FIRST LECTURE VIDEO

Q. Give a brief history of the Insurance Law of the Philippines.

A. Insurance law in the Philippines was formerly included in the Code of

Commerce until the Insurance Act took effect on July 1915. The Insurance
Act in turn, was repealed by the Insurance Code embodied in Presidential
Decree No. 612 which was issued and made effective on December 18,
1974. To consolidate and codify all the insurance laws of the Philippines,
Presidential Decree No. 1460 enacted the Insurance Code of 1978 which
took effect on June 11, 1978.

The Insurance Code of 1978 was amended by Republic Act No. 10607
which embodies the new Insurance Code. It took effect fifteen days after it
was published on August 15, 2013.

Notwithstanding the changes brought about on the Insurance Act by the

Insurance Code of 1978 and Republic Act No. 10607, the latter two codes
like the former Insurance Act are still basically American in origin having
been patterned principally on the Civil Code of California.

Q. What are the new concepts introduced by the New Insurance Code
to enhance the business of Insurance?

A. The new Insurance Code introduces new concepts or provisions to

enhance the business of insurance, such as:

(1)Microinsurance;
(2) Bancassurance
(3) Trust for charitable uses.
(4) Trust business of insurance companies.

Q. What is microinsurance?

A. Microinsurance is a financial product or service that meets the risk

protection needs of the poor where:
"(a) The amount of contributions, premiums, fees or charges, computed on
a daily basis, does not exceed seven and a half percent (7.5%) of the current
daily minimum wage rate for nonagricultural workers in Metro Manila; and

"(b) The maximum sum of guaranteed benefits is not more than one
thousand (1,000) times of the current daily minimum wage rate for
nonagricultural workers in Metro Manila."

Q. What is Industrial Life Insurance?

A. Industrial life insurance means that form of life insurance under which the
premiums are payable monthly or oftener, if the face amount of insurance
provided in any policy is not more than five hundred times that of the current
statutory daily wage of the City of Manila, and if the words industrial policy
are printed upon the policy as part of the descriptive matter.

Such kind of policy shall not lapse for non- payment of premium if such non-
payment was due to the failure of the insurer to send its representative or
agent, to the insured at the residence of the insured or someplace indicated
by him for the purpose of collecting such premium. However, this does not
apply when the premium on the policy remains unpaid for a period of three
months or twelve weeks after the grace period has expired.

Industrial life insurance is usually acquired by those without a fixed income

or belonging to the low income bracket.

Q. Distinguish Microinsurance from Industrial Life Insurance.

A. Industrial Life Insurance may be distinguished from Microinsurance as

follows:

1.) The maximum amount of Industrial Life Insurance is 500 times that of
the current statutory daily wage in the City of Manila while Micro
insurance’s maximum is 1000 times of the current daily minimum wage
in. Metro Manila. Thus, while Micro insurance is for the "risk protection
of the poor", Industrial Life Insurance is for the protection of the poorer
people.

2.) Industrial Life Insurance shall not lapse for non-payment of premium. if
such non-payment was due to the failure of the insurer to send its
representative or agent to the insured at the residence of the insured
 or someplace indicated by him for the purpose of collecting such
premium," while failure to collect the-premium of Micro insurance is not
an excuse for non-payment of premium and the policy will lapse if the
premium is not paid;"

3.) In Industrial Life Insurance, the insured has a grace period of thirty
days within which to pay the succeeding premium while no such
privilege is provided in Micro insurance."

4.) Premiums of Industrial Life Insurance are payable monthly or oftener"

while such scheme is not provided for in Micro insurance.

Q. What are the laws governing insurance in the Philippines?

A. The laws governing insurance in their order of priority are: (a) Insurance
Code; (b) in the absence of applicable provisions in the Insurance Code, the
Civil Code and (c) in the absence of applicable provisions in the Insurance
and the general principles prevailing on Civil Code, the subject in the United
States, particularly in the State of California where our Insurance Code was
based.

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin

'Ma. Herrer, plaintiff and appellant, vs. SUN LIFE ASSURANCE
COMPANY OF CANADA, defendant and appellee.

Q. On September 24, 1917 Joaquin Herrer of Manila applied for a

contract of life insurance with Sun Life Assurance Co., with offices at
Montreal, Canada. The application was mailed to Sun Life Assurance
Co., and on November 26, the insurer gave notice of acceptance by
cable. On December 4 the policy was issued in Montreal. Atty. Torres
wrote Sun Life on December 18, that he was withdrawing his
application. Sun Life replied that the policy had been issued which was
received by Atty. Torres on December 21. The said notice of Sun Life
accepting the application was never received by Herrer who died on
December 20. The Insurance Act was silent as to a contract entered
into by Correspondence.

Issues:) What law should be applied? Was there a valid contract?

A. The Civil Code should be applied and under Article 1319 thereof, an
acceptance made by letter shall not bind the person making the offer except
from the time it came to his knowledge. There was no valid contract as
Herrer died without knowing the acceptance of his application."

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,

vs. CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO,
defendants-appellants.

Q. Buenaventura Ebrado, a married man, obtained a life insurance

policy and designated his Common-law wife as beneficiary. Upon
Buenaventura's death, Pascuala Ebrado, his widow contested the right
of Carponia to receive the proceeds of the policy. The Insurance Code
does not contain any specific provision applicable to the case.
However, Article 2012 provides, "any person who is forbidden from
receiving any donation under Article 739 cannot be named beneficiary
of a life insurance policy by the person who cannot make a donation to
him." Article 7393 declares as void those donations "made between
persons who were guilty of adultery or concubinage at the time
donation," Issues: (1) What law should be applied? (2) Should Carponia
be disqualified as beneficiary pursuant to the applicable provisions of
the Civil Code? (3) Who should recover the proceeds of the policy?

A. (1) There is no specific provision in the Insurance Code concerning the

right of a common law wife to be designated as beneficiary in a life insurance
policy and therefore, the provisions of the Civil Code should apply.

(2) The Civil Code provides, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make a donation to him." Article 739
declares as void those donations made between persons who were guilty of
adultery or concubinage at the time donation." Therefore, Carponia, the
common-law wife cannot recover the proceeds of the insurance policy.

(3) Pascuala the legal wife cannot recover because she is not a beneficiary.
The proceeds of the policy should go to the estate of Buenaventura."
PAZ LOPEZ DE CONSTANTINO, plaintiff and appellant, vs. ASIA LlFE
INSURANCE COMPANY, defendant and appellee.
[No. L-1670, August 31, 1950]
AGUSTINA PERALTA, plaintiff and appellant, vs. ASIA LIFE
INSURANCE COMPANY, defendant and appellee.

Q. Asia Life Insurance Co, insured the life of Arcadio Constantino for a
term of 20 years. The first premium covered the period up to September
26, 1942. After the first payment, no further premium was paid. The
insurer being an American corporation had to close its branch office in
Manila by reason of Japanese occupation i.e., from January 2, 1942,
until the year 1945. The insurer refused to pay the proceeds of the
policy and asserted the policy had lapsed for non-payment of
premiums. On the other hand, the beneficiary maintained that
inasmuch as the non-payment of premiums was the consequence of
war, it should be excused and should not cause forfeiture of the policy.
Issue: Was the policy effective despite non-payment of succeeding
premiums?

A. NO! Since the year 1917, the Philippine law on Insurance was found in
Act no. 2427, as amended, and the Civil Code. Act No. 2427 was largely
copied from the Civil Code of California. And therefore, our insurance law
should be supplemented by the general principles prevailing on the subject
in the United States. In determining the effect of non-payment of premiums
occasioned by war, the American cases may be divided into three groups,
the so called Connecticut Rule, the New York Rule, or the United States
Rule.

The United States Rule declares that the contract is not merely suspended,
but is abrogated by reason of non-payment of premiums, since the time of
payment is peculiarly of the essence of the contract. In keeping with such
legislative policy, the court felt no hesitation to adopt the United States Rule."
Hence, since this rule is adopted in the Philippines, the policy was
abrogated.

The first holds the view that "there are two elements in the consideration for
which the annual premium is paid — First, the mere protection for the year,
and second, the privilege of renewing the contract for each succeeding year
by paying the premium for that year at the time agreed upon. According to
this view of the contract, the payment of premiums is a condition precedent,
the non-performance would be illegal necessarily defeats the right to renew
the contract."
The second rule, apparently followed by the greater number of decisions,
hold that "war between states in which the parties reside merely suspends
the contracts of the life insurance, and that, upon tender of all premiums due
by the insured or his representatives after the war has terminated, the
contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended,
but is abrogated by reason of non-payments is peculiarly of the essence of
the contract. It additionally holds that it would be unjust to allow the insurer to
retain the reserve value of the policy, which is the excess of the premiums
paid over the actual risk carried during the years when the policy had been in
force. This rule was announced in the well-known Statham6 case which, in
the opinion of Professor Vance, is the correct rule.

Q. How may a contract of insurance be perfected?

A. A contract of insurance, like other contracts, must be assented to by both

parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract. There can be no contract of insurance unless
the minds of the parties have met in agreement. Hence, it is only when the
insurer accepts the application and communicates the same to the applicant
that the contract of and acceptance are made by Correspondence, the
acceptance shall not be binding until it has been made known to the one
making the offer." Aside from meeting of the minds of the parties, premium
on the policy must be paid before the contract can be valid and binding.

VIRGINIA A. PEREZ, petitioner, vs. COURT OF APPEALS and BF

LIFEMAN INSURANCE CORPORATION, respondents.

Q. Perez applied for life insurance coverage with the BF Lifeman

Insurance Corporation and immediately paid part of the premium. The
application was forwarded to the office of BF Lifeman at Gumaca,
Quezon for transmittal to its head office in Manila. Perez died before his
application was brought to the Manila Office of BF Lifeman. Without
knowing of his death, BF Lifeman approved the application and issued
the corresponding policy. The beneficiary filed a claim with the insurer
which refused to pay on the ground that the contract was not
perfected. Question: Was the insurance contract perfected?

A. The contract was not perfected. It is only when the insurer accepts the
application and communicates the same to the applicant and the latter pays
the premium while he is in good health that the contract of insurance is
perfected. The insurer's acceptance is manifested when it issues a
corresponding policy to the applicant. Perez died before his application was
brought to the head office of BF Lineman in Manila. There was absolutely no
way the acceptance of the application could have been communicated to the
applicant inasmuch as the applicant was already dead at that time. There
can be no contract pf insurance unless the minds of the parties have met in
agreement."

Q. How should a contract of insurance be construed?

"If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of the stipulations shall control."
This provision is akin to the "plain meaning rule" applied by Pennsylvania
courts, which assumes that the intent of the parties to an instrument is
embodied in the writing itself and when the words are clear and
unambiguous the intent is to be discovered only from the express language
of the agreement.

Hence, in case there is no doubt as to the terms of an insurance contract,

the provisions, must be construed in their plain, ordinary and popular sense.
However, when the terms of the policy are ambiguous,, uncertain or doubtful,
they should be interpreted strictly against the insurer and liberally in favor of
the insured because the insured has no voice in the selection of the words
used, and the language of the contract is selected by legal advisers of the
insurance company. In such case, ambiguous provisions are construed
strictissimi juris or of strictest terms" against the insurer.

Q. Why is a contract of insurance called a "contract by adhesion" or

"contract by adherence?

Insurance contracts are contracts of adhesion or by adherence, that is,

prepared only by the insurer and imposed upon parties dealing with it which
may not be changed, the latter’s participation in the agreement
being reduced to the alternative to "take it or leave it", in contrast to those
entered into by parties bargaining on an equal footing and, therefore, any
ambiguity thereon must be resolved against the insurer, the party preparing
the contract.

Q. What is contra proferentem rule?

Contra proferentem rule provides that in the interpretation of documents,

ambiguities are to be construed against the drafter. By its very nature, the
precept assumes the existence of an ambiguity in the contract, which is why
contraproferentem is also called the ambiguity doctrine. It is the same as an
adhesion contract principle.

Q .Felipe obtained a life insurance policy from Insular Life. On June 23,
1999, the policy lapsed due to non-payment of premiums. Felipe
applied for reinstatement of the policy which Insular Life approved with
the following changes on the policy: (1) Extra premium and (2) Waiver
of the accidental death benefit and premium disability. Felipe agreed to
the added conditions. Insula Life issued an endorsement stating "This
certifies that as agreed by the Insured, the reinstatement of this policy
has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999."
Felipe paid the adjusted premium on Dec. 27, 1999. Felipe died on Sept.
22, 2001. The beneficiaries filed a claim with the insurer which the latter
denied on the ground of concealment and misrepresentation. The
insurer claimed that the two-year period of incontestability should be
counted from Dec. 27, 1999 when the additional premium was paidand
from such date to the death of the insured on Sept. 22, 2001, less than
2 years had elapsed.

On the other hand, the beneficiaries claimed in letter of acceptance and

endorsement made by the insurer, the phrase "effective June 22, 1999"
appeared. From June 22, 1999 to the death of the insured on Sept. 22,
2001, more than 2 years had elapsed and hence the policy is already
incontestable. From what time should the incontestability period be
computed, Dec. 27, 1999 when payment of the adjusted premium was
made or June 22, 1999 as stated in the insurer's endorsement?

A. In the first sentence of the Endorsement, it is not entirely clear whether

the phrase, "effective June 22, 1999" refers to the subject of the sentence,
namely, "the reinstatement of this policy" or to
the subsequent phrase, "changes are made on the policy." Given the
obscurity of the language, the construction favorable to the insured will be
adopted by the courts. Accordingly, the subject policy is deemed reinstated
as of June 22, 1999.

Thus, the period of contestability has lapsed. A contract of insurance being a

contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer. Indeed, more than two years had elapsed from
the time the subject insurance policy was reinstated on June 22, 1999 vis-à-
vis Felipe's death on Sept. 11, 2001. As such, the subject insurance policy
has already become incontestable at the time of Felipe's death.

SIMON DE LA CRUZ, plaintiff and appellee, vs. THE CAPITAL

INSURANCE & SURETY Co., lNC., defendant and appellant.

Q. Eduardo de la Cruz was the holder of an accident insurance policy.

In connection with the celebration of the New Year, the insured, a non-
professional boxer, participated in a boxing Contest. In the course of
his out with another person, de la Cruz slipped and was hit by his
opponent on the left part of the back of the head, causing him to fall
with his head hitting the rope of the ring. The insured died with the
cause of death reported as "hemorrhage intracranial, left." The insurer
refused to pay the proceeds of the policy on the ground that the death
of the insured, caused by his participation in a boxing contest, was not
accidental and, therefore not covered by insurance. Was the death of
the insured covered by the policy?

A. The terms "accident" and "accidental “, as used in the insurance contract,

have not acquired any technical meaning and are construed by the courts in
their ordinary and common acceptation. Thus, the terms have been taken to
mean that which happen by chance or fortuitously, without intention and
design, and which is unexpected unusual and unforeseen. An accident is an
event that proceeds from an unknown cause and, therefore, not expected.
Without the unintentional slipping of the deceased, perhaps he would not
have received the blow in the head and would not have died. Boxing is
attended with some risks of external injuries, but any injury received in the
course of the game could be accidental. In boxing, as in other equally
physically rigorous sports such as basketball or baseball, death is not
ordinarily anticipated to result. If, therefore, it ever does, the injury or death
can only be accidental or produced by some unforeseen happening or event
as what occurred in this case. The insurer was liable.

Q. An insurance policy contained a provision known as "Other

Insurance Clause" which provided that, "The insured shall give notice
to the Company of any insurance or insurances already effected, or
which may subsequently be effected covering any of the properties
insured, and unless such notice be given before the occurrence of any
loss or damage, all benefits under this policy shall be deemed
forfeited". The insured obtained other policies covering the same
property insured without informing the insurer about it. The loss
occurred but the insurer refused to pay, claiming violation of the
"Other Insurance Clause". The insured, on the other hand, alleged that
he did not read the policy and that the insurer's agent knew of the
existence of other insurance policies on the property insured. Was the
insurer liable?

A. NO. The insurer was not liable since the insured violated the "Other
Insurance Clause". The terms of the contract were clear and unambiguous.
The insured was specifically required to disclose to the insurer any other
insurance and its particulars which he may have effected on the same
subject matter. The knowledge of such insurance by the insurer's agents,
even assuming the acquisition thereof by the former, was not the "notice"
that would estop the insurer from denying the claim. The parties must abide
by the terms of the contract because such terms constitute the meaning of
the insurer's liability and compliance therewith was a condition precedent to
the insured's right to recovery from the insurer."

DIOSDADO C. TY, plaintiff-appellant, vs. FIRST NATIONAL SURETY &

ASSURANCE Co., INC., defendant-appellee

Q. Diosdado C. Ty obtained personal accident policies which

stipulated, among others, that for partial disability resulting to the loss
of either hand, the insurer shall be liable for P650.00. It was further
stated in the policies that, "The loss of a hand shall mean the loss by
amputation through the bones of the wrist." A fire broke out which
totally destroyed Broadway Cotton Factory, Ty's employer. Fighting his
way out of the factory, Ty was injured on the left hand by a heavy
object. As a result, Ty suffered a temporary total disability of his left
hand which prevented him from performing his work or labor
necessary in the pursuance of his occupation. Issue was the insurer
liable? No

A. The insurer is not liable. The terms of the policies are clear, express
and specific that only amputation of the hand should be considered as a loss
thereof. An interpretation that would include a mere fracture or other
temporary disability not covered by the policies would be unwarranted.

Q. A personal accident policy was issued covering "loss of legs" which

was defined in the policy as the amputation of the legs. The insured
met an accident resulting in total paralysis of both legs. The insurer
refused to pay because there was no "loss of legs" since the legs of
the insured were not amputated. Was the insurer liable? Should
permanent and total paralysis of both legs be considered as equivalent
to "loss of legs"? yes

A. The insurer was liable because "loss of legs" should be interpreted so

to include the permanent and total paralysis of both legs. The interpretation
of the term "loss of legs" as limited to amputation of both legs to the
exclusion of permanent total paralysis of both legs would be
contrary to public good, sound morality and public policy. It would force a
desperate man to cause an amputation to be performed since his legs are of
no use for life, in order to avail of the benefits of the policy. The permanent,
total paralysis of both legs suffered by the insured was equivalent to
loss of both legs, since he will obviously be bedridden for the rest of his
natural life.

Q. Distinguish the case of Ty from the case of Panaton.

A. In the case of Ty Vs. National Surety & Assurance Co., Inc., the Supreme
Court ruled that since the policy expressly stipulated that disability means
loss of either hand by amputation, the insured whose left hand was injured
but not amputated was not entitled to the benefits of the policy. In
distinguishing the said case with the case of Panaton vs. Malayan Insurance
Co., Inc., the Court of Appeals pointed out that the injuries sustained by Ty
caused only temporary total disability of his left hand. On the other hand, the
injury suffered by Panaton produced a total paralysis of both legs, resulting
in the complete loss of the use of both legs for life. It seems, therefore, that
even if the policy expressly requires amputation of both legs as a
prerequisite for recovery in an accident insurance, a total permanent
paralysis of the legs would be sufficient to entitle the insured to the proceeds
of the policy. After all, where the insured suffers from permanent total
paralysis of both legs, he would be bedridden for life and the amputation of
his legs would not alter the result.

Q. A warranty in a fire insurance policy prohibited the storage in the

premises insured of "oils, (animal and/or vegetable and/or mineral
and/or their liquid products having a flash point below 300°
Fahrenheit)." Gasoline which has a flash point below 300° Fahrenheit,
was stored therein. Was the warranty violated?

A. No. The clause containing the prohibition was ambiguous and must be
construed strictly against the insurer and liberally in favor of the insured. In
ordinary parlance, "oils" means "lubricants" and not gasoline or kerosene.
There was no reason why the prohibition against keeping gasoline in the
premises could not be expressed clearly and in the language and terms that
the general public can readily understand.

Q. Philamlife and Eternal Gardens entered into a Group Life Policy

under which the clients of Eternal who purchased burial lots from it on
installment would be insured by Philamlife. Eternal was required under
the policy to submit a list of new lot purchasers, together with a copy
of the application of each purchasers and the amounts of the
respective unpaid balances of all insured lot purchasers. Eternal sent a
letter dated December 29, 1982, containing a list of insurable balances
of its lot buyers. One of those included in the list was John Chuang.
Philamlife did not reply to the said letter. On August 2, 1984 Chuang
died. Eternal demanded payment from Philamlife of the insurance claim
for Chuang's death. Philamlife denied the claim on the ground that no
application for Group Insurance was submitted to Philamlife prior to
Chuang's death. The contact between Philamlife and Eternal stated that
the "insurance of any eligible Lot Purchaser shall be e ffective on the
date he contracts a loan with the Assured" (Eternal). It was further
stated that "there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company (Philamlife). Question:
there valid contract of insurance covering Chuang's life considering
the conflicting provisions of the policy?

A. Yes The seemingly conflicting provisions must be harmonized to mean

that upon a party's purchase of a memorial lot on installment basis from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid and binding until terminated by Philamlife
by disapproving the insurance application. Insurance is a contract by
adhesion which must be construed liberally in favor of the insured and strictly
against the insurer.

Q. Define a contract of insurance.

A. "A contract of insurance is an agreement whereby one undertakes, for

a consideration to indemnify another against Toss, damage or liability arising
from an unknown or contingent event."

Q. What are the elements of insurance?

A. Aside from the essential requisites of an ordinary contract such as

consent, subject matter, and consideration, an insurance contract must have
the following elements:

1. The insured possesses an interest of some kind susceptible of pecuniary

estimation, known as insurable interest.
[Link] insured is subject to a risk of loss through the destruction or
impairment of that interest by the happening of designated perils.
[Link] insurer assumes that risk of loss.
[Link] assumption is part of a general scheme to distribute actual losses
among a large group of persons bearing somewhat similar risks.
[Link] consideration for the insurer's promise, the insured makes a ratable
contribution, called premium, to a general insurance fund.

Q. What are the characteristics of an insurance contract?

A. An insurance contract has the following characteristics:
- It is an aleatory and not wagering contract.
- It is a contract of indemnity.
- It is a personal contract.
- It is an executory contract after payment of. premiums.
- It is a conditional contract.

Q. Are all insurance contracts a contract of indemnity?

A. NO. Contract of Insurance other than that of life and accident where the
result is death, is a contract of indemnity by which is meant that the party
insured is entitled to compensation for such loss as has been occasioned by
the perils insured against, the right to recover being commensurate with the
loss sustained. Thus, the measure of insurable interest in property is the
extent to which the insured might be damnified by loss or injury thereof, as
the purpose of insurance is merely to reimburse the insured for his actual
loss not exceeding the amount agreed in the policy.

Q. Is life insurance contract a contract of indemnity?

A. NO. No value could be placed on life of a person. Life insurance is

based upon the principle of indemnity, only in so far as it cannot exist unless
there is insurable interest in the life of the party insured at the time of the
making of the contract. But beyond this, the principle of indemnity does not
apply to life insurance. Thus, life insurance policy, as a rule, is not a contract
of indemnity, but a contract to pay a certain sum of money in the event of
death for life cannot be the subject of valuation nor the loss adjustable on
any principle of indemnity. However, where the amount of insurable interest
of a person procuring the insurance on the life of another is susceptible of
pecuniary estimation, as in case of an insurance taken by a creditor on the
life of his debtor, life insurance is regarded as a contract of indemnity where
the creditor pays the premiums, but not where the premiums are paid by the
insured debtor.

Q. Why is an insurance contract a personal contract?

A. The insurance company will not be liable to person who is not insured. An
insurer contracts with reference to the character of the insured for integrity
and prudence." It might be willing to make good the loss of a person by the
destruction of property owned by him, while it would be altogether unwilling
to insure the same property if owned by another. Accordingly, the insurance
taken by one person will not apply to the interest of another person in the
same property insured. And as a consequence of the principle that insurance
is a personal contract, the assignment or conveyance of the property insured
does not transfer the insurance and instead the policy is suspended.

Q. What may be insured?

A. “Any contingent or unknown event, whether past or future, which may

damnify a person having an insurable interest, or create a liability against
him, may be insured against".

Q. When is the insurer liable for a past event or loss that occurred
before the policy was issued?

A. Ordinarily, the event covered by the policy is a future contingency.

However, a past event may likewise be included within the coverage of a
policy. To be so covered, the past event causing the loss must be unknown
to both parties and they must expressly stipulate that a prior loss is insured
by the policy. Such stipulation including a prior loss within the coverage of
the policy is usually expressed by the use of the phrase "lost or not lost.

Q. Does the insurance taken by one spouse on his or her own life or
that of their children require the consent of the other?

A. "The consent of the spouse is not necessary for married person on his or
her life or that of his or the validity of an insurance policy taken out by her
children.

Q. In case the original owner of a policy taken on the life of another

should predecease the latter to whom should the proceeds of the
policy go?

A. "All rights, title and interest in the policy of insurance taken out by an
original owner on the health of the person insured shall automatically vest in
the latter upon the death of the original owner, unless otherwise provided for
in the policy.
In case the original owner of a policy taken on the life of another
should predecease the latter, all rights, title and interest in the policy shall
automatically vest in the insured, unless otherwise provided for in the policy.
Thus, even if the original owner of the policy designated himself as
beneficiary in a policy insuring the life of another, the death of the original
policy owner shall automatically vest title on the policy to the insured.
Suppose, however, the husband took the policy on the life of his son and
designated his wife as beneficiary. In case the husband dies, would his wife
be deprived of interest in the policy so that the insured son could acquire the
rights, title and interest therein? It is submitted, that the interest on the policy
should not pass to the insured person upon the death of the original owner of
the policy where another person was designated as beneficiary. Such a
situation should be considered as an exception because the designation of a
third person as beneficiary is tantamount to a provision in the policy that the
rights, title and interest in the policy should not vest in the insured person
when the original owner predeceases the insured. And it must be borne in
mind that by express provision of Section 3, where the policy provides
otherwise, the death of the original policy owner shall not transfer the rights,
title and interest on the policy to the person whose life was insured.

Q. Juan insured the life of his son, Juan, Jr. and designated himself
(Juan) as beneficiary. Later, Juan died on January 16, 2018. Juan, Jr.
died on April 1, 2018. (1) Since Juan died ahead of Juan Jr., to whom
should the proceeds of the policy go? (2) Suppose the beneficiary is
Marian, the wife of Juan, who should get the proceeds of the policy?

A. (1) The proceeds of the policy should go to the estate of Juan, Jr.
because in case the original owner of a policy taken on the life of another
should predecease the latter, all rights, title and interest in the policy shall
automatically vest in the insured or his estate.
(2) The interest on the policy should not pass to Juan, Jr., the insured upon
the death of the original owner of the policy where another person was
designated as beneficiary. Such a situation should be considered as an
exception because the designation of a third person as beneficiary is
tantamount to a provision in the policy that the rights, title and interest in the
policy should not vest in the insured person. The proceeds should go to
Marian, the beneficiary since by express provision of Section 3, where the
policy provides otherwise, the death of the original policy owner shall not
transfer the rights, title and interest on the policy to the person whose life
was insured.

Q. May an insurance be taken for or against the drawing of any lottery,

or for or against gambling?

A. "The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery
drawing a prize."

Q. What is the reason why gambling cannot be insured?

A. Gambling may possibly result in a profit, which is not true in insurance,
and, therefore, gambling of any sort may not be insured. Thus, gambling
courts fortune; the insured seeks to avoid misfortune. Gambling tends to
increase the inequality of fortune, while the contract of insurance tends to
equalize fortune.

TITLE 2.
PARTIES TO THE CONTRACT.

Q. Who are the parties to a contract of insurance?

The parties to a contract of insurance are:
1. The insurer, a person who undertakes to indemnify another by a contract
of insurance;
2. The insured, a person to be indemnified: and
3. The beneficiary, who receives a benefit or advantage, or who is entitled to
the benefit of a contract, that is, the one to whom the insurance is payable or
who is entitled to the proceeds of the policy on the occurrence of the event
designated.
Sometimes, the person on whose application the policy was issued,
who is the beneficiary and who pays the premiums, is referred to as the
"assured. The "assured” is not necessarily the person on whose life or
property the policy is written. Thus, where a wife insures her husband's life
for her own benefit and he has no interest in the policy, she is the "assured"
and the husband is the "insured". This distinction, however, is not very
material in modern insurance under which the terms "insured" and "assured"
are regarded synonymous.

Q. Who may be insured?

A. "Anyone except a public enemy may be ensured. Public enemy is a

nation at war with the Philippines and also every citizen or subject of such
nation. Such term does not include robbers, thieves and riotous mobs.

Q. What is the reason why a public enemy cannot be insured?

A. public enemy may not be insured because the purpose of war is to cripple
the power and exhaust the resources of the enemy, and it is inconsistent that
one country should destroy its enemy, and repay in insurance the value of
what has been so destroyed, or that it should in such manner increase the
resources of the enemy or render it aid.

Q. Abu Nani, a citizen of the Philippines obtained a life insurance on his

own life in the Philippines. Later the Philippine government gave a P10
million prize for his capture dead or alive and was declared public
enemy. Will his life insurance continue?

A. YES! Abu Nani's policy can continue because he is not a public enemy
within the purview of the Insurance Code. A public enemy is a citizen or
subject of a nation at war with the Philippines. The Philippines is not at war
with any nation and now we have no public enemy. Aside therefrom, a
Filipino cannot be a public enemy in the Philippines because a public enemy
must be a citizen of another country.

Q. Christern, Huenfeld & Co., a corporation controlled by German

subjects, obtained a fire insurance policy in the Philippines on October
1, 1941. On December 10, 1941, war broke out between the United
States and Germany. Thereafter, the goods insured were burned.

Issue: Can the insurer be made liable?

A. No the insurer was not liable. The insured became an enemy corporation
because of the outbreak of the war between the United States and the policy
ceased to be allowable as soon as the insured became a public enemy.
However, the premium paid for the period after the insured became a public
enemy should be returned.

Q. Who may insure a mortgaged property?

A. When a property is mortgaged, the mortgagor and the mortgagee may

take out separate policies with the same or different insurance companies.
The mortgagor may insure the property mortgaged to the full value of such
property while the mortgagee can insure the same only to the extent of the
amount of his credit.

Q. A, the owner of a house valued at P500,000, borrowed P300,000 from

B and to secure payment of the loan, mortgaged said house to B.

Question: Who may insure the house mortgaged?

A. A, the owner may insure the house for P500,000 while B, the mortgagee,
may likewise insure the said house for P300,000.

Q. What is the effect of insurance procured by the mortgagor without

making the loss payable to the mortgagee?
A. Where the mortgagor insures the property mortgaged without making the
loss payable to the mortgagee, upon occurrence of the loss, only the
mortgagor may recover from insurer since the policy taken by the mortgagor
shall be applied exclusively to his interest. However, the mortgage
constituted shall extend to the proceeds of the indemnity paid by the insurer
of the mortgaged property upon occurrence of the loss and, therefore, the
mortgagee has a lien on the proceeds of the policy.

Q. What are the effects of insurance procured by the mortgagor

providing that the loss shall be payable to the mortgagee? Give
illustrations/examples.
A. Where the mortgagor insures the property mortgaged in his own name
providing that the loss shall be payable to the mortgagee, or assigns the
policy to the mortgagee, the effects thereof are as follows:

1. The insurance is still deemed to be upon the interest of the mortgagor,

who does not cease to be a party to the original contract." It is an insurance
on the property of the mortgagor as owner and not on the interest of the
mortgagee, and accordingly, the contract is one between the insurer and the
mortgagor who is the insured and not one between the insurer and the
mortgagee.

Illustration:

A, the mortgagor insured his mortgaged building against fire and made the
loss payable to the mortgagee. Later on, the insurer cancelled the policy
pursuant to a stipulation thereon allowing either party to terminate the
contract by giving notice thereof to the other. The insurer gave notice of
cancellation to the mortgagee and not to the mortgagor. The building was
thereafter burned. Question: Was the insurer liable?

Answer: Yes, the insurer was liable. The cancellation of the policy was not
binding upon the mortgagor since the insurer failed to Comply with its duty to
notify the insured mortgagor of such cancellation of the policy so as to give
the latter ample opportunity to negotiate for another insurance. The notice
should be personal to the insured.

2. Any act of the mortgagor, prior to the loss, which would otherwise avoid
the insurance, will have the same effect although the property is in the hands
of the mortgagee.

Illustrations:

(a) A mortgaged his house to B to secure the payment of a loan. A then

insured his house and made the loss payable to the mortgagee. A violated
the policy by storing inflammable materials within the insured premises, as a
result of which, the house was burned.

Question: May the mortgagee recover from the insurer?

Answer: No, because the act of the mortgagor in violation of the policy
avoided the contract although the loss was made payable to the mortgagee.

(b) Paramount Shirt borrowed money from Pacific Banking Corporation. To

secure the loan, it mortgaged its properties and assigned the fire insurance
policy issued by Oriental Assurance covering said properties to Pacific
Banking. Paramount violated a condition in the policy requiring full disclosure
of all insurance policies on the same properties insured with Oriental. When
the insured properties were burned, Pacific Banking demanded payment
from the insurer. The insurer refused to pay on the ground of violation of the
policy by the insured. Pacific Banking claimed that the insured's violation of
the policy can not affect the mortgagee/assignee because the purpose for
which the endorsement or assignment of the policy was made was to protect
the mortgagee/assignee against any untoward act or omission of the insured
and it would be absurd to bar the mortgagee/assignee from recovery on
account of violation of the policy committed by the insured.

Question: Was the contention of Pacific Banking was correct?

Answer: No, Pacific Banking's contention was not correct. Where the
insured who was primarily entitled to receive the proceeds of the policy had
by his fraud and/or misrepresentation, forfeited said right, with more reason,
Pacific Banking which was merely claiming as indorsee of said insured,
cannot be entitled to such proceeds.

3. Any act which, under the insurance, is to be performed by the mortgagor,

may be performed by the mortgagee with the same effect as if it has been
performed by the mortgagor." As for example, the policy requires the insured
to give notice and proof of loss without unnecessary delay. Notice or proof of
loss may be given by the mortgagee to whom the loss is made payable with
the same effect as if the same is given by the mortgagor.

4. Upon occurrence of the loss, the mortgagee is entitled to recover to the

extent of his credit and the balance, if any, is payable to the mortgagor since
such policy is for the benefit of both the mortgagor and the mortgagee. The
mortgagee is the proper party to prosecute an action for a loss sustained
under a policy of insurance where the loss was made payable to him and
such action may be brought by the mortgagee even without including the
mortgagor as party to the action.

Illustration:

A owned the house valued at P200,000. He mortgaged the said house to B

to secure a loan of P150,000. A then insured the house against fire for
P200,000 and made the loss payable to the mortgagee, B.

Question: Upon occurrence of the loss, who may recover from the
insurer?

