30

INSURANCE CODE
(P.D. No. 1460)

I. GENERAL CONCEPTS 7. Personal – each party having in view

the character, credit and conduct of
CONTRACT OF INSURANCE the other.
 An agreement whereby one undertakes
for a consideration to indemnify another REQUISITES OF A CONTRACT OF
against loss, damage or liability arising INSURANCE (The Insurance Code of the
from an unknown or contingent event. Philippines Annotated, Hector de Leon,
(Sec. 2, par. 2, IC) 2002 ed.)
1. A subject matter which the insured has
“DOING AN INSURANCE BUSINESS OR an insurable interest.
TRANSACTING AN INSURANCE 2. Event or peril insured against which
BUSINESS” (Sec. 2, par. 4) may be any future contingent or unknown
1. Making or proposing to make, as event, past or future and a duration for
insurer, any insurance contract; the risk thereof.
2. Making or proposing to make, as 3. A promise to pay or indemnify in a fixed
surety, any contract of suretyship as or ascertainable amount.
a vocation, not as a mere incident to 4. A consideration known as “premium”.
any other legitimate business of a 5. Meeting of the minds of the parties.
surety;
3. Doing any insurance business, 5 CARDINAL PRINCIPLES IN INSURANCE
including a reinsurance business; 1. Insurable Interest
4. Doing or proposing to do any business 2. Principle of Utmost Good Faith
in substance equivalent to any of the  An insurance contract requires utmost
foregoing good faith (uberrimae fidei) between the
parties. The applicant is enjoined to
II. CHARACTERISTICS OF AN INSURANCE disclose any material fact, which he
CONTRACT (The Insurance Code of the knows or ought to know.
Philippines Annotated, Hector de Leon,  Reason: An insurance contract is an
2002 ed.) aleatory contract. The insurer relies on
1. Consensual – it is perfected by the the representation of the applicant, who
meeting of the minds of the parties. is in the best position to know the state
2. Voluntary – the parties may of his health.
incorporate such terms and 3. Contract of Indemnity
conditions as they may deem  It is the basis of all property insurance.
convenient. The insured who has insurable interest
3. Aleatory – it depends upon some over a property is only entitled to recover
contingent event. the amount of actual loss sustained and
4. Unilateral – imposes legal duties only the burden is upon him to establish the
on the insurer who promises to amount of such loss (Reviewer on
indemnify in case of loss. Commercial Law, Professors Sundiang
5. Conditional – It is subject to and Aquino)
conditions the principal one of which Rules:
is the happening of the event insured a. Applies only to property
against. insurance except when the
6. Contract of indemnity – Except life creditor insures the life of his
and accident insurance, a contract of debtor.
insurance is a contract of indemnity b. Life insurance is not a contract of
whereby the insurer promises to indemnity.
make good only the loss of the c. Insurance contracts are not
insured. wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
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 Most of the terms of the contract do e. For recovery of loss in excess of

not result from mutual negotiations insurance coverage
between the parties as they are
prescribed by the insurer in final printed CONSTRUCTION OF INSURANCE
form to which the insured may “adhere” CONTRACT
if he chooses but which he cannot change.  The ambiguous terms are to be
(Rizal Surety and Insurance Co., vs. CA, construed strictly against the insurer, and
336 SCRA 12) liberally in favor of the insured. However,
5. Principle of Subrogation if the terms are clear, there is no room
 It is a process of legal substitution for interpretation. (Calanoc vs. Court of
where the insurer steps into the shoes of Appeals, 98 Phil. 79)
the insured and he avails of the latter’s
rights against the wrongdoer at the time III. DISTINGUISHING ELEMENTS OF AN
of loss. INSURANCE CONTRACT
 The principle of subrogation is a 1. The insured possesses an insurable
normal incident of indemnity insurance as interest susceptible of pecuniary
a legal effect of payment; it inures to the estimation;
insurer without any formal assignment or 2. The insured is subject to a risk of loss
any express stipulation to that effect in through the destruction or impairment
the policy. Said right is not dependent of that interest by the happening of
upon nor does it grow out of any private designated perils;
contract. Payment to the insured makes 3. The insurer assumes that risk of loss;
the insurer a subrogee in equity. (Malayan 4. Such assumption is part of a general
Insurance Co., Inc. v. CA, 165 SCRA 536; scheme to distribute actual losses
see also Art. 2207, NCC) among a large group or substantial
 Purposes: (The Insurance Code of the number of persons bearing somewhat
Philippines Annotated, Hector de Leon, similar risks; and
2002 ed.) 5. The insured makes a ratable
1. To make the person who caused the contribution (premium) to a general
loss legally responsible for it. insurance fund.
2. To prevent the insured from receiving  A contract possessing only the first 3
a double recovery from the elements above is a risk-shifting device.
wrongdoer and the insurer. If all the elements, it is a risk-distributing
3. To prevent tortfeasors from being device. (The Insurance Code of the
free from liabilities and is thus Philippines Annotated, Hector de Leon,
founded on considerations of public 2002 ed.)
policy.
 Rules: IV. PERFECTION OF AN INSURANCE
1. Applicable only to property insurance. CONTRACT
2. The insurer can only recover from the  An insurance contract is a consensual
third person what the insured could have contract and is therefore perfected the
recovered. moment there is a meeting of minds with
3. There can be no subrogation in cases: respect to the object and the cause or
a. Where the insured by his own act consideration.
releases the wrongdoer or third party  What is being followed in insurance
liable for the loss or damage; contracts is what is known as the
b. Where the insurer pays the insured the “cognition theory”. Thus, “an acceptance
value of the loss without notifying the made by letter shall not bind the person
carrier who has in good faith settled the making the offer except from the time it
insured’s claim for loss; came to his knowledge”. (Enriquez vs.
c. Where the insurer pays the insured for Sun Life Assurance Co. of Canada, 41 Phil.
a loss or risk not covered by the policy. 269)
(Pan Malayan Insurance Company v. CA,
184 SCRA 54) Binding Receipt
d. In life insurance  A mere acknowledgment on behalf of
the company that its branch office had
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received from the applicant the insurance 5. Interest of the insured in the property
premium and had accepted the if he is not the absolute owner;
application subject to processing by the 6. Risk insured against; and
head office. 7. Duration of the insurance.

Cover Note (Ad Interim)  Persons entitled to recover on the

 A concise and temporary written policy (sec. 53): The insurance proceeds
contract issued to the insurer through its shall be applied exclusively to the proper
duly authorized agent embodying the interest of the person in whose name or
principal terms of an expected policy of to whose benefit it is made, unless
insurance. otherwise specified in the policy.
Purpose: It is intended to give  Kinds:
temporary insurance protection coverage 1. OPEN POLICY – value of thing insured
to the applicant pending the acceptance is not agreed upon, but left to be
or rejection of his application. ascertained in case of loss. (Sec. 60)
 Duration: Not exceeding 60 days unless  The actual loss, as determined,
a longer period is approved by Insurance will represent the total indemnity
Commissioner (Sec. 52). due the insured from the insurer
except only that the total indemnity
Riders shall not exceed the face value of the
 Printed stipulations usually attached to policy. (Development Insurance Corp.
the policy because they constitute vs. IAC, 143 SCRA 62)
additional stipulations between the 2. VALUED POLICY – definite valuation of
parties. (Ang Giok Chip vs. Springfield, 56 the property insured is agreed by both
Phil. 275) parties, and written on the face of policy.
 In case of conflict between a rider and (Sec. 61)
the printed stipulations in the policy, the  In the absence of fraud or mistake,
rider prevails, as being a more deliberate the agreed valuation will be paid in
expression of the agreement of the case of total loss of the property,
contracting parties. (C. Alvendia, The unless the insurance is for a lower
Law of Insurance in the Philippines, 1968 amount.
ed.) 3. RUNNING POLICY – contemplates
successive insurances and which provides
Clauses that the object of the policy may from
 An agreement between the insurer and time to time be defined (Sec. 62)
the insured on certain matter relating to
the liability of the insurer in case of loss. V. TYPES OF INSURANCE CONTRACTS
(Prof. De Leon, p.188) 1. Life insurance
a. Individual life (Secs. 179–183, 227)
Endorsements b. Group life (Secs. 50, last par., 228)
 Any provision added to the contract c. Industrial life (Secs. 229–231)
altering its scope or application. (Prof. De 2. Non-life insurance
Leon, p.188) a. Marine (Secs. 99–166)
b. Fire (Secs. 167–173)
POLICY OF INSURANCE c. Casualty (Sec. 174)
 The written instrument in which a 3. Contracts of bonding or suretyship
contract of insurance is set forth. (Sec. (Secs. 175–178)
49) Note:
1. Health and accident insurance are
 Contents: (Sec. 51) either covered under life (Sec. 180) or
1. Parties casualty insurance. (Sec. 174).
2. Amount of insurance, except in open 2. Marine, fire, and the property aspect
or running policies; of casualty insurance are also referred to
3. Rate of premium; as property insurance.
4. Property or life insured;
VI. PARTIES TO INSURANCE CONTRACT
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1. Insurer - Person who undertakes to death of the insured in which

