PREMIUM

The agreed price for assuming and carrying the risk

WHEN IS THE INSURER ENTITLED TO A PREMIUM?

GR:The insurer is entitled to the payment of a premium as soon as the thing insured is exposed
to the peril insured against.

CASH AND CARRY PRINCIPLE

Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium is paid .

EXCEPTIONS: (LW
(1) In case of life or industrial life (life insurance policy where the premium is payable monthly
or oftener) whenever the grace period applies (Section77),

(2) When the insurer makes a written acknowledgment of the receipt of premium, such is
conclusive evidence of the payment of the premium to make it binding notwithstanding any
stipulation therein that it shall not be binding until the premium is paid (Section 78)

HENCE, the effect of an acknowledgment in a policy or contract of insurance of the receipt of

the premium – is that it is conclusive evidence of its payment – so far as to make the policy
binding.
HOWEVER, it is conclusive only to make the policy binding and not for the purpose of collecting
the premium, and

(3) Where the obligee has accepted the bond or suretyship contract in which case such bond or
suretyship contract becomes valid and enforceable irrespective of whether or not the premium
has been paid by the obligor to the surety (Section 177).

NOTE – that there is no excuse for non-payment of the premium since payment on time is of
the essence.
THE ONLY RECOGNIZED EXCEPTION is when failure is due to the wrongful conduct of the insurer.
Example: the refusal to accept a validly tendered payment of the premium.

WHAT IS THE EFFECT OF PARTIAL PAYMENT ORDINARILY,

GR: the obligation to pay premium when due is considered an INDIVISIBLE OBLIGATION.Hence,
forfeiture is not prevented by a part payment

EXCEPTION: UNLESS,payment by installment has been agreed upon or is the established practice –

BASIC PRINCIPLES OF EQUITY AND FAIRNESS would not allow the insurer to collect and accept
installments and later deny liability as premiums were not paid in full. (See Philippine Phoenix
Surety and Ins. v. Woodworks – 20 SCRA 1270, Makati Tuscany Condominium Corporation v.
CA, 215 SCRA 462 - payment by installment was agreed upon, NOTE ALSO TIBAY v. CA – 257
SCRA 126 – any partial payment when there is an agreement that the policy shall not be effective
pending payment of full premium was in the concept of deposit.) PAYMENT TO INSURANCE
AGENT OR BROKER is payment to the insurance
PAYMENT TO INSURANCE AGENT OR BROKER is payment to the insurance company

WILL PAYMENT BY PROMISSORY NOTE OR CHECK BE SUFFICIENT TO MAKE THE POLICY BINDING?

No, Art 1249 2nd paragraph of the Civil Code, that such produces payment only when it
is encashed.

WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUMS PAID?

The insured is entitled to a return when

(1) To the whole premium, when no part of the interest in the thing insured is exposed to any
of the perils insured against (Section 79 –a).
Example: insurance on a vessel for a voyage that did not take place
(2) where the insurance is made for a definite period of time and the insured surrenders his
policy before the expiration of the period. Here, the insured only recovers a portion of the
policy premiums corresponding with the unexpired time

BUT it does not apply if (a) the policy is not for a definite period (b) a short period rate
(insurance is for a period of less than a year and a rate has been agreed to if the policy is
surrendered. Example: If the policy is in force for a month, the insurer retains 20% of the
premium) has been agreed upon (c) the policy is a life insurance policy – it is indivisible
but he has a cash surrender value

(3) when the contract is voidable on account of fraud or misrepresentation of the insurer or
the agent (Section 81).

Example: where insurer makes a representation not contained in the policy because policy is not
that applied for

(4) where the contract is voidable on account of facts, the existence of which the insured was
ignorant without his fault (Section 81). Example: when the insurance is taken by the insured,
who is ignorant of the facts, that he did not have insurable interest or a person, not knowing
that that his car has been totally damaged, procured insurance over it

.(5). when by any default of the insured other than actual fraud, the insurer never incurred any
liability under the policy (Section 81) Example: a person insured his vessel for a trip, but vessel
is destroyed before the trip.

(6) In case of over-insurance. Here the insurance is in excess of the amount of the insurable
interest of the insured and it is insured by several insurers, the insured is entitled to a RATABLE
RETURN OF PREMIUM, proportional to the amount by which the aggregate sum insured in all
the policies exceeds the insurable value. Example: A’s house is valued at 1.5million, he obtained
the following policies – Here A is entitled to the return of 5,000 from X and 10000 from Y
TO WHOM ARE THE PREMIUMS RETURNED

Amount 1,000,000 2,000,000 Unless otherwise stated they shall be returned to the insured
who paid them.

WHEN ARE THEY NOT RECOVERABLE Premiums cannot be recovered:

(1) if the peril insured against has existed, and the insurer has been liable for any period, the
period being entire and indivisible (Section 80). Example: The vessel is insured for a voyage that
will take 5 days, 2 days into a voyage, the policy is surrendered
(2) In life insurance – (Section 79-b), and
(3) when the insured is guilty of fraud or misrepresentation (Section 81)

LOSS AND NOTICE OF LOSS

WHAT ARE THE RULES TO DETERMINE WHETHER THE INSURER IS LAIBLE FOR THE LOSS OF THE
THING INSURED They are:

(1) Loss of which a peril insured against is the proximate cause

PROXIMATE CAUSE – that which, in a natural and continuous sequence, unbroken by any
efficient intervening cause, produces an injury and without which the injury would not
have occurred), although a peril not contemplated by the contract may have been a
remote cause

BUT the insurer is not liable for a loss of which the peril insured against was only a
remote cause (Section 84).

Example: In life insurance that covers death by accident, if the insured sustains an
accident that renders him weak, while in said state, he contracts a cold that develops
into pneumonia. The proximate cause is the accident, while the remote cause is the
pneumonia, the insurer is liable.

An example of a loss, where the peril insured against is only a remote cause is: firemen train
their hoses at the house of the insured, damaging windows and furnitures, though not necessary
to put out the fire as the same was affecting the house of the neighbor. The insured cannot
claim loss due to fire as it is only a remote cause.

RECOGNIZING THAT THERE ARE PROBLEMS IN DETERMINING PROXIMATE CAUSE – NOTE THE
FOLLOWING RULES:
(a) If there is a single cause which is an insured peril, clearly it is the proximate cause and
there is liability. Example: Insurance is against fire and the property insured is burned OR
Insurance covers accidental death and the insured dies in an accident
 (b) If there are concurrent causes (those happening together) with no excluded perils, there is
liability if one of the causes is an insured peril, the others may be ignored.

Example: In accident insurance where the insured has a heart disease. He is involved in an
accident that causes injuries, which coupled with his weak heart causes his death. The proximate
cause is the accident. The insurer is liable.
(c) If there are concurrent causes with an excepted peril (insured peril and excepted peril
operate together to produce the loss) the claim will be outside the scope of the policy. Example:
No liability in a claim for property stolen by rioters under a burglary policy, if the policy exclude
riot risks.
(d) But, if the results of the operation of the insured peril can be clearly separated from the
effects of the excepted peril, the insurer is liable. Example: a personal accident policy will cover
death by accident although the insured was suffering from a disease excluded by the policy

(2) Where a number of causes operate one after the other, and the original cause happens
to be a peril insured against, there is liability.

