Professional Documents
Culture Documents
3.6. A contract of indemnity (except life property, not on the property itself.
and accident insurance where the result It is the damage to the personal
is death) interest not the property that is
The promise of the insurer is to make good being reimbursed
only the loss of the insured Life insurance GENERALLY
Any contract that contemplates a possible ASSIGNABLE as they are in the
gain to the insured by the happening of any nature of property and do not
event upon which the liability of the insurer represent a personal agreement
becomes fixed is contrary to the nature of between insured and insurer
insurance
No person may secure insurance upon 3.9. A contract of adhesion
property in which he has no interest. Policy is presented to the insured already in
If the insured has no insurable interest, the its printed form
contract is void and unenforceable as being Take it or leave it
contrary to public policy because it affords
a temptation to the insured to wish or bring 3.10. Of highest degree of good faith
about the happening of the loss Each party is enjoined by law to deal with
each other in good faith
3.7. An investment (life insurance) Disclosure or the duty to disclose
Measure of economic security for the Violation of the duty gives the other party
insured during life, and beneficiary after the right to rescind the contract
death
Financial assistance during financial crisis 3.11. It is property in legal contemplation
Liability of insurer is face value of the policy
and not the earning capacity of the insured
at the time of death 4. Requisites of a valid contract of
insurance
3.8. A personal contract
Each party having in view the credit, A subject matter in which the insurer has
character and conduct of another an insurable interest
As a rule, the insured cannot assign, before Event or peril insured against which may
the happening of the loss, his rights under be any (future) contingent or unknown
a property policy without the consent of the event, past or future (Sec. 3), and a
insurer. The obligation of the insurer to duration for the risk thereof
pay does not attach or run with the A promise to pay or indemnify in a fixed
property whether it be real property or or ascertainable amount
personal A consideration for the promise known as
If a person whose property is a premium
insured sells it to another, the A meeting of the minds of the parties
buyer cannot be his successor in upon all of the foregoing essentials
the contract of insurance unless, of The parties must be competent to enter
course, the sale is with the consent into the contract
of the insurer or unless by express Under Sec. 226, no policy of insurance
stipulation of the parties, the shall be issued or delivered within the
contract is made to run with the Philippines unless in the form previously
property of the transferee approved by the Insurance Commissioner
Where the insurance is on account The purpose must not be contrary to law
of the owner or for whom it may or public policy
concern or where the loss is
payable to bearer, the subsequent
transferees or owners become by
the terms of the contract, the real
parties to the contract of insurance.
All insurance contracts share a common
trait of personal-ness
Personal insurance (includes life,
health, accident, and disability
insurance) applies only to a
particular individual, and it is not
possible, for example, for the
insured unilaterally declaring that
his health insurance policy shall
now be deemed to cover the health
of someone else
Liability insurance each person
purchases coverage for his own (or
a group of related persons)
potential liability to others. The
insurer prices the coverage
depending on the characteristics
and traits of the particular insured
Property insurance - the insurance
is on the insureds interest in the
b) Group life
Sec. 180-A. The insurer in a life insurance contract
shall be liable in case of suicides only when it is
committed after the policy has been in force for a Sec. 50. The policy shall be in printed form
period of two years from the date of its issue or of which may contain blank spaces; and any word,
its last reinstatement, unless the policy provides a phrase, clause, mark, sign, symbol, signature,
shorter period: Provided, however, That suicide number, or word necessary to complete the
committed in the state of insanity shall be contract of insurance shall be written on the blank
compensable regardless of the date of commission. spaces provided therein.
(As amended by Batasang Pambansa Blg. 874) Any rider, clause, warranty or endorsement
purporting to be part of the contract of insurance
and which is pasted or attached to said policy is not
Sec. 181. A policy of insurance upon life or binding on the insured, unless the descriptive title
health may pass by transfer, will or succession to or name of the rider, clause, warranty or
any person, whether he has an insurable interest or endorsement is also mentioned and written on the
not, and such person may recover upon it whatever blank spaces provided in the policy.
the insured might have recovered. Unless applied for by the insured or owner, any
rider, clause, warranty or endorsement issued after
the original policy shall be countersigned by the
Sec. 182. Notice to an insurer of a transfer or insured or owner, which countersignature shall be
bequest thereof is not necessary to preserve the taken as his agreement to the contents of such
validity of a policy of insurance upon life or health, rider, clause, warranty or endorsement.
unless thereby expressly required. Group insurance and group annuity policies,
however, may be typewritten and need not be in
printed form.
Sec. 183. Unless the interest of a person
insured is susceptible of exact pecuniary
May be typewritten and need not be in
measurement, the measure of indemnity under a
printed form
policy of insurance upon life or health is the sum
Members usually a cohesive group
fixed in the policy.
Pay a uniform premium
Usually no medical examination
Insurance on human lives and insurance Normally requires a specified number of
appertaining thereto or connected persons insured before policy is issued
therewith
Made payable on the death of a person, or
on his surviving a specified period, or
otherwise contingently on the continuance
or cessation of life
one insures ones life or that of another
against death or sickness
Effect of suicide of insured
Liability of insurer in case of suicide
c) Industrial life
a) Marine
Sec. 229. The term "industrial life insurance" Sec. 99. Marine Insurance includes:
as used in this Code shall mean that form of life (1) Insurance against loss of or damage to:
insurance under which the premiums are payable (a) Vessels, craft, aircraft, vehicles, goods,
either monthly or oftener, if the face amount of freights, cargoes, merchandise, effects,
insurance provided in any policy is not more than disbursements, profits, moneys, securities, choses
five hundred times that of the current statutory in action, evidences of debts, valuable papers,
minimum daily wage in the City of Manila, and if bottomry, and respondentia interests and all other
the words "industrial policy" are printed upon the kinds of property and interests therein, in respect
policy as part of the descriptive matter. to, appertaining to or in connection with any and all
An industrial life policy shall not lapse for non- risks or perils of navigation, transit or
payment of premium if such non-payment was due transportation, or while being assembled, packed,
to the failure of the company to send its crated, baled, compressed or similarly prepared for
representative or agent to the insured at the shipment or while awaiting shipment, or during any
residence of the insured or at some other place delays, storage, transhipment, or reshipment
indicated by him for the purpose of collecting such incident thereto, including war risks, marine
premium; Provided, That the provisions of this builder's risks, and all personal property floater
paragraph shall not apply when the premium on risks;
the policy remains unpaid for a period of three (b) Person or property in connection with or
months or twelve weeks after the grace period has appertaining to a marine, inland marine, transit or
expired. transportation insurance, including liability for loss
of or damage arising out of or in connection with
the construction, repair, operation, maintenance or
Form of life insurance under which the
use of the subject matter of such insurance (but
premiums are payable either monthly or
not including life insurance or surety bonds nor
oftener
insurance against loss by reason of bodily injury to
Face amount of insurance provided in any
any person arising out of ownership, maintenance,
policy is not more than five hundred times
or use of automobiles);
that of the current statutory minimum daily
(c) Precious stones, jewels, jewelry, precious
wage in the City of Manila
metals, whether in course of transportation or
Shall not lapse for non-payment of
otherwise;
premium if such non-payment was due to
(d) Bridges, tunnels and other instrumentalities
the failure of the company to send its
of transportation and communication (excluding
representative or agent to the insured at
buildings, their furniture and furnishings, fixed
the residence of the insured or at some
contents and supplies held in storage); piers,
other place indicated by him for the
wharves, docks and slips, and other aids to
purpose of collecting such premium
navigation and transportation, including dry docks
This shall not apply when the premium
and marine railways, dams and appurtenant
on the policy remains unpaid for a
facilities for the control of waterways.
period of three months or twelve weeks
(2) "Marine protection and indemnity
after the grace period has expired.
insurance," meaning insurance against, or against
legal liability of the insured for loss, damage, or
6.2. Non-life include policies covering risks to
expense incident to ownership, operation,
which property may be exposed, as well as those
chartering, maintenance, use, repair, or
which cover the risk of liability to third persons. It
construction of any vessel, craft or instrumentality
covers a specified period of time (not more than 1
in use of ocean or inland waterways, including
year) and has a definite period of coverage.
liability of the insured for personal injury, illness or
death or for loss of or damage to the property of
another person.
which is to insure against risk of loss, hand, causing temporary total disability due to
damage or liability on the part of the fractures o his index, middle, and fourth fingers.
insured He filed a notice of accident and claim to recover
The insurer is under the duty to make its indemnity from First National Surety $ assurance
meaning clear if it desires to limit or restrict Co. Inc., pursuant to his insurance policy which
the operation of the general provisions of provides: the loss of a hand shall mean the
its contract by special proviso, exception or loss by amputation through the bones of the
exemption wrist The insurance company rejected Tys
A policy of insurance which contains claim saying that since there was no severance
exceptions or conditions tending to work a by amputation of the hand, the disability suffered
forfeiture of the policy shall be interpreted by him was not covered under the policy.
most favorably toward those against whom Held: The insurance company is not liable to
they are intended to operate and most indemnify Ty. We cannot go beyond the clear
strictly against the insurance company or and express conditions of the insurance policies,
the party for whose benefit they are all of which define partial disability as loss of
inserted either hand by amputation through the bones of
Where restrictive provisions are open to the wrist There was no amputation in this case.
two interpretations, that which is most The agreement contained in the insurance
favorable to the insured is adopted. policies is the law between the parties. An
Limitations of liability must be construed in interpretation that would include the mere
such a way as to preclude the insurer from fracture or other temporary disability not covered
non compliance with its obligations by the policies would certainly be unwarranted.
7.2. Where Terms are Clear Misamis Lumber vs. Capital Inc.
The cardinal principle of insurance law of
interpreting insurance contracts favorably Facts: Misamis Lumber Corporation, insured its
to the insured is applicable only in cases of motor car for the amount of P14,000. The
doubt, not when the intention of the policy insured car, passed over a water whole which the
is clear or the language is sufficiently clear driver did not see because an oncoming car did
to convey the meaning of the parties not dim its lights. The car was later towed and
The court is bound to adhere to the repaired by Morosi Motors at a total cost of
insurance contract as the authentic P302.27. Capital Insurance refused to pay for
expression of the intention of the parties, the total cost of towage and repairs.
and it must be construed and enforced Held: The insurance company is not liable for
according to the sense and meaning of the the payment of the repairs in excess of P150.
terms which the parties themselves have The insurance policy stipulated in paragraph 4
used. that if the insured authorizes the repair, the
If such terms are clear and certain, they liability of the insurer is limited to P150. The
must be taken in their plain and ordinary literal meaning of this stipulation must control, it
sense being the actual contract, expressly and plainly
Obligations arising from contracts have the provided for in the policy. The policy is also drew
force of law between the contracting out not only the limits of the insurers liability but
parties and should be complied with in also the mechanics that the insured had to follow
good faith to be entitled to full indemnity of repairs. The
option to undertake the repairs is accorded to the
7.3. Literal or Strict Interpretation insurance company per paragraph 2. The said
company was deprived of the option because the
First Quezon City Insurance vs. CA insured took it upon itself to have the repairs
made, and only notified the insurer when the
Facts: Del Rosario fell off a De Dios Marikina repairs were done. As a consequence, paragraph
Transportation Co. Inc. bus. Del Rosario was 4, which limits the companys liability to P150
brought to the hospital and stayed there for 40 applies.
days. The cost for the hospitalization amounted
to P69,444 while unearned salary due to Sun Insurance vs. CA
confinement amounted to P7,500. Del Rosario
filed a complaint against DMTC and its insurance Facts: Tan took from Sun Insurance a property
company, First Quezon City Insurance Company. insurance worth 300K to insure his interest in the
Held: The insurance companys liability should electrical supply store of his brother housed in a
be limited to P12,000 only. The insurance policy building in Iloilo City. Four days after, the
clearly placed the maximum limit of First Quezon building was burned down including the insured
Citys liability for damages arising from death or store. When Tan filed a claim with the insurance
bodily at P12,000 per passenger and its company, the same was denied, after which he
maximum liability per accident at P50,000. This asked for reconsideration which was again
means that the insurers maximum liability for denied. It is stipulated in the insurance policy
any single accident will not exceed 50K that any action should be filed with the Insurance
regardless of the number of the passengers killed Commission or any court of competent
or injured. jurisdiction within 12 months after receipt by the
insured of a rejection of his claim and failure to
Ty vs. First National do so would constitute abandonment of claim and
can no longer be recoverable.
Facts: Ty was a mechanic foreman in the Held: The 12-month prescriptive period
Broadway Cotton Factory. A fire broke out which commenced upon receipt by Tan of the
totally destroyed the factory. As Ty was fighting rejection/denial of his claim by Sun Insurance
his way out of the factory, he injured his left and does not stop upon filing of the motion for
reconsideration. The words of the provisions in This rigid application of the rule of ambiguities
the insurance policy is clear and free from any has become necessary in view of current
doubt or ambiguity whatsoever and thus must be business practices.
taken and understood in its plain, ordinary and
popular sense. Malayan Ins. vs. CA
other types of damages may be awarded against properties consisting of stocks in trade Fire of
the insurer once liability is shown to have arisen. accidental origin broke out at the public market
A contract of insurance is a contract of adhesion of San Francisco, Agusan del Sur. Geagonias
and must be construed strictly against the party insured stocks-in-trade were completely
which prepared the contract. destroyed prompting him to file with CBIC a
claim under the policy. The company denied the
Qua Chee Gan vs. Law Union claim and the basis of which was the petitioner's
alleged violation of Condition 3 of the policy.
Facts: This case involved a claim on a fire Held: Geagonia is not precluded from recovering
insurance policy which contained a provision as from Country Bankers. Condition 3 of the policy
to the installation of fire hydrants the number of is a condition which is not proscribed by law. Its
which depended on the height of the external incorporation in the policy is allowed by Section
wall perimeter of the bodega that was insured. 75 of the Insurance Code which provides that
When it was determined that the bodega should "[a] policy may declare that a violation of
have eleven fire hydrants in the compund as specified provisions thereof shall avoid it,
required by the terms of the policy, instead of otherwise the breach of an immaterial provision
only two that it had, the claim under the policy does not avoid the policy." Its violation would
was resisted on that ground. thus avoid the policy. However, in order to
Held: The said deviation from the terms of the constitute a violation, the other insurance must
policy did not prevent the claim under the same. be upon the same subject matter, the same
We are in agreement with the trial Court that the interest therein, and the same risk. As to a
appellant is barred by waiver (or rather estoppel) mortgaged property, the mortgagor and the
to claim violation of the so called fire hydrants mortgagee have each an independent insurable
warranty, for the reason that knowing fully that interest therein and both interests may be
the number of hydrants demanded therein never covered by one policy, or each may take out a
existed from the very beginning, the appellant separate policy covering his interest, either at the
nevertheless issued the policies in question same or at separate times. . It is a cardinal
subject to such warranty, and received the principle of law that forfeitures are not favored
corresponding premiums. It would be perilously and that any construction which would result in
received the corresponding premiums. It would the forfeiture of the policy benefits for the person
be perilously close to conniving at fraud upon the claiming, will be avoided, if it is possible to
insured to allow the appellant to claim now as construe the policy in a manner which would
void ab initio the policies that it had issue to the permit recovery, as, for example, by finding a
plaintiff without warning of their fatal defect, of waiver for such forfeiture. Provisions, conditions
which it was informed, and after it had misled the or exceptions in policies which tend to work a
defendant into believing that the policies were forfeiture of insurance policies should be
effective. When the policy contains a condition construed most strictly against those for whose
which renders it voidable at its inception, and this benefits they are inserted, and most favorably
result is known to the insurer, it will be presumed toward those against whom they are intended to
to have intended to waive the conditions and to operate.
execute a binding contract, rather than to have
deceived the insured into thinking he is insured Sun Insurance vs. CA
when in fact he is not, and to have taken his
money without consideration. The insurance Facts: Sun Insurance issued a Personal Accident
company is liable on the insurance contract. Policy to Lim with a face value of 200K. Two
months later he was dead with a bullet wound on
Del Rosario vs. Equitable Insurance his head. Lims death was caused when he was
playing with his handgun which accidentally fired.
