Commercial Law Review: Insurance Code and Contract Law

Commercial Law Review
Law on Insurance
Maria Zarah Villanueva - Castro
INSURANCE CODE (P.D. 1460 as amended)
INTRODUCTION:
A. Laws governing Insurance
Insurance Code primary law
New Civil Code applied suppletorily
specifically on law on obligations and
contracts
2. Contract of Adhesion Insurance is a

contract of adhesion considering that
most of the terms of the contract do
not result from mutual negotiations
between the parties as they are
prescribed by the insurer in printed
form to which the insured may
adhere if he chooses but which he
cannot change.
GSIS Act
*Insurer always comes up with already

made contract.
Property Insurance Law
Q: Is there a contract?
Act 1498
A: YES.

B. General Concept of Insurance
Contract of Insurance is an agreement
whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event. (Sec. 2 par.
2)
*It is a contract of assumption of risk
Q: Who will take the risk?
A: Insurer
Q: Who will be exposed to the risk?
A: Insured

C. Characteristics
1. Risk Distributing Device the device of
insurance serves to distribute the risk
of economic loss among as many as
possible to those who are subject to
the same kind of risk.
*The risk is distributed to the group of
persons having the same risk.
Q: Why is it a risk distribution device?
A: Insurer has different policyholders
that contribute to a common fund for
the same risk. The common fund will
indemnify the person who suffers loss
for the same risk.
Importance of knowing whether the

contract is one of adhesion: In case of
doubt, the contract shall be
interpreted strictly against the insurer
and liberally in favor of the insured.
Q: is this rule unfair?
A: NO. Because the contract was
already prepared by the insurer, the
only thing that the insured can do is
either take it wholly or leave it.
3. Aleatory The obligation of the insurer
to pay the proceeds of the insurance
arises only upon the happening of an
event which is uncertain, or which is to
occur at an indeterminate time.
(Article 2010 NCC)
*The insurer becomes liable upon the
happening of the peril insured against.
*One or both parties are reciprocally
bound to give or do something for
consideration upon the happening of an
event which is uncertain or to which is
to occur at an indeterminate time.
4. Contract of Indemnity - The insured
who has insurable interest over a
property is only entitled to recover the
amount of actual loss sustained and the
burden is upon him to establish the
amount of such loss.
*It is the basis of all property
insurance.
Catch: not all policyholders will suffer

the same risk at the same time.
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Law on Insurance
*Life insurance is not a contract of
indemnity. Life is not subject to
pecuniary estimation; Life is precious.
Sec. 14 of the Insurance Code

provides that: An insurable interest in
property may consist in:
General Rule: Insurance contract is a

contract of indemnity.
(a) An existing interest;
Exception: Life insurance

5. Uberrimae Fides Contract/Utmost
Good Faith The contract of insurance
is one of perfect good faith not for the
insured alone but equally so for the
insurer; in fact, it is more so for the
latter since its dominant bargaining
position carries with it stricter
responsibility.
*Since there was an assumption of risk
on the part of the insurer, it is their
duty to make an intelligent estimates
that is the reason why it requires the
parties to the contract of insurance to
disclose conditions affecting the risk of
which he is aware, or material fact,
which the applicant knows, and those,
which he ought to know.
*Material facts are facts needed by the
insurer for the determination of
whether he will assume or not the risk.

D. Elements of Insurance
1. Existence of an insurable interest
provides that: The interest of a
beneficiary in a life insurance policy
shall be forfeited when the beneficiary
is the principal, accomplice, or
accessory in willfully bringing about the
death of the insured; in which event,
the nearest relative of the insured shall
receive the proceeds of said insurance
if not otherwise disqualified.
provides that: Every interest in
property, whether real or personal, or
any relation thereto, or liability in
respect thereof, of such nature that a
contemplated peril might directly
damnify the insured, is an insurable
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.
2. Risk of loss
Sec. 51 paragraph g of the Insurance
Code provides that: A policy of
insurance must specify: x x x (g) The
period during which the insurance is to
continue.
3. Assumption of risks
Sec. 2 of the Insurance Code states
that: xxx (1) A contract of insurance
is an agreement whereby one
undertakes for a consideration to
indemnify another against loss, damage
or liability arising from an unknown or
contingent event.
4. Scheme to distribute losses
5. Payment of premiums
that: An insurer is entitled to payment
of the premium as soon as the thing
insured is exposed to the peril insured
a g a i n s t .
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.

E. Right of Subrogation
*This principle is a normal incident of
indemnity property insurance as a legal
effect of payment; it inures to the insurer
without any formal assignment or any
express stipulation to that effect in the
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Law on Insurance
policy. Said right is not dependent upon nor
does it grow out of any privity of contract.
Payment to the insured makes the insurer
an assignee in equity.
*The insurer can only recover from the
third person what the insured could have
recovered. Thus, there can be no recovery
if the insurer voluntarily paid even if the
loss is not covered by the policy.
*The insured can no longer recover from
the offending party what was paid to him
by the insurer but he can recover any
deficiency, that is, if his damages is more
than what was paid. The deficiency is not
covered by the right of subrogation.
Ca se s whe n t h ere i s n o ri ght o f
subrogation:
1. The insured by his own act releases the
wrongdoer/third person liable for the
loss
2. Where the insurer pays the insured for
a loss or risk not covered by the policy
3. In life insurance
4. For recovery of loss in excess of
insurance coverage
CONTRACT OF INSURANCE:
A. Requisites of a contract of Insurance
1. A subject matter in which the insured
has an insurable interest
2. Event or peril insured against which
may be any future contingent or
unknown event, past or future and a
duration for the risk thereof
3. A promise to pay or indemnify in a
fixed or ascertainable amount
4. A consideration known as premium
5. Meeting of the minds of the parties

B. Perfection
*An insurance contract is consensual
contract and is therefore perfected the
moment there is a meeting of minds with
respect to the object and the cause or

consideration.
*What is being followed in insurance
contracts is what is known as the Cognition
Theory.
Q: What is the crucial point?
A: The point wherein there must be an
actual communication to the insured of the
approval of the application.
* I n G r e a t Pa c i f i c L i f e A s s u ra n c e
Corporation v CA, the SC held that the
insured is the one making the offer by
submitting an application to the insurer
and the latter accepts the offer by
approving the application. Thus, mere
submission of the application without the
corresponding approval of the policy does
not result in the perfection of the contract
of insurance.

C. Parties to a contract of Insurance
Sec. 6 of the Insurance Code states that:
Every person, partnership, association, or
corporation duly authorized to transact
insurance business as elsewhere provided
in this code, may be an insurer.
Anyone except a public enemy may be
insured.
Beneficiary person designated to receive
proceeds of policy when risk attaches.
General Rule: When one insures his own
life, he may designate any person as the
beneficiary, whether or not the beneficiary
has an insurable interest in the life of the
insured.
Exceptions: Persons specified in Article
739 in re Article 2012 of the New Civil
Code.
*The designation of persons mentioned in
Article 739 is void but the policy is binding.
*In property insurance, the beneficiary
must have insurable interest on the
property.
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Law on Insurance
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. *The designation is revocable
unless the right to revoke is expressly
waived in the policy.
The interest of a beneficiary in a life
insurance policy shall be forfeited when
the beneficiary is the principal,
accomplice, or accessory in willfully
bringing about the death of the insured; in
which event, the nearest relative of the
insured shall receive the proceeds of said
insurance if not otherwise disqualified.
*In life or health insurance, the insured
cannot assign the policy if the designation
of the beneficiary is irrevocable. Reason:
The irrevocable beneficiary has vested
right.
*If the insured refuses to pay the
premiums, the designated irrevocable
beneficiary may continue the policy by
paying premiums that are due. (Article
1236 NCC)
Q: Despite irrevocable designation, may
the insured revoke the beneficiary?
A: YES. Under Article 42 of the Family
Code, Article 43 (4) of the Family Code,
Article 50 of the Family Code and Article
64 of the Family Code.
1. Rule on minors
that: Any minor of the age of eighteen
years or more, may, notwithstanding
such minority, contract for life, health
and accident insurance, with any
insurance company duly authorized to
do business in the Philippines, provided
the insurance is taken on his own life
and the beneficiary appointed is the
minor's estate or the minor's father,
mother, husband, wife, child, brother
or sister.
*This portion is repealed by RA 6809.
Under RA 6809, minors are no longer
allowed to enter into insurance
contracts. This rule is absolute.
2. Rule on married women

Sec. 3 of the Insurance Code provides
that: The married woman or the minor
herein allowed to take out an insurance
policy may exercise all the rights and
privileges of an owner under a policy.
*Under RA 7192, married women can
enter into insurance contracts without
the assistance of their husbands.

D. Subject matter of Insurance
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, subject to the provisions
of this chapter.
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.

E. Insurance not a wagering contract
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.
*Wagering contract is not allowed because
it is against public policy.
Reason: The insured should not be happy
because of the loss he suffered.
Q: What prevents insurance policy from
being a wagering contract?
A: Insurable interest.
INSURABLE INTEREST:
A. Concept of Insurable Interest in General
*A person has an insurable interest in the
subject matter if he is so connected, so
situated, so circumstanced, so related,
that by the preservation of the same he
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Law on Insurance
shall derive pecuniary benefit, and by its
destruction he shall suffer pecuniary loss,
damage or prejudice.
*Insurable interest does not exist by legal
relationship or by virtue of law.

