Documente Academic
Documente Profesional
Documente Cultură
I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage
or
2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere
incident
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated,
2. Voluntary the parties may incorporate such terms and conditions as they may deem convenient.
4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss.
5. Conditional It is subject to conditions the principal one of which is the happening of the event
insured
against.
6. 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.
7. Personal each party having in view the character, credit and conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector
de
2. Event or peril insured against which may be any future contingent or unknown event, past or future
and a
1. Insurable Interest
An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant
is
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
Rules:
a. Applies only to property insurance except when the creditor insures the life of his debtor.
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
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)
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
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:
2. The insurer can only recover from the third person what the insured could have recovered.
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
c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan
Insurance
d. In life insurance
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)
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the
4. Such assumption is part of a general scheme to distribute actual losses among a large group or
substantial
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a
riskdistributing
device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
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 from the
applicant the
insurance premium and had accepted the application subject to processing by the head office.
A concise and temporary written contract issued to the insurer through its duly authorized agent
embodying
Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the
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
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
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)
POLICY OF INSURANCE
The written instrument in which a contract of insurance is set forth. (Sec. 49)
1. Parties
3. Rate of premium;
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
In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the
3. RUNNING POLICY contemplates successive insurances and which provides that the object of the
policy
1. Life insurance
2. Non-life insurance
Note:
1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec.
174).
2. Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance.
For a person to be called an insurance agent, it is necessary that he should perform the function for
must possess an insurable interest in the subject of the insurance and must not be a public enemy.
A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject
of such nation.
a. LIFE
i. A person who insures his own life can designate any person as his beneficiary, whether or not the
beneficiary has an insurable interest in the life of the insured subject to the limitations under Art.
Reason: in essence, a life insurance policy is no different form a civil donation insofar as the
beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life
ii. A person who insures the life of another person and name himself as the beneficiary must have
iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly
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).
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
A. In General
so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction
he
B. Life
c. of any person under a legal obligation to him to pay money or respecting property or services, of
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
Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no
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;
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 the insured might be
PROPERTY
Must exist only at the time the policy takes effect and need not exist
debtor.
property insured.
An expectation of a benefit to be
legal basis.
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
SPECIAL CASES
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent
of
his liability but not to exceed the value thereof (Sec. 15)
The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this
interest
mortgage debt equals such value. The reason is that the loss or destruction of the property insured will
not
b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the
mortgage
debt is extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his
merchandise,
and the provision in the lease contract providing for such automatic assignment is void for being
contrary to
law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)
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
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.
In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the
insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it
passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)
VIII. RISK
1. Future contingent event resulting in loss or damage Ex. Possible future fire
2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a vessel unknown to the
parties
Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of
EXCEPTIONS:
1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments
and
partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215
SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums
are not
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
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
4. When by any default of the insured other than actual fraud, the insurer never incurred
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:
1. When the risk has already attached and the risk is entire and indivisible.
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
Levied and paid to meet anticipated losses. Collected to meet actual losses.
the insured.
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
Reason: The policy does not represent a personal agreement between the insured and the insurer.
2. Property insurance
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.
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)
GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in
the
thing and the interest in the insurance are vested in the same person. (Sec. 20)
EXCEPTIONS:
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
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).
4. Determining whether a loss occurred and if so, the amount of such loss.
1. Concealment A neglect to communicate that which a party knows and ought to communicate (Sec.
26)
Requisites:
b. Such party concealing is duty bound to disclose such fact to the other.
d. The other party has not the means of ascertaining the fact concealed.
e. Material
Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the
concealed
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
a. Incontestability clause
information required of the applicant concerning the previous conditions of health and diseases
suffered.
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 without intent
to
deceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those
statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March
18,
2002).
2. Representations Factual statements made by the insured at the time of, or prior to, the issuance of
the
policy to give information to the insurer and induce him to enter into the insurance contract. They are
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.
Characteristics:
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.
Kinds:
Effect of Misrepresentation: the injured party is entitled to rescind from the time when the
representation
becomes false.
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
responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
3. Warranties Statement or promise by the insured set forth in the policy or by reference incorporated
therein, the untruth or non-fulfillment of which in any respect, and without reference to whether
insurer was in
fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.
Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured
or to
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
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the
other
EXCEPTIONS:
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec.
75)
WARRANTY REPRESENTATION
reference
Must be strictly complied with Requires only substantial truth and compliance
4. Conditions Events signifying in its broadest sense either an occurrence or a non-occurrence that
alters
the previously existing legal relations of the parties to the contract. They may be conditions precedent
or
conditions subsequent.
Effect of breach:
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
RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground
for
1. Non-life such right must be exercised prior to the commencement of an action on the contract;
2. Life such right must be availed of during the first two years from the date of issue of policy or its last
Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity
date of
a non-life policy.
Grounds:
1. Non-payment of premium;
4. Discovery of willful or reckless acts of omissions increasing the hazard insured against;
6. Determination by the Insurance Commissioner that the continuation of the policy would violate the
Requirements:
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.
Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period.
Requisites:
3. It has been in force during the lifetime of the insured for a period of at least two years from the date
of its
Note: The period of 2 years may be shortened but it cannot be extended by stipulation.
Incontestability only deprives the insurer of those defenses which arise in connection with the
formation and
operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)
BARRED DEFENSES
OF THE INSURER
excepted risk;
228[b]);
specified.
XIII.
A. OVER-INSURANCE results when the insured insures the same property for an amount greater than
the
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
Requisites:
Effects: Where double insurance is allowed, but 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
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
3. Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in
trust for the insurers, according to their right of contribution among themselves;
contribute ratably to the loss in proportion to the amount for which he is liable under his contract.
A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of
the
property insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may
declare
that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial
provision
Purposes:
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.
Insurer remains in such capacity Insurer becomes the insured in relation to reinsurer
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
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
1. Loss the proximate cause of which is the peril insured against (Sec. 84);
2. Loss the immediate cause of which is the peril insured against except
4. Loss caused by efforts to rescue the thing from peril insured against;
5. If during the course of rescue, the thing is exposed to a peril not insured
act;
and
cause.
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.
10
Failure to give notice will not exonerate the insurer, unless there is
B. CLAIMS SETTLEMENT
LIFE POLICIES
NON-LIFE POLICIES
become due.
made.
In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can
recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest
at
double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith
Insurance
Rules:
1. In the absence of an express stipulation in the policy, it being based on a written contract, the action
prescribes in 10 years.
