisprudence • A bequeath the car to B under his will
• A dies
• Fire insurance taken on a property belonging to • B now owns the car, together with the insurance policy
another is VOID, although the insurer had full
knowledge of fact of ownership and even if insured When the policyholder dies, whoever gets the property is
subsequently acquired insurable interest ( Cha v. CA, automatically the owner of the policy. There is no need to indicate in
277 SCRA 690) the last will and testament that the car and the policy is bequeathed.
Whoever gets the proper will now get the policy.
In this case, he insured the property when it was not yet his.
He was not even a lessee. He does not belong to any of the forms POLICY
or concepts. The Supreme Court held that even if he became the
owner later on, you must be the owner 2 points in time – at the Kinds
time you got the policy and at the time of the loss. This is the case Open – Value of thing is not agreed upon but is to be
in property insurance as opposed to life insurance, only at the time ascertained at time of loss
you got the policy.
Valued – expresses on its face an agreement that the
• Where the real intention of insured was to insure his thing shall be valued at a specific sum
goods for P15,000 but insurer mistakenly insured the
building where the goods were contained and not Running – successive insurances
owned by insured, in case of loss of goods insured was
allowed to recover (Garcia v. Hongkong, 45 Phil 122) Two Kinds of Values
• Face value – maximum amount which may be
The Supreme Court said that there was negligence on the part recovered under the policy
of the insurance company. There can be recovery.
• Valuation- value of the subject matter agreed on by
When insurable interest must exist in property insurance the parties
Time the insurance takes effect and when the loss
occurs, but NEED NOT exist in the meantime Who sets the value? Both parties. If they cannot agree, they go
to a third person for purposes of putting a value.
Two points in time - at the start and at the time of the loss.
Open v. Valued
In life insurance, only at the start, except if capable of • Open - has a face value but has NO valuation of the
pecuniary estimation. thing. Valuation is done after the loss
Example: You get an insurance as to the life of your debtor. • Valued - has both face value and valuation of the
You have an insurable interest. At the time of your debtor’s debt, thing (at the start/at the time the policy is issued)
the debt has been already paid, then, there can be no recovery.
Illustration: Open
BAR 2002
• Distinguish insurable interest in property insurance
from insurable interest in life insurance (5%)
ANSWER
• In property insurance, the expectation of benefit must Value of the house: to be determined at time of loss
have a legal basis. In life insurance, insurable interest Face Value: P2 Million
can be based on mere factual expectation. If the valuation is more than the face value, recovery is
• In property insurance, the actual value of the interest limited to the face value
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,
Illustration: Valued
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 13
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
whether or not the premium has been paid by the obligor to the
surety; Provided, That if the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety shall collect only
Valuation of the car : P1.5 Million
reasonable amount, not exceeding fifty per centum of the premium
Face Value : P 1 Million
due thereon as service fee plus the cost of stamps or other taxes
GENERAL RULE: Recovery will be based on valuation
imposed for the issuance of the contract or bond; Provided, however,
EXCEPTION: If valuation is obtained through fraud or
That if the non-acceptance of the bond be due to the fault or
misrepresentation. Recovery is limited to the face value or
negligence of the surety, no such service fee, stamps or taxes shall be
insurer may deny the claim collected.
In the case of a continuing bond, the obligor shall pay the
Example of fraud: When the car checked, you borrowed and
subsequent annual premium as it falls due until the contract of
put mag wheels, radio and other technology. But it was not yours.
suretyship is cancelled by the obligee or by the Commissioner or by a
At the time of the loss, it was discovered that those were not yours.
court of competent jurisdiction, as the case may be.
There will be 2 options available to the insurance company – it will
not pay you because you misrepresented or it will just stick to the
face value. If the court or the obligee accepted the bond, it is already
binding.
Illustration: Running
When there is a credit scheme?
• 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
installments not so proscribed. At the very least, both If the contract is voidable on account of fraud /
parties should be deemed in estoppel to question the misrepresentation of insurer/agent, facts insured was
arrangement they have voluntarily accepted ignorant of, default of insured other than fraud
This is the 2nd exception. E.g. Agent represents that A can be insured even if
Q: Can you pay premium by instalment? his age disqualifies him. Insured is entitled to return
A: YES of premium.
Q: When does it take effect?
