TRS INevITUeS Wem ae ae 1, It is an agreement whereby one undertakes for a consideration indemnify another against loss, damage or liability arising from unknown or contingent event. A. Contract of Loan, B. Contract of Mortgage. C. Contract to sell. D. Contract of Insurance. Contract of Insurance A contract of iistirance is an agreement whereby one undertakes for a consideration to’indemnify-another-againstlossydamageror"liability arising from anunknownior‘continigentieventsJust like any other contract, it requires a.cause or consideration. The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy. [fnot so paid, the policy The law, however, limits the parties' autonomy as to when payment of | premium may be made for the contract to take effect. The general rule in insurance laws is thatunless:therpremitim is\paid) thes valid. and binding: Contract of Suretyship A is an agreement whereby a party called the | surety guarantees the performance'by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee (Sec. 177, The Insurance Code). A contract of suretyship shall be'deemed to be an insurance contraee only ifmadeby'a Siirety who or which, as suchsis doing:aninsurance:business:. The term doing an insurance business or transacting an insurance business shall include: A. Making or proposing to make, as insurer, any insurance contract, B. Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. C. Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business, 3 D. All of the above? ee eee ese * Suggested answer: D ? Suggested answer: DDoing an Insurance Business or Transacting an Insurance Business The term doing an insurance business or transacting an insurance business shall include: 1. Making or proposing to make, as insurer, any insurance contract; 2, Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; 3. Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of the Insurance Code; and 4, Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Code, 3. The following are the elements of an insurance contract, except one: A. The insured has an insurable interest. B. The insured is subject to a risk of loss by the happening of the designated peril. C. The insured assumes the risk. D. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk} = |. In an insurance contract, the consideration is the premium, which must be paid at the time and in the way and manner specified in the policy. IL. If the premium is not paid, the policy will lapse and be forfeited by its own terms. A. Only lis true B. Only Ilis true C. Bothare true D. Both are false* 5. Which one is not an element in an insurance contract? A. The insured has no insurable interest B. The insured is subject to a risk of loss by the happening of the designated peril. C. The insurer assumes the risk. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk. D. In consideration of the insurer's promise, the insured pays a premiumS 3 Suggested answer: C 4 Suggested answer: C * Suggested answer: ABlements of an Insurance Contract An insurance contract exists where the following elements concur; 1, The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designates peril 3. The insurer assumes the risk; 4, Such assumption of risk is part of a general scheme to distribute actuaj losses among a large group of persons bearing a similar risk; and 5, Inconsideration ofthe insurer’s promise, the insured pays a premium {Phiacare Heath sytem ne vs. Court of Appeals and lta Trios, GR. No. 125678, March 18,2002) Insurance Premium A is the.consideration paid by an'trsurer In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches (Gul Resorts Inc. vs Phlppine Charter Insurance Corp, GR. No. 156167, May 16,2005). = I. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer. II. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, A. Only listrue B. Only His true C. Both are true D. Both are false* Itis the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril. A. Cause B, Price C. Object D, Premium? x Test of Insurance Contract The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what itis called, Suggested answer: 7 Supgested answer: 4022 Note: Since a contract of insuranceinwaivespublicnwearet remuelationsy the State is necessary, Thus, no insurer or insurance company is allowed (0 erage in the insurance business withoueacenseora cerca of hort am the Ansurance Commission pwrte co Marie seve tee Peteer ‘The Steamship Mutuol Underwrting Asien (Rermads) Lt, GN 1 Interpretation of Insurance Contracts True, itis a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, ie, the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning_of particular provisions, the policy will be construed by the courts Liberally in favor of the assured and strictly against the insu rer, A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, the Court reiterated the above ruling, stating that: When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer, By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture (Aipha insurance and Surety Cu vs Arsena Sonia Castor, GR. No. 196174 September 