INSURANCE LAW

Course Outline

3.

Implementing Office Insurance Commissioner Jurisdiction

b.

Limited Payment Policy payment for a limited period. If the insured dies, his beneficiary claims. If he survives, no claim Endowment Policy payment for a limited period. If the insured dies, his beneficiary claims. If he outlives policy, he claims. Term Insurance payment once that covers a specified period. If insured dies, beneficiary claims. If he survives, no claim.

4.

c. 4-a. Insurance Commissioner 1. Adjudicate claims/complaints for amounts not exceeding P100,000/claim 2. 3. 4. 5. 6. 7. Liability of Reinsurer Liability under Suretyship Liability of a Mutual Benefit Association Counterclaims against Insured Cross-claims against co-party Third-party claims by insurer against another d.

A. BASIC PRINCIPLES
1. Insurance Defined 1-a. Definition Agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability 1-b. Limitation Excludes life insurance which is a contract upon condition, not one of indemnification 2. Laws Applicable

5-b. Non-Life Insurance 1. 2. 3. Marine [Secs. 99-166, I.C.] Fire [Secs. 167-173, I.C.] Casualty [Sec. 174, I.C.]

4-b. Regular Courts 1. 2. 3. Claims above 100T but less than 300T Municipal Trial Court Claims above 300T Regional Trial Court see Republic Act 7691 5-c. Suretyship and Bonding [Secs. 175178, I.C.] 6. Characteristics of Insurance Contract 6-a. Aleatory 6-b. Voluntary 6-c. Executory 6-d. Compensatory Individual [Secs. 179-183; 227, I.C.] Group Life [Secs. 50; 228, I.C.] Industrial Life [Secs. 229231, I.C.] 6-e. Personal 6-f. Perfect good faith 6-g. Synallagmatic 7. Construction of Insurance Contracts 2. Kinds a. Ordinary payment every year until death 7-a. Laws/Jurisprudence 1. California Insurance Code

2-a. Main Law Insurance Code (P.D. 612) 2-b. Suppletory Laws 1. Civil Code of the Philippines (Arts. 789, 20112012) 2. GSIS Law 3. SSS Law 4. Act 2573 (Mutual Insurance on Work Animals) 5. 6. 7. 8. RA 656 (Property Insurance Law) RA 3124 (Industrial Life Insurance) PD 317 (Insurance Cooperatives) PD 1461 (Crop Insurance)

5. Classes of Insurance 5-a. Life Insurance 1. Classifications a. b. c.

2.

Statute is adopted along with its Construction 2.

b.

Resulting to loss, damage or liability

1. Public enemy refers to a nation where the Philippines is at war 2. It includes every citizen or subject of such nation [Filipinas Cia de Seguros vs. Christian Huenefeld & Co., 89 Phil. 54] 3. Beneficiary 3-a. Rule

7-b. Provisions/Stipulations 1. 2. Contract of Adhesion Article 1377, Civil Code

Unknown Event a. Past, unknown to the parties b. Resulting to loss, damage or liability

2-c. Kinds of Insurable Risks 7-c. Cases: 1. 1. Constantino vs. Asia Life [87 Phil. 248] 2. Insular Life vs. Ebrado [80 SCRA 181] 3. Del Rosario vs. Equitable Insurance [118 Phil. 349] 2. 3. Personal risks life, health, accident Property risks loss, damage Liability risks liability for injury to third persons

1. 2.

Designation of beneficiary is discretionary Absence, payable to estate of insured

3-b. Kinds of Beneficiary 3. Cause or Consideration Payment of Premium 4. Insurable Interest necessary to prevent contract from being waggering 1. As to Succession a. Primary beneficiary who is first entitled to the proceeds of insurance Secondary beneficiary who is entitled to the proceeds of insurance in case the primary beneficiary dies

B. ELEMENTS OF INSURANCE CONTRACT

1. Consent 1-a. Meeting of minds 1-b. Concurrence of offer and acceptance both as to the object and consideration 1-c. Cognitive theory 2. Object

C. PARTIES TO INSURANCE CONTRACT

1. Insurer 1-a. Definition [Sec. 184, I.C.] 1-b. Authorized to Transact Insurance Business [Sec. 6, I.C.] 1-c. Penal Provisions [Secs. 299; 419, I.C.]

b.

2. As to Revocability a. Revocable the insured reserves the right to make future changes in the designation b. Irrevocable such beneficiary cannot be changed by the insured or other person without the consent of the beneficiary 3-c. In Life Insurance 1. Designation of beneficiary is akin to donations and subject to proscriptions on donations [Art. 739, Civil Code] 2. Grounds for Forfeiture if he participated in willfully bringing about the death of insured as c. Principal

2-a. Assumption of loss, damage or liability by the insurer [Art. 1174, Civil Code] 2-b. What May be Insured Against [Section 3, I.C.] 1. Contingent Event a. Future

2.

Insured

2-a. Capacity to enter into contract 2-b. Insurable Interest 2-c. Not a public enemy [Section 7, I.C.]

d. e.

Accomplice Accessory [Sec. 12, I.C.]

2.

Property at the time insurance takes effect and at the time of loss [Section 19, I.C.]

3.

Expectancy, coupled with an existing interest out of which expectancy arises [Sec. 14, I.C.]

3. Designation of disqualified beneficiary is void but does not avoid insurance 3-d. In Property Insurance, beneficiary is required to have an Insurable Interest in the property insured [Sec. 18, I.C.]