Facts: The insurer has bound itself under the His wife sought payment on the policy but her
policy to pay P1,000-3,000 as indemnity for the claim was rejected. The contention of Sun
death of the insured for bodily injury, the policy Insurance was that Lim willfully exposed himself
containing specific amounts that may be to needless peril and thus removed himself from
recovered. The policy, however, does not the coverage of the insurance policy. Under the
positively state any definitive amount that may exceptions clause of the policy, the insurance
be recoverable in case of death by drowning, company shall not be liable when the insured
although it is a ground for recovery apart from person attempting to commit suicide or willfully
death for bodily injury. exposing himself to needless peril except in an
Held: There is an ambiguity in this respect in attempt to save human life.
the policy, which ambiguity must be interpreted Held: The cause of Lims death was an accident
in favor of the insured and strictly against the within the limits set forth in the policy and
insurer to allow a greater indemnity, that is, therefore not exempt from the liability of the
P3,000. insurer. The definition of an accident is an event
which happens without any human agency or, if
Geagonia vs. CA happening through human agency, an event
which under the circumstances, is unusual to and
Facts: Geagonia is the owner of Norman's Mart not expected by the person to whom it
located in the public market of San Francisco, happens Contrary to the contention of Sun
Agusan del Sur. He obtained from the private Insurance, Lim did not intentionally expose
respondent, Country Bankers Insurance himself to danger, as testified by his secretary,
Corporation. The policy contained the following he removed the magazine of the gun to ensure
condition: 3. The insured shall give notice to that it would not fire and pointed it to his temple
the Company of any insurance or insurances in the belief that it is safe to do so.
already effected, or which may subsequently be
effected, covering any of the property or
In the case of a life or an industrial policy Cancellation right to rescind, abandon or cancel
whenever the grace period provision a contract of insurance, termination of policy
applies (Sec. 77) before its expiration.
Article 78 (see below) Premium referred to in 64(a) refers to payment
Agreement to grant the insured credit after effective date of the policy because Sec.
extension for the payment of the 77 ordains that insurance policy is valid and
premium binding unless and until premium has been paid.
When there is an agreement allowing the Conditions under w/c above exercised:
insured to pay premium in installment Prior notice of cancellation to insured
and partial payment has been made at Notice must be based on the occurrence,
the time of the loss (See Makati Tuscany after the effective date of the policy, of one
v CA) or more of the grounds mentioned
It must be in writing, mailed or delivered to
the named insured at the address shown in
BPI vs. Posadas, 56 Phil. 215 the policy. In this regard, proof of actual
If the premiums are paid out of the conjugal funds, receipt of the notice is necessary for it to
the proceeds are considered conjugal. If the take effect; mere proof that the insurer
beneficiary is other than the insureds estate, the mailed the notice is not sufficient to effect
source of premiums would not be relevant. the cancellation.
It must state w/c of the ground set forth is
relied upon.
Philippine Pryce Assurance Corp. vs. CA, 230 It is the duty of the insurer upon written
SCRA 164 (1994) request of the insured to furnish the facts in
Generally, premium is also necessary in order for which the cancellation is based.
the contract of suretyship or bond to be binding. If there was no premium paid at all, the action
However, where the oblige has accepted the bond, appropriate would be a declaration of nullity,
it is binding even if the premium has not been paid based on Section 77 which provides that no
subject to the right of the insurer to recover the policy or contract of insurance issued by an
premium from its principal. insurance company is valid and binding unless
and until the premium thereof has been paid
Sec. 78 An acknowledgment in a policy or contract
Tibay v CA
of insurance of receipt of premium is conclusive
evidence of its payment, so far as to make the
Facts: Fortune Life issued a fire insurance policy
policy binding, notwithstanding any stipulation
in favor of Tibay on a bldg in Makati, together w/
therein that it shall not be binding until the
all their personal effects therein. Violeta paid part
premium is actually paid
of the total premium. 2 mos. Afer, a fire
completely destroyed the bldg. 2 days after the
Effect of acknowledgment of receipt of fire, Tibay paid the balance of the premium.
premium in property Insurer cannot deny the Fortune denied Tibays claim for violation of
truth of the receipt of the premium even if it is Sec77 of Insurance Code.
unpaid. Issue: WON a fire insurance policy is already
Law established a legal fiction of payment valid, binding and enforceable upon mere partial
(prima facie evidence of payment). Thus insurer payment of premium
presumed to have waived the condition of Held: NO Sec. 77 applies. Since acceptance of
prepayment. partial payment is not mentioned among the
SC has decided that above is an exception exceptions provided in Sec 77 and 78 of the
to Sec. 77 Insurance Code, no policy of insurance can ever
pretend to be efficacious until premium has been
fully paid.
Sec. 64 No policy of insurance other than life shall
- The policy contained a condition w/c said that
be cancelled by the insurer except upon prior
The policy including any renewal thereof is not
notice thereof to the insured, and no notice of
in force until the premium has been fully paid x x
cancellation shall be effective unless it is based on
x Clearly, the Policy provides for payment of
the occurrence, after the effective date of the
premium in full.
policy, of one or more of the following:
Dissent: (IMPT) The insurance coverage should
(a) non-payment of premium;
become effective from the day that the partial
(b) conviction of a crime arising out of acts
payment is accepted by the insurer, any
increasing the hazard insured against;
stipulation in the policy to the contrary
(c) discovery of fraud or material
notwithstanding. Partial payment is enough to
misrepresentation
establish the juridical relation between the two
(d) discovery of willful or reckless acts or
parties. The law does not require a specific
omissions increasing the hazard insured
amount of premium payment in order to create
against;
the juridical tie.
(e) physical changes in the property
- If the contract is automatically cancelled upon
insured which result in the property becoming
the non-payment in full by the insured, then the
uninsurable; or
efficacy of the contract will be fully dependent on
(f) a determination by the Commissioner
his will. This violates the principle of mutuality of
that the continuation of the policy would violate
contracts.
or would place the insurer in violation of this
Code
8.3. Premium default in life insurance (Sec premium charges will be more than the
227, h & j); options; lapsed policy actual cost of the protection against the
risk in order to meet the higher cost of
risk during the latter years of the policy
Sec. 227 In the case of individual life or
when the insured is older. Reserve
endowment insurance, the policy shall contain in
Value - Surrender Charge = Cash
substance the following conditions: x x x
Surrender Value
(h) A table showing in figures cash surrender
The more premiums he has paid, the
values and paid-up options available under the
greater will be the CSV but the value is
policy each year upon default in premium
always a lesser sum than the total amt
payments, during at least twenty years of the
of premiums paid.
policy beginning with the year in which the values
CSV is the amount company holds in
and options first become available, together with a
trust for insured deliverable upon
provision that in the event of the failure of the
demand. So long as the policy remains
policy-holder to elect one of the said options within
in force, the company has practically no
the time specified in the policy, one of the said
beneficial interest in it except as its
options shall automatically take effect and no
custodian; this is the practical, though
policyholder shall ever forfeit his right to same by
not the legal, relation of the company
reason of his failure to so elect.
to this fund.
x x x x x x x x x x x x
EFFECT: Surrender policy; terminates
(j)A provision that the policy shall be entitled to
the contract of insurance
have the policy reinstated at any time within 3
Extended Insurance
years from the date of default of premium payment
EFFECT: Policy continues in force from
unless tha cash surrender value has been duly
date of default, for a period either
paid, or the extension period has expired, upon
stated or equal to the amount of the
production of evidence of insurablility satisfactory
cash surrender value, taken as a single
to the company and upon payment of all overdue
premium, will purchase; the insured is
premiums and any indebtedness to the company
given the right, upon default, after the
upon said policy, with interest rate not exceeding
payment of at least three full annual
that which would have been applicable to said
premiums to have the policy continued
premiums and indebtedness in athe policy years
in force from the date of default for a
prior to reinstatement x x x
time either stated or equal to the
amount as the net value of the policy
NON-LIFE taken as a single premium, will
(Refer to Sec.77) Seems to say that policy is in purchase Also called term insurance,
effect as soon as the thing is exposed to risk temporary insurance or paid-up
even if the premium has not been paid yet. extended insurance
Where contract covers a period of 1 year, there Depends on availability of CSV.
would normally be only one premium payment During extended period: If insured
for the period. dies, beneficiary can recover face
If parties agreed to pay in installments, and amount of policy. Insured can also
there is a failure to pay any installment when it reinstate the policy w/in this period.
falls due insurer may: Beyond extended period: If he survives
- cancel policy after due notice No benefits. He cannot even reinstate
- compel the payment of installments the policy by paying past premiums;
has to purchase new policy
LIFE Better option if insured not in good
Intended to be in force for a period longer than health or geriatric
a year; involves several periodical premium Paid-up Insurance
payments (annual, semi-annual, etc) Amount of Insurance that the CSV,
Contract not binding until first periodical applied as a single premium, can
premium payment. After first payment, insured purchase.
under no legal obligation to pay subsequent EFFECT: Policy continues in force from
premium. date of default for the whole period and
Insurance Code grants grace period within under the same conditions of the
which to pay subsequent premiums. If policy original contract w/o further payment
becomes a claim during the grace period but of premiums. However, in case of death
before overdue premium is paid, overdue may of insured, he may recover only the
be deducted from proceeds of policy paid-up value of the policy w/c is
Failure to pay w/in grace period = automatic much less than the original amount
lapse agreed upon. (In other words, na-
Exception: Insured has paid three full annual reduce yung original insurance contract
premiums. Entitled to the following Options to one with a lower value)
upon default: Better option if insured is still young
Cash Surrender Value and in good health because unlike
The amount the insured, in case of extended insurance, he may later
default, after the payment of at least 3 reinstate policy if he wishes.
full annual premiums, is entitled to Automatic Premium Loan
receive if he surrenders the policy and Upon default, insurer
releases his claims upon it. It is the lends/advances to the insured
portion of reserve on a life policy. without any need of application on his
Nature of CSV: Premium is uniform part, amount necessary to pay
throughout lifetime of policy, so during overdue premium, but not to exceed
the earlier years of the policy, the the CSV of the policy.
Only applies if requested in writing by the insured or owner, which countersignature shall
the insured either in the application or be taken as his agreement to the contents of such
at any time before the expiration of the rider, clause, warranty, or endorsement.
grace period. Group insurance and group annuity
EFFECT: Insurance continues in force policies, however, may be typewritten and need
for period covered by the payment. not be in printed form.
After period, if insured still does not
resume paying his premiums, policy
lapses, unless there remains CSV. Sec 51. A policy of insurance must specify:
If there is still CSV, auto premium loan (a) The parties between whom the contract is
continues until it is exhausted. made;
Advantageous to the insured because it (b) The amount to be insured except in the
helps to continue the contract and all cases of open or running policies;
its features in full force and effect. (c) The premium, or if the insurance is of a
Insured under no legal obligation to character where the exact premium is only
repay loan determinable upon the termination of the
Reinstatement (Sec j) contract, a statement of the basis and rates
EFFECT: Does not create a new upon which the final premium is to be
contract, merely REVIVES the old determined;
policy. Thus, insurer cannot require (d) The property or life insured;
higher premium than amount stipulated (e) The interest of the insured in property
in the contract. insured, if he is not he absolute owner thereof;
Required by Insurance Code for every (f) The risks insured against; and
individual and industrial life policy (g) The period during which the insurance is
Not required that 3 annual premiums to continue
have been paid
REQUISITES:
The Insurance Code does not require a
exercised w/in 3 years from
particular form for the validity of the
default
contract. However, the policy must contain
insured must present evidence of
the enumeration in Art. 51 (see above)
insurability satisfactory to the
The policy is different from the contract
company
itself.
pay all back premiums and all
Policy - written instrument embodying
his indebtedness to the insurance
the terms and stipulations of a contract of
company
insurance. Not essential to the validity of
CSV has not been duly paid nor
the contract as long as all the essential
the extension period expired
elements for the existence of contract are
Insurability does not mean that insured is
present. (Consent, object, consideration,
in good health. Other factors affect
competent parties)
insurability like nature of work, age, etc.
Other stipulations not required by law
Application for reinstatement must be filed
may be included as long as they are not
during the insureds lifetime.
prohibited or inconsistent with the law.
Missing provisions required does not void
Other Effect:
policy. Missing provisions will be read into
Forfeiture Absolute forfeiture of all
the policy and will substitute those w/c are
insured rights. Generally not favored. Due
in conflict w/ the law.
to liberal spirit in the conduct of life
Stipulations not in the exact terms of the
insurance, insurers instead, give the
statute, if more favorable to the insured,
insurer the benefit of the reserve value of
will be enforced.
the policy.
SIR (on oral contracts): In some
jurisdictions of the US, oral contract is
8.4. Form and contents of policy
valid, provided that all the terms are
agreed upon. In our Insurance Code,
Sec. 49 The written instrument in which a contract although written form not required for
of insurance is set forth is called a policy insurance. validity, some provisions say that a
PRINTED POLICY is best evidence of
contract. SC has not ruled categorically on
Sec. 50 The policy shall be in printed form which this matter.
may contain blank spaces; and any word, phrase, The following are required to appear in
clause, mark, sign, symbol, signature, number, or insurance policies:
word necessary to complete the contract of The policy, which must be in printed form
insurance shall be written on the blank spaces (except group insurance policies which
provided therein. may be typewritten), may contain blank
Any rider, clause, warranty, or spaces; any word, phrase, clause, mark,
endorsement purporting to be part of the contract sign, symbol, signature, number, or word
of insurance and which is pasted or attached to necessary to complete the contract of
said policy is not binding on the insured, unless the insurance shall be written on the blank
descriptive title or name of the rider, clause, spaces provided.
warranty, or endorsement is also mentioned and Any rider, clause, warranty, or
written on the black spaces provided in the policy. endorsement may only be deemed part
Unless applied for by the insured or owner, of the insurance policy if, after having
any rider, clause, warranty or endorsement issued been attached to the policy itself, its
after the original policy shall be countersigned by descriptive title or name is also
mentioned and written in the blank ii. Cover Notes or binding receipts
spaces in the policy.
Required clauses in the policy:
Sec 52. Cover notes may be issued to bind
The parties between whom the
insurance temporarily pending the issuance of the
contract is made;
policy. Within sixty days after issue of a cover note,
The amount to be insured except
a policy shall be issued in lieu thereof, including
in the cases of open or running
within its terms the identical insurance bound
policies;
under the cover note and the premium therefore.