Example: Insured scratches an open wound, which gets infected, which ultimately results
in death
BUT if the direct chain of events can be traced to an excepted peril there is no liability.
Example: An earthquake (if excepted) causes a fire that spreads, all resulting fire damage
is deemed caused by an excepted peril.
BUT, if the chain of events is broken by the intervention of a new an independent cause,
liability will depend upon whether the new cause is an insured or excepted peril.

Example: if the insured is treated in the hospital for an accident but while there he
contracts a disease, the disease is the proximate cause, there will be no liability under
the accident policy, if death by disease is covered, then the insurer is liable.

3. Loss caused by efforts to rescue the thing insured from a peril insured against that would
otherwise have caused a loss, if in the course of such rescue, the thing is exposed to peril
not insured against, which permanently deprives the insured of its possession, in whole or
in part, or where a loss is caused by efforts to rescue the thing insured from a peril
insured against (Section 85). Here the principle of proximate cause is extended to loss
incurred while saving the thing insured. Example: (a) When the thing insured is water
damaged due to efforts to put out a fire, the fire being a peril insured against (b) theft
by 3rd persons while the goods are brought out in the course of rescuing them from a
fire, which is the peril insured against BUT – no loss if the goods are left out and are lost
– it is now due to lack of reasonable care and vigilance (c) A insured the contents of his
house against fire. A fire breaks out, while removing the contents, they were stolen or
they were broken or damaged, theft or breakage not being perils insured against.

4. Where a peril is especially excepted in a contract of insurance, a loss, which would not
have occurred but for such peril, is thereby excepted although the immediate cause of the
loss was a peril which was not excepted (Section 86).
 The immediate cause is the CAUSE OR CONDITION NEAREST THE TIME AND PLACE OF
THE INJURY. Here, the insurer will be liable if both the immediate cause and the
proximate cause are not excepted.
 If the proximate cause is excepted and the immediate cause is not, the insurer is
not liable. Example: A factory is insured against fire, but it excepts loss through
explosion. If an explosion occurs and results into a fire that creates a loss, the
insurer is not liable. If a fire occurs first, then an explosion is caused, the insurer
is liable.

5. An insurer is not liable for a loss caused by the willful act (gross) or through the
connivance of the insured; but he is not exonerated by the negligence of the
insured(simple), or of the insured’s agent or others (Section 87).

Consequently, if the insured was merely negligent, the insurer is still liable as one of the
principal reasons for procuring insurance is to protect himself against the consequences of
his own negligence or that of his agents.

Example: The insured carelessly used kerosene in lighting a stove, causing his house to catch fire,
the insurer is liable for loss BUT if the negligence is so gross so as to be sufficient basis for
fraudulent intent – it can amount to a willful act.

TRANSFER OF CLAIMS

An agreement not to transfer the claim of the insured after the loss happens – IS VOID if MADE
BEFORE THE LOSS except as otherwise provided in case of life insurance (Section 83).

This means that the insured has an absolute right to transfer his claim against the insurer AFTER
THE LOSS occurs, what is prohibited is a transfer prior to the loss. This is so because such a
stipulation after the loss occurs shall hinder the transmission of property. Neither does it affect
the insurer as its liability is already fixed and what is actually assigned is the money claim, not
the contract itself.

The EXCEPTION is Section 173 that provides that the transfer of a fire insurance policy to any
person or company who acts as an agent for or otherwise represents the issuing company is
prohibited and is void insofar as it affects other creditors of the insured.

NOTICE AND PROOF OF LOSS WHEN MUST NOTICE OF LOSS BE GIVEN AND BY WHOM

Notice of Loss must be given without unnecessary delay by the insured or some person entitled
to the benefit of the insurance.

IF NOT GIVEN, the insurer is exoection 88). MEANING OF WITHOUT UNNECESSARY DELAY is
within a reasonable time, depending on circumstances of a peculiar case, although courts have
construed the requirement liberally in favor of the insured. NOTE THE SPECIFIC APPLICATION TO
FIRE INSURANCE due to the nature of the loss and urgent need to determine the cause thereof.
The longer the period that lapses from the time of loss, the greater is the opportunity of the
insured to tamper with the evidence in preparation for a fraudulent claim. PROOF OF LOSS If the
policy requires Preliminary Proof of Loss (evidence given the insurer of the occurrence of the
loss, its particulars, and data necessary to enable it to determine liability and the amount
thereof) IT IS NOT NECESSARY that the insured give such proof – AS MAY OR WOULD BE
NECESSARY IN A COURT OF JUSTICE. WHAT IS SUFFICIENT is the BEST EVIDENCE which he has in
his power at that time (Section 89).