B. Reason for the requirement of insurable
interest
*A policy issued to a person without the
requisite insurable interest in the subject
matter is a mere wager policy or contract,
hence, it is VOID.
Evil sought to be avoided: Temptation to
destroy the thing insured.
Reason: He has nothing to lose but
everything to gain.

C. Insurable interest in Life Insurance
that: 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: May warehouseman insure the goods
deposited in his warehouse?
A: YES. In case of loss of the goods the
warehouseman is liable to the owner of the
goods.
Q: May bottomry lender insures the
hypothecated vessel?
A: YES. There is an insurable interest up to
the amount covered by the bottomry.
Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.

*In life insurance, persons prohibited to
make donation to each other are also
prohibited to become beneficiaries of each
other.
*For disqualification purposes, what is
needed is only a preponderance of
evidence.

D. Insurable interest in Property Insurance
Every interest in property, whether real or
personal, or any relation thereto, or
liability in respect thereof, of such nature
that a contemplated peril might directly
damnify the insured, is an insurable
interest.
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.
*In general, a person has an insurable
interest in the property, if he derives
pecuniary benefit or advantage from its
preservation or would suffer pecuniary
loss, damage or prejudice by its
destruction whether he has or has no title
in, or lien upon, or possession of the
property.
*Existence of insurable interest is a matter
of public policy, hence, the principle of
estoppels cannot be invoked.
*In order for hope or expectancy to be
insurable, it must be coupled with existing
interest out of which the expectancy
arises. It must be founded on an actual
right to the thing or upon a valid contract.
An interest in property insured must exist
when the insurance takes effect, and when
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Law on Insurance
the loss occurs, but not exist in the
meantime; and interest in the life or
health of a person insured must exist when
the insurance takes effect, but need not
exist thereafter or when the loss occurs.
Except in the cases specified in the next
four sections, and in the cases of life,
accident, and health insurance, a change
of interest in any part of a thing insured
unaccompanied by a corresponding change
in interest in the insurance, suspends the
insurance to an equivalent extent, until
the interest in the thing and the interest in
the insurance are vested in the same
person.
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.
1. I n s u r a b l e i n t e r e s t i n c a s e o f
mortgaged property
that: Unless the policy otherwise
provides, where a mortgagor of
property effects insurance in his own
name providing that the loss shall be
payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the
insurance is deemed to be upon the
interest of the mortgagor, who does not
cease to be a party to the original
contract, and any act of his, 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, but any act
which, under the contract of insurance,
is to be performed by the mortgagor,
may be performed by the mortgagee
therein named, with the same effect as
if it had been performed by the
mortgagor.
a. Standard or Union Mortgage Clause
subsequent acts of the mortgagor
cannot affect the rights of the
assignee.
b. Open or Loss Payable Clause acts

of the mortgagor affect the
mortgagee.
Reason: Mortgagor does not cease
to be a party to the contract.
Basis: Sec. 8 of the Insurance Code
states that: Unless the policy
ot h e rw i se p rovi d e s, w h e re a
mortgagor of property effects
insurance in his own name providing
that the loss shall be payable to the
mortgagee, or assigns a policy of
insurance to a mortgagee, the
insurance is deemed to be upon the
interest of the mortgagor, who does
not cease to be a party to the
original contract, and any act of
his, 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, but any act which,
under the contract of insurance, is
to be performed by the mortgagor,
may be performed by the
mortgagee therein named, with the
same effect as if it had been
performed by the mortgagor.
that: 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 obligation on the assignee,
making a new contract with him,
the act of the mortgagor cannot
affect the rights of said assignee.
2. Effect of change of interest in the
thing insured
that: Except in the cases specified in
the next four sections, and in the cases
of life, accident, and health insurance,
a change of interest in any part of a
thing insured unaccompanied by a
corresponding change in interest in the
insurance, suspends the insurance to an
equivalent extent, until the interest in
the thing and the interest in the
insurance are vested in the same
person.
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Law on Insurance
that: A change in interest in a thing
insured, after the occurrence of an
injury which results in a loss, does not
affect the right of the insured to
indemnity for the loss.
that: A change of interest in one or
more several distinct things, separately
insured by one policy, does not avoid
the insurance as to the others.
*This is a divisible policy.
that: A change on interest, by will or
succession, on the death of the
insured, does not avoid an insurance;
and his interest in the insurance passes
to the person taking his interest in the
thing insured.
*This is by operation of law.
that: A transfer of interest by one of
several partners, joint owners, or
owners in common, who are jointly
insured, to the others, does not avoid
an insurance even though it has been
agreed that the insurance shall cease
upon an alienation of the thing
insured.
are not contrary to law, morals, good

customs, public order, or public policy.

Insurable I n s u ra b l e
Interest in Interest in
Property
Life
As
t o Limited to
measure
the actual
value of
t
h
e
interest in
t
h
e
property.
General
R u l e :
Insurable
Interest in
life
is
unlimited.
Exception:
In
life
insurance
effected by
a creditor
on the life
of
the
debtor.
As to time
w h e n
insurable
interest
must exist
T
h
e
insurable
interest
e x i s t s
when the
insurance
t a k e s
effect and
when the
loss occurs
but not
need exist
in
the
meantime.
General
Rule: It is
e n ou gh
that the
insurable
interest
exists at
the time
the policy
t a k e s
effect and
need not
exist at the
time of the
loss.
Exception:
Obligee
must have
insurable
interest at
the time
the policy
took effect
and at the
time of
loss.
As
to
expectation
of benefit
to
be
derived
T h e r e T
h
e
must be a expectatio
l e g a l n of the
basis.
benefit to
be derived
need not
have any
legal basis.

provides that: A policy may be so
framed that it will inure to the benefit
of whomsoever, during the continuance
of the risk, may become the owner of
the interest insured.
*The policy follows where the interest
is.
provides that: The mere transfer of a
thing insured does not transfer the
policy, but suspends it until the same
person becomes the owner of both the
policy and the thing insured.
Article 1306 of the New Civil Code
provides that: The contracting parties
may establish such stipulations,
clauses, terms and conditions as they
may deem convenient, provided they
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Law on Insurance
As to the T
h
e
beneficiary beneficiar
s interest
y must
h a v e
insurable
interest
over the
t h i n g
insured.
The policy
is still
valid, only
t
h
e
designatio
n
was
avoided
because
t
h
e
beneficiar
y has no
insurable
interest.
General
Rule: The
beneficiary
need not
h a v e
insurable
interest
over the
life of the
insured if
the insured
himself
secured
the policy.
Exception:
If the life
insurance
w
a
s
obtained
by
the
beneficiary
, the latter
must have
insurable
interest
over the
life of the
insured.
Q: In case where the designated

beneficiary cannot claim the proceeds
due to the fact that such designation
was void, who can claim the proceeds?
A: Insured.
DEVICES FOR ASCERTAINING AND CONTROLLING
RISK AND LOSS:
*Concealment and representation are devices that
are related to the formation of the contract
whereas warranties and condition are devices that
are related to the execution of the contract.
A. Concealment
1. Concept
Q: When is there concealment?
provides that: A neglect to
communicate that which a party knows
and ought to communicate, is called a
concealment.
2. Duty to Communicate
that: Each party to a contract of
insurance must communicated 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.
3. Test of Materiality
provides that: 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 disclosed may not be the
proximate cause of the loss still there
is breach because there is a vitiation of
consent, the contract is voidable.
4. Effect of Concealment
provides that: A concealment whether
intentional or unintentional entitles the
injured party to rescind a contract of
insurance.
provides that: An intentional and
fraudulent omission, on the part of one
insured, to communicate information of
matters proving or tending to prove the
falsity of a warranty, entitles the
insurer to rescind.
*It vitiates the contract and entitles
the insurer to rescind, even if the
death or loss is due to a cause not
related to the concealed matter.
5. M a t t e r s w h i c h n e e d n o t b e
communicated
provides that: 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,
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Law on Insurance
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.
*Things need not be disclosed.
provides that: Each party to a
contract of insurance is bound to know
all the general causes which are open
to his inquiry, equally with that of the
other, and which may affect the
political or material perils
contemplated; and all general usages
of trade.
provides that: Information of the
nature or amount of the interest of one
insured need not be communicated
unless in answer to an inquiry, except
as prescribed by section fifty-one.
provides that: Neither party to a
contract of insurance is bound to
communicate, even upon inquiry,
information of his own judgment upon
the matters in question.
6. Waiver of Information
provides that: The right to information
of material facts may be waived, either
by the terms of the insurance or by
neglect to make inquiry as to such
facts, where they are distinctly implied
in other facts of which information is
communicated.

B. Representation
1. Concept
Representations are factual

statements made by the insured at the
time of or prior to the issuance of the
policy to give information to the insurer
and otherwise induce him to enter into
the insurance contract.
*Representation per se is not wrong as
long as such representation is true.
*The false representation may still be
corrected as long as it is made before
the issuance of the policy.
2. Kinds of Representation
provides that: A representation may
be oral or written.
provides that: representation may be
made at the time of, or before,
issuance of the policy.
provides that: A representation as to
the future is to be deemed a promise,
unless it appears that it was merely a
statement of belief or expectation.
provides that: . A representation must
be presumed to refer to the date on
which the contract goes into effect.
3. Test of Materiality
provides that: The materiality of a
representation is determined by the
same rules as the materiality of a
concealment.
*Facts that may probably and
reasonably influence the other party in
forming his estimate.
4. Effect of Alteration or Withdrawal
provides that: A representation may
be altered or withdrawn before the
insurance is effected, but not
afterwards.
5. Time to which representation refers
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Law on Insurance
that: A representation must be
presumed to refer to the date on which
the contract goes into effect.
6. E f f e c t w h e n r e p r e s e n t a t i o n i s
obtained from third persons
provides that: When a person insured
has no personal knowledge of a fact, he
may nevertheless repeat information
which he has upon the subject, and
which he believes to be true, with the
explanation that he does so on the
information of others; or he may
submit the information, in its whole
extent, to the insurer; and in neither
case is he responsible for its truth,
unless it proceeds from an agent of the
insured, whose duty it is to give the
information.
7. When presumed false; effect of falsity
provides that: A representation is to
be deemed false when the facts fail to
correspond with its assertions or
stipulations.
that: If a representation is false in a
material point, whether affirmative or
promissory, the injured party is entitled
to rescind the contract from the time
when the representation becomes
false. The right to rescind granted by
this Code to the insurer is waived by
the acceptance of premium payments
despite knowledge of the ground for
rescission.