The premium, or if the insurance
Cover notes may be extended or renewed
is of a character where the exact
beyond such sixty days with the written approval of
premium is only determinable upon
the Commissioner if he determines that such
the termination of the contract, a
extension is not contrary to and is not for the
statement of the basis and rates
purpose of violating any provisions of this Code.
upon which the final premium is to
The Commissioner may promulgate rules and
be determined;
regulations governing such violation and may be
The property or life insured;
such rules and regulations dispense with the
The interest of the insured in
requirement of written approval by him in the case
property insured, if he is not the
of extension in compliance with such rules and
absolute owner thereof;
regulations (n)
The risks insured against; and
The period during which the
insurance is to continue. Cover notes/Binders a written
Express warranties must also be contained memorandum of the most important items of a
in the policy, or in another instrument preliminary ocntract intended to give
signed by the insured and referred to in temporary protection (to insured) pending the
the policy as making a part of it. investigation of the risk by the insurer, or until
the issue of the formal policy, provided it is
i. Riders, clauses, endorsements later determined that the applicant was
If parties wish to include special insurable at the time it was given.
stipulations, may attach riders, It is a binding contract and has full force
endorsements, warranties. and effect during its duration.
Rider a printed or typed stipulation Insurer not obliged to give cover notes but
contained on a slip of paper attached to the many do so in order to gain goodwill.
policy and forming an integral part of the Usually contain only the bare essentials of
policy. an insurance contract: i.e. the name of the
To be binding: parties, risk insured against, amount of
-Must be attached/pasted to the policy insurance, premium, property/life insured.
- Descriptive title or name of the rider, Issuance of cover notes is ordinarily a
clause, warranty, or endorsement is conclusive evidence of making a contract
mentioned and written on the blank spaces The issuance and effectivity of cover notes
provided in the policy. are governed by the following rules:
Countersignature by insured 1) May be issued temporarily, pending
General Rule: Not necessary if rider issuance of policy
attached to the policy when issued. 2) Deemed a contract of insurance
Exception: Necessary when added AFTER within meaning of 1[1]
policy is issued. REASON: To prevent an insurer 3) No cover note may be issued or renewed
from adding or inserting provisions w/o the unless in the Codes previously prescribed
consent of the insured. form
In case of conflict between rider and 4) Cover notes are valid and binding for
printed stipulation, the rider prevails as a period not over 60 days from date of
being a more deliberate expression of the issuance, whether or not premium
agreement of the contracting parties. therefor has been paid, but it may only be
Warranty inserted or attached to a cancelled by either party upon at least 7
policy to eliminate specific potential days notice to other party
increases of hazard during the policy term 5) If it is not cancelled, policy shall,
owing to: 1) actions of the insured or 2) within 60 days after issuance of cover
condition of the property. note, be issued in lieu thereof. Policy will
Clause an agreement between the include within its terms the identical
insurer and the insured on certain matters insurance bond under the cover note and
relating to the liability of the insurer in case the premium therefor
of loss. 6) Cover note may be extended or
Endorsement any provision added to an renewed beyond the 60-day period
insurance contract altering its scope or with the written approval of the
application. Ex. Endorsements extending Insurance Commission, provided that
the perils covered. Most times, they are the written approval may be dispensed with
merely typewritten additions to the upon the certificate of the Pres, VP, or
contract, changing its amount, rate, or general manager of the company that the
term. risks involved, the values of such risks
and/or premiums therefor 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 provisions of the Insurance Code, or of
any of the rulings, instructions, circulars,
orders or decisions of the Insurance the things value at each location and for
Commissioner which cancellations the inured would be
7) Companies may impose on cover notes a charged the expensive short rate;
deposit premium equivalent to at least 3) Saves trouble of watching the
25% of the estimated premium of the insurance and danger of being
intended insurance coverage but never less underinsured in spite of care, through
than 500 pesos. oversight or mistake;
4) Rate is adjusted to 100% insurance,
iii. Open and Valued Policies (non-life) whereas valued policies requiring insurance
only up to, say 80% of value, give either a
small, if any, reduction for amounts of
Sec 59. A policy is either open, valued or running.
insurance above this figure.
Sec 60. An open policy is one in which the value of
the thing insured is not agreed upon, but is left to
be ascertained in case of loss.
9. Parties
Sec 61. A valued policy is one which expresses on Essential Requisites for a person to be a party
its face an agreement that the thing insured shall in an insurance contract:
be valued at a specified sum. Must be COMPETENT to enter (has
capacity)
Sec. 62. A running policy is one which Must possess INSURABLE INTEREST
13
contemplates successive insurances, and which Must NOT be a PUBLIC ENEMY
provides that the object of the policy may be from
time to time defined, especially as to the subjects 9.1. Insurer
of insurance, by additional statements or
indorsements. Sec. 6. Every person, partnership, association, or
corporation duly authorized to transact insurance
8.5. Kinds of insurance policies: business as elsewhere provided in this Code, may
be an insurer. (a)
Open or Unvalued Policy
- One in which a certain agree sum is written on
the face of the policy not as the value of the Sec 184 For purposes of this Code, the term
property insured, but as the maximum limit of the insurer or insurance company shall include all
insurers liability (i.e. face value) in case of individuals, partnerships, associations, or
destruction by the peril insured against. corporations, including government-owned or
- Insurer only pays the actual cash value of the controlled corporations or entities, engaged as
property as determined at the time of loss. principals in the insurance business, excepting
mutual benefit associations. Unless the context
Valued Policy otherwise requires, the term shall also include
- One in which the parties expressly agree on the professional reinsurers, defined in Section 280.
value of the subject matter of the insurance. Domestic company shall include companies
-Two values: formed, organized or existing under the laws of the
1) Face value of the policy w/c is the max amt Philippines. Foreign company when used without
insurer pays in case of loss limitation shall include companies formed,
2) Value of the thing insured organized, or existing under any laws other than
- In the absence of fraud or mistake, the agreed those in the Philippines.
value of the thing insured will be paid in case of
total loss of the property, unless the insurance is
for a lower amount Sec 185 Corporations formed or organized to save
- In case of loss, parties may claim that value of any person or persons or other corporations
insured property is more or less than agreed upon. harmless from loss, damage, or liability arising
- The liability of the insurer in a life policy is from any unknown or future or contingent event, or
measured by the face value of the policy (because to indemnify or to compensate any person or
the value of a human life cannot be measured in persons or other corporations for any such loss,
actual monetary terms). damage, or liability, or to guarantee the
performance of or compliance with contractual
Running Policy obligations or the payment of debts or others shall
- Intended to provide indemnity for property w/c be known as insurance corporations
cannot well be covered by a valued policy because The provisions of the Corporation Law (BP
of its frequent change of location and quantity, or Blg 68) shall apply to all insurance corporations
for property of such a nature as not to admit of a now or hereafter engaged in business in the
gross valuation. Also denotes insurance over a Philippines insofar as they do not conflict with the
class of property rather than any particular thing. provisions of this Chapter.
Ex. Insurance over constantly changing stock of
goods Insurer party who assumes or accepts the
- In reality, these are open policies. risk of loss and undertakes for a consideration
- Contemplates successive insurances. to indemnify the insured or to pay him a
- Advantages of a running policy certain sum on the happening of a specified
1) Neither underinsured nor contingency or event; This can be an
overinsured at any time, premium being
based on monthly values reported; 13
2) Avoids cancellations otherwise Who is a public enemy and the prohibition was
necessary to keep insurance adjusted to asked in 2002.
The right to receive the proceeds of life Insular Life Assurance Co v Ebrado
insurance policies shall follow the order of
intestate succession in the Civil Code in FACTS Ebrado took out a life insurance policy and
default of any specific designation in the named his common-law partner, Carponia, his
policy: beneficiary. Upon his death, his lawful wife also
filed a claim w/ Insular Life as the widow. RTC
a. Legitimate children; disqualified Carponia from claiming benefits
b. Father and mother, if living; under the policy
ISSUE: WON Carponia disqualified from claiming b. A change of interest in the thing
insurance proceeds because of her illicit relation insured after an injury occurs resulting in
with the insured. a loss (21);
HELD: YES. (SC applied CC) Since the Insurance c. A change of interest in one or more
Code does not contain any specific provision on of several things, separately insured by
rules respecting who may be named beneficiary, one policy (22);
the CC will apply. Art 2012 states that any d. A change of interest by will or
person forbidden from receiving donations under succession on the death of the insured
Art 739 cannot be named beneficiary of a life (23);
insurance policy Art. 739 declares void e. A transfer of interest by one of several
donations made between persons who are guilty persons, joint owners or owners in
of adultery or concubinage at the time of the common, jointly insured, to the others
donation. Hence, Carponia is disqualified from (24);
being named a beneficiary. f. When a policy will inure to the
benefit of the one who may become
Vda. de Consuegra v GSIS the new owner of the interest insured
during the continuance of the risk (57);
FACTS: Jose Consuegra contracted two and
marriages, to Diaz and Berdin. After his death, g. When there is an express prohibition
the proceeds of his life insurance w/ the GSIS against alienation in the policy, alienation
went to Berdin. However, he was also entitled to will cause the contract to be avoided, not
retirement benefits to which he did not designate suspended (Article 1306, 24, Civil Code)
any beneficiary.
ISSUE: WON Berdin should be considered the Agent or trustee -----
sole beneficiary of the retirement benefits being If an agent or trustee takes out an insurance policy
the beneficiary of the life insurance policy for the benefit of his principal or beneficiary, he
HELD: NO. Life Insurance and retirement shall state that the latter is the real party in
insurance are separate and distinct funds. Life interest by designating himself as an agent or
Insurance is paid to whoever is named the trustee in the insurance policy itself. He can also
beneficiary and may not necessarily be the heir signify his designation by some other general
of the insured. Retirement benefits on the other words in the policy.
hand, are primarily intended for the benefit of the
ee to provide for his old age, incapacity, etc. If Valenzuela vs CA (1990)
the ee reaches the age retirement, he gets the
benefits even to the exclusion of the beneficiary The general rule that the principal reserves the
named in the policy. The beneficiary of the right to terminate the agent-principal relationship
retirement insurance can only claim the proceeds at its will admits of an exception: when the agency
of the retirement insurance if the ee dies before has been given not only for the interests of the
retirement. IF there is no beneficiary designated principal but of 3rd persons or for the mutual
in the policy, benefits will accrue to the estate, interest of agent and principal. Also, an insurance
hence Diaz is also entitled to the retirement agent cant be held liable for all uncollected
benefits. premiums under his account because the remedy
for non-payment of premiums is the termination of
Del Val v Del Val any insurance policy.
FACTS: Plaintiff and Defendant are siblings. Prior Partner or co-owner -----
to their fathers death, he took out a life Insurable interest in the property of a partnership
insurance policy and made the Def the sole exists in both the partnership and the partners and
beneficiary. a partner has an insurable interest in the firm
ISSUE: WON the insurance proceeds belong property which will support the policy taken out
exclusively to the DEF who was the sole thereon for his own benefit. But a partner who
beneficiary takes out the policy in own name limits the
HELD: YES The proceeds of an insurance policy coverage to his individual share unless the terms
belong exclusively to the beneficiary and not to clearly show the policy was meant to cover all the
the estate of the person whose life was insured, shares.
and that such proceeds are the separate and
individual property of the beneficiary. Mortgagor/ mortgagee -----
General Rule: When a mortgagor takes out an
9.4. Other parties to an insurance contract insurance policy on his own name but stipulates
that the proceeds shall be payable to the
Assignee of the thing insured ----- mortgagee, or assigns the said policy to the
General Rule: If the thing insured is assigned to mortgagee, the insurance shall be deemed to be
another, the policy is not deemed transferred with upon the insurable interest of the mortgagor.
the thing. The policy is instead deemed suspended Consequently, three rules apply: (1) any act of the
until the assignee also becomes the owner of the mortgagor prior to the loss, which would otherwise
policy. The assignor, on the other hand, cannot avoid the insurance, shall have the same effect
recover on the policy after the transfer since he has even if the property insured is in the hands of the
already lost insurable interest over the thing. mortgagee (2) any act which would have to be
Exceptions: The general rule on suspension of performed by the mortgagor may be performed by
policy is not applicable in the following cases: the mortgagee, with the same effect as if it were
a. In life, health and accident insurance performed by the former (3) if an insurer assents
(20) to the transfer of an insurance from a mortgagor to
a mortgagee, and, at the time of his assent,
imposes further obligation on the assignee, making
a new contract with him, the act of the mortgagor interest may appear , may be
cannot affect the rights of said assignee. attached;
4. A standard mortgage clause
SUPPLEMENTARY RULES: containing a collateral independent
On the insurable interest of mortgagor and contract between the two parties
mortgagee: may be attached; or
5. The policy, though by its terms
a. Separate insurable interests each has payable to the mortgagor, may
his own insurable interest in the mortgaged have been procured by a mortgagor
property which is kept separate from each under a contract duty to insure for
other. The benefits of such belongs to the the mortgagees benefit, where the
insured alone and if the two insure the latter acquires an equitable line
same property or take out a policy covering upon the proceeds.
their respective interests, this is not double
insurance.
Chapter III
2. Insurable Interest in life/health
INSURABLE INTEREST14
Sec 10 Every person has an insurable interest in
the life and health:
1. Definition and Purpose
Sec 21 A change on interest in a thing insured, a) Of himself, of his spouse and of his
after the occurrence of an injury which results in a children;
loss does not affect the right of the insured to b) On any person on whom he
indemnity for the loss. depends wholly or in part for education or
support, or in whom he has a pecuniary
interest;
Sec 25 Every stipulation in a policy of insurances c) Of any person under a legal
for the payment of loss whether the person insured obligation to him for the payment of money,
has or has not any interest n the property insured, or respecting property or services of which
or that the policy shall be received as proof of such death or illness might delay or prevent the
interest, and every policy executed by way of performance, and
gaining or wagering, is void. d) Of any person upon whose life any
estate or interest vested in him depends.
Insurable interest interest which the law Person may take out insurance on own life or
requires policy owner to have in the person or thing someone elses life provided insurable interest
insured. exists.
- A person is said to have an insurable interest Cestui que vie must consent.
in the subject matter insured where he has a Sec. 10 provides the test of presence of
relation or connection with, or concern in it that he insurable interest. Said section does not require
will derive pecuniary benefit or advantage from its the consent of the person being insured for the
preservation and will suffer pecuniary loss or policy to be effective. The policy is valid as long
damage from its destruction, termination, or injury as the presence of insurable interest can be
by the happening of the event insured against. adequately shown.
Essential element of an insurance contract.
Not legally possible to waive requirement 2.1. In ones own life/health
Rationale for requiring insurable interest:
As deterrence to the insured public policy
holds wager policies invalid for being Sec 11 The insured shall have the right to change
against public interest and demoralizing in the beneficiary he designated in the policy, unless
that: he has expressly waived this right in said policy.
The insured has an interest in the
destruction rather than the
preservation of a subject matter. Sec 12 The interest of a beneficiary in a life
It tempts or induces the insured, with insurance policy shall be forfeited when the
nothing to lose and everything to gain, beneficiary is the principal, accomplice, or
to bring about the event upon the accessory in willfully bringing about the death of
happening of which the policy becomes the insured, in which event, the nearest relative of
payable. the insured shall receive the proceeds of said
As a measure of limit of recovery in insurance if not otherwise disqualified.
contracts to pay indemnity, the insurable
interest will be the measure of the upper Insured is the cestui que vie
limit of his provable loss under the As a rule, each has unlimited insurable interest
contract. The policy should not provide the in his own life, whether the insurance is for the
insured with the means of making a net benefit of himself or another
profit from the happening of the event In insuring ones own life for anothers benefit,
insured against. insurable interest is only needed as evidence of
Difference between life and non-life insurance good faith of the parties; it is contrary to
(pertaining to interest): human experience that a person will insure his
LIFE - basically a contract of INVESTMENT; own life for the benefit of another for the
can only recover face amount of the policy purpose of speculation, to take his own life to
NON-LIFE based on principle of INDEMNITY secure payment to another, or designate as a
for exact pecuniary value; can only recover on beneficiary, a person interested in the
the policy the value of the actual loss destruction, not the continuance of the
insureds life.
