Title 11.

Double Insurance insurer, a breach thereof will

prevent a recovery on the policy.
Sec. 95. A double insurance exists where - In order to constitute a violation,
the same person is insured by several the other insurance must be upon
insurers separately in respect to the same the same subject matter, the
subject and interest. same interest, and the same risk.
2. Additional insurance obtained by a third
Double insurance person
- Good or bad faith of the insured is
- exists where the same person is
usually immaterial.
insured by several insurers
- Insurance obtained by a third
separately in respect to the same
person w/o knowledge or consent
subject and interest.
of the insured will not affect his
- There in co-insurance by 2 or more
rights under the policy in the
insurers; hence, also known as co-
absence of ratification.
insurance.

Requisites of double insurance

Purpose of prohibition against double
1. The person insured is the same;
insurance
2. 2 or more insurers insuring separately;
3. There is identity of the subject matter;
4. There is identity in the interest insured; - To prevent over-insurance and thus avert
and the perpetration of fraud.
5. There is identity or risk or peril insured - The public, as well as the insurer, is
against. interested in preventing the situation in
which a loss would be profitable to the
Double insurance vs. Over-insurance insured.

Over-insurance Double insurance

Sec. 96. Where the insured
amount of the There may be no over-
is overinsured by double insurance:
insurance is beyond the insurance as when the
value of the insureds sum total of the
(a) The insured, unless the policy
insurable interest. amounts of the policies
otherwise provides, may claim
issued does not exceed payment from the insurers in such
the insurable interest of order as he may select, up to the
the insured. amount for which the insurers are
There may be only 1 There are always severally liable under their
insurer involved. several insurers. respective contracts;
May exist at the same time or neither may exist (b) Where the policy under which
at all. the insured claims is a valued
policy, the insured must give credit
Over-insurance by double insurance- when the as against the valuation for any
sum received by him under any
sums insured exceed the insurable interest.
other policy without regard to the
actual value of the subject matter
insured;
Binding effect of stipulation against
double insurance (c) Where the policy under which
the insured claims is an unvalued
1. Additional insurance obtained by the policy he must give credit, as
against the full insurable value, for
insured
any sum received by him under
- Provision is commonly known as any policy;
the Additional or other insurance
(d) Where the insured receives any
clause sum in excess of the valuation in
- Intended to prevent an the case of valued policies, or of
increase in the moral the insurable value in the case of
hazard. unvalued policies, he must hold
- Valid and reasonable, and in the such sum in trust for the insurers,
absence of consent, waiver or according to their right of
contribution among themselves;
stopper; on the part of the
 (e) Each insurer is bound, as - Each insurer is bound to contribute
between himself and the other ratably to the loss in proportion to the
insurers, to contribute ratably to
amount for which he is liable under his
the loss in proportion to the
amount for which he is liable under contract.
his contract. - Formula:
- Amount of Policy x Loss = Liability
of insurer
Rules for payment of claims where there is Total Insurance Taken
over-insurance by double insurance
5. Where sum received by insured exceeds total
Principle of contribution insurance taken (par.d)

