MODULE 2: CLASSES OF INSURANCE & INSURABLE INTEREST

Insurable Interest
interest in which the law requires the owner of a insurance policy to have in the the
person or thing insured.
Insurable Interest; Life and Health
Section 10. Every person has an insurable interest in the life and health:
 Of himself, of his spouse, and of his children;
 Of any person on whom he depends wholly or in part for education or support, or
in whom he has a pecuniary interest;
 Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or prevent
the performance; and
 Of any person upon whose life any estate or interest vested in him depends.
Is the consent of the person whose life is insured essential to the validity of the
insurance taken by another?
The consent of the person insured is not essential to the validity of the policy. So long as
it could be proved that the assured has a legal insurable interest at the inception of the policy,
the insurance is valid even without such consent.
Can the insured change the beneficiary he designated in the policy?
The insured shall have the right to change the beneficiary he designated in the policy,
unless he has expressly waived this right in the said policy.
In the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.
What is the consequence when the beneficiary is the principal, accomplice, or accessory
in willfully bringing about the death of the insured?
The interest of a beneficiary in a life insurance policy shall be forfeited and shall pass on
to the other beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries,
the proceeds shall be paid in accordance with the policy contract. If the policy contract is silent,
the proceeds shall be paid to the estate of the insured.

Insurable Interest: Property

A person has an insurable interest in the property of he or she derives benefit or
advantage from its preservation or would suffer pecuniary loss, damage, or prejudice by its
destruction.
*Regardless if a person has no title in, or lien upon, or possession of the property.
Section 14. An insurable interest in property may consist in:
 An exiting interest;
 An inchoate interest founded on an existing interest; or
 An expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Insurable Interest: Life Vs. Property

Life Property

As to extent Unlimited, except if Limited to the actual value

effected by creditor on the of the interest thereon.
life of the debtor.

As to the time he insurable Enough that it must exist Must exist at the time
interest must exist at the time the policy takes when the insurance takes
effect. It need not exist at effect and when the loss
the time of loss. occurs. It does not need to
exist in the meantime.

As to beneficiary’s interest The beneficiary need not The beneficiary must have
have insurable interest insurable interest over the
over the life of the insured thing insured.
if the insured him/himself
insured secured the policy.

Void Stipulations in The Property Insurance

 Stipulation for payment of loss whether person insured has or has no interest in the
property insured.
 Stipulation that the policy shall be received as proof of such interest.
 Gaming or wagering policy

Effect Of Change Of Interest

Change Of Interest- absolute transfer of the property insured, such as the conveyance of the
property
Section 20. SUSPENDS INSURANCE
A change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested in the same person.
Section 21. AFTER INJURY AND LOSS
A change of interest in a thing insured, after the occurrence of an injury which results in
a loss does not affect the right of the insured to indemnity for the loss
Section 22. DISTINCT THING, SEPARATELY INSURED
A change of interest in one or more of several distinct things, separately insured by one
policy does not avoid the insurance as to the others.
Section 23. WILL OR SUCCESSION
A change of interest, by will or succession on the death of the insured, does not avoid
an insurance, and his interest in the insurance passes to the person taking his interest in the
thing insured.

CLASSES OF INSURANCE
2 Major Divisions Of Marine Insurance:
1. Ocean Marine Insurance
2. Inland Marine Insurance

PERSONS WHO HAVE INSURABLE INTEREST

 Shipowner- over the value of the vessel; except if the vessel has been chartered (Sec.
102)
 Shipper or cargo owner- over the cargo and expected profits (Sec. 102)
 FOB Factory
 FOB Point of Destination
 CIF (Cost, Insurance and Freight)
 C&F (Cost and Freight)
 Charterer
 up to the extent of the amount he/she is liable to the ship owner (sec 108)
 expected profits or freightage if he/she accepts cargoes from other persons for a
fee (sec 106)
 his/her own cargo of his/her client's cargo (sec 104)
SEAWORTHINESS

 A ship or vessel is seaworthy when reasonably fit to perform the service and to
encounter the ordinary perils of the voyage
  contemplated by the parties to the policy. (Sec. 116)
Not only to the condition of the structure, but also:
 Properly laden (loaded)
 Competent Master
 Sufficient no. of competent officers and seamen
 Equipment and other necessary or proper stores and implements.

DEVIATION

 Unreasonable delay in pursuing the voyage (Sec. 125)

 Commencement of an entirely different voyage (Sec. 124) -not following the nautical
way agreed between insurer
Deviation is proper when: (Sec. 126)
1) Caused by circumstances over which neither the master nor the owner of the ship
has any control;
2) Necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against
3) Made in good faith, and upon reasonable grounds of belief in its necessity to avoid a
peril;
4) Made in good faith, for the purpose of saving human life or relieving another vessel
in distress.

LOSS
Section 129. A loss may be either total or partial.
 General/Total Average
 caused by the master or upon his/her authority, in order to save the vessel, her
cargo, or both at the same time from real or known risk.
 is borne equally by all of the interests concerned in the venture.

 Particular or Partial Average

 not for the common benefit
 borne only by the owner of the property (Art. 809-810. Code of Commerce)

Section 130. Every loss which is not total is PARTIAL.

Section 131. A total loss may be either actual or constructive
Section 132. A loss is caused/ deemed actual total in the following:
 A total destruction of the thing insured;
 Irretrievable loss of the thing by sinking, or by being broken up;
  Any damage to the thing which renders it valueless to the owner for the purpose for
which he held it; or
 Any other event which effectively deprives the owner of the possession
ABANDONMENT

 Oral or in writing
 That if the notice be done orally, a written notice of such abandonment shall be
submitted within 7 days from such oral notice)
Section 141. A person may abandon the thing insured when:
 If more than three-fourths (¾) thereof in value is actually lost
 If it is injured to such an extent as to reduce its value more than three-fourths (¾)
 If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed
without incurring either an expense to the insured of more than three-fourths (¾) the
value of the thing abandoned
FAQS
POLICY:
 It is different from the contract of insurance. Policy is the written instrument evidencing
the contract Insurance contract is in fact perfected by mere consent.
 The written instrument in which a contract of insurance is set forth is called a policy of
insurance.
PREMIUM:
 It is the agreed price for assuming and carrying the risk.
 It is the consideration paid to insurer for undertaking to indemnity the insured against a
specified peril.
CLAIM:
 It may be defined as a demand for the satisfaction of a loss suffered within the purview
of an insured's policy.
REPRESENTATION:
 It is a statement made by the insured at the time of, or prior to, the issuance of the policy
relative to the risk to be insured.
 It may be oral or written.
 If a representation is false in a material point, the injured party is entitled to rescind the
contract from the time when the representation becomes false.
CONCEALMENT:
 A neglect to communicate that which a party knows and ought to communicate
 Whether intentional or unintentional, entitles the injured party to rescind a contract of
insurance
 Each party to a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes
no warranty, and which the other has not the means of ascertaining.