The nearest relative of the insured shall receive
the proceeds of said insurance if not otherwise
disqualified
GENERAL RULE: Beneficiary is the choice of
14 the insured regardless of WoN beneficiary has
This topic came out in 2002, 2001, 2000, 1997,
an insurable interest in insureds life
1996, 1994, 1984, 1983, 1982, 1980, 1979 and Assumption: Insured would not designate as
1977. Note the difference between insurable interest his beneficiary a person whom he would not
in property versus insurable interest in life insurance; trust with his own life
insurable interest in bank deposits; and existing EXCEPTIONS
interest in property insurance. Waiver
Sec 19 An interest in property insured must exist Sec 16 A mere contingent or expectant interest in
when the insurance takes effect, and when the loss anything, not founded on an actual right to the
occurs, but need not exist in the meantime and thing, nor upon any valid contract for it, is not
interest in the life or health of a person insured insurable.
must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
Insurable interest deemed to exist as long as
such interest, relation or liability is of such
General Rule: insurable interest must exist nature that a contemplated part might directly
only at inception damnifty the insured
Policy not indemnifying loss but rather Even without legal or equitable title as long as
giving financial security to insured or to it can be shown that the insured will be
beneficiaries benefited by propertys continued existence or
Law gives insured the right to convert will suffer pecuniary loss by its destruction.
policy into cash by selling it to a 3rd person FORMS OR INSURABLE INTEREST
who doesnt have any insurable interest in INTEREST in the
his life. property itself, whether such property be
Policy is an investment real or personal
Exceptions: (cases where interest of the ex. Ownership of or a lien on property
insured is capable of exact pecuniary benefit) any RELATION to such property
Creditor who takes insurance out on life of ex. interest of a commission agent on
debtor to secure debt goods he is selling
Once debt has been paid insurable LIABILITY in
interest disappears respect thereof
No liability to pay proceeds because ex. interest of carrier on cargo which he
there is not longer anything to ought to carry safely to destination
indemnify NATURE OF INSURABLE INTEREST
If debt already been paid should be An existing interest
denied recovery on the policy may arise from legal title (ex.
Debtor should have the right to take mortgagor of the property mortgaged;
over the policy from creditor after the lessor of the property leased; assignee
termination of relationship prevent the of property for the benefit of creditors,
premium paid from going to waste. etc.); clearly definably based on some
Company takes out insurance on life of legal title
employee may also be from equitable title (ex.
Employee leaves company Purchaser of property before delivery;
Policy is to indemnify employee for builders in the building under
losses upon death of employee not construction or upon completion of
resigning building)
Company cannot recover on life of An inchoate interest founded on an
employee who has already left/resigned existing interest
there is nothing to indemnify
MORTGAGE CREDITOR
has not the means of ascertaining, must be 4.3. Distinguished from Concealment
communicated. The EXCEPTION to this
rule is that both parties are charged with In concealment, the insured maintains
the knowledge of the general causes which silence when he ought to speak, while in
are open to his inquiry, equally with that of misrepresentation, the insured makes a
the other, and which may affect the statement of fact which is not true active
political or material perils contemplated; form of concealment.
and all general usages of trade. The
Insurance Code exempts a party from the
Sec. 37. A representation may be made at the
duty to communicate with regard to
time of, or before, issuance of the policy (a)
matters which are deemed of public
knowledge and which a prudent man
engaged in the insurance business ought to Sec. 38. The language of a representation is to
know. be interpreted by the same rules as the language
GENERALLY, the right to information of of contracts in general.
material facts may be waived, either by the
terms of the insurance or by neglect to
make inquiry as to such facts, PROVIDED 4.4. Construction of Representations:
they are distinctly implied in other facts of o Construed liberally in favor of the
which information is communicated. insured and are required to be only
Concealment must take place at the time substantially true.
the contract is entered into in order that
the policy may be avoided. Information Sec. 39. A representation as to the future is to be
obtained after the perfection of the contract deemed a promise, unless it appears that I was
is no longer necessary to be disclosed by merely a statement of belief or expectation.
the insured, even if the policy has not been
issued (**Exception is when the contract is
4.5. Kinds of Representation:
to be effective only upon the issuance of
1. Oral or Written (Sec. 36)
the policy the insured is still duty bound
2. Made at the time of issuing the policy or
to disclose to the insurer any material fact
before (Sec. 37)
which comes to his knowledge.)
3.Affirmative or promissory (Sec. 39 & 42)
The duty of disclosure ends with the
completion and effectivity of the contract.
Affirmative Representation:
Is any allegation as to the existence or
Sunlife Assurance vs CA,
non-existence of a fact when the contract
245 SCRA 268 (1995)
begins.
Insured need not die of the disease he had failed to
Promissory Representation:
disclose to the insurer. It is sufficient that his
Is any promise to be fulfilled after the
nondisclosure misled the insurer in forming his
contract has come into existence or any
estimates of the risks of the proposed policy or in
statement concerning what is to happen
making inquiries.
during the existence of the insurance. A
promise representation is substantially a
4. M I SRE PR E SE NT AT IO N condition or warranty.
4.1. Definition
4.6. When Representation Deemed a Mere
Sec. 36. A representation may be oral or written Expression of Opinion:
General Rule: a representation of the
expectation, belief, opinion, or judgment of the
4.2. Representation vs. Misrepresentation
insured, although false, will not avoid the policy,
even if such was material to the risk.
Representation:
Exception: Such representation will avoid
factual statements made by the insured at
the policy if there is a concurrence of materiality
the time of, or prior to, the issuance of the
and fraudulence or intent to deceive. However, if
policy to give information to the insurer
the representation is one of fact, the insurer need
and otherwise induce him to enter into the
only prove the materiality of the representation,
insurance contract. They may also be made
because in such cases the intent to deceive is
by the insurer but cases nearly always refer
presumed.
to representations made by the insured.
ILLUSTRATION: The statement I am an
intelligent student will produce the following
Misrepresentation:
effects:
a statement (a) as a fact of something
which is untrue; (b) which the insured
a. Even if intelligence is material, if there
stated with knowledge that it is untrue and
was no intent to deceive and the
with an intent to deceive, or which he
insured was merely relying on his own
states positively as true without knowing it
assessment of his abilities, the policy
to be true and which has a tendency to
will not be avoided.
mislead; (c) where such fact in either case
b. If intelligence is material and it was
is material to the risk
proven that there was intent on the
part of the insured to mislead the
insurer as to his intelligence, the policy
will be avoided.
a tumor was taken out). Insured died of liver insurer to rescind the contract of insurance.
cancer. The insurer denied the claim of the Insurer is relieved from liability.
beneficiary claiming misrepresentation since the
operation which the insured undertook was for Pacific Banking v CA
peptic ulcer and not removal of a tumor.
Ratio: Concealment exist where the insured had Facts: The insured, Paramount is in the business
knowledge of a fact material to the risk, and of shirt manufacturing, it took out a fire
honesty, good faith and fair dealing requires that insurance policy with Oriental Insurance for 61K.
he should communicate it to the insurer, but he Because of its indebtedness to Pacific Banking
intentionally withhold the same. The insured Corp., the policy was endorsed to Pacific as
informed the medical examiner that the tumor he mortgagee/trustor. The property insured was
was operated on was associated with ulcer of the gutted by fire. Pacific made a claim on the
stomach. In the absence of evidence that the insurance policy which was denied by Oriental
insured had sufficient medical knowledge as to because it appeared that Paramount failed to
enable him to distinguish between peptic ulcer disclose co-insurance with 3 other insurance
and tumor his statement was an expression companies (only declared 3 others) in violation of
made in good faith of his belief as to the nature Policy Condition # 3.
of his ailment and operation. If the operation Ratio: By reason of the unrevealed co-
and ailment of the insured had such an important insurances, the insured had been guilty of a
bearing on the assumption of risk by the insurer, false declaration; a clear misrepresentation and a
it should have made further inquires on the vital one because where the insured had been
matter or required copies of the hospital records asked to reveal but did not, that was deception.
before approving the application. As provided by Had the insurer known that there were many co-
Section 32 where the right to material insurers, it could have hesitated or plainly
information may be waived by neglect to make desisted from entering into such contract.
inquires as to such facts where they are distinctly Hence, the insured was guilty of clear fraud. The
implied in other facts of which information is insurance policy against fire expressly required
communicated that notice should be given by the insured of
other insurance upon the same property, the
Canilang vs. CA, 223 SCRA 443 (1993) total absence of such notices nullifies the policy.
insureds previous hospital confinements. The and several other insurance companies for which
death certificate only stated that hypertension as he also had a policy for the same stocks-in-trade.
possible cause of death. Concealment exist The plaintiff insurer refused payment claiming
where the assured had knowledge of a fact that the insured violated the policy in several
material to the risk, and honesty, good faith and instances for our purposes the violation was the
fair dealing requires that he should communicate failure of the insured to disclose co-insurance.
it to the assurer, but he intentionally withholds However, during trial, the trial court found that
the same. Fraudulent intent on the part of the although the insured failed to disclose co-
insured must be established to entitle the insurer insurance, the loss adjuster of the insurance
to rescind the contract. Misrepresentation as a company had previous knowledge of the co-
defense of the insurer to avoid liability is an insurance prior to the claim.
affirmative defense and the duty to establish Ratio: The insurer is estopped from claiming
such defense rests upon the insurer. exemption from liability due to the violation of
the policy on non-disclosure. It cannot be said
Edillon v Manila Bankers Life that petitioner was deceived by respondent by
the latters non-disclosure of the other insurance
Facts: The insured applied for a 90-day contracts when petitioner actually had prior
insurance coverage against accident and injuries. knowledge as petitioners loss adjuster had
She clearly indicated in the application form that known all along of the other existing insurance
her date of birth was July 11, 1904 (which made contracts. The loss adjuster being an employee
her almost 65 at the time of application). The of petitioner is deemed a representative of the
insurer accepted her premium payment and latter whose awareness of the other insurance
issued her a certificate of insurance. Under the contracts binds the petitioner and thus there was
insurance policy, there contained a provision no violation of the other insurance clause by
which excludes the company from any liability to the respondent and petitioner is liable to pay its
pay claims when the insured is under 16 or over share of the loss.
60. Insured died of a vehicular accident during
the effectivity of the insurance coverage. Life insurance policy wording that provides
Ratio: The insurer is deemed estopped from a time limit on the insurers right to dispute
claiming that the insured is disqualified. She did a policys validity based on material
not conceal nor misrepresent her age and the misstatements in the application.
insurance corporation has been given sufficient Incontestability means that after the
information to know that the insured is over 60 requisites are shown to exist, the insurer
years of age, yet they continued to accept the shall be estopped from contesting the
premium payment and issued her the policy. policy or setting up any defense, except as
is allowed, on the ground of public policy
New Life Enterprise v Court of Appeals
Sec. 48. Whenever a right to rescind a contract of
Facts: The insured contracted 3 insurance insurance is given to the insurer by any provision
policies from 3 different insurance companies for of this chapter, such right must be exercised
the stocks-in-trade of New Life Enterprises. It
previous to the commencement of an action on
was undisputed that the plaintiff failed to indicate
the contract.
any co-insurance in any of the three policies.
.After a policy of life insurance made payable on
When the building occupied by the insured the death of the insured shall have been in force
enterprise was gutted and the stocks-in-trade during the lifetime of the insured for a period of
insured against were burned, the plaintiff filed two years from the date of its issue or of its last
claims with the 3 insurers which were all denied.
reinstatement, the insurer cannot prove that the
The reason was that the insured violated the
policy is void ab initio or is rescindable by reason
terms of policy in relation to co-insurance.
of the fraudulent concealment or
Ratio: The terms of the contract are clear and
misrepresentation of the insured or his agent.
unambiguous. The insured is specifically required
to disclose to the insurer any other insurance and
its particulars which he may have effected on the 5. RESCISSION
same subject. The excuse of the plaintiff that the
agent of the insurance company was aware of the 5.1. Grounds
other insurers or that he failed to read the terms 1. Concealment
of the policies cannot be accepted when the 2. False representation misrepresentation
words and language of the documents are clear 3. Breach of Warranty
and plain or readily understandable by an
ordinary reader. There is absolute no room for 5.2. When Insurer Must Exercise Right to
interpretation or construction and the courts are Rescind:
not allowed to make contracts for the parties.
The parties must abide by the terms of the Non-Life Policy
contract because such terms constitute the Must be exercised prior to the
measure of the insurers liability and compliance commencement of an action on the
therewith is a condition precedent to the contract. The insurer is no longer entitled
insureds right to recovery from the insurer. to rescind a contract of insurance after the
insured has filed an action to collect the
American Home v CA amount of the insurance.
**However, it has been held that where
Facts: The insured took out a fire insurance any of the material representations is false,
policy to cover the stocks-in-trade of his business the insurers tender of the premiums and
from the plaintiff insurer. When a fire gutted the notice that the policy is cancelled before
business, he filed a claim against plaintiff insurer
Always written on the May be written in a 6.4. When Breach of Warranty does not avoid
face of the policy, totally disconnected policy:
actually or by reference paper or may be oral 1. When loss occurs before time for
performance
Must be strictly Only substantial truth is 2. When performance becomes unlawful
complied with required. 3. When performance becomes impossible
(legal & physical impossibility)
Falsity or non- Falsity of a 4. When insurer waives the warranty,
fulfillment of a warranty representation renders impliedly or expressly.
operates as a breach of the policy void on the
contract ground of fraud.
6.5. Materiality and Fraud in Warranty
Presumed material Insurer must show the
materiality of a Sec. 74. The violation of a material warranty, or
representation in order other material provision of a policy, on the part of
to defeat an action on either party thereto, entitles the other to rescind.
the policy.
If the breach of the warranty was WITH necessary or ordinarily used in the insureds
FRAUD policy is void ab initio and the business.
insured is not entitled to the return of the 3. Increase in risks brought about by the
premium paid undertaking of necessary repairs in the
premises
6.6. Warranties in Fire Insurance 4. Increase in risks due to negligent acts
temporarily endangering the property, or
temporary acts or conditions which have
Sec. 167. As used in this Code, the term fire
ceased prior to the occurrence of the loss.
insurance shall include insurance against loss by
5. Alteration made by accident or without the
fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are covered knowledge of the insured.
by extension to fire insurance policies or under Qualifier: However, the acts of the insureds
separate policies. (a) tenants which cause alterations are deemed
presumptively known to the insured.
Exception to the exception: Under Section
A fire insurance is a contract of indemnity 75, the breach of an immaterial provision will not
by which the insurer, for consideration, avoid the policy, but the insurer is given the right
agrees to indemnify the insured against to insert terms which, if violated, would avoid it.
loss of, or damage to, property by fire. The increase in risk brought by an alteration is
therefore irrelevant if there is already a provision in
Sec. 168. An alteration in the use or condition of the policy which stipulates that ANY alteration, of
a thing insured from that to which it is limited by whatever nature and effect, shall avoid the policy.
the policy made without the consent of the For sec. 168 to operate, entitling the
insurer, by means within the control of the insurer the right to rescind, there must
insured, and increasing the risk, entitles an be an actual increase of risk and while
insurer to rescind a contract of fire insurance. it is not necessary that the increased
risk should have cause or contributed
to the loss, it is necessary that the
Sec. 169. An alteration in the use or condition of increase be of a substantial character.
a thing insured from that to which it is limited by
the policy, which does not increase the risk, does Sec. 170. A contract of fire insurance is not
not affect a contract of fire insurance. affected by any act of the insured subsequent to
the execution of the policy, which does not violate
Requisites Alteration to Entitle Insurer to its provisions, even though it increases the risk
Rescind: and is the cause of a loss.
