Source: https://ru.scribd.com/doc/129901290/Memory-Aid-on-Insurance-San-Beda
Timestamp: 2020-05-27 01:09:01
Document Index: 46145724

Matched Legal Cases: ['Art. 2207', 'Art. 739', 'Art. 2012', 'art, 308', 'art, 356', 'Art. 1306']

Memory Aid on Insurance (San Beda) | Subrogation | Insurance | Бесплатная 30-дневная пробная версия | Scribd
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CONTRACT OF INSURANCE  An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
“DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS” (Sec. 2, par. 4)
1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety;
3. Doing any insurance business, including a reinsurance business;
4. Doing or proposing to do any business in substance equivalent to any of the foregoing
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the
1. Consensual – it is perfected by the meeting of the minds of the parties.
2. Voluntary – the parties may incorporate such terms and conditions as they may deem convenient.
3. Aleatory – it depends upon some contingent event.
4. Unilateral – imposes legal duties only on the insurer who promises to indemnify in case of loss.
5. Conditional – It is subject to conditions the principal one of which is the happening of the event insured against.
6. Contract of indemnity – Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured.
7. Personal – each party having in view the character, credit and conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. A subject matter which the insured
2. Event or peril insured against which
may be any future contingent or
unknown event, past or future and a duration for the risk thereof.
3. A promise to pay or indemnify in a
fixed or ascertainable amount.
4. A consideration known as “premium”.
5. Meeting of the minds of the parties.
5 CARDINAL PRINCIPLES IN INSURANCE
 An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know.
 Reason: An insurance contract is an aleatory contract. The insurer relies on
the representation of the applicant, who is in the best position to know the state of his health.
 It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss
sustained and the burden is upon him to establish the amount of such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino) Rules:
a. Applies only to property
creditor insures the life of his debtor. b. Life insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
insurance except when
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
 Most of the terms of the contract do
not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
 It is a process of legal substitution
where the insurer steps into the shoes of the insured and he avails of the latter’s rights against the wrongdoer at the time of loss.
 The principle of subrogation is a
normal incident of indemnity insurance as a legal effect of payment; it inures to
the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)  Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. To make the person who caused the
loss legally responsible for it.
2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy.
1. Applicable only to property insurance.
2. The insurer can only recover from the
third person what the insured could have
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured’s claim for loss;
c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54)
d. In life insurance
CONSTRUCTION OF INSURANCE CONTRACT  The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3. The insurer assumes that risk of loss;
4. Such assumption is part of a general
scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and 5. The insured makes a ratable contribution (premium) to a general insurance fund.
 A contract possessing only the first 3
elements above is a risk-shifting device. If all the elements, it is a risk-
distributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
IV. PERFECTION OF AN INSURANCE CONTRACT
 An insurance contract is a consensual
contract and is therefore perfected the moment there is a meeting of minds with
respect to the object and the cause or consideration.
 What is being followed in insurance
contracts is what is known as the “cognition theory”. Thus, “an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge”. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
 A mere acknowledgment on behalf of
the company that its branch office had
received from the applicant the insurance premium and had accepted the application subject to processing by the head office.
Cover Note (Ad Interim)
 A concise and temporary written
contract issued to the insurer through its
duly authorized agent embodying the principal terms of an expected policy of insurance. Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application.
 Duration: Not exceeding 60 days
unless a longer period is approved by
Insurance Commissioner (Sec. 52).
 Printed stipulations usually attached to the policy because they constitute additional stipulations between the
parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
 In case of conflict between a rider
and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties.
(C. Alvendia, The Law of Insurance in the Philippines, 1968 ed.)
 An agreement between the insurer
and the insured on certain matter relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188)
 Any provision added to the contract
altering its scope or application. (Prof.
De Leon, p.188)
 The written instrument in which a
contract of insurance is set forth. (Sec.
 Contents: (Sec. 51)
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.
 Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy.  Kinds:
1. OPEN POLICY – value of thing insured
is not agreed upon, but left to be ascertained in case of loss. (Sec. 60)  The actual loss, as determined,
will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62)
2. VALUED POLICY – definite valuation
of the property insured is agreed by both
parties, and written on the face of policy. (Sec. 61)  In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount.
