Insurance Law Disseminated Version Last Meeting Discussion

Section 51
Section 51. A policy of insurance must specify:

a. The parties between whom the contract is made;
b. The amount to be insured except in the cases of open or
running policies;
c. The premium, or if the insurance is of a character where the
exact premium is only determinable upon the termination of the
contract, a statement of the basis and rates upon which the
final premium is to be determined;
d. The property or life insured;
e. The interest of the insured in property insured, if he is not the
absolute owner thereof;
f. The risks insured against; and
g. The period during which the insurance is to continue.
1
Privileged and confidential – draft for discussion purposes only
Section 52
Cover notes may be issued to bind insurance temporarily

pending the issuance of the policy. Within sixty (60) days
after issue of a cover note, a policy shall be issued in lieu
thereof, including within its terms the identical insurance
bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty

(60) days with the written approval of the Commissioner if he
determines that such extension is not contrary to and is not
for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing
such violations and may by such rules and regulations
dispense with the requirement of written approval by him in
the case of extension in compliance with such rules and
regulations.
2
Rules on Cover Notes
1. Insurance companies doing business in the Philippines may issue cover notes to
bind insurance temporarily pending the issuance of the policy
2. A cover not shall e deemed to be a contract of insurance within the meaning of Sec.
1(1) of IC.
3. NO cover note shall be issued or renewed unless in the form previously approved by
the Insurance Commission.
4. A cover not shall be valid and binding for a period NOT exceeding 60 days from the
date of its issuance, whether or not the premium therefore has been paid or not,
BUT such cover note may be canceled by either party upon at least 7 days notice to
the other party.
5. If a cover note is not so canceled, a policy of insurance shall, within 60 days after
the issuance of the cover note be issued in lieu thereof. Such policy shall include
within its terms the identical insurance bound under the cover note and the
premiums therefore.
6. A cover note may be extended or renewed beyond the aforementioned period of 60
days with the written approval of the Insurance Commissioner, provided that such
written approval may be dispensed with upon the certification of the Pres, VP or
General Mgr of the Insurance company concerned, that the risks involved, the
values of such risks, and the premiums therefore have not as yet been determined
or established and that such extension or renewal is NOT contrary to and is not for
the purpose of violating any provision of the IC.
7. The insurance companies may impose on cover notes a deposit premium equivalent
to at least 25% of the estimated premium of the intended insurance coverage but in
no case less than P500. 3
Lim v. Sun Life, 41 PHIL 263
As we read and understand the so-called provisional

policy it amounts to nothing but an acknowledgment on
behalf of the company, that it has received from the
person named therein the sum of money agreed upon
as the first year's premium upon a policy to be issued
upon the application, if the application is accepted by
the company.
4
Grepalife v. CA, 89 SCRA 543
The binding deposit receipt in question is merely an

acknowledgment, on behalf of the company, that the
latter's branch office had received from the applicant the
insurance premium and had accepted the application
subject for processing by the insurance company; and
that the latter will either approve or reject the same on
the basis of whether or not the applicant is "insurable on
standard rates." Since petitioner Pacific Life
disapproved the insurance application of respondent
Ngo Hing, the binding deposit receipt in question had
never become in force at any time.
5
Pacific Timber v. CA 112 SCRA 199
The fact that no separate premium was paid on the

Cover Note before the loss insured against occurred,
does not militate against the validity of petitioner's
contention, for no such premium could have been paid,
since by the nature of the Cover Note, it did not contain,
as all Cover Notes do not contain particulars of the
shipment that would serve as basis for the computation
of the premiums. As a logical consequence, no
separate premiums are intended or required to be paid
on a Cover Note.
6
Section 93
Delay in the presentation to an insurer of notice or proof of loss is waived if

caused by any act of him, or if he omits to take objection promptly and
specifically upon that ground.
7
Gloria v. Philamlife Insurance Co., 73 OG 8660
In the case at bar, the company did NOT act on the

application for insurance, one way or the other, from
Nov. 2 to Dec. 5, 1966, and no justification for the delay
had been proven. Hence, it should be held that the
application for insurance of the deceased had been
approved prior to his death, although the policy had not
actually been issued, for which reason, the company
should be liable to the beneficiaries.
8
Section 53
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.
9
Bonifacio Bros. v. Mora 20 SCRA 262
A policy of insurance is a distinct and independent contract

between the insured and insurer, and third persons have no
right either in a court of equity, or in a court of law, to the
proceeds of it, unless there be some contract of trust,
expressed or implied, by the insured and third person. In this
case, no contract of trust, express or implied. In this case, no
contract of trust, expressed or implied exists. We, therefore,
agree with the trial court that no cause of action exists in
favor of the appellants in so far as the proceeds of insurance
are concerned. The appellant's claim, if at all, is merely
equitable in nature and must be made effective through
Enrique Mora who entered into a contract with the Bonifacio
Bros Inc. This conclusion is deducible not only from the
principle governing the operation and effect of insurance
contracts in general, but is clearly covered by the express
provisions of section 50 of the Insurance Act (now Sec. 53).
10
Coquia v. Fieldmen’s Insurance 26 SCRA 172
The policy under consideration is typical of contracts

