Insurance Bar Review 2013

INSURANCE BAR REVIEW
2013
Framework
General Life Non-Life

Concepts Insurance Insurance
Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
Insurance Code of the
Philippines
General provisions
Contract of Insurance
What may be insured
Parties to the contract
Insurable interest
Concealment
Representation
The policy
Warranties
Premium
Loss
Philippines
Contract of Insurance
Notice of Loss
Double Insurance
Reinsurance
Classes of Insurance
Marine
Fire
Casualty
Suretyship
Life
Philippines
Business of Insurance
Motor Vehicle Liability Insurance

How we will tackle the
subject
General principles
Life Insurance
Non-Life Insurance
Payment of Proceeds
Rescission of insurance contracts

IMPORTANT CONCEPTS
Differences between life and non-
life insurance
What is insurable interest
No-fault Indemnity Clause
Special rules in Industrial Life
Incontestability Clause
Unfair Settlement Practices Act
IMPORTANT CONCEPTS
Coverage under PDIC Law
Cash and Carry Rule
Effect of grace period
Cover notes Test of Materiality
Double Insurance
Rule in case of suicide
Ratable return of premiums
PART ONE:
GENERAL
PRINCIPLES
Concept
An agreement whereby one
undertakes for a consideration to
indemnify another against loss,
damage or liability arising from an
unknown or contingent event.
A contract of suretyship is deemed

an insurance contract only if made
by a surety who or which is doing
an insurance business as a
Elements
The insured has insurable
interest or interest of some
kind susceptible of pecuniary
estimation
The insured is subject to a risk

of loss caused by the
happening of the designated
perils;
Elements
The insurer assumes the risk of
loss;
Assumption is part of a general
scheme to distribute actual
losses among a large group of
persons bearing somewhat similar
risks;
As consideration for the insurers
promise, the insured pays the
premium
Philippine HealthCare v.
CIR
ISSUE:Is a healthcare agreement in the nature
of a contract of insurance?
FACTS: Individuals enrolled in its health care

programs pay an annual membership fee.
They are entitled to various preventive,
diagnostic and curative medical services
provided by its duly licensed physicians,
specialists and other professional technical staff
participating in the group practice health
delivery system at a hospital or clinic owned,
operated or accredited by it.
Philippine HealthCare v.
CIR
The DST under Section 185 of the 1997 Tax Code

is imposed on the privilege of making or
renewing any policy of insurance (except life,
marine, inland and fire insurance), bond or
obligation in the nature of indemnity for loss,
damage, or liability.
RULING: The health care agreement is primarily a

contract of indemnity. A health care agreement is
in the nature of a non-life insurance policy.
Bar 2011
In return for the 20 years of
faithful service of X as a
househelper to Y, the latter
promised to pay
Php100,000.00 to Xs heirs if
he (X) dies in an accident by
fire. X agreed. Is this an
insurance contract?
Bar 2011
A. Yes, since all the elements
of an insurance contract are
present. B. Yes, since X
services may be regarded as
the consideration.
C. No, since Y actually made a
conditional donation in Xs
favor.
D. No, since it is in fact an
Answer
C.No, since Y actually
made a conditional
donation in Xs favor.
Principle of Subrogation
Process of legal
substitution
The insurer, after paying

the amount covered by
the policy, steps into the
shoes of the insured
Insurer avails of the

rights of the insured
against the wrongdoer
Insured CANNOT recover

from offender what was
paid by insured but can
recover any deficiency.
Applicable only in non-

life insurance (Philamgen
v. CA)
Bar 2011
Where the insurer was made
to pay the insured for a loss
covered by the insurance
contract, such insurer can run
after the third person who
caused the loss through
subrogation. What is the basis
for conferring the right of
subrogation to the insurer?
Bar 2011
A. Their express stipulation in the
contract of insurance.
B.The equitable assignment that results

from the insurers payment of the
insured.
C. The insureds formal assignment of his