2, 2013). While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Violeta R Latican vs The Insular Life Assurance Company Limite, GR. No. 18IS26, August 25,2009), It is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. A. Aleatory contract 403BR Contract of adhesion C. Mutuality of contract 1D. Consenceuality of contract® © |, Rasically, an insurance contract is a contract of indemnity, In it, om undertakes for a consideration to indemnify another against !o* damage or liability arising from an unknown or contingent event. Il, In the absence of statutory prohibition to the contrary, insuranes companies have the same rights as individuals to limit their liability ane to Impose whatever conditions they deem best upon their obligations not inconsistent with public policy, A. Only lis true B. Only His true C. Both are true D. Both are false? Characteristics of an Insurance Contract 1, Risk Distributing Device Note; The Supreme Court explained that in an insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular peril, who contributes premiums under the risk of receiving nothing in return in case the contingency does not happen; on the other, there is the insurer, who undertakes to pay the entire sum agreed upon in case the contingency happens. ha SERINE operates under a system insurer is able to meek Tes where by. prompt payment of the premiums, th needed to meet its contingent obligations to the public, The therefore, Sthevelixt? witde’or-source of life of the insurance business. aime T. Gaisano vs, Development ‘Insurance and Surety Corp, GR. No, 190702, February 27, 2017), 2, Aleatory By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the or which (s tosocoureateansindeterminatestimes (Article 2010, Civil Code of che Philippines), 3. Contract of Adhesion (“Fine Print”) A in Is defined as one in which onesofethe hich the other party may * Suggested answer; B Suggested answer: C 404accept or reject, but which the latter cannot modify. One party preptees the stipulatioWin the contract, while the other party merely affives hve ‘signature or his “adhesion” thereto, giving no room for negodiation and depriving the latter of the opportunity to bargain on equal footing. Ie muse be borne in mind, however, that contracts of adhesion are not invalid por se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres the contract is, in reality, free to reject it entirely; if he adheres, he gives his Consent (Norton Resources and Development Corp. vs. All Asia Bank Corp, GR Na 14252 Nirwember 25,2009). When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract - the insurer, By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture (Phitamcare Health Systems, Inc. vs Court of Appeals and Julita Trinos, GR. No, 125678, March 18, 2002). Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer, A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations (Malayan insurance Company, Inc. vs Philippines First Insurance Co, Inc. and Reputable Forwarder Services, Inc, GR. No. 184300, July 11, 2012). A contract of adhesion is so-called because its terms are prepared by only one party, while the other party merely affixes his signature signifying his adhesion thereto. Although not invalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing with the dominant bargaining party, and its option is reduced to the alternative of “taking it or leaving it," completely depriving such party of the opportunity to bargain on equal footing (Keppel Cebu Shipyard, Inc, vs, Pioneer Insurunce ‘and Surety Corp, GR. No. 180880-81, September 25, 2009). 4, Contract of Indemnity Basically, an insurance contract is accontract of indemnity. In it, one undertakes for aeconsidération*corndemnipranotieragainstiloss, }t (White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety Corp. and The Steamship Mutual Underwriting Association (Bermuda) Ltd, GR No, 154514, July 28,2005). An insurance contract is a contract of indemnity upon 7 and conditions specified therein, It is settled that i ana “ancFrnerance ond Surty Ca, nc vs Court of Appel and Producers Bank ofthe Philippines (i. Ma 1 ey 23.1998. 10, It includes marine protection and indemnity insurance. A. Fire insurance B. Marine insurance C._ Life insurance D. Casualty insurance!® 11, It includes insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. A. Fire insurance B. Marine insurance C. Life insurance D. Casualty insurance'! 