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INSURANCE CODE (P.D. No. 1460) CONCEPTS CONTRACT OF INSURANCE An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC) DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4) 1. Making or proposing to make, as insurer, any insurance contract; 2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety; 3. Doing any insurance business, including a reinsurance business; 4. Doing or proposing to do any business in substance equivalent to any of the foregoing II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. Consensual it is perfected by the meeting of the minds of the parties. 2. Voluntary the parties may incorporate such terms and conditions as they may deem convenient. 3. Aleatory it depends upon some contingent event. 4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss.
5.
7. Personal each party having in view the character, credit and conduct of the other. REQUISITES OF A CONTRACT OF INSURANCE 1. A subject matter which the insured has an insurable interest. 2. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for the risk thereof. 3. A promise to pay or indemnify in a fixed or ascertainable amount. 4. A consideration known as premium. 5. Meeting of the minds of the parties. 5 CARDINAL PRINCIPLES IN INSURANCE 1. Insurable Interest 2. Principle of Utmost Good Faith An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health. 3. Contract of Indemnity It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino) Rules: a. Applies only to property insurance except when the creditor insures the life of his debtor. b. Life insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec.4
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Conditional It is subject to conditions the principal one of which is the happening of the event insured against. Contract of indemnity Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured.
6.
4. Contract of Adhesion (Fine Print Rule) Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may adhere if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12) 5. Principle of Subrogation: It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latters rights against the wrongdoer at the time of loss. The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS INSURANCE CONTRACT OF AN
Purposes:
1. To make the person who caused the loss legally responsible for it. 2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer. 3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. Rules: 1. Applicable only to property insurance. 2. The insurer can only recover from the third person what the insured could have recovered. 3. There can be no subrogation in cases: a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage; b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insureds claim for loss; c. Where the insurer pays the insured for a loss or risk not covered by the policy. d. In life insurance
1. The insured possesses an insurable interest susceptible of pecuniary estimation; 2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3. The insurer assumes that risk of loss; 4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and 5. The insured makes a ratable contribution (premium) to a general insurance fund. A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) IV. PERFECTION OF AN INSURANCE CONTRACT An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. What is being followed in insurance contracts is what is known as the cognition theory. Thus, an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269) Binding Receipt A mere acknowledgment on behalf of the company that its branch office had received
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from the applicant the insurance premium and had accepted the application subject to processing by the head office. Cover Note (Ad Interim) A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application. Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52). Riders Printed stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275) In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines, 1968 ed.) Clauses An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. De Leon, p.188) Endorsements Any provision added to the contract altering its scope or application. (Prof. De Leon,
p.188)
7.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy. Kinds: 1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60) The actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62) 2. VALUED POLICY definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. 61) In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount. 3. RUNNING POLICY contemplates successive insurances and which provides that the object of the policy may from time to time be defined (Sec. 62) V. TYPES OF INSURANCE CONTRACTS 1. Life insurance a. Individual life (Secs. 179183, 227) b. Group life (Secs. 50, last par., 228) c. Industrial life (Secs. 229231) 2. Non-life insurance a. Marine (Secs. 99166) b. Fire (Secs. 167173) c. Casualty (Sec. 174) 3. Contracts of bonding or suretyship (Secs. 175178) Note: 1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174).
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POLICY OF INSURANCE The written instrument in which a contract of insurance is set forth. (Sec. 49) Contents: (Sec. 51) CODE: RAPID-PR
1. 2. 3. 4. 5. 6.
Parties Amount of insurance, except in open or running policies; Rate of premium; Property or life insured; Interest of the insured in the property if he is not the absolute owner; Risk insured against; and
iv. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12) b. PROPERTY The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).
