Insurable interest is a right or relationship in regard to the subject

matter of the insurance such that the insured will derive

pecuniary benefit or advantage from its preservation and will
suffer pecuniary loss or damage from its destruction, termination
or injury by the happening of the event insured against.

Sec. 11. The insured shall have the right to change the
beneficiary in the policy, unless he has expressly waived this
right in said policy.
Beneficiary: those although not parties to the contract, are
mentioned in it as recipients of the proceeds of the insurance. A
limitation in the appointment of beneficiary is that a person who
is forbidden from receiving any donation under art. 739 cannot
be named beneficiary of a life insurance policy by the person
who cannot make any donation to him, according to said article.

The requirement of insurable interest to support a contract of

insurance is based upon considerations of public policy which
render wager policies invalid. A wager policy has been defined
as a pretended insurance where the insured has no interest in
the thing insured and can sustain no loss by the happening of
the misfortunes against the insured. To better illustrate, for
example, a person who has no insurable interest insures the life
of another. Since he will not suffer any loss, he may in fact cause
the death of the life of the person insured, in order to gain profit
in the insurance contract. Hence, in this situation, the contract of
insurance results in murder for profit. Hence, if there is no
insurable interest, the contract of insurance is void.

Sec. 12. The interest of a beneficiary in the 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. 13. Every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured, is an
insurable interest.

Sec. 10 of the Insurance Code provides:

Every person has an insurable interest on the life/health:
1. Of himself, his spouse, and of his children.
2. Of any person on whom he depends wholly or in part
for education or support, or in whom he has a pecuniary
interest;
3. Of any person under legal obligation to him for the
payment of money, or respecting property or services,
of which death or illness may delay or prevent the
performance; and
4. Of any person upon whose life any estate or interest
vested in him depends.

Sec. 14: An insurable interest in property may consist in:

A. An existing interest
B. An inchoate interest founded on an exiting interest;
C. An expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Sec. 15. 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.

Every person has an unlimited insurable interest in his own life

whether the insurance is for the benefit of himself or of another,
and it is not necessary that the beneficiary designated have any
interest in the life of the insured.

Sec. 16. A mere contingent or expectant interest in anything, not

founded on an actual right tot the thing nor upon any valid
contract for it, is not insurable.
Sec. 19:
An interest in property insured must exist when the insurance
takes effect, and when the loss occurs, but need not exist in the
meantime; and interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.

A person cannot lawfully procure insurance for his own benefit

on the life of another in whose life he as no insurable interest. He
must have an interest in the preservation of the life of the person
to be insured. Hence, one can insure the life of his spouse, his
children and those on whom he depends for his education or
support, or whom he has a pecuniary interest in. An example for
#2 would be a company insuring the life of its CEO, assuming
that the company is deriving profits from the existence of the
CEO. For #3, would be a creditor insuring the life of the debtor.
However, he may only obtain insurance to the extent of his
credit. For #4, one may insure the life of a person where the
continuation of the estate or interest vested in him who takes the
insurance depends upon the life insured.

CONCEALMENT
SEC. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
Act of holding back information that may be pertinent to the
issuance of an insurance policy even though the insured was not
asked about that particular subject.

Consent of the insured is generally not necessary according to

our laws, provided that the one getting the insurance proves that
he has insurable interest.

Source: Dizon

Concealment presupposes that the person has knowledge of the

fact concealed at the time of the effectivity of the policy.
Exception:

A. The party stipulates that upon approval and

issuance of the policy, the effectivity retroacts to
the date of the application
B. The change occurs after the consummation of the
insurance orally although the formal policy has not
been issued yet.

which he makes no warranty, and which the other has not

means of ascertaining.
Sec. 29. An intentional and fraudulent omission on the part
of the insured, to communicate information of matters
proving or tending to prove the falsity of a warranty, entitles
the insurer to rescind.

He who alleges concealment must prove the same.

If the omission is connected with a warranty, the same must be

intentional and fraudulent to entitle the insurer to rescind.

SEC. 27. A concealment whether international or

unintentional entitles the injured party to rescind a contract
of insurance.

Fraud cannot exist unless an intent to deceive is present. Fraud

is a fact question which needs to be tried and resolved by the
trier of facts.

3 grounds of rescission of an insurance contract:

A. Concealment: neglect to reveal a fact that the insured
knows and ought to communicate
B. Misrepresentation: false statement of a fact by the
insured
C. Breach of warranty

MISREPRESENTATION
/CONCEALMENT
It is material if it affects the
underwriting decision of the
insurer

Sec. 30. Neither party to a contract of insurance is bound to

communicate information of the matters following, except in
answer to the inquiries of the other:
a. Those which the other knows;
b. Those which, in the exercise of ordinary care, the
other ought to know, and of which the former has
no reason to suppose him ignorant;
c. Those of which the other waives communication;
d. Those which prove or tend to prove the existence of
a risk excluded by a warranty, and which are not
otherwise material; and
e. Those which relate to a risk excepted from the
policy and which are not otherwise material.

WARRANTY
A promise by the insured
party
that
statements
affecting the validity of the
contract are true

Rescission presupposes the existence of a valid and

binding contract
Reason for rescission: it misleads/deceives the insurer
into accepting the risk or accepting it at the rate of
premium agreed upon.

Both parties are required by law to treat the contract of insurance

as an uberrimae fidei contract.
Knowledge of the agent is knowledge of the principal even if in
reality there is no communication between them with respect to
the matter.

Materiality is to be determined by the PROBABLE and

REASONABLE influence of the facts on the insurer.

Sec. 31. Materiality is to be 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 disadvantages of the proposed
contract, or in making his inquiries.

Intentional/Unintentional: The statute does not require proof that

concealment be intentional in order to authorize rescission by
the injured party.

For an information to be material, it is not necessary that it be the

cause of the loss. To be material, it is sufficient that the insurer
would have been influence in deciding whether or not to issue
the policy and in determining the rate of premium.

Materiality does not depend on the state of mind/actual or

physical events/good faith
Waiver of a medical examination renders even more material the
information required of the applicant concerning previous
condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy of
not.

Matters subject of special inquiries are deemed conclusively

material, and the failure of an apparently complete answer to
make full disclosure will avoid the policy.
Sec. 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his inquiry,
equally with that of the other, and which may affect the

Sec. 28. Each party to a contract of insurance must

communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to

Source: Dizon

political or material perils contemplated; ad all general

usages of trade.

Statement of a material fact

which turns out not to be true;
Material fact is one that
shows the nature and extent
of the risk, and may induce
the other party to enter into a
contract.

Sec. 33. The right to information of material facts may be

waived, either by the terms of the insurance or by neglect to
make inquiry as to such facts, where they are distinctly
implied in other facts of which information is
communicated.

Suppression of a material fact

within the knowledge of either
party, which the other has not
the means of knowing, or is
not presumed to know.

Representation may be made orally or in writing.

If one party states a material fact at such time and under such
circumstance, as that the other may be supposed to have been
thereby induced to enter into a contract, the statement is a
representation.

Right to rely on the truthfulness of answers given in an insureds

application.
Imperfect answers; unless made by a doctor or an expert,
information given by the insured cannot be expected to be
perfect. The insured has the duty to make further inquiries.

Sec. 37. A representation may be made at the time of, or

before, issuance of the policy.

Sec. 34. Information of the nature or amount of the interest

of one insured need not be communicated unless in answer
to an inquiry, except as prescribed by sec. 51.

Representation applies only to statements made by the insured

or by his authority.

Sec. 35. Neither party to a contract of insurance is bound to

communicate, even upon inquiry, information of his own
judgment upon the matters in question.

Sec. 38. The language of a representation is to be

interpreted by the same rules as the language of contracts
in general.

Only facts are required to be disclosed, and not mere opinions,

speculations or expectations.

Sec. 39. A representation as to the future is to be deemed a

promise, unless it appears that it was merely a statement of
belief or expectation.

REPRESENTATION

A representation may be either:

Affirmative, as where the insurer avers the existence of
some fact which may affect the risk
Or Promissory, as when he engages for the
performance of something executory.

SEC. 36. A representation may be oral or written.

Representation
A collateral statement in
writing, not inserted in the
policy, or by parol, of such
facts
or
circumstances
relative to the purposed
adventure as are necessary
to be communicated to the
underwriters to enable them
to form a just estimate of the
risk. Representations must be
exactly true, for the contract
of insurance requires the
most perfect fairness.

Misrepresentation
Misrepresentation
is
a
statement of something as a
fact which is untrue and
material to the risk, and which
the insured states, knowing to
be untrue in an attempt to
deceive, or which he states
positively as true without
knowing it to be true, and
which has a tendency to
deceive.

Representation
Statement made by or on
behalf of an applicant for
insurance to induce an
insurer to enter into a
contract. The representation
is not a part of the insurance
contract.

Warranty
If the representation is
incorporated by reference into
the
contract,
the
representation becomes a
warranty.

Misrepresentation

Concealment

Source: Dizon

Statement
of
belief/expectation
Contingent and not intended
as a known fact but merely an
intention. Falsity of such will
not avoid the policy;

Promissory representation
Promise to be performed after
the effectivity of a contract.
Falsity of such entitles the
injured party to rescind the
contract.

Sec. 40. A representation cannot qualify an express provision in

a contract of insurance, but it may qualify an implied warranty.

Representation
Only a matter of collateral
information or intelligence on
the subject of the voyage
insured, and makes no part of
the policy.; sufficient if the
representation be true in
substance.

Warranty
A condition upon which the
contract is to take effect, is
always a part of the written
policy, and must appear on its
fact; it must be strictly and
literally complied with

A representation not being written in the policy cannot qualify

those which are expressly provided in the policy. However, it
may qualify those which are only implied.

Mistatement of age: The amount payable under the policy shall

be such as the premium would have purchased at the correct
age.

An express warranty or stipulation, including a fact represented,

or inconsistent with it, will control and supersede the
representation since the written agreement, as far as its express
provisions extend, is conclusive proof of the conditions on which
the contract is made.

Sec. 45. If a representation is false in a material point,

whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation becomes false. The right to rescind granted
by this Code to the insurer is waived by the acceptance of
premium payments despite knowledge of the ground for
rescission.

Sec. 41. A representation may be altered or withdrawn

before the insurance is effected, but not afterwards.

Kinds of Misrepresentation:
A. Fraudulent
Misrepresentation:
One
makes
representation with intent to deceive and with the
knowledge that is false.
B. Negligent Misrepresentation at common law occurs
when defendant carelessly makes a representation
while having no reasonable basis to believe it to be
true.
C. Negligent misrepresentation under Statue. It is for the
person who made the negligent statement to prove that
the statement was either not one of fact but opinion and
that had reasonable ground to believe and did believe
up to the time the contract was made that the facts
represented were true the so-called innocent defense.
D. Innocent representation someone makes the
representation believing that what he/she is doing is
true or had reasonable grounds for believing that his or
her false statement was true.

Sec. 42. A representation must be presumed to refer to the

date on which the contract goes into effect.
Sec. 43. When a person insured has no personal knowledge
of a fact, he may nevertheless repeat information which he
has upon the subject, and which he believes to be true, with
the explanation that he does so on the information of
others; or he may submit the information, in its whole
extent, to the insurer, and in neither case is he responsible
for its truth, unless it proceeds from an agent of the insured,
whose duty is to give the information.
In marine insurance the belief or opinion of a 3rd person is
material and must be disclosed.
Concealment or misrepresentation by an agent is considered to
be that of his principal, and has the same effect.
Sec. 44. A representation is to be deemed false when the
facts fail to correspond with its assertions or stipulations

No misrepresentation in case of ambiguous questions. WON a

question is ambiguous is to de determined by Taking the
language of the question according to its normal usage.
Contract language is unambiguous when it has a
definite and precise meaning, unattended by danger of
misconception in the purport of the contract itself, and
concerning which there is no reasonable basis for a difference of
opinion.
There is ambiguity where a reasonable intelligent
person who has examined the context of the entire agreement
could find more than one meaning. Hence, it must be so plain
and intelligible that any applicant can readily comprehend them.

Misrepresentation is willfully misleading the insurance company

with regard to information affecting the acceptance of a risk, the
issuing of a policy or the settling of a claim and knowledge
making false statements about the facts of a businesss, property
or claim. When facts fail to correspond with the statements, then
the representation is false.
The insurance cannot be avoided where the statements are
substantially true although not strictly and literally true.
A concealment or misrepresentation is held to defeat a contract
on the ground of fraud. However, it is not necessary that it
should be an intended deception.

Misrepresentation as a defense of the insurer to avoid liability is

an affirmative defense. The duty to establish such a defense by
satisfactory and convincing evidence rests upon the defendant.