right to indemnification to the insurer.
D. The insureds endorsement of its claim
to the insurer.
Answer
B. The equitable assignment
that results from the insurers
payment of the insured.
Nature and
Characteristics
Aleatory
Contract of indemnity for non-life
and an investment for life
insurance
Personal
Executory and conditional on
the part of the insurer
Uberrimae fides
Adhesion
Bar 2012
An insurance contract is an aleatory contract,
which means:
A. The insurer will pay the insured equivalent to the
amount of premium paid
B. The obligation of the insurer is to pay depending
upon the happening of an uncertain future event
C. The insured pays a fixed premium for the
duration of the policy period and the amount of
premiums paid to the insurer is not necessarily the
same amount that the insured will get upon the
happening of an uncertain future event
D. The obligation of the insurer is to pay dependent
upon the happening of an event which is certain
to happen
Answer
Aleatory- A contract whose
performance by one party
depends on the occurrence of an
uncertain contingent event
ANSWER: B. The obligation of the

insurer is to pay depending upon
the happening of an uncertain
future event
Rule of Construction
Doubts are resolved in favor of the
insured
Since a contract of insurance is a

contract of adhesion, any obscure
word or stipulation in the
insurance policy shall be resolved
against the insurance company
which drafted the terms thereof
(AMERICAN HOME V. TANTUCO,
Bar 2012
An insurance contract is a contract of adhesion, which
means in resolving ambiguities in the provision of the
insurance contract
A. The general rule is that, the insurance contract is to be
interpreted strictly in accordance with what is written in
the insurance contract
B. Are to be construed liberally in favor of the insured and
strictly against the insurer who drafted the insurance
policy
C. Are to be construed strictly against the insured and
liberally in favor of the insurer
D. If there is an ambiguity in the insurance contract, this will
invalidate the contract
ANSWER: B
Statute of Limitations
General Rule: 10 YEARS
from the time the cause
of action accrues.
Exception: Period may

be increased or
decreased BUT
Statute of Limitations
Inindustrial life: cannot

be shorter than SIX
YEARS
in all other kinds of

insurance: cannot be
Right of Action
Accrues
Period is reckoned from the
time of the denial of the claim
by the insurer (Vda de Gabriel
v. CA)
If there was no denial of the

claim, right of action does
Doing an Insurance
Business
making or proposing to make,
as insurer, any insurance
contract;
making or proposing to make,

as surety, any contract of
suretyship as a vocation and
not merely incidental to any
other legitimate business or
Doing an Insurance
Business
doing any kind of business,
including a reinsurance business,
specifically recognized as doing
insurance business
doing or proposing to do any

business in substance equivalent to
any of the foregoing
An entity can still be deemed

engaged even if he does not derive
any profit from the activity
Regulation of the
Insurance Business
Insurance business is
impressed with public
interest.
The public must be protected

against insolvency or unfair
treatment by insurers.
Regulation of the
Insurance Business
Insurance Commission is
tasked to regulate the conduct
of insurance business through
licensing, examination,
investigation and revocation
(Sec. 414-416).
Capitalization of
Insurance Corporation (DOF Dept
Order 15-2012)
For Insurance Companies with Existing Licenses
Required Paid-Up Capital Date of compliance

P250 Million On or before December 31, 2012
P1 Billion On or before December 31, 2020

Capitalization of
Insurance Corporation (DOF Dept
Order 15-2012)
For Reinsurance Companies with Existing Licenses
Required Paid-Up Capital Date of compliance

P1 Billion On or before December 31,
2012
P1.2 Billion On or before December 31,
2014