WHEN ARE DEFECTS IN THE NOTICE OR PROOF OF LOSS DEEMED WAIVED BY THE INSURER 1.
When the insurer fails to specify to the insured any defect which the insured can remedy
without delay. Example: It is required to be sworn to but is accepted by the insurer 2. When
the insurer denies liability on a ground other than the defect in the notice or proof of loss.
Example: Denial is based on nullity of the contract (Section 90) WHEN IS DELAY IN THE GIVING
OF NOTICE WAIVED 1. If it is caused by any act of the insurer. Example: The insurer accepts
payment of the premium with full knowledge that the premises have been lost or damaged will
be estopped from claiming delay in the giving of notice of loss. 2. If the insurer omits to make
an objection promptly and specifically on that ground. MEANING: despite delay, the insurer does
not object (Section 91) REQUIREMENT OF CERTIFICATION OR TESTIMONY OF A THIRD PERSON If in
the giving of preliminary proof of loss, a certification or testimony of a third person other than
the insured is required, it is sufficient for the insured to use REASONABLE DILIGENCE to procure
it. In case of REFUSAL to give it, the insured can furnish REASONABLE EVIDENCE to the insurer
that such refusal WAS NOT INDUCED BY ANY JUST GROUNDS OF DISBELIEF in the facts necessary
to be certified or testified – ONCE SHOWN or GIVEN the requirement may be dispensed with
(Section 92). WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING OF
NOTICE OF LOSS In property insurance, after the insured has received payment from the insurer of
the loss covered by the policy, the insurance company is SUBROGATED to the rights of the
insured against the wrongdoer or the person who has violated the contract. The right of
subrogation accrues upon payment of the insurance claim. NOTE: That subrogation takes effect
by operation of law and does not require the consent of the wrongdoer (Fireman’s Fire
Insurance vs. Jamilla & Company, 70 SCRA 323). THERE IS NO SUBROGATION in (a) Life Insurance
as it is not a contract of indemnity (b) when proximate cause of the loss is the insured himself
(c) when the insurer pays to the insured a loss not covered by the policy. THE INSURED IS NO
LONGER ENTITLED TO COLLECT FROM THE WRONGDOER if the amount that he received from the
insurer has fully compensated for the loss. DOUBLE INSURANCE WHEN DOES DOUBLE INSURANCE
EXIST Where the same person is insured by several insurers separately in respect to same subject
or interest (Section 93). Its REQUISITES are: (1) same person is insured (2) there are several
insurers (3) subject insured is the same (4) interest insured is the same (5) risk or peril insured
against is the same. There is a prohibition TO PREVENT OVER-INSURANCE, thus preventing fraud.
EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE 1. Insured, unless the policy otherwise
provides, may claim payment from the insurers in such order as he may select up to the
amount for which the insurers are severally liable under their respective contracts. Example: A
house is insured with X Insurance for 10K, with Y Insurance for 20K, and with Z Insurance for
20K. It is valued at 20K. In case of loss – A can recover 10K-from X Insurance and 10K from
either Y Insurance or Z Insurance 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 policy without regard to the actual value of the subject matter insured. Example: A owns a
house valued at 40K. He insured it with X Insurance for 35K and with Y Insurance for 5K. The
value of the house with both companies is 20K. If it is lost – A can collect 5K from Y Insurance.
He cannot collect 35K from Y Insurance but only the difference between the value of the house
(20K) and the value of the policy with Y Insurance (5K) 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. Example: A insured his house with X Insurance for
40K and with Y Insurance for 30K, and with Z Insurance for 20K. The policies are open. The loss
is 70K. If Y Insurance and Z Insurance have paid 50K, X Insurance will only have to pay A, the
difference between what he received from Y and Z (50K) and the amount of loss (70K) or 20K.
4. Where the insured receives any sum in excess of the valuation in case of a valued policy or
the insurable value in case of an unvalued policy, he must hold such sum in trust for the
insurers, according to their right of contribution among them. Example: if A collects 35K from X
Insurance and 5K from Y Insurance when the value of the house is only 20K, he must hold the
20K excess in trust. If the policies are open, if A can collect 40K from X Insurance, 30K from Y
Insurance and 20K from Z Insurance, when the actual loss is only 70K – he must hold the excess
in trust. 5. In relation Paragraph (4) – Each insurer is bound, as between himself and the other
insurers to contribute ratably to the loss in proportion to the amount for which it is liable under
his contract. ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION – WHICH HAS ALREADY
BEEN INCORPORATED IN ALMOST ALL POLICIES – that should there be other insurances covering
the same property, the liability of the company would be limited to its ratable proportion of the
loss or damage (Also known as CONTRIBUTION CLAUSE) The formula is: Insurer Policy / total
amount of policies times the amount of loss equals the share of the insurer Example: 10K x
20K = 4,000 – X Insurance 50K 20K x 20K = 8,000 – Y Insurance 50K 20K x 20K = 8,000 – Z
Insurance 50K If Z Insurance paid 20K but since its share is only 8K, it may collect 4,000 from X
Insurance and 8K from Y Insurance, so that it only pays its ratable share (Section 94) 43 TEST TO
DETERMINE EXISTENCE OF DOUBLE INSURANCE

Whether the insured, in case of happening of the risk, can be directly benefited by recovering on
both policies? If yes – there is double insurance. IS DOUBLE INSURANCE VALID If there is an
OTHER INSURANCE CLAUSE – one that prevents other insurance on the property except with the
consent of the company – THEN IT WILL PREVENT ENFORCEMENT OF THE POLICY, the policy
then will be NULL AND VOID. If there is no OTHER INSURANCE CLAUSE, then double insurance is
allowed but the provisions of Section 94 must be followed because property insurance is a
contract of indemnity. DISTINGUISHING OVER – INSURANCE FROM DOUBLE INSURANCE 1. In
double insurance, there must be 2 or more insurers. In over insurance, 1 insurer is sufficient. 2.
In double insurance, the total amount of the policies need not exceed the value of insurable
interest. In over insurance, the value must always be in excess of the insurable interest.

DOUBLE INSURANCE (November 12, 2018)

WHEN DOES DOUBLE INSURANCE EXIST

Where the same person is insured by several insurers separately in respect to same
subject or interest (Section 93).
Its REQUISITES are: (PSSIR)

(1) same person is insured

(2) there are several insurers
(3) subject insured is the same
(4) interest insured is the same
(5) risk or peril insured against is the same.

There is a prohibition TO PREVENT OVER-INSURANCE, thus preventing fraud.

EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE

1. Insured, unless the policy otherwise provides, may claim payment from the insurers in
such order as he may select up to the amount for which the insurers are severally
liable under their respective contracts. Depende sa insured kung sino. He has the discretion.

Example: A house is insured with X Insurance for 10K, with Y Insurance for 20K, and with Z
Insurance for 20K. It is valued at 20K. In case of loss – A can recover 10K-from X Insurance and
10K from either Y Insurance or Z Insurance

2. Where the policy under which the insured claims is a valued policy, the insured must
give credit(subtract) as against the valuation for any sum received by him under any
policy without regard to the actual value of the subject matter insured.

Example: A owns a house valued at 40K. He insured it with X Insurance for 35K and with Y
Insurance for 5K. The value of the house with both companies is 20K. If it is lost – A can collect
5K from Y Insurance. He cannot collect 35K from Y Insurance but only the difference between
the value of the house (20K) and the value of the policy with Y Insurance (5K)

3. Where the policy under which the insured claims is an unvalued policy or open, he must
give credit, as against the full insurable value, for any sum received by him under any
policy. Example: A insured his house with X Insurance for 40K and with Y Insurance for
30K, and with Z Insurance for 20K. The policies are open. The loss is 70K. If Y Insurance
and Z Insurance have paid 50K, X Insurance will only have to pay A, the difference
between what he received from Y and Z (50K) and the amount of loss (70K) or 20K.

4. Where the insured receives any sum in excess of the valuation in case of a valued
policy or the insurable value in case of an unvalued policy, he must hold such sum in
trust for the insurers, according to their right of contribution among them.

Example: if A collects 35K from X Insurance and 5K from Y Insurance when the value of the
house is only 20K, he must hold the 20K excess in trust. If the policies are open, if A can
collect
40K from X Insurance, 30K from Y Insurance and 20K from Z Insurance, when the actual loss
is only 70K – he must hold the excess in trust.

5. In relation Paragraph (4) – Each insurer is bound, as between himself and the other
insurers to contribute ratably to the loss in proportion to the amount for which it is
liable under his contract.

ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION – WHICH HAS ALREADY BEEN

INCORPORATED IN ALMOST ALL POLICIES – that should there be other insurances covering the
same property, the liability of the company would be limited to its ratable proportion of the loss
or damage (Also known as CONTRIBUTION CLAUSE)

Reinsurance
 Foreign insurance company,
 Reinsurance is a different contract, therefore concealment, misrep applies
 Insurer must communicate to the reinsurer all facts, or info he is in possession which are
material to the risk, those previously disclosed
 And all subsequently aquired must also be disclosed even if no longer material to the previous
contract ONLY EXCEPTION AUTOMATIC REINSURANCE TREATY it is an agreement in place

Q:When is the reinsurer liable?

