Concept of Insurance 4.

Beneficiary

Insurance Contract He is the 3rd person designated by the insured to receive

the proceeds,
It is an agreement whereby one undertakes, for a consideration,
to indemnify another against loss, damage, or liability arising In case of failure to designate a beneficiary – proceed
from an unknown or contingent event. should accrue to the estate of the insured.

- Elements of Insurance
A contract of surety shall be deemed an insurance contract of
suretyship shall be deemed an insurance contract only if made 1. Insurable Interest capable of pecuniary estimation
by a surety doing an insurance business. As defined by the 2. Insured is subject to a risk of loss by the happening
Insurance Code (IC). of the designated peril
3. The insurer assumes the risk of loss
A guaranty agreement signed by a person not engaged in the 4. Such assumption of risk is part of a general scheme
business of insurance IS NOT and insurance contract. to distribute actual losses among a large group of
- persons bearing a similar risk
Even if a contract contains all the elements of an insurance 5. In consideration of the insurer’s promise, the insured
contract, if its primary purpose is the rendering of service, it is pays a premium
not a contract of insurance.
- Insurable Interest – interest in which a person is deemed to
have in the subject matter of the insurance – will derive
Principal Purpose Test pecuniary benefit or advantage from the preservation of the
subject matter or will suffer pecuniary loss or damage from its
Test applied whether the assumption of risk and destruction, termination, or injury by the happening of the
indemnification of loss are the principal object and purpose of event insured against it.
the organization or whether they are merely incidental to its
business. If person procuring interest has no insurable interest 
INSURANCE IS VOID
Q: Is the health care agreement an insurance contract for the
purpose of assessing DST? What may be insured against?

A: No. Any contingent or unknown event, whether past or future,

which may damnify a person having an insurable interest.
It will not qualify as an insurance contract. Maxicare does not
reimburse or indemnify the member as the latter does not pay Actuarial Risk – refers to the possibility that the assumptions
any 3rd party. made by the actuaries, in pricing specific insurance policies,
may prove to be inaccurate or wrong,
Parties to a Contract of Insurance
Q: Is actuarial risk = Investment Risk?
1. Insurer
A: Not the same
Assume the risk of loss and undertakes for a
consideration to indemnify the insured upon the Investment risk is a risk that the company might fail to earn a
happening of the designated peril. reasonable return on its investment, but it is not the kind of risk
associated with the insurance called actuarial risk,
A natural person is NOT allowed to be an insurer.
Insurance Risk – actuarial risk – risk that the cost of insurance
2. Insured claims might be higher than the premiums paid.

A person whose loss is the occasion for payment of the Insurance Premium – the amount of money a person pays for
insurance proceeds. an insurance policy

Anyone except the public enemy may be insured . Characteristics and Nature of Insurance Contracts

Public Enemy – a nation, including its citizens or a. Risk-distributing device

subjects, with whom the Ph is at war. b. Uberrimae Fides Contract – one of perfect good
3. Assured faith
c. Contract of Indemnity
Insured is also he assured when the proceeds are payable
to him. Insured is entitled to recover only the amount of total
loss actually sustained.
Property insurance – assured must have an insurable
interest over the property and such insurable interest is d. Contract of Adhesion
covered by the insurance policy,
The other party generally adhered to the terms and
Life Insurance – insured may insure someone else’s life, conditions thereof.
and designate himself as the beneficiary, PROVIDED he
has insurable interest over the right of the person whom e. Voluntary Contract
he insures. f. Personal
 A contract of insurance is personal in nature. In
agreeing to be bound by the insurance contract, each Rationale in prohibiting the donees specified in Art. 739
party has in mind the character, credit, and conduct
of the other. Life insurance policy is no different from donation insofar as
the beneficiary is concerned. Both are founded on liberality. A
Rules in Interpreting an Insurance Contract beneficiary is like a done because from the premiums of the
policy which the insured pays out of liberality, the beneficiary
In case of any ambiguities in an insurance contract, it is to be will receive the proceeds of the insurance.
construed liberally in favor of the insured and strictly against
the insurer.

The ambiguity does not invalidate the contract.

Insurable Interest

1. In Life / Health

Every person has an insurable interest in the life and health: Q: Does a person have insurable interest on the life of his
parents?
a) Of himself, his spouse and of his children
b) Of any person on whom he depends wholly or in A: NO.
part for education / support, or in whom he has a
pecuniary interest By express exclusion under par. (a) a person has no insurable
c) Of any person under a legal obligation to him for interest on the life of his parents and other ascendants
the payment of money, or respecting property or UNLESS h depends upon them for education and/or support.
services, of which death or illness might delay or
prevent the performance; and Rationale: Parents are logically excepted to predecease their
d) Of any person upon whose life any estate or children.
interest vested in him depends.
Q: Do parents have insurable interest on the life and health of
their illegitimate children?
I. Of himself, his spouse and of his children
A: Yes.
Q: If a person procures insurance on his own life, who may be
his beneficiary Q: Can a person take insurance on the life of another person
and designate himself as a beneficiary
A: A Person can take insurance on his own life and designate
anyone as beneficiary except those disqualified to receive A: YES.
donation under Art. 739 of the Civil Code.
Provided that he has pecuniary interest in the person he is
Art. 739, Civil Code insuring.

Article 739. The following donations shall be void: II. Of any person on whom he depends wholly or in part
for education / support, or in whom he has a
(1) Those made between persons who were guilty of pecuniary interest
adultery or concubinage at the time of the donation;
III. Of any person under a legal obligation to him for the
(2) Those made between persons found guilty of the same payment of money, or respecting property or services,
criminal offense, in consideration thereof; of which death or illness might delay or prevent the
performance; and
(3) Those made to a public officer or his wife, descendants
and ascendants, by reason of his office. Examples:

Q: If any person, other than those disqualified to receive  Mortgagee may insure the life of the mortgagor up to
donation under Art. 739 of the CC, is designated beneficiary the extent of the mortgage debt to the mortgagee
can the lawful spouse and legitimate children of the insured
complain of denial of legitime?  A seller may insure the life of the buyer if the latter
has the obligation to deliver a specified property
A: NO under a contract to sell.
o Seller’s insurable interest = contracted value of the
The proceeds of the life insurance policy do not form part of property for delivery
the estate of the insured.
 A law firm may procure a keyman insurance policy
- on its Managing Partner
Illegitimate children, designated as beneficiaries, are entitled to
the insurance proceeds, to the exclusion of the legitimate  An employer corporation has an insurable interest on
children. its manager where the death of the manager will be
- detrimental to the corporation’s operations.
The proceeds should be payable to the estate which included
not only the spouse but the children as well.
IV. Of any person upon whose life any estate or interest 2. In Property
vested in him depends.
What does insurable interest in property consist of?
The usufructuary may insure the life of the owner of the naked
title if his right to the usufruct will be extinguished upon death Every interest in property of such nature that a contemplated
of the latter. peril might directly damnify the insured, is an insurable
interest.
Q: Can the insured change his beneficiary
Insurable interest in property may consist in:
A: YES.
a) Existing interest
The insured shall have the right to change the beneficiary he b) Inchoate interest founded on an existing interest
designated in the policy. c) Expectancy + existing interest in that out of which
the expectancy arises
XPN: Expressly waived.
A mere contingent or expectant interest not founded on an
Effects of the Irrevocable Designation actual right to the thing, nor upon any valid contract for it, is
NOT insurable.
 Beneficiary has acquired vested right on the life
insurance policy including its incident such as the policy The measure of an insurable interest is the extent to which the
loan & cash surrender value. insured might be damnified by loss or injury thereof.
 Any act on the part of the insured w/c may impair the
interest of the irrevocably designated beneficiary  null Q: When should insurable interest exist in property and in life
and void and health?
 Beneficiary cannot be changed; no additional beneficiary
can be designated, and the insured cannot take cash Property Insurance - must exist when the insurance takes
surrender value on the policy UNLESS beneficiary effect, and when the loss occurs, BUT need not exist in the
consents to any of the foregoing acts. meantime