1. The use or condition of the thing is
specifically limited or stipulated in the If the policy does not contain any
policy. prohibition limiting the use or condition of
2. Such use or condition as limited by the the thing insured, an alteration in said use
policy is altered. or condition does not constitute a violation
3. The alteration is made without the of the policy. The contract is not affected
consent of the insurer by such alteration even though it increases
4. The alteration is made by means within the risk and is the cause of the loss.
the control of the insured
5. The alteration increases the risk.
Sec. 171. If there is no valuation in the policy,
Increase of Risk or Hazard in General the measure of indemnity in an insurance against
Increase of hazard takes place whenever fire is the expense it would be to the insured at
the insured property is put to some new the time of the commencement of the fire to
use, and the new use increases the chance replace the thing lost of injured in the condition in
of loss. which it was at the time of the injury; but if there
is a valuation in a policy of fire insurance, the
Premise: Every insurance policy is made in effect shall be the same as in a policy of marine
reference to the conditions surrounding the subject insurance.
matter of the risk and the premium is fixed with
reference thereto. There is thus an implied promise
or undertaking on the part of the insured that he Sec. 172. Whenever the insured desires to have a
will not change the premises or the character of the valuation named in his policy, insuring any
building or structure against fire, he may require
business carried there, or to be carried on there, so
such building or structure to be examined by an
as to increase the risk of loss by fire.
independent appraiser and the value of the
insureds interest therein may then be fixed as
General Rule: Insurer is not liable if there was
an increase in the risk or hazard. There is increase between the insurer and the insured. The cost of
in hazard when the new use increases the chance such examination shall be paid for by the insured.
of loss. The increase of the risk of loss must in all A clause shall be inserted in such policy stating
substantially that the value of the insureds
cases be of a substantial character.
interest in such building or structure has been
Exceptions: (Alterations which will not warrant
thus fixed. In the absence of any change
the avoidance of the policy):
1. The use of the property is changed but it did increasing the risk without the consent of the
not in any way increased the risk of loss insurer or of fraud on the part of the insured, then
2. The use of materials prohibited from being in case of a total loss under such policy, the whole
used as per the policy if such materials are amount so insured upon the insureds interest in
such building or structure, as stated in the policy
enforcement of the insurance policy, the insured applied for a loan of P5,000 in line with the loan
kept 3 boxes of fire crackers. Sometime later a clause but defendants refused citing certain
fire broke out which partially destroyed the regulations issed by the Insurance Commissioner
building but it appeared that the fire crackers on May 1946.
were not the cause of the fire as they were found Held: Defendants refusal to give the loan
in an area not burned. Upon claim insurer denied applied for by the plaintiff violated the loan
payment. clause embodied in each of the life insurance
Ratio: The terms of the contract constitute the policies. This violation of the loan clause in the
measure of the insurer's liability. If the contract policy entitled plaintiff to rescind all policies
has been terminated by a violation of its terms under Section 69 of the Insurance Act, which
on the part of the insured, there can be no provides: the violation of a material warranty, or
recovery. Compliance with the terms of the other material provision of a policy, on the part of
contract is a condition precedent to the right of either party thereto, entitles the other to
recovery. A violation of the terms of a contract of rescind. Our Insurance Law does not contain an
insurance, by either party, will constitute the express provision as to what the court should do
basis for a termination of the contractual in cases of rescission of an insurance policy under
relations, at the election of the other (in this case Section 69, the provision that should apply is that
the insurer). The right to terminate the embodied in Art. 1295 of the old civil code, as
contractual relations exist even though the postulated in Art. 16 of the same Code, which
violation was not the direct cause of the loss, provides that on matters which are not governed
since the deposit of the hazardous goods in the by special laws the provision of said Code shall
building insured was a violation of the terms of supplement its deficiency. The CA was correct in
the contract. The insurer is relieved from his ordering defendant to refund to plaintiff all
liability since the deposit of the hazardous premiums paid by him up to the filing of the
materials created a new risk not included in the action amounting to P34,644.60.
terms of the contract. The insurer had neither
been paid, nor had he entered into a contract to GROUNDS AND EXERCISE OF RIGHT OF
cover the increased risk. RESCISSION
EXCEPTIONS/& EXCLUSION
Sec. 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision
Intends to limit the liability of the insurer of this chapter, such right must be exercised
under certain circumstances. previous to the commencement of an action on
the contract.
Musngi v West Coast Insurance Co. Inc.
After a policy of life insurance made payable on
the death of the insured shall have been in force
Facts: The insured took out two life insurance during the lifetime of the insured for a period of
policies with defendant insurer designating as his two years from the date of its issue or of its last
beneficiaries the plaintiffs in the case. In his reinstatement, the insurer cannot prove that the
application the insured untruthfully answered policy is void ab initio or is rescindable by reason
questions regarding his health particularly about
of the fraudulent concealment or
having consulted any physician regarding an
misrepresentation of the insured or his agent.
illness or ailment. It appeared that prior to his
application for insurance, the insured had been
treated for a number of ailments including peptic Sec. 63. A condition, stipulation, or agreement, in
ulcer, TB etc. The insured died, and upon his any policy of insurance, limiting the time for
death his beneficiaries filed a claim with commencing an action thereunder to a period of
defendant insurance company who denied the less than one year from the time when the cause
claim. of action accrues is void.
Ratio: The insured is guilty of concealment and
thus relieves the insurer from paying the claim.
The insured knew that he had suffered from a When Cause of Action Accrues
number of ailment before subscribing the The right of the insured to the payment of
application, yet he concealed them and omitted his loss accrues from the happening of the
the hospital where he was confined as well as the loss.
name of his physician who treated him. The The cause of action in an insurance
concealment and false statement constituted contract does not accure UNTIL THE
fraud, since this caused the defendant insurer to INSUREDS CLAIM IS FINALLY REJECTED
accept the risk when it would have otherwise BY THE INSURER, because before such final
refused. Such concealment of the insured rejection, there is no real necessity for
rendered the policy null and void (as held also in binging suit.
Argente v West Coast). The period is to be computed not from the
time the loss actually occurs but from the
Filipinas Cia de Seguros v Nava time when the insured has a right to bring
an action against the insurer.
Facts: On February 1939, plaintiff Nava and **Cause of Action requires as essential
defendant Filipinas Life Assurance entered into 17 elements not only a legal right of the plaintiff
separate contracts of life insurance for which the and a correlative obligation of the defendant
insured issued 17 life insurance policies for which but also AN ACT OR OMISSION OF THE
the insurer issued 17 life insurance policies, one DEFENDANT IN VIOLATION OF SAID LEGAL
of said policies having a face value of P10,000 RIGHT, the cause of action in favor of the
while the rest a face value of P5,000 each, or a insured does not accrue until the insurer
total of P90K. Each and every policy contains a refuses expressly or impliedly to comply with
policy loan clause. On April 1948, plaintiff his duty to pay the amount of the loss.
Jacqueline Jiminez Vda. De Gabriel vs. CA, Sec. 170. A contract of fire insurance is not
G.R. No. 103883 (November 14, 1996) affected by any act of the insured subsequent to
Under 384 of the Insurance Code, notice of claim
the execution of the policy, which does not violate
must be filed within six months from the date of
its provisions, even though it increases the risk
accident, otherwise teh claim shall be deemed
and is the cause of a loss.
waived. Action or suit must be brought to proper
cases, with the Commission of the court within one
year from the denial of claim, otherwise, the Sec. 227 In the case of individual life or
claimants right of action shall prescribe. endowment insurance, the policy shall contain in
substance the following conditions:
Sec. 64. No policy of insurance other than life
shall be cancelled by the insurer except upon prior (b) A provision that the policy shall be
notice thereof to the insured and no notice of incontestable after it shall have been in force
cancellation shall be effective unless it is based on during the lifetime of the insured for a period of
the occurrence, after the effective date of the two years from its date of issue as shown in the
policy, of one or more of the following: policy, or date of approval of last reinstatement,
except for non-payment of premium and except
(a) non payment of premium; for violation of the conditions of the policy relating
(b) conviction of a crime arising out of acts to military or naval service in time of war.
increasing the hazard insured against
(c) discovery of fraud or material
misrepresentation; Sec. 380. No cancellation of the policy shall be
(d) discovery of willful or reckless acts or valid unless written notice thereof is given to the
omissions increasing the hazard insured land transportation operator or owner of the
against; vehicle and to the Land Transportation
(e) physical changes in the property insured Commission at least fifteen days prior to the
which results in the property becoming intended effective date thereof.
uninsurable; or Upon receipt of such notice, the Land
(f) a determination by the Commissioner that Transportation Commission, unless it receives
the continuation of the policy would evidence of a new valid insurance or guaranty in
violate or would place the insurer in cash or surety bond as prescribed in this Chapter,
violation of this Code. or an endorsement of revival of the cancelled one,
shall order the immediate confiscation of the
plates of the motor vehicle covered by such
Sec. 65. All notices of cancellation mentioned in cancelled policy. The same may be reissued only
the preceding section shall be in writing, mailed or upon presentation of a new insurance policy or
delivered to the named insured at the address that a guaranty in cash or surety bond has been
shown in the policy and shall state: made or posted with the Commissioner and which
meets the requirements of this chapter, or an
(a) which of the grounds set forth in section endorsement or revival of the cancelled one. (As
64 is relied upon; and amended by PD No. 1455)
(b) that, upon written request of the named
insured, the insurer will furnish the facts
on which the cancellation is based.
- The meaning of perils of the sea Held: NO. A loss which in the ordinary course of
varies with circumstances. FOR events, results from the natural and inevitable
EXAMPLE, a vessel designed for inland action of the sea, from the ordinary wear and
waters was insured. It was towed in the tear of the ship, or from the negligent failure of
Gulf of Mexico. The insurer was aware the ships owner to provide the vessel with
of the hazardous nature of the journey proper equipment to convey the cargo under
and charged extra premium. If any loss ordinary conditions, is not a peril of the sea, but
occurs, it will be held to be due to perils rather a peril of the ship. In such a case, the
of the sea although a sea-going vessel remedy of the insured shipper or consignee is not
would not have been damaged by the against the insurer but against the shipowner.
moderate waves encountered.
Cathay Insurance v CA
Peril of the Ship
- Loss which in the ordinary course of Facts: Remington Industrial Sales filed for the
events results from (a) the Natural recovery of losses incurred due to the rusting of
and inevitable action of the sea; (b) steel pipes it imported from Japan while it was in
ordinary Wear and Tear of the ship; transit. Cathay Insurance refused payment
(c) the negligent failure of the claiming that the rusting was not due to a peril of
ships owner to provide the vessel the sea since it was not a casualty which could
with proper equipment to convey the not be foreseen.
cargo under ordinary conditions Held: There is no question that rusting of steel
- The insurer does not undertake to pipes in the course of voyage is a peril of the
insure against perils of the ship. sea in view of the toll on the cargo by wind,
water and salt conditions. (HANGLABO! But in
Note: Everything that happens thru the inherent any case, the SC decided through construction)
vice of the thing, or by the act of the owner, We would fail to observe a cardinal rule in the
master or shipper shall not be reputed a peril if not interpretation of contracts, namely, that any
otherwise borne in the policy ambiguity therein should be construed against
the issuer/drafter, namely, the insurer.
Barratry - willful and intentional act on the
part of the master or crew, in pursuance of Malayan Insurance Corp v CA (1997)
some unlawful or fraudulent purpose,
without the consent of the owner, and to Facts TKC Marketing was the owner/consignee of
the prejudice of his interest; Neither honest soya bean meal shipped from Brazil to Manila. It
error or judgment nor mere negligence. was insured by Malayan Insurance. While the
- May be covered by policy vessel was in South Africa it was arrested and
detained due to a lawsuit questioning its
Taking at sea, arrests, restraints, and ownership and possession. As a result, TKC
detainments of all kings, princes and Marketing filed a claim with Malayan for the non-
people - extraordinary acts by a delivery of the cargo.
sovereign authority in time of war, or under Issue WoN the arrest of the vessel by the civil
other unusual international conditions like authority was a peril of the sea
blockades and embargoes. Acts done in the Held The arrest caused by ordinary judicial
course of regular proceedings not included process is deemed included among the covered
(i.e. vessel libeled and detained for non- risks. (Decision detailed the history of the Free
payment of debt) since there is nothing from Capture and Seizure clause) Although the
fortuitous about the situation. Free from Capture and Seizure clause was
- Includes not only arrests caused by originally inserted in marine policies to protect
political acts of a seizing state but also against risks of war, its interpretation in recent
by ordinary legal processes such as a years to include seizure or detention by civil
lawsuit on ownership and possession of authorities seems consistent with the general
goods. (see Malayan Insurance Corp v purposes of the clause.
CA case)
Filipino Merchants Insurance Co v CA
All other perils, losses and misfortunes
- covers risks which are of like kind with Facts A shipment of fishmeal insured by Filipino
the particular risks which are enumerated Merchants Co. was found to be damaged upon
in the preceding part of the same clause of its unloading in the Port of Manila. The
the contract owner/consignee filed action to recover the
amount represented by the damages based on
La Razon Social Go Tiaoco y Hermanos v the all risks clause of the policy but
Union Insurance Society of Canton Ltd. Fil.Merchants refused claiming that there must be
some casualty or accidental cause to which the
Facts: A drain pipe passing through the hold loss is attributable.
where the insured rice was stowed had become Held An all risks policy should be read literally
corroded in course of time, w/c created a hole in (not technically) as meaning all risks whatsoever
the pipe. An attempt was made to cement the and covering all losses by an accidental cause of
hole and cover it with a strip of iron but due to any kind. It has evolved to grant a greater
the loading of the ship, this part of the pipe was protection than that afforded by the perils
submerged in water during the trip and was clause in order to assure that no loss can happen
washed out. Water flowed into the hold and through the incident of a cause neither insured
damaged the rice. against nor creating liability in the ship. The
Issue: WON the insurer was liable insured under an all risks policy has the initial
burden of proving that the cargo was damaged
In Ship
Sec. 100. The owner of a ship has in all cases
Bottomry Loan one given on the
an insurable interest in it, even when it has been
security of the ship, on condition that the
chartered by one who covenants to pay him its
loan be repaid only if the ship arrives safely
value in case of loss: Provided, That in this case
at the port of destination; money given in
the insurer shall be liable for only that part of the
advance; if ship sinks, bottomry loan
loss which the insured cannot recover from the
extinguished and owner doesnt have to
charterer.
pay it.
Bottomry loans and marine insurance can
Owner of Vessel has insurable interest in share protection and coverage of same
the vessel even if he has mortgaged it. risks; but cannot coextend with each other.
However, if ship is chartered and charterer Where a vessel is hypothecated by way of
agrees to pay him its value in case of loss, bottomry, the owner has an insurable
it is only liable for that part of the loss interest only in the excess of the vessels
which the insured cannot recover from the value over the amount of the bottomry
charterer. loan. This is so because when the vessel
Insurable interest of insured in marine bottomed is lost, the owner need not pay
insurance the loan and is therefore benefited to the
General Rule: there can be no valid extent of the amount of the load obtained
marine insurance unless supported by an and the loss he actually suffers is only the
insurable interest in the thing insured. difference bet the actual value of the vessel
Exception: in certain cases of marine and the bottomry.
insurance, the insurer will still be held liable The lender in bottomry is entitled to receive
if he agreed to insure a ship or cargo lost a high rate of interest to compensate him
or not lost, that is, he agreed to be bound for the risk of losing his loan.
in any case, even if it would later on be
proved that the insured had nothing to
insure when the contract was made.