C. R e m e d i e s a v a i l a b l e i n c a s e o f
Concealment or False Representation
1. When rescission by the insurer may
be exercised
that: 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.
After a policy of life insurance made
payable on the death of the insured
shall have been in force during the
lifetime of the insured for a period of
two years from the date of its issue or
of its last reinstatement, the insurer
cannot prove that the policy is void ab
initio or is rescindible by reason of the
fraudulent concealment or
misrepresentation of the insured or his
agent.
General Rule: Prescriptive period: Any
time before the commencement of a
court action on the contract.
Exception: In case of life insurance
made payable on the death of the
insured.
Q: How rescission is made?
A: By sending notice of cancellation or
rescission to the insured.
Even if there is a court action, the
insurer may raise concealment or
representation as an affirmative
defense.
2. When Life insurance policy becomes
incontestable
that: 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.
After a policy of life insurance made
payable on the death of the insured
shall have been in force during the
lifetime of the insured for a period of
two years from the date of its issue or
of its last reinstatement, the insurer
cannot prove that the policy is void ab
initio or is rescindible by reason of the
fraudulent concealment or
misrepresentation of the insured or his
agent.
a. Requisites for incontestability
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Law on Insurance
1. The insurance is a life insurance
policy payable on the death of
the insured.
any condition imposed by the

policy after the loss has
happened
2. It has been in force during the

lifetime of the insured for at
least 2 years from its date of
issue or of its last
reinstatement. The period of 2
years may be shortened but it
cannot be extended by
stipulation.
*The defense should be
misrepresentation or concealment only.
*If the insured dies within 2 year
period, the insurer may still rescind the
contract. If the insured died after the 2
year period, the insurer cannot rescind
the contract.
b. T h e o r y a n d O b j e c t o f
incontestability
7. The action was not brought

within the time specified.
After a policy of life insurance

made payable on the death of the
insured shall have been in force
during the lifetime of the insured
for a period of 2 years from the
date of its issue or of its last
reinstatement, the insurer cannot
prove that the policy is void ab
initio or is rescindable by reason of
the fraudulent concealment or
misrepresentation of the insured or
his agent.
c. D e f e n s e s n o t b a r r e d b y
incontestability
1. The person taking the insurance
lacked insurable interest as
required by law
2. The cause of the death of the
insured is an excepted risk
3. The premiums have not been
paid
4. The conditions of the policy
relating to military or naval
service have been violated
5. The fraud is of a particularly
vicious type
6. The beneficiary failed to furnish
proof of death or to comply with
8.
D. Warranties
1. C o n c e p t ; d i s t i n g u i s h e d f r o m
representation
Warranty is a statement or promise set
forth in the policy or by reference
incorporated therein, the untruth or
non-fulfillment of which in any respect,
and without reference to whether
insurer was in fact prejudiced by such
untruth or non-fulfillment , renders the
policy voidable.
Condition is a provision wherein
certain things are mandated by the
insurer to be complied with by the
insured in order for the latter to
recover.
Examples:
1. Filing of the claim on time
2. Notice of loss
3. Proof of loss
*The condition may be complied with
before or after the loss.
Warranty
Representation
Part of the A collateral

contract
inducement
Written on the N e e d n o t b e
policy or in a written
valid rider or
attachment
G e n e r a l l y Should
be
c o n c l u s i v e l y established to be
presumed to be material
material
The
f a c t Requires only to
warranted must be substantially
b e s t r i c t l y true
complied with
2. Kinds of Warranties
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Law on Insurance
1. Express
2. Implied warranties that are
deemed included in the contract
although not expressly mentioned.
3. Affirmative asserts the existence
of a fact or condition at the time it
is made.
4. Promissory the insured stipulates
that certain facts or conditions shall
exists or thing shall be done or
omitted.
3. Time to which warranty refers
provides that: A warranty may relate
to the past, the present, the future, or
to any or all of these.
4. Effect of Breach
that: 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.
that: A policy may declare that a
violation of specified provisions thereof
shall avoid it, otherwise the breach of
an immaterial provision does not avoid
the policy.
that: A breach of warranty without
fraud merely exonerates an insurer
from the time that it occurs, or where
it is broken in its inception, prevents
the policy from attaching to the risk.
POLICY OF INSURANCE:
A. Definition and Form
The written instrument in which a
contract of insurance is set forth, is called
a policy of insurance.
that: The policy shall be in printed form
which may contain blank spaces; and any
word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to
complete the contract of insurance shall be

written on the blank spaces provided
therein. Any rider, clause, warranty or
endorsement purporting to be part of the
contract of insurance and which is pasted
or attached to said policy is not binding on
the insured, unless the descriptive title or
name of the rider, clause, warranty or
endorsement is also mentioned and written
on the blank spaces provided in the policy.
Unless applied for by the insured or owner,
any rider, clause, warranty or endorsement
issued after the original policy shall be
countersigned by the insured or owner,
which countersignature shall be taken as
his agreement to the contents of such
rider, clause, warranty or endorsement.
Group insurance and group annuity
policies, however, may be typewritten and
need not be in printed form.
*Contract of insurance may be made in any
form but the policy of insurance must be in
writing.

B. Fine Print Rule
Insurance is a contract of adhesion
considering that most of the terms of the
contract do not result from mutual
negotiations between the parties as they
are prescribed by the insurer in printed
form to which the insured may adhere if
he chooses but which he cannot change.

C. Contents of the Policy
that: A policy of insurance must specify:
(a) The parties between whom the contract
is made;
(b) The amount to be insured except in the
cases of open or running policies;
(c) The premium, or if the insurance is of a
character where the exact premium is only
determinable upon the termination of the
contract, a statement of the basis and
rates upon which the final premium is to
be determined;
(d) The property or life insured;
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Law on Insurance
(e) The interest of the insured in property
insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance
is to continue.
*To put a threshold for purposes of

premium.
Advantage: actual valuation; the final
valuation is accurate value of the
property
Disadvantage: hassle
Example:
D. Papers attached to the policy and their

binding effect (rider, warranties, clause,
endorsement)
Rider is an attachment to an insurance
policy that modifies the conditions of the
policy by expanding or restricting its
benefits or excluding certain conditions
from the coverage.
*Riders, together with other attachments
to the policy like clause, warranty or
endorsements, are not binding on the
insured unless the descriptive title or name
thereof is mentioned and written on the
blank spaces provided in the policy.
Purpose: To modify the conditions or
provisions.
Interpretation: In case of doubt, riders
prevail over the policy.
*Riders and the like shall be countersigned
by the insured or owner unless he was the
one who applied for the rider, clause, and
warranty.
*When the requirements for a rider are
complied with including clause, warranty
or endorsement, it is considered part of
the policy.
*It is a part of the original policy which is
in the nature of a conditional obligation.

E. Kinds of Policy
1. Open
that: An open policy is one in which
the value of the thing insured is not
agreed upon, but is left to be
ascertained in case of loss.
Warehouse valued for P1M

At the time of loss the actual valuation
of the warehouse is P800,000
The insured can only recover P800,000
2. Valued
provides that: A valued policy is one
which expresses on its face an
agreement that the thing insured shall
be valued at a specific sum.
Example:
a. Warehouse valued for P1M
Agreed valuation is P1M
The insured can recover the whole P1M
without proving the actual value of the
property.
b. Warehouse valued for P1.5M
Agreed valuation is P1M
The insurer can only recover P1M
3. Running
provides that: A running policy is one
which contemplates successive
insurances, and which provides that the
object of the policy may be from time
to time defined, especially as to the
subjects of insurance, by additional
statements or indorsements.
*Usually covers stock and goods in
warehouse
Purpose: Avoidance of over and under
insurance.
F. Cover Notes
that: Cover notes may be issued to bind
insurance temporarily pending the issuance
of the policy. Within sixty days after the
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Law on Insurance
issue of the cover note, a policy shall be
issued in lieu thereof, including within its
terms the identical insurance bound under
the cover note and the premium therefor.
Cover notes may be extended or renewed
beyond such sixty days with the written
approval of the Commissioner if he
determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions for
the purpose of preventing such violations
and may by such rules and regulations
dispense with the requirement of written
approval by him in the case of extension in
compliance with such rules and
regulations.
*This is a preliminary contract of
insurance.
*The protection is temporary; limited to 60
days only
*In Pacific Timber Export Corporation v
CA, the SC held that no separate premium
is required for the cover note. As an
exception, the parties may agree
otherwise.