Effects of Revocable Designation Life and Health Insurance - must exist when the insurance
takes effect but need not exist thereafter or when the loss
Insured may: occurs.
 change the beneficiary during his lifetime
 Add or exclude a beneficiary Property Insurance v. Life Insurance
Property
Life Insurance
To Whom Will the proceeds of the life insurance policy be Insurance
payable? Value Actual value of
the interest
There is no limit
 Beneficiary is unlawfully designated – proceeds shall therein is the
to the amount for
be payable to the estate of the insured limit of the
insurance.
o Policy remains valid. Only designation is void insurance that can
validly be placed.
 Joint designation – the share of the unlawfully
designated beneficiary shall form additional part of When Insurance Interest insured
the share of the lawfully designated beneficiary takes place must exist when
the insurance Insurable interest
 Joint designation lawfully designated – proceeds
takes effect and exists at the time
shall be divided based on the terms of the policy.
when the loss when the contract
o Policy is silent = divided equally
occurs BUT need is made.
 Beneficiary is lawfully designated + insured dies not exist in the
ahead of the beneficiary  proceeds shall be payable meantime.
to the beneficiary.
Insurable If the insured
o UNLESS, he is the principal, accessory or
Interest procured
accomplice in willfully bringing about the death of insurance on his
the insured. own life, he can
 In such case, interest of the beneficiary shall be designate anyone
forfeited and the share forfeited shall pass on the as beneficiary
other beneficiaries Beneficiary must
even though the
o In the absence of other beneficiaries, the proceeds have insurable
latter has no
shall be paid in accordance w/ the policy contract interest over the
insurable interest
o If policy is silent  estate of the insured property insured.
in the life of the
 Beneficiary predeceases the insured – distinguish insured.
between revocable and irrevocable beneficiary
o Revocable – estate of the insured XPN: those
o Irrevocable – shall inure to the benefit of the legal disqualified to
representatives of the beneficiary receive donation
o Silent - estate of the insured.
o Beneficiary’s interest in a life insurance
endowment policy will only accrue if the insured Insurable Interest of the mortgagor and mortgagee over
dies before the end of the endowment period. the mortgaged property
  Mortgagor has insurable interest on the property up to b) The insurer, after payment to the mortgagee, is
the extent of the value of the mortgaged property subrogated to the rights of the latter against the
 Mortgagee -insurable interest on the same property up to mortgagor and may collect the debt of the latter to the
the extent of the amount of the debt secured by the extent of the amount paid to the mortgage.
mortgage.
 Consequently, they can separately procure fire insurance c) The mortgagee-insured can no longer collect the
policy on the same property to the extent of their mortgagor’s indebtedness after receiving full payment of
respective insurable interest. the credit from the insurer.

If the mortgagor obtained an open policy, he could claim an Effect of a change of interest in any part of a thing insured
amount corresponding to the extent of the damage BUT not to unaccompanied by a corresponding change of interest in
exceed the face value of the insurance policy; HOWEVER, if the insurance
he obtained a valued policy then he could claim an amount
based on the agreed upon valuation of the property. Suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested
 Where a mortgagor of property effects insurance in his in the same person.
own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, The insurable interest on the mortgaged property of a
the insurance is deemed to be upon the interest of the mortgagor which covers the full value of the property and the
mortgagor, who does not cease to be a party to the original interests of a mortgagee which extends only to value of debt
contract. are distinct and separate.

 If insurer assents to the transfer of an insurance from a Insured retains insurable interest in the property insured
mortgagor to a mortgagee, + at the time of his assent, in the following cases:
imposes further obligations on the assignee, making a new
contract with him, the acts of the mortgagor cannot affect 1 Execution of mortgage by the insured since interest
the rights of said assignee in the property did not pass to the mortgagee by the
mere execution of the mortgage
 Mortgagor procures fire insurance policy w/o designating 2 Lease of the insured property
the mortgagee as beneficiary, the mortgagor shall obtain 3 If the insured is a judgment debtor whose property
proceeds of insurance in case of loss. was sold on execution until the right to redeem has
expired; and
4 If the insured is the mortgagor whose property has
 Mortgagor procures fire insurance policy + designated the
been foreclosed until expiration of the redemption
mortgagee as the beneficiary  mortgage shall be entitled
period
to the proceeds of the insurance.
o The loan shall be extinguished to the extent of the
Exceptions:
amount of insurance
 Life, health, and accident Insurance
 Mortgagor procures fire insurance + designated mortgagee
as beneficiary up to the extent of the mortgage debt, the
For these types of insurance, it is enough that
insurer is not liable if the mortgagor deliberately set the
insurable interest exists at the time of the issuance of
insured property on fire.
the policy
 If the mortgagor and the mortgagee separately obtained fire
 A change of the interest in a thing insured, after the
insurance and the mortgagor designated the mortgagee as
occurrence of an injury which results in a loss, does
the beneficiary in the fire insurance, any act done by the
not affect the right of the insured to indemnity for
mortgagor that will avoid the insurance is binding on the
loss
mortgagee but he can still recover on the fire insurance he
separately procured.
No change of interest and in insurance with respect
to the remaining properties.
 If the mortgagor obtained fire insurance but the loss occurs
after the redemption period, mortgagor can no longer
 Change of interest in 1 or more of several distinct
recover on the insurance because he has no more insurable
things, separately insured by one policy, does not
interest at the time of loss.
avoid the insurance as to others.
 Assume that the mortgagor procured fire insurance after Ownership is effectively transferred to the heirs
his default and the mortgagee obtained a loan from a
general creditor to pay the redemption price then assigned
 A change of interest, by will or succession, on the
in the policy to the general creditor and the loss occurs, the
death of the insured, does not avoid an issuance; and
mortgagor cannot recover on his fire insurance because he
his interest in the insurance passes to the person
has no more insurable interest on the property at the time
taking his interest in the thing insured.
of the loss.
Transfer is not made in favor of any 3rd party.
Effects if the mortgagee procures separate insurance
coverage w/o reference to the right of the mortgagor
 When a policy is so framed that it inure to the benefit
of whomsoever, during the continuance of the risk,
a) Mortgage may collect from their insurance to the extent
may become the owner of the interest insured
of his credit
 Situation allows change of interest in the property
but w/o corresponding loss of insurance coverage. Pursuant to the cognition theory, an insurance contract is
perfected when the applicant insured has knowledge of the
Double Insurance acceptance and approval by the insurer of his application.

Exists where the same person is insured by several insurers The cognition theory should be construed in relation to the
separately in respect to the same subject and interest. provisions of the IC on premium payment.

Double insurance applies only to property insurance. -

An application form does not prove that insurance was secured.
There is no law prohibiting double insurance. -

In double insurance, the insurers are considered as co-insurers. Delay in Acceptance

Each one is bound to contribute ratably to the loss in
proportion to the amount for which he is liable under his Delivery of Policy
contract.
Any insurance company which delivers to an insurance
Requisites for Double Insurance agent or insurance broker a policy or contract of insurance
shall be deemed to have authorized such agent or broker to
1. Person insured is the same receive on its behalf payment of any premium which is due
2. 2 or more insurers insuring separately on such policy or contract of insurance at the time of its
3. There is identity of subject matter issuance or delivery or which becomes due thereon.
4. There is identity of interest insured
5. There is identity of the risk/peril insured against Premium Payment

Extent the insured may recover in a policy other than life, Premium – consideration for the undertaking of the insurer to
if the insured is over insured by double insurance indemnify the insured against a specified peril.