Fact of Loss Not material.

Mistake/Forgetfulness which causes material facts to be
suppressed or misrepresented, even without any fraudulent
purpose, has the effect of defeating a contract.

Acceptance by the insurer fo the premium payments despite

knowledge of the ground for rescission will constitute a waiver of
the right to rescind.
Sec. 46. The materiality of a representation is determined by the
same rules as the materiality of a concealment.

Source: Dizon

4. Whether a tort action for fraud may be brought by the

insurer to recover the incontestable policy proceeds,
creating a result similar to that of a cigar-smoking
arsonist.

Determination of materiality: if the representation was material to

the risk insured against and would have influenced the insurer in
determining whether to issue a policy.
- Such representation was made with the intent to
deceive
Sec. 47. The provisions of this chapter apply as well to a
modification of a contract of insurance as to its original
formation.

Title 6 THE POLICY

Sec. 49. The written instrument in which a contract of insurance
is set forth, is called a policy of insurance.

Sec. 48. Whenever a right to rescind a contract of insurance

is given to the insurer by any provision of this chapter, such
right must be exercised previous to the commencement of
an action on the contract.

Policy of Insurance
- contract of insurance, describing the term,
coverage, premiums and deductibles also called
policy
- contract detailing an insurance policy and outlining
what risks are insured, what insurance premiums
are to be paid by the policyholder, what deductibles
prevail and all the details associated with a policy

After a policy of life insurance made payable on the death of

the insured shall have been in force during the lifetime of
the insured for a period of 2 years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured
or his agent.
Incontestability clause: Prevents an insurer from denying
benefits on the ground of misrepresentation in the application.
The clause applies only when the policy has been in effect for a
specified period of time, usually 2-3 years.
Requisites:
1. Life insurance policy payable upon the death of the
insured
2. Policy must have been in force for a period of at least 2
years during the lifetime of the insured either from date
of issue or date of last reinstatement.

Sec. 50. The policy shall be in printed form which may contain
blank spaces; and any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided
therein.
Any rider, clause, warranty or endorsement purporting to be part
of the contract of insurance and which is pasted or attached to
said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any rider, clause,
warranty or endorsement issued after the original policy shall be
countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider,
clause, warranty or endorsement.

Exceptions to incontestability clause:

1. That he person taking the insurance lacked insurable
interest;
2. That the cause of the death of the insured is an
excepted risk
3. That the premiums have not been paid
4. That the condition of the policy relating to military or
naval service have been violated
5. That the fraud is of particular vicious type
6. An imposter was used to deceive the insurance
company into issuing the policy.

Group insurance and group annuity policies, however, may be

typewritten and need not be in printed form.
Contracts are obligatory in whatever form, provided all the
essential requisites for their validity are present. However, if the
law requires them to be in some form in order for it to be valid or
enforceable or to be proved in certain way, that requirement is
absolute and indispensable. All contracts where the amount
involved exceeds P500 must appear in writing.

Rationale of Imposter defense:

1. If impostor applies for a policy and takes a physical, no
contract is formed; basically due to lack of meeting of
the minds.
2. Serious and difficult to detect nature of the fraud
3. Equitable toling of the incontestability period where the
fraud was ongoing through multiple encounters.

Source: Dizon

It is a consensual contract; it is perfected by mere consent of the

parties on the object and consideration of the contract, the
concurrence of the offer and the acceptance.

Riders, Clause, Warranty and Endorsement

After issuance of policy, sometimes it is necessary to modify the
policy. Hence, these are used instead of cancelling the policy.

B. Contributory: the employee pays at least part of the

premium; After completing the probationary period,
he must enroll within the eligibility period [usually
within a month after probationary pd] to avoid
medical underwriting. If he does not apply during
the said pd, but decides later to enroll, he will be
required to take a physical examination and will be
selected/rejected on an individual basis, just as if
the policy were being underwritten for an individual

Rider: An amendment to a contract or policy. It is a written form

attached to an insurance policy that alters the policys coverage,
terms or conditions.
Clauses: sentences and paragraphs describing various
coverages, exclusions, duties of the insured, locations covered,
and conditions that suspend or terminate coverage.

Group Annuity
- contract providing a monthly income benefit to
members of a group of employees
- same characteristics as an individual annuity,
except that it is underwritten on a group basis
- ex. Pension/retirement plan in which one periodic
premium payment is made for an entire group

Warranty: Promise by the insured party that statements

affecting the validity of the contract are true.
Endorsement: Written document attached to an insurance
policy that modifies the policy by changing the coverage afforded
under the policy.
The counter-signature of the insured is not necessary when
rider, endorsement, clause, or a warranty is issued along or
attached with the policy. It is only needed when it is issued after
the issuance of the policy, but depending on who requested for
its issuance.
- If it is the insured who requested for its issuance,
his counter-signature is not necessary. Otherwise,
it is necessary as evidence of his assent to the
rider, endorsement, or clause or warranty.

Sec. 51. A policy of insurance must specify:

(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or
running policies;
(c) The premium, or if the insurance is of a character where the
exact premium is only determinable upon the termination of the
contract, a statement of the basis and rates upon which the final
premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the
absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

Group Insurance:
1. Members and Adverse selection
- Written on a group of people
- Underwriter focuses on the group as a whole,
rather than its singular members
Underwriting: RISK SELECTION PROCESS; Underwriting does
occur to prevent/avoid ADVERSE SELECTION
- Adverse selection tendency of those individuals
who would be considered poor risks to seek and be
covered for insurance more often than average-risk
persons.
- Underwriter considers: type of work being
performed, ages of the participants, probability of
the particular group being an adverse risk to the
insurance company
2. Turnover
- underwriter: concerned with the number of new
group entrants; they are not fond of groups that
have no turnover
3. Probationary Period
- individuals joining an insured group will be required
to serve a probationary period before becoming
eligible for the insurance coverage
A. Noncontributory: employer pays the entire
insurance premium; each individual becomes
immediately covered after the probationary period

Source: Dizon

Parties
-

the names of the insured and the insurer must be

specified in the policy of insurance. But it is enough
that the names can be sufficiently established. Any
typographical error or mistake in the spelling is
immaterial. In fact, the specific name need not be
stated.
Considering the who: exposure identification is the
cornerstone of the risk management process. WHO
CAN IT HAPPEN TO.
Owner/bailee

Named Insured person / entity identified as such in the policy

declarations or supplemental declarations if there is more than 1
named insured. He has the broadest insurable interest in
covered property and business interruption coverage and is the
person or entity that purchases the policy and pays the premium
Additional insured may be unrelated to the named insured
and may appear as a person or entity that has a specific
insurable interest in specific insured object, building or contents.

*** Both have insurable interests in the same object BUT for
different reasons.

determines that such extension is not contrary to and is not for

the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing
such extensions for the purpose of preventing such violations
and may by such rules and regulations dispense with the
requirement of written approval by him in the case of extension
in compliance with such rules and regulations.

Common Policy Conditions: only between the insurer and named

insured. It allows the first named insured great latitude in his
actions for administration of the policy that can affect coverage
for all other insureds in the policy.
Loss Payee: An additional insured is a loss payee as respect to
its insurable interest in the object subject to policy coverage.

An agent, who has been supplied by the insurer with blank cover
note forms, has implied authority to bind the insurers by the
issue of a cover note.

As their interests may appear [ATIMA]: The name insured

obtains a benefit as well when the additional insured defines its
specific insurable interest in the policy.

A preliminary contract of insurance [cover note] is intended to

afford protection ending the investigation of the risk and formal
issuance of the policy.

Omnibus clause, when properly structured, is an acceptable way

of extending policy coverage to many insureds without
identifying each by specific name.

No separate premiums are intended or required to be paid on a

cover note.

Amount of Insurance
The most an insurer will pay for any single loss, the maximum
amount an insured can collect should be provided in terms of a
specific policy.

Sec. 53. The insurance proceeds shall be applied exclusively to

the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.
Insurance proceeds payable only to the interest of the person
designated in the policy.
Civil Code: Payment is to be made:
- to the person constituted
- OR his successor in interest,
- OR any person authorized to receive it
Third partys right to sue insurer:
a. there is an assignment of rights
b. Final Judgment against
c. Stipulation pour Autrui [Art. 1131]: if there is a
stipulation in favor of a third person
The liability of the insurer to the 3rd party is not solidary with that
of the insured.
- Insurers liability: Based on the Contract; limited to
the face value of the policy
- Insureds liability: Based on torts

Premium
Sum paid by a policyholder to keep an insurance policy in force
Failure to pay = Lost of Insurance coverage
Property, Life or Liability Insured
The insurer is only liable to the loss of property or life stated in
the policy
Interest of the insured in property
- must be specified if the ownership is not absolute
- need not specify if ownership is absolute
- A special or qualified interest is equally the subject
of insurance
Risk Insured against
- must be stated in the contract
- the liability of the insurer is limited to losses,
damages or liabilities caused by the risks insured
against

Sec. 54. When an insurance contract is executed with an agent

or trustee as the insured, the fact that his principal or beneficiary
is the real party in interest may be indicated by describing the
insured as agent or trustee, or by other general words in the
policy.

Period during which the insurance is to continue

The term of the effectivity of the contract must be stated in the
policy

An agent or trustee in possession of a property may insure the

property for his protection or for the benefit of the principal or
trustor. The fact that the principal or beneficiary is the real party
in interest must be indicated in the policy by:
a. describing the insured as agent or trustee
b. other general words in the policy

Sec. 52. Cover notes may be issued to bind insurance

temporarily pending the issuance of the policy. Within sixty days
after the issue of the cover note, a policy shall be issued in lieu
thereof, including within its terms the identical insurance bound
under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty
days with the written approval of the Commissioner if he

Source: Dizon

Sec. 55. To render an insurance effected by one partner or partowner, applicable to the interest of his co-partners or other partowners, it is necessary that the terms of the policy should be
such as are applicable to the joint or common interest.

Running Policy: successive insurances and usually where there

is a constant change either in the location of the property insured
or valuation thereof.

A contract of insurance is a personal contract between the

insurer and the insured only. To make it applicable to the interest
of the co-partners, it should be stated as such.

Sec. 63. A condition, stipulation, or agreement in any policy of

insurance, limiting the time for commencing an action thereunder
to a period of less than one year from the time when the cause of
action accrues, is void.

Sec. 56. When the description of the insured in a policy is so

general that it may comprehend any person or any class of
persons, only he who can show that it was intended to include
him can claim the benefit of the policy.

Prescription by agreement
They may agree on a prescriptive period which is less than 10
years provided it is not less than 1 year from the time the cause
of action accrues.

Sec. 57. A policy may be 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.

Cause of action will start to accrue not from the date of loss but
from receipt by the insured of the notice of denial of the claim. If
insurer does not act on claim the cause of action will never
accrue.

Sec. 58. The mere transfer of a 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.

For Compulsory Motor Vehicle Liability Insurance:

Notice must be sent to the insurer w/in 6 months from the date of
the accident, otherwise it would constitute a waiver on the part of
the claimant. The action must be brought w/in 1 year from the
denial of the claim.

Sec. 59. A policy is either open, valued or running.

Sec. 60. An open policy is one in which the value of the thing
insured is not agreed upon, but is left to be ascertained in case
of loss.

If the contract of insurance is an oral one, the action must be

brougnt within 6 years pursuant to the civil code.

Sec. 61. A valued policy is one which expresses on its face an

agreement that the thing insured shall be valued at a specific
sum.

Claims must be presented within 1 year after rejection is

essential because it must be brought by the insured while the
evidence as to the origin and cause of destruction have not yet
disappeared.

Sec. 62. A running policy is one which contemplates successive

insurances, and which provides that the object of the policy may
be from time to time defined, especially as to the subjects of
insurance, by additional statements or indorsements.

One year prescriptive pd starts to run from the time of rejection

and not when the petition for reconsideration had been resolved
by the insurer.

Open Policy: the amount of the interest of the insured is not

fixed by the policy, but it is ascertained in case of loss. A
maximum limit is usually set with respect to the liability of the
insurer.

Sec. 64. No policy of insurance other than life shall be cancelled

by the insurer except upon prior notice thereof to the insured,
and no notice of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the policy, of one or
more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard
insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful or reckless acts or omissions increasing
the hazard insured against;
(e) physical changes in the property insured which result in the
property becoming uninsurable; or
(f) a determination by the Commissioner that the continuation of
the policy would violate or would place the insurer in violation of
this Code.

Valued Policy: Founded on sound public policy.

