REVIEWER IN COMMERCIAL LAW Table of Contents

INSURANCE LAW

CHAPTER I. INTRODUCTION 20 CHAPTER VII. RISKS AND

INSURANCE LAW
I. Definitions 2 COVERAGES 22
II. Applicable laws 202 I. Risks in Life Insurance 4
202 II. Risks in Fire Insurance 224
CHAPTER II. CONTRACT OF III. Risks in Casualty or Accident 224
INSURANCE 20 Insurance
I. Elements 3 IV. Risks in Compulsory Motor 224
II. Characteristics 203 Vehicle Liability Insurance
III. Kinds of Insurance Contracts 203 225
IV. Perfection 204
V. Premium Payments 204 CHAPTER VIII. SPECIAL KINDS
VI. Risks Insured Against 205 OF INSURANCE CONTRACTS 22
VII. Construction 206 I. Marine Insurance 6
206 II. Fire insurance 226
CHAPTER III. PARTIES TO THE III. Casualty or accidental 231
CONTRACT 20 insurance 232
I. Insurer 7 IV. Motor Vehicle
II. Insured 207 Compulsory Insurance 233
III. Beneficiary 207
IV. Other parties 208 CHAPTER IX. CLAIMS,
210 SETTLEMENT, AND 23
CHAPTER IV. INSURABLE 21 SUBROGATION 4
INTEREST 2 I. Liability for Loss 234
I. Insurable Interest 212 II. Requisites for Recovery from
II. Insurable Interest in Life 212 Insurance 234
III. Insurable Interest in Property 213 III. Notice and Proof of Loss 234
IV. Transfer of Policy 214 IV. Claims Settlement 235
V. Transfer of Interest 214 V. Prescription of Action 236
VI. Double Insurance, Over VI. Time of Payment 236
Insurance and Reinsurance 215 VII. Subrogation 236
VII. Multiple or Several Interest on [Link] Commission 237
the Same Property 216

CHAPTER V. POLICY 21
I. Insurance Contract vs. Insurance 7
Policy
II. Forms and Contents 217
III. Rider and Endorsements 217
IV. Cover Notes 217
V. Life vs. Non-Life Insurance 217
Policies 218
VI. Open, Valued and Running 218
Policies

CHAPTER VI. RESCISSION OF

INSURANCE CONTRACTS 21
I. Concealment 9
II. Misrepresentation 219
III. Warranties 220
IV. Conditions 221
V. Right of rescission 222
VI. Cancellation of non-life insurance 222
policy
VII. Incontestability Clause 222
223

Page 201 of 278

REVIEWER IN COMMERCIAL LAW Chapter I. Introduction

Insurance Law
FACULTY-STUDENT EDITORIAL BOARD AND LECTURES COMMITTEE

INSURANCE LAW
Prof. Gwen Grecia-de Vera COMMERCIAL LAW LECTURES
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-------- Ludee Pulido
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PRINTING AND DISTRIBUTION

Chapter I. Introduction damage or liability arising from an

unknown or contingent event.
I. DEFINITIONS
A. CONTRACT OF INSURANCE Supplementary Rule
B. DOING OR TRANSACTING AN  Although the business is not formally
INSURANCE BUSINESS designated as one of insurance and no
II. APPLICABLE LAWS profit is derived or no separate or
direct consideration is received,
I. Definitions  It is deemed to be doing an insurance
business,
A. Contract of Insurance
 If it undertakes any of the following
Insurance circumstances:
 An agreement whereby one 1. Making or proposing to make, as
undertakes for a consideration to insurer, any insurance contract
indemnify another against loss, 2. Making or proposing to make, as
damage or liability arising from an surety, any contract of suretyship as
a vocation not as a mere incident to
unknown or contingent event (Sec. 2,
any other legitimate business of a
par.2)
surety
3. Doing any insurance business,
White Gold Marine Services vs. including a reinsurance business
Pioneer (2005) 4. Doing or proposing to do any
 An insurance contract is a contract of business in substance equivalent to
indemnity any of the above (Sec. 2, par. 4).
 Wherein one undertakes for a
consideration II. Applicable Laws
 To indemnify another against loss,
damage, or liability 1. Insurance Code of 1978
 Arising from an unknown or contingent (PD 1460, as amended)
event. 2. Civil Code
a. Article 739 and 2012 (void
Regulation by the state through a license donations)
or certification of authority is necessary b. Article 2011 (applicability of the Civil
since a contract of insurance involves Code)
public interest. c. Article 2021-2027 (life annuity
contracts)
B. Doing or Transacting An d. Article 2186 (compulsory motor
Insurance Business vehicle liability insurance)
e. Article 2207 (right of subrogation).
General Rule 3. Special Laws
 An insurance business consists in a. PD1146(Revised Government Service
undertaking, for a consideration, to Insurance Act)
indemnify another against loss, b. RA 1161 (Social Security Act of 1954)
c. RA 656 (Property Insurance Law)
REVIEWER IN COMMERCIAL LAW Chapter II. Contract of Insurance

Chapter II. Contract of  This assumption of risk is part of a

Insurance general scheme to distribute the
loss
 Among a large number of persons

INSURANCE LAW
I. ELEMENTS
A. INSURABLE INTEREST  Exposed to similar risks.
B. RISK OF LOSS
C. ASSUMPTION OF RISK II. Characteristics
D. PAYMENT OF PREMIUM
E. SCHEME TO DISTRIBUTE LOSSES A. Contract of Adhesion (Fine Print
II. CHARACTERISTICS Rule)
A. CONTRACT OF ADHESION  The contract is presented to the
B. ALEATORY insured already in its printed form
C. CONTRACT OF INDEMNITY by which he either “takes it or
D. RISK DISTRIBUTING DEVICE leaves it.”
E. UBERRIMAE FIDES CONTRACT
III. KINDS OF INSURANCE CONTRACTS
 Ambiguity in the insurance contract
A. LIFE INSURANCE shall be interpreted liberally in
B. NON-LIFE INSURANCE favor of the insured and strictly
C. CONTRACTS OF BONDING OR against the insurer.
SURETYSHIP
IV. PERFECTION B. Aleatory
V. PREMIUM PAYMENTS  The obligation of the insurer to pay
A. PREMIUM depends on the happening of an
B. VALIDITY OF CONTRACT UPON event which is uncertain, or though
PAYMENT certain is to occur at an
C. AUTHORITY TO RECEIVE PREMIUM indeterminate time (Art. 2010 CC).
D. EFFECT OF PAYMENT BY POST-  However, the insurance contract is
DATED CHECK
in a sense commutative since the
E. RETURN OF PREMIUMS
F. PREMIUMS IN SURETYSHIP premium paid by the insured is
CONTRACTS deemed the equivalent of the
VI. RISKS INSURED AGAINST protection given by the insurer
VII. CONSTRUCTION (SUNDIANG AND AQUINO,
Reviewer on Commercial Law).
I. Elements (IRAPS) C. Contract of Indemnity
 The insured who has insurable
A. Insurable interest over the property is only
Interest entitled to recover the amount of
 The interest of the insured in a actual loss sustained
thing or a life  And the burden is upon him to
 Capable of pecuniary estimation establish the amount of such loss.
B. Risk of Loss 1. Applies only to property insurance
 The happening of designated except when the creditor insures
events, the life of his debtor.
 Either unknown or contingent, 2. Life insurance is not a contract of
 Past or future, indemnity.
 Will subject such interest to some 3. Insurance contracts are not
kind of loss, wagering contracts (Sec. 4).
 Whether in the form of injury,
damage, or liability D. A Risk Distributing Device
C. Assumption of Risk  By paying a pre-determined
 The insurer promises to pay or amount into a general fund out of
indemnify such loss which payment will be made for an
 In a fixed or ascertainable amount economic loss of a defined type,
D. Payment of Premium  Each member contributes to a
 The premium is a ratable small degree toward compensation
consideration for losses suffered by any member
 Paid by the insured to a general of the group.
insurance fund
 For the insurer’s assumption of risk E. Uberrimae Fides Contract
E. Scheme to Distribute the Losses (Principle of Utmost Good Faith)
 Each party is required to disclose
conditions affecting the risk of
REVIEWER IN COMMERCIAL LAW Chapter II. Contract of Insurance
which he is aware, or material fact  Not falling exclusively within the
which the applicant knows and scope of other types of insurance.
those which he ought to know.
 Violation of this duty gives the C. Contracts of Bonding

INSURANCE LAW
aggrieved party the right to rescind or Suretyship (Secs. 175–178)
the contract.
III. Kinds of Insurance Contracts  An agreement whereby a surety
guarantees the performance by the
A. Life Insurance obligor of an obligation or undertaking
in favor of the obligee.
1. Individual Life  It shall be deemed to be an insurance
Insurance on human lives and
 contract if made by a surety who or
insurance appertaining thereto or which, as such, is doing an insurance
connected therewith (Sec. 179) business (Secs. 175 and 2, par.3).
2. Group Life
 A blanket policy covering a number
of individuals who are usually a IV. Perfection of Contract of
cohesive group. Insurance
 The policy need not be in printed
form and may be typewritten, but  The insurance contract is consensual
the law prescribes the contents of and is therefore perfected the moment
such policy (Secs. 50 and 228). there is a meeting of minds with
3. Industrial Life respect to the object and the cause or
 A form of life insurance under consideration.
which  What is being followed in insurance
a. The premiums are payable contracts is what is known as the
either monthly or oftener; “cognition theory.”
b. Face amount of insurance
provided in any policy is not Enriquez vs. Sun Life Assurance Co. of Canada
more than 500 times that of the (1920): Herrer applied for insurance and paid
current statutory minimum the premium, however, he died before he
daily wage in the City of Manila; received the notice of acceptance on his
and application sent by Sun Life from its Montreal
c. The words "industrial policy" head office.
are printed upon the policy
(Sec. 229). Held: The insurance contract cannot be
perfected without the notice of acceptance
coming to the knowledge of the applicant.
B. Non-Life Insurance
Under the CC, consent is shown by the
 Includes policies covering risks to concurrence of offer and acceptance.
which property may be exposed, as
well as those which cover the risk of An acceptance made by letter shall not
liability to third persons. bind the person making the offer except
 It covers a specified period of time (not from the time it came to his knowledge,
known as the “cognition theory”.
more than 1 year) and has a definite
period of coverage.
Great Pacific Life Assurance Corp. vs. CA
(1999):
1. Marine (Secs. 99–166)
2. Fire (Secs. 167–173) Note that in insurance contracts, the insured is
 Insurance against loss by fire, the one making the offer by submitting an
lightning, windstorm, tornado or application to the insurer and the latter accepts
earthquake and other allied risks, the offer by approving the application.
 when such risks are covered by
extension to fire insurance policies Thus, mere submission of the application
or under separate policies (Sec. without the corresponding approval of
167). the policy does not result in the
perfection of the contract of insurance.
3. Casualty / Liability (Sec. 174)
 Insurance covering loss or liability
arising from accident or mishap, NOTE:
Offer – when the insured submits an
application to the insurer
REVIEWER IN COMMERCIAL LAW Chapter II. Contract of Insurance
Acceptance – when the insurer approves premiums were not paid, but it does not
the application expressly prohibit an agreement granting
Effectivity – upon payment of premium, credit extensions.
provided there has been an approval of Sec. 78 also allows the insurer to waive the

INSURANCE LAW
condition of full payment by acknowledging in
the application.
the policy that there has been receipt of
premium despite the fact that premium is
actually unpaid.

