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INSURANCE LAW
Course Outline
A. BASIC PRINCIPLES
1. Insurance Defined
1-a. Definition Agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability
1-b. Limitation Excludes life insurance which is a contract upon condition, not one
of indemnification
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Laws Applicable
Jurisdiction
Liability of Reinsurer
Kinds
Insured
3-a. Rule
1. Designation of beneficiary is discretionary
2. Absence, payable to estate of insured
3-b. Kinds of Beneficiary
1. As to Succession
a. Primary beneficiary who is first entitled to the proceeds of insurance
b. Secondary beneficiary who is entitled to the proceeds of insurance in
case the primary beneficiary dies
2. As to Revocability
a. Revocable the insured reserves the right to make future changes in the
designation
b. Irrevocable such beneficiary cannot be changed by the insured or other person
without the consent of the beneficiary
3-c. In Life Insurance
1. Designation of beneficiary is akin to donations and subject to proscriptions on
donations [Art. 739, Civil Code]
2. Grounds for Forfeiture if he participated in willfully bringing about the death of
insured as
a. Principal
b. Accomplice
c. Accessory [Sec. 12, I.C.]
3. Designation of disqualified beneficiary is void but does not avoid insurance
Distinctions
4-a. Definition any interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril
might damnify the insured [Sec. 13, I.C.]
4-b. Coverage
1. Existing interest
2. Inchoate interest founded on existing interest
3. Expectancy, coupled with an existing interest out of which expectancy arises
[Sec. 14, I.C.]
4-c. Inchoate Rights vs. Expectancy
1. Right is inchoate when the transmission of the property depends on a period or
an event that is certain to occur
2. Right is expectancy when the realization of income or acquisition of right is
conditional
5. Change of Interest
5-a. General Rule: Suspends policy [Sections 20 and 55, I.C.]
5-b. Exceptions
1. After occurrence of injury
2. One or more distinct things separately insured under one policy
3. By will or succession
4. Transfer of interest from one partner, joint owner, co-owner to others
[Sections 21-22, I.C.]
5. Insurance is for the benefit of whomsoever during the continuance of the
policy [Section 57, I.C.]
E. POLICY
1. Types of Insurance Contract
1-a. Policy written instrument in which a Contract of Insurance is set forth
[Section 49, I.C.]
1-b. Binding Receipt acknowledgment that branch received premium and
accepted application subject to processing by Head Office [Great Pacific Life vs.
Court of Appeals, 89 SCRA 543]
1-c. Cover Note receipt whereby insurer agrees to contract good for 60 days
pending issuance of a regular policy [Section 52, I.C.]
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Kinds of Policy
2-a. Open Policy value of thing insured is determined at the time of loss [Section
60, I.C.]
2-b. Valued Policy value of property or life insured is determined at the time
insurance is taken [Section 61, I.C.]
2-c. Running Policy contemplates successive insurance, object defined from time
to time [Section 62, I.C.]
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Contents of Policy
3-a. Parties
3-b. Amount of insurance
3-c. Amount of Premium
3-d. Property or life insured
3-e. Insurable interest
3-f. Risks insured against
3-g. Insurance period [Section 51, I.C.]
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Riders in Policy
5-a. Non-life Insurance the insured has the right to renew insurance contract
under same terms and conditions unless the insurer sent notice not to renew within
45 days prior to its expiration
5-b. Life Insurance
6. Double Insurance and Over-Insurance
6-a. Double Insurance
1. Defined Exists where the same person is insured by several insurers separately
in respect to the same subject and interest [Section 93, I.C.]
2. Requisites:
a. One and the same insured
b. One and the same insurable interest
c. One and the same risk or peril insured against
d. Two or more insurers separately
3. Prohibitions
a. Double insurance may be prohibited under a policy
b. Purpose is to prevent over-insurance and thus avert the perpetuation of fraud
[Pioneer Insurance and Surety Corp. vs. Yap, 61 SCRA 426]
4. Effects of Double Insurance
a. Insured can recover, before or after the loss, from the insurers the excess
premium paid
b. In case of loss, insurers are liable severally to the extent of their coverage.