2-f. Subrogation 3. Insurable Interest in Life

4-c. Inchoate Rights vs. Expectancy 1. Right is inchoate when the transmission of the property depends on a period or an event that is certain to occur 2. Right is expectancy when the realization of income or acquisition of right is conditional 5. Change of Interest 5-a. General Rule: Suspends policy [Sections 20 and 55, I.C.] 5-b. Exceptions 1. 2. 3. 4. After occurrence of injury One or more distinct things separately insured under one policy By will or succession Transfer of interest from one partner, joint owner, co-owner to others [Sections 21-22, I.C.] Insurance is for the benefit of whomsoever during the continuance of the policy [Section 57, I.C.]

3-a. Coverage In the life and health of 1. Himself, his spouse or his children; 2. Any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; 3. Any person under legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and 4. Any person upon whose life any estate or interest vested in him depends [Section 10, I.C.] 3-b. When considered property Outside himself, spouse or children, insurable interest must be pecuniary

D. INSURABLE INTEREST
1. Definition/Elements

1-a. Relation, connection or concern of one person to another, a thing or property 1-b. He derives pecuniary advantage/benefit from its preservation 1-c. He suffers pecuniary loss or damage from its destruction, termination or injury 2. Distinctions

2-a. Pecuniary vs. non-pecuniary 2-b. Partial Loss 2-c. Amount of insurance coverage 1. 2. Life no limit Property extent to which the insured might be damnified by the loss or injury [Section 17, I.C.]

5. 4. Insurable Interest in Property

4-a. Definition any interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might damnify the insured [Sec. 13, I.C.] 4-b. Coverage

E. POLICY
1. Types of Insurance Contract 1-a. Policy written instrument in which a Contract of Insurance is set forth [Section 49, I.C.] 1-b. Binding Receipt acknowledgment that branch received premium and accepted application subject to processing by Head Office

2-d. Incontestability clause 2-e. Existence 1. Life at the time insurance takes effect 1. 2. Existing interest Inchoate interest founded on existing interest

[Great Pacific Life vs. Court of Appeals, 89 SCRA 543] 1-c. Cover Note receipt whereby insurer agrees to contract good for 60 days pending issuance of a regular policy [Section 52, I.C.] 2. Kinds of Policy

1. 2. 3.

Title or name of rider mentioned in the policy Counter-signed by the insured If insured prepared the rider or made upon his request, no signature necessary

a. Double insurance may be prohibited under a policy b. Purpose is to prevent over-insurance and thus avert the perpetuation of fraud [Pioneer Insurance and Surety Corp. vs. Yap, 61 SCRA 426] 4. Effects of Double Insurance a. Insured can recover, before or after the loss, from the insurers the excess premium paid b. In case of loss, insurers are liable severally to the extent of their coverage. Insured can recover from any of the insurers to the extent of his loss 6-b. Over-Insurance 1. Defined There is over-insurance when the amount of the insurance is beyond the value of the insureds insurable interest 2. Distinctions with Double Insurance a. Double insurance does not always result to over-insurance b. Double insurance involves two or more insurers while there may be over-insurance with one insurer only 6-c. Over-Insurance by Double Insurance [Section 94, I.C.] 7. Reinsurance 7-a. Defined one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance [Section 95, I.C.] 7-b. Distinction with Double Insurance

4-c. Construction 1. In case of conflict between policy and rider, rider prevails 2. Reason: It is a more deliberate _expression of parties agreement 5. Renewal of Policy 5-a. Non-life Insurance the insured has the right to renew insurance contract under same terms and conditions unless the insurer sent notice not to renew within 45 days prior to its expiration 5-b. Life Insurance

2-a. Open Policy value of thing insured is determined at the time of loss [Section 60, I.C.] 2-b. Valued Policy value of property or life insured is determined at the time insurance is taken [Section 61, I.C.] 2-c. Running Policy contemplates successive insurance, object defined from time to time [Section 62, I.C.] 3. Contents of Policy

3-a. Parties 6. Double Insurance and Over-Insurance 3-b. Amount of insurance 6-a. Double Insurance 3-c. Amount of Premium 1. Defined Exists where the same person is 3-d. Property or life insured 3-e. Insurable interest 3-f. Risks insured against 3-g. Insurance period [Section 51, I.C.] 4. Riders in Policy insured by several insurers separately in respect to the same subject and interest [Section 93, I.C.] 2. Requisites: a. b. c. d. 3. Prohibitions One and the same insured One and the same insurable interest One and the same risk or peril insured against Two or more insurers separately

4-a. Defined printed or typed stipulation contained on a slip of paper attached to policy forming an integral part thereof 4-b. Requirements for Validity

1. In double insurance, original insurer remains as insurer; in reinsurance, the original insurer becomes an insured; 2. In double insurance, subject is property (same interest); in reinsurance, subject is the original insurers risk (different interest); 3. In double insurance, insured is the party to all the contracts; in reinsurance, insured has no interest therein 7-c. Principles 1. Original insured has no interest in reinsurance [Section 98, I.C.] 2. Insurer is duty-bound to a. Communicate to reinsurer all the representations of the original insured and all the knowledge and information the insurer possesses material to the risk b. Exception: Automatic reinsurance treaty being a self-executing agreement between two or more insurance companies whereby one will reinsure part of any line of insurance taken by the other [Section 96, I.C.] 2. Reinsurer is entitled to avail of every defense which the insurer can interpose against the person originally insured 3. If reinsurance is one of indemnity for losses suffered by the insurer, original insured has no interest in the reinsurance contract [Artex Development Co. vs. Wellington Insurance Company, 51 SCRA 352] 4. If reinsurance contains a provision whereby the reinsurer binds himself to pay the insured for any loss which the insurer may become obliged to pay under

the original policy, then the reinsurer becomes liable to the insured who may go against both the insurer and the reinsurer.