3. RUNNING POLICY – contemplates
successive insurances and which provides that the object of the policy may from time to time be defined (Sec. 62)
V. TYPES OF INSURANCE CONTRACTS
a. Individual life (Secs. 179–183, 227)
b. Group life (Secs. 50, last par., 228)
c. Industrial life (Secs. 229–231)
a. Marine (Secs. 99–166)
b. Fire (Secs. 167–173)
c. Casualty (Sec. 174)
3. Contracts of bonding or suretyship (Secs. 175–178)
1. Health and accident insurance are
either covered under life (Sec. 180) or casualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect
of casualty insurance are also referred to
as property insurance.
VI. PARTIES TO INSURANCE CONTRACT 1. Insurer - Person who undertakes to indemnify another.  For a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, 113 SCRA 459) 2. Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to contract, must possess an insurable interest in the subject of the insurance and must not be a public enemy.
 A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject of such nation.
3. Beneficiary - A person designated to
receive proceeds of policy when risk
 Rules in the designation of the beneficiary:
i. A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of the NCC.  Reason: in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181)
ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec.
iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly waived the right to revoke in the policy. (Sec. 11)
iv. The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12)
b. PROPERTY  The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).
Effects of Irrevocable Designation Of Beneficiary
 Insured cannot:
1. Assign the policy
2. Take the cash surrender value of the policy
3. Allow his creditors to attach or execute on the policy;
4. Add new beneficiary; or
designation to revocable, even though the change is just and reasonable.  The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)
VII. INSURABLE INTEREST
 A person has an insurable interest in
the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit,
and by its destruction he shall suffer pecuniary loss, damage or prejudice.
 Every person has an insurable interest
in the life and health:
a. of himself, of his spouse and of his children;
b. of any person on whom he
depends wholly or in part for education or support;
c. of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance; and
d. of any person upon whose life any estate or interest vested in him depends. (Sec. 10)
 When it should exist: When the
insurance takes effect; not thereafter or when the loss occurs.  Amount:
GENERAL RULE: There is no limit in the amount the insured can insure his life. EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is equal to the amount of the debt. Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies.
 Every interest in property whether
real or personal, or any relation thereto,
or liability in respect thereof, of such
nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with
an existing interest in that out of which the expectancy arises. (Sec. 14)
insurance takes effect and when the loss occurs, but need not exist in the meantime.
 Amount: The measure of insurable
interest in property is the extent to which the insured might be damnified by loss or injury thereof. (Sec. 17)
INSURABLE INTEREST IN LIFE
exist at the time of loss
Unlimited except in life insurance effected by creditor on life of debtor.
Limited to actual value of interest in property insured.
The expectation of benefit to be derived from the continued existence of life need not have any legal basis whatever. A reasonable probability is sufficient without more.
property insured must have a legal basis.
The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
1. In case of a carrier or depositary
 A carrier or depository of any kind has
an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 15)
2. In case of a mortgaged property
 The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. a. Mortgagor – As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction of the property insured
will not extinguish the mortgage debt. b. Mortgagee – His interest is only up to the extent of the debt. Such interest continues until the mortgage debt is extinguished.
beneficiary of a fire insurance policy
taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)
OPEN OR LOSS PAYABLE MORTGAGE CLAUSE
Subsequent acts of the mortgagor
mortgagor affect
cannot affect the
not cease to be a
contract. 8 and 9)
Effects of Loss Payable Clause
a. The contract is deemed to be upon
the interest of the mortgagor; hence, he does not cease to be a party to the
b. Any act of the mortgagor prior to the
loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the
c. Any act, which under the contract of
insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect. d. In case of loss, the mortgagee is
entitled to the proceeds to the extent of his credit.
e. Upon recovery by the mortgagee to
the extent of his credit, the debt is
 In case a mortgagee insures his own
interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against
the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)
VIII. RISK  What may be insured against:
1. Future contingent event resulting in loss or damage – Ex. Possible future fire
2. Past unknown event resulting in loss or damage – Ex. Fact of past sinking of a vessel unknown to the parties
3. Contingent liability – Ex. Reinsurance
IX. PREMIUM PAYMENTS  Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.  Basis of the right of the insurer to collect premiums: Assumption of risk.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec.