indemnify another. event, the nearest relative of
 For a person to be called an the insured shall receive the
insurance agent, it is necessary proceeds of said insurance if
that he should perform the not otherwise disqualified.
function for compensation. (Sec. 12)
(Aisporna vs. CA, 113 SCRA 459) b. PROPERTY
2. Insured - The party to be indemnified  The beneficiary of property
upon the occurrence of the loss. He must insurance must have an insurable
have capacity to contract, must possess interest in such property, which
an insurable interest in the subject of the must exist not only at the time
insurance and must not be a public the policy takes effect but also
enemy. when the loss occurs. (Sec. 13
 A public enemy- a nation with and 18).
whom the Philippines is at war Effects of Irrevocable Designation Of
and it includes every citizen or Beneficiary
subject of such nation.  Insured cannot:
3. Beneficiary - A person designated to 1. Assign the policy
receive proceeds of policy when risk 2. Take the cash surrender value of
attaches. the policy
 Rules in the designation of the 3. Allow his creditors to attach or
beneficiary: execute on the policy;
a. LIFE 4. Add new beneficiary; or
i. A person who insures his own 5. Change the irrevocable
life can designate any person designation to revocable, even
as his beneficiary, whether or though the change is just and
not the beneficiary has an reasonable.
insurable interest in the life  The insured does not even retain the
of the insured subject to the power to destroy the contract by refusing
limitations under Art. 739 to pay the premiums for the beneficiary
and Art. 2012 of the NCC. can protect his interest by paying such
 Reason: in essence, a life premiums for he has an interest in the
insurance policy is no fulfillment of the obligation. (Vance, p.
different form a civil 665, cited in de Leon, p. 101, 2002 ed.)
donation insofar as the
beneficiary is concerned. VII. INSURABLE INTEREST
Both are founded on the same A. In General
consideration of liberality.  A person has an insurable interest in
(Insular Life vs. Ebrado, 80 the subject matter if he is so connected,
SCRA 181) so situated, so circumstanced, so related,
ii. A person who insures the life that by the preservation of the same he
of another person and name shall derive pecuniary benefit, and by its
himself as the beneficiary destruction he shall suffer pecuniary loss,
must have an insurable damage or prejudice.
interest in such life. (Sec. 10) B. Life
iii. As a general rule, the  Every person has an insurable interest
designation of a beneficiary is in the life and health:
revocable unless the insured a. of himself, of his spouse and of
expressly waived the right to his children;
revoke in the policy. (Sec. 11) b. of any person on whom he
iv. The interest of a beneficiary depends wholly or in part for
in a life insurance policy shall education or support;
be forfeited when the c. of any person under a legal
beneficiary is the principal obligation to him to pay money or
accomplice or accessory in respecting property or services,
willfully bringing about the of which death or illness might
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delay or prevent performance; Unlimited except in Limited to actual

and life insurance value of interest in
d. of any person upon whose life any effected by creditor property insured.
estate or interest vested in him on life of debtor.
depends. (Sec. 10) The expectation of An expectation of a
benefit to be derived benefit to be
 When it should exist: When the
from the continued derived from the
insurance takes effect; not thereafter or existence of life need continued
when the loss occurs. not have any legal existence of the
 Amount: basis whatever. A property insured
GENERAL RULE: There is no limit in the reasonable must have a legal
amount the insured can insure his life. probability is basis.
EXCEPTION: In a creditor-debtor sufficient without
relationship where the creditor insures more.
the life of his debtor, the limit of The beneficiary need The beneficiary
insurable interest is equal to the amount not have an insurable must have
interest over the life insurable interest
of the debt.
of the insured if the over the thing
Note: If at the time of the death of the insured himself insured.
debtor the whole debt has already been secured the policy.
paid, the creditor can no longer recover However, if the life
on the policy because the principle of insurance was
indemnity applies. obtained by the
beneficiary, the
C. Property latter must have
 Every interest in property whether real insurable interest
over the life of the
or personal, or any relation thereto, or
insured.
liability in respect thereof, of such nature
that the contemplated peril might
SPECIAL CASES
directly damnify the insured (Sec. 13),
1. In case of a carrier or depositary
which may consist in:
 A carrier or depository of any kind has
1. an existing interest;
an insurable interest in a thing held by
2. any inchoate interest
him as such, to the extent of his liability
founded on an existing
but not to exceed the value thereof (Sec.
interest; or
15)
3. an expectancy coupled with
2. In case of a mortgaged property
an existing interest in that
 The mortgagor and mortgagee each
out of which the expectancy
have an insurable interest in the property
arises. (Sec. 14)
mortgaged and this interest is separate
 When it should exist: When the
and distinct from the other.
insurance takes effect and when the loss
a. Mortgagor – As owner, has an
occurs, but need not exist in the
insurable interest therein to the
meantime.
extent of its value, even though the
 Amount: The measure of insurable
mortgage debt equals such value. The
interest in property is the extent to which
reason is that the loss or destruction
the insured might be damnified by loss or
of the property insured will not
injury thereof. (Sec. 17)
extinguish the mortgage debt.
b. Mortgagee – His interest is only up
INSURABLE INSURABLE
to the extent of the debt. Such
INTEREST IN LIFE INTEREST IN
interest continues until the mortgage
PROPERTY
debt is extinguished.
Must exist only at the Must exist at the
time the policy takes time the policy
effect and need not takes effect and  The lessor cannot be validly a
exist at the time of when the loss beneficiary of a fire insurance policy
loss occurs taken by a lessee over his merchandise,
and the provision in the lease contract
providing for such automatic assignment
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is void for being contrary to law and

public policy. (Cha vs. Court of Appeals, IX. PREMIUM PAYMENTS
227 SCRA 690)  Consideration paid an insurer for
undertaking to indemnify the insured
STANDARD OR OPEN OR LOSS against a specified peril.
UNION PAYABLE  Basis of the right of the insurer to
MORTGAGE MORTGAGE collect premiums: Assumption of risk.
CLAUSE CLAUSE
Subsequent acts of Acts of the GENERAL RULE: No policy issued by an
the mortgagor mortgagor affect insurance company is valid and binding
cannot affect the the mortgagee. until actual payment of premium. Any
rights of the Reason: agreement to the contrary is void. (Sec.
assignee Mortgagor does 77)
not cease to be a
party to the EXCEPTIONS:
contract. (Secs. 8 1. In case of life or industrial life
and 9) insurance, when the grace periods
applies; (Sec. 77)
Effects of Loss Payable Clause 2. When the insurer makes a written
a. The contract is deemed to be upon the acknowledgment of the receipt
interest of the mortgagor; hence, he does premium; (Sec. 78)
not cease to be a party to the contract. 3. Section 77 may not apply if the
b. Any act of the mortgagor prior to the parties have agreed to the payment
loss, which would otherwise avoid the of the premium in installments and
insurance affects the mortgagee even if partial payment has been made at
the property is in the hands of the the time of the loss. (Makati Tuscany
mortgagee. Condominium Corp. v. CA, 215 SCRA
c. Any act, which under the contract of 462)
insurance is to be performed by the 4. Where a credit term has been agreed
mortgagor, may be performed by the upon. (UCPB vs. Masagana Telemart,
mortgagee with the same effect. 308 SCRA 259)
d. In case of loss, the mortgagee is 5. Where the parties are barred by
entitled to the proceeds to the extent of estoppel. (UCPB vs. Maagana
his credit. Telemart, 356 SCRA 307)
e. Upon recovery by the mortgagee to the
extent of his credit, the debt is  Section 77 merely precludes the
extinguished. parties from stipulating that the policy is
valid even if the premiums are not paid.
 In case a mortgagee insures his own (Makati Tuscany Condominium Corp. v.
interest and a loss occurs, he is entitled CA, 215 SCRA 462)
to the proceeds of the insurance but he is
not allowed to retain his claim against the Effect of Acknowledgment of Receipt of
mortgagor as the claim is discharged but Premium in Policy: Conclusive evidence
it passes by subrogation to the insurer to of its payment, so far as to make the
the extent of the money paid by such policy binding, notwithstanding any
insurer. (Palileo vs. Cosio) stipulation therein that it shall not be
binding until the premium is actually
VIII. RISK paid. (Sec. 78)
 What may be insured against:
1. Future contingent event resulting in
loss or damage – Ex. Possible future
fire ENTITLEMENT OF INSURED TO RETURN
2. Past unknown event resulting in loss OF PREMIUMS PAID
or damage – Ex. Fact of past sinking
of a vessel unknown to the parties A. Whole:
3. Contingent liability – Ex. Reinsurance
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1. If the thing insured was never levied unless