2016

2018
P2 Billion On or before December 31,

Capitalization of
Insurance Corporation (DOF Dept Order 15-2012)
New insurance or reinsurance

companies- P1 B
New composite reinsurance or
insurance companies (life and
non-life)- P2 Billion
Professional reinsurer- P2 Billion
Microinsurance business- P500
Million
Bar 2011
A group of Malaysians wanted to invest in
the Philippines insurance business. After
negotiations, they agreed to organize "FIMA
Insurance Corp." with a group of Filipino
businessmen. FIMA would have a PhP50
Million paid up capital, PhP40 Million of
which would come from the Filipino group.
All corporate officers would be Filipinos and
8 out of its 10-member Board of Directors
would be Filipinos. Can FIMA operate an
insurance business in the Philippines?
Bar 2011
A.
No, since an insurance company must have
at least PhP75 Million paid-up capital.
B.Yes, since there is substantial compliance

with our nationalization laws respecting paid-
up capital and Filipino dominated Board of
Directors.
C. Yes, since FIMAs paid up capital more than
meets the countrys nationalization laws.
D.No, since an insurance company should be

100% owned by Filipinos.
Answer
A. No, since an insurance
company must have at least
PhP75 Million paid-up capital
(based on DO 27-06).
What may be insured
against
DAMNIFY A PERSON OR
CREATE LIABILITY AGAINST
HIM
CONTINGENT UNKNOWN
EVENT EVENT
Contingent Event
An event which may or may not

happen
Example: Fire, accident, sinking

of a ship, theft
Unknown event
An event which is certain to happen
Aspect
of being unknown is WHEN it will
happen
Example: Death
Damnify v. Create a
liability
Damnify - direct loss of a
person
Create a liability - expose the

person to liability to third
persons. E.g. third party
liability insurance
Insurance by a married woman
May take out an insurance on

her life or that of her children or
that of her husband without the
consent of her husband (RA No.
7192)
May take out insurance on

paraphernal property
Insurance by a minor
(Sec. 3)
Any minor may
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.
Insurance by a minor
A property insurance taken by
a minor is voidable or valid
until annulled (1390)
If contract is not disaffirmed,

insurer cannot invoke minority
to escape liability.
Bar 2012
X, a minor, contracted an insurance on his
own life. Which statement is most accurate?
The life insurance policy is void ab initio.
The life insurance is valid provided it is with
the consent of the beneficiary.
The life insurance policy is valid provided the
beneficiary is his estate or his parents, or
spouse or child.
The life insurance is valid provided the
disposition of the proceeds will be subject to
the approval of the legal guardian of the
minor.
ANSWER
The life insurance policy is
valid provided the beneficiary
is his estate or his parents, or
spouse or child.
Individu
Life
al
Group
Industri
al
Insuran
ce Marine
Casualt
y
Fire
Non-Life Suretys
hip
Life Insurance
Insurance on human lives

and insurance appertaining
thereto or connected
therewith (sec. 179)
Classes
1. Individual protection is based on
individual application.
2. Group unit of selection is the
group rather than the individual,
blanket policy covering a number of
individuals
3. Industrial premiums are
payable either monthly or oftener if the
face amount of insurance is not more
than 500 times the current statutory
minimum wage in Metro Manila.
Non-Life
Property insurance or
insurance whose object is
other than a persons life or
where the covered peril is
something other than death
Types: Fire
Includes insurance against loss
by fire, lightning, windstorm,
tornado or earthquake and other
allied risks, when such risks are
covered by extension to fire
insurance policies or under
separate policies
Types: Casualty
Covers 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, marine.
Types: Casualty
Includes but is not limited to
employers liability insurance,
workmens compensation insurance,
public liability insurance, motor
vehicle liability insurance, plate
glass insurance, burglary and theft
insurance, personal accident and
health insurance written by non-life
companies.
Casualty: Compulsory
Motor Vehicle Liability
OR Third Party Liability
Insurance against passenger and
third party liability for death or
bodily injuries arising from motor
vehicle accidents
Required before an owner or

operator can use his vehicle
Required in registration or renewal
of registration
Casualty: Compulsory
OR Third Party Liability
Insurance coverage for private
vehicles = P100,000
If public utility vehicle = P200,000
Insurance Memorandum Circular