2. Contract is voidable due to fraud or misrepresentation by insurer [Section 81, I.C.] 3. Contract is voidable because of the existence of facts of which the insured was ignorant without his fault [Ibid] 5. Insurer never incurred liability [Ibid] Rescission is granted due to the insurers breach of contract

F. PREMIUM
1. Premium defined agreed price for assuming and carrying the risk 2. Effects of Non-payment of Premium 2-a. First Premium 1. Prevents contract from becoming binding notwithstanding acceptance of the application [Constantino vs. Asia Life Insurance Co., 87 Phil. 248; 2. But the non-payment of the balance of the premium does not avoid the policy [Philippine Phoenix Surety & Insurance, Inc. vs. Woodworks, Inc., 20 SCRA 1270] 3. Acknowledgment in the policy of receipt of premium is conclusive evidence of payment [Section 78, I.C.] 2-b. Subsequent Premium 1. Does not ipso facto avoids the policy 2. It only entitles the insurer to cancel the contract of insurance [Section 64, I.C.] 3. Return of Premiums 3-a. Total Refund 1. In property insurance where no part of interest in thing insured was exposed to peril [Section 79(a), I.C.]

6.

3-b. Partial Refund 1. Insurance is for a definite period and insured surrenders policy prior to expiration of such period [Section 79(b), I.C.] 2. Pursuant to a short-period clause provision in the policy 3. In case of Over-Insurance 3-c. Cases: 1. Great Pacific Life Insurance Corporation vs. Court of Appeals [184 SCRA 501] 2. Sison vs. Sun Life Assurance Company of Canada [47 O.G. 1954 (1949)]

G. DEFENSES
1. Defenses That Avoids Policy Insurer need not cancel the policy. Any of these grounds ipso facto negates a valid insurance contract. Thus

1-a. Lack of any of the essential requisites of contract 1. Consent, through the vices of consent 2. Insurable interest

3. Non-payment of first premium except when there is a written acknowledgment thereof [Sections 77 and 78, I.C.] 1-b. Prescription failure to commence an action from accrual of the right of action, that is, from denial of claim by the insurer 1. If no stipulation, 10 years [Art. 1144, Civil Code] 2. If there is stipulation, same valid but in no case that it shall be less than 1 year [Section 63, I.C.] 1-c. Violation of double insurance clause provision in a policy [Pioneer Insurance and Surety Corporation vs. Yap, 61 SCRA 426] 2. Defenses that Give Ground to Cancel Policy Insurer must first cancel the policy prior to the commencement of an action thereon [Section 48, I.C.]. If the policy is cancelled, no recovery can be made by the insured or his beneficiary 2-a. Grounds for Cancellation 1. Concealment [Section 27, I.C.]

4. May be intentional or unintentional 2. Misrepresentation [Section 45, I.C.]

1. 2. 3. 4.

Express stated in the policy itself as a fact [Section 71, I.C.] Implied derived from the very nature of the contract Affirmative asserts the existence of fact or condition at the time it is made Promissory referring to future acts partaking the nature of a condition subsequent [Section 72, I.C.]

a. Defined oral or written statement of a fact or condition affecting risk made by insured to insurer tending to induce the insurer to assume the risk b. Characteristics 1. 2. 3. 4. 5. 6. 7. This is commission Inducing factor to a contract Must be shown to be material by the insurer Insured makes no warranty Always intentional Requires substantial compliance May be waived by acceptance of premium despite knowledge thereof [Section 45, I.C.] 3. Violation of Warranty

d. Cases: 1. Young vs. Midland Textile Ins. Co. [30 Phil. 617] 2. Qua Chee Gan vs. Law Union & Rock Insurance Co. [90 Phil. 85] 3. General Insurance & Surety Corp. vs. Ng Hua [106 Phil. 1117] 4. 5. 6. 7. Non-payment of subsequent premium Conviction of a crime arising out of acts increasing the hazard insured against Discovery of fraud or material misrepresentation Discovery of willful or reckless acts or omissions increasing the hazard insured against Physical changes in the property insured which resulted in property becoming uninsurable Determination of Insurance Commissioner that the continuation of policy violates or places the insurer in violation of Insurance Code [Section 64, I.C.] 2-b. Procedures 1. 2. Occurrence of a valid ground after effectivity of the policy Written notice delivered to insured

a. Warranty Defined Statement in a policy of a matter relating to the person or thing insured or to the risk as a fact b. Characteristics 1. This is commission 2. It is part of the contract 3. Presumed material and requires strict compliance 4. Violation of a material warranty entitles either party to rescind while violation of an immaterial warrants does not avoid policy unless expressly declared [Sections 74 and 75, I.C.] c. Kinds of Warranty

a. Defined Neglect to communicate that which a party knows and ought to communicate [Section 26, I.C.] b. Characteristics 1. This is an omission 2. Must be shown to be material, that is, affects insurers decision to enter into contract, in estimating degree of risk or fixing the premium 3. Within the knowledge of insured but he makes no warranty

8.

9.

a. b. 3.

At the address stated in policy Stating the valid ground

necessarily follow [Blacks Law Dictionary, p. 1164]. b. Loss where the proximate cause is an excepted peril even if theimmediate cause is not an excepted peril [Section 86, I.C.] c. Loss where the proximate cause is not an excepted peril but the immediate cause is an d. excepted peril Loss caused by the willful act or through the connivance of the insured [Section 87, I.C.]