2. However the parties may validly agree on a shorter period provided it is not less than one year from
the
3. The cause of action accrues from the rejection of the claim of the insured and not from the time of
loss.
It shall commence from the denial of the claim, not from the resolution of the motion for
reconsideration,
otherwise it can be used by the insured as a scheme or device to waste time until the evidence which
may be
used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident
otherwise
the claim is deemed waived. The suit for damages either with the proper court or with the Insurance
Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer,
otherwise
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,
3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise;
and
4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or
2. Bailee liability - insurance for those who have temporary custody of the goods.
3. Fixed transportation property they are so insured because they are held to be an essential
11
4. Floater provides insurance to follow the insured property wherever it may be located,
Insurable interest:
A.
1. Shipowner
a. Over the vessel to the extent of its value, except that if chartered, the insurance is only up to
c. No insurable interest if he will be compensated by charterer for the value of the vessel, in case
of loss.
2. Cargo owner
3. Charterer
Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage
(Sec. 106).
B.
Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a
security,
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
the:
1. unusual violence; or
wave; or
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.
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
owners,
and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:
3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002
ed.)
A clause under which the insurer may become liable to pay the insured, in addition to the loss actually
suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for
which
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED
12
2. Liability of the thing insured to capture or detention;
Note: This should be related to the general rule regarding material concealment.
it is to give information
IMPLIED WARRANTIES
4. Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the
ship or cargo where such nationality or neutrality is expressly warranted; (Sec. 120)
While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the
insurers
right to enforce the term of the implied warranty against the assured under the marine insurance policy,
the
same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the
insurer as
to foreclose recourse against the common carrier for any liability under the contractual obligation as
such
common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a
ships fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated
by the
GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time
of the
commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is
it
material that the vessel arrives in safety at the end of her voyage.
EXCEPTIONS:
1. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she
may
undertake
2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be
3. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy
at
the commencement of each portion
cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The
shipper
may have no control over the vessel but he has control in the choice of the common carrier that will
transport
Deviation
A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or
the
Instances:
1. Departure of vessel from the course of the sailing fixed by mercantile usage
2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile
usage
Kinds:
1. Proper -
a. When caused by circumstances outside the control of the ship captain or ship owner;
d. When made in good faith to save human life or to relieve another vessel in distress (Sec. 124)
13
Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
LOSS
1. Total:
a. Actual -
i. Total destruction;
b. Constructive -
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)
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)
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
GENERAL PARTICULAR
deliberately;
Necessary.
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:
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
1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec.
138);
4. It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141);
6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec.
143);
and
14
7. The notice of abandonment must be explicit and must specify the particular cause of the
abandonment
(Sec. 144).
Effects:
1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of
recovery
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 co-insurer of the
difference
Requisites:
2. The amount of insurance is less than the value of the property insured.
Rules:
3. Co-insurance applies in fire insurance when expressly provided for by the parties.
CO-INSURANCE REINSURANCE
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
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at
the
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 insurance or fire
1. Rules on constructive total loss and abandonment applies only to marine insurance;
3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial
15
Requisites:
1. The use or condition of the thing is specifically limited or stipulated in the policy;
Fall-of-building clause
A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire,
all
A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any
part
performance because this is an obligation to do, not to give. Remedy: Art. 1167, NCC.
Insurance covering loss or liability arising from accident or mishap, excluding those falling under other
types
Classifications:
1. Insurance against specified perils which may affect the person and/or property of the insured.
(accident or
health insurance)
2. Insurance against specified perils which may give rise to liability on the part of the insured for claims
for
Insurable interest is based on the interest of the insured in the safety of persons, and their property,
who
may maintain an action against him in case of their injury or destruction, respectively.
In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the
injured
third party to whom the insured is liable. Prior payment by the insured to the third person is not
necessary in
order that the obligation may arise. The moment the insured becomes liable to third persons, the
insured
acquires an interest in the insurance contract which may be garnished like any other credit. (Perla
Comapnia
Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other
provisions
applicable to casualty insurance. Therefore, such casualty insurance are governed by the general
provisions
applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations
of the
parties must be determined by their contract, taking into consideration its purpose and always in
accordance
In burglary, robbery and theft insurance, the opportunity to defraud the insurer the moral hazard
is so
great that insurer have found it necessary to fill up the policies with many restrictions designed to
reduce the
hazard. Persons frequently excluded are those in the insureds service and employment. The purpose of
the
exception is to guard against liability should theft be committed by one having unrestricted access to the
1. Indemnity against liability A third party injured can directly sue the insurer.
2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no
cause
of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurers liability is based on contract; that of
the
insured is based on torts. Furthermore, the insurers liability is limited by the amount of the insurance
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,
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)
16
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
Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their
dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or
operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA 386).
Note: It is the only compulsory insurance coverage under the Insurance Code.
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
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
Rules:
2. Proofs of loss -
vehicle only
a. In case of an occupant: Insurer of the vehicle in which the occupant is riding, mounting or
dismounting from;
b. In any other case: Insurer of the directly offending vehicle. (Sec. 378)
The claimant is not free to choose from which insurer he will claim the no fault indemnity as the
law makes
it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding,
mounting
or dismounting from. That said vehicle might not be the one that caused the accident is of no moment
since
the law itself provides that the party paying may recover against the owner of the vehicle responsible
for the
This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000
and
there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to
the
excess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon, p. 716)
The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their
heirs
immediate compensation although in limited amount, pending final determination of who is responsible
for the
SPECIAL CLAUSES
A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use
of
the insured vehicle to the insured himself or any person who drives on his order or with his permission
The requirement that the person driving the insured vehicle is permitted in accordance with the
licensing
laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the
person
driving is other than the insured.
B. Theft Clause
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
17
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such information and assistance as the
XX. SURETYSHIP
An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation
or
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
1. Solidary;
Surety can recover from principal Insurer has no such right; only right of subrogation
Commissioner or court
Insurance on human lives and insurance appertaining thereto or connected therewith which includes
every
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.
2. Group Life Essentially a single insurance contract that provides coverage for many individuals.
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
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
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 the
loan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life
insurance will be used to pay for his indebtedness to the lender assured and the deceaseds heirs will
thereby
be relieved from paying the unpaid balance of the loan. (Great Pacific Life Assurance Corp. vs. Court of
1. Suicide
1. If committed after two years from the date of the policys issue or its last reinstatement;
2. If committed in a state of insanity regardless of the date of the commission unless suicide is an
18
It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy
Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law
obviates
against recovery as being more in consonance with public policy and as being implicit under Section 87,
ICP.