 If original insurer is liable then liable otherwise not.

 Violationof implied warranties

 When can the insurer collect? Even if he had not yet paid he could still collect. Because SM ..

 Extent of liability of reinsurer is determined by the extent liability of the original liability of the
original insurer as long as within the limit of reinsurance policy because it is a contract of
indemnity
 The original insured has no interest whatsoever in the contract of reinsurance.The insured
cannot file a suit against the reinsurer.

Distinctions between Reinsurance and Double Insurance

a) ..
b) Subject Matter (risk in reinsurance is liability)
c)

CLASSES OF INSURANCE

1. Marine Insurance-
Insurance against loss or damage to: (a) Vessels, craft, aircraft, vehicles ,goods, freights,
cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action,
evidences of debt, valuable papers, bottomry or respondentia interest and all other kinds
of property and interests therein, in respect to, appertaining to or in connection with any
and all risks or PERILS OF NAVIGATION, TRANSIT OR TRANSPORTATION OR WHILE BEING
ASSEMBLED, PACKED, CRATED, BALED, COMPRESSED OR SIMILARLY PREPARED FOR
SHIPMENT OR WHILE AWAITING SHIPMENT OR DURING ANY DELAYS, STORAGE,
TRANSHIPMENT OR RESHIPMENT INCIDENT THERETO
 including WAR RISKS, MARINE BUILDER’S RISK, AND ALL PERSONAL PROPERTY FLOATER
RISKS (follows property wherever it may be) (b) Person or property in connection with or
appertaining to marine, island marine, transit or transportation insurance, including liability
for loss or in connection with the construction, repair, operation, maintenance, use of the
subject matter of the insurance (BUT NOT INCLUDING LIFE INSURANCE, OR SURETY
BONDS, NOR INSURANCE AGAINST LOSS BY REASON OF BODILY INJURY TO ANY PERSON
ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE OF AUTOMOBILES) (c) Precious
stones, jewels, jewelry, precious metals whether in the course of transportation or
otherwise. (d) Bridges, tunnels or other instrumentalities of transportation and
communications (excluding buildings, their furniture and furnishings, fixed contents, and
supplies held in storage), piers, wharves, docks, slips, and other aids to navigation and
transportation, including dry docks, marine railways, dams and appurtenant facilities for
the control of waterways.
AND – “Marine Protection and Indemnity insurance” meaning insurance against, or against
legal liability of the insured for loss damage or expense incident to ownership, operation,
chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality
in use in ocean or island waterways, including liability of the insured for personal injury,
illness or death or for loss or damage to the property of another person (Section 99).

🕵️♂️: All risk related to transportation.

NOTE – that marine insurance is really TRANSPORTATION INSURANCE which is a kind of

insurance which is concerned with the perils of property in (or incidental to) transit as
opposed to property perils at a generally fixed location. BUT it does not include normal
motor vehicle insurance which is treated separately by law

WHAT ARE THE DIVISIONS OF TRANSPORTATION INSURANCE

The divisions of transportation insurance are:

(1) Ocean Marine Insurance pertaining primarily to sea perils of ships and cargoes, and

(2) Inland Marine Insurance pertaining primarily to land or over land (but sometimes water)like
rivers and lakes transportation perils of property shipped by railroads, motor trucks, airplanes and
other means of transportation. These includes four basic policies:

(a) property in transit- providing protection to property frequently exposed to los

while in transport from one place to another

(b) bailee liability- providing protection to persons who have temporary custody of goods or
personal property of others

(c) fixed transportation property- providing protection to fixed property considered aids to the
movement of property, like bridges and tunnels, and

(d) floater- providing protection to personal property (such as precious stones, jewelry, works of
art) wherever it may be located subject always to the territorial limits of the contract and need
not necessarily be in the course of transportation. NOTE also that marine insurance may be in
the form of property insurance, indemnifying the insured for loss or damage to property (Par. 1,
Section 99) or liability insurance, protecting the insured against the consequences of legal liability
for loss or damage to property or for personal injury, illness or death of a person (Par. 2,
Section 99)

WHAT RISKS ARE INSURED AGAINST

The basic risk insured against is what is commonly known as

PERILS OF THE SEA (all kinds of marine casualties and damages done to the ship
or goods at sea by the violent action of the winds or waves, one that could not be foreseen
and is not attributable to the fault of anybody (refers to the ship captain and crew🕵️♂️🕵️♂️🕵️♂️

Examples: shipwrecks, foundering, stranding, collision, including the jettisoning of cargo if made
for the purpose of saving the vessel) although it also includes FIRE, ENEMIES, PIRATES, THIEVES,
JETTISON, SURPRISALS, TAKING AT SEA, ARRESTS, RESTRAINTS, DETAINMENTS OF KINGS, PRINCESS
AND PEOPLE OF WHAT NATION, CONDITION OR QUALITY, BARRATRY OF THE MASTER AND ALL
OTHER PERILS LOSSES, MISFORTUNES THAT HAVE OR SHALL COME TO HURT, DETRIMENT OR
DAMAGE OF THE SAID GOODS, MERCHANDISE, SHIP OR ANY PART THEREOF.

PERIL OF THE SEA: COULD NOT BE FORSEEN not attributable to the fault of anybody (insured or
anyone acting under his authority) Note the principle involved in averages because one average will
modify.

Read averages, deliberately caused, however the difference is that there are expenses…deliberately
incurred for the benefit of a vessel or cargo
A. Particular Average is not covered by insurance
B. General average is covered by insurance

AS OPPOSED TO PERILS OF THE SHIP which is not covered by marine insurance losses or damages
that result from
(a) natural and inevitable action of the sea
(b) ordinary wear and tear of the ship
(c) negligent failure of the ship owner to provide the vessel with the proper equipment to
convey the cargo under ordinary conditions.

INSURABLE INTEREST IN MARINE INSURANCE

I. WHO?

The owner of the vessel. Will exist even if there is a charter and even if the charterer agrees for the loss

Note : When insurable interest exists? …even if it does not exist in the meantime
Continues even the vessel has been chartered by one who covenants to pay the owner the value
of the vessel upon loss BUT, in case of loss, the insurer is liable only for the part of the loss
which the insured cannot recover from the from the charterer (Section 100)

II. The insurable interest of the owner of a ship hypothecated by bottomry(specifically) is

only the excess of its value over the amount secured by bottomry (Section 101)
 Mortgages

BOTTOMRY/RESPONDENTIA DEFINED is a loan payable only if the vessel given as security for
said loan arrives safely at port from contemplated voyage (BOTTOMRY) or Extinguished if does not
reach the destination

a loan payable only upon the safe arrival in port of the goods given as security (RESPONDENTIA).
SM is cargo.