exposed to the risks insured otherwise agreed.
against; (Sec. 79)
2. If contract is voidable due to the X. TRANSFER OF POLICY
fraud or misrepresentation of 1. Life Insurance
insurer or his agents; (Sec. 81)  It can be transferred even without the
3. If contract is voidable because of consent of the insurer except when there
the existence of facts of which is a stipulation requiring the consent of
the insured was ignorant without the insurer before transfer. (Sec. 181)
his fault; (Sec. 81)  Reason: The policy does not represent
4. When by any default of the a personal agreement between the
insured other than actual fraud, insured and the insurer.
the insurer never incurred 2. Property insurance
liability; (Sec. 81)  It cannot be transferred without the
5. When rescission is granted due to consent of the insurer.
the insurer’s breach of contract.  Reason: The insurer approved the
(Sec. 74) policy based on the personal qualification
B. Pro rata: and the insurable interest of the insured.
1. When the insurance is for a 3. Casualty insurance
definite period and the insured  It cannot be transferred without the
surrenders his policy before the consent of the insurer. (Paterson cited in
termination thereof; de Leon p. 82)
 Exceptions:  Reason: The moral hazards are as great
a. policy not made for a as those of property insurance.
definite period of time
b. short period rate is CHANE OF INTEREST IN THE THING
agreed upon INSURED
c. life insurance policy  The mere (absolute) transfer of the
2. When there is over-insurance thing insured does not transfer the policy,
(Sec. 82); but suspends it until the same person
becomes the owner of both the policy and
Instances when premiums are not the thing insured. (Sec. 58)
recoverable:  Reason: Insurance contract is personal.
1. When the risk has already attached GENERAL RULE: A change of interest in
and the risk is entire and indivisible. any part of a thing insured
2. In life insurance. unaccompanied by a corresponding
3. When the contract is rescindable or change of interest in the insurance
rendered void ab initio by the fraud suspends the insurance to an equivalent
of the insured. extent, until the interests in the thing and
4. When the contract is illegal and the interest in the insurance are vested in
the parties are in pari delicto. the same person. (Sec. 20)

PREMIUM ASSESSMENT

Levied and paid to Collected to meet EXCEPTIONS:

meet anticipated actual losses. 1. In life, health and accident
losses. insurance.(Sec. 20);
2. Change in interest in the thing
Payment is not Payment is insured after occurrence of an
enforceable against enforceable once injury which results in a loss.
the insured. levied unless
(Sec. 21);
otherwise agreed
upon. 3. Change in interest in one or more
of several distinct things
separately insured by one policy.
Not a debt. It becomes a debt (Sec. 22);
once properly
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4. Change of interest, by will or that, “the concealment whether

succession, on the death of the intentional or unintentional entitles the
insured. (Sec. 23); injured party to rescind the contract of
5. Transfer of interest by one of insurance.”
several partners, joint owners, or
owners in common, who are Test of Materiality: Determined not by
jointly insured, to others. (Sec. the event, but solely by the probable and
24); reasonable influence of the facts upon
6. When a policy is so framed that it the party to whom the communication is
will inure to the benefit of due, in forming his estimate of the
whomsoever, during the advantages of the proposed contract, or
continuance of the risk, may in making his inquiries (Sec. 31).
become the owner of the interest  Exception to Sec. 31:
insured. (Sec. 57); a. Incontestability clause
7. When there is an express b. Matters under Sec.110 (marine
prohibition against alienation in insurance)
the policy, in case of alienation,
the contract of insurance is not  The waiver of medical examination in
merely suspended but avoided. a non-medical insurance contract renders
(Art. 1306, NCC). even more material the information
required of the applicant concerning the
XI. ASCERTAINMENT AND CONTROL OF previous conditions of health and diseases
RISK AND LOSS suffered. (Sunlife v. Sps. Bacani, 246
SCRA 268).
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;  The right to information of material
2. Precise delimitation of the risk; facts may be waived, either by the terms
3. Control of the risk; of the insurance or by neglect to make
4. Determining whether a loss occurred inquiries as to such facts where they are
and if so, the amount of such loss. distinctly implied in other facts of which
information is communicated. (Sec.33)
B. Devices used for ascertaining and
controlling risk and loss:  Where matters of opinion or judgment
1. Concealment – A neglect to are called for, answers made in good faith
communicate that which a party knows and without intent to deceiver will not
and ought to communicate (Sec. 26) avoid the policy even though they are
 Requisites: untrue. Reason: The insurer cannot rely
a. A party knows a fact which he on those statements. He must make
neglects to communicate or further inquiry. (Philamcare Health
disclose to the other. Systems vs. CA, G.R. No. 125678, March
b. Such party concealing is duty 18, 2002).
bound to disclose such fact to the
other. 2. Representations – Factual statements
c. Such party concealing makes no made by the insured at the time of, or
warranty as to the fact prior to, the issuance of the policy to give
concealed. information to the insurer and induce him
d. The other party has not the to enter into the insurance contract. They
means of ascertaining the fact are considered an active form of
concealed. concealment.
e. Material  Requisites of a false representation
 Effects: Entitles insurer to rescind, (misrepresentation):
even if the death or loss is due to a cause a. The insured stated a fact which is
not related to the concealed matter (Sec. untrue.
27). b. Such fact was stated with
Note: Good Faith is not a defense in knowledge that it is untrue and
concealment. Sec. 27 clearly provides with intent to deceive or which
 9

he states positively as true to the same subject have been or shall be

without knowing it to be true and done.
which has a tendency to mislead. b. IMPLIED - it is deemed included in the
c. Such fact in either case is contract although not expressly
material to the risk. mentioned. Example: In marine
 Characteristics: insurance, seaworthiness of the vessel.
a. It is not a part of the contract but  Effects of breach of warranty:
merely a collateral inducement to it. a. Material
b. It may be oral or written. GENERAL RULE: Violation of material
c. It is made at the same time of issuing warranty or of a material provision of a
the policy or before but not after. policy will entitle the other party to
d. It may be altered or withdrawn before rescind the contract. (Sec. 74)
the insurance is effected but not EXCEPTIONS:
afterwards. a. Loss occurs before the time of
e. It always refers to the date the performance of the warranty.
contract goes into effect. b. The performances becomes
 Kinds: unlawful at the place of the
a. AFFIRMATIVE – affirmation of a fact contract.
when the contract begins; and c. Performance becomes
b. PROMISSORY – promise to be performed impossible. (Sec. 73)
after policy was issued. b. Immaterial (ex. Other insurance
 Effect of Misrepresentation: the clause)
injured party is entitled to rescind from GENERAL RULE: It will not avoid the
the time when the representation policy.
becomes false. EXCEPTION: When the policy expressly
provides or declares that a violation
Test of Materiality: Same as that in thereof will avoid it. (Sec. 75)
concealment.
WARRANTY REPRESENTATION
 Where the insured merely signed the Part of the contract Mere collateral
application form and made the agent of inducement
the insurer fill the same for him, it was Written on the May be written in
held that by doing so, the insured made policy, actually or by the policy or may
the agent of the insurer his own agent and reference be oral.
he was responsible for his acts for that Presumed material Must be proved to
purpose. (Insular Life Assur. Co. vs. be material
Feliciano, 74 Phil. 469)
Must be strictly Requires only
complied with substantial truth
3. Warranties – Statement or promise by and compliance
the insured set forth in the policy or by
reference incorporated therein, the 4. Conditions – Events signifying in its
untruth or non-fulfillment of which in any broadest sense either an occurrence or a
respect, and without reference to non-occurrence that alters the previously
whether insurer was in fact prejudiced by existing legal relations of the parties to
such untruth or non-fulfillment, renders the contract. They may be conditions
the policy voidable by the insurer. precedent or conditions subsequent.
 Purpose: To eliminate potentially  Effect of breach:
increasing hazards which may either be a. Condition precedent – prevents
due to the acts of the insured or to the the accrual of cause of action
change to the condition of the property. b. Condition subsequent – avoids the
 Kinds: policy or entitles the insurer to
a. EXPRESS – an agreement expressed in rescind
a policy whereby the insured stipulates  The insurer may also protect himself
that certain facts relating to the risk are against fraudulent claims of loss and this
or shall be true, or certain acts relating he attempts to do by inserting in the
policy various conditions which take the
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form of conditions precedent. For of the policy would violate the