G. Cancellation of Policy
No policy of insurance other than life
shall be cancelled by the insurer except
upon prior notice thereof to the insured,
and no notice of cancellation shall be
effective unless it is based on the
occurrence, after the effective date of the
policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts
increasing the hazard insured against;
(c) discovery of fraud or material
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; or
(f) a determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
violation of this Code.
Prescriptive Period:
Oral = 6 years; written= 10 years
All notices of cancellation mentioned in
the preceding section shall be in writing,
mailed or delivered to the named insured
at the address shown in the policy, and
shall state (a) which of the grounds set
forth in section sixty-four 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.
In case of insurance other than life,
unless the insurer at least forty-five days in
advance of the end of the policy period
mails or delivers to the named insured at
the address shown in the policy notice of
its intention not to renew the policy or to
condition its renewal upon reduction of
limits or elimination of coverages, the
named insured shall be entitled to renew
the policy upon payment of the premium
due on the effective date of the renewal.
Any policy written for a term of less than
one year shall be considered as if written
for a term of one year. Any policy written
for a term longer than one year or any
policy with no fixed expiration date shall
be considered as if written for successive
policy periods or terms of one year.

H. Time to commence action on the policy;
effect of stipulation
Q: When cause of action accrues?
A: From the denial of the claim.
that: A condition, stipulation, or
agreement in any policy of insurance,
limiting the time for commencing an action
thereunder to a period of less than one
year from the time when the cause of
action accrues, is void.
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Law on Insurance
PREMIUM:
A. Concept
Premium is the consideration paid to an
insurer for undertaking to indemnify the
insured against a specified peril.
2. Where there is an acknowledgment in

the contract or policy of insurance that
the premium had already been paid
(Sec. 78);
Conclusive effect: the validity of the
contract/policy and its binding effect.
Q: Who pays the premium?

A: Insured
*No conclusive effect as to the payment

of premium.
Q: What is the consideration?

A: Insured: premium; Insurer: Assumption
of risk
*Acknowledgment results to estoppel

B. Effect of non-payment of premium;
exceptions Sec. 77 of the Insurance Code
states that: . 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.
*This is called as Cash and Carry Rule
An acknowledgment in a policy or
contract of insurance or the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that it shall not be binding until
the premium is actually paid.
General Rule: No insurance policy issued
or renewal is valid and binding until actual
payment of premium. Any agreement to
the contrary is void. (Cash and Carry Rule)
Exceptions:
1. In case of life and industrial life
whenever the grace period provision
applies (Sec. 77);
Requisites:
a. Life and industrial life insurance
b. There is a grace period
c. Grace period still exists
3. The rule laid down in Makati Tuscany

Condominium v CA to the effect that
Sec. 77 may not apply if the parties
have agreed to the payment of the
premium in installments and partial
payment has been made at the time of
the loss;
*By express agreement
Q: What was agreed upon?
A: Payment by instalment plan
4. Where a credit term was agreed upon
like the agreement in UCPB General
Insurance, Inc. v Masagana Telemart
where the insurer granted a 60-90 day
credit term for the payment of the
premiums despite full awareness of
Sec.77;
*By previous conduct/practice
*Insured = principle of equity; insurer =
estoppel.
5. Where the parties are barred by
estoppels
Article 1306 of the : New Civil Code
states that: The contracting parties may
establish such stipulations, clauses, terms
and conditions as they may deem
convenient, provided they are not contrary
to law, morals, good customs, public order,
or public policy.
C. When insured entitled to return of

premiums Sec. 79 of the Insurance Code
states that: A person insured is entitled to
a return of premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to
any of the perils insured against;
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Law on Insurance
(b) 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.
If a peril insured against has existed, and
the insurer has been liable for any period,
however short, the insured is not entitled
to return of premiums, so far as that
particular risk is concerned.
A person insured is entitled to return of
the premium when the contract is
voidable, on account of fraud or
misrepresentation of the insurer, or of his
agent, or on account of facts, the
existence of which the insured was
ignorant without his fault; or when by any
default of the insured other than actual
fraud, the insurer never incurred any
liability under the policy.
In case of an over-insurance by several
insurers, the insured is entitled to a
ratable return of the premium,
proportioned to the amount by which the
aggregate sum insured in all the policies
exceeds the insurable value of the thing at
risk.
PERSONS ENTITLED TO RECOVER ON THE POLICY
AND CONDITIONS TO RECOVERY:
A. Beneficiary
that: 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.
that: The interest of a beneficiary in a
life insurance policy shall be forfeited
when the beneficiary is the principal,

accomplice, or accessory in willfully
bringing about the death of the insured; in
which event, the nearest relative of the
insured shall receive the proceeds of said
insurance if not otherwise disqualified.
The insurance proceeds shall be applied
exclusively to the proper interest of the
person in whose name or for whose benefit
it is made unless otherwise specified in the
policy.
When the description of the insured in a
policy is so general that it may
comprehend any person or any class of
persons, only he who can show that it was
intended to include him can claim the
benefit of the policy.
that: A policy may be so framed that it
will inure to the benefit of whomsoever,
during the continuance of the risk, may
become the owner of the interest insured.
Q: Who receives the proceeds?
A: General Rule: Beneficiary
Exception: In case the designated
beneficiary is disqualified, it is the insured
who receive the proceeds.
General Rule: The designation of the
beneficiary is revocable.
Exception: Irrevocable
In irrevocable designation, the general
rule is that the designated beneficiary
cannot be changed.
Exceptions:
1. The beneficiary consented to the
change
2. Under Art. 45 of the Family Code which
substantially provides that the innocent
spouse has the authority to revoke the
designation of his beneficiary
3. In cases where the marriage is declared
void ab initio
4. In cases of annulment
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Law on Insurance
5. In cases of legal separation

B. Limitations on the appointment of
beneficiary Article 2012 of the New Civil
Code states that: 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 any donation to
him, according to said article.
*The prohibition applies only to life
insurance policy.
*Under Article 1236 of the New Civil Code,
the beneficiary may pay the premium even
against the will of the insurer.
Reason: Beneficiary has interest over the
insurance policy.
Article 739 of the New Civil Code states
that: The following donations shall be
void:
(1) Those made between persons who were
guilty of adultery or concubinage at the
time of the donation;
(2) Those made between persons found
guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his
wife, descendants and ascendants, by
reason of his office.
In the case referred to in No. 1, the action
for declaration of nullity may be brought
by the spouse of the donor or donee; and
the guilt of the donor and donee may be
proved by preponderance of evidence in
the same action.

C. Rule where insurance is made by an
agent or trustee
that: When an insurance contract is
executed with an agent or trustee as the
insured, the fact that his principal or
beneficiary is the real party in interest may
be indicated by describing the insured as
agent or trustee, or by other general words

in the policy.

D. Rule where insurance if made by partner
or part owner
that: To render an insurance effected by
one partner or part-owner, applicable to
the interest of his co-partners or other
part-owners, it is necessary that the terms
of the policy should be such as are
applicable to the joint or common interest.
E. Notice and proof of loss

In case of loss upon an insurance against
fire, an insurer is exonerated, if notice
thereof be not given to him by an insured,
or some person entitled to the benefit of
the insurance, without unnecessary delay.
When a preliminary proof of loss is
required by a policy, the insured is not
bound to give such proof as would be
necessary in a court of justice; but it is
sufficient for him to give the best evidence
which he has in his power at the time.
that: All defects in a notice of loss, or in
preliminary proof thereof, which the
insured might remedy, and which the
insurer omits to specify to him, without
unnecessary delay, as grounds of objection,
are waived.
that: Delay in the presentation to an
insurer of notice or proof of loss is waived
if caused by any act of him, or if he omits
to take objection promptly and specifically
upon that ground.
that: If the policy requires, by way of
preliminary proof of loss, the certificate or
testimony of a person other than the
insured, it is sufficient for the insured to
use reasonable diligence to procure it, and
in case of the refusal of such person to give
it, then to furnish reasonable evidence to
!17

Law on Insurance
the insurer that such refusal was not
induced by any just grounds of disbelief in
the facts necessary to be certified or
testified.
DOUBLE INSURANCE:
A. Definition and requisites
that: A double insurance exists where the
same person is insured by several insurers
separately in respect to the same subject
and interest.
Requisites:
1. The person insured is the same
2. There are two or more insurers insuring
separately
3. The subject matter is the same
4. The interest insured is also the same
5. The risk or peril insured against is
likewise the same

B. Distinguished from Over-insurance
Distinctions:
Double Insurance
Over-Insurance
There may be no
over-insurance as
when the sum total
of the amounts of
the policies issued
does not exceed
the insurable
interest of the
insured
When the amount

of the insurance is
beyond the value of
t h e i n s u r e d s
insurable interest
There are always There may only be

several insurers
one
insurer
involved

*There is over-insurance if the total
amount exceeds the value of the thing
insured.
Example:
In Fire Insurance, A insured his property to

X for 500,000, to Y for 1M and to Z for 1M
totalling to P2.5M. The property valued
only for 1M. In this situation there is overinsurance.

C. Stipulation against double insurance
Q: Is double insurance legally prohibited?
A: General Rule: NO.
Exception: If prohibited by an other
insurance clause.
Basis: Sec. 75 of the Insurance Code
which provides that: A policy may declare
that a violation of specified provisions
thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid
the policy.