1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. (Makati
Tuscany Condominium Corp. v. CA, 215 SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
 Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. 78)
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
A. Whole:
1. If the thing insured was never exposed to the risks insured against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81)
3. If contract is voidable because of the existence of facts of which the insured was ignorant without his fault; (Sec. 81)
4. When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81)
5. When rescission is granted due to the insurer’s breach of contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a
definite period and the insured surrenders his policy before the termination thereof;  Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2. When there is over-insurance
(Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already
attached and the risk is entire and
2. In life insurance.
3. When the contract is rescindable
or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and
the parties are in pari delicto.
enforceable once
It becomes a debt
X. TRANSFER OF POLICY
 It can be transferred even without the consent of the insurer except when there is a stipulation requiring the
consent of the insurer before transfer. (Sec. 181)
 Reason: The policy does not represent a personal agreement between the insured and the insurer.
 It cannot be transferred without the consent of the insurer.
 Reason: The insurer approved the
policy based on the personal
qualification and the insurable interest of the insured.
3. Casualty insurance
 It cannot be transferred without the
consent of the insurer. (Paterson cited in de Leon p. 82)
 Reason: The moral hazards are as
great as those of property insurance.
CHANE OF INTEREST IN THE THING INSURED
 The mere (absolute) transfer of the
thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. 58)  Reason: Insurance contract is personal. GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20)
1. In life, health and accident insurance.(Sec. 20);
2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21);
3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22);
4. Change of interest, by will or succession, on the death of the insured. (Sec. 23);
5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec.
6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57);
7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.
(Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF
c. Such party concealing makes no warranty as to the fact concealed.
d. The other party has not the means of ascertaining the fact concealed.
 Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, “the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance.”
Test of Materiality: Determined not by
the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries (Sec. 31).  Exception to Sec. 31:
a. Incontestability clause b. Matters under Sec.110 (marine insurance)
 The waiver of medical examination in
a non-medical insurance contract
renders even more material the information required of the applicant
concerning the previous conditions of
health and diseases suffered. (Sunlife v.
Correct estimation of the risk;
Sps. Bacani, 246 SCRA 268).
Precise delimitation of the risk;
Control of the risk;
The right to information of material
Determining whether a loss occurred and if so, the amount of such loss.
facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are
Devices used for ascertaining and
distinctly implied in other facts of which
controlling risk and loss:
information is communicated. (Sec.33)
1. Concealment – A neglect to
communicate that which a party knows and ought to communicate (Sec. 26)  Requisites:
 Where matters of opinion or judgment
are called for, answers made in good
faith and without intent to deceiver will
a. A party knows a fact which he
avoid the policy even though they
neglects to communicate or
untrue. Reason: The insurer cannot
disclose to the other.
on those statements. He must make
b. Such party concealing is duty bound to disclose such fact to the other.
further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March
2. Representations – Factual
statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. They are considered an active form of concealment.  Requisites of a false representation (misrepresentation):
a. The insured stated a fact which is untrue.
b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead.
c. Such fact in either case is
material to the risk.
a. It is not a part of the contract but
merely a collateral inducement to it.
b. It may be oral or written. c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before
the insurance is effected but not
e. It always refers to the date the
contract goes into effect.
a. AFFIRMATIVE – affirmation of a fact
when the contract begins; and b. PROMISSORY – promise to be performed after policy was issued.  Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes false.
 Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
3. Warranties – Statement or promise by the insured set forth in the policy or by reference incorporated therein, the
untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the
 Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property.
a. EXPRESS – an agreement expressed in
a policy whereby the insured stipulates
that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done.
b. IMPLIED - it is deemed included in the
contract although not expressly mentioned. Example: In marine
insurance, seaworthiness of the vessel.  Effects of breach of warranty:
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. 74) EXCEPTIONS:
a. Loss occurs before the time of performance of the warranty.
b. The performances becomes unlawful at the place of the contract.
c. Performance becomes
impossible. (Sec. 73) b. Immaterial (ex. Other insurance clause) GENERAL RULE: It will not avoid the policy. EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
Mere collateral
Written on the policy, actually or by reference
May be written in the policy or may be oral.