Insured can recover from any of the insurers to the extent of his loss
6-b. Over-Insurance
2. Reinsurer is entitled to avail of every defense which the insurer can interpose
against the person originally insured
3. If reinsurance is one of indemnity for losses suffered by the insurer, original
insured has no interest in the reinsurance contract [Artex Development Co. vs.
Wellington Insurance Company, 51 SCRA 352]
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F. PREMIUM
1. Premium defined agreed price for assuming and carrying the risk
2. Effects of Non-payment of Premium
2-a. First Premium
1. Prevents contract from becoming binding notwithstanding acceptance of the
application [Constantino vs. Asia Life Insurance Co., 87 Phil. 248;
2. But the non-payment of the balance of the premium does not avoid the policy
[Philippine Phoenix Surety & Insurance, Inc. vs. Woodworks, Inc., 20 SCRA 1270]
3. Acknowledgment in the policy of receipt of premium is conclusive evidence of
payment [Section 78, I.C.]
2-b. Subsequent Premium
1. Does not ipso facto avoids the policy
2. It only entitles the insurer to cancel the contract of insurance [Section 64, I.C.]
3. Return of Premiums
3-a. Total Refund
Defenses that Give Ground to Cancel Policy Insurer must first cancel the
policy prior to the commencement of an action thereon [Section 48, I.C.]. If
the policy is cancelled, no recovery can be made by the insured or his
beneficiary
1. This is commission
2. Inducing factor to a contract
3. Must be shown to be material by the insurer
4. Insured makes no warranty
5. Always intentional
6. Requires substantial compliance
7. May be waived by acceptance of premium despite knowledge thereof [Section
45, I.C.]
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Violation of Warranty
Conviction of a crime arising out of acts increasing the hazard insured against
2-b. Procedures
1. Occurrence of a valid ground after effectivity of the policy
2. Written notice delivered to insured
a. At the address stated in policy
b. Stating the valid ground
3. Furnish facts to insured upon request [Section 65, I.C.]
2-c. Cases:
3-d. Suicide
1. Rules [Section 180-A, I.C.]
a. Insurer liable only after policy has been in force for a period of two (2) years
from date of issue or last reinstatement unless policy provides a shorter period
b. Suicide in state of insanity is always compensable
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Exceptions The insurer is not liable if suicide occurred within two (2) years
after policy issuance of policy or its last reinstatement
2. Liability In case of loss of the vessel, the shipowner receives no indemnity for
loss but acquires immunity from payment of the loan
3. Insurable Interests of Shipowner Excess of the value of the vessel over the
amount of bottomry loan [Section 101, I.C.]
b. Chartered vessels
1. Kinds of Charter Contracts
a. Affreightment use of the vessel only, either in whole or in part, which may be:
Time charter, that is, for a fixed period of time or a Voyage charter, that is, for a
particular voyage
b. Demise or Bareboat use of the whole vessel including control over navigation
and command of its master and crew
2. Insurable Interests The insurable Interest of the shipowner on the:
a. Vessel to the extent of the loss which cannot be recovered from the charterer
b. Freightage [Sections 102-103, I.C.]
3-b. Creditor or lender in bottomry Insurable interest is up to the extent of the
loan on bottomry
3-c. Charterer: His insurable interest on the
a. Vessel to the extent he is liable to be damnified by the loss of the vessel
[Section 106, I.C.]
b. Freightage
3-d. Cargo Owner over the cargoes and on expected profits on his cargoes
a. When ship is prevented from completing voyage due to peril insured against,
liability of insurer continues after cargoes are reshipped [Section 133, I.C.]
b. Insurer is liable for damages, expenses of discharging, storage, reshipment,
extra freight and other expenses in saving cargo thus reshipped [Section 134, I.C.]
4. Concealment
4-a. Definition Failure to disclose any material fact or circumstance which is within
or ought to be within the knowledge of one party and of which the other has no
actual or presumptive knowledge [Section 107, I.C.]
4-b. Broader Concept Insured is bound to communicate the following:
1. Facts within his knowledge material to the contract or risk [Section 28,I.C.]
2. Beliefs or opinions of third persons
3. Expectations of third persons [Section 108, I.C.]
4-c. Effects of Concealment
1. General Rule: Entitles insurer to rescind the contract [Section 27, I.C.]
2. Exception: Merely exonerates insurer from loss resulting from the risk concealed
Deviation
a. Defined any unexcused departure from the regular course or route of the
insured voyage or any other act which substantially alters the risk
a. How Deviation Made
1. Departure from the course of sailing fixed by mercantile usage [Section
121, I.C.]
