What is a policy? (Art.

49)

It is a written document embodying the terms and stipulations of the contract

of insurance between the insured and the insurer.
It is signed by the insurer or his duly authorized representative. It need not be
signed by the insure except when the law requires that the instrument must
be signed by the insured.
All the wordings, terms and conditions of an insurance policy it is the insurer
with the approval of the insurance commission who approves the policy.
An insurance company cannot simply print a policy without the prior approval
of the insurance commission.
The policy is a contract. Like any other contract, it is the law that shall govern
between the parties, for as long as it is not contrary to law, public policy and
public order.

When does the insurance take effect? When it is binding?

In case of life policy, payment of the first year premium and upon receipt of
the insured of the insurance policy

Cognition Theory an offeror who is an applicant (insured), files application

which is carried by an agent, it is brought to the main office. No contract is
brought to a regional branches. It is always approve in a national office.

The application together with the other papers like statements made before
the medical examiners, those documents will be assessed by the company
and if found to be acceptable, then the policy will be approved. If not then,
there might be some minor amendments, counter proposals made by the
insurance company.
Once the policy is written and sent to the insured or there is delivery to the
insured (delivery is not confined to manual delivery it could be constructive).
The applicant must be aware of the acceptance of his application by the
insurer. In this case the contract of insurance policy is now perfected.
In case of non-life policy, there is no need for delivery. It is not a real contract.

Cash and carry rule the insured takes the premium in cash and the insurance
is kept or the insurance is carried (usually used in marine insurance).

Even if the vessel is already lost at the time of the perfection of the
policy. The insurer can still be held answerable for the lost provided that
there is a provision in a policy that says that whether the vessel is lost or not
lost

SEC. 50,51,52
Can there be an oral insurance contract?

Yes because it is consensual in nature except in life where delivery is needed.

Binding slips these are contract of preliminary insurance, in that sense the
contract of insurance becomes oral in nature because there is no policy.
Binding slips provides a temporary coverage usually in non-life.
Binder is actually a temporary contract of insurance and is usually issued
after the applicant pays the first premium.
Cover notes a written memorandum of the most important terms of a
preliminary contract of insurance, intended to give temporary protection
pending the investigation of the risk by the insurer, or until the issue of the
formal policy, provided it is later determined that the applicant was insurable
at the time it was given.

What are found in the policy?

The parties, the amount insured except in cases of open and running policy,
the premium, the property or life insured, the risk insured against and the
period during which the insurance is to continue.

Riders a small pieces of paper attached in a policy. Both parties agreed and
countersigned both the representative of insurance company.
What are additional matters to be stated in a policy?
Life policy
o
o
o

grace period of 30 days

Incontestable clause
Provision providing for a participation in the surplus of the insurer
- Part of the premium goes to the net reserves. Net reserves is a
surplus
- Net reserves are payments preserves for claims.
- A big portion of the net reserves can be invested
- Part of the investigatory of the insurance commission is to
investigate precisely where the net reserve is being invested.

Automatic loan clause The insured is aware that after 3 yrs he can now avail of
a policy loan
-

That policy loan is usually not paid you are actually just getting
your partial loan values.

Cover notes
-

Insurance proceeds shall be applied exclusively to the proper interest of that

person in whose name and whose benefit unless otherwise specify in the
policy or unless the policy is assigned.
In other words, proceeds will not go to the beneficiary if it is assigned. The
basis is the fact that an insurance is a personal contract.

Who will entitled if the life policy says that these proceeds will be payable
to the benefit whom it may concern?
Ans: The person who claims that he is the one being intended as a beneficiary , he
shall prove that he is the one being intended.
-

When the description of the policy is so general that may comprehend any
person or any classof person, only who can show that he is intended to benefit
shall claim the proceeds.
- If the 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.
- In non-life policy. A policy is personal. It does not follow the property it follows
the person.
Ex.
If the property is sold to A, as a rule the insurance policy is suspended unless
there is provision that the policy will inure to the benefit of whomsoever
during the continuance of the risk may become the owner of such interest.
- A mere transfer of the thing does not transfer the policy but suspends it until
the person becomes owner of the policy.
- A policy is either open, valued or running (Life policy)

Valued The value of the building has been agreed upon by the insured and
the insurer but the maximum recovery is specified.
- The maximum is agreed not the total value of the building or
policy
Open The value of the thing is not agreed upon but the maximum
recoverable is agreed.
Running or Blanket applicable to inventories.
Article 64.
-

Condition, Stipulation or agreement of the insurance limiting the time or

action thereof with a period of less than 1 yr. from the time when the cause of
action accrues is void.
When will your cause of action accrues?
- Upon receipt of the letter from the insurance company denying
your claim.

Article 64.