2. Fernandez vs. National Life Insurance Company [105 Phil. 59] 3-c. Filing of fraudulent claim 1. Effect Operates to defeat recovery upon any part of the policy [Tuason vs. North China Insurance Co., 47 Phil. 14] 2. Cases: a. An honest overvaluation is not a fraudulent claim [Carreron vs. Agcaoili, L-11156, 23 February 1961] b. Claims more than 50% of actual loss is in bad faith and/or fraudulent. Thus, the insured cannot recover [Tan It vs. Sun Insurance, 51 Phil 212] 3-d. Suicide

Furnish facts to insured upon request [Section 65, I.C.]

2-c. Cases: 1. Saura Import-Export Company vs. Philippine International Surety [8 SCRA 143] 2. Malayan Insurance Company vs. Arnaldo [154 SCRA 672] 3. Paulino vs. Capital Insurance [105 Phil. 1315] 3. Grounds to Defeat Recovery by Insured 3-a. Loss, damage or injury caused by an excepted risk [Section 86, I.C.] 1. Losses Insurer Liable [Sections 84-86, I.C.] a. Loss where the proximate cause is the insured peril [Section 84, I.C.] b. Loss caused by efforts to rescue the thing insured from insured peril [Section 85, I.C.] c. Loss caused by a peril not insured against to which the thing insured was exposed in the course of its rescue from the insured peril [Section 85,I.C.] f. Loss, the immediate cause of which was the insured peril if the proximate cause is not an g. excepted peril [Section 86,I.C.] Loss caused by the negligence of the insured [Section 87,I.C.]

3-b. Lack of notice/proof of loss [Section 88, I.C.] 1. Conditions a. b. Notice of loss must given to insurer When required by policy, a preliminary proof of loss must likewise be given Cases:

1.

Rules [Section 180-A, I.C.]

a. Insurer liable only after policy has been in force for a period of two (2) years from date of issue or last reinstatement unless policy provides a shorter period b. Suicide in state of insanity is always compensable 2. Exceptions The insurer is not liable if suicide occurred within two (2) years after policy issuance of policy or its last reinstatement 3-e. Grounds for cancellation of insurance contract may be invoked to defeat recovery where the insurer failed to cancel the contract prior to the commencement of an action thereon by the insured [Argente vs. West Coast Life, 51 Phil. 725].

c.

1. Bachrach vs. British American Assurance [17 Phil. 455] 2. Malayan Insurance vs. Arnaldo [154 SCRA 672] 2. Waiver of Insurer to Notice/Proof of Loss a. Insurer recognizes liability b. Insurer denies liability under policy c. Failure to object [Section 90, I.C.] d. Cases: 1. Pacific Timber vs. Yap, [112 SCRA 199]

2. Losses Insurer Not Liable a. Loss where the remote cause is an insured peril [Section 84, I.C.]. Remote cause is one where the effect is uncertain, vague or does not

H. MARINE INSURANCE
1. Two Major Divisions of Transportation Insurance

injured party must look to the shipowner for redress. 2-b. Coverage 1. Unusual violence or extraordinary action of wind and waves 2. Other extraordinary causes connected with navigation 2-c. Perils of the Ship loss in the ordinary course of events resulting from 1. Natural and inevitable action of the sea Wear and tear of the ship Negligent failure of the shipowner to provide the vessel with proper equipment to convey cargo under ordinary conditions 3. Insurable Interest of: 3-a. Shipowner 1. General Rule: His insurable interest on the vessel is up to the extent of its value [Section 100, I.C.] 2. Exceptions: a. Loan on bottomry 1. Nature it is a loan secured by vessel payable only if the vessel safely completed a contemplated voyage 2. Liability In case of loss of the vessel, the shipowner receives no indemnity for loss but acquires immunity from payment of the loan 3. Insurable Interests of Shipowner Excess of the value of the vessel over the amount of bottomry loan [Section 101, I.C.]

b. Chartered vessels 1. Kinds of Charter Contracts a. Affreightment use of the vessel only, either in whole or in part, which may be: Time charter, that is, for a fixed period of time or a Voyage charter, that is, for a particular voyage b. Demise or Bareboat use of the whole vessel including control over navigation and command of its master and crew 2. Insurable Interests The insurable Interest of the shipowner on the: a. Vessel to the extent of the loss which cannot be recovered from the charterer b. Freightage [Sections 102-103, I.C.] 3-b. Creditor or lender in bottomry Insurable interest is up to the extent of the loan on bottomry 3-c. Charterer: His insurable interest on the a. Vessel to the extent he is liable to be damnified by the loss of the vessel [Section 106, I.C.] b. Freightage 3-d. Cargo Owner over the cargoes and on expected profits on his cargoes a. When ship is prevented from completing voyage due to peril insured against, liability of insurer continues after cargoes are reshipped [Section 133, I.C.] b. Insurer is liable for damages, expenses of discharging, storage, reshipment, extra freight and other expenses in saving cargo thus reshipped [Section 134, I.C.]

1-a. Ocean Marine Insurance provides protection for 1. Ships or hulls 2. Goods or cargoes 3. Earnings such as freightage, passage, profits and commissions [Sections 102, 105, I.C.] 4. Liability incurred by owner or any party interested in or responsible for the insured property by reason of perils of the sea 1-b. Inland Marine Insurance provides protection for 1. 2. Property in transit Bailees (persons having temporary custody of the goods or property of others such as carriers, warehouseman, laundrymen, keepers of garage) liability Fixed transportation property covering bridges, tunnels and other instrumentalities of transportation and communication Floater insurance on property wherever they may be located

2. 3.

