INCONTESTABILITY CLAUSE

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an
action on the contract.

"After a policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from the date of its issue or
of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable
by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

DEFENSES BARRED

1. Policy is void ab initio

2. Policy is rescindable by reason of the fraudulent concealment or misrepresentation of the
insured or his agent

DEFENSES NOT BARRED

1. That the person taking the insurance lacked insurable interest as required by law;
2. That the cause of the death of the insured is an excepted risk;
3. That the premiums have not been paid (Secs. 77, 227[b], 228[b], 230[b]);
4. That the conditions of the policy relating to military or naval service have been violated (Secs.
227[b], 228[b]);
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of death or to comply with any condition imposed
by the policy after the loss has happened; or
7. That the action was not brought within the time specified.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years - from the effectivity of a life insurance contract
and while the insured is alive - to discover or prove that the policy is void  ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.  After the
two-year period lapses, or when the insured dies within the period, the insurer must make
good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who
recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness
and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the
public in general.

In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within
the two-year contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. 
COVER NOTE

Cover Note (Ad Interim)

 A concise and temporary written contract issued to the insurer through its duly authorized
agent embodying the principal terms of an expected policy of insurance.
Purpose: It is intended to give temporary insurance protection coverage to the applicant
pending the acceptance or rejection of his application.
 Duration: Not exceeding 60 days unless a longer period is approved by Insurance
Commissioner (Sec. 52)

"Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under the cover note and the premium
therefor.

"Cover notes may be extended or renewed beyond such sixty (60) days with the written approval of
the Commissioner if he determines that such extension is not contrary to and is not for the purpose
of violating any provisions of this Code. The Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing such violations and may by such rules and
regulations dispense with the requirement of written approval by him in the case of extension in
compliance with such rules and regulations.

1. For obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover
Note, for the loss insured against having already occurred, the more practical procedure is
simply to deduct the premium from the amount due the petitioner on the Cover Note. The
non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose
what is due it as if there had been payment of premium, for non-payment by it was not
chargeable against its fault. Had all the logs been lost during the loading operations, but after
the issuance of the Cover Note, liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder" should legally operate
otherwise, it would serve no practical purpose in the realm of commerce, and is supported by
the doctrine that where a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid. 

2. It is not an unfamiliar custom among life insurance companies in the operation of the
business, upon receipt of an application for insurance, to enter into a contract with the
applicant in the shape of a so-called "binding receipt" for temporary insurance pending the
consideration of the application, to last until the policy be issued or the application rejected,
and such contracts are upheld and enforced when the applicant dies before the issuance of
a policy or final rejection of the application. It is held, too, that such contracts may rest in
parol. Counsel for appellant insists that such a preliminary contract for temporary insurance
was entered into in this instance, but we do not think so. On the contrary, the clause in the
application and the receipt given by the solicitor, which are to be read together, stipulate
expressly that the insurance shall become effective only when the "application shall be
 approved and the policy duly signed by the secretary at the head office of the company and
issued." It constituted no agreement at all for preliminary or temporary insurance.

KINDS OF INSURANCE POLICIES

POLICY OF INSURANCE
 The written instrument in which a contract of insurance is set forth. (Sec. 49)  Contents:
(Sec. 51)
1. Parties
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.

 Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or to whose benefit it is made,
unless otherwise specified in the policy.

 Kinds:
1. OPEN POLICY – value of thing insured is not agreed upon, but left to be ascertained in case
of loss. (Sec. 60)  The actual loss, as determined, will represent the total indemnity due the
insured from the insurer except only that the total indemnity shall not exceed the face value of
the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62)

2. VALUED POLICY – definite valuation of the property insured is agreed by both parties, and
written on the face of policy. (Sec. 61)  In the absence of fraud or mistake, the agreed valuation
will be paid in case of total loss of the property, unless the insurance is for a lower amount.