D. Rules for payment where there is overinsurance by double insurance
Where the insured is over-insured by
double insurance:
(a) 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;
(b) Where the policy under which the
insured claims is a valued policy, the
insured must give credit as against the
valuation for any sum received by him
under any other policy without regard to
the actual value of the subject matter
insured;
(c) Where the policy under which the
insured claims is an unvalued policy he
must give credit, as against the full
insurable value, for any sum received by
him under any policy;
(d) 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
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Law on Insurance
such sum in trust for the insurers,
according to their right of contribution
among themselves;
(e) 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.
Formula:
Insurance Policy
--------------------------- x Amount of loss
Total of Policy taken
X =

Y =

Z =
500000
--------- x 1M = 200,000
2.5M
Exception: Stipulation stating that the

policy is taken for the benefit of the
insured of the first contract of insurance.
(Stipulation pour autrui)
Q: Can X recover from Y even if X has not
yet pay A?
A: YES. Immediately arises from the time
the liability of X has occur.

B. Nature
A reinsurance is presumed to be a
contract of indemnity against liability, and
not merely against damage.
1M
-------- x 1M = 400,000
2.5M

that: The original insured has no interest
in a contract of reinsurance.
1M
-------- x 1M = 400,000
2.5M
Q: Is reinsurance mandatory?
*The balance shall be returned.

*As far as the excess payment is concern,
the excess shall be held in trust by the
insured.
REINSURANCE:
*This is called a Liability Insurance
A. Definition
that: 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.
Example:
In fire insurance, A insured his property
against fire to X, X reinsured his obligation
to Y.
Q: Can A recover to the reinsurer?
A: General Rule: NO
Reason: No privity of contract
A: General Rule: NO
Exceptions:
1. Sec. 215 of the Insurance Code which
provides that: No insurance company
other than life, whether foreign or
domestic, shall retain any risk on any
one subject of insurance in an amount
exceeding twenty per centum of its net
worth. For purposes of this section, the
term "subject of insurance" shall
include all properties or risks insured
by the same insurer that customarily
are considered by non-life company
underwriters to be subject to loss or
damage from the same occurrence of
any hazard insured against.
Reinsurance ceded as authorized under
the succeeding title shall be deducted
in determining the risk retained. As to
surety risk, deduction shall also be
made of the amount assumed by any
other company authorized to transact
surety business and the value of any
security mortgage, pledged, or held
subject to the surety's control and for
the surety's protection.
2. Sec. 275 of the Insurance Code which
provides that: Every foreign insurance
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Law on Insurance
company desiring to withdraw from the
Philippines shall, prior to such
withdrawal, discharge its liabilities to
policyholders and creditors in this
country. In case of its policies insuring
residents of 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.
In the case of such policies as are
subject to cancellation by the
withdrawing company, it may cancel
such policies pursuant to the terms
thereof in lieu of such reinsurance and
assumption of liabilities.

Distinctions:
Double Insurance
I n s u r a n c e o f Involves same
different interests
interest
Insurer becomes an Insurer remains in
insured in relation such capacity
to reinsurer
Original insured has Insured in the 1
n o i n t e r e s t i n contract is a party
r e i n s u r a n c e in interest in the
contract
2nd
Subject
of Subject
insurance is the i n s u r a n c e
original insurers property
risk
A. Definition
Marine Insurance includes policies that
covers risks connected with navigation, to
which a ship, cargo, freightage, profits or
other insurable interest in movable
property, may be exposed during a certain
voyage or a fixed period of time.
Basis: Sec. 99 of the Insurance Code.

B. Scope of marine insurance
that: Marine Insurance includes:
(1) Insurance against loss of or damage to:
C. Distinguished from double insurance
Reinsurance
MARINE INSURANCE:
of
is
Consent of original Insured has to give

i n s u r e d , n o t his consent
necessary

D. Duty of reinsured to disclose facts
that: 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.
(a) Vessels, craft, aircraft, vehicles, goods,

freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities,
choses in action, evidences of debts,
v a l u a b l e p a p e r s , b o t t o m r y, a n d
respondentia interests and all other kinds
of property and interests therein, in
respect to, appertaining to or in
connection with any and all risks or perils
of navigation, transit or transportation, or
while being assembled, packed, crated,
baled, compressed or similarly prepared
for shipment or while awaiting shipment,
or during any delays, storage,
transhipment, or reshipment incident
thereto, including war risks, marine
builder's risks, and all personal property
floater risks;
(b) Person or property in connection with
or appertaining to a marine, inland marine,
transit or transportation insurance,
including liability for loss of or damage
arising out of or in connection with the
c o n s t r u c t i o n , r e p a i r, o p e r a t i o n ,
maintenance or use of the subject matter
of such insurance (but not including life
insurance or surety bonds nor insurance
against loss by reason of bodily injury to
any person arising out of ownership,
maintenance, or use of automobiles);
(c) Precious stones, jewels, jewelry,
precious metals, whether in course of
transportation or otherwise;
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Law on Insurance
(d) Bridges, tunnels and other
instrumentalities of transportation and
communication (excluding buildings, their
furniture and furnishings, fixed contents
and supplies held in storage); piers,
wharves, docks and slips, and other aids to
navigation and transportation, including
dry docks and marine railways, dams and
appurtenant facilities for the control of
waterways.
(2) "Marine protection and indemnity
insurance," meaning insurance against, or
against legal liability of the insured for
loss, damage, or expense incident to
ownership, operation, chartering,
maintenance, use, repair, or construction
of any vessel, craft or instrumentality in
use of ocean or inland waterways,
including liability of the insured for
personal injury, illness or death or for loss
of or damage to the property of another
person.
*In Roque v IAC, the SC held that cargo
can be the subject of marine insurance,
and once it is entered into, the implied
warranty of seaworthiness immediately
attaches to whoever is insuring the cargo,
whether he be the shipowner or not.
Although he has no control over the vessel,
the shipper has control in the choice of
vessel.

C. Risks or losses covered in marine
insurance
1. Perils of the sea vs. perils of the ship
Perils of the Sea
Perils of the Ship
Include only
those casualties
due to the
unusual violence
or extraordinary
causes connected
with navigation.
It has been said
to include only
such losses as are
of extraordinary
nature or arise
from
some
overwhelming
power which
cannot
be
guarded against
by the ordinary
exertion of
human skill or
prudence, as
distinguished
from
the
ordinary wear
and tear of the
voyage and from
injuries suffered
by the vessel in
consequence of
her not being
unseaworthy.
Is a loss which is in
the ordinary
course of events,
results:
1. F r o m t h e
o r d i n a r y,
natural and
inevitable
action of
the sea;
2. F r o m
ordinary
wear and
tear of the
ship; and
3. F r o m t h e
negligent
failure of
the ships
owner to
provide the
vessel with
the proper
equipment
to convey
the cargo
u n d e r
ordinary
conditions.
Extraordinary U s u a l p e r i l s
perils
attendant to
navigation
*Only perils of the sea are assumed by
the insurer.
2. all risks marine insurance policy
means that all risks are covered unless
expressly excepted. The burden rests
on the insurer to prove that the loss is
caused by a risk that is excluded.

D. Insurable interest in marine insurance
1. Ship owners insurable interest
provides that: 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.
!21

Law on Insurance
*The insurable interest of the
shipowner is over the value of the
vessel and over expected freightage.
c. Insurable interest in freightage

states that: Freightage, in the
sense of a policy of marine
insurance, signifies all the benefits
derived by the owner, either from
the chartering of the ship or its
employment for the carriage of his
own goods or those of others.
Measurement: Ownership
*It does not matter whether the ship
was mortgaged or chartered.
a.
Rule where vessel is chartered

states that: 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.

provides that: The owner of a ship
has an insurable interest in
expected freightage which
according to the ordinary and
probable course of things he would
have earned but for the
intervention of a peril insured
against or other peril incident to
the voyage.
Q: What is a charter party?

A: A contract where the owner
lends his whole vessel to a
charterer for a particular voyage.
*Indemnity Principle applies
b. Rule where vessel hypothecated
by bottomry
which provides that: The insurable
interest of the owner of the ship
hypothecated by bottomry is only
the excess of its value over the
amount secured by bottomry.
*Principle of Indemnity applies.
Q: What is bottomry?
A: it is a contract of loan which said
loan is used for the repair of the
vessel. The payment of which is
conditional.
*The owners insurable interest is
the amount in excess of the value
of the ship over the amount secured
by the bottomry
*Owner incurs loss due to the
damage of the vessel but at the
same time he receives gain due to
the extinguishment of his loan
obligation.
*Supposed earnings may be subject

to marine insurance.
2. Charterers insurable
provides that: The charterer of a ship
has an insurable interest in it, to the
extent that he is liable to be damnified
by its loss.

E. Concealment
1. Meaning of concealment in marine
insurance
*Definition of concealment in marine
insurance is the same as what defined
in Sec. 26 of the Insurance Code.
*However, concealment under the
marine insurance is more strict than
the ordinary insurance
Reason: Unpredictable risk
*In marine insurance, opinions and
expectations of third persons are
considered, whereas in ordinary
insurance as a general rule, opinions of
third persons are not necessary.
Exception: expert opinion.
2. Duty to communicate
!22

Law on Insurance
Sec. 107 of the Insurance Code which
provides that: In marine insurance
each party is bound to communicate, in
addition to what is required by section
twenty-eight, all the information which
he possesses, material to the risk,
except such as is mentioned in Section
thirty, and to state the exact and whole
truth in relation to all matters that he
represents, or upon inquiry discloses or
assumes to disclose.
3. Opinions or expectations of third
persons
Sec. 108 of the Insurance Code which
provides that: In marine insurance,
information of the belief or
expectation of a third person, in
reference to a material fact, is
material.
4. When concealment does not vitiate
the entire contract
that: 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;
(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;
(e) The use of false and simulated
papers.