3.

4.

2. Perils of the Sea 2-a. Principle: The insurer undertakes to insure against perils of the sea, against perils of the ship. For perils of the sea, the insured can hold the insurer liable. For perils of the ship, the

4. Concealment 4-a. Definition Failure to disclose any material fact or circumstance which is within or ought to be within the knowledge of one party and of which the other has no actual or presumptive knowledge [Section 107, I.C.] 4-b. Broader Concept Insured is bound to communicate the following: 1. Facts within his knowledge material to the contract or risk [Section 28,I.C.] 2. Beliefs or opinions of third persons 3. Expectations of third persons [Section 108, I.C.] 4-c. Effects of Concealment 1. General Rule: Entitles insurer to rescind the contract [Section 27, I.C.] 2. Exception: Merely exonerates insurer from loss resulting from the risk concealed a. National character of the insured b. Liability of the thing insured to capture and detention c. Liability to seizure from breach of foreign laws d. e. Want of necessary documents Use of false and simulated papers [Section 110, I.C.]

1. Coverage a. Material fact with fraudulent intent b. Material fact with no intent to defraud c. As to expectation with fraudulent intent [Section 112, I.C.] 2. Effect Entitles insurer to rescind the contract [Section 110, I.C.] 5-c. Distinguished with Misrepresentation as to other Insurance Contracts 1. Coverage The insurer must show that the representations of the insured must be material AND fraudulent [Insular Life Assurance Co. vs. Pineda, 40 O.G. 285] 2. Effect Entitles insurer to rescind the contract [Section 45, I.C.] 6. Implied Warranties 6-a. Nature These are warranties which are implied from the very nature of maritime venture. Thus, these would no necessity to have them explicitly mentioned in the contract 6-b. Four implied warranties 1. Vessel is seaworthy 2. Carriage of documents showing nationality or neutrality when the same are expressly warranted [Section 120, I.C.] 3. Non-deviation from agreed voyage 4. Non-engagement in illegal venture 6-c. Seaworthiness 1. Definition a Ship is seaworthy when it is reasonably fit to perform the service, and to encounter the ordinary perils of the voyage

contemplated by the parties to the policy [Section 114, I.C.]. 2. When seaworthiness exists a. General Rule: At the commencement of the risk [Section 115, I.C.] b. Exceptions: 1. Time Policy Vessel must be seaworthy at the commencement of every voyage 2. Transshipment of Cargoes each vessel upon which the cargo is shipped/transshipped must be seaworthy at the commencement of each particular voyage 3. Voyage Policy that contemplates different stages, the vessel must be seaworthy at the commencement of each stage 3. Criteria in determining seaworthiness a. Nature of Vessel must be fit as to repair, equipment, crew, cargoes and other respects to perform the voyage and encounter the ordinary perils of the sea b. Nature of Voyage c. Nature of Service reasonably capable of safely carrying the cargo to its port of destination d. Cases: 1. Madrigal, Tiangco & Company vs. Hanson, Orth & Stevenson, Inc., 103 Phil. 345 2. Roque vs. Intermediate Appellate Court, 139 SCRA 596 4. Scope of Implied Warranty a. Seaworthiness must exist at the time of the commencement of the risk

5. Representation 5-a. Definition Statements made to give information to the insurer and otherwise induct him to enter into the contract 5-b. False Representation

b. There is no implied warranty that vessel will remain seaworthy throughout the voyage c. If it becomes unseaworthy during the voyage, it is the duty of the master to exercise diligence to make it seaworthy again through avoidance of unnecessary delay in the repair of the defects [Section 118,I.C.] d. A ship may be seaworthy for purposes of insurance on the ship but may be unseaworthy for purposes of insurance upon the cargo [Section 119,I.C.]. In this case, the insurer of the cargo is not liable [Go Tiaco vs. Union Society of Canton, 40 Phil. 40]. 5. Effects of Unseaworthiness a. At Commencement of the risk insurer is exonerated from any liability arising from violation of the implied warranty b. During the voyage and there is unreasonable delay in the repair only the insurer on ship or shipowners interest are exonerated from liability from any loss arising therefrom [Ibid] 6-d. Voyage and Deviation 1. Course of Voyage

b.

How Deviation Made

1. 2. 3.

When it perishes Goes out of commercial Disappears in such away that its existence is unknown or cannot be recovered [Art. 1189, Civil Code]

1. Departure from the course of sailing fixed by mercantile usage [Section 121, I.C.] 2. Departure from the most natural, direct and advantageous route if the course of sailing is not fixed by mercantile usage [Section 122, I.C.] 3. Unreasonable delay in pursuing the voyage [Section 123, I.C.] 4. Commencement of an entirely different voyage [Ibid] c. Classification of Deviation as to its Cause or Purpose 1. Proper deviation

7-b. Classification of Losses 1. Total Loss, which may either be: a. Actual loss b. Constructive Loss 2. Partial Loss one which is not total [Section 129, I.C.] 7-c. Actual Loss 1. Nature Exists when the subject matter of the insurance is wholly destroyed, lost or when it is so damaged as no longer to exist in its original character. Complete physical destruction is not necessary to constitute actual total loss. 2. Presumption a vessel not heard of at all within a reasonable time after sailing or after last seen is presumed actual loss [Section 132, I.C.] 3. Causes of actual total loss a. Total destruction of the thing insured; b. Irretrievable loss of the thing by sinking or by being broken up; c. Damage to the thing that renders it valueless to the owner for the purpose for which he held it; Any event which effectively deprives the owner of the possession of the thing insured at the port of destination [Section 130, I.C.]