Dual purpose:
1. to relieve the insured from the burden of proving the
value of his property after its total destruction
2. to prevent over insurance by discouraging insurance
companies from collecting premiums on overvalued
property, but then contesting its value, and hence
liability, when it becomes to their advantage to do so.
*** Possible that 1 policy may be a valued and open one. Ex.
Ship is insured at a certain value and the freight is insured in the
same policy without a valuation; or where a part only of the
goods insured in the same policy are valued.

Source: Dizon

1.
2.
3.
4.
5.

Sec. 65. All notices of cancellation mentioned in the preceding

section shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, and shall state
(a) which of the grounds set forth in section sixty-four is relied
upon and (b) that, upon written request of the named insured,
the insurer will furnish the facts on which the cancellation is
based.

Exception/Exclusion: provision in an insurance policy that

indicates what is denied coverage
Conditions: actions that the insured must take, or continue to
take, for the insurance policy to remain in force and the
insurance company to process a claim. It must be strictly
construed against the insurers, because they have for their
object to limit the scope and defeat the purpose of the principal
contract, and as the insurer prepares the contract and furnishes
the language used, any ambiguity in the contract must be taken
most strongly against him.

Cancellation is the termination of an insurance policy before the

expiry date. It occurs during the life of a policy and does not
include policies that re not renewed at their renewal date.
-

send written notice of cancellation [sec. 65]

state grounds mentioned in sec. 64

Sec. 66. In case of insurance other than life, unless the insurer at
least forty-five days in advance of the end of the policy period
mails or delivers to the named insured at the address shown in
the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew the
policy upon payment of the premium due on the effective date of
the renewal. Any policy written for a term of less than one year
shall be considered as if written for a term of one year. Any
policy written for a term longer than one year or any policy with
no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.

If insurer has no intention to

renew the policy or intends to
set a condition for renewal
If policy is for a period less
than 1 year

Warranty: Promise by the insured party that statements affecting

the validity of the contract are true.
- must be strictly construed against the insurer, but
they should likewise be reasonably interpreted, in
light of the factual conditions prevailing in each
case
Sec. 68. A warranty may relate to the past, the present, the
future, or to any or all of these.
Warranty may refer to:
A. Future: promise that a particular thing shall be done or
shall not be done, or that some condition shall be
fulfilled
B. Past/Present: Policyholder affirms or negatives the
existence of a particular state of facts
Warranties, 2 types:
1. Affirmative: Statement regarding a fact at the time the
contract was made.
- if untruthful, makes the insurance policy void at its
inception

Inform the insured at least 45

days prior to the end of the
policy
It shall be considered written
for a term of 1 year

Title 7 WARRANTIES
Sec. 67. A warranty is either expressed or implied.

2. Promissory: Statement about future facts or about facts

that will continue to be true throughout the term of the
policy
- if a promissory warranty becomes true, the insurer
may cancel coverage at such time as the warranty
becomes untrue

Parties primary concerns:

1. The correct estimation of the risk which enables the
insurer to decide whether he is willing to assume it, and
if so, at what rate of premium;
2. The precise delimitation of the risk which determines
the extent of the contingent duty to pay undertaken by
the insurer;
3. Such control of the risk after it is assumes as will enable
the insurer to guard against the increase of the risk
because of change in conditions; and
4. Determining whether a loss occurred and if so, the
amount of such loss.

Sec. 69. No particular form of words is necessary to create a

warranty.
Intention of the parties determine whether a statement is a
warranty or not. The use of the word warranty does not
necessarily make one a warranty. It is often confused with
representation .

Devices to ascertain and control risks and losses:

Source: Dizon

concealment
representations
warranties
conditions
exceptions or exclusions

Warranty

Representation

Being a condition upon which

the contract is to take effect, is
always a part of the written
policy, and must appear on the
face of it.
It is in the nature of a condition
precedence, hence must be
strictly and literally complied
with.

Only a matter of collateral

information or intelligence on
the subject of the voyage
insured, and makes no part of
the policy
Sufficient if representation be
true in substance; as long as
made without fraud, and be not
false in any material point, or if
it be substantially, though not
literally, fulfilled.
False warranty avoids the False representation is no
policy [breach of the condition]; breach of contract, but if
insurer is not liable
material, avoids the policy on
the ground of fraud or at least
because the insurer has been
misled by it.

implied
warranties
and underwriter
conditions on which it was
made
The effect of misrepresentation or concealment involves the
principle of an implied warranty or condition; it avoids the policy
because there is an implied agreement of the assured to make a
fair disclosure of the circumstances affecting the risk, and the
insurer subscribes upon the condition that he has complied with
this agreement.
Express warranty
Representation
An agreement expressed in
the policy, whereby the
assured 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. It
is not required that the
circumstance or act warranted
should be material to the risk.
Materiality/immateriality
signifies NOTHING. The only
question is as to the mere fact.

Sec. 70. Without prejudice to section fifty-one, every express

warranty, made at or before the execution of a policy, must be
contained in the policy itself, or in another instrument signed by
the insured and referred to in the policy as making a part of it.
Warranty is a part of the contract.
Only a misstatement of fact concerning a warranty can render a
policy void ab initio.

Must be strictly and literally Sufficient that a representation

complied with
is complied with equitably and
substantially.
Intention of the parties is not to
be inquired into, except as to
the meaning of the words
Must be strictly performed,
nothing tantamount will do. It is
a matter of indifference
whether the thing warranted be
material or not, but it must be
literally complied with.

If a misstatement renders the policy void ab initio, such facts

must appear clearly and unambiguously from the terms of the
policy.
Sec. 71. A statement in a policy of matter relating to the person
or thing insured, or to the risk, as a fact, is an express warranty
thereof.
Express
Implied
Specifically set out in the Not specifically stated within
policy; must be a fact and not the policy
an opinion;

Implied Warranty
Where by the mere act of
effecting
insurance,
the
assured is presumed to give
the underwriters to understand
that certain facts are true, or
certain acts shall be done,
relating to the risk;
It is made by the mere act of
effecting the insurance
Production of the policy by the
assured is a proof of all the

Source: Dizon

Express warranty/condition Is always a part of the policy, but,

like any other part of the express contract, may be written in the
margin, or contained in proposals or documents expressly
referred to in the policy, and so made a part of it.

Representation

Any direct, or even incidental allegation of a fact relating to the

risk, has been held to constitute warranty.
Sec. 72. A statement in a policy which imparts that it is intended
to do or not to do a thing which materially affects the risk, is a
warranty that such act or omission shall take place.

It must at least be expressed,

either in writing or verbally
Requires other proof, which
must be produced by the

-refers to a promissory warranty: representation made by an

applicant for insurance to an insurer as to future event or
condition for which the applicant takes responsibility

10

no misrepresented warranty should cancel an insurance contract

if the same was not fraudulent and did not increase the risks
covered by the policy.

Violation of an immaterial provision in the contract will not avoid

the policy.
The parties may stipulate that a violation of a specific provision
will avoid the policy, whether material or not.

Sec. 73. When, before the time arrives for the performance of a
warranty relating to the future, a loss insured against happens, or
performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the
policy.

Sec. 76. A breach of warranty without fraud merely exonerates

an insurer from the time that it occurs, or where it is broken in its
inception, prevents the policy from attaching to the risk.

Non-compliance with a warranty, though it occasions no damage

and does not change or increase the risk, has the effect of
discharging the insurers from their liability.

A policy is avoided in case of breach of warranty. IF there is no

fraud, the same is avoided from the time of the breach and the
insured is entitled to a return of the premiums: proportionate if
the breach occurred after the risk has attached to all the
premiums if the risk has not attached.

A temporary non-compliance with a warranty by a defect, which

is remedied before any los happens, still discharges the
underwriters.

Inc ase there is fraud, the policy is void ab initio and the insured
is not entitled to a return of premiums.

Compliance dispensed with:

- if it be rendered unlawful by a law enacted after the
time of making the policy
- by reason of a change of circumstances, the
warranty ceases to be applicable to the
circumstances of the contract as when
performance becomes impossible or a loss
happens before the required time for performance

Title 8 PREMIUM
Sec. 77. An insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision
applies.

Sec. 74. The violation of a material warranty, or other material

provision of a policy, on the part of either party thereto, entitles
the other to rescind.
Insurer is not required to pay any claims that arise after the date
of the breach, even if the breach is later remedied or had nothing
to do with the loss in question.

Payment of premium is essential to the validity of the

insurance

Consideration on the part of the insurer: premium paid

by the insured
Consideration on the part of the insured: the protection,
the promise, the undertaking on the part of the insurer
to indemnity the insured in the case of loss

When there is a breach of warranty, there need not even be a

casual connection between the warranty and the cause of the
loss.

Nonpayment of premium puts an end to an insurance

contract [bec. The time of payment is peculiarly of the
essence of contract]
Time is of the essence in respect of the payment of the
insurance premium so that if it is not paid, the contract
does not take effect unless there is still another
stipulation to the contrary

Not all misstatements made by an insured party can give the

insurer the right to cancel a policy or refuse a claim. The
statement must be expressly included in the contract, and the
provision must clearly show that the parties intended that the
rights of the insured and insurer would depend on the truth of the
statement.

A breach of warranty may be waived by the insurer.

Sec. 75. A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.

Source: Dizon

11

Sec. 78. An acknowledgment in a policy or contract of

insurance or the receipt of premium is 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.

but within the credit term.

Agreement must be clear and definite

Payment by Promissory Notes or Bills of Exchange

- only have the effect of payment when they have been
cashed through the fault of the debtor

Cash and Carry Basis: No premium payment no policy

Exception:
1. In case of life or industrial life policy whenever the
grace period provision applies
2. Whenever there has been acknowledgment in the
policy of the receipt of premium, which is deemed
conclusive evidence of its payment, so far as to
make the policy binding notwithstanding any
stipulation therein that it shall not be binding until
premium is actually paid
3. When the insured and the insurer have agreed to
the payment of the premium by installments and
payment has been made at the time of loss
4. When the insurance company has by practice
renewed the fire insurance over the years, under a
clear credit term arrangement on the payment of
premium and the loss occurred during the credit
period, and such payment were accepted by the
insurer
5. When estoppel bars the insurer from invoking Sec.
77 to avoid recovery on a policy providing a credit
term for the payment of the premiums as against
the insured who relied in good faith on such
extension
6. In case of contract of suretyship or bonding, where
the obligee has accepted the bond, it becomes
valid and enforceable irrespective of whether or not
the premium has been paid by the obligor to the
surety.

Art. 1249: Payment of debts in money shall be made in

the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal
tender in the Philippines
The delivery of PN payable to order, or bills of
exchange or other mercantile documents shall produce
the effect of payment only when they have been
cashed, or when through he fault of the creditor they
have been impaired.
In the meantime, the action derived from the
obligation shall be held in the abeyance.

Acknowledgment in the policy of receipt of premium is

conclusive evidence. If no payment yet, the policy is still
binding. But the conclusiveness refers only to the
binding effect of the policy and not to the fact that the
premium has not been paid. Insured is still liable to the
insurer for the payment of premiums.

Payment by Installments:
- must be approved by the insurer
- Sec. 77 merely precludes the parties from stipulating
that the policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy
- If they have an understanding that the insured allows
the premium to be paid in installments, then such is not
prohibited.
Credit Agreement:
- Art. 1306: The contracting parties may establish such
stipulations clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy
- If insurance contract provide a credit term within which
to pay the premiums, such is valid. Thus, he can
recover even though the premium is paid after the loss

Source: Dizon

12

Sec. 79. A person insured is entitled to a return of premium,

as follows:
(a) To the whole premium if no part of his interest in the
thing insured be exposed to any of the perils
insured against;
(b) Where the insurance is made for a definite period of
time and the insured surrenders his policy, to such
portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short
period rate has been agreed upon and appears on
the face of the policy, after deducting from the
whole premium any claim for loss or damage under
the policy which has previously accrued; Provided,
That no holder of a life insurance policy may avail
himself of the privileges of this paragraph without
sufficient cause as otherwise provided by law.

3. when the contract is voidable on account of fraud or

misrepresentation of the insurer or of his agent
-

Sec. 80. If a peril insured against has existed, and the

insurer has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as that
particular risk is concerned.