G TORRES)
Effects of Beneficiary
Irrevocable
Designation
Of
Insured cannot: 1. Assign the policy 2. Take the cash surrender value of the policy 3. Allow his creditors to attach or execute on the policy; 4. Add new beneficiary; or 5. Change the irrevocable designation to revocable, even though the change is just and reasonable. The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.) VII. INSURABLE INTEREST A. In General A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or prejudice. B. Life Every person has an insurable interest in the life and health:
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c. of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance; and d. of any person upon whose life any estate or interest vested in him depends. (Sec. 10) When it should exist: When the insurance takes effect; not thereafter or when the loss occurs. Amount: GENERAL RULE: There is no limit in the amount the insured can insure his life. EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is equal to the amount of the debt. Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies. C. Property Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in: 1. an existing interest; 2. any inchoate interest founded on an existing interest; or 3. an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec. 14) When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime. Amount: The measure of insurable interest in property is the extent to which
INSURABLE INTE REST IN LIFE Must exist only at the time the policy takes effect and need not exist at the time of loss Unlimited except in life insurance effected by creditor on life of debtor. The expectation of benefit to be derived from the continued existence of life need not have any legal basis whatever. A reasonable probability is sufficient without more. The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
INSURABLE INTEREST IN PROPERTY Must exist at the time the policy takes effect and when the loss occurs Limited to actual value of interest in property insured. An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis.
The beneficiary must have insurable interest over the thing insured.
SPECIAL CASES 1. In case of a carrier or depositary A carrier or depository of any kind has an insurable interest in a thing held by him as
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Effects of Loss Payable Clause a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract. b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee. c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect. d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.
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Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
2. In life insurance. 3. When the contract is rescindable or rendered void ab initio by the fraud of the insured. 4. When the contract is illegal and the parties are in pari delicto. PREMIUM ASSESSMENT
G TORRES)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. 78) ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID A. Whole: 1. If the thing insured was never exposed to the risks insured against; (Sec. 79) 2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81) 3. If contract is voidable because of the existence of facts of which the insured was ignorant without his fault; (Sec. 81) 4. When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81) 5. When rescission is granted due to the insurers breach of contract. (Sec. 74) B. Pro rata: 1. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof; Exceptions: a. policy not made for a definite period of time b. short period rate is agreed upon c. life insurance policy 2. When there is over-insurance (Sec. 82); Instances when premiums are not recoverable: 1. When the risk has already attached and the risk is entire and indivisible.
Levied and paid Collected to meet to meet actual losses. anticipated losses. Payment is not Payment is enforceable enforceable once against levied unless the insured. otherwise agreed upon. Not a debt. It becomes a debt once properly levied unless otherwise agreed.
X. TRANSFER OF POLICY 1. Life Insurance It can be transferred even without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before transfer. (Sec. 181) Reason: The policy does not represent a personal agreement between the insured and the insurer. 2. Property insurance It cannot be transferred without the consent of the insurer. Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the insured. 3. Casualty insurance It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82) Reason: The moral hazards are as great as those of property insurance. CHANGE OF INTEREST IN THE THING INSURED The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. 58)
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EXCEPTIONS: 1. In life, health and accident insurance.(Sec. 20); 2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21); 3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22); 4. Change of interest, by will or succession, on the death of the insured. (Sec. 23); 5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec. 24); 6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57); 7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS A. Four Primary Concerns of the Parties: 1. Correct estimation of the risk; 2. Precise delimitation of the risk; 3. Control of the risk; 4. Determining whether a loss occurred and if so, the amount of such loss. B. Devices used for ascertaining controlling risk and loss: and
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance. Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries (Sec. 31). Exception to Sec. 31: a. Incontestability clause b. Matters under Sec.110 (marine insurance) The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268). The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33) Where matters of opinion or judgment are called for, answers made in good faith and
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Requisites of a false representation (misrepresentation): a. The insured stated a fact which is untrue. b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead. c. Such fact in either case is material to the risk. Characteristics: a. It is not a part of the contract but merely a collateral inducement to it. b. It may be oral or written. c. It is made at the same time of issuing the policy or before but not after. d. It may be altered or withdrawn before the insurance is effected but not afterwards. e. It always refers to the date the contract goes into effect. Kinds: a. AFFIRMATIVE affirmation of a fact when the contract begins; and b. PROMISSORY promise to be performed after policy was issued. Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes false. Test of Materiality: concealment. Same as that in