instance, there are conditions requiring Insurance Code. (Sec. 64)
immediate notice of loss or injury and  Requirements:
detailed proofs of loss within a limited 1. Prior notice of cancellation to the
period. insured;
2. Notice must be in writing, mailed
5. Exceptions – Provisions that may or delivered to the named insured
specify excepted perils. It makes more at the address shown in the
definite the coverage indicated by the policy;
general description of the risk by 3. Notice must state which of the
excluding certain specified risk that grounds set forth in Sec. 64 is
otherwise would be included under the relied upon and upon request of
general language describing the risks the insured, the insurer must
assumed. furnish facts on which the
 Effect: Limit the coverage of the cancellation is based;
contract. 4. Grounds should have existed
after the effectivity date of the
RESCISSION policy.
 Grounds:
A. Concealment XII. INCONTESTABILITY CLAUSE
B. Misrepresentation  Clause in life insurance policy that
C. Breach of material warranty stipulates that the policy shall be
D. Breach of a condition subsequent incontestable after a stated period.
 Waiver of the right to rescind:  Requisites:
Acceptance of premium payments despite 1. Life insurance policy
the knowledge of the ground for 2. Payable on the death of the insured
rescission. (Sec. 45) 3. It has been in force during the
 Limitations on the right of the insurer lifetime of the insured for a period of
to rescind: at least two years from the date of its
1. Non-life – such right must be exercised issue or of its last reinstatement
prior to the commencement of an action Note: The period of 2 years may be
on the contract; shortened but it cannot be extended by
2. Life – such right must be availed of stipulation.
during the first two years from the date
of issue of policy or its last reinstatement;
prior to “incontestability.” (Sec. 48)  Incontestability only deprives the
insurer of those defenses which arise in
CANCELLATION OF NON-LIFE connection with the formation and
INSURANCE POLICY operation of the policy prior to loss.
 Right of the insurer to abandon the (Prof. De Leon, p. 173 citing Wyatt and
contract on the occurrence of certain Wyatt, p. 878)
grounds after the effectivity date of a
non-life policy. BARRED DEFENSES NOT
 Grounds: DEFENSES BARRED
1. Non-payment of premium; OF THE INSURER
2. Conviction of a crime out of acts 1. Policy is void ab 1. That the person
increasing the hazard insured against; initio taking the insurance
3. Discovery of fraud or material 2. Policy is lacked insurable
misrepresentation; rescindable by interest as required
4. Discovery of willful or reckless acts of reason of the by law;
fraudulent 2. That the cause of
omissions increasing the hazard
concealment or the death of the
insured against; misrepresentation of insured is an
5. Physical changes in property making the insured or his excepted risk;
the property uninsurable; and agent 3. That the
6. Determination by the Insurance premiums have not
Commissioner that the continuation been paid (Secs. 77,
 11

227[b], 228[b], order as he may select, up to the

230[b]); amount for which the insurers are
4. That the severally liable under their respective
conditions of the contracts;
policy relating to
2. Where the policy under which the
military or naval
service have been
insured claims is a valued policy, the
violated (Secs. insured must give credit as against
227[b], 228[b]); the valuation for any sum received by
5. That the fraud is him under any other policy without
of a particularly regard to the actual value of the
vicious type; subject matter insured;
6. That the 3. Where the policy under which the
beneficiary failed to insured claims is an unvalued policy
furnish proof of
he must give credit, as against the
death or to comply
with any condition
full insurable value, for any sum
imposed by the received by him under any policy;
policy after the loss 4. Where the insured receives any sum
has happened; or in excess of the valuation in the case
7. That the action of valued policies, or of the insurable
was not brought value in the case of unvalued policies,
within the time he must hold such sum in trust for the
specified. insurers, according to their right of
contribution among themselves;
XIII. 5. Each insurer is bound, as between
A. OVER-INSURANCE – results when the himself and the other insurers, to
insured insures the same property for an contribute ratably to the loss in
amount greater than the value of the proportion to the amount for which
property with the same insurance he is liable under his contract.
company.
 Effect in case of loss: Additional or “Other Insurance” Clause
1. The insurer is bound only to pay to  A condition in the policy requiring the
the extent of the real value of the insured to inform the insurer of any other
property lost; insurance coverage of the property
2. The insured is entitled to recover the insured. It is lawful and specifically
amount of premium corresponding to allowed under Sec. 75 which provides
the excess in value of the property; that “(a) policy may declare that a
violation of a specified provision thereof
B. DOUBLE INSURANCE – exists where shall avoid it, otherwise the breach of an
same person is insured by several insurers immaterial provision does not avoid it.”
separately in respect to same subject and  A stipulation against double insurance.
interest. (Sec. 93)  Purposes:
 Requisites: 1. To prevent an increase in the
1. Person insured is the same; moral hazard
2. Two or more insurers insuring 2. To prevent over-insurance and
separately; fraud.
3. Subject matter is the same;  To constitute a violation of the clause,
4. Interest insured is also the same; there should have been double insurance.
5. Risk or peril insured against is
likewise the same. C. REINSURANCE – a contract by which
the insurer procures a third person to
 Effects: Where double insurance is insure him against loss or liability by
allowed, but over insurance results: (Sec. reason of an original insurance (also
94) known as “Reinsurance Cession”). (Sec.
1. The insured, unless the policy 95)
otherwise provides, may claim  In every reinsurance, the original
payment from the insurers in such contract of insurance and the contract of
 12

reinsurance are covered by separate undertaken to indemnify the insured.

policies. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
261)
DOUBLE REINSURANCE
INSURANCE Loss for which Loss for which
Involves the same Involves different insurer is liable insurer is not
interest interest liable
Insurer remains in Insurer becomes the 1. Loss the 1. Loss by
such capacity insured in relation to proximate cause of insured’s willful
reinsurer which is the peril act;
Insured is the party Original insured has insured against (Sec. 2. Loss due to
in interest in the 2 no interest in the 84); connivance of the
contracts reinsurance 2. Loss the insured (Sec. 87);
contract. immediate cause of and
Subject of insurance Subject of insurance which is the peril 3. Loss where the
is property is the original insured against excepted peril is
insurer’s risk except where the proximate
Insured has to give Insured’s consent proximate cause is cause.
his consent not necessary an excepted peril;
3. Loss through
TERMS: negligence of
insured except
1. Reinsurance treaty – Merely an
where there was
agreement between two insurance gross negligence
companies whereby one agrees to cede amounting to willful
and the other to accept reinsurance acts; and
business pursuant to provisions specified 4. Loss caused by
in the treaty. (Prof. De Leon, p. 306) efforts to rescue the
thing from peril
2. Automatic reinsurance – The insured against;
reinsured is bound to cede and the 5. If during the
course of rescue, the
reinsurer is obligated to accept a fixed
thing is exposed to a
share of the risk which has to be reinsured peril not insured
under the contract. (Prof. De Leon, p. against, which
305) permanently
3. Facultative reinsurance – There is no deprives the insured
obligation to cede or accept participation of its possession, in
in the risk each party having a free whole or in part
choice. But once the share is accepted, (Sec. 85).
the obligation is absolute and the liability
thereunder can be discharged only by Proximate Cause – An event that sets all
payment. (Equitable Ins. & Casualty Co. other events in motion without any
vs. Rural Ins. & Surety Co., Inc. 4 SCRA intervening or independent case, without
343) which the injury or loss would not have
occurred.
4. Retrocession – A transaction whereby
the reinsurer in turn, passes to another REQUISITES FOR RECOVERY UPON
insurer a portion of the risk reinsured. It INSURANCE
is really the reinsurance of reinsurance. 1. The insured must have insurable
(Prof. De Leon, p. 305) interest in the subject matter;
2. That interest is covered by the policy;
XIV. 3. There must be a loss; and
A. LOSS, IN INSURANCE 4. The loss must be proximately caused by
 Injury or damage sustained by the the peril insured against.
insured in consequence of the happening
of one or more of the accidents or NOTICE OF LOSS
misfortune against which the insurer, in In fire insurance In other types of
consideration of the premium, has insurance
 13