If the Code allows a waiver when no actual

payment has been made, then a waiver should
V. Premium Payments also be allowed in this case where the insurer
has already acknowledged receipt of partial
payment.
A. Premium – the agreed price for
assuming and carrying the risk, that is,
the consideration paid an insurer for UCPB Gen. Ins. v Masagana Telemart (1999):
Sec 77 of the Insurance Code cannot be strictly
undertaking to indemnify the insured
applied.
against the specified peril.
Exceptions to Sec 77 are:
B. Validity of Contract Upon Payment a.) In case of a life or industrial life policy
General Rule whenever the grace period applies
 NO insurance policy issued or b.) Sec 78: An acknowledgment in a policy or
renewal is valid and binding until contract of insurance of the receipt of
actual payment of the premium. premium is conclusive evidence of its
 Any agreement to the contrary is payment, so far as to make the policy
binding, notwithstanding any stipulation
void (Sec. 77).
therein that it shall not be binding until
premium is actually paid.
Exceptions c.) If the parties have agreed to the payment
1. In case of life and industrial life in installments of the premium and partial
whenever the grace period payment has been made at the time of the
provision applies (Sec. 77). loss.
2. Where there is an acknowledgment d.) The insurer may grant credit extension for
in the contract or policy of the payment of the premium
insurance that the premium has e.) It would be unjust and inequitable if
recovery on the policy would not be
already been paid (Sec. 78)
permitted against UCPB, which consistently
3. Where there is an agreement to granted the 60-90 day credit term for the
grant the insured credit term for payment of the premiums despite its full
the payment of the premium awareness of Sec. 77.
despite full awareness of Sec. 77, Estoppel bars it from taking refuge under
4. Where there is an agreement the action, since Masagana relied on good
allowing the insured to pay faith on such a practice.
premium in installment and partial
payment has been made at the C. Authority of agent to receive
time of the loss (See Makati premium
Tuscany vs. CA)  Where an insurer authorizes an
5. Where the parties are barred by insurance agent or broker to
estoppels (See UCPB vs, Masagana) deliver a policy to the insured,
 it is deemed to have authorized
Makati Tuscany v CA (1992): said agent to receive the premium
The policies are valid even if the in its behalf.
premiums due are paid in installments  The insurer is also bound by its
because the records clearly show that the agent’s acknowledgment of receipt
two parties intended the policies to be of payment of premium (American
binding and effective notwithstanding the
Home Assurance Co. vs. Chua,
staggered payment of the premiums.
1999).
The acceptance of the installment payments
over the period of 3 years speaks loudly of the D. Effect of payment by postdated
intention of insurer to honor the policies it check
issued to Makati Tuscany.  The payment of premium by a
postdated check at a stated
Sec 77 merely prohibits the parties from maturity subsequent to the loss is
stipulating that the policy is valid even if
REVIEWER IN COMMERCIAL LAW Chapter II. Contract of Insurance
insufficient to put the insurance
into effect. General Rule
 Payment however by a check  A future event is the only event that
bearing a date prior to the loss, can be covered by an insurance

INSURANCE LAW
assuming availability of funds, contract.
would be sufficient even if it Exception
remains unencashed at the time of  A past event may be covered by a
the loss. marine insurance – if the loss of the
 The subsequent effects of vessel in the past could not have been
encashment would retroact to the known by ordinary means of
date of the instrument and its communication (SUNDIANG AND
acceptance by the creditor AQUINO).
(VITUG, Pandect on Commercial NOTE:
Law).  Insurance for or against the drawing of
any lottery, or for or against any
E. Return of Premiums chance or ticket in a lottery drawing a
1. If the thing insured was never price is NOT allowed (Sec.4).
exposed to the risks insured  It may result in profit which is not true
against (Sec. 79) in insurance which only seek to
2. Contract is voidable due to the indemnify against losses.
fraud or misrepresentation of
insurer VII. Construction of Insurance
3. Insurer never incurred liability (Sec.
81)  The ambiguous terms (and exceptions
4. When the insurance is for a definite or conditions) are to be construed
period and the insured surrenders strictly against the insurer, and
his policy before the terminations liberally in favor of the insured.
thereof  However, if the terms are clear, there
5. Contract is voidable because of the is no room for interpretation (Calanoc
existence of facts of which the vs. Court of Appeals, 1955).
insured was ignorant without his
fault Qua Chee Gan vs. Law Union (1955):
6. When there is over-insurance (Sec. When the policy contains a condition
82) which renders it voidable at its inception,
and this result is known to the insurer,
7. When rescission is granted due to
the insurer’s breach of contract it will be presumed to have intended to
waive the conditions and to execute a
F. Premiums in Suretyship Contracts binding contract,
— rather than to have deceived the insured
Payment of premiums is also into thinking he is insured when in fact he
necessary to make suretyship is not, and to have taken his money without
contracts binding. consideration.
The insurance company is liable on the
Philippine Pryce Assurance Corp. vs. CA (1994): insurance contract.
Generally, premium is also necessary in order
for the contract of suretyship or bond to be Geagonia vs. CA (1995):
binding. It is a cardinal principle of law that
However, where the obligee has accepted the forfeitures are not favored
bond, it is binding even if the premium has not and that any construction which would
been paid result in the forfeiture of the policy
subject to the right of the insurer to recover benefits for the person claiming, will be
the premium from its principal. avoided,
if it is possible to construe the policy in a
manner which would permit recovery, as,
VI. Risks Insured Against (Secs 3-5) for example, by finding a waiver for such
forfeiture.
 Any contingent or unknown event, Provisions, conditions or exceptions in policies
whether past or future, which tend to work a forfeiture of insurance
 Which may damnify a person having policies should be construed most strictly
an insurable interest or creates a against those for whose benefits they are
liability against him (Sec.3).
REVIEWER IN COMMERCIAL LAW Chapter II. Contract of Insurance
inserted, and most favorably toward those
against whom they are intended to operate.

Gulf Resorts vs Philippine Charter Insurance

INSURANCE LAW
Corporation (2005):
When there is an apparent change of the
wording of an insurance contract
but no corresponding change in the
amount of premium paid,
it will be interpreted to mean that there
was NO intended change at all.
An assumption of additional risk is presumed to
cause a commensurate additional premium
because the premium, not the mere
wording of the policy, is a more accurate
indication of such an assumption of
additional risk.
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract

Chapter III. Parties to the  Or to indemnify or to compensate any

Contract person or persons or other corporations
for any such loss, damage, or liability,
 Or to guarantee the performance of or

INSURANCE LAW
I. INSURER
A. GENERAL CONSIDERATIONS compliance with contractual obligations
B. INSURANCE CORPORATIONS or the payment of debts of others:
C. DOMESTIC VS. FOREIGN INSURANCE 1. Are regulated by the State
CORPORATIONS 2. Must have a certificate of authority to
II. INSURED operate issued by the Insurance
A. WHO MAY BE INSURED Commissioner (Sec. 187).
B. RIGHTS OF INSURED OVER LIFE 3. Must possess sufficient capital and
INSURANCE POLICY assets (Sec. 186).
III. BENEFICIARY
A. GENERAL CONSIDERATIONS
B. KINDS OF BENEFICIARY
C. PERSONS WHO CANNOT BE NAMED C. Domestic vs. Foreign Insurance
BENEFICIARY Corporations (Sec. 184)
D. RULES IN DESIGNATION OF
BENEFICIARY Domestic Foreign Insurance
E. RIGHT TO CHANGE BENEFICIARY Insurance Corporation
F. RECOVERY OF PROCEEDS Corporation
IV. OTHER PARTIES “Domestic company” “Foreign company” when
A. ASSIGNEE shall include used without limitation
B. AGENT/TRUSTEE companies formed, shall include companies
C. PARTNER/CO-OWNER organized or existing formed, organized, or
D. MORTGAGOR/MORTGAGEE under the laws of the existing under any laws
Philippines. other than those in the
Sec. 51. The policy must specify the parties Philippines.
between whom the contract is made.
Requirements for Foreign Insurance
I. Insurer Corporations
1. Appointment of a resident of the
A. General Considerations Philippines as a general agent on whom
any notice or proof of loss may be served
 Insurer and on whom summons and other
Party who assumes or accepts the risk of processes may be served.
loss and undertakes for a consideration 2. Must possess paid-up unimpaired assets
to indemnify the insured or to pay him a or capital and reserve not less than that
certain sum on the happening of a required of domestic corporations.
specified contingency or event (Sec. 184) 3. Must deposit for the benefit and security
 Who May Be Insurers? of policy holders, securities satisfactory to
Individuals, partnerships, associations, or the Commission.
corporation or even GOCC’s, who are 4. Its investments should not exceed 20% of
duly authorized by the Insurance the net worth of foreign corporation or
Commission to engage in insurance 20% of the capital of the registered
business (Sec. 6, 184 - 187) enterprise.
 Who May Not Be Insurers?
Banking institutions are not allowed to
engage in insurance business (General II. Insured
Banking Act 173)
Party in whose favor the contract is operative
and who is indemnified against loss, or is to
B. Insurance Corporations (Sec. 185) receive a certain sum upon the happening of
a specified contingency or event; BUT the
 Corporations formed or organized to save proceeds need not go to him but to a
any person or persons or other designated beneficiary or someone to whom
corporations harmless from loss, the insured assigns the proceeds to.
damage, or liability
 Arising from any unknown or future or A. Who may be insured
contingent event, (Asked in 2002)
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract
Anyone, with capacity to enter into a – insured, wife – cestui que vie, and son –
contract, with an insurable interest and must beneficiary.
not be a public enemy (Sec. 7).
NOTE:  Proceeds of a life insurance policy

INSURANCE LAW
1. Public Enemy become the exclusive property of the
 A citizen or subject of a nation at war beneficiary upon death of the insured.
with the Philippines and does not
include robbers, thieves, and B. Kinds of Beneficiary
criminals.
 A private corporation, if controlled by 1. Insured himself
enemy aliens regardless of place of  One who bought the policy and paid
incorporation may be an enemy the premiums;
corporation.  An immediate party to the contract
usually called the assured (creditor
Filipinas Cia de Seguros v. Christen Huenefeld insures debtor’s life).
and Co. (1951): 2. Third person who paid a
Property insurance entered into before the consideration
war automatically loses its binding effect the
 When the insured took up the policy
moment the insurer becomes a public enemy.
for the benefit of the creditor or to
secure some other obligation;
2. Minor (Sec. 3 par.3)  Beneficiary is not a party to the
 The exception allowing a minor to contract.
enter into an insurance contract is no 3. Third person through mere bounty
longer controlling since under RA of insured
6809 a person is of legal age at 18  When no consideration is paid yet the
years and may enter into any kind of third party to the contract or the
insurance contract. estate of the insured is made
beneficiary
3. Insurance by a married woman
 A married woman may take out an
insurance on her life or that of her
C. Persons who CANNOT be named
children without the consent of her
husband (Sec.3 par.2), or that of her Beneficiary—
husband, having an insurable interest
in the latter (Sec.10)  Any person who is forbidden from
receiving any donation under Art. 739
(NCC) cannot be named beneficiary of a
life insurance policy
B. Rights of Insured over life
 By the person who cannot make any
insurance policy donation to him (Art. 2012 CC), to wit:
1. Those who are guilty of adultery or
1. Right to assign/change beneficiary (Sec. concubinage with the insured at the time
11 and 56) of designation;
2. Right to borrow 2. Those who were found guilty with the
3. Right to dividends insured of the same criminal offense
committed in consideration of the
designation; criminal conviction
III. Beneficiary necessary
(Asked in 97,98,01,05) 3. A public officer or his wife, descendants
and ascendants designated by reason of
A. General Considerations his office (Art. 739, CC)

1. Person designated to receive the benefits NOTE:

or the proceeds of the policy when risk Only the designation of said persons is void
attaches. but the policy remains binding, proceeds will
2. Cestui que vie inure to the estate of the insured.
Person on whose life the insurance is
written; must be a risk acceptable to the
insurer. D. Rules in Designation of
Beneficiary
Illustration. A husband takes out a policy on his
wife’s life, proceeds payable to their son. Husband
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract
1. When one insures his own life, he may b. Insured cannot add a new beneficiary
designate any person as the beneficiary, because such would diminish the
whether or not the beneficiary has an benefits expected by the original
insurable interest in the life of the insured, beneficiary.