Return of Portion of Premium:

1. The insurance is made for a definite period of time and
the insured surrenders his policy
Discontinuance of Policy:
- insured decide to discontinue his policy
- refund is a proportionate amount
corresponding to the unexpired term of
the policy or based on the short period
scale provided for in the policy
- short period rate stipulation in the policy
stating the amount of premium for
specified short times, or premiums at
short-time rate, reflect in a table format
o not pro-rata, but only the balance
after deducting the percentage to
be retained by the insurer in the
short period table

Sec. 82. In case of an over-insurance by several insurers,

the insured is entitled to a ratable return of the premium,
proportioned to the amount by which the aggregate sum
insured in all the policies exceeds the insurable value of the
thing at risk.
The insured can demand for a return of the entire premium IF:
1. the thing insured was never exposed to the peril insured
against because there was no assumption of risk
2. when by any default of the insured other than actual
fraud, the insurer never incurred any liability under
the policy

Source: Dizon

2. Where there is an over-insurance by several insurers

Exceeds Actual Value. Ex. House: 10 M. Insured it for 15 M.
Can recover premium paid for the 5M value.

No Assumption of risk/No Liability incurred

premium and risk are the very essence of
a contract
if no risk has attached may ask for
return of premium
if the property has, for however short a
time, been exposed to the risks insured
against and within the conditions of the
policy, in such manner that the insurers
might have been liable for a loss, no

Fraud/Misrepresentation of the insurer

If insurer committed fraud/misrepresented
facts to the insured
Ex. Represented that it covers peril
against terrorism; but it was not written in
the policy.

4. when the contract is voidable on account of facts, the

existence of which the insured was ignorant without his
fault
- Ignorance of Facts
- The insured is entitled to the return of the
entire premium when the contract is
voidable on account of facts, the
existence of which the insured was
ignorant without his fault

Sec. 81. A person insured is entitled to return of the

premium when the contract is voidable, on account of fraud
or misrepresentation of the insurer, or of his agent, or on
account of facts, the existence of which the insured was
ignorant without his fault; or when by any default of the
insured other than actual fraud, the insurer never incurred
any liability under the policy.

return of premium for insurance of the

property so at risk can be claimed.
Ex. Insured cargoes. But the cargoes
were never placed in the vessel. Hence,
can recover premium paid.

13

No Return of Premiums:
1. if a peril insured against has existed, and the insurer
has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as
that particular risk is concerned
2. in life insurance unless there is sufficient cause; Life
insurance is indivisible; premium payments are
consideration for the entire insurance although made for
several periods.
3. If insured committed fraud or misrepresentation

Source: Dizon

14

proving that the loss comes within the exception.

Title 9 LOSS
Sec. 83. An agreement not to transfer the claim of the
insured against the insurer after the loss has happened, is
void if made before the loss except as otherwise provided in
the case of life insurance.
-

Art. 1189: It is understood that the thing is lost when it

perishes, goes out of commerce, or disappears in such
a way that its existence is unknown or it cannot be
recovered.
In Insurance, loss is compensable whether total or
partial
The insurer cannot prohibit the insured from transferring
or assigning his claim after the loss has happened;
What is being transferred or assigned is the
claim/insurance proceeds and not the policy. If made
before the occurrence of any loss, then it is invalid.
Valid because it is a RIGHT TO DISPOSE PROPERTY.
Ascertaining Loss: Must determine the value of the
subject; It is necessary to ascertain the value of the
subject insured, for the purpose of determining whether
the underwriter is liable to pay the whole, or only a part,
and what part, of a loss.
Fixing the value of property: As certain rules are
adopted in fixing the value of the property insured in
cases of loss, the assured must have a regard to these
rules in effecting insurance, to determine the amount to
be insured, in order to give him, as nearly as possible,
an indemnity for his loss.
Value not agreed upon: if the value of the interest
insured is not agreed upon in the policy, it must be
proved by the assured before he can recover a loss.
The value of the interest is to be estimated at the time
of the commencement of the risk.
Indemnity Refers to the Beginning of the risk:

Sec. 84. Unless otherwise provided by the policy, an insurer

is liable for a loss of which a peril insured against was the
proximate cause, although a peril not contemplated by the
contract may have been a remote cause of the loss; but he
is not liable for a loss which the peril insured against was
only a remote cause.
General Rule: The insurer is liable if the peril insured against is
the proximate cause of the loss.
Proximate Cause: that cause, which, in natural and
continuous sequence, unbroken by an efficient
intervening cause, produces the injury, and without
which the result would not have occurred.
An excepted risk constitutes a defense by the insurer because
it has not assumed that risk. The insurer has the burden of

Source: Dizon

15

Sec. 85. An insurer is liable where the thing insured is

rescued from a peril insured against that would otherwise
have caused a loss, if, in the course of such rescue, the
thing is exposed to a peril not insured against, which
permanently deprives the insured of its possession, in
whole or in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured against.
-

Ex. Barratry of the master or mariners

When evidence shows that the insureds negligence or

recklessness is so gross as to be sufficient to constitute a willful
act, the insurer must be exonerated.

in case a thing insured was rescued form the peril

insured against but was lost due to another peril not
covered by the policy, the insurer remains to be liable.
However, the insured must prove that the same would
nonetheless have been lost if not saved from the peril
insured against.
The insurer is liable if the loss is caused by efforts to
save the things from the peril insured against

Sec. 86. Where a peril is especially excepted in a contract of

insurance, a loss, which would not have occurred but for
such peril, is thereby excepted although the immediate
cause of the loss was a peril which was not excepted.
-

if the peril insured against is only the immediate cause,

the liability of the insurer would depend if the proximate
cause is an excepted peril or not

Sec. 87. An insurer is not liable for a loss caused by the

willful act or through the connivance of the insured; but he
is not exonerated by the negligence of the insured, or of the
insurance agents or others.
Willful act and negligence
- Mere negligence on the part of the insured will not
exonerate the insurer
- if the loss was brought about by the willful act of the
insured or with connivance, the insurer is not liable
Negligence or Misconduct of Agents
- although a loss may be immediately and directly
occasioned by a peril insured against, yet if the
operation of that peril in causing the loss is occasioned
by conduct of the assured or his agents, which is not
insured against, the insurers are not liable for the loss
- if a loss happened from the want of that which the
assured themselves ought to have provided, it could not
have been within the intention of the parties to the
contract that the underwriters should be liable
Agreement to indemnity
- although the underwriters are held not liable, in general,
for any loss occasioned by the fault of the assured or
his agents, yet it has already appeared that they may,
make a valid agreement to indemnify the assured
against damage and loss by the negligence, or
misconduct of the master and crew, or other persons,
employed by the assured and entrusted with the
property to which the insurance relates.

Source: Dizon

16

delay, as grounds of objection, are waived.

Title 10 NOTICE OF LOSS
Sec. 88. In case of loss upon an insurance against fire, an
insurer is exonerated, if notice thereof be not given to him
by an insured, or some person entitled to the benefit of the
insurance, without unnecessary delay.

Sec. 91. Delay in the presentation to an insurer of notice or

proof of loss is waived if caused by any act of him, or if he
omits to take objection promptly and specifically upon that
ground.

Condition one of the devices used by the parties in controlling

risk of loss
- Condition-precedent must be fulfilled before the
effectivity of the policy
- Condition-subsequent must be fulfilled after the
effectivity of the policy
o Example: notice of loss to insurer

Defects of notice and/or proof of loss are waived if:

1. the insurer omits to specify to the insured grounds
which the latter might remedy without unnecessary
delay; and
2. caused by any act of insurer, or if he omits to take
objection promptly and specifically upon that ground
Sec. 92. If the policy requires, by way of preliminary proof of
loss, the certificate or testimony of a person other than the
insured, it is sufficient for the insured to use reasonable
diligence to procure it, and in case of the refusal of such
person to give it, then to furnish reasonable evidence to the
insurer that such refusal was not induced by any just
grounds of disbelief in the facts necessary to be certified or
testified.

Non-performance or non-compliance of conditions subsequent

will not avoid the policy, but it may result to the forfeiture of the
rights of the insured against the insurer. The policy will remain
valid despite non-performance of such conditions.
Requisites for recovery:
1. the insured must have an insurable interest in the
subject matter
2. the interest must be properly covered by the policy
3. there must be a loss
4. As a general rule, the loss must be proximately caused
by the peril insured

Reasonable diligence must be exercised in procuring a required

certificate or testimony. In case the same cannot be obtained,
reasonable evidence is required to show that such refusal was
not due to disbelief.
Title 11 DOUBLE INSURANCE

In case of insurance against fire, the notice of loss should be

given to the insurer without unreasonable delay so that the
insured can take further steps or actions to prevent or minimize
further losses and determine the extent of its liability to prevent
the filing of fraudulent claims. Failure to do so, esp. in fire
insurance, will exonerate the insurer.

Sec. 93. A double insurance exists where the same person is

insured by several insurers separately in respect to the same
subject and interest.
Double Insurance
Coverage by 2 different insurance companies upon the
identical interest in the identical subject matter
Can rarely collect because it is considered a form of unjust
enrichment and a majority of insurance contracts contain
provisions that prohibit this
Requisites:
o The same person is insured
o By 2 or more insurers
o With respect to the same subject matter
o Involving the same insurable interest
o Against the same risk
SAME SUBJECT MATTER, SAME INTEREST and SAME
RISK
Double insurance is not contrary to law or public policy so its
existence is not a ground for the rescission of the policy.
However, a policy may provide for the prohibition of the
same or require the giving of notice in case there are other
insurances. In case of violation, the policy becomes void.
[Check terms and conditions of the policy if it allows double
insurance, or if there is a need to reveal existing or
subsequent insurance policies acquired by the insured]
To prevent over-insurance and discourage perpetration of

Sec. 89. When a preliminary proof of loss is required by a

policy, the insured is not bound to give such proof as would
be necessary in a court of justice; but it is sufficient for him
to give the best evidence which he has in his power at the
time.
Submission of proof of loss enable the insurer to determine
whether or not there was really a loss, and the amount of
damage. The law does not require any particular form, unless
the policy provide for a particular form to be submitted.
-

Vehicular accidents: police report, affidavits of witness,

picture of damaged car, and estimate of invoice
Death: death certificate
Injury: medical certificate and hospital and medicine
receipts

Sec. 90. All defects in a notice of loss, or in preliminary

proof thereof, which the insured might remedy, and which
the insurer omits to specify to him, without unnecessary

Source: Dizon

17

fraud;
Contracts of insurance are contracts of indemnity upon the
terms and conditions specified in the policy.
If, with the knowledge of the existence of other insurances
which the defendant deemed violations of the contract, it
has preferred to continue the policy, its actions amounts to a
waiver of the annulment of the contract.

Sec. 94. Where the insured is overinsured by double insurance:

(a) 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;
(b) 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;
(c) 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;
(d) 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;
(e) 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.
Overinsurance by Double Insurance
Overinsurance by double insurance exists where there are 2
or more policies on the same adventure and interest or any
part of it, and the sums insured exceed the insurable value
in the case of an unvalued policy or the value fixed by the
policy in the case of a valued policy.
Double insurance is lawful, hence, one can make a claim to
both insurers in the event of loss. However, the insured
cannot profit, or recover more than the loss he has suffered.
Thus, the insurers are bound to share the actual loss in the
same proportion they share to the premium.
Unless the policy otherwise provides, payment can be claimed
from the insurers in any order.
Cannot recover doubly
If double insurance results in over insurance, the premiums
paid corresponding to the excess will be refunded because
as far as the exces is concerned, there is no assumption of
risk on the part of the insurer.

Source: Dizon

18

Title 12
REINSURANCE
Sec. 95. A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or liability by
reason of such original insurance.

b. Or on a per policy basis [Facultative Reinsurance[

Usually bought by the Insurance underwriter who
underwrote the original insurance policy
a. Quota Share
b. Or Excess of loss basis
Commonly used for large or unusual risks that do
not fit within standard reinsurance treaties due to
their exclusions.