F. Representations
1. Effect of false representation by the
insured
that: If a representation by a person
insured by a contract of marine
insurance, is intentionally false in any
material respect, or in respect of any
fact on which the character and nature

of the risk depends, the insurer may
rescind the entire contract.
2. Effect of false representation as to
expectation
provides that: The eventual falsity of
a representation as to expectation does
not, in the absence of fraud, avoid a
contract of marine insurance.
G. Implied warranties in marine insurance
1. Seaworthiness
provides that: In every marine
insurance upon a ship or freight, or
freightage, or upon any thing which is
the subject of marine insurance, a
warranty is implied that the ship is
seaworthy.
*Charterer is also subject to warranty
on seaworthiness because he has
control in the selection of the ship to
be leased.
*Bottomry lender is also subject to
warranty on seaworthiness because he
has also the control in the selection of
the vessel.
a. What constitutes seaworthiness
states that: A ship is seaworthy
when reasonably fit to perform the
service and to encounter the
ordinary perils of the voyage
contemplated by the parties to the
policy.
Q: What makes a vessel seaworthy?
A: Sec. 114. Fitness of the vessel is
the general test.
*Warranty on the condition of the
ship
Example:
Shipowner insured his vessel with X
insurer.
!23

Law on Insurance
On the part of the insurer, the
inured warrants that his vessel is
ship worthy. The burden falls on the
shipowner/insured of proving
otherwise.
*Seaworthiness depends on the
transaction entered into or
undertaken by the ship.
states that: 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
w i t h a c o m p e t e n t m a s t e r, 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
other necessary or proper stores
and implements for the voyage.
Requisites:
1. Condition of the structure of the
ship
2. Properly laden and provided
with a competent master
3. Sufficient number of competent
officers and seamen
4. Requisite appurtenances and
equipment
*In Delsan Transport case, the SC
held that the issuance of certificate
of seaworthiness is not enough to
prove seaworthiness of the ship.
Example:
Cargo owner insured his cargo
Q: Does that implied warranty on
seaworthiness apply to cargo
owner?
A: YES. The cargo owner has the
control in the selection of the
vessel where his cargoes to be
shipped.
provides that: A ship which is
seaworthy for the purpose of an
insurance upon the ship may,
nevertheless, by reason of being
unfitted to receive the cargo, be

unseaworthy for the purpose of the
insurance upon the cargo.
b. When complied with; exceptions
provides that: An implied warranty
of seaworthiness is complied with if
the ship be seaworthy at the time
of the of commencement of the
risk, except in the following cases:
(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;
(Time Policy)
Example:
The transaction is covered for
one year from January 1, 2007
to December 31, 2007.
The ship will undertake 5
different voyages.
The ship must be seaworthy at
the commencement of each and
every voyage.
(b) When the insurance is upon the
cargo which, by the terms of
the policy, description of the
voyage, or established custom
of the trade, is to be
transhipped 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. (Cargo
Policy)
Controlling: There must be
transhipment
*The ship must be seaworthy in
each particular voyage.
provides that: Where different
portions of the voyage
!24

Law on Insurance
contemplated by a policy differ in
respect to the things requisite to
make the ship seaworthy therefor, a
warranty of seaworthiness is
complied with if, at the
commencement of each portion,
the ship is seaworthy with
reference to that portion. (Voyage
Policy)
*There is a single ship that
completes the voyage however, the
ship will undergo different degree
of perils.
*The ship must be seaworthy upon
commencement of each level of
peril.
General Rule: The ship must be
seaworthy at the time of the
commencement of the risk.
Exceptions:
1. Time policy
2. Cargo policy
3. Voyage policy
*In time policy, seaworthiness
commenced in every voyage.
*In voyage policy, no transhipment.
The voyage has different stages to
go through. Every stage of voyage
the ship must be seaworthy.
c. R u l e w h e r e s h i p b e c o m e s
unseaworthy in the course of the
voyage
provides that: 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.
2. Warranty that necessary documents
are carried
that: Where the 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
that it will not carry any documents
which cast reasonable suspicion
thereon.
3. Warranty against improper deviation
a. Meaning of deviation
states that: Deviation is a
departure from the course of the
voyage insured, mentioned in the
last two sections, or an
unreasonable delay in pursuing the
voyage or the commencement of an
entirely different voyage.
*Deviation is either proper or
improper.
*There is breach of warranty if the
deviation is improper.
b. When proper
provides that: 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 a peril,
whether or not the peril is insured
against;
*Whether or not the peril is covered
by the policy is immaterial.
(c) When made in good faith, and
upon reasonable grounds of belief
in its necessity to avoid a peril; or
(d) When made in good faith, for
the purpose of saving human life or
relieving another vessel in
distress.
*Warranty is against improper
deviation.
!25

Law on Insurance
*Whether or not improper deviation
contributed to the loss is
immaterial because there was
already a breach of implied
warranty.
states that: An insurer is not liable
for any loss happening to the thing
insured subsequent to an improper
deviation.

H. Loss
1. Kinds of losses
a. Actual
provides that: An actual total loss
is cause 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.
states that: An actual loss may be
presumed from the continued
absence of a ship without being
heard of. The length of time which
is sufficient to raise this
presumption depends on the
circumstances of the case.
b. Constructive
provides that: A constructive total
loss is one which gives to a person
insured a right to abandon, under
Section one hundred thirty-nine.
2. Right to payment upon an actual total

loss
that: Upon an actual total loss, a
person insured is entitled to payment
without notice of abandonment.
3. Scope of insurance against actual
total loss
that: An insurance confined in terms
to an actual loss does not cover a
constructive total loss, but covers any
loss, which necessarily results in
depriving the insured of the possession,
at the port of destination, of the entire
thing insured.
4. When constructive total loss/partial
loss exists
provides that: 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 thereof
in value is actually lost, or would have
to be expended to recover it from the
peril;
(b) If it is injured to such an extent as
to reduce its value more than threefourths;
(c) If the thing insured is a ship, and
the contemplated voyage cannot be
lawfully performed without incurring
either an expense to the insured of
more than three-fourths 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 diligence, to
forward the cargo, without incurring
!26

Law on Insurance
the like expense or risk mentioned in
the preceding sub-paragraph. But
freightage cannot in any case be
abandoned unless the ship is also
abandoned.
5. It must be factual and reasonable
Test: The loss is more than but less

than 1.
7. The notice of abandonment must be

explicit and must specify the
particular cause of the
abandonment
*The residual part is abandoned.
Reason: Principle of Indemnity
*If the requisites are satisfied the
insurance company cannot refuse to
accept the abandonment.
6. Average
Average is any extraordinary or
accidental expense incurred during the
voyage for the preservation of the
vessel, cargo, or both, and all damages
to the vessel and cargo from the time it
is loaded and the voyage commenced
until it ends and the cargo unloaded.
*Expenses for maritime transaction.
a. Kinds of average:
*If there is partial loss, only partial can

be claimed.
*The extent of damage in constructive
loss is so severe.
*This is not automatic.
*There is an option either to abandon it
or to recover only the partial loss.
5. Concept of abandonment and its
requisites
Definition:
t h a t : Ab a n d on m e n t , i n m a ri n e
insurance, is the act of the insured by
which, after a constructive total loss,
he declares the relinquishment to the
insurer of his interest in the thing
insured.
*It is necessary to abandon the
surviving part of the thing.
Formula:
Constructive total loss + Abandonment
= Total loss
If there is only constructive total loss
there is only partial loss.
Requisites:
1. T h e r e m u s t b e a n a c t u a l
relinquishment by the person
insured of his interest in the thing
insured.
2. There must be a constructive total
loss
3. The abandonment be neither partial
nor conditional
4. I t m u s t b e m a d e w i t h i n a
reasonable time after receipt of
reliable information of the loss
6. It must be made by giving notice

thereof to the insurer which may be
done orally or in writing
i.
Particular
Sec. 136 of the Insurance
Code provides that: 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.
-
Includes all damages and

expenses caused to the
vessel or to her cargo
which have not inured to
the common benefit and
profit of all persons
interested in the vessel
and her cargo.
!27

Law on Insurance
-
It refers to those losses

which occur under such
circumstances as do not
entitle the unfortunate
owners to receive
contribution from other
owners concerned in the
venture as where a
vessel accidentally runs
aground and goes to
pieces after the cargo is
saved.
Recourse: Go after the insurer
*Stipulation exempting the insurer
for a particular average loss is
possible and valid.
ii.
General
- Includes damages and
expenses which are
deliberately caused by
the master of the vessel
or upon his authority, in
order to save the vessel,
her cargo, or both at the
same time from a real or
known risk.
-
It must be borne equally

by all of the interests
concerned in the
venture.
b. Requisites of general average

1. There must be a common
danger to the vessel or cargo
2. Part of the vessel or cargo was
sacrificed deliberately
3. The sacrifice must be for the
common safety of for the
benefit of all
4. It must be made by the master
or upon his authority
5. It must be successful, i.e.,
resulted in the saving of the
vessel or cargo
6. It must be necessary
c. Insurers liability for general
average
The insurer of the vessel or cargo
that are saved is liable for general
average contribution and not for

particular average. Only the insurer
of the damaged cargo or vessel is
liable for particular average if
covered by the policy.
Q: If there is a stipulation
exempting the insurer for a
particular average loss, does it
extend to general average loss?
A: NO.
Basis: Article 859 of the Code of
Commerce; Article 812 of the Code
of Commerce
Reason: Equity
Q: Are there a mandatory co-insurance in marine
insurance?
A: YES.
Basis: Sec. 157 of the Insurance Code provides
that: A marine 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.
*There is a co-insurance when the property is
insured for less than its value, the insured is
considered a co-insurer for the difference
between the amount of insurance and the value of
the property.
Requisites:
1. The loss is partial
2. The amount of insurance is less than the
value of the property insured.
Formula:
Loss
------- x Insurance = Insurers Liability
Value
Example:
As insurable interest = P500,000
Insured Amount = P300,000
Loss = P300,000
Q: Would the whole P300,000 be recovered from
the insurer?
A: NO. Only 180,000 will be recovered and the
balance of 120,000 will be suffered by the insured
as a co-insurer.
Computation:
300,000
----------- x 300,000 = 180,000
500,000
If the loss is 500,000, the insured can recover the
whole 300,000 because there is a total loss and
not partial loss.
!28

Law on Insurance
*In fire insurance, there has to be an express
stipulation to that effect.
FIRE INSURANCE:
A. Definition and scope of fire insurance
that: 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.