1. The insured, unless the policy otherwise provides, may G.R.: Insurance policy is not valid & binding unless premium
claim payment from the insurers in such order as he may thereof has been paid.
select, up to the amount for which the insurers are
severally liable under their respective contracts; XPN:

2. Where the policy under which the insured claims is a a) Whenever the grace period applies in the case of a
valued policy, any sum received by him under any other life or industrial life policy.
policy shall be deducted from the value of the policy
without regard to the actual value of the subject matter b) Whenever under the broker and agency agreements
insured; with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a
3. Where the policy under which the insured claims is an duly licensed intermediary should exceed ninety
unvalued policy, any sum received by him under any (90) days from date of issuance of the policy.
policy shall be deducted against the full insurable value,
for any sum received by him under any policy; c) An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive
4. Where the insured receives any sum in excess of the evidence of its payment, so far as to make the policy
valuation in the case of valued policies, or of the binding, notwithstanding any stipulation therein that
insurable value in the case of unvalued policies, he must it shall not be binding until the premium is actually
hold such sum in trust for the insurers, according to their paid.
right of contribution among themselves;
d) In a contract of suretyship, the suretyship / bond
5. Each insurer is bound, as between himself and the other shall not be valid and binding unless and until the
insurers, to contribute ratably to the loss in proportion to premium therefor has been paid, except where the
the amount for which he is liable under his contract. obligee has accepted the bond, in which case the
bond becomes valid and enforceable, irrespective of
PERFECTION OF THE CONTRACT OF INSURANCE whether or not the premium has been paid by the
obligor to the surety.
Offer and Acceptance / Consensuality
e) When there is an agreement allowing the insured to
Theory of Cognition pay the premium in installments and partial payment
has been made at the time of the loss.
Acceptance is considered to effectively bind the offeror only
from time it came to his knowledge. f) In case of estoppel as when there is a long-standing
business practice of allowing the insured to pay the
Theory of Manifestation premiums after issuance of the policy and was relied
upon in good faith by the insured.
Contract is perfected at the moment when the acceptance is
declared or made by the offeree. g) If a cover note not issued to temporarily bind the
insurance pending issuance of the policy.

Cash and Carry Rule

When is a contract of insurance perfected?
An insurance policy is generally not binding unless the G.R.: Premium may be paid on installments, if allowed by the
premium thereof has not been paid. This is based on Sec. 77 of insurance policy.
the IC which provides:
Where there is an agreement allowing the insured to pay the
An insurer is entitled to payment of the premium as soon as premium in installments and partial payment has been made at
the thing insured is exposed to the peril insured against. the time of the loss, the transaction is exempted from the cash
- and carry rule.
The notice of availability of the check, by itself, does not
produce the effect of payment of premium. At the time of loss, Thus, if the premium is payable on 4 installments, the insured
there was no payment of premium yet to make the insurance may recover the full amount if the loss occurred after the first
policy effective. installment payment even pending full payment of the balance
- w/o prejudice to the insured’s obligation to pay the remaining
By accepting the promise of Plastic Era to pay the insurance amount of the premium.
premium w/in 30 days from the effective date of policy.
Capital Insurance has implicitly agreed to modify the tenor of Q: Must Sec. 77 of the IC be strictly applied despite practice of
the insurance policy in effect, waived the provision therein that granting 60 to 90 day credit for payment of premium?
it would only pay for the loss / damage in case the same occurs
after the payment of premium. A: YES.

Capital Insurance is deemed to have accepted the promissory G.R.: Sec. 77

note in payment of the premium. [Capital Insurance vs. Plastic
Era, Co.] XPNs:
-
Acceptance of the check is tantamount to extension of credit. 1. Sec. 77, IC – Life or industrial life policy whenever
- the grace period provision applies
If the check was dishonored before or after the loss, the insured 2. Sec. 78, IC – acknowledgment in a policy of the
is not liable because the dishonor of the check is tantamount to receipt premium is conclusive evidence
non-payment of premium. 3. Makati Tuscany vs. CA – when parties agreed to the
payment in installments + partial payment were
The overriding consideration is whether the insurer granted a made at the time of loss
credit extension to the insured by accepting a promissory note 4. Grant of credit extension
or a check as a mode of premium payment and the loss
occurred during the credit extension period. UCPB vs. Masagana
-
Sec. 77 Facts similar to the Masagana ruling should be decided on a
case-by-case basis. It is submitted that just because the insurer,
An insurer is entitled to payment of the premium as soon as in certain cases, accommodated late payments from the insured
the thing insured is exposed to the peril insured against. does not conclusively bind the insurer to the same agreement
Notwithstanding any agreement to the contrary, no policy all throughout.
or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has Cover Notes
been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies, or Issued to bind the insurance temporarily pending the issuance
whenever under the broker and agency agreements with of the policy.
duly licensed intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a duly licensed Within 60 days after issue of a cover note, a policy shall be
intermediary should exceed ninety (90) days from date of issued in lieu thereof, including w/n its terms the identical
issuance of the policy. insurance bound under the cover note and the premium
therefor.
Sec. 79, IC – exception to Sec. 77
Cover notes may be extended or renewed beyond such 60 days
An acknowledgment in a policy or contract of insurance or with written approval of the Commissioner.
the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, Binding Receipt
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid. A conditional insurance coverage but does not become
effective unless eventually approved by the insurer.
Acknowledgment of premium payment when none was
received is also a form of estoppel. Grounds for Cancellation of Insurance

Acceptance by the obligee of the bond issued by the surety a. Nonpayment of premium
b. Conviction of a crime arising out of acts increasing the
Agreement for partial premium payment hazard insured against
c. Discovery of fraud or material misrepresentation
Q: Does payment by installment of premiums invalidate the d. Discovery of a willful or reckless. Acts or omissions
insurance contract? increasing the hazard insured against
e. Physical changes in the property insured which result in
A: the property becoming uninsurable
f. Discovery of other insurance coverage that makes the
total insurance in excess of the value of the property
insured
g. A determination by the Commissioner that the ALSO, the payment of premiums on a life insurance policy is
continuation of the policy would violate or would place NOT suspended by war.
the insurer in violation of the IC
It was also held that where a life insurance policy lapsed and as
All notices of cancellation shall be in writing, mailed, or compliance w/ the conditions for reinstatement of the policy,
delivered to the named insured at te address shown in the the insured paid only part of the overdue premium, the failure
policy, and shall state: to pay the balance of the overdue premium prevented the
reinstatement of said policy as well therefrom.
a. The grounds relied upon set forth in Sec. 64
b. That, upon written request named insured, the insurer Refund of Premium
will furnish the facts on which the cancellation is based
3 Instances when an insured is entitled to a return of the
premium paid

Types / Kinds of Life Insurance  To the whole premium, if no part of his interest in the
thing insured be exposed to any of the perils insured
1. Term Insurance – where the insurer is liable to pay against
only of the insured dies during the term of the  Where the insurance is made for a definite period of time
insurance. and the insured surrenders his policy, to such portion of
the premium as corresponds w/ the unexpired time at a
2. Whole Life or Permanent – where the insurer pays pro-rata rate
benefits whenever the insured dies. o UNLESS a short period rate has been agreed upon +
appears on the face of the policy
3. Endowment Policy – contract which designed to pay  When the contract is voidable on account of fraud or
a lump sum after a specific term or on its maturity. misrepresentation
If the insured survives the term survives the term, the RECISSION OF INSURANCE CONTRACTS
lump sum benefit shall be payable to him, otherwise,
it shall be payable to the insured.
Concealment – neglect to communicate that which a party
4. Industrial Life knows and ought to communicate
5. Annuity Effect
Non-default / Forfeiture Options in Whole Life Insurance Entitles the party to rescind a contract of insurance.
1. Extend term insurance – where the policy’s available Basis: Misleads or deceives the insurer into accepting the risk,
cash value will be used as single premium to or accepting it at the rate of premium agreed upon; the insurer,
purchase a term insurance relying upon the belief that the assured will disclose every
material fact within his actual presumed knowledge, is misled
2. Reduced paid up cash value where the policy’s into a belief that the circumstance withheld does not exist.
available cash value will be used to purchase a paid
up insurance providing a coverage w/ the term Principal Question: Was the assured misled or deceived into
equivalent to the original policy but lower amount entering a contract obligation or in fixing the premium of
insurance by a withholding of material information or facts
3. Cash surrender value – where the cash value of the within the assured’s knowledge or presumed knowledge.
policy is paid to the insured upon surrender of the
policy. However, once policy is surrendered, it can’t Q: What facts should be disclosed to each party in a contract of
be reinstated. insurance?
Refund of premium is not recoverable in life insurance, but the A: All facts within his knowledge which are material to the
insured has non-default or forfeiture options. contract and as to which he makes no warranty, and which the
other has not the means of ascertaining.
Reinstatement of a Lapsed Policy of Life Insurance
An insured, who gains knowledge of a material fact already
Q: Does a stipulation in a life insurance policy giving the after the effectivity of the insurance policy, is not obliged to
insured the privilege to reinstate it upon written application divulge it.
within 3 years from the date it gives lapses the insured absolute Test of Materiality
right to such reinstatement by the mere filing of an application
therefor? Materiality is to be determined not by the event, but solely by
the probable and reasonable influence of the facts upon the
A: NO. party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in
It does not give the insured absolute right to such reinstatement making his inquiries.
by the mere filing of an application therefor. -
The facts concealed need not be the proximate cause of the loss
The insured has the right to deny the reinstatement if it is not in order to constitute concealment. Materiality is to be
satisfied as to the insurability of the insured and of the latter determined not by the event, but solely by the probable and
does not pay all overdue premiums and all other indebtedness reasonable influence of the facts upon the party to whom the
to the company. communication is due, forming his estimate of the
disadvantages of the proposed contract or in making his the part of the insured must be established to entitle the insurer
inquiries. to rescind the contract.