4-2006
Types: Marine
vessels, craft, aircraft, vehicles, goods, freights,

cargoes, merchandise, effects, bottomry,
respondentia interests
person or property in connection with or

appertaining to marine, inland marine, transit
or transportation insurance but excludes life
insurance or surety bonds or insurance against
loss by reason of bodily injury to any person
who arising out of ownership, maintenance or
use of automobiles
Types: Marine
precious stones, jewels, jewelry,
precious metals, whether in the course
of transportation OR otherwise
bridges, tunnels and other

instrumentalities of transportation and
communication (excluding buildings,
furniture and furnishings fixed contents
and supplies held in storage), piers,
wharves, docks and slips other aids of
Types: Suretyship
An agreement whereby a party
called the surety guarantees the
performance of another party
called the principal or obligor of an
obligation or undertaking in favor
of a third party called the obligee.
Includes official recognizances,

stipulations, bonds or
undertakings issued by any
At a glance
In an insurance contract, a person
indemnifies another person for his loss,
damage or liability
Any contingent or unknown event

which may damnify a person or create
a liability against him may be insured
The two main kinds of insurance are life

and non-life insurance
At a glance
A person can sue based on an insurance

contract within 10 years from the time the
right of action accrues
10-year period may be longer or shorter but

generally, cannot be shorter than one year and
in industrial life, cannot be shorter than 6 years
Doubts in interpreting insurance contracts are

resolved in favor of the insured
Framework

Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
PART TWO:
LIFE INSURANCE
Procedure
Agent offers a person a life

insurance policy
1
The person files an application for a
policy. He is required to pay the first
premium when he applies
2
Insurance company approves the application and
issues a policy in favor of the person. In case of
disapproval, the premium is returned to the person
Procedure
In case the contingency happens, either the

policyholder or his designated beneficiaries
claim from the policy
3
The claim is either granted or
denied by the insurance
company 4
If denied, the claimant may file a case either in the
insurance commission or the regular courts
depending on the amount of the claim
Topics in Stages 1 and 2
What may be insured against
Rule in case of death by suicide
Insurable Interest
Parties
Kinds of life insurance
Kinds of life insurance policies
Concept
Life Insurance -
insurance on human
lives and insurance
appertaining thereto or
connected therewith
Classes
1. Individual protection is based on
individual application.
2. Group unit of selection is the
group rather than the individual,
blanket policy covering a number of
individuals
3. Industrial premiums are
payable either monthly or oftener if the
face amount of insurance is not more
than 500 times the current statutory
minimum wage in Metro Manila.
Contingencies
death
survival of a specific period
continuance or cessation of life

What may be insured
against?
Actual death
Living death
Retirement death
Actual Death
Cessation of life
Best proof of death: death certificate
Policy matures upon the death of

the insured
Living Death
When the insured suffers from

disability due to disease or
accident which prevents him from
engaging in any lawful occupation
Partakes the nature of health and

disability benefits
Living Death:
Accident and Health
Health, accident and

disability insurance are
deemed as both life and
non-life insurance and such
may be issued by either life
or non-life insurance
companies (sec. 187-A, 9th
par).
Living Death:
Accident and Health
Deemed life insurance

when death is one of
the risks insured against
(Gallardo v. Morales)
Accident
An event which happens without any

human agency or, if happening through
human agency, an event which under
the circumstances, is unusual and not
expected by the person to whom it
happens by reason of some violence or
casualty to the insured without his
design, consent or voluntary
cooperation (Sun Insurance v. CA)
Is death by suicide
compensable
General Rule: NO.
BASIS:
Sec. 87 which provides that an
insurer is not liable if loss is caused
by willful act or connivance of the
insured; and
the Rules of Court which provides

that a person is presumed to intend
the consequences of his voluntary
acts
When is suicide
compensable?
Section 180-A
If insured was not in his right
mind/insane at the time of suicide
If insured committed suicide after the

policy has been effective for at least 2
years from issuance or last
reinstatement
Note: The 2-year period can be