Example: Owner-type jeepney covered by a common carrier
In this case, Makati paid for 3 consecutive years. On the 4 th policy. The agent said it is ok, it can be covered. If such
year, Makati only paid the first 2 installments and did not pay the misrepresentation is discovered before the loss of the jeepney, he can
3rd installment. American collected for the 3 rd installment. There is ask for return of the premiums he paid. The insurer can ask for a
no loss yet. refund because if something happens to the jeepney, it is not covered
by the policy because it is not a common carrier.
Q: Can there be specific performance?
The Supreme Court held that there can be action for specific When is insured entitled to return of premium?
performance because when the first instalment was paid, the policy Over – insurance by several insurers– ratable return
took effect. So, you have to make good the rest of the installment. of premium
Contrast this with life insurance – if you do not want to pay Ratable Return of Premium in case of Overinsurance
premiums life insurance, you are not covered. You cannot be
compelled. The relief of specific performance is not present in life • Sec. 82 – premiums to be returned when there is over
insurance. insurance by several insurers shall be proportioned to the
With non-life insurance, the moment the property is exposed amount by which the aggregate sum insured in all
to the peril, there can be specific performance or rescission. The policies exceeds the insurable value of the thing at risk
moment the property is exposed to the peril insured against, then,
there arises the obligation to pay premium. Illustration: P 1.5 M house
In this case, the argument of Makati does not hold water
because the moment it paid the first installment it bound itself to
pay the rest of the premium. Insurer Amount of Premiums
insurance Paid
Section 77 merely prohibits a party from paying and there is a
policy even if there is yet no payment. But parties may agreement
for instalment or credit scheme. A company P1,200,000.00 P24,000.00
BAR 2006
• A Insurance Company issued an policy on the new car
B company P600,000.00 P12,000.00
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 TOTAL P1,800,000.00 P36,000.00
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 How to compute:
• B can recover from A the proceeds of the policy less the • STEP 1: Determine amount overinsured
unpaid premiums. In a decided case by the Supreme
Court, it was held that when the parties agreed on Amount overinsured =
payment of premiums by installment, the policy Amount of insurance – value of property
becomes effective upon payment of first installment.
Absent any provision that non-payment of subsequent • P1.8 – P1.5M = P300,000
installments will cause cancellation, the policy
between A and B continue to exist. • STEP 2: Get the ratio of overinsurance with the total
amount of insurance
Exceptions to Cash and Carry Basis Sec. 77
• Life/industrial life when the grace period applies P300,000/P1,800,000.00 = 1/6
• When the policy contains an acknowledgment of
receipt of premium, this is conclusive proof of paym ent Ratable Return
• When the parties have agreed on installment payment • STEP 3: Multiply the ratio to the amount of premium
(Makati Tuscany case) paid to every insurer
• When the insurer has renewed the insurance over the
years under a clear credit term arrangement ( UCPB A= 1/6 of P24,000 = P4,000 from A Company
case) B= 1/6 of P12,000 = P2,000 from B Company
• In Suretyship where the obligee accepts the bond even
if premium has not been paid (Sec. 177) BAR 2000
• Name at least three instances when an insured is entitled
When is insured entitled to return of premium? to a return of the premium paid.
Whole premium – if object was never exposed to peril,
unless it is an indivisible policy ANSWER:
E.g. insured pays in advance the annual premium, loss 1. Whole Premium – object never exposed to peril
occurs before date of effectivity. Insured is entitled to 2. Pro-rated Premium – surrender policy before period is up
reimbursement of whole premium 3. Over-insurance by several insurers
Same person, same subject, same interest – what is missing? YES, because there is such no prohibition
Samer risk. It is possible that one property is covered by several
insurers and yet the risk is not the same – one is theft, one is fire. • The building was totally razed by fire. If the owner
That is not double insurance. decides to claim from Eastern Insurance Corp. only P50
Million, will the claim prosper? Explain. (2%)
Requisites:
1. insured is the same YES, it is possible. Go over Section 94.
2. two or more insurers insuring separately
3. same subject matter REINSURANCE
4. interest insured is the same • Contract by which an insurer procures a third person to
5. risk or peril insured against is the same insure him against loss or liability by reason of an original
insurance
If one person is ensuring it against the fire because he is the
owner (full extent) and another person is ensuring it against fire This does not exist in life insurance. This is a situation where the
because he is the mortgagee (only up to the extent of the debt), value of the liability of the insurance company is very high, he gets
that is not double insurance. Among the requisites, # 1 and # 4 are another who will insure him.
not satisfied.