pour autrui this character being made more manifest by
the fact that the deceased driver paid fifty percent (50%)
of the corresponding premiums, which were deducted
from his weekly commissions. Under these conditions, it
is clear that the Coquias — who, admittedly, are the
sole heirs of the deceased — have a direct cause of
action against the Company, and, since they could have
maintained this action by themselves, without the
assistance of the insured it goes without saying that
they could and did properly join the latter in filing the
complaint herein.
11
Guingon v. Del Monte 80 SCRA 181
The policy under consideration is typical of contracts

pour autrui this character being made more manifest by
the fact that the deceased driver paid fifty percent (50%)
of the corresponding premiums, which were deducted
from his weekly commissions. Under these conditions, it
is clear that the Coquias — who, admittedly, are the
sole heirs of the deceased — have a direct cause of
action against the Company, and, since they could have
maintained this action by themselves, without the
assistance of the insured it goes without saying that
they could and did properly join the latter in filing the
complaint herein.
12
Del Val v. Del Val 29 Phil 535
The contract of life insurance is a special contract and

the destination of the proceeds thereof is determined by
special laws which deal exclusively with that subject.
The Civil Code has no provisions which relate directly
and specifically to life- insurance contracts or to the
destination of life insurance proceeds. That subject is
regulated exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of
the parties and the destination of the proceeds of the
policy.
13
Insular Life. Ebrado 80 SCRA 181

policy.
14
RCBC v. CA 289 SCRA 292 (1998)

policy.
15
Section 54
When an insurance contract is executed with an agent

or trustee as the insured, the fact that his principal or
beneficiary is the real party in interest may be indicated
by describing the insured as agent or trustee, or by
other general words in the policy.
16
Section 55
To render an insurance effected by one partner or part-

owner, applicable to the interest of his co-partners or
other part-owners, it is necessary that the terms of the
policy should be such as are applicable to the joint or
common interest.
17
Section 56
When the description of the insured in a policy is so

general that it may comprehend any person or any
class of persons, only he who can show that it was
intended to include him can claim the benefit of the
policy.
18
Insurance Code
Section 57. A policy may be 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.
Section 58. The 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.
19
Warranty
Statements or promises by the insured set forth in the

policy itself or incorporated in it by proper reference, the
untruth or non-fulfillment of which in any respect, and
without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment render the
policy voidable by the insurer.
20
Effects of Breach of Warranty
1. Material
GR: Violation of material warranty or of material provision of a
policy will entitle the other party to rescind the contract.
XPN: (with regard to “promissory” warranties)
a. Loss occurs before the time of performance of the warranty;
b. The performance becomes unlawful at the place of the
contract; and
c. Performance becomes impossible (Sec. 73).
2. Immaterial
GR: It will not avoid the policy.
XPN: When the policy expressly provides, or declares that a
violation thereof will avoid it.
21
Effect of a breach of warranty without fraud
The policy is avoided only from the time of breach (IC,

Sec. 76) and the insured is entitled:
1. To the return of the premium paid at a pro rata from
the time of breach or if it occurs after the inception of
the contract; or
2. To all premiums if it is broken during the inception of
the contract.
22
Notice and Proof of Loss
Loss in insurance - the injury, damage or liability sustained

by the insured in consequence of the happening of one or
more of the perils against which the insurer, in consideration
of the premium, has undertaken to indemnify the insured.
Conditions before the insured may recover on the policy

after the loss
1. The insured or some person entitled to the benefit of the

insurance, without unnecessary delay, must give written
notice to the insurer (Sec. 90);
2. When required by the policy, insured must present a
preliminary proof loss which is the best evidence he has
in his power at the time (Sec. 91).
23
Purpose of Notice of Loss
1. To give insurer Information by which he may

determine the extent of his liability;
2. To afford the insurer a means of detecting any Fraud
that may have been practiced upon him; and
3. To operate as a Check upon extravagant claims.
Effect of Failure to Give a Notice of Loss
FIRE INSURANCE OTHER TYPES OF
INSURANCE
Failure to give notice defeats the Failure to give notice will not
right of the insured to recover exonerate the insurer, unless
there is a stipulation in the
policy requiring the insured to
do so.
24
Instances when the defects in the notice or proof of
loss are considered waived
When the insurer:
1. Writes to the insured that he considers the policy
null and void as the furnishing of notice or proof of
loss would be useless;
2. Recognizes his liability to pay the claim;
3. Denies all liability under the policy
4. Joins in the proceedings for determining the amount
of the loss by arbitration, making no objections on
account of notice and preliminary proof; or
5. Makes Objection on any ground other than the
formal defect in the preliminary proof.
25
Instances when delay in the presentation of notice
or proof of loss deemed waived
If caused by:
1. Any act of the insurer; and
2. By failure to take objection promptly and specifically
upon that ground. (Sec. 93)
26
Time for Payment of Claims
LIFE POLICIES NON-LIFE POLICIES