GENERAL RULE: 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)
EXCEPTIONS:
1. Accidental killing
2. Self-defense
If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the
beneficiary is
other than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29
Phil 534)
The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when
a
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. (The Insurance Code of the Philippines
Annotated,
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.
essential
assignment
waiver
place
insurer
financial loss
the insurance.
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
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
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
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
19
d. Rule-making authority
e. Punitive
INSURANCE CODE
(PD 1460)
Who is the officer in charged with the implementation of laws of the Insurance Code?
2. To Regulate the sale and issuance of variable contracts, to license persons selling them and
3. To Issue rulings, instructions circulars, orders and decisions for the enforcement of the
4. To stop the operation of an insolvent insurance company and determine within 30 days
whether to rehabilitate or liquidate the company.
5. To impose appropriate fines and Penalties on insurance companies and on their officers and
agents for refusal to comply with any order, instruction of the Commissioner , or for
mismanagement
The Commissioner has the power to adjudicate claims and complaints for amounts not exceeding P100k
2. Liability of a reinsurer
This authority is concurrent with the courts, but filing of the complaint with the Commissioner
The final order or decision of the Commissioner shall have the force and effect of a judgment, and
may be appealed to the Court of Appeals within 15 days from notice of the award judgment, or of
Cause of action commences from the time of the denial of his claim by the insurer, express or
- an agreement
(a) doing any kind of business, including a Reinsurance business, specifically recognized as constituting
(c) making or proposing to make, as surety, any contract of S uretyship as a vocation and not as merely
(d) Others - doing or proposing to do any business in substance equivalent to any of the foregoing in a
20
The fact that no profit is derived from the making of insurance contracts, agreements or
be deemed conclusive to show that the making thereof does not constitute the doing or
2. Conditional subject to conditions happening of the event insured against and/or other conditions
Note However that under the Motor Vehicle Insurance, Third Party Liability Insurance is
Note Stipulations pour autrui or a provision in favor of a third person not a party to
the contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties have
1. Life Insurance
2. Non-life Insurance
a. Fire Insurance
b. Marine Insurance
c. Casualty Insurance
d. Suretyship
1. Insurable interest of the insured interest of some kind susceptible of pecuniary or monetary
estimation
2. Insured subject to loss through the destruction or impairment of that interest by the happening
of designated perils
4. Such assumption is part of a general scheme to distribute actual losses among a large group of
persons bearing somewhat similar risk
insurers promise
2. Peril Insured against contingent or unknown event, past or future and a duration for the risk
thereof
4. Payment of premium
Note: No policy of insurance shall be issued or delivered unless in the form previously
- e.g. destruction of a building from fire in Fire Insurance or the death of the insured in a Life
Insurance policy
- Note that the word Loss embraces injury or damage. A loss may be partial or total
- This is best exemplified in a Marine Insurance where at the time the policy is executed, the vessel
subject of the insurance may have already sunk, but that fact was unknown to the parties at the
3. Contingent Liability
- This is best illustrated in Reinsurance where the liability of the insurer is in turn insured by him
Note that Drawing of any lottery, or for/against any chance or ticket in a lottery drawing a prize
may not be insured. A contract of insurance is a contract of indemnity and not a wagering or
gambling contract
21
1. Insurer
2. The Insured
3. Beneficiary
Insurer is the person, natural or juridical, who holds a certificate of authority from the
Authority is required
Insured
Generally, any person with capacity to contract and having an insurable interest in he life
A married woman may take insurance on her life or on that of her children without need of
Public enemy means any citizen or juridical entity of the country with which the Philippines
may be at war
1. War prevents an insurance contract from being enter into between citizens and juridical
b. Life Insurance war terminates the policy, but the insured is entitled to the
equitable value of the policy arising from the premiums actually paid, when
I. BENEFICIARY
The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy
Beneficiary
The beneficiary is the person designated to receive the proceeds of the policy when the risk
attaches.
He may be the (1) insured himself in the property insurance or (2) the insured or (3)a third
The father or mother of a minor who is an insured or beneficiary of a life policy, may
exercise, for said minor, all rights under the policy up to P20k without the need of a court authority or
As a general rule, the insured who insures his own life may designate any person, including his
estate as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the
insured
The Insured has the right to change the designation of the beneficiary, unless he has expressly
designated an irrevocable beneficiary in his policy
5.Change the irrevocable designation to revocable, even though the change is just and
reasonable
Ratio: The irrevocability of the designated beneficiary and his heirs have acquired from the date
of the policy vested rights over the policy (Philam vs. Pineda 175 SCRA 201)
22
As a general rule: the proceeds of a life insurance policy belong to the designated
beneficiary to the exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA 324)
A beneficiary in life insurance is like a donee, hence, the civil code provision on the disqualifications of
a donee shall apply. Donations made between the following persons are void
2. Donations between persons found guilty of the same criminal offense, in consideration
thereof
3. Donations made to a public officer or his wife, descendants and ascendants, by reason of his
office.
The interest of the 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 this event, he nearest relative of the insured shall receive the proceeds of said
The nearest relatives of the insured in the order of enumeration are the following:
1. Legitimate children
2. Parents
4. Surviving spouse
NOTES:
(a) Where a specified person is beneficiary, the proceeds will inure to the beneficiary.
Q: A took out a life insurance policy and designated his wife, B, as the sole beneficiary. All the
premiums of the policy were paid out from his salaries. A died intestate leaving B and 3 children.
A: All of the proceeds of the policy will go to the designated policy, B. The source of the premium
(b) If the premiums are paid from (1) salaries of the insured or (2) other conjugal
properties or funds, and the beneficiary is the estate of the insured, the proceeds of the life
Where a policy is taken by a third person on the life of the insured, and said third person
designates himself as the beneficiary, the third person must have an insurable interest on the life of
the insurance existing at the time the policy was taken and at the time the loss tool place
3. In his life or
b. On whom he depends wholly or in part for education or support (Wife insuring Husbands life)
c. Under legal obligation to him to pay money, to deliver property or to render service (Creditor
d. Upon whose file any estate or interest vested upon him. (Legatee of a usufruct insuring the
A corporation has an insurable interest in the lives of its officers when the death or illness of
The corporation and the heirs of the manager can insure the life of the manager-decedent in
agreed proportion, since both have insurable interest over the life of the latter
23
Rule: No contract or policy of insurance on property shall be enforceable except for the benefit of some
person
Insurable interest
property insured
interest
Insurable interest in property is every interest in property whether real or personal, or any relation
thereto, or
liability in respect thereof, of such a nature that the contemplated peril might directly cause damage to
the
insured
What does insurable interest in property consist of
1. An existing interest
3. An expectance coupled with an existing interest in that out of which the expectance arises
3. Naked owners interest over the property which another person has beneficial title
Note: A mere contingent or expectant interest in anything, not founded on an actual right to the thing,
nor upon any valid contract for it, is not insurable (e.g. property which one expects to inherit or that of a
general or unsecured creditor insuring the property of his debtor who is alive even though destruction
of
such property would render worthless any judgment he might obtain note further in the latter case, the
creditor can insure the property of a deceased debtor since all personal liability ceases with the death of
the debtor. The proceedings to subject the estate to the payment of the debt of the deceased are
against
all who have an interest in the property. Of course, an unsecured creditor has an insurable interest in
the
The vendee-consignee of goods in transit under a perfected contract of sale is vested with an equitable
title to
the goods even before receipt by him of the goods to constitute an insurable interest in the property (Fil
A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the extent
of his
mortgagee?