In the case of life insurance it is a must for an insurance policy to be effective that
there must be a payment of the first year premium (FYP) and received by the
applicant of the copy of the policy.
In the case of non-life policies considering the policies are made in a year to year
basis it is just the payment of the premium.
In marine and fire insurance, even if the insurer does not even take a look at the
property the insurer will issue the policy.
Important things to remember on premiums
-

Nonpayment means no contract

Subsequent premium payment -apply the Cash ____Rule, meaning pay the
premium in cash and the insurance is already carried

Will the policy lapse? Yes if you will not pay the premium
Saving clauses/ devices- this are the clauses in policy which will prevent the
lapsing of the policy
In life policies there is the usual standard provision of 30 days grace period
automatic in the policy
-

Saving devices for life insurance

Period of grace
Payment of the cash surrender value if CSV is paid, insurance is already
extinguished but the policy holder gets back a pro rata share of the total
premium paid but this happens only after the third yr. because form the
first to third yr. there is no cash surrender value yet.
Extension of the insurance for a certain period of time or extended
insurance
-Essence:this works on the fact that the policy has cash value savings of
the insurer out of the premiums paid by the insured and at the end of the
term it is paid to the insured.

Why called savings? because automatically the insurance coverage is extended

despite the fact of non-payment of premiums of the policy holder.
Reduced paid up insurance the cash surrender value at the back of the policy will
be used to pay the premiums but in order to extend the coverage the insurer
company will reduce the value.
Reinstatement in life insurance
-If the policy has lapse and the saving devices was not used and if the policy holder
want to reinstate if u still have time for say 3yrs u can still reinstate.
-for ex. On the 4th yr. the policy lapsed then up to the 7 th yr u can still reinstate
How will the reinstated contract be treated? It is treated as a new policy contract in
which case the running of the 2yr. contestable period will resume from the date of
reinstatement.
Although it is a matter of right on the part of policy holder nonetheless the insured
must also be insurable.
Sec. 79 Return of Premium
a.Ex. If A takes a fire policy from his house on Dec. but started take effect on Jan 1,
2017 his house was burned exactly on xmas day. Is he entitled to be indemnified?
No, because the policy has not yet stated. Is he entitled to the return of the whole
premiums? Yes because the insurer was not yet placed at risk since the risk started
on Jan. 1, 2017
B.Same problem, A pays 10,000 premium, on June 30 he informs the insurance co.
that he does not want to continue and ask for the ratable return of his premium. He
will be given ratable return but subject to short period rate.

Sec. 80, 81, 82

Over insurance- one insured, one insurer, one property and the value of the
property let say is 10M, he gets a 15M insurance from the same insurer. It is over
insured to the extent of 5M.
Double insurance- getting two or more insurance policies on the same prop.
In non-life policies it is always based on indemnity even if u are over insured the
insurance co. will only pay the amount of your loss.
What are the cases where premiums are not recoverable or not returnable?
1. When the risk has already attached and the risk is entire and indivisible
2. Is life insurance policies recoverable?
No its not exception when the insurance company will return the premium.
3. When the contract is rendered void ab initio
4. When the contract is illegal and the parties are in pari delicto
Can an insurance policy be freely assigned /transferred? Yes if the risk has already
occurred and reduced to mere money claim.
Loss is an injury or damage or liability
For what loss is the insurer liable? Sec. 84
Proximate cause- the cause which causes the cause
-a natural, continuous sequence, unbroken by any new independent
cause which
produces an event and without which the even would have not
occurred

Negligence (Sec. 87)

Willful act- insurer is not liable
If inexcusable- insurer is not liable
Simple negligence- insurer is liable
Notice of Loss Sec. 88
Double Insurance (SEC. 93)
-

If there is another insurance clause in the policy it means there is a

prohibition against double insurance

Is it allowed? As a rule in case of non-life policies it invalidates an insurance policy

Requisites of double insurance (sec. 93)
-

Insurer will enter into a reinsurance treaty which his reinsure (maybe local or
foreign companies)
Premium are ratable

MARINE INSURANCE
It is a well-established rule of marine insurance that goods are presumed to be
shipped under deck, that is, below the deck of the vessel. If the goods are shipped
on deck (outside or upper deck), they are not covered by the policy unless special
notice of the stowage is given to the underwriter and he accepts the enhanced risk.
What are the risks being insured in marine insurance?
Typically, it covers only all risks connected with navigation except those in the
warehouse, inland marine.
Discharging of the cargo and placing it in the warehouse still covered by the
marine insurance.
Coverage of marine insurance are marine or navigation accidents not only property
insurance but also accident insurance
The risks of marine policies cover only perils of the sea or perils of navigation.
What is perils of the sea or perils of navigation?
It means the unusual violence or extraordinary action of wind & wave or other
extraordinary causes connected with navigation which caused marine accidents or
casualties.
To state further these perils denote natural accidents peculiar to the sea:
1. The violence must be unusual or unexpected
2. The peril must be connected with navigation
3. Maritime in character
What is the meaning of the phrase all marine peril, losses and misfortune?
The phrase extends to misfortunes like BARRATRY. What is Barratry?

