INSURANCE REVIEWER What will happen if the insured assigned his rights against the party at fault to
the insurer? [p. 12]
General Provisions
What is the basis of the right of subrogation? [p. 8]
The doctrine of subrogation is basically a process of legal substitution; the
insurer, after paying the amount covered by the insurance policy, stepping into the
shoes of the insured, as it were, and availing himself of the latter’s rights that exist
against the wrongdoer at the time of the loss. It has roots in equity. It is designed to
promote and to accomplish justice and is the mode which equity adopts to compel the
ultimate payment of debt by one who in justice and good conscience ought to pay.
What is the right of subrogation? [p. 8]
Subrogation is the substitution of one person in place of one another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its remedies and securities.
Is the right of subrogation applicable to all kinds of insurance? [p. 9]
The right of subrogation under Article 2207 applies only to property, and not to
life insurance. The value of human life is regarded as unlimited and, therefore, no
recovery from a third party can be deemed adequate to compensate the insured’s
beneficiary.
When is there a loss of right of subrogation by act of the insured or insurer? [p.
12]
The right of subrogation has its limitations, to wit:
(1) Both the insurer (of goods covered by a bill of lading), and the consignee are
bound by the contractual stipulations under the bill of lading; and
(2) The insurer can be subrogated only to the rights as the insured may have
against the wrongdoer.
The case is not between the insured and the insurer but one between the
shipper and the carrier because the insurance company merely stepped into the shoes
of the shipper.
What is a contract of insurance? [p. 15]
A “contract of insurance” is an agreement whereby one undertakes for
consideration to indemnify another against loss, damage of liability arising from an
unknown or contingent event”.
What are the essential elements of an insurance contract? [p. 18]
(1) Subject Matter. – This refers to the thing insured. In fire insurance and in
marine insurance, the thing insured is property; in life, health or accident
insurance, it is the life or health of the person that is the subject of the contract;
in casualty insurance, it is the insured’s risk of loss or liability;
(2) Consideration. – The consideration for an insurance contract is the premium
paid by the insured. Its amount is principally based on the probability of loss
and extent of liability for which the insurer may become liable under the
contract; and
(3) Object or Purpose. – Basically, a contract of insurance is a risk-bearing contract.
The principal object and purpose of insurance is the transfer and distribution of
risk of loss, damage, or liability arising from an unknown or contingent event
through the payment of consideration by the insured to the insurer under a
legally binding contract to reimburse the insured for losses suffered on the
happening of the stipulated event.
What are the characteristics of an insurance contract? [p. 19]
(1) It is Consensual because it is perfected by the meeting of the minds of the
parties;
(2) It is Voluntary in the sense that it is not compulsory and the parties may
incorporate such terms and conditions as they may deem convenient;
(3) It is Aleatory in the sense that it depends upon some contingent event;
 (4) It is Executed as to the insured after the payment of the premium, and
Executory on the part of the insurer in the sense that it is not executed until
payment for a loss;
(5) It is Conditional because it is subject to conditions the principal one of which is
the happening of the event insured against;
(6) It is a Contract of Indemnity (except life and accident insurance where the
result is death) because the promise of the insurer is to make good only the
loss of the insured;
(7) It is a Personal contract between the insurer and the insured each party having
in view the character, credit and conduct of the other;
(8) It is Property in legal contemplation, since an insurance is a contract.
How does an insurance contract differ from other contract? [p. 21-22]
The contract of insurance made between the parties usually called the insured
and the insurer, is distinguished by the presence of five elements, namely:
(1) The insured possesses an interest of some kind susceptible of pecuniary
estimation, known as "insurable interest";
(2) The insured is subject to a risk of loss through the destruction or impairment of
that interest by the happening of designated perils;
(3) The insurer assumes that risk of loss;
(4) Such assumption of risk is part of a general scheme to distribute actual losses
among a large group or substantial number of persons bearing a similar risk;
and
(5) As consideration for the insurer's promise, the insured makes a ratable
contribution called "premium," to a general insurance fund.
What is a risk-shifting device and a risk-distributing device? [p. 24]
A risk-shifting device only possesses the first 3 distinguishing elements, that is:
(1) Insurable interest;
(2) Happening of the designated perils;
(3) Insurer assumes risk of loss.
A risk-distributing device includes all the elements, which in addition:
(4) Distribute actual losses among a large group of persons bearing a similar risk;
(5) Premium to the general insurance fund.
What are the classifications of contracts of insurance? [p. 43]
(1) Life Insurance
(a) Individual life;
(b) Group life;
(c) Industrial life.
(2) Non-life insurance
(a) Marine
(b) Fire
(c) Casualty
(3) Contracts of suretyship or bonding
How will you interpret an insurance contract? [p. 45, 55, 58]
(1) All provisions of the insurance policy should be examined and interpreted in
consonance with its other. The policy cannot be construed piecemeal;
(2) Various stipulations in the policy shall be interpreted together, attributing to
doubtful ones that sense which may result from all of them taken jointly.
What does the term “doing an insurance business” or transacting an insurance
business” include? [p. 15 and 59]
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this code;
 (4) Doing or proposing to do any business in substance equivalent to any of the
forgoing in a manner designated to evade the provisions of this code.
Chapter I: The Contract of Insurance
Title 1: What May Be Insured?
What are the requisites of a contract of Insurance? [p. 65]
(1) A subject matter in which the insured has an insurable interest (see Secs. 12-
14.);
(2) Event or peril insured against which may be any (future) contingent or
unknown event, past or future (Sec. 3.), and a duration for the risk thereof (see
Sec. 51 [g].);
(3) A promise to pay or indemnify in a fixed or ascertainable amount (see Sec. 2.);
(4) A consideration for the promise, known as the "premium" (see Sec. 77.); and
(5) A meeting of minds of the parties upon all the foregoing essentials, (see Arts.
1318, 1319, Civil Code.)
What is the subject matter of an insurance contract? [p. 66]
Anything that has an appreciable pecuniary value, which is subject to loss or
deterioration or of which one may be deprived so that his pecuniary interest is or may
be prejudiced, may properly constitute the subject matter of insurance. Example:
Property insurance, Life, health and accident insurance, and Casualty Insurance.
Who owns a life insurance policy? [p. 69]
Ownership of a modem life insurance policy is divided between the insured and
the beneficiary, the insured being the owner of its various marketing and sales features,
such as the loan and cash surrender values, and the beneficiary being the owner of a
promise to pay the proceeds at the death of the insured subject to the insured's right
of revocation.
What do you mean by this – “an insurance contract is not a wagering contract”?
[p. 71]
A contract of insurance is a contract of indemnity and is not a wagering or
gambling contract, (see Sec. 25.) While it is based on a contingency, it is not a contract
of chance and is not used for profit. The very purpose of insurance is the
reimbursement of the holder of insurance for actual loss suffered from specified risks.
What is the similarity between insurance and gambling? [p. 72]
Insurance and gambling are similar in only one respect. In both cases, one party
promises to pay a given sum to the other upon the occurrence of a given future event,
the promise being conditioned upon the payment of, or agreement to pay, a stipulated
amount by the other party to the contract.
Title 2: Parties to the Contract
Who are the parties in an insurance contract? [p. 74]
The two parties to a contract of insurance are:
(1) The insurer or the party who assumes or accepts the risk of loss and undertakes
for a consideration to indemnify the insured or to pay him a certain sum on the
happening of a specified contingency or event.
(2) The insured or the second party to the contract, the person in whose favor the
contract is operative and who is indemnified against, or is to receive a certain
sum upon the happening of a specified contingency or event; He is the person
whose loss is the occasion for the payment of the insurance proceeds by the
insurer.
Who is the insured? Is it the same as the assured? [p. 75]
"Insured" refers to the owner of the property insured or the person whose life is
the subject of the contract of insurance. Although they are interchangeably used with
assured, strictly speaking, the term "assured," refers to the person for whose benefit
the insurance is granted.
Who is the beneficiary? Is it the same with the assured? [p. 75]
The beneficiary is the person designated by the terms of the policy as the one
to receive the proceeds of the insurance. He is the third party in a contract of life
insurance (see Secs. 179-180.) for whose benefit the policy is issued and to whom the
loss is payable. “Beneficiary " is also used sometimes as a synonym of “Assured.”
Who may be an insurer? [p. 75]
(1) Foreign or domestic insurance company or corporation
(2) Individual, partnership, or association
Can anybody become an insured and a beneficiary in an insurable contract? [p.
77]
Yes, anybody can become insured except that of a public enemy.