INSURANCE LAW
provided that he is not disqualified by law c. Insured cannot assign the policy
(ie public enemy, and persons in Art. 793) because such would be tantamount to
2. If a person will insure the life of another an implied waiver of the right to
payable to himself as beneficiary, he must revoke.
have an insurable interest on that other’s d. Insured cannot destroy the policy
life (Sec.10) because the beneficiary may continue
3. In property insurance, the beneficiary the policy by himself paying the
must have an insurable interest in such premiums due. (Art. 1236 CC)
property, which must exist not only at e. Insured cannot take the cash
the time the policy takes effect but surrender value of the policy
also when the loss occurs (Secs. 13 & f. Insured cannot allow his creditors to
18) attach or execute on the policy
4. The designation is revocable unless the g. Insured cannot change the
right to revoke is expressly waived in the irrevocable designation to revocable
policy (Sec.11)
5. If the insured or beneficiary is a minor, 3. When the beneficiary dies before the
and the amount involved does not insured:
exceed P50,000.00, the father, in the a. If such beneficiary is irrevocable,
absence or incapacity, the mother may and hence has a vested interest in the
exercise the minor’s rights under the policy, his/her legal representatives
policy, without the need of a court or his/her estate are entitled to
authority or bond. the proceeds of the insurance,
unless the proceeds were made
payable to the beneficiary only “if
E. Right to Change Beneficiary living”.
b. If the beneficiary is revocable, and
1. General Rule therefore has no vested interest in the
a. The insured shall have the personal policy at the time of his death, his
right to change the designated estate or legal representatives derive
beneficiary without the consent of the no interest from or through him, but
latter. the proceeds passes to the estate
b. Beneficiary acquires no vested right of the insured.
but only an expectancy of receiving c. In case of an insurance policy taken
proceeds under the insurance. out by an original owner on the life or
c. Such right cannot be exercised by the health of a minor, all rights, title and
representatives or assignees of the interest in the policy shall
insured upon his death. automatically vest in the minor upon
the death of the original owner, unless
Exception otherwise provided for in the policy
If right to change the beneficiary is (Sec.3, par.5).
EXPRESSLY WAIVED in the policy.
NOTE—
Exception to the Exception  The interest of a beneficiary in a life
EVEN if the designation of beneficiary is insurance policy shall be forfeited
irrevocable, when the beneficiary is the principal
under Articles 43, 40, 50 and 64 of the accomplice or accessory in willfully
Family Code, the innocent spouse may bringing about the death of the insured
revoke such designation of the other in which event, the nearest relative of
spouse who acted in bad faith. the insured shall receive the proceeds
of said insurance if not otherwise
disqualified. (Sec. 12)
2. Effects of Irrevocable Designation of
Beneficiary: (B-ADATAC)  The right to receive the proceeds of
a. Beneficiary acquires an absolute life insurance policies shall follow the
vested interest to all benefits under order of intestate succession in
the policy. the Civil Code in default of any
specific designation in the policy.
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract
Exceptions
 The general rule on suspension of
F. Recovery of the Proceeds policy is not applicable in the following
(Asked in 90) cases:

INSURANCE LAW
a. In life, health and accident
General Rule insurance (Sec. 20)
 Only the person designated in the b. A change of interest in the thing
policy as the insured or the beneficiary insured after an injury occurs
shall be entitled to recover the resulting in a loss (Sec. 21);
proceeds of the policy. c. A change of interest in one or
more of several things,
Exceptions separately insured by one policy
1. A third person may recover from the (Sec. 22);
policy as against the insured if there d. A change of interest by will or
has been a prior contract of express or succession on the death of the
implied trust between the insured and insured (Sec. 23);
the third person. e. A transfer of interest by one of
2. A third person may recover from the several persons, joint owners or
policy as against the insurer only if owners in common, jointly insured, to
such person has been specifically the others (Sec.24);
given the right of recovery in the f. When a policy will inure to the
insurance policy. benefit of the one who may
become the new owner of the
Vda. de Consuegra vs. GSIS (1971): interest insured during the
Life Insurance and retirement insurance are continuance of the risk (Sec. 57); and
separate and distinct funds. g. When there is an express
prohibition against alienation in
Life Insurance is paid to whoever is named the the policy, in which case alienation will
beneficiary and may not necessarily be the heir cause the contract to be avoided, not
of the insured.
suspended (Art. 1306, Sec. 24, CC)
Retirement benefits on the other hand, are
primarily intended for the benefit of the 2. Agent or trustee
employee – to provide for his old age, incapacity,  If an agent or trustee takes out an
etc. insurance policy for the benefit of his
principal or beneficiary,
If the employee reaches the age of retirement, he  he shall state that the latter is the real
gets the benefits even to the exclusion of the party in interest by designating
beneficiary named in the policy. himself as an agent or trustee in the
insurance policy itself.
The beneficiary of the retirement insurance can
only claim such proceeds if the employee dies  He can also signify his designation by
before retirement. some other general words in the
policy.
If there is no beneficiary designated in the policy,
benefits will accrue to the estate, hence Diaz is Valenzuela vs. CA (1990):
also entitled to the retirement benefits. The general rule that the principal reserves the
right to terminate the agent-principal
relationship at its will admits of an exception:
IV. Other Parties
when the agency has been given not only for
the interests of the principal but of 3rd persons
A. Assignee or for the mutual interest of agent and
principal.
1. General Rule
 If the thing insured is assigned to Also, an insurance agent can’t be held liable for
another, the policy is deemed all uncollected premiums under his account
suspended until the assignee also because the remedy for non-payment of
becomes the owner of the policy. premiums is the termination of any
 The assignor cannot recover on the insurance policy.
policy after the transfer since he has
already lost insurable interest over the 3. Partner or Co-owner
thing.  Insurable interest in the property of a
partnership exists in both the
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract
partnership and the partners and a  Extent of insurable interest of
partner has an insurable interest in mortgagee – He or his assignee
the firm property which will support has an interest to the extent of the
the policy taken out thereon for his debt secured, the property used as

INSURANCE LAW
own benefit. security.
 But a partner who takes out the policy His interest is prima facie the value
in his own name limits the coverage to mortgaged, only as to the amount
his individual share unless the terms owed, not exceeding the value of
the property.
clearly show the policy was meant to
 Extent of amount of recovery
cover all the shares.
 Mortgagor - only up to full
amount of loss
4. Mortgagor/Mortgagee  Mortgagee - up to the
 General Rule amount of credit at the time of
When a mortgagor takes out an insurance the loss or the value of the
policy on his own name but stipulates that property
the proceeds shall be payable to the
mortgagee, or assigns the said policy to b. Insurance by mortgagee of his
the mortgagee, own interest
the insurance shall be deemed to be upon  Right in case of loss – the
the insurable interest of the mortgagor. mortgagee is entitled to proceeds
if loss happens before payment
 Rules Applicable of mortgage.
a. Any act of the mortgagor prior to the  Subrogation of insurer to the
loss, which would otherwise avoid the right of the mortgagee –
insurance, mortgagee’s claim passes by
shall have the same effect even if the subrogation to the insurer to the
property insured is in the hands of the extent of the insurance money
mortgagee. paid.
b. Any act which would have to be  Change of creditor - Payment
performed by the mortgagor may be by the insurer to the mortgagee
performed by the mortgagee, with the due to loss does not extinguish
same effect as if it were performed by the principal obligation but only
changes the creditor. The
the former.
mortgagee CANNOT claim both
c. If an insurer assents to
the insurance and the debt.
the transfer of an insurance from a
mortgagor to a mortgagee, and, at c. Insurance taken out by
the time of his assent, imposes further mortgagor for his own benefit
obligation on the assignee, making a as owner – proceeds won’t go to
new contract with him, the act of the the mortgagee who has no greater
mortgagor cannot affect the rights of right than unsecured creditors.
said assignee.
d. Insurance taken out by
 Supplementary Rules mortgagor for the mortgagee’s
a. On the insurable interest of benefit – loss is payable to the
mortgagor and mortgagee: mortgagee (usual practice), to the
 Separate insurable interests – extent of the credit.
each has his own insurable interest
in the mortgaged property which is Upon payment of the proceeds to
kept separate from each other. the extent of the credit, the debt is
The benefits of such belong to the extinguished.
insured alone and if the two insure
the same property or take out a The mortgagee can be made the
policy covering their respective beneficial payee by:
interests, this is not double  Becoming the assignee of the
insurance. policy with insurer’s consent;
 Extent of insurable interest of  Becoming the mere pledge
mortgagor – The owner-mortgagor without such consent;
has an interest to the extent of the  A rider (Sec. 50), making the
property’s value policy payable to the Mortgagee
even if the mortgage debt equals it “as his interest may appear”,
since the loss or destruction of the may be attached;
insured property will not extinguish  A “standard mortgage clause”
his debt. containing a collateral
REVIEWER IN COMMERCIAL LAW Chapter III. Parties to the Contract
independent contract between
the two parties may be attached;
or
 The policy, though by its terms

INSURANCE LAW
payable to the mortgagor, may
have been procured by a
mortgagor under a contract duty
to insure for the mortgagee’s
benefit, where the latter acquires
an equitable line upon the
proceeds.
REVIEWER IN COMMERCIAL LAW Chapter IV. Insurable Interest

Chapter IV. Insurable Interest 3. Limits the amount that can be

(Asked in 91,94,97,99,00,02) recovered in indemnity insurance.
II. Insurable Interest in Life

INSURANCE LAW
I. INSURABLE INTEREST
II. INSURABLE INTEREST IN LIFE A. Who has insurable interest
A. WHO HAS INSURABLE INTEREST over whose life?
OVER WHOSE LIFE
B. TIME OF EXISTENCE OF INSURABLE
Sec. 10 Every person has an insurable
INTEREST
interest in the life and health:
III. INSURABLE INTEREST IN PROPERTY
(a) Of himself, of his spouse and of his
A. FORMS OF INSURABLE INTEREST
children;
B. NATURE OF INSURABLE INTEREST
(b) Of any person on whom he depends
C. INSURABLE INTEREST OF SPECIFIC
wholly or in part for education or
PERSONS
support, or in whom he has a pecuniary
D. MEASURE OF INSURABLE INTEREST
interest;
IN PROPERTY
(c) Of any person under a legal obligation to
E. TIME OF EXISTENCE
him for the payment of money, or
F. DISTINCTIONS BETWEEN INSURABLE
respecting property or services, of which
INTEREST IN PROPERTY AND
death or illness might delay or prevent
INSURABLE INTEREST IN PROPERTY
the performance; and
IV. TRANSFER OF POLICY
(d) Of any person upon whose life any estate
A. LIFE INSURANCE
or interest vested in him depends.
B. PROPERTY INSURANCE
C. CASUALTY INSURANCE
V. TRANSFER OF INTEREST 1. Interest in one’s own life—
VI. DOUBLE INSURANCE, OVER  Each has unlimited interest in his
INSURANCE AND REINSURANCE own life, whether the insurance is
VII. MULTIPLE OR SEVERAL INTEREST ON for the benefit of himself or
THE SAME PROPERTY another. the beneficiary
A. OPEN MORTGAGE OR LOSS PAYABLE designated need NOT have any
MORTGAGE CLAUSE interest in the life of the insured.
B. UNION MORTGAGE OR STANDARD
2. Interest in life of another
MORTGAGE CLAUSE
C. CONTRACTS OF BONDING OR a. General Rule
SURETYSHIP  The insured must have
pecuniary interest in the life of
I. Insurable Interest another.
 Such interest exists whenever
 Interest which the law requires policy the insured has a responsible
owner to have in the person or thing expectation of deriving benefit
insured, the absence of which renders from the continuation of the life
the contract void. of the other person or of
 A person is said to have an insurable suffering detriment through its
interest in the subject matter insured termination.
where he has a relation or connection Exception
with, or concern in it that he will derive  In par. (a) (spouse and
pecuniary benefit or advantage from children), mere relationship is
its preservation and will suffer sufficient.
pecuniary loss or damage from its b. CREDITOR may take out insurance
destruction, termination, or injury by on the life of his debtor. BUT his
the happening of the event insured insurable interest is only up to the
against. amount of the debt.
 Rationale for requiring it: c. When the OWNER of the policy
1. To avoid constituting insurance as insures the life of another (CESTUI
a wagering contract, because the QUE VIE) and designates a third
insured has an interest in the party as BENEFICIARY, BOTH the
preservation or protection of the owner and beneficiary must have
subject of the insured. an insurable interest in the life of
2. To avoid a moral hazard, wherein the cestui que vie.
the insured will have nothing to d. ASSIGNEE is not required to have
lose but everything to gain with the insurable interest in the life of the
happening of the event insured insured, for to require such interest
against. in him is to diminish the
investment value of the contract to
REVIEWER IN COMMERCIAL LAW Chapter IV. Insurable Interest
the owner. Note however that expectancy arises.
assignment is different from a
Sec. 16 A mere contingent or expectant
change in the designated
interest in anything, not founded on an
beneficiary.