Illustration:
BAR 2005 • A gets B to insure his building against fire for P10 Million.
• When does double insurance exist? (2%)
• B (insurer) can get C (reinsurer) to reinsure him for P5
BAR 1999 Million out of the P10 Million insurance in favor of A.
• A businessman obtained a fire insurance policy on his Thus, B’s liability shall be limited to P5 Million. While C,
stocks for P5 M. Three months later, a fire broke out the reinsurer has to give the insurer the other P5 M.
and destroyed the grocery and stocks. The insurer
refused to pay claiming that double insurance is In effect, the reinsurer insures the insurer.
contrary to law. Is this contention tenable?
ANSWER
• 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.
Over-insurance
• OVER- INSURANCE – amount of insurance is beyond
the value of insured’s insurable interest
Reinsurance vs. Double Insurance SECTION 100. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who covenants
insurer becomes Insurer remains to pay him its value in case of loss: Provided, That in this case the
the insured the insurer insurer shall be liable for only that part of the loss which the insured
cannot recover from the charterer.
Remember that in property insurance – expectancy coupled • Parties may agree that instead of payment, insurer may
with an existing right, not just expectancy. repair, rebuild or replace property
SECTION 105. One who has an interest in the thing from • Subject matter is a house
which profits are expected to proceed has an insurable interest in • Independent appraiser values it at P5 Million
the profits. • The valuation is attached to the policy
• If house is totally destroyed by fire, the valuation of
It must be coupled with an existing interest. You cannot P5 M will be given
insure expected profits if the voyage did not happen. • If the house is half-destroyed, the indemnity will be
half of P5 Million or P2.5 M. (full value of partial loss)
FIRE • 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.
This is the time that you can refer to the face value or your
insurance company will deny payment for misrepresentation.
CASUALTY INSURANCE
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
• Fire must be the proximate cause, and must be hostile
in nature • Sec. 174 – insurance covering loss or liability arising from
accident or mishap excluding certain types of loss which
Measure of Indemnity fall exclusively within the scope of other types of
• If there is a valuation – shall be conclusive as between insurance such as fire or marine
parties in adjusting partial or total loss in the absence
of FRAUD • Employers liability
• Workmens’ Compensation
This is refers to a valued policy. The valuation will be the • Public Liability
measure of recovery, unless there is fraud. • Motor Vehicle Liability
• Plate glass insurance
• If there is NO valuation - the expense it would be to • Burglary and theft insurance
the insured to REPLACE the thing lost or injured in the • Personal accident and health insurance (when death is
condition in which it was at the time of injury NOT one of the risks insured against)
This refers to an open policy. We have to determine the Motor Vehicle Liability Insurance (TPL)
valuation at the time of the loss. The measure is the expense it • Motor vehicle – any vehicle propelled by any power other
would be to the insured to replace the thing lost and to restore it in than muscular power using the public highways, with
the same condition before it was damaged. certain exceptions
• Loss and its amount may be determined on the basis of If it is a motor vehicle, it cannot travel or go to the roads without
such proof as may be offered by insured which ne ed getting a TPL.
not be of such persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo) • Section 374 – unlawful for any land transportation owner
or operator to operate the same in public highways unless
There has to be proof, not as required in court. Only there is a policy of insurance or guaranty in cash or bond
preliminary proof – available evidence. to indemnify the death or bodily injury of a third party or
passenger
How valuation is made
• Sec. 172 – independent appraiser examines the At a glance
property and fixes the value • Insurable interest is property insurance must exist at the
time of the issuance and at the time of the loss although
• Valuation shall be inserted in the policy (if valued policy; it need not exist in between these times
if not, it would be determined at the time of the loss)
• A beneficiary in property insurance must have insurable
• GENERAL RULE: Valuation shall be the basis for interest over the property
indemnity in case of total loss
• It is possible that two or more persons may have
• EXCEPT: If there is a change (in the property) increasing insurable interest over the same object. As in the case of
the risk without the consent of insurer or if there's owner and lessee, mortgagor and mortgagee.
fraud on the part of insured.
• In such cases, two or more separate insurance policies
Example: You stated that the building is for residential may be obtained. This is not double insurance since they
purposes only. You insured it against the fire. You did not inform don’t have the same insured and they have different
that it was converted to a restaurant or a store which sells LPG or interests.
gasoline station. It increased the risk. So, valuation will not be
relied upon anymore. It may even be a ground to refuse payment • The covered peril must be the proximate cause before
of proceeds. there can be recovery under the policy.