Presumed material
Must be proved to be material
Must be strictly complied with
4. Conditions – Events signifying in its
broadest sense either an occurrence or a non-occurrence that alters the previously existing legal relations of the parties to the contract. They may be conditions precedent or conditions subsequent.
 Effect of breach:
a. Condition precedent – prevents the accrual of cause of action
b. Condition subsequent – avoids
the policy or entitles the insurer to rescind  The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.
5. Exceptions – Provisions that may
specify excepted perils. It makes more
definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed.
 Effect: Limit the coverage of the contract.
 Grounds:
C. Breach of material warranty
D. Breach of a condition subsequent
 Waiver
Acceptance of premium payments
despite the knowledge of the ground for rescission. (Sec. 45)
right to rescind:
CANCELLATION OF NON-LIFE INSURANCE POLICY
 Right of the insurer to abandon the
contract on the occurrence of certain
grounds after the effectivity date of a non-life policy.
1. Non-payment of premium;
2. Conviction of a
crime out of acts hazard insured
3. Discovery of
4. Discovery of willful or reckless acts of omissions increasing the hazard insured against;
5. Physical changes in property making the property uninsurable; and
6. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. 64)
 Requirements:
1. Prior notice of cancellation to the insured;
2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy;
3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the insurer must furnish facts on which the cancellation is based;
4. Grounds should have existed after the effectivity date of the policy.
XII. INCONTESTABILITY CLAUSE
 Clause in life insurance policy that stipulates that the policy shall be
incontestable after a stated period.
insurer to rescind:
2. Payable on the death of the insured
3. It has been in force during the
exercised prior to the commencement of an action on the contract;
2. Life – such right must be availed of
lifetime of the insured for a period of at least two years from the date
during the first two years from the date
Note: The period of 2 years may be
shortened but it cannot be extended by
“incontestability.” (Sec. 48)
 Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)
BARRED DEFENSES OF THE INSURER
DEFENSES NOT
Policy is void ab
taking the insurance
lacked insurable interest as required by law;
the death of the insured is an excepted risk;
premiums have not
been paid (Secs. 77, 227[b], 228[b],
230[b]);
conditions of the policy relating to
military or naval service have been violated (Secs. 227[b], 228[b]);
That the fraud is
of a particularly
vicious type;
beneficiary failed to furnish proof of death or to comply with any condition
policy after the loss has happened; or
A. OVER-INSURANCE – results when the insured insures the same property for an amount greater than the value of the property with the same insurance
 Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the
property lost;
2. The insured is entitled to recover the amount of premium
corresponding to the excess in value of the property;
B. DOUBLE INSURANCE – exists where
insurers separately in respect to same
subject and interest. (Sec. 93)
1. Person insured is the same;
2. Two or more insurers insuring
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
 Effects: Where double insurance is allowed, but over insurance results:
(Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the
amount for which the insurers are severally liable under their respective contracts;
2. Where the policy under which the insured claims is a valued policy, the insured must give credit as against
the valuation for any sum received
by him under any other policy without regard to the actual value of
the subject matter insured;
3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;
4. Where the insured receives any sum
in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.
Additional or “Other Insurance” Clause
 A condition in the policy requiring the
insured to inform the insurer of any other insurance coverage of the property
insured. It is lawful and specifically
reinsured under the contract. (Prof. De
allowed under Sec. 75 which provides that “(a) policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it.”  A stipulation against double insurance.  Purposes:
Leon, p. 305) 3. Facultative reinsurance – There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable
To prevent an increase in the moral hazard
Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
To prevent over-insurance and
4. Retrocession – A transaction whereby
To constitute a violation of the
the reinsurer in turn, passes to another
clause, there should have been double insurance.
insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)
C. REINSURANCE – a contract by which the insurer procures a third person to
insure him against loss or liability by reason of an original insurance (also known as “Reinsurance Cession”). (Sec.