Facts need not communicated to each other in a contract of Insular Life basically relied on the Health Statement form
insurance personally accomplished by Alvarez wherein he wrote that his
birth year was 1942. The Court posited that Alvarez must have
 Those which the other knows; accomplished and submitted many other documents when he
 Those which, in the exercise of ordinary care, the other applied for the housing loan and executed supporting
ought to know, and which the former has no reason to instruments like the promissory note.
suppose him ignorant;
 Those of which the other waives communication; A design to defraud demands consistency.
 Those which prove or tend to prove the existence of a
risk excluded by a warranty, and which are not otherwise Q: When should the insurer rescind the policy?
material; and
 Those which relate to a risk excepted from the policy and A: Whenever a right to rescind a contract of insurance is given
which are not otherwise material. to the insurer on account of concealment / misrepresentation,
such right must be exercised previous to the commencement of
Information of the nature or amount of the interest of one an action on the contract.
insured need not be communicated unless in answer to an
inquiry, except as prescribed by Sec. 51. Misrepresentation vs. Concealment

Misrepresentations / Omissions Concealment Misrepresentation

Insured withholds Insured makes erroneous
Representation – a statement of fact / condition relating to the information of material fact statements w/ the intent of
risk w/c induced the insurer to enter into a contract. inducing the insurer to enter
into the insurance contract.
- statement made in compliance with the duty to disclose. Negative Act. Positive Act.

When representation deemed false Neglect to communicate Insured volunteers such

information as to material fact.
When facts fail to correspond w/ its assertions / stipulations. facts known to the insured.
Usually occurs prior to the May be made at the time of
Effect of False Representation making of the insurance the insurance policy.
contract
The injured party is entitled to rescind the contract from the Proof of fraudulent intent is Not so.
time when the representation becomes false. not necessary.

Theory of Imputed Knowledge Incontestability Clause

Means that if the insured furnished the agent the needed Sec. 48, IC
formation and delegated to him/her the filling up of the
insurance application, then, he/she acted on the insured’s Whenever a right to rescind a contract of insurance is given
instruction, not that of the insured. to the insurer by any provision of this chapter, such right
must be exercised previous to the commencement of an
Such theory was not applied in property insurance. action on the contract.
Test to determine the materiality of the representation
"After a policy of life insurance made payable on the death
Same rules as the materiality of the concealment. 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
Q: Is proof of fraudulent intent in the part of the insured issue or of its last reinstatement, the insurer cannot prove
necessary in order to entitle the insurer to rescind the policy? that the policy is void ab initio or is rescindable by reason
of the fraudulent concealment or misrepresentation of the
A: IC dispensed w/ proof of fraudulent intent in case of insured or his agent.
recission due to concealment but not so in case of recission due
to false representation. It means after 2 years from the if issuance of the policy or its
last reinstatement, the insurer must make good on the policy,
Because in insurance contracts concealing material facts is even though the policy was obtained by fraud, concealment or
inherently fraudulent. Thus, a concealment regardless of actual misrepresentation. It basically precludes the insurer from
intent to defraud, “is equivalent to a false representation.” rescinding the policy on account of concealment /
- misrepresentation.
In order for the insurer to rescind the policy, there should be
intent to defraud on the part of the insured to rescind the Requisites of Incontestability Clause
policy.
- 1. Insurance is a life insurance payable on the death of
Insular Life Assurance Co., Ltd. V. Heirs of Alvarez the insured.
2. Policy is in force for at least 2 yrs. from its date of
If indeed Alvarez misdeclared his age such that his assertion issuance as appearing in the policy or of its last
fails to correspond his factual age, he made a false reinstatement
representation, not concealment. As such, fraudulent intent in
2-year period is not reckoned from the date of receipt but from b. Implied – one that is deemed incorporated in the
issuance of the policy / last reinstatement. contract although not expressly mentioned therein

Rationale: Incontestability Clause regulates both the actions of 2. Affirmative – affirms the existence of a fact or condition
the insurers and prospective takers of life insurance. It gives at the time it is made.
insurers enough time to inquire whether the policy was
obtained by fraud, concealment, or representation. 3. Promissory – warrants that certain facts / condition exist.
-
It gives insurers enough time to inquire regarding the policy Legal effect when before the time arrives for the performance
obtained by fraud, concealment or misrepresentation. of a warranty, the loss insured against happens – the omission
to fulfill the warranty does not avoid the policy
Forewarns scheming individuals that their attempts at -
insurance fraud would be timely uncovered – thus deterring Q: When may the insurer rescind for violation of warranty?
them from venturing into such nefarious enterprises.
A:
At the same time, legitimate policyholders are absolutely
protected from unwarranted denial of their claims. Sec. 74

The violation of a material warranty, or other material

Q: Can the incontestability clause be invoked after the death of provision of a policy, on the part of either party thereto,
the insured if the death occurred 2 years from the issuance of entitles the other to rescind.
policy / last reinstatement
Sec. 75
Tan v. CA
A policy may declare that a violation of specified
“during the lifetime” – policy is no longer considered in force provisions thereof shall avoid it, otherwise the breach of an
after the insured has died. immaterial provision does not avoid the policy.

“For a period of 2 years” – key phrase Sec. 76

Policy was issued on November 6, 1973 and the insured died A breach of warranty without fraud merely exonerates an
April 26, 1975. The policy was thus in force for a period of insurer from the time that it occurs, or where it is broken in
only 1 year and 5 months. its inception, prevents the policy from attaching to the risk.