-any unlawful misconduct in the part of the 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.
-Is an illegal action of the crew pertaining to for example death of vessel equipment,
stores; includes running away with the ship, burning or the scalding the ship,
unlawfully selling the cargo.
WILL THE INSURER BE LIABLE (Actions of the crew)? YES
PERILS OF THE SEA VS PERILS OF THE SHIP
Perils of the sea- include only losses as are of extraordinary nature or arise from
some overwhelming power which cannot be guarded against any the ordinary
exertion of human skill or prudence, as distinguished from the ordinary wear and
tear of the voyage and from the injuries suffered by the vessel in consequence of
her not being sea worthy.
Perils of the ship- a loss which in the ordinary course of events, results:
a) From the natural and inevitable action of the sea
b) From the ordinary wear & tear of the ship
c) From the negligent failure of the ships owner of the vessel with proper
equipment to convey the cargo under the ordinary conditions, is not a peril of
the sea.
Supposing a ship sank because of metal fatigue is that covered ?
NO, that would be part of perils of the ship.
PERILS OF THE SEA MUST BE THE PROXIMATE CAUSE
The insurer is liable only for such losses or damages proximately caused by the
perils insured against.
Examples:
(1) A vessel which is insured against fire only is struck by lightning, and takes
fire; in order to save the ship from destruction, the captain scuttled and sunk
in shoal water and the whole ship was damaged.
The insurance was fire insurance not marine insurance. How will you decide on
that?
Immediate cause- Sinking of the ship
Proximate cause-Fire
Is the insurer liable? YES. The measure is the proximate cause.
(2) Shipped the cargoes from Philippines to America. Along the way the ship
encountered a problem due to the storm. By the time they reached San
Francisco the goods are rotten.
Is insurer liable? YES. As long as the deviation is proper.
DEVIATION-departure of vessel from course of voyage, or unreasonable delay in
pursuing voyage, or the commencement of an entirely different voyage
Deviation is proper when:
a) If due to the circumstances outside the control of the ship captain or ship
owner
b) If done to comply with a warranty

c) If made in good faith to avoid a peril

d) If made to save human life or another distressed vessel
LOAN ON BOTTOMRY V. RESPONDENTIA
LOAN ON BOTTOMRY a loan that is obtained for the value of the vessel on a
voyage and the lender is repaid only if the vessel subject of the loan arrives
safely at destination
RESPONDENTIA-a loan that is obtained as security for the value of the cargo to
be transported and the lender is repaid only the cargo arrives safely at its
destination. Also known as transporation insurance.
FREIGHTAGE is the benefit of which to accrue to the owner of the vessel from tis
use in the voyage contemplated or the benefit derived from the employment of the
ship
CHARTER PARTY is a contract by which an entire ship or some principal part
thereof is lent by the owner to another person for a specified use of time
CONCEALMENT
GR: General provision is applicable
XPN: If inconsistent with specific provision, specific provision will prevail
In marine insurance rules in concealment is the same with the general provisions
A failure or neglect to communicate all matters which are material then the insurer
may rescind the policy
Ex. A has a cargo loaded by his agent in a ship in Hongkong bound for Manila. When
A found out that his cargo was already loaded by his agent, he took an insurance on
the cargo. By the time he took the insurance, the boat already sank without his
knowledge and with the negligence and fault of the agent. The agent was at fault
not the owner.
The insurer is not liable because act of the agent is the act of the principal which
was failure to communicate.
Insurer is exonerated if the risk is due to the concealed fact pertaining to the 5
situations:
a) The national character of the insured;

Ex. An American citizen bought a ship stating that he was a Sweddish. The boat was
sank by the Japanese thinking that the owner was an American. The insured
concealed the fact that the real owner was an American will the insurer be
exonerated? YES
(b) The liability of the thing insured to capture and detention;
Ex. The owner did not state that the ship will pass through the port of Africa where there are many pirates. Is the
insurer exonerated? YES ,he concealed a material fact
c) The liability to seizure from breach of foreign laws of trade;
d) The want of necessary documents; and
e) The use false and simulated papers.
VESSEL ARREST- in case the captain or crews are not qualified or concealed some documents, the vessel will be
arrested.

In case the ship was damaged because of vessel arrest due to concealment of crew documents. Will the insurer be
exonerated? YES
WARRANTIES
IMPLIED WARRANTY AS TO WORTHINESS
A ship is sea worthy when reasonably fit to perform the services and to encounter the ordinary perils of the
voyage contemplated by the parties to the policy.
Reasonably fit:
Strong structure
The vessel is properly laden,
provided with sufficient number of competent crews,
provided with requisite appurtenances & equipment