a. Caused by circumstances over which neither the master nor the shipowner has any control; b. Necessary to comply with a warranty, to avoid peril, whether or not such peril is insured against; c. Made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril; d. Made in good faith for the purpose of saving human life or relieving another vessel in distress [Section 124, I.C.] 2. Improve deviation all other deviations not specified above [Section 125, I.C.]

a. In conformity to the course of sailing fixed by mercantile usage [Section 121, I.C.] b. If no fixed mercantile usage, the most natural, direct and advantageous way according to the ordinary skill and discretion of the master of the vessel [Section 122, I.C.] 2. Deviation

d. Effect of Improper Deviation Insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation [Section 126, I.C.] 7. Loss 7-a. A thing is lost

d.

a. Defined any unexcused departure from the regular course or route of the insured voyage or any other act which substantially alters the risk

4.

Effect Insurer is liable for the whole of the amount insured even without notice of abandonment [Section 135, I.C.] Cases:

d. Cargo cannot be forwarded without incurring either an expense of more than of its value or a risk a prudent man would not take under the circumstances [Section 139, I.C.] 4. Abandonment a. Defined Act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of his interest in the thing insured [Section 138 I.C.] b. Requisites 1. Constructive total loss [Section 139, I.C.] 2. Actual relinquishment by insured of thing insured to the insurer [Section 138, I.C.] 3. Absolute, that is, not partial nor conditional [Section 140, I.C.] 4. Within a reasonable time after reliable information of the loss [Section 141, I.C.] 5. Basis of abandonment is factual; otherwise, it is ineffectual [Sections 142 and 145, I.C.] 6. Notice of abandonment to the insurer, either oral or written. In case of oral notice, written notice must be given within 7 days from such oral notice [Section 143, I.C.] 7. Notice of abandonment must be explicit specifying the particular cause [Section 144, I.C.] c. Effects 1. Interest of the insured on the subject matter of insurance is transferred to the insurer who becomes entitled to all the rights which the insured possessed in the property insured [Section 146, I.C.] 2. Agents of the insured become the agents of the insurer, the latter becoming responsible for all

their in connection with the insured property and for all the expenses and liabilities in respect thereto [Section 148,I.C.] 3. Insurer becomes liable as if there was an actual total loss 5. Acceptance of Abandonment a. How Made 1. 2. Express, which may either oral or written Implied from the conduct of insurer such as silence for an unreasonable length of time from notice [Section 150, I.C.]

5.

a. PMC vs. Union Insurance Society of Canton, 42 Phil. 378 b. Pan Malayan Insurance Corporation vs. FAO, 201 SCRA 382 7-d. Constructive Total Loss 1. Nature One in which the loss, although not actually total, is of such a character that the insured is entitled, if he thinks fit, to treat it as a total loss by abandonment [Section 131 in relation to Section 139, I.C.]. 2. Principles a. There is only a constructive total loss if there is abandonment. b. If there is constructive total loss without abandonment, loss is treated as partial loss only [Section 155, I.C.] EXCEPT when the insurer pays for an actual total loss [Section 147, I.C.] c. Freightage cannot be abandoned unless the vessel is also abandoned. 3. Grounds of Constructive Total Loss a. More than in value is actually loss or would have to be expended to recover it from the peril b. At least in value is reduced c. Contemplated voyage of vessel cannot be lawfully performed without incurring either an expense of more than value of the thing insured or a risk a prudent man would not take under the circumstances

b. Effects 1. Conclusive upon the parties 2. Irrevocable unless the ground upon which the abandonment is made proves to be unfounded [Section 152, I.C.] 3. If abandonment is properly made, acceptance of insurer is not necessary. Rights of insured cannot be prejudiced by refusal of insurer to accept [Section 149, I.C.] 6. Cases a. Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 b. 7-e. Average 1. Defined Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo or both 2. Kinds of Averages

a. Gross or General include damages and expenses which are deliberately caused by the master of the vessel or upon his authority in order to save the vessel, cargo or both from a real and known risk b. Simple or Particular include damages and expenses caused to the vessel or to her cargo which have not inured to the common benefit and profit of all the persons interested in the vessel and cargo 3. Liability for Averages a. Gross or General loss is borne equally by all the interests concerned in the venture [Section 136, I.C.]. Principle: sacrifice some to save the rest. 1. Rule : Insurer is liable to insured with right to subrogation [Section 165,I.C.] 2. Exceptions: Where insured waived or neglected his right to contribution or after separation of the interest liable to contribution [Ibid] b. Simple or Particular 1. General Rule : Insurer is liable to the loss suffered by the owner of the cargo or of the vessel, as the case may be 2. Exception : If the policy excepted simple or particular average. 3. Exception to Exception: Insurer is liable to simple average even if excluded by policy if the insured is deprived of possession of property insured at the port of destination [Section 136, I.C.] 4. Requisites of General Average a. Common danger to vessel or cargo

b. Deliberate sacrifice of part of vessel or cargo c. For common safety and benefit of all d. Made by master or upon his authority e. f. Not caused by party asking for contribution Successful, that is, resulted in the saving of the vessel and/or cargo and