the amount of the claim. (Zenith

Required Not required Insurance Corp. vs. CA, 185 SCRA 398)
Failure to give Failure to give XV. PRESCRIPTIVE PERIOD (Secs. 63 &
notice will defeat notice will not 384)
the right of the exonerate the
insured to recover. insurer, unless
 Rules:
there is a 1. In the absence of an express
stipulation in the stipulation in the policy, it being based on
policy requiring the a written contract, the action prescribes
insured to do so. in 10 years.
2. However the parties may validly agree
on a shorter period provided it is not less
B. CLAIMS SETTLEMENT than one year from the time the cause of
 The indemnification of the loss of the action accrues.
insured. 3. The cause of action accrues from the
rejection of the claim of the insured and
TIME FOR PAYMENT OF CLAIMS not from the time of loss.
NON-LIFE It shall commence from the denial of
LIFE POLICIES POLICIES the claim, not from the resolution of the
motion for reconsideration, otherwise it
a. Maturing The proceeds shall can be used by the insured as a scheme or
upon the be paid within 30 device to waste time until the evidence
expiration of the days after the which may be used against him is
term – The receipt by the
destroyed. (Sun Insurance Office, Ltd. v.
proceeds are insurer of proof of
immediately loss, and
CA, 195 SCRA)
payable to the ascertainment of 4. In CMVLI, the written notice of claim
insured, unless the loss or damage must be filed within 6 months from the
they are made by agreement of the date of the accident otherwise the claim
payable in parties or by is deemed waived. The suit for damages
installments or as arbitration but not either with the proper court or with the
annuity, in which later than 90 days Insurance Commissioner should be filed
case, the from such receipt of within 1 year from the date of the denial
installments or proof of loss
of the claim by the insurer, otherwise
annuities shall be whether or not
paid as they ascertainment is had claimant’s right of action shall prescribe.
become due. or made. (Sec. 384)
b. Maturing at
the death of the PARTICULAR KINDS OF INSURANCE
insured, occurring CONTRACTS
prior to the
expiration of the XVI. MARINE INSURANCE
term stipulated –  Insurance against risks connected with
The proceeds are
navigation, to which a ship, cargo,
payable to the
beneficiaries freightage, profits or other insurable
within 60 days interest in movable property, may be
after presentation exposed during a certain voyage or a fixed
and filing of proof period of time. (Sec. 99)
of death.  Coverage:
A.
1. Vessels, goods, freight, cargo,
 In case of an unreasonable delay in the merchandise, profits, money,
payment of the insured’s claim by the valuable papers, bottomry and
insurer, the insured can recover: 1) respondentia, and interest in respect
attorney’s fees; 2) expenses incurred by to all risks or perils of navigation;
reason of the unreasonable withholding; 2. Persons or property in connection
3) interest at double the legal interest with marine insurance;
rate fixed by the Monetary Board; and 4)
 14

3. Precious stones, jewels, jewelry and  Over the cargo and expected
precious metals whether in the profits (Sec. 105).
course of transportation or 3. Charterer
otherwise; and  Over the amount he is liable to
4. Bridges, tunnels, piers, docks and the shipowner, if the ship is lost
other aids to navigation and or damaged during the voyage
transportation. (Sec. 99) (Sec. 106).
 Cargo can be the subject of
marine insurance, and once it is B.
entered into, the implied In loans on bottomry and respondentia
warranty of seaworthiness  Repayment of the loan is subject to the
immediately attaches to whoever condition that the vessel or goods,
is insuring the cargo, whether he respectively, given as a security, shall
be the shipowner or not. (Roque arrive safely at the port of destination.
v. IAC, 139 SCRA 596) 1. Owner/Debtor
B. Marine Protection and Indemnity  Difference between the value
Insurance of vessel or goods and the amount
 Classes of inland marine insurance: of loan. (Sec. 101)
(Prof. De Leon, p. 325) 2. Creditor/lender
1. Property in transit – provides  Amount of the loan
protection to property frequently
exposed to loss while it is Note: If a vessel is hypothecated by
transportation form one location bottomry, only the excess is insurable,
to another. since a loan on bottomry partakes of the
2. Bailee liability - insurance for nature of an insurance coverage to the
those who have temporary extent of the loan accommodation. The
custody of the goods. same rule would apply to the
3. Fixed transportation property – hypothecation of the cargo by
they are so insured because they respondentia. (Pandect of Commercial
are held to be an essential part of Law and Jurisprudence, Justice Jose
the transportation system such as Vitug, 1997 ed.)
bridges, tunnels, etc. PERILS OF THE PERILS OF THE
4. Floater – provides insurance to SEA SHIP
follow the insured property Includes only those A loss which in the
wherever it may be located, casualties due to ordinary course of
subject always to the territorial the: events, results
limits of the contract. 1. unusual from the:
 Insurable interest: violence; or 1. natural and
2. extraordinary inevitable action of
A.
action of wind and the sea
1.Shipowner wave; or 2. ordinary wear
a. Over the vessel to the 3. Other and tear of the ship
extent of its value, except extraordinary causes or
that if chartered, the connected with 3. Negligent failure
insurance is only up to the navigation. of the ship’s owner
amount not recoverable to provide the
from the charterer. (Sec. vessel with proper
100). equipment to
convey the cargo
b. He also has an insurable
under ordinary
interest on expected conditions.
freightage. (Sec. 103).
c. No insurable interest if he Note: It is only perils of the sea which
will be compensated by may be insured against unless perils of the
charterer for the value of ship is covered by an all-risk policy.
the vessel, in case of loss.
2. Cargo owner
 15

SPECIAL MARINE INSURANCE 4. Want of necessary documents; and

CONTRACTS AND CLAUSES 5. Use of false or simulated papers.
A. All Risks Policy – insurance against all Note: This should be related to the
causes of conceivable loss or damage, general rule regarding material
except: 1) as otherwise excluded in the concealment.
policy; or 2) due to fraud or intentional
misconduct on the part of the insured. DISTINCTIONS ON CONCEALMENT
 The insured has the initial burden of (Commercial Law Reviewer, A.F.
proving that the cargo was in good Agbayani, 1988 ed.)
condition when the policy attached and
that the cargo was damaged when MARINE INSURANCE OTHER
unloaded from the vessel; thereafter, the PROPERTY
burden then shifts to the insurer to show INSURANCE
the exception to the coverage. (Filipinas The information of the The information or
Merchants Insurance vs. Court of Appeals, belief or expectation belief of a 3rd party
179 SCRA 638) of 3rd persons is is not material and
material and must be need not be
B. Barratry Clause communicated communicated
unless it proceeds
 A clause which provides that there can
form an agent of
be no recovery on the policy in case of the insured whose
any willful misconduct on the part of the duty it is to give
master or crew in pursuance of some information
unlawful or fraudulent purpose without The concealment of Concealment of any
consent of owners, and to the prejudice any fact in relation to material fact will
of the owner’s interest. (Roque vs. IAC, any of the matters vitiate the entire
139 SCRA 596) stated in Sec. 110 does contract, whether
not vitiate the entire or not the loss
C. Inchamaree Clause contract but merely results for the risk
exonerates the insurer concealed.
 A clause which makes the insurer liable from a risk resulting
for loss or damage to the hull or from the fact
machinery arising from the: concealed
1. Negligence of the captain, engineers, IMPLIED WARRANTIES
etc. 1. Seaworthiness of the ship at the
2. Explosions, breakage of shafts; and inception of the insurance (Sec. 113);
3. Latent defect of machinery or hull. 2. Against improper deviation (Sec. 123,
(Bar Review Materials in Commercial 124, 125);
Law, Jorge Miravite, 2002 ed.) 3. Against illegal venture;
4. Warranty of neutrality: the ship will
D. Sue and Labor Clause carry the requisite documents of
 A clause under which the insurer may nationality or neutrality of the ship or
become liable to pay the insured, in cargo where such nationality or
addition to the loss actually suffered, neutrality is expressly warranted;
such expenses as he may have incurred in (Sec. 120)
his efforts to protect the property against 5. Presence of insurable interest.
a peril for which the insurer would have
been liable. (Sec. 163)  While the payment by the insurer for
the insured value of the lost cargo
MATTERS ALTHOUGH CONCEALED, WILL operates as a waiver of the insurer’s right
NOT VITIATE THE CONTRACT EXCEPT to enforce the term of the implied
WHEN THEY CAUSED THE LOSS (Sec. warranty against the assured under the
110) marine insurance policy, the same cannot
1. National character of the insured; be validly interpreted as an automatic
2. Liability of the thing insured to admission of the vessel’s seaworthiness
capture or detention; by the insurer as to foreclose recourse
3. Liability to seizure from breach of against the common carrier for any
foreign laws; liability under the contractual obligation
 16