shortened but not lengthened
Bar 2012
X, on January 30, 2009, or two years before
reaching the age of 65, insured his life for P20
Million. For reasons unknown to his family, he
took his life 2 days after he reached 65. The
policy contains no excepted risk. Which
statement is most accurate?
A. The insurer will be liable
B. The insurer will not be liable
C. The state of sanity of the insured is relevant
in order to hold the insurer liable
D.The state of sanity of the insured is
irrelevant in order to hold the insurer liable
ANSWER
The insurer will be liable. The
suicide was committed after
the two-year period from the
time the policy was obtained.
Further, there is no excepted
risk provision in the policy.
Hence, the beneficiaries are
entitled to the proceeds.
Retirement Death
Life Annuity debtor binds himself to

pay annual pension or income during
the life of one or more determinate
persons in consideration of a capital
consisting of money or other property,
whose ownership is transferred to him
at once with the burden of income
(Art. 2021, Civil Code)
Dynamics in Life
Annuity
Insurer
Annuitant gives Death of
money to insurer annuitant or
Insurer becomes appointed
the debtor persons
Insurer must give extinguishes
pension to obligation to give
annuitant or pensionEnd of
Annuitant designated
person obligation
Retirement Death
Annuitant gives money or property to the

insurer
Insurernow becomes the debtor, and has the

obligation to give annual pension or income
to either the annuitant or another person
The
obligation of insurer to give pension stops
upon the death of the annuitant
INSURABLE INTEREST
Insurable Interest in
Life
A person cannot insure just anyone he
wants
One has to establish that he stands to

suffer some loss because of the death of
a person
Insurable interest ensures that a

person can only get a policy on the
life of someone whose death will
Concept
Relation between the insured and

a particular event such that the
happening of the event will
damnify or cause loss to the
person
PURPOSE FOR THE CONCEPT:

To avoid wagering
To avoid temptation of bringing
about the event
On whose life does a
person have insurable
interest?
himself, spouse, children
person on whom he depends

wholly or in part for education or
support or in whom he has a
pecuniary interest
On whose life does a
person have insurable
interest?
any person who is under legal
obligation to him for payment of
money or respecting property or
services of which illness or death
might delay or prevent
performance
any person upon whose life any

estate or interest vested in him
Section 10(a)
Every person has unlimited

insurable interest in his own
life
One also had insurable

interest in the life of his
spouse and children on the
basis of love and affection
Section 10(b)
Obligation to give
support
Article 195, Family Code
Spouses, legitimate ascendants and
descendants
parents and their legitimate children and
legitimate or illegitimate children of the
latter
parents and their illegitimate children
and legitimate or illegitimate children of
the latter
legitimate brothers and sisters whether
of the full or half blood
Section 10(b)
Obligation to give
support:
Article 196, Family Code
Brothers and sisters not
legitimately related,whether of
the full or half blood, are likewise
bound to support each other
EXCEPT only when the need for
support of the brother or sister,
being of age, is due to a cause
imputable to the claimants fault
or negligence.
Blood relationship,
affinity: enough?
In cases not falling under 195
and 196, mere blood
relationship or affinity does
not create insurable interest
Examples: uncle, aunt,

nephew, niece, cousins, son-
in-law, brother-in-law,
Section 10
Pecuniary Interest
Debtor-Creditor
Employer-Employee - El
Oriente v. Posadas
Business partners
Section 10(d)
Person in whose estate an
interest is dependent
Person is given the right to use
a house
Rightceases when the owner

dies and another person
becomes the owner
Bar 2011
X has been a long-time
household helper of Z. X's
husband, Y, has also been Z's
long-time driver. May Z insure
the lives of both X and Y with
Z as beneficiary?
Bar 2011
A. Yes, since X and Y render services to
Z.
B. No, since X and Y have no pecuniary
interest on the life of Z arising from
their employment with him.
C. No, since Z has no pecuniary interest
in the lives of X and Y arising from their
employment with him.
D. Yes, since X and Y are Zs
employees.
Answer
C. No, since Z has no
pecuniary interest in the lives
of X and Y arising from their
employment with him.
Bar 2011
X, Co., a partnership, is
composed of A (capitalist
partner), B (capitalist partner)
and C (industrial partner). If you
were partner A, who between B
and C would you have an
insurable interest on, such that
you may then insure him?
Bar 2011
A. No one, as there is merely a
partnership contract among A, B and
C.
B. Both B and C, as they are your
partners.
C.Only C, as he is an industrial
partner.
D. Only B, as he is a capitalist partner.