2. Benefit of exoneration is given only to an Delsan for any liability under its contractual
"insurer on ship or shipowner's interest." obligation as a common carrier. The fact of
payment grants the private respondent
Due diligence not a defense subrogatory right w/c enables it to exercise legal
Warranty precludes any defense that remedies that would otherwise be available to
insured had exercised due diligence to Caltex as owner of the lost cargo..
make the ship seaworthy.
SHIP MUST ACTUALLY BE SEAWORTHY b) Voyage and Deviation
Seaworthiness as to cargo
Sec. 121. When the voyage contemplated by
Ship may be seaworthy for purpose of
a marine insurance policy is described by the
insurance on the ship, but may still be
places of beginning and ending, the voyage insured
unseaworthy for purpose of insurance of
in one which conforms to the course of sailing fixed
the cargo (ex. Ship with porthole only 1
by mercantile usage between those places.
foot above waterline may be fit to travel
the sea, but not fit to carry wheat or rice
because water will go into the ship via the
Sec. 122. If the course of sailing is not fixed
porthole and damage the cargo)
by mercantile usage, the voyage insured by a
marine insurance policy is that way between the
Roque v IAC
places specified, which to a master of ordinary skill
and discretion, would mean the most natural, direct
Facts: Manila Bay Lighterage Corp, a common
and advantageous.
carrier, entered into a contract w/ Roque
whereby Manila Bay Lighterage would carry on
board its barge Roques logs from Palawan to
Sec. 123. Deviation is a departure from the
Manila. The logs were insured by Pioneer
course of the voyage insured, mentioned in the last
Insurance. However, the barge sank. It was
two sections, or an unreasonable delay in pursuing
found that the barge was not seaworthy (one of
the voyage or the commencement of an entirely
the hatches was left open, there was a leak in the
different voyage.
barge). Pioneer refused to pay damages because
of the breach of the implied warranty on
seaworthiness. Roques defense is that as a mere
Sec. 124. A deviation is proper:
shipper of cargo, they have no control of the ship
(a) When caused by circumstances over which
therefore seaworthiness has nothing to do with
neither the master nor the owner of the ship has
the matter of insurance over the logs.
any control;
Issue: WON the implied warranty of
(b) When necessary to comply with a warranty,
seaworthiness also applies to marine insurance
or to avoid a peril, whether or not the peril is
on cargo.
insured against;
Held: YES For every contract of insurance which
(c) When made in good faith, and upon
is a subject of marine insurance, a warranty is
reasonable grounds of belief in its necessity to
implied that the ship will be seaworthy. Since the
avoid a peril; or
law provides for an implied warranty of
(d) When made in good faith, for the purpose
seaworthiness in every contract of marine
of saving human life or relieving another vessel in
insurance, it becomes the obligation of a cargo
distress.
owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The
shipper of the cargo may have no control over
Sec. 125. Every deviation not specified in the
the vessel but he has full control in the choice of
last section is improper.
the common carrier that will transport his goods.
Delsan Transport v CA
Sec. 126. An insurer is not liable for any loss
happening to the thing insured subsequent to an
Facts: Caltex entered into a contract of
improper deviation.
affreightment with Delasan Transport Lines to
transport Caltexs fuel oil from its refinery to
different parts of the country. However, the ship What Voyage Insured
to Zamboanga which was insured by American Policy What ship must do
Home Corp. sank. American Home paid Caltex Names: Vessel insured MUST follow
representing the insured value of the lost cargo. 1. Ports of course SPECIFIED
American Home, exercising its right of depature
subrogation, demanded of Delsan the same amt 2. Ports of
it paid to Caltex but Delsan refused. It was found destination
that the chief mate of the vessel was not 3. Intermediate
qualified under the Phil. Merchant Marine Rules. ports of call
Issue: WON the payment made by American Names: 1. Voyage insured is the one
Home to Caltex amounted to admission that the 1. Ports of which conforms to course
vessel was seaworthy departure of sailing fixed by
Held: NO. The payment made by American 2. Ports of mercantile usage between
Home operates as a waiver of its right to enforce destination - ports (Sec. 121)
the term of the implied warranty against Caltex Several routes 2. if not fixed by mercantile
under the insurance policy. However, the same to destination usage, course between
cannot be validly interpreted as an automatic ports specified which to a
admission of the vessels seaworthiness by master of ordinary skill
American home as to foreclose recourse against and discretion would be
most natural, direct, and port, but must be most proper port for
advantageous (Sec. 122) repair).
Once repair is made, ship must pursue new
Rule: course without deviation in shortest and
- Fixed Route most expeditious manner (otherwise, this is
- Usual Custom deviation and will absolve insurer)
- Discretionary (most
natural) Waiver of warranty against improper
deviation
Deviation (Sec. 123) Done by expressly permitting waiver in
Is any unexcused departure from the policy at a PREMIUM to be hereafter
regular course or route of the insured arranged, provided DUE NOTICE be given
voyage or any other act which substantially by insured upon recipt of advice of such
alters the risk constitutes a deviation deviation.
Departure from course of ship Requirement: EXPRESSED in policy.
Unreasonable delay in pursuing voyage PREMIUM paid, NOTICE given
Commencement of entirely different
voyage c) Other Implied Warranties
When Nationality or Neutrality of ship or
Proper and Improper Deviation cargo is expressly warranted, its implied
PROPER deviation those allowed by law ship will carry requisite documents
(Sec. 124) showing nationality or neutrality and
IMPROPER deviation all other deviation will not carry documents that will cause
not mentioned in Sec. 124; any loss reasonable suspicion
suffered by thing insured subsequent to - Nationality - doesnt mean that the ship
improper deviation exonerates insurer from was built in such country, but that the
liability, regardless of whether deviation property belongs to a subject thereof
increased risk or not - Neutrality property insured belongs to
WHY does improper deviation exonerate? neutrals; a warranty of neutrality
Because insured novated contract without imports that the property insured is
consent of insurer! neutral in fact, and in appearance and
TEST: WON deviation was proper or not conduct, that the property shall belong
(NOT WON risk was increased or to neutrals, that no act of insured or his
diminished) agent shall be done which can legally
compromise its neutrality; warranty
General Rule: when the voyage covered by extends to insured's interest in all the
the policy is described by the places of beginning property intended to be covered by the
and ending, the voyage insured is the one which policy, but not to the interest of a third
conforms to the course of sailing fixed by person not covered by the policy.
mercantile usage between the places, or in absence A warranty of national character may be
of the latter, the way between the places that to a gathered from the language of the policy
master of ordinary skill and discretion would mean although an exception has been made
the most natural, direct and advantageous route. where the fact recited could have no
The insurer is not liable for a loss after an improper relation to the risk.
deviation from the usual course or the best Implied that ship will not engage in any
course [terms in quotation mine]. venture which is illegal under the laws of
Exception: the insurer is not exonerated from the country where contract is made or
liability for loss happening after proper deviation. before whose courts question may come;
The effect is as if there was no deviation. CANNOT be waived since rule of public
policy.
When deviation is proper Implied warranty to carry requisite
No vitiation of the policy if the deviation is documents:
justified or caused by actual necessity 1) Warranty of nationality also requires
which is equal in importance to such that the vessel be conducted and
deviation. documented as of such nation, a breach of
Such compulsory deviations are risks warranty in either particular will avoid the
impliedly assumed by the underwriter. policy.
While deviation to save property is not 2) Warranty is a continuing one, change of
justified, unless it is to save another nationality is a breach of the warranty, but
vessel in distress, a deviation for the warranty is not broken by a contract for
purpose of saving life does not constitute sale and transfer to an alien at a future
a breach of warranty. Justification rests on date.
ground of humanity. 3) Proper papers must be produced when
necessary to prove ownership. Production
Deviation to repair damaged ship not excused because the papers were lost
If during voyage, vessel becomes so by the fault of the master.
damaged as to render it unsafe without
undergoing repairs, insurer is not relieved
by deviation from the ships course in order 5. LOSS
to make the nearest port for such repairs
(can fall under avoid peril) 5.1. Kinds covered, Actual and Constructive
Master must consider distance, facilities of Loss
port, quickness new material can be
procured, etc. (not necessarily nearest
Sec. 130. An actual total loss is cause by: 1) Total underwriter is liable for the whole of the
(a) A total destruction of the thing insured; amount insured
(b) The irretrievable loss of the thing by - may be actual or absolute OR constructive
sinking, or by being broken up; or technical
(c) Any damage to the thing which renders it
valueless to the owner for the purpose for which he 2) Partial (refer to gen. and part average)
held it; or TOTAL LOSS (any loss not total is partial)
(d) Any other event which effectively deprives
the owner of the possession, at the port of a. Actual Total Loss
destination, of the thing insured. 1. Total destruction thing insured
2. Irretrievable loss of thing by
sinking or by being broken up
Sec. 131. A constructive total loss is one 3. Any damage to thing which renders it
which gives to a person insured a right to abandon, valueless to owner for the purpose for which
under Section one hundred thirty-nine. the owner held it
Loss by sinking may not be irretrievable,
but theres still actual total loss if thing
Sec. 132. An actual loss may be presumed becomes valueless to owner for purpose for
from the continued absence of a ship without being which he held it
heard of. The length of time which is sufficient to TOTAL LOSS is cost of RETRIEVAL equal to
raise this presumption depends on the or more than original value
circumstances of the case. 4. Any other event which effectively deprives
owner of possession, at the port of destination
of thing insured.
Sec. 133. When a ship is prevented, at an 5. Under Section 130, the complete physical
intermediate port, from completing the voyage, by destruction of the subject matter as in the case
the perils insured against, the liability of a marine of fire is not essential to constitute an actual
insurer on the cargo continues after they are thus total loss ([b], [c], [d]). Such loss may exist
reshipped. where the form and specie of the thing is
Nothing in this section shall prevent an insurer destroyed although the materials of which it
from requiring an additional premium if the hazard consisted still exist (Pan Malayan v. CA [91]).
be increased by this extension of liability. For example, when repairs would be more
expensive than the original cost of the vessel
and effective deprivation of use and possession
Sec. 134. In addition to the liability of property.
mentioned in the last section, a marine insurer is
bound for damages, expenses of discharging, Presumed from continued absence of ship
storage, reshipment, extra freightage, and all other without being heard of (for length of time
expenses incurred in saving cargo reshipped sufficient to raise such presumption)
pursuant to the last section, up to the amount
insured. General Rule: if a vessel is not heard of at
Nothing in this or in the preceding section shall all within a reasonable time after sailing or for a
render a marine insurer liable for any amount in reasonable time after she was last seen, she will be
excess of the insured value or, if there be none, of presumed to have been lost from a peril insured
the insurable value. against.
How presumption is established:
Plaintiff must prove that vessel left the port of
Sec. 135. Upon an actual total loss, a person outfit for the voyage insured. Then, he must show
insured is entitled to payment without notice of that the vessel was not heard of at port of
abandonment. departure after sailing, without calling witnesses
from port of destination to show she never arrived
there. No rule as to the time after which missing
Sec. 136. Where it has been agreed that an vessel is presumed lostdepends on the
insurance upon a particular thing, or class of circumstances of the case.
things, shall be free from particular average, a
marine insurer is not liable for any particular Insured has ABSOLUTE right to claim whole
average loss not depriving the insured of the amount of insurance even without notice of
possession, at the port of destination, of the whole abandonment. Once he receives amount, it
of such thing, or class of things, even though it takes the place of the vessel and must be
becomes entirely worthless; but such insurer is used to pay for any damage for which it be
held liable.
ABANDONMENT
Abandonment, in marine insurance, is the
act of the insured by which, after a
constructive total loss, he declares the
relinquishment to the insurer of his interest
in the thing insured. The insured chooses to
take the proceeds in place of the remaining
parts of the thing, which is ceded to the
insurer.
Right to abandon is granted by law to the
insured if peril insured against causes a
loss of more than the thing insured, or
where its value is reduced by more than
Remember: 75% loss = Constructive Loss
which entitles recovery of the full amount
in the policy. Does not mean that recovery
is only up to 75%.
Ineffective abandonment
Abandonme Equivalent to transfer by ACCEPTANCE NO ABAN-DON-
nt can be the insured of his interest to Express or Implied MENT
sustained the insurer, with all the from conduct of Insured still
only upon chances of recovery and insurer entitled to recover
cause indemnity actual loss
specified IF proper and notice is Mere silence for
If cause is properly given, refusal to unreasonable Same rule applies
unfounded accept abandonment does length of time may where abandon-
and info not prejudice insured. be deemed ment wasnt
upon which Insured still liable for actual acceptance proper or where it
it was made total loss, minus amount any wasnt properly
proves proceeds of thing insured made
incorrect which may have come to the
Thing hands of the insured.
insured was IF insurer accepts
so far abandonment, its
restored conclusive between the
when the parties and admits the loss
abandonme and the sufficiency of the
nt was abandonment
made that Irrevocable unless grounds
there was in prove to be unfounded
fact no total
loss
whole interest of the insured in the property of the insurer shall be limited to the proportion of
insured. contribution attaching to his policy value where this
is less than the contributing value of the thing
insured.
Sec. 158. Where profits are separately
insured in a contract of marine insurance, the
insured is entitled to recover, in case of loss, a Sec. 165. When a person insured by a
proportion of such profits equivalent to the contract of marine insurance has a demand against
proportion which the value of the property lost others for contribution, he may claim the whole
bears to the value of the whole. loss from the insurer, subrogating him to his own
right to contribution. But no such claim can be
made upon the insurer after the separation of the
Sec. 159. In case of a valued policy of marine interests liable to the contribution, nor when the
insurance on freightage or cargo, if a part only of insured, having the right and opportunity to
the subject is exposed to the risk, the evaluation enforce the contribution from others, has neglected
applies only in proportion to such part. or waived the exercise of that right.
Sec. 160. When profits are valued and Sec. 166. In the case of a partial loss of ship
insured by a contract of marine insurance, a loss of or its equipment, the old materials are to be
them is conclusively presumed from a loss of the applied towards payment for the new. Unless
property out of which they are expected to arise, otherwise stipulated in the policy, a marine insurer
and the valuation fixes their amount. is liable for only two-thirds of the remaining cost of
repairs after such deduction, except that anchors
must be paid in full.
Sec. 161. In estimating a loss under an open
policy of marine insurance the following rules are to
A. Valued Policy
be observed:
Valuation fixes in advance the value of the
(a) The value of a ship is its value at the
property and thus avoids the necessity of
beginning of the risk, including all articles or
proving its actual value in case of loss
charges which add to its permanent value or which
Valuation is conclusive between the parties
are necessary to prepare it for the voyage insured;
in the adjustment of either a total or partial
(b) The value of the cargo is its actual cost to
loss.
the insured, when laden on board, or where the
Exception: If there is FRAUD on the part of
cost cannot be ascertained, its market value at the
the insured, insurer would have the right to
time and place of lading, adding the charges
RESCISSION
incurred in purchasing and placing it on board, but
The change in a vessels value after a long
without reference to any loss incurred in raising
period of voyage cannot bind the parties,
money for its purchase, or to any drawback on its
as the insured value stated in the policy is
exportation, or to the fluctuation of the market at
conclusive upon them.
the port of destination, or to expenses incurred on
Neither party can give evidence of the real
the way or on arrival;
value of the thing insured. But when the
(c) The value of freightage is the gross
thing has been hypothecated by bottomry
freightage, exclusive of primage, without reference
or respondentia before its insurance and
to the cost of earning it; and
without the knowledge of the person who
(d) The cost of insurance is in each case to be
actually procured the insurance, the insurer
added to the value thus estimated.
may show the real value but he is not
entitled to rescind the contract unless he
can prove that the valuation was in fact
fraudulent.
