LAW ON INSURANCE- RA 10607

I. Marine

a. Insurable Interest [Secs. 102-108, IC]

Who has insurable interest in Marine
Insurance?

Shipowner

>Value of the vessel

EXPN:
When vessel is chartered,
(and the charterer agreed to
pay the value of the vessel in
case of loss):
>only up to the amount not
recoverable from the
charterer [Sec. 120, IC]
When vessel is
hypothecated by a
bottomry loan*:
>only up to the excess of the
value of the vessel over the
loan [Sec. 103, IC]
>Over expected freightage**

Shipper or
Cargo
Owner

>Over the cargo and the

expected profits

Charterer

>Over the vessel up to the

extent he is liable to the
shipowner, if the ship is lost or
damaged during the voyage;
>Over expected profits or
freightage (if he accepts cargoes
from other persons for a fee;
>Over his own cargo or his
clients cargo

*It is one which is payable only if the vessel, given

as a security for the loan, completes in safety the
contemplated voyage.
The lender in bottomry is entitled to receive a high
rate of interest to compensate him for the risk of
losing his loan.
Where the vessel is bottomed, the owner has an
insurable interest only in the excess of its value
over the amount of the bottomry loan. The
insurable interest of the lender on bottomry in the
vessel given as security is to the extent of the loan.
** It is the benefit which is to accrue to the owner
of the vessel from its use in the voyage
contemplated or the benefit derived from the
employment of the ship. (Hizon Notes)

Charter Party
-is a contract by which an entire ship or some
principal part thereof is lent by the owner to
another person for a specified time or use.
>Kinds:
1. Charter party or demise charter a
lease of an unfurnished house. It is the
charterer who shall provide a crew and
victuals and supplies and fuel for her during
the term of the charter. the charterer
becomes, in effect, the owner of the
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voyage or service stipulated, subject to the

liability for damages caused by negligence.
2. Contract of affreightment- the owner of
the vessel leases part or all of its space to
haul goods for others.
The owner of the vessel retains the
possession, command and navigation of
the ship, the charterer or freighter merely
having use of the space in the vessel in
return for payment of the charter hire or
freight. (Hizon Notes)
b. Perils of the Sea, Perils of the Ship
PERILS OF THE SEA/ PERILS OF THE
NAVIGATION
-casualties arising from the unusual
violence or extraordinary causes with
navigation;
-includes losses as are of extraordinary
nature which cannot be guarded against by
the ordinary exertion of human skill or
prudence (as distinguished from the ordinary
wear and tear of the voyage and from injuries
suffered by the vessel in consequence of her not
being seaworthy).
It embraces all kinds of marine insurance
casualty:
a. Shipwreck
b. Foundering
c. Stranding
d. Collision, and
e. Every specie of damage done to the ship
or goods at sea by violent action of the wind
and waves; or
f. Losses occasioned by the jettisoning of
cargo;
g. Barratry (Hizon Notes)
Barratry is the wilful conduct on the part
of the master or crew in pursuance of some
unlawful or fraudulent purpose without the
consent of the shipowner, and to the
prejudice of the latters interest.
-losses arising from it may be expressly
covered by the policy; proof of wilful and
intentional act is necessary; honest error of
judgment or mere negligence, unless
criminally gross, cannot be considered
barratry
PERILS OF THE SHIP
-losses which in the ordinary cause of
events result from:
a. ordinary,
natural,
and
inevitable
action of the sea;
b. ordinary wear and tear of the ship; or
c.negligent failure of the ships owner to
provide the vessel with the proper
equipment to convey the cargo under
ordinary conditions.

LAW ON INSURANCE- RA 10607

In marine insurance, as a rule, only perils of
the sea may be insured against.
However, if the parties agreed on an all risk
policy*, ALL LOSSES connected with the voyage
may be covered unless expressly excepted. (The
burden lies on the insurer to prove that the loss
is caused by an excluded risk.)
*insures all causes of conceivable loss or
damage during the voyage whether or not
arising from a marine peril,
EXCEPT when otherwise excluded or when
the loss or damage was due to fraud or
intentional misconduct committed by the
insured

c.