Answer: The mortgagee, B, as beneficiary may recover to the extent of his

credit, P150,000, and as an insured, A may recover the balance of P50,000.

5. Upon recovery by the mortgagee to the extent of his credit from the
insurer, the mortgagor is released from his indebtedness.

Q. What is the consequence of assignment by the mortgagor-insured of

the insurance policy covering the property mortgaged?

A. In case the mortgagor insures the mortgaged property and assigns the
policy to the mortgagee, such assignment is merely to afford the mortgagee
a greater security for the settlement of the mortgagor's obligation and should
not be construed as payment in just the same way that delivery of negotiable
instruments does not constitute payment until the proceeds are realized or
collected. By such assignment, therefore, the mortgage indebtedness is not
extinguished until such time as the mortgagee has collected the proceeds of
the policy from the insurer after the occurrence of the loss.

Q. What are the effects of "mortgage redemption" insurance?

A. A "mortgage redemption" insurance is simply a kind of life insurance
procured by the mortgagor with the mortgagee as beneficiary up to the
extent of the mortgage indebtedness. Its rationale is to give protection to
both the mortgagee and the mortgagor. In case the mortgagor-insured dies,
the proceeds of such insurance will be applied to the payment of the
mortgage debt to the mortgagee, thereby relieving the heirs of the mortgagor
of the burden of paying the debt. Ample protection is likewise given to the
mortgagor under this insurance since the mortgage indebtedness will be
extinguished by the application of the insurance proceeds to the mortgage
indebtedness.

Where the mortgagor pays the insurance premium under the mortgage
redemption life insurance policy, making the loss payable to the mortgagee,
the insurance is still on the mortgagor's interest, and the mortgagor
continues to be a party to the contract, while the mortgagee is simply a
beneficiary of the insurance to the extent of the unpaid indebtedness and
does not make the mortgagee a party to the contract.

Q. What are the effects of insurance procured by the mortgagee

without reference of the right of the mortgagor?

A. Where the mortgagee insures his interest in the property without

reference to the right of the mortgagor, the effects of such policy taken are
as follows:

1. The mortgagee may collect from the insurer upon the occurrence of the
loss to the extent of his credit.

2. Unless otherwise stated in the policy, the mortgagor has no right to collect
the balance of the proceeds of the policy after payment of the interest of the
mortgagee.

3. The insurer, upon payment to the mortgagee-insured, becomes

subrogated to the rights of the mortgagee against the mortgagor and may,
therefore, collect the debt of the mortgagor to the extent of the amount paid
to the mortgagee-insured. This principle applies where the policy obtained by
the mortgagee covers his interest alone.

4. The mortgagee-insured can no longer collect the mortgagor's

indebtedness after receiving full payment of his credit from the insurer since
the latter thereby acquires the right to collect from the mortgagor by virtue of
subrogation. However, if the mortgagee-insured is unable to collect the
whole amount of his credit from the insurer, he may still charge the
mortgagor for the deficiency.

5. The mortgagor is not released from his debt by the insurer' s payment to
the mortgagee-insured.

Q. What is a "Union Mortgage Clause"?

A. A union mortgage Clause, or its equivalent, creates the relation of insured

and insurer between the mortgagee and the insurance Company
independent of the contract with the mortgagor. If an insurer assents to the
transfer of an insurance from a mortgagor to a mortgagee, and, at the time of
his assent, imposes further obligations on the assignee, making a new
contract with him, the acts of the mortgagor cannot affect the rights of said
assignee." Section 9 refers to a "Union Mortgage Clause.

Q. What is the effect of "Union Mortgage Clause"?

A. Ordinarily, where the mortgagor insures the property mortgaged and

makes the loss payable to the mortgagee, the mortgagor does not cease to
be a party to the insurance contract and, therefore, any act of his which
would otherwise avoid the policy shall have the same effect. In insurance
parlance, such stipulation is referred to as "open mortgage clause. " But
where the policy contains a "union mortgage clause," instead of an "open
mortgage clause," the mortgagee shall not be affected or prejudiced by any
act or neglect of the mortgagor" since the purpose of the "union mortgage
clause" is to provide an independent contract between the mortgagee and
the insurer so that the mortgagee will be responsible only for his own acts.

SECOND LECTURE VIDEO

TITLE 3
INSURABLE INTEREST

Q. In general, when does a person have an insurable interest in the

subject-matter insured? When he will suffer damage by its destruction and
obtain benefits by its preservation.
A. In general, a person has an insurable interest in the subject-matter
insured where he has such a relation or connection with, or concern in, such
subject matter that he derived pecuniary benefit or advantage from its
preservation or will suffer pecuniary loss or damage from its destruction,
termination or injury by the happening of the event insured against.

Different persons may have separate insurable interest in the same property.
Thus, in the same property mortgaged, the mortgagor has insurable interest
therein as owner while the mortgagee likewise has insurable interest in such
property to the extent of his lien.

Q. Pangilinan executed his last will and testament and provided therein
a legacy of P10 million in favor of his closest friend, Espinosa. Does
Espinosa have insurable interest in the life of Pangilinan?

A. Espinosà does not have insurable interest on the not obtain any life of
Pangilinan since he will benefit during the lifetime of Pangilinan. He will be
benefited only when Pangilinan, dies. Since Espinosa's interest on the life of
Pangilinan is not the continuance of the life of the latter but on its loss or
destruction, Espinosa has no insurable interest on his life. Insurable interest
in life must be one in favor of the continuance of life and not an interest in its
loss or destruction.

Q. Upon whose life and health does a person have insurance interest?

A. "Every person has an insurable interest in the life and health:

"(a) Of himself, of his spouse and of his children;

"(b) Of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;
"(c) Of any person under a legal obligation to him for the payment of money,
or respecting property or services, of which death or illness might delay or
prevent the performance; and
"(d) Of any person upon whose life any estate or interest vested in him
depends."

Q. In life insurance, when does insurable interest exist?

A. In life insurance, insurable interest exists where there is reasonable
ground, founded on the relation of the parties, either pecuniary or contractual
or by blood or affinity, to expect some benefit or advantage from the
continuance of the life of the insured. Insurable interest in life however, must
be one in favor of the continuance of life and not an interest in its loss or
destruction.
The expectation of benefit or advantage giving rise to insurable interest
need not be based upon a right which can be enforced in law or upon a right
which can be enforced in law or equity against the person from whom
pecuniary benefit is expected. Intimate friendship of many years standing,
however, does not by virtue of such relationship alone create insurable
interest in the life of one another as there is no reasonable basis to expect
benefit from one another.

Q. As of what time must insurable interest in life exist?

A. Insurable interest in life must exist at the time of the effectivity of the
policy and need not exist at time of the death of the insured, as life insurance
is not a contract of indemnity. Hence, where a life insurance policy is valid at
its inception by reason of the existence of insurable interest at the time, the
subsequent diminution or cessation of that interest does not invalidate the
policy." However insurable interest of a creditor on the life of a debtor must
exist not only at the time the policy takes effect, but also at the time of the
debtor's death, for such kind of life insurance is still a contract of indemnity.

Where the wife insures the life of the husband, a subsequent divorce
does not terminate the policy since in life insurance, the fact that insurable
interest ceases before the death of the insured is immaterial.

Q. Does the creditor have insurable interest in the life of the debtor?

A. YES. The death of the debtor might delay the performance of his
obligation to pay the debt. A creditor has an insurable interest in the life of
his debtor, at least to the extent of the indebtedness. Thus, a person has
insurable interest on the life of another "under a legal obligation to him for
the payment of money, or respecting property or services, of which death or
illness might delay or prevent the performance. “
However, insurance on the life of the debtor to be valid must for an
amount which is not grossly disproportionate to the amount of the obligation,
otherwise the policy is not valid for being a wagering contract. Thus, the test
of a creditor's insurable interest is whether the amount of the debt is
reasonably proportionate to the amount of the insurance which he contracts.
If the debt is so small as to be out of proportion to the amount of insurance,
the creditor lacks insurable interest and the contract of insurance is nothing
more than a wagering scheme. For instance, C granted a loan to D
amounting to P700. C then insured the life of D for P30, 000. Such policy
was a mere wagering contract and therefore not valid.

Q. (1) Who is a beneficiary? (2) May the beneficiary designated in the

policy be changed?

A. (1) Beneficiary is the person for whose benefit the policy is issued and to
whom the loss is payable.
(2) The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in said policy.
Notwithstanding the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be deemed irrevocable.

Q. Who may be beneficiary in life insurance?

A. Any person may be designated as beneficiary in a life insurance contract
even though he is a stranger and has no insurable interest in the life insured,
except those who are forbidden by law to receive donations from the insured
such as:
(a) Those made between persons who are guilty of adultery or concubinage
at the time of the donation;
(b) Those made between persons found guilty of the criminal offense. in
consideration thereof;
(c) Those made to a public officer or his wife, descendants and ascendants,
by reason of his office."
In essence, a life insurance policy is no different from a civil donation
insofar as designation of beneficiary is concerned. Both are founded upon
the same consideration: liberality. A beneficiary is like a donee, because
from the premium of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds of the said insurance. As a
consequence, the proscription in Article 739 of the Civil should equally
operate in life insurance contracts. Any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make donation."

Q. To disqualify a person from being a beneficiary in life insurance on

the ground of adultery or concubinage, is prior conviction necessary
A. With respect to the disqualification of persons who are guilty of adultery or
concubinage, criminal conviction for the disqualifying offense is not required.
The guilt of the insured beneficiary may be proved by preponderance of
evidence in the same action for declaration nullity of the designation.

Q. Are adulterous children disqualified from being designated as

beneficiary?
A. The disqualification of "persons who are guilty of adultery or concubinage"
from being designated as beneficiary under Article 739 of the Civil Code
does not extend to the illegitimate children born out of the illicit relation
between the parties to the adultery or concubinage. As a matter of fact both
the Civil Code as well as the Family Code recognizes certain successional
rights of illegitimate children.

Q. What is the effect of adultery on the right to obtain Social Security

benefits?
A. In the case of Social Security System, et al. vs. Gloria de los Santos & the
Supreme Court ruled that a wife who left her husband and lived with another
man is no longer entitled to receive Social Security benefits upon the death
of the husband because she was no longer dependent upon him for her
support.

Q. What is the extent of interest of an irrevocable beneficiary?

A. When a beneficiary has been designated and the right to change him has
been expressly waived in the policy, he could not be deprived of his vested
interest by the insured by putting an end to the policy. Should the insured
discontinue paying premiums, the beneficiary may continue paying it and be
entitled to automatic extended term or paid-up insurance options.
An irrevocable beneficiary cannot be changed without his consent as
he has a vested interest in the policy, nor may the insured add other
beneficiaries without the consent of the irrevocable beneficiary as no
amendment of the can the such be effected irrevocable additional 191
designation of beneficiaries without the consent of beneficiary Furthermore,
beneficiaries will diminish the interest of the irrevocable beneficiary in the
policy and hence, it cannot be legally made without the consent of such
irrevocable beneficiary. In such case, the insured cannot even obtain a policy
loan or cash surrender value on the policy without the consent of the
irrevocable beneficiary because the latter's vested right extends to all
benefits accruing to the policy.
Q. Who should receive the proceeds of a life insurance policy in case
no beneficiary has been designated or the designation is not valid?
A. In case of failure to designate a beneficiary or where such designation is
not valid the life insurance proceeds should accrue to the estate of the
insured.

Q. May the beneficiary designated in the policy be changed?

A. "The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in said policy.
Notwithstanding the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be deemed irrevocable.

Q. What is the extent of interest of an irrevocable beneficiary?

A. When a beneficiary has been designated and the right to change him has
been expressly waived in the policy, he could not be deprived of his vested
interest by the insured by putting an end to the policy. Should the insured
discontinue paying premiums, the beneficiary may continue paying it and be
entitled to automatic extended term or paid-up insurance options.
An irrevocable beneficiary cannot be changed without his consent as
he has a vested interest in the policy, nor may the insured add other
beneficiaries without the consent of the irrevocable beneficiary as no
amendment of the can the such be effected irrevocable additional 191
designation of beneficiaries without the consent of beneficiary Furthermore,
beneficiaries will diminish the interest of the irrevocable beneficiary in the
policy and hence, it cannot be legally made without the consent of such
irrevocable beneficiary. In such case, the insured cannot even obtain a policy
loan or cash surrender value on the policy without the consent of the
irrevocable beneficiary because the latter's vested right extends to all
benefits accruing to the policy.

Q. What are the facts and ruling in the case of Phil-am Life Ins. Co. vs.
Pineda, 175 SCRA 416?

F. On January 15, 1968, Dimayuga procured an ordinary life insurance

policy from Phil-am Life and designated his wife and children
irrevocable beneficiaries. The wife died while the children were still
minors. Dimayuga filed a petition in court to change his beneficiaries.
The minors gave their consent to the change of beneficiaries.
Dimayuga claimed that the court upon any just and reasonable ground
may change an irrevocable beneficiaries. Question: Should the court
grant the petition to change the irrevocable beneficiaries?

A. NO. The petition should be denied. It is only with the consent of all the
beneficiaries that any change or amendment to the policy concerning the
irrevocable beneficiaries may be legally and validly effected. There is no
other exception thus; abrogating the contention of Dimayuga that said
designation can be amended if the court finds a just, reasonable ground to
do so. The consent given by the minors was not effective since they cannot
validly give their consent to the change of beneficiaries.

Q. When may consent of the minor in a change of beneficiary be given

by the guardian or parents?
A. When a minor however, was designated as beneficiary and the interest of
the minor in the policy does not exceed five hundred thousand pesos
(P500,000), his consent to the change of beneficiary may be given by his
judicial guardian or, in the absence of the latter, by his father or in the latter's
absence or incapacity, his mother.
In the absence or in case of the incapacity of the father or mother, the
grandparent, the eldest brother or sister at least eighteen (18) years of age,
or any relative who has actual custody of the minor insured or beneficiary,
shall act as a guardian without need of a court order or judicial appointment
as such guardian, as long as such person is not otherwise disqualified or
incapacitated.

Q. What is the interest of the beneficiary in an endowment life

insurance?
A. Endowment insurance is a contract to pay a certain sum to the insured if
he lives a certain length of time, or if he dies before that time, to some other
person indicated as beneficiary. In an endowment policy, the interest of the
beneficiary is a contingent one, and the benefits of the policy will only accrue
to such beneficiary in case the assured dies before the end of the period
designated in the policy. If the insured survives the endowment period, the
benefits are payable to him or his assignee, notwithstanding the designation
of a beneficiary in the policy.

Q. Elvis procured a life insurance policy and designated his son, Elvis,
Jr. as beneficiary. While Elvis and Elvis, Jr. were riding a car, they met
an accident. Elvis, Jr. died 1 day ahead of Elvis. To whom should the
proceeds of the policy go?
A. It depends on whether the designation of Elvis, Jr. as beneficiary is
revocable or irrevocable .
If the beneficiary is irrevocable and hence, has a vested interest in the
policy, the legal representatives of such beneficiary are entitled to the
proceeds of the insurance as assets of his or her estate unless the proceeds
were payable to the beneficiary only "if living"
On the other hand, where the beneficiary is revocable and therefore,
does not have vested interest in the policy at the time of his death, his estate
or legal representatives derives no interest from or through him, but the right
to the proceeds passes to the estate of the insured.
The proceeds of the policy shall likewise pass to the estate of the
insured where the proceeds of the policy were payable to the beneficiary "if
surviving" and he died before the insured's death.
The designation of the beneficiary is revocable unless the right to
change the beneficiary has been waived and hence, in this case the
proceeds should go to the estate of the insured, Elvis.

Q. May revocation of a beneficiary be done in the last will and

testament of the insured?
A. In the event the insured does not change the beneficiary during his
lifetime, the designation shall be deemed irrevocable. The revocation of the
beneficiary therefore, should be done during the lifetime of the insured.
Hence, the revocation of the beneficiary cannot be done in the last will and
testament of the insured because it takes effect upon the death of the
insured.

Q. In case the beneficiary did not submit an insurance claim against the
insurer because he did not know of the existence of the insurance, is
he bound by the prescriptive period stated in the contract?

A. No. It was incumbent upon the agent to give proper notice of the
existence of the insurance coverage and the stipulation in the insurance
contract for filing a claim to the beneficiary upon the death of the insured.
The agent and not the beneficiary shall bear the loss. It is unfair to deny the
claim of the beneficiary where he was unable to file the claim within the
period provided in the policy in case he did not even know the policy existed.

Q. What are the facts and ruling in the case of Bank of the Philippine
Islands and FGU Insurance Corp. vs Laingo, G.R. No. 205206, March 16,
2016?
F. Rheozel opened a "Platinum 1-in-1 Savings and Insurance" account
with BPI. Such account is one wherein depositors are automatically
covered by an insurance policy against disability or death issued by
FGU. On Sept. 25, 2000, Rheozel died due to a vehicular accident. On
Sept. 27, 2000, Laingo, the beneficiary of the insurance policy
instructed the family's secretary to go to BPI to inquire about the
savings account of Rheozel. Laingo wanted to use the money in the
savings account for Rheozel's burial and funeral expenses. BP allowed
withdrawal from the account of Rheozel, More than two years later or
on Jan 21, 2003, Rheozel's sister while arranging Rheozel's personal
things in his room found the Personal Accident Insurance Policy
issued by FGU. Upon being informed of the existence of the insurance,
Laingo sent two letters of demand to FGU which denied the claim on
the ground the policy provides that the claim should have been filed
within three calendar months from the death of Rheozel.

Issue: Whether or not Laingo, as named beneficiary who had no

knowledge of the existence of the insurance contract, is bound by the
three calendar month deadline for filing a written notice of claim upon
the death of the insured.

A. NO. The Platinum 2-in-1 Savings and Insurance account was BPI's
commercial product, offering the insurance coverage for free for every
deposit account opened. Rheozel directly communicated with BPI, the agent
of FGU. BPI, as agent of FGU had the primary responsibility to ensure that
the 2-in-1 account be reasonably carried out with full disclosure to the parties
concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to
give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for filing a claim to Laingo, as Rhoezel's
beneficiary, upon the latter's death. Since BPI is the agent of FGU then
notice of death of Rhoezel to BPI is considered as notice to FGU. Both BPI
and FGU shall bear the loss and must compensate Laingo for actual
damages and FGU must pay the proceeds of the policy.

Q. What is the effect of the act of the beneficiary in willfully killing the
insured?

A. In case the beneficiary is the principal, accomplice, or accessory in

willfully bringing about the death of the insured, the interest of the beneficiary
in the policy shall be forfeited and in such a case, the share forfeited shall
pass on to the other beneficiaries, unless otherwise disqualified.

In the absence of other beneficiaries, the proceeds shall be paid in

accordance with the policy contract. If the policy contract is silent, the
proceeds shall be paid to the estate of the insured.

Q. The law specifically disqualifies the beneficiary from receiving the

proceeds of the policy if he willfully brings about the death of the
insured, suppose the beneficiary's act was neither intentional nor
felonious, will he still be disqualified from receiving the proceeds of the
policy?

A. Although the law specifically mentioned only the act of "willfully" killing the
insured, it has been ruled that such act must not only be willful or intentional
but must likewise be felonious. And where the killing was unintentional or not
felonious, the beneficiary will not be denied recovery by reason of his
causing the death of the insured.

Q. Under Section 89, "an insurer is not liable for a loss caused by the
willful act or through the connivance of the insured." Suppose X who
had insurable interest in the life of Y insured the latter and had himself
(X) designated as beneficiary. Thereafter, X willfully killed Y. Is the
insurer exempted from liability as apparently provided for in Section 89
or, would the insurer be liable to (a) the other beneficiaries who are not
disqualified, or (b) in accordance with the policy contract, or (c) to the
estate of the insured as provided for in Section12?

A. It is submitted that in such case, Section 12 should be applicable and

hence, the insurer shall be liable (a) to the other beneficiaries who are not
disqualified, or (b) in accordance with the policy contract, or (c) to the estate
of the insured. Section 12 is a new provision whereas Section 89 is an old
provision, and when the former made the insurer liable instead of exempting
it from liability, the intention against exempting the insurer is evident. Aside
therefrom, Section 89 is a general provision applicable to all kinds of
insurance while Section 12 is a special provision applicable only to life
insurance and, therefore, the latter should prevail over the former."

Q. What is the test of insurable interest in property?

A. The test of insurable interest in property is whether the insured has such a
right, title, or interest therein, or relation thereto that he will be benefited by
its preservation and continued existence or suffer a direct pecuniary loss
from its destruction or injury by the peril insured against.

THIRD LECTURE VIDEO

Q. What may insurable interest in property consist of?

A. "An insurable interest in property may consist in:

"(a) An existing interest;
"(b) An inchoate interest founded on an existing interest; or
“(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises."

Q. What is an inchoate interest? Give an example of insurable inchoate

interest.
A. Inchoate interest is an interest in real estate which is not a present
interest, but which may ripen into a vested estate, if not barred, extinguished
or divested. To constitute insurable interest, such inchoate interest must be
founded on an existing interest. Thus, a stockholder in a corporation owning
a ship, cargo, or other property, while he has neither a legal title to the
corporate property nor any equitable thereto, has such right of a pecuniary
nature growing out of his situation as stockholder as will give him an
insurable interest in the corporate property to the extent of his shares.
Q. When may expectancy be insured? Give examples. General Rule.
No.

A. Expectancy to be insurable must be coupled with an existing interest or

founded on an actual right to the thing, or upon any valid contact for it
otherwise, it does not constitute insurable interest.

Examples:
(a)A son has no insurable interest in the property of his father," as his
interest in such property is a mere expectancy not founded on an
actual right or valid contact for it.
(b)The owner of a parcel of land has insurable interest on expected crops
even before they are sown.
(c) The owner of ship has insurable interest on expected freightage.

Q. Does a carrier or depositary have insurable interest in the property

under his custody? YES
A. Any person having custody of the property of another and responsible for
it may insure such property in his own name as he may suffer pecuniary loss
from its destruction or damage. Thus a "carrier or depositary has insurable
interest in a thing held by him as such, to the extent of his liability but not to
exceed the value thereof.

Q. A person is engaged in the business of dyeing and washing clothes.

Question: Does he have insurable interest on the clothes delivered to
him for dyeing or washing?

A. Yes, because the destruction of the textiles will mean pecuniary loss to
him as he will be deprived of the compensation he would be entitled to for
dyeing the same, not to mention his pecuniary liability for labor and
expenses.

Q. What is the measure of indemnity in property insurance?

A. “The measure of an insurable interest in property is the extent to which
the insured might be damnified by loss or injury thereof.
Property insurance as a rule is a contract of indemnity and, hence, the
measure of insurable interest is the extent to which the insured might be
damnified by the loss or injury of the property insured. Said principle,
however, applies only to property insurance and not to life insurance which is
not regarded as a contract of indemnity.

Q. Can a person without insurable interest on the property insured

enforce the insurance contract? NO
A. "No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the
property insured."
The rule in property insurance as embodied in this section is that the
beneficiary therein must have insurable interest in the property insured. A
stranger having no insurable interest in the property insured, could not,
therefore, be made a beneficiary in a policy covering the said property.
This principle, however, does not apply to a life insurance wherein
insurable interest on the part of the beneficiary is not necessary.
It will be observed that this section did not declare the property
insurance
For the benefit of a person not having insurable interest therein as invalid.
However it could not be enforced by the designated beneficiary.
Thus, suppose A, the owner of a building, insured the same against
fire and had the proceeds of the policy payable to B, a person not having
insurable interest on the policy insured. In case of loss, B, could not enforce
the policy since he had no insurable interest in the property insured. But
would that mean that the insurance company could evade liability? It could
not be the intention of Section 18 to exempt the insurer from liability but
merely prevent recovery by a person not having insurable interest in the
property insured. In such case, the owner who insured the property should
be allowed to recover from the insurer as only the designation of B as
beneficiary should be considered unenforceable and not the entire policy
itself.

Q. What are the distinctions between insurable interest in life insurance

and insurable interest in property insurance?

A. Insurable interest in life and insurable interest in property may be

distinguished as follows:
1. Insurable interest in property is based on pecuniary interest, while in life,
the interest need not necessarily be strictly and exclusively a pecuniary one,
as in case of consanguinity or affinity.

2. In property insurance, the interest must exist at the time the policy takes
effect and at the time of the loss ; while in the life insurance, interest need
exist only at the time the insurance takes effect except in life insurance taken
by the creditor on the life of debtor wherein interest must also exist at the
time of the loss.

3. Insurable interest in property is limited to the actual value of the damage

the insured may suffer, while in life, there is no limit on the amount of
insurable interest unless it is based on creditor-debtor relationship.

Q. What is the difference between a beneficiary in life insurance and a

beneficiary in property insurance?
A. The beneficiary in life insurance need not have insurable interest in the
life insured while the beneficiary in property insurance must have insurable
interest in the property insured.

Q. What are the facts and issue in the case of Cha vs. Court of
Appeals?
Petitioner Spouses Nilo and Stella Cha entered into a contract of lease
with CKS Development Corporation which provided that the lessees
"shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises
without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance without the consent of
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit." Notwithstanding the said stipulation, the
Cha spouses insured against fire the merchandise inside the leased
premises for P500,000 with United Insurance without the written
consent of CKS. On the day the lease was to expire, fire broke out
inside the leased premises and burned the insured merchandise. When
CKS learned of the insurance earlier procured by the Cha spouses, it
wrote the insurer a demand letter asking that the proceeds of the
insurance be paid directly to CKS, based on its lease contract with the
Cha spouses. Question: Can CKS recover from the insurer the
proceeds of the insurance procured by Cha spouses?

A. CKS cannot recover. A non-life insurance policy Such as the fire

insurance policy taken by the Cha spouses over their merchandise is a
contract of indemnity. Insurable interest in the property insured must exist at
the time the insurance takes effect and at the time the loss occurs. The basis
of such requirement of insurable interest in property insured is based on
sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the
proceeds of said property in case of loss. In such a case, the contract of
insurance is a mere wager which is void. It cannot be denied that CKS has
no insurable interest in the goods and merchandise inside the leased
premises. Therefore, CKS cannot be a beneficiary of the fire insurance policy
taken by Cha spouses. The automatic assignment of the policy to CKS under
the provision of the lease contract is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully belong
to the spouses Cha.
The insurer cannot be compelled to pay the proceeds of the fire
insurance policy to a person (CKS) who has no insurable interest in the
property insured.

Q. As of what time must insurable interest in property exist?

A. In property insurance, an insurable interest must exist both at the time of
the effectivity of the contract and at the time of the loss, while in life
insurance, it is ordinarily sufficient if an insurable interest exists at the
inception of the contract except when the life insurance is procured by a
creditor on the life of a debtor. This distinction is based on the fact that
property insurance is a contract of indemnity, while life insurance is not.

Q. What is the consequence of the transfer of interest in the thing

insured unaccompanied by transfer of interest in the policy? Why?
A. A "change of interest in any part of the thing insured accompanied by a
corresponding change of interest in the policy, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person. And where a loss occurs during
the period the policy is under suspension, the insurer is not liable.
The obvious reason for such rule is that insurance is a personal
contract and while the insurer may be willing to insure the property while
owned by the insured, it may not be willing to insure the same property if
owned by another person.

Q. What is the meaning of change of "interest that will suspend the

policy unless accompanied by change of interest in the policy? Give
illustrations/examples.

A. The change of interest contemplated by law is an absolute transfer of the

insured's entire interest in the property insured to one not previously
interested or insured.

Illustrations:
(a)The property insured against fire was mortgaged without the
consent of the insurer.
Question: Was there an alienation of the property insured which
would suspend the insurance?
Answer: No, the policy was not suspended since the interest in the
property insured did not pass by mere execution of a mortgage.

(b)A lease of the insured property is not a case of alienation or change

of title or interest in the property insured that would suspend the
policy.

(c) A judgment debtor whose property has been sold on execution

retains insurable interest therein until the right to redeem or have
 the sale set aside has been lost.

(d)A mortgagor whose property has been foreclosed still has insurable
interest on such property for he retains the equity or right of
redemption. Such interest is terminated only by a failure to redeem
within the specified time.

(e)A vendor who has not absolutely parted with all his rights respecting
the property, still has insurable interest on the property sold to the
extent of the interest retained. Thus, the vendor who has a lien on
the property sold until the purchase price is paid or the conditions of
the sale are performed retains insurable interest in such property.

In the foregoing examples, the policy will not be suspended since

the insured is not divested of his entire interest in the property
insured. The policy subsists to the extent of the interest retained by
the insured.

Q. Ordinarily, transfer of interest in the thing insured unaccompanied

by transfer of interest in the policy, suspends the insurance. What are
the instances when the policy is not suspend are despite the transfer of
the thing insured?
A. The following are the exceptions to the rule that policy is suspended by
the transfer of interest is the thing insured without corresponding transfer of
the insurance:
1. When there is a prohibition against alienation or change of interest without
the consent of the insurer in which case the policy is not merely suspended
but avoided.
2. In case of life, accident, and health insurance.
3. A change of interest in a thing insured, after the occurrence of an injury
which results in a loss.
4. A change of interest in one or more of several distinct things, separately
insured by one policy, does not avoid the insurance as to others.
5. A change of interest, by will or succession, on the death of the insured
passes the interest in the insurance to the person taking the interest in the
things insured.
6. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others.
[Link] the policy is 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.

Q. Johann is the owner of Unit 27 and Unit 29 in Bulaklak Townhouse

Center. He separately insured both units against fire with X Ins. Co., on
March 9, 2017 for a period of one year. X [Link]., issued one policy for
the insurance of both units. Johann sold Unit 27 to Sebastian on
September 27, 2017. On January 16, both Unit 27 and Unit 29 were
completely burned. May Johann recover the loss from the insurer?
A. Johann cannot recover the loss of Unit 27 because the policy was
suspended insofar as Unit 27 was concerned because Johann sold it. He
may recover the loss of Unit 29 because change of interest in one or more of
several distinct things, separately insured by one policy, does not avoid the
insurance as to others. The Sale of Unit 27 did not affect the insurance as to
Unit 29.

Q. Ordinarily, transfer of interest in the thing insured unaccompanied

by transfer of interest in the policy, suspends the insurance. What are
the instances when transfer of the thing insured carries with it the
transfer of the policy thereon.

A. In the following instances, transfer of interest in the thing insured carries

with it the transfer of the policy thereon.
1. A change of interest, by will or succession, on the death of the insured
passes the interest in the insurance to the person taking the interest in the
things insured.

2. Transfer of interest by one of several partners, joint owners, or owners in

common, who are jointly insured, to the others.

3. When the policy is 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.

Q. What stipulations in a contract of insurance are void?

A. "Every stipulation in a policy of insurance for the payment of loss whether
the person insured has or has not any interest in the property insured, or that
the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void. Thus, every stipulation in an
insurance contract:
(a) for the payment of loss whether the person insured has or has no
insurable interest in the subject matter of insurance, or
(b) that the policy shall be received as proof of such interest, and
(c) every policy executed by way of gaming or wagering is void.

TITLE 4 CONCEALMENT

Q. What is concealment?
A. "A neglect to communicate that which a party knows and ought to
communicate, is called concealment."

Q. To be guilty of concealment, as of what time must the insured have

knowledge of the fact concealed?

A. To be guilty of concealment, a party must have knowledge of the fact

concealed at the time of the effectivity of the policy. Even if a party did not
know of the existence of a material fact at the time of the application but
acquired knowledge thereof after the application, but before the effectivity of
the policy, he is guilty of concealment should he fail to communicate such
fact to the other party.
Likewise, known changes in conditions material to the risks which
occur between the opening of negotiation for insurance and the issuance of
the policy must be revealed. That is, there is a continuing duty on the part of
an applicant to disclose newly discovered matters arising between the
application for, and the confirmation and effectivity of the contract, where
they come to the applicant's knowledge and render his former answers no
longer true.
Thus, when after applying for life insurance, but before the issuance of
the policy the insured learns that he is afflicted with a fatal disease, his
failure to disclose that information constitutes concealment of a material fact
which will avoid the policy.

Q. Erwin applied for life insurance on January 16, 2018 with X Ins. Co.
At that time Erwin did not know of any ailment that he has. On January
21, 2018, he had himself physically examined and he found out that he
had heart ailment and kidney disease. On January 28, 2018 the life
insurance policy of Erwin was issued and he did not inform the insurer
about his ailment, believing that he need not reveal the same to the
insurer because he acquired knowledge thereof after he applied for life
insurance. Was Erwin guilty of concealment?
A. Erwin was guilty of concealment because he failed to inform the insurer of
the ailment he acquired knowledge of before the effectivity of the policy.
There is a continuing duty on the part of an applicant to disclose newly
discovered matters arising between the application for, and the confirmation
and effectivity of the contract, where they come to the applicant's knowledge
and render his former answers no longer true.

Q. Would your answer be the same if he was physically examined on

February 1, 2018 and did not inform the insurer of the ailment he came
to know about?
A. The answer will not be the same. Erwin is not guilty of concealment
because he acquired information about his illness after the effectivity of the
policy. Where an information was acquired after the effectivity of the policy, a
failure to communicate the same to the other will not entitle the latter to
rescind the contract on the ground of concealment of material fact. The
reason is that after the policy has taken effect, information subsequently
acquired could no longer be material, as it will not influence a party anymore
to enter into such contract. Thus, whether or not the non-disclosure of a fact
constitutes concealment is determined as of the time the contract of
insurance takes effect, and does not depend upon or is affected by
subsequent events or facts after the contract is completed.

Q. What is the right of the injured party where the other is guilty of
concealment? Must concealment be intentional?
A. "A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance. The party injured by concealment
does not have to prove intention to conceal by the other party to be able to
reach the contract of insurance. The restoration in 1985 by B.P. Blg 874 of
the phrase “whether intentional or unintentional” discourages any change in
doctrine and underscores the fact that all throughout (from 1914 to 1985),
the statute did not require proof that concealment must be “intentional” in
order to authorize rescission by the injured party.

Q. What are the facts and issue in the case of Great Pacific Life Assur.
Co. vs. Court of Appeals?

Q. Ngo Hing was an authorized insurance agent of Great Pacific Life

Assurance Company. He applied with Great Pacific Life for a twenty-
year endowment policy on the life of his one- year old daughter, Helen
Go. The insurer issued a binding receipt. Ngo was aware that his
daughter was a Mongoloid child but he withheld such information from
the insurer. Later, Helen Go died of influenza with complication of
bronco-pneumonia. Question: Was the concealment sufficient to
relieve the insurer of liability?
A. The insurer cannot be liable. As an insurance agent, Ngo Hing ought to
know, as he surely must have known his duty and responsibility to supply a
material fact. Had he divulged that Helen Go was Mongoloid child in the
application form, the insurer would have disapproved the application. When
Ngo Hing concealed his daughter's physical defect which could never be
esconced nor disguised, he was in apparent bad faith. The contract of
insurance is one of perfect good faith, absolute and perfect candor or
openness and honesty. Ngo Hing was guilty of concealment which relieved
the insurer of any liability.