• Partial loss – full amount of the partial loss • Instances when there can be return of premiums.
• In marine, the ff persons can get insurance policies: proceeds may be given to:
owner, charterer, for freightage, for expected profits. the executor or administrator of insured OR
• Fire insurance covers hostile fire any of insured’s relative by blood as legal adoption or
by marriage OR
• Failure to give notice of loss in fire without
unreasonable delay will exonerate the insurer. any person who incurred expenses for maintenance,
medical attention or burial
In case of fire, you must notify the insurance company
immediately so as to avoid removal of evidence. Otherwise, the This time, there are conditions and there are 3 classes of people
insurance company will be exonerated. who can claim and there is no limit. That is why, if you remember,
there is no strict application of the concept of insurable interest in
• Indemnity in fire may either be based on valuation OR industrial. It is not strictly applied because it is very natural for them,
payment of cost to restore the object at the time of the market vendors, fish vendors belonging to the low income group,
loss to help each other. You do not have to prove insurable interest if we
are talking about an industrial life insurance policy – loosening the rule
PART FOUR : PAYMENT OF PROCEEDS AND FILING OF of insurable interest. Under the facility of payment clause, there is a
CLAIMS way of claiming.
MOTOR VEHICLE LIABILITY cannot sue both. You sue the most offending vehicle. There can be
no claim against more than one vehicle.
Procedure for filing claims If you are a passenger, that will be filed against the insurer of the
vehicle, which you are a passenger.
There has to be written notice of claim within 6 months from If there is confusion as to who should get the proceeds, there will
the accident. If the claim is filed after the 6-month period, there be investigation. That will also justify delay. The insurance company
can be no recovery anymore, unless the one filing the claim is still is not liable for interest.
in the hospital.
Preliminary Proof of Loss
What must the written notice contain? The nature of the best evidence which insured has
accident, the extent, the duration of the injury certified by a not evidence in ordinary courts
licensed physician. purpose : Apprise insurer of loss and make proper
Even if it is only a minor injury, you have to go a doctor, investigation while evidence is still fresh and to
because that the requirement for filing a TPL. prevent further loss
If they do not agree, there would be payment under the no- A claimant need not present the same evidence required in court
fault indemnity clause. but only the best evidence which he has which would give the
insurance company an idea as to what the extent of the loss is.
No fault indemnity clause: Section 378 (example: pictures). Affidavit of witnesses not required, otherwise,
before you know it, the 6-month has lapsed and you cannot claim
death or injury of 3rd party anymore.
So, the purpose is to just inform the insurance company of the
without necessity of proving fault or negligence of any loss or the extent of the loss.
kind
Notice of Loss in Fire Insurance
if total indemnity of one person shall not exceed must be given without unnecessary delay
P15,000. (This used to be P5,000. But by virtue of a otherwise, the insurer is exonerated
memorandum circular of the Insurance Commission, this has
now been increased to P 15,000) When it comes to fire insurance, there is no need to give proof of
loss immediately. The minimum requirement under the law is notice
SECTION 378. Any claim for death or injury to any passenger of loss, without unnecessary delay.
or third party pursuant to the provisions of this chapter shall be Even if within 24 hours, the insurance company may even have
paid without the necessity of proving fault or negligence of any doubts already. The main purpose is to be able to preserve the
kind; Provided, That for purposes of this section — evidence.
(i) The total indemnity in respect of any person shall not exceed If there is unnecessary delay in giving notice, then, the insurance
fifteen thousand pesos; (as amended) company will not be obligated to pay. This is a special rule with regard
(ii) The following proofs of loss, when submitted under oath, shall to claims in case of fire insurance policies.
be sufficient evidence to substantiate the claim:
(a) Police report of accident; and Subrogation
(b) Death certificate and evidence sufficient to establish the when insurer pays for the loss
proper payee; or payment to insured operates as an equitable assignment
(c) Medical report and evidence of medical or hospital to the insurer of all remedies which insured may have for
disbursement in respect of which refund is claimed. the recovery
(iii) Claim may be made against one motor vehicle only. In the subrogation is limited to the amount recoverable by
case of an occupant of a vehicle, claim shall lie against the insurer the insured
of the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the Subrogation – stepping into the shoes of the person; being able
insurer of the directly offending vehicle. In all cases, the right of the to proceed against the wrongdoer. The right to sue the one at fault is
party paying the claim to recover against the owner of the vehicle transferred to the insurance company.
responsible for the accident shall be maintained. When we talk about subrogation, the claim of the insurance
company is limited to the proceeds he paid to the policy holder.