3. In loss of cargo, valuation is followed except where only part of the cargo or freightage is exposed to peril, the valuation applies only in proportion to such part [Section 159, I.C.] c. Partial Loss 1. If a property is insured less than its value, the insured becomes a reinsurer for the difference [Section 157, I.C.] FORMULA: Partial Loss/Value of Property x Insurance 2. In loss of profits, recovery is based on the portion of such profits as the value of the property lost bears to the value of the whole property [Section 158, I.C.] FORMULA: Value of Property lost/Value of the Whole Property x Profits 2. Open Policy Value of property is left to be ascertained at the time of loss a. Rules in Valuation in Case of Total Loss [Section 161, I.C.]: 1. Value of ship is its value at the beginning of the risk including articles or charges adding to its permanent value or necessary to prepare it for voyage plus the insurance 2. Value of cargo is its actual cost to the insured when loaded, in the absence, the FMV thereof, plus the insurance in both cases 3. Value of freightage is the gross freightage exclusive of primage, plus insurance b. In case of partial loss 1. If a property is insured less than its value, the insured becomes a reinsurer for the difference [Section 162, I.C.]

g. Necessary [Jarque vs. Smith Bell and Company, 56 Phil. 758] 8. Measure of Indemnity 8-a. Kinds of Marine Insurance Policies 1. Valued Policy Value of the property insured is determined at the time the insurance is taken a. Rules: 1. Valuation in the policy is conclusive upon the parties 2. Exception : Insurer may show real value if the thing insured was hypothecated by bottomry or respondentia before it was insured without the knowledge of the person who procured the insurance [Section 156,I.C.] b. Total Loss

1. Valuation in policy is basis of recovery by the insured 2. In loss of profits, loss is conclusively presumed from loss of the property of which the profits are expected to arise [Section 160, I.C.]

FORMULA: Loss In Value/Value before Loss x Insurance 2. In case of general average, liability of insurer is limited to the proportion which the general average bears to the ratio of the insurance over the total value of properties insured [Section 165, I.C.] FORMULA: Insurance/total value of Properties covered by Insurance x value of property lost thru general average 3. Vessel a. Anchors full liability of the insurer b. Cost of the old materials is deducted towards the cost of the new materials. Insurer is liable for only 2/3 of the remaining cost of repairs after such deduction [Section 166, I.C.] I. FIRE INSURANCE I. Definition Contract of indemnity by which the insurer agrees to indemnify the insured against loss or damage arising from fire. 2. Extended Coverage 2-a. When Applicable applies when explicitly extended by policy 2-b. Scope of Extension 1. Lightning, windstorm, tornado, earthquake and other risks [Section 167,I.C.] 2. Not only to direct, but also to indirect and consequential losses like: a. Physical damage caused to other property which is not covered by the basic insurance policy b. Loss of earnings due to interruption of business due to damage to property insured

c. Extra expense or additional charges incurred by the insured following the damage or destruction of property insured 3. Alterations 3-a. Kinds of Alteration 1. Alteration Entitling Insurer to Rescind Contract [Section 168, I.C.] a. Use or condition of thing is specifically limited or stipulated in policy. Use or condition is altered Alteration is without consent of insurer Alteration is made by means within the control of the insured Alteration increases the risk

2. Open Policy Valuation of property is made at the time of loss which is the cost to replace the property insured in the condition immediately preceding the peril insured against [Ibid] 3-c. Other Considerations 1. Clauses Common to Fire Insurance a. Co-insurance clause b. Option to Rebuild clause 2. Limitations to Transfer a. Applies to pledge, hypothecation or other transfer of fire insurance policy or rights thereunder b. In favor of any person or company acting as agent or otherwise representing the insurer in so far as it affects the creditors of the insured [Section 173, I.C.] 3. Kinds of Fire a. Friendly fire

b. c. d. e.

2. Alteration Not Affecting Insurance [Section 169, I.C.] a. Alteration not affecting the risk b. c. d. Alteration not limited or specified in the policy [Section 170,I.C.] Alteration with the consent of the insurer, there being novation Alteration beyond the control of the insured

b. Hostile or enemy fire 3-c. Cases 1. Galian vs. State Assurance Company, 29 Phil. 413 2. General Insurance vs. Ng Hua, 106 Phil. 117 J. CASUALTY INSURANCE I. Definition Includes all forms of insurance against loss or liability arising from accident or mishap which are not within the scope of other types of insurance, namely: marine, fire, suretyship and life [Section 174,I.C.] 2. Terminologies

3-b. Measure of Indemnity 1. Valued Policy a. Valuation of property at the time insurance is taken is conclusive to the parties [Section 171, I.C.] b. If property is insured for less than its value, there is no co-insurance unless provided in the policy

2-a. Accident or mishap means an event that takes place without ones foresight or expectation. It proceeds from an unknown cause, or an unusual effect of a known cause, and therefore not expected. 2-b. Liability is the financial responsibility of one party to another as a consequence of doing or failing to do something. This may arise from negligence or a contractual obligation. 3. Two (2) General Divisions of Casualty Insurance 3-a. Loss/Damage Insurance insurance against specified perils which may bring about loss or damage to the person of the insured or to his property like: 1. Personal accident 2. Motor vehicle loss or damage 3-b. Liability Insurance insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to others or damage to their property such as Employees Compensation and Motor vehicle liability. 4. Insurable Liability those arising from commission of quasi-delict and contractual obligation are insurable. If liability arises from a crime, qualify: 4-a. If commission is accidental, covered. 4-b. If deliberate, not covered. 5. Cases: 5-a. Villacorta vs. Insurance Commissioner, 100 SCRA 470 [Authorized Driver Clause vs. Theft]