A. LOSS, IN INSURANCE  Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or
In every reinsurance, the original
misfortune against which the insurer, in
contract of insurance and the contract of
consideration of the premium, has
reinsurance are covered by separate policies.
undertaken to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
Insurer becomes the insured in relation to reinsurer
Insured is the party in interest in the 2 contracts
Original insured has no interest in the reinsurance contract.
Insured has to give his consent
1. Reinsurance treaty – Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306)
reinsurer is obligated to accept a fixed
Loss for which insurer is liable
proximate cause of
insured’s willful
which is the peril insured against (Sec. 84);
connivance of the
insured (Sec. 87); and
Loss where the
immediate cause of which is the peril
insured against except where
peril is
proximate cause is an excepted peril;
negligence of insured except where there was
gross negligence amounting to willful acts; and
efforts to rescue the thing from peril insured against;
course of rescue, the thing is exposed
annuity, in which
later than 90 days from such receipt of
deprives the insured
annuities shall be
of its possession, in
ascertainment had or made.
(Sec. 85).
b. Maturing at
Proximate Cause – An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred.
term stipulated – The proceeds are
REQUISITES FOR RECOVERY UPON INSURANCE
1. The insured must have insurable interest in the subject matter;
and filing of proof of death.
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused
by the peril insured against.
insured to recover.
B. CLAIMS SETTLEMENT  The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
The proceeds shall
insurer of proof of
the loss or damage by agreement of the
installments or as
arbitration but not
 In case of an unreasonable delay in the payment of the insured’s claim by the insurer, the insured can recover: 1) attorney’s fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398)
XV. PRESCRIPTIVE PERIOD (Secs. 63 &
1. In the absence of an express
stipulation in the policy, it being based on a written contract, the action prescribes in 10 years.
2. However the parties may validly agree
on a shorter period provided it is not less than one year from the time the cause of action accrues.
3. The cause of action accrues from the
rejection of the claim of the insured and not from the time of loss. It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it
can be used by the insured as a scheme or device to waste time until the evidence which may be used against him
is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim
must be filed within 6 months from the date of the accident otherwise the claim is deemed waived. The suit for damages either with the proper court or with the
Insurance Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise claimant’s right of action shall prescribe. (Sec. 384)
such as bridges, tunnels, etc. 4. Floater – provides insurance to follow the insured property wherever it may be located, subject always to the territorial
limits of the contract.
 Insurable interest:
XVI. MARINE INSURANCE
1.Shipowner
Insurance against risks connected with
a. Over the vessel to the
navigation, to which a ship, cargo, freightage, profits or other insurable
extent of its value, except that if chartered, the
interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec. 99)
insurance is only up to the amount not recoverable from the charterer. (Sec.
b. He also has an insurable
c. No insurable interest if he
Vessels, goods, freight, cargo,
interest on expected
merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation;
freightage. (Sec. 103).
will be compensated by charterer for the value of
Persons or property in connection
the vessel, in case of loss.
with marine insurance;
2. Cargo owner
Precious stones, jewels, jewelry and
Over the cargo and expected
precious metals whether in the
profits (Sec. 105).
course of transportation or
3. Charterer
Over the amount he is liable
Bridges, tunnels, piers, docks and
to the shipowner, if the ship is
other aids to navigation and transportation. (Sec. 99)
lost or damaged during the voyage (Sec. 106).
 Cargo can be the subject of marine insurance, and once it is
entered into, the implied warranty of seaworthiness immediately attaches to
In loans on bottomry and respondentia  Repayment of the loan is subject to the condition that the vessel or goods,
whoever is insuring the cargo, whether he be the shipowner or
respectively, given as a security, shall arrive safely at the port of destination.
not. (Roque v. IAC, 139 SCRA
Owner/Debtor
Difference between the value
B. Marine Protection and Indemnity Insurance
of vessel or goods and the amount of loan. (Sec. 101)
Classes of inland marine insurance:
(Prof. De Leon, p. 325)
1. Property in transit – provides protection to property frequently exposed to loss while it is transportation form one location to another.