Reinsurance is a means by which an insurance company

can protect itself against the risk of losses with other
insurance companies
Reinsurance are considered as insurance to insurance
companies

Functions:
1. Risk Transfer: Reinsurance allows an insurance company to
offer higher limits of protection to a policy holder than its
own assets would allow
2. Income Smoothing: Helps make insurance companys
results more predictable by absorbing larger losses and
reducing the amount of capital needed to provide coverage
3. Surplus relief:
Insurance companys writings are limited by its balance
sheets [solvency margin]. Once the limit is reached, its
either they stop writing new business or increase its capital
of buy surplus relief reinsurance.
o Basically, to raise additional capital.
4. Arbitrage: Insurance company may be motivated by
arbitrage in purchasing reinsurance coverage at a lower rate
than what they charge the insured for the underlying risk.
Types of Reinsurance:
1. Proportional
One of more reinsurers taking a stated percent share of each
policy that an insurer produces [writes]
a. Quota Share
b. Surplus reinsurance [Variable Quota Shares]

Importance of Reinsurance:
1. To protect against large claims to reinsure with other
insurance companies so that the loss is not so severe
for any one insurer
2. To avoid undue fluctuations in underwriting results
balanced set of results each year without peaks and
troughs
3. To obtain an intentional spread of risk to spread risk
to other countries
4. To increase the capacity of the direct insurer to
accept the risk by insuring the whole risk and then
reimbursing the part it cannot keep for itself to other
reinsurers

2. Non-proportional
It only responds if the loss suffered by the insurer exceeds a
certain amount, which is called the Retention or priority
Forms:
a. Excess of loss reinsurance
i. Per Risk XL [Working XL]
ii. Per Occurrence or Per Event XL
[Catastrophe or Cat XL]
iii. Aggregate XL
b. Stop loss reinsurance

REINSURANCE
Made by a former insurer, his
executors or assigns, to protect
himself and his estate from a
risk to which they were liable by
the first insurance.
Hector De Leon:
Reinsurance
Insurer becomes the insured,
insofar as the reinsurer is
concerned.
The subject of insurance is the
original insurers risk
An insurance of a different
interest
The original insured has no
interest in the contract of
reinsurance
which
is

Reinsurance contracts can either:

a. Cover more than one policy [treaty]
Usually bought by a senior executive at the insurance
company
a. Continuous continues indefinitely, but
generally has a notice period whereby either
party can give its intent to cancel or amend the
treaty within 90 days
b. Term basis has a built-in expiration date

Source: Dizon

The rules on representation and concealment apply in

reinsurance
Retrocession: Reinsurance companies themselves also
purchase reinsurance from other reinsurance companies
o Reinsurance company that sells the reinsurance:
Retrocessionaires
o Reinsurance company that purchases the
reinsurance: Retrocedent
Insurance company is obliged to indemnify its policyholder
for the loss under the insurance policy whether or not the
reinsurer reimburses the insurer

DOUBLE INSURANCE
The insured makes 2
insurances on the same risk
and the same interest.

Double Insurance
Insurer remains as the insurer
The subject of the insurance
is property
It is an insurance of the same
interest
THe insured is the party in
interest in all the contracts

19

independent of the original

contract of insurance
The consent of the original
insured is not necessary

The insured has to give his

consent

Policy and Treaty is not synonymous.

Policy
Treaty
A reinsurance policy is a A reinsurance treaty is merely
contract of indemnity one an agreement between 2
insurer makes with another to insurance companies whereby
protect the first insurer from a one agrees to cede and the
risk it has already assumed.
other to accept reinsurance
business pursuant to the
provisions specified in the
treaty.
Reinsurance policies are Treaties are contracts for
contracts of insurance.
insurance.
Sec. 96. Where an insurer obtains reinsurance, except under
automatic reinsurance treaties, he must communicate all the
representations of the original insured, and also all the
knowledge and information he possesses, whether previously or
subsequently acquired, which are material to the risk.
The Reinsured must communicate [Otherwise, it shall avoid the
policy]:
c. All the representations of the original insured
d. All the knowledge and information he possesses,
whether previously or subsequently acquired, which are
material to the risk
Sec. 97. A reinsurance is presumed to be a contract of indemnity
against liability, and not merely against damage.
Reinsurance is not a contract of indemnity against damage
but one against liability
Sec. 98. The original insured has no interest in a contract of
reinsurance.
A contract of reinsurance is between the insurer and the
reinsurer only and legally there is no direct link between the
original insured and any reinsurer. The original insurer is still
the one who must pay any claim from the insured the
insurer must hen make its own separate claim against the
reinsurer.
The reinsurer is entitled to avail itself of every defense which
the reinsured might urge in an action by the person originally
insured.

Source: Dizon

20

o
o

Chapter II CLASSES OF INSURANCE

Title I MARINE INSURANCE
Sub-Title 1- A DEFINITION
Sec. 99. Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements,
profits, moneys, securities, choses in action,
evidences of debts, valuable papers, bottomry, and
respondentia interests and all other kinds of property
and interests therein, in respect to, appertaining to or
in connection with any and all risks or perils of
navigation, transit or transportation, or while being
assembled, packed, crated, baled, compressed or
similarly prepared for shipment or while awaiting
shipment, or during any delays, storage,
transhipment, or reshipment incident thereto,
including war risks, marine builder's risks, and all
personal property floater risks;

Coverage
Marine Insurance covers the loss or damage of ships, cargo,
terminals and any transport or property by which cargo is
transferred, acquired, or held between the points of origin
and final destination.
1. Loss or damage to any of the
properties enumerated in the
Insurance Code
2. Liability insurance pertaining to
marine protection and indemnity
insurance.
Insurer will be liable for any liability
that the insured may insure arising
from marine operations.
Generally, insurers are not liable for the loss of goods stowed on
deck, since the goods are exposed to greater perl if they were
stowed in the usual manner. But this seems to depend in some
decree upon usage.

(b) Person or property in connection with or

appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of
or damage arising out of or in connection with the
construction, repair, operation, maintenance or use
of the subject matter of such insurance (but not
including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to
any person arising out of ownership, maintenance, or
use of automobiles);

Hull Insurance and Marine Cargo Policy

Basic Marine Policy covers either shipowner or shipper of
goods
o Cargo Policy: if for goods; includes goods,
cargoes, merchandise including air cargo and
parcels
Marine Cargo Insurance covers the transfer of
goods, cargoes or merchandise either by land, sea
or air from its origin to the final destination.
Kinds:
Open Policy: automatic cover for
all shipments of the assured, who
is obligated to declare all
shipments. Risk notes are issued
on a per declaration basis
Individual or Voyage Policy:
Covers only one shipment at one
time per voyage. The assured
must declare the policy prior to
shipment.
Duration
From the time the goods leave
the warehouse/place of storage
and terminates on delivery,
either:
o To the final warehouse
o To any warehouse prior
to or at the destination
which the assured elect
to use for storage

(c) Precious stones, jewels, jewelry, precious

metals, whether in course of transportation or otherwise;
(d) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding
buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to
navigation and transportation, including dry docks
and marine railways, dams and appurtenant facilities
for the control of waterways.
(2) "Marine protection and indemnity insurance," meaning
insurance against, or against legal liability of the insured for loss,
damage, or expense incident to ownership, operation, chartering,
maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways, including
liability of the insured for personal injury, illness or death or for
loss of or damage to the property of another person.

General Principles:
There are two parties:

Source: Dizon

Assured [insured]: agrees to pay a premium

Assurer [Carrier]: agrees that, if certain losses or
damage occurs to certain interests of the insured,
the insurer will indemnify the insured.

21

Hull Insurance: if for ship; insurance of vessels,

craft, hull machinery including builders risk
Hull Insurance provides insurance cover to hull,
machinery, and everything connected in a vessel or ship
Liners any ship working to a regular time
schedule
Passenger ships: designed to carry
passenger
Tankers: Carry both dry and liquid cargo
[oil tanker]
Baulk Carriers: Designed to carry a
particular type of cargo in bulk
Container ship: Primarily for the carriage
of container boxes
Reefers: containing ship constructed with
refrigerator holds
Ferries: Any vessel which engages in a
regular patter of short sea transit
Lighters: Craft used to bring cargo
alongside a ship for loading
Tugs Motorized Banca: used for assisting
ship in harbor areas

assured who has parted with or lost his interest in the subjectmatter insured cannot ssign.

Perils of the Sea vs. Perils of the Ship

Perils of the Sea
Insurer is liable
Something which may or may
not happen and not something
which must happen

Perils of the Ship

Insurer is not liable
Usual or ordinary movements
of the sea like waves, ordinary
wear and tear of the vessel, or
negligent failure of the owner
of the master to provide the
vessel with the necessary
equipment
Losses from extraordinary occurrences: Perils form the sea
includes such losses as are extraordinary in nature, or arise from
some overwhelming power, which cannot be guarded against the
ordinary exertion of human skill and prudence.
Includes: winds, waves, lightning, rocks, shoals, running
foul of other vessels, all causes of loss and damage to
the property insured, arising form the elements and
inevitable accidents, other than those of capture and
detention

Marine Policies: document containing the terms and conditions

of the contract
Includes names of the assured, insurer[s], subject matter,
risk covered, period of time
Kinds:
1. Voyage Policy: when the contract is to insure the
subject matter at and from one place to another;
the risk attaches only when the ship starts on the
voyage
2. Time Policy: Subject matter is insured for a definite
period of time. The ship ay pursue any course it
likes. The policy would cover all the risks from
perils of the sea for the stated period of time.
Cannot be for more than 1 year, but may contain a
continuation clause.
3. Mixed Policy: Combination of voyage and time
policies; covers risk for a specified period of time.
4. Valued Policy: specifies the agreed value of the
subject-matter insured
5. Open or Unvalued Policy: Value of the subject
matter is not specified; It will be subsequently
ascertained.
6. Floating Policy: only mentions the amount for which
the insurance is taken out and leaves the name of
the ship[s] and other particulars to be defined by
subsequent declarations.

Collision and Running Down clause: Provision is contained in

the standard hull policy to cover liability incurred for damage to
another vessel or structure and sometimes even personal
injuries incurred.
Barratry: any willful misconduct on the part of master or crew in
pursuance of some unlawful or fraudulent purpose without the
consent of the owners and to the prejudice of the owners
interest.
Must be willful and intentional act
Considered as a peril of the sea, hence proper object of
insurance
Inchmaree clause: Extension of cover to include damage or
loss due to latent causes such as breakage of the ships drive
shafts, bursting of its boilers, unseen defects in its hull,
machinery, and auxiliary equipment, errors in navigation,
negligence of its captain, officers, engineers, crew, pilots, etc.
All Risks Policy:
Broad and Comprehensive meaning: All risks
whatsoever and covering all losses by an accidental
cause of any kind
Any loss other than a willful and fraudulent act of the
insured
Insured must prove that the cargo was in good
condition when the policy attached and that the cargo
was damages when unloaded form the vessel.
Thereafter, the burden then shifts to the insurer to show
the exception to the coverage
Special insurance

Assignment of Policy:
A marine policy is assignable by endorsement, or in any other
customary manner, and the assignee can sue on it in his own
name and subject to any defense which would have been
available against the person who effected the policy. The
assignment may be made either before or after the loss, but an

Source: Dizon

22

Wages of Mariners and Property on Board

Wages of Mariners are universally considered not to be
insurable
Property on Board, even though bought with the money
received
as
wages,
are
insurable.

Source: Dizon

23

Sub-Title 1-B
INSURABLE INTEREST
Sec. 100. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who
covenants to pay him its value in case of loss: Provided, That in
this case the insurer shall be liable for only that part of the loss
which the insured cannot recover from the charterer.

Charterers Liability
For time charter and voyage charter: the charterer
becomes liable as he occupies a position similar to
an owner towards the sub-contracting party [subcharterer or cargo owner]. He is also liable to third
parties, similar to those of a shipowner. He also
assumes liabilities towards the party he charters
the ship from the vessel owner or another
charterer.
Usually, the claimant has a freedom of choice to
claim compensation either from the charterer or the
owner

Requirement of Insurable Interest:

A person is interested in a marine adventure where he
stands in any legal or equitable relation to the adventure or
to any insurable property at risk therein, in consequence of
which he may benefit by the safety or due arrival of
insurable property, or may be prejudiced by its loss, or
damage thereto, or by the detention thereof, or may incur
liability in respect thereof.
The amount of the insurable interest in the ship is
accordingly its value at the time of the commencement of
the risk

Charterers Interest:
Chartered vessel usually represents future income.
Hence, if the ship is lost, the charterer will not pay charter hire,
but it will be hard to secure a replacement vessel. Thus, the
charterer may not earn the future freight, as anticipated. Hence,
he can protect himself by a total loss insurance known as
Charterers Interest.

Charter Party
Insurable Interest
o A charter party is a contract of lease whereby the
owner or the agent leases the hull of the vessel or
part thereof, or the transportation of the tools or
passengers or both, for a fixed price
o The contracting parties will view the charterer as
the owner of the ship;
o the charterer assumes liabilities towards the vessel
owner
o charterer also have an insurable interest if the ship
sustains damage resulting in a particular average;
also lost earnings represent an insurable interest
Charter Party [Chartia Partita divided document]: Formal
contract drawn up between the shipowner and the charterer

Charterers Loss of Hire:

If the chartered ship is sublet an the charterer wish to insure the
difference between the charter rates paid and received, this
section of the cover will indemnify the charterer in the event that
the ship sustains a particular average.
Sec. 101. The insurable interest of the owner of the ship
hypothecated by bottomry is only the excess of its value over the
amount secured by bottomry.
Respondentia
It is a loan upon goods laden on
board a ship; It is called
Respondentia because the
money is lent on the personal
responsibility of the borrower
It is a loan upon the goods
The ship and the tackle, being
hypothecated, are liable, as well
as the person of the borrower

Kinds of Charter
1. Time Charter: the ship is chartered as a functioning
operating unit for a period of time. The charterer pays
the hire money and the ship transport cargo wherever
the charterer wishes;
The entire ships capacity is let out. The
master and the crew are appointed by the
owners. But the owners do not act as carrier
2. Voyage Charter
The ship is chartered to carry cargo on
specified voyage between places. The
shipowner pays for everything except perhaps
the loading and discharging costs. Parties
have to agree on lay time.
The master is appointed by the owners.
Owners act as carriers.