Implied Warranties (DICES)

1.The ship will not deviate from the agreed
voyage, unless deviation is proper. (see f.
Deviation, infra)
2.The presence of insurable interest
3.The ship will carry the requisite documents of
nationality or neutrality of the ship or
cargo, where such nationality or neutrality is
expressly required
4.The ship will not engage in illegal venture,
5.The ship is seaworthy at the inception of the
insurance. (see d. Seaworthiness, infra)

d. Seaworthiness
SEAWORTHY
-a vessel is seaworthy if it is fit to perform the
service and to encounter the ordinary perils of
the sea with respect to the voyage contemplated
by the parties; there should be due consideration
to the: nature of the ship, the voyage and
the service to be performed
rule as to the nature of the ship: the
vessel must be in a fit state as to repair,
equipment, crew, and in all other
respects to perform the voyage insured
and to encounter ordinary perils or
navigation. She must also be in a suitable
condition to carry the cargo put on board
or intended to be put on board.
rule as to the nature of the voyage: what
is reasonable fitness to encounter the
perils expected to arise in the course of
the voyage vary, naturally with the
character of the particular voyage.
rule as to the nature of service: the
requirement is that she shall be
reasonably capable of safely carrying the
cargo to its port of destination. (Hizon
Notes)

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e. General Average Loss v. Particular

Average Loss
GENERAL AVERAGE LOSS includes damages
and expenses which are deliberately caused by
the master of the vessel or upon his authority,
in order to save the vessel/ cargo/ both at the
same time from real or known risk.
Loss is borne equally by all of the interests
concerned
>Requisites to claim contribution: (CSBMS)
1. There must be a common danger to the vessel
or cargo
2. Part of the vessel or cargo was sacrificed
deliberately
3. The sacrifice must be for the common safety
or for the benefit of all
4. It must be made by the master or upon his
authority
5. It must not be successful
PARTICULAR AVERAGE LOSS includes all
damages and expenses cause to the vessel.
cargo which have NOT ENURED to the common
benefit and profit of all persons interested; will
NOT
ENTITLE
the
owners
to
receive
contribution from other owners concerned in
the venture

f. Deviation
DEVIATION is the (DDD)
1.departure of the vessel from course of the
voyage;
2.unreasonable delay in pursuing the voyage; or
3.commencement of an entirely different voyage
When is deviation proper? (CCGS)
a.due to circumstances outside the control of
the ship captain or the ship owner
b.done to comply with a warranty
c. made in good faith to avoid a peril
d.made to save a human life or another vessel
in distress

g. Loss and Abandonment

Loss
The loss may be deemed Actual Total in the
following circumstances:
a. total destruction
b. loss by sinking
c. damage rendering the thing valueless
d. total deprivation by the owner of
possession of thing insured
There is Constructive Loss when:
a. there is actual loss of more than of the
value of the object

LAW ON INSURANCE- RA 10607

b.

damage reducing value by more than

of the value of the vessel and of cargo,
and
c. expense of shipment exceed of value
of cargo
Insured may abandon the goods/vessel to
the insurer and claim the whole insured
value or
without abandon the vessel, claim for
partial loss

Friendly fire is fire that is deliberate and

remains within the limits intended for it.
HOSTILE FIRE
Hostile fire is fire that goes out of control and
beyond the limits intended for it.

b. Effect of Negligence
c.

Abandonment
-the act of the insured of relinquishing his
insurable interest or the proceeds of the policy,
or the claims arising from it (IPC).
>Requisites: [Secs. 140-146, IC] (ACRFNE)
(FRANCE)
1. There must be an actual relinquishment by
the person insured of his interest in the thing
insured
2. There must be a constructive total loss
3. The abandonment be neither partial nor
conditional
4. It must be made within a reasonable time
after receipt of reliable information of the loss
5. It must be factual
6. It must be made by giving notice thereof
to the insurer which may be done orally or in
writing
7. The notice of abandonment must be
explicit and must specify the particular cause
of the abandonment.