- Requires each insurer to contribute - Insured must hold the excess amount in
ratably to the loss or damage trust for the insurers.
considering that the several insurances - He cannot recover more than the full
cover the same subject matter and indemnity.
interest against the same peril.
- Apply only where there is over-insurance Title 12 REINSURANCE
by double insurance, that is, the
Sec. 97. A contract of reinsurance is one by
insurance is contained in several policies
which an insurer procures a third person
the total amount of which is in excess of
to insure him against loss or liability by
the insurable interest of the insured.
reason of such original insurance.
- Par. (e)
o Governs the liability of the
Reinsurance
insurers among themselves
where the total insurance taken - one by which an insurer procures a
exceeds the loss. third person to insure him against
o Is the loss is greater than the sum loss or liability by reason of such
total of all the policies issued, original insurance.
each insurer is liable for the - An insurance of an insurance.
amount of his policy. - Sometimes referred to as treaties.
1. Several or solidary liability of insurers under Retrocession
their respective contracts
- Reinsurance of a reinsurance.
- EXN: where the policy contains a
Contribution clause Reinsurance vs. Double Insurance
Which stipulates that the
insurance company shall Double Insurance Reinsurance
not be liable to pay or Insurer remains as the Insurer becomes the
contribute more than its insurer of the original insured, insofar as the
ratable proportion of the insured insurer is concerned
loss or damage. Subject of insurance is Subject is Original
property insurers risk
2. Where the insured claims under a valued An insurance of the An insurance of
policy (par. b) same interest different interest
Insured is the party in Original insured has no
- If insured has been fully indemnified for interest in all the interest in the contract
his loss by 1 insurer, he cannot file contracts of reinsurance which is
subsequent claims against the others. independent of the
original contract of
3. When insured claims under an unvalued insurance.
policy (par.c) Insured has to give his Consent of the original
consent insured is not
- The value of the loss must be necessary.
ascertained.

4. Liability of each insurer to contribute ratably Value of reinsurance

to the loss (par.e)
1. From the standpoint of the insurer
Reinsuring companies benefit from the
contracts of insurance.
Retention
o A limit on the maximum claim it
wishes to pay out of its own
resources.
Thru the use of reinsurance, an
insurer is able to issue policies for
amounts in excess of its retention
limit or beyond the capacity of its
financial resources in case of a loss.
Insurance protection will be
distributed to a greater proportion of
those needing protection.
Underwriters benefit thru the placing
of additional insurance in an
expanded market.
The knowledge of the industry regarding
classification of impaired is increased in
the most economical manner.
Reinsurer benefits thru the acquisition of
business which is expected to prove
profitable in the long run.
2. From the standpoint of the insured
It gives insurance companies that
practice in greater financial stability and
thus makes the insureds individual
policy more reliable;
If a large amount of insurance is needed,
the insured ma obtain it w/o negotiating
with numerous companies;
It enables the insured to obtain
protection promptly, w/o the delay that
would be required to divide and
distribute the amount among many
companies;
All the insurance can be written under
identical contract provisions, whereas
otherwise these might vary with the
different companies among whom the
insurance is divided; and
Small companies are encouraged to
divide large exposures for safety and
enabled to accept a wide variety of
applicants.
3. From the standpoint of the insuring public.
Promote both efficiency and stability in
the conduct of the reinsurance business.
Sec. 98. Where an insurer obtains
reinsurance, except under automatic
reinsurance treaties, he must
communicate all the representations of
the original insured, and also all the
knowledge and information he possesses,
whether previously or subsequently
acquired, which are material to the risk.
Duty of reinsured to disclose facts.
Automatic and facultative methods of
ceding reinsurance.
Reinsurance may be placed in effect either:
a. Automatically or
b. Facultatively
1. Share or participation in risk insured
The rule in Sec. 98 does not apply in
case of AUTOMATIC REINSURANCE
TREATIES
o The ceding company (reinsured)
is bound to cede (give off by way
of reinsurance) and the reinsurer
is obligated to accept a fixed
share of the risk which has to be
reinsured under the contract.
Facultative insurance
o Covers liability on individual risk
o There is no obligation either to
cede or to accept participation in
the risk insured, each party
having a free choice.
o But once the share is accepted,
the obligation is absolute and the
liability assumed thereunder can
be discharged by one and only
way- payment of the share of the
losses.
2. Advantage to insurer
Automatic method
o Avoidance of any delay in issuing
its policy.
Facultative method
o It receives the insurers
underwriting opinion before the
policy is issued.
3. Protection to reinsurer
The reinsurer is protected by the
requirement that the original insurer
retains its full retention limit, which
assures a measure of self-interest.
Reinsurance treaty vs. Reinsurance policy
 Reinsurance treaty Reinsurance policy 4. Insurable interest requirement applicable.
Merely an agreement A contract of indemnity
between 2 insurance whereby 1 insurer The primary insurer is not entitled to
companies whereby 1 makes with another to contract for reinsurance exceeding the
agrees to cede and the protect the 1st insurer limits of the policy ceded to the
other to accept from risk it has already reinsurer.
reinsurance business assumed. The reinsurer cannot provide coverage
pursuant to provisions for risks beyond the scope of the
specified in the treaty. coverage provided by the primary
Lumping of the insurer.
different agreements
under a contract. 5. Rule on subrogation applicable.
An agreement between
In general, a reinsurer, on payment of a
insurance companies to
loss, acquires the same rights by
cover the different
subrogation as acquired in similar cases
situations described.
Contracts FOR Contracts OF insurance where the original insurer pays a loss.
insurance