Sec. 162. If cargo insured against partial loss
When insured a co-insurer in marine
arrives at the port of destination in a damaged
insurance
condition, the loss of the insured is deemed to be
- In marine insurance, the insured is
the same proportion of the value which the market
expected to cover by insurance the full
price at that port, of the thing so damaged, bears
value of the property insured. If the
to the market price it would have brought if sound.
value of his interest exceeds the
amount of the insurance, he is
considered the co-insurer for an
Sec. 163. A marine insurer is liable for all the
amount determined by the difference
expenses attendant upon a loss which forces the
between the insurance taken out and
ship into port to be repaired; and where it is
the value of the property:
stipulated in the policy that the insured shall labor
for the recovery of the property, the insurer is
liable for the expense incurred thereby, such _ (partial) Loss___ Amount Amount
value of thing X of Profits = of Recovery
expense, in either case, being in addition to a total insured
loss, if that afterwards occurs.
- Section 157 applies only if (1) the loss is
partial and (2) the amount of insurance is
Sec. 164. A marine insurer is liable for a loss
less than the insured entire insurable
falling upon the insured, through a contribution in
interest in the property insured.
respect to the thing insured, required to be made
Loss of profits separately insured
by him towards a general average loss called for by
- If the profits to be realized are
a peril insured against; provided, that the liability
separately insured from the vessel or
Sec. 244. In case of any litigation for the during a sea voyage, or an aeroplane
enforcement of any policy or contact of which is missing, who has not been
insurance, it shall be the duty of the heard of for four years since the loss
Commissioner or the Court, as the case may of the vessel or aeroplane;
be, to make a finding as to whether the (2) A person in the armed forces who
payment of the claim of the insured has has taken part in war, and has been
unreasonably denied or withheld; and in the missing for four years;
affirmative case, the insurance company shall (3) A person who has been in danger
be adjudged to pay damages which shall of death under other circumstances
consist of attorneys fees and other expenses and his existence has not been known
incurred by the insured person by reasons of for four years. (n)
such unreasonable denial or withholding of
payment plus interest of twice the ceiling
prescribed by the Monetary Board of the Art. 392. If the absentee appears, or without
amount of the claim due the insured, from the appearing his existence is proved, he shall
date following the time prescribed in Section recover his property in the condition in which
two hundred forty-two or in Section two it may be found, and the price of any property
hundred forty-three, as the case may be, until that may have been alienated or the property
the claim is fully satisfied; Provided, That the acquired therewith; but he cannot claim either
failure to pay any such claim within the time fruits or rents. (194)
prescribed in said section shall be considered
prima facie evidence of unreasonable delay in Londres v National Life Insurance Co.
payment.
Facts: National Life issued a life insurance policy
2.1. Unfair Claims Settlement on the life of Jose C. Londres in the amount of
Php3,000.00 on April 14, 1943 (during the war
Sec. 241 (1) provides instances of unfair claims period). He died on Feb. 7, 1945. His beneficiary
settlement done by an insurance company: filed a claim which National denied claiming that
there was a lack of proof of death and a slew of
(a) knowingly misrepresenting to other special defenses, including the payment
claimants pertinent facts or policy should be made based on the Ballantyne scales.
provisions relating to coverages at Ratio: National must pay the beneficiary of the
issue; insured the amount of the policy (3,000.00) as the
(b) failing to acknowledge with agreement was that the obligation will be made in
reasonable promptness pertinent the currency prevailing at the end of the stipulated
communications with respect to period which in this case is the Philippine currency.
claims arising under its policies; The proof of death was substantially made by the
(c) failing to adopt and implement claimant and was not properly disproved by
reasonable standards for the prompt National.
investigation of claims arising under
its policies; Fernandez v National Life Insurance Co.
(d) not attempting in good faith to
effectuate prompt, fair and Facts: National insured the life of Juan Fernandez
equitable settlement of claims for the period of July 15, 194 to July 14, 1945.
submitted in which liability has Juan died on Nov. 2, 1944. His beneficiaries filed
become reasonably clear; or their claim 7 years after his death or on Aug. 1,
(e) compelling policyholders to institute 1952. The dispute is WON the Ballantyne scale is
suits to recover amounts due under applicable in computing the amount which should
its polices by offering without be paid to the beneficiaries. The CFI rendered
justifiable reason substantially less judgment that National should pay the proceed of
than the amounts ultimately PHp 500.00 Ballantyne scale applicable.
recovered in suites brought by Ratio: CFI correct. Ballantyne scale is applicable
them. since in life insurance, the policy matures upon the
expiration of the term set forth therein in this
case upon the death of Juan. The obligation of
National arose as of that date and not at the time
2.2. Civil Code Rules on Presumption of Death
of the claim. Since the National could have paid his
obligation at any time during the Japanese
Art. 390. After an absence of seven years, it occupation. Payment after liberation must be
being unknown whether or not the absentee adjusted in accordance with the Ballantyne
still lives, he shall be presumed dead for all schedule.
purposes except for those of succession.
The absentee shall not be presumed dead for
the purpose of opening his succession till after Tio Khe Chio v CA & Eastern Assurance
an absence of ten years. If he disappeared
after the age of seventy-five years, an Facts: Tio Khe Chio imported fishmeal. These
absence of five years shall be sufficient in were insured with Eastern Assurance. The vessel
order that his succession may be opened. (n) used to ship the fishmeal was Far Eastern Shipping
Co. When the goods reached Manila, they were
Art. 391. The following shall be presumed found to be damaged and therefore useless. The
dead for all purposes, including the division of issue is WON the interest to be paid by Eastern
the estate among the heirs: Assurance is 12% or 6%?
(1) A person on board a vessel lost
Ratio: 6% only, as Sec. 243 and 244 of the by the insured person by reason of such
Insurance Code is not applicable to the case as unreasonable denial or withholding of
these provisions apply only when the court finds an payment plus interest of twice the ceiling
unreasonable delay or refusal in the payment of prescribed by the Monetary Board of the
the claims. The applicable law according to SC is amount of claim due the insured.
Art. 2209 of the Civil Code which stipulates that in
the absence of stipulation the legal interest
applicable is 6% Noda v Cruz-Arnaldo
Effect of Refusal or Failure to pay Entitles beneficiary to collect Entitles beneficiary to collect
claim within time prescribed: interest on the proceeds of interest on the proceeds of policy
policy for the duration of the for the duration of the delay at
In case of litigation, it is delay at rate of twice ceiling rate of twice ceiling prescribed by
the duty of the prescribed by the monetary the monetary board (unless
Commissioner or the board (unless refusal to pay refusal to pay is based on ground
Court to determine WON is based on ground that that claim in fraudulent)
claim has been claim in fraudulent)
unreasonably denied of In case damages awarded, this
withheld. In case damages awarded, includes attorneys fees and other
this includes attorneys fees expenses incurred due to delay
Failure to pay any such and other expenses incurred (plus the interest)
claim within the time due to delay (plus the
prescribed shall be interest)
considered prima facie
evidence of unreasonable
delay in payment.
evidence by the Commissioner and by any through not printed therein. Finman may be held
court with the same effect as if such liable, if it is solidarily liable with Pan Pacific
stenographer were present and testified under the terms of the bond, it must follow that
to the facts so certified. (As amended by it is also liable to both Inocencio et.al and POEA.
Presidential Decree No. 1455). sorry guys I dont get how prescription figures
into this case!!!
effect except that of notifying the agent and while at the same time makes the person
serves no other purpose. It did not stop the who caused loss legally responsible.
prescription from running. The filing of a claim
within one year after rejection is a condition Loss Due to Wrongful Act or Breach of
precedent to the liability of the insurer a Contract by Third Person, NOT APPLICLABLE
resolutory cause, the purpose of which is to TO LIFE INSURANCE.
terminate all liabilities in case action is not filed Options available to insured when through
within the said period. wrongful act or breach of contract
committed by 3rd person, insured property
suffers loss:
Travellers Insurance v CA (1) Collect from insurer if insurer pays,
insurer subrogates insured under Civil
Facts: A 78 year old woman was hit by a taxi Code
cab, died. Her son (Vicente) filed a claim against o Right of subrogation exist even
the owner of the Lady Love taxi cab, the driver if no express agreement
and Travellers as the compulsory insurer recognizing it since its under
Ratio: Travellers cannot be held jointly and the CC
severally liable with the owner and driver of the o Arises only after insurer pays
Lady Love taxi cab as Vicente failed to attach a insured.
copy of the insurance contract to his complaint, (2) Demand payment from wrongdoer
there could be no basis to apprise the real nature Since Life Insurance is not
and pecuniary limits of Travellers liability. contract of INDEMNITY, subrogation
Further, he also failed to file a written notice of obviously cannot apply.
claim with Traveller, which is an indispensable
requirement thus his cause of action did not When May Liability to Subrogee be Limited:
accrue. Bill of Lading (St. Paul v Macondray)
Contributory Negligence (Tabacalera v NFS)
Sun Insurance v CA (supra)
the negligence act of CSEW, the proof of payment Firemans Fund v Jamila & Co.
made by Prudential to William Lines, Inc operated
to properly subrogate Prudential to the rights of Facts: Firestone loss some properties due to the
William Lines under Art. 2207 of the Civil Code acts of its employees and the security guards
provided by the security agency of Jamila & Co.
Firemans Fund, the insurer of Firestone paid the
Pioneer Insurance v CA loss and proceeded against Jamila and Jamilas
insurer First Quezon City Ins. Co. Both denied
Facts: Jacob Lim purchased 2 aircrafts from JDA liability, TC dismissed complaint due to no cause of
using funds from Bormaheco, the Cervantes and action.
Maglana. Insured it with Pioneer as surety. Lim Ratio: Firestone no longer has cause of action
failed to pay, Pioneer paid (Pioneer reinsured the since it has already been paid by Firemans Fund.
surety with an unnamed reinsurer) and collected Firemans Fund however has a cause of action as
from the reinsurer. Also foreclosed aircraft, sold it this falls under Art. 2207 under the doctrine of
and collected proceeds. subrogation.
Ratio: Pioneer no longer has any claim since it has
already collected the proceeds of the reinsurance
on its bond. Under the principle of Art. 2207 of the Tabacalera v North Front Shipping
CC, the reinsurer, on payment of a loss acquires
the same rights by subrogation as are acquired in Facts: Sacks of corn grain valued at over 3M were
similar cases where the original insurer pays a loss. consigned to RFM under a bill of lading and insured
with Tabacalera et al. The vessel was owned by
North Front. Prior to leaving port, the vessel was
Manila Mahogany v CA inspected and was deemed fit to carry
merchandise. When it arrived, it advised RFM who
Facts: Manila Mahogany insured its Mercedez did not immediately commence unloading without
Benz with Zenith. Car was bumped and damaged any apparent reason. When unloaded, there was
by SMC truck. Zenith paid Mahogany in amicable shortage and the rest were moldy, rancid and unfit
settlement. Zenith then demanded reimbursement for its purpose. RFM rejected cargo and demanded
from SMC, but it appeared that SMC already paid from North Front payment for damages which was
Mahogany evidenced by a Release of Claim. denied. Tabacalera et.al paid, then sued North
Ratio: By the act of Manila Mahogany issuing a Front. TC and CA dismissed case.
release claim to SMC, the right of Zenith against Ratio: North Point is liable since it is a common
SMC is nullified since the insurer can be carrier and as such is required to observe
subrogated to only such rights as the insured may extraordinary diligence in its vigilance over the
have, should the insured, after receiving payment goods it transports. When goods placed in its care
from the insurer, release the wrongdoer who are lost or damaged, the carrier is presumed to
causes the loss, the insurer loses his rights against have been at fault or to have acted negligently.
him. But in such a case the insurer will be entitled North Front has burden of proving it observed
to recover from the insured whatever it has paid, extraordinary diligence in order to avoid
unless it was made with the consent of the insurer. responsibility which it failed to do. However since
RFM was guilty of contributory negligence, they
should share at least 40% of the loss. North Point
ordered to pay Tabacalera et al 60% of the total
amount it paid to RFM.
Pan Malayan v CA & Fabie
insured to demand payment from such stipulates that if either party wishes to terminate
funds. or cancel the agreement, they must give at least
3 moths notice by registered mail to the other
Exceptions: party and the cancellation was to take effect as
Contract may expressly bind the reinsurer of the 31st of December of the year in which the
to pay directly to the original owner any notice was given. Sometime in September 1961
loss for which the original insurer may be Fieldmens gave notice to Asian which Asian did
liable. not reply to, Fieldmens gave 2 other notices.
o Insured may choose to sue either During this time, one of the reinsurance contracts
insurer, reinsurer or BOTH. GSIS property was razed by fire. Asian filed a
However, total recovery cannot be claim with Fieldmens who denied liability
more than the actual loss. pointing out that they have already terminated
o Liability of reinsurer to original the reinsurance treaty.
insured would not be affected by Ratio: The Facultative-Obligatory Reinsurance
any defense which the reinsurer Treaty Fire (part of the reinsurance
may have against the original contract/treaty) provides that in the event of
insurer. termination of this Agreement x x x, the liability
o No novation which discharges of the Fieldmens under current cessions shall
original policy original policy continue in full force and effect until their
remains in full force and original natural expiry x x x. and On the termination
insured has right to demand that all of this Agreement from any cause whatever, the
its terms and conditions be liability of the REINSURER (Fieldmens) under any
complied with. current cession including any amounts due to be
If insured agreed with insurer and reinsurer ceded under the terms of this Agreement which
that he will look only to reinsurer for are not cancelled in the ordinary course of
indemnity in case of loss business shall continue in full force until
o Novation discharged original insurer their expiry unless the COMPANY (Asian)
o Technically not a reinsurance. shall, prior to the 31st of December next
following such notice, elect to withdraw the
9. LIABILITY OF REINSURER TO existing cessions. Thus insofar as the 2
REINSURED reinsurance agreements as concerned, the
Reinsurer is entitled to avail himself of every express stipulations did not ipso facto terminate
defense which the reinsured might urge in an all reinsurance cessions. Such cessions
action by the person originally insured. Thus, the continued to be in full force until their respective
reinsurer is not liable to the reinsured for a loss dates of expiration. Since it was under one of
under an original policy if the latter is not liable to said agreements, namely, the Facultative
the original insured or for an amount more than the Obligatory Reinsurance Treaty-Fire, that the
sum actually paid to the insured. reinsurance cessions corresponding to the GSIS
policy had been made, FIELDMENS cannot avoid
liability which arouse by reason of the burning of
Philam v Auditor the insured property.