II. Fire Insurance

Perils covered under a fire insurance

As used in this Code, the term fire
insurance shall include insurance against
loss by fire, lightning, windstorm,
tornado or earthquake and other
allied risks, when such risks are covered
Fire
may notto be
a natural
by extension
fire considered
insurance policies
or
disaster
or
calamity
since
it
almost
always
under separate policies. [Sec. 169, IC] arises
from some act of man, or by human means. It
cannot be an act of God unless caused by some
lightning or natural disaster or casualty not
attributable to human agency.
a. Friendly v. Hostile Fire
To be covered by fire insurance, the fire must be
hostile.
FRIENDLY FIRE

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Alteration

Can the insurer rescind the policy should the

insured alter the use or condition of the
thing insured from that provided under the
policy?
YES.
An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy made
without the consent of the insurer, by
means within the control of the insured,
and increasing the risks, entitles an
Under this provision, the insurer can exercise
insurer to rescind a contract of fire
its right to rescind an insurance contract when
insurance. [Sec. 170, IC]
the following conditions are present:
1. the policy limits the use or condition of
the thing insured;
2. there is an alteration in said use or
condition;
3. the alteration is without the consent of
the insurer;
4. the alteration is made by means within
the insureds control; and
5. the alteration increases the risk of loss.
(Malayan Insurance v. PAP Co.)
Malayan v. PAP Co.
-by the clear and express condition in the
renewal policy, the removal of the insured
property to any building or place required the
consent of Malayan. Any transfer effected by the
insured, without the insurers consent, would free
the latter from any liability. The respondent failed
to notify, and to obtain the consent of, Malayan
regarding the removal
-The transfer from the Sanyo Factory to the PACE
Factory increased the risk. The Court agrees with
Malayan that the transfer to the Pace Factory
exposed the properties to a hazardous
environment and negatively affected the fire
rating stated in the renewal policy. The increase
in tariff rate from 0.449% to 0.657% put the
subject properties at a greater risk of loss. Such
increase in risk would necessarily entail an
increase in the premium payment on the fire
policy.
-Under Section 168 of the Insurance Code, the
insurer is entitled to rescind the insurance

LAW ON INSURANCE- RA 10607

contract in case of an alteration in the use or
condition of the thing insured. All the
circumstances are present. It was clearly
established that the renewal policy stipulated
that the insured properties were located at the
Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the
alteration of the location increased the risk of
loss.
-Malayan is entitled to
rescind
the
insurance contract. Considering that the
original policy was renewed on an "as is basis," it
follows that the renewal policy carried with it the
same stipulations and limitations. The terms and
conditions in the renewal policy provided, among
others, that the location of the risk insured
against is at the Sanyo factory in PEZA. The
subject insured properties, however, were totally
burned at the Pace Factory. Although it was also
located in PEZA, Pace Factory was not the
location stipulated in the renewal policy. There
being an unconsented removal, the transfer was
at PAPs own risk. Consequently, it must suffer
the consequences of the fire.
-It can also be said that with the transfer of the
location of the subject properties, without notice
and without Malayans consent, after the renewal
of the policy, PAP clearly committed
concealment, misrepresentation and a
breach of a material warranty. [Sec. 26, 27]

III. Casualty Insurance

COMPULSORY THIRD PARTY LIABILITY

(CPTL)
Purpose: CPTL is primarily intended to
provide compensation for the death or bodily
injuries suffered by innocent third
parties/passengers as a result of negligent
operation and use of motor vehicles.
The victims and/or their dependents are
assured of immediate financial assistance,
regardless of the financial capacity of the motor
vehicle owners.
NO FAULT INDEMNITY PROVISION
The No Fault Indemnity provision of the IC
refers to third party liability in motor vehicle
insurances, under which the insurer of the
vehicle where the injured/deceased person was
boarding, was a passenger of, or was
disembarking from, becomes liable for physical
injuries or death up to P15,000.00, without
regard to whether or not the vehicle was
negligent or at fault at the time of the accident
and without the necessity of proving fault or
negligence of any kind under the following rules:
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a.
b.

c.

d.
e.