Bottomry

It is a loan on the ship

The lender has, in general,
only te personal security of
the borrower

The payment of bottomry and respondentia loans is conditional.

It is subject to the condition that the vessel and goods, as the
case may be, which is given as a security, shall arrive safely at
the port of destination.
Insurable interest of lender on bottomry and respondentia: if the
property is lost, he loses his debt; lender has an insurable
interest in the ship or goods hypothecated.

3. Demise Charter: Bareboat or Bare Bottom Charter

Source: Dizon

The ship is chartered, just as a hull. The charterer

will have to equip the ship with personnel, fuel and
other necessaries and operate the ship. This
charter is usually for a long period.

24

Insurable interest of borrower: they also have insurable interest

in the property pledged; if the hypothecated ship or goods are
lost, the borrower is discharged from his debt. The owner of a
vessel bottomried for more than its full value has no insurable
interest.

performed, which makes it necessary to hire another ship to

carry on the cargo to the port of destination in order to earn the
freight; or a loss of apart of the cargo, whereby the ship is
prevented from earning a part of the freight.
Arrival in bulk:
If goods arrive in bulk, even if they are of no value due to sea
damage, the whole freight is due, and the assured on freight has
no claim for loss.
If destruction on part of the goods, the underwriter pays their
value according to the invoice or valuation.

Bottomry and respondentia loans ae not subject to the usury law.

Sec. 102. Freightage, in the sense of a policy of marine
insurance, signifies all the benefits derived by the owner, either
from the chartering of the ship or its employment for the carriage
of his own goods or those of others.

Sec. 105. One who has an interest in the thing from which profits
are expected to proceed has an insurable interest in the profits.

Sec. 103. The owner of a ship has an insurable interest in

expected freightage which according to the ordinary and
probable course of things he would have earned but for the
intervention of a peril insured against or other peril incident to the
voyage.

A person who possess insurable interest in a thing has insurable

interest in the profits.
Accssory follows the principal.

Sec. 104. The interest mentioned in the last section exists, in

case of a charter party, when the ship has broken ground on the
chartered voyage. If a price is to be paid for the carriage of
goods it exists when they are actually on board, or there is some
contract for putting them on board, and both ship and goods are
ready for the specified voyage.

Sec. 106. The charterer of a ship has an insurable interest in it,

to the extent that he is liable to be damnified by its loss.
The charterer may insure the ship up to the extent of the damage
that he will suffer in case of loss of the same. The amount
depends on the amt he is liable to pay in case of her being lost.
The interest however is limited to the value of the ship.

Existence of Interest in Freightage:

Denotes the compensation for the use of ship and
sometimes for the transportation of merchandise
Freightage pertains to al the benefits derived by the owner
from:
o Chartering of the ship and/or
o Its employment for the carriage of his own goods or
those of others
Sec. 14: Expectancy is insurable if coupled with an existing
interest in that out of which the expectancy arises
o Hence, expected freightage, being an expected
profit, is insurable, although it is in the nature of a
mere hope or expectancy
Interest in expected freightage exists:
o In case of a charter party, when the ship has
broken ground on the chartered voyage
o If a price is to be paid for the carriage of goods it
exists when they are actually on board, or there is
some contract for putting them on board, and both
ship and goods are ready for the specified voyage
Ship Owners Interest on Freight:
The owner of a ship, navigated on his account, has an insurable
interest in the freight. It commences when the owner, having
goods ready to ship, or a contract with another person for freight,
has commenced the voyage, or incurred expenses and taken
steps towards earning the freight
Partial Lost on Freight:
Occasioned by the loss of the ship, after a part of the voyage is

Source: Dizon

25

(b) The liability of the thing insured to capture and detention;

(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.

Sub-Title 1-C CONCEALMENT

Sec. 107. In marine insurance each party is bound to
communicate, in addition to what is required by section twentyeight, all the information which he possesses, material to the
risk, except such as is mentioned in Section thirty, and to state
the exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to disclose.

General Rule: No need for casual connection between what was

concealed or misrepresented and the cause of the loss; but
gives the insurer the right to rescind the contract of insurance.

Sec. 108. In marine insurance, information of the belief or

expectation of a third person, in reference to a material fact, is
material.

The instances specified will exenorate the insurer from liability if

such instance is the cause o the loss. If the cause is something
else, the insurer will still be liable.

Sec. 109. A person insured by a contract of marine insurance is

presumed to have knowledge, at the time of insuring, of a prior
loss, if the information might possibly have reached him in the
usual mode of transmission and at the usual rate of
communication.
Stricter application of rules on concealment and
representation. due to nature of the property being insured
and its location
Same rules on concealment and representation are also applied
in marine insurance.
The assured must disclose every material circumstance which is
known to the assured, and the assured is deemed to know every
circumstance which, in the ordinary course of business, ought to
be known by him. Every circumstance is material which would
influence the judgment of a prudent insurer in fixing the premium
or determining whether he will take the risk.
Required Disclosure: Sec. 28:
Each party is bound to communicate to the other:
a. all facts within his knowledge which are
material to the contract
b. and as to which he makes no warranty
c. and which the other has not the means of
ascertaining

SEC. 30: Those which no need to disclose

Belief or expectation of third person:
The information of belief or expectation of a 3rd person, in
reference to a material fact, is material and the insured is
presumed to have knowledge, at the time of insuring, of a prior
loss, if the information might possibly have reached him in the
usual mode of transmission and at the usual rate of
Communication.
Sec. 110. A concealment in a marine insurance, in respect to
any of the following matters, does not vitiate the entire contract,
but merely exonerates the insurer from a loss resulting from the
risk concealed:
(a) The national character of the insured;

Source: Dizon

26

Sub-Title 1-D
REPRESENTATION
Sec. 111. If a representation by a person insured by a contract of
marine insurance, is intentionally false in any material respect, or
in respect of any fact on which the character and nature of the
risk depends, the insurer may rescind the entire contract.
Sec. 112. The eventual falsity of a representation as to
expectation does not, in the absence of fraud, avoid a contract of
marine insurance.
The marine insurance contract requires a high degree of good
faith
Representation can either be:
As to a matter of fact
As to a matter of expectation
or belief
It is true, if it be substantially It is true if it is made in good
correct, that is, if the difference faith
between what is represented
and what is actually correct
would not be considered
material by a prudent insurer
A representation may be withdrawn or corrected before the
contract is concluded. Whether a particular representation be
material or not is, in each case, a question of fact.

Source: Dizon

27

1-E IMPLIED WARRANTIES

Sec. 113. In every marine insurance upon a ship or freight, or
freightage, or upon any thing which is the subject of marine
insurance, a warranty is implied that the ship is seaworthy.

other necessary or proper stores and implements for the voyage.

Sec. 117. Where different portions of the voyage contemplated
by a policy differ in respect to the things requisite to make the
ship seaworthy therefor, a warranty of seaworthiness is complied
with if, at the commencement of each portion, the ship is
seaworthy with reference to that portion.

Implied Seaworthiness: an implied agreement on the part of the

assured in every policy, whether on the ship, cargo or freight,
that the ship is seaworthy, and sufficient and well fitted for the
voyage on which she is bound
Warranties: Express/Implied
Implied warranties : those deemed to be parts of the
contract even if not expressly agreed upon
1. that the vessel is sea worthy
2. the vessel will not make any improper
deviation
3. the vessel will not engage in any illegal
venture
4. if there is an express warranty as to the
nationality or neutraly of the vessel, there
is an implied warranty that it will carry the
requisite documents; and
5. presence of insurable interest
If non-compliance as to the implied warranty:
underwriters are discharged from liability

Sec. 118. When the ship becomes unseaworthy during the

voyage to which an insurance relates, an unreasonable delay in
repairing the defect exonerates the insurer on ship or
shipowner's interest from liability from any loss arising therefrom.
Sec. 119. A ship which is seaworthy for the purpose of an
insurance upon the ship may, nevertheless, by reason of being
unfitted to receive the cargo, be unseaworthy for the purpose of
the insurance upon the cargo.
Sec. 120. Where the nationality or neutrality of a ship or cargo is
expressly warranted, it is implied that the ship will carry the
requisite documents to show such nationality or neutrality and
that it will not carry any documents which cast reasonable
suspicion thereon.

Presumption: SEAWORTHY; it is upon the insurers to show that

it has not been complied with.
Presumption only applies if such is in NAVIGATION; the
warranty is not INDEFINITE and does not apply at all times.
Sec. 114. A ship is seaworthy when reasonably fit to perform the
service and to encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
Sec. 115. An implied warranty of seaworthiness is complied with
if the ship be seaworthy at the time of the of commencement of
the risk, except in the following cases:
(a) When the insurance is made for a specified length of time,
the implied warranty is not complied with unless the ship be
seaworthy at the commencement of every voyage it undertakes
during that time;
(b) When the insurance is upon the cargo which, by the terms of
the policy, description of the voyage, or established custom of
the trade, is to be transhipped at an intermediate port, the
implied warranty is not complied with unless each vessel upon
which the cargo is shipped, or transhipped, be seaworthy at the
commencement of each particular voyage.
Sec. 116. A warranty of seaworthiness extends not only to the
condition of the structure of the ship itself, but requires that it be
properly laden, and provided with a competent master, a
sufficient number of competent officers and seamen, and the
requisite appurtenances and equipment, such as ballasts, cables
and anchors, cordage and sails, food, water, fuel and lights, and

Source: Dizon

28

Sub-Title 1-F THE VOYAGE AND DEVIATION

Sec. 121. When the voyage contemplated by a marine insurance
policy is described by the places of beginning and ending, the
voyage insured in one which conforms to the course of sailing
fixed by mercantile usage between those places.
Sec. 122. If the course of sailing is not fixed by mercantile usage,
the voyage insured by a marine insurance policy is that way
between the places specified, which to a master of ordinary skill
and discretion, would mean the most natural, direct and
advantageous.
Sec. 123. Deviation is a departure from the course of the voyage
insured, mentioned in the last two sections, or an unreasonable
delay in pursuing the voyage or the commencement of an
entirely different voyage.
Sec. 124. A deviation is proper:
(a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human
life or relieving another vessel in distress.
Sec. 125. Every deviation not specified in the last section is
improper.
Sec. 126. An insurer is not liable for any loss happening to the
thing insured subsequent to an improper deviation.

Source: Dizon

29

Sub-Title 1-G LOSS

Sec. 127. A loss may be either total or partial.

the port of destination, of the entire thing insured.

Sec. 128. Every loss which is not total is partial.

Sec. 129. A total loss may be either actual or constructive.
Sec. 130. An actual total loss is cause by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being
broken up;
(c) Any damage to the thing which renders it valueless to the
owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.
Sec. 131. A constructive total loss is one which gives to a person
insured a right to abandon, under Section one hundred thirtynine.
Sec. 132. An actual loss may be presumed from the continued
absence of a ship without being heard of. The length of time
which is sufficient to raise this presumption depends on the
circumstances of the case.
Sec. 133. When a ship is prevented, at an intermediate port,
from completing the voyage, by the perils insured against, the
liability of a marine insurer on the cargo continues after they are
thus reshipped. Nothing in this section shall prevent an insurer
from requiring an additional premium if the hazard be increased
by this extension of liability.
Sec. 134. In addition to the liability mentioned in the last section,
a marine insurer is bound for damages, expenses of discharging,
storage, reshipment, extra freightage, and all other expenses
incurred in saving cargo reshipped pursuant to the last section,
up to the amount insured. Nothing in this or in the preceding
section shall render a marine insurer liable for any amount in
excess of the insured value or, if there be none, of the insurable
value.
Sec. 135. Upon an actual total loss, a person insured is entitled
to payment without notice of abandonment.
Sec. 136. Where it has been agreed that an insurance upon a
particular thing, or class of things, shall be free from particular
average, a marine insurer is not liable for any particular average
loss not depriving the insured of the possession, at the port of
destination, of the whole of such thing, or class of things, even
though it becomes entirely worthless; but such insurer is liable
for his proportion of all general average loss assessed upon the
thing insured.
Sec. 137. An insurance confined in terms to an actual loss does
not cover a constructive total loss, but covers any loss, which
necessarily results in depriving the insured of the possession, at

Source: Dizon

30

Sub-Title 1-H ABANDONMENT

Sec. 138. Abandonment, in marine insurance, is the act of the
insured by which, after a constructive total loss, he declares the
relinquishment to the insurer of his interest in the thing insured.