1. Maturing upon the expiration of The proceeds shall be paid
the term– the proceeds are within 30 days after the
immediately payable to the receipt by the insurer of
insured, except if proceeds are proof of loss and
payable in installments or ascertainment of the loss or
annuities which shall be paid as damage by agreement of
they become due. the parties or by arbitration
but not later than 90 days
2. Maturing at the death of the from such receipt of proof of
insured, occurring prior to the loss, whether or not
expiration of the term stipulated – ascertainment is had or
the proceeds are payable to the made (Sec. 249).
beneficiaries within 60 days after
presentation of claim and filing of
proof of death (Sec. 248).
27
Guidelines on Claims Settlement
1. No insurance company doing business in the Philippines shall refuse,

without justifiable cause, to pay or settle claims arising under coverage
provided by its policies, nor shall any such company engage in unfair claim
settlement practices.
2. Evidence as to numbers and types of valid and justifiable complaints to the
Commissioner against an insurance company, and the Commissioner’s
complaint experience with other insurance companies writing similar lines of
insurance shall be admissible in evidence in an administrative or judicial
proceeding brought under this section. (Sec. 247 [b])
3. The proceeds shall be paid immediately upon the maturity of the policy if
there is such a maturity date.
4. If the policy matures by the death of the insured, within sixty (60) days after
presentation of the claim and filing of the proof of the death of the insured.
5. Proceeds shall be paid within thirty (30) days after proof of loss is received
by the insurer and ascertainment of the loss or damage is made either by
agreement or by arbitration.
6. 2. If no ascertainment is made within sixty (60) days after receipt of proof of
loss, it shall be paid within ninety (90) days after such receipt.
28
Unfair Claims Settlement
1. Knowingly misrepresenting to claimant’s pertinent facts or

policy provisions relating to coverage at issue;
2. Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its
policies;
3. Failing to adopt and implement reasonable standards for the
prompt investigation of claims arising under its policies;
4. Not attempting in good faith to effectuate prompt, fair and
equitable settlement of claims submitted in which liability has
become reasonably clear; or
5. Compelling policyholders to institute suits to recover amounts
due under its policies by offering without justifiable reason
substantially less than the amounts ultimately recovered in
suits brought by them.
29
Prudential Guarantee and Assurance, Inc. v. Trans-
Asia Shipping Lines, Inc. G. R. No. 151890, June 20,
2006
To the mind of this Court, Section 244 does not require a
showing of bad faith in order that attorney’s fees be granted.As
earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by
failure of the insurer to pay the claim within the time fixed in
both Sections 242 and 243 of the Insurance Code.
As established in Section 244, by reason of the delay and the

consequent filing of the suit by the insured, the insurers shall
be adjudged to pay damages which shall consist of attorney’s
fees and other expenses incurred by the insured.
30
Prescription of Actions
1. The parties to a contract of insurance may validly agree that an

action on the policy should be brought within a limited period of time,
provided such period is not less than 1 year from the time the cause
of action accrues.
2. If there is no stipulation or the stipulation is void, the insured may
bring the action within 10 years in case the contract is written.
3. In a comprehensive motor vehicle liability insurance (CMVLI), the
written notice of claim must be filed within 6 months from the date of
the accident; otherwise, the claim is deemed waived even if the
same is brought within 1 year from its rejection. (Vda. De Gabriel vs.
CA, GR No. 103883, Nov 14, 1996)
4. 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, claimant’s right of
action shall prescribe. (Sec. 397)
31
Sun Life Office Ltd. V. CA, G.R. No. 89741, March 13,
1991
In case the claim was denied by the insurer but the

insured filed a petition for reconsideration, the prescriptive
period should be counted from the date the claim was
denied at the first instance and not from the denial of the
reconsideration.
32
Jacqueline Jimenez Vda. De Gabriel v. CA, G.R. No.
103883 (November 4, 1996)
In a comprehensive motor vehicle liability insurance

(CMVLI), the written notice of claim must be filed within 6
months from the date of the accident; otherwise, the claim
is deemed waived even if the same is brought within 1
year from its rejection.
33
New World International Development Phils. Inc. vs.
NYKFILJAPAN Shipping Corp., G.R. No. 171468, August 24,
2011
Notwithstanding the fact that the case was filed beyond

the one-year prescriptive period provided for under
COGSA, the suit will not be dismissed if the delay was
not due to the claimant’s fault. The insurer therefore
should bear the loss with interest on account of such
delay.
34
Subrogation
If the plaintiff’s property has been insured, and he has

received indemnity from the insurance company for the
injury or loss arising out of wrong or breach of contract
complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
(NCC, Art. 2207)
35
Eastern Shipping Lines vs. Prudential Guarantee and
Assurance, Inc., G.R. No. 174116, September 1, 2009
The insurer, upon happening of the risk insured against

and after payment to the insured is subrogated to the
rights and cause of action of the latter. As such, the
insurer has the right to seek reimbursement for all the
expenses paid.
36
Malayan Insurance Co., Inc. v. CA, G.R. No. L-36413, Sept. 26,
1988
The principle of subrogation 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.
37
Lorenzo Shipping v. Chub and Sons, Inc., G.R. No. 147724,
June 8, 2004
Incapacity of the insured will not affect the capacity of the

subrogee because capacity is personal to the holder.
38
Rules on Subrogation
1. Applicable only to property insurance – the value of

human life is regarded as unlimited and therefore, no
recovery from a third party can be deemed adequate
to compensate the insured’s beneficiary.
2. The right of insurer against a third party is limited to

the amount recoverable from latter by the insured.
39
Instances when the Right of Subrogation Does Not Apply
1. Where the insured by his own act releases the