III. The OWNER OF A VESSEL ALSO HAS INSURABLE INTEREST IN EXPECTED FREIGHTAGE,
WHICH ACCORDING TO THE ORDINARY COURSE OF THINGS HE WOULD HAVE EARNED
BUT FOR THE INTERVENTION OF A PERIL INSURED AGAINST OR OTHER PERIL INCIDENT TO
THE VOYAGE. (Section 103)

FREIGHTAGE DEFINED are the benefits derived by the owner from

(a) chartering of the ship

(b) its employment for the carriage of his own goods or those of others (Section 102)

Q: When do you have a right to it? Freightage

 Same with extraordinary diligence.

When right to be paid freightage EXISTS

(a)
(b) In case of a charter party – when the ship has broken on the chartered voyage

(b) if a price is to be paid for the carriage of goods, when they are actually on board or
there is contract to put them on board AND the vessel and goods are ready for the
specified voyage (Section 104).

If you have no right (when 2 instances does not exist) you cannot claim your
remedy is claim for refund of premiums paid. If no part of SM has not been exposed to the risk

ARE THERE PERSONS/ PARTIES OTHER THAN THE OWNER WHO HAS INSURABLE INTEREST

1. One who has an interest in the thing from which profits are expected to proceed, has
insurable interest on the profits (Section 105).

 Owner of the cargo

2. The charterer of a ship has insurable interest to the extent that he is liable to be
damnified by its loss (Section 106). Example: A charters B’s vessel on condition that A
 would pay B in case of loss the amount of PHP 300,000.00. A has insurable interest to the
extent of PHP 300,000.00.

CONCEALMENT IN MARINE INSURANCE

 Same standard plus
1. Possession of material fact.
2. the information belief or expectation of a 3rd person, in reference to a material
fact, is material. Note: under Section 35 such is not required to be
communicated in ordinary insurance (Section 108) but in ordinary insurance it is
not material.
 Distinguished with other forms of insurance

3. Qualification as to concealment

When is the insurer exonerated?

EFFECT OF CONCEALMENT WHILE CONCEALMENT AS A RULE ENTITLES THE INJURED PARTY TO
RESCIND, the rule must yield to Section 110 – as it does not vitiate the contract but merely
exonerates the insurer FROM A LOSS RESULTING FROM THE RISKS CONCEALED as related to

(a) the national character of the insured

 open registration. Malabo ang nationality.
 closed registry which does not allow multiple registration. Followed in the Philippines.
(b) the liability to seizure from breach of foreign laws of trade
 Example embargo,
(c) the want of the necessary documents
 false or simulated documents
(d) the want of the necessary documents
(e) the use of false/simulated documents. Example: The vessel is seized due to lack of
documents, the insurer is exonerated. If the vessel is lost due to a storm, the insurer is
liable despite concealment of lack of documents.

 If not enumerated then rescind

Exonerated means the insurer shall not be liable. Why not rescinded? To encourage the growth of
maritime commerce. These things are ordinary. Only attendant risks.
1. Risks accepted by insurer.
2. Cannot be determined easily.
3. There is a possibility that the vessel can be recovered.
 Insurer could still be liable because the contract was not extinguished.

DISTINGUISHING ORDINARY CONCEALMENT FROM THAT IN MARINE INSURANCE

1. In ordinary insurance, opinion or belief of a 3rd person or own judgment of the insured is
not material and need not be communicated (Section 35), in marine insurance, belief or
expectation of a 3rd person in reference to a material fact is material and has to be
communicated.
3. In ordinary insurance, a causal connection between the fact concealed and cause of loss is
not necessary for the insurer to rescind, in marine insurance the concealment of any of the
matters stated in Section 110 merely exonerates the insurer from loss, if the loss results
from the fact concealed.

PRESUMPTION OF A PRIOR LOSS

 Insured in marine insurance is presumed to have knowledge, AT THE TIME OF INSURING,

of a prior loss, if INFORMATION MIGHT POSSIBLY HAVE REACHED HIM IN THE USUAL
MODE OF TRANSMISSION AND AT THE USUAL RATE OF COMMUNICATION (Section 109)

 For a claim to be successful presumption must be overcome, or he has no knowledge whatever

notwithstanding any modes of available communication.

 Depende sa klase ng barko mo.. communications system.

 No way of knowing that it had been lost

REPRESENTATION IN MARINE INSURANCE

WHEN IS THE INSURER ENTITLED TO RESCIND If the representation is INTENTIONALLY FALSE IN

ANY MATERIAL RESPECT, OR, in respect of any fact on which the character and nature of the
risk depends, the insurer may rescind (Section 111) BUT – the eventual falsity of a representation
as to an EXPECTATION does not, IN THE ABSENCE OF FRAUD, avoid the contract (Section 112).
Example: statement as to time of sailing, nature of the cargo or amount of profits. WHAT ARE THE

IMPLIED WARRANTIES IN MARINE INSURANCE (Seaworthiness)

Affirmative, promissory,
Only difference is that it is possible to have implied warranties in marine.

(1) In every contract of marine insurance upon a SHIP OR FREIGHT, FREIGHTAGE or UPON
ANYTHING WHICH IS THE SUBJECT OF marine insurance, there is an implied warranty that
the SHIP IS SEAWORTHY (Section 113).
Difficult to prescribe seaworthiness because it is determined in a case to case basis.

(2) It shall carry the requisite documents to show its nationality or neutrality and that it
SHALL NOT carry any document that will cast reasonable suspicion on the vessel (Section
120).
This comes from an express warranty. Neutral ako then implied that I carry necessary documents.

THIS WARRANTY ARISES ONLY WHEN NATIONALITY OR THE NEUTRALITY OF THE VESSEL OR
CARGO IS EXPRESSLY WARRANTED.

(3) That the vessel shall not make any improper deviation from the intended voyage.
(4) Not engage in unlawful venture or activities. (arises out of common practice)
Distinction between seaworthiness over the vessel and cargo.

TO WHAT DOES THE WARRANTY OF SEAWORTHINESS EXTEND TO

The warranty of seaworthiness extends not only to the condition of the structure of the ship,
but it requires that (a) it be properly laden or loaded with cargo (b) is provided with a
competent master, sufficient number of officers and seamen (c) it must have the requisite
equipment and appurtenances LIKE ballasts, cables, anchors, cordage, sails, food, water, fuel,
lights and other necessary and proper stores and implements for the voyage (Section 116).

NOTE that WHEN A SHIP BECOMES UNSEAWORTHY DURING THE VOYAGE – it will not avoid
the policy – AS LONG AS –there is no UNREASONABLE DELAY IN REPAIRING THE DEFECT.

Example: Vessel from pt a to pt b. In between it becomes unseaworthy. The policy will not be avoided.
What will only avoid is unreasonable delay in repairing.

Pt C. Repair. Unsure. If in pt B it will be repaired. Assuming he makes a decision in goodfaith. Chooses

pt B, and the vessel sinks is the insurer liable?🦹🦹♂️🦹♀️

Answer: Decision to go to pt C makes a greater possibility of loss. Cannot define what is unreasonable
delay. In the case he is unsure. A decision has to be made. The standard is the policy is not avoided as
long as there is no unreasonable delay.