Q. What is the effect of concealment and what is the basis of such

rule?
A. A party applying for insurance is bound to answer truthfully all questions
concerning facts material to the risk. Concealment or suppression of material
fact is a fraud, and as fatal to the contract as false answer would be. A policy
will be vitiated by the suppression of known material facts by a party, and the
insurer may rescind a policy on the ground of concealment.
The basis of the rule vitiating the contract in case of concealment is
that it misleads or deceives the insurer into accepting the risk or accepting it
at the rate of premium agreed upon. The insurer relying upon the belief that
the assured will disclose every material fact within his actual or presumed
knowledge is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist. The principal question, therefore, must be, was the insurer
misled or deceived into entering a contractual obligation or in fixing the
premium of insurance by a withholding of material information or facts within
the insured's presumed knowledge?

Q. What are the requisites of facts that must be communicated?

A. "Each party to a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract
and as to which he makes no warranty, and which the other has not the
means of ascertaining."
Each party is bound to communicate to the other all facts that meet
the following requisites: (a) such facts must be within his knowledge; (b)
must be material to the contract; (c) the other party has not the means of
ascertaining such fact; and (d) he makes no warranty as to such facts.

Q. What matters need not be communicated except in answer to

inquiries?
A. "Neither party to a contract of insurance is bound to communicate
information of the matters following, except in answer to the inquiries of the
other:
"(a) Those which the other knows;
"(b) Those which, in the exercise of ordinary care, the other ought to
know, and of which the former has no reason to suppose him ignorant;
"(c) Those of which the other waives communication;
"(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise material; and
"(e) Those which relate to a risk excepted from the policy and which
are not otherwise material. "

Q. How may information be waived?

A. Information need not be revealed to the other where communication
thereof was waived. Waiver of the information may either be: (a) express
when made by the terms of the insurance or contained in the policy; or (b)
implied, when there was neglect to make inquiries as to such facts distinctly
implied in other facts of which information was communicated.

Q. When is information impliedly waived?

A. There is an implied waiver of information when there is a failure to inquire
as to facts which are distinctly implied from other facts of which
communication is made. Thus where an application for insurance is made in
writing, and the questions therein as to material facts are unanswered or
incompletely answered, and the insurer without further inquiry, uses the
policy, it thereby waives all right to a disclosure, or to a more complete
answer with respect to the fact to which unanswered question relates.

Q. What are the facts and issue in the case of Ng Gan Zee vs Asian
Crusader Life Assurance Corp.?

Q. On May 12, 1962, Kwang Nam obtained a 20-year endowment policy

and readily paid the premium thereon. Kwang Nam informed the
insurer's medical examiner as follows: "Operated on for tumor
(myoma) of the stomach. Claims that tumor has been associated with
ulcer of stomach. Tumor taken out was hard and of a hen's egg size.
Operation was (2) years ago in Chinese General Hospital by Dr. Yap.
Now, claims he is completely recovered The insurer made no further
inquiry or investigation. It turned out that the insured was operated on
for "peptic ulcer" and not a mere tumor. On Dec. 6, 1963, Kwang Nam
died of cancer of the liver with metastasis. The insurer denied the
beneficiary's claim on the ground that the answer given by the insured
to the question appearing in his application for life insurance was
untrue. Question: Was Kwang Nam guilty of concealment?

A. NO! There was no concealment since the insurer impliedly waived the
information. The information communicated by Kwang Nam was imperfect
and sufficient to have induced the insurer to make further l inquiries about
the ailment and operation of the insured. The failure of the insurer to make
further inquiries constituted a waiver of imperfection of the answer and
rendered the omission to answer more fully immaterial. Kwang Nam had
informed the insurer's medical examiner that the tumor for which he was
operated on was "associated with ulcer of stomach". In the absence of
evidence that the insured had sufficient knowledge as to enable him to
distinguish between "peptic ulcer" "tumor", his statement that said tumor was
associated with ulcer of stomach" should be construed as an expression
made in good faith of his belief as to the nature of his ailment and operation.

Q. Sibya, Jr. applied for life Insurance with Sun Life. In his application
for insurance, he indicated that he had sought advice for kidney
problems. He indicated in his application: "Last 1987, had undergone
lithoripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at
National Kidney Institute, discharged after 3 days, no recurrence as
claimed." On February 5, 2001, Sun Life approved Sibya's application
and issued the life insurance policy. On May 11, 2001, Sibya died of
gunshot wound. Sun Life sought to rescind the policy on the ground of
concealment. Sun Life claimed that Sibya did not disclose his previous
medical treatment at the NKI in May and August 1994. The beneficiaries
claimed that the insured did not commit concealment or
misrepresentation and he even authorized Sun Life to inquire further
into his medical history for verification purposes. Issue: Was the
insured guilty of concealment or misrepresentation?
A. The insured did not commit concealment or misrepresentation. Sibya
admitted in his application his medical treatment for kidney ailment. He even
executed an authorization in favor of Sun Life to conduct investigation about
his medical history. It cannot be said that he concealed his medical history.
The insurer was aware of the medical condition of Sibya and further
information need not be communicated.

Q. Does waiver by the insurer of medical examination mean waiver of

information from the insured?

A. Waiver of medical examination of the applicant for life insurance should

not be construed as a waiver of material information, since the waiver of
medical examination is made where the insured represents himself to be of
good health. It is reasonable to assume that had the insured revealed
material information concerning his health, the insurer would not have
waived the medical examination.

In a non-medical life insurance which dispenses with medical

examination, waiver of such medical examination renders even more
material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily
constitutes an important factor, which the insurer takes into consideration in
deciding whether to issue the policy, or not.

Q. What are the facts and issue in the case of Sunlife Assurance
Company of Canada vs. Court of Appeals?

Q. Bacani obtained a "non-medical" life insurance. When asked in his

application for life insurance if he had consulted any doctor or health
practitioner, the insured limited his answer to a consultation with Dr.
Raymundo of Chinese General Hospital for cough and flu
complications. The insurer waived medical examination. It turned out
however, that two weeks before the application, the insured was
examined and confined in the Lung Center of the Philippines, where he
was diagnosed tor renal failure. The insured died and the insurer
refused to pay the claim on the ground that the insured did not
disclose material facts. The beneficiaries on the other hand, maintained
that waiver of medical examination debunk the materiality of the facts
concealed. Question: Was it necessary for the insured to reveal
material information?
A. Yes. Since the waiver of a medical examination renders even more
material the information required of the applicant concerning previous
condition of health and diseases suffered because such information
constitutes an important factor which the insurer takes into consideration
whether to issue the policy or not.

Q. How is materiality of concealment determined?

A. Materiality is to be determined not by the event, but solely by the probable

and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries.

The fact concealed must be material to entitle the other to rescind the
policy. A fact is immaterial where the knowledge or ignorance of it will
naturally influence the judgment of the Insurer in deciding Whether he will
enter into the contract, or in estimating the degree and character of the risk.,
or in fixing the rate of premium. It operates as an inducement to the usurer to
enter into the contract, where, except for such inducement, it would not have
done so, or would have charged a higher premium.

Q. What is the test of materiality of information? Give examples.

A. The test of materiality is whether knowledge of the true facts would have
influenced a prudent insurer in determining whether to accept the risk or in
fixing the amount of premiums. That is, if answers to questions propounded
by the insurer are such as may influence it in determining whether to accept
risk and what premium to charge, such answers are material and must be
truthful. Thus, every fact is material which increases the risk or which, if
disclosed, might have led the company to decline the risk, or to accept the
risk only for higher premium.

Examples:
(a) Material illness:
1. Operation for removal of infected cyst from abdomen, attacks of
"acute cholicystitis" or serious infection of the gall from bladder.
 2 Cerebral congestion and Bell's palsy, cancer and disease of the
kidneys.
(b) Immaterial illness:
1. A mere cold or slight attack of influenza.
2. Attack of diarrhea about two years previously.

Q. Bacani applied for a non-medical life insurance. Despite the fact

that he was asked if he consulted health practitioner any doctor or
within the past 5 years, the insured did not inform the insurer that two
weeks prior to his application for insurance, he was examined and
confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. The insured died in a plane crash. The
beneficiaries contended that since the fact concealed had no bearing
with the cause of death of the insured, the insurer was liable Question:
Was such contention correct?

A. NO! The contention of the beneficiaries was not correct. The insured need
not die of the disease he failed to disclose to the insurer, It is sufficient that
his non-disclosure misled the insurer in forming his estimates of the risk of
the proposed insurance policy or in making inquiries. The insurer was not
liable.

Q. When must expectation or belief be communicated to the insurer?

A. In marine insurance, "information of the belief or expectation of a third

person, in reference to a material fact, is material" and must be
communicated. The opinion therein referred to is that of a third person and
not that of the insured.

FOURTH LECTURE VIDEO

TITLE 5
REPRESENTATION
Q. Define (a) representation and (b) misrepresentation.
A. A representation is an oral written statement of a fact or condition
affecting the risk made by the insured to the insurance company, tending to
induce the insurer to assume the risk.
Misrepresentation is a statement of something as a fact which is untrue
and material to the risk, and which the insured states, knowing it to be untrue
in an attempt to deceive, or which he states positively as true without
knowing it to be true, and which has a tendency to deceive.

Q. As of what time must representation be made and why at that time?

A. "A representation may be made at the time of, or before, issuance of the
policy. Since representation is an inducement to a contract of insurance, it
must, ordinarily, be made at the time of issuing the policy, or before it. It is
submitted, however, that representation may likewise be made after the
issuance of the policy when the purpose thereof is to induce the insurer to
modify an existing insurance contract since the provisions on representation
are applicable not only to the original formation of an insurance but also to its
modification.

Q. Distinguish concealment from misrepresentation.

A. A party to a contract of insurance is bound to communicate material facts
to the others. Should he fail to communicate such facts, he is guilty of
concealment and the information he gives in compliance with his duty to
reveal facts is representation. Representation, therefore, "is the
communication required to comply with the prohibition against concealment.
Concealment is the passive, and misrepresentation the active, form of the
same act of bad faith.

Q. What are the kinds of representation? Give an example of each.

A. Representation may either be:
1. Affirmative which is an affirmation of a fact existing when the contract
begins or
2. Promissory which is a statement by the insured concerning what is to
happen during the term of the insurance.
Examples:
(a)Affirmative representation: A statement in the application that a force
pump and an abundance of water constitute the facilities for
extinguishing fire is an affirmative representation only and, therefore,
does not mean that there is a continuing guaranty that they shall be
kept in good order for use in the future.
(b)Promissory representation: A representation in an application for a
fidelity bond that the employee's books, etc. will be examined at
stipulated periods, is promissory representation.

Q. Must misrepresentation be intentionally false?

A. Misrepresentation need not be intentionally false. Section 45 of the
Insurance Code was amended by eliminating the word “intentionally”
because the word “intentionally” before the word “false”, was not part of the
original provision of the Insurance Act. When said word was inserted in the
present law, the effect of such amendment is to prevent the injured party
from rescinding an insurance contract unless fraudulent intent of the other
party is established.

Q. What is the effect of false statement of age by the insured in a life

insurance?
A. Where the age of the insured was falsely stated or misstated, the policy
will not be avoided but instead, the value of the insurance will be adjusted in
such a way that the “amount payable or benefit accruing under the policy
shall be such as the premium paid would have purchased at the correct
age." Such principle, however, is applicable only when there was a valid and
binding contract, not procured by fraud and where there was only an
innocent misstatement of age and does not apply where the difference
between the true age and the age given was so great that there was no
doubt that it was knowingly and purposely exaggerated by the insured.

Q. What is the effect of acceptance of premium payment on the right of

the insurer to rescind the contract?
A. Whenever the Code grants the insurer the right to rescind the policy for
any reason, such right is waived by the acceptance of premium only if the
insurer
has knowledge of the ground for rescission otherwise, there is no waiver of
the right to rescind. Aside therefrom, where the insurer was not aware of the
violation of the policy at the time of the acceptance of is given to the insurer
is not barred from by any provision from raising such violation as a defense.
However, where the insurer was not aware of a violation of the policy at the
time of the acceptance of premium, the insurer is not barred from raising
such violation as a defense.

Q. What are the facts and issue in the case of Edillion vs. Manila
Banker’s Life Ins.?

F. On April 15, 1969 Lapuz applied for accident insurance. She stated in
her application that she was born on July 11, 1904. She paid the
premium and the insurer issued her the policy, During the effectivity of
the policy, Lapuz died in a vehicular accident. The insurer denied the
claim of the beneficiary on the ground that the policy excluded liability
in case the insured is over the age of sixty and since Lapuz was over
sixty when the policy was issued, said policy was null and void,
Question: Was the denial of the claim correct?

A. The denial of the claim was not correct. Lapuz did not conceal her age
having stated in her application her date of birth which showed that she was
almost 65 years of age. The issuance of the policy by the insurer and its
subsequent failure to cancel the policy before the accident happened despite
the departure from the exclusionary condition contained in the said policy
constituted a waiver of such condition.

Q. Whenever the insurer is given the right to rescind the contract of

insurance, within what time should it be exercised?
A. "Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.”
Action means an ordinary suit in a court of justice and an action is
commenced by filing a complaint with the court. The insurer therefore may
rescind the insurance contract even after the occurrence of the loss and filing
of the claim with the insurer provided that it is done before the filing of the
complaint in court against the insurer.
Q. What are the facts and issue in the case of Philamcare Health Care
Systems, Inc. vs. Court if Appeals, et. al?

F. Trinos applied for a health care coverage with Philamcare. In his

application, Trinos answered "no" to the question whether he or any of
his family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer. The application was approved and under the agreement,
Trinos was entitled to avail of hospitalization benefits. Upon
termination, the same was extended to another year with an increased
amount of coverage. Trinos suffered heart attack and was confined at
the hospital for one month. His spouse's claim for benefit under the
coverage was denied by the insurer on the ground of concealment. The
insurer did not rescind the contract despite its claim of concealment.
Trinos died a month later. Trinos' spouse filed an action against the
insurer without the insurance being rescinded. Question: May the
insurer still rescind the contract?

A. Concealment gives the injured party the right to rescind the contract. Such
right of rescission however, must be exercised previous to the
commencement of an action on the contract. In this case, no rescission was
made before the action was filed and therefore, the insurer may no longer
rescind the contract.

Q. What is the effect of failure to rescind despite knowledge of the facts

giving the insurer the right to rescind?
A. Where an insurance company had knowledge of facts that entitled it to
rescind, but failed to cancel the policy and instead preferred to continue the
contract, its inaction amounted to a waiver of the right of rescission.

Q. A policy required the disclosure of any other insurance on the same

thing insured against fire. The insurer had knowledge of other
insurances on the same property but said insurer did not rescind the
policy. Question: May the insurer refuse payment of the proceeds of
the policy on the ground of violation of the policy?
A. The insurer cannot invoke the violation of the policy as a defense. If, with
the knowledge of the existence of other insurances in violation of the policy,
the insurer preferred to continue the policy, its action amounted to a waiver
of the rescission of the contract.
Q. What is the effect of the insured’s fraud on the assignee of the
policy?
A. An assignee of an insured merely acquires the rights of the insured. It is
but fair and just that where the insured who is primarily entitled to receive the
proceeds of the policy has by his fraud and/or misrepresentation forfeited
said right; with more reason the assignee who is merely an indorsee of the
policy cannot be entitled to such proceeds.

Q. What are the facts and issue in the case of Pacific Banking Corp. vs.
Court of Appeals, 163 SCRA 1?
Q. Paramount Shirt borrowed money from Pacific Banking
Corporation. To secure the loan, it mortgaged its properties and
assigned the fire insurance policy issued by Oriental Assurance
covering said properties to Pacific Banking. Paramount violated a
condition in the policy requiring full disclosure of all insurance policies
on the same properties insured with Oriental. When the insured
properties were burned, Pacific Banking demanded payment from the
insurer. The insurer refused to pay on the ground of violation of the
policy by the insured. Pacific Banking claimed that the insured's
violation of the policy can not affect the mortgagee/assignee because
the purpose for which the endorsement or assignment of the policy
was made was to protect the mortgagee/assignee against any
untoward act or omission of the insured and it would be absurd to bar
the mortgagee/assignee from recovery on account of violation of the
policy committed by the insured. Question. Was the contention of
Pacific Banking correct?

A. No, Pacifc Banking's contention Was, Not correct. Where the insured who
was primarily entitled to receive the proceeds of the policy had by fraud and
or misrepresentation, forfieted said right with more reason, Pacific Banking
which was claiming as indorsee of said insured cannot be entitled.

**********************MIDTERMS/FINALS QUESTION***************************

Q. What is the meaning of the incontestable clause and what are the
requisites thereof?
A. An incontestable clause in a life insurance policy is an agreement by
which the insurance company limits the period of time within which it will
interpose objections to the validity of the policy or set up any defense.
A policy to become incontestable must have the following requisites;
1. It must be a life insurance policy;
2. It must be payable on the death of the insured; and It must have
been in force during the lifetime of the insured for a period of two years

Q. What are the Effects and purpose of incontestable clause?

A. Whenever all the requisites of incontestability mentioned above are
present, the insurer can no longer escape liability under the policy nor be
allowed to prove that the policy is void ab initio or rescindable by reason of
concealment Or misrepresentation of the insured or his agent. In other
words, the insurer is precluded from contesting the policy on any ground.
The incontestable clause was "designed to prevent the commission of one of
the inequities usually perpetrated by insurance companies" as there were
cases where "after the death of the insured, the insurer starts fishing for
evidence to show that the insured made false representations as to the state
of his health" and thus "escape liability on the policy" or "delay its payment,
in order to compel the beneficiary when he is badly in mood of money, only
to accept only part of the policy.

Q. What is the period of contestability or within what time must the

insurer contest the validity of a life insurance policy?
A. Prior to the cases of Manila Bankers Lite Insurance Corp. v. Aban,7 and
Sun Life Canada (Phils.), Inc. vs. Sibya, et al. the "incontestability clause"
which precluded the insurer from raising the defenses of false
representations or concealment of material facts applied if the insurance had
been in force for at least two years from the time the policy was issued or
reinstated.
The phrase "during the lifetime of the insured" found in Section 48 simply
meant that the policy was no longer considered in force after the insured
died. The key phrase in the second paragraph of Section 48 is "for a period
of two years". The insurer has two years from the date of issuance of the life
insurance contract or its last reinstatement within which to contest the policy,
whether or not the insured still lives within such period. After two years, the
defenses of concealment or misrepresentation, no matter how patent or well
founded, no longer lie. Congress felt this was a sufficient answer to the
various tactics employed by insurance companies to avoid liability. The case
of Tan vs. Court Appeals, SCRA 403 supports the view that the insurer
hastwo years from the issuance of the policy within which to contest the life
insurance policy.
Q. Were there subsequent decisions of the Supreme Court that altered
the effect of the ruling in the aforecited case of Tan?
A. Yes. The decisions in the in the cases of Manila Bankers Life Insurance
Corp. v. Aban, and Sun Life of Canada (Phils.), Inc. vs. Sibya, et al,°
changed the effect of the ruling in the case of Tan vs. Court Appeals, by
declaring that the "insurer is given two years - from the effectivity of a life
insurance contract and while the insurer is alive to discover or prove that the
contract is void ab initio or rescindable" by reason of concealment or
misrepresentation and therefore if the insured is already dead the insurer
cannot contest the life insurance policy even if less than two years from the
issuance of the policy had elapsed.

Q. On July 3, 1993 Sotero took out a life insurance policy from Manila
Bankers Life Insurance with Aban as beneficiary. On April 10, 1996
when the insurance policy had been in force for more than two years
and seven months, Sotero died. The beneficiary filed a claim with the
insurer. The insurer alleged that Sotero fraudulently obtained the policy
and filed an action to rescind the policy. May the policy be rescinded?
A. The insurer cannot rescind the contract of insurance. "An insurer is given
two years – from the effectivity of a life insurance contract and while the
insurer is alive to discover or prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of
the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded,
but that insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of discrimination
ultimately work for the detriment of bona fide takers of insurance and the
public in general.

Q. What are the facts and issue in the case of Tan vs. Court of
Appeals?
Phil-Am Life issued a life insurance policy amounting to P80,000 in
favor of Tan Lee Siong effective from Nov. 6, 1973. On April 26, 1975,
the insured died of hepatoma. The beneficiaries demanded payment
but the insurer denied the claim on September 11, 1975 and rescinded
the policy by reason of misrepresentation and concealment of material
facts made by the insured in his application for insurance. The
beneficiaries maintained that the insurer can no longer rescind the poly
after the death of the insured. They also claimed that recission must be
done during the lifetime of the insured within two years and to and
prior to the commencement of the action: Question: Are the
contentions of the beneficiaries, correct?
A. The contentions are without merit. The insure, has two years from the
date of issuance of the insurance contract or of its last reinstatement within
which to contest the policy, whether or not the insured still lives within such
period.* from November 6, 1973 when the policy was issued in April 26,
1975 when the insured died, less than two years had elapsed and hence the
policy was not yet incontestable.

Q. What defenses are not barred by incontestable clause?

A. Notwithstanding the incontestability of the policy, insurer may still raise
the following defenses,
1. The insurer may raise the defense that the premiums were not paid
2. The insurer may raise the defense that the insured violated the condition
in the policy relating to military or naval service in time of war
3. The insurer may raise the defense that the insured has no insurable
interest in the subject-matter of the insurance. $90
4. The insurer may raise the defense that the cause of death was excepted
or not covered by the terms of the policy.
5. The insurer may raise the defense that the fraud committed was of a
particulary vicious type such as: (a) where the policy was taken in
furtherance of a scheme to murder the insured; (b) where the insured
substituted another person for the medical examination; and (c) where the
beneficiary feloniously killed the insured.
6. The insurer may raise the defense that the necessary notice or proof of
insured's death was not given

Q. In case of reinstated policy, when will the incontestable period

begin?
A. When a policy lapses for non-payment of premiums and is subsequently
reinstated, the two year period of contestability should be computed from the
date of last reinstatement and not from the date of issuance of the policy
because the reinstated policy should be viewed as a new contract. Thus,
where the insurer asserts that the reinstatement was obtained through fraud,
he may raise this defense at any time before the expiration of the contest
period, reckoned from the date of reinstatement. Also when the insured
Concealed in the application for reinstatement the fact that she had been
suffering for at least three years from bronchial asthma, the period of
incontestability should be computed from the date of reinstatement.

Q. What is a policy?
A. the written instrument in which a contract, of insurance is set forth, is
called a policy

Q. In what form should a policy be? What is the effect of failure to

comply with such form?
The form of a policy must be submitted to the Insurance Commissioner for
approval disapproval to determine whether or not violates any law or
principle of equity. Hence, no policy of insurance shall be issued or delivered
within the Philippines unless in the form previously approved by the
Insurance Commissioner. The policy however, may be in electronic form.
The failure to obtain approval of the Insurance Commissioner does not affect
the validity of the terms of the contract and therefore, the policy may still be
enforced. The insurer cannot set up its own failure to comply with the
requirements of the law defense to in action against, it on the policy
However, the insurer which failed to obtain the approval be the Insurance
Commissioner will be liable to prosecution for having used an unapproved
form. When the terms of the policy, however, are contrary to law such
provisions shall of course, be void.

Q. What is a cover note and when does it bind the insurer? Give
examples.
A. A çover note or a binding slip is merely a written memorandum of the mos
t important terms of a preliminary contract of insurance, intended to give
temporary protection pending the investigation of the risk by the insurer or
until the issuance of a formal policy.
A preliminary contract of insurance is one intended to afford protection
pending investigation of the risk and formal issuance of the policy." To give
adequate protection to the insured, it must be a preliminary contract of
present insurance and not a mere agreement to insure at. some future time,
as on acceptance of the application a or on issuance or delivery of the policy.
Such kind of contract need not contain all the essential terms provided the
parties have agreed upon some method of there after fixing such terms." It is
called by various terms such as "binders", "binding slip", "binding receipt or
cover notes".
Examples :
(a) Preliminary contract of Present Insurance:
 The following memorandum was issued: "About $3,000 insurance is
wanted by Scammel Bros., for account of whom, etc., loss, if any, payable to
them or order for $of Chartered freight per Bright. "Peerless valued at $
amount of charter at and from Santa Fe to a port in the UK or on the
Continent. Priv. of port call for orders. Premium, open for particulars.
Binding."
Question: Did such kind of memorandum provide immediate protection?
Answer: Yes. The parties made a binding agreement for temporary
insurance, subject to the condition that the insured should, within a
reasonable time, furnish the insurer particular information concerning the risk
which would enable the insurer to fiz a reasonable rate to be paid for the
protection given.

Q. What are the facts and issue in the case of Lim vs. Sun Life
Assurance Co. of Canada?

An insurance agent issued a "Provisional Policy" which acknowledged

the receipt of premiums and stated that the insurance shall be effective
upon approval and issuance of the policy by the head office. The
person whose life was supposed to be insured died before the
issuance of the policy.
Question: Did the "Provisional policy afford protection pending the
issuance of the formal policy?

Answer: The so called "provisional amounted to nothing but

acknowledgment of receipt of premiums. It constituted no agreement at all
for preliminary or temporary insurance since it expressly stated that it shall
be effective only upon approval and issuance of the policy by the head
office. In the last illustration given above, it will be noted that the parties did
not agree on immediate protection and instead stipulated that the insurance
would be effective only upon approval and issuance of the policy by the head
office. It could not be considered therefore, as a contract of present
insurance but stipulation to insure at some future time. It could only be
considered as a mere memorandum of future insurance.

Q. Must separate premiums be collected on the cover note?

A. No separate premiums are intended or required to be paid on a cover
note because cover notes do not contain particulars of the property insured
that would serve as basis for the computation of premiums. Such being the
case, no premium could be fixed and paid on the cover note. Cover notes
should not be treated as separate policies should be integrated to the regular
policies subsequently issued so that the premiums on the regular policies
include the consideration for the cover notes.

Q. What are the facts and issue in the case of Pacific Timber Export
Corporation vs. Court of Appeals?

On March 19, 1963 Pacific Timber obtained a cover note insuring logs
to be exported. On April 2, 1963 the regular marine policies were issued
and the premiums thereon were paid. No separate premium was paid
on the cover note. After the issuance of the cover note but before the
issuance of the regular policies, a number of logs were lost. The
insurer refused to pay the loss on the ground that no premium was
paid on the cover note. Question: Was premium needed to make the
cover note binding?

A. The cover note was binding even if premium was not paid thereon
because no premium could be fixed on the cover note until all the particulars
of the shipment are known. a logical consequence, no separate premium is
required to be paid on the cover note. Furthermore, if the cover note is to be
treated as a separate policy which would require separate premium instead
of integrating it to the regular policies subsequently issued, the purpose and
function of the cover note would be set at naught or rendered meaningless.
Liability on the cover note should arise even before payment of premium.
This is how the cover note as a "binder" should legally operate; otherwise, it
will serve no practical purpose in the realm of commerce.

Q. To whom should the proceeds of a policy be given?

A. "The insurance proceeds shall be applies exclusively to the proper

interest
of the person in whose name or for whose benefit it is made unless
otherwise specified in policy. All persons specifically named as persons
insured in a policy insuring against loss of or damage to property are
covered or protected by the policy but a person not so named is not
protected if the policy does not contain a provision which indicates intent to
cover the interest of another person other than the named
insured.523Insurance, therefore, shall be applied exclusively to the proper
interest of the person in whose name or of whose benefit it is made unless
otherwise specified in the policy. Accordingly, where several persons have
distinct interests in the same property, the insurance taken by one in his own
right does not in any way insure the interest of the other.

Q. In a motor vehicle insurance, Is the insurer solidarily liable with the

insured or the party at fault?

A. While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, the direct liability of the insurer under indemnity contracts to third
persons does not mean that the insurer can be held liable in solidum with the
insured and/or the other persons found at fault. The reason is that the liability
of the insurer is based on contract while that of the insured carrier or vehicle
owner is based on tort.

Q. (1) What are the kinds of policy? (2) Define each one.

A. (1) "A policy is either open valued or running.

(2a) "An open policy is one in which the value of the thing insured is not
agreed upon, and the amount of the insurance merely represents the
insurer's maximum liability. The value of such thing insured shall be
ascertained at the time of the loss.
(2b)"A valued policy is one which expresses on its face an agreement that
the things insured shall be valued at a specified sum. "
(2c) "A running policy is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time
especially as to the subjects of insurance, by additional statements
indorsements."
Running policy is also called "floating policy. It is intended to
supplement specific insurance and to provide indemnity for property which
cannot be covered by specific insurance because of its frequent change in
location and quantity. It is usually issued when stocks-in-trade are insured
which cannot be covered by specific insurance because stocks are being
sold and replenished from time to time.

Q. How should the period of prescription agreed upon by the parties be

computed?

A. The prescriptive period to bring suit in the court under an insurance policy
begins to run from the date the of the insurer’s injunction of the claim filed by
the insured, the beneficiary or any person claiming under an insurance
contract. The reason is that the prescriptive period must be counted from the
account of the cause of action. And the cause of action accrues from the
time the insurer rejects the claim of the insured since, before such rejection,
there is no necessity for bringing suit against the insurer.

Q. What are the facts and ruling in the case of H. H. Hollero

Construction, Inc. vs GSIS? 736 SCRA 303, Sept. 24, 2014?

Q. The insured obtained a Contractors' All Risks (CAR) Policy from

GSIS. The policy provides that "all benefits thereunder shall be
forfeited if no action is instituted within twelve (12) months after the
rejection of the claim for loss, damage or liability." Because of
typhoons "Biring" "Huaníng" and "Saling", the insured typhoons
property was damaged and the insured made several claims for
indemnity on June 30, 1988, August 25, 1988 and October 18, 1988 from
GSIS. In a letter dated April 26, 1990, GSIS rejected the claims for
indemnity for damages wrought by typhoons "Biring" and "Huaning".
In a letter dated June 21, 1990, GSIS also denied the claim for damages
caused by typhoon "Saling". In a letter dated April 18, 1991, the insured
impugned the rejection of the claims and reiterated its demand for
settlement of the claims. On September 27, 1991, the insured filed a
complaint against GSIS. The insured claims that the GSIS letters dated
April 26, 1990 and June 21, 1990 did not amount to a "final rejection" of
the claim. Has the action prescribed?

A. YES. The insured's causes of action accrued from its receipt of the letters
dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its
claims in the first instance. Since the insured allowed more than twelve (12)
months to lapse before filing the necessary action on September 27, 1991,
its causes of action had already prescribed.

Q. The policy provides that "if a claim is made and rejected and no
action or suit is commenced within twelve months after such rejection"
"all benefits under this policy shall be forfeited". After the claim of the
insured was denied, he asked for reconsideration of the denial of the
claim. Later the request for reconsideration was also denied. From
what time should the period of twelve months from final rejection be
computed?

A. Final rejection means denial by the insurer of the claims of the insured
and not the rejection or denial by the insurer of the insured's motion or
request for reconsideration. The rejection referred to should be construed as
the rejection in the first instance"

Q. Fulton Fire Insurance Co., issued a fire insurance policy in favor of

Sally Ang covering stocks of general merchandise. The policy provided
that if the claim is rejected and no action is commenced within 12
months after such rejection, all benefits under the policy would be
forfeited. On December 27, 1954, the stocks insured were destroyed by
fire and on December 30, 1954, the insured claimed the loss from the
insurer. On April 6, 1956, the claim was denied and the notice of denial
was received by the insured on April 19, 1956. On May 6, 1958, the
insured filed an action against. Question: Has the action the insurer.
prescribed?

A. The action has prescribed. The condition contained in the insurance

policy that claims must be presented within one year after rejection is not
merely a procedural requirement. The condition is an important matter,
essential to a prompt settlement of claims against insurance companies, as it
demands that insurance suits be brought by the insured while the evidence
as to the origin and cause of destruction have not yet disappeared. It is in
the nature of a condition precedent to the liability of the insurer, the purpose
of which is to terminate all liabilities in case the action is not filed by insured
within the
period stipulated.

Q. What are the facts and issue in the case of Eagle Star Ins. Co., Ltd.
vs. Chia Yu?

Q. A policy provides that: "No suit or action on this policy for the
recovery of any claim, shall be sustainable in any court of law or equity
unless the insured shall have fully complied with all the terms and
conditions of this policy, nor unless commenced within twelve (12)
months next after the happening of the loss xxx".

Question: Is such stipulation valid?

A. The stipulation is void for if it will be given effect, the period allowed the
insured for bringing the action would be reduced to less than one year from
the time the cause of action accrues. This is so because the said clause
makes the prescriptive period begin from the happening of the loss and at
the same time requires the filing of a claim after the loss against the carrier,
and that a copy of the reply of the carrier should be sent to the insurer.
Compliance with this condition will necessarily consume time and thus
shorten the period for bringing suit to less than one year if the period will be
computed from the happening of the loss.

Q. What is the period of prescription of an insurance action in case no

period has been stipulated?

A. When no period for bringing the action has been agreed upon in the
policy, or when such agreement is void, the insured may bring the action
within the prescriptive period provided for in the Civil Code, that is within ten
years in case the contract is written and within six years in case of an oral
contract from the time the cause of action accrues.

Q. From what time should the period of prescription be computed in

case a motion or request for reconsideration of the denial of the claim
was made by the insured?

A. In case the claim was denied by the insurer but the insured filed a petition
for reconsideration, the prescriptive period should be counted from the date
the claim was denied at the first instance and not from the denial of the
petition for reconsideration. To rule otherwise would give insured persons a
scheme or devise to waste time until any evidence which may be considered
against them is destroyed.

Q. What is the period of prescription of action in motor vehicle

insurance?

A. Section 384 of the Insurance Code of 1978 used to provide that an action
for recovery of damages under the compulsory motor vehicle insurance must
be brought "within one year from the date of the accident, otherwise, the
claimant's right of action shall prescribe." Such provision gave rise to
confusion as to whether the prescriptive period should be counted from the
date of the accident as the law expressly provided or from the denial of the
claim. In some cases, the court ignored section 384 probably because of the
absurdity of said provision.

Under the present law as amended, the period of prescription in compulsory

motor vehicle insurance is one year counted from denial of the claim and not
from the date of accident.

Q. Is the right of the insured to file an action against the insurer

affected by Sec. 3 (6) of the Carriage of Goods by Sea Act that provides
that the carrier and the ship shall be discharged from all liability for
loss or damage to the goods if no suit is filed within one year after
delivery of the goods or date when they should be delivered?

A. Section 3 (6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or date
when they should be delivered. It will be observed that the prescriptive
period in such case begins to run from the date of delivery of the goods or
date when they should have been delivered and not from the denial of the
claim.