wrongdoer or third party liable for loss or damage from
liability
2. The insurer loses his rights against the wrongdoer
since the insurer can only be subrogated to only such
rights as the insured may have
3. Where the insurer pays the insured the value of the
loss without notifying the carrier who has in good faith
settled the insured claim for loss
4. Where the insurer pays the insured for a loss or risk
not covered by the policy
5. Life insurance
6. For recovery of loss in excess of insurance coverage
40
Manila Mahogany Manufacturing Corporation v. Court of
Appeals, G.R. No. L-52756, October 12, 1987
Since the insurer can be subrogated to only such rights

as the insured may have, should the insured, after
receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his
rights against the latter. But in such a case, the insurer
will be entitled to recover from the insured whatever it has
paid to the latter, unless the release was made with the
consent of the insurer.
41
Marine Insurance
Traditionally, marine insurance it includes policies that

cover risk 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. However, under the
present laws, it also covers inland marine insurance.
42
Roque v. IAC, GR No. L-66935, Nov. 11, 1985
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 ship owner or not.
43
Distinguish
“Perils of the sea or perils of navigation” - it includes only

those casualties due to the:
1. Unusual violence or extraordinary action of WInd and
wave, or
2. Other extraordinary causes connected with
Navigation.
“Perils of the ship” - it is a loss which, in the ordinary

course of events, results from the:
1. Natural and inevitable action of the sea;
2. Ordinary wear and tear of the ship;
3. Negligent failure of the ship’s owner to provide the
vessel with proper equipment to convey the cargo
under ordinary conditions.
44
Extent of Insuranble Interest
Ship owner –
a. Over the value of the vessel, even when it has been
chartered by one who covenants to pay him its value
in case of loss. In such a case, the insurer shall be
liable for only that part of the loss which the insured
cannot recover from the charterer. (IC, Sec. 102)
b. If hypothecated by a bottomry loan, the insurable
interest is only the excess of the value of the vessel
over the amount secured by bottomry. (IC, Sec. 103)
c. He also has an insurable interest on expected
freightage. (IC, Sec. 104)
45
Extent of Insuranble Interest
Cargo owner – over the cargo and expected profits. (IC,

Sec. 107)
Charterer –
a. Over the vessel, to the extent of the amount he is

liable to the shipowner, if the ship is lost or damaged
during the voyage. (IC, Sec. 108)
b. Over his expected profits or freightage if he accepts
cargoes from other persons for a fee.
c. Over his own cargo or his client’s cargo.
Creditor/lender – over the amount of the loan.
46
Concealment in Marine Insurance
It is the failure to disclose any material fact or

circumstance which in fact or law is within, or which ought
to be within the knowledge of one party and of which the
other has no actual or presumptive knowledge.
NOTE: Information of the belief or expectation of a third

person, in reference to a material fact, is material. (IC,
Sec. 110)
47
Concealment in Marine Insurance v. Concealment in
Property Insurance
MARINE INSURANCE OTHER PROPERTY INSURANCE

The information or the belief or The information or belief of a 3rd
expectation of 3rd persons in party is not material and need
reference to a material fact is not be communicated, unless it
material and must be proceeds from an agent of the
communicated insured whose duty is to give
information
The concealment of any fact in Concealment of any material fact
relation to any of the matters will vitiate the entire contract,
stated in Sec. 112 does not whether or not the loss results
vitiate the entire contract but from the risk concealed.
merely exonerates the insurer
from a risk resulting from the fact
concealed
48
Effect of falsity of a representation by the insured
1. Promissory Representation - If a representation by the

insured 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
the entire contract. (IC, Sec. 113)
2. Representation of Expectation - The eventual falsity of

a representation as to expectation does not, in the
absence of fraud, avoid a contract of marine
insurance. (IC, Sec. 114)
49
Implied Warranties in Marine Insurance
1. Seaworthiness (IC, Sec. 115 to 121);

2. Non-engagement from Illegal venture;
3. Warranty of Neutrality – The ship will carry the
requisite documents to show the nationality or
neutrality of the ship or its cargo and will not carry any
documents that cast reasonable suspicion on it if the
nationality or neutrality of the ship or its cargo is
expressly warranted (IC, Sec. 122);
4. Non-deviation from the Agreed voyage (IC, Secs. 125,
126, 127);
5. Presence of Insurable interest.
50
Instances when Deviation is Proper
1. When caused by circumstances over which neither

the master nor the owner of the ship has any control;
2. When necessary to comply with a warranty, or to
avoid a peril, whether or not peril is insured against;
3. When made in good faith, and upon reasonable
grounds of belief in its necessity to avoid a peril;
4. When made in good faith, for the purpose of saving
human life or relieving another vessel in distress. (IC,
Sec. 126)
51
Actual v. Constructive Loss
Actual Loss Constructive Loss

It exists when the subject matter It is one which the loss, although
of the insurance is wholly not actually total, is of such a
destroyed or lost or when it is so character that the insured is
damaged as no longer to exist in entitled, if he thinks fit, to treat it
its original character. as total by abandonment. (IC,
Sec. 133)
The insured has the right to claim Abandonment by the insured is
the whole insurance without necessary in order to recover for
notice of abandonment. (IC, Sec. a total loss (IC, Sec. 141) in the
137) absence of any provision to the
contrary in the policy
52
Actual Total Loss
1. A total destruction of the thing insured;