OTHERWISE – the insurer is exonerated on the ship or the shipowner’s interest from any liability
from any loss arising therefrom (Section 118).

HENCE, if loss is not one due to the defect or peril was not increased by the defect INSURER is
still liable.
🕵️🕵️if in pt C it can be repaired but meron si jack sparrow along the way. Insurer is still liable.

A SHIP IS SEAWORTHY when it is

 reasonably fit to perform the service
 and to encounter the ordinary perils of the voyage, contemplated by the parties
to the policy (Section 114).
Di kailangang bago.
 A new vessel could not be automatically deemed seaworthy.
 You cannot prescribe seaworthiness. Therefore it is easier just to give an implied
warranty.
THE IMPLIED WARRANTY OF SEAWORTHINESS IS COMPLIED WITH as a
GENERAL RULE when it is seaworthy at the time of the commencement of the risk

EXCEPTIONS:
(a) when the insurance is made for a specified length of time, it must be seaworthy at the
commencement of every voyage it undertakes at that time

Example 1 year, .

(b) when the insurance is upon cargo, which by the terms of the policy, description of the
voyage, or established custom of trade, is required to be transshipped at an immediate
port, in which case – each vessel upon which the cargo is shipped or transshipped must
be seaworthy at the commencement of each particular voyage (Section 115).

Example: Cargoes coming from HK, MNL,Cebu,Zamboanga,..every vessel which it must be

transhipped must be seaworthy. In the three transfers must be seaworthy.

(c) where different portions of the voyage contemplated in the policy differ in respect to the
things requisite to make the ship seaworthy, in which case it must be seaworthy at the
commencement of each portion (Section 117).

Example: From davao-Manila-Batangas, one voyage only but the conditions of voyage changes. River
open sea river. The vessel must be seaworthy at the commencement of each portion. Once it
reenters a river it must be seaworthy.

November 13, 2018

HOW IS THE INTENDED VOYAGE DETERMINED

(a) When it is described by places of beginning and ending, the voyage is the course of sailing
fixed by mercantile usage between those places (Section 121).

(b) When it is not fixed by mercantile usage, the voyage is the way between the places specified
which to a master of ordinary skill and discretion would seem the most natural, direct and
advantageous (Section 122).

 Fixed course of sailing or intended voyage.

 Example, MLA to Cebu,
 Shortest distance from two points is straight line but the voyage is the way between the
places specified which to a master of ordinary skill and discretion would seem the most
natural, direct and advantageous no deviation. If not followed there is a deviation

Intended voyage fixed by mercantile usage.

WHAT IS A DEVIATION

It is a departure from the course of the voyage as defined by Sections 121 and 122 OR an
unreasonable delay in pursuing the voyage OR the commencement of an entirely different voyage
(Section 123).

WHEN IS A DEVIATION PROPER? 4nInsurer is liable

(a) When it is caused by circumstances over which neither the master nor the owner of the
ship has any control. Example: An ailment strikes the crew of the vessel.

(b) When necessary to comply with a warranty (, or to avoid a peril, whether or not the
peril is insured against (Example piracy, even if it is not a peril insured against). Example:
When repairs are necessary or to avoid getting caught in a conflict.

IW on SW, “the repair example yesterday”

(c) When made in good faith, and upon reasonable grounds of belief in its necessity to
avoid a peril.

Example: When undertaken to avoid the eye of a storm. (d) When made in good faith, for the
purpose of saving human life or relieving another vessel in distress. Example: When assistance is
given

 In case an info is incorrect (pirates for example), turns out the info is wrong. There is no
improper deviation. Because it is made in goodfaith. Even if it is inaccurate. There was a basis
before.

(d) When made in good faith, for the purpose of saving human life or relieving another
vessel in distress. Example: When assistance is given

ANY DEVIATION THAT IS NOT SO INCLUDED IS NOT PROPER (Sections 124 and 125)

CONSEQUENCE OF AN IMPROPER DEVIATION Insurer is not liable for any loss happening to the
thing insured subsequent to an improper deviation Kahit bumalik pa yung ship sa original course!
(Section 126). This applies whether the risk has been increased or diminished.

Why is there an implied warranty, Because a deviation changes the conditions of the insurance. The risk
have now increased.

 Also Deviation, Pursuit of an entirely different voyage.

 Example: Should have sailed yesterday but only sailed today. Condition today is different
compared to tomorrow.

LOSSES IN MARINE INSURANCE

Losses in marine insurance may be partial or total (Section 127). A loss that is not TOTAL is
PARTIAL (Section 128).

KINDS OF TOTAL LOSSES A total loss may be ACTUAL or CONSTRUCTIVE (Sec129).

(1) If it is an ACTUAL TOTAL LOSS it may be caused by :

When you know where it is is it loss? Bcd not actually lost. Go our against our normal concept of
loss.

(a) total destruction of the thing insured

(b) the irretrievable loss of the thing by sinking or by being broken up

(c) any damage to the thing which renders it valueless to the owner for the purpose
that he held it EXAM! And Bar. No longer of value to you now.
Example: Food for human consumption. Water damaged.
IT DOESN’T NEED TO BE VALUELESS

(d) any other event which effectively deprives the owner of the possession, at the port
of destination, of the thing insured (Section 130)

Example: When palay was rendered valueless because they began to germinate, thus it
no longer remains as the same thing, it was an ACTUAL TOTAL LOSS (Pan Malayan v. CA
201 SCRA 382)

EXAMPLE: Quarantined goods at the port of destination

AN ACTUAL TOTAL LOSS CAN ALSO BE PRESUMED from the continued absence of the ship
without being heard of (Section 132).

The length of time which is sufficient to raise this presumption DEPENDS on the CIRCUMSTANCES
of the case IF THE VESSEL BE PREVENTED, AT AN IMMEDIATE PORT, FROM COMPLETING THE
VOYAGE, by the perils insured against, the liability of the marine insurer on the cargo continues
after they are reshipped (Section 133) and the liability extends to damages, expenses of
discharging, storage, reshipment, extra freightage and all other expenses incurred in saving the
cargo reshipped UP TO THE AMOUNT INSURED – NOTHING SHALL RENDER THE INSURER LIABLE
FOR AN AMOUNT IN EXCESS OF THE INSURED VALUE OR IF NONE, OF THE INSURABLE VALUE
(Section 134). UPON ACTUAL TOTAL LOSS, the insured is entitled to payment without notice of
abandonment (Section 135) AND IF THE insurance is confined to an ACTUAL LOSS it will not
cover a CONSTRUCTIVE LOSS, but it will cover any loss, which necessarily results in depriving the
insured of possession, at the port of destination of the entire thing insured (Section 137)