The suit or claim of recovery is directed

at one vehicle only;
The suit is directed against the insurer of
the vehicle where the victim was a
passenger of, or if not a passenger, claim
shall lie against the insurer of the vehicle
which bumped the victim
The total indemnity in respect of any
person shall not exceed P15,000 (Memo.
Circ. 4-2006, Jan. 1 2007)
The insurer who pays can claim against
the vehicle at fault.
The claim shall be under the oath and
shall be accompanied by proof of the
following:
1. police report of the accident
2. death certificate and evidence
sufficient to establish the proper
payee or
medical report and evidence of
medical or hospital disbursement in
respect of which refund is claimed
[Sec. 391, IC]

AUTHORIZED DRIVERS CLAUSE

It is a stipulation in a motor vehicle insurance
which provides that a person other than the
insured owner, who drives the car on the
insured's order, such as his regular driver, or with
his permission, such as a friend or member of the
family or the employees of a car service or repair
shop must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
(Villacorta v. IC)
While the Motor Vehicle Law prohibits a
person from operating a motor vehicle on the
highway without a license or with an expired
license, an infraction of the Motor Vehicle Law on
the part of the insured, is not a bar to recovery
under the insurance contract. It however renders
him subject to the penal sanctions of the Motor
Vehicle Law. (Palermo v. Pyramid Insurance)
The authorized driver requirement in car
insurance applies to persons other than the
insured himself. The insured need not prove
that he has a drivers license at the time of the
accident if he was the driver.
However, if the vehicle is driven by one holding
an expired drivers license, the driver
thereof is NOT an authorized driver.
THEFT CLAUSE
It is a provision in motor vehicle insurance
which provides that the insurer shall be liable
when the vehicle is unlawfully and wrongly taken
without the knowledge and consent of the owner.
When one takes the motor vehicle of another
without the latters consent even if the motor
vehicle is later returned, there is theft, there
being intent to gain as the use of the thing

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LAW ON INSURANCE- RA 10607

unlawfully taken constitutes gain (People v.
Bustinera)
When an employee of a car shop took the car
that is being repaired for a joy ride, the
theft clause operates (Villacorta v. IC)
Under the theft clause, the insurer is liable
even if the thief has no drivers license. The
authorized drivers clause DOES NOT apply.
(Perla Compania v. CA)
Tonco v. Phil Guaranty
-a clause in the policy excluding loss while the
motor vehicle "is being operated by any person
prohibited by law from driving an automobile"
was held to be free from doubt or ambiguity,
reasonable in its terms and in furtherance of the
policy of the law prohibiting unlicensed drivers to
operate motor vehicles
-Under a provision in the policy that the insurer
"shall not be liable while the automobile is
operated ... by any person prohibited by law from
driving," the insurance company was absolved,
the Supreme Court of Michigan saying: "To
require a person to secure an operator's license
and meet certain requirements before driving an
automobile is a regulation for the protection of
life and property, the wisdom of which can
scarcely be questioned. The Legislature has also
provided that every three years such licenses
expire and may be renewed under certain
conditions. If one fails to comply with the
regulation, the statute says, he or she shall not
drive a motor vehicle upon the highway.
- Under the terms of the contract, while under
such statutory prohibition, plaintiff could not
recover under his policy. To permit such recovery,
notwithstanding the lack of a driver's license,
would tend to undermine the protection afforded
the public by virtue of Act No. 91."
- The exclusion clause in the contract invoked by
appellant is clear. It does not refer to
violations of law in general, which indeed
would tend to render automobile insurance
practically a sham, but to a specific situation
where a person other than the insured
himself, even upon his order or with his
permission, drives the motor vehicle
without a license or with one that has
already expired.
Perla Compania v. Ancheta
-The law is very clear the claim shall lie against
the insurer of the vehicle in which the
"occupant" ** is riding, and no other. The
claimant is not free to choose from which insurer
he will claim the "no fault indemnity," as the law,
by using the word "shall, makes it mandatory
that the claim be made against the insurer of the
vehicle in which the occupant is riding, mounting
or dismounting from.
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Page 5