Who is a public enemy? [p. 78]
A public enemy designates a nation with whom the Philippines is at war and it
includes every citizen or subject of such nation.
What is a control test? [p. 78]
The control test is where the corporation is deemed to have the same
citizenship as the controlling stockholder in time of war. During this time, a private
corporation is deemed an enemy corporation although organized under Philippine
laws if they are controlled by enemy aliens.
What are the effects of war on existing insurance contracts? [p. 78]
(1) Where parties rendered enemy aliens - By the law of nations, all intercourse
between citizens of belligerent powers which is inconsistent with a state of war
is prohibited.
(2) With respect to property insurance - The rule adopted in the Philippines is that
an insurance policy ceases to be valid and enforceable as soon as an insured
becomes a public enemy.
What is the United States Rule? [p. 79]
The United States rule declares that with respect to life insurance during war,
the contract is not merely suspended but is abrogated by reason of non-payment of
premiums, since the time of the payments is peculiarly of the essence of the contract.
What are the extent of insurable interest of the mortgagor and the mortgagee?
[p. 80]
The mortgagor of the property as the owner has an insurable interest therein to
the extent of its value, even though the mortgage debt equals such value. The reason
is that the loss or destruction of the property insured will not extinguish his mortgage
debt.
The mortgagee (or his assignee) has such an insurable interest in the
mortgaged property to the extent of the debt secured, since the property is relied
upon as security thereof, and in insuring, he is not insuring the property itself but his
interest or lien thereon.
What are the legal effects of insurance procured by the mortgagor for the benefit
of the mortgagee or if the policy is assigned to the mortgagee? [p. 83]
Under Section 8, where the 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 the mortgagee, the following are the legal effects:
(1) The contract is deemed to be upon the interest of the mortgagor; hence, he
does not cease to be the party to the contract;
(2) Any act of the mortgagor prior to the loss, which would otherwise avoid the
insurance (like storing inflammable materials in the insured house) affects the
mortgagee even if the property is in the hands of the mortgagee;
 (3) Any act which under the contract of insurance is to be performed by the
mortgagor (like payment of the premium) may be performed by the mortgagee
with the same effect;
(4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his
credit; and
(5) Upon recovery by the mortgagee to the extent of his credit, the debt is
extinguished.
NOTE: The rule on subrogation by the insurer to the right of the mortgagee does not
apply in this case.
What are the effects in case of the transfer or assignment of the policy itself? [p.
86]
The effect of an assignment or transfer is to substitute the assignee or
transferee in place of the original insured in respect to the right to claim indemnity or
payment for a loss as well as the obligation to perform the conditions, if any, of the
policy. The assignee, unless he makes a new contract with the insurer, acquires no
greater right under the insurance than the assignor had, subject to insurer's defenses.
What are the effects in case of assignment of the proceeds of the policy? [p. 87]
The transfer or assignment of the proceeds of the policy after a loss has
happened, which involves a money claim under, or a right of action on the policy.
What are the effects in case of assignment of the subject matter of the insurance?
[p. 87]
When there is a transfer of the subject matter of the insurance, such as a house
insured under a fire policy which has the effect of suspending the insurance until the
same person becomes the owner of both the policy and the thing insured.
Title 3: Insurable Interest
What is an insurable interest? [p. 89]
An insurable interest is one of the most basic of all requirements in insurance.
In essence, it is that interest which the law requires the owner of an insurance policy to
have in the person or thing insured.
Why is insurable interest an essential requirement in an insurance contract? [p.
90]
It is an essential requirement because the existence of insurable interest is a
primary concern in determining the liability of an insurer under a policy of insurance.
Insurable interest may be in life and health or in property. The existence of insurable
interest gives a person the legal right to insure the subject of the policy of insurance. In
the absence of such interest, the person insuring in effect would be gambling (see Sec.
3 [par. 1], 4, 18, 25.), which is prohibited by law (Revised Penal Code, Article 195). It is a
fundamental postulate of all insurance that it must not be a mere bet upon a future
event.
What are the 2 general classes of life insurance policies? [p. 91]
Life insurance policies may be divided into two general classes:
(1) Insurance upon one’s life. - Those taken out by the insured upon his own life
for the benefit of himself, or of his estate, in case it matures only at his death, or
for the benefit of a third person who may be designated as beneficiary. An
application for insurance on one's own life does not usually present an
insurable interest question; and
(2) Insurance upon life of another. - When one applies for insurance on the life
of another for the former's benefit, he must have an insurable interest in the life
of that person.
Is there a similarity between a life insurance policy and a civil donation? [p. 93]
Yes, there is a similarity between a life insurance policy and a civil donation
because, in essence, a life insurance policy is no different from a civil donation insofar
as the beneficiary is concerned. Both are founded upon the same consideration:
liberality.
A beneficiary is like a done, because from the premiums of the policy which the
insured pays out of liberality, the beneficiary will receive the proceeds or profits of said
insurance.
Is the consent of the person whose life is insured essential to the validity of the
insurance taken by another? [p, 100]
It depends:
(1) It is essential to validity of policy when, on clear principle and by the weight of
authority, it is believed that all such contracts, without the consent of the
insured, are contrary to public policy, and void.
Reason: The danger to the public of such insurances is largely obviated when
the insured, with knowledge of all the circumstances, has given consent to the
contract. His very consent is strong evidence of the good faith of the person
procuring the insurance, and thus affords a needed guaranty to society.
(2) It is not essential to validity of policy as provided under the law. As long as it
could be proved that the assured has a legal insurable interest at the inception
of the policy, the insurance is valid even without such consent.
Reason: The presence of insurable interest takes the contract out or the class of
forbidden wagers.
Who is the beneficiary in the contract of insurance? [p. 101]
The beneficiary of the contract is the person who is named or designated in a
contract of life, health, or accident insurance as the one who is to receive the benefits
which become payable, according to the terms of the contract, upon the death of the
insured.
What are the kinds of beneficiary? Define each [p. 101]
Kinds of Beneficiary:
(1) Insured Himself. - A person, who is an immediate party to the contract and
pays the premiums necessary to maintain it.
(2) Third Person Who Paid a Consideration - The third person named as
beneficiary may have paid a valuable consideration for his selection.
(3) Third Person through Mere Bounty of Insured - The beneficiary may be one
who gives no consideration whatsoever for any right that may be acquired in
the policy but is designated as recipient of the proceeds in the policy through
mere bounty of the insured.
Are there limitations as to who shall be designated as a beneficiary? If yes, what
are these? [p. 102]
Yes, there are limitations as to who shall be designated as a beneficiary, namely:
(1) Any person who is forbidden from receiving any donation cannot be named
beneficiary of a life insurance policy by the person who cannot make any
donation to him.
(2) Donations shall be void:
(a) Between persons who were guilty of adultery or concubinage at the time of
the donation;
(b) Between persons found guilty of the same criminal offense, in consideration
thereof; or
(c) To a public officer or his wife, descendants and ascendants, by reason of his
office.
 (3) A life insurance policy, in essence is no different from a civil donation insofar as
the beneficiary is concerned. Both are founded on the same consideration:
liberality.
Does the insured have the absolute right to change the beneficiary? [p. 104]
No, the insured does not have the absolute right to change the beneficiary.
Under Section 11 of The Insurance Code of the Philippines states 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. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime,
the designation shall be deemed irrevocable.”
What will happen if the beneficiary predeceased the insured? [p. 106]
If the beneficiary predeceased the insured, either of the following will happen:
(1) His rights so vested should pass to his representatives, and on the death of the
insured, the proceeds of the policy should belong, not to estate of the insured,
but to the representatives of the beneficiary; or
(2) The estate of the insured should be entitled to the proceeds of the insurance
especially where the designation is subject to the express condition to pay the
beneficiary if he survives the insured or “if surviving.”
When will the beneficiary forfeit his/ her right to the insurance policy? [p. 109]
The beneficiary will forfeit his/her right to the insurance policy if he/she is the
principal, accomplice, or accessory willfully bringing about the death of the insured. In
such a case, the share forfeited shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be paid
in accordance with the policy contract. If the policy contract is silent, the proceeds shall
be paid to the estate of the insured.