Under the aforesaid provision, however, only the carrier's liability is

extinguished if no suit is brought within one year from delivery on the goods.
The Liability of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on contract of insurance. A close
reading of the law reveals that the Carriage of Goods by Sea Act governs the
relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of
the carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is governed
by the Insurance Code,

Q. From August to October, 1983, Mayer Steel shipped pipes and

fittings to Hongkong Company. Mayer insured the cargo with South
Sea Surety for Us212,772.09 and with Charter Insurance for
US$149,470. When the goods reached Hongkong, it was discovered
that a substantial portion thereof was damaged. Charter paid
Hongkong Co., HK $64,904.75. Mayer and Hongkong Co. demanded
payment of the balance of HK $299,345.30 from the insurers. An action
was filed against the insurers on April 17, 1986, more than two years
from the time the goods were unloaded from the vessel. The insurers
claimed prescription under the Carriage of Goods by Sea Act because
more than one year had elapsed since the cargo was unloaded.
Question: Has the action prescribed as provided for in the Carriage of
Goods by Sea Act?

A. YES. Under the Carriage of Goods by Sea Act, the insurer, like the
shipper, may no longer file a claim against the carrier beyond the one-year
period provided by law. But it does not mean that the upper may no longer
file a claim against the insurer because the basis of the insurer s liability is
the insurance contract. The action has not yet prescribed as the insured has
ten years from denial of the claim within which to file an action against the
insurer

Q. The shipper filed a complaint against the insurer for recovery of

indemnity for the loss and damage sustained by the insured's goods.
The insurer, in turn, filed a third-party complaint against the carrier for
reimbursement of the amount claimed by the insured. The insurer filed
the third-party complaint more than one year after delivery of the
goods. Question: Was the third-party complaint barred by
prescription?

A. The insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the carrier
must be filed within One year after delivery of the goods or the date when the
goods should have been delivered. The said Act includes the insurer of the
goods in its action against the carrier.

Q. Distinguish the Mayer Steel case from the Filipino Merchants case.

A. The Filipino Merchants case is different from the Mayer Steel case. In
Filipino Merchants, it was the insurer which filed a claim against the carier for
reimbursement of the amount it paid or might pay to the shipper. In the
Mayer Steel case, it was the shipper which filed a claim against the insurer.
The bases of the shipper's claims in the Mayer Steel case are the insurance
policies issued.

The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. Under the
Carriage of Goods by Sea Act, the insurer, like the shipper, may no longer
file a claim against the carrier beyond the one-year period provided in the
law. But it does not mean that the shipper may no longer file a claim against
the insurer because the basis of the insurer's liability is the insurance
contract and not the contract of carriage of goods.
Q. When may an insurance policy other than life be cancelled and upon
what grounds?

A. "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 in based on the occurrence, after the effective
date of the policy, of one or more of the following

"(a) Nonpayment of premium;

"(b) Conviction of a crime arising out of acts increasing the hazard insured
against;

"(c) Discovery of material or misrepresentation;

"(d) Discovery of willful or reckless acts or omissions increasing the hazard

insured against;

"(e) Physical changes in the property insured which result in the property
becoming uninsurable;

"(f) Discovery of other insurance coverage that makes the total insurance in
excess of the value of the property insured; or

“(g) A determination by the Commissioner that the continuation of the policy

would violate or would place the insurer in violation of this Code.

The provision abrogated the ruling in the case of Abolafia vs Liverpool &
London & Globe Ins, Co. Ltd., wherein it was held that notice of cancellation
need not be in writing but may be oral It is now required that the notice of
cancellation be in writing and must state the grounds relied upon and, at the
written request of the insured, the facts on which the cancellation is based
must be furnished.

Q. What is necessary so that notice of cancellation of the policy shall

be effective?

A. All notices of cancellation shall be in writing, mailed or delivered to the

name insured at the address shown in the policy, or to his broker provided
the broker is authorized in writing by the policy owner to receive the notice of
cancellation on his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish
the facts on which the cancellation is based.

Q. What is the effect of notice of cancellation that was mailed but not
received by the insured?

A. The notice of cancellation necessary to produce the effect of terminating

the contract must be actual notice. Thus, a notice of cancellation sent by
mail, but not received by the insured, is ineffective as cancellation.

Actual receipt of the notice of cancellation is absolutely essential and

the insurer could not merely rely on the presumption of regularity in the
performance of duty.

FIFTH LECTURE VIDEO

Q. What is a warranty?

A. Warranty is a written statement or stipulation inserted on the face of the

contract itself, or clearly incorporated therein as a part thereof by proper
words of reference, whereby the insured expressly contracts as to the
existence of certain facts, circumstances, or conditions, the literal truth of
which is essential to the validity of the contract of insurance.

Q. What are the kinds of warranties and in what form should warranties
be?

A. "A warranty is either express or implied.” A warranty may relate to the

past, the present, the future, or to any or all of these." "No particular form of
words is necessary to create a warranty."
The following are kinds of warranties:
1. Affirmative warranty is one which relates to matters which exist at or
before the insurance of the policy.
2. Promissory warranty is one in which the insured undertakes that
something shall be done or omitted after the policy takes effect and during its
continuance.
3. Express warranty is a statement in a policy, of a matter relating to the
person or thing insured, or to the risk, as a fact.
4. Implied warranty is an agreement or stipulation not expressed in the policy
but the existence of which is admitted or presumed from the fact that the
contract of insurance has been executed.

Q. How should warranty be construed?

A. Warranties must not only be strictly construed against the insurer but
must likewise be reasonably interpreted in favor of the insured. The
reasonableness is to be ascertained in the light of the factual considerations.
Thus, where the warranty required the insured to maintain inefficient working
order on the premises insured, the following: portable extinguishers,
hydrants, external hydrants; fire pump and 24-hour security service, but the
insured failed to install internal fire hydrants, the court ruled that there was
no more need for an internal hydrant considering that there were numerous
portable fire extinguishers, emergency fire engine and firehose connected to
an external fire hydrant. What the warranty mandated was that the insured
should maintain in efficient working condition within premises insured,
fighting equipment as first line of defense against fire, which the insured did.

Q. Where should an express warranty be contained?

A. Every express warranty made at or before the express execution of policy,
must be contained either:
(a) in the policy itself, or
(b) in another instrument signed by the insured and referred to in the policy
as making a part of it.
It is to be noted that the signature of the insured is necessary only
when the warranty is contained in another instrument and not when it is
contained in the policy itself.
An express warranty is a part of the contract of insurance for which
reason it must be contained in the policy itself, or at least referred to in the
policy as making a part of it. Thus, statements in the application or medical
examination are representations only and not warranties, if the application or
medical examination is not incorporated in the policy or made a part of it by
reference.

Q. What is the effect of non-performance of a promissory warranty?

Exceptions?

A. As a general rule, non-performance of a promissory note warranty entitles

the insurer to rescind the contract except:
(1.) When before the time arrives for the performance of a promissory
warranty, the loss, insured against happens.

Example: A warranty in a fire insurance policy stated that within two months
from the issuance of the policy, the insured will construct a fire wall. One
month after the policy was issued and before the insured could comply with
the warranty, the house was burned. In such case, the non-fulfillment of the
promissory warranty will not avoid the policy since the loss occurred before
the expiration of the period for the performance thereof.

2. When before the time arrives for the performance of a promissory

warranty, the performance becomes unlawful at the place of the contract.
Example:
In the example given above, in case an ordinance was passed before the
expiration of the period for fulfillment of the warranty, prohibiting the
construction of a fire wall for the type of the house insured, the non-
performance of the warranty will not avoid the policy because the fulfillment
became illegal before the expiration of the period stipulated.

3. When before the time arrives for the performance of promissory warranty,
the performance becomes impossible.

Example:
In the example given above, in case the law required the consent of the
adjoining owner for the construction of a fire wall and the adjoining owner of
the insured refused to give his consent, the non-performance of the warranty
will not avoid the policy since fulfillment was impossible.

Q. What is the right of either party in case of violation of a warranty or

material provision of a policy?

A. 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.

Q. Is causal connection between the violation of a warranty or material

provision of the policy and the loss necessary?

A. Violation of a material warranty, or any other material provision of the

policy, entitles the other party to rescind the contract. A causal connection
between the violation and the loss is not necessary. Thus, even though the
violation of material warranty did not in any way contribute to the loss, the
other party may still rescind the policy.

Q. A insured a building against fire. A warranty stated that no

hazardous goods would be stored in the building insured. The insured
stored in the building three boxes of fireworks in preparation for the
Chinese New Year. The building was partially burned and the fireworks
were found in a part of the building not destroyed by fire. The
fireworks, therefore, did not in any way contribute to the fire. Question:
Was the insurer liable?

A. The insurer was not liable because the insured violated the warranty.
Even if the violation did not contribute to the loss still "it cannot be denied
that the placing of the firecrackers in the building insured increased the risk."
The insured had not paid a premium based upon the increased risk, neither
had the insurer issued a policy upon the theory of different risk. An increase
of risk which is substantial and which is continued for a considerable period
of time, is a direct and certain injury to the insurer, and changes the basis
upon which the contract of insurance rests."

Q. When is a warranty prohibiting storage of inflammable materials not

violated?

A. A warranty prohibiting the storage of hazardous or inflammable materials

is not violated by a deposit in small quantities in a building for daily use.
Neither is such warranty violated when the inflammable or hazardous goods
are incidental to the business of the insured.

TITLE 8
PREMIUM

Q. When is the insurer entitled to payment of premium?

A. “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, or whenever under the broker
and agency agreements with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a duly licensed intermediary
should exceed ninety (90)-days from date of issuance of the policy.

Q. What is the effect of non-payment of premium?

A. Non-payment of premiums does not merely suspend but puts an end to

an insurance contract, since time of payment is peculiarly of the essence of
the Contract. The burden is on the insured to keep a policy in force by the
payment of premiums, rather than on the insurer to exert every effort to
prevent the insured from allowing policy to lapse through a failure to make
premium payments. The continuance of the insurers obligation is conditioned
upon the payment and that no recovery can be had upon a lapsed policy, the
contractual relation between the parties having ceased. This principle
buttressed by Section 77 of the Insurance Code which provides that no
contract of insurance is valid and binding unless and until the premium the
thereof has been paid, notwithstanding agreement to the contrary.

Q. What are the statutory exceptions to the rule that the insurer is
entitled to the payment of premium as soon as the thing insured is
exposed to the peril insured against?

A. The payment of premium is a condition precedent to, and essential for,

the efficacy of the contract of insurance. Unless the premium is paid, the
policy shall not be valid and binding notwithstanding any agreement to the
contrary. The statutory exceptions are:
(1) In case the insurance coverage relates to life or industrial life (health)
insurance when grace period applies:
(2) Whenever a ninety-day credit extension is given for the premium due
(3) When the insurer makes a written acknowledgement of receipt of
premium, this acknowledgement being conclusive evidence of payment of
(4.) Where the obligee has accepted the bond in which case the bond
becomes valid enforceable irrespective of whether or TV the premium has
been paid by the obligor to the surety.
(5) and In case of industrial life insurance, the policy shall not lapse for non-
payment of premium if such non-payment was due to the failure of the
insurer to send its representative or agent to the insured at the residence of
the insured or some place indicated by him for the purpose of collecting such
premium. However, this does not apply when the premium on the policy
remains unpaid for a period of three months or twelve weeks after the grade
period has expired.
Of course, as hereinafter discussed, judicial interpretations have
provided additional exceptions to the general principle that the premium must
be paid before an insurance policy becomes effective. Aside therefrom,
payment of the premium to the agent of the insurer is sufficient to make the
policy binding.

Q. Juan insured his own life and paid the corresponding premium for
the first year. The premium for the second year was due on March 1,
2018 but Juan was unable to pay it. On March 20, 2018, Juan died at
which time, the premium was still unpaid. Is the insurer liable?

A. The insurer is liable even if the premium has not been paid at the time of
the death of the insured because in life insurance, after the payment of the
first premium the insured is entitled to a grace period of thirty days or one
month within which to pay the succeeding premiums. In case the insured
dies during the period of grace and before the payment of the premium due,
the insurer is liable as the policy continues in force during the grace period
but the premium due and the interest thereon may be deducted from the
amount payable to the beneficiary.

Q. What are the instances when the Supreme Court declared that the
policy is valid and binding notwithstanding the non-payment of
premium?

A. Aside from the statutory exceptions, the following are the instances when
the Supreme Court ruled that the policy is valid and binding notwithstanding
the non-payment of premiums:
1. In case of cover notes which are binding even if premiums are not
paid thereon because no premium could be fixed on the cover note
until all the particulars of the insurance are known. Cover notes should
be integrated to the regular policies so that the premiums on the
regular policies include the consideration for the cover notes.
2. When the parties agreed to have the premiums paid by installments or
payment by installments is an established practice by the parties,
acceptance of the payment of premium by installments would suffice to
make the policy binding.
Q. What is the effect of failure of the insurer to send a representative
to collect the premiums in Industrial life Insurance?

A. In case of industrial life insurance, the policy shall not lapse for non-
payment of premium if such non-payment was due to the failure of the
insurer to send its representative or agent to the insured at the
residence of the insured or someplace indicated by him for the purpose
of collecting such premium. However, this does not apply when the
premium on the policy remains unpaid for a period of three months or
twelve weeks after the grade period has expired.

Q. What are the facts and issue in the case of Makati Tuscany
Condominium Corp. vs. Court of Appeals?

F. Sometime in 1982, American Home Assurance issued in favor of

Makati Tuscany an insurance policy covering the building of the
insured. The premium amounting to P466,103.05 was paid on
installments. On February 10, 1983, the insurer renewed said
insurance policy and again the insured paid premium by
installments. On January 20, 1984, the policy was again renewed and
the insured paid two installments in the amounts of P25,000 and
P100,000 which the insurer accepted. Thereafter, the insured refused
to pay the balance of the premium. The insurer filed an action to
recover the balance of the premium amounting to P314,103.05. The
insured claimed that the policy was never binding and valid because
no risks attached to the policy for non-payment of the full premium.
Question: Was the policy valid and binding even if the premium was
not paid in full so as to make the insured liable for the balance of the
premium?

A. YES. The policy was binding and effective notwithstanding the

staggered payment of premiums. The initial insurance contract entered
into in 1982 was renewed in 1983, then in 1984. In those (3) three years,
the insurer accepted all the installment payments speaks loudly of the
insurer's intention to honor the policies it issued Section 77 of the
Insurance Code, the parties may to the insured. While it may be true that
under not agree to make the insurance contract valid and binding without
payment of premiums, there is nothing in said section which suggests that
 the parties may not agree to allow payment of the premiums in
installments, or to consider the contract as valid and binding upon
payment of the first premium. Otherwise, we would allow the insurer to
renege on its liability under the contract had a loss occurred before
completion of payment of the entire premium, despite its voluntary
acceptance of partial payments, eschewed by basic considerations of
fairness and equity. Furthermore, where the risk is entire and the contract
is indivisible, the insured is not entitled to a refund of the premiums paid if
the insurer was exposed to the risk insured for any period, however brief
or momentary. The insured was liable to pay the balance of the premium.

Q. What are the facts and issue in the case of UCPB General Insurance
Co., Inc. vs. Masagana Telemart, Inc.?

F. Masagana Telamart obtained from UCPB General Insurance fire

insurance policies covering its properties in Pasay City. The policies
stated the term of the policy as "from 4:00 P. M. of 22 May 1991 to 4:00
P. M. of 22 May coverage from UCPB for a number of years and 1992".
Masagana had procured insurance had been granted 60 to 90-day
credit for the premium on the renewal policies. On June 13, 1992,
Masagana's Pasay properties were razed by fire. On July 13, 1992,
Masagana tendered and UCPB accepted five Manager's checks
covering the renewal premium payments. On the same day. UCPB
returned the Manager's checks on the grounds that the policies expired
on May 22. 1992 and the properties covered by the policies were
already burned before the payment of premiums. The practice of
having a 60 to 90-day credit for premium on the renewal policies
continued up to the time the claims for indemnification for the burned
properties were filed on July 14, 1992. Questions: Should the insurer be
made liable?

A. The insurer should be made liable even if the premiums were not paid as
of the time of the loss since said loss occurred before the expiration of the
credit term that was practiced by the parties. It would be unjust and
inequitable ff recovery on the policy would not be permitted against the
insurer which had consistently granted 60 to 90day credit term for the
payment of renewal premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since the insured
relied in good faith on such practice.
Q. What are the facts and ruling in the case of Gaisano vs.
Development Insurance and Surety Corporation, G.R. No. 190702,
February 17, 2017?

F. Petitioner Gaisano insured his Mitsubishi Montero with respondent

Insurance company which issued the corresponding insurance policy
for September 27, 1996 to September 27 1997. To collect the premiums,
respondent's agent, Trans-Pacific issued a statement of account to
petitioner's company, Noah's Ark which issued the corresponding
check covering the payment of the premium dated September 27, 1996.
However, nobody from Trans-Pacific picked up the check on that day
and instead informed Noah's Ark that its messenger will get the check
on the next day, September 28. In the evening of September 27, 1996,
the Mitsubishi Montero was stolen. Oblivious of the incident, Trans-
Pacific picked up the check the next day, September 28. It issued an
official receipt dated September 28, 1996 and deposited the check for
encashment on October 1, 1996. On October 1, was informed of the
loss of the vehicle and petitioner demanded-payment of the loss. The
respondent refused to pay on the ground that there was no insurance
contract due to the nonpayment of the premium. Is the respondent
insurance company liable for the loss?

A. The respondent insurance company is not liable. Just like any other
contract, insurance 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. If not so paid, the policy will lapse and be forfeited by
its own terms. The policy in this case does not fall under one of the
exceptions where the insurance policy takes effect even if the premium is not
paid. It does not fail either under the exceptions laid down in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. cases. Both
contemplate situations where the insurer consistently granted credit
extension or term for the payment of the premium Here, however, petitioner
failed to establish the fact of a grant by respondent of a credit term in his
favor, or that the grant has been consistent. To rule otherwise would render
nugatory the requirement in Section 77 that "notwithstanding any agreement
to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and premium thereof has been paid.

Q. What is the effect of payment of overdue premiums after the loss

happened?
A. The effect of payment of overdue premiums after the loss will depend on
whether the insurer was aware of the loss or not at the time of the
acceptance of payment. The acceptance and retention by the insurer of the
overdue premium with knowledge of the fact, evidences a waiver of the right
to forfeit the policy and, therefore, insurer is bound under the policy.
However, where the insurer at the time payment of premium did not
know of the loss and subsequent returned the premium to the insured, the
insurer may still raise the defense of non payment of premium.

Q. What devices are usually used to prevent forfeiture of a life

insurance policy for nonpayment of premium?

A. To prevent the insured from losing the entire amount already paid to the
insurer in life insurance by reason of the insured's inability to pay the
succeeding premiums, the following devices are employed: (a) Period of
grace; (b) Payment of the cash surrender value; (c) Giving options to the
insured after payment of the three full annual premiums such as extended
insurance and paid-up insurance; (d) Automatic loan clause and (e)
Reinstatement of lapsed policies.

Q. Explain how period of grace works.

A. In life insurance, after the payment of the first premium, the insured is
entitled to a grace period of thirty days or one month within which to pay the
succeeding premiums.682 In case the insured dies during the period of
grace and before the payment of the premium due, the insurer is liable as
the policy continues in force during the grace period but the premium due
and the interest thereon may be deducted from the amount payable to the
beneficiary.

Q. Explain cash surrender value.

A. Cash surrender value as applied to a life insurance policy, is the sum of

money the company agrees to pay to the holder of the policy if he surrenders
it and releases his claim upon it. The more premiums the insured has paid
the greater will be the surrender value; but the surrender value is always a
lesser sum than the total amount of premiums paid.
 Cash surrender value "arises from the fact that the fixed annual
premiums is much in excess of the annual risk during the earlier years of the
policy, an excess made necessary in order to balance the deficiency the
same premium will meet for the annual risk during the later days of the
policy."

Q. What is extended insurance?

A. Extended insurance is that where the insurance originally contracted for is

continued for such period as the amount available therefore will pay when it
will terminate. In such case, the insurance will be for the same amount as the
original policy"89 but for a period shorter than the period in the original
contract. The policy usually designates the cash surrender value as the fund
be used in purchasing an extended to690 insurance.

Q. What is paid-up insurance?

A. Paid-up insurance means that no more payments are required, and

consists of insurance for life in such an amount as the sum available
therefore, considered as single and final premium will purchase. It results to
a reduction of the original amount of insurance, but for the same period
originally stipulated.
Like an extended insurance, the policy usually designates the cash
surrender value as the fund applicable for the payment of the paid-up
insurance.

Q. What is automatic loan clause?

A. Automatic loan clause is a stipulation in the policy providing that upon

default in the payment of premium, the same "shall be paid from the loan
value of the policy until that value is consumed. In and effectively as though
the premiums had been such case, the policy is continued in force as full and
effectively as though the premiums had been paid by the insured from funds
derived from other sources.

Q. Explain how lapsed life insurance policy may be reinstated.

A. Every life insurance policy must contain a provision that the holder of the
policy shall be entitled to reinstatement of the contracts at any time within
three years from the date of default in the payment of the premium, unless
the cash surrender value has been duly paid or the extension period expired,
upon production of evidence of insurability satisfactory to the company and
the payment of all overdue premiums and any indebtedness to the company
upon said policy.

Q. May premiums be paid by salary deduction?

A. The present law allows payment of insurance premiums of the employees

of the government including its political subdivisions and instrumentalities
and government-owned or controlled corporations, through salary deductions
pursuant to the agreement between the insurer and the government
employees. The premium so deducted from their salary of the employees
shall be remitted to the insurer.

Q. What is effect of failure of the employer to remit the premiums

deducted? Thus, suppose the treasurer cashier, paymaster or official
of the entity employing the government employees authorized to
collect the premiums did not remit said premiums to the insurer. In
case the insured died after the deduction from his salary of the
premiums due but before the same can be remitted to the insurer,
should he beneficiary of the insured be entitled to collect?

A. It is submitted that the insurer should be made liable because in collecting

the premiums the treasure, paymaster or official of the entity employing the
government employee is acting as an agent of the insurer and hence, the act
of such official in deducting the premiums due should be considered as act
of the principal who is the insurer in such case. But of course, the insurer
may proceed against the erring official.

Q. When is the insured entitled to a return of the premium paid?

A. The insured is entitled to a return of the premium paid in the following

instances:

1. When no part of the interest in the thing insured is exposed to any of the
perils insured against.
2. Where the insurance is made for a definite period of time and the insured
surrenders his policy before the expiration of that period.
3. When the contract is voidable and subsequently annulled the provisions of
the Civil Code on account of the fraud or misrepresentation of the insurer, or
his agent.
4. When the contract is voidable and subsequently annulled under the
provisions of the Civil Code on account of facts, the existence of which the
insured was ignorant without his fault.
5. When by any default of the insured than actual fraud, the insurer never
incurred any liability under the policy.
6. If the policy is annulled, rescinded or if a claim is denied by reason of
fraud,
7. In case of over-insurance.

Q. Explain why there should be a return of the premium when no part of

the interest in the thing insured is exposed to any of the perils insured
against. Give examples.

A. "Premium and risk are the very essence of a contract of insurance and
each is dependent upon and inseparable from the other. It follows that if the
risk has not attached, or if no part of the interest is exposed to the peril
insured against, in the absence of any fault or fraud on the part of the
insured, the insurer has no claim to the premium and that, if paid, it must be
returned. Thus, it is fundamental that if no policy is ever issued or delivered
as contracted for, the applicant for insurance having acted in good faith, may
recover any premium that he has paid"' Likewise, when no valid contract was
effected due to the absence of any one of the essential requisites of a
contract, i.e., consent and subject matter, the whole premium paid may be
recovered.

Examples:
(a) When an application for insurance was rejected by the insurer, the
applicant is entitled to a return of the whole premium paid,

(b) When the voyage insured never commences, the insured is entitled to
return of the premium paid."

(c) When the applicant for insurance withdraws his application before it is
accepted, he is entitled to a return of premium.

Q. What part of the premium must be returned where the insurance is

made for a definite period of time and the insured surrenders his policy
before the expiration of that period?
A. "Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as Corresponds with
the unexpired time, at a pro rata rate, unless a short period rate has been
agreed upon and appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the policy which has
previously accrued: Provided, That no holder of a life insurance policy may
avail himself of the privileges of this paragraph without sufficient cause as
otherwise provided by law."

Thus, when the insurance is for a definite the period and insured surrenders
the policy before the expiration of the period, he is entitled corresponding to
the to a return of premium unexpired portion of the period.

Q. When are premiums not recoverable?

A. In the following cases, the insured cannot recover the premium paid:

1. If the peril insured against has existed, and the insurer has been liable for
any period the peril being entire and indivisible.

2. In life insurance.

[Link] the insured is guilty of fraud or misrepresentation. when the policy is

annulled of rescinded upon grounds other than those attributable
to the insurer or if a claim is denied by reason of fraud."

Q. May an insurer contract and accept payments, in addition to regular

premium, for the purpose of paying future premiums on the policy or to
increase the benefits thereof?

A. "An insurer may contract and accept payments, in addition to regular

premium, for the purpose or paying future premiums on the policy or to
increase the benefits thereof." This is a new provision that authorizes the
insurer to accept future premiums on the policy or to increase the benefits
thereof.

SIXTH LECTURE VIDEO

Q. What are the losses for which the insurer is liable?

A. The insurer is liable for the following losses:

 1. Loss of which a peril insured against was the proximate cause.
2. Loss caused by efforts to rescue the thing insured from a peril insured
against.
3. Loss caused by a peril not insured against to which the thing insured was
exposed in the course of rescuing the same from peril insured against.
4. Loss, the immediate cause of which was the peril insured against unless
the proximate cause thereof was excepted in the contract.
5. 5. Loss caused by the negligence of the insured.

Q. What is "proximate cause" of the loss? Is the insurer liable for a loss
where the proximate cause is the peril insured against?

A. "Proximate cause" is that event which in a natural and continuous

sequence, unbroken by any efficient intervening cause, produces the injury
and without which the injury would not have occurred. It is that which sets
others in motions the cause to which the loss is to be attributed, though other
causes may follow it and operates more immediately in producing the
disaster.
Where the proximate cause of the loss is the peril insured against, the
insurer is liable although a peril not insured against may have been the
remote cause.

Illustrations:

(a) A insured his boat against fire. The policy did not expressly cover a
loss due to explosion. The boat was damaged due to an explosion
caused by fire. Question: Was the insurer liable? Answer: The insurer
was liable because the proximate cause of the loss was fire, the peril
insured against.

(b) The insurer in an insurance against fire is liable for a damage caused
by the collapse of the adjoining building due to fire.

FOR EXAMPLE:
There was a fire, because of the fire, an explosion was caused.
Q. What is the proximate cause? FIRE, because it causes the explosion.
What is the immediate cause? EXPLOSION

Q. What is "immediate cause of the loss? Is the insurer liable for a loss
where the immediate cause of the loss is a peril insured against?

A. An "immediate cause'" is the cause or condition nearest to the time and

place of injury. When the immediate cause of the loss is a peril insured
against, the insurer is liable therefor unless the proximate cause is an
excepted risk.
When the insurer claims that the proximate cause is an excepted risk,
it must prove that the excepted peril is the proximate cause. And in case the
insurer cannot prove that the risk excepted is the proximate cause, the
insurer is still liable. Thus, in a fire insurance policy where the damage by
explosion is excepted, the insurer must prove that the fire is caused by
explosion. And where it cannot present evidence whether the explosion
caused the fire or the fire caused the explosion, it is still liable to the insured.
FOR EXAMPLE:
The policy excepted loss caused by explosion, then there was a fire, and
there was an explosion.
To be exempted from liability, the insurer must prove that the explosion
caused the fire.
In other words, if the fire caused the explosion, then the proximate cause is
the fire, and the insurance company is still liable, because the proximate
cause is the peril insured against.
If, on the other hand, the explosion caused the fire, then the explosion is the
proximate cause, and if it is excepted in the policy, then the insurance
company shall not be liable, even if the immediate cause of the loss is the
fire and peril insured against.
But, in such a situation, it is incumbent upon the insurer to prove, that the
proximate cause is the peril insured against. The insurance company must
prove that the explosion caused the fire, and if it cannot proved, then the
insurance company is nonetheless be made liable.

Q. 20,000 tons of sugar stored in a warehouse were insured against

fire. When the fire broke out, the fire truck doused water on the
warehouse, thereby saving the warehouse from the fire but the sugar
melted. Is the insurer liable for the melted sugar?

A. The insurer of the sugar is liable for the loss because the damage caused
was due to an effort to save the sugar from the peril insured against.
Q. The contents of the house of Eduardo were insured against fire.
When fire broke out, Eduardo brought the insured items out of the
house to save them from the fire but they were stolen. Is the insurer
liable?

A. The insurer is liable. While the loss caused by theft is not insured against,
however, the thing insured was exposed to theft in the course of rescuing the
things insured from the peril insured against. The insurer is liable for loss
caused by a peril not insured against to which the thin insured was exposed
in the course of rescuing the same from the peril insured against."

FOR EXAMPLE, let us supposed you insure rice against fire, the rice was
stored in a warehouse. Jasmine rice, an aromatic. then a fire broke out in the
vicinity, and the owner or the insured, in effort to save the rice from fire, saw
a hose, pull the hose and turn on the hose. Yun pala the hose is connected
to the truck of Malabanan septic tank. Instead of water, the contents of the
tank is *poop* nalagay ngayon sa bigas. Then the rice is no longer aromatic.
HAHAHA
Q. Will the insurance company be liable? YES.
A. Because the loss was caused by an effort to save the thing from the peril
insured against. And the rice is no longer usable because pag binabad mo
yun dun sa galing sa tank, ay hindi maganda ang amoy.

Q. A car was insured against "own damage" due to accident. It was

sideswiped by a pick-up truck that was being driven recklessly.
Question: Was the insurer liable considering that the damage was not
caused by the insured or her driver but by a third party who was guilty
of negligence?

A. The insurer was liable. "Own damage" did not mean damage to the
insured car caused by the insured herself but damage to the injured vehicle.
"Accident" does not exclude events resulting in damage or loss due to the
fault, recklessness or negligence of third parties."

Q. In accident cases who has the burden of proof to show that the
cause of death is the insured peril?

A. In an accident insurance, the insured's beneficiary has the burden of proof

in demonstrating that the cause of death is due to the covered peril. Once
that fact is established, the burden then shifts to the insurer to show any
excepted peril that may have been stipulated by the parties. An "accident
insurance" is different from ordinary life insurance where the insured's death
regardless of the cause thereof, would normally be compensable. The latter
is akin to property insurance in" all risks" coverage where the insured, on the
aspect of burden of proof, has merely to show the condition of the property
insured when the policy attaches and the fact of loss or damage during the
period of the policy. And thereafter, the burden would be on the insurer to
show any 'excluded peril".

Q. Is the insurer liable for a loss caused by the negligence of the

insured? Give illustrations.

A. The insurer is not relieved from liability by the mere fact that the loss was
caused by the by negligence of the insured, or of his agents or others.
Accordingly, it is no defense to an action on the policy that the negligence of
the insured caused or contributed to the injury."
However, when the insured's negligence is so gross that it is
tantamount to misconduct, or Likewise, "an insurer is not liable for a loss
caused by the willful act or through the by connivance of the insured."

NUNG ARAW, When Sir Nani was still a student, Nag da drive sya,
nabangga nya yung kotse nya sa pader, due to his negligence. So, he
denied that he was the one negligent. Ang sabi nya may bumangga sa
kanya di nya nakita, because he was afraid that if the insurance company
founds out that he was negligent, the insurance company will not pay the
loss. THAT’S WRONG

Negligence is covered by the insurance. Negligence or damaged by

negligence is among the losses for which the insurance company is liable
UNLESS the negligence is a GROSS NEGLIGENCE. If it is SIMPLE
NEGLIGENCE, then the insurance company shall nonetheless be liable.

Illustrations:

(a) Cases when insurer is liable:

(1) A, whose life was insured, drank "bootleg" whiskey which contained wood
alcohol. His negligence in drinking "bootleg" whiskey was no defense in an
action on the policy for his death resulting from consumption of wood alcohol
contained in the beverage.

(b) Case when insurer not liable:

Q. What are the facts and issue in the case of Sun Ins. Office Ltd. vs
Court of Appeals?

F. Lim was covered by a personal accident insurance. The insured was

playing with his hand gun, from which he had previously removed the
magazine during the birthday party of his mother. As Lim's secretary
was watching television, Lim stood in front of her and pointed the gun
on her. She pushed it aside and said it might be loaded. He assured her
it was not and then pointed it to his temple. The next moment there was
an explosion and Lim slumped to the floor dead. Question: Was the
insurer liable?

Answer: The insurer was liable as the cause of Lim's death was accidental.
Lim was negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained
precisely against accident. There is nothing in the policy that relieves the
insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own. Indeed, most accidents are accident
caused by negligence."

Q. What are the facts and issue in the case of FGU Insurance
Corporation vs. Court of Appeals?

Q. Anco Enterprises was engaged in the shipping business. It owned

M/T Anco, a tugboat and D/B Lucio, a barge which had no engine of its
own, could not maneuver by itself and had to be towed by a tugboat for
it to move from one place to another. SMC loaded thousands of cases
of beer on board the D/B Lucio at Mandaue for delivery to San Jose
Antique and Estancia, Iloilo. Anco insured the cargoes with FGU under
a marine insurance policy. D/B Lucio was towed by M/T Anco from
Mandaue to San Jose, Antique. Upon arrival in San Jose, Antique, M/T
Anco immediately left the barge D/B Lucio. When the tugboat and
barge arrived in San Jose, Antique the clouds over the area were dark
and the waves were already big. The arrastre Workers began to
complain of their difficulty in unloading the cargoes. SMC's District
Sales Supervisor requested Anco's representative to transfer the barge
to a safer place because the vessel might not be able to withstand the
big waves. Anco's representative did not heed the request because he
was confident that the barge could withstand the waves. At that time,
only D/B Lucio was left at the wharf of San Jose as all other vessels
already left to seek shelter. The waves became bigger and bigger until
the crew of D/B Lucio abandoned the barge because its rope attached
to the wharf was cut off by the big waves. The barge ran aground and
was broken and the cargoes of beer in the barge were swept away.
SMC claimed damages for the loss of cargoes from Anco which in turn,
demanded payment from its insurer, FGU. The insurer refused to pay
on the ground that the loss was due to the negligence of the insured.
The trial court found that Anco's crew and representative failed to
exercise extraordinary diligence required by law and were guilty of
negligence. Question: Should the negligence of the insured relieve the
insurer from its liability under the policy?