2. The irretrievable loss of the thing by sinking, or by
being broken up;
3. Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it; or
4. Any other event which effectively deprives the owner
of the possession, at the port of destination, of the
thing insured. (IC, Sec. 132)
53
Constructive Total Loss
1. More than ¾ thereof in value is actually lost, or would have

to be expended to recover it from the peril;
2. The thing insured is injured to such extent as to reduce its
value more than ¾;
3. The thing insured is a ship, and the contemplated voyage
cannot be lawfully 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;
4. The thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship procured by
the master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like
expense or risk mentioned in no. (3). But freightage cannot
in any case be abandoned (and thus declared
constructively lost) unless the ship is also abandoned. (IC,
54
Sec. 141) Privileged and confidential – draft for discussion purposes only
Abandonment
It is the act of the insured by which, after a constructive total

loss he declared the relinquishment to the insurer of his
interest in the thing insured.
55
Requisites of a Valid Abandonment
1. There must be an actual relinquishment by the person

insured of his interest in the thing insured. (Sec. 140)
2. There must be a constructive total loss. (Sec. 141)
3. The abandonment must neither be partial nor conditional.
(Sec. 142)
4. It must be made within a reasonable time after receipt of
reliable information of the loss. (Sec. 143)
5. It must be factual. (Sec. 144)
6. It must be made by giving notice thereof to the insurer
which may be done orally or in writing; Provided, that if the
notice be done orally, a written notice of such
abandonment shall be submitted within 7 days from such
oral notice. (Sec. 145)
7. The notice of abandonment must be explicit and must
specify the particular cause of abandonment. (Sec. 146)
56
Co-Insurance
1. The loss is partial; and

2. The amount of insurance is less than the value of the
property insured.
Co-Insurance in Co-Insurance in
Marine Insurance Fire Insurance
There is co-insurance by virtue There has to be an express
of Section 159 of the Insurance stipulation to that effect.
Code, as long as the above
enumerated requisites are
present.
57
Co-Insurance vs. Re-Insurance
Co-Insurance Reinsurance
A plan of indemnity insurance under which the insurance under which the reinsurer assumes the
reinsurer assumes the obligation on the amount obligation on the amount reinsured, in the same
reinsured, in the same fashion as the insurer is fashion as the insurer is obligated to the insured
obligated to the insured (excluding policy loans). (excluding policy loans). For this risk, the insurer
For this risk, the insurer the insurer usually pays the insurer usually pays to the reinsurer the gross
to the reinsurer the gross premium (less premium (less commissions and expense,
commissions and expense, allowances) it has allowances) it has collected from the insured on
collected from the insured on the amount insured the amount insured (it should be noted that the
(it should be noted that the insurer has no insurer has no relationship with the insured or
relationship with the insured or beneficiary). beneficiary).
It is a contract through which the insurer procures
a third person to insure him against loss or liability
by reason of such original insurance. In every
reinsurance, the original contract of insurance
and the contract of reinsurance are separate and
disticnt from each other and covered by separate
policies
The insurer remains as the insurer of the original The insurer becomes the insured, insofar as the
insured reinsurer is concerned
The subject of insurance is the property The subject is the original insurer’s risk
58
Co-Insurance vs. Re-Insurance
Co-Insurance Reinsurance
An insurance of the same interest Insurance of a different interest
The insured party is the party in interest in all The original insured has no interest in the
contracts contract of reinsurance which is independent of
the original contract of insurance
The insured has to give consent Consent of the original insured (who is hardly
even aware of the reinsurance transaction) is not
necessary.
59
Fire Insurance
Friendly Fire Hostile Fire

Fire that burns in a place Fire that escapes and burns
where it is supposed to in a place where it is not
burn. E.g. Gas stove, fire supposed to be. It may also
place refer to fire that started out
as a friendly fire but
escapes from its original
place or it becomes too
strong as it becomes out of
control
60
Alternation Made in the use or condition of the thing
insured
1. The use or condition of the thing is specially limited or

stipulated in the policy;
2. Such use or condition is altered;
3. The alteration is made without the consent of the
insurer;
4. The alteration is made by means within the control of
the insured; and
5. The alteration increases the risk. (IC, Sec. 170)
6. There must be a violation of a material policy
provision.
61
United Merchants Corporation v. Country Bankers
Insurance Corporation, G.R. No. 198588, July 11, 2012
However, the Insurance Code provides that a policy may

declare that a violation of specified provisions thereof shall
avoid it. Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance
Policy, a fraudulent discrepancy between the actual loss
and that claimed in the proof of loss voids the insurance
policy. Mere filing of such a claim will exonerate the
insurer.
62
Malayan Insurance Company, Inc. v. PAP Co., Ltd. G.R.
No. 200784, August 7, 2013
It can also be said that with the transfer of the location of

the subject properties, without notice and without
Malayan’s consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a
breach of a material warranty.
63
Casualty Insurance
1. Employer's liability and workmen’s insurance – the risk

