| The Insurance Code of the Philippines by De Leon, De Leon Jr.
2014
TITLE 2 - FIRE INSURANCE
Sec. 169. 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.
Fire insurance defined.
A contract of indemnity by which the insurer, for a
stipulated premium, agrees to indemnify the insured
against loss of, or damage to, a property caused by
hostile fire located at the place stated in the policy.
Fire-and-extended coverage.
Under Sec. 169, Fire Insurance includes insurance against
(FLW-TEO) FIRE, LIGHTNING, WINDSTORM, TORNADO or
EARTHQUAKE and OTHER ALLIED RISKS, when such risks
are covered by:
(a.) extension to fire insurance policies; or
(b.) Under separate policies
Nature of fire insurance.
A contract of indemnity. Indemnity is its sole purpose.
Liability of insurer is to pay for DIRECT LOSS only;
however, insurer may be liable to pay for
CONSEQUENTIAL LOSSES if covered by:
(a.) extension to fire insurance policies or
(b.) under separate policies.
Concept of fire.
Fire is oxidation which is so rapid to produce either a
flame or a glow. Fire is always caused by combustion, but
combustion does not always cause fire.
Is fire a natural disaster/calamity?
In our jurisprudence, fire may not be considered a
natural disaster or calamity since it almost always arises
from some act of man or by human means. It cannot be
an act of God unless caused by lightning or a natural
disaster or casualty not attributable to human agency.
Risks or losses covered.
The scope and coverage of a fire insurance policy
and the intention of the parties, as indicated by
their contract controls.
Extended coverage i.e. explosion, lightning,
earthquake, typhoon, flood, riot or other special
perils.
Prepared by: Rasuman, Banotan, Valdez, De Guzman | Insurance Law (JDBL 311) 1st Semester | Atty. Mercado (Professor)
INDIRECT LOSS COVERAGE (Indirect or
consequential losses, Loss of profits
insurance or business interruption insurance)
o A special coverage attached to the
standard fire policy extending the
coverage to consequential losses.
Kinds of indirect losses.
1. Physical damage caused to other property;
2. Loss of earnings due to interruption of business
by damage to insureds property;
3. Extra expense incurred by the insured following
damage or destruction of buildings by an insured
peril.
Ocean marine & fire policies distinguished.
A policy of insurance on a vessel engaged in
navigation is a contract of ocean marine
insurance although is insures against fire risks
only;
Where the hazard is fire alone and the subject is
an unfinished vessel, never afloat for a voyage, it
is a fire insurance.
Sec. 170. 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 contract of fire insurance.
Sec. 171. 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.
Requisites for alterations in the thing insured to entitle
insurer to rescind
1. The use or the condition of the thing is
specifically limited or stipulated in the policy;
2. Such use or condition as limited by the policy is
altered;
3. The alteration is made without the consent of
the insurer;
4. The alteration is made by means within the
control of the insured; and
5. The alteration increases the risk.
Exception: Sec. 172
Increase of risk or hazard in general.
There is an implied promise or undertaking on
the part of the insured that he will not change
the premises or the character of the business
carried there or to be carried on there, so as to
increase the risk of loss by fire.