12. It is an insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. A. Fire insurance B, Marine insurance C. Lifeinsurance D. Casualty insurance!2 13, It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and thet insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. A. Fire insurance B. Marine insurance C. Life insurance D, Casualty insurance!34, Itis an insurance on human lives and insurance appertaining theretw ar connected therewith. A. Compulsory Motor Vehicle Liability Insurance B. Marine insurance C._ Life insurance D. Casualty insurance! Pa Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under a retirement program where a life insurance company manages or acts as a trustee for such retirement program shall be considered a: A. Compulsory Motor Vehicle Liability Insurance B. Marine Insurance C. Life Insurance D. Casualty Insurance's 1 mS 16. Microinsurance is a financial product or service that meets the risk protection needs of the poor where: 1. The amount of contributions, premiums, fees or charges, computed on a daily basis, doesnot-exceed’7:5% of the current daily minimum wage rate for nonagricultural workers in Metro Manila. II. The maximum sum of guaranteed benefits isnotmorethana,000:tifies» ily mini for nonagricultural workers in Metro Manila. A. Only lis true B. Only Ilis true C. Both are true D. Bothare false’ 17. The policy refers to a contract of insurance against passenger and third- party liability for death or bodily injuries and damage to property arising from motor vehicle accidents. A. Compulsory Motor Vehicle Liability Insurance B, Marine Insurance C. Life Insurance D. Casualty Insurance!” Suggested answer: C 45 Suggested answer: C Suggested answer: C © Suggested answer; A 407CLASSES OF INSURANCE CONTRACT 1, Marine Insurance includes: (a) Insurance against loss of or damage to: (1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise effects, disbursements, profits, moneys, securities, choses in action, instruments of debts, valuable papers, bottomry, and respondentig interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks; (2) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles); (3) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; and (4) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage), piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (b) Marine protection and indemnity insurance, meaning insurance against, or against legal liability of thetinsuredsforslossidamagenontexpenserincident»to any vessel, Graft or instrumentality in use of including liability of the insured for personabinjurypilinessxordeathorfordoss of or damage to the property of another person(s jec. 101, R.A. 10607). 2, Fire Insurance The term fire insurance shall includetinsurancelaguinstlossibyifire, i when such risks are covered by extension to fire insurance policies or under separate Policies (Sec. 169, R.A. 10607), 3, Casualty Insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance reresuch as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance (see. 17 RA 10607). 4, Suretyship surety r who areijointlyinsiired, to the others, does | wt avoid an insurance even ME‘THE INSURANCE CODE / R.A. 10607 Note: Fvery stipulation in a policy of insurance for the payment of whether the person insured has or has not any interest in the proper*y’ ‘or thot the policy shall be received as proof of such interest, and ev®ry executed by way of gaming or wagering, is void. 28. A neglect to communicate that which a party knows and ought , communicate. A. Misrepresentation B. Concealment C. Praud D. Swindling?® 29. It exists where the assured had knowledge of a fact material to the r=: and honesty, good faith, and fair dealing requires that he shou communicate it to the assured, but he designedly and intention2! withholds the same. A. Misrepresentation B. Concealment C. Fraud D. Swindling?® ‘Concealment exists where the assured had knowledge of a {2 material to the risk, and honesty, good faith, and fair dealing requires that * should communicate it to the assured, but he designedly and intentionais withholds the same (Great Pacific Le Assurance Corp. vs Court of Appeals and Medarda ¥. Less ER No. 113899, October 13, 1999). 30, J, An intentional and fraudulent omission, on the part of one insured, 2 ‘communicate information of matters proving or tending to prove t falsity of a warranty, entitles the insurer to rescind, ~ 1, A concealment whether intentional or unintentional entitles the injure: party to nullify a contract of insurance. A. Only Sis true B. Onipilistrue ~~? 9S0N0 C. Both are true D. Both are false? 416A concealment whether intentional or unintentianat ontithes ole injured party colfBelteha contract of insurance Kee RESCIND Each party to a contract of insurance must@orimuntenternnthenesther ‘npn faith facts Within his kMOWledge which are MrAterlal she comer + and as to which hetit@R6s ho WaPFatEy and which the other has not the means of ascertaining, Note: Note: The fraudulent intent on the part ofthe insured must be established gMEAALTESTGION}Of the insurance contract. Concealment asa defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer (Phitamcare Heath Systems In. vs Court of Appeal and ult Tino ‘GR No, 125678 March 18 2002), Note: Neither party to a contract of insurance dtboundstarcommuniente ing, except in answer to the inquiries of the Those which the other knows; Those which, in the exercise of ordinary care, the and of which the former has no reason to supe? him ignorant; Those of which the. Those which prove or tend to prove the existence ofa riskeéxclide by, ind which are not otherwise material; and Those which relate to a risk excepted from the\plicyand which are ‘not