3. RUNNING POLICY – contemplates successive insurances and which provides that the object
of the policy may from time to time be defined (Sec. 62)

PRESCRIPTIVE PERIOD FOR FILING OF CLAIMS

"Section 397. Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within six (6) months from the date of accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or
injury must be brought, in proper cases, with the Commissioner or the courts within one (1) year
from denial of the claim, otherwise, the claimant’s right of action shall prescribe.
CASUALTY OR ACCIDENT INSURANCE
 Insurance covering loss or liability arising from accident or mishap, excluding those falling
under other types of insurance such as fire or marine. (Sec. 174)

 Classifications:
1. Insurance against specified perils which may affect the person and/or property of the
insured. (accident or health insurance)
 Examples: personal accident, robbery/theft insurance

2. Insurance against specified perils which may give rise to liability on the part of the
insured for claims for injuries to or damage to property of others. (third party liability
insurance)
 Insurable interest is based on the interest of the insured in the safety of persons, and
their property, who may maintain an action against him in case of their injury or
destruction, respectively.
 Examples: workmen’s compensation, motor vehicle liability 

In a third party liability (TPL) insurance contract, the insurer assumes the obligation by
paying the injured third party to whom the insured is liable. Prior payment by the insured
to the third person is not necessary in order that the obligation may arise. The moment
the insured becomes liable to third persons, the insured acquires an interest in the
insurance contract which may be garnished like any other credit. (Perla Comapnia de
Seguro, Inc vs. Ramolete, 205 SCRA 487)  Aside from compulsory motor vehicle
liability insurance, the Insurance Code contains no other provisions applicable to
casualty insurance. Therefore, such casualty insurance are governed by the general
provisions applicable to all types of insurance, and outside of such statutory provisions,
the rights and obligations of the parties must be determined by their contract, taking into
consideration its purpose and always in accordance with the general principles of
insurance law.

In burglary, robbery and theft insurance, the opportunity to defraud the insurer – the
moral hazard – is so great that insurer have found it necessary to fill up the policies with
many restrictions designed to reduce the hazard. Persons frequently excluded are those
in the insured’s service and employment. The purpose of the exception is to guard
against liability should theft be committed by one having unrestricted access to the
property. (Fortune Insurance vs. CA, 244 SCRA 208)

“INTENTIONAL” vs. “ACCIDENTAL” AS USED IN INSURANCE POLICIES

1. Intentional – Implies the exercise of the reasoning faculties, consciousness and
volition. Where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling. If the injuries suffered by the
 insured clearly resulted from the intentional act of the third person, the insurer is
relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44
SCRA 58, 1972)

2. Accidental – That which happens by chance or fortuitously, without intention or

design, which is unexpected, unusual and unforeseen.

AUTHORIZED DRIVER CLAUSE

 A clause which aims to indemnify the insured owner against loss or damage to the car but
limits the use of the insured vehicle to the insured himself or any person who drives on his order
or with his permission (Villacorta v. Insurance Commissioner)
The requirement that the person driving the insured vehicle is permitted in accordance with the
licensing laws or other laws or regulations to drive the motor vehicle (licensed driver) is
applicable only if the person driving is other than the insured.

THEFT CLAUSE
 A clause which includes theft as among the risks insured against.

Where the car is unlawfully and wrongfully taken without the owner’s consent or knowledge,
such taking constitutes theft, and thus, it is the “theft clause” and not the “authorized driver
clause that should apply (Palermo v. Pyramids Ins., 161 SCRA 677).

DOUBLE INSURANCE – exists where same person is insured by several insurers separately in
respect to same subject and interest. (Sec. 93)
 Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.

 A double insurance exists where the same person is insured by several insurers separately in
respect of the same subject and interest. As earlier stated, the insurable interests of a
mortgagor and a mortgagee on the mortgaged property are distinct and separate.   
Consequently, insurance taken by one in his own name only and in his favor alone does not
inure to the benefit of the other.  And in case both of them take out separate insurance policies
on the same property, or one policy covering their respective interests, the same is not open to
the objection that there is double insurance.