Considering the insured died before the 2-year period has CLAIMS SETTLEMENT AND SUBROGATION
lapsed, Philippine American Life Insurance Company is not
barred from proving that the policy is void ab initio by reason Loss
of the insured’s fraudulent concealment or misrepresentation.
The injury / damage sustained by the insured as a consequence
Thus, the clause can be invoked even after the death of the of the happening of the risk/s insured against which the insurer,
insured and not just during his lifetime. in consideration of the premium, has undertaken to indemnify
or pay the insured.
The incontestability clause will only set in after 2 years from
the issuance of the policy or last reinstatement. When is an insurer liable for a loss
Defenses not barred by the Incontestability Clause i. Proximate cause of the loss is the risk or peril insured
against
a) Lack of Insurable Interest ii. If the immediate cause of the loss is the risk / peril
b) Premium was not paid insured against unless the proximate cause is an excepted
c) Death was due to excepted risk (e.g. Suicide) peril.
d) Insured employed vicious fraud iii. Sec. 87, IC
e) Failure to comply w/ conditions imposed by the insurer
f) Time specified in the contract to make claims is not Where the thing insured is rescued from a peril
complied with insured against that would otherwise have caused a
loss, if, in the course of such rescue, the thing is
Breach of Warranties exposed to a peril not insured against, which
permanently deprives the insured of its possession, in
Warranty – statement / promise made by the insured set forth whole or in part; or where a loss is caused by efforts
in the policy itself or incorporated in it by proper reference, the to rescue the thing insured from a peril insured
untruth or non-fulfillment of which in any respect, and w/o against.
reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment renders the policy voidable by the iv. Loss caused by the negligence of the insured, or of the
insurer. insurance agents / others
Kinds of Warranty Q: When is the insurer is not liable despite loss?
1. Express or implied A:
a. Express – statement in a policy, of a matter relating to
 Loss caused by the willful act / through connivance of
the person or thing insured, or to the risk; made at or
the insured
before the execution of a policy
 For a loss which the peril insured against only a remote refusal to pay is based on the ground that the claim is
cause fraudulent.
 Loss is caused by an excepted risk
In case of any litigation for the enforcement of any policy /
Q: What should the insured do after the loss in order to recover contract of insurance, if shall be the duty of the
from the insurer? Commissioner / the Court to make a finding as to whether the
payment of the claim of the insured has been unreasonably
A: Insured must submit the notice & proof of loss w/in the denied or withheld.
period stipulated in the policy
Guidelines on Claims Settlement
When a preliminary proof or loss is required by a policy, the
insured is not bound to give such proof as would be necessary What constitutes unfair claim settlement? Sec. 247, IC
in a court of justice; but it is sufficient for him to give the best
evidence. 1. Knowingly misrepresenting to claimants pertinent facts
- or policy provisions relating to coverage at issue;
Q: What happens in case of non-submission or delay?
2. Failing to acknowledge with reasonable promptness
A: Insurer shall be relieved of liability in case of non- pertinent communications with respect to claims arising
submission or delay in the submission of the notice and/or under its policies;
proof of loss
3. Failing to adopt and implement reasonable standards
XPN: The delay in the presentation to an insurer of notice / for the prompt investigation of claims arising under its
proof of loss is waived by the insurer or it omits to take policies;
objection promptly and specifically upon that ground.
- 4. Not attempting in good faith to effectuate prompt, fair
Q: Does discrepancy bet. the actual loss and that claimed in the and equitable settlement of claims submitted in which
proof of loss void the policy and adversely affect the right of liability has become reasonably clear; or
the insured to recover?
5. Compelling policyholders to institute suits to recover
A: A policy may declare that a violation of specified provisions amounts due under its policies by offering without
thereof shall avoid it. justifiable reason substantially less than the amounts
ultimately recovered in suits brought by them.
Thus, in fire insurance policies, if so stipulated, a fraudulent
discrepancy between the actual loss and that claimed in the
proof of loss voids the insurance policy.

Mere filing of such claim will exonerate the insurer. Prescription of Action
-
BPI vs. Laingo – Submission of the notice of loss to the agent Insured may file an action for specific performance against the
is deemed as notice to the insurer insurer w/in the prescriptive period allowed by law.
-
Q: When should the insurer make the insurance payment to the The prescriptive period – 10 years from the accrual of the
insured? action, UNLESS the policy reduced such period, but in no
case, shorter than 1 year from accrual of cause of action.
A: -
Q: When does the cause of action of the insured accrue?
Life Insurance – shall be paid immediately upon maturity of
the policy. A: from the rejection of the insurance claim.
-
UNLESS such proceeds are made payable in installments or as Q: When does the prescriptive period for the insured’s action
an annuity, in which case the installments, or annuities shall be for indemnity be reckoned from?
paid as they become due
A: from the “final rejection” of the claim.
PROVIDED, HOWEVER, in the case of a policy maturing by
the death of the insured, the proceeds thereof shall be paid “Final rejection” – denial by the insurer of the claims of the
within 60 days after presentation of the claim. insured and not the rejection or denial by the insurer of the
insured’s motion or request for reconsideration.
Property – shall be paid within 30 days after the proof of loss is
received by the insurer and ascertainment of the loss or damage Subrogation
is made either by agreement bet. the insured & insurer or by
arbitration; but if such ascertainment is not had or made w/in Art. 2207, Civil Code
60 days after such receipt by the insurer of the proof of loss,
then the loss or damage shall be paid w/in 90 days after such If the plaintiff's property has been insured, and he has
receipt. received indemnity from the insurance company for the
- injury or loss arising out of the wrong or breach of contract
Q: What happens in case of delay in the payment of insurance complained of, the insurance company shall be subrogated
claim? to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by
A: It will entitle the beneficiary to collect interest on the the insurance company does not fully cover the injury or
proceeds of the policy for the duration of the delay at the rate loss, the aggrieved party shall be entitled to recover the
of twice the ceiling prescribed by the MB, unless such failure /
 deficiency from the person causing the loss or injury.

Subrogation does not require the consent of the wrongdoer. It

is an equitable assignment of the right that accrues to the
insurer after valid payment is made to the insured as a result of
the happening of the risks insured against.
-
Q: Is the consent of the insured necessary for the right of
subrogation to exist?

A: No.

After payment to the insured, the insurer is entitled to go after

the person that violated its contractual commitment to answer
for the loss insured against.
-
Q: How much may the insurer recover from the wrongdoer as a
result of subrogation?

A: The insurer is subrogated merely to the right of the assured.

As subrogee, it can recover only the amount that is recoverable
by the latter.

Insurer is not entitled to the right of subrogation in the

following cases: CLASSES OF INSURANCE

I. In life insurance, because subrogation exists only MARINE INSURANCE

when insurance is contract of indemnity
II. When the proximate cause of the loss was the Coverage
negligence of the insured himself. The insured can
recover because only gross negligence bars recovery
but there is no subrogation if there is no wrongdoer Sec. 99. Marine Insurance includes:
or violator.
III. Insurer pays the insured for a loss due to a risk not (1) Insurance against loss of or damage to:
covered by the policy / payment should not have
been made at all because there is no loss, thereby (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
effecting voluntary payment merchandise, effects, disbursements, profits, moneys, securities, choses
in action, evidences of debts, valuable papers, bottomry, and
IV. Insurer pays the assured the value of the lost goods
respondentia interests and all other kinds of property and interests
w/o notifying the carrier who has in good faith therein, in respect to, appertaining to or in connection with any and all
settled the assured’s claim for loss. risks or perils of navigation, transit or transportation, or while being
V. Insured releases the wrongdoer, the insure is released assembled, packed, crated, baled, compressed or similarly prepared for
from liability. shipment or while awaiting shipment, or during any delays, storage,
- transhipment, or reshipment incident thereto, including war risks,
Q: In marine insurance, is presentation of the insurance policy marine builder's risks, and all personal property floater risks;
necessary for subrogation?
(b) Person or property in connection with or appertaining to a marine,
A: NO.
inland marine, transit or transportation insurance, including liability for
Presentation of the marine insurance policy is not loss of or damage arising out of or in connection with the construction,
indispensable before the insurer may recover from common
repair, operation, maintenance or use of the subject matter of such
carrier the insured value of the lost cargo in the exercise of its
subrogatory rights. insurance (but not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to any person arising
Subrogation receipt is sufficient to establish not only the
relationship of the insurer and the assured, but also the amount out of ownership, maintenance, or use of automobiles);
paid to settle the insurance claim.

Within what period should the right of subrogation be (c) Precious stones, jewels, jewelry, precious metals, whether in course
exercises? of transportation or otherwise;

(d) Bridges, tunnels and other instrumentalities of transportation and

communication (excluding buildings, their furniture and furnishings,
fixed contents and supplies held in storage); piers, wharves, docks and
slips, and other aids to navigation and transportation, including dry
docks and marine railways, dams and appurtenant facilities for the
control of waterways.
It also covers marine protection and indemnity insurance – purpose w/o the consent of the owner and to the
insurance against, or against legal liability of the insured for prejudice of the interest of the owner.
loss, damage or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any Implied Warranties of Marine Insurance
vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal 1. Ship is seaworthy
injury, illness or death or for loss of or damage to the property
of another person.  The obligation of a cargo owner to look for a
reliable common carrier w/c keeps its vessels in
Insurable Interest seaworthy condition.
 The fact that the unseaworthiness of the ship was
a. Shipowner unknown to the insured is immaterial in ordinary
marine insurance + may not be used by him as a
o In all cases, shipowner has interest even when it defense in order to recover on the marine insurance
has been chartered by one who covenants to pay policy.
him its value in case of loss
o Provided, insurer shall be liable for only that part 2. Ship shall not deviate from the voyage insured
of the loss w/c the insured cannot recover 3. Ship shall carry the necessary documents to show
o If the ship is hypothecated w/ bottomry – nationality or neutrality + it will not carry document
insurable interest is only in excess of the value w/c will cast reasonable suspicion
over the amount secured by bottomry. 4. Ship will not carry contraband
o Shipowner also has an insurable interest over
freightage When is a ship seaworthy?

b. Cargo Owner – insurable interest over the cargo  When it is reasonably fit to perform the service + to
subject of a contract of transportation. encounter the ordinary perils of the voyage
c. Charterer – insurable interest to the extent that he is contemplated by the parties to the policy.
liable to be damnified by its loss.  It extends not only to the condition of the structure of
the ship itself, but requires that it be properly laden,
What peril may be insured against? and provided with a competent master.