Whether the insurance company likes it or not, if it does not
agree with the claim, it still has to pay not exceeding P 15,000 as MARINE
long as the following documents are paid:
What may be insured against
Proofs of loss are submitted under oath. Only covers loss due to perils of the sea and not perils of
police report of accident ; and the ship
Death certificate and evidence to establish payee
OR medical report and evidence of medical and In case there is a bottomry, insurable interest of the ship
hospital disbursement. owner is limited to excess of its value over the amount
secured by bottomry. (101)
Claim against one motor vehicle only
if occupant of a vehicle, claim against insurance of SECTION 101. The insurable interest of the owner of a ship
vehicle hypothecated by bottomry is only the excess of its value over the
otherwise, claim against offending vehicle amount secured by bottomry.
This is very important. If you are the third party injured and Bottomry – a loan which uses the the vessel as security.
you are caught in between of two vehicles, who can you sue? You
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 20
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
Example: The vessel is is worth P 2M. This was used to expenses incurred in saving cargo reshipped pursuant to the last
secure a loan for P 1M. How much is insurable by the owner? Only section, up to the amount insured.
the portion not covered by the loan because the moment that the Nothing in this or in the preceding section shall render a marine
vessel disappears or is destroyed, the loan is deemed paid. That is insurer liable for any amount in excess of the insured value or, if there
the effect of a bottomry loan. You are only going to suffer loss for be none, of the insurable value.
the portion not covered by the loan.
Kinds of loss in marine
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)
Average
General – insurer is liable for proportion of the loss
assessed (136)
Abandonment 90% of P 1M, which is p 900,000. But if you abandon, even if there is
Neither partial nor conditional (140) still 10% remaining, you can get the entire P 1M.
That’s why if you do not abandon, under Section 155, you just
There is no such thing as partial or conditional abandonment. get the actual loss, which is 90% only.
It is either you abandon in full or not abandon at all.
Illustration
Must be made within a reasonable time after receipt of A insures a vessel with B for P1 Million
reliable information of loss (141)
The vessel's value is reduced to P200,000 due to a peril of
If information on loss is incorrect or thing is restored the SEA
and there is no total loss, abandonment is ineffectual
(141) TWO CHOICES OF A: Abandon or claim actual loss
What happens when the policy holder abandons? As the word B will now have the right over the vessel, what remains of
implies, the insured gives up all his rights with regard to the vessel it and proceeds of salvage
in favour of the insurance company. If there is abandonment, you
are transferring all your rights to the insurance company. A can recover ACTUAL loss or P800,000 since the vessel is
reduced to 20% of its former value of P1 Million
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)
PART FIVE : GROUNDS FOR RESCISSION If you use your building as an LPG store, premium could have
PDIC LAW been made higher.
Grounds Materiality
• Concealment • Sunlife v. CA, 245 SCRA 268 - where the applicant
• Misrepresentation concealed prior medical history and he died in a
• Breach of warranty, express or implied plane crash, there was still concealment
• Other grounds - Section 64-65 (non-life) notwithstanding the apparent lack of relation
between the fact concealed and the cause of death
CONCEALMENT
neglect to communicate that which a party knows and BAR 2001
ought to communicate. • A applied for non-medical life insurance. He did not
inform the insurer that he was examined and confined at
Requisites of Concealment St. Luke’s Hospital where he was diagnosed with lung
(a) party knows the fact which he neglects to cancer. A died in a plane crash. Is the insurer liable
communicate or disclose considering that the fact concealed had no bearing with
(b) party concealing is duty bound to disclose such fact to the cause of death of A?
the other (from the fact that the information is material in Answer
nature – you do not have to communicate everything) • The insurer is not liable. The concealed fact is material to
(c) party concealing makes no warranty as to concealed the approval and issuance of the policy. According to a
fact (if there is an existing warranty as to the information decided case, the insured need not die of the disease he
concealed, there is no concealment which would give rise to a failed to disclose to the insurer. It is sufficient that his
rescission) non-disclosure misled the insurer in forming his estimate
(d) other party has no means of ascertaining the fact of the risks of the proposed insurance policy or in making
concealed (if there is neglect to communicate something further inquiries.