KINDS: a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done. b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel. Effects of breach of warranty: a. Material GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. 74) EXCEPTIONS: a. Loss occurs before the time of performance of the warranty. b. The performances becomes unlawful at the place of the contract. c. Performance becomes impossible. (Sec. 73) b. Immaterial (ex. Other insurance clause) GENERAL RULE: It will not avoid the policy. EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75) WARRANTY Part of the contract REPRESENTATIO N Mere collateral inducement
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Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was
Effect of breach: a. Condition precedent prevents the accrual of cause of action b. Condition subsequent avoids the policy or entitles the insurer to rescind The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period. 5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed. Effect: Limit the coverage of the contract. RESCISSION Grounds: A. Concealment B. Misrepresentation C. Breach of material warranty D. Breach of a condition subsequent Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. 45)
Grounds: NPC-D3 1. Non-payment of premium; 2. Conviction of a crime out of acts increasing the hazard insured against; 3. Discovery of fraud or material misrepresentation; 4. Discovery of willful or reckless acts of omissions increasing the hazard insured against; 5. Physical changes in property making the property uninsurable; and 6. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. 64) Requirements: 1. Prior notice of cancellation to the insured; 2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy; 3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the insurer must furnish facts on which the cancellation is based; 4. Grounds should have existed after the effectivity date of the policy. XII. INCONTESTABILITY CLAUSE Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period. Requisites: 1. Life insurance policy 2. Payable on the death of the insured
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6. That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened; or 7. That the action was not brought within the time specified. XIII. A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the value of the property with the same insurance company. Effect in case of loss: 1. The insurer is bound only to pay to the extent of the real value of the property lost; 2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property; B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject and interest. (Sec. 93) Requisites: 1. Person insured is the same; 2. Two or more insurers insuring separately; 3. Subject matter is the same; 4. Interest insured is also the same; 5. Risk or peril insured against is likewise the same. Effects: Where double insurance is allowed, but not over insurance results: (Sec. 94) 1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; 2. Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without
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BARRED DEFENSES DEFENSES NOT OF THE INSURER BARRED 1. Policy is void ab 1. That the person initio taking the insurance 2. Policy is lacked insurable rescindable by interest as reason of the required by fraudulent law; concealment or misrepresentati 2. That the cause on of the of the death of insured or his the insured is agent an excepted risk; 3. That the premiums have not been paid (Secs. 77, 227[b], 228[b], 230[b]); 4. That the conditions of the policy relating to military or naval service have been violated (Secs. 227[b], 228[b]); 5. That the fraud is of a particularly vicious type;
relation to reinsurer Original insured has no interest in the reinsurance contract. Subject of insurance is the original insurers risk Insureds consent not necessary
TERMS: 1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306) 2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305) 3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343) 4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305) XIV. A. LOSS, IN INSURANCE Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261) Loss for which Loss for which insurer is liable insurer is not liable 1. Loss the 1. Loss by insureds proximate cause willful act; of which is the 2. Loss due to
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A stipulation against double insurance. Purposes: 1. To prevent an increase in the moral hazard 2. To prevent over-insurance and fraud. To constitute a violation of the clause, there should have been double insurance. C. REINSURANCE a contract by which the insurer procures a third person to insure him against loss or liability by reason of an original insurance (also known as Reinsurance Cession). (Sec. 95) In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies. DOUBLE INSURANCE Involves the same interest Insurer remains in such capacity REINSURANCE Involves different interest Insurer becomes the insured in
2.
3.
4.
5.
peril insured connivance of the against (Sec. 84); insured (Sec. 87); Loss the and immediate cause 3. Loss where the of which is the excepted peril is peril insured the proximate against except cause. where proximate cause is an excepted peril; Loss through negligence of insured except where there was gross negligence amounting to willful acts; and Loss caused by efforts to rescue the thing from peril insured against; If during the course of rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. 85).
Required Failure to give notice will defeat the right of the insured to recover.
Not required Failure to give notice will not exonerate the insurer, unless there is a stipulation in the policy requiring the insured to do so.
B. CLAIMS SETTLEMENT The indemnification of the loss of the insured. TIME FOR PAYMENT OF CLAIMS NON-LIFE POLICIES LIFE POLICIES a. Maturing upon the expiration of the term The proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due. b. Maturing at the death of the insured, occurring prior to the expiration of the term stipulated The proceeds are payable to the beneficiaries within 60 days after presentation and filing of proof of death. The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss whether or not ascertainment is had or made.