Mere negligent acts temporarily endangering
the property will not violate the policy nor the
temporary acts or conditions which have ceased
prior to the occurrence of the loss.
There must be actual increase of risk and that
the increase be of substantial character.
Alterations avoiding policy.
Any alteration in the use or condition of the property
insured as
where firecrackers are placed in the insured
building
where building insured as a dwelling is used as a
disreputable roadside tavern and bawdy-house.
Exception: Insurer still liable even if the increase is no
longer existing at the time of loss if there is breach of
warranty.
Alterations not avoiding policy.
1. Different use is not of a dangerous character and
does not differ materially from the use specified
in the policy.
2. Violation of some provision prohibiting specified
articles if the articles are necessary or ordinarily
used in the business conducted in the insured
premises.
3. Making of repairs, painting or doing other acts of
similar character on the thing insured are not to
be regarded as increasing the risk since the
property would be useless to the insured if such
acts were prohibited even though by reason
thereof, the property may be exposed to some
additional risk.
When insured has no control or knowledge of
alteration.
Insurer is liable if the acts or circumstances by
which the risk is increased are occasioned by
accident, or a cause over which the insured has
no control.
From acts of the insureds tenant provided the
act is not known to the insured.
Every act of the insureds tenant substantially
and permanently affecting the conditions of the
property so as to constitute an increase in risk
would be presumptively known to the insured.
Section 77 in relation to Section 171
In both sections, breach of immaterial provision
does not avoid the policy.
Prepared by: Rasuman, Banotan, Valdez, De Guzman | Insurance Law (JDBL 311) 1st Semester | Atty. Mercado (Professor)
| The Insurance Code of the Philippines by De Leon, De Leon Jr. 2014
Under Section 77 the insurer is given the right to
insert terms and conditions in the policy which if
violated would avoid it.
Section 171 applies to policies which are silent
upon the subject.
Sec. 172. 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 a loss.
Section 172 is an exemption to Section 170
Application of Section 172 requires that:
The policy does not contain any prohibition
limiting the use or condition of the thing insured
The alteration in the said use or condition does
not constitute a violation of the policy.
The contract is not affected by such alteration even
though it increases the risk and is the cause of the loss
Example:
P contracted a Fire Insurance Policy with M
Insurance Corporation, covering Ps residential
house. The policy does not contain any
prohibition limiting the use or condition of the
residential house. Subsequent to the execution
of the policy, P put up a sari-sari store in the
garage of the house (thing insured).An accidental
fire ensued stemming from the sari-sari store.
Due to the accidental fire, the residential house
was gutted down to ashes.
In this case, since the policy does not contain any
prohibition limiting the use or condition of the
thing insured, the subsequent act of P does not
affect the validity and enforceability of the
contract.
Hence, P may still claim under the fire insurance
policy even although the subsequent act of
opening a sari-sari store within the premises of
the thing insured increases the risk and is
actually the cause of the loss.
Sec. 173. 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 it was 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.
Measure of indemnity under an open policy.
1. AMOUNT OF ACTUAL LOSS SUSTAINED- In the
absence of express valuation in the policy, the
insured is entitled to recover the amount of
actual loss sustained
2. LIMIT TO AMOUNT-The liability of the insurer
shall in no event exceed what it would cost the
insured to repair, or replace the thing insured
with materials of like kind and quality
3. IN CASE OF PERSONAL PROPERTY- the market
value as readily determined shall be applied in
case of loss actually sustained
Measure of indemnity under a valued policy.
The effect of valuation in a policy of fire insurance is the
same with a marine insurance.
VALUATION CONCLUSIVE BETWEEN THE
PARTIES- as long the insured has insurable
interest and is not guilty of fraud
AMOUNT STATED IN POLICY/AMOUNT OF
PARTIAL LOSS-the valuation of the building or
structure may be fixed as provided for in section
174
PRO-RATA CONTRIBUTION TO PAYMENT OF
LOSS-If two or are policies are in effect, each will
contribute pro-rata to the payment of such
whole or partial loss.
Sec. 174. 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 insureds
interest therein may 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 insureds 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 insureds 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
paid, and in case there are two or more policies covering the
insureds interest thereon, 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.
Prepared by: Rasuman, Banotan, Valdez, De Guzman | Insurance Law (JDBL 311) 1st Semester | Atty. Mercado (Professor)
| The Insurance Code of the Philippines by De Leon, De Leon Jr. 2014
Insured not a co-insurer under fire policies in the
absence of stipulation.
Under the usual contract of fire insurance the
insurer, in case of a partial loss of the subject of
insurance, is required to give full indemnity for
such a loss up to the amount written in the
policy, even though the property is inadequately
insured.
Not the same in marine insurance due to Section
159
similar result is now obtained due to the
insertion of a standard provision known as a co-
insurers clause
Reason for co-insurance clause.
CO-INSURANCE CLAUSE. It requires the insured to
maintain an insurance in an amount equal to the value or
specified percentage value of the property insured,
under penalty of becoming a co-insurer to the extent of
such deficiency; it divides the potential risk between the
insurer and insured in case of partial loss or destruction
of the insured property.
Option to rebuild clause
OPTION TO REBUILD CLAUSE- Insurer given the option to
reinstate or replace the property damaged or destroyed
or any part thereof, instead of paying the amount of the
loss or damage.
Must be exercised in the time stipulated in the policy, or
in the absence of such, within a reasonable time.
If the insurer elects to rebuild, he is compelled to
perform this undertaking even though the cost may
exceed the amount of the insurance.
Sec. 175. 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 in so far as it
may affect other creditors of the insured.
Pledge, etc. of fire insurance policy after a loss.
Consent of, or notice to, insurer not required - After a loss
has happened, the liability of the insurer becomes fixed.
The insured may pledge, hypothecate or transfer a fire
insurance policy or rights thereunder. The insured has a
right to assign his claim against the insurer as any other
 | The Insurance Code of the Philippines by De Leon, De Leon Jr. 2014

money claim. This right is absolute and cannot be

delimited by agreement.

Limitation: The right of the insured to assign his claim

against the insurer after a loss has occurred is subject to
the prohibition in article 175 against a transfer of a policy
of fire insurance to any person or company who acts as
agent or otherwise represents the insurer. Any such
pledge, hypothecation or transfer of rights shall be void
and of no effect insofar as it may affect the creditors of
the insured

Prepared by: Rasuman, Banotan, Valdez, De Guzman | Insurance Law (JDBL 311) 1st Semester | Atty. Mercado (Professor)