Sec. 100. The original insured has no

Sec. 99. A reinsurance is presumed to be a
interest in a contract of reinsurance.
contract of indemnity against liability, and
not merely against damage. Rights of original insured in contract of
reinsurance.
Nature of contract of reinsurance
1. The insured, unless the contract so provides,
Subject: Primary insurers risk and not
has no concern with the contract of reinsurance,
the property insured under the original
and the reinsurer is not liable to the insured
policy.
either as surety or otherwise.
1. Contract, one of indemnity against liability.
2. There is no privity of contract between the
original reinsured and the reinsurer. A contract
The reinsurer agrees to indemnify the
of reinsurance rarely explicitly permits direct
insurer, not against actual payment
action by the original insured against the
made but against liabilities incurred.
reinsurer.
It Is by no means necessary that the
insurer shall have first paid a loss
accruing, as a condition precedent to his
demanding payment of the reinsurer. Liability of reinsurer to reinsured.

2. Contract, separate from original insurance
policy.
Independent of and separate from the
contract of insurance.
The practice is to pay the insured even
before the latter has indemnified the
original insured.
3. Contract based on original policy.
While of course, fixed by the terms and
conditions of the policy of reinsurance
are yet greatly affected by the terms and
conditions of the original policy upon
which the reinsurance contract is based.
The reinsured risk must be the same as
that covered by the original insurance
policy.
GR: The reinsurer is entitled to avail itself of
every defense which the reinsured might urge
in an action by the person originally insured.
Thus, the reinsurer is not liable to the
reinsured for a loss under an original
policy if the latter is not liable to the
original insured or for an amount more
than the sum actually paid to the
insured.
Liability of reinsurer to original insured.
The original insured may stand in any 3
relations towards the reinsurer in
accordance with the terms of the
particular contract of reinsurance.
1. Contract of reinsurance solely between
insurer and reinsurer
 Unless the reinsurance contract contains
a stipulation assigning the right of the
insurer in favor of the insured, the latter,
not being a privy to the contract, has no
cause of action against the reinsurer, but
only against the insurer.
2. Contract of reinsurance with stipulation in
favor of original insured.
The COR may contain a provision
whereby the reinsurer binds himself to
pay to the policyholder any loss for
which the insurer may become liable.
The remedy of the insured is both
against the insurer and the reinsurer.
3. Contract of reinsurance amounting to
novation of original contract.
The original insured may also maintain
an action directly against the reinsurer in
those cases in which the circumstances
attending the making of the contract of
reinsurance amount to a novation of the
original contract.
Hence, operate to discharge that
contract and the original insurer from all
obligations thereunder.
The original insurer, however, will be
released only when the insured agrees
the insurer and reinsurer to the novation.
Such an agreement is ordinarily carried
into effect by a surrender of the original
policy and issuance of a new one
including the same terms and conditions,
by the so-called reinsurer.
However, such a transaction is not one
of technical reinsurance, for here, the so
called reinsurer is but substituted for the
original insurer and hence, becomes the
immediate insurer of the subject of the
original policy.