INSURANCE LAW
actual right to the thing, nor upon any valid
e. When the beneficiary is the contract for it, is not insurable.
PRINCIPAL, ACCOMPLICE, or B. Nature of Insurable Interest
ACCESSORY in willfully bringing
about the death of the insured = 1. EXISTING interest
Interest of beneficiary in life  May arise from legal title
insurance policy is FORFEITED (Sec. (Ex: interest of a mortgagor, lessor,
12). assignee)
 May also arise from equitable title
B. Time of existence of insurable (Ex: purchaser of property before
interest delivery, builder of a building under
construction)
General Rule 2. INCHOATE interest founded on an
 Insurable interest is needed only at existing interest
inception (Sec. 19).  Must be founded on an existing
contract but not yet clearly defined
Exceptions or identified.
1. Creditor’s insurance taken on the life  (Ex: stockholder’s inchoate interest
of the debtor - Insurable interest in the properties of the corporation,
disappears, once the debt has been such interest being based on his
paid. At this point, the creditor/insured owned shares)
can no longer recover on the policy. 3. EXPECTANCY, coupled with an existing
2. Company’s insurance taken on the life interest in that out of which the
of an employee - insurable interest expectancy arises
disappears once the employee leaves  (Ex: farmer’s interest over his
the company, in which case, the future crops grown on land owned
company can no longer recover on the by him at the time of the issuance
policy. of the policy)

C. Insurable Interest of Specific

III. Insurable Interest in Property Persons
Sec. 13. Every interest in property, whether 1. Stockholder/partner in a firm – has
real or personal, or any relation thereto, or
inchoate right to dividends in case firm
liability in respect thereof, of such nature
that a contemplated peril might directly earns profits and to share in the assets
damnify the insured, is an insurable interest. after payment of corporate debts upon
a firm's liquidation.
A. Forms of Insurable Interest 2. General Creditor – does not have
insurable interest in a debtor's
1. INTEREST in the property itself property.
Ex: Ownership of or a lien on property. 3. Judgment Creditor - has insurable
2. RELATION to such property interest in debtor’s property because
Ex: Interest of a commission agent on he's given a right to levy (general lien).
goods he is selling. 4. Mortgage Creditor - has insurable
3. LIABILITY in respect thereof interest (lien) which is recognized by
Ex: Interest of carrier on cargo which Insurance Code (Sec. 8).
he has to carry safely to its D. Measure of insurable interest
destination, such interest being limited
in property
to the extent of his liability.
Sec. 15. A carrier or depository of any kind
Sec. 14 An insurable interest in propery has an insurable interest in a thing held by
may consist in: him as such, to the extent of his liability but
(a) An existing interest; not to exceed the value thereof.
(b) An inchoate interest founded on an
existing interest; or E. Time of existence
(c) An expectancy, coupled with an
existing interest in that out of which the Sec. 19. An interest in property insured
REVIEWER IN COMMERCIAL LAW Chapter IV. Insurable Interest
must exist when the insurance takes effect, obtained by the
and when the loss occurs, but need not exist beneficiary, the
in the meantime; latter must have
and interest in the life or health of a person insurable interest

INSURANCE LAW
insured must exist when the insurance takes over the life of
effect, but need not exist thereafter or when the insured.
the loss occurs. (SUNDIANG)
General Rule IV. Transfer of Policy
Interest must exist BOTH at inception and (Asked in 91)
at time of loss, but not in the meantime.
A. Life Insurance
Exceptions  Interest can be transferred even
1. A change in interest over the thing without the insurer’s consent,
insured AFTER the loss contemplated. unless there is a stipulation to the
The insured may sell the remains contrary (Sec. 181).
without prejudice to his right to B. Property Insurance
recover.  Interest cannot be transferred
2. A change of interest in one or more without the insurer’s consent,
several distinct things, separately because the insurer has approved
insured by one policy. This does not the policy based on the personal
avoid the insurance as to the others qualifications and insurable interest
3. A change in interest by will or success of the insured
upon the death of the insured C. Casualty Insurance
4. A transfer of interest by one of several  Interest cannot be transferred
partners, joint owners, or owners in without the insurer's consent,
common who are jointly insured. The because the moral hazards present
acquiring co-owner has the same are as great as those in property
interest; his interest merely increases insurance.
upon acquiring other co-owners
interest.
V. Transfer of Interest
F. Distinctions between Insurable
Interest in Property and General Rule
Insurable Interest in Life  The mere transfer of a thing insured
does not transfer the policy, but
Insurable Insurable suspends it until the same person
Interest in Interest in Life becomes the owner of both the policy
Property and the thing insured (Sec. 58).
Extent Limited to Unlimited (save
actual in life insurance  The insurance proceeds shall be
value of the effected by a
applied exclusively to the proper
interest creditor on the
thereon life of the debtor)
interest of the person in whose name
Time when Must exist Must exist at the or for whose benefit it is made unless
Insurable when the time of the loss otherwise specified in the policy (Sec.
Interest insurance 53).
Must Exist takes effect
and when Exceptions
the loss 1. Life, health and accident insurance
occurs, BUT (Sec. 20)
need not 2. A change in interest in a thing insured,
exist in the
after the occurrence of an injury, which
meantime
Expectation Must have Need NOT have
results in a loss (Sec. 21)
of Benefit to legal basis legal basis 3. A change in interest in one or more of
Be Derived several distinct things, separately
Beneficiary’s Must have Need not have insured by one policy (Sec. 22).
Interest insurable insurable interest 4. A change in interest, by will or
interest over the life of succession, on the death of the insured
over the the insured if the (Sec. 23).
thing insured himself 5. Transfer of interest by one of several
insured secured the partners, joint owners, or owners in
policy. But if the
insurance was
REVIEWER IN COMMERCIAL LAW Chapter IV. Insurable Interest
common, who are jointly insured, to 4. It is not prohibited by law but it may be
the others (Sec. 24). prohibited by an “other insurance
6. When a policy is so framed that it will clause.”
inure to the benefit of whomsoever,

INSURANCE LAW
during the continuance of the risk, Additional or “other insurance”
may become the owner of the interest clause—
insured (Sec. 57).  A condition in the policy requiring
7. When there is an express prohibition the insured to inform the insurer of
against alienation in the policy, in any other insurance covering the
which case, the insurance contract is property insured
avoided (Art. 1306, NCC)
5. Double Insurance vs. Over-
NOTE: Insurance
When there is an express prohibition
against alienation in the policy, in case of Double Over-insurance
alienation, the contract of insurance is not insurance
merely suspended but avoided. Amount of the There may be no over-
insurance is insurance as when the
beyond the value sum total of the amounts
of the insured’s of the policies issued does
VI. Double Insurance, Over insurable interest not exceed the insurable
Insurance, Reinsurance interest of the insured.

A. Over-Insurance
(Asked in 08) There may be There are always several
only one insurer insurers
 This happens when the amount of the involved
insurance policy or policies exceed the
value of the insurable interest.
1. In case of loss, the insurer is bound to C. Reinsurance
pay only up to the extent of the real
value of the property lost. BUT, the  A contract by which an insurer
insured may recover the amount of the procures a third person to insure him
premium corresponding to the excess against loss or liability by reason of
in value of the property. such original insurance (Sec. 95); the
2. The insured may claim payment from original insurance contract is separate
the insurers in such order as he may and distinct from the reinsurance
select, up to the amount for which the contract.
insurers are severally liable under their
respective contracts. 1. Reinsurance treaty
An agreement between two insurance
companies whereby one agrees to
B. Double Insurance cede and the other to accept
(Asked in 93,99,05) reinsurance business pursuant to
provisions specified in the treaty (DE
1. It exists where the same person is LEON).
insured by several insurers separately 2. Double Insurance vs. Reinsurance
in respect to the same subject and (Asked in 94)—
interest (Sec. 93)
2. Requisites— Double Insurance Reinsurance
a. same person insured Same interest Different interest
b. two or more insurers separately Insurer remains as Insurer becomes the
insuring the insurer. insured in relation to
c. same subject matter the reinsurer.
Insured is a party in The original insured
d. same interest insured
interest in the is not a party in the
e. same risk or peril insured against insurance contracts. reinsurance contract.
3. The insured CANNOT recover above Property is the The original insurer's
the value of property, for otherwise, subject matter risk is the subject
the insurance would constitute matter.
wagering. Insured has to give Insured’s consent is
his consent. not necessary.
REVIEWER IN COMMERCIAL LAW Chapter IV. Insurable Interest

INSURANCE LAW
VII. Multiple or Several Interest on
the Same Property (Secs. 8 – 9)

A. Open mortgage or loss payable

mortgage clause—

 A mortgage that can be paid-off prior

to maturity without penalty;
mortgagee is the beneficiary for
insurance taken by mortgagor.

1. The insurance is on the interest of the

mortgagor; so, he does not cease to be
a party to the contract.

His acts, prior to the loss, which would

otherwise avoid the insurance, affects
the mortgagee, even if the property is
in the hands of the latter. (Secs. 8 & 9)

2. In case of loss, the mortgagee is

entitled to recover up to the extent of
his credit, and should the amount he
recovers be equal to the amount of his
credit, then the debt is extinguished.

B. Union mortgage or standard

mortgage clause

1. Mortgagee may perform the acts of

mortgagor.
2. Subsequent acts of the mortgagor or
owner do NOT prejudice the
mortgagee's interest is protected.
3. When a mortgagee insured his own
interest and a loss occurs, he is
entitled to recover on the insurance.
However, he may no longer claim
against the mortgagor, for his claim is
discharged up to the amount the
insurer has paid him (Palileo vs. Cosio,
1955).
REVIEWER IN COMMERCIAL LAW Chapter V. Policy

Chapter V. Policy
III. Rider and Endorsements
I. INSURANCE CONTRACT VS. INSURANCE
 Endorsements: any provision added

INSURANCE LAW
POLICY
II. FORMS AND CONTENTS to the contract altering its scope or
III. RIDER AND ENDORSEMENTS application (DE LEON, The
IV. COVER NOTES Insurance Code of the Philippines
V. LIFE VS. NON-LIFE INSURANCE POLICIES Annotated).
VI. OPEN, VALUED AND RUNNING POLICIES
 Clauses: an agreement between the
insurer and the insured on certain
I. Insurance Contract vs. matters relating to the liability of the
Insurance Policy insurer in case of loss (DE LEON).
 Warranty: inserted or attached to a
 An insurance policy is different from policy to eliminate specific potential
the contract itself. increases of hazard during the policy
 Contract of insurance: an term owing to: 1) actions of the
agreement whereby one insured or 2) condition of the property
undertakes for a consideration to  Riders
indemnify another against loss,  Printed stipulations usually
damage or liability arising from an attached to the policy because
unknown or contingent event (Sec. they constitute additional
2 (1)). stipulations between the parties.
 Policy of insurance: the written (Ang Giok Chip vs. Springfield,
instrument in which a contract of 1931).
insurance is set forth (Sec. 49)  It must be attached to the policy in
order to be binding
 An insurance policy is NOT essential to  In case of conflict between a rider
the validity of an insurance contract, and the printed stipulations in the
for so long as all the essential policy, the rider prevails, as being a
elements for the existence of a valid more deliberate expression of the
contract (consent, object, agreement of the contracting
consideration and competent parties) parties (ALVENDIA, The Law of
are present. Insurance in the Philippines).

II. Forms and Contents IV. Cover Notes

 Policy shall be in printed form which Definition: A concise and temporary
may contain blank spaces (Sec. 50). written contract issued to the insurer
through its duly authorized agent
 Express warranties must also be embodying the principal terms of an
contained in the policy, or in another expected policy of insurance.
instrument signed by the insured and
referred to in the policy as making a Applicable Rules:
part of it.  It is intended to give temporary
insurance protection coverage to the
 The insurance policy must AT LEAST applicant pending the acceptance or
contain the following (Sec. 51) rejection of his application, or until the
PAR∙PIRD: issuance of a formal policy, provided
 Parties that it is later determined that the
 Amount of insurance, except in applicant was insurable at the time it
open or running policies was issued. (Sec. 52)
 Rate of premium  It is a binding contract and has
 Property or life insured full force and effect during its duration,
 Interest of the insured in the provided it is in the Code's previously
property if he is not the absolute prescribed form.
owner  It is good only for 60 days,
 Risk insured against; and unless a longer period is approved by
 Duration of the insurance. the Insurance Commissioner. (Sec. 52)
REVIEWER IN COMMERCIAL LAW Chapter V. Policy
 It may be cancelled by either maximum limit of the insurer’s liability
party ONLY after at least 7-days notice (i.e. face value) in case of destruction by
to the other party. the peril insured against.
 If it is not cancelled, a policy  Insurer only pays the actual cash value of

INSURANCE LAW
shall be issued within 60 days after the the property as determined at the time of
issuance of the cover note. loss.
 The written approval of the
Insurance Commissioner for the B. Valued Policy
extension or renewal of the cover note
may be dispensed with upon showing Sec. 61. A valued policy is one which
that the risks involved, the values of expresses on its face an agreement that the
such risks and/or premiums therefor thing insured shall be valued at a specific
have not as yet been determined or sum.
established and that such extension or
renewal is not contrary to and is not  One in which the parties expressly agree
for the purpose of violating any on the value of the subject matter of the
provisions of the Insurance Code, or of insurance.
any of the rulings, instructions,  Two values:
circulars, orders or decisions of the  Face value of the policy which is the
Insurance Commissioner. maximum amount insurer pays in
 Insurance companies may case of loss
impose, on the cover notes, a deposit  Value of the thing insured
premium equivalent to at least  In the absence of fraud or mistake, the
25% of the estimated premium of agreed value of the thing insured will be
the intended insurance coverage but paid in case of total loss of the property,
never less than 500 pesos. unless the insurance is for a lower amount

Binding receipt: a mere C. Running Policy

acknowledgment on behalf of the
company that its branch office had Sec. 62. A running policy is one which
received from the applicant the insurance contemplates successive insurances, and
premium and had accepted the which provides that the object of the
policy may be from time to time defined,
application subject to processing by the
especially as to the subjects of insurance,
head office by additional statements or indorsements.