2. Departure from the most natural, direct and advantageous route if the course of
sailing is not fixed by mercantile usage [Section 122, I.C.]
3. Unreasonable delay in pursuing the voyage [Section 123, I.C.]
4. Commencement of an entirely different voyage [Ibid]
c. Classification of Deviation as to its Cause or Purpose
1. Proper deviation
a. Caused by circumstances over which neither the master nor the shipowner has
any control;
b. Necessary to comply with a warranty, to avoid peril, whether or not such peril is
insured against;
c. Made in good faith and upon reasonable grounds of belief in its necessity to avoid
a peril;
d. Made in good faith for the purpose of saving human life or relieving another
vessel in distress [Section 124, I.C.]
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d. Effect of Improper Deviation Insurer is not liable for any loss happening to the
thing insured subsequent to an improper deviation [Section 126, I.C.]
7. Loss
7-a. A thing is lost
1. When it perishes
2. Goes out of commercial
3. Disappears in such away that its existence is unknown or cannot be
recovered [Art. 1189, Civil Code]
7-b. Classification of Losses
1. Total Loss, which may either be:
a. Actual loss
b. Constructive Loss
2. Partial Loss one which is not total [Section 129, I.C.]
7-c. Actual Loss
1. Nature Exists when the subject matter of the insurance is wholly destroyed,
lost or when it is so damaged as no longer to exist in its original character.
Complete physical destruction is not necessary to constitute actual total loss.
2. Presumption a vessel not heard of at all within a reasonable time after sailing
or after last seen is presumed actual loss [Section 132, I.C.]
3. Causes of actual total loss
a. Total destruction of the thing insured;
b. Irretrievable loss of the thing by sinking or by being broken up;
a. Damage to the thing that renders it valueless to the owner for the
purpose for which he held it;
b. Any event which effectively deprives the owner of the possession of
the thing insured at the port of destination [Section 130, I.C.]
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Effect Insurer is liable for the whole of the amount insured even without
notice of abandonment [Section 135, I.C.]
Cases:
6. Cases
a. Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459
b.
7-e. Average
1. Defined Any extraordinary or accidental expense incurred during the voyage for
the preservation of the vessel, cargo or both
2. Kinds of Averages
a. Gross or General include damages and expenses which are deliberately caused
by the master of the vessel or upon his authority in order to save the vessel, cargo
or both from a real and known risk
b. Simple or Particular include damages and expenses caused to the vessel or to
her cargo which have not inured to the common benefit and profit of all the persons
interested in the vessel and cargo
3. Liability for Averages
a. Gross or General loss is borne equally by all the interests concerned in the
venture [Section 136, I.C.]. Principle: sacrifice some to save the rest.
1. Rule : Insurer is liable to insured with right to subrogation [Section 165,I.C.]
2. Exceptions: Where insured waived or neglected his right to contribution or after
separation of the interest liable to contribution [Ibid]
b. Simple or Particular
1. General Rule : Insurer is liable to the loss suffered by the owner of the cargo or
of the vessel, as the case may be
2. Exception : If the policy excepted simple or particular average.
3. Exception to Exception: Insurer is liable to simple average even if excluded by
policy if the insured is deprived of possession of property insured at the port of
destination [Section 136, I.C.]
3. In loss of cargo, valuation is followed except where only part of the cargo or
freightage is exposed to peril, the valuation applies only in proportion to such part
[Section 159, I.C.]
c. Partial Loss
1. If a property is insured less than its value, the insured becomes a reinsurer for
the difference [Section 157, I.C.]
FORMULA: Partial Loss/Value of Property x Insurance
2. In loss of profits, recovery is based on the portion of such profits as the value of
the property lost bears to the value of the whole property [Section 158, I.C.]
FORMULA: Value of Property lost/Value of the Whole Property x Profits
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1. Value of ship is its value at the beginning of the risk including articles or charges
adding to its permanent value or necessary to prepare it for voyage plus the
insurance
2. Value of cargo is its actual cost to the insured when loaded, in the absence, the
FMV thereof, plus the insurance in both cases
3. Value of freightage is the gross freightage exclusive of primage, plus insurance
b. In case of partial loss
1. If a property is insured less than its value, the insured becomes a reinsurer for
the difference [Section 162, I.C.]