A. One of the purposes of insurance is to protect the insured against the

consequences of his own negligence and that of his agents. Thus, it is a
basic rule in insurance that the carelessness and negligence of the
insured or his agents constitute no defense on the part of the insurer.
However, when the insured's negligence or recklessness is so gross as to
be sufficient to constitute a willful act, the insurer must be exonerated.
While mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to
incur, such negligence or recklessness must not be of such gross
character as to amount to misconduct or wrongful acts; otherwise, such
negligence shall release the insurer from liability under the insurance
contract. In this case, the crewmembers of both M/T Anco and D/B Lucio
were blatantly negligent. The tugboat immediately left the barge that had
no motor and could not maneuver by itself, in San Jose despite the
looming bad weather. Negligence was likewise exhibited when Anco's
representative did not heed the request of SMC's representative to move
the barge to a safer place like what was done by the other vessels. The
negligence is further proved by the fact that only D/B Lucio was left at the
 wharf. Hence, the insurer could not be made liable since the loss was
caused by the gross negligence of the insured.

Q. What are the effects of: (1) willful act or connivance of the insured;
and (2) fraudulent claim of the insured?

A. (1) Realizing the necessity of suppressing a public menace, the law

deprives the insured of the right to recover the loss caused by his willful act
or connivance with others. Thus, when the insured intentionally burned his
house which was insured against fire, the insurer is not liable.

FOR EXAMPLE, he insured his house against fire, then he burned it.
Question: Should the insurance company be made liable? NO, because it
was a willful act of the insured. Hence the insurance company is exempted
from liability.

(2) Fraud in the statement of loss operates to defeat recovery upon any part of
the policy;" for the policy is avoided by any false and material fraud could not
be presumed but must be proven by clear and convincing evidence.

TITLE 10
NOTICE OF LOSS

Q. What are the conditions subsequent to the loss that the insured
must perform to be able to recover?

A. After the occurrence of the loss, the insured, in order to recover from the
insurer, must:
(a) Give a notice of loss without unnecessary delay in fire insurance and
within the period specified by the insurance Commissioner in other kinds of
insurance, and
(b) when required by the policy, submit a preliminary proof of loss.

What is the proof of loss necessary? Is it the proof beyond reasonable

doubt? Or the kind of evidence that is submissible only in the court of
justice? NO. It is not necessary that the evidence presented is one which is
necessary or needed to establish proof in the court of justice?

Q. When are defects in the notice or proof of loss deemed to be waived

by the insurer?

A. Defects in the notice or proof of loss are deemed to be waived by the

insurer in the following cases:

1. When the insurer fails to specify to the insured any defect in the notice or
proof of loss which the insured might remedy without unnecessary delay.
Thus, where the policy requires a sworn notice or proof of loss, the
acceptance of unsworn notice or proof of loss without complaint on the
part of the insurer shows waiver of such requirement.

2. When the insurer denied liability on a ground other than the defect in the
notice or proof of loss. Thus, when the insurer denied liability on the
ground that the policy was null and void, there was a waiver of defects in
the notice of loss.

Illustration:

The policy required the proof of loss to be executed before a "Juez

Municipal." Instead of complying with such provision, the insured just
wrote a letter to the insurer informing the latter of the loss. The insurer
replied declaring that the "policies were null and void" and in effect
denying liability. Question: May the insurer still raise the defect in the
proof of loss as a defense?

Answer: No, since the denial of liability on other grounds was waiver of the
defect in the proof of loss.

3. When the insurer already made partial payment of the loss of the property
insured.

Q. Within what time should the proceeds of life insurance policy be

paid?
A. Payment of the proceeds of life a insurance policy depends on the
manner of maturity of the policy, as follows:
(a) If the policy matures by the expiration of the terms (maturity other than
by death of the insured), payment shall be made immediately upon maturity
except when the proceeds are payable in installments or as an annuity, in
which the installments or annuities shall be paid as they become due; and
(b) If the policy matures by the death of the insured, payment should be
made within 60 days from the presentation ot the claim and filing of proof of
death.

Illustration:

An endowment policy was issued with the stipulation that the proceeds
of the policy will be paid upon the death of the insured or in case of his
survival after twenty years. Question: When should the proceeds of the
policy be paid?

Answer: It the policy matured by the death of the insured, payment must be
made by the insurer within 60 days from filing of proof of death and
presentation of the claim. If on the other hand, the insured survived the 20
year period of endowment, payment must be made immediately upon
expiration of the endowment period unless the parties agreed on payment by
installments.

Sir Nani had been getting life insurance policy for my wife, I’m afraid that if
he die and he’s not insured, her wife will be left with nothing. So he saw to it
that he always have insurance, so in case anything happens to him, his wife
will not become destitute.
He has a sad experience when he was a student of law, his father passed
away. He was 19 years old, and his father has no insurance whatsoever and
did not leave any money. So they had difficulty and that gave him a lesson
that he would not want to have his family experienced the same incident.
● Other chika with no relevance to our subject
He set his wife as beneficiary, but her wife passed away. Then he cancelled
and get a cash surrender value.

Q. What are the effects of non-payment within the period provided by

law?

A. In case of non-payment of the proceeds of any insurance policy within the

period provided by law, the insurer shall be liable for interest on the sum due
at the rate of twice the ceiling prescribed by the Monetary Board, from the
time payment is supposed to be made, unless such failure to pay is based
on the ground that the claim is fraudulent. In that event, the court or the
Insurance Commissioner shall determine whether the insurer was justified in
contesting the claim. If the insurer unreasonably denied the claim, and
litigation arose, aside from the payment of interest at twice the ceiling rate,
the insurer shall also be liable for attorney's fees and other expenses incured
by the insured by reason of such denial. Failure of the insurer to pay a claim
within the time provided by law is prima facie evidence of unreasonable
delay in payment.

Q. What is the meaning of "ceiling prescribed by the Monetary Board"?

A. The term, "ceiling prescribed by the Monetary Board" means the legal rate
of interest of 12% per annum provided in Central Bank Circular 4116,
pursuant to Presidential Decree 116. Section 244 of the Insurance Code (of
1978) also provides for the award of attorney's fees and other expenses
incurred by the assured due to the unreasonable withholding of payment of
his claim. The interest rate has been reduced by Banko Sentral Circular 416
to 6% per annum effective July 1, 2013.

Illustration:

The stock insured against fire was burned on June 30, 2005, and the proof of
loss and claim were submitted on July 1, 2005 to the insurer. The insured
and the insurer must have the loss ascertained by agreement or by
arbitration within sixty days from July 1, 2005 or until August 30, 2005. If the
parties ascertained the loss by agreement or by arbitration on July 15, 2005,
the proceeds must be paid within thirty days from July 15, 2005 or until
August 14, 2005. But if the ascertainment of the loss was not obtained on or
before August 30, 2005, the proceeds must be paid within ninety days from
the time of proof of loss was submitted or until September 29, 2005. It is to
be noted that the maximum period within such payment is to be made is
ninety days from the submission of the proof of loss.

Q. In property insurance, after the payment of the loss, what right does
the insurer have against the person liable for the loss or against a
person liable to the insured by reason of the thing insured?
A. In property insurance, after the insured has received payment from the
insurer of the loss covered by the policy, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who violated the contract. The insurer's right to subrogation accrues upon
payment of the insurance claim.
Subrogation is the substitution of one person in the place of another
with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities. The principle covers the situation where the insurer
that has paid a loss under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with respect to any
loss covered by the policy. lt contemplates full substitution such that it places
the party subrogated in the shoes of the creditor, and he may use all means
which the creditor may employ to enforce payment."

NOTE: Subrogation here is automatic, there is no need to execute a deed of

subrogation. The mere fact that the insurance company pays the loss, there
is always a subrogation. It applies only to property insurance, it does not
apply to Life Insurance.
FOR EXAMPLE:
Sir Nani is the owner of the car, he insured his car against loss or
damage. He was bumped by your car, therefore, Sir Nani should be
able to collect from his insurer. His insurance company paid him, after
his insurance company paid him, will you be released from the
liability? NO, because the insurance company will be subrogated to his
rights, then the company may go after you, then he may collect the amount
paid to Sir Nani.

FOR EXAMPLE: Juan obtained life insurance, he was killed by Pedro,

so the insurance company paid the beneficiary of Juan, after the
payment of the proceeds of the policy, will the insurance company be
subrogated to the rights of Juan as against Pedro who killed him? NO,
there is no subrogation in Life Insurance. The reason being that life
insurance is not a contract of indemnity, the mere fact that the beneficiary is
paying, the proceeds of the policy, does not mean that his right is limited to
that, further right is accruing to the heirs of the insured as against the guilty
party. The right accrues to the heirs of the insured as against the guilty party.

FOR EXAMPLE: Mina is the owner of a motor vehicle, Mina insured the
car with X Ins. Co., then the car was negligently bumped by Xyrene, the
car owner, who bumped the car of Mina. So the insurance company
pays Mina the amount of damage.

Q. After paying the damaged to the car insured, what right does the
insurer have against Xyrene.

A. The insurer shall be subrogated to the rights of the insured and may
collect from the guilty party.

Q. Must the insured assign his right to recover the loss from the guilty
party to the insurer which pays the insurance so that the latter will be
subrogated to the right of the insured? NO.
NOTE: Because subrogation automatically takes place by operation of law.
A. Subrogation is a normal incident of indemnity insurance. Upon payment of
the loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may nave against third persons whose negligence
or wrongful act caused the loss who may be liable to the insured by reason
of the thing insured.

Q. What is the basis of subrogation in insurance?

NOTE: The right of subrogation is not dependent upon, nor does it grow out
of, privity of contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer. The right of subrogation
is however, not absolute. And where the insurer pays the assured for a loss
which is not a risk covered by the policy, thereby effecting voluntary
payment, the former has no right of subrogation against the third party for
the loss. (Loadstar Shipping Company vs. Malayan Insurance Company,
GR NO. 185565)

A. The doctrine of subrogation is based on the principle of natural justice and

created to afford relief to those required, as the insurers, to pay a legal
obligation which ought to have been met, either wholly or partially, by
another person.
Subrogation therefore, is founded on principles of justice and equity, and its
operation is governed by principles of equity. It rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is
the doing of complete, essential and perfect justice between all the parties
without regard to from. lt arises from the very nature of insurance as a
contract of indemnity, and has no application where insurance is not
regarded as a contract of indemnity unless otherwise agreed in the policy.

Q. What is the extent of subrogation?

A. The insurer's right is derived from the rights which the insured has and is
limited to those rights. Accordingly, the subrogated insurer cannot recover
more than what the insured may recover from the wrongdoer.
In other words, the rights to which the subrogee or insurer succeeds are the
same as but not greater than those of the person for whom he is substituted,
that is, he cannot acquire any claim, security or remedy the subrogor or
insured did not have. A subrogee in effect steps into the shoes of the insured
and can recover only if the insured likewise could have recovered.

FOR EXAMPLE: Under the contract of carriage it is provided that the

common carrier is liable to the owner of the goods, only upto the
extent of 1,000. The insured obtained insurance over the goods, to be
carried by the common carrier, amounting to 12,000, that was the total
loss. The insurance company paid the insured the amount of 10,000 as
agreed upon.
In that case, after payment, the insurance company is subrogated to the
rights of the insured as against the common carrier. But what is the extent of
the right obtained by the insurer?
A. The insurer will be subrogated only to the very same right that the insured
may have. The insured may recover to the common carrier, only 1,000
per agreement. Therefore, the subrogation shall be limited only to 1,000.
It could not exceed whatever the insured may recover from the other
party.

Q. Can the rights of the insurer as subrogee be superior to the rights

possessed by the insured as subrogor?

A. The rights of the subrogee cannot be superior to the rights possessed by

the subrogor. "Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right sot that he who is substituted
succeeds to the rights of the other in Ielation to a debt or claim, including its
remedies or securities. The rights to which the subrogee succeeds are the
same as but not greater than, those of the person for whom he is
substituted, that is, he cannot acquire any claim, security or remedy the
subrogor did not have. In other words, a subrogee cannot succeed to a right
not possessed by the subrogor. A subrogee in effect steps into the shoes of
the insured and can recover only if the insured likewise could have
recovered.

Q. What are facts and ruling in the case of Loadstar Shipping

Company, et. al vs. Malayan Insurance Company, GR NO. 185565,
November 26, 2014?
F. Loadstar Shipping (Loadstar) and Philippine Associated Smelting
and Refining Corporation (PASAR) entered into a contract of
Affreigment for domestic transport of the latter's copper concentrates.
The shipper, Philex Mining loaded the cargo of copper concentrates on
the vessel of Loadstar for delivery to the consignee, PASAR. The cargo
was insured with Malayan Insurance Co. (Malayan). On routine
inspection, a crack on the starboard side of the vessel which caused
seawater to enter the cargo hold was discovered during the voyage.
Upon arrival, PASAR and Philex Mining found that the copper
concentrates were contaminated by seawater, PASAR demanded
payment of P32 million plus from Loadstar and Malayan. Malayan paid
the amount of P32 million plus and PASAR signed a subrogation
receipt in favor of Malayan. Malayan demanded reimbursement from
Loadstar which refused to pay. During the trial, the Trial Court found
that although contaminated by seawater, the copper concentrates can
still be used. Aside therefrom, the damage was attributable to perils of
the sea and not due to the fault or negligence of Loadstar. May Malayan
as subrogee recover from Loadstar?

A. Malayan cannot recover because PASAR could not also recover from
Loadstar. In other words, a subrogee cannot succeed to a right not
possessed by the subrogor. A subrogee in effect steps into the shoes of the
insured and can recover only the insured likewise could have recovered.
PASAR did not actually suffer any loss as the copper concentrates can still
be used. Aside therefrom, the damage was attributable to perils of the sea
and not due to the fault or negligence of Loadstar.
Q. What is the actionable document in an insurance suit that must be
attached to the complaint on the policy?

A. ln an insurance suit, the actionable document is the policy which must be

attached to the complaint pursuant to Section 7, Rule 9 of the Rules of
Court. However, there is no specific provision in the Rules of Court which
prohibits the admission in evidence of an actionable document in the event a
party fails to comply with the requirement of the rule on actionable
document. Under Section 7, Rule 9. But what must be presented as
evidence is the policy itself and not a mere Marine Risk Note. "

Q. 120 pieces of motors were air shipped from the US to ABB Koppel,
Inc. in Manila. At the NAIA, the cargo was discharged and forwarded to
the warehouse of Paircargo for temporary storage pending release by
the Bureau of Customs. Later, Regis Brokerage withdrew the cargo and
delivered it to ABB Koppel. However, it was discovered that only 65 of
the 120 pieces of motors were actually delivered and the remaining 55
motors could not be accounted for. Paircargo and Regis both refused
to pay the value of the missing motors. Thus, Malayan Insurance with
which ABB Koppel insured the cargo paid ABB Koppel the insurance
claim. Claiming subrogation to the right of ABB Koppel, Malayan
Insurance filed an action against Paircargo and Regis at the MeTC of
Manila where it presented Marine Risk Note as proof that Malayan
Insurance insured the cargo. The complaint was dismissed on the
ground that the Marine Risk Note presented as proof that the cargo was
insured was invalid. Questions: (a) Was the Marine Risk Note sufficient
to prove the existence of the insurance contract? (b) Was Malayan
Insurance subrogated to the rights of ABB Koppel against the party
responsible for the loss of the shipment?

A. The Marine Risk Note was not the insurance contract itself, but merely a
complementary or supplementary document to the contract of insurance that
may have existed between Malayan and ABB Koppel. (b) Since Malayan
failed to introduce in evidence the Marine Insurance Policy itself as the main
insurance contract, or even advert to said document in the complaint, it failed
to establish its cause of action for restitution as a subrogee of ABB Koppel.
Malayan's right to recovery is derived from contractual subrogation as an
incident to an insurance relationship, and not from any proximate injury to it
inflicted by the defendants. It is critical that Malayan establish the legal basis
of such right to subrogation by presenting the contract constitutive of the
insurance relationship between it and ABB Koppel. Without such legal basis,
its cause of action cannot survive. The dismissal of the complaint is correct.

Q. What are facts and ruling in the case Asian Terminals, Inc. vs. First
Lepanto, 726 SCRA 415, June 16, 2014?
F. 3,000bags of sodium tripolyphosphate contained in 100 jumbo bags
were loaded on a vessel owned by COSCO, in favor of its consignee
GASI. The shipment was insured against all risk with First Lepanto.
When the shipment arrived it discharged into the possession of ATI, a
corporation engaged in arrastre business. Upon receipt of the
shipment, GASI found that the delivered goods incurred shortages of
8,600 kilograms and spillage of 3,315 kg. valued at P166,772.41. First
Lepanto paid GASI the amount of P166,772.40 as insurance indemnity.
GASI executed a Release of Claim discharging First Lepanto from and
all liabilities and subrogating it to all the rights of recovery. As
subrogee, First Lepanto demanded from COSCO and ATI
reimbursement of the amount paid to GASI. ATI denied liability and
claimed that upon arrival of the shipment, one jumbo bag sustained
loss/damage while in the custody of COSCO. Aside therefrom, ATI
asserted that during the trial, the insurance contract was not presented
by First Lepanto and only the Certificate of Insurance and Subrogation
Receipt were presented. Is the failure to present the contract of
insurance during the trial fatal to the claim of First Lepanto?

A. No. The non-presentation of the insurance contract is not fatal to First

Lepanto's cause of action for reimbursement as subrogee. The general rule
is that the marine insurance policy needs to be presented in evidence before
the insurer may recover the insured value of the lost/damaged cargo in the
exercise of its subrogatory right. However, such rule is not inflexible and
there are exceptions to such rule. The subrogation receipt, by itself is
sufficient to establish not only the relationship between the insurer and
consignee, but also the amount paid to settle the insurance claim. An
arrastre operator is liable for the lost shipment despite the failure of the
insurance to offer in evidence the insurance contract or policy as it was
certain that the loss of the cargo occurred while in ATI's custody.

Q. A, a consignee of cargo, insured the same with B Co. While being

unloaded, said cargo was damaged. Pursuant to a contract, the
carrier's and customs broker's liability to the consignee was limited to
P500.00. B Co. paid a the sum of P16,680.70 representing the damage
caused to the cargo. B Co., claiming subrogation, demanded payment
of P16,680.70 from the carrier and customs broker which caused the
damage. Question: How much may B Co. recover from the guilty party
causing damage?

A. B Co. may recover only P500.00 and not P16,680.70 because the insurer
was subrogated merely to the rights of the insured and its recovery should
be limited to what was recoverable by the insured.
Since the insured could claim only P500.00 pursuant to a contract, from the
carrier and broker, the insurer could not recover the full amount paid to the
insured but only P500.00.00

Q. What are facts and ruling in the case of Lorenzo Shipping Corp. vs.
Chubb and Sons, Inc.?

F. Mayer Steel loaded steel pipes on board a vessel owned by Lorenzo

Shipping for shipment to Davao City with Sumitomo Corporation of San
Francisco, California, U. S. A., as consignee. Sumitomo insured the
goods with Chubb and Sons, Inc. The cargo hold of the vessel was
flooded with seawater as a result of which the submerged shipment of
steel pipes rusted and no longer in good condition. Sumitomo filed a
claim against Lorenzo Shipping and the insurer. Chubb and Sons, the
insurer paid Sumitomo and later sued Lorenzo Shipping. It was claimed
by Lorenzo that the insurer cannot sue in the Philippines because it
was merely subrogated to the rights of the insured, Sumitomo which
was a foreign corporation doing business in the Philippines without a
license and did not have capacity to sue in Philippine courts. Lorenzo
Shipping argued that since the insured, Sumitomo did not have
capacity to sue, then neither the subrogee-insurer could sue before
Philippine courts. Question: Assuming that Sumitomo cannot sue in
the Philippines, does it follow that the insurer, as subrogee had also no
capacity to sue in the Philippines?

A. The incapacity of the insured to sue was not passed on to the insurer-
subrogee. When an insurer succeeds to the rights of the insured, he does so
only in relation to the debt. The rights inherited by the insurer pertain only to
the payment it made to the insured. Capacity to sue is a right personal to its
 holder. It is conferred by law and not by the parties. Although the insurer was
a foreign corporation, it was not doing business n the Philippines but was
suing only under an isolated transaction, i.e., under one marine insurance
policy issued in favor of Sumitomo covering the damaged pipes. Such being
the case, the insurer may sue in Philippine Courts.

FOR EXAMPLE: Assuming that Sumitomo cannot sue Lorenzo Shipping

because it is a foreign corporation, may Chubb which claims subrogation to
the rights of Sumitimo sue Lorenzo?

A. The incapacity of the insured to sue was not passed on to the insurer-
subrogee. When an insurer succeeds to the rights of the insured, he does so
only in relation to the debt. The rights inherited by the insurer pertain only to
the payment it made to the insured. Capacity to sue is a right personal to its
holder.

Q. When is there no subrogation even if the insurer pays the insured's

claim?

A. Although subrogation is an effect of payment of claim, however, the

insurer will not be subrogated to the rights of the insured in the following
cases:
1. In life insurance because the subrogation exists only when insurance is a
contract of indemnity. Subrogation, therefore, exists only in property
insurance.
2. When the proximate cause of the damage negligence of the insured
himself.
3. When the insurer pays to the insured a loss not covered by the policy.
4. When the insured failed to comply with the legal or stipulated condition
precedent prior to the filing of an action against the wrongdoer, as when
no notice of loss was given by the insured to the carrier liable for the loss
despite the stipulation to that effect, or the notice of claim required by law
was not given by the insured-consigneee.

FOR EXAMPLE: Versoza obtained a life insurance with Insular Life, and
made the loss payable to his beneficiary. Versoza was killed by Dominguez.
The insurance company paid the proceeds of the policy to the beneficiary.
Now, the insurance company is claiming subrogation to the rights of the
insured against the killer.
Q. Is there subrogation? NO.
A. In life insurance, there is no subrogation. Insurance Life is not subrogated
to the rights of the insured or his estate to recover from the guilty party
because subrogation does not apply to the insurance since such insurance
is not a contract of indemnity.

Q. What is the effect of release made by the insured of the wrongdoer

liable for the loss?

A. Subrogation of the insurer to the rights of the insured is so important that

whenever the insurer is prevented by the insured from being subrogated to
his rights against third persons liable for the loss, the insurer is released from
liability. Thus, if the insured releases the wrongdoer from liability before
payment by the insurer, the insured thereby destroys his right to collect from
the insurer. And if the insure releases the wrongdoer after receiving payment
from the insurer, the latter may recover from the insured the insurance
proceeds paid.

Q. What are facts and issue in the case of Manila Mahogany Mfg. Corp
vs. Court of Appeals?
F. Manila Mahogany insured its car with Zenith lnsurance. The insured
vehicle was bumped and damaged by a truck owned by San Miguel
Corporation. For the damage caused, Zenith paid Manila Mahogany
P5,000. The insured executed a release of claim, subrogating Zenith to
all its rights against San Miguel. Zenith demanded reimbursement from
San Miguel the amount paid to the insured. San Miguel refused on the
ground that it already paid Manila Mahogany 4,500 for the damage to its
car and the insured executed a release of claim discharging San Miguel
from all actions, claims, and demands arising out of the accident.
Zenith then demanded reimbursement from the insured which refused
to pay on the ground that it merely recovered from San Miguel the
deficiency of the damage caused to the car insured as the amount
received from the insurer was not sufficient to cover the full amount of
the damage. Question: Should the insured return to the insurer the
amount received from the latter?

A. Yes. The insurer is entitled to recover from the insured the amount of
insurance money paid. Since the insured by its own acts released San
Miguel, thereby defeating the insurer sight of subrogation, the right of action
of the insured against the insurer was also nullified.
"To the extent of the amount he has already received from the insurer, the
insurer enjoys the right of subrogation. Since the insurer can be subrogated
to only such rights as the insured may have, should the insured, after
receiving payment trom the insurer release the wrongdoer who caused the
loss, the insurer losses its rights against the latter. ln such case, the insurer
will be entitled to recover from the insured whatever it has paid to the latter,
unless the release was made with the consent of the insurer, " When the
insured released, San Miguel from any liability, the insured's right to retain
the sum of P5,000 no longer existed, thereby entitling the insurer to recover
the same.

Q. What are facts and ruling in the case of Stronghold Insurance Co.
Inc. vs. Container Services, et. al?

Q. The vehicle owned by respondent Gloria Dee Chong was insured

with petitioner insurance company. The vehicle insured met an
accident where four persons died and three seriously injured. The
vehicle was also heavily damaged. The insurer refused to pay the
claim of the insured on the ground that the driver of the vehicle insured
was heavily drunk at the time of the accident which exempts the
insured from liability pursuant to the provisions of policy. At the trial,
the allegation of the insurer that the driver of the vehicle insured was
drunk was based on a Pagpapatunay and a medico-legal certificate
which contained alterations. The police blotter did not also contain any
report of the driver's intoxication. Issue: May the insurer be exempted
from liability?

A. The insurer is not exempted from liability. In exempting insurers from

liability under the contract, proof thereof must be clear, credible and
convincing. Fundamental is the rule that the contract is the law between the
parties and, that absent any showing that its provisions are wholly or in part
contrary to law, morals, good customs, public order or public policy, it shall
be enforced to the letter by the courts.

TITLE 11
 DOUBLE INSURANCE

Q. What is double insurance and what are its requisites? Give

illustrations.

A . "A double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.
For double insurance to exist the following requisites must be present:
1. The same person insured.
2. There must be several insurers.
3. The subject-matter insured must be the same.
4. The interest insured must be the same.
5. The risk insured against must be the same.
NOTE: Illustration below is the same example of Sir Nani.
Illustrations:
(a)Double insurance exists: A insured his house against fire with X Co. Later
on, and during the existence of the previous insurance, A insured the same
house with Y Co. against fire. Question: Does double insurance exist?
Answer:
Yes, double insurance exists because the person is insured by two insurers
separately in respect to the same subject interest and risk.

b. Double insurance does not exist:

1. A mortgaged his house to B. A insured' the house against fire with X
Co. B, on the other hand, insured the same house with Y Co. against
fire. Question: is there double insurance?
Answer: There is no double insurance Because the policies Were
obtained by different persons who did not have the same interest in the
house insured.

2. A insured his furniture against fire with & Co. Later, A insured the same
furniture with y Co. against theft. Question: Is there double insurance?
 Answer: No, there is no double insurance because the risks insured
against are not the same. The insurance with X Co. is against fire while
the insurance with Y Co. is against theft.
FOR EXAMPLE: Philip insured his house, House 37 in Ayala with A, Ins.
Co. He insured the same house with B, Ins. Co. and C, Ins. Co. Q.
Is this triple insurance? NO.
A. There is no such term as triple insurance. This is double insurance
because the same person is insured against the same risk, the same
interest, with several insurers respecting the same subject matter.
Q. Would your answer be the same if the insurance with A Co. is
against fire, the insurance with B Co. is against earthquake and the
insurance against C Co. is against typhoon?
A. The answer will not be the same because in such case, there is no double
insurance because the insurance policies taken from several insurers are
against different risks.

Q. What is the effect of violation of a provision in the policy prohibiting

double insurance?

A. Double insurance is not contrary to law and hence, in case of double

insurance, the insurers may still be made liable up to the extent of the value
of the thing insured but not to exceed the amount of the policies issued.
However, a provision in the policy to the effect that the policy shall be void if
insured has, or subsequently procures, any other insurance on the property
or any part thereof without insurer's consent, is reasonable and valid and a
breach thereof will prevent enforcement of the policy. The purpose of said
principle is to prevent over-insurance and thus avert the perpetration of
fraud. The public, as well the insurer, is interested in preventing the situation
in which a fire would be profitable to the insured.
FOR EXAMPLE: Sir Nani insured his house against fire, the policy issued in
his favor stated that if he should procured another insurance covering the
same property against the same risk. He obtained another insurance and did
not informed the insurer. In case of loss, the insurer refused to pay in
violation of the contract. Is the refusal valid? YES, because there was a
violation.
Q. In case of insurance upon stocks-in-trade, when there is no violation
of the prohibition in the insurance policy against double insurance?

A. in case of insurance upon stocks- in- trade, there is no violation of the

prohibition against double insurance:
(a) where the policies taken cover less than the entire quantity of the stocks-
in-trade or
(b) where the total amount of the policies taken is less than the total value of
the stocks in-trade.
The reason is that in such cases, the things insured are not specific but
described only in general terms. And therefore, when another poling is taken
on the stocks-in-trade and the total amount of first insurance and the
additional policy does not exceed the value of the whole stocks, or the total
quantity of the stocks insured under the two policies is less than the whole
stocks, it may be said that the added insurance covers the goods not insured
under the first policy. In other words, such case is not considered as double
insurance since the subject-matters of the two policies are not the same.
FOR EXAMPE: Sir Nani is the owner of a grocery store, he insured the
contents of the grocery store against fire, Would A, Ins. Co. for 1 M,
then he obtained another insurance with B Co. for another 1 M, both
policy prohibited getting another policy with the same things insured
without consent of the insurer. The total amount of goods is 3M. Is
there a violation of the contract, so as to relieved the insurer from
liability in case of loss? NO,
A. Because the total amount of the policies is less than the amount of the
things insured. Because you cannot say that the things A insured is the
same that B insured.
NOTE: There is no violation of double insurance, when the policies
taken is less than the value amount of the goods. REASON: the things
are not specific, therefore, when another policy is taken, we cannot say
that the insurance covered by an insurance is the same covered by the
other insurance company.

Q. A was the owner of more than P290,000 worth of leaf tobacco stored
in a warehouse. He obtained a fire insurance policy with X Co. covering
P100,000 worth of tobacco, and with Y Co. and Z Co. covering P190,000
worth of tobacco. The policies prohibited another insurance without
the consent of the insurers. The insured did not obtain the consent of X
Co. to the additional insurance. The tobacco was burned. Question:
The stock of tobacco being totally lost, can the insured recover from X
Co.?

A. "The tobacco insured with the other companies was different from that
insured with the defendant, since the number of bales of tobacco in the
warehouse greatly exceeds that insured with the defendant and the other
companies put together. And according to the doctrine enunciated in 26
Corpus Juris, 188, to be insurance of the sort prohibited, the prior policy
must have been insured upon the same subject-matter, and upon the same
interest therein." X Co., therefore, was liable.

Q. A obtained a fire insurance policy from B Co. for P15,000 covering

her stocks in-trade. The policy required the disclosure of another
insurance taken upon the same subject matter. A subsequently
obtained a fire insurance policy from C co. for 7000 php upon her
stocks-in-trade without informing B Co. thereof. The properties insured
were burned and at the time of the loss, valued at 47,852.33. B Co.
refused to pay because of the non-disclosure of the other insurance
taken. Question: Was the refusal to pay correct?

A. No, the refusal of the insurer to Pay was not correct. There was no
violation of the policy. The value of the two insurance Policies put together
Will only amount to P22,000- or less than one half of the aggregate value of
the insured’s merchandise. The insurer cannot say that there was a double
insurance, or that the stocks-in-trade which were insured with it were the
stocks in-trade insured with the other insurer.
Q. What is over-insurance? Give example.

A. There is over-insurance whenever the insured obtains a policy in an

amount exceeding the value of his insurable interest.

Example:

A owns a house valued at P2,000,000, his insurable interest therefore, is

only in the amount of P2,000,000 since that is the extent of the damage he
will suffer in case of total Loss. If A insures said house for P3,000,000, there
is over-insurance as the amount of the policy taken exceeds his insurable
interest.
FOR EXAMPLE: Juan is the owner of the house valued at 1 M. Juan insured
the same with A, Ins. Co. for 1M, then Juan insured the same house with B,
Ins. Co. for 1M also. What is this? Double Insurance or Over-Insurance,
assuming that both policies was insured against fire?
A. This is Double Insurance by Over Insurance because they are both
double insurance and over-insurance. There is double insurance
because the same person insured the same with the same risks. There is
over insurance because the policy taken exceeding the value of his
insurable interest.
Q. What are the effects of over-insurance by double insurance?

A, "Where the insured in a policy other than life is over insured by double
insurance.
1. "The insured, unless the policy otherwise provides, may claim payment
from the insurers in such order as he may select, up to the amount for
which the insurers are severally liable; under their respective contracts

Illustration:
A was the owner of a house with an actual value of P1,000,000. He insured
the said house with X Co. for P500,000, with Y Co. for P1,000,000 and with
Z Co. for P1,000,000. In case of total loss, A may claim from any insurer in
any order he may choose, up to the amount of the policy issued by each
insurer, and not exceeding the value of A's insurable interest. He may
therefore, collect from X Co., P500,000, and another P500,000 from Y Co.,
or Z Co. Or if he prefers, he may collect the full amount of P1,000,000, from
y Co. alone or Z Co. alone. However, he cannot collect from X Co. alone the
amount of P1,000,000 since the liability of X Co. cannot exceed the policy it
issued, i.e., P500.000.

2. "Where the policy under which the insured claims is a valued policy,
any sum received by him under any other policy shall be deducted
from the value of the policy without regard to the actual value of the
subject matter insured

Illustration:
In the example given above, suppose the valuation of the property insured in
the policy is P1,000,000, after A had collected P500,000 from X Co., he must
deduct the amount collected from the valuation of the policy. Thus, he must
deduct 500K (the amount collected) from 1M (valuation of the policy) and the
difference is the amount that he may still collect from the other insurers.

3. "where the policy under which the insured claims is an unvalued policy
(open policy) any sum received by him under any policy shall be
deducted against the full insurable value, for any sum received by him
under any policy.

Illustration:
In the example given above, suppose the value of the property insured in the
policy is P1,000,000, after A had collected P500,000 from; X Co., he must
deduct the amount collected from
the full insurable value. Thus, he must deduct P500,000 (the amount
collected) from P1,000,000 (insurable value of the property) and the
difference is the amount that he may still collect from the other insurers.

4. "Where the insured receives any sum in excess of the valuation in the
case of valued policies, or of the insurable value in the case of
unvalued policies, he must hold such sum in trust for the insurers,
according to their right of contribution among themselves

Illustration:
In the illustration given above in the event that A was able to collect
P500,000 from X Co., P1,000,000 from Y Co., and P1,000,000 from Z Co..,
when the value of the house insured, was only P1,000,000, he must hold the
excess of P1,500,000
in trust for the insurers according to their right of contribution among
themselves. And as trustee of the excess collected, he is bound to return the
same to the insurers according to the right of contribution of the insurers
among themselves as hereinbelow stated.

5. "Each insurer is bound, as between himself and the other insurers, to

contribute ratably to the loss in proportion to the amount for which he is
liable under his contract.