G.R.: Only perils of the sea may be insured against. Deviation (marine insurance)

 To recover – the proximate cause of the loss must be  It is a departure from the course of the voyage
perils of the sea. insured / an unreasonable delay in pursuing the
 Loss due to unseaworthiness is tantamount to perils voyage / commencement of an entirely different
of the ship. voyage.

XPN: if the parties agreed on an all risk policy, all losses Voyage Insured
connected with the voyage / transportation may be covered
unless expressly excepted.  When the voyage contemplated by a marine
insurance policy is described by the places beginning
Perils of the Ship and ending, the voyage insured is one w/c conforms
to the course of sailing fixed by mercantile usage bet.
 Losses w/c in the ordinary course of events result those places.
from the ordinary, natural, and inevitable action of  If the course of sailing is not fixed, the voyage
the sea, or from ordinary wear and tear of the ship, or insured is that way between the places specified, w/c
from the negligent failure of the ship’s owner to to a master of ordinary skill and discretion, would
provide the vessel w/ adequate crew and proper mean the most natural, direct and advantageous.
equipment.
Legal effect of an improper deviation
Perils of the Sea
Insurer is not liable for any loss happening to the thing insured
 Pertain to casualties arising from the unusual subsequent to an improper deviation. Insurer is liable for any
violence or extraordinary causes connected with loss to the thing insured if the deviation is proper.
navigation.
Circumstance where a vessel properly proceed to a port
“All Risks” Policy other than its port of destination

 All risks whatsoever and covering all losses by an 1. Caused by circumstances over w/c neither the
accidental cause of any kind. master/owner of the ship has any control
 That w/c happens by chance / fortuitously, w/o 2. Necessary to comply w/ a warranty OR to avoid a
intention and design, and w/c is unexpected, unusual peril
and unforeseen 3. When made in good faith + upon reasonable grounds
of belief in the necessity to avoid peril.
Barratry 4. Made in good faith for the purpose of saving human
life or relieving another vessel in distress.
 Any willful misconduct on the part of the master /
the crew in pursuance of some unlawful / fraudulent Kinds of loss in marine insurance

1. Total
 a. Actual  An agent who procured the insurance can also give
b. Constructive notice of abandonment for his principal
2. Partial
4. Notice of abandonment must be explicit, and must
When may the insured recover for an actual total loss specify the particular cause of the abandonment
under a marine insurance? 5. Can be sustained only upon the cause specified in the
notice
If the actual total loss is caused by: 6. Must be accepted by the insurer

1. Total destruction of the thing insured  Acceptance may be either express or implied from
2. The irretrievable loss of the thing by sinking, or by the conduct of the insurer.
being broken up  Mere silence of the insurer for an unreasonable
3. Any damage to the thing w/c renders it valueless length of time shall be construed as acceptance
4. Any other event w/c effectively deprives the owner
of the possession 7. An abandonment once made is irrevocable

Actual loss may be presumed from the continued absence of a Effect of abandonment
ship w/o being heard of.
Entitles the insured to recover for a total loss
Abandonment
On the part of the insurer, abandonment is equivalent to a
 It is the act of the insured by w/c after a constructive transfer by the insured of his interest to the insurer, w/ all the
total loss, he declares the relinquishment to the chances of recovery and indemnity.
insurer of his interest in the thing insured.
Id a marine insurer pays for a loss as if it were an actual total
When may a person insured by a contract of marine loss, he is entitled to whatever may remain of the thing insured.
insurance abandon the thing insured?
Effect of the omission of the insured to abandon
Sec. 139. A person insured by a contract of marine insurance may He cannot recover for a total loss, but he may nevertheless
abandon the thing insured, or any particular portion thereof separately recover his actual loss.
valued by the policy, or otherwise separately insured, and recover for a
FIRE INSURANCE
total loss thereof, when the cause of the loss is a peril insured against:
Coverage
(a) If more than three-fourths thereof in value is actually lost, or would
have to be expended to recover it from the peril; Sec. 167. As used in this Code, the term "fire insurance" shall include
insurance against loss by fire, lightning, windstorm, tornado or
(b) If it is injured to such an extent as to reduce its value more than earthquake and other allied risks, when such risks are covered by
three-fourths; extension to fire insurance policies or under separate policies.

Extent of liability
(c) If the thing insured is a ship, and the contemplated voyage cannot
be lawfully performed without incurring either an expense to the Kinds of insurance policy
insured of more than three-fourths the value of the thing abandoned or Open policy
a risk which a prudent man would not take under the circumstances; or
 One in w/c the value of the thing insured is not
agreed upon + the amount of the insurance merely
(d) If the thing insured, being cargo or freightage, and the voyage represents the insurer’s maximum liability.
 Value shall be ascertained at the time of the loss.
cannot be performed, nor another ship procured by the master, within a
reasonable time and with reasonable diligence, to forward the cargo, Valued policy
without incurring the like expense or risk mentioned in the preceding
 One w/c expresses on its face an agmt. that the thing
sub-paragraph. But freightage cannot in any case be abandoned unless insured shall be valued at a specific sum
the ship is also abandoned.
Running policy
Requisites of a valid abandonment
 One w/c contemplates successive insurances, and
1. Must neither be partial nor conditional w/c provides that the object of the policy may be
2. Must be made w/in a reasonable time after receipt of from time to time be defined.
reliable information of the loss
3. It is made by giving notice to the insurer – may be Effect of alteration in the use or condition of the thing
done orally or in writing insured