Sec. 147. If a marine insurer pays for a loss as if it were an

actual total loss, he is entitled to whatever may remain of the
thing insured, or its proceeds or salvage, as if there had been a
formal abandonment.

Sec. 139. A person insured by a contract of marine insurance

may abandon the thing insured, or any particular portion thereof
separately valued by the policy, or otherwise separately insured,
and recover for a total loss thereof, when the cause of the loss is
a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or
would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more
than three-fourths;
(c) If the thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an expense
to the insured of more than three-fourths the value of the thing
abandoned or a risk which a prudent man would not take under
the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage
cannot be performed, nor another ship procured by the master,
within a reasonable time and with reasonable diligence, to
forward the cargo, without incurring the like expense or risk
mentioned in the preceding sub-paragraph. But freightage
cannot in any case be abandoned unless the ship is also
abandoned.

Sec. 148. Upon an abandonment, acts done in good faith by

those who were agents of the insured in respect to the thing
insured, subsequent to the loss, are at the risk of the insurer and
for his benefit.
Sec. 149. Where notice of abandonment is properly given, the
rights of the insured are not prejudiced by the fact that the
insurer refuses to accept the abandonment.
Sec. 150. The acceptance of an abandonment may be either
express or implied from the conduct of the insurer. The mere
silence of the insurer for an unreasonable length of time after
notice shall be construed as an acceptance.
Sec. 151. The acceptance of an abandonment, whether express
or implied, is conclusive upon the parties, and admits the loss
and the sufficiency of the abandonment.
Sec. 152. An abandonment once made and accepted is
irrevocable, unless the ground upon which it was made proves to
be unfounded.

Sec. 140. An abandonment must be neither partial nor

conditional.

Sec. 153. On an accepted abandonment of a ship, freightage

earned previous to the loss belongs to the insurer of said
freightage; but freightage subsequently earned belongs to the
insurer of the ship.

Sec. 141. An abandonment must be made within a reasonable

time after receipt of reliable information of the loss, but where the
information is of a doubtful character, the insured is entitled to a
reasonable time to make inquiry.

Sec. 154. If an insurer refuses to accept a valid abandonment,

he is liable as upon actual total loss, deducting from the amount
any proceeds of the thing insured which may have come to the
hands of the insured.

Sec. 142. Where the information upon which an abandonment

has been made proves incorrect, or the thing insured was so far
restored when the abandonment was made that there was then
in fact no total loss, the abandonment becomes ineffectual.

Sec. 155. If a person insured omits to abandon, he may

nevertheless recover his actual loss.

Sec. 143. Abandonment is made by giving notice thereof to the

insurer, which may be done orally, or in writing; Provided, That if
the notice be done orally, a written notice of such abandonment
shall be submitted within seven days from such oral notice.
Sec. 144. A notice of abandonment must be explicit, and must
specify the particular cause of the abandonment, but need state
only enough to show that there is probable cause therefor, and
need not be accompanied with proof of interest or of loss.
Sec. 145. An abandonment can be sustained only upon the
cause specified in the notice thereof.
Sec. 146. An abandonment is equivalent to a transfer by the
insured of his interest to the insurer, with all the chances of
recovery and indemnity.

Source: Dizon

31

Sub-Title 1-I MEASURE OF INDEMNITY

Sec. 156. A valuation in a policy of marine insurance in
conclusive between the parties thereto in the adjustment of
either a partial or total loss, if the insured has some interest at
risk, and there is no fraud on his part; except that when a thing
has been hypothecated by bottomry or respondentia, before its
insurance, and without the knowledge of the person actually
procuring the insurance, he may show the real value. But a
valuation fraudulent in fact, entitles the insurer to rescind the
contract.

Sec. 163. A marine insurer is liable for all the expenses

attendant upon a loss which forces the ship into port to be
repaired; and where it is stipulated in the policy that the insured
shall labor for the recovery of the property, the insurer is liable
for the expense incurred thereby, such expense, in either case,
being in addition to a total loss, if that afterwards occurs.
Sec. 164. A marine insurer is liable for a loss falling upon the
insured, through a contribution in respect to the thing insured,
required to be made by him towards a general average loss
called for by a peril insured against; provided, that the liability of
the insurer shall be limited to the proportion of contribution
attaching to his policy value where this is less than the
contributing value of the thing insured.

Sec. 157. A marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears
to the value of the whole interest of the insured in the
property insured.

Sec. 165. When a person insured by a contract of marine

insurance has a demand against others for contribution, he may
claim the whole loss from the insurer, subrogating him to his own
right to contribution. But no such claim can be made upon the
insurer after the separation of the interests liable to the
contribution, nor when the insured, having the right and
opportunity to enforce the contribution from others, has
neglected or waived the exercise of that right.

Sec. 158. Where profits are separately insured in a contract of

marine insurance, the insured is entitled to recover, in case of
loss, a proportion of such profits equivalent to the proportion
which the value of the property lost bears to the value of the
whole.
Sec. 159. In case of a valued policy of marine insurance on
freightage or cargo, if a part only of the subject is exposed to the
risk, the evaluation applies only in proportion to such part.

Sec. 166. In the case of a partial loss of ship or its equipment,

the old materials are to be applied towards payment for the new.
Unless otherwise stipulated in the policy, a marine insurer is
liable for only two-thirds of the remaining cost of repairs after
such deduction, except that anchors must be paid in full.

Sec. 160. When profits are valued and insured by a contract of

marine insurance, a loss of them is conclusively presumed from
a loss of the property out of which they are expected to arise,
and the valuation fixes their amount.

Title 2 FIRE INSURANCE

Sec. 167. As used in this Code, the term "fire insurance" shall
include insurance against loss by fire, lightning, windstorm,
tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate
policies.

Sec. 161. In estimating a loss under an open policy of marine

insurance the following rules are to be observed:
(a) The value of a ship is its value at the beginning of the risk,
including all articles or charges which add to its permanent value
or which are necessary to prepare it for the voyage insured;
(b) The value of the cargo is its actual cost to the insured, when
laden on board, or where the cost cannot be ascertained, its
market value at the time and place of lading, adding the charges
incurred in purchasing and placing it on board, but without
reference to any loss incurred in raising money for its purchase,
or to any drawback on its exportation, or to the fluctuation of the
market at the port of destination, or to expenses incurred on the
way or on arrival;
(c) The value of freightage is the gross freightage, exclusive of
primage, without reference to the cost of earning it; and
(d) The cost of
insurance is in each case to be added to the value thus
estimated.

Fire insurance is concerned obviously with the principal or main

peril of fire. However, there are other allied perils which are
considered within the scope of fire insurance:
1. Earthquake fire and shock
a. Earthquake Fire: Against direct loss or
damage caused by fire following an
earthquake
b. Earthquake shock: Against loss or damage
[other than fire] occasioned by or through or in
consequence of an earthquake
2. Typhoon and Flood
a. Typhoon extension of a typhoon is based on
the records of the Weather Bureau which has
defined it as having a wind velocity of 64 knots
or over
b. Flood Entry of water into the premises
insured, from without, due to the inundation of
land not usually covered by water
i. By reason of extraordinary tide, or

Sec. 162. If cargo insured against partial loss arrives at the port
of destination in a damaged condition, the loss of the insured is
deemed to be the same proportion of the value which the market
price at that port, of the thing so damaged, bears to the market
price it would have brought if sound.

Source: Dizon

32

ii. Following typhoon, cyclone, and/or

windstorm, or
iii. Due to the bursting or overflowing or
rivers, reservoirs, canals and the like
3. Extended Coverage Endorsement
This is a package endorsement covering perils of
explosion, aircraft, vehicle and smoke
4. Riot and Strike
those caused by:
o strikers and locked out workers
o persons disturbing peace
o lawful authorities acting to
suppress/prevent the disturbance
5. Bursting or overflow of water tanks, apparatus or pipes

contract of fire insurance.

Sec. 169. An alteration in the use or condition of a thing insured
from that to which it is limited by the policy, which does not
increase the risk, does not affect a contract of fire insurance.
Sec. 170. A contract of fire insurance is not affected by any act
of the insured subsequent to the execution of the policy, which
does not violate its provisions, even though it increases the risk
and is the cause of the loss.
An alteration by the insured in violation of the policy without the
consent of the insurer, by means within his control and which
increases the risks, entitles the insurer to rescind.
But if the provision is immaterial the policy must expressly state
that a violation thereof shall avoid it. Otherwise, it shall not avoid
the policy. Further, even if the act of the insured increases the
risk, the policy is not avoided if no provision thereof has been
violated.

If the loss is caused by these things [allied risks], as to whether

the insured will recover will depend on whether such perils are:
1. covered by the policy itself
2. or under a separate policy

Sec. 171. If there is no valuation in the policy, the measure of

indemnity in an insurance against fire is the expense it would be
to the insured at the time of the commencement of the fire to
replace the thing lost or injured in the condition in which at the
time of the injury; but if there is a valuation in a policy of fire
insurance, the effect shall be the same as in a policy of marine
insurance.

Earthquake shaking damage is paid for by insurers only when

they have explicitly included earthquakes as a peril in the
insurance contract.
FIRE:
a. Friendly: That is deliberate and remains within the
limits intended for it
b. Hostile: Fire that goes out of control and beyond
the limits intended for it.
To be covered by fire insurance, the ff. must be
present:
1. fire is the proximate cause
2. fire is hostile
3. accidental in origin
4. flame or ignition of sustaining velocity

Sec. 172. Whenever the insured desires to have a valuation

named in his policy, insuring any building or structure against
fire, he may require such building or structure to be examined by
an independent appraiser and the value of the insured's interest
therein may then be fixed as between the insurer and the
insured. The cost of such examination shall be paid for by the
insured. A clause shall be inserted in such policy stating
substantially that the value of the insured's interest in such
building or structure has been thus fixed. In the absence of any
change increasing the risk without the consent of the insurer or
of fraud on the part of the insured, then in case of a total loss
under such policy, the whole amount so insured upon the
insured's interest in such building or structure, as stated in the
policy upon which the insurers have received a premium, shall
be paid, and in case of a partial loss the full amount of the partial
loss shall be so paid, and in case there are two or more policies
covering the insured's interest therein, each policy shall
contribute pro rata to the payment of such whole or partial loss.
But in no case shall the insurer be required to pay more than the
amount thus stated in such policy. This section shall not prevent
the parties from stipulating in such policies concerning the
repairing, rebuilding or replacing of buildings or structures wholly
or partially damaged or destroyed.

Losses:
a. direct or actual: generally, the insurer is
liable only for direct and actual losses [
provided fire is the proximate cause]
b. indirect or consequential
Lightning: discharge of atmospheric electricity. For loss to be
covered, item damaged by lightning must also burn as a result of
lightning
GR: Double Insurance is allowed.
Exception: A clause may be provided requiring the insured to
give notice of the existence of other insurance/s
Sec. 168. An alteration in the use or condition of a thing insured
from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a

Source: Dizon

If the fire insurance is an open policy, the indemnity is equivalent

to the expense to replace the thing lost.
In case of valued policy, the valuation is conclusive in the

33

adjustment of either a partial or total loss.

Unlike in marine insurance, the principle of co-insurance does

not apply in fire insurance but the parties may, however, stipulate
on the applicability of the same.