FORMULA: Loss In Value/Value before Loss x Insurance
2. In case of general average, liability of insurer is limited to the proportion which
the general average bears to the ratio of the insurance over the total value of
properties insured [Section 165, I.C.]
3-b. Liability Insurance insurance against specified perils which may give rise to
liability on the part of the insured for claims for injuries to others or damage to
their property such as Employees Compensation and Motor vehicle liability.
4. Insurable Liability those arising from commission of quasi-delict and
contractual obligation are insurable. If liability arises from a crime, qualify:
4-a. If commission is accidental, covered.
4-b. If deliberate, not covered.
5. Cases:
5-a. Villacorta vs. Insurance Commissioner, 100 SCRA 470 [Authorized Driver
Clause vs. Theft]
5-b. Association of Baptists vs. Fieldmans Insurnace Co., 124 SCRA 618 [Theft and
Necessity of Conviction]
5-c. Stokes vs. Malayan Insurance Company, 124 SCRA 766 [Drivers License of
Aliens]
5-d. Palermo vs. Pyramid Insurance Company, 161 SCRA 677 [Applicability of
Authorized Driver Clause]
5-e. CCC Insurance Corporation vs. Court of Appeals, 31 SCRA 264 [Presumption
on License]
5-f. Pan Malayan Insurance Corporation vs. Court of Appeals, 184 SCRA 54
[Subrogation]
5-g. Filipino Merchants Insurance Company vs. Court of Appeals, 179 SCRA 638
[Burden of Proof on All Risks Clause]
5-h. Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554 [Negligence
Resulting to Death]
5-i. Finman General Assurance Corporation vs. Court of Appeals, 213 SCRA 493
[Death due to Stabbing]
K. SURETYSHIP
Cases:
4-a. National Shipyards & Steel Corporation vs. Torrento, 20 SCRA 427
4-b. Leyson vs. Rizal Surety and Insurance Company, 16 SCRA 551
L. LIFE INSURANCE
1. Definition
1-a. Insurance on human lives and insurance appertaining thereto or connected
therewith [Section 179, I.C.]
1-b. Mutual agreement by which a party agrees to pay a given sum on the
happening of a particular event contingent on the duration of human life, in
consideration of the payment of a smaller sum immediately or on periodical
payments by the other party.
1-c. Essentially, it is a contract to make specific payments upon the death of a
person whose life is insured.
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When Payable
4-a. Ordinary Life Policy one in which the insured is required to pay a certain fixed
premium annually or at more frequent intervals throughout the life of the insured
and the beneficiary is entitled to proceeds thereof upon death of the insured.
4-b. Limited Payment Life Policy premium is payable only during a limited period,
after which the insurance is fully paid for. If insured dies within the specified period,
his beneficiary collections.
4-c. Term Insurance Policy one which provides coverage only if the insured dies
during a limited period. If insured dies within the period specified, policy is paid to
beneficiary. If insured survives within such period, contract is terminated.
4-d. Endowment Policy the insurer binds himself to pay a fixed sum to the insured
if he survives for a specified period, or if he dies within such period, to some other
person indicated.
4-e. Life Annuity contract whereby the insurer binds himself to pay an annual
pension or income during the life of one or more determinate persons in
consideration of a capital consisting of money or other property, whose ownership is
transferred to him at once with the burden of the income.
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Cases:
5-a. Biagtan vs. Insular Life Assurance Company, 44 SCRA 58 [Accidental Benefit
Clause]
5-b. Kanapi vs. Insular Life Assurance Company, 94 Phil. 397 [Double Indemnity
Clause]
5-c. Calano vs. Court of Appeals, 98 Phil. 79 [Military and Naval Service Clause]
5-d. Abella Vda. De Diaz vs. Asia Life Insurance Company, 48 OG 4435 [Exemption
from Execution]
5-e. Nario vs. Philamlife, 20 SCRA 434
5-f. Bank of the Philippine Islands vs. Posadas, 56 Phil. 215 [Refund of Premium]
5-g. Del Val vs. Del Val, 29 Phil. 234 [Entitlement to the Insurance Proceeds]
Suicide