Among themselves, the insurers are bound to contribute ratably to the loss in
proportion to the amount for which they are liable under their policies. This
rule however, applies only insofar as the. insurers among themselves are
concerned, and shall not in any way affect the right of the insured to collect
from the insurers in such order he may prefer. And after the insured has
collected
from any insurer, the paying insurer may ask for contribution from other
insurers who did not pay the insured, or paid an amount less than its ratable
share in the loss. The formula to determine the ratable share of the insurer
is:

Insurer's Policy x amount of Loss = Share of Insurer

Total amount of policies issued (tama be equation?)

P 500.000 x P1,000,000 = P200,000(Share of X Co.)

P2,500,000

P1.000,000 x P1,000,000 = P400,000 (Shareof Y Co.)

P2,500,000

P1.000.000× P1,000,000 = P400,000(Share of Z Co.)

P2,500,000

Since Y Co. paid P1,000,000 to the insured when its

ratable contribution should only be P400,000, it may collect P200,000 from X
Co., andP400,000 from Z Co., thereby leaving only P400,000 as its (y Co)
own share in the loss.
TITLE 12
REINSURANCE

Q. What is a contract of reinsurance?

A. A contract of reinsurance is one by which an insurer procures a third

person to insure him against loss or liability by reason of such original
insurance.
. Is reinsurance compulsory?

A . Ordinarily, an insurer has discretion whether to obtain reinsurance or not.

However, when a non-life insurer insures in any one risk or hazard an
amount exceeding twenty per centum of its net worth, the insurer needs
reinsurance of the excess over said limit so that the retention of the insurer
will be reduced to the maximum of twenty per centum of its net worth: Aside
 therefrom, when a foreign insurance company withdraws from the
Philippines, it shall cause the primary liabilities under such policies to be
reinsured and assumed by another insurance company authorized to
transact business in the
Philippines.

Illustrations:
(a) Suppose the net worth of A Co. is P100,000,000, A Co. insured X's against
fire for P25,000,000. The policy so issued was P5,000,000 more than 20%
of the insurer's net worth and.
therefore, it needs reinsurance or at least P5,000,000 because the insurer
could not retain any risk on any one subject in excess of 20% of its net
worth.
(b) Lloyds Ins. Co., an English company doing business in the Philippines,
issued policies to 200 persons in the Philippines. Later, Lloyds decided to
withdraw from the Philippines. It must
then reinsure and have its liabilities to the 200 persons in whose favor it
issued policies assumed by another insurer authorized to do business in the
philippines.

Q. Distinguish reinsurance from double insurance

A . Reinsurance may be distinguished from double insurance as follows:

1. In double insurance, the insurer remains as insurer while in

reinsurance, the insurer becomes an insured
2. In double insurance, the subject-matter is property, while in
reinsurance, it is the insurer's risk or liability.
3. In double insurance, the same interest and risk are insured with
another insurer, while in reinsurance, different risk and interest is
insured
Q. What matters must be communicated by an insurer entering into
a reinsurance contract?
 A . Where an insurer obtains reinsurance, except under automatic
reinsurance treaties, he must communicate all the representations of
the original insured, and also all the knowledge and information he
possesses, whether previously or subsequently acquired, which are
material to the risk Section 98 imposes upon the reinsured the
obligation to reveal to the reinsurer: (a) all representations made by the
original insured, and (b) all the knowledge and information he
possesses, whether previously or subsequently acquired, which are
material to the risk However, where the reinsurance is automatic, the
aforesaid information need not be communicated.
Q. Is the reinsurer liable to the original insured?

A . Although the general rule is that the original insured has no right to sue
the reinsurer on the contract of reinsurance, however, if the contract of
reinsurance is made directly for the benefit of the reinsured's policy holders,
or if the reinsurer assumes and agrees to perform reinsured's contracts, the
reinsurer becomes directly liable to the policy holders. It is necessary,
however, for the original insured to accept such benefit and communicate his
acceptance to the reinsurer before its revocation.
SEVENTH LECTURE VIDEO
Before, during the time when the Insurance Act was enforced, Marine
Insurance was so simple. Marine Insurance is concerned with maritime
navigation. It was defined as insurance involving risk of navigation, -
maritime navigation. But now:
Q. Does marine insurance cover only those that are subject to the
maritime risks?
A. Now, it is not. Because apparently, what the framers of our insurance
mean is to classify an insurance which is not life, fire, and casualty as
marine.
A. The present law has expanded the coverage of marine insurance so as to
include risks that would otherwise have been classified as some other form
of insurance. Thus, the present law includes within the coverage of marine
insurance risks not connected with marine navigation in the following
instances:

(a) Insurance against loss of or damage to aircraft. Aircraft" is any

contrivance now known or hereafter invented, used, or, designed for
 navigation of, or flight in the air.
NOTE: It refers to all kinds of aircraft. For example: When Phil. Airlines
insures its aircraft against damage, that kind of insurance is called marine
insurance. Even it flies in the air, it is considered marine insurance.

(b) Insurance against loss of or damage to goods and merchandise while

being assembled, packed, crated, baled, compressed or similarly
prepared for shipment. Marine insurance, therefore, covering goods to
be transported is not confined to damage thereto in the course of
transportation but may include any risks to which said goods and
merchandise may be exposed while being assembled, packed, crated,
baled compressed or similarly prepared for shipment. The determining
factor seems to be purpose of assembly packing, etc., i.e., if the
purpose is for shipment, then the insurance is classified as marine.
NOTE: So from the time the goods are being prepared for shipment, any
insurance on this goods against damage, even before they are loaded,
are considered to be marine insurance.

(c) Insurance against loss of or injury to person in connection with marine

transit or transportation insurance except life insurance and
insurance against loss by reason of bodily injury to any person
arising out of the ownership, maintenance or use of automobiles.
Therefore, it includes the liability of the ship owner or aircraft operator
for injury to its passengers but does not include the liability of a land
transportation operator for injuries to its passengers.
NOTE: That is logical only if it is related to marine transit, but it also
includes transportation insurance, and transpo is not limited to marine, it
could be land, sea and air.
So this is a great idea, Will an insurance of a person against injury, while
on board an aircraft, be considered as marine? It is considered as marine.

(d) Insurance against loss of or damage to precious stones, jewels,

jewelry, precious metals whether the course of transportation or
otherwise. This seems to be a misplaced provision and should not
have been classified as marine insurance. If the insurance of said
precious stones and jewelry is limited to the period the same are being
shipped, then the insurance therefor could be considered as marine
insurance. However, the law specifically mentions that whether the
precious stones or jewelry are in the course of transportation or not,
the insurance thereon is still classified as marine. Hence, even the
 insurance of jewelry and precious stones in the insured's residence is
considered by law as marine insurance even if they are not subject to
the perils of navigation. It will be observed in this connection that the
law did not require the insurance of the precious stones to be against
the risks of navigation so that the same may be called marine
insurance. And since the insurance on the said properties is
considered to be marine insurance, it is the implied warranties of
seaworthiness, etc., which is absurd when the objects are not in the
course of transportation. The same may be said of other properties
which are not subject to the risks of navigation.
FOR EXAMPLE: You have diamond earings, rings, and you are living in
Sagada Mountain province, you insure the rings, necklace, against theft,
and you put it in the theft in your house, in Sagada. Sagada is land track,
it is far away from the sea. What kind of insurance is it? It is marine
insurance.

(e) Insurance against loss of or damage to bridges, tunnels and other

instrumentalities of transportation and communication.
NOTE: So when you insure Calumpang bridge, or any kind of bridge or
tunnel, the insurance is called marine. The tower, being use for
communication like Globe towel is called marine insurance.
When marine insurance is entered into, it is subject to implied
warranties. One of them is sea worthiness. If you keep it in the safe, the
same must be sea worthy. Ordinarily, it covers peril of the sea, and does not
include perils of the ship.

Q. Distinguish "perils of the sea" from "perils of the ship".

A. "Perils of the sea" embrace all kinds of marine casualties and damages
done to the ship or goods at sea by the violent action of the winds or waves,"
one that could not be foreseen and not attributable to the fault of anybody.

"Perils of the ship", on the other hand, are losses or damages

resulting from (a) the natural and inevitable action of the sea, (b) ordinary
wear and tear of the ship, oI (c) negligent failure of the ship's Owner to
provide the vessel with proper equipment to convey the cargo under ordinary
condition.
FOR EXAMPLE: in this vessel, cargo was stored and it is insured
covered by the insurance. During the voyage, sea water entered the
compartment where the cargo was stored through a port hole not securely
fastened and as a result, the rice in the compartment was damaged. Q. Is
the insurer of the rice liable?
A. No. Because the cause of the loss was a peril of the ship and not a
peril of the sea. The defect in the port hole of the vessel was the
result of the misuse of the ship and lack of necessary repairs.

Illustrations:

(a)The vessel "Inchmaree" was lying at anchor off Diamond Island and
was about to start upon her voyage. To this end it became necessary to
fill up her boilers. The vesel had a donkey-engine with a donkey-pump
on board, and the donkey-engine was set to pump water from the sea
into the boilers. Those in charge of the operation did not take the
precaution of making sure that the boiler was open. This valve
happened to be closed. The result was that the water being unable to
make its way into the boiler was forced back, split the air chamber and
disabled the pump.

Question: Was the cause of the damage a peril of the sea?

Answer: The damage was peril of the ship since the cause of the damage
was attributable to the fault of man.

(b) Loss of a wooden vessel by worms in the Pacific Ocean is not a peril of
the sea, such injury being an ordinary peril which every wooden vessel must
encounter.

(c) Rusting of steel pipes in the course of a voyage is a peril of the sea in
view of the toll on the cargo caused by wind, water and salt conditions. If the
insurer cannot be accountable therefor, we would fail to observe a cardinal
rule in the interpretation of contracts namely, that any ambiguity therein
should be construed against the maker/issuer/drafter thereof namely, the
insurer.

Q. What risks are covered by marine insurance?

A. Unless otherwise stated in the policy, loss due to perils of the ship is not
within the coverage of marine insurance.
A marine policy in the usual form, therefore, includes perils of the sea
and no perils of the ship," and accordingly, a marine insurer upon a policy
in the usual form is not liable for a loss caused by a peril of the ship.
NOTE: If the insurance is against all risks, does it include damaged caused
by perils of the ship? YES, because all risks, literally mean all possible risks.

Illustrations:

(1) A policy of insurance upon a cargo of rice stipulated that the insurer
should be liable for losses incident to the perils of the sea. During the
voyage, sea water entered the compartment where the cargo was
stored through a defective drain pipe, and damaged the rice.
Question: Was the insurer liable?

Answer: The insurer was not liable for the cause of the loss was a peril of
the ship and not a peril of the sea. The defect in the pipe was the result of
the ordinary use of the ship and lack of necessary repairs.

(2) The insured loaded 811 pieces of logs from Palawan to Manila on
board the barge, Marble 10. The said logs were covered by marine
insurance. Marble 10 sank because of improper loading of the logs and
leaks because the barge was not provided with necessary cover or
tarpaulin so that ordinary splash of sea waves brought more water
inside the barge. Aside therefrom, one of the hatches of said barge was
left open by the person in charge thereof causing more water to come
in.

Question: Was the cause of the damage a peril of the sea for which the
insurer could be made liable?

Answer: The insurer was not liable because the cause of the loss was a
peril of the ship and not a peril of the sea. "A loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea,
from the ordinary wear and tear of the ship, or from the negligent failure of
the ship's owners to provide the vessel with proper equipment to convey the
cargo under ordinary conditions, is not a peril of the sea. Such a loss is
rather due to what has been aptly called the peril of the ship. The insurer
undertakes to insure against perils of the sea and similar perils, not against
perils of the ship.

SUB-TITLE 1-B.
INSURABLE INTEREST.
Q. What is the insurable interest of the owner of a chartered vessel?

A. "The owner of a ship has in all cases an insurable interest in it, even when
it has been chartered by one who covenants to pay him its value in case of
loss: Provided, That in this case the insurer shall be liable for only that part of
the loss which the insured cannot recover from the charterer."".
NOTE: Whenever a vessel is chartered, what is the insurable interest
of the owner of a chartered vessel, if the one who chartered the vessel,
undertakes to pay the damage in case it is damage? It is still the value of the
vessel.
The insurable interest of the owner of the vessel is not affected by a
charter party on the vessel. Thus, even if the vessel has been chartered by
one who undertakes to pay the owner the value of the vessel in case of loss,
the owner still has insurable interest on the vessel. However, in case of loss
the owner may recover from the insurer only that part of the loss which he
cannot obtain from the charterer.
So even if the charterer, agrees to pay the loss, the owner still has full
insurable value of the vessel.

Illustration:
A was the owner of a vessel valued at P5,000,000. It was chartered by
B who undertook to pay the owner P2,500,000 in case the vessel is lost.
Notwithstanding such undertaking, the owner may still insure the vessel for
P5,000,000. However, in case the vessel was lost and the owner was able to
recover only P1,000,000 from the charterer he may collect the balance of
P4,000,000 from the insurer.

FOR EXAMPLE: A was the owner of a vessel valued at P800,000,000.

It was covered by a charter party.
Charter party means you are leasing the vessel to somebody else.
It was chartered by B, and agreed that in case of damage, he will pay 50 %
of the value of vessel.
Q. How much is the insurable interest of the owner? Still 800M, but in
case of damage, he may recover from the insurer only what he cannot
recover from the charterer. So if the latter paid only 300M, then the owner of
the vessel
can recover only the balance of 500M from the insurer of the vessel.
Q. How much is the insurable interest of the charterer of the vessel?
50 % of the vessel, because if the vessel is damage, he will pay 50 % as
agreed upon. Therefore, 400M.

Q. What is a loan on bottomry or respondentia?

A. A loan in which under any condition whatever, the repayment of the sum
loaned, and of the premium stipulated, depends upon the safe arrival in port
of the goods on which it is made or of the price they may receive in case of
accident, shall be considered a loan on bottomry or respondentia. It is a loan
with things exposed to a maritime risks as collaterals to be paid if the
collaterals are safely transported and the lender shall lose his money if the
latter are lost. It is a loan bottomry when the security is a vessel,
respondentia where the security is cargo.
NOTE: It is unusual kind of loan. Subject to peculiarity, when the
collateral is lost, the loan is extinguished. If the loan has vessel as security,
then it is loan on bottomry. If the collateral is the cargo, then it is loan on
respondentia.
So therefore, in case of loan on bottomry, and vessel is the security, if
it sinks, then the lender cannot recover the amount of the loan.
If it is cargo, and it is lost, then he cannot recover from the borrower.
During the Galeon trade, marine insurance was already existing. It is
between Mexico and Phil, cargoes are shipped vice versa. However, it is
subject to peculiarity that when the collateral is lost, the loan is extinguished.
That is why, they prefer to borrow from religious institution like
Associacion etc. Why? If you are borrowing money, and you give a collateral.
Would you not someone praying for the safety of the collateral. HEHE
CORNY. Because if it was lost, then they cannot recover the loan.

FOR EXAMPLE: C, the creditor, granted a loan to B, for 20M, a loan on

bottomry. The value of the vessel is 100M, and it is given as security for the
payment of the loan.
Q. How much is the insurable interest of C in the vessel? 20M, because if
the vessel sinks, the creditor cannot recover the amount of the loan which is
20M. It is the amount of damage that he will suffer.
Q. How much is the insurable interest of the owner of the vessel? 80M. The
difference between the value of the vessel MINUS the amount of the loan.
100M less 20M.
If the vessel sinks, the owner of the vessel, it does not have to pay
20M, and his lost is only the remainder of 80M.

SUB-TITLE 1-C.
CONCEALMENT.

Q. In marine insurance, what information must each party reveal?

A. "In marine insurance, each party is bound to communicate, in addition to

what is required by Section 28, all the information which he possesses,
material to the risk, except such as is mentioned in Section 30, and to state
the exact and whole truth in relation to all matters that he represents, or upon
inquiry discloses or assumes to disclose."
"In marine insurance, information of the belief or expectation of a third
person, in reference to a material fact, is material."
The duty the law imposes to an insured in marine insurance is the
same as that required of an insured in any kind of insurance, i. e., reveal all
information which he possesses which is material to the risk. However, while
in ordinary insurance the insured is not bound to communicate even upon
inquiry, an opinion upon the matters in question, in marine insurance the
insured must reveal to the insurer information of the belief or expectation of a
third person, in reference to a material fact.
Therefore, if the "insured at the time of effecting the insurance receives
con has intelligence or information or knowledge of facts which affect the
condition and safety of the ship on her voyage, and which, in the mind of a
prudent and rational underwriter, would increase the hazard or liability to
loss, it ought to be disclosed." Thus, information received from others that
there were French privateers or pirates in certain areas was ruled material.

NOTE: In ordinary insurance, there is no need to communicate opinion on

the mattered insured. Opinion, need not to be communicated. But in Marine
insurance, the opinion of the third person with respect to the thing insured
which is material must be communicated.

FOR EXAMPLE:

Q. On August 9, 1953, the vessel "Anim” was anchored at Mercedes

wharf, Camarines Norte. Logs being towed by another vessel, "Gloria",
hit "Anim" on the bow, causing the three ropes with which it was
securely moored to the wharf to snap and said "Anim" drifted to the
mouth of the Mercedes River where it was stranded. "Anim” was towed
to higher ground at high tide for repairs of the damage it sustained,
consisting of eight holes and several dents astern.
It took three days to repair the damage. On August 14, 1953,
"Anim", loaded with heavy machineries, was towed for Baganga,
Davao.
On the same date, the insurance on "Anim" and its cargo took
effect and the insurer was not informed of the incident with "Gloria".
On August 15, 1953, Anim" encountered bad weather, started to
list astern or starboard side and finally sank off San Bernardino strait
together with its cargo.
Question: Was there a concealment of material fact? YES.

A. The insured was guilty of concealment of a material fact. Despite the

incident which took place on August 9, that is, five days before the
issuance of the policy on August 14, the insured deliberately
omitted to inform the insurer about it.
Under the law, the insured was bound to disclose to the insurer such
happening because it affected the condition and safety of the vessel
which undoubtedly will influence the mind of the insurer whether to
continue with the contract of insurance or not or to decide on the rate
of premium.
The information that the vessel had been aground and had received
heavy blows was material.

Note: We studied in connection with Sec. 29, that materiality of concealment

is determined by solely by the natural and logical consequence of the fact on
the party to whom the communication who in forming his estimates of the
disadvantages of the proposed contract or making his inquiries.
Causal connection between the fact concealed and the cause of the
loss is not necessary.
FOR EXAMPLE: The insured concealed the fact that he was sick of cancer,
covid 19, tuberculosis, at the time the policy took effect and did not tell the
insurance company. He died in plane crash.
Will the insurance company have the right to claim that he is not liable
because of concealment?
YES, because there is no need of connection between the fact concealed
and the cause of the loss. Causal connection is not necessary after all,
materialtiy is determined not by the event but the influence of the fact
concealed on the other party on forming his estimates of the disadvantages
of the proposed contract.
In marine insurance, the rule is the same. However, on certain matters there
must be connection between the fact concealed and the cause of the loss.

Q. When will concealment merely exonerate the insurer from the loss
resulting from the risk concealed?

A. “A concealment in a marine insurance, in respect to any of the following

matters, does not vitiate the entire contract, but merely exonerates the
insurer from a loss resulting from the risk concealed:
"(a) The national character of the insured;

FOR EXAMPLE: A vessel of Iranian registry, concealed the fact that it

was Iranian. They conceal the national character of the insured,
because of the ___?___ imposed by US. It sank because of the
typhoon, will the insurer be liable? YES. Because there is no
connection between the fact concealed and the cause of the loss.
If the one concealed in marine insurance, is the national
character of the insured, the insurer will be exonerated from liability
ONLY if the fact concealed is the cause of the loss. Since the cause is
typhoon, the insurance company will not be exonerated from liability.
BUT, if it sank because of Iranian registry, the INSURER IS
LIABLE.

"(b) The liability of the thing insured to capture and detention;

"(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents; and.
"(e) The use of false and simulated papers.”

NOTE: In all of those instances, the cause of the loss must be the fact
concealed, if the cause of the loss has nothing to do with the fact concealed,
the insurer is still liable.

Usually, concealment of material fact entitles the insurer to rescind a

contract of insurance even if the fact concealed is not the However, in
marine insurance concealment of the matters specified in Section 112 does
not entitle the insurer to cancel the policy but merely exonerates the insurer
from a loss resulting from the risk concealed. In other words, if the fact
concealed is any one of the matters mentioned in this section, the insurer will
be liable if the cause of the loss is not the fact concealed but will be
exempted from liability, cause of the loss. The reason for such rule is that the
matters mentioned in Section 112 such as the national character of the
insured are generally not material but only becomes material by reason of
facts lying peculiarly within the knowledge of the insured which will expose
the property insured to belligerent risks or to seizure and condemnation, and,
therefore, the insurer should be exempted from liability only if the concealed
fact mentioned in this section is the cause of the loss.
Hence, if the property was insured against and seizure, and the
insured concealed the fact that they were American citizens, and, therefore,
the property was subject to seizure for breach of non-importation law of that
country, the insurer was not liable for the loss thereof due to.
American seizure, however, if the loss was due to sinking of the vessel due
to a typhoon, the insurer would still be liable.

SUB-TITLE1-E
IMPLIED WARRANTIES

Q. What warranties are implied in marine insurance?

NOTE: Marine insurance is the only kind of insurance that is subject to
implied warranties.
Implied warranties means that whenever marine insurance is entered
into, this warranties are part of the contract, even if it is not agreed upon.

A, In marine insurance the following warranties are implied.

- The ship is seaworthy
- No improper deviation from the agreed voyage will be made
- The vessel will not engage in illegal venture
- Where nationality or neutrality of a ship or cargo is expressly
warranted, it is implied that the ship will carry the requisite documents
to show such nationality or neutrality and will not carry any
document which casts reasonable suspicion thereon.
The foregoing warranties are implied as they exist by the mere fact that a
contract of marine insurance is entered into.
Q. When is a vessel sea worthy?
A, A ship is seaworthy when it is reasonably fit to perform the service
and to encounter the ordinary perils of the voyage contemplated by the
parties to the policy.
"A warranty of seaworthiness extends not only to the condition of the
structure of the ship itself, but requires that it be properly laden, and provided
with a competent master, a sufficient number of competent officers and
seamen, and the requisite appurtenances and equipment, such as ballasts
cables and anchors, cordage and sails, food, water, fuel and lights, and
others necessary or proper stores and implements for the voyage.
While seaworthiness is commonly equated with the physical aspect
and condition of the vessel for voyage as its ability to withstand the rigors of
the sea, it must not be forgotten that a vessel should be armed with the
necessary documents required by the maritime rules and regulations, both
local and international, It has been written that vessel seaworthiness further
extends to cover the documents required to ensure that the vessel can enter
and leave ports without problems
Seaworthiness of a vessel is a relative term depending on the nature of
the ship, the voyage and the service in which she is at the time emgaged.
Reasonable fitness to perform the services to encounter the ordinary perils
of the voyage contemplated by the parties is required to satisfy the warranty
of seaworthiness. Thus, a vessel seaworthy of navigation of the Mississippi
river might be wholly unfit for a voyage on the greatlakes.

NOTE: Whenever marine insurance is entered into, there is an implied

warranty that the vessel is sea worthy. The law is not very strict, it does not
require extraordinary preparedness of the vessel, the law only requires that
the ship is reasonably fit to perform the service and to encounter the
ordinary perils of the voyage.

Q. What is the effect of the implied warranty of seaworthiness?

A, Whenever the vessel is unseaworthy, the insurer will not be liable for
a loss occasioned thereby whether such fact was known to the insured
or not.
FOR EXAMPLE: The vessel insured cargo, it has a port hole through which
the sea water could enter. As a result, the cargo loaded on the vessel, will be
damaged. In that case, the vessel is not sea worthy for purposes of
insurance. So if the damage was caused by that defect, the insurance
company is NOT LIABLE.
But, supposed the vessel struck an iceberg, will the insurance
company liable? YES, because the damage by the cargo is not cause by the
defect that made the vessel unseaworthy, but by the bumping of the vessel
in ICEBERG.
But, the insurance of the cargo, will not be liable for the damage
caused, by the entering of sea water into the port hole that causes damaged
to the rice insured. That is an instance, when there is a connection between
the defect that made the vessel unseaworthy for the insurance of the cargo
and the cause of the damaged occasioned by the defect that made it
unseaworthy.

Illustrations:
(1)A Canadian steamer, with defective compass, while navigating
Canadian waters in a fog was stranded on an island and had to be
abandoned. Question: Was the insurer of the vessel liable?
Answer: The insurer was not Liable as the Vessel was not seaworthy. If
there were defects in the compass rendering it unsafe and unsuitable for
use, and the stranding of the vessel insured was caused by or consequent
upon such defects the vessel was not seaworthy and the insurer cannot be
made liable.

Q. When is the implied warranty of seaworthiness complied with?

NOTE: Seaworthiness of the vessel is complied with only when the vessel is
reasonably fit to perform the service and to encounter the ordinary
perils of the voyage at the commencement of the voyage. SA UMPISA
LANG
KATULAD LANG YAN NG MGA LALAKE, KUNG UMIBIG SA UMPISA
LANG, MAGALING LANG SA UMPISA. NAKOWWWWW! PAGKA
NANLILIGAW ANG GALING, PERO PAG NAKUHA NA. NAKOWWW!
LALABAS NA UGALI. HAHAHAHAHAHHAHAHAHAHA

KAYA YUNG SEAWORTHINESS, PARANG PAG IBIG NG IBA. PERO SI

SIR NANI, PAG UMIBIG DAW HANGGANG KATAPUSAN PERO YUNG
IBANG MGA LALAKE, NAKOWWW! NAKUPON PAG UMIBIG SA
UMPISA LANG, PARANG SEAWORTHINESS. KAYA TATANDAAN NYO,
SEAWORTHINESS AY KARAMIHAN NG MGA KA ESKWELA NATING
LALAKE KUNG UMIBIG, SA UMPISA LANG.
KAYA PAG MAY NANLILIGAW SA INYONG MAGALING LANG SA
UMPISA, SABIHIN MO PARA KANG SEAWORTHINESS, YOU’RE
ONLY GOOD AT THE COMMENCEMENT. HAHAHAHAHAHAHA

A, "An implied warranty of seaworthiness is complied with if the ship be

seaworthy at the time of the commencement of the risk except in the
following cases:

NOTE: As a rule, the vessel must be seaworthy, at the commencement of

the voyage ordinarily, however, if in a certain voyage, it will undertake
several voyage, then it must be seaworthy, at the commencement of each
and every voyage that it will undertake during the period insured against.

Or, if diff. degrees of seaworthiness will be required, that it must be

seaworthy at the commencement, of each and every portion of the voyage.

OR, when the insurance is upon cargo, which is required to be transshipped

to another vessel, then the vessel to which it is loaded must be seaworthy at
the commencement, of each and every portion of the voyage.

HOY KAYONG MGA LALAKE WAG KAYONG MAGAGALIT KAY SIR

NANI, TOTOO NA SYA LANG ANG TAPAT UMIBIG. YUNG MGA GIRLS
MAG IINGAT, INYO MUNANG TITINGNAN KUNG SILA AY KATULAD NG
SEAWORTHY, MAGALING LANG SA UNA. HAHAHAHAHA

NOTE: Gen. rule: Seaworthiness is required only at the commencement of

the voyage. Sa umpisa lang. BUT..

(a) When the insurance is made for a specified length of time, the implied
warranty is not complied with unless the ship be seaworthy at the
commencement of every voyage it undertakes during that time;

FOR EXAMPLE: The insurance is for a period of 1 year, in a period of 1

year, it undertakes, 12 diff. voyages, so when is the seaworthiness, complied
with?
It is complied with, at the beginning of each and every beginning of the 12
voyages that it will undertake, the vessel is seaworthy. Sa umpisa is
seaworthy.
(b) when the insurance is upon the cargo which, by the terms policy
description of the voyage, or established custom of the trade, is to be
transshipped at an intermediate port, the implied warranty is not complied
with unless each vessel upon which the cargo is shipped, or transhipped, be
seaworthy at the commencement of each particular voyage.
NOTE: OR, when the insurance is upon cargo, which is required to be
transshipped to another vessel, then the vessel to which it is loaded must
be seaworthy at the commencement, of each and every portion of the
voyage.

(c) Where different portions of the voyage contemplated by the policy differ
in respect to things requisite to make the ship seaworthy in which case the
ship must be seaworthy at the commencement of each portion with
reference to that portion:

FOR EXAMPLE: The vessel is insured for its voyage, from Batangas to
Mindoro. And in the process, it passed to Calumpang River to pick up cargo
and then it will enter balayan bay and then on to Mindoro via the China Sea
which is now called the China Sea pero satin Phil Sea. ang tawag. HAHA
The voyage insured is from Batangas to Mindoro but it will pass
through Calumpang river, balayan bay and then South China Sea. In that
case, the vessel must be seaworthy at the commencement of that portion of
the voyage in Calumpang river, then it must be seaworthy at the
commencement of the voyage in balayan bay, then it must be seaworthy at
the commencement of the voyage in South China Sea because diff. degrees
of seaworthy is required during the voyage.

As a general rule, seaworthiness of the vessel is required only at the

commencement of the risk, except in the cases cited above.

Illustrations:

A ship was insured for its voyage from Manila to Zamboanga City. The
ship must be seaworthy at the time of the beginning of the voyage from
Manila.

A vessel was insured for one year Suppose in one year the vessel
undertakes 12 voyages. Question: When must the ship be seaworthy?
Answer: It must be seaworthy at the commencement of each of the 12
voyages the vessel will undertake.
(c) Cargo to be transported from Manila to ZamboangaCity is supposed
to be shipped in two different vessels, one from Manila to Batangas
City and the other, from Batangas City to Zamboanga City. Question:
When should the vessels be seaworthy?
Answer: The ship on which the cargo is loaded for the voyage from Manila
to Batangas City must be seaworthy at the beginning of such voyage and the
other vessel must be seaworthy at the commencement of the voyage from
Batangas City to Zamboanga City.

(d) A motor launch was insured for its voyage from Batangas City to
Calapan City. The description of the voyage stated that it will have to
pass along the Calumpang River of Batangas and then proceed to
Batangas Bay until it reaches Calapan. Question: When must the
launch be seaworthy?
Answer: Since the degree of seaworthiness for river navigation is different
from that required for navigating a bay, the launch must be seaworthy at the
commencement of the trip along the Calumpang River and at the beginning
of the voyage at Batangas Bay.

Q. What is the consequence of unreasonable delay in repairing the

defect when the vessel becomes unseaworthy during the voyage
insured?
A. "When the ship becomes unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in repairing the defect exonerates
the insurer on ship or shipowner's interest from liability from any loss arising
therefrom.

Q. When a vessel is seaworthy at the commencement of the voyage but

becomes unseaworthy during the voyage what must the owner or
captain of the vessel do?
A. As stated in the discussion of Section 117, seaworthiness of the vessel,
as general rule, is necessary only at the commencement of the risk, and,
therefore, the insured does not warrant that the ship will be seaworthy
during the entire voyage or throughout the life of the policy Accordingly, if a
vessel is seaworthy at the inception of the voyage, subsequent
unseaworthiness does not avoid the policy,
However, when the ship becomes unseaworthy during the voyage to
which the insurance relates, it is the duty of the owner or ship captain to
have the defect repaired without unreasonable delay; otherwise, the
insurer will be exonerated from liability for any loss arising therefrom.

Q. When is the insurer still liable even if there is failure to repair the
damage without unnecessary delay?
A. Unreasonable delay in repairing the defect causing unseaworthiness
arising after the commencement of the risk will discharge the insurer from
liability only when the damage or loss was caused by the unseaworthiness of
the vessel, and where the damage was not caused by the particular defect
that made the ship unseaworthy, the insurer is still liable.

Q. At the commencement of the voyage, the vessel insured was

seaworthy. During the voyage, the vessel broke its shaft and become
unseaworthy. The vessel was towed to the port of Detroit and thereafter
towed to Lake Erie without being properly repaired. The vessel sprung
a leak while at Lake Erie and sunk. Question: Was the insurer liable?
A, Yes. Since the particular defect that caused unseaworthiness was not the
cause of the loss, the insurer was liable although there was a failure to repair
the vessel's defect.

FOR EXAMPLE: That cargo, jasmine rice was insured, it was stored at the
___? The cargo, has a defective pipe, that whenever it is flushed, tumutulo.
Most of the passengers are women, and it is time of the month. So kapag
pupunta ng toilet and will flush it, the water will leak to jasmine rice, at very
white, at aromatic. Eh di kulay pula, HAHAHA yung jasmine rice nagging
pula na at hindi na aromatic.

Is that vessel seaworthy for insurance of the company? NO. It is not

because of the leak of the toilet, the cargo is damaged.

BUT, Is it seaworthy for the purposes of insurance of the vessel? YES,

kasi kahit tumulo ng tumulo ng pula ang toilet, the vessel will not sink.
Therefore, it is still seaworthy.

Q. When is there a deviation?

A, "Deviation is a departure from the course of the voyage insured,
mentioned in the last two (2) sections, or an unreasonable delay in pursuing
the voyage or the commencement of an entirely different voyage.
Hence, deviation is:
(a) a departure from the course of the voyage
insured;
(b) an unreasonable delay in pursuing the voyage; or
(c) , the commencement of an entirely different voyage.

Illustrations:
(a)Departure from the course of the voyage insured. The course
insured for the voyage from Manila to Iloilo City required the vessel to
pass along the Mindoro Strait. Instead of passing along such Strait the
vessel passed along Linapacan Strait. There was deviation as the
insured. vessel departed from the course of the voyage.
NOTE: From Manila – Batangas. Pero nag punta sa Cagayan, may
deviation.
(b)Unreasonable delay in pursuing the voyage. A vessel was insured
for its voyage from Manila to Calapan City. The vessel stopped at
Batangas City and stayed there for an unreasonable period of time.
There was deviation because of unreasonable delay in pursuing the
voyage.
NOTE: In case it is from Batangas – Mindoro. 45 mins sa fast cast. 2
hrs is RORO. Pero 3 days bago nakarating, then it fall under this
reason.
(c) Commencement of an entirely different voyage. A vessel was
insured for its voyage from Manila to Iloilo City and from Iloilo City to
Manila. After reaching Iloilo City the vessel proceeded to Zamboanga
City. There was deviation because of the commencement of an entirely
different voyage.
(d)When made in good faith, for the purpose of saving human life or
relieving another vessel in distress. Every deviation not specified in
the last section is improper.