B. Risks or losses covered
Q: What are allied risks?
A: lightning, windstorm, tornado or
earthquake, tsunami.
Q: What are direct losses?
A: Direct losses are losses that pertain to
the physical destruction of the thing
insured.
Q: What are indirect losses?
A: Indirect losses pertain to consequential
losses.
Q: Are consequential losses compensable?
A: General Rule: NO in standard fire policy
Except: If there is an agreement
*The liability of the insurer is to pay for
direct losses only
Friendly Fire fire that burns in a place
where it is supposed to burn.
Hostile Fire fire that escapes and burns
in a place where it is not supposed to be.

C. Effect of alteration in the thing
that: 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.
that: 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.
Q: If the policy is silent as to the use or
condition of the thing insured, are there
implied warranty in fire insurance?
A: General Rule: YES. The insured has the
insurable interest in the thing insured.
Exception: If the policy expressly provides
for the use of condition of the thing
insured.

D. Measure of indemnity
that: If there is no valuation in the policy,
the measure of indemnity in an insurance
against fire is the expense it would be to
the insured at the time of the
commencement of the fire to replace the
thing lost or injured in the condition in
which at the time of the injury; but if
there is a valuation in a policy of fire
insurance, the effect shall be the same as
in a policy of marine insurance.
1. O p e n Po l i c y : o n l y t h e e x p e n s e
necessary to replace the thing lost or
injured in the condition it was at the
time of the injury.
2. Valued Policy: the parties are bound by
the valuation, in the absence of fraud
or mistake.

E. Co-insurance clause
General Rule: Applies primarily to marine
insurance.
Exception: Co-insurance applies to fire
insurance if expressly agreed upon.
CASUALTY INSURANCE:
!29

Law on Insurance
A. Concept
that: Casualty insurance is insurance
covering loss or liability arising from
accident or mishap, excluding certain
types of loss which by law or custom are
considered as falling exclusively within the
scope of other types of insurance such as
fire or marine. It includes, but is not
limited to, employer's liability insurance,
motor vehicle liability insurance, plate
glass insurance, burglary and theft
insurance, personal accident and health
insurance as written by non-life insurance
companies, and other substantially similar
kinds of insurance.
Q: What is the subject matter of the
casualty insurance?
A: Life, property, liability and health
brought by accident.

B. Third Party Liability Insurance
*Casualty insurance ay provide for third
party liability in the nature of stipulation
pour autrui for personal injury and even
damage to property, in which case, the
third party may directly sue the insurer
upon the occurrence of the loss. However,
the insurer is not solidarily liable with the
insured or the tortfeasor for the latters
obligation.
*Insurance against specified perils which
may give rise to liability on the part of the
insured for claims for injuries to or damage
to property of others.
*If there is no stipulation in favor of third
person but the insurance is an insurance
against liability to third persons, any third
person who might be injured may not sue
the insurer.
- Liable for actual loss, the third party has
no direct recourse with the insurer but
only to the insured. The insured has
recourse to the insurer.

C. Insurable interest
*Insurable interest is based on the interest

of the insured in the safety of persons and
their property, who may maintain an action
against him in case of their injury or
destruction, respectively.

D. Meaning of accident and accidental
in casualty insurance
*The terms accident and accidental as
used in insurance contracts, have not
acquired any technical meaning. They are
construed by the courts in the ordinary and
common acceptation. Thus, the terms have
been taken to mean that which happens by
chance or fortuitously, without intention or
design, which is unexpected, unusual and
unforeseen. The terms do not, without
qualification, exclude events resulting in
damage or loss due to fault, recklessness
or negligence of third parties.
*It is something that the insured did not
foresee or though foreseen cannot be
avoided.
*Accident or not, it must be taken from the
viewpoint of the victim.

E. Basis and extent of insurers liability
*The beneficiary is not designated, the
proceeds will be given to the victims.
*The third party has direct recourse against
the insurer. The insurer is purely liable.
SURETYSHIP:
A. Definition
that: A contract of suretyship is an
agreement whereby a party called the
surety guarantees the performance by
another party called the principal or
obligor of an obligation or undertaking in
favor of a third party called the obligee. It
includes official recognizances,
stipulations, bonds or undertakings issued
by any company by virtue of and under the
provisions of Act No. 536, as amended by
Act No. 2206.
!30

Law on Insurance

B. Nature of Liability of surety
that: The liability of the surety or sureties
shall be joint and several with the obligor
and shall be limited to the amount of the
bond. It is determined strictly by the terms
of the contract of suretyship in relation to
the principal contract between the obligor
and the obligee.

C. Distinctions between suretyship and
property insurance
Suretyship
Property
Insurance
Accessory contract
Principal Contract
There are three T h e r e a r e t w o

p a r t i e s : s u r e t y, p a r t i e s : i n s u r e r
obligor and oblige
and insured
C r e d i
accommodation
t Contract
indemnity
of
Surety can recover Insurer has no such

from principal
right; only right of
subrogation
payable on the death of the person, or on

his surviving a specified period, or
otherwise contingently on the continuance
or cessation of life.
Every contract or pledge for the payment
of endowments or annuities shall be
considered a life insurance contract for
purpose of this Code.
In the absence of a judicial guardian, the
father, or in the latter's absence or
incapacity, the mother, or 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
twenty thousand pesos. Such right may
include, but shall not be limited to,
obtaining a policy loan, surrendering the
policy, receiving the proceeds of the policy,
and giving the minor's consent to any
transaction on the policy.

B. Kinds of Life Insurance
May be cancelled
unilaterally either
by insured or
insurer on grounds
provided by law
1. Ordinary Life, General Life or Old

Line Policy insured pays a fixed
premium every year until he dies.
Surrender value after 3 years.
Requires acceptance N o
need
of
of obligee to be acceptance by any
valid
third party
2. Group Life essentially a single

insurance contract that provides
courage for money individuals.
Risk-shifting device,
premium paid being
in the nature of a
service fee
3. Limited Payment Policy insured pays

premium for a limited period. If he dies
within the period, his beneficiary is
paid; if he outlives the period, he does
not get anything.
Bond can be
cancelled only with
consent of obligee,
Commissioner, or
court
Risk-distributing
device, premium
paid as a ratable
contribution to a
common fund

LIFE INSURANCE:
A. Definition
that: . Life insurance is insurance on
human lives and insurance appertaining
thereto or connected therewith.
that: An insurance upon life may be made
4. Endowment Policy pays

specified period. If he
period, the face value of
paid to him; if not, his
receive the benefit.
premium for
outlives the
the policy is
beneficiaries
5. Term Insurance insurer pays once

only, and he is insured for a specified
period. If he dies within the period, his
beneficiaries benefits. If he outlives
!31

Law on Insurance
the period, no person benefits from the
insurance.
6. Industrial Life life insurance entitling
the insured to pay premiums weekly, or
where premiums are payable monthly
or oftener.

C. Liability of insurer in case of suicide
Sec. 180-A of the Insurance Code states
that: The insurer in a life insurance
contract shall be liable in case of suicides
only when it is committed after the policy
has been in force for a period of two 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.
*Recovery of the proceeds depends on the
commission of the suicide.
*In case of suicide, the insured may
recover only after two years from the date
the policy was issued or last
reinstatement.
*In case of suicide committed in the state
of insanity, it is compensable regardless of
the date of the commission.

D. Right to assign life insurance policy
that: A policy of insurance upon life or
health may pass by transfer, will or
succession to any person, whether he has
an insurable interest or not, and such
person may recover upon it whatever the
insured might have recovered.
that: Notice to an insurer of a transfer or
bequest thereof is not necessary to
preserve the validity of a policy of
insurance upon life or health, unless
thereby expressly required.

E.
Measure of indemnity

that: Unless the interest of a person
insured is susceptible of exact pecuniary
measurement, the measure of indemnity
under a policy of insurance upon life or
health is the sum fixed in the policy.
General Rule: Life policy is always valued
Exception: If the creditor insured the life
of the debtor.
COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE:
A. Reason for the requirement
Purpose: To give immediate financial
assistance to victims of motor vehicle
accidents and/or their dependents,
especially if they are poor regardless of the
financial capability of motor vehicle
owners or operators responsible for the
accident sustained.
Q: What is the mandatory reason for this
type of insurance?
A: To allow the registration or renewal of
registration of any motor vehicle.