What is the liability of the insurer if the insured died: at the hands of the law? Self
destruction? Suicide while insane? Caused by the beneficiary? Caused by violation
of law? [p. 111]
The liability of the insurer if the insured died:
(1) At the Hands of the Law - Assumed by the insurer under a life insurance policy
in the absence of a valid policy exception;
(2) Self-destruction - Insurer is not liable in case the insured commits suicide
intentionally, with whatever motive, when in sound mind. Also, death which is
purely accidental, even though due to the insured’s own carelessness or
negligence is not excluded from the coverage by the words “self-destruction,”
“death by his own hand,” and the like which are generally considered
synonymous with suicide;
(3) Suicide while Insane - Suicide of an insured while insane does not discharge
the insurer from his liability on his contract. The insanity of the insured must
have known by the insurer and the unwitting act of self-destruction is as much
the consequence of the disease as if some vital organs were totally affected;
(4) Caused by the Beneficiary - The insurer may properly insert in the contract an
express provision excepting from coverage death caused by the beneficiary,
whether lawfully or unlawfully;
(5) Caused by Violation of Law - Committing a felony or violating a law would not
warrant denial of liability. To avoid liability, the insurer must further establish
that the commission of the felony or the violation of law was the cause or had a
casual connection with the accident resulting in the death of the insured.
What is the insurable interest in property? What does it consists? How is it
measured? What is the effect of absence of insurable interest in property? When
should an insurable interest in property exist? [p. 114 onwards; p. 120; p. 121; p.
125]
 The insurable interest in property is every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a What is the difference of insurable interest in life and property? [p. 128]
contemplated peril might directly damnify the insured.
Insurable Interest in Life Insurable Interest in Property
It consists: As to extent of In property, insurable interest is
Insurable interest in life is
insurable limited to the actual value of the
unlimited
(1) An existing interest; interest interest thereon
It is necessary that insurable
As to time It is enough that insurable
(2) An inchoate interest founded on an existing interest; and interest “must exist when the
when insurable interest exists at the time the
insurance takes effect and when
interest must policy takes effect and need not
(3) An expectancy, coupled with an existing interest in that out of which the the loss occurs but need not exist
exist exist at the time of the loss
expectancy arises. in the meantime”
An expectation of benefit, to be
It is measured by the extent to which the insured might be damnified by loss or derived from the continued
injury thereof. As to The expectation of benefit to be existence of the property insured,
expectation of derived from the continued however likely and morally certain
The effect of absence of insurable interest in the property is that the premium is benefit to be existence of life need not have of realization it may be, will not
ordinarily returned to the insured unless he is in pari delicto with the insurer. derived any legal basis whatever afford a sufficient insurable
interest unless that expectation
An insurable interest in property exist when the insurance takes effect, and has basis of legal right.
when the loss occurs, but need 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
What are the prohibited stipulations in an insurance policy? [p. 134]
exist thereafter or when the loss occurs.
(1) Wager Policy – Stipulation for the payment of loss whether the person insured
What is the insurable interest of a carrier or a depository? [p. 118] has or has not any interest in the subject matter of the insurance. [No interest
in the subject matter – policy/ contract is void]
Insurable interest of a carrier or a depository is the loss of the thing which may
cause liability to the extent of its value. (2) Stipulations that the policy shall be received as proof of insurable interest.
[Existence of Insurable interest does not depend on the contract or its
What is a mere contingent or expectant interest? [p. 119] stipulations]

A mere contingent or expectant interest is in anything, not founded on an

actual right to the thing, nor upon any valid contract for it, is not insurable. It is a mere
hope or expectation of benefit which may be frustrated by the happening of some
event uncoupled with any present legal right which will not be supported by a contract
of insurance.
Title 4: Concealment
What is concealment? [p. 138]
Concealment is defined as neglect to communicate that which a party knows
and ought to communicate. It is intentional withholding by the insured of any fact
material to the risk.
What are concealment’s requisites and effects? [p. 139]
Requisites:
(1) A party knows the fact which he neglects to communicate or disclose to the
other;
(2) Such party concealing is duty bound to disclose such fact to the other;
(3) Such party concealing makes no warranty of the fact concealed; and
(4) The other party has not the means of ascertaining the fact concealed.
Effects:
A concealment whether intentional or unintentional entitles the injured party
(insured or insurer) party to rescind a contract of insurance.
Is proof of fraud necessary in concealment? [p. 140]
No. Under Section 27, the insurer need not prove fraud in order to rescind a
contract on the ground of concealment. Otherwise, it would be impossible for the
insurer to protect itself and its honest policy holder against fraudulent and improper
claims. The insurer would be wholly at the mercy of anyone who wished to apply for
insurance, as it would be impossible to show actual fraud except in extreme cases.
What are the rules of concealment in marine insurance? [p. 142]
The rule applicable in the Philippines, however, is applicable to every kind of
insurance (not just as to marine insurance) is that fraud is not essential in order that the
insured may be guilty of concealment. It has been held that under Section 27 of the
Insurance Act, the presence or absence of intent to deceive is immaterial.
If the insurer fails to verify, what will happen? [p. 144]
The insurance company has no obligation to verify the statements made by the
insured in his application before the issuing policy. It has the right to rely on the
statements of the insured as to material facts such as to his previous sickness, for he
knows the facts, and the matter is not one of which disclosure is excused by law.
What is the test of materiality? [p. 147]
The test is in the effect which the knowledge of the fact in question would have
on the making of the contract. To be material, a fact need not increase the risk or
contribute to any loss or damage suffered. It is sufficient if the knowledge of it would
influence the parties in making the contract. The matter must, of course, be
determined by court.
How will you prove that concealment is intentional? [p. 149]
A man’s state of mind or subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to act from which inferences as
to his subjective belief may be reasonable drawn.
Is the right to information waivable? [p. 151]
The right to information of material facts may be waived either expressly, that
is, by the terms of the insurance, or impliedly, that is, by neglect to make inquiry of the
facts already communicated. (Sec 33)
Is it necessary to disclose opinion, speculation, intention or expectation? [p. 153
and 154]
The duty to disclose is confined to facts. Hence, there is no duty to disclose
mere opinion, speculation, intention or expectation. (Sec 35)
Title 5: Representation
What is representation and misrepresentation?
Representation pertains to a statement made by the insured at the time of, or
prior to, the issuance of the policy, relative to the risk to be insured, as to an existing or
past fact or state of facts, or concerning a future happening, to give information to the
insurer and otherwise induce him to enter into the insurance contract.
Misrepresentation is a statement as a fact of something which is untrue, which
the insured stated with knowledge that is untrue and with an intent to deceive, or
which he states positively as true without knowing it to be true and which has a
tendency to mislead, and where such fact in either case is material to the risk.
What is the intention when a representative is made?
The representations are made to influence the insurer to accept the risk, it
being merely collateral inducements to the contract, which means that representations
may be communicated in any manner whatsoever that is intelligible. However, they are
not part of the contract unless expressly made.
When representations are made?
Section 37 of the Insurance Code provides that a representation may be made
at the time of, or before, issuance of the policy.
How are representations interpreted?
Representations are construed liberally in favor of the insured, and are required
to be only substantially true.
What are the kinds of representation?
The kinds of representation are:
(1) Oral or written;
(2) Made at the time of issuing the policy or before; and
(3) Affirmative or promissory
An Affirmative Representation is any allegation as to the existence of a fact
when the contract begins.
While a Promissory Representation is any promise to be fulfilled after the
contract has come into existence or any statement concerning what is to happen
during the existence of the insurance.
When can you consider a representation as a mere expression of opinion?
A representation can be considered as a mere expression of opinion when it is
an oral representation as to future event or condition, over which the insured has no
control, with reference to property or life insured, and such will avoid a contract only
when made in bad faith.
Once a representation has been made, can you alter or withdraw it?
A representation may be altered or withdrawn before the insurance is effected,
but not afterwards.
Discuss the effects of the following:
(1) Information obtained from third persons?
(2) Information obtained from the agent of the insured?
(3) Information obtained from the agent of the insurer?
The following are the effects of information according to where they are
obtained, thus:
(1) Information obtained from third persons? - The insured is given
discretion to communicate to the insurer what he knows of a matter of which
he has no personal knowledge. If the representation turns out to be false, he is
not responsible therefore, provided that he gives explanation that he does so
on the information of others.
(2) Information obtained from the agent of the insured/insurer? - If the
information proceeds from an agent of the insured, whose duty is in the
ordinary course of business to communicate such information to his principal,
and it was possible for the agent under such circumstances in the exercise of
due diligence to have made such communication before the making of the
contract, the insured will be liable for the truth.
 (3) Information obtained from the agent of the insurer? - It must be borne in
mind that the same principle applies to the insurer though in the nature of the
things, the question does not occur so frequently.
What is the effect if representation is false?
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.
What is the difference if there is collusion between the insured and the insurer’s
agent?