Answer
B. Both B and C, as they are your
partners.
Measure of Recovery of
Proceeds
SEC. 183 - GENERAL RULE:

Face value of the policy
Except: pecuniary estimation

is possible [10]
Special Rule on
Insurable Interest in
Industrial Life
Usual rules re insurable interest
are generally not made applicable
in industrial life because:
Proceeds are small, little danger

to induce a person to kill
Special Rule on Insurable
Interest in Industrial Life
Investigation of presence of
insurable interest will nullify
speedy payment of proceeds under
the facility of payment clause
The costs to prove insurable

interest will destroy the purpose for
this type of insurance
PARTIES
Cest
Bene
ui
ficiar
Que
y
Vie
Insur
er
Insur
ed
Insurer: Section 6
Every person, partnership,

association or corporation
duly authorized to transact
insurance business as
elsewhere provided in this
Code may be an insurer.
Insurer
Insurance corporations- Sec. 185 -

corporations formed or organized
to save any person or persons or
other corporations harmless from
any loss, damage or liability
arising from any unknown or
contingent event, or to indemnify
or compensate for such loss,
damage or liability or to
guarantee performance with
contractual obligations or
payment of debts
Insured: Section 7
Anyone except a public

enemy may be insured.
Public enemy - citizen or

national of any country with
which the Philippines is at war
Bar 2000
May a member of the Moro

Islamic Liberation Front or its
breakaway group Abu Sayyaf be
insured with a company licensed
to do business under the
Philippines? Explain (3%)
ANSWER
Yes, a member of the MILF or

the Abu Sayyaf may be insured.
Only a public enemy cannot be
insured. A public enemy is a
citizen or national of a country
with which the Philippines is at
war.
Insured
The person who must have insurable
interest
The person who pays the premiums
Commonly referred to as the

policyholder
Not necessarily whose life is used to

constitute the insurance policy
Insured: Rights
Rightto borrow on the policy

227(g)
Right to dividends if
participating policy 227(e);
230(e)
Insured: Rights
Right to reinstatement 227(j);

230(j)
3 years from date of default in
individual
2 years from date of default in
industrial
payment of overdue premiums
evidence of insurability
Insured: Rights
Right to transfer/bequeath-
pass by transfer, will or
succession to any person
whether he has insurable
interest or not; notice to
insurer not required
Cestui Que Vie
Person on whose life the

insurance contract is
constituted
Canbe any of those

enumerated under Section 10
Beneficiary
One who receives benefits
GENERAL RULE: Designation may

be changed by insured
EXCEPTION: insured has expressly

waived his right to change
Bar 2005
What are the effects of an irrevocable

designation of a beneficiary under the
Insurance Code? Explain (2%)
Jacob obtained a life insurance policy for P1 M

designating irrevocably Diwata, a friend, as his
beneficiary. Jacob changed his mind and wants
to include two other friends as beneficiaries.
Can Jacob still add the two friends? (2%)
ANSWER
The irrevocable beneficiary has a vested interest

in the policy, including its incidents such as the
policy loan and cash surrender value
Jacob cannot include the two friends as additional

beneficiaries as this would diminish the interest
of Diwata who is irrevocably designated as
beneficiary. Diwata has to consent first to the
inclusion.
Disqualified
Beneficiaries
Article 2012 in relation to Article 739 of
the Civil Code
those made between persons who were

guilty of concubinage at the time of
donation
those made between persons found

guilty of the same criminal offense in
consideration thereof
those made to a public officer or his

spouse, descendants and ascendants
by reason of his office
Beneficiary
Insular Life v. Ebrado, 80