 Intended to provide indemnity for

V. Life Insurance Policies vs. Non- property which cannot well be covered by
Life Insurance Policies a valued policy because of its frequent
change of location and quantity, or for
 In a life insurance policy, the liability of property of such a nature as not to admit
the insurer is measured by the face of a gross valuation.
value of the policy (because the value  Contemplates successive insurances.
of a human life cannot be measured in
actual monetary terms).
 Non-life insurance policies may be
open, valued or running (Sec. 59).

VI. Open, Valued and Running

Policies

A. Open or Unvalued Policy

Sec. 60. An open policy is one in which the

value of the thing insured is not agreed upon,
but is left to be ascertained in case of loss.

 One in which a certain agreed sum is

written on the face of the policy not as the
value of the property insured, but as the
REVIEWER IN COMMERCIAL LAW Chapter VI. Rescission of Insurance Contracts

Chapter VI. Rescission of 3. Such party

Insurance Contracts concealing makes no warranty of the
fact concealed.
4. The other party has

INSURANCE LAW
I. CONCEALMENT
A. DEFINITION not the means of ascertaining the fact
B. REQUISITES concealed.
C. EFFECTS OF CONCEALMENT 5. The fact concealed is
D. TEST OF MATERIALITY material.
E. CAUSE OF LOSS
F. MATTERS WHICH NEED TO BE C. Effects of Concealment
DISCLOSED
G. MATTERS WHICH NEED NOT BE
DISCLOSED
It vitiates the contract and entitles the
II. MISREPRESENTATION insurer to rescind, even if the death or loss
A. REPRESENTATIONS is due to a cause not related to the
B. KINDS OF REPRESENTATIONS concealed matter (Sec. 27).
C. REQUISITES OF FALSE
REPRESENTATION NOTE:
D. EFFECT OF MISREPRESENTATION  Good Faith is NOT a defense in
E. REPRESENTATION OF OPINION concealment.
F. CONCEALMENT VS.
 Sec. 27 clearly provides that, “the
MISREPRESENTATION
III. WARRANTIES
concealment whether intentional or
A. DEFINITION unintentional entitles the injured party
B. PURPOSE to rescind the contract of insurance.”
C. KINDS OF WARRANTIES
D. EFFECT OF BREACH OF WARRANTY D. Test of Materiality
E. IMMATERIAL PROVISIONS
F. WARRANTY VS. REPRESNTATIOM General Rule
IV. CONDITIONS Determined not by the event, but solely
A. DEFINITION by the probable and reasonable influence
B. KINDS of the facts upon the party to whom the
C. WARRANTIES VS. CONDITIONS
communication is due, in forming his
V. RIGHT OF RESCISSION
A. GROUNDS estimate of the advantages of the
B. WAIVER OF RIGHT TO RESCIND proposed contract, or in making his
C. LIMITATIONS TO THE RIGHT OF THE inquiries (Sec. 31).
INSURER TO RESCIND
VI. CANCELLATION OF NON-LIFE Exceptions
INSURANCE POLICY 1. Incontestability clause
A. GROUNDS 2. Matters under Sec.110 (marine
B. REQUIREMENTS insurance)
VII. INCONTESTABILITY CLAUSE
A. DEFINITION NOTE:
B. REQUISITES  NON-MEDICAL INSURANCE: The waiver
C. DEFENSES
of medical examination in a non-
medical insurance contract renders
I. Concealment even more material the information
(Asked in 96, 97, 01) required of the applicant concerning
the previous conditions of health and
A. Definition diseases suffered. (Sunlife vs. Sps.
Bacani, 1995).
Concealment – A neglect to  OPINION: Where matters of opinion or
communicate that which a party knows judgment are called for, answers made
and ought to communicate (Sec. 26). in good faith and without intent to
deceive will not avoid the policy even
B. Requisites though they are untrue. Reason: The
insurer cannot rely on those
1. A party knows a fact statements. He must make further
which he neglects to communicate or inquiry. (Philamcare Health Systems
disclose to the other. vs. CA, 2002).
2. Such party  Concealment must take place at the
concealing is duty bound to disclose time the contract is entered into in
such fact to the other. order that the policy may be avoided.
REVIEWER IN COMMERCIAL LAW Chapter VI. Rescission of Insurance Contracts
Information obtained after the d. Information of the nature or
perfection of the contract is no longer amount of the interest of one
necessary to be disclosed by the insured except if inquired upon by the
insured, even if the policy has not insurer.

INSURANCE LAW
been issued e. Matters each party are bound to
E. Cause of Loss know such as public events, general
information etc.
 The matter concealed need NOT be f. The right to information of
the cause of loss. material fact may be waived either
 In Sunlife Assurance vs. CA (1995), the expressly, by the terms of insurance
Court held that the fact that the matter or impliedly by neglecting to make
concealed had no bearing to the cause inquiry as to the facts already
of death is NOT important because it is communicated.
well settled that the insured need not g. If the interest of the insured to the
die of the disease he had failed to property being insured is absolute
disclose to the insurer. then there is no necessity to
 It is sufficient that his nondisclosure disclose the extent of his interest, if
misled the insurer in forming his not then he is required to disclose
estimates of the risks of the proposed under Section 51
policy or in making inquiries. h. Matters of opinion.

F. Matters which Need to Be

Disclosed II. Misrepresentation

1. Matters material to the contract A. Representations

2. Matters which the other has not the
means of ascertaining the said facts  Factual statements made by the
3. Matters as to which the party with the insured at the time of, or prior to, the
duty to communicate makes no issuance of the policy (Sec. 37) to give
warranty. information to the insurer and induce
him to enter into the insurance
NOTE: contract.
If the applicant is aware of the existence
of some circumstance which he knows B. Kinds of
would influence the insurer in acting upon Representations
his application, good faith requires him to
disclose that circumstance, though 1. Affirmative
unasked (VANCE, The Law of Any allegation as to the existence or
Insurance). non-existence of a fact when the
contract begins
G. Matters which Need NOT Be 2. Promissory
Disclosed Any promise to be fulfilled after the
contract has come into existence or
Sec. 32. Each party to a contract of insurance any statement concerning what is to
is bound to know all the general causes which happen during the existence of the
are open to his inquiry, equally with that of the insurance. A promise representation is
other, and which may affect the political or substantially a condition or warranty.
material perils contemplated; and all general
usages of trade. C. Requisites of a
False Representation
a. Matters already known to the insurer (Misrepresentation)
b. Matters of which the insurer waives
communication – he is in estoppel. 1. The insured stated a fact which is
c. Matters that concern only risks untrue.
excepted, either expressly or by 2. Such fact was stated with knowledge
warranty, from the liability assumed that it is untrue and with intent to
under the policy. **Important Note: deceive or which he states positively
The undisclosed fact must NOT BE as true without knowing it to be true
MATERIAL otherwise the insured is still and which has a tendency to mislead.
bound to make disclosure.
REVIEWER IN COMMERCIAL LAW Chapter VI. Rescission of Insurance Contracts
3. Such fact in either case is material to representation, whether intentional or not
the risk. Rules on concealment and representation
apply likewise to the insurer as insurance
NOTE: contract is one of utmost good faith

INSURANCE LAW
1. There is false representation if the
matter is true at the time it was
made/represented but false at the
time the contract takes effect. (Sec.
44). Remedy of injured party is
rescission (Sec. 45).
2. NO false representation if the matter is III. Warranties
true at the time the contract takes
effect although false at the time it was A. Definition
made/represented.
 Statement or promise by the insured
D. Effect of Misrepresentation  Set forth in the policy or by reference
incorporated therein,
The injured party is entitled to rescind  The untruth or non-fulfillment of which
from the time when the representation in any respect, and without reference
becomes false. (Sec. 45) to whether insurer was in fact
prejudiced by such untruth or non-
E. Representation of Opinion fulfillment,
 Renders the policy voidable by the
General Rule insurer (VANCE).
A representation of the expectation, belief,
B. Purpose
opinion, or judgment of the insured,
although false,  To eliminate potentially increasing
will NOT avoid the policy, hazards which may either be due to
even if such was material to the risk (DE the acts of the insured or to the
LEON). change to the condition of the
property.
Exception
Such representation will avoid the policy if C. Kinds of Warranties
there is a CONCURRENCE OF MATERIALITY
AND FRAUDULENCE OR INTENT TO 1. Express
DECEIVE. 2. Implied - it is deemed included in the
However, if the representation is one of contract although not expressly
fact, the insurer need only prove the mentioned.
materiality of the representation, because 3. Affirmative Warranty is one which
in such cases the intent to deceive is asserts the existence of a fact or
presumed (DE LEON). condition at the time it is made (Sec.
68).
NOTE: 4. Promissory Warranty or Executory
If a statement of fact, fraudulent intent is Warranty is one where the insured
presumed. Hence, materiality of the stipulates that certain facts or
misrepresented fact will avoid the conditions pertaining to the risk shall
contract. exist or that certain things with
reference thereto shall be done or
F. Concealment vs. omitted. It is in the nature of a
Misrepresentation condition subsequent (Secs. 72 & 73).

CONCEALMENT MISREPRESENTATION D. Effect of Breach of

Insured makes erroneous
Insured withholds Warranty
statements of facts with
information of
the intent of inducing the General Rule
material facts
insurer to enter into the
from the insurer It gives the insurer the right to rescind
insurance contract
Determined by the same rules as to materiality
(Secs. 74 and 76).
Same effects on the part of the insured; Exceptions—
insurer has right to rescind
1. loss occurs before the time of
Injured party is entitled to rescind a contract of
insurance on ground of concealment or false
performance of the warranty
REVIEWER IN COMMERCIAL LAW Chapter VI. Rescission of Insurance Contracts
2. the performance becomes unlawful
3. performance becomes impossible (Sec. Warranties Conditions
Precedent
73)
Effect does not one without the

INSURANCE LAW
Rule on Immaterial Provisions suspend or performance of
defeat the which the
General Rule operation of the contract, although
 Not all breach of the provisions in the contract, but a in form executed
breach affords by the parties and
policy may give the right to rescind the
either the delivered, does
policy. remedy not spring into
 Immaterial provisions do not avoid the expressly life; a limitation to
policy (Sec. 75). provided in the the attachment of
contract or that risk
Exception furnished by law
When the parties stipulate that violation of Natur a. If the insured person contracts and
particular provision, though normally e warrants that if the representations
immaterial, shall avoid the policy. made by him in his application for
insurance are not true, the policy
In effect, the parties converted the shall be null and void, such
immaterial provision into material one statements are not conditions
(SUNDIANG). precedent but rather of the nature of
a defeasance.
b. promissory warranties are usually
E. Warranty vs. Representation regarded as conditions subsequent to
be performed after the policy has
WARRANTY REPRESENTATION become a valid contract, non-
Part of the contract Mere collateral performance of which will work a
inducement defeasance.
Written on the May be written in the
policy, actually or policy or may be oral.
by reference V. Right of Rescission
Presumed material Must be proved to be
material A. Grounds
Must be strictly Requires only substantial
complied with truth and compliance 1. Concealment
2. Misrepresentation
3. Breach of material warranty
4. Breach of a condition subsequent

IV. Conditions B. Waiver of the right to rescind:

A. Definition  Acceptance of premium payments
despite the knowledge of the ground
Events signifying in its broadest sense for rescission (Sec. 45).
either an occurrence or a non-occurrence
that alters the previously existing legal C. Limitations on the right of the
relations of the parties to the contract.
insurer to rescind:
They may be conditions precedent or
1. Non-life – such right must be
conditions subsequent.
exercised prior to the commencement
of an action on the contract;
B. Kinds: 2. Life – such right must be availed of
1. Condition Precedent – calls for the during the first two years from the
happening of some event before the date of issue of policy or its last
contract shall be binding between the reinstatement; prior to
parties. “incontestability.” (Sec. 48)
2. Condition Subsequent – pertains to the
contract of insurance after the risk has
attached and during the existence
VI. Cancellation of Non-Life
thereof. Insurance Policy
Right of the insurer to abandon the
C. Warranties vs. contract on the occurrence of certain
Conditions
REVIEWER IN COMMERCIAL LAW Chapter VI. Rescission of Insurance Contracts
grounds after the effectivity date of a non- of those defenses which arise in
life policy. connection with the formation and
operation of the policy prior to loss (DE
A. Grounds LEON).