(2) It is a CONSTRUCTIVE TOTAL LOSS when the person insured is given a right to ABANDON
under Section139 (Section 131)
ABANDONMENT is the act of the insured by which, AFTER A CONSTRUCTIVE TOTAL LOSS,
he declares to the insurer the RELINQUISHMENT in its favor of his INTEREST in the thing
insured (Section 138)

A person insured by a contract of marine insurance may abandon the thing insured, or
any particular portion thereof separately valued by the policy, or otherwise separately
insured AND RECOVER A TOTAL LOSS – WHEN THE CAUSE OF LOSS IS A PERIL INSURED
AGAINST IF

(a) more than ¾ thereof in value is actually lost or would have to be expended to
recover it from the peril
 Even if still afloat.
 Spends more than ¾

(b) if it is injured to such extent as to reduce its value by more than ¾ of value
 value now is less than 1/4

(c) if the thing injured is a ship, and the contemplated voyage cannot lawfully be
performed without incurring either an expense to the insured of more than ¾ the value
of the thing abandoned OR a risk which a prudent man would not take under the
circumstances

(d) if the insured is FREIGHTAGE OR CARGO – and the voyage cannot be performed –
NOR another ship procured by the master – WITHIN A REASONABLE TIME WITH
REASONABLE DILIGENCE – to forward the cargo without incurring the like expense or risk
mentioned in item (c) BUT, FREIGHTAGE cannot be abandoned unless the ship is also
abandoned (Section 139).

 ABANDONMENT MUST be TOTAL and ABSOLUTE

 ABANDONMENT MUST BE MADE within a reasonable time after receipt of

RELIABLE information of the loss BUT, where the information is of DOUBTFUL
CHARACTER, the INSURED is entitled to a reasonable time to make an inquiry
(Section 141). This is to enable the insurer to take steps to preserve the
property.
 If the information proves INCORRECT or thing insured is RESTORED when the
abandonment was made that there was then in fact NO TOTAL LOSS – the
abandonment becomes INEFFECTUAL (Section 142)

 HOW NOTICE OF ABANDONMENT IS MADE

By giving notice oral or written notice to the insurer BUT if orally given, a written
notice of such must be submitted within seven days from giving oral notice
(Section 143).
The notice must be explicit and specify the PARTICULAR cause of the
abandonment BUT need state only enough to show that there is PROBABLE
CAUSE THEREFORE and need NOT be accompanied by PROOF OF INTEREST OR OF
LOSS (Section 144).

The requirement as the explicitness of the notice is due to the fact that
abandonment can only be sustained upon the cause specified in the NOTICE
(Section 145).

 EFFECTS OF ABANDONMENT
(1) it is equivalent to a transfer by the insured of his interest to the insurer,
with all the chances of recovery and indemnity (Section146). NOTE THOUGH, if
the insurer pays for a loss as if it were an actual total loss, he is entitled to
whatever may remain of the thing insured, or its proceeds or salvage as if there
has been a formal abandonment. HERE THE INSURER HAS OPTED TO PAY FOR A
TOTAL ACTUAL LOSS notwithstanding the absence on actual abandonment

(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. (Section 148). THE AGENTS OF THE INSURED BECOME AGENTS
OF THE INSURER. This retroacts to the date of the loss when abandonment is
effectively made.

 EFFECTIVITY OF ABANDONMENT

(1) Abandonment becomes effective upon the acceptance of the insurer. ACCEPTANCE
may either be EXPRESS or IMPLIED from the conduct of the INSURER. The MERE
SILENCE of the insurer for an UNREASONABLE LENGTH OF TIME after NOTICE shall be
construed as acceptance (Section 150). ONCE ACCEPTED, it is conclusive between the
parties, The loss is admitted together with the sufficiency of the abandonment
(Section 151). IT IS ALSO IRREVOCABLE upon acceptance and upon its being made
UNLESS the ground upon which it is was made proves to be UNFOUNDED (Section
152). Thus, if the insurer accepts the abandonment, it cannot raise any question as to
insufficiency of the form under Section 143, time for giving notice under Section 141,
or right to abandon under Section 139. THE ONLY EXCEPTION THEN is under Section
152 when the ground is unfounded which is defined in Section 142, and/ or as
related to Section 145.
 (2) On an accepted abandonment involving a ship, FREIGHTAGE earned previous to
the loss belongs to the insurer of the FREIGHTAGE, that subsequently earned belongs
to the insurer of the SHIP (Section 153).

Example: The contemplated voyage for the transport of cargo is from Point X to Point Y. In
between, a loss occurs and the ship is abandoned. The freightage already earned from Point X
until the point of loss, belongs to the insurer of the freightage. If the ship is subsequently
repaired, and continues on to point Y, the freightage due belongs to the insurer of the ship.

(3) IF ABANDONMENT IS NOT ACCEPTED despite its validity, the insurer is liable upon
an ACTUAL TOTAL LOSS, deducting from the amount any proceeds of the thing
insured that may have come to the hands of the insured (Section 154). This is due to
the fact that under Section 149 which provides that if notice is properly given, it
does not prejudice the insured, if the INSURER refuses to accept the abandonment.
IF ABANDONMENT IS NOT MADE OR OMITTED The fact that abandonment is not
made or is omitted does not prejudice the insured as he may nevertheless recover
his ACTUAL LOSS (Section 155)

LIABILITY FOR AVERAGES

AVERAGE DEFINED – is any extraordinary or accidental expense incurred during the voyage for
the preservation of the vessel, cargo, or both AND all damages to the vessel or cargo from the
time it is loaded and the voyage commenced until it ends and the cargo is unloaded.

 KINDS OF AVERAGES ARE:

 (a) PARTICULAR OR SIMPLE AVERAGE is a damage or expense caused to the
vessel or cargo which has NOT INURED to the COMMON BENEFIT and PROFIT of
all PERSONS interested in the CARGO or the VESSEL. This damage or expense is
borne ordinarily by the owner of the vessel or cargo that gives rise to the
expenses or suffered the damage. Examples: Damage sustained by a cargo from
the time it is loaded to the time it is unloaded OR additional expenses that are
incurred by the vessel from the time it puts out to sea until it reaches its
destination

(b) GENERAL OR GROSS AVERAGE is an expense or damage suffered deliberately

in order to save the vessel or its cargo or both from a REAL or KNOWN risk.
THUS, all persons having an interest in the VESSEL and CARGO or both at the
occurrence of the AVERAGE shall contribute. Example: Jettisoning of cargo. AS A
RULE,

WHEN IT HAS BEEN AGREED THAT AN INSURANCE UPON A PARTICULAR THING

OR CLASS OF THINGS SHALL BE FREE FROM PARTICULAR AVERAGE, a marine
insurer is not liable for a particular average loss NOT DEPRIVING THE INSURED OF
THE POSSESSION, AT THE PORT OF DESTINATION, of the whole such thing, or
class of things, even though it becomes entirely worthless, BUT such insurer is
 liable for his proportion of all general average loss assessed upon the thing
insured (Section 136)

 IN CASE OF A GENERAL AVERAGE LOSS

The insurer is liable for the loss falling upon the insured, through a contribution in respect to
the thing insured when required to be made by him towards a general average loss called for a
peril insured against BUT liability is limited to the proportion of the contribution attaching to his
policy value where this is less than the contributing value of the thing insured (Section 164).
MEANING that the insured can hold his insurer liable for his contribution up to the value of the
policy.