SCRA 181 - The designation of
a common law wife is void.
This need only be proved by
preponderance of evidence, no
previous conviction is required
Beneficiary
Common-law spouses are, definitely, barred from
receiving donations from each other. Article 739 of the
new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
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 or 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 donee may be proved by
preponderance of evidence in the same action.
If the beneficiary is
disqualified
The estate of the

insured will be
entitled to the
proceeds of the life
insurance policy.
Bar 1998
Awas issued a policy on whole life plan

for P20,000. A is married to B with
whom he has 3 legitimate children.
However, A designated his common-law
wife C as the beneficiary in his policy
and referred to C as his legal wife.
When A died, both B and C claimed the
proceeds of the insurance. Who is
entitled to the proceeds? (5%)
ANSWER
The estate of A is entitled to

the proceeds. C is a
disqualified beneficiary
because of the illicit relation
she had with A.
Bar 2012
X is the common law wife of Y. Y
loves X so much that he took out
a life insurance on his own life
making X as the sole beneficiary.
Y did this to ensure that X will be
financially comfortable when he
is gone. Upon the death of Y---
Bar 2012
A. X as the sole beneficiary in the
policy of Y will be entitled to the
entire proceeds
B. Despite the designation of X, the
proceeds will go to the estate of
Y
C. The proceeds will go the
compulsory heirs of Y
D. The proceeds will be divided
equally amongst X and the
ANSWER
Common law spouses are barred
from donating to each other.
Those who are barred from being
donees cannot be beneficiaries in
a life insurance policy.
Hence, X is a disqualified
beneficiary and the proceeds will
go to the estate of Y.
Rules on Beneficiaries
If beneficiary WILLFULLY
causes the death of the
insured/cestui, the nearest
relatives of the insured will get
the proceeds
If beneficiary dies ahead of

the insured/cestui, the
estate of the insured will
get the proceeds
If beneficiary is not
designated, insureds
estate will get the proceeds
NOTE!!!
Only the insured or policyholder in life

insurance is required to have insurable interest
on the life of the cestui.
The beneficiary may or may not have insurable

interest on the life of the cestui. What is vital is
that the beneficiary is not disqualified under
the law to get the proceeds.
Bar 2000
A is an elderly bachelor who took out

an individual life insurance policy on
his life. The designated beneficiary is
B a companion-friend. A died in a fire
which also destroyed his home. The
insurer refused payment to B due to
absence of insurable interest on the
life of A. Is the insurer correct?
ANSWER
The insurer is wrong. B as the

beneficiary is entitled to collect the
proceeds. As a beneficiary in a life
insurance policy, B is not required to
have insurable interest on the life of
A. A had insurable interest on his
own life and the policy was taken on
his life.
LIFE INSURANCE
POLICY
Form
GENERAL RULE: printed form
EXCEPTIONS: group life and
annuity contracts which may
be typewritten
Contains blanks where word,

phrase, clause, mark, sign
necessary to complete the
policy are placed
Contents (Sec. 51)
Parties
amount to be insured
premium
life insured
risks
Required
Provisions
Grace period provision provision
which gives the insured additional time
to pay his premiums from the due date
Clarifies
the right to collect if death
happens within the grace period
Individual life 30 days/1 month

Group life 30 days/1 month
Industrial life 4 weeks or if payable
monthly 30 days/1 month
Required
Provisions
Entire contract provision
The policy shall constitute the
entire contract between the
parties
Required
Provisions
Misstatement of age
provision if the age of the
insured is misstated, the
amount payable shall be as
such premium would have
purchased at the correct age
Required Provisions
Reinstatement provision
clarifies the requirements for
restoring a policy to premium-
paying status after it has lapsed.
Individual within 3 years from
default
Group no reinstatement
Industrial within 2 years from
default
Special Features
Loan privilege based on the
cash surrender value, the insured
may obtain a loan by pledging
the policy
Policy dividend options if the

policy is participating, the
policyholder is entitled to a share
of the surplus.
Special Features
Exemption from claims of creditors
protection against execution
Income tax treatment proceeds of life