INSURANCE LAW
1. Non-payment of premium
2. Conviction of a crime out of acts
increasing the hazard insured against
3. Discovery of fraud or material
misrepresentation
4. Discovery of willful or reckless acts of
omissions increasing the hazard
insured against;
5. Physical changes in property making C. Defenses
the property uninsurable
6. Determination by the Insurance BARRED DEFENSES NOT
Commissioner that the continuation of DEFENSES BARRED
the policy would violate the Insurance OF THE
Code. (Sec. 64) INSURER
1. Policy is void 1. That the person
ab initio taking the insurance
B. Requirements 2. Policy is lacked insurable
rescindable interest as required
1. Prior notice of cancellation to the
by reason of by law;
insured the fraudulent 2. That the cause of
2. Notice must be in writing, mailed or concealment the death of the
delivered to the named insured at the or insured is an
address shown in the policy misrepresenta excepted risk;
3. Notice must state which of the grounds tion of the 3. That the premiums
set forth in Sec. 64 is relied upon and insured or his have not been paid
upon request of the insured, the agent (Secs. 77, 227[b],
insurer must furnish facts on which the 228[b], 230[b]);
4. That the conditions
cancellation is based;
of the policy
relating to military
NOTE: or naval service
Grounds should have existed after the have been violated
effectivity date of the policy. (Secs. 227[b],
228[b]);
5. That the fraud is of
a particularly
VII. Incontestability Clause
vicious type;
(Asked in 91, 94, 97 and 98) 6. That the beneficiary
failed to furnish
A. Definition proof of death or to
comply with any
Clause in life insurance policy that condition imposed
stipulates that the policy shall be by the policy after
incontestable after a stated period. the loss has
happened; or
B. Requisites 7. That the action was
not brought within
1. Life insurance policy the time specified.
2. Payable on the death of the insured
3. It has been in force during the lifetime
of the insured for a period of at least
two years from the date of its issue or
of its last reinstatement.

NOTE:
The period of 2 years may be shortened
but it cannot be extended by stipulation.

Incontestability only deprives the insurer

REVIEWER IN COMMERCIAL LAW Chapter VII. Risks and Coverages

CHAPTER VII. RISKS AND construction which would result in the

forfeiture of the policy benefits will be
COVERAGES avoided if it is possible to construe the policy
in a manner which would allow recovery (see

INSURANCE LAW
I. RISKS IN LIFE INSURANCE page 8). Moreover, a contrary interpretation
II. RISKS IN FIRE INSURANCE would result in the forfeiture of the
A. HOSTILE VS FRIENDLY FIRE beneficiary’s interest on mere imputations of
B. MEASURE OF INDEMNITY his participation in the killing of the insured.
III. RISKS IN CASUALTY OR ACCIDENT
INSURANCE Exceptions
A. INTENTIONAL VS. ACCIDENTAL a. Accidental killing
B. NO ACTION CLAUSE b. Self-defense
IV. RISKS IN COMPULSORY MOTOR c. Insanity of the beneficiary at the
VEHICLE LIABILITY INSURANCE
time he killed the insured
I. Risks in Life Insurance
II. Risks in Fire Insurance
A. Risks in Life Insurance
A. Hostile vs. Friendly Fire
1. Suicide (Asked in 95)
 Insurer is liable in the following
HOSTILE FIRE FRIENDLY FIRE
cases:
One that escapes One that burns in a
a. If committed after two years from from the place where place where it was
the date of the policy’s issue or its it was intended to intended to burn and
last reinstatement; burn and ought to ought to be
b. If committed in a state of insanity be.
regardless of the date of the com- Insurer is liable Insurer is not liable
mission unless suicide is an ex-
cepted peril. (Sec. 180-A) B. Measure of Indemnity
[Link] committed after a shorter period
provided in the policy. 1. Open policy - only the expense
 Any stipulation extending the 2- necessary to replace the thing lost or
year period is null and void. injured in the condition it was at the
time of the injury
2. At the hands of the law (E.g. 2. Valued policy - the parties are bound
by legal execution) by the valuation, in the absence of
 It is one of the risks assumed by fraud or mistake
the insurer under a life insurance
policy in the absence of a valid
policy exception (VANCE). III. Risks in Casualty or Accident
Insurance
3. Killing by the beneficiary
A. Intentional vs. Accidental
General Rule
 The interest of a beneficiary in a
1. Intentional – Implies the exercise of
life insurance policy
the reasoning faculties, consciousness
 Shall be forfeited when the
and volition.
beneficiary is the principal
Where a provision of the policy
accomplice or accessory in willfully
excludes intentional injury, it is the
bringing about the death of the
intention of the person inflicting the
insured,
injury that is controlling.
 In which event, the nearest relative
If the injuries suffered by the insured
of the insured shall receive the
clearly resulted from the intentional
proceeds of said insurance if not
act of the third person, the insurer is
otherwise disqualified. (Sec. 12)
relieve from liability as stipulated
(Biagtan v. the Insular Life Assurance
Note: Conviction of the beneficiary is
necessary before his interest in the
Co. Ltd., 1972).
insurance policy is forfeited in favor of the 2. Accidental – That which happens by
nearest relative of the insured. This is chance or fortuitously, without
consistent with the cardinal principle of law intention or design, which is
that forfeitures are not favored, and that any unexpected, unusual and unforeseen.
REVIEWER IN COMMERCIAL LAW Chapter VII. Risks and Coverages
especially if they are poor regardless
B. Liability vs. Indemnity of the financial capability of motor
vehicle owners or operators
responsible for the accident sustained

INSURANCE LAW
1. Liability insurance
 Insurer assumes the obligation to (Shafer v. Judge, RTC, 1988).
pay the third party in whose favor  Claimants/victims may be a
the liability of the insured arises. “passenger” or a “3rd party”
 Liability of the insurer attaches as  It applies to all vehicles whether public
soon as the liability of the insured or private vehicles.
to the third party is established.
 Insurer is liable regardless of NOTE:
whether or not the insured has paid It is the only compulsory insurance
the third party (CAMPOS, coverage under the Insurance Code
Insurance).
2. Indemnity insurance
 NO action will lie against the
insurer unless brought by the
insured for loss ACTUALLY
sustained and paid by him.
 Liability of the insurer attaches
only AFTER the insured has paid his
liability to the third party
(CAMPOS).

C. No Action Clause

A requirement in a policy of liability

insurance which provides that suit and
final judgment be first obtained against
the insured; that only thereafter can the
person injured recover on the policy.
(Guingon vs. Del Monte, 1967)

IV. Risks in Compulsory Motor

Vehicle Liability Insurance
(CMVLI)

 A species of compulsory insurance that

provides for protection coverage that
will answer for legal liability for losses
and damages for bodily injuries or
property damage that may be
sustained by another arising from the
use and operation of motor vehicle by
its owner.
 The Land Transportation Office shall
NOT allow the registration or renewal
of registration of any motor vehicle
unless such insurance is obtained (Sec.
376, as amended by PD 1455).
 To the extent that motor vehicle
insurance is compulsory, it must be a
LIABILITY policy (Sec. 373(f)), and the
provision making it merely an
indemnity insurance CANNOT have any
effect (CAMPOS).
 Purpose: To give immediate financial
assistance to victims of motor vehicle
accidents and/or their dependents,
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts

Chapter VIII. Special Kinds of insurable transportation. It also

interest in covers risks of lake, river,
Insurance Contracts movable or other inland waterway
property, may be transportation and other

INSURANCE LAW
I. MARINE INSURANCE exposed during waterborne perils outside
A. DEFINITION a certain voyage of those risks that fall
B. KINDS OF MARINE INSURANCE or a fixed period definitely within the
C. RISKS COVERED of time ocean marine category
D. PARTIES WITH INSURABLE
INTEREST
E. PERILS OF THE SEA VS. PERILS OF
C. Risks Covered
THE SHIP
F. BAREBOAT CHARTER VS. 1. In General
CONTRACT OF AFFREIGHTMENT a. Vessels, goods, freight, cargo,
G. IMPLIED WARRANTIES merchandise, profits, money,
H. SEAWORTHINESS valuable papers, bottomry and
I. IMPROPER DEVIATION respondentia, and interest in re-
J. CONCEALMENT spect to all risks or perils of navi-
K. AVERAGE gation;
L. LOSS
b. Persons or property in connection
M. ABANDONMENT
N. CO-INSURANCE CLAUSE with marine insurance;
II. FIRE INSURANCE c. Precious stones, jewels, jewelry
A. RISKS COVERED and precious metals whether in
B. PREREQUISITES TO RECOVERY the course of transportation or
C. SPECIAL CLAUSES IN FIRE otherwise; and
INSURANCE CONTRACTS d. Bridges, tunnels, piers, docks and
III. CASUALTY OR ACCIDENTAL other aids to navigation and
INSURANCE transportation. (Sec. 99)
A. DEFINITION
e. Cargo can be the subject of ma-
B. KINDS
C. INTENTIONAL VS. ACCIDENTAL rine insurance, and once it is en-
TEST tered into, the implied warranty
IV. MOTOR VEHICLE of seaworthiness immediately at-
COMPULSORY INSURANCE taches to whoever is insuring the
A. DEFINITION cargo, whether he be the
B. METHODS OF COVERAGE shipowner or not. (Roque v. IAC,
C. PARTIES AFFECTED 1985).
D. NO-FAULT CLAUSE 2. Marine Protection and Indemnity
E. SPECIAL CLAUSES
Insurance
I. Marine Insurance
D. Parties with Insurable
A. Definition Interest
Insurance against risks connected with 1. Shipowner
navigation, to which a ship, cargo, a. Over the vessel to the ex-
freightage, profits or other insurable tent of its value
interest in movable property, may be Exceptions:
exposed during a certain voyage or a  if chartered, the insurable in-
fixed period of time. (Sec. 99) terest is only up to the
amount not recoverable from
the charterer. (Sec. 100).
B. Kinds of Marine Insurance If the charterer compensated
the shipowner the whole
Ocean Marine Inland Marine value in case of the loss, NO
Insurance Insurance
INSURABLE INTEREST
an insurance it is of comparatively
 If hypothecated by bottomry,
against risk recent origin and covers
connected with primarily the land or over the insurable interest is only
navigation, to the land transportation the excess of its value over
which a ship, perils of property shipped the amount secured by bot-
cargo, by railroads, motor tomry. (Sec. 101)
freightage, trucks, airplanes, and
profits or other other means of
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts
b. Over expected freightage. deemed as private carrier so required
(Sec. 103). carrier to exercise
 If price is to be paid for the Extraordinary
carriage of goods: insurable diligence

INSURANCE LAW
interest exists when goods
are:
a. Actually on board G. Implied warranties
b. There is some contract for
putting the goods on 1. That the ship is seaworthy at the
board inception of the insurance (Sec. 113)
c. Both ship and goods are 2. That the ship will NOT deviate from
ready for the specific voy- agreed voyage unless deviation is
age (Sec. 104) proper (Sec. 123, 124, 125)
3. That the ship will NOT engage in an
2. Cargo owner illegal venture
Over the cargo and expected profits 4. Warranty of possession of documents
(Sec. 105). of neutrality; that the ship will carry
the requisite documents of
3. Charterer nationality or neutrality is expressly
1. Over the vessel up to the extent warranted
of the amount he is liable to the 5. Presence of insurable interest
shipowner, if the ship is lost or
damaged during the voyage (Sec. H. Seaworthiness
106)
2. Over his expected profits or  When the ship is reasonably fit to
freightage if he accepts cargoes perform the service and to encounter
from the other persons for a fee. the ordinary perils of the voyage
3. Over his own cargo or his client’s contemplated by the parties to the
cargo. (SUNDIANG) policy,
Considering the nature of the ship,
E. Perils of the Sea vs. Perils of the voyage and the service to be
the Ship performed (Sec. 114)
(Asked in 98)
Requisites of Seaworthiness—
Perils of the Sea Perils of the Ship  Extends not only to condition of
Covered by Not covered by marine ship’s structure, but requires
marine insurance insurance (Sec.116):
Denote nature Go Tiaoco v. Union 1. Ship to be properly laden
accidents peculiar Insurance(1919): 2. Competent master
to the sea which 1. Natural and 3. Sufficient number of competent
1. do not happen inevitable
officers and seamen
by 2. Ordinary wear and
intervention of tear 4. Requisite appurtenances and
man 3. Negligent failure of equipment
2. cannot be ship owner to 5. In a fit state as to repair, equipment,
prevented by provide proper crew and in all other respects to
human equipment perform the ordinary perils of
prudence navigation
6. Must also be in a suitable condition
F. Bareboat Charter vs. to carry the cargo put on board or
Contract of Affreightment intended to be put on board.