Insurance Company (Philamlife). One such client requirements are that he/she must be below 21
died one year and eight months after Eternal had years of age, not married nor gainfully employed.
submitted his application to Philamlife, which did In this case, the minor illegitimate children Ginalyn
not act on the application. Philamlife, however, and Rodelyn were born on 13 April 1996 and 20
denied Eternals insurance claim. Eternal filed the April 2000, respectively. Had the legitimate child of
case before the Makati RTC, which had ordered the deceased and Editha survived and qualified as
Philamlife to pay the proceeds of the policy. On a dependent under the SSS Law, Ginalyn and
appeal, the CA reversed the RTC, dismissing the Rodelyn would have been entitled to a share
case. equivalent to only 50% of the share of the said
legitimate child. Since the legitimate child of the
Held: The Court noted that the group life policy deceased predeceased him, Ginalyn and Rodelyn,
was ambiguous as to whether the insurance as the only qualified primary beneficiaries of the
coverage of Eternals clients became effective upon deceased, are entitled to 100% of the benefits.
contracting a loan with Eternal or upon Philamlifes
approval. Emphasizing that an insurance contract is Filipinas Life Assurance Company v. Clemente
a contract of adhesion which must be construed N. Pedroso, et al.
liberally in favor of the insured and strictly against February 4, 2008
the insurer, which was the party which prepared
and had exclusive control over the terms and Facts: The respondents were duped by an agent
phraseology of the insurance contract, the (Valle) of the petitioner into investing in a
Supreme Court interpreted the ambiguity to mean promotional investment program offering 8%
that upon a partys purchase of a memorial lot on prepaid interest a month for certain deposits made
installment from Eternal, an insurance contract on a monthly basis. Basically, the issue is whether
covering the lot purchaser is created and the same or not the insurance company should be held
is effective until terminated by Philamlifes solidarily liable, or whether it should hold only the
disapproval of the application. The Court likewise agent solely liable to the respondents.
found that Philamlifes receipt of a letter, the
contents of which state that attached thereto are
insurance forms for a list of burial lot owners Held: Filipinas Life, as the principal, is liable for
including the disputed application, is an admission obligations contracted by its agent Valle. By the
of Philamlife against its own interest, as well as an contract of agency, a person binds himself to
acknowledgement of the receipt of the letter render some service or to do something in
together with the attachments. Such receipt, the representation or on behalf of another, with the
Court said, shifted the burden of evidence to consent or authority of the latter. The general rule
Philamlife to prove that the letter did not contain is that the principal is responsible for the acts of its
the disputed application. Having failed to do so, agent done within the scope of its authority, and
Philamlife is deemed to have received the should bear the damage caused to third persons.
insurance application. The Court thus ordered When the agent exceeds his authority, the agent
Philamlife to pay Eternal PhP100,000 representing becomes personally liable for the damage. But
the proceeds of the insurance policy, in addition to even when the agent exceeds his authority, the
legal interest and attorneys fees. principal is still solidarily liable together with the
agent if the principal allowed the agent to act as
Yolanda Signey v. Social Security System though the agent had full powers. In other words,
January 28, 2008 the acts of an agent beyond the scope of his
authority do not bind the principal, unless the
Facts: The deceased in this case had 2 common- principal ratifies them, expressly or impliedly.
law wives, petitioner and Gina, and one legal wife, Filipinas Life cannot profess ignorance of Valles
Editha. Petitioner had filed a claim with the SSS acts. Even if Valles representations were beyond
alleging that she was the legal wife and that her his authority as a debit/insurance agent, Filipinas
husband had a common-law wife, Gina. Gina, Life expressly and knowingly ratified Valles acts.
however, filed the same claim with the SSS, It cannot even be denied that Filipinas Life
alleging that both she and petitioner were benefited from the investments deposited by Valle
common-law wives and that deceased had a legal in the account of Filipinas Life. In our considered
wife. The SSS had denied petitioners claim stating view, Filipinas Life had clothed Valle with apparent
that the marriage between she and the deceased authority; hence, it is now estopped to deny said
was not valid as it was executed during a prior authority. Innocent third persons should not be
existing marriage of the deceased against Editha, prejudiced if the principal failed to adopt the
that deceaseds only legitimate child had needed measures to prevent misrepresentation,
predeceased him, that deceaseds 4 children with much more so if the principal ratified his agents
petitioner were all over 21 years of age and hence acts beyond the latters authority.
cannot qualify as dependents, and declared
deceaseds 2 children with Gina as primary Blue Cross Health Care v. Neomi and Danilo
beneficiaries. Olivares
February 12, 2008
Held: Whoever claims entitlement to the benefits
provided by law should establish his or her right Facts: Neomi suffered a stroke and applied for
thereto by substantial evidence. Since petitioner is reimbursement of her medical bills from petitioner,
disqualified to be a beneficiary and because the her health care provider. Petitioner refused until a
deceased has no legitimate child, it follows that the certification could be issued that her stroke was not
dependent illegitimate minor children of the due to pre-existing conditions. Dr. Saniel, her
deceased shall be entitled to the death benefits as physician, however, was not able to issue such a
primary beneficiaries. The SSS Law is clear that for certification, stating that because the patient
a minor child to qualify as a dependent, the only invoked the doctor-patient confidentiality, such
information could not be given ot the petitioner.
The issue is whether petitioner was able to prove can have it executed as a matter of right, and the
that Neomis stroke was caused by pre-existing issuance of a writ of execution becomes a
conditions and was therefore outside the coverage ministerial duty of the court. The writ of execution
of her plan. must conform to the judgment to be executed and
Held: It is an established rule in insurance adhere strictly to the very essential particulars.
contracts that when their terms contain limitations Following this rule, PDIC should have reasonably
on liability, they should be construed strictly expected that an order directing the payment or
against the insurer. These are contracts of refund of the disallowed amount was forthcoming
adhesion the terms of which must be interpreted in accordance with the COA Rules as, in fact, a
and enforced stringently against the insurer which Final Order of Adjudication was issued. Whatever
prepared the contract. This doctrine is equally may have been the reason for the dismissal of
applicable to health care agreements. Petitioner PDICs petition, the fact remains that the decision
never presented any evidence to prove that upholding the audit disallowance had become final
respondent Neomi's stroke was due to a pre- and executory. At the risk of sounding trite, the
existing condition. It merely speculated that Dr. decision is now unalterable and immutable. It is no
Saniel's report would be adverse to Neomi, based longer subject to any revision, modification or
on her invocation of the doctor-patient privilege. appeal.
This was a disputable presumption at best. Suffice In dismissing the petition and affirming the audit
it to say that this presumption does not apply if the disallowance, this Court effectively declared that
suppression is an exercise of a privilege. Here, the payment of the BPDEE to Secretary De Ocampo
respondents' refusal to present or allow the is prohibited as it violates the rule against double
presentation of Dr. Saniel's report was justified. It compensation. This declaration necessarily also
was privileged communication between physician means that condonation of the same payment in
and patient. Furthermore, limitations of liability on favor of the same person is likewise prohibited. To
the part of the insurer or health care provider must settle the matter once and for all, the audit
be construed in such a way as to preclude it from disallowance is not subject to condonation following
evading its obligations. Accordingly, they should be the principle that what is prohibited directly is also
scrutinized by the courts with extreme jealousy prohibited indirectly. The audit disallowance
and care and with a jaundiced eye. Since cannot be circumvented and legitimized by
petitioner had the burden of proving exception to resorting to condonation. The authority of PDIC to
liability, it should have made its own assessment of condone applies only to ordinary receivables,
whether respondent Neomi had a pre-existing penalties and surcharges and must be submitted to
condition when it failed to obtain the attending the Commission before it is implemented. This
physician's report. It could not just passively wait procedure would enable the Commission to inquire
for Dr. Saniel's report to bail it out. The mere into the propriety of the condonation and to
reliance on a disputable presumption does not determine whether the same will not prejudice the
meet the strict standard required under our governments interest, consistent with COAs
jurisprudence. constitutional mandate to examine, audit and settle
all accounts of the government, its subdivisions,
agencies and instrumentalities, including
Philippine Deposit Insurance Corporation v.
government-owned and controlled corporations.
COA
Furthermore, PDICs authority to condone under its
February 22, 2008
charter is circumscribed by the phrase to protect
the interest of the Corporation. This authority does
Facts: The former Finance Secretary, Mr.
not include the power to condone a liability that
Roberto de Ocampo, in his capacity as ex-
arises from a violation of law. With greater reason,
officio Chairman of the Philippine Deposit
the condonation of a liability that arise from a
Insurance Corporation (PDIC) Board for the
violation of no less than the Constitution, as in this
years 1994-1996 received a total amount
case, is not encompassed by PDICs charter. It is
of P440,068.62 representing Business
not in the interest of PDIC to forego audit
Policy Development and Enforcement
disallowances as it is neither its mandate nor its
Expenses (BPDEE) and Christmas gift
task to perpetuate breaches of law.
checks. The Auditor thereat issued Notice
Gloria Sondayon v. P.J. Lhullier, Inc and
of Disallowance disallowing in audit the
Ricardo Diago
payment of said expenses on the ground
February 27, 2008
that it partook of the nature of additional
compensation or remuneration in violation
Facts: Petitioner had pledged her P250K watch to
of the rule on multiple positions proscribed
respondent pawnshop. The pawnshop was robbed,
under Section 13, Article VII of the
and among the items seized was petitioners watch.
Philippine Constitution and Section 2(9),
Petitioner tried to recover the watch but
Republic Act No. 3591, as amended. PDIC
respondent argued that the robbery was a
sought reconsideration of the subject
fortuitous event, hence, they were not liable.
disallowance but the same was denied by
COA. The SC affirmed with finality said COA
Held: Had respondent company insured the
decision and resolution. The Final Order of
articles pledged against burglary, petitioner would
Adjudication (FOA) was issued to PDIC for
have been compensated for the loss from the
enforcement of the decision. However,
burglary. Respondent companys failure to insure
instead of complying with the Order, PDIC
the article is, therefore, a contributory cause to
condoned the amount of P413,866.62
petitioners loss. Considering, however, that
invoking its power to condone under
petitioner agreed to a valuation of P15,000 for the
Section 8, paragraph 12 of its charter.
article pledged in case of a loss, the replacement
Held: It is a fundamental rule that when a
value for failure to insure is likewise limited to
judgment becomes final and executory it becomes
P15,000. Nevertheless, this Court, taking into
immutable and unalterable, the prevailing party
account all the circumstances of this case, deems it
fair and just to award exemplary damages against by the Corporation against such director, officer,
respondent company for its failure to comply with employee or agent.
the rule and regulation requiring it to insure the
articles pledged against fire and burglary, in the What fees / expenses are covered?
amount of Twenty Five Thousand (P25,000) Pesos. Litigation costs and expenses, including legal
This is without prejudice to appropriate proceedings fees and other expenses of external counsel, or
to recover any excess value of the article pledged providing legal assistance
from amounts that may be or have been awarded Legal assistance shall include the grant or
payable by third parties answerable for the loss advance of reasonable legal fees to enable the
arising from the robbery. employee to engage counsel of his choice.
In the event of a settlement or compromise,
indemnification shall be provided only when the
Philippine Deposit Insurance Corporation is advised by counsel that the
Corporation Act persons to be indemnified did not commit any
negligence or misconduct.
(RA 3591 as amended by RAs 6037, 7400, The costs and expenses incurred may be paid
8791 and 9302 and PDs 120, 1094, 1451 and by the Corporation in advance of the final
1935) disposition upon receipt of an undertaking by
the employee to repay the amount advanced
should it ultimately be determined by the Board
1. Basic Policy of Directors that he is not entitled to be
indemnified.
To insure the deposits of all banks which are
entitled to the benefits of insurance under this 2.3. Authority to Provide Financial
Act Assistance
To promote and safeguard the interests of the
depositing public by way of providing What entities are covered?
permanent and continuing insurance coverage
on all insured deposits. Insured banks in danger of closing
When the Corporation has determined that
an insured bank is in danger of
2. PDIC Functions closing
the continued operation of such
Can lend money to banks before closure bank is essential to provide
Insurer of deposits against bank closures adequate banking service in the
Acts as receiver for banks community maintain financial
The PDIC Act is not applicable to Offshore stability in the economy.
Banking Units
Nature of insurance function: compulsory Insured banks that have already
insurance on all bank deposits closed
The authority to extend financial assistance may
Administrative Functions: also be exercised in the case of a closed insured
bank if the Corporation finds that
2.1. Authority to Examine Banks the resumption of operations of
The PDIC has the power to conduct examination of such bank is vital to the interests of
banks with prior approval of the Monetary Board: the community, or
a severe financial climate exists
Provided, No examination can be conducted which threatens the stability of a
within 12 months from the last examination number of banks possessing
date. significant resources
of normal clearing and settlement activity. It also his name is registered as owner/holder thereof
means the likelihood of a sudden, unexpected in the books of the issuing bank.
collapse of confidence in a significant portion of the
banking or financial system with potentially large 4. Liability to Depositors
real economic effects.
4.1. Commencement of Liability
What are PDICs powers with regard to Liability commences when an insured bank is
financial assistance? closed by the Monetary Board pursuant to Sec 30
of R.A. 7653.
It is authorized to
make loans 4.2. Extent of Liability
purchase the assets Liability covers the amount due to any depositor for
assume liabilities deposits in an insured bank net of any obligation of
make deposits the depositor to the insured bank as of the date of
Provide financial assistance which may take the closure, but not to exceed P250,000.00.
form of equity or quasi-equity of the insured
bank Provided That the Corporation shall 4.3. Determination of Insured Deposits
dispose of such equity as soon as practicable. The Corporation shall commence the determination
of insured deposits upon its actual takeover of the
The Corporation, prior to the exercise of its powers, closed bank.
shall determine that actual payoff and liquidation
will be more expensive than the exercise of this In order that a claim for deposit insurance with the
power. PDIC may prosper, the law requires that a
corresponding deposit be placed in the insured
The Corporation may not use its authority to bank. A deposit as defined in Section 3(f), may be
purchase the voting or common stock of an insured constituted only if money or the equivalent of
bank but it can enter into and enforce agreements money is received by a bank:
that it determines to be necessary to protect its
financial interests. (f) The term "deposit" means the unpaid
balance of money or its equivalent received
3. Concept of Insured Deposits by a bank in the usual course of business
and for which it has given or is obliged to
The term insured deposit means the amount give credit to a commercial, checking,
due to any depositor for deposits in an insured savings, time or thrift account or which is
bank net of any obligation of the depositor to the evidenced by passbook, check and/or
insured bank as of the date of closure, but not to certificate of deposit (PDIC vs CA, 1997)
exceed P250,000.00.
The Corporation shall publish the notice once a
In determining such amount due to any depositor, week for at least 3 consecutive weeks in a
there shall be added together all deposits in the newspaper of general circulation or, when
bank maintained in the same right and capacity for appropriate, in a newspaper circulated in the
his benefit either in his own name or in the name community or communities where the closed bank
of others. or its branches are located.
4.5. Mode of Payment However, all rights of the depositor against the
Payment of the insured deposits shall be made by closed bank and its shareholders or the
the Corporation as soon as possible either receivership estate to which the Corporation may
by cash or have become subrogated, shall revert to the
by making available to each depositor a depositor.
transferred deposit in another insured.
5. Restriction on Payment of Dividends by
The term transfer deposit means a deposit in Insured Bank
an insured bank made available to a depositor by
the Corporation as payment of insured deposit of 5.1. General Rule:
such depositor in a closed bank and assumed by No insured bank shall pay any dividend on its
another insured bank. capital stock or interest on its capital notes or
debentures (if such interest is required to be paid
4.6. Conditions that may be imposed prior to only out of net profits) or distribute any of its
payment capital assets while it remains in default in the
The Corporation, in its discretion, may payment of any assessment due to the Corporation
require proof of claims to be filed before
paying the insured deposits 5.2. Exception:
Where the Corporation is not satisfied as to If such default is due to a dispute between the
the viability of a claim for an insured insured bank and the Corporation over the
deposit, it may require final determination amount of such assessment and Bank deposits