The following are the differences, to wit:
(1) Collusion with the insured - Collusion between the agent of the agent and the
insured in misrepresenting the facts will vitiate the policy even though the
agent is acting within the apparent scope of his authority. When there is
collusion, the agent thereby ceases to represent his principal, and represents
himself; so the insurer is not estopped from avoiding the policy.
(2) Collusion with principal of agent - Where the insured merely signed the
application form and made the agent of the insurer fill the same for him, it was
held that by doing so, the insured made the agent of the insurer his own agent.
But where the insurer required its medical examiner to put the questions and fill
out the answers in his own handwriting, the writer of the application is not the
agent of the insured. The insurer is liable when its agent writes a false answer
into the application without the knowledge of the insured.
How will you determine the materiality of representation?
The materiality of the representation 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 representation is made, in forming his estimates of the disadvantages of the
proposed contract or in making his inquiries.
Distinguish concealment from misrepresentation.
In concealment, the insured withholds information of material facts from the
insurer, whereas in misrepresentation, the insured makes erroneous statements of facts
with the intent of inducing the insurer to enter into the insurance contract;
What is incontestability clause?
This pertains to clauses in life insurance policies stipulating that the policy shall
be incontestable after a stated period are in general use, and are now required by
statutes in force. Incontestability means that after the requisites are shown to exist, the
insurer shall be estopped from contesting the policy or setting up any defense, except
as is allowed, on the ground of public policy.
What are the requisites to consider in an incontestability clause?
In order that the insurance shall be incontestable, the following requisites must
be present:
(1) The policy is a life insurance policy;
(2) It is payable on the death of the insured; and
(3) It has been in force during the lifetime of the insured for at least two (2) years
from its date of issue or of its last reinstatement.
What will happen if the policy becomes incontestable?
When a policy of life insurance becomes incontestable, the insurer may not
refuse to pay the same by claiming that:
(1) The policy is void ab initio; or
(2) It is rescissible by reason of the fraudulent concealment of the insured or his
agent, no matter how patent or well-founded; or
(3) It is rescissible by reason of the fraudulent misrepresentations of the insured or
his agent.
What are the possible defenses against the application of the incontestability
clause?
The insurer may still contest the policy by way of defense to a suit brought
upon the policy or by action to rescind the same, on any of the following grounds:
(1) That the person taking the insurance lacked insurable interest as required by
law;
(2) That the cause of the death of the insured is an excepted risk;
(3) That the premiums have not been paid;
(4) That the conditions of the policy relating to military or naval service have been
violated;
(5) That the fraud is of a particularly vicious type;
(6) That the beneficiary failed to furnish proof of death or to comply with any
condition imposed by the policy after the loss has happened; or
(7) That the action was not brought within the time specified.
Title 6: The Policy
What is a policy of insurance? [p. 178]
Section 49 provides that a policy of insurance is a written instrument in which a
contract of insurance is set forth. It is the written document embodying the terms and
stipulations of the contract of insurance between the insured and the insurer.
Explain the principle that an insurance contract is a contract of adhesion [p. 179]
The term "adhesion contract" is essentially a description of the manner by
which the contract is formed: one party having superior bargaining power imposes its
choice of terms on the other party. Ordinarily, contracts are freely negotiated by
parties with roughly equivalent bargaining power. Although the insured can choose
from a variety of available coverages, he cannot negotiate the substance of the
contract with the insurer. Since in this type of contracts, the parties do not bargain on
equal footing, the weaker party's participation is reduced to the alternative "to take it
or leave it." Thus, those contracts are viewed as traps for the weaker party whom the
courts of justice must protect. Consequently, where the language used in an insurance
contractor application is such as to create ambiguity, the same should be resolved
liberally in favor of the insured and strictly against the party responsible therefor.
Policy insurance vs. Contract Insurance [p. 181]
A policy of insurance is different from the contract of insurance:
(1) The policy is the formal written instrument evidencing the contract of insurance
entered into between the insured and the insurer. It is the law between them.
(2) Form thereof previously approved by Insurance Commissioner. Insurance
policies generally are required in standard forms. Under Section 226, no policy
of insurance shall be issued or delivered within the Philippines unless in the
form previously approved by the Insurance Commissioner.
What is the required form of an insurance policy? [p. 182]
Section 50 provides 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.
Group insurance and group annuity policies, however, may be typewritten and
need not be in printed form.
In case of conflict between the written and printed portions of a policy, the
written portion prevails. (Jargue vs. Union Fire Insurance Co., 56 Phil. 758 [1932].)
When is insurance perfected? [p. 182]
A contract of insurance, like other contracts, must be assented to by the parties
either in person or by their agents. Under the law, assent or consent is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. (Art. 1319, Civil Code.)
The following are necessary for the perfection of insurance:
 (1) Acceptance of application. - If an application for insurance has not been either
accepted or rejected, there is no contract yet as it is merely an offer or
proposal. The contract, to be binding from the date of the application, must
have been a completed contract, one that leaves nothing to be done, nothing
to be completed, nothing to be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the minds of the parties
have met in agreement.
(2) Compliance with conditions precedent. - The parties may impose additional
conditions precedent to the validity of the policy as a contract as they see fit.
These conditions are valid and enforceable. Until the conditions are fulfilled, the
policy is of no binding effect. There is no valid and binding insurance contract
where no premium is paid unless credit is given or there is a waiver or some
agreement obviating the necessity for prepayment of the premium.
(3) Cover Notes- Cover notes (also called a binder) may be issued to afford
immediate provisional protection to the insured until the insurer can inspect or
evaluate the risk in question and issue the proper policy (Sec. 52, par. 1.), or
until the risk is declined and notice thereof given.
When is there an offer and acceptance of an insurance contract? [p. 185]
(1) In property and liability insurance. - It is the insured who technically makes an
offer to the insurer, who accepts the offer, rejects it, or makes a counter-offer.
The offer is usually accepted by an insurance agent on behalf of the insurer.
(2) In life and health insurance. - The situation depends upon whether the insured
pays the premium at the time he applies for insurance.
(a) If he does not pay the premium, his application is considered an invitation to
the insurer to make an offer, which he must then accept before the contract
goes into effect. If he pays the premium with his application, his application
will be considered an offer. Binding receipt is a conditional acceptance by
the insurer.
(b) Where the application for insurance constitutes an offer by the insured, a
policy issued strictly in accordance with the offer is an acceptance of the
offer that perfects the contract. If the policy issued does not conform to the
insured's application, it is an offer to the insured which he may accept or
reject.
What is the significance of a delivery in an insurance policy? [p. 186]
Delivery is the act of putting the insurance policy into the possession of the
insured. The delivery of the policy is important because it serves:
(1) As evidence of the making of a contract and of its terms;
(2) As communication of the insurer's acceptance of the insured's offer.
(3) As it affects the term of the coverage;
(4) As it marks the end of the insurer's opportunity to decline coverage.
What are the modes of delivery in an insurance policy? [p. 187]
(1) Actual Delivery - Actual manual transfer of the policy;
(2) Constructive delivery - The intention of the parties which may be shown by
their acts or words.
What is the effect of delivery in an insurance policy? [p. 189]
(1) Where delivery conditional. - Non-performance of the condition precedent
prevents the contract from taking effect;
(2) Where delivery unconditional. - Ordinarily consummates the contract, and the
policy as delivered becomes the final contract between the parties; and
(3) Where premium still unpaid after unconditional delivery. In the absence of
any clear agreement granting credit extension, the policy will lapse if the
premium is not paid, at the time and in the manner specified in the policy.
What if the delivery was made to the insurer’s agent? [p. 188]
There has been much conflict of view on the question.
(1) Beneficiary cannot recover. - One view holds that the beneficiary cannot
recover for the simple reason that the insurance agent is not his agent, (see
Bradley vs. New York Life Ins., 275 F. 657 [1921].)
(2) Beneficiary can recover. - The insured having complied with every condition
required of him, actual delivery to him is not essential to give the policy binding
effect, (see New York Life Ins. Co. vs. Babcock,30 S.E. 273 [1898].)
What is a rider? In case of conflict between policy and the rider, which will
prevail? In case of conflict between the policy and other attached papers, which
will prevail? [p. 190]
A rider is a small printed or typed stipulation contained on a slip of paper
attached to the policy and forming an integral part of the policy.
When there is an inconsistency between a rider and the printed stipulations in
the policy, the rider prevails, as being a more deliberate expression of the agreement
of the contracting parties.
This principle applies to interpretation of clauses, warranties, or indorsements
which are attached to policies to vary their terms.