as such common carrier. (Delsan 2. Departure of vessel from the most

Transportation Lines vs. CA, 364 SCRA 24) natural, direct and advantageous
route if not fixed by mercantile
Seaworthiness usage
 A relative term depending upon the 3. Unreasonable delay in pursuing
nature of the ship, voyage, service and voyage
goods, denoting in general a ship’s fitness 4. Commencement of an entirely
to perform the service and to encounter different voyage (Secs. 121-123)
the ordinary perils of the voyage,  Kinds:
contemplated by the parties to the policy 1. Proper -
(Sec. 114). a. When caused by circumstances outside
GENERAL RULE: The warranty of the control of the ship captain or ship
seaworthiness is complied with if the ship owner;
be seaworthy at the time of the b. When necessary to comply with a
commencement of the risk. Prior or warranty or to avoid a peril;
subsequent unseaworthiness is not a c. When made in good faith to avoid a
breach of the warranty nor is it material peril;
that the vessel arrives in safety at the end d. When made in good faith to save human
of her voyage. life or to relieve another vessel in
EXCEPTIONS: distress (Sec. 124)
1. In the case of a time policy, the ship  Effect: In case of loss, the
must be seaworthy at the insurer is still liable.
commencement of every voyage she 2. Improper - Every deviation not
may undertake specified in Sec. 124 (Sec. 125).
2. In the case of cargo policy, each  Effect: In case of loss or
vessel upon which the cargo is damage, the insurer is not liable.
shipped or transshipped, must be (Sec. 126)
seaworthy at the commencement of
each particular voyage
3. In the case of a voyage policy LOSS
contemplating a voyage in different 1. Total:
stages, the ship must be seaworthy at a. Actual -
the commencement of each portion i. Total destruction;
ii. Irretrievable loss by sinking;
 Applicability of implied warranty of iii. Damage rendering the thing
seaworthiness to cargo owners: It valueless; or
becomes the obligation of a cargo owner iv. Total deprivation of owner of
to look for a reliable common carrier, possession of thing insured.
which keeps its vessels in seaworthy (Sec. 130)
conditions. The shipper may have no b. Constructive -
control over the vessel but he has control i. Actual loss of more than ¾ of
in the choice of the common carrier that the value of the object;
will transport his goods (Roque v. IAC, 139 ii. Damage reducing value by
SCRA 596). more than ¾ of the value of
the vessel and of cargo; and
Deviation iii. Expense of transshipment
 A departure from the course of the exceed ¾ of value of cargo.
voyage insured, or an unreasonable delay (Sec. 131, in relation to Sec.
in pursuing the voyage or the 139)
commencement of an entirely different  In case of constructive
voyage. (Sec.123) total loss, insured may:
 Instances: 1. Abandon goods or
1. Departure of vessel from the vessel to the insurer and
course of the sailing fixed by claim for whole insured
mercantile usage value (Sec. 139), or
 17

2. Without abandoning Necessary.

vessel, claim for partial
actual loss. (Sec. 155) RIGHT OF INSURED IN CASE OF GENERAL
2. Partial: That which is not total (Sec. AVERAGE
128). GENERAL RULE: The insured may either
hold the insurer directly liable for the
AVERAGE whole of the insured value of the property
 Any extraordinary or accidental sacrificed for the general benefit,
expense incurred during the voyage for subrogating him to his own right of
the preservation of the vessel, cargo, or contribution or demand contribution from
both, and all damages to the vessel and the other interested parties as soon as the
cargo from the time it is loaded and the vessel arrives at her destination
voyage commenced until it ends and the EXCEPTIONS:
cargo unloaded. 1. After the separation of interests
liable to contribution
GENERAL PARTICULAR 2. When the insured has neglected or
Has inured to the Has not inured to the waived his right to contribution
common benefit and common benefit and
profit of all persons profit of all persons FPA Clause (Free From Particular
interested in the interested in the Average)
vessel and cargo vessel and her cargo.
A clause agreed upon in a policy of
To be borne equally To be borne alone by
by all of the interests the owner of the
marine insurance in which it is stated that
concerned in the cargo or the vessel, the insurer shall not be liable for a
venture. as the case may be. particular average, such insurer shall be
Requisites for the free therefrom, but he shall continue to
right to claim be liable for his proportion of all general
contribution: average losses assessed upon the thing
1. Common insured. (Sec. 136)
danger to the ABANDONMENT
vessel or cargo;  The act of the insured by which, after
2. Part of the a constructive total loss, he declared the
vessel or cargo relinquishment to the insurer of his
was sacrificed interest in the thing insured. (Sec. 138)
deliberately;  Requisites for validity:
3. Sacrifice must 1. There must be an actual
be for the relinquishment by the person insured
common safety of his interest in the thing insured
or for the (Sec. 138);
benefit of all; 2. There must be a constructive total
4. Sacrifice must loss (Sec. 139);
be made by the 3. The abandonment be neither partial
master or upon nor conditional (Sec. 140);
his authority; 4. It must be made within a reasonable
5. It must be not time after receipt of reliable
be caused by information of the loss (Sec. 141);
any fault of the 5. It must be factual (Sec. 142);
party asking 6. It must be made by giving notice
the thereof to the insurer which may be
contribution; done orally or in writing (Sec. 143);
6. It must be and
successful, i.e. 7. The notice of abandonment must be
resulted in the explicit and must specify the
saving of the particular cause of the abandonment
vessel or cargo; (Sec. 144).
and
 Effects:
 18

1. It is equivalent to a transfer by the damage, the insurer liability which the

insured of his interest to the insurer will be liable only for original insurer may
with all the chances of recovery and such proportion of incur in favor of the
indemnity (Transfer of the loss or damage as original insured.
the amount of the
Interest)(Sec.146)
insurance bears to
2. Acts done in good faith by those who the designated
were agents of the insured in respect percentage of the
to the thing insured, subsequent to full value of the
the loss, are at the risk of the insurer property insured.
and for his benefit. (Transfer Of (Bar Review
Agency)(Sec.148) Materials in
Commercial Law,
 If an insurer refuses to accept a valid Jorge Miravite, 2002
ed.)
abandonment, he is liable upon an actual
total loss, deducting form the amount any
proceeds of the thing insured which may
have come to the hands of the insured. XVII. FIRE INSURANCE
(Sec.154)  A contract by which the insurer for a
consideration agrees to indemnify the
CO-INSURANCE insured against loss of, or damage to,
 A marine insurer is liable upon a partial property by hostile fire, including loss by
loss, only for such proportion of the lightning, windstorm, tornado or
amount insured by him as the loss bears earthquake and other allied risks, when
to the value of the whole interest of the such risks are covered by extension to fire
insured in the property insured. (Sec. insurance policies or under separate
157) policies. (Sec. 167)
 When the property is insured for less
than its value, the insured is considered a
co-insurer of the difference between the  Prerequisites to recovery:
amount of insurance and the value of the 1. Notice of loss – must be immediately
property. given, unless delay is waived expressly or
impliedly by the insurer
 Requisites: 2. Proof of loss – according to best
1. The loss is partial; evidence obtainable. Delay may also be
2. The amount of insurance is less than waived expressly or impliedly by the
the value of the property insured. insurer