2. Bailee liability - insurance for those who have temporary custody of the goods.
3. Fixed transportation property – they are so insured because they are held to be an essential part
 Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would apply to the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)
A loss which in the ordinary course of events, results
inevitable action of
action of wind and wave; or
and tear of the
failure of the ship’s owner to provide the vessel
convey the cargo
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk policy.
SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
A. All Risks Policy – insurance against all
causes of conceivable loss or damage, except: 1) as otherwise excluded in the policy; or 2) due to fraud or intentional
misconduct on the part of the insured.  The insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638)
B. Barratry Clause
 A clause which provides that there
can be no recovery on the policy in case of any willful misconduct on the part of
the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the prejudice of the owner’s interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
 A clause which makes the insurer
liable for loss or damage to the hull or machinery arising from the:
1. Negligence of the captain, engineers, etc.
2. Explosions, breakage of shafts; and
3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
D. Sue and Labor Clause
 A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. 163)
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS (Sec.
1. National character of the insured;
2. Liability of the thing insured to capture or detention;
3. Liability to seizure from breach of foreign laws;
4. Want of necessary documents; and
5. Use of false or simulated papers.
Note: This should be related to the general rule regarding material
DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)
The information of the belief or expectation of 3 rd persons is material and must be communicated
belief of a 3 rd party is not material and need not be communicated unless it proceeds form an agent of the insured whose
Concealment of any material fact will vitiate the entire contract, whether or not the loss results for the risk concealed.
1. Seaworthiness of the ship at the inception of the insurance (Sec.
2. Against improper deviation (Sec. 123, 124, 125);
3. Against illegal venture;
4. Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the ship
or cargo where such nationality or neutrality is expressly warranted; (Sec. 120)
5. Presence of insurable interest.
 While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer’s right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness  A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship’s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. 114). GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage. EXCEPTIONS:
1. In the case of a time policy, the ship
commencement of every voyage she
may undertake
cargo policy, each
vessel upon which the cargo is shipped or transshipped, must be
seaworthy at the commencement of each particular voyage
contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion
 Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (Roque v. IAC, 139 SCRA 596).
 A departure from the course of the
voyage insured, or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage. (Sec.123)
 Instances:
1. Departure of vessel from the course of the sailing fixed by mercantile usage
2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile usage
3. Unreasonable delay in pursuing voyage
4. Commencement of an entirely
different voyage (Secs. 121-123)
1. Proper -
a. When caused by circumstances outside the control of the ship captain or ship owner;
b. When necessary to comply with a warranty or to avoid a peril;
c. When made in good faith to avoid a peril;
d. When made in good faith to save human life or to relieve another vessel
in distress (Sec. 124)
 Effect: In case of loss, the
insurer is still liable.
2. Improper - Every deviation not
specified in Sec. 124 (Sec. 125).
 Effect:
damage, the insurer is not liable. (Sec. 126)
a. Actual -
i. Total destruction;
vessel or cargo
ii. Irretrievable loss by sinking;
iii. Damage rendering the thing valueless; or
iv. Total deprivation of owner of possession of thing insured. (Sec. 130)
b. Constructive -
i. Actual loss of more than ¾ of the value of the object;
ii. Damage reducing value by more than ¾ of the value of the vessel and of cargo; and
iii. Expense of transshipment
5. It must
exceed ¾ of value of cargo. (Sec. 131, in relation to Sec.
 In case of constructive total loss, insured may:
Abandon goods or
vessel to the insurer and claim for whole insured value (Sec. 139), or
successful, i.e. resulted in the
vessel, claim for partial
actual loss. (Sec. 155) 2. Partial: That which is not total (Sec.
AVERAGE  Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded.
Has inured to the common benefit and profit of all persons interested in the vessel and cargo
Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo.
To be borne equally by all of the interests concerned in the venture.
To be borne alone by the owner of the cargo or the vessel, as the case may be.
Requisites for the
Common danger to the
RIGHT OF INSURED IN CASE OF GENERAL AVERAGE GENERAL RULE: The insured may
either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or demand contribution from the other interested parties as soon as the vessel arrives at her destination EXCEPTIONS:
1. After the separation of interests liable to contribution
2. When the insured has neglected or waived his right to contribution
FPA Clause (Free From Particular Average) A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. 136)