What will happen if the insured fails to read the insurance policy? [p. 193]
(1) Majority rule. - The insured's acceptance and retention of the policy unread is
not such laches as will defeat his right to reformation. The basis for the
decisions is that insurance contracts are contracts of "adhesion" and not of
bargaining, that is, the insured purchases the contract prepared solely by the
insurer; and
(2) Minority rule. - One who accepts a contractual instrument is conclusively
presumed, in the absence of fraud or mutual mistake, to know and assent to its
contents. The insured has the duty to read his policy and is bound by his
contract as written whether he reads it or not.
Who has the duty to explain? [p. 195]
(1) Where terms of policy are clear. - The insurer has no affirmative duty to
explain the policy or its exclusions to the insured;
(2) Important caveats. - The insurer or his agent(s) has the duty to explain:
(a) Reasonable expectations of insured. - The doctrine of "reasonable
expectations" can operate to impose de facto a duty on the insurer to
explain the policy's coverage to the insured;
(b) Options available to insured. - In the area of motor vehicle insurance
where legislations have made certain kinds of coverage optional, usually
uninsured or underinsured motorist insurance, courts have sometimes
imposed a duty on the insurer to explain the options to the insured;
(c) Information expected by insured from insurer's agent. - Agents have the
obligation to explain to the customer the kinds of coverage available and to
help the insured in choosing an appropriate coverage;
(d) Contractual rights of insured after denial of coverage. - When the
insured disputes a denial of coverage, the duty of good faith and fair
dealing may impose an obligation on the insurer to alert the insured to his
rights.
What are the contents of a policy of insurance? [p. 197]
A policy of insurance must specify:
(1) Names of parties;
(2) Amount of insurance;
(3) Premium;
 (4) Property or life insured;
(5) Interest of insured in property;
(6) Risks insured against;
(7) Term or duration of insurance.
What are the kinds of insurable risks? [p. 200]
The risks confronting man are ordinarily divided into three (3) classifications,
namely:
(1) Personal risks. - They are those involving the person. This classification of risk is
chiefly concerned with the time of death or disability;
(2) Property risks. - They are those involving loss or damage to property. This
arises from the destruction of property;
(3) Liability risks. - They are those involving liability for the injury to the person or
property of others. This is occasioned by the operation of the law of liability
and may sometimes be called third party risks.
Distinguish risk, peril and hazards. [p. 201]
Risk is the chance of loss, or the possibility of the occurrence of a loss, based on
known and unknown factors.
Peril is the contingent or unknown event which may cause a loss.
Hazard is the condition or factor, tangible or intangible, which may create or
increase the chance of loss from a given peril.
What are the requirements for risk to be insurable? [p. 202]
(1) Importance - The loss to be insured against should be important enough to
warrant the existence of an insurance contract;
(2) Calculability - The risk must permit a reasonable statistical estimate of the
chance of loss and possible variations from the estimate;
(3) Definiteness of loss – The losses should be fairly definite as to cause, time,
place, and amount, for otherwise, estimates of possible loss are difficult;
(4) No catastrophic loss -There must be no catastrophic loss.
(5) Accidental nature - Insurable risks must also normally be accidental in nature.
What are the kinds of preliminary contracts of insurance? [p. 204]
There are two kinds of preliminary contract of insurance, namely:
(1) Preliminary contract of present insurance. – The insurer insures the subject
matter usually by a “binding slip,” or “binder” or “cover note,” the contract to be
effective until the formal policy is issued or the risk rejected;
(2) Preliminary contracts of executor insurance. – The insurer makes a contract
to insure the subject matter at some subsequent time which may be definite or
indefinite.
What are cover notes? [p. 206]
Cover notes (also called a binder) are short-term insurance policies that may be
issued to afford immediate provisional protection to the insured until the insurer can
inspect or evaluate the risk in question and issue the proper policy or until the risk is
declined and notice thereof given.
What are the rules on cover notes? [p. 207]
(1) Insurance companies doing business in the Philippines may issue cover notes to
bind insurance temporarily, pending the issuance of the policy;
(2) A cover note shall be deemed to be a contract of insurance;
(3) No cover note shall be issued or renewed unless in the form previously
approved by the Insurance Commission;
 (4) A cover note shall be valid and binding for a period not exceeding 60 days from
the date of its issuance, whether or not the premium therefor has been paid,
but such cover note may be cancelled by either party upon at least seven (7)
days notice to the other party;
(5) If a cover note is not so cancelled, a policy of insurance shall, within 60 days
after the issuance of such cover not, be issued in lieu thereof;
(6) A cover note may be extended or renewed beyond the aforementioned period
of 60 days with the written approval of the Insurance Commission;
(7) Insurance companies may impose on cover notes a deposit premium equivalent
to at least 25% of the estimated premium of the intended insurance coverage
but in no case less than P500.00
Are third persons entitled to recover on policy? [p. 208]
(1) As against the insured. - Third persons have no right either in court of equity
or in a court of law to the proceeds of the policy unless there is some contract
of trust, express or implied, between the insured and third persons;
(2) As against the insurer. - A third person, in the absence of any provision in the
policy, has also no right to the proceeds thereof.
What is the rule where an insurance contract is made by an agent or trustee? [p.
211]
When an insurance contract is executed with an agent or trustee as the insured,
he may indicate that his principal or beneficiary is the real party in interest. This is done
by merely acting in a representative capacity by signing as an agent or trustee.
Where insurance effected by partner or part owner [p. 211]
When insurance is 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.
Who benefits the policy when the description of the insured in a policy is in
general terms? [p. 212]
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
What is the effect of transfer of thing insured? [p. 213]
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.
What are the kinds of insurance policies? [p. 213]
Insurance policies may be OPEN, VALUED, or RUNNING.
(1) Open policy. - It is one in which the value of the thing insured is not agreed
upon and the amount of insurance merely represents the insurer’s maximum
liability. The value of such thing insured shall be ascertained at the time of the
loss. In other words, it does not predetermine the value of the insured property
but establishes a maximum amount the insurer will pay in case of a total loss of
the property insured;
(2) Valued policy. - It is one which expresses on its face an agreement that the
thing insured shall be valued at a specific sum. In other words, the value of the
insured property is predetermined and the value is the amount to be used in
case of a total loss;
(3) Running policy. - It 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.
What is the rule in the validity of an agreement limiting time for commencing
action? [p. 217]
GR: A clause in an insurance policy to the effect that an action upon the policy by the
insured must be brought within a certain period is VALID.
XPN: If the period fixed for commencing action in a policy of insurance is fixed to a
period of less than one (1) year from the time the cause of action accrues, such
condition, stipulation or agreement would be VOID.
What is cancellation of non-life insurance policy? [p. 222]
Cancellation is the right to rescind, abandon or cancel a contract of insurance
which may be terminated by either the insurer or the insured before its expiration.
What are the kinds of warranties? [p. 226]
(1) Express warranty. – It is an agreement contained in the policy or clearly
incorporated where the insured stipulates certain facts relating to the risk are
true or certain acts have been done;
(2) Implied warranty. – It is a warranty which from the very nature of the contract
or general tenor of the words is necessarily embodied in the policy and which
binds the insured as though expressed in the contract;

What are the formalities required for the right to cancel a policy of insurance? [p.
(3) Affirmative warranty. – It is one which asserts the existence of a fact or
222]
condition at the time it is made;

The right to cancel may be exercised when all the following conditions are
(4) Promissory warranty. - It is one where the insured stipulates that certain facts
present:
or conditions pertaining to the risk shall exist or that certain things with
reference thereto shall be done or omitted.
(1) There must be prior notice of cancellation to the insured;
What time does warranty refers [p. 228]
(2) The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds for cancellation under Sec. 64 of the
A warranty may relate to the past, the present, the future, or to any or all of
Insurance Code;
these. But in the case of a promissory warranty, the same may refer only to future
events.
(3) It must be in writing, mailed or delivered to the named insured at the address in
the policy, or to his authorized broker; and
Does the word “warranty” in an insurance contract necessarily constitute a
warranty? [p. 228]
(4) It must state which of the grounds set forth is relied upon.
The use of the word warranty in an insurance contract does not necessarily
Title 7: Warranties
constitute a warranty nor is the word necessary to constitute one. Whether a statement
made by the insured in an insurance policy is a warranty depends upon the intention of
What is a warranty? [p. 226]
the parties. The parties must intend a statement to be a warranty and it must be
included as part of the contract.