 If the notice be done orally, a written notice shall  Policy made w/o the consent of the insurer – entitles
be submitted withing 7 days an insurer to rescind a contract of fire insurance
  An alteration in the use/condition of a thing insured Sec. 176. The liability of the surety or sureties shall be joint and
does not increase the risk, does not affect a contract several with the obligor and shall be limited to the amount of the bond.
of fire insurance. It is determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the obligee.
Requisites of alteration – to entitle insurer to rescind
o Although the surety’s obligation is merely secondary or
1. Use / Condition must be stated in the policy collateral to the obligation contracted by the principal.
2. Use/condition of the thing was altered o Although the contract of surety is in essence
3. Alteration was made w/o consent of the insurer secondary only to a valid principal obligation, the
4. Alteration increased the risk insured against surety becomes liable for the debt/duty of another
although it possesses no direct or personal
Increase in risk alone will not entitle the insured to rescind a interest over the obligations nor does it receive
contract of insurance. There must be a corresponding violation any benefit therefrom.
of provision of the policy otherwise there is no right to rescind o A surety contract should be read and interpreted
the policy. together w/ the contract entered into bet. the
creditor and principal
Friendly Fire vs. Hostile Fire
o SC characterized the surety’s liability to the creditor
Friendly Fire – one which is deliberate and remains w/in the of the principal as “direct, primary and absolute” 
limits of it. Surety is directly and equally bound w/ the principal.
Hostile Fire – fire that goes out of control and beyond the
limits intended for it. o Art. 1216 in relation to Art. 2047: The creditor may
proceed against any one of the solidary debtors or
Measure of Indemnity in fire insurance policy some or all simultaneously. A surety may be sued by
the creditor separately or together with the principal
If there is no valuation in the policy – measure of indemnity in debtor, in view of the solidary nature of its liability.
an insurance against fire is the expense it would be to the
insured at the time of the commencement of the fire to replace o Liability under a surety bond is limited to the amount
the thing lost or injured in the condition in w/c it was at the of the bond and is determined strictly in accordance
time of the injury. w/ the particular terms and conditions set out in this
bond.
If there is a valuation in a policy of fire insurance – effect shall
be the same as in a policy of marine insurance – value of the First Lepanto Ruling
indicated in the policy
o Anchored in Sec. 176 of IC – emphasizes the strict
Whenever the insured desired to have a valuation – he may
application of the terms of the surety contract in relation
require such building / structure to be examined by an
to the principal contract.
independent appraiser + the value of the insured’s interest may
o A written principal agreement is required in order for the
then be fixed as bet. the insured and insurer.
creditor to demand performance was arrived at by
applying strictly the terms of the surety bond
CASUALTY ISNURANCE
When is surety entitled to premium payment?
Sec. 174. Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss which
by law or custom are considered as falling exclusively within the scope As soon as the contract of suretyship / bond is perfected and
of other types of insurance such as fire or marine. It includes, but is not delivered to the obligor
limited to, employer's liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal When does the bond issued by the surety company become
accident and health insurance as written by non-life insurance valid and binding?
companies, and other substantially similar kinds of insurance.
When the premium has been paid.
Casualty Insurance
XPN: Obligee has accepted the bond  bond becomes valid
o Insurance covering loss/liability arising from and enforceable irrespective of whether the premium has been
accident or mishap, excluding certain types of loss paid by the obligor to the surety.
w/c by law or custom are considered as falling
exclusively w/in the scope of other types of o Provided, if the contract of suretyship or bond is not
insurance such as fire or marine. accepted, the surety shall collect only a reasonable
amount, not exceeding 50% of the premium due.
SURETYSHIP o Provided, however, if the nonacceptance of the bond be
due to the fault or negligence of the surety, no such
Sec. 175. A contract of suretyship is an agreement whereby a party service fee, stamps or taxes shall be collected.
called the surety guarantees the performance by another party called
the principal or obligor of an obligation or undertaking in favor of a LIFE INSURANCE
third party called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of
Life Insurance – insurance on human lives and insurance
and under the provisions of Act No. 536, as amended by Act No. 2206.
appertaining thereto or connected therewith
What is the liability of a surety company? To whom will the proceeds of the life insurance policy be
payable?
 1. Beneficiary unlawfully designated – proceeds shall 1. Extended term insurance the policy’s available cash
be payable to the estate of the insured. value will be used as single premium to purchase a
o Policy remains valid. Only the designation term insurance
is void 2. Reduced paid up cash value will be used to purchase
2. Joint Designation of beneficiaries – share of the a paid-up insurance providing a coverage with term
unlawfully designated beneficiary shall form part of equivalent to the original policy but lower amount.
the share of the lawfully designated beneficiary 3. Cash surrender once policy is surrendered it cannot
3. Joint designation of lawfully designated beneficiaries be reinstated.
– proceeds shall be divided based on the terms of the
policy. The insured cannot get a refund of premium in life insurance
o If the policy is silent – equal division but he has non-default options.
4. Beneficiary is lawfully designated + insured dies
ahead of the beneficiary – proceeds are payable to When is life insurance payable?
the beneficiary unless he is the principal, accessory
or accomplice in wilfully bringing about the death of Payable on the death of the person, or on his surviving a
the insured specified period.
o Interest of the beneficiary shall be forfeited +
forfeited share shall pass on to the other Every contract/pledge for the payment of endowments or
beneficiaries  proceeds shall be paid in annuities shall be considered a life insurance contract for the
accordance with the policy contract. purposes of the Insurance Code.
o Policy is silent  estate of the insured.
o Insurer is still liable Within what period should the claim be paid?
5. If beneficiary predecease the insured  distinguish
between a revocable and irrevocable beneficiary 1. Maturity of the policy, unless made payable by
o Revocable – inure to the benefit of the legal installment or annuity  paid when they become due
2. Policy maturing by the death of the insured  proceeds
representative of the beneficiary
shall be paid w/in 60 days after presentation of the claim
o Irrevocable – estate of the insured
and filing of the proof of death of the insured.
o Policy is silent – estate of the insured
6. Beneficiary’s interest in a life insurance endowment Is the insurer in a life insurance liable in case of suicide by
policy will only accrue if the insured dies before the the insured? (Suicide Clause)
end of the endowment period.
o If insured survives – payable to him Insurer shall be liable in case of suicide only when it is
committed after the policy has been in force for a period of 2
Who will get the proceeds of life insurance policy in case years from the date of its issue / last reinstatement.
insured failed to designate beneficiaries? o Provided, however: suicide committed in the state of
insanity shall be compensable regardless of the date
Proceeds shall accrue to his estate + will be distributed among of commission
his legal heirs ion accordance with the law. o The insurer is not liable if suicide is an excepted risk/
Principal Types of Life Insurance
May a life insurance policy be assigned?
1. Term Insurance – pays only if the death occurs the
Yes, it may pass by transfer, will or succession to any person,
term of the policy
whether he has an insurable interest or not, and such person
may recover upon it whatever the insured might have
2. Whole Life or permanent insurance – pays a death
recovered. The assignee need not have insurable interest in the
benefit whenever the insure dies
life of the insured.
3. Annuity – a contract w/ the insurer where individuals
Is notice to the insurer of the assignment necessary for its
agree to pay the company a certain amount of money
validity?
– lump sum or installments – entitles them to receive
payment annually from the insurer, but which
Notice to an insurer is not necessary to preserve the validity of
obligation ends upon death of the annuitant.
a policy of insurance upon life or health, unless thereby
expressly required.
4. Endowment – a life insurance that doubles as an
investment / saving account. It pays a lump sum to
Is consent of the beneficiary required for the validity of the
the insured after a specified number of years but if he
assignment?
dies before the agrteed period, the beneficiary gets
the proceeds of the policy.
Not necessary unless the designation is irrevocable
5. Industrial Life – payable weekly, monthly or oftener,
MICROINSURANCE
if the face amount of the insurance is not more than
500 times that of the statutory daily wage in Manila
Microinsurance: a financial product or service that meets the
and if the words “industrial policy are printed on the
risk protection needs of the poor where:
policy.”
1. Amount of the contributions, premiums, fees or
What is the non-default or forfeiture options in the whole
charges, computed on a daily basis, does not exceed
life insurance?
7.5% of the current daily minimum wage rate for
nonagricultural workers in Metro Manila
 2. Maximum sum of guaranteed benefits is not more 4. In all cases, the right of other party paying the claim
than 1,000 times of the current daily minimum wage to recover against the owner of the vehicle
rate – nonagricultural workers in MM responsible for the accident shall be maintained.