B. Scope of coverage required
that: It shall be unlawful for any land
transportation operator or owner of a
motor vehicle to operate the same in the
public highways unless there is in force in
relation thereto a policy of insurance or
guaranty in cash or surety bond issued in
accordance with the provisions of this
chapter to indemnify the death, bodily
injury, and/or damage to property of a
third-party or passenger, as the case may
be, arising from the use thereof.
that: The Land Transportation Commission
shall not allow the registration or renewal
of registration of any motor vehicle
without first requiring from the land
transportation operator or motor vehicle
owner concerned the presentation and
filing of a substantiating documentation in
a form approved by the Commissioner
evidencing that the policy of insurance or
!32

Law on Insurance
guaranty in cash or surety bond required by
this chapter is in effect.

C. Persons subject to the requirement
that: Every land transportation operator
and every owner of a motor vehicle shall,
before applying for the registration or
renewal of registration of any motor
vehicle, at his option, either secure an
insurance policy or surety bond issued by
any insurance company authorized by the
Commissioner or make a cash deposit in
such amount as herein required as limit of
liability for purposes specified in section
three hundred seventy-four.
sixty days after impairment or expiry, as

the case may be, by such land
transportation operator, otherwise, he
shall secure the insurance policy required
by this chapter. The aforesaid cash deposit
may be invested by the Commissioner in
readily marketable government bonds and/
or securities.
(2) In the case of an owner of a motor
vehicle, the insurance or guaranty in cash
or surety bond shall cover liability for
death or injury to third parties in an
amount not less than that set forth in the
following scale in any one accident:
I. Private Cars
(a) Bantam : Twenty thousand pesos;
(1) In the case of a land transportation

operator, the insurance guaranty in cash or
surety bond shall cover liability for death
or bodily injuries of third-parties and/or
passengers arising out of the use of such
vehicle in the amount not less than twelve
thousand pesos per passenger or third
party and an amount, for each of such
categories, in any one accident of not less
than that set forth in the following scale:
(b) Light : Twenty thousand pesos;
(a) Motor vehicles with an authorized

capacity of twenty-six or more passengers:
Fifty thousand pesos;
(c) Vehicles with an unladen weight of

between 2,601 kilos and 3,930 kilos :
Thirty thousand pesos;
(b) Motor vehicles with an authorized

capacity of from twelve to twenty-five
passengers: Forty thousand pesos;
(d) Vehicles with an unladen weight over

3,930 kilos : Fifty thousand pesos.
(c) Motor vehicles with an authorized

capacity of from six to eleven passengers:
Thirty thousand pesos;
(d) Motor vehicles with an authorized
capacity of five or less passengers: Five
thousand pesos multiplied by the
authorized capacity.
Provided, however, That such cash deposit
made to, or surety bond posted with, the
Commissioner shall be resorted to by him
in cases of accidents the indemnities for
which to third-parties and/or passengers
are not settled accordingly by the land
transportation operator and, in that event,
the said cash deposit shall be replenished
or such surety bond shall be restored with
(c) Heavy : Thirty thousand pesos;

II. Other Private Vehicles
(a) Tricycles, motorcyles, and scooters :
Twelve thousand pesos;
(b) Vehicles with an unladen weight of
2,600 kilos or less : Twenty thousand pesos;
The Commissioner may, if warranted, set

forth schedule of indemnities for the
payment of claims for death or bodily
injuries with the coverages set forth
herein.

D. No-Fault indemnity claim
that: Any claim for death or injury to any
passenger or third party pursuant to the
provisions of this chapter shall be paid
without the necessity of proving fault or
negligence of any kind; Provided, That for
purposes of this section:
!33

Law on Insurance
(i)
The total indemnity in respect of

any person shall not exceed fifteen
thousand pesos;
(ii)
The following proofs of loss, when

submitted under oath, shall be
sufficient evidence to substantiate
the claim: (a) Police report of
accident; and
(b) Death certificate and evidence
sufficient to establish the proper
payee; or (c) Medical report and
evidence of medical or hospital
disbursement in respect of which
refund is claimed;
(iii)
Claim may be made against one

motor vehicle only. In the case of
an occupant of a vehicle, claim
shall lie against the insurer of the
vehicle in which the occupant is
riding, mounting or dismounting
from. In any other case, claim shall
lie against the insurer of the
directly offending vehicle. 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.
Q: How does the law protects the victim?
A: By the provision under the NO FAULT
INDEMNITY CLAUSE.
*No fault clause applies only to bodily
physical injuries or death not to property
damage.
Q: From whom should the injured recover?
A: (a) In the case of an occupant of a
vehicle, claim shall lie against the insurer
of the vehicle in which the occupant is
riding, mounting or dismounting from; (b)
If not an occupant, claim shall lie against
the insurer of the directly offending
vehicle; (c) 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.
Examples:
a. A passenger rode Y taxi cab. The taxi
cab is insured by X company under the
compulsory motor vehicle liability
insurance. The taxi collided against a
MERALCO post.
The passenger can claim against X
company without proving fault or
negligence. Only documents that prove

the happening of the incident.
b. Passenger 1 received P15,000 under the
no fault clause. His actual expenses
amount to P50,000.
Q: Can he still recover the balance?
From whom?
A: YES. Against the offending vehicle
but this time he is required to prove
fault or negligence.
E. Notice of claim
that: 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 months from 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
year from denial of the claim, otherwise,
the claimant's right of action shall
prescribe.
CLAIMS SETTLEMENT:
A. Unfair claim settlement practices
that: (1) No insurance company doing
business in the Philippines shall refuse,
without just cause, to pay or settle claims
arising under coverages provided by its
policies, nor shall any such company
engage in unfair claim settlement
practices. Any of the following acts by an
insurance company, if committed without
just cause and performed with such
frequency as to indicate a general business
practice, shall constitute unfair claim
settlement practices:
(a) knowingly misrepresenting to claimants
pertinent facts or policy provisions relating
to coverage at issue;
(b) failing to acknowledge with reasonable
promptness pertinent communications with
respect to claims arising under its policies;
!34

Law on Insurance
(c) failing to adopt and implement
reasonable standards for the prompt
investigation of claims arising under its
policies;
(d) not attempting in good faith to
effectuate prompt, fair and equitable
settlement of claims submitted in which
liability has become reasonably clear; or
proof of the death of the insured. Refusal

or failure to pay the claim within the time
prescribed herein will entitle the
beneficiary to collect interest on the
proceeds of the policy for the duration of
the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless
such failure or refusal to pay is based on
the ground that the claim is fraudulent.
(e) compelling policyholders to institute

suits to recover amounts due under its
policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits brought by
them.
The proceeds of the policy maturing by the

death of the insured payable to the
beneficiary shall include the discounted
value of all premiums paid in advance of
their due dates, but are not due and
payable at maturity.
(2) Evidence as to numbers and types of

valid and justifiable complaints to the
Commissioner against an insurance
c o m p a n y, a n d t h e C o m m i s s i o n e r ' s
complaint experience with other insurance
companies writing similar lines of
insurance shall be admissible in evidence in
an administrative or judicial proceeding
brought under this section.
(3) If it is found, after notice and an

opportunity to be heard, that an insurance
company has violated this section, each
instance of non-compliance with paragraph
(1) may be treated as a separate violation
of this section and shall be considered
sufficient cause for the suspension or
revocation of the company's certificate of
authority.
General Rule: Upon maturity of the policy
Exception: Annuities payment

B. Claims for life insurance policies
that: The proceeds of a life insurance
policy shall be paid immediately upon
maturity of the policy, unless such
proceeds are made payable in installments
or as an annuity, in which case the
installments, or annuities shall be paid as
they become due: Provided, however, That
in the case of a policy maturing by the
death of the insured, the proceeds thereof
shall be paid within sixty days after
presentation of the claim and filing of the
C. Claims for non-life insurance policies

that: The amount of any loss or damage
for which an insurer may be liable, under
any policy other than life insurance policy,
shall be paid within thirty days after proof
loss is received by the insurer and
ascertainment of the loss or damage is
made either by agreement between the
insured and the insurer or by arbitration;
but if such ascertainment is not had or
made within sixty days after such receipt
by the insurer of the proof of loss, then the
loss or damage shall be paid within ninety
days after such receipt. Refusal or failure
to pay the loss or damage within the time
prescribed herein will entitle the assured
to collect interest on the proceeds of the
policy for the duration of the delay at the
rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or
refusal to pay is based on the ground that
the claim is fraudulent.

D. Delay in payment of claims
that: In case of any litigation for the
enforcement of any policy or contract of
insurance, it shall be the duty of the
Commissioner or the Court, as the case
may be, to make a finding as to whether
the payment of the claim of the insured
has been unreasonably denied or withheld;
and in the affirmative case, the insurance
!35

Law on Insurance
company shall be adjudged to pay damages
which shall consist of attorney's fees and
other expenses incurred by the insured
person by reason of such unreasonable
denial or withholding of payment plus
interest of twice the ceiling prescribed by
the Monetary Board of the amount of the
claim due the insured, from the date
following the time prescribed in section
two hundred forty-two or in section two
hundred forty-three, as the case may be,
until the claim is fully satisfied; Provided,
That the failure to pay any such claim
within the time prescribed in said sections
shall be considered prima facie evidence of
unreasonable delay in payment.
!36

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2. Contract of Adhesion Insurance is a

*Insurer always comes up with already

Property Insurance Law

Importance of knowing whether the

Catch: not all policyholders will suffer