Warranty is a statement or promise by the insured contained in the policy itself
or incorporated in or attached to it by proper reference, the falsity or non-fulfillment of
Distinguish warranties and representation. [p. 229]
which and regardless of whether or not the insurer has suffered loss or prejudice as a
result of the falsity or non-fulfillment, renders the policy voidable at the election of the
(1) Warranties are considered parts of the contract, while representations are but
insurer.
collateral inducements to it;
 (2) Warranties are always written on the face of the policy, actually or by reference,
while representations may be written in a totally disconnected paper or may be
oral;
(3) Warranties must be strictly complied with, while in representations, substantial
truth only is required;
(4) Falsity or non-fulfillment of a warranty operates as a breach of contract, while
the falsity of a representation renders the policy voidable or rescissible on the
ground of fraud;
(5) Warranties are presumed material, while the insurer must show the materiality
of a representation in order to defeat an action on the policy.
Where does an express warranty be contained? [p. 231]
In order that a stipulation may be considered a warranty, it must not only be
clearly shown that such was the intention of the parties but also must form part of the
contract itself or if contained in another instrument, it must be signed by the insured
and referred to in the policy as making a part of it. Mere reference alone is not
sufficient to give this effect.
What is a promissory warranty? [p. 234]
Section 72 refers to a promissory warranty, which provides that, “a statement in
a policy, which imparts that it is intended to do or not to do a thing which materially
affects the risk, is a warranty that such act or omission shall take place.”
Title 8: Premium
What is a premium? [p. 244]
An insurance premium is the agreed price for assuming and carrying the risk –
that is, the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.
What is an assessment? [p. 245]
An assessment is a sum specifically levied by mutual insurance companies or
associations, upon a fixed and definite plan, to pay losses and expenses.
Distinguish Premium and Assessment. [p. 245]
The distinction between premiums and assessments lies in the fact that the
former are levied and paid to meet anticipated losses, while the latter are collected to
meet actual losses.
What is cash and carry rule? [p. 256 footnote]
The cash and carry rule is found in Section 77 of the Insurance Code which
provides that no contract of insurance is binding unless the premium has been paid.
The payment contemplated is means full and prompt payment.
When is an insured entitled to recover premiums? [p. 275]
(1) When no part of the thing insured has been exposed to any of the perils insured
against;
(2) When the insurance is for a definite period and the insured surrenders his policy
before the termination thereof;
(3) When the contract is voidable and subsequently annulled because of the fraud
or misrepresentation of the insurer or his agent;
(4) When the contract is voidable because of the existence of facts which the
insured was ignorant without his fault;
(5) When the insurer never incurred any liability under the policy because of the
default of the insured other than actual fraud;
(6) When there is over-insurance;
(7) When rescission is granted due to the insurer’s breach of contract.
May an insurer contract and accept payments in addition to regular premiums? Explain what is hostile and friendly fires [p. 288]
[p. 283]
HOSTILE FIRE FRIENDLY FIRE
Yes, Section 84 provides that an insurer may contract and accept payments, in
addition to regular premium, for the purpose of paying future premiums on the policy One that burns in a place
One that escapes from the place
where it was
or to increase the benefits thereof. where it was intended to burn
intended to burn and ought to
and ought to be.
be
Title 9: Loss
It is hostile when it occurs outside of the It is to be regarded as merely
What is Loss in Insurance? [p. 285] usual confines or begins as a friendly fire an agency for the
and becomes hostile by escaping from the accomplishment of some
Injury, damage or liability sustained by the insured in consequence of the place where it ought to be to some place purpose and not as a hostile
happening of one or more of the perils against which the insurer, in consideration of where it ought not to be. peril.
the premium, has undertaken to indemnify the insured.
Example: where a fire in the chimney due to
What is the scope of loss? [p. 285] Examples: Fire burning in a
ignition of soot and smoke to issue from the
furnace, or a stove, or a lamp
stove so as to damage the property insured
Loss in insurance law embraces bodily injury, including death or property
damage or destruction. It also includes loss of income or profits and legal liability to a
third party. Damage that may be caused by
Even though a fire may remain entirely
such fires, due to their
within its proper place, it may become
negligent management, is not
What is Proximate Cause? [p. 287] hostile if it by accident , becomes so
considered to be within the
excessive as to be beyond control
terms of the policy.
It is that which, in a natural and continuous sequence, unbroken by any new
independent cause, produces an event and without which the event would not have Insurer is liable Insurer is not liable
occurred.
What is the extension of the principle of proximate cause? [p. 290]
It is the efficient cause, the one that sets others in motion, to which the loss is
to be attributed, although other and incidental causes may be nearer in time to the The insurer is liable in two (2) cases:
result and operate more immediately in producing the loss.
(1) Where the loss took place while being rescued from the peril insured
against. - The insurer is liable where the insured is permanently deprived of
the possession, in whole or in part of the thing insured by a peril not insured
against provided it is shown that said property would have been lost by the
peril insured against had there been no attempt to rescue it.
 (2) Where the loss is caused by efforts to rescue the thing insured from a peril
insured against. - It is the efforts to rescue the thing that caused the loss
Title 10: Notice of Loss
What must be fulfilled before the insured becomes entitled to the benefit of fire
insurance policy? [p. 297]
Conditions concerning matters after the loss that must be fulfilled before the
insured becomes entitled to the benefit of fire insurance policy, namely:
(1) Written notice of loss must be given to the insurer; and
(2) When required by the policy, a preliminary proof of loss must likewise be given.
What is the meaning and purpose of Notice of Loss? [p. 298]
1) Notice of loss is more or less formal notice given the insurer or claimant
under a policy of the occurrence of the loss insured against.
2) The purpose of a notice of loss is to apprise the insurance company with
the occurrence of the loss, so that it may gather information and make
proper investigation while the evidence is still fresh and take such action as
may be necessary to protect its interest from fraud or imposition, in the
case of property insurance, to prevent further loss to the property.
When is Notice of Loss necessary? [p. 298]
The insurer cannot be held liable to pay a claim unless he receives notice of
that claim.
Under the law, if notice of loss is not given to the insurer by the person insured
or by the person entitled to the benefit of the insurance without unnecessary delay, or
in a timely manner, the insurer is exonerated or discharge from liability even though
the loss is one the policy was designed to protect against.
What is the time for giving notice of Loss?
(1) The notice of loss upon an insurance against fire must be given “without
unnecessary delay”. It is a requirement of policy that notice of loss be given
immediately or forthwith requires the giving of notice within a reasonable time.
By reasonable time it means that the notice has been given “as soon as
circumstances permitted the insured, in the exercise of reasonable diligence, to
communicate.”
(2) For life insurance, other than fire, the Commissioner may specify the period for
the submission of the notice of loss.
(3) The insurance contract may provide that the notice of loss shall be given within
stated time after the loss occurs and that failure to give the notice within such
time shall preclude recovery. Such provision is valid provided the time so fixed
is not unreasonably short.
What is the purpose of Proof of loss? [p. 301]
The statement of loss is much more formal requirement and intended not only:
(1) To give the insurer information by which he may determine the extent of his
liability, but also,
(2) To afford him a means of detecting any fraud that may have been practiced
upon him; and
(3) To operate as a check upon extravagant claims.
Title 11: Double Insurance
What is Double Insurance?
It exists where same person is insured by several insurers separately in respect
to same subject and interest. (Sec. 93)
What are the requisites of Double Insurance? [p. 307]
There is no double insurance, unless the following requisites exist:
(1) Person insured is the same;
(2) Two or more insurers insuring separately;
(3) Identity of Subject matter;
(4) Identity of Interest insured;
(5) Identity of Risk or peril insured against is likewise the same.
Distinguish Double Insurance and Over Insurance. [p. 308]
Double insurance is different from over insurance:
(1) There is over insurance when the amount of the insurance is beyond the value
of the insured’s insurable interest. In double 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
(2) While in double insurance there are always several insurers, in over insurance
there may be only one insurer involved.
(3) Double insurance and over-insurance may exist at the same time or neither may
exist at all. Double insurance is the term used instead of “co-insurance” when
the sums insured exceed the insurable interest. In such case, there is “over-
insurance” by “double insurance”.
What is the purpose of prohibition against Double Insurance? [p. 309]
The purpose of the prohibition against double insurance is to prevent over-
insurance and thus averts the perpetration of fraud. The public as well as the insurer is
interested in preventing the situation in which a loss would be profitable to the
insured.
Title 12: Reinsurance
What is Reinsurance? [p. 315]
A contract of reinsurance is a contract between the reinsured and the reinsurer
by which the latter agrees to protect the former from risks already assumed.