Proximate Cause An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred. REQUISITES FOR RECOVERY UPON INSURANCE 1. The insured must have insurable interest in the subject matter; 2. That interest is covered by the policy; 3. There must be a loss; and 4. The loss must be proximately caused by the peril insured against. NOTICE OF LOSS In fire insurance In other types of insurance
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XVI. MARINE INSURANCE Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec. 99) Coverage: A. 1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and
Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. 106). B. In loans on bottomry and respondentia Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a security, shall arrive safely at the port of destination. 1. Owner/Debtor Difference between the value of vessel or goods and the amount of loan. (Sec. 101) 2. Creditor/lender Amount of the loan Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would apply to the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose Vitug, 1997 ed.)
Includes only those casualties due to the: 1. unusual violence; or 2. extraordinary action of wind and wave; or 3. Other extraordinary causes connected with navigation.
A loss which in the ordinary course of events, results from the: 1. natural and inevitab le action of the sea 2. ordinary wear and tear of the ship or 3. Negligent failure of the ships owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk policy. SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1) as otherwise excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured. The insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638) B. Barratry Clause A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of
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concealed
The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk
G TORRES)
b. Constructive i. Actual loss of more than of the value of the object; ii. Damage reducing value by more than of the value of the vessel and of cargo; and iii. Expense of transshipment exceed of value of cargo. (Sec. 131, in relation to Sec. 139) In case of constructive total loss, insured may: 1. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. 139), or 2. Without abandoning vessel, claim for partial actual loss. (Sec. 155) 2. Partial: That which is not total (Sec. 128). AVERAGE Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded. GENERAL
Has inured to the common benefit and profit of all persons interested in the vessel and cargo To be borne equally by all of the interests concerned in the venture. Requisites for the right to claim contribution: 1. Common danger to the vessel or cargo; 2. Part of the vessel or cargo was sacrificed deliberately; 3. Sacrifice must be for the common safety or for the benefit of all; 4. Sacrifice must
PARTICULAR
Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo. To be borne alone by the owner of the cargo or the vessel, as the case may be.
thing
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after receipt of reliable information of the loss (Sec. 141); 5. It must be factual (Sec. 142); 6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and 7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).
RIGHT OF INSURED IN CASE OF GENERAL AVERAGE GENERAL RULE: The insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or demand contribution from the other interested parties as soon as the vessel arrives at her destination EXCEPTIONS: 1. After the separation of interests liable to contribution 2. When the insured has neglected or waived his right to contribution FPA Clause (Free From Particular Average) A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. 136) ABANDONMENT The act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured. (Sec. 138) Requisites for validity: 1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138); 2. There must be a constructive total loss (Sec. 139); 3. The abandonment be neither partial nor conditional (Sec. 140);
Effects: 1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (Transfer of Interest)(Sec.146) 2. 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. (Transfer Of Agency)(Sec.148) If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.154) CO-INSURANCE 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. 157) When the property is insured for less than its value, the insured is considered a coinsurer of the difference between the amount of insurance and the value of the property. Requisites: 1. The loss is partial; 2. The amount of insurance is less than the value of the property insured. Rules: 1. Co-insurance applies only to marine insurance 2. Logically, there cannot be co-insurance in life insurance. 3. Co-insurance applies in fire insurance when expressly provided for by the parties. CO-INSURANCE A percentage in the value REINSURANCE Situation where
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XVII. FIRE INSURANCE A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire, including loss by 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. 167) Prerequisites to recovery: 1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly by the insurer 2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly or impliedly by the insurer HOSTILE FIRE One that escapes from the place where it was intended to burn and ought to be. Insurer is liable FRIENDLY FIRE One that burns in a place where it was intended to burn and ought to be Insurer is not liable
Measure of Indemnity 1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury 2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake Note: It is very crucial to determine whether a marine vessel is covered by a marine
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coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54). INTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES 1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972) 2. Accidental That which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen. NO ACTION CLAUSE A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del Monte, 20 SCRA 1043) XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI) A species of compulsory insurance that provides for protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially
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Method of coverage 1. Insurance policy 2. Surety bond 3. Cash deposit Passenger Any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicles operator or his agents to ride without fare. (Sec. 373[b]) Third Party Any person other than the passenger, excluding a member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, or his employee in respect of death or bodily injury arising out of and in the course of employment. (Sec. 373[c]) No-Fault Clause A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for death or injury without the necessity of proving fault or negligence of any kind. Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents. Rules: 1. Total indemnity - maximum of P5,000 2. Proofs of loss a. Police report of accident; b. Death certificate and evidence sufficient to establish proper payee; c. Medical report and evidence of medical or hospital disbursement.