a. The mortgagor has an insurable interest on his property as owner up to the full
NOTE: Each may take separate insurances over the same property up to the extent of their
Where the mortgagee independently of the mortgagor insured his won interest in the mortgaged
property, he is entitled to the proceeds of the policy in case of loss before payment of the mortgage.
But in such case, the mortgagee is not allowed to retain his claim against the mortgagor but it passes by
subrogation to the insurer to the extent of the insurance paid. In other words, the payment of the
insurance to the mortgagee does not relieve the mortgagor form his principal obligation but only
24
The insurance is on the mortgagors interest where the mortgagor takes insurance on the property in his
How?
i. Take insurance on the property, and assign the same to the mortgagee (this operates merely as
an equitable transfer of the policy so as to enable the assignee to recover the proceeds)
NOTE: In case of fire, marine and casualty insurance, the assignment must be with the consent of the
insurer because it is a personal contract. (Note that life insurance may be freely assigned before or
after loss occurs to any person whether he has an insurable interest or not)
What are the effects of insurance taken in the on the interest of thee mortgagor?
b. Any act by the mortgagor prior to the loss which would avoid the policy, will thus avoid the
c. Any act which under the contract of insurance is to be performed by the mortgagor (e.g.
payment of premium) may be performed by the mortgagee with the same effect, as if performed by
the mortgagor.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit,
What is the effect If the mortgagor assigns the policy to the mortgagee with the insurers
If at the time of the assent, the insurer imposes further obligations on the assignee making a new
contract with him, the act of the mortgagor cannot affect the rights of said assignee.
a. The Policy itself which transfers the fights to the contract to another insured
b. The proceeds of the policy after the loss has happened , which involves a money claim under, or a
c. The subject matter of the insurance, such as a house insured under a fire policy which ahs the
It must exist at the time the policy is taken and at the time the loss incurred but it need not exist in the
meantime
Ratio: To prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a
case,
the contract of insurance is a mere wager which is void. (Cha vs CA 277 SCRA 690)
A change in the interest in any part of a thing insured unaccompanied by a corresponding change of
interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing
and the interest in the insurance are vested in the same person.
Note: Mere transfer of a thing insured does not transfer the policy but suspends it until the same person
becomes the owner of both the policy and the thing insured. For a transferee to have an insurable
interest
over a policy undertaken by the transferor, the insurance policy should be assigned to him, when he
A change of interest in a thing insured, after the occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for the loss
A change of interest, by will or succession, on the death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the person taking his interest in the thing insured.
Otherwise stated, the insurance on property passes automatically, on the death of the insured , to the
A transfer of interest by one of several partners, joint owners etc. who are jointly insured, will not
avoid the insurance even though it has been agreed that the insurance shall cease upon an alienation
A change of interest where there are several things separately insured by one policy, does not avoid
Example: A insured his car for P100k and jeep for P85k under the single policy, the sale of one
BUT if the car and jeep were not separately valued in the policy , the sale of the jeep without
25
What stipulations are prohibited in an insurance policy?
1. Stipulations for the payment of loss whether the person insured has or has not any interest in the
The measure of an insurable interest in property is the extent to which the insured might be damnified
by loss
or injury thereof.
In cases where the property is insured for less than its true or market value, what are the rules
to be followed?
In case of total loss: The property owner is entitled to receive the face value of the policy but in
In case of partial loss: The property owner is entitled only the amount in proportion to his loss
and the market value of the property as against the to face value of the policy. Ratio An owner of
property who insures the same for less that its true value is co-insurer for the uninsured portion of the
HOWEVER if the policy is an open one, the owner can collect the actual partial loss not
Example:
X has a property worth P10,000. He insures it against fire for P8,000. How much shall he collect from
then insurance in case of total loss? If there is Partial loss in the amount of P6,000?
In case of partial loss - open policy P6,000 the actual partial loss not exceeding the face value of the
policy
In case of partial loss valued policy 6/10 of P8,000 or P4,800- the amount in proportion to his loss
and
the market value of the property as against the to face value of the policy.
III CONCEALMENT
What is Concealment?
Concealment is a neglect to communicate that which a party knows and ought to communicate to the
other
party.
2. there must be an obligation for the insured to reveal the concealed matter to the insurer
Each party to a contract of insurance must communicate in good faith all facts within his knowledge only
when:
2. The other has not the means of ascertaining the said facts
A fact is material if knowledge of it would have affected the decision of the insurer to enter into the
contract,
Note:
Matters relating to the health of the insured are material and relevant to the approval and issuance of
the
life insurance policy as they definitely affect the insurers action on the application (Sunlife vs CA 245
SCRA 268)
It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer, as it
is sufficient that his non-disclosure misled the insurer in forming his estimates of the risk of proposed
insurance policy or in making inquiries (ibid)
Lack of understanding by the illiterate insured of the statements and her application as to her state of
good health does not negate the insurers right to rescind (Tang vs CA 90 SCRA 236)
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assured, but he designedly and
26
Neither party to a contract of insurance is bound to communicate information of the matters following,
2. Those which, in the exercise of ordinary care, are ought to be known to the insurer or his agent,
- general usages of trade - eg. rules of navigation all risks connected with navigation)
5. Information or the nature or amount of the interest of one insured except if insured is a lessee or a
b. Impliedly by neglect to make inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated (Fact disclosed that one was confined in
the hospital. The insurer did not inquire as to the cause of confinement, the latter is in
estoppel)
7. Judgment upon the matters in question eg. Opinion, speculation or expectation (How long will you
live?)
The rule is concealment whether intentional or unintentional entitles the injured party to rescind a
contract
of insurance.