Demise/Bareboat Contract of General Rule

charter Affreightment  The warranty of seaworthiness is
Charterer regarded as Owner of vessel complied with if the ship be
owner of vessel leases part or all of seaworthy at the time of the
voyage stipulated its space to haul commencement of the risk.
as the charter includes goods for others
Prior or subsequent unseaworthiness
both the vessel and its
crew
is not a breach of the warranty nor is
Charter is liable Shipowner liable it material that the vessel arrives in
Common carrier is Still a common safety at the end of her voyage.
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts
Exceptions commencement of an entirely different
1. Time policy - the ship must be sea- voyage (Sec.123)
worthy at the commencement of ev-
ery voyage she may undertake (Sec.  Instances of deviation:

INSURANCE LAW
115a) 1. the course of the sailing fixed by
2. Cargo policy - each vessel upon mercantile usage
which the cargo is shipped or trans- 2. Departure of vessel from the
shipped must be seaworthy at the most natural, direct and
commencement of each particular advantageous route if not fixed
voyage (Sec. 115b) by mercantile usage
3. Voyage policy -contemplating a 3. Unreasonable delay in pursuing
voyage in different stages, the ship voyage
must be seaworthy at the com- 4. Commencement of an entirely
mencement of each portion different voyage (Secs. 121-123)
4. Ship becomes unseaworthy dur-
ing the voyage to which an insur-  Instances of Proper Deviation
ance is related, delay in repairing the 1. When caused by circumstances
defect exonerates the insurer on ship outside the control of the ship
or shipowner’s interest from liability captain or ship owner.
from any loss arising therefrom. 2. When necessary to comply with a
(Sec. 118) warranty or to avoid a peril;
3. When made in good faith to avoid
Scope of Seaworthiness— a peril;
1. INSURANCE ON CARGO: 4. When made in good faith to save
it must be properly loaded, stowed, human life or to relieve another
dunnaged, and secured so as not to vessel in distress (Sec. 124)
imperil the navigation of the vessel
to cause injury to the vessel or J. Concealment
cargo.
2. INSURANCE ON VESSEL: ship is  Belief and expectation of a third
not unseaworthy because of some person in reference to a material fact
defect in loading or stowage which is is material and must be disclosed
easily curable by those on board, and (Sec. 108).
was cured before the loss. This is contrary to the general rule
2. DECK CARGO: carrying it that matters of belief, judgment or
raises a presumption of opinion of third persons, except
unseaworthiness which can be experts, are not material.
overcome only by showing
affirmatively that the deck cargo was  General Rule
not likely to interfere with the due Concealment of the following
management of the vessel. matters will NOT vitiate the marine
insurance contract:
Due diligence not a defense  National character of the insured
 Warranty precludes an defense that  Liability of insured thing to
insured had exercised due diligence capture or detention
to make the ship seaworthy  Liability to seizure from breach of
 Ship must ACTUALLY be seaworthy. foreign laws
 Want of necessary documents
Seaworthiness as to cargo—  Use of false or simulated papers
 Ship may be seaworthy for purpose
of insurance on the ship, but may Exception
still be unseaworthy for purpose of When the matters above are the
insurance of the cargo. cause of the loss

I. Improper Deviation
(Asked in 05)

A departure from the course of the

voyage insured, or an unreasonable
delay in pursuing the voyage or the
 REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts

Marine Insurance Other Insurance

INSURANCE LAW
What Must Be Communicated (in GF + w/n his knowledge
 all facts material to the contract  all facts material to the contract
 all facts which he makes no warranty  all facts which he makes no warranty
 all facts which the other has not the means of  all facts which the other has not the means of
ascertaining (Sec. 28) ascertaining (Sec. 28)
 all information which he possesses material to
the risk
What Need Not Be Communicated (Sec. 30)
Information
1. already known to the other party
2. the other party ought to know w/ exercise of ordinary care + the former has no reason to
suppose him ignorant
3. already waived
4. related to a risk excluded by a warranty + not material
5. related to a excepted risk + not material
Information or Belief of a 3rd Party
Material and must be communicated General Rule—
Not material, need not be communicated

Exception—
proceeds from an agent of the insured whose duty
is to give information
Effect of concealment
If the fact concealed involves the following, there Concealment of any material fact will vitiate the
is not vitiation of the entire contract BUT merely entire contract, WON the loss results from the fact
exonerates the insurer from a risk resulting from concealed.
the concealed fact:
 The national character of the insured;
 The liability of the thing insured to capture and
detention;
 The liability to seizure from breach of foreign
laws of trade;
 The want of necessary documents;
 The use of false and simulated papers. (Sec.
110)

K. Average
General Average Particular Average
All expenses and damages which are All expenses and damages caused to the vessel or
deliberately caused in order to save the vessel, cargo which have not incurred to the common
its cargo or both from a real known risk benefit

Intentionally caused NOT intentionally caused

Borne by owners of articles saved pro-rata Borne only by the owner of the property
1. Common danger: Certain and imminent (and
known)
2. Part of the vessel is sacrificed
3. Expenses follows from the successful saving
of the vessel or other cargo
4. Expenses incurred ONLY after taking proper
legal steps and authority (Magsaysay v. Agan,
1955)

GR: Insurer Liable if the owner of the articles GR: Insurer Liable to the proportion of
saved seeks right of contribution. contribution attaching to the policy value of the
X: Cannot recover against the insurer thing insured
1. After separation of interests liable to X: if partial loss excluded by the policy
contribution
2. Insured has neglected or waived his right
to contribution
 REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts

INSURANCE LAW
L. Loss

Actual Constructive
1. Total destruction; 1. Actual loss of more than
2. Irretrievable loss by sinking; ¾ of the value of the object;
3. Damage rendering the thing valueless; or 2. Damage reducing value
4. Total deprivation of owner of possession of by more than ¾ of the value of the vessel
thing insured. (Sec. 130) and of cargo; and
3. Expense of transshipment exceed ¾ of value
of cargo or the ship. (Sec. 131, in relation to
Sec. 139)
Notice of Abandonment not necessary  Notice of Abandonment necessary to
recover as for the total loss; insured may:
1. Abandon goods or vessel to the insurer and
claim for whole insured value (Sec. 139)
2. Without abandoning vessel, claim for partial
actual loss (Sec. 155)
May be presumed from the continued absence of --
a ship without being heard of (length of time for
presumption to apply depends on the
circumstances) (Sec. 132)
Insured entitled to payment without notice of 1. Insured has the right to abandon the thing
abandonment insured by relinquishing to the insurer his
interest in such thing, entitling him to
recover for a total loss thereof (Sec. 138)
2. Insurer acquires all rights over the thing
insured (Sec. 146)
3. If abandonment is not proper or properly
made, the insurer would still be liable as
upon the Actual Total Loss, deducting from
the amount any proceeds from the thing
insured which may have come to the hand
of the insured.

M. Abandonment 4. It must be within a reasonable

time after the receipt of reliable
 Abandonment is the act of the insured information of the loss (Sec. 141)
by which, after a constructive total 5. It must be factual (Sec. 142)
loss, he declared the relinquishment to 6. It must be made by giving notice
the insurer of his interest in the thing thereof to the insurer which may
insured. (Secs. 138 - 155) be done orally or in writing (Sec.
 The insured has right to abandon ONLY 143)
if peril insured against causes a loss of 7. Notice must be explicit and
more than ¾ the thing insured or must specify the particular
where the value is reduced by more cause of the abandonment (Sec.
than ¾ 144)

Constructive loss = more than 75% loss  Effects of Acceptance

= full recovery of the full amount in the 1. Upon receiving notice of
policy) abandonment, the insurer may
accept or reject abandonment.
 Requisites 2. Insurer becomes liable for
1. There must be actual whole amount of insurance and
relinquishment by the person becomes entitled to all the
insured of his interest in the thing rights which the insured has over
insured (Sec. 138) the thing
2. There must be constructive total 3. The parties’ rights become fixed.
loss (Sec. 139). 4. The insurer may no longer rely
3. It must be total and absolute on any insufficiency in the
(Sec. 140) form, time or right of
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts
abandonment. WON the insured 4. Tornado
has a right to abandon is 5. Earthquake
immaterial where offer is already 6. Other allied risks
accepted and there is no fraud.

INSURANCE LAW
5. EXCEPTION to the general effects
of acceptance: when the ground Hostile Fire Friendly Fire
upon which it was made proves to Fire that escapes Fire that burns in a
be unfounded. and burns in a place place where it is
6. Abandonment can be sustained where it is not supposed to burn. It
supposed to be. May is employed for the
only upon the ground specified
also refer to fire that ordinary purpose of
in the notice started out as a lighting, heating or
N. Co-insurance Clause friendly fire but manufacturing.
escapes from its
 Where the property is insured for less original place or it
than its value, the insured is consid- becomes too strong
ered a co-insurer for the difference be- as it becomes out of
tween the amount of insurance and control; It may also
the value of the property. be a friendly fire but
unsuitable materials
 Requisites were used to light
1. The loss is partial the fire and
2. The amount of insurance is less becomes inherently
than the value of the property dangerous and
insured. uncontrollable
 Formula to determine the extent of the Insurer liable Insurer NOT Liable
insurer’s liability:
B. Prerequisites to recovery:
Loss x Insurance = Insurer’s
Value Liability 1. Notice of loss – must be immediately
(SUNDIANG) given, unless delay is waived expressly
or impliedly by the insurer
NOTE: 2. Proof of loss – according to best evi-
 It is very crucial to determine whether dence obtainable. Delay may also be
a marine vessel is covered by a marine waived expressly or impliedly by the
insurance or fire insurance. insurer
The determination is important for 2
reasons:
1. Rules on constructive total loss and C. Special clauses in Fire
abandonment – applies only to Insurance contracts
marine insurance
2. Rule on co-insurance – applies 1. Storage of Hazardous Things
primarily to marine insurance General Rule
3. Rule on co-insurance applies to fire
insurance only if expressly agreed Render policy void
upon (AGBAYANI, OPINION).
Exception—
a. Essential to business
II. Fire Insurance b. Causal/temporary use
(Asked in 01) c. Would not increase the risk insured
against
Sec. 167. As used in this Code, the term "fire 2. Sole and unconditional ownership
insurance" shall include insurance against a. Sole: no one else has any interest
loss by fire, lightning, windstorm, tornado or b. Unconditional: quality of ownership
earthquake and other allied risks, when such not limited or affected by
risks are covered by extension to fire insur- accommodation
ance policies or under separate policies.
3. Other insurance clause: Insured
should inform the insurer about any
A. Risks Covered existing insurance over the property
insured and should obtain the latter’s
1. Fire consent to any future additional
2. Lightning insurance thereon, under the penalty
3. Windstorm
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts
of forfeiting all the benefits under the C. “Intentional” vs. “Accidental”:
policy. test
4. Chattel mortgage clause: The policy
will become void if the insured

INSURANCE LAW
1. Intentional –
property should be subject of a chattel Implies the exercise of the reasoning
mortgage without the consent of the faculties, consciousness and volition.
insurer. Where a provision of the policy
5. Alienation clause: The interest of the excludes intentional injury, it is the
insured in the policy would be forfeited intention of the person inflicting the
if the insured property is alienated injury that is controlling.
without the consent of the insurer. If the injuries suffered by the insured
However, even without such a clearly resulted from the intentional
stipulation, the lack of insurable act of the third person, the insurer is
interest of the insured at the time of relieve from liability as stipulated
the loss would prevent the insured (Biagtan v. the Insular Life Assurance
from recovering under Sec. 19 Co. Ltd., 1972).
(CAMPOS). 2. Accidental – That which happens by
6. Unoccupancy and vacancy clause: chance or fortuitously, without
aims to prevent risk. intention or design, which is
7. Nonsafe clause: Put records of unexpected, unusual and unforeseen.
changing stocks inside fire-proof vault
to prevent guesswork
IV. Compulsory Motor Vehicle
III. Casualty or Accidental Insurance
Insurance
A. Definition
A. Definition
 A species of compulsory insurance that
Sec. 174. Casualty insurance is insurance provides for protection coverage that
covering loss or liability arising from accident will answer for legal liability for losses
or mishap, and damages for bodily injuries or
excluding certain types of loss which by law or
property damage that may be
custom are considered as falling exclusively
within the scope of other types of insurance sustained by another arising from the
such as fire or marine. use and operation of motor vehicle by
It includes, but is not limited to, employer's its owner. (Secs. 373 - 375)
liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and B. Methods of Coverage
theft insurance, personal accident and health
insurance as written by non-life insurance 1. Insurance policy
companies, and other substantially similar
2. Surety bond
kinds of insurance.
3. Cash deposit
B. Kinds C. Parties affected
1. Employer’s liability 1. Owner of vehicle: the actual legal
insurance: damages or injury to owner of a motor vehicle, in whose
workmen as caused by name such vehicle is duly registered
2. Motor vehicle insurance with the Land Transportation
(see later section) Commission;
3. Plate gloss insurance: 2. Passenger: any fare paying
against loss from braking of glass person being transported and
windows conveyed in and by a motor vehicle for
4. Burglary and theft insurance transportation of passengers for
5. Personal accident and compensation, including persons
health insurance: from expense and expressly authorized by law or by the
loss in injuries or diseases vehicle's operator or his agents to ride
6. Workmen’s Compensation without fare
insurance: industrial accident, causally 3. Third-party: any person other
or disease than a passenger as defined in this
section and shall also exclude a
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts
member of the household, or a
member of the family within the
second degree of consanguinity or
affinity, of a motor vehicle owner or

INSURANCE LAW
land transportation operator, as
likewise defined herein, or his
employee in respect of death, bodily
injury, or damage to property arising
out of and in the course of
employment. (As amended by
Presidential Decree No. 1814 and
1981).
REVIEWER IN COMMERCIAL LAW Chapter VIII. Special Kinds of Insurance Contracts

D. “No-fault clause”
(Asked in 94)

INSURANCE LAW
 A clause that allows the victim (injured
person or heirs of the deceased) an
option to file a claim for death or injury
 without the necessity of proving fault
or negligence of any kind (Sec. 378)

Note: Sec. 378 refers only to death or

injury of the passenger or third party.
Hence, damages to property are NOT
covered by the provisions on “no-fault”
insurance. In such cases, the liability of
the insured for such damages must be
established.