Give illustrations of proper deviation,

Illustrations of proper deviation

(a)Caused by circumstances beyond control of master or owner. The
course of the voyage insured required the vessel to pass along the
Suez Canal. The Egyptians blockaded the Suez Canal, for which
reason, the vessel had to take a longer route around the Cape of Good
 Hope. The deviation was proper as it was caused by circumstances
beyond the control of the master or owner of the vessel.
(b)Made to comply with warranty. A warranty in the policy required the
vessel to have a radio operator at all times. The regular radio operator
of the vessel died during the voyage. A deviation made so as to pick
up another radio operator was proper as it was made to comply with a
warranty.
● (c) Made to avoid a peril, Deviation made so as to avoid a typhoon is
proper.
● (d) Saving human life or relieving vessel in distress. While in the
course of the voyage insured, the vessel receives a distress signal
from another vessel. A deviation made to save the passengers and
crew of such vessel or to relieve the vessel in distress is proper.
However, if the purpose of the deviation is to save cargo or property,
such deviation is improper.

Q. What is the consequence of improper deviation?

A, "An insurer is not liable for any loss happening to the thing insured
subsequent to an improper deviation." Where there has been any
deviation without just cause, the insurers become immediately
absolved from further liability under the policy for losses occurring
subsequent to the deviation, even if the risk has not been increased or
even if it has been apparently diminished. Illustration:
Q. A fishing vessel was insured from Plymouth for a fishing voyage to
the banks of Newfoundland. In former seasons she had secured a
supply of bait on the banks, but on this voyage no bait could be
obtained there. The vessel sailed to a nearby port, St. Peter's, to
procure the necessary bait. After an absence of less than a week she
returned to the banks and resumed fishing. Several days later a severe
storm arose, in which the vessel floundered. Question; Was the insurer
liable?

Answer: The insurer was not liable since the voyage to St. Peter's port was
a deviation in which discharged the insurer, although it did not in any respect
contribute to the loss.

NOTE: When is deviation improper, the law said, when it is PROPER.

 Very logical.
Q. (1) When is deviation improper? (2) When is deviation proper?
A. (1) Deviation is improper when it is not proper.
(2) A deviation is proper:
(a) When caused by circumstances over which neither the master nor the
owner of the ship has any control;
(b) When necessary to comply with a warranty or to avoid peril, whether or
not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its
necessary to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life, or
relieving another vessel in distress.

FOR EXAMPLE: The voyage insured is from Europe upto Asia, the shortest
route is via the Suez Canal where Egypt is.
When there was a war between Egypt and Israel, the vessels were
endengared, because the Egyptians and Israels were bombing each other.
In that case, it skipped the Suez Canal. They went around Europe and
Africa, then finally go to Asia.
If there was a deviation because the captain was afraid, is it proper? YES.
because it is caused by circumstances over which neither the master nor
the owner has any control. Delikado dumaan.

OR, where the deviation was made in order to comply with the warranty,
FOR EXAMPLE: there is a warranty that it should carry a qualified pilot, but
he died, so they had to make a deviation, then it is PROPER.

OR, there was a typhoon, then they make a deviation to avoid the typhoon, it
is PROPER because it made upon reasonable ground to avoid the peril.

When the deviation is made to save human lives, let us supposed, deviation
was made in order to save cargo that was on board worth 1billion dollars, is
the deviation proper? NO, because to save cargo is not a proper deviation.

Pero if it was made to save your classmate, then it was proper. No value
could be replace for human life.
Q. What is the effect of improper deviation?
NOTE: What happens if improper deviation is made, then the insurance
company will not be liable for any loss subsequent to the improper deviation.
So let us supposed, Improper deviation was made, then the reservant back
to the person of the voyage insured then it sank, at the time it sanked, it is
already pursuing the voyage insured.

Q. Is the insurance company liable? NO, because the loss occurred after
an improper deviation.

A. When there has been any deviation without just cause, the insurance
become immediately absolved from further liability under the policy for losses
occurring subsequent to the deviation, even if the risk has not been
increased or even if it has been apparently diminished.

TITIGIL NA DAW SYA KASI DI MATATAPOS ANG LESSON, AYAW DAW

NYA NG BITIN, KAYO DAW BA GUSTO NYO NG BITIN? HAHAHAHA BYE
AND PEACE SIGN BY SIR NANI.

EIGHT LECTURE VIDEO

SUB-TITLE1-G
LOSS
2 KINDS OF LOSSES:
1. TOTAL
2. PARTIAL

Q. What are the kinds of losses in marine insurance?

A, "SEC. 129. A loss may be either total or partial."

"SEC. 130. Every loss which is not total is partial."
"SEC. 131, A total loss may be either actual or constructive.
"SEC. 132. An actual total loss is caused by:
"(a) A total destruction of the thing insured;
"(b) The irretrievable loss of the thing by sinking, or by being broken up;
“(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
"(d) Any other event which effectively deprives the owner of the possession,
at the port of destination, of the thing insured."

"SEC. 133. A constructive total loss is one which gives to a person insured a
right to abandon, under Section 141." Thus, loss in marine insurance may
be:

TOTAL - A total loss may either be:

1. A) Actual loss which is caused by:
1. A total destruction of the thing insured;
2. The irretrievable loss of the thing by sinking, or by being broken up;
3. Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
4. Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.

B) Constructive total loss which is one that gives to a person insured a

right to abandon.
NOTE: Constructive total loss is in reality a partial loss, but if abandonment
is made, after abandonment, the partial loss became a TOTAL LOSS.
3. PARTIAL LOSS - which is a loss other than a total loss.

Q. in case the subject matter of the insurance in loaded on more than

one vessel, how will constructive total loss be determined?
TOTALITY
A. In case the contract of marine insurance covers a single shipment under
one policy and one premium, the contract of insurance is one and indivisible,
and the fact that the subject matter of insurance is loaded on board different
vessels will not alter the situation.
In such case, the constructive total loss will be determined on the basis of
the total shipment and not on the basis of those loaded on one vessel alone.
Q. What are the facts and issue in the case of Oriental Assur. Corp. vs.
Court of Appeals?
Q. Panama Saw Mill insured with Oriental Assurance a shipment of
2,000 cubic meters of apitong logs under one policy and paid a single
premium. Said logs were loaded on two barges:
(1) on barge PCT-7000, 610 pieces of logs with a volume of 1,000 cubic
meters; and (2) on barge TPAC-1000, 598 pieces of logs, also with a
volume of 1,000 cubic meters. The two barges were towed by one
tugboat, MT Seminole. During the voyage, rough seas and strong
winds caused damage to barge TPAC-1000 resulting in the loss of 497
pieces of logs out of the 598 pieces loaded thereon. Panama demanded
payment for the Ioss but Oriental Assurance, refused on the ground
that its contracted liability was for a (total loss only). Panama on the
other hand, claimed that the logs loaded on the two barges should be
tested separately such that the loss sustained by the shipment in one
of them may be considered constructive loss. Since more than ¾ of the
logs loaded on TPAC-1000 was lost, panama has the right to abandon
the same and therefore, the insured argued that there was constructive
total loss. Question: Was there a constructive total loss considering
that more than ¾ of the logs loaded in TPAC-1000 was lost although
such loss was less than ¾ of the total shipment in the two barges?
A, The logs involved, although placed in two barge, were not separately
valued by the policy, no separately insured. Resultantly, the logs lost in
barge TPAC-1000 in relation to the total number of logs loaded on the same
barge can not be made the basis for determining constructive total loss. The
logs having been insured as one inseparable unit, the correct basis for
determining the existence of constructive total loss is the totality of the
shipment of logs. On the entirety of 1,208 pieces of logs, only 497 pieces
thereof were lost or 41.45% of the entire
Q. What are the kinds of averages in maritime transportation and define
each one?

A. Averages may be:

1. Simple or particular average which includes all the expenses and

damages caused to the vessel or to her cargo which have not inured to
the common benefit and profit of all the persons interested in the
 vessel and her cargo. It is a partial loss caused by a peril insured
against, which is not a general average loss.
2. General or gross average which includes all the damages and
expenses which are deliberately caused in order to save the vessel, its
cargo, or both at the same time from real and known risks. All persons
having an interest in the vessel and cargo at the time of the occurrence
of the averages shall contribute to the average.

Examples:

A. Simple or particular average Damage upon the vessel or cargo by

reason of accidental collision with another vessel is simple or
particular average, since such damage did not inure to common benefit
of all persons interested in the vessel and cargo.

NOTE: Particular average does not resolve to the benefit of the

owners of the other cargo and vessel.

EXAMPLE: There was a collision of 2 vessels, will the damaged to

the cargo as a result of the collision be considered a particular or
general average?
PARTICULAR. Because the damage did not result to the benefit
and did not inure to the benefit of the owners of the other cargo
and vessel.

B. General or gross average. During a storm, goods were jettisoned to

lighten the vessel so as to save the vessel and other cargoes. The
damage to the goods jettisoned was a general average shipment.
Since the cost of those 497 pieces did not exceed 75% of the value of
all 1,208 pieces of logs, the shipment can not be said to have
sustained a constructive total loss. In the absence of either actual or
constructive total loss, there can be no recovery against the insurer
because the policy provided for recovery for total loss only.

NOTE: General or gross average redounds to the benefit of the

 owner of the vessel and the other cargoes.

A. EXAMPLE: There was a typhoon and to save the vessel, they

threw over board other cargoes. The act of throwing is called a
jettison. What is the nature of the damage caused to the other
cargoes thrown?

General or gross average because it redounds to the benefit of

the owner of the vessel and the other cargoes. Since it lightens
the load of the vessel to save it.

Q. What is jettison?
NOTE: Applies both to maritime transportation to vessel and by air shipment.
Because airplanes whenever insured is considered to be marine insurance.
A. Jettison is casting goods overboard in order to lighten a vessel or aircraft
or to improve its stability in an emergency. The heaviest with the least
value shall be thrown overboard first. The loss in such case is a general
average loss.
Q. In case of a general average loss, against whom may the insured
collect?

A. The insured may collect either from the owners of the vessel or goods that
were saved or against his own insurer. If he collects from his insurer, the
latter is subrogated to his right to claim contribution from the others who
were benefited.
Q. What is the effect of an agreement that the insurance shall be free
from particular average?

A. "Where it has been agreed that an insurance upon a particular thing, or

class of things, shall be free from particular average, a marine insurer is not
liable for any particular average loss not depriving the insured of the
possession, at the port of destination, of the whole of such thing, or class of
things, even though it becomes entirely worthless: but such insurer is liable
for his proportion of all general average loss assessed upon the thing
insured.
This section contemplates a situation wherein the insured and the
insurer stipulated in the policy that the vessel or cargo insured shall be Free
from particular average. In modern insurance, such stipulation is referred to
as the "FPA Clause.

The effects of such stipulation are as follows;

1. If the damage to the thing insured is a particular average, the insurer
shall not be liable unless the loss suffered is total, I, e., the insured is
deprived of the whole of such thing.
2. If the damage to the thing is a general average, the insurer shall be
liable to the insured whether the loss is partial or total, or for the
contribution of the insured for his proportion of all general average
losses assessed upon the thing insured which was saved.

Illustrations:
(a)Cargo insured was stipulated to be free from particular average. During
the voyage, the vessel sprung a leak resulting to a loss of less than
one-sixth of the value of the cargo insured. Question: was the insurer
liable? Answer: the insurer was liable because the thing insured was
warranted to be free from particular average which left the insurer free
from partial losses caused by particular average.
(b)In the example given above, if th entire cargo was damaged the insurer
was liable although the loss was a particular average
(c) In the example given above, if the partial loss was due to jettison of
part of the cargo insured so as to lighten the load of the vessel in
times of distress, the insurer was still liable because the cause of the
partial damage was general average. The insurer of the other cargoes
which were saved by reason of such jettison must pay a proportionate
contribution to such general average loss.

Q. When may abandonment be made and recover a total loss?

NOTE: The importance of knowing when may abandonment be made, is that
whenever abandonment is made, the insured may recover a TOTAL LOSS.
A, "A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the
policy, or otherwise separately insured, and recover for a total loss thereof,
when the cause of the loss is a peril insured against:
(a)If more than three-fourths (¾) thereof in value is actually lost, or would
have to be expended to recover it from the peril;
 (b)If it is injured reduce to such its value more than an (¾)
(c) If the thing insured is a ship and in contemplated voyage cannot be
lawfully performed without incurring either an expense to the insured of
more than three fourths the Value of the thing abandoned or a risk
which a prudent man would not take under the circumstances; or
(d)If the thing insured, being cargo or freightage and the voyage cannot
be performed, nor another ship procured by the master, within a
reasonable time and with reasonable time and with diligence, to
forward the cargo, without incurring the like expense or risk mentioned
in the preceding subparagraph. But freightage cannot in any case be
abandoned unless the ship is also abandoned.

Thus, abandonment may be made in any of the following cases:

(a)If more than three-fourths of the value of the thing insured is actually
lost;
(b)If more than three-fourths of the value of the thing insured would have
to be expanded to recover it from the peril;
(c) If it is injured to such an extent as to reduce its value by more than
three-fourths;
(d)if the thing insured is a ship and the contemplated voyage cannot be
lawfully performed without Incurring risk which a prudent man would
not take under the circumstances.
(e)If the thing insured, being cargo, or freightage and the voyage cannot
be performed nor another ship procured by the master within
reasonable time and reasonable diligence to forward the cargo without
incurring an expense of more than three-fourths of the value of the
thing or without incurring a risk which a prudent man would not take
under the circumstances but freightage cannot be abandoned unless
the ship is also abandoned.

NOTE: in all of those, instances we refer to the ¾ of the damage or the

expense.
EXAMPLE: So, if the insurance is on the vessel valued at 1M, the vessel
was damage to the extent of 800k, the same was 80 % of the damage, ¾
is 75 %. In that case, if the insured makes an abandonment, he may
 recover not only ¾ of the value of the vessel, but the WHOLE value of the
vessel. Because whenever there is a right to abandonment, and
abandonment is made the insurer shall be liable for the total amount of
the thing insured. But, whatever may remain of the thing insured shall be
transferred to the insurer by way of subrogation.

Q. What are the consequences of abandonment and omission to

abandon?

A. When abandonment is made in any of the cages hereinabove provided,

the insured may recover a total loss, and the insurer acquires all the
interest of the insured with all chances of recovery and indemnity.
But if the insured omits to abandon, he may recover only his actual loss.

Illustrations:
(1)A vessel valued at P100,000,000 was insured for that amount. The
vessel was damaged to such an extent that P80,000,000 would be
necessary to repair the damage. If the insured abandons the vessel,
he may recover P100,000,000 but the insurer becomes the owner of
whatever remains of the vessel. However, if the insured does not
abandon the vessel, he may recover from the insurer only P80,000,000
but the insured continues to be the owner of the damaged vessel.

(2) WG& A, as owner of Superferry 3 entered into a contract for dry

docking and repairs of said vessel with Keppel. It was insured by
WG&A with Pioneer Insurance for its total value of P360 million. In
Clause 20 of the Ship Repair Agreement between WG& A and Keppel,
it was agreed that in case of damage to the vessel, Keppel shall be
liable only for P50 million. Due to the negligence of Keppel's specially
trained welder, fire broke out and burned Superferry 3. It was
established that the damage to the ship would exceed P270 million, or
¾ of the total value of the policies. WG&A abandoned the ship and
claimed P360 million, the total value of the policies. Pioneer paid the
total loss and claimed reimbursement from Keppel by way of
subrogation. Keppel refused to pay. Questions: was abandonment
proper? As a consequence thereof, was it correct for pioneer to pay
 WGA a total loss? Was subrogation proper? Can the liability of Keppel
exceed P50 million, the limitation of liability agreed upon with WG &A
in Clause 20 of the Ship Repair Agreement?

Answers:
a. The abandonment was proper since it could be made, when among
others, "more than three-fourths thereof in value is actually lost, or would
have to be expended to recover it from the peril", The total value of the
property insured was P360 million and the damage was more than P270
million or more than ¾ of the vessel's insured value. As a consequence of
the proper abandonment, the loss became a constructive total loss which
entitles the insured to recover a total loss.

b. The subrogation was proper because under Art. 2207 of the Civil Code, if
the insured "has received indemnity from the insurance company for the
injury or loss arising out ot the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who violated the contract. It
contemplates full substitution such that it places the party subrogated in the
shoes of the creditor, and he may use all means that the creditor could
employ to enforce payment, C, Clause 20 is a stipulation that may be
considered contrary to public policy. To allow KCSI to limit its lability to only
P50,000,000.00, notwithstanding the fact that there Was a constructive total
loss in the amount of P360,000,000.00, would sanction the exercise of a
degree of diligence short of what is ordinarily required. It would not be
difficult for a negligent party to escape liability by the simple expedient of
paying an amount very much lower than the actual damage or loss sustained
by the other.
SUB-TITLE 1-l
MEASURE OF INDEMNITY

Q. What is the effect of valuation in marine insurance?

NOTE: whether the insurance is marine, or fire or any other kind, shall be
conclusive between the parties in determining the loss whether actual or
partial.

A. "A valuation in a policy of marine insurance is conclusive between the

parties thereto in the adjustment of either a partial or total loss, if the insured
has some interest at risk, and there is no fraud on his part, except that when
the thing has hypothecated by bottomry or repondentia, before its insurance
and without the knowledge of the person actually procuring the insurance, he
may show the real value. But a valuation fraudulent in fact, entitles the
insurer to rescind the contract.

A valuation in a policy of marine insurance is conclusive between the parties

thereto in adjustment provided (a) the insured has some interest at the risk
and (b) there is no fraud on his part. In such case, the insured does not have
to prove the value of the thing insured at the time of the loss except when it
has been hypothecated by bottomry or respondentia before its insurance,
and without the knowledge of the person procuring the insurance, in which
case the real value thereof must be shown.

NOTE: STUDY! POSIBLENG I ASK SA FINALS OR SA BAR.

Q. What is co-insurance?
NOTE: Co-insurance applies automatically in marine insurance, it does not
apply to fire and casualty insurance, unless otherwise agreed upon by the
parties.
But the problem is, all the policies issued by insurance company on fire
contains a provision on the application of co-insurance. So whenever, the
person insured, insures the thing for less than the full value thereof, he’s
considered to be his own insurer with respect to the difference. In marine, it
is automatically applicable, in fire, it applies only if it is agreed upon.
A. Co-insurance is a form of insurance in which the person who insures his
property for less than the entire value is understood to be his own insurer for
the difference which exists between the true value of the property and the
amount of the insurance.
The principle of co-insurance applies only where the (a) insurance taken is
less than the actual value of the thing insured and (b) the loss is partial.

Example:
Randy owns a vessel valued at P100 million. He insured his vessel for
only P80 million. In such case, Randy is his own insurer for P20 million,
the difference between the value of the vessel and the amount of
insurance obtained on the vessel.

SAME EXAMPLE NI SIR NANI.

Q. What is the effect of co-insurance?

NOTE: So whenever co-insurance applies, how do you divide the loss? You
should pro-rate the loss. If the value of the thing insured is 1m, and insured
only for 800K, then the insured is considered to be his own insurer with
respect to the difference of 200K.
Let us suppose there is partial loss, the insurance is for 1m, the loss is 500k,
the value of the thing is 1m, the policy is for 800K. Then you should pro-rate
it. The insurance company is liable for a proportionate share of the partial
loss. Following the principle of loss over value times insurance.
It is 500k over 1m, times the amount of the policy. Then the liability is
400k. If no co-insurance is agreed upon, the liability of the insurer shall
be 500K.

A. Whenever co-insurance exists, the insurer is liable upon a partial loss only
for such proportion of the amount insured by him as the loss bears to the
value of the whole interest of the insured in the property insured. It results to
a proportionate division of risk between the insured and the insurer with the
following formula:

Loss.
___________ X Insurance = Liability of insurer.

Value.

Illustration:
(a) Marine insurance . A vessel valued at P100,000 was insured for
only P80,000. The vessel was damaged to the extent of P50,000. Question:
How much is the liability of the insurer?

Answer:
P50,000 (Loss)
_____________ x
P80,000(Insurance) =P40,000

P100,000 (Value)

The insurer is liable only for P40,000 because in marine insurance,

there is COinsurance.
 (b) Fire insurance. In the example given above, suppose a house was
insured against fire. Question: Using the figures above, how much is the
liability of the insurer?

Answer: The insurer is liable for P50,000 because in fire insurance,

there is no co-insurance and the insurer is liable for the full amount of the
partial loss. However, if the parties agreed that there will be co-insurance,
the insurer is liable only for P40,000 pursuant to the computation shown
above.
In order that the principle of co-insurance can apply, the insurer must
prove that the value of the property insured is more than the amount of the
policy obtained or stated otherwise, the property must be under-insured. In
case the insurer should fail to do so, there cannot be any pro rata sharing of
the loss under the policy and the recovery under the policy is the actual loss.
except that it cannot exceed the face value of the policy.

Illustration:
The insured obtained an open fire policy on its building for
P2,500,000. Later, the building was burned and the amount of the loss
was proven to be P508,867. The insurer refused to pay the full amount
of the damage because the insurer claimed that the value of the
building was P5,800,000 and therefore, the insured was considered as
its own insurer for the difference between that amount and the face
value of the policy and should share pro rata in the loss sustained.
Thus, the insurer claimed that its proportionate liability was only
P67,629.31 while the rest of the loss should be shouldered by the
insured. The insurer however, was not able to prove that the value of
the property insured was P5,800,000. Question: How much is the
liability of the insurer?

Answer: The insurer is liable for the sum of P508,867 following the
stipulation in the policy regarding the "Open Policy" clause that the recovery
shall be the actual loss but not to exceed the amount of the policy. In an
open policy, the value of the thing insured is not agreed upon but is left to be
ascertained in case of loss. The actual loss as proven will represent the total
indemnity except that it should not exceed the face value of the policy.

EXAMPLE: A is the owner of the property valued at 1.5M. A insured it for 1M

with X insurance co. There was a loss of 750k. So, there was a partial
insurance for less than the value of the thing, the loss is also PARTIAL.

Q. Suppose the insurance is marine, how much is the liability of the

insurance? The principle of co-insurance applies, therefore you should pro-
rate the amount of the loss. If it is fire, then the liability of the insurance co.
shall be the amount of the loss.

A. So, if the insurance is marine, co-insurance automatically applies and

therefore we follow the principle of loss over value times insurance
equals the liability of insurance company. HENCE,

750, 000 (loss) x 1, 000, 000 (insurance) = 500,000 (PAYABLE)

1, 500, 000 (value)

But, if the insurance is fire, and there is no agreement that co-insurance

applies, then the liability of insurance co. is 750k. But, if it is agreed upon,
the liability is 500k.

Q. In case the insured suffered general average loss, against whom

may he claim the said loss?

NOTE: General average loss is a loss that was caused to a cargo, that was
thrown overboard to save the vessel and the other cargoes in time of
distressed. The owner of the cargo that was thrown overboard, he may
recover against his own insurer, or owner of the vessel and the owner
of the other cargoes who was benefited.

A. A person whose insured property suffered a general average loss may

either:
(a) claim from other persons interested in the vessel or other cargoes to
contribute to the general average loss he suffered or

(b) demand the whole amount of the general average loss from his insurer,
in which case, the insurer shall be subrogated to the right of the insured to
contribution from the others,.

Illustration:
In the example given above, supposed B who suffered a general
average loss was also insured. Question: What are the rights of B?
 Answer: B may either: (1) demand from A, the owner of the cargo
saved, and from the owner of the vessel their contributions to the general
average loss suffered by him, or (2) demand from his insurer the payment of
the whole loss he suffered and upon payment, his insurer is subrogated to
his right to demand from A and the owner of the vessel their shares or
contributions to the general average.

*****THESE TWO QUESTIONS WERE PART OF THE SLIDES BUT NOT

DISCUSSED BY SIR NANI.***** Next na ay Fire Insurance.

Q. When is the insurer not liable for general average loss?

A. The insurer of the property that sustained a general average loss shall not
be liable therefor when the insured neglected or waived the right to demand
contribution from others, or where the insurer is being made liable after the
separation of the interests liable to contribution.
In case the insured waived or neglected to exercise the right to
demand contribution from others, the persons liable for said contribution are
released from liability and hence, the insurer is deprived the right to be
subrogated to the right of the insured against the persons liable for the
contribution. When the insurer could not be subrogated to the rights of the
insured because of the neglect or waiver of the latter, the insurer is no longer
liable on the policy.
The liability of every portion of the cargo to contribute to general
average continues until it has been completely separated from the rest of the
cargo, and from the whole adventure, so as to leave no community of
interest [Link], when the cargo is separated from the ship.
where it was loaded and delivered to the owner, such cargo is not liable for
contribution to any general average loss. Since the owner of a cargo is not
liable for a general average after his cargo has been separated from the
vessel, the insurer of the person who suffers the general average could not
be made liable therefor because said insurer could not be subrogated
anymore to the rights of the insured as against the owner of the cargo
already separated from the vessel.

Illustrations:
(a).Suppose in the preceding example, B waived his right to demand
contribution from A, can B hold the insurer of his cargo liable?
 Answer: The insurer cannot be made liable because it was deprived of
the right to be subrogated to the rights of B as against A.

(b)If A's cargo was unloaded from the ship and delivered to him.
Thereafter, B who suffered a general average loss demanded from his
insurer the proportionate share of A in the genera average. Question: Is
B's insurer liable insofar as the amount corresponding to A's
proportionate share in the general average is concerned?
Answer: No, the insurer can be held liable for the share of A in the
general average loss.
because the insurer could not be made liable for a claim made after the
separation of the interest liable to contribution

Q. In an insurance suit, what is the actionable document, the policy or a

memorandum thereof or a Marine Risk Note?

A. In an insurance suit, the actionable document is the policy which must be

attached to the complaint pursuant to Section 7, Rule 9 of the Rules of Court.
However, there is no specific provision in the Rules of Court which prohibits
the admission in evidence of an actionable document in the event a party
fails to comply with the requirement of the rule on actionable document
under Section 7, Rule 9. But what must be presented as evidence is the
policy itself and not a mere Marine Risk Note.

TITLE 2.
FIRE INSURANCE.

Q. What are included in the term "fire insurance"?

A. "As used in this Code, the term fire insurance shall include 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. It will be observed that "Fire Insurance" is
no longer limited to what its name suggests. It now includes insurance
against lightning, windstorm, tornado, earthquake and other allied risks.

Q. What are the kinds of fire and what kind of fire is insured against?
Q. Are there diff. kinds of fire? YES, hostile and friendly.

A. In fire insurance, the insured is entitled to recover the loss suffered where
the cause of the damage is a hostile fire, that is, one which burns at a place
where it is not intended to be, or breaks out from where it is intended to be
and becomes uncontrollable.
And where the fire that caused the loss is a friendly fire, that is one which is
confined within the place where it was intended to be and employed for the
ordinary purpose of lighting, heating or manufacturing, recovery cannot be
had for loss or damage caused thereby.

NOTE: fire in lighter and stove – friendly fire

Pero pag na reach yung building ng fire from stove – hostile

EXAMPLE 1: Let us say the chapels in Rome was insured against fire, there
are paintings made may Rafael and the old masters. Candles illuminates the
entire building, the smoke damages the paintings.
Q. Should the insurance co. be made liable? NO, it is a friendly fire. The fire
remains in the candle where it is intended to be. But, if the fire reaches the
painting, then it is hostile.

EXAMPLE 2: The raw sugar was insured against fire but in the process of
refining, there was over-heating. The fire did not leave at the place where it
was intended to be. But the temperature was beyond what is necessary. The
sugar became CARAMEL. Is the insurance is liable? NO, it was a friendly
fire, the fire never left the place where it is intended to be.

Illustrations:
(a) Damage caused by smoke from a lamp when no ignition occurred
outside the lamp cannot be recovered.
(b) Damage done to sugar by the heat of the usual fires employed for
refining, being accumulated by the mismanagement of the insured, who
inadvertently kept the top of their chimney closed, was not recoverable.
In the illustrations given above, it will be noted that fire that caused
damage remained at the place where it was intended to be and, accordingly,
such fire was a friendly fire for which there should be no recovery for the
damage caused thereby.

Q. When will alteration in the use or condition of a thing insured entitle

the insurer to rescind the fire insurance policy?

NOTE : Alteration – used for a purpose other than what has been agreed
upon.
Let us say the apartment building that was insured against fire, and agreed
to used only for residential and it was altered to bakery, that VIOLATED THE
CONTRACT AND INCREASED THE LOSS. If it was done, within the control
of the insured, the insurance co. is EXEMPTED from liability. But the
insured, did not go about, then the insurance co. shall nonetheless be liable.
FOR EXAMPLE: Pacquio is the owner of a house. He insured the house
with Sun Ins. Co. He obtained a fire insurance, where it was agreed that
the house shall be used exclusively for residential. He leased it to
Bradley and he used the same for Bakery and it was burn.
Q. Is the insurer liable for the loss? It depends on whether the
alteration in the use of the house from residential bakery was with the
consent of the insured. Where alterations are made by a tenant of the
Insured without the consent of the insured, the policy is not thereby
avoided. But material alteration made by a tenant with the knowledge
of insured will forfeit the policy.
Q. Was there a violation of the contract? YES.
Q. Is there an increase risk of loss? Yes, bakery has a greater risk.

A. "An alteration in the use or condition of a thing insured from that to which
it is limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing the risks, entitles an insurer
to rescind a contract of fire insurance.'.
However, an alteration in the use or condition of a thing insured from
that to which it is limited by the policy, which does not increase the risk, does
not affect a contract of fire insurance. And "a contract of fire insurance is not
affected by any act of the insured subsequent to the execution of the policy,
which does not violate its provisions, even though it increases the risk and is
the cause of the loss."

Q. What are the requisites of alteration in the use or condition of the

thing insured against fire that will entitle the insurer to rescind the
contract?

A. An alteration in the use or condition of thing insured will entitle the insurer
to rescind the contract of insurance provided the following requisites are
present, to wit: (a) There must be a violation of the provisions of the
policy; (b) The alteration was made without the consent of the insurer;
(c) The alteration was made by means within the control of the insured
and (d) the alteration increased the risk of loss.

NOTE: All these elements must concur, in order to exempt the insurer from
liability.

FOR EXAMPLE: You’re the owner of the goods stored in warehouse A then
later on transferred to warehouse B. So, if the transfer from one building to
another, if it is in violation of the contract, it has no consent from the insurer,
then the insurance co. shall not be liable.

Q. When will transfer of the insured property against fire to another

building be consideration as "alteration" that will entitle the insurer to
rescind the contract?
FOR EXAMPLE: You’re the owner of the goods stored in warehouse A
then later on transferred to warehouse B.

A. In case the policy provides that any transfer effected by the insured of the
property insured from one place to another requires the consent of the
insurer, any transfer made by the insured without the consent of the insurer
constitutes alteration which would free the latter from any liability.

Q. What are the facts of the case of Malayan Insurance Co. vs. PAP?
Q. PAP renewed its insurance with Malayan. The original policy was
renewed on an "as is basis," with it the same stipulations and
limitations. The terms and conditions in the renewal policy provided,
among others, that the location of the risk insured against is at the
Sanyo factory in PEZA. The subject insured properties, however,
artikore transferred to Pace Factory without the consent of the insurer.
The properties insured were totally burned at the Pace Factory.
Although it was also located in PEZA, Pace Factory was not the
location stipulated in the renewal policy. Question: Is the insurer
liable?

A. There being an unconsented removal, the transfer was at the insured's

own risk. Consequently, it must suffer the consequences of the fire. Thus,
the Court agrees with the report of Cunningham Toplis Philippines, Inc., an
international loss adjuster which investigated the fire incident at the Pace
Factory, which opined that "[g]iven that the location of risk covered under the
policy is not the location affected, the policy will, therefore, not respond to
this loss/claim." It can also be said that with the transfer of the location of the
subject properties, without notice and without Malayan's consent, after the
renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty.
Accordingly, an insurer can exercise its right to rescind an insurance
contract when the.
following conditions are present, to wit:.
1)the policy limits the use or condition of the thing insured;.
2)there is an alteration in said use or condition;.
3)the alteration is without the consent of the insurer;.
4) the alteration is made by means within theinsured's control: and.
5).the alteration increases the risk of loss.

In the case at bench, all these circumstances are present. It was

clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.

Q. When is there a prima facie evidence of arson?

NOTE: This presumption of arson, applies only in civil cases. It applies only
in instance when insurance co. refuses to pay on the ground of arson. Arson
like rape is difficult to prove.
Do you commit arson in presence of everybody? You do it in secrecy.
Which is why it is difficult to prove. That is why the law resort to these
presumption.
These presumption cannot be applied in criminal cases. This is applied only
to exempt the insurer from liability and to eradicate this malicious actions of
certain persons.

A. It may be note-worthy to mention that the Insurance Code of 1978 has

eliminated Section 164-A of the Insurance Act which provided for a prima
facie evidence of arson. However, this void was filled when Presidential
Decree No. 1618 which was issued on March 7, 1979, provided for a prima
facie evidence of arson.
The present Insurance Code did not expressly repeal Presidential
Decree No. 1618.
 Any of the following circumstances shall constitute prima facie
evidence of arson:
1. If the fire started simultaneously in more one part of the building
establishment.
NOTE: the fire started on the left, right and bottom, the presumption is
intentionally caused kasi nasa diff. places.
YOU SHOULD ATLEAST REMEMBER 4 INSTANCES.

2. If substantial amount of flammable substance or materials are stored

within the building neither necessary in the business of the offender
nor for household use

3. If gasoline, kerosene, petroleum or other flammable or combustible

substances or materials soaked therewith or containers thereof, or any
mechanical, electrical chemical, or electric contrivance designed to
start a fire, or ashes or traces of any of the foregoing are found in the
ruins or premises of the insured building or property.

4. If the building or property is insured for substantially more than its

actual value at the time of the issuance of the policy

5. If during the lifetime of the corresponding fire insurance policy more

than two fires have occurred in the same premises owned or under
control of the offender and/or insured.

6. If shortly before the fire, a substantial portion of the effects insured

and a building or property had been withdrawn from the premises
except in the ordinary course of business

7. If a demand for money or other valuable consideration was made

before the fire in exchange for the desistance of the offender or for the
safety of the person or property of the victim.

NOTE: JUST READ CASUALTY INSURANCE. BAHALA NA DAW TAYO

DON HEHE
Nag skipped ng slides then proceed to Life Insurance.
LIFE INSURANCE
Q. Name the usual kinds of life insurance.

A. There are many kinds of life insurance but the most important and usual
are the following:

(a) General, ordinary or old line life insurance is that in which for a fixed
premium payable, without condition, at stated intervals, a sum certain is to
be paid on death, without condition.
NOTE: In this insurance, the insured continues to pay premium as long as he
need. The insurance co. will not be liable until the insured dies. 80 ka na
bayad ka pa din ng bayad, eguls ka dun.

(b) Limited payment life insurance is that from under which specified
premiums are to be paid for a specified period or until the death of insured if
it occurs before the expiration of such period, and under which insurer is
obligated to pay a specified sum on the death of the insured.

NOTE: Let say the agreement is 20 years, it means for 20 years, the insured
continues to pay premiums, pag namatay within that period, premiums will
not be paid anymore but the beneficiary may recover the proceeds of the
policy.
Suppose, na survive yung 20 years, he does not need to pay the premiums,
and he will be protected for life. Pero saka babayaran ng insurance co. pag
namatay na yung insured.