insured against is the liability of the assured to make
compensation or pay damages for an accident, injury,
or death, occurring to a servant or other employee, in
the course of his employment under statutes imposing
such liability on employers.
2. Public utility insurance – indemnifies against liability on
account of injuries to the person or property of another.
It may extend to automobiles, elevators, fly wheels,
libel, theaters, and vessels.
3. 3. Motor vehicle liability insurance – is a contract of
insurance against passenger and third-party liability for
death or bodily injuries and damage to property arising
from, motor vehicle accidents.
64
Casualty Insurance
4. Burglary and theft insurance – an insurance against

loss of property by the depredations of burglars and
thieves.
5. Personal accident insurance – a form of insurance
which undertakes to indemnify the assured against the
expense, loss of time, and suffering resulting from
accidents causing him physical injury, usually by
payment at a fixed rate per week while the consequent
disability lasts, and sometimes including the payment
of a fixed sum to his heirs in case of his death by
accident within the term of the policy.
6. Health insurance – an indemnity to persons for
expense and loss of time occasioned by disease.
7. Other substantially similar kinds of insurance.
65
Rules on Third Party Liability
1. Insurable interest is based on the interest of the

insured in the safety of the persons, and their property,
who may maintain an action against him in case of
their injury or destruction respectively.
2. In a TPL insurance contract, the insurer assumes the
obligation by paying the injured third party to whom the
insured is liable.
66
Perla Compania de Seguros, Inc. vs. Ramolete, G.R. No.
L-60887, November 13, 1991
In a 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
injured third person is not necessary in order that the
obligation of the insurer 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.
67
Fortune Insurance & Surety Co. vs. CA, G.R. No. 115278,
May 23, 1995
In burglary, robbery and theft insurance, the opportunity to

defraud the insurer (moral hazard) is so great that insurer
have found it necessary to fill up the policies with many
restrictions designed to reduce the hazard. The purpose
of the exception is to guard against liability should theft be
committed by one having unrestricted access to the
property.
68
Rules on Third Party Liability
4. The right of the person injured to sue the insurer of the

party at fault (insured), depends on whether the
contract of insurance is intended to benefit third
persons also or only the insured.
69
Shafer vs. RTC Judge, G.R. No. 78848, November
14, 1988
The third persons to whom the insured is liable, can sue

directly the insurer upon the occurrence of the injury or
event upon which the liability depends. The purpose is to
protect the injured person against the insolvency of the
insured who causes such injury and to give him a certain
beneficial interest in the proceeds of the policy. It is as if
the injured person were especially named in the policy.
70
Liability of Insurer vs. Liability of Insured
Liability of Insurer Liability of Insured

The liability is direct but the Liability is direct and can be held
insurer cannot be held solidarily liable with all the parties at fault.
liable with the insured and other
parties at fault.
Liability is based on contract. Liability is based on tort.
The third-party liability is only up The liability extends to the amount
to the extent of the insurance of actual and other damages.
policy and that required by law.
71
Suretyship
It is an agreement whereby a party called the “surety”

guarantees the performance by another party called the
“principal or obligor” of an obligation or undertaking in
favor of a third party called the “obligee”. It includes official
recognizances, stipulations bonds or undertakings issued
by any company by virtue and under the provisions of Act
No. 536, as amended by Act No. 2206. (Sec. 177)
72
First Lepanto–Taisho Insurance Corporation vs.
Chevron Philippines, G.R. No. 177839, January 18, 2012
The extent of surety’s liability is determined by the

language of the suretyship contract or bond itself. It
cannot be extended by implications beyond the terms of
the contract. Having accepted the bond, the creditor is
bound by the recital in the surety bond that the terms and
conditions of distributorship contract be reduced in writing
or at the very least communicated in writing to the surety.
Such noncompliance by the creditor impacts not on the
validity or legality of the surety-contract but on the
creditor’s right to demand performance.
73
Life Insurance
It is insurance on human lives and insurance appertaining

thereto or connected therewith (Sec. 181, Insurance
Code). It is made payable on the death of the person, or
on his surviving a specified period, or otherwise
contingently on the continuance or cessation of life. (IC,
Sec. 182)
74
2 General Classes of Life Policies
1. Insurance upon one’s life – are those taken out by

the insured upon his own life (IC, Section 10[a]) for
the benefit of himself, or of his estate, in case it
matures only at his death, for the benefit of third
person who may be designated as beneficiary.
2. Insurance upon life of another – are those taken out
by the insured upon the life of another. Where a
person names himself beneficiary in a policy he
takes on the life of another, he must have insurable
interest in the life of the latter
75
Liability of the Insurer in Case of Suicide
1. The suicide is committed after the policy has been in

force for a period of 2 years from the date of its issue
or of its last reinstatement.
2. The suicide is committed within a shorter period as
provided in the policy.
3. The suicide is committed in the state of insanity
regardless of the date of commission. (IC, Sec. 183)
76
Sun Insurance Office, Ltd. vs. Court of Appeals,
G.R. No. 92383 July 17, 1992
The death of the insured was not due to suicide or willful

exposure to needless peril which are excepted risks. The
insured’s act was purely an act of negligence which is
covered by the policy and for which the insured got the
insurance for his protection. In fact, he removed the
magazine from the gun and when he pointed the gun to
his temple he did so because he thought that it was safe
for him to do so. He did so to assure his sister that the gun
was harmless. There is none in the policy that would
relieve the insurer of liability for the death of the insured
since the death was an accident.
77
Compulsory Motor Vehicle Liability Insurance
It 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 a motor vehicle by its owner.
78
Double Insurance vs. Over-Insurance
Double Insurance Overinsurance