A clause which includes theft as among the risks insured against. Where the car is unlawfully and wrongfully taken without the owners consent or knowledge, such taking constitutes theft, and thus, it is the theft clause and not the authorized driver clause that should apply (Palermo v. Pyramids Ins., 161 SCRA 677). C. Cooperation Clause A clause which provides in essence that the insured shall give all such information and assistance as the insurer may require, usually requiring attendance at trials or hearings. XX. SURETYSHIP An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. (Sec. 175) It is essentially a credit accommodation. It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec. 20 When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party (insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated like non-life insurance in some respects. Nature of liability of surety 1. Solidary; 2. Limited to the amount of the bond; 3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Sec. 176) PROPERTY INSURANCE Accessory contract Principal contract 3 parties: surety, 2 parties: insurer obligor and oblige and insured Credit Contract of accommodation indemnity Surety can recover Insurer has no from principal such right; only right of subrogation Bond can be May be cancelled cancelled only with unilaterally either consent of obligee, by insured or Commissioner or insurer on grounds SURETYSHIP
court Requires acceptance of obligee to be valid Risk-shifting device; premium paid being in the nature of a service fee
provided by law No need of acceptance by any third party Risk-distributing device; premium paid as a ratable contribution to a common fund
XXI. LIFE INSURANCE Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities. (Sec. 179) Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) 1. Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies. Surrender value after 3 years. 2. Group Life Essentially a single insurance contract that provides coverage for many individuals. Examples: In favor of employees, mortgage redemption insurance. 3. Limited Payment Policy insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. 4. Endowment Policy pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. 5. Term Insurance insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. 6. Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener. Mortgage Redemption Insurance A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of
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The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a creditor insures the life of his debtor. (Sec. 183) IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE POLICY? It depends. If the designation of the beneficiary is irrevocable, the beneficiarys consent is essential because of his vested right. If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere expectancy to the proceeds. Cash Surrender Value As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of at least 3 full annual premiums, is entitled to receive if he surrenders the policy and releases his claims upon it. LIFE INSURANCE FIRE INSURANCE
Contract of Contract of investment not of indemnity indemnity Valued policy Open or valued policy May be transferred The insurable or assigned to any interest of the person even if he transferee or has no insurable assignee is interest essential Consent of insurer Consent of insurer is not essential to must be secured in validity of the absence of assignment waiver Contingency that is Contingency contemplated is a insured against certain event, the may or may not only uncertainty occur being the time when it will take place A long-term May be cancelled contract and by either party and cannot be is usually for a cancelled by the term of one year insurer Beneficiary is Insured is required under no to submit proof of obligation to prove his actual actual financial pecuniary loss as a
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XXII. VARIABLE CONTRACT Any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment.
XXIII. INSURANCE COMMISSIONER Main agency charged with the enforcement of the Insurance Code and other related laws. Functions: 1. ADJUDICATORY/QUASI-JUDICIAL a. Exclusive original jurisdiction Any dispute in the enforcement of any policy issued pursuant to Chapter VI (CMVLI). (Sec. 385, par. 2) b. Concurrent original jurisdiction (with the RTC) Where the maximum amount involved in any single claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime jurisdiction) Where the amount exceeds P100,000, the RTC has jurisdiction. The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered into between an insurance company and its agent. The same is not covered by the term doing or transacting insurance business under Sec 2, ICP, neither is it covered by Sec. 416 of the same Code which grants the Commissioner adjudicatory powers (Philippine American Life Insurance Co. v. Ansaldo, 234 SCRA 509). 2. ADMINISTRATIVE/REGULATORY a. Enforcement of insurance laws b. Issuance, suspension or revocation of certificate of authority c. Power to examine books and records, etc. d. Rule-making authority e. Punitive
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