Distinguish reinsurance distinguished from double insurance. [p. 316]
(1) In double insurance, the insurer remains as the insurer of the original insured,
while in reinsurance, the insurer becomes the insured, insofar as the reinsurer is
concerned;
(2) In double insurance, the subject of the insurance is property; while in
reinsurance, it is the original insurer’s risk;
(3) Double insurance is an insurance of the same interest while reinsurance is an
insurance of a different interest;
(4) In double insurance, the insure is the party in interest in all contracts, while in
reinsurance, the original insured has no interest in the contract of reinsurance
which is independent of the original contract of insurance;
(5) In double insurance, the insured has to give his consent, while in reinsurance,
the consent of the original insured is not necessary.
What is Automatic & Facultative Methods of ceding reinsurance? [p. 320]
(1) Automatic Reinsurance Treaties. - Here, the ceding company (reinsured) is
bound to cede (give off by way of reinsurance) and the reinsurer is obligated to
accept a fixed share of the risk which has to be reinsured under the contract;
(2) Facultative insurance. - It covers liability on individual risk, there is no
obligation either to cede or to accept participation in the risk insured, each
party having a free choice. But once the share is accepted, the obligation is
absolute and the liability assumed there under can be discharged by one and
only way, payment of the share of the losses.
Distinguish Reinsurance Treaty and Reinsurance policy. [p. 320]
A reinsurance policy is a contract of indemnity an insurer makes with another to
protect the first insurer from a risk it has already assumed.
A reinsurance treaty is merely an agreement between two insurance companies
whereby one agrees to cede and the other to accept reinsurance business pursuant to
provisions specified in the treaty.
Treaties are contracts for insurance; while reinsurance policies or cessions are
contracts of insurance.
What is presumed in a Contract of Reinsurance? [p. 321]
Section 99 provides that a contract of reinsurance is presumed to be a contract
of indemnity against liability, and not merely against damage.
Does an original insured have a right in a contract of reinsurance? [p. 322]
Section 100 states that the “original insured has no interest in a contract of
reinsurance.” Unless the contract so provides, the insured has no concern with the
contract of reinsurance, and the reinsurer is not liable to the insured, either as surety or
otherwise.
What is the liability of the reinsurer to the reinsured? [p. 323]
The reinsurer is not liable to the reinsured for a loss under an original policy if
the latter is not liable to the original insured or for an amount more than the sum
actually paid to the insured.
What is the liability of reinsurer to original insured? [p. 323]
(1) Contract of insurance solely between the insurer and reinsurer. The original
insured has absolutely no interest in the contract and is a total stranger to it;
(2) Contract of reinsurance with stipulation in favor of original insured. The
reinsurer who has promised to pay the losses accruing under the original policy will be
liable to a suit by the original insured under the contract of reinsurance;
(3) Contract reinsurance amounting to novation of original contract. The original
insured may also maintain an action against the reinsurer in those cases in which the
circumstances attending the making of the contract of reinsurance amount to a
novation of the original contract and hence, operate to discharge that contract and the
original insurer from all obligations there under. The original insurer, however will be
released only when the insured agrees with the insurer and reinsurer to the novation.
Chapter II: Classes of Insurance
Title I: Marine Insurance
What are the Perils of the Sea? [p. 331]
The phrase “perils of the sea” includes only those casualties due to the unusual
violence or extraordinary action of wind and wave, or to other extraordinary causes
connected with navigation. It embraces all kinds of marine casualty such as shipwreck,
foundering, stranding, collision, and every specie of damage done to the ship or goods
at sea by the violent action of the wind and waves or losses occasioned by the
jettisoning of cargo if it is made for the purpose of saving a vessel rendered unworthy
during the voyage, not through the fault of the captain.
Distinguish perils of the sea and perils of the ship. [p. 332]
Perils of the sea include only such losses that are extraordinary nature or arise
from some overwhelming power which cannot be guarded against by the ordinary
exertion of human skill or prudence.
Perils of the ship which in the ordinary course of events, results from the natural
and inevitable action of the sea, from the ordinary wear and tear of the ship, or from
the negligent failure of the ship’s owner to provide the vessel with proper equipment
to convey the cargo under ordinary conditions.
What is the Insurable interest of Insured in Marine Insurance? [p.339]
Section 102 expressly 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.”
What is Loan on Bottomry? [p. 342]
It is one which is payable only if the vessel, given as a security for the loan,
completes in safety the contemplated voyage. The lender in bottomry is entitled to
receive a high rate of interest to compensate him for the risk of losing his loan. The
owner of the vessel receives in case of loss no indemnity for his loss, but he does
secure immunity from payment of the loan.
What is the meaning of freightage? [p. 343]
Freightage is the benefit which is to accrue to the owner of the vessel from its
use in the voyage contemplated or the benefit derived from the employment of the
ship.
What are the sources of freightage? [p. 343]
Freightage may be derived from:
(1) The chartering of the ship;
(2) Its employment of the ship for the carriage of the ship-owner’s own goods; and
(3) Employment of the ship for the carriage of the goods of others.
What is Insurable interest in expected or anticipated freightage? [p. 343]
The owner of a ship has an insurable interest in expected freightage which he
may not earn in case of intervention of a peril insured against or other peril incident to
the voyage. The rule is the same although the freight has been paid in advance.
What is the Insurable Interest in Passage of Money? [p. 344]
Passage money, unlike freight, is customarily payable in advance it cannot be
recovered if the vessel is lost before the completion of the passage. Under such
circumstances, the passenger can clearly insure his advances of passage money but the
ship-owner may not insure it unless it is payable only upon the completion of the
voyage.
What is concealment in marine insurance? [p. 349]
Concealment in marine insurance is the failure to disclose any material fact or
circumstance which in fact or law is within, or which ought to be within the knowledge
of one party and of which the other has no actual or presumptive knowledge.
What is Presumptive knowledge by Insured of Prior Loss? [p. 351]
Section 111 provides that “a person insured by a contract of marine insurance is
presumed to have knowledge, at the time of insuring, of a prior loss, if the information
might possibly have reached him in the usual mode of transmission and at the usual
rate of communication.”
What is the Effect of False Representation by the Insured? [p. 353]
(1) If intentional. – Any misrepresentation of a material fact made with fraudulent
intent entitles the insurer to rescind the entire contract;
(2) If not intentional. – If the misrepresentation is not intentional or fraudulent but
the fact misrepresented is material to the risk, the insurer may also rescind the
contract from the time the representation becomes false.
Define Warranty in Marine Insurance [p. 354]
In marine insurance, a warranty has been defined as a stipulation, either
expressed or implied, forming part of the policy as to some fact, condition or
circumstance relating to the risk.
What constitutes seaworthiness? [p. 357]
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.
Seaworthiness is a relative term depending upon the nature of the ship, the voyage,
and the service in which she is at the time engaged.
What are Time and Voyage Policies? [p. 361]
A time policy provides coverage for a fixed period of time, at the expiration of
which the insurance will lapse.
A voyage policy covers the subject matter for the voyage named in the policy
until the specified voyage ends, regardless of the time it takes to complete the voyage.
What is the Express warranty as to nationality or neutrality? [p. 364]
Section 122 provides 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.”
What is Deviation? [p. 366]
Deviation is a departure from the course of the voyage insured, or an
unreasonable delay in pursuing the voyage or the commencement of an entirely
different voyage.
What are those cases of deviation in Marine Insurance? [p. 366]
There are four (4) cases of deviation in marine insurance, namely:
(1) Departure from the course of sailing fixed by mercantile usage between the
places of beginning and ending specified in the policy;
(2) Departure from the most natural, direct, and advantageous route between the
places specified if the course of sailing is not fixed by mercantile usage;
(3) Unreasonable delay in pursuing the voyage; and
(4) The commencement of an entirely different voyage.
When is deviation proper? [p. 367]
Section 126 provides that a deviation is proper in the following instances:
(1) When caused by circumstances over which neither the master nor the owner of
the ship has any control;
(2) When necessary to comply with a warranty, or to avoid a peril, whether or not
the peril is insured against;
(3) When made in good faith, and upon reasonable grounds of belief in its
necessity to avoid a peril; or
(4) When made in good faith, for the purpose of saving human life or relieving
another vessel in distress.
What is actual loss? [p. 369]
An actual total loss exists when the subject matter of the insurance is wholly
destroyed or lost or when it is so damaged as no longer to exist in its original
character.
What is constructive total loss? [p. 371]
A constructive total loss, or, as it is sometimes called, a "technical total loss," is
one in which the loss, although not actually total, is of such a character that the insured
is entitled, if he thinks fit, to treat it as total by abandonment.