There are two or more insurers There may be only one insurer, with
insuring the same subject matter. whom the insured takes insurance
beyond the value of his insurable
interest.
Double insurance exists where the There is over insurance whenever the
same person is insured by several insured obtains a policy in an amount
insurers separately, in respect to the exceeding the value of his insurable
same subject and interest. interest.
It is not prohibited by law In case there is over-insurance
because of double/multiple insurance,
the insurers are not required to pay
for the whole loss. Their obligation is
only pro-rata. The insured, on the
other hand, isn't allowed to recover
more than his insurable interest.
79
Malayan Insurance Co., Inc vs Philippines First
Insurance Co., Inc., G.R. No. 184300 July 11, 2012
The requisites in order for double insurance to arise are

as follows:
1. The person insured is the same;

2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
80
Cognition Theory
Insurance contracts through correspondence follow the

“cognition theory” wherein an acceptance made by letter
shall not bind the person making the offer except from the
time it came to his knowledge.
81
Cash and Carry Rule
GR: No policy or contract of insurance issued by an

insurance company is valid and binding unless and until
the premium thereof has been paid. Any agreement to
the contrary is void.
XPN: A policy is valid and binding even when there is
non-payment of premium:
1. In case of life or industrial life policy whenever the
grace period provision applies, or whenever under the
broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is
given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date
of issuance of the policy. (IC, Sec. 77)
82
Cash and Carry Rule
2. When there is acknowledgment in a policy of a receipt of

premium, which the law declares to be conclusive evidence of
payment, even if there is stipulation therein that it shall not be
binding until the premium is actually paid. This is without
prejudice however to right of insurer to collect corresponding
premium. (Sec. 77)
3. When there is an agreement allowing the insured to pay the
premium in installments and partial payment has been made at
the time of loss.
4. When there is an agreement to grant the insured credit
extension for the payment of the premium and loss occurs
before the expiration of the credit term.
5. When estoppel bars the insurer to invoke nonrecovery on the
policy.
6. When the public interest so requires, as determined by the
Insurance Commissioner 83
Makati Tuscany Condominium Corp. v. CA, G.R. No.
95546, Nov. 6, 1992
We hold that the subject policies are valid even if the
premiums were paid on installments. The records
clearly show that petitioner and private respondent
intended subject insurance policies to be binding and
effective notwithstanding the staggered payment of the
premiums.
84
Payment through Salary Deduction
Employees of the Republic of the Philippines, including

its political subdivisions and instrumentalities, and
government-owned or controlled corporations, may pay
their insurance premiums and loan obligations through
salary deduction: Provided, That the treasurer, cashier,
paymaster or official of the entity employing the
government employee is authorized, notwithstanding
the provisions of any existing law, rules and regulations
to the contrary, to make deductions from the salary,
wage or income of the latter pursuant to the agreement
between the insurer and the government employee and
to remit such deductions to the insurer concerned, and
collect such reasonable fee for its services
85
Payment of premium by post-dated check
Delivery of a promissory note or a check will not be

sufficient to make the policy binding until the said note
or check has been converted into cash. This is
consistent with Article 1249 of the New Civil Code.
86
REINSTATEMENT OF A LAPSED POLICY OF LIFE
INSURANCE
The purpose of the provision is to clarify the requirements for
restoring a policy to premium paying status after it has been
permitted to lapse.
The law requires that the policy owner be permitted to
reinstate the policy, subject to the violations specified, any
time within three (3) years from the date of default of
premium payment. A longer period, being more favorable to
the insured, may be used.
Reinstatement is not an absolute right of the insured, but
discretionary on the part of the insurer, which has the right to
deny reinstatement if it were not satisfied as to the
insurability of the insured, and if the latter did not pay all
overdue premiums and other indebtedness to the insurer.
87
Violeta R. Lalican vs. The Insular Life Assurance
Company Limited, G.R. No. 183526, August 25, 2009
In the instant case, Eulogio's death rendered impossible
full compliance with the conditions for reinstatement of
Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and
deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but
Policy No. 9011992 could only be considered reinstated
after the Application for Reinstatement had been
processed and approved by Insular Life during
Eulogio's lifetime and good health.
88
Grounds for Cancellation of Non-Life Policy
Cancellation by the insurer of an insurance policy other than life
requires (a) prior notice to the insured, and (b) any of the following
grounds:
1. Non-payment of premium;
2. Conviction of a crime out of acts increasing the hazard insured
against;
3. Fraud or material misrepresentation;
4. Willful or reckless acts or omissions increasing the risk insured
against;
5. Physical changes in the property insured making it uninsurable;
and
6. Determination by the Insurance Commissioner that the policy
would violate the Insurance Code.
89
Rules in Designation of Beneficiary
1. When one insures his own life, he may designate any person as
the beneficiary, insurable interest in the life of the insured. (Exe:
Persons specified in Article 739 of the Civil Code cannot be
designated)
2. If a person will insure the life of another payable to himself, he
must have insurable interest on the life of the person whose life
he is insuring.
3. In property insurance, the beneficiary must have insurable
interest on the property.
4. The designation is revocable unless the right to revoke is
expressly waived in the policy.
5. If the insured or beneficiary is a minor, and the amount involved
does not exceed P50,000.00, the father, in the absence or
incapacity, the mother may exercise the minor’s rights under the
policy, without the need of a court authority or a bond.
90
Change of Beneficiary
The insured has the right to change the beneficiary he
designated.
In the event he does not change the beneficiary during his