 Rules: HOSTILE FIRE FRIENDLY FIRE

1. Co-insurance applies only to marine One that escapes One that burns in a
from the place place where it was
insurance
where it was intended to burn and
2. Logically, there cannot be co-insurance intended to burn and ought to be
in life insurance. ought to be.
3. Co-insurance applies in fire insurance Insurer is liable Insurer is not liable
when expressly provided for by the
parties. Measure of Indemnity
1. Open policy: only the expense
CO-INSURANCE REINSURANCE necessary to replace the thing lost or
A percentage in the Situation where the injured in the condition it was at the time
value of the insured insurer procures a 3rd of the injury
property which the party called the
2. Valued policy: the parties are bound by
insured himself reinsurer to insure
assumes to act as him against liability
the valuation, in the absence of fraud or
insurer to the extent by reason of an mistake
of the deficiency in original insurance.
the insurance of the Basically, Note: It is very crucial to determine
insured property. In reinsurance is an whether a marine vessel is covered by a
case of loss or insurance against
 19

marine insurance or fire insurance. The  Classifications:

determination is important for 2 reasons: 1. Insurance against specified perils
1. Rules on constructive total loss which may affect the person and/or
and abandonment – applies only property of the insured. (accident or
to marine insurance; health insurance)
2. Rule on co-insurance – applies  Examples: personal accident,
primarily to marine insurance; robbery/theft insurance
3. Rule on co-insurance applies to 2. Insurance against specified perils
fire insurance only if expressly which may give rise to liability on the
agreed upon. (Commercial Law part of the insured for claims for injuries
Reviewer, Aguedo Agbayani, to or damage to property of others. (third
1988 ed.) party liability insurance)
 Insurable interest is based on the
ALTERATION AS A SPECIAL GROUND FOR interest of the insured in the safety of
RESCISSION BY INSURER persons, and their property, who may
 Requisites: maintain an action against him in case of
1. The use or condition of the thing their injury or destruction, respectively.
is specifically limited or  Examples: workmen’s compensation,
stipulated in the policy; motor vehicle liability
2. Such use or condition as limited  In a third party liability (TPL) insurance
by the policy is altered; contract, the insurer assumes the
3. The alteration is made without obligation by paying the injured third
the consent of the insurer; party to whom the insured is liable. Prior
4. The alteration is made by means payment by the insured to the third
within the control of the insured; person is not necessary in order that the
5. The alteration increases the risk; obligation may arise. The moment the
(Sec. 168) and insured becomes liable to third persons,
6. There must be a violation of a the insured acquires an interest in the
policy provision. (Sec. 170) insurance contract which may be
garnished like any other credit. (Perla
Fall-of-building clause Comapnia de Seguro, Inc vs. Ramolete,
 A clause in a fire insurance policy that 205 SCRA 487)
if the building or any part thereof falls,  Aside from compulsory motor vehicle
except as a result of fire, all insurance by liability insurance, the Insurance Code
the policy shall immediately cease. contains no other provisions applicable to
casualty insurance. Therefore, such
Option to rebuild clause casualty insurance are governed by the
 A clause giving the insurer the option general provisions applicable to all types
to reinstate or replace the property of insurance, and outside of such
damaged or destroyed or any part statutory provisions, the rights and
thereof, instead of paying the amount of obligations of the parties must be
the loss or the damage. determined by their contract, taking into
 The insurer, after electing to rebuild, consideration its purpose and always in
cannot be compelled to perform this accordance with the general principles of
undertaking by specific performance insurance law.
because this is an obligation to do, not to
give. Remedy: Art. 1167, NCC.  In burglary, robbery and theft
insurance, the opportunity to defraud the
XVIII. CASUALTY OR ACCIDENT insurer – the moral hazard – is so great
INSURANCE that insurer have found it necessary to fill
 Insurance covering loss or liability up the policies with many restrictions
arising from accident or mishap, designed to reduce the hazard. Persons
excluding those falling under other types frequently excluded are those in the
of insurance such as fire or marine. (Sec. insured’s service and employment. The
174) purpose of the exception is to guard
against liability should theft be
 20

committed by one having unrestricted  A species of compulsory insurance that

access to the property. (Fortune provides for protection coverage that will
Insurance vs. CA, 244 SCRA 208) answer for legal liability for losses and
damages for bodily injuries or property
Right of a third party injured to sue the damage that may be sustained by another
insurer arising from the use and operation of
1. Indemnity against liability – A third motor vehicle by its owner.
party injured can directly sue the insurer.  Purpose: To give immediate financial
2. Indemnity for actual loss or assistance to victims of motor vehicle
reimbursement after actual payment by accidents and/or their dependents,
the insured – A third party has no cause of especially if they are poor regardless of
action against the insurer (Sec. 53, the financial capability of motor vehicle
Bonifacio Bros. v. Mora, 20 SCRA 261). owners or operators responsible for the
accident sustained (Shafer v. Judge, RTC,
 The insurer is not solidarily liable with 167 SCRA 386).
the insured. The insurer’s liability is  Claimants/victims may be a
based on contract; that of the insured is “passenger” or a “3rd party”
based on torts. Furthermore, the  It applies to all vehicles whether public
insurer’s liability is limited by the amount and private vehicles.
of the insurance coverage (Pan Malayan Note: It is the only compulsory insurance
Insurance Corporation v. CA, 184 SCRA coverage under the Insurance Code.
54).

“INTENTIONAL” vs. “ACCIDENTAL” AS

USED IN INSURANCE POLICIES Method of coverage
1. Intentional – Implies the exercise of 1. Insurance policy
the reasoning faculties, consciousness 2. Surety bond
and volition. Where a provision of the 3. Cash deposit
policy excludes intentional injury, it is
the intention of the person inflicting the Passenger – Any fare-paying person being
injury that is controlling. If the injuries transported and conveyed in and by a
suffered by the insured clearly resulted motor vehicle for transportation of
from the intentional act of the third passengers for compensation, including
person, the insurer is relieve from persons expressly authorized by law or by
liability as stipulated. (Biagtan v. the the vehicle’s operator or his agents to
Insular Life Assurance Co. Ltd., 44 SCRA ride without fare. (Sec. 373[b])
58, 1972)
2. Accidental – That which happens by Third Party – Any person other than the
chance or fortuitously, without intention passenger, excluding a member of the
or design, which is unexpected, unusual household or a member of the family
and unforeseen. within the second degree of consanguinity
or affinity, of a motor vehicle owner or
NO ACTION CLAUSE land transportation operator, or his
 A requirement in a policy of liability employee in respect of death or bodily
insurance which provides that suit and injury arising out of and in the course of
final judgment be first obtained against employment. (Sec. 373[c])
the insured; that only thereafter can the
person injured recover on the policy. “No-Fault” Clause
(Guingon vs. Del Monte, 20 SCRA 1043)  A clause that allows the victim (injured
person or heirs of the deceased) to an
XIX. COMPULSORY MOTOR VEHICLE option to file a claim for death or injury
LIABILITY INSURANCE (CMVLI) without the necessity of proving fault or
negligence of any kind.
 21

 Purpose: To guarantee compensation  A clause which aims to indemnify the

or indemnity to injured persons in motor insured owner against loss or damage to
vehicle accidents. the car but limits the use of the insured
 Rules: vehicle to the insured himself or any
1. Total indemnity - maximum of P5,000 person who drives on his order or with his
2. Proofs of loss - permission (Villacorta v. Insurance
a. Police report of accident; Commissioner)
b. Death certificate and evidence  The requirement that the person
sufficient to establish proper payee; driving the insured vehicle is permitted in
c. Medical report and evidence of accordance with the licensing laws or
medical or hospital disbursement. other laws or regulations to drive the
3. Claim may be made against one motor motor vehicle (licensed driver) is
vehicle only applicable only if the person driving is
4. Proper insurer from which to claim - other than the insured.
a. In case of an occupant: Insurer of
the vehicle in which the occupant is B. Theft Clause
riding, mounting or dismounting from;  A clause which includes theft as among
b. In any other case: Insurer of the the risks insured against.
directly offending vehicle. (Sec. 378)  Where the car is unlawfully and
wrongfully taken without the owner’s
 The claimant is not free to choose from consent or knowledge, such taking
which insurer he will claim the “no fault constitutes theft, and thus, it is the
indemnity” as the law makes it “theft clause” and not the “authorized
mandatory that the claim shall lie against driver clause that should apply (Palermo
the insurer of the vehicle in which the v. Pyramids Ins., 161 SCRA 677).
occupant is riding, mounting or
dismounting from. That said vehicle
might not be the one that caused the C. Cooperation Clause
accident is of no moment since the law  A clause which provides in essence that
itself provides that the party paying may the insured shall give all such information
recover against the owner of the vehicle and assistance as the insurer may require,
responsible for the accident. (Perla usually requiring attendance at trials or
Compania de Seguros, Inc. v. Ancheta, hearings.
169 SCRA 144) XX. SURETYSHIP
 An agreement whereby a surety
 This no-fault claim does not apply to guarantees the performance by the
property damage. If the total indemnity principal or obligor of an obligation or
claim exceeds P5,000 and there is undertaking in favor of an obligee. (Sec.
controversy in respect thereto, the 175)
finding of fault may be availed of by the  It is essentially a credit
insurer only as to the excess. The first accommodation.
P5,000 shall be paid without regard to  It is considered an insurance contract
fault. (Prof. De Leon, p. 716) if it is executed by the surety as a
vocation, and not incidentally. (Sec. 20
 The essence of the no-fault indemnity  When the contract is primarily drawn
insurance is to provide victims of up by 1 party, the benefit of doubt goes
vehicular accidents or their heirs to the other party (insured/obligee) in
immediate compensation although in case of an ambiguity following the rule in
limited amount, pending final contracts of adhesion. Suretyship,
determination of who is responsible for especially in fidelity bonding, is thus
the accident and liable for the victims treated like non-life insurance in some
injuries or death. (Ibid.) respects.