If jeepney, driver + owner = Solidarily liable

Accidental Means:
A person is a victim of an accident when, from victims POV,
occurrence causing injury or death is not a natural and probable
result of victims own acts
Test: NOT WON the result is foreseeable; Rather WON IT IS
EXPECTED
Expected: High degree of certainty of the
outcome
Accidental: Unintended or unexpected
An effect which is the natural and probable
consequence of an act or course of action is
not an accident, nor is it produced by
accidental means. It is either the result of
actual design, or it falls under the maxim that
every man must be held to intend the natural
and probable consequence of his deeds.
IF the insured was assaulted/murdered, it is
still considered as accident which will render
the insurer liable

The parties may stipulate on the repairing, rebuilding or replacing

of buildings or structures wholly or partially damaged or
destroyed in lieu of payment for the value of the loss.
Sec. 173. No policy of fire insurance shall be pledged,
hypothecated, or transferred to any person, firm or company who
acts as agent for or otherwise represents the issuing company,
and any such pledge, hypothecation, or transfer hereafter made
shall be void and of no effect insofar as it may affect other
creditors of the insured.
The policy m ay not be transferred to any party who acts as
agent or representative of the insurer.
Title 3 CASUALTY INSURANCE
Sec. 174. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance such as
fire or marine. It includes, but is not limited to, employer's liability
insurance, motor vehicle liability insurance, plate glassinsurance,
burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.
Direct Result of Accident
Casualty insurance policies are written to cover loss that is the
direct result of accident.
Life, health and property insurance are typically
excluded from the definition
To describe an area not particularly or directly
concerned with life insurance, fire insurance or
automobile insurance
Refers to liability, crime, and plate glass insurance, but
may include surety as well.
Excludes losses which by law or custom are considered
as falling exclusively within the scope of other types of
insurance
Direct Suit Against the Insurer
If the insurance is for the indemnity of a 3rd party, such 3rd party
can directly sue the insurer
The Insurer is not solidarily liable
Insurers liability: based on the contract
Insureds liability: Based on tort

Source: Dizon

34

Title 4 SURETYSHIP
Sec. 175. A contract of suretyship is an agreement whereby a
party called the surety guarantees the performance by another
party called the principal or obligor of an obligation or
undertaking in favor of a third party called the obligee. It includes
official recognizances, stipulations, bonds or undertakings issued
by any company by virtue of and under the provisions of Act No.
536, as amended by Act No. 2206.

Undertakes to pay only when

the principal debtor cannot pay
by reason of insolvency

undertakes to perform the

obligation of another party
called the debtor in favor of
another party called the
creditor
Surety undertakes to pay the
principal obligation if the
debtor
does
not
pay,
regardless of whether the
latter, is solvent or insolvent;

Guarantor is entitled to the

benefit of excussion
Guarantor in an insurer of the Surety is an insurer of the debt
solvency of the debtor
Both cannot exist independently, there has to be a valid and
binding principal obligation

Sec. 176. The liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount of the
bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor
and the obligee. (As amended by Presidential Decree No. 1455).

3 Contracts:
Creditor Debtor:
Principal Obligation, 1st.
Surety Creditor: Contract of Suretyship; 2nd. To protect the
creditor.
Surety Debtor: Indemnity Agreement, 3rd. To Protect the
Surety.

Sec. 177. The surety is entitled to payment of the premium as

soon as the contract of suretyship or bond is perfected and
delivered to the obligor. No contract of suretyship or bonding
shall be valid and binding unless and until the premium therefor
has been paid, except where the obligee has accepted the bond,
in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid by the
obligor to the surety: Provided, That if the contract of suretyship
or bond is not accepted by, or filed with the obligee, the surety
shall collect only reasonable amount, not exceeding fifty per
centum of the premium due thereon as service fee plus the cost
of stamps or other taxes imposed for the issuance of the contract
or bond: Provided, however, That if the non-acceptance of the
bond be due to the fault or negligence of the surety, no such
service fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the
subsequent annual premium as it falls due until the contract of
suretyship is cancelled by the obligee or by the Commissioner or
by a court of competent jurisdiction, as the case may be.
chanrobles virtual law library

A contract of suretyship is essentially a credit accommodation.

A surety is not supposed to suffer a loss unlike the
insurer
Surety pays the creditor, but he can ask for
reimbursement/indemnification from the principal
debtor.
The extent of the liability of the surety depends on the
contract of surety in relation to the principal contract

Sec. 178. Pertinent provisions of the Civil Code of the Philippines

shall be applied in a suppletory character whenever necessary in
interpreting the provisions of a contract of suretyship.

Suretys obligation: Pay the debts of or answer for the default of

another
Three party-contract:
1 Party [SURETY]: undertakes to answer to a second
party [obligee] for the debt or default of a third [principal]
resulting form the third partys failure to pay or perform
as required by an underlying contract or legal obligation
Guaranty

Source: Dizon

Surety
DEF. An agreement whereby a
party
called
a
surety

35

Title 5 LIFE INSURANCE

Sec. 179. Life insurance is insurance on human lives and

insurance appertaining thereto or connected therewith.

2. Beneficiary
He receives the proceeds of the policy upon the insureds death.
The owner designates the beneficiary, but the beneficiary is not
a party to the policy.
The owner can change the beneficiary unless the policy has an
irrevocable beneficiary designation
- If irrevocable beneficiary: beneficiary must agree to
any beneficiary changes, policy assignments or
cash value borrowing

Sec. 180. An insurance upon life may be made payable on the

death of the person, or on his surviving a specified period, or
otherwise contingently on the continuance or cessation of life.
Every contract or pledge for the payment of endowments or
annuities shall be considered a life insurance contract for
purpose of this Code.
In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother, or any minor, who is an
insured or a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of said minor, any
right under the policy, without necessity of court authority or the
giving of a bond, where the interest of the minor in the particular
act involved does not exceed twenty thousand pesos. Such right
may include, but shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds of the policy, and
giving the minor's consent to any transaction on the policy.

If the policy owner is not the insured [Cestui Qui Vit or CQV],
insurance companies have sought to limit policy purchases to
those with an insurable interest in the CQV.
- Close family members
- Business partners
- Purchaser will actually suffer some kind of los if the
CQV dies; basically to prevent people from
benefiting from the purchase of purely speculative
policies on people they expect to die

Life insurance is a contract between the insurer and the policy

owner [policyholder] whereby a benefit is paid to the designated
beneficiary [or beneficiaries] if an insured event occurs which is
covered by the policy. To be a life policy, the insured event must
be based upon life [or lives] of the people named in the policy.

Types of Life Insurance:

A. Temporary [Term]: Provides for life insurance
coverage for a specified term of years for a specified
premium. The policy does not accumulate cash value. It
is generally considered pure insurance, where the
premium buys protection in the event of death and
nothing else.

Life policies are legal contracts and the terms of the contract
describe the limitations of the insured events. Exclusions are
usually written in the contract to limit the liability of the insurer,
such as:
- suicide
- fraud
- war
- riot
- civil commotion

A policy holder insures his life for a specified term. If he

dies before that term, his estate or named beneficiary
will receive a payout. If he does not die before the term
is up, he receives nothing.
Payouts do occur on death by suicide, provided that he
commits suicide after 2 years. But if he commits suicide
within the first two policy years, the insurer will just
return the premiums paid.

Life based contracts usually have 2 major categories:

A. Protection policies designed to provide a benefit in the
event of specified event, typically a lump sum payment.
a. Ex: Term Insurance
B. Investment policies where the main objective is to
facilitate the growth of capital by regular or single
premiums

B. Permanent: Life insurance that remains in force until

the policy matures [pays out], unless the owner fails to
pay the premium when due [the policy expires or
policies lapse].
Can only be cancelled by the insurer by reason of
FRAUD in the application, and the said cancellation
must be done within a period of time defined by law
[usually 2 years].

Parties:
1. Insured/Policy Owners
Insured and Policy Owner may be 2 different persons, but
usually they are the same person.
- If X buys a policy on his own life, he is both the
insured and the policy owner
- But if Xs wife buys a policy on Xs life, Xs wife is
the Policy owner, and X is the insured

Source: Dizon

Policy Owner: Guarantee, and he/she will pay for

the policy
Insured: Participant, but not necessarily a party to
the contract

It builds a cash value that reduces the amount at risk to

the insurance company and thus the insurance expense
over time. The owner can access the money in the cash

36

value by withdrawing money, borrowing the cash value,

or surrendering the policy and receiving the surrender
value.

amount remaining in the cash account less

applicable surrender charges, if any.
Two functions that make it work:
1. Mortality function
Pooling risk where the premiums paid
by everybody else would cover the
death benefit for the one or two who
will die for a given period of time.
2. Cash Function
If a person is to reach age 95-100
[the age varies depending on state
and company], then the policy
matures and endows the face value
of the policy.
- a minimum rate of investment return
on the premiums will be required in
the event that a policy matures

a. Whole Life Coverage

IT PROVIDES FOR A LEVEL PREMIUM AND A
CASH VALUE TABLE INCLUDED IN THE POLICY
GUARANTEED BY THE COMPANY.
Advantages:
- Guaranteed death benefits
- Guaranteed cash values
- Fixed and known annual
premiums
- Mortality and expense charges
will not reduce the cash value
shown in the policy
Disadvantages
- Premium inflexibility
- Internal rate of return may not be
competitive with other savings
alternatives
Riders are available that can allow one to increase
the death benefit by paying additional premium.
Death benefit can also be increased through the
use of policy dividends. Dividends cannot be
guaranteed and may be higher or lower than
historical rates over time. Premiums are much
higher than term insurance in the short-term, but
cumulative payments are roughly equal if policies
are kept in force until average life expectancy.

Universal life policies guarantee, to some extent,

the death proceeds, but not the cash function
thus the flexible premiums and interest returns.
[see book]
Variable universal life insurance [VUYL] is not the
same as universal life, even though they both have
cash value attached to them. These differences are
in how the cash accounts are managed. The cash
account within a VUIL is held in the insurers
separate account.

Cash value can be accessed at any time through

policy loans. Since these loans decrease the
death benefit if not paid back, payback is optional.
Cash values are not paid to the beneficiary upon
the death of the insured; the beneficiary receives
the death benefit only.
If the dividend option:
elected, dividend cash
additional death benefit
death benefit of the
beneficiary.

c. Limited Pay
All premiums are paid over a specified period after
which no additional payment are due to keep the
policy in force.
Ex. 10 year, 20 year, paid up at age 65
d. Endowments
Cash value build up inside the policy, equals the
death benefit [face amount] at a certain age. This
age is known as the endowment age. Endowments
are considerable more expensive than either whole
life or universal life because the premium paying
period is shortened and the endowment date is
earlier.

Paid up additions are

values will purchase
which will increase the
policy to the named

b. Universal Life Coverage

Intended to provide permanent insurance coverage
with greater flexibility in premium payment and the
potential for a higher Internal rate of return.

e. Accidental Death
Limited life insurance that is designed to cover the
insured when they pass away due to an accident.
Include anything from an injury, but NOT those
resulting from serious health problems or suicide.
Less expensive than other life insurances
Commonly offered as accidental death and
dismemberment insurance [AD&D policy]: Covers
Accidental death and loss of limbs or bodily
functions such as sight, hearing etc.

It includes a cash account. Premiums increase the

cash account. Interest is paid within the policy on
the account at a rate specified by the company.
This rate has a guaranteed minimum but usually is
higher than that minimum. Mortality charges and
administrative costs are charged against the cash
account. The surrender value of the policy is the

Source: Dizon

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Life of a person: incapable of exact pecuniary estimation. It is not

a contract of indemnity.
The liability of the insurer is the amount specified in the policy.
Sec. 180-A. The insurer in a life insurance contract shall be liable
in case of suicides only when it is committed after the policy has
been in force for a period of two years from the date of its issue
or of its last reinstatement, unless the policy provides a shorter
period: Provided, however, That suicide committed in the state of
insanity shall be compensable regardless of the date of
commission. (As amended by Batasang Pambansa Blg. 874).

If the interest may be measured, the liability of the insurer is

based on the value of the loss. Hence, in case the creditor
insured the life of the debtor, the recovery is limited to the
amount of unpaid debt.

It is contrary to public interest to encourage suicide by making

insurance proceeds available to those who see no way out of
their financial difficulties. So, insurance companies usually
prohibit claims when suicide is the cause of death.
Contract is void if suicide occurs within two years of the policy
date. It hopes to discourage someone from initiating a policy with
the intent to later commit suicide.
Life insurance is not designed to cover the taking of ones own
life. If after two years [or for a shorter period if stipulated],
insurers are held liable. Reason: most people who wish to
commit suicide will not wait 2 years to do so.
Sec. 181. A policy of insurance upon life or health may pass by
transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover upon it
whatever the insured might have recovered.
Sec. 182. Notice to an insurer of a transfer or bequest thereof is
not necessary to preserve the validity of a policy of insurance
upon life or health, unless thereby expressly required.
An individual has an unlimited insurable interest in his or her own
life, health, and bodily safety and may lawfully take out a policy
of insurance on his or her own life, health or bodily safety and
have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an
insurable interest.
Hence, the policy may be transferred by contract, will or intestate
succession even if the transferee has no insurable interest and
even without notice to the insurer unless the latter expressly
required in the policy.

it belongs to the beneficiary, not to the estate.

Sec. 183. Unless the interest of a person insured is susceptible

of exact pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the sum fixed in
the policy.

Source: Dizon

38