5-b. Association of Baptists vs. Fieldmans Insurnace Co., 124 SCRA 618 [Theft and Necessity of Conviction] 5-c. Stokes vs. Malayan Insurance Company, 124 SCRA 766 [Drivers License of Aliens] 5-d. Palermo vs. Pyramid Insurance Company, 161 SCRA 677 [Applicability of Authorized Driver Clause] 5-e. CCC Insurance Corporation vs. Court of Appeals, 31 SCRA 264 [Presumption on License] 5-f. Pan Malayan Insurance Corporation vs. Court of Appeals, 184 SCRA 54 [Subrogation] 5-g. Filipino Merchants Insurance Company vs. Court of Appeals, 179 SCRA 638 [Burden of Proof on All Risks Clause] 5-h. Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554 [Negligence Resulting to Death] 5-i. Finman General Assurance Corporation vs. Court of Appeals, 213 SCRA 493 [Death due to Stabbing] K. SURETYSHIP 1. Definition agreement whereby a party called the surety guarantees the performance by another called the principal or obligator, of an obligation or undertaking in favor of a third person called the obligee [Section 175, I.C.] 2. Nature of Liability liability is joint and several. This means that upon default of the obligor in complying with his obligation, the surety becomes primarily liable to the obligee who has the right to demand payment under the terms and 3.

conditions agreed upon [Ibid, see also Art. 2047-2084, 1207-1222, Civil Code]. Rules on Premiums

3-a. Contract of suretyship not valid and binding unless and until payment of the premium. 3-b. Premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor. 3-c. Where contract of suretyship or bond was accepted by obligee, it is valid even if premium has not been paid. 3-d. Where contract of suretyship or bond was not accepted by obligee, the surety shall collect only a reasonable amount of premium, except where such non-acceptance is due to the fault of surety, no service fee, stamps and taxes may be collected. 3-e. In continuing bond, either for a term exceeding one year or with no fixed expiration date, obligor shall pay annual premium as it falls due until the contract is cancelled [Section 177, I.C.] 4. Cases:

4-a. National Shipyards & Steel Corporation vs. Torrento, 20 SCRA 427 4-b. Leyson vs. Rizal Surety and Insurance Company, 16 SCRA 551 L. LIFE INSURANCE 1. Definition

1-a. Insurance on human lives and insurance appertaining thereto or connected therewith [Section 179, I.C.]

1-b. Mutual agreement by which a party agrees to pay a given sum on the happening of a particular event contingent on the duration of human life, in consideration of the payment of a smaller sum immediately or on periodical payments by the other party. 1-c. Essentially, it is a contract to make specific payments upon the death of a person whose life is insured. 2. When Payable

4.

Types of Insurance Policy

5-c. Calano vs. Court of Appeals, 98 Phil. 79 [Military and Naval Service Clause] 5-d. Abella Vda. De Diaz vs. Asia Life Insurance Company, 48 OG 4435 [Exemption from Execution] 5-e. Nario vs. Philamlife, 20 SCRA 434 5-f. Bank of the Philippine Islands vs. Posadas, 56 Phil. 215 [Refund of Premium] 5-g. Del Val vs. Del Val, 29 Phil. 234 [Entitlement to the Insurance Proceeds] 6. Suicide

4-a. Ordinary Life Policy one in which the insured is required to pay a certain fixed premium annually or at more frequent intervals throughout the life of the insured and the beneficiary is entitled to proceeds thereof upon death of the insured. 4-b. Limited Payment Life Policy premium is payable only during a limited period, after which the insurance is fully paid for. If insured dies within the specified period, his beneficiary collections. 4-c. Term Insurance Policy one which provides coverage only if the insured dies during a limited period. If insured dies within the period specified, policy is paid to beneficiary. If insured survives within such period, contract is terminated. 4-d. Endowment Policy the insurer binds himself to pay a fixed sum to the insured if he survives for a specified period, or if he dies within such period, to some other person indicated. 4-e. Life Annuity contract whereby the insurer binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. 5. Cases:

2-a. Upon the death of a person 2-b. Upon the survival of the insured during a specified period 2-c. Contingently, on the cessation of life or on the continuance of life [Section 180, I.C.] 3. Parties to Life Insurance

6-a. When Insurer Liable 1. If policy is silent, insurer is liable if policy has been in force for a period of two years from issuance or last reinstatement 2. If policy provides for shorter period, such provision applies 3. Regardless of the period, if committed during state of insanity 6-b. When Insurer Not Liable 1. Suicide committed during the period of sanity, provided, it is within the two (2) year period from issuance of policy or its last reinstatement, if policy does not provide for a shorter period 2. Suicide committed during the period of sanity and within a period not exceeding two (2) years as specified in the policy PREPARED/SUMMARIZED BY:

3-a. Owner of Policy who 1. Has the power to name or change beneficiary, if designation is not irrevocable. Otherwise, the consent of beneficiary irrevocably designated is required. 2. Has the power to assign policy 3. Has the obligation to pay premiums 3-b. Person whose life is subject of policy, also known as the Cestui Que Vie 3-c. Beneficiary, to whom the proceeds are payable. However, the policy upon life or health may pass by transfer, will or succession to any person and such person may recover upon it whatever the insured might have recovered [Section 182, I.C.]

5-a. Biagtan vs. Insular Life Assurance Company, 44 SCRA 58 [Accidental Benefit Clause] 5-b. Kanapi vs. Insular Life Assurance Company, 94 Phil. 397 [Double Indemnity Clause]

ATTY. HENRY C. FILOTEO, CPA