otherwise material. nee Aw wn Materiality is to bewdetermined not by the event, but solelyebyethen ipon the party to whom the communication is due, in forming his estimateropthe'disadvantages of the proposed contract, or it ye 31. I, Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political pr material perils contemplated; and all general usages of trade, Il. The right to information of material facts may be waived, either by the terms of insurance or by neglegt to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated. A. Only lis trueTHE INSURANCE CODE / R.A, rv0w7 B. Only Ilis true C. Both are true D. Both are false*! Note: Neither party to a contract of insurance is hound to communtle even upon inquiry, information of his own judgment upon the matter question. pia 32. 1. A representation as to the future is to be deemed a promise, unless » appears that it was merely a statement of belief or expectation. Il. A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. A. Only Lis true B. Only Iis true C. Both are true D. Both are false? Representation A presentation of fact, either by words or by conduct, made to induce someone to act, especially to enter into a contract, especially, the manifestation to another that a fact, including a state of mind, exists. Affirmative Representation Arepresentation asserting the existence of certain facts about a given subject matter. Promissory Representation A representation about what one will do in the future; especially, a representation made by an insured about what will happen during the time oj coverage, stated as a matter of expectation and amounting to an enforceable promise (Black's Law Dictionary, 11° Edition p, 1556). 33. L Arepresentation is only written. Il, A representation may be made at the time of, or before, issuance of the policy, A. Only lis true B, Only Ilis true C, Both are true D, Both are false#3 Note: A representation may be oral or written. 0 Suggested answer: C 5 Suggested answer; C © Suggested answer: B 418a4, 1. A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation 1, A representation cannot qualify an express provision in a contract of insurance, but it may qualify an implied warranty. HL. A representation may be altered or withdrawn before the insurance is effected, but not afterwards, A. Only Lis true B. Only Land Hare true C. Only Hand Ware true D. Land Mlare true Note: When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information. 35. 1. Arepresentation must be presumed to refer to the date on which the contract goes into effect. Il. Arepresentation is to be deemed false when the facts fail to correspond with its assertions or stipulations, Ill. Ifa representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. A. Only lis true B. Only Ilis true C. Only lis true D, 1, Hand Ill are trues 36. It is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of fraudulent concealment or misrepresentation of the insured or his agent. A. Incontestability clause B, Contestability clause C. Concealment D. Representation36 Suggested answer: D ‘SSupgested answer: D * Suggested answer: A 3 41Purpose of Incontestability Clause (sec 4 The Insurance Cone) The purpose of the law is to give protection to the insured or beneficiary by limiting the rescinding of the contract of insurance o” ground of fraudulent concealment or misrepresentation to a period of 0” years from the issuance of the policy or its last reinstatement. The insurer is deemed to have the necessary facilities to discover fraudulent concealment or misrepresentation within a period of 2 year’ not fair for the insurer to collect the premiums as long as the insured is alive, only to raise the issue of fraudulent concealment or misrepresentatin, when the insured dies in order to defeat the right of the beneficiary to recov™ under the policy. Atleast 2 years from the issuance of the policy or its last reinstatemen, the beneficiary is given the stability to recover under the policy when the insured dies. The provision also makes clear when the 2-year period shou commence in case the policy should lapse and is reinstated, that is, from thy date of the last reinstatement. After 2 years, the defenses of concealment or misrepresentation, matter how patent or well founded, will no longer le. Congress felt this was a sufficient answer to the various tactic; employed by insurance companies to avoid liability. The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material fact insofar as health and previous diseases are concerned if the insurance has bees in force for at least 2 years during the insured’s lifetime. The phrase "during the lfetime® simply means thatthe policy isno longer considered in force afte the insured has died (Mania Bankers ie Insurance Corp. vs. Cresencia P. Aban, GR. No. 175666, !) 