about the state of health of the applicant but the applicant
was made to undergo medical examination which will reveal Waiver of Right to Information
that, then, we cannot charge the person with concealment By terms of insurance OR
because the insurance company had the means of ascertaining Example: if the information was not asked
the same information) Neglect to make inquiries
concealment entitles the unguilty party to rescind
What must be communicated
All facts within his knowledge Concealment in Marine Insurance
Material to the contract (test of materiality) in addition to Section 28
Other party has no means of ascertaining all information he possesses material to the risk
He makes no warranty except those in Section 30
Information which prove or tend to prove falsity of state exact and whole truth in relation to all matte rs
warranty that he represents
information of belief or expectation of a third person
What need not be communicated as to a material fact is MATERIAL (Example: if you think
Those which the other knows the vessel will continue its voyage when there is Signal No.
Those which, in the exercise of ordinary case, the 1, it will probably sink)
other ought to know and which the other has no insured is presumed to know prior loss at time of
reason to suppose him ignorant insuring (rebuttable)
Those of which the other waives communication
Those which prove or tend to prove the existence In Marine Insurance, the rules are stricter.
of a risk excluded by a warranty, and which are
not otherwise material; and SECTION 28. Each party to a contract of insurance must
Those which relate to a risk excepted from the communicate to the other, in good faith, all facts within his knowledge
policy, and which are not otherwise material which are material to the contract and as to which he makes no
General causes open to his inquiry which may warranty, and which the other has not the means of ascertaining.
affect the political or material perils contemplated SECTION 30. Neither party to a contract of insurance is bound to
(32) (things that can be read in the newspaper; those communicate information of the matters following, except in answer to
practiced in the business; scheduled trips of the vessel; the inquiries of the other:
war in a certain place; current events – if the insurance (a) Those which the other knows;
company is not aware of that, we cannot charge the (b) Those which, in the exercise of ordinary care, the other ought to
other party with concealment because these are general know, and of which the former has no reason to suppose him
information) ignorant;
General usages of trade (32) (c) Those of which the other waives communication;
Nature or amount of interest, except in answer to (d) Those which prove or tend to prove the existence of a risk
an inquiry (34) (there is no need to declare extent of excluded by a warranty, and which are not otherwise material;
insurable interest unless there is a question to that effect) and
Information of his own judgment (35) (example: are (e) Those which relate to a risk excepted from the policy and which
you in a state of good health?) are not otherwise material.
something but the information concealed was not the cause of loss, right to rescind by insurer is waived by acceptance of
you can still collect. The fact concealed is also the cause of the premiums despite knowledge of ground to rescind
loss. But because you did not declare the national character, the (waiver – the insurance company is still liable for the
ship was caught, that will exonerate the insurance company. proceeds)
Example: You did not declare that the voyage will be
breaching the laws of Germany. But you were caught because of Misrepresentations as to Age in Life Insurance
forged and simulated papers. Then, you can still collect. no rescission
proceeds shall be such as the premium would have
Incontestability Clause in Life Insurance purchased at the correct age
Section 48, 2nd par – if life insurance has been in force
during the lifetime of the insured for a period of 2 years All other forms of misrepresentation are grounds to rescind
from DATE OF ISSUE or LAST REINSTATEMENT except if you misstate your age.
The insurer cannot prove that the policy is void ab Effect: Premium and age are not adjusted.
initio or is rescindible Example: You stated that you are 20 years old but you are
By reason of fraudulent concealment or actually 30 years old. If you are 20 years old and you want to be
misrepresentation of the insured or his agent covered for P 1M, you will pay P5,000. Since you are already 30 years
old, it should be P 15,000 to be covered for P 1M. So, the P 5,000
This is only applicable in life insurance. There is paid at 30 years old, how much will you get? You will not make the
concealment/misrepresentation but the beneficiary can still recover premium at P 5,000. So, instead of P 1M, maybe, you will just be
because the life insurance policy has been enforced during the covered up to P 500,000 only – you get a face value smaller than you
lifetime of the insured for at least 2 years reckoned from the issue expect.
or last reinstatement. If you did not discover, you cannot use that
as a ground to deny payment of proceeds. Misrepresentation in Marine Insurance
entitles the insurer to rescind
Illustration eventual falsity of a representation as to expectation
• A is issued a life insurance policy on April 2, 2000 without fraud, does NOT avoid a marine insurance
• He conceals the fact that he has tuberculosis contract
• A dies on April 3, 2002.