RIGHT OF SUBROGATION

When a person insured in a contract of marine insurance has a demand against the others for
CONTRIBUTION, HE MAY CLAIM THE WHOLE LOSS FROM HIS INSURER subrogating the insurer to
his own right to contribution BUT no such claim can be made upon the insurer if (a) there is
separation of the interest liable to contribution. Example: When the cargo liable for contribution
has been removed from the vessel, NOR (b) when the insured having the right and opportunity
to enforce contribution from others, has NEGLECTED OR WAIVED the exercise of the right
(Section 165). MEANING that the insured has a choice of recovery on the happening of a general
average loss. They are: (a) enforcing the contribution against interested parties, or (b) claiming
from the insurer. If it be the latter, subrogation takes place. MEASURE OF INDEMNITY IN MARINE
INSURANCE (1) IF THE POLICY IS VALUED (a) A valuation in the policy of marine insurance is
conclusive between the parties thereto in the adjustment of either a partial or total loss, if the
insured has some interest at risk and there is no fraud on his part. If there is fraud in valuation,
it ENTITLES THE INSURER TO RESCIND AS IT IS AN EXCEPTION AS TO CONCLUSIVENESS (Section
156) If however, hypothecated by bottomry or respondentia – BEFORE INSURANCE AND WITHOUT
KNOWLEDGE OF THE PERSON SECURING IT – he may show the real value. Example: a person
purchases a vessel subject to bottomry but he is not aware of it , he may upon a loss show
the real value of the vessel. The insurer cannot rescind. (b) An Insurer is liable upon a partial
loss – ONLY FOR SUCH PROPORTION OF THE AMOUNT INSURED BY HIM – as the loss bears to
the whole interest of the insured (Section 157). The effect is that the insured is deemed a co-
insurer if the value of the insurance is less than the value of the property. THIS APPLIES EVEN IN
THE ABSENCE OF A STIPULATION IN CONTRACT AND IS ALSO KNOWN AS THE AVERAGE CLAUSE.
Example: A vessel valued at PHP 500,000.00 is insured for PHP 400,000.00. The vessel is damaged
to the extent of PHP 200,000.00. The insurer is liable not for the PHP 200,000.00 but only for
PHP 160,000.00. The formula being:
Insurance x Loss = Liability Value THE 2 REQUISITES FOR THE APPLICATION OF THE AVERAGE
CLAUSE: (1) insurance is for less than actual value (2) the loss is partial NOTE: That co-insurance
exists in Marine Insurance. In Fire Insurance, there is no co-insurance unless expressly stipulated
(Sections 171/172). In Life Insurance, there is none also as value is fixed in the policy (Section
183) NOTE ALSO: That Section 157 is further qualified by Section 166, which provides: That IN
CASE OF A PARTIAL LOSS OF THE SHIP OR ITS EQUIPMENT the old materials are to be applied
towards the payment of the new AND UNLESS STIPULATED IN THE POLICY, the insurer is liable
only for 2/3 of the remaining cost or repairs after the deduction EXCEPT THAT ANCHORS ARE
PAID IN FULL (Section 166). (c) In case profits are separately insured in a contract of marine
insurance (See Section 105), the insured can recover in case of a loss (AND under Section 160,
there is a conclusive presumption of a loss from the loss of the property out of which they
were expected to arise, and the valuation fixes their amount), a proportion of such profits
equivalent to proportion of the value of the property lost bears to the value of the whole
(Section 158). Example: Goods are valued at PHP 500,000.00, expected profits are PHP 50,000.00.
Goods suffer a partial loss of PHP 100,000.00. The insured can recover PHP 10,000.00 on the
insurance over profits. Insurance of profits x loss = Amount Recoverable Value of Goods (d) In case
of a valued policy on freightage or cargo, if only a part of the subject is exposed to the risk,
the valuation applies only in proportion to such part (Section 159). Example: goods are valued at
PHP 500,000.00, if only PHP 250,000.00 are shipped and exposed to the risk, the valuation is
reduced by ½. In case of a total loss, the insured can only demand ½ of valuation or PHP
250,000.00. IF THE POLICY IS OPEN

(a) The value of the ship is its value AT THE BEGINNING OF THE RISK, including all articles or
charges which add to its permanent value or which are necessary to prepare it for the voyage
insured. Note: The value at the time it was built or acquired is not the value that is material. (b)
The value of the cargo is its actual cost to the insured, WHEN LADEN on board OR where that
cost cannot be ascertained, its MARKET VALUE at the time and place of LADING, adding the
charges incurred in PURCHASING AND PLACING it on BOARD – BUT without reference to any
LOSS incurred in raising money for its purchase or any drawback on its exportation or fluctuation
of the market at the port of destination or expenses incurred on the way or on arrival.
DRAWBACK – government allowance upon duties on imported merchandise when the importer re-
exports instead of selling it. (c) Value of freightage is the GROSS FREIGHTAGE, exclusive of
PRIMAGE, without reference to the cost of earning it. PRIMAGE – compensation paid by the
shipper to the master of the vessel for his care and trouble bestowed on the goods of the
shipper, which he retains in the absence of a contrary stipulation with the owner of the vessel. (d)
The cost of insurance is in each case to be added to the value thus estimated (Section 161). IF
CARGO IS INSURED AGAINST PARTIAL LOSS If it arrives at the port of destination in a DAMAGED
CONDITION, the loss of the insured is deemed to be the SAME PROPORTION OF THE VALUE
WHICH THE MARKET PRICE AT THAT PORT OF THE THING SO DAMAGED BEARS TO THE MARKET
PRICE IT WOULD HAVE BROUGHT IF SOUND (Section 162). Meaning if reduction in value is 1/5,
then amount of recovery on the insurance is also 1/5. The formula is: (a) Market Price in sound
state less Market Price in damaged state equals Reduction in Value. (b) Reduction in Value
divided by Market Price in sound state multiplied with the Amount of Insurance equals the
Amount of Recovery
CONTINUATION OF MEASURE OF INDEMNITY REGARDLESS OF WHETHER POLICY IS VALUED OR
OPEN (2) An insurer is liable (a) for all the expenses attendant upon a loss that forces the ship
into port to be repaired. These refer to expenses for repairing the ship due to damages
attributable to perils insured against, as well as other expenses such as launching, towing, raising
and navigating the vessel. These expenses are also called PORT OF REFUGE EXPENSES. (b) If so
stipulated, that the insured shall LABOR for recovery of the property insured, the insurer is liable
for expenses incurred thereby. Example: When the vessel is unlawfully detained. This is also
known as the SUE AND LABOR CLAUSE. In either case, said expenses are to be added to a
TOTAL LOSS, if that afterwards occurs (Section 163).