However, an intentional and fraudulent omission, on the part of one insured, to communicate
information
of matters proving or tending to prove the falsity of a warranty is required to entitle the insurer to
rescind
Exceptions:
1. Incontestability clause:
In life insurance, after a policy has been in force for at least two years, the insurer cannot rescind the
If the insured dies within two years from the effectivity of the policy, rescission due to concealment or
misrepresentation of material matters may still be invoked by the insurer, provided done within two
The following matters although concealed will not vitiate the contract of marine insurance except
What is representation?
A representation is an oral or written statement of a fact or condition made by the insured at the time
of or
prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to
induce the
Misrepresentation Concealment
untrue
1. Oral
2. Written
3. Affirmative representation
4. Promissory representation
It is any allegation as to the existence or non-existence of a fact when the contract begins
27
It is any promise to be fulfilled after the contract has come into existence or any statement concerning
what is
warranty.
- the non-performance of such a promise cannot be shown by the insurer in defense of an action on
the policy, but proof that the promise was made with fraudulent intent will serve to defeat the
insurance
2. As an undertaking by the insured, inserted in the policy but not specifically made a warranty.
Warranty Representation
an implied warranty
A representation may be made at the time of or before issuance of the policy. It may be altered or
withdrawn
Note:
A representation must be presumed to refer to the date on which the contract goes into effect
Hence:
1. There is NO FALSE representation it is true at the time the contract takes effect although
2. There is FALSE representation if it is true at the time it was made but false at the time the
A representation is deemed to be false when the facts fail to correspond with its assertions or
stipulations.
What is misrepresentation?
2. Which the insured states 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 the tendency to mislead
NOTE:
An insured who has no personal knowledge of a fact may communicated such information which he has,
and believes it to be true, upon the subject matter with the explanation that said information was
obtained
from 3rd persons. In this case he is not responsible if the information turns out to be false.
Except if the information proceeds from an agent of the insured whose duty is to give information to his
principal. This is so because knowledge of the agent is also knowledge of the principal
If the representation is false on a material point, the injured party is entitled to rescind from the time
HOWEVER, the right to rescind given to the insurer is waived by the acceptance of premium payments
despite
Materiality is determined by the probable and reasonable influence of the facts on the party to whom
communication is due, in forming his estimate of the contract, the risk and the premium
NOTE:
When the original contract of insurance was modified by reason of concealment or misrepresentation
on
the part of the insured especially when modification pertains to material points, upon discovery of such
In order that the insurer may rescind a contract of insurance, such right must be exercised prior to the
commencement of an action on the contract. (Example, if the insured filed an action to collect amount
of the
28
Incontestability clause
Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from
contesting the policy or setting up any defense, except as is allowed of the ground of public policy.
Requisites:
3. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of
NOTE: The period of two years for contesting a life insurance policy may be shortened but it cannot
be extended by stipulation
When the policy of life insurance becomes incontestable, the insurer may not refuse to pay the same by
claiming that:
The incontestability of a policy under the law is not absolute. The insurer may still contest the policy of
the
following grounds:
1. That the person taking the insurance lacked insurable interest as required by law
4. That the conditions of the policy relating to military or naval service have been violated
5. The fraud is of a particularly vicious type, as when the policy was taken out in furtherance of a
scheme to murder the insured, or where the insured substitutes another person for the medical
6. The beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy
V. WARRANTIES
What is a warranty?
A warranty is a statement or promise stated in the policy itself or incorporated therein by reference,
whereby
the insured expressly contracts as to the present or future existence or certain facts, circumstances or
conditions, the literal truth of which is essential to the validity of the contract of insurance
It may relate to the past, the present, the future or to any or all of these.
1. Affirmative warranty where the insured asserts the existence of a matter at or before the issuance of
the policy
2. Promissory warranty where the insured promise or undertakes that certain matters shall exist or will
be done or omitted after the policy takes effect
3. Express warranty where the assertion or promise is clearly set forth in the policy or incorporated
therein by reference
4. Implied warranty where the assertion or promise is not expressly set forth in the policy, but because
of the general tenor of the terms of the policy, or from the very nature of the insurance contract, a
There is no particular form or words necessary to create a warranty. Whether a warranty is constituted
or not
depends upon the intention of the parties, the nature of the contract or the words used thereto. Incase
of
2. In another instrument signed by the insured and referred to in the policy as making part of it. Mere
29
Note:
A statement in a policy, of a matter relating to the person or thing insured, or to the risk as a fact is an
express warranty. A statement which is in the nature of an opinion or belief is not a warranty
It is a statement in a policy that a thing which is material to the risk is intended to be done or not to be
done
contract:
1. Loss occurs before the time arrives for the performance of the promissory warranty
2. Performance becomes unlawful before the time arrives for the performance of the promissory
warranty
3. Performance becomes impossible before the time arrives for the performance of the promissory
warranty
What happens when there is violation of material warranty or to other material provisions of
the policy?
All breaches of warranty give to the insurer the right to rescind the contract. This rule is true even if the
If fraud intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud
ab initio. The insured is not entitled to the return of the premiums paid.
If there is no fraud in the breach, the insurer is freed from the contract the moment the breach occurs,
and is entitled to retain the premiums corresponding to the period up to the time of the breach. But if
the
breach was done at the time of the inception of the policy, the insured cannot recover for any loss
arising
A policy of insurance is the written instrument in which a contract of insurance is set forth. It is the
formal
written instrument evidencing the contract of insurance entered between the insured and the insurer.
necessary to complete the contract of insurance shall be written on. However, Group insurance and
groupannuity
A rider is a printed or typed stipulation contained on a slip of paper attached to the policy and forming
an
What is the effect of a rider, clause, warranty or endorsement purporting to be a part of the
As a general rule, these attached papers becomes part of a contract of insurance. However it will not
bind the
insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original
policy
was in force shall not bind the insured unless it countersigned by the insured.
Cover notes or interim policies or binding slips may be issued to bind the parties temporarily pending
the issue
of the policy. It is intended to give temporary protection pending the investigation of the risk by the
insurer or
These notes are good for 60 days only, unless renewed with the written approval of the Insurance
Commissioner
1. The parties
30
Yes. The agent or trustee when making an insurance contract for and in behalf of his principal should
indicate
that he is merely acting in a representative capacity by signing as such agent or trustee, or by other
general
Yes. Insurable interest in the property of a partnership exists in both partnership and the partners and a
partner has an insurable interest in the firms property which will support a policy taken out thereof for
his own
benefit
A partner who insures partnership property in his own name limits the contract to his individual share
unless
the terms of the policy clearly show that the insurance was meant to cover also the shares of the other
partners.
Contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the
insurer, otherwise stated, it should be construed liberally in favor of the insured and against the insurer
In Cebu vs William 306 SCRA 762 the Supreme Court held: although in this jurisdiction, contracts of
adhesion have been consistently upheld as valid per se as binding as an ordinary contract, the court
recognizes instances when reliance on such contracts cannot be favored especially where the facts and
circumstances warrant that subject stipulations be disregarded. The facts and circumstances vis--vis
the nature of the provision sought to be enforced should be considered, bearing in mind the principles
of
In Rizal vs CA 336 SCRA 12, Supreme court said: it is settled that the terms in an insurance policy,
which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where forfeiture is involved, and the reason for this is that the
insured usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal advisers
1. Open or unvalued policy is one in which the value of the thing insured is not agreed upon, but is
left to be ascertained in case of loss. In other words, it is one in which a certain agreed sum is written
on the face of the policy not as the value of the property insured, but as the maximum limit of
2. Valued policy is one which expresses on its face an agreement that the thing insured shall be valued
at a specified sum. In the absence of fraud or mistake, such value will be paid in case of total loss of
3. Running policy is one which contemplates successive insurances and which provides that the subject
b. Conviction of a crime arising out of acts increasing the hazard insured against
d. Discovery of willful or reckless acts or omissions increasing the hazard insured against
e. Physical changes in the property insured which result in the property becoming uninsurable
f. A determination by the commissioner that the policy would violate the insurer
VII PREMIUM
Define premium.
Premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril
Is this absolute?
1. Life and Industrial Life policy whenever the grace period provision applies(sec 77)
31
3. Payment in installments of the premium and partial payment made at the time of loss
NOTES:
Grace period:
Life insurance 30 days or 1 month within which the payment of any premium after the first may be
made
Industrial life insurance -4 weeks and where the premiums are payable monthly, either 30 days or 1
month
of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be
Effect on nonpayment
2. Of subsequent premiums- it does not affect the validity of the contract unless, by express stipulation,
it is provided that the policy shall in any event be suspended or shall lapse.
1. If the thing insured was never exposed to the risk insured against
2. When the contract is voidable due to the fraud or misrepresentation of the insurer or his agent
3. When the contract is voidable because of the existence of facts of which the insured is ignorant
4. When the insurer never incurred any liability under the policy because of the default of the insured
1. Where the insurance is made for a definite period of time and the insured surrenders policy before
termination
NOTES
Where the insurance is for a definite period of time and the insured cancels his policy by surrendering
the
policy, the insured is entitled to recover the premiums already paid equivalent to the unexpired term at
a pro
rata rate
- Short period rate is that percentage, as agreed upon by the parties and appearing on the face of
the policy, which the insurer shall retain from the premium in the event that the policy is
The premiums to be returned where there is over-insurance by several insurers shall be proportioned to
the
amount by which the aggregate sum insured in all the policies exceeds the value of the thing
Example:
B. Co 600,000 12,000
In this case, there is an over insurance of P300,000, the amount by which the aggregate sum insured in
the two policies exceeds the insurable value of the house. The proportion is P300k to P1800k or 1/6.
Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is what B co must return
A double insurance exists where the same person is insured by several insurers separately in respect to
the
32
the sum total of the amounts of the policies issued does not
There are always several insurers There may be only one insurer involved
THEREFORE, double insurance and over-insurance may exist at the same time or neither may exist at all
A policy which contains no stipulation against additional insurance is not invalidated by the procuring of
such
insurance. However, a stipulation that insurance shall be avoided if additional insurance is procured
without
the insurers consent is valid and reasonable, and any breach thereof will prevent a recovery on the
policy
The insured can insure with two or more companies unless prohibited by prior policy
Where he is allowed, but over-insurance results, he can claim in case of loss, only up to
the agreed valuation (in valued policy) or up to the full insurable value (in open policy) from any, some
or all insurers, without prejudice to the insurers ratably apportioning the payments
The insured can also claim a ratable return of the premiums on the over-insured amount
IX. REINSURANCE
Reinsurance is a contract by which an insurer procures a third person to insure him against loss or
liability by
A reinsurance is presumed to be a contract of indemnity against liability and not merely against damage.
The subject of the contract of reinsurance is the insurers risk and not the property insured under the
original
policy. The reinsurer agrees to indemnify the insurer , not against the actual payment made but against
liabilities incurred
The insurer becomes the insured in relation to the reinsurer The insurer remains as the insurer
The subject of the insurance is the original insurers risk The subject of the insurance is the
property
Co-insurance is the percentage in the value of the insured property which the insured himself assumes
or
undertakes to act as insurer to the extent of the deficiency in the insurance of the insured property. In
case of
loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount
of
insurance bears to the designated percentage of the value of the property insured.
Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him against
liability
by reason of such original insurance. Basically, a reinsurance is an insurance against liability which the
original
What are the matters which the reinsured must communicate to the reinsurer?
The insurer who obtains reinsurance, except under automatic reinsurance treaties, must communicate
the
33
This refers to a case when two or more insurance companies agree in advance that each will reinsure a
part of
any line of insurance taken by the other, such contract is self executing and the obligation attaches
automatically on acceptance of a risk by the reinsured. In this case, the obligation to communicate is not
A facultative reinsurance agreement is a contract wherein the reinsurer may or may not accept
participation in
The term facultative is used in reinsurance contracts and it is so used in this particular case merely to
define
the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share
is
accepted, the obligation is absolute and the liability assumed thereunder can be discharged by the one
and
only way payment of the share of losses. There is neither alternative nor substitute prestation
(Equitable
Reinsurance is a contract solely between the reinsured and the reinsurer and creates no privity of
contract
between the reinsurer and the original insured. However, if the contract of reinsurance is made directly
for the
benefit of the reinsureds policyholders or if the reinsurer assumes and agrees to perform the
reinsureds
contracts, the reinsurer becomes directly liable to the policyholders. It is necessary for the original
insured to
accept and communicate acceptance of such benefit to the reinsurer before revocation
NOTE:
A reinsurer is entitled to avail of every defense which the reinsured may avail of against the original
X. LOSS
Loss is the injury or damage sustained by the insured from the perils insured against
Proximate cause is the active efficient cause which sets in motion a train of events which in turn brings
about a
result without the intervention of any force operating and working actively from a new and independent
force
Remote cause is a cause that does not necessarily or immediately produce an event or injury
1. Loss the proximate cause of which is the peril insured against although the peril not contemplated by
the contract may not have been a remote cause of the loss
2. Loss the immediate cause of which is the peril insured against except where the proximate cause is an
excepted peril
3. Loss through the negligence of the insured or of the insureds agents or others, and
4. Loss in the course of efforts to rescue the thing from the peril insured against although the cause of
What are the prerequisites for the recovery for loss in insurance against fire?