• Insurance company must pay. Although there was Special Rule in Marine: If at the start, the representation was still
concealment, the policy has been in force during true but eventually, it became false. This will not avoid the policy as
the lifetime of A for 2 years from April 2, 2000. long as without fraud.
Case: At the time of the claim, the policy has been enforced BREACH OF WARRANTY
for 2 years. However, it was discovered that before the 2-year
period, the policy holder already died. The beneficiaries just Warranty
delayed the claim. • Either express or implied
Incontestability will apply if the policyholder is alive during the • May relate to the past, present or future
existence of the policy for 2 years from issuance or last
reinstatement. In this case, the claim was denied. Past: I warrant that I have never used this kind of chemical in my
establishment
When Incontestability Clause DOES NOT apply Present: I am not using any chemical at this point
• Person has no insurable interest Future: I warrant that I will not use this chemical at any future time
• Cause of death is an excepted peril
• Premiums have not been paid (lapse) Implied Warranties in Marine Insurance (only in Marine)
• Conditions of the policy relating to military or naval Seaworthiness - 113
service have been violated
• Fraud of a vicious type is present when policy was SECTION 113. In every marine insurance upon a ship or freight,
taken out (example: fake death) or freightage, or upon any thing which is the subject of marine
• Beneficiary failed to furnish proof of death or to insurance, a warranty is implied that the ship is seaworthy.
comply with any condition imposed by the policy after
the loss has happened Nationality or neutrality – 120
• That the action was not brought within time specified
SECTION 120. Where the nationality or neutrality of a ship or
MISREPRESENTATION
cargo is expressly warranted, it is implied that the ship will carry the
Representations – factual statements made by the
requisite documents to show such nationality or neutrality and that it
insured at the time of, or prior to the issuance of the
will not carry any documents which cast reasonable suspicion thereon.
policy
physical changes in the property becoming uninsurable Pedro #1 & #3 P280,000 + P290,000 =
determination by Insurance Commissioner that P570,000 less P250,000
continuation of the policy would violate or would place insurance = P320,000
(uninsured)
the insurer in violation of the Insurance Code
Notice of Cancellation
P260,000 – P250,000
In writing Jo #2
insurance = P10,000
Mailed or delivered to named insured at address (uninsured)
shown in the policy
Shall state Juan #3 Nothing
grounds relied on
upon written request, insurer will furnish
fact on which cancellation is based If you put something in trust for someone, the owner is the
beneficiary.
Rescission must be exercised
Before the commencement of any action on the • Pedro is the principal owner of Accounts #1 and #3. Thus,
contract these 2 accounts will be consolidated as they are
In which motor vehicle liability insurance notice of maintained in the same right and capacity; and insurance
cancellation must be sent to the land transportation is up to P250,000 only. (Juan is just an authorized
owner/operator and the LTO at least 15 days before representative)
date of effectivity
• On the other hand, account #2 is owned by Jo with Pedro
acting as agent. Jo is thus entitled to a separate
REPUBLIC ACT NO. 9302
maximum limit of P250,000. Juan is not entitled to
An Act Amending RA 3591, as amended, Otherwise known
anything since he merely opened an account for Pedro
as the “Charter of the Philippine Deposit Insurance
Corporation” and for Other Purposes
Joint Account
The Bank must be a member of PDIC. ―And‖ and ―and/or‖ have the same effect for purposes of the
PDIC.
Types of Insured Bank Deposits
• Single depositor account
• In trust for and by account (differentiate this from a
trust fund)
• Joint account
• Institutional account ( in cases of partnerships,
corporations)
• Single and joint account
Benjamin
Account Number Insured Share Uninsured
Benjamin (single Account #1 P200,000 (insured)
account)
Pedro - #1 P125,000 P75,000
P 250,000 for each account under the name of the company, Single and Joint Accounts
whether or not it is joined with another person or none. It is only • Under the new rules, single account is insured separately
up to P 250,000 for the same bank. to a maximum coverage of P250,000, thus, Account #1
owned by Benjamin is insured for P200,000. For joint
Single and Joint Accounts ownership, each joint account is considered equally
shared among co-depositors unless otherwise indicated in
Account #1 Benjamin P200,000 the deposit document. Insurance coverage of P250,000
will apply to the sum of shares of a depositor in the
insured portion of each joint account.
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