SPECIAL CLAUSES Nature of liability of surety

A. Authorized Driver Clause 1. Solidary;
2. Limited to the amount of the bond;
 22

3. It is determined strictly by the terms 5. Term Insurance – insurer pays once

of the contract of suretyship in only, and he is insured for a specified
relation to the principal contract period. If he dies within the period,
between the obligor and the obligee. his beneficiaries benefits. If he
(Sec. 176) outlives the period, no person
benefits from the insurance.
SURETYSHIP PROPERTY 6. Industrial Life - life insurance
INSURANCE entitling the insured to pay premiums
Accessory contract Principal contract weekly, or where premiums are
3 parties: surety, 2 parties: insurer and payable monthly or oftener.
obligor and oblige insured
Credit Contract of Mortgage Redemption Insurance
accommodation indemnity  A life insurance taken pursuant to a
Surety can recover Insurer has no such group mortgage redemption scheme by
from principal right; only right of the lender of money on the life of a
subrogation
mortgagor who, to secure the loan,
Bond can be May be cancelled
mortgages the house constructed from
cancelled only with unilaterally either by
consent of obligee, insured or insurer on the use of the proceeds of the loan, to the
Commissioner or grounds provided by extent of the mortgage indebtedness such
court law that if the mortgagor dies, the proceeds
Requires No need of of his life insurance will be used to pay
acceptance of acceptance by any for his indebtedness to the lender assured
obligee to be valid third party and the deceased’s heirs will thereby be
Risk-shifting device; Risk-distributing relieved from paying the unpaid balance
premium paid being device; premium paid of the loan. (Great Pacific Life Assurance
in the nature of a as a ratable
service fee contribution to a
Corp. vs. Court of Appeals, 316 SCRA 677)
common fund
XXI. LIFE INSURANCE LIABILITY OF INSURER IN CERTAIN
 Insurance on human lives and insurance CAUSES OF DEATH OF INSURED
appertaining thereto or connected 1. Suicide
therewith which includes every contract  Insurer is liable in the following cases:
or pledge for the payment of endowments 1. If committed after two years
or annuities. (Sec. 179) from the date of the policy’s issue
 Kinds: (Bar Review Materials in or its last reinstatement;
Commercial Law, Jorge Miravite, 2002 2. If committed in a state of
ed.) insanity regardless of the date of
1. Ordinary Life, General Life or Old the commission unless suicide is
Line Policy - Insured pays a fixed an excepted peril. (Sec. 180-A)
premium every year until he dies. 3. If committed after a shorter
Surrender value after 3 years. period provided in the policy
2. Group Life – Essentially a single  Any stipulation extending the 2-year
insurance contract that provides period is null and void.
coverage for many individuals. 2. At the hands of the law (E.g. by legal
Examples: In favor of employees, execution)
“mortgage redemption insurance”.  It is one of the risks assumed by the
3. Limited Payment Policy – insured pays insurer under a life insurance policy in the
premium for a limited period. If he absence of a valid policy exception.
dies within the period, his beneficiary (Vance,p.572 cited in de Leon, p. 107)
is paid; if he outlives the period, he Note: Justice Vitug believes that death by
does not get anything. suicide (if the insured is sane) or at the
4. Endowment Policy – pays premium for hands of the law obviates against
specified period. If he outlives the recovery as being more in consonance
period, the face value of the policy is with public policy and as being implicit
paid to him; if not, his beneficiaries under Section 87, ICP. (Pandect of
receive the benefit. Commercial Law and Jurisprudence, 1997
ed. P. 191)
 23

3. Killing by the beneficiary May be transferred The insurable interest

GENERAL RULE: The interest of a or assigned to any of the transferee or
beneficiary in a life insurance policy shall person even if he assignee is essential
has no insurable
be forfeited when the beneficiary is the interest
principal accomplice or accessory in Consent of insurer is Consent of insurer
willfully bringing about the death of the not essential to must be secured in
insured, in which event, the nearest validity of the absence of waiver
relative of the insured shall receive the assignment
proceeds of said insurance if not Contingency that is Contingency insured
contemplated is a against may or may
otherwise disqualified. (Sec. 12)
certain event, the not occur
EXCEPTIONS: only uncertainty
1. Accidental killing being the time when
2. Self-defense it will take place
3. Insanity of the beneficiary at the A long-term May be cancelled by
time he killed the insured contract and cannot either party and is
be cancelled by the usually for a term of
insurer one year
 If the premiums paid came from Beneficiary is under Insured is required to
conjugal funds, the proceeds are no obligation to submit proof of his
considered conjugal. If the beneficiary is prove actual actual pecuniary loss
other than the insured’s estate, the financial loss as a condition
source of premiums would not be precedent to
collecting the
relevant. (Del Val v. Del Val, 29 Phil 534)
insurance.

 The measure of indemnity in life or

health insurance policy is the sum fixed in
XXII. VARIABLE CONTRACT
the policy except when a creditor insures
 Any policy or contract on either a group
the life of his debtor. (Sec. 183)
or individual basis issued by an insurance
IS THE CONSENT OF THE BENEFICIARY
company providing for benefits or other
NECESSARY TO THE ASSIGNMENT OF A
contractual payments or values
LIFE INSURANCE POLICY?
thereunder to vary so as to reflect
 It depends. If the designation of the
investment results of any segregated
beneficiary is irrevocable, the
portfolio of investment.
beneficiary’s consent is essential because
of his vested right. If the designation is
XXIII. INSURANCE COMMISSIONER
revocable, the policy may be assigned
 Main agency charged with the
without such consent because the
enforcement of the Insurance Code and
beneficiary only has a mere expectancy to
other related laws.
the proceeds. (The Insurance Code of the
 Functions:
Philippines Annotated, Hector de Leon,
1. ADJUDICATORY/QUASI-JUDICIAL
2002 ed.)
a. Exclusive original jurisdiction –
Any dispute in the enforcement of any
Cash Surrender Value
policy issued pursuant to Chapter VI
 As applied to a life insurance policy, it
(CMVLI). (Sec. 385, par. 2)
is the amount the insured in case of
b. Concurrent original jurisdiction
default, after the payment of at least 3
(with the RTC) – Where the maximum
full annual premiums, is entitled to
amount involved in any single claim is
receive if he surrenders the policy and
P100,000 (Sec. 416), except in case of
releases his claims upon it.
maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP 129;
LIFE INSURANCE FIRE INSURANCE admiralty & maritime jurisdiction)
Contract of Contract of indemnity
 Where the amount exceeds
investment not of P100,000, the RTC has
indemnity jurisdiction.
Valued policy Open or valued policy
 24

 The Insurance Commissioner has no

jurisdiction to decide the legality of a
contract of agency entered into between
an insurance company and its agent. The
same is not covered by the term “doing or
transacting insurance business” under Sec
2, ICP, neither is it covered by Sec. 416 of
the same Code which grants the
Commissioner adjudicatory powers
(Philippine American Life Insurance Co. v.
Ansaldo, 234 SCRA 509).

2. ADMINISTRATIVE/REGULATORY
a. Enforcement of insurance laws
b. Issuance, suspension or
revocation of certificate of
authority
c. Power to examine books and
records, etc.
d. Rule-making authority
e. Punitive