29,213), Note: The ultimate aim of Section 48 of the Insurance Code is to compe insurers to solicit business from or provide insurance coverage only legitimate and bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy and while the insured is still alive, If they do not, they will be obligated to honor claims on the polices they issue regardless of fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on their laurels indiscriminately soliciting and accepting insurance business from any Tom Dick, and Harry (Manila Bankers Life Insurance Corp, vs Cresencia P. Aban, GR. No. 175666, July 2 my. 37. The written instrument in which a contract of insurance is set forth, i called a: A. Policy of insurance B. Public policy C. Public morals 420p. Publicorder’” 38. It is one in which the value of the thing insured ¢ not agreed ver the amount of the insurance merely represents the ineure Jiability, The value of such thing insured shall he ascertain of the loss, ‘A. Open policy B. Valued policy ¢. Running policy D. None of the above 49, Itis one which expresses on its face an agreement that the thing insured ~~ shall be valued at a specific sum, A. Open policy B. Valued policy C. Running policy D. None of the above’? 40. Itis one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements. A. Open policy B, Valued policy C. Running policy D. None of the above’? Note: A policy is either open, valued or running. Rider An attachment to some document, such as an insurance policy, that amends or supplements the document (Black's Law Dictionary, 11% Edition, p 1531). Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a contract of insurance is set forth. Section 50 of the same Code provides that the policy, which is required to be in printed form, may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance. [¢ is thus 421‘THE INSURANCE CODE / RA, Tvows Bromple: An insurance policy at the time it was feced “automotic increase clause.” Although the clause wos only in 1984, it was written inta the policy at the tim ‘The distinctive feature of the junior estate builder ps “outomatic Increase clause” already formed part and parcel of insurance contract, hence, there was no need for.an execution wf st separate agreement for the increase in the coverage that took #ffives i 1984 when the assured reached a certain age (Commesoner of trees tovenier 1 Linn Pnnine Life Ieuramce Company Ire end the Court of Appwate GR Nw LENT Mere wm 41, A policy of insurance must specify: A B. C dD. ‘The parties between whom the contract is made. ‘The amount to be insured. ‘The premium. Allof the above. Note: 1 z 3 4 5 6 7. A policy of insurance must specify: ‘The parties between whom the contract is made; The amount to be insured except in the cases of open or running policie** The premium, or ifthe insurance is ofa character where the exact premiu*™ is only determinable upon the termination of the contract, a statement the basis and rates upon which the final premium is to be determined: The property or life insured; The interest of the insured in property insured, if he is not the absoluce owner thereof The risks insured against; and The period during which the insurance is to continue, 42. 1. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy. I. When an insurance contract is executed with an agent or trustee as tie insured, the fact that his principal or beneficiary is the real party ia interest may be indicated by describing the insured as agent or Wustee, or by other general words in the policy. Il], To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, ix \s necessary that the terms of the policy should be such as are applicabis to the joint or common interest. A. Only His true B, Only His true “Suggested answer: D 422¢. Only Land Ill are true D. TandIlare true’? 43. 1. When the description of the insured in a policy is so general that it may 45. comprehend any person or any class of persons, only he who can show that it was intended to include him, can claim the benefit of the policy. Il. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. Ill. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. A. Only Lis true B. Only Ilis true C. land Ilare true D. Only Illis true No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: A. Nonpayment of premium. B. Conviction ofa crime arising out ofacts increasing the hazard insured against. C. Discovery of fraud or material misrepresentation. D. Allof the above. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: A. Discovery of willful or reckless acts or omissions increasing the hazard insured against. B. Physical changes in the property insured which result in the property becoming uninsurable. C. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured. D. All of the above. Suggested answer: D © Suggested answer: C Suggested answer: D © Suggested answer: D 423Note: A condition, stipulation, or agreement in any policy of insurance limiting the time for commencing an action thereunder to a period of less tho» year from the time when the cause of action accrues, is void. Grounds for cancellation of a Non-life Policy 1, Nonpayment of premium; 2. Conviction of a crime arising out of acts increasing the hazard insures against; 3. Discovery of fraud or material misrepresentation; 4. Discovery of willful or reckless acts or omissions increasing the hazard insured against; 5. Physical changes in the property insured which result in the property becoming uninsurable; 6. Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or 7. A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of R.A. 10607. Requisite for Cancellation Prior notice of cancellation to insured; ; Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown inthe policy; and 4. Must state the grounds relied upon and upon request of insured, to furnish facts on which cancellation is based (Philamcare Health Systems, Inc. vs. Court of Appeas ‘and julita Trinos, G.. No. 125678, March 18, 2002). 46. It is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. A. Concealment B, Warranty C. Representation D, Misrepresentation's Warranty Warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the * Suggested answer: B 424insurer.” However, It 1s similarly indubltable that for the breach of a warranty toavold a policy, the same must be duly shown hy the party alleging the sare Breach of a warranty or of a condition renders the contract defeaubhe at the option of the insurer; but if he so elects, he may walve his privilege and power to rescind by the mere expression of an Intention ta do so In that event, his Hability under the policy continues as before (Prudential ovarantee ed Aewwrwere we vs ProntsAs Shipping Lines Inc, GH Mo 151090, June 20,2006), 47, 1. Awarranty must only be expressed. I, A warranty may relate to the past, the present, the future, of to any or all of these, III, No particular form of words Is nece A. Only Tis true B. Only Hand Il are true C. Only Ilare true D. 1,1, and Il are true‘? sary to create a warranty. Note: Awarranty is either expressed or implied. 48. 1, Every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it. Il. A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as fact, is an express warranty thereof, II, A statement in a policy, which imparts that it is intended to do or not to doa thing which materially affects the risk, is a warranty that such act or omission shall take place. A. Only lis true B. Only I and II are true C. Only Il and III are true D. land Ill are true’ Effect of breach of warranty The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind. Exceptions: 1. When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens; 2. Performance becomes unlawful at the place of the contract; or 3. Performance becomes impossible, © Suggested answer: B Suggested answer: D 42549. 1. When, before the time arrives for the performance of a warrin relating to the future, a loss insured against happens, or performan,, becomes unlawful at the place of the contract, or impossible, \, omission to fulfill the warranty does not avoid the policy. I1.A policy may declare that a violation of specified provisions thereof shay avoid it, otherwise the breach of an immaterial provision does not av the policy. Il, Abreach of warranty without fraud merely exonerates an insurer fron the time that it occurs, or where it is broken in its inception, preven, the policy from attaching to the risk. A. Only Lis true B. Only land Il are true C. Only Hand Il are true D. 1,l1,and Ill are true’? 50. It is the consideration paid by an insurer for undertaking to indemnify the insured against a specified peril. A. Consideration B. Premium C Cause D, Selling Prices 51, I. The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding. IL An acknowledgment in a policy or contract of insurance or the receipt of premium is prima facie evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. A. Only lis true B. Only Ilis true C. Both are true D. Bothare falseS! Premium An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty, and marine insurance, the premlum payable becomes a debt as soon as the risk attaches (Gulf Resorts Inc. vs, Philippine Charter Insurance Corp, GR. No. 156167, May 16, 2005). GENERAL RULE: ‘The general rulein insurance laws is that unless the premium is paid the insurance policy is not valid and binding. 5 Suggested answer: A 426Section 77 of the Insurance Code, applicable at the time of the issuance of the policy, provides: Sec. 77, An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies. In Tibay v. Court of Appeals, the Court emphasized the importance of this rule, The Court explained that in an insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular peril, who contributes premiums under the risk of receiving nothing in return in case the contingency does not happen; on the other, there is the insurer, who undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the insurance business: In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk- distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium without receiving anything therefor in case the contingency does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary, For what could prevent the insurance applicant from deliberately or willfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? xxx And so it must be, For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial 427