Rules
1. Total indemnity - maximum of P5,000
2. Proofs of loss
a. Police report of accident;
b. Death certificate and
evidence sufficient to establish
proper payee;
c. Medical report and evidence
of medical or hospital
disbursement.
3. Claim may be made against one motor
vehicle only
4. Proper insurer from which to claim -
a. In case of an occupant: Insurer of
the vehicle in which the occupant is
riding, mounting or dismounting
from;
b. In any other case: Insurer of the
directly offending vehicle. (Sec.
378)

E. Special Clauses

1. Authorized Driver Clause (Asked in

91, 93): 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

2. Theft Clause: A clause which includes

theft as among the risks insured
against.

3. Cooperation Clause: A clause which

provides in essence that the insured
shall give all such information and
assistance as the insurer may require,
usually requiring attendance at trials
or hearings
REVIEWER IN COMMERCIAL LAW Chapter IX. Claims, Settlement, and Subrogation

Chapter IX. Claims, Settlement,

and Subrogation
Proximate Cause Remote Cause
An event that sets all An event preceding

INSURANCE LAW
IX. LIABILITY FOR LOSS other events in another in a causal
X. REQUISITES FOR RECOVERY FROM motion without any chain, but separated
INSURANCE intervening or from it by other
XI. NOTICE AND PROOF OF LOSS independent case, events
XII. CLAIMS SETTLEMENT without which the
XIII. PRESCRIPTION OF ACTION injury or loss would
XIV. TIME OF PAYMENT not have occurred.
XV. SUBROGATION
XVI. INSURANCE COMMISSION
III. Notice and Proof of Loss
I. Liability for Loss
(Asked in 96, 05, 07) A. Notice of Loss - The formal notice
given the insurer by the insured or
Loss for which Loss for which
insurer is liable insurer is not
claimant under a policy of the
liable occurrence of the loss insured against.
Loss the proximate Loss by insured’s  The purpose is to apprise the
cause of which is the willful act; insurance company so that it may
peril insured against make proper investigation and take
(Sec. 84); such action as may be necessary to
protect its interest.
Loss the immediate Loss due to  It is necessary as the insurer
cause of which is the connivance of the cannot be liable to pay a claim
peril insured against insured (Sec. 87);
unless he receives notice of that
except where and
proximate cause is an
claim.
excepted peril;  Under Sec. 88 insurer is
Loss through Loss where the ex- exonerated if notice of loss is not
negligence of insured cepted peril is the given to the insurer by the insured
except where there proximate cause. or by the person entitled to the
was gross negligence benefit without unnecessary delay.
amounting to willful  It has been held however that
acts; and formal notice of loss is not
Loss caused by necessary if insurer has actual
efforts to rescue the
notice of loss already.
thing from peril
insured against;
In fire insurance In other types of
insurance
If during the course
Required Not required
of rescue, the thing Failure to give notice Failure to give
is exposed to a will defeat the right notice will not
peril not insured of the insured to exonerate the
against, which recover. insurer, unless there
permanently is a stipulation in the
deprives the policy requiring the
insured of its insured to do so.
possession, in
whole or in part B. Proof of Loss - The formal evidence
(Sec. 85). given the insurance company by the
insured or claimant under a policy of
the occurrence of the loss, the
II. Requisites for Recovery From particulars and the data necessary to
Insurance (IPL-p) enable the company to determine its
liability and the amount.
1. The insured must have insurable  Is not tantamount to proof or
interest in the subject matter; evidence under the law on
2. That interest is covered by the policy; evidence.
3. There must be a loss; and  Proof of loss is intended to:
4. The loss must be proximately caused
by the peril insured against.
REVIEWER IN COMMERCIAL LAW Chapter IX. Claims, Settlement, and Subrogation
 Give the insurer information by provisions relating to coverages at
which he may determine the issue;
extent of his liability. 2. Failing to acknowledge with
 Afford him a means of detecting reasonable promptness pertinent

INSURANCE LAW
any fraud that may have been communications with respect to
practiced upon him. claims arising under its policies;
IV. Claims Settlement 3. Failing to adopt and implement
reasonable standards for the
A. No insurance company doing business prompt investigation of claims
in the Philippines shall refuse, without arising under its policies;
just cause, to pay or settle claims 4. Not attempting in good faith to
arising under coverages provided by effectuate prompt, fair and
its policies, nor shall any such equitable settlement of claims
company engage in unfair claim submitted in which liability has
settlement practices. (Sec. 241) become reasonably clear;
5. Compelling policyholders to
B. Unfair Claims Settlement institute suits to recover amounts
due under its polices by offering
 Sec. 241 (1) provides instances of without justifiable reason
unfair claims settlement done by substantially less than the amounts
an insurance company: ultimately recovered in suites
1. Knowingly misrepresenting to brought by them.
claimants pertinent facts or policy
CLAIMS LIFE INSURANCE NON-LIFE INSURANCE
Maturity 1. Upon death of the  Upon happening of event
person insured; insured against
2. Upon his surviving a
specific period  Event must occur within the
3. Otherwise contingently period specified in policy,
on the continuance or otherwise insurer has no
cessation of life (Sec. 180) liablity
Delivery of Proceeds GENERAL RULE:  Within 30 days after
 Immediately upon (1) Proof of loss is received by
maturity of policy. insurer; and
(2) Ascertainment of loss or
EXCEPTION: damage is made either by
 If payable in agreement between the
INSTALLMENTS or as insured and insurer or by
an ANNUITY, when arbitration
such installments or
annuities become due  If ascertainment not made
within 60 days after such
IF MATURITY IS UPON DEATH: receipt by insurer of proof of
 Within 60 days after loss, loss or damage shall be
presentation of claim paid within 90 days after such
and filing of proof of receipt.
death of insured.
Effect of Refusal or Failure  Entitles beneficiary to  Entitles beneficiary to
to pay claim within time collect interest on the collect interest on the proceeds
prescribed: proceeds of policy for the of policy for the duration of the
duration of the delay at delay at rate of twice ceiling
 In case of litigation,
rate of twice ceiling prescribed by the monetary
it is the duty of the
prescribed by the board (unless refusal to pay is
Commissioner or the
monetary board (unless based on ground that claim in
Court to determine WON
refusal to pay is based on fraudulent)
claim has been
ground that claim in
unreasonably denied of
fraudulent)  In case damages awarded,
withheld.
this includes attorney’s fees
 Failure to pay any  In case damages and other expenses incurred
such claim within the awarded, this includes due to delay (plus the interest)
time prescribed shall be attorney’s fees and other
considered prima facie expenses incurred due to
evidence of delay (plus the interest)
unreasonable delay in
REVIEWER IN COMMERCIAL LAW Chapter IX. Claims, Settlement, and Subrogation
payment.

INSURANCE LAW
V. Prescription of Action
(Asked in 96) VI. Time of Payment

Sec. 63. A condition, stipulation, or agreement LIFE POLICIES NON-LIFE

in any policy of insurance, limiting the time for POLICIES
commencing an action thereunder to a period Maturing upon the The proceeds shall
of less than one year from the time when the expiration of the be paid within 30
cause of action accrues, is void. term – The proceeds days after the
are immediately receipt by the
Rules: payable to the insurer of proof of
1. In the absence of an express insured, unless they loss, and
stipulation in the policy, it being based are made payable in ascertainment of the
installments or as loss or damage by
on a written contract, the action
annuity, in which agreement of the
prescribes in 10 years. case, the parties or by
2. However the parties may validly agree installments or arbitration but not
on a shorter period provided it is not annuities shall be later than 90 days
less than one year from the time the paid as they become from such receipt of
cause of action accrues. In motor due. proof of loss whether
vehicle insurance, action prescribes in or not ascertainment
one year. is had or made.
3. The cause of action accrues from the Maturing at the
rejection of the claim of the insured death of the
insured, occurring
and not from the time of loss.
prior to the
 The period for filing expiration of the
claim is not merely a procedural term stipulated –
requirement. The proceeds are
It is essential for the prompt payable to the
settlement of claims as it demands beneficiaries within
for suits to be brought while the 60 days after
evidence as to the origin and cause presentation and
of the loss or destruction has not filing of proof of
death.
yet disappeared.
It is a condition precedent to the
insurer’s liability or a resolutory
cause in case the action is not filed VII. Subrogation
by the insured within the stipulated
period. Normal incident of indemnity insurance as
 The Insurance a legal effect of payment; insurer steps
Commissioner has the power to into the shoes of insured
adjudicate disputes relating to an
insurance company’s liability to an Note: There is only subrogation in
insured under a policy. property insurance.
A complaint or claim filed with such
official is considered an “action” or
Rules:
“suit” the filing of which would
1. NO need of a formal assignment or an
have the effect of tolling the
express stipulation in the policy. It is a
suspending the running of the
legal effect of payment.
prescriptive period.
2. The insurer can only recover from the
third person what the insured could
Art. 1144. The following action must be
have recovered. Thus, there can be no
brought within ten years from the time the
right of action accrues:
recovery if the insurer voluntarily paid
even if the loss is not covered by the
(1) Upon a written contract;
policy.
(2) Upon an obligation created by law
3. The insured can no longer recover
(3) Upon a judgment. (n)
from the offended party what was paid
to him by the insurer but he can
recover any deficiency, that is, if his
damages is more than what was paid.
The deficiency is not covered by the
right of subrogation.
4. The insurer must present the policy as
evidence to determine the extent of its
coverage (Wallen Phil. Shipping vs.
Prudential Guarantee, 2003).
 Cases Where There is No B. Circumstances when the
Right of Subrogation Commissioner May Revoke or
1. Where the insured by his own act re- Suspend the License of an
leases the wrongdoer or third party li- Insurer
able for the loss or damage;
2. Where the insurer pays the insured 1. If insurance contract is in unsound
the value of the loss without notifying condition (Sec. 247).
the carrier who has in good faith set- 2. If it has failed to comply with the
tled the insured’s claim for loss; provisions of law or regulations
3. Where the insurer pays the insured for obligatory upon it (Sec. 247).
a loss or risk not covered by the policy 3. Its conditions or methods of business is
(Pan Malayan Insurance Company v. such as to render its proceedings
CA, 1997). hazardous to the public or to its policy
4. In life insurance holders (Sec. 247).
5. For recovery of loss in excess of insur- 4. That its paid up capital stock, or its
ance coverage (DE LEON). available cash assets, or its security
deposits, as the case may be, is
Manila Mahogany vs. CA (1987): By the act of impaired or deficient (Sec. 247).
Manila Mahogany issuing a release claim to
5. That the margin of solvency required
SMC, the right of Zenith against SMC is nullified
since the insurer can be subrogated to only of each company is deficient (Sec.
such rights as the insured may have, should 247).
the insured, after receiving payment from 6. That the insurer engages in unfair
the insurer, release the wrongdoer who settlement practices (Sec. 241).
causes the loss, the insurer loses his
rights against him. But in such a case the
insurer will be entitled to recover from the
insured whatever it has paid, unless it was
made with the consent of the insurer.

VIII. Insurance Commission

A. Jurisdiction of Insurance
Commission (Sec. 416)

 Includes the following as long as any

SINGLE CLAIM, excluding interests,
costs and attorney’s fees, does
NOT EXCEED 100,000.00:
1. Claims and complaints involving
liability of insurer under any kind of
policy or contract
2. Suretyship
3. Reinsurance
4. Mutual Benefit membership
certificates

NOTE:
The Insurance Commission has
concurrent jurisdiction with the regular
courts to hear and decide claims for
which an insurer may be answerable.
- end of Insurance Law -