(c) Endowment insurance is a contract to pay a certain sum to the insured

if he lives a certain length of time, or if he dies before that time, to some
other person indicated as beneficiary.
NOTE: Eto yung insurance ng nagsisiguro. An endowment period is
provided. Kunwari 20 years. It means the insured continues to pay premiums
For 20 years. If the insured dies within the 20 year period, liable ang
INSURANCE CO.
But, if the insured survives, within the period of endowment, he himself must
get the proceeds of the policy.
CHIKA CHIKA.. Si Sir nani daw, nag obtain ng madaming life insurance for
his wife, pero unang namatay. Ayun he surrenders the policy and obtain the
cash surrender policy which is less than the value of the premiums that he
paid. Kasi Ordinary Life Insurance kinuha nya. Pero pag endowment, katakot
takot daw na pera makukuha nya.

Term life insurance is insurance for a term of years only, or until insured
shall have arrived at a certain age.
NOTE: It is the cheapest. It is for a def. period of time. EXAMPLE: when you
travel abroad and you get an insurance for that travel, and the plane crashes
and you died, the Insurance Co. is Liable. If nothing happens to you, tapon
premiums mo.
- Wala ditong cash surrender value.

(e) Advance insurance is a Contract which provides for the payment to the
insured of a lump sum immediately, in consideration of his agreement to
make certain periodical payments to the insurer for a specified period, or for
the end of that period, the performance of insured's obligation being secured
by mortgage or deed of trust.

NOTE: It is the same as annuity.

(f) Tontine insurance is a form of life insurance by which the policyholder

under the same plan, that no dividends, return premium, or Surrender value
shall be received for a term of years called thee "tontine period". The entire
surplus from all sources being allowed to accumulate to the end of that
period, and then divided among all who have maintained their insurance in
force and who survived.

NOTE: Based on the principle of, Survival of the fittest. Kunwari tayo lahat
nag obtain ng Tontine Insurance, kung sinu yung last man standing, sya
makaka kuha.

CHIKA CHIKAA. Agreement daw nila sa Law Office, same as Tontine, kung
sinu matira, the property of the law office shall belong to the survivor.
Namatay isa nilang ka partner, pero out of the respect for the boss, nag su
support sila sa wife saka pinag aral yung 2 anak sa college. One of them
became a lawyer.
Q. What is annuity? Distinguish annuity from life insurance.

A. Annuity is a contract to pay the insured, or a named person or persons, a

sum or sums periodically during a life or a certain period.
FOR EXAMPLE: 10 year annuity. You paid 1M to the insurance co. in
advance, and he was supposed to received 10k a month, for as long as he
still alive for a period of 10 years.
TAKE NOTE: you should pay a lump sum, and the insurance pays
periodically.

Although annuity is considered as life insurance for purposes of the

Insurance code, the following distinctions between annuity and life
insurance could be made:

1. Annuity is payable during the lifetime of the annuitant while life insurance
is usually payable upon the death of the insured.

2. The annuitant pays a single premium while the insured in the life
insurance pays premiums by installments.

3. In annuity, the insurer undertakes to pay of the annuities until the death
while in life insurance, the annuitant insurer pays a lump sum upon death of
the insured.
NOTE: Life insurance is the exact reverse of annuity.

Q. In the absence of a judicial guardian, who may act on behalf of a

minor, who is an insured or a beneficiary under a contract of life,
healthy, or accident insurance without necessity of court authority or
the giving or a bond?
A. The father, or in the latter's absence or incapacity, the mother, of any
minor, who is an insured or a beneficiary under a contract of life, health, or
accident insurance, may exercise, in behalf of said minor, any right under the
policy, without necessity of court authority or the giving of a bond, where the
interest of the minor in the particular act involved does not exceed Five
hundred thousand pesos (P500,000,00) or in such reasonable amount as
may be determined by the Commissioner. Such right may include, but shall
not be limited to, obtaining a policy loan, surrendering the policy, receiving
the proceeds if the policy and giving minor’s consent to any transaction in the
policy.
Q. In the absence of a judicial guardian, father or mother of a minor
who is an insured or beneficiary, who may act in his behalf?
A. In the absence or incase o the incapacity of the father or mother, the
grandparent, the eldest brother or sister atleast eighteen (18) years of age,
or any elative who has actual custody of the minor insured or beneficiary,
shall act as a guardian without need of a court order or judicial appointment
as such guardian, as long as such person is not otherwise disqualified or
incapacitated. Payment made by the insurer pursuant to this section shall
relieve such insurer of liability under the contract.

NINTH LECTURE VIDEO

Q. Where assault or murder is excepted in the life insurance policy, will
the insurer be automatically exempted from liability for violent death of
the insured? NO.

A. In a life insurance policy where death of the insured by "assault or

murder, or intentional killing" is excepted from its coverage, the mere fact
that the insured suffered a violent death by the hands of another person will
not necessary relieve the insurer of liability.

The insurer's liability in such case will depend on whether the insured's
death was intended or not.
Thus, if the insured was killed by another person intentionally the
insurer is not liable, but where the insured was not an intended victim of
felonious assault the insurer is still liable.

Q. What are facts and issue in the case of Calanoc vs Court of

Appeals?
Illustrations:

(a) Insurer still liable.

Q. Philippine American Life Insurance Co. issued a life insurance policy on

the life of with a Melencio Basilio, a security guard, supplementary contract
covering death by accident. The policy excepted from its coverage, death
caused by "assault or murder'". Basilio was on duty as a watchman on
January 25, 1951. Atty. Ojeda whose residence was a block away from
Basilio's station asked for the latter's noticed something Ojeda help because
suspicious in his house. Basilio refused because he was not a regular
policemen. Ojeda then secured the help of a traffic policeman who prompted
Basilio to come along. While they were standing in front of the main gate of
Ojeda's residence, a shot was fired by a robber. Basilio was hit in the
abdomen and died. It was discovered that Ojeda's house was ransacked by
robbers who were later arrested and prosecuted. The insurer refused to pay
the proceeds of the policy on the ground that Basilio's death was caused by
"murder of assault" and, therefore, excepted from the policy.
Question: Was the insurer liable?

Answer: The insurer was still liable. There was no proof that Basilio's death
was caused by murder or assault nor can it be said that the killing was
intentional for there was the possibility that the robber fired the shot merely
to scare away the people around and not necessarily to kill the victim. The
happening was pure accident on the part of the victim. It cannot be
pretended that the robber aimed at the diseased precisely because he
wanted to take his life.

(2). Carlie Surposa was insured with Finman General Assurance under a
personal accident insurance policy. While the policy was in full force and
effect, the insured died as a result of a stub wound inflicted by one of three
unidentified men without provocation and warning on the part of the former
as he and his cousin, Winston Surposa were waiting for a ride way home
after attending the their on celebration of the "Maskarra Annual Festival.
The beneficiaries filed a claim with the insurerbwhich refused to pay on the
ground that murder and assault were not within the scope of the coverage of
the personal accident insurance. Question: Was the death of the insured
covered by the policy?

Answer: The death of the insured was covered by the policy. The cause of
death was purely accidental insofar as the insured was concerned there
being no showing that the malefactor aimed at the insured precisely because
the killer wanted to take the life of the insured. The insured died from an
event that proceeded from an unusual effect of a known cause and
therefore, not expected. Neither can it be said that there was a capricious
desire on the part of the insured to expose his life to danger considering that
he was just going home after attendinga festival. Where death or injury is not
the natural or probable result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death
or injury from accident.
(b) Insurer not liable.

Q. A Co. issued a life insurance policy on the life of B with an "Accidental

Death Benefit Clause", providing that an additional sum of P5,000.00 would
be payable to the beneficiary if the death was due to accidental means but
excepting death resulting from injury "intentionally inflicted by a third party".
The insured died from a bullet wound inflicted, without provocation by C, who
was found guilty of murder. Question: Was A Co. liable under the "Accidental
Death Benefit Clause"?

Answer: The insurer was not because B's death was due to murder which
was a third undoubtedly inflicted intentionally by a third party and, therefore
excepted by the policy.

Q. What are facts in the case of Biagtan vs Insular Life Assur. Co., Ltd?

Q. Biagtan was insured with Insular Life Assurance Co., and under a
supplementary contract, an additional sum of P5,000 would be paid if the
death of the insured resulted from an accident. However, death due to injury
"intentionally inflicted by a third party" was expressly excepted. While the
policy was in force, the house of Biagtan was robbed. In committing the
robbery, the robbers rushed towards the doors of the second floor room
where they suddenly met a person near the door of one of the rooms who
turned out to be Biagtan. Biagtan was stabbed nine times. Five of the
wounds inflicted caused the death of Biagtan. The robbers were
apprehended, charged and convicted of robbery with homicide. The and
insurer refused to pay the additional sum of P5,000 under the accidental
benefit clause on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore, not covered by the policy.
Question: Was the insurer liable?
Answer: The insurer was not liable because the nine wounds inflicted on the
insured were intentionally caused. "Where a gang of robbers enter a house
and coming face to face with the owner, even if unexpectedly, stab him
repeatedly, it is contrary to all reason and logic to say that his injuries were
not intentionally inflicted." This case was different from the Calanoc case
where it was found that the victim was not intentionally killed for there was
the possibility that the robber had fired the shot to Scare the people around
for his Own protection and not and not necessarily to kill or hit the victim.
While a single shot fired from a distance, and by a person who was not even
seen aiming at the victim, Could have been fired without intent to kill or
injure, nine wounds inflicted with bladed weapons at cannot be considered
as innocent close range insofar as such intent is concerned.

NOTE: The diff. between the Calanoc and Biagtan case, is that in Calanoc, a
single shot was fired, Basilio the insured was hit, and there was no proof that
he was intentionally killed as the victim. In the case of Biagtan, it cannot be
said that Biagtan was not the intended victim, he was stabbed 9 times.
So the insurance co. in this case, was not liable.

Q. Is the insurer liable if the person insured was executed for a crime
he committed?

A. A policy of life insurance does not insure against the legal execution of the
insured for crime even though he may in fact have been innocent, and
therefore unjustly convicted and executed and furthermore, it is against
public policy.

CHIKA CHIKA.. Under the Insurance Act, and the former Insurance Code of
1978, there was no provi in the law about suicide, and because of the
confusion whether suicide is compensable or not. And sir nani introduced a
bill about suicide. Later it was copied in the Insurance, and adopted in the
present Insurance Code.

RULES TO BE FOLLOWED IN THE CASE OF SUICIDE

Q. Is the life insurer liable in case the insured committed suicide?

A. The insurer in a life insurance contract shall be liable in case of suicide

only when it is committed after the policy has been in force for a period of
two (2) years from the date of its issue or of its last reinstatement, unless the
policy provides a shorter period: Provided, however, That suicide committed
in the state of insanity shall be compensable regardless of the date of
commission.

This section is a copy of Section 180-A of the Insurance Code of 1978.

There was no similar provision in the Insurance Act. Parliamentary Bill No.
1342 which later became Batas Pambansa Blg. 874 inserted Section 180-A
in the Insurance Code of 1978. It was introduced by Assemblyman H. B.
Perez who explained the purpose of the amendment as follows:

"The present Insurance Code of 1978 like the previous Insurance Act failed
to provide for consequences of suicide. Whether the life the insurer should
be liable or not in case the insured the subject of commits suicide has been
conjectures and speculations. To clarify the legal consequences of suicide
and put an end to speculations, approval of this bill is earnestly
recommended."

Q. When are the proceeds of a life insurance policy payable to the

insured's estate considered as conjugal assets?

A. The proceeds of the lnsurance policy payable to the insured's estate, on

which premiums were paid by the conjugal partnership, constitute conjugal
property and belong one-half to the husband exclusively and the other half to
the wife. If the premiums were paid partly with conjugal funds, the proceeds
are in like proportion paraphernal or separate property and conjugal,
However, where the proceeds are payable to an belong irrevocable
beneficiary, such proceeds belong exclusively to the beneficiary and not to
the conjugal estate of the person whose life was insured although the
premiums were paid out of conjugal funds.

*****NASA SLIDES AS REFRESHER, PERO NI COPY KO NA DIN.*****

NOTE: What is Industrial Life Insurance? Insurance for the poor. Insurance
of the poorest of the poor.

Q. What is industrial life insurance?

A. Industrial life insurance means that form of life insurance under which the
premiums are payable monthly or oftener, if the face amount of insurance
provided in any policy is not more than five hundred times that of the current
statutory daily wage of the City of Manila, and if the words industrial policy"
are printed upon the policy as part of the descriptive matter.

Such kind of policy shall not lapse for non-payment of premium if such non-
payment was due to the failure of the insurer to send its representative or
agent to the insured at residence of the insured or someplace indicated by
him for the purpose of collecting such premium. However, this does not
apply when the premium on the policy remains unpaid for a period of three
months or twelve weeks after the grace period has expired.

Industrial life insurance is usually acquired by those without a fixed income

or belonging to the low income bracket.

Q. What is Industrial Life Insurance?

A. Industrial life insurance means that form of life insurance under which the
premiums are payable monthly or oftener,
if the face amount of insurance provided in any policy is not more than five
hundred times that of the current statutory daily wage of the City of Manila,
and if the words industrial policy are printed upon the policy as part of the
descriptive matter.

Such kind of policy shall not lapse for non- payment of premium if such
non-payment was due to the failure of the insurer to send its representative
or agent, to the insured at the residence of the insured or someplace
indicated by him for the purpose of collecting such premium.

However, this does not apply when the premium on the policy remains
unpaid for a period of three months or twelve weeks after the grace period
has expired.

Industrial life insurance is usually acquired by those without a fixed income

or belonging to the low income bracket.

Q. Distinguish Microinsurance from Industrial Life Insurance.

A. Industrial Life Insurance may be distinguished from Microinsurance as

follows:
 5.) The maximum amount of Industrial Life Insurance is 500 times that
of the current statutory daily wage in the City of Manila while
Micro insurance’s maximum is 1000 times of the current daily
minimum wage in. Metro Manila.
Thus, while Micro insurance is for the "risk protection of the poor",
Industrial Life Insurance is for the protection of the poorer people.

6.) Industrial Life Insurance shall not lapse for non-payment of premium.
if such non-payment was due to the failure of the insurer to send its
representative or agent to the insured at the residence of the insured
or someplace indicated by him for the purpose of collecting such
premium," while failure to collect the-premium of Micro insurance is
not an excuse for non-payment of premium and the policy will lapse if
the premium is not paid;"

7.) In Industrial Life Insurance, the insured has a grace period of thirty
days within which to pay the succeeding premium while no such
privilege is provided in Micro insurance."

8.) Premiums of Industrial Life Insurance are payable monthly or oftener"

while such scheme is not provided for in Micro insurance.

Q. Can a life insurance policy be assigned?

A. A life insurance is property in the nature of nonnegotiable chose in action

even before the death of the insured. It has all the characteristics of personal
property and can be delivered and transferred as other personal property.
The transferee of the life policy need not have insurable interest and notice
to the insurer of such assignment need not be given unless expressly
required by the policy.

Illustration:

A, a partner in A & Co., obtained a life insurance policy on his own life. Later
on, he borrowed money from the partnership and executed a document
stating that he assigned his policy to the partnership so that the proceeds
would go to the partnership in whatever amount was needed to satisfy his
obligation. Such document was a valid assignment of the policy.
Q. Distinguish assignment of life insurance policy from change of
beneficiary.

A. An assignment of a policy is to be distinguished from a change of

beneficiary in that assignment rests on contract rather than merely on the
exercise of a power of appointment. Being based on contract, assignment
must be supported by a consideration while the change of beneficiary need
not be based on a valid consideration.

An assignment of the policy with the consent of the beneficiary where the
latter was designated irrevocably or even without the consent of the
revocable beneficiary, extinguishes the interest of the beneficiary since an
assignment has the effect of a change of beneficiary.

Q. Is consent of the beneficiary in life insurance necessary to the

assignment of the said life insurance policy?

A. (1) In case the designation of beneficiary is irrevocable: Where the

policy is payable to a beneficiary other than the insured or his estate or
personal representatives, and the right to change the beneficiary is expressly
waived, the consent of such beneficiary to the assignment of the policy
must be obtained since the beneficiary, in such case, has a vested right on
the policy that cannot be defeated by an assignment or transfer without his
consent.

(2) In case the designation of beneficiary is revocable: On the other

hand, the consent of the beneficiary to an assignment by the insured is
not necessary where the insured has not expressly waived the right to
change the beneficiary, for in such case the beneficiary has no vested right
as the insured may still change him.

MOTOR VEHICLE LIABILITY INSURANCE

Q. What is necessary to be provided by the operator or owner of a
motor vehicle to operate it in highways?
A. It is unlawful for any land transportation operator or owner of a motor
vehicle to operate the same in highways unless there is: (a) a policy
insurance, or (b) guaranty in cash, or (c) surety bond, to indemnify the death
or bodily injury of a third-party or passenger arising from the use. Section
387 now includes in the compulsory third party liability coverage damage to
property of a third-party or passenger instead of limiting the same to death or
bodily injuries arising from motor vehicle accidents.

Violation of the aforesaid provision shall be punished by a fine of not

less than Five hundred pesos (P500.00) and/or imprisonment for not more
than six (6) months. The violation of Section 390 by a land transportation
operator shall be a sufficient cause for the revocation of the certificate of
public convenience issued by the Land Transportation Franchising and
Regulatory Board covering the vehicle concerned.

The motor vehicle cannot be registered nor the registration renewed

with the Land Transportation Office unless the motor vehicle is covered by
insurance, cash deposit or surety bond as previously mentioned.

Q. In case of a third-party liability insurance or motor vehicle liability

insurance, may a third person directly, sue the insurer of the motor
vehicle?

NOTE: We studied that insurance should be applied exclusively to the proper

interest of the person in whose name it is insured. We have learned that only
the insured or the beneficiary may file an action against the insurer as a
general rule.

The reason why a third person cannot sue the insurer is because there is no
privity of contract between the insurer and the person insured.

However, there are instances where a third party may sue the insurer.
1.) When there is stipulation in favor of a third person.
2.) When an insurance is against liability.
MOTOR VEHICLE INSURANCE is an insurance against liability.

A. Since a third-party liability insurance insures against liability to third

persons, the injured party for whom the contract of insurance is intended can
directly sue the insurer. Thus, in a vehicular accident, a person injured by the
motor vehicle covered by third-party liability insurance directly sue the
insurer. The general purpose of statutes enabling an injured person to
proceed directly against the insurer is to protect injured persons against the
insolvency of the insured who causes such injury, and to give such injured
person certain beneficial interest in the proceeds of the policy and statutes
are to be liberally construed so that their intended purpose may be
accomplished. Such a provision creates a contractual relation, which inures
to the benefit of any and every person who may be negligently injured by the
insured, as if such injured persons were specifically named in the policy. In
such case, the liability of the insurer to such third person is based on
contract while the liability of the insured to the third party is based on tort.

Q. Shafer obtained a third-party liability insurance policy from Makati

Insurance Company over his Ford Laser car. During the effectivity of
the policy, an information for reckless imprudence resulting in damage
to property and serious physical injuries was filed against Shafer for
bumping a Volkswagen car resulting to damage to said car and injuries
to its passenger. The owner of the damaged Volkswagen filed a
separate civil action against Shafer. Shafer filed a third-party complaint
against his insurer, Makati Insurance co. The insurer filed a motion to
dismiss on the ground that the third-party complaint was premature
because the criminal case against Shafer was not yet terminated.
Question: Must Shafer wait for his conviction before filing a case
against the insurer?

A. There is no need for the insured to wait for the decision of the court
finding him guilty of reckless imprudence before filing a case against the
insurer.. The occurrence of the injury to the third party immediately gives rise
to the liability of the insurer under its policy."

Q. In a motor vehicle liability insurance, is the insurer solidarily liable

with the insured?

A. While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
against third-party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the insured is based on
tort.

Q. What are the facts and issue in the case of Vda. De Maglana vs
Consolacion?
NOTE: Ire recite daw to.

Illustrations:.
 (1) Lope Maglana was on his way to work driving a motorcycle. A
PUJ jeep driven by Pepito Ito and owned by Destrajo, bumped the
motorcycle driven by Maglan aMaglana while overtaking another
passenger jeep. As a result of the accident, Maglana died. The PUJ jeep
of Destrajo was insured for P20,000 with AFISCO against third-party
liability. The heirs of Maglana after receiving P5,000 from AFISCO
under the "no fault indemnity" clause, filed a civil case against Destr
ajoDestrajo and AFISCO. Question: What is the nature of the liability of
AFISCO to the heirs of Maglana?

Answer: The liability of AFISCO based on the insurance contract is

direct, but not solidary with that of Destrajo which is based on torts. As such,
the heirs of Maglana have the option either to claim the amount of P15,000
(insurance coverage of P20,000 less P5,000 already paid under the "no fault
indemnity" clause) from AFISCO and the balance of their claims from
Destrajo or enforce the entire judgment from Destrajo who has right of
reimbursement from AFISCO to the extent of the insurance coverage.

(2) A truck driven by Corbeta and owned by National Food

Authority (NFA) collided with a Toyota Tamaraw owned by [Link]
Toyota Tamaraw was insured with Mabuhay Insurance and Guaranty,
Co. (MIGC) while NFA's truck was insured with GSIS against liabilities
for death and injuries to third persons for the maximum indemnity of
P12,000 Five passengers died and ten others were injured in the
accident. All of them were passengers of the Toyota Tamaraw. A case
was filed by the injured parties against Corbeta, NFA, Uy, Uy, GSIS and
MIGC. Judgment was rendered by the trial court ordering Corbeta, NFA,
GSIS and MIGC jointly and severally liable to pay damages to the
victims of the collision, after finding that the negligence of Corbeta was
the proximate cause of the collision. GSIS claimed that it was not
solidarily liable with NFA. Question: Can GSIS be held solidarily liable
with its insured, NFA?

Answer: GSIS cannot be made solidarily liable with NFA. While it is

true that where the insurance contract provides for indemnity against liability
to third persons, the latter can directly sue the insurer however, the insurer
cannot be held liable in solidum with the insured and/or the other parties
found at fault. The liability of the insurer is based on contract; that of the
insured carrier or vehicle owner is based on tort. The liability of GSIS based
on the insurance contract is direct, but not solidary with that of the NFA. The
latter's liability is based separately on Article 2180 (quasi-delict) of the Civil
Code. Furthermore, although the victims may proceed directly against GSIS
as insurers the extent of the amountfor indemnity, the third party liability is
only, covered by the insurance policy.

Q. How can / When is an insurer be held liable under the "no fault
indemnity" clause in motor vehicle liability insurance?
NOTE: This has been asked many times in bar.

A. An insurer may be held liable under the “no fault indemnity" provision
without the necessity of proving fault or negligence of any kind provided the
following requisites are present:
(a) The claim is for death or injury to any passenger or third party;
(b)The total indemnity in respect of any one person does not exceed
P15,000; and.
(c) The necessary proof of loss under oath to substantiate the claim
must be submitted.

NOTE: That this claim, applies only to physical injuries or death, it does NOT
apply to damage to property. So, there is no need for the injured party to
prove who is guilty. The mere fact that they filed a claim against the insurer
is enough to make the insurer is liable.

Q. What are the rules on claims under the "no fault indemnity" clause?

A. The following rules on claims under the "no fault indemnity" provision
where proof of fault or negligence is not necessary for payment of any claim
for death or injury to a passenger or a third party are established:.
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against
the insurer of the vehicle in which he is riding, mounting of dismounting from.
3. In any other case, (i. e. if the victim is not an occupant of a vehicle),
the claim shall lie against the insurer of the directly offending vehicle.
4. In all cases, the right of the party paying the claim to recover against
the owner of the vehicle responsible for the accident shall be maintained.
1276.

Q. What are the facts and issue in the case of Perla Compania de
Seguros, Ins. vs. Ancheta?

Q. On December 27, 1977, in a collision between the IH Scout in which

Ramos, et. al. were riding and a Superlines bus along Sta. Elena,
Camarines Norte, Norte, plaintiffs Ramos et al. sustained physical
injuries. The injured parties filed a case against Superlines, the bus
driver and Perla Cia. De Seguros, the insurer of the bus. The bus was
insured with Perla Cia. De Seguros for P50,000 for passenger liability
and P50,000 for third party liability. The IH Scout was insured with
Malayan Insurance. Even before the service of summons, respondent
Judge issued an order granting plaintiffs' prayer to order Perla Cia. De
Seguros to immediately pay P5,000 under the "no fault indemnity"
provision of Section 378. Perla Cia. De Seguros claimed that the insurer
liable under the "no fault" provision was Malayan Insurance, the
insurance of the vehicle the plaintiffs were riding at the time of the
accident, and not Perla Cia. De Seguros. Question: Which insurer was
liable to the plaintiffs' for the "no fault” indemnity?

A. The plaintiffs are not free to choose from which insurer they will claim the
"no fault indemnity".
By using the word "shall" the law makes it mandatory that the claim be made
against the insurer of the vehicle in which the occupant is riding, mounting,
or dismounting from. Irrespective of whether or not fault or negligence lies
with the driver of the Superlines bus, as plaintiffs were not occupants of the
bus, they cannot claim the “no fault indemnity" from the insurer of the bus.
The claim should be made against Malayan Insurance, the insurer of the
vehicle plaintiffs were riding.

Q. What is the "collateral source rule"?

A. Under this rule, if an injured person receives compensation for his injuries
from a source wholly independent of the tortfeasor, the payment should not
be deducted from the damages which he would otherwise collect from the
tortfeasor.
The collateral source rule applies in order to place the responsibility for
losses on the party causing them. Its application is justified so that "the
wrongdoer should not benefit from the expenditures made by the injured
party or take advantage of contracts or other relations that may exist
between the injured party and third persons."
Q. Is a driver's license on the part of the authorized driver of the
insured motor vehicle necessary? Yes.

CHIKA CHIKA..Q. The driver has no valid license and he met an accident,
would the insurer of the vehicle be made liable?

A. It is a common practice of the insurers to provide in the policy that the

authorized drivers of the vehicle insured are the insured himself, or a person
permitted or ordered by him to drive who has a license to do so.

It means if the insured, the owner of the vehicle is the one driving and he has
expired license, and he met an accident, then the insurance co. is
nonetheless liable.
But if the vehicle is being driven by someone who is authorized by the
owner, and he has no valid driver’s license at the time of the accident, then
the insurance co. is NOT liable.

Q. When is driver's license not necessary to hold the insurer in a motor

vehicle insurance liable?
À, Driver's license is not necessary to hold the insurer of the motor vehicle
liable in the following cases:
(1)If the insured himself is the driver of the vehicle insured, he has the
right to recover the damage thereto even if he has no driver's license
or the same had expired at the time of the accident.

Illustration:
Q. Palermo insured his car with Pyramid Insurance against loss or
damage and third-party liability, While Palermo was driving his car, a
La Carlota City fire truck bumped said car head-on causing injuries to
palermo, thus death of his father who was then a passenger, and total
damage of the car insured. At the time of the accident, the license of
Palermo was expired. The insurer refused to pay the proceeds of the
insurance on the ground that the insured was not an authorized driver
since his license had expired at the time of the accident. Question: Is
the insurer’s refusal to pay meritorious?
Answer: There is no merit in the insurer's allegation that the insured was
not authorized to drive the insured motor vehicle because his driver's license
had expired. The driver of the insured vehicle at the time of the accident was
the insured himself, hence, an "authorized driver” under the policy. While the
Motor Vehicles Law prohibits a person from operating a motor vehicle on the
highway without a license or with an expired license, an infraction of the
Motor Vehicles Law on the part of the insured, is not a bar to recovery under
the insurance contract. It however, renders him subject to the penal
sanctions of the Motor Vehicles Law. The requirement in the policy that the
driver must be licensed to drive under the law does not apply when the
person driving is the insured himself.
(2)When a motor vehicle is covered by a comprehensive policy that
includes theft, the insurer is liable for the damage to the motor vehicle
in case such damage is sustained on the occasion of or while the theft
is being committed even if the thief is not licensed to drive. This
principle applies notwithstanding the provision in the policy that
requires the driver at the time of the accident to be duly licensed.
When the thief had expired license when the car insured was stolen, the
insurer is nonetheless liable because there is no causal connection between
the possession of a valid driver's license and the loss of a vehicle. To rule
otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.

Illustration:
Lacson insured his car under a comprehensive car policy which
covered loss due to theft. Lacson brought his car for repairs to a repair
shop. While at the shop, Mahinay together with his co-employees in the
shop took and drove the car insured as a result of which it met an
accident causing damage thereto. The insurer refused to pay the
damage on the ground that the driver was not a duly licensed driver in
violation of the policy which required the driver of the car to be
insured, Mahinay was charged of qualified theft to which he pleaded
guilty. Question: was the insurer liable?
Answer: The insurer was liable. The taking of the vehicle by another person
without permission or authority from the owner or person in charge thereof is
sufficient to place it within the policy and therefore, compensable. The
damages were sustained in the course of the unlawful taking.

In case the insurance on the motor vehicle does not include theft or
comprehensive, then the driver of the vehicle, if a person other than the
owner, must duly be licensed to drive otherwise, the insurer is not liable.
NOTE: Pero yung ni carnap moa ng kotse, na aksidente, tapos yung
carnapper walang valid license, THE INSURANCE CO. IS STILL LIABLE
BECAUSE IT IS PART OF THE INSURANCE AGAINST THIEF.
Q. Is the authority of the authorized driver affected by unauthorized
trip?
EXAMPLE: Ginamit yung kotse ni driver at yaya, biglang liko sabay yuko,
nabangga yung kotse. The insurance co. refused to pay because the trip
was not authorized, the driver was authorized, but he was not authorized to
bring the car to the motel. Is the insurance co. liable? YES, because where
the driver is authorized to drive, the purpose of the trip is not material.
A. A car Owner who entrusts his car to an established car service and repair
shop necessarily entrusts his car key to the shop owner and employees who
are presumed to have the insured's permission to drive the car for legitimate
purposes of checking or road-testing the car. The happenstance that the
employee of the shop owner diverts the use of the car to his own illicit or
unauthorized purpose in violation of the trust purposed in the shop by the
insured car owner does not mean that the authorized driver clause has been
violated such as to bar recovery, provided that such employee is duly
qualified to drive under a valid drivers license.
When the driver is authorized to drive, the fact that the purpose of the trip
was not authorized will not affect the right of the owner-insured to recover
from the insurer should the vehicle be damaged during the unauthorized trip.

Illustration:
X was the owner of a car which he brought to Y Repair Shop for general
checkup and repairs. Said car was insured under a comprehensive
policy with A Co. While the car was in the custody of Y Repair Shop,Z,
an employee of Y Repair Shop together with five persons brought the
car out of the shop and drove to Montalban, Rizal. The car was
damaged in a vehicular accident. The insurer refused to pay the
damage on the ground that Z was not an authorized driver of the
insured. Question: Was the insurer's refusal to pay correct?

Answer: The refusal of the insurer to pay was not correct. A car owner who
delivers his car to a repair shop is presumed to have authorized the shop
owner and his employees to drive the car. The unauthorized purpose of trip
does not mean that the driver is unauthorized The situation is not different
from the regular or family driver, who instead of carrying out the owner's
order to fetch the children from school takes out his girl friend instead for a
joy ride and wrecks the car. There is no question of his being an "authorized
driver" which allows recovery of the loss although his trip was for a personal
or illicit purpose without the owner's authorization.
Q. What are the facts and issue in the case of Stokes vs. Malayan Ins.
Co., Inc.?
The insured obtained a car insurance policy covering own damage and third-
party liability. He authorized an Irish tourist to drive the car insured. Said
tourist had been in the Philippines for more than 90 days and had a valid
Irish driver’s license but without a Philippine driver’s license. While being
driven by said tourist, the car insured collided with another vehicle. The
insurer denied the claim on the ground that the tourist was not an “authorized
driver” under the policy which required the person authorized by the insured
to drive the car to be licensed to drive the vehicle.
ISSUE: Was the insurer liable?
A: The insurer was not liable because the driver did not have a valid license
to drive in the Philippines. Under the law, a tourist duly licensed to drive in
his country is allowed to drive in the Philippines during but not after 90 days
of his sojourn in the Philippines. The tourist had been in the Philippines for
more than 90 days and therefore, he was not an authorized driver under the
term of the insurance contract.
Q. Within what time should notice of claim he filed by the insured in a
motor vehicle insurance and what is the period of prescription in a
motor vehicle insurance?
CHIKA CHIKA, Dini delay yung claim ng insurance co. until matapos yung 1
year, para mag prescribed. Pero si Sir nani, nag pasa ng amendment ng
batas, that the period of the prescription, should be counted not from the
date of the accident, but from the denial of the claim.
Now, the claim should be filed within one (1) year from denial of the claim.
A, Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance
company concerned a written notice of claim setting forth the nature, extent
and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six (6) months from the date of
accident, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be brought, in proper cases,
with the Commissioner or the courts within one (1) year from denial of the
claim, otherwise, the claimant's right of action shall prescribe."
This section is a copy of Section 384 of the Insurance Code of 1978, as
amended. The original provision of Section 384 was that the action or built
for recovery of damage due to injury under this chapter must be brought
within one year from the date of accident. This was amended by Batas
Pambansa Blg. 874 by providing that the period of prescription should be
counted from the date of denial of the claim by the insurer instead of
counting the period from the date of the accident As explained by
Assemblyman H.B. Perez! in Parliamentary Bill No. 1343 which later became
Sec. 4 of B.P. BLg. 874;
The period of prescription of insurance claims should be counted from the
denial or rejection of the claim by the insurer and not from the time of loss.
However, in motor vehicle liability insurance, Section 384 of the Insurance
Code of 1978 as amended, makes the period of prescription run not from the
denial of the insurance claim but from the date of the accident. The said
provision places an insurance claimant at a very great disadvantage. He
could not sue the insurer until the latter denies the claim because before
denial of the claim, there is no cause of action against the insurer. But if the
insurer denies the claim only after one year from the accident has elapsed,
the claimant's cause of action will accrue only when it has already
prescribed.

The period of prescription should be made to run from the denial of the claim
and not from the date of the loss."

The notice of claim under the compulsory motor vehicle insurance must be
filed within six months from the date of the accident while the action to
enforce the claim for loss or injury sustained must be filed within one year
from denial of the claim,

Illustration:

An extra-judicial demand was made by the insured on the insurer but the
latter failed to respond to the same. Nevertheless, the complaint was filed
even before a denial of the claim was made by the insurer. For all legal
intents, the one-year prescriptive period provided for in Section 384 of the
Insurance Code has not begun to run. The cause of action arises only and
starts to run upon the denial of the claim by the insurer.