-That said vehicle might not be the one that

caused the accident is of no moment since the
law itself provides that the party paying the claim
under Sec. 378 may recover against the owner of
the vehicle responsible for the accident.
-This is precisely the essence of "no fault
indemnity" insurance which was introduced to
and made part of our laws in order to provide
victims of vehicular accidents or their heirs
immediate compensation, although in a limited
amount, pending final determination of who is
responsible for the accident and liable for the
victims' injuries or death. In turn, the "no fault
indemnity" provision is part and parcel of the
Insurance Code provisions on compulsory motor
vehicle ability insurance [Sec. 373-389] and
should be read together with the requirement for
compulsory passenger and/or third party liability
insurance [Sec. 377] which was mandated in
order to ensure ready compensation for victims
of vehicular accidents.
-Irrespective of whether or not fault or negligence
lies with the driver of the Superlines bus, as
private respondents were not occupants of the
bus, they cannot claim the "no fault indemnity"
provided in Sec. 378 from petitioner. The claim
should be made against the insurer of the
vehicle they were riding.

IV. Life

Is the insurer in a life insurance liable in case

the insured committed suicide?
GR: YES. The insurer is liable when suicide is
committed after the policy has been in force for a
period of 2 years from the date of issue or its last
reinstatement, unless the policy provides a
shorter period [Sec. 183, IC]
EXPN: When suicide is committed in the
state of insanity, it shall be compensable
regardless of the date of commission. [Sec. 183,
IC]

Suretyship
The contract
of suretyship
is an
agreement whereby a party called the surety
guarantees the performance by another part
called the principal or obligor of an obligation
or undertaking in favour of a third party
called the oblige.
Claims Settlement

LAW ON INSURANCE- RA 10607

Period for settlement of claims and effect in

case of delay

Life:
The proceeds of a life insurance
policy shall be paid immediately upon
maturity of the policy, unless such
proceeds
are
made
payable
in
installments or as an annuity, in which
case the installments, or annuities shall
be paid as they become due: Provided,
however, That in the case of a policy
maturing by the death of the insured,
the proceeds thereof shall be paid within
sixty (60) days after presentation of
the claim and filing of the proof of
death of the insured.

If such ascertainment is not had

or made within sixty (60) days after such
receipt by the insurer of the proof of loss,
then the loss or damage shall be paid
within ninety (90) days after such
receipt.
Refusal or failure to pay the loss or
damage within the time prescribed herein
will entitle the assured to collect interest
on the proceeds of the policy for the
duration of the delay at the rate of twice
the ceiling prescribed by the Monetary
Board, unless such failure or refusal to
pay is based on the ground that the claim

Refusal or failure to pay the claim

within the time prescribed herein will
entitle the beneficiary to collect interest
on the proceeds of the policy for the
duration of the delay at the rate of twice
Property:
the ceiling prescribed by the Monetary
Board, unless such failure or refusal to
pay is based on the ground that the claim

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The amount of any loss or

damage for which an insurer may be
liable, under any policy other than life
insurance policy, shall be paid within
thirty (30) days after 1) proof of loss
is received by the insurer and 2)
ascertainment of the loss or damage
is made either by agreement between
the insured and the insurer or by
arbitration; but

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