1. Notice of loss which must be immediately given unless delay is waived expressly or impliedly by the
insurer
2. Proof of loss according to the best evidence obtainable. Delay may be also waived expressly or
All defects in a notice of loss, or in preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to him, within reasonable time, as grounds of
34
When no notice is given by the insured or by any other person entitled to the benefit of the insurance,
within a
reasonable time.
When preliminary proof of loss is required in the policy, it is sufficient that the insured gives the best
evidence
which he has in his power and not evidence necessary in a court of justice.
A. Life Insurance
1. Where insured outlives maturity due, the claim is payable immediately on maturity of the
2. Where policy matures by Insureds death, the claim is payable within 60 days after
presentation of the claim and filing of proof of death of the insured. In case of unreasonable
delay, the insured is entitled to (1) Attorneys fees (2) expenses incurred by reason of the
unreasonable withholding (3) interest at the legal interest rate (6%) per annum as fixed by
the monetary board (4)amount of the claim., (5) moral damages if bad faith or fraud is
present and (6) exemplary damages if the act is wanton and oppressive.
3. Please note that for cases involving loss or injury, any person having any claim upon the
policy shall, without delay present a written notice of claim within six (6) months from date
of accident to the insured, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damages due to loss or injury must be brought, in proper cases, with the
Commissioner of the Courts within one (1) year from denial of claim, otherwise, the
B. Property Insurance
2. If ascertainment of loss is not made within 60 days, the claim is payable within 90 days
from receipt of proof of loss by the insurer, if not paid, unreasonable delay is presumed
3. Please note the 1 year prescriptive period to file an action after denial of claim.
The prescriptive period is not suspended by the filing of a request for reconsideration after
1. The insurance company will indemnify any authorized driver who is driving the motor vehicle
of the insured and in the event of death of said driver, the company shall likewise indemnify
his personal representatives and the company may at his option make indemnity payable
directly to the claimants or heirs of claimants. In other words, under the compulsory vehicle
liability insurance, direct payments may be made by the insurer to an accident victim of an
insured vehicle
2. Pour autrui clauses inure to the benefit of any person injured by the person insured as if he
Note:
Article 2207 of the Civil Code makes it clear that the insurance company that has paid the indemnity for
the
injury or loss sustained by the property insured shall be subrogated to the rights of the insured against
the
wrongdoer or the person who has violated the contract. The insurer who pays the insured is an
assignee in
equity of the insured against the offender. (Malayan vs CA 165 SCRA 536)
As a general rule: Payment by the insurer to the insured for loss under the policy entitles the insurer to
be
2. Where the insurer pays without notifying the carrier, which in good faith had already paid the
insured,
and
3. Where the insurer pays the insured for a loss which is not included in the risk insured against, by the
policy
Where the insured was paid by the insurer, the latter is subrogated to all rights of the former against the
wrongdoer. If the insured after being paid by the insurer, releases the wrongdoer without the insurers
consent, the insurer loses his right of subrogation against the wrongdoer. The insurer will however be
entitled
to recover from the insured what the insured originally received from the insurer as the proceeds of the
policy
35
CLASSES OF INSURANCE
MARINE INSURANCE
-Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or
others insurable interest in movable property, may be exposed during a certain voyage or a fixed period
of
time.
Perils of Navigation
-perils in making landings in river navigation and damage from rain in consequence of improper
stowage.
War risks
-perils due directly to some hostile action, military maneuver, operational war danger
Builders risks
-all kinds of marine casualties & damages done to the ship or goods at sea by the violent action of the
winds or waves; not foreseen & not attributable to the fault of anybody.
Perils of the ship
c) negligent failure of the ship's owner to provide the vessel w/ proper equipment to convey the cargo
under
ordinary conditions.
Inchmaree clause
-provision in the policy that the insurance shall cover loss of, damage to, the hull or machinery
through negligence of the master, charterers, engineers, or pilots, or through explosions, bursting of
boilers,
breakage of shafts, or through any latent defect in the machinery or hull not resulting from want of due
diligence.
1) Shipowner
- over the vessel, except that if chartered, the insurance is only up to the amount not recoverable
2) Cargo owner
3) Charterer
- over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage.
Loan on Bottomry/Respondentia
-loan in which under any condition whatever, the repayment of the sum loaned, and of the premium
stipulated, depends upon the safe arrival in port of the goods on which it is made, or of the price they
may
receive in case of accident.
1.Owner/debtor
-difference between the actual value of the vessel and the loan on bottomry.
2.Creditor
36
- value of what may be saved/salvaged shall be divided between the lender & insurer, in proportion to
Freightage
b) its employment for the carriage of his own goods or those of others.
a) In case of a charter party, from the time the vessel has broken ground on the chartered voyage
b) If no charter party & price is to be paid for the carriage of goods, from the time said goods are
actually on
board the vessel or from the time both ship & goods are ready for specified voyage.
In Marine Insurance, insured is required to reveal all information which he possesses material to the
risk.
CONCEALMENT THAT DOES NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE
LOSS:
Seaworthiness
- relative term depending of the NATURE of the ship, the VOYAGE, & the SERVICE in which she is at the
time engaged.
- Reasonable fitness to perform the service & to encounter the ordinary perils of the voyage
General Rule:
Exceptions:
c) if the course of sailing is not fixed by mercantile usage, one which to a master of ordinary skill and
DEVIATION IS PROPER:
a) when caused by circumstances over which neither the master nor the owner of the ship has any
control
37
b) when necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured
against
c) when made in good faith, & upon reasonable grounds of belief in its necessity to avoid a peril
d) when made in good faith, for the purpose of saving human life, or relieving another vessel in distress.
Loss
A. TOTAL
1. Actual total loss ( exists when the subject matter of the insurance is wholly destroyed or lost or when
it is
B. PARTIAL LOSS
- whenever the ship upon which the cargo insured was loaded cannot continue the voyage due to the
Average
- extraordinary/accidental expense incurred during the voyage for the preservation of the vessel, cargo,
or both and all damages to the vessel & cargo from the time it is loaded and the voyage commenced
KINDS OF AVERAGE:
1. GROSS/GENERAL AVERAGES
- include all the damages & expenses which are deliberately caused in order to save the vessel, its
cargo, or both at the same time, from real & known risk.
g. must be necessary
2. SIMPLE/PARTICULAR AVERAGE
- includes all the expenses & damages caused to the vessel or to her cargo which have not inured to
the common benefit & profit of all the persons interested in the vessel & her cargo.