COMPULSORY MOTOR VEHICLE LIABILITY AUTHORIZED DRIVER CLAUSE

INSURANCE
An authorized driver must not only be permitted to drive by the
Basis insured but it is also essential that he is permitted under the law
and regulations to drive the motor vehicle and is not
Sec. 374. It shall be unlawful for any land transportation operator or disqualified from doing so under any enactment or regulation.
owner of a motor vehicle to operate the same in the public highways
unless there is in force in relation thereto a policy of insurance or The requirement that the driver be permitted and is not
guaranty in cash or surety bond issued in accordance with the disqualified from driving such motor vehicle.
provisions of this chapter to indemnify the death, bodily injury, and/or
damage to property of a third-party or passenger, as the case may be,
Where the driver’s temporary operator’s permit had expired +
arising from the use thereof.
the insurance policy states that a driver w/ an expired TVR or
driver w/in the meaning of the policy, the expiration of the
same bars recovery under the policy.
What is the extent of liability of the insurer under a motor
vehicle insurance policy? THEFT CLAUSE
The insurer’s liability is measured by the terms of the policy. It The main purpose of the authorized driver’s clause is that a
is not solidarily liable with the tortfeasor. person other than the insured owner, must be duly licensed
drivers and have no disqualification to drive a motor vehicle.
When does the right of the insured to recover under the
policy accrue? The “theft clause” of a comprehensive motor vehicle insurance
policy has been interpreted by the court to cove situations like:
Shall accrue immediately upon occurrence of injury or event
upon which the liability depends. 1. When one takes the motor vehicle of another w/o the
latter’s consent even if the motor vehicle is later
o The direct liability of the insurer under indemnity returned – there is theft b/c there is intent to gain.
contracts against 3rd party liability does not mean that 2. Where there is taking of a vehicle by another person
the insurer can be held solidarily liable w/ insured w/o the permission or authority from the owner
and/or the other parties found at fault. thereof.
NO FAULT INDEMNITY CLAUSE
COMPULSORY INSURANCE COVERAGE FOR
No fault indemnity clause AGENCY-HIRED WORKER
Provides that any claim for death or injury to a passenger or ot The agency-hired OFW compulsory insurance is an insurance
a 3rd party should be paid w/o the necessity of proving fault / mechanism made available by law to provide insurance
negligence of any kind, subject to the ff. rules: coverage for the OFWs.
1. Total indemnity shall not be less than P15,000 OFW and migrant workers mean the same thing
2. The ff. proofs of loss shall be sufficient evidence to
substantiate the claim: VARIABLE CONTRACTS
a. Police report of accident
b. Death certificate and evidence sufficient to Variable Contracts – any policy or contract on either a group
establish the proper payee or on an individual basis issued by an insurance company
c. Medical report and evidence of medical or providing for benefits or other contractual payments or values
hospital disbursement in respect of w/c to vary so as to reflect investment results of any segregated
refund is claimed. portfolio of investments or of a designated separate account in
which amounts received in connection w/ such contracts shall
The essence of “no fault indemnity” clause is to provide have been placed and accounted for separately and apart from
victims of vehicular accidents or their heir’s immediate other investments and accounts.
compensation pending final determination of who is
responsible for the accident. INSURANCE COMMISSIONER AND ITS POWER
Section 378, IC – rules on the claims under “no fault Sec. 437. XxXx
indemnity”, where the proof of fault or negligence is not
necessary for payment of any claim for death or injury to The Insurance Commissioner shall have the duty to see that all laws
passenger or 3rd party, are: relating to insurance, insurance companies and other insurance matters,
mutual benefit associations, and trusts for charitable uses are faithfully
1. Claim may be made against one motor vehicle only executed and to perform the duties imposed upon him by this Code,
2. If the victim is occupant of a vehicle, the claim shall and shall, notwithstanding any existing laws to the contrary, have sole
be against the insurer of vehicle in w/c he is riding, and exclusive authority to regulate the issuance and sale of variable
contracts as defined in Section 238 hereof and to provide for the
mounting or dismounting from licensing of persons selling such contracts, and to issue such
3. The claim shall lie against the insurer of directly reasonable rules and regulations governing the same.
offending vehicle
The Commissioner may issue such rulings, instructions, circulars,
orders and decisions as may be deemed necessary to secure the
enforcement of the provisions of this Code, to ensure the efficient with any civil or criminal actions, suits or proceedings to which they
regulation of the insurance industry in accordance with global best may be made a party to by the reason of the performance of their duties
practices and to protect the insuring public. Except as otherwise and functions, unless they are finally adjudged in such actions, suits or
specified, decisions made by the Commissioner shall be appealable to proceedings to be liable for negligence or misconduct.
the Secretary of Finance.
In the event of settlement or compromise, indemnification shall be
In addition to the foregoing, the Commissioner shall have the provided only in connection with such matters covered by the
following powers and functions: settlement as to which the Commission is advised by external counsel
that the persons to be indemnified did not commit any negligence or
(a) Formulate policies and recommendations on issues concerning the misconduct:
insurance industry, advise Congress and other government agencies on
all aspects of the insurance industry and propose legislation and The costs and expenses incurred in defending the aforementioned
amendments thereto; action, suit or proceeding may be paid by the Commission in advance
of the final disposition of such action, suit or proceeding upon receipt
(b) Approve, reject, suspend or revoke licenses or certificates of of an undertaking by or on behalf of the Commissioner, Deputy
registration provided for by this Code; Commissioner, officer or employee to repay the amount advanced
should it ultimately be determined by the Commission that the person
(c) Impose sanctions for the violation of laws and the rules, regulations is not entitled to be indemnified.
and orders issued pursuant thereto;
Section 438. In addition to the administrative sanctions provided
(d) Prepare, approve, amend or repeal rules, regulations and orders,
elsewhere in this Code, the Insurance Commissioner is hereby
and issue opinions and provide guidance on and supervise compliance
authorized, at his discretion, to impose upon insurance companies,
with such rules, regulations and orders;
their directors and/or officers and/or agents, for any willful failure or
refusal to comply with, or violation of any provision of this Code, or
(e) Enlist the aid and support of, and/or deputize any and all
any order, instruction, regulation, or ruling of the Insurance
enforcement agencies of the government in the implementation of its
Commissioner, or any commission or irregularities, and/or conducting
powers and functions under this Code;
business in an unsafe or unsound manner as may be determined by the
Insurance Commissioner, the following:
(f) Issue cease and desist orders to prevent fraud or injury to the
insuring public;
(a) Fines not less than Five thousand pesos (P5,000.00) and not more
than Two hundred thousand pesos (P200,000.00); and
(g) Punish for contempt of the Commissioner, both direct and indirect,
in accordance with the pertinent provisions of and penalties prescribed
(b) Suspension, or after due hearing, removal of directors and/or
by the Rules of Court;
officers and/or agents.
(h) Compel the officers of any registered insurance corporation or
association to call meetings of stockholders or members thereof under Section 439. The Commissioner shall have the power to adjudicate
its supervision; claims and complaints involving any loss, damage or liability for
which an insurer may be answerable under any kind of policy or
(i) Issue subpoena duces tecum and summon witnesses to appear in contract of insurance, or for which such insurer may be liable under a
any proceeding of the Commission and, in appropriate cases, order the contract of suretyship, or for which a reinsurer may be sued under any
examination, search and seizure of all documents, papers, files and contract of reinsurance it may have entered into; or for which a mutual
records, tax returns, and books of accounts of any entity or person benefit association may be held liable under the membership
under investigation as may be necessary for the proper disposition of certificates it has issued to its members, where the amount of any such
the cases before it, subject to the provisions of existing laws; loss, damage or liability, excluding interest, cost and attorney’s fees,
being claimed or sued upon any kind of insurance, bond, reinsurance
(j) Suspend or revoke, after proper notice and hearing, the license or contract, or membership certificate does not exceed in any single claim
certificate of authority of any entity or person under its regulation, Five million pesos (P5,000,000.00).
upon any of the grounds provided by law;

(k) Conduct an examination to determine compliance with laws and

Insurance Agent
regulations if the circumstances so warrant as determined by
appropriate rules and regulations; In group insurance policies, the employer is the agent of the
insurer
(l) Investigate not oftener than once a year from the last date of
examination to determine whether an institution is conducting its Group insurance is essentially a single insurance contract that
business on a safe and sound basis: Provided, That, the provides coverage for many individuals
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
Reinsurance
(m) Inquire into the solvency and liquidity of the institutions under its
supervision and enforce prompt corrective action; It one by which an insurer (direct insurer/cedant) procures a 3 rd
person (reinsurer) to insure him against loss or liability by
(n) To retain and utilize, in addition to its annual budget, all fees, reason of such original insurance.
charges and other income derived from the regulation of insurance
companies and other supervised persons or entities; It is separate and distinct arrangement from the original
contract of insurance
(o) To fix and assess fees, charges and penalties as the Commissioner
may find reasonable in the exercise of regulation; and
Reinsurance is the “insurance of an insurance.”
(p) Exercise such other powers as may be provided by law as well as
those which may be implied from, or which are necessary or incidental
to the express powers granted the Commission to achieve the
objectives and purposes of this Code.

The Commission shall indemnify the Commissioner, Deputy

Commissioner, and other officials of the Commission, including
personnel performing supervision and examination functions, for all
costs and expenses reasonably incurred by such persons in connection