lifetime, the designation shall be irrevocable.
Once the designation is irrevocable, the insured cannot

assign the policy.
Effects of Irrevocable designation:
1. The beneficiary designated cannot be changed without the beneficiary’s consent.
2. A new beneficiary cannot be added to the irrevocably designated beneficiary for this would
affect his vested rights.
3. The irrevocably designated beneficiary may obtain a policy loan.

Effects of Irrevocable designation:
4. The insured cannot take the cash surrender value or
borrow on said policy without the consent of the
beneficiary.
Beneficiary who willfully brought about
the death of the insured:
Exceptions:
1. When the beneficiary acted in self defense.
2. The death of the insured is not intentionally caused.
3. Insanity of the beneficiary at the time he killed the insured.

Property Insurance
Insurable interest in property insurance may consist of the following:
1. An existing interest
2. An inchoate interest founded on an existing interest.
3. An expectancy coupled with existing interest.

Peril of the ship includes:
1. Natural and inevitable action of the sea.
2. Ordinary wear and tear of the ship.
3. Negligent or failure of the ship owner to provide the
vessel with proper equipment.
Implied warranties:
1. The ship is sea worthy.
2. Non-engagement from illegal ventures.
3. Warranty of neutrality
4. Non-deviation from agreed voyage
5. Presence of insurable interest.
Proper Deviation:
Improper Deviation:
Sec. 129
The insurer is not liable for any loss
happening to the thing insured
subsequent to an improper deviation.
Abandonment
It is the act of the insured by which,
after a constructive total loss he
declared the relinquishment to the
insurer of his interest in the thing
insured.
MICROINSURANCE
It is a financial product or service that meets the risk
protection needs of the poor where the premium is
computed on a daily basis of the current minimum
wage.

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Section 51

Section 51. A policy of insurance must specify:

Cover notes may be issued to bind insurance temporarily

Cover notes may be extended or renewed beyond such sixty

As we read and understand the so-called provisional

The binding deposit receipt in question is merely an

The fact that no separate premium was paid on the

Delay in the presentation to an insurer of notice or proof of loss is waived if

In the case at bar, the company did NOT act on the

The insurance proceeds shall be applied exclusively to

A policy of insurance is a distinct and independent contract

The policy under consideration is typical of contracts

The policy under consideration is typical of contracts

The contract of life insurance is a special contract and

The contract of life insurance is a special contract and

The contract of life insurance is a special contract and

When an insurance contract is executed with an agent

To render an insurance effected by one partner or part-

When the description of the insured in a policy is so

Section 57. A policy may be so framed that it will inure

Section 58. The mere transfer of a thing insured does

Statements or promises by the insured set forth in the

The policy is avoided only from the time of breach (IC,

Loss in insurance - the injury, damage or liability sustained

Conditions before the insured may recover on the policy

1. The insured or some person entitled to the benefit of the

1. To give insurer Information by which he may

LIFE POLICIES NON-LIFE POLICIES

1. No insurance company doing business in the Philippines shall refuse,

1. Knowingly misrepresenting to claimant’s pertinent facts or

As established in Section 244, by reason of the delay and the

1. The parties to a contract of insurance may validly agree that an

In case the claim was denied by the insurer but the

In a comprehensive motor vehicle liability insurance

Notwithstanding the fact that the case was filed beyond

If the plaintiff’s property has been insured, and he has

The insurer, upon happening of the risk insured against

The principle of subrogation inures to the insurer without

Incapacity of the insured will not affect the capacity of the

1. Applicable only to property insurance – the value of

2. The right of insurer against a third party is limited to

1. Where the insured by his own act releases the

Since the insurer can be subrogated to only such rights

Traditionally, marine insurance it includes policies that

Cargo can be the subject of marine insurance, and once it

“Perils of the sea or perils of navigation” - it includes only

“Perils of the ship” - it is a loss which, in the ordinary

Cargo owner – over the cargo and expected profits. (IC,

a. Over the vessel, to the extent of the amount he is

Creditor/lender – over the amount of the loan.

It is the failure to disclose any material fact or

NOTE: Information of the belief or expectation of a third

MARINE INSURANCE OTHER PROPERTY INSURANCE

1. Promissory Representation - If a representation by the

2. Representation of Expectation - The eventual falsity of

1. Seaworthiness (IC, Sec. 115 to 121);

1. When caused by circumstances over which neither

Actual Loss Constructive Loss

1. A total destruction of the thing insured;

1. More than ¾ thereof in value is actually lost, or would have

It is the act of the insured by which, after a constructive total

1. There must be an actual relinquishment by the person

1. The loss is partial; and

An insurance of the same interest Insurance of a different interest