- Partial loss caused by a peril insured against, which is not a general average loss
''FPA CLAUSE"
- a situation wherein the insured & insurer stipulated in the policy that the vessel/cargo insured shall be
- effects:
a. if damage to the thing insured is a PARTICULAR average, the insured shall not be liable UNLESS
b. if damage to the thing insured is a GENERAL average, insurer shall be liable whether the loss is
partial or total or for the condition of the insured for his proportion of all general average losses
There is an ACTUAL TOTAL LOSS if the insured is effectively deprived of the use & possession of the
Abandonment
- act of the insured by which, after a constructive total loss, he declares the relinquishment to the
38
- effect: insured is surrendering to the insurer whatever is left of the property insured, & resorting to
the policy for indemnity, insurer then becomes the owner of whatever may remain of the insured
4. made within a reasonable time after receipt of reliable information of the loss
5. factual
6. made by giving notice to the insurer which may be done orally or in writing
7. notice of abandonment must be explicit & must specify the particular cause of the abandonment
1. if more than 3/4 of the value of the thing insured is actually lost
2. if more than 3/4 of the value of the thing insured would have to be expended to recover it from the
peril
4. if the thing is insured is a ship & the contemplated voyage cannot be lawfully performed without
incurring
an expense to be insured of more than 3/4 the value of the thing abandoned.
5. If the thing insured is & the contemplated voyage can't be lawfully performed without incurring risk
which
6. If the thing insured, being cargo or freightage, the voyage cannot be performed nor another ship
procured
1. abandonment is made
2. no abandonment
total loss
- no particular form; may be made orally unless required to be in writing, even notice by telegraph is
- if done orally, insured must submit to the insurer within 7 days from such oral notice, a written notice
of the abandonment
1. becomes irrevocable UNLESS the ground upon which it owes made proven to be unfounded
a) express
- mere silence of the insurer for an unreasonable length of time after notice shall be construed as
acceptance
EFFECT OF VALUATION:
Co-insurance
- form of insurance in which the person who insures his property for less than the entire value is
understood to be his own insurer for the difference which exists between value of property & amount
of insurance
2. loss is partial
39
Fire insurance
- a contract by which the insurer for a consideration agrees to indemnify the insured against loss, or
damage to, property by fire, but may include loss by lightning, windstorm, tornado & earthquake &
other allied
risks, when such risks are covered by extension to fire insurance policies/ under separate policies
Alteration
- alteration in the use or condition of thing insured will entitle the insurer to rescind the contract
Co-insurance clause
- clause requiring the insured to maintain insurance to an amount equal to a specified percentage of the
value of the insured property under penalty of becoming co-insurer to the extent of such deficiency
- clause in fire insurance policy that if the building or any part thereof falls, except as a result of fire, all
- Alternative obligation, either pay the amount of the loss/ rebuild the building damaged
Casualty Insurance
- includes all forms of instrument against loss or liability arising from accident/mishap other than those
1. insurance against specified hazards which may affect the person/property of the insured
2. insurance against specified hazards which may give rise to liability on the part of the insured for
claims for
insured
Suretyship
- contract whereby a person binds himself solidarily with principal debtor for the fulfillment of an
obligation
1. solidary
and obligee
SURETY GUARANTOR
Undertakes to pay if
primary Secondary
No such rights Can not be compelled to pay the creditor unless the latter has exhausted
40
and obligee
principal
provided by law
Risk-shifting device
premium paid being in the
common fund
oblige to be valid
1. Contract bonds
a. Performance bonds
b. Payment bonds
2. Official
3. Judicial
Life Insurance
- insurance payable on the death of a person or on his surviving a specified period or otherwise
- Nature:
- specified premiums are to be paid for a specified period or until the death of insured if it occurs before
the expiration of such period, and under which insurer is obligated to pay a specified sum on the
3. ENDOWMENT INSURANCE
- contract to pay a certain sum to the insured if he lives a certain length of time, or if he dies before
- insurance for a term of years only, or until insured shall have arrived at a certain age
5. ADVANCE INSURANCE
- contract which provides for the payment to the insured of a lump sum immediately, in consideration
of his agreement to make certain periodical payments to the insurer for a specified period, or for that
end of the period, the performance of insured's obligation being secured by mortgage or deed of trust
6. TONTINE INSURANCE
- form of life insurance by which the policyholder under the same plan, that no dividends, return
premium, or surrender value shall be received for a term of years called the "tontine period," the
entire surplus from all sources being allowed to accumulate to the end of that period, and then divided
among all who have maintained their insurance in force and who have survived.
"No-fault" Clause
- any claim for death or injury shall be paid up to p5,000 without necessity of proving negligence or
fault, provided the following proofs of loss under oath are submitted:
41
- a claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from in any other case, against the insurer of the directly offending vehicle
- the clause means that it indemnifies the insured owner against loss or damage to the car but limits
the use of the insured vehicle to the insured himself or any person who drives on his order or with his
permission
- the requirement that the person driving the insured vehicle is permitted in accordance with the
licensing laws or other laws or regulations to drive the motor vehicle. It is applicable only if the person
- where the car is unlawfully and wrongfully taken without the owner's consent or knowledge, such
taking constitutes theft, and thus, it is the theft clause and not the "authorized driver clause" that
should apply.
Cooperation Clause
- clause in an automobile insurance policy 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
- liabilities arising out of acts of negligence, which are also criminal, are also insurable on the ground
that such acts are accidental. Thus, a motor insurance policy covering the insureds liability for
accidental injury caused by his negligence, even though gross and attended by criminal consequences
such as homicide through reckless imprudence, will not be void as against public policy. But liability
- Notice of claim must be filed within six months from the date of accident. Otherwise the claim shall be
deemed waived. Action or suit must be brought in proper cases, with the Commission or the courts
within one year from the denial of the claim, otherwise the claimant's right of action shall prescribe
1. Adjudicatory functions
2. Administrative Functions
- in life insurance contract, the insurer is liable in case of suicide in the following cases:
1. if committed after two years from the date of the policy's issue or its last reinstatement
3. if committed in a state of insanity regardless of the date of the commission unless suicide is an
excepted peril
- is a 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
- purpose: to give immediate financial assistance to victims of motor vehicle and/or their dependents,
especially if they are poor regardless of the financial capability of motor vehicle owners or operators
42