What is the importance of making a distinction between Actual and Constructive
Total Loss? [p. 372]
It is highly important that the two kinds of total loss be carefully differentiated,
for upon them depends the whole doctrine of abandonment, so important in the law
of marine insurance.
 In cases of actual total loss, no abandonment is necessary; but if the loss is
merely constructively total, abandonment becomes necessary in order to recover as for
a total loss.
Can Actual Total Loss be presumed? [p. 372]
Section 134 provides 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.”
What is the liability of Insurer in case of Reshipment? [p. 373]
Section 135 states that “when a ship is prevented, at an intermediate port, from
completing the voyage, by the perils insured against, the liability of a marine insurer on
the cargo continues after they are thus reshipped.”
This rule will not be obligatory where resort must be had to distant places to
procure a vessel, and there are serious impediments in the way of putting the cargo on
board. In any case, the insurer may require an additional premium if the hazard be
increased by the extension of liability.
What is Average? [p. 374]
Average is defined by the Code of Commerce as 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.
What are the kinds of Average? [p. 374]
2 kinds of Average:
(1) Gross or General Average. - Include 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 and known
risk;
(2) Simple or Particular Average. - Include all damages and expenses caused to
the vessel to her cargo which have not inured to the common benefit and profit
of all the persons interested in the vessel and her cargo.
What is the principle of General Average Contribution? [p. 375]
General average is principle of customary law, independent of contract,
whereby, when it is decided by the master or captain of a vessel, acting for all the
interests concerned, to sacrifice any part of a venture exposed to a common and
imminent peril in order to save the rest, the interests so saved are compelled to
contribute ratably or proportionately, based on the value of the said interests, to the
owner of the interest sacrificed, so that the cost of the sacrifice shall fall equally upon
all.
What are the requisites of a party claim general average contribution? [p. 376]
(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 or for the benefit of all;
(4) It must be made by the master or upon his authority;
(5) It must not be caused by any fault of the party asking the contribution;
(6) It must be successful, i.e. resulted in the saving of the vessel or cargo; and
(7) It must be necessary.
What is the liability of Insurer for General Average? [p. 376]
The liability of the insurer for general average is clearly provided in the clause
of Section 136 which states “but he is liable for his proportion of all general average
loss assessed upon the thing insured. Also, Article 859 of the Code of Commerce
provides that it is mandatory in terms, and insurers, whether for the vessel or for the
freightage or for the cargo, are bound to contribute to indemnity of the general
average.
What is the liability of Insurer for Particular Average? [p. 378]
The marine insurer is liable only for general average and not for particular
average unless such particular average loss has the effect of “depriving the insured of
the possession at the port of destination of the whole” of the thing insured (Sec 136).
In the absence of any contrary stipulation, the insurer is liable for particular average
loss.
What is Abandonment? [p. 379]
Section 140 provides that abandonment, in marine 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.”
What are the requisites of Abandonment? [p. 379]
(1) There must be an actual relinquishment by the person insured of his interest in
the thing insured;
(2) There must be a constructive or total loss;
(3) The abandonment must be neither partial nor conditional;
(4) It must be made within a reasonable time after receipt of reliable information of
the loss;
(5) It must be factual;
(6) It must be made by giving notice thereof to the insurer which may be done
orally or in writing; and
(7) The notice of abandonment must be explicit and must specify the particular
cause of the abandonment.
When is Abandonment necessary? [p. 380]
(1) When the loss is only technically total, the insurer is entitled to timely notice of
abandonment by the insured and he cannot be made liable for a total loss
without it. The insurer/ underwriter by prompt action might be able to save
some portion of the insured property;
(2) When the vessel is totally lost, abandonment is not required as there is no
vessel to abandon.
When must abandonment be made? [p. 383]
Section 143 provides that an abandonment must be made within a reasonable
time after receipt of reliable information of loss (notice of abandonment), but where
the information is a doubtful character, the insured is entitled to a reasonable time to
make inquiry (but he cannot wait an undue length of time to see whether it will be
more profitable to abandon or to claim for a partial loss).
By whom and to whom notice of abandonment must be made? [p. 385]
(1) The abandonment need not necessarily be made by the insured but may be
made by an authorized agent, and an agent having authority to insure has
prima facie an authority to abandon;
(2) The abandonment may be made to an agent of the underwriter and
abandonment to a broker who is agent to both parties is sufficient.
What is the effect of a valid abandonment? [p. 386]
A valid abandonment makes the insurer entitled to all the rights which the
insured possessed in the thing insured. According to Section 148, abandonment is
equivalent to a transfer by the insured of his interest to the insurer, with all the chances
of recovery and indemnity.
What is the right of an insurer who pays partial loss as actual total loss? [p. 387]
Section 149 provides that if a marine insurer pays for a loss as if it were an
actual total loss, he is entitled to whatever remain of the thing insured, or its proceed
or salvage, as if there had been a formal abandonment.
What is the form of acceptance of abandonment? [p. 388]
An insurer’s acceptance of an offered abandonment need not be express. It may be
implied by conduct, as by an act of the insurer in consequence of an abandonment
which can be justified only under a right derived from the abandonment. Mere silence
after notice would not operate as an acceptance, if it is not “for an unreasonable length
of time”. Nor would steps taken by the insurer to preserve the property from further
loss for the benefit of all the parties’ amount to an acceptance.
What is the Effect of Acceptance of Abandonment? [p. 389]
If the insurer accepts the abandonment, he becomes at once liable for the whole
amount of the insurance, and also becomes entitled to all the rights which the insured
possessed in the thing insured. Acceptance of abandonment stops the insurer to rely
on any insufficiency in the FORM, TIME or RIGHT of abandonment.
What is the right of insurer to Freightage? [p. 390]
When abandonment is validly made, the interest of the insured in the thing
covered passes to the insurer. The insurer of the ship becomes the owner thereof after
abandonment, and his title becomes vested as of the time of the loss. Freightage
earned subsequent to the loss belongs to the insurer of the ship, but freightage earned
previously belongs to the insurer of said freightage who is subrogated to the rights of
the insured up to the time of loss.
What is the effect of refusal to accept valid abandonment on insurer’s liability?
[p. 390]
If the insurer DECLINES to accept a proper abandonment, he is LIABLE as upon
an actual total loss less any proceeds the insured may have received on account of the
damaged property as when the insured succeeds in selling the property as damaged. If
the abandonment was improper, the insured may nevertheless recover to the extent of
the damage proved.
When can the insured be considered a co-insurer in Marine Insurance? [p. 392]
In every marine insurance, the insured is expected to cover by insurance the full
value of the property insured. If the value of his interest exceeds the amount of
insurance, he is considered the co-insurer for an amount determined by the difference
between the insurance taken out and the value of the property.
What are the rules for estimating loss under an open police in Marine Insurance?
[p. 395]
In estimating a loss under an open policy of marine insurance, the following
rules are to be observed:
(1) The value of a ship is its value at the beginning of the risk, including all articles
or charges which add to its permanent value or which are necessary to prepare
it for the voyage insured;
(2) The value of cargo is its actual cost to the insured, when laden on board, or
where that cost cannot be ascertained, its market value at the time and place of
lading, adding the charges incurred in purchasing and placing it on board, but
without reference to any loss incurred in raising money for its purchase, or to
any drawback on its exportation, or to the fluctuation of the market at the port
of destination, or to expenses incurred on the way or on arrival;
(3) The value of freightage is the gross freightage, exclusive of primage, without
reference to the cost of earning it; and
(4) The cost of insurance is in each case to be added to the value thus estimated.
Title 4: Suretyship
What is a contract of suretyship?
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
and under the provisions of Act No. 536 as amended by Act No. 2206.
Chapter III: The Business of Insurance
Title 9: Policy Forms
What is a group insurance?
 Group insurance is the coverage of a number of individuals by means of a
single blanket policy, thereby affecting economies which frequently enable the insurer
to sell its services at lower premium rates than are ordinarily obtainable for the same
type of insurance protection on life policies sold to individuals. It is essentially a single
insurance contract that provides coverage for many individuals.

What is the role of the employer?

In group insurance policies, the employer is the agent of the insurer in

performing the duties of administering group insurance policies.

What is the role of the employee?

Although the employer may be the titular or named insured, the insurance is
actually related to the life and health of the employee. Indeed the employee is in the
position of a real party to the master policy, and even in a non-contributory plan, the
payment by the employer of the entire premium is part of the total compensation paid
for the services of the employee.