insurance policies are generally tax
exempt. However, endowment proceeds
and cash surrender values are treated as
income and are taxable.
Special Features
Surrender options/NON-
DEFAULT OPTIONS if the
policyholder cannot continue
paying the premiums, he has
some options which will not put
to waste what he has paid.
However, these options are
available only upon payment of
at least 3 annual premiums
Non-Default/Surrender
Options
Cash Surrender Value 227(f);
230(f) and (g)
payment of at least 3 annual
premiums
not less than the reserve on
the policy
Extended Insurance
At least three annual premiums
limited time, same face value
Non-Default/Surrender
Options
Paid-Up Insurance
At least three annual premiums
same period, lower proceeds
Automatic Premium Loan

Parties agree that in case of
default insurer advances the
premium not subject to
repayment
Kinds of Policies
1. Ordinary Life
payment of premiums is
annually or at more
frequent intervals
throughout life and the
beneficiary is entitled to
receive payment only after
Kinds of Policies
2. Limited Payment Life

premiums are payable only
during a limited period of
years (10,15,20 years).
After the period, the insurance
is deemed fully paid. Proceeds
are payable upon death of
insured.
Kinds of Policies
3. Term Insurance provides

coverage only if the insured
dies during a limited period.
If the insured dies within the
period, the beneficiary gets
the proceeds. If the insured
survives the period, the
contract is terminated.
Kinds of Policies
4. Endowment Policy
insured gets a sum of
money if he survives a
specified period. If insured
dies within the period, the
beneficiary gets the
proceeds.
Kinds of Policies
5. Life Annuity debtor binds
himself to pay an annual
pension or income during the
life of one or more
determinate persons in
consideration of a capital
consisting of money or other
property, whose ownership is
transferred to him at once
Kinds of Policies
6. Accident Insurance
may be life or non-life
insurance.
* If death is one of the risks

insured against, it is
classified as life insurance.
WHEN IS AN
INSURANCE CONTRACT
PERFECTED?
Procedure
Agent offers a person a life

insurance policy
?
The person files an application for a
policy. He is required to pay the first
premium when he applies
?
Insurance company approves the application and
issues a policy in favor of the person. In case of
disapproval, the premium is returned to the
person
When is the insurance
contract perfected?
At the time the insured-
applicant has knowledge of the
approval of his application.
Even if the application has been

approved if the applicant-
insured does not know about
approval, there is NO perfected
contract perfected?
Since the insured is the one
making the offer, the
submission of the application
WITHOUT the approval of the
policy does not result in a
perfected contract of insurance
(Grepalife v. CA)
contract perfected?
De Lim v. Sun Life the applicant
paid the premium upon filing of
application but he dies before the
approval
HOLDING: NO perfected
contract of insurance
Bar 2011
On June 1, 2011, X mailed to Y Insurance,
Co. his application for life insurance, with
payment for 5 years of premium enclosed
in it. On July 21, 2011, the insurance
company accepted the application and
mailed, on the same day, its acceptance
plus the cover note. It reached X's
residence on August 11, 2011.
But, as it happened, on August 4, 2011, X
figured in a car accident. He died a day
later. May X's heirs recover on the
insurance policy?
Bar 2011
A.Yes, since under the Cognition Theory, the
insurance contract was perfected upon
acceptance by the insurer of X's application.
B.No, since there is no privity of contract

between the insurer and Xs heirs.
C. No, since X had no knowledge of the insurer's

acceptance of his application before he died.
D. Yes, since under the Manifestation Theory,
the insurance contract was perfected upon
acceptance of the insurer of X's application.
Answer
C. No, since X had no
knowledge of the insurer's
acceptance of his application
before he died.
contract perfected?
If insured died during the
period of provisional policy
which is conditioned upon
approval of application,
beneficiary is NOT entitled to
proceeds.
contract perfected?
Even if the insurer has
approved the application via a
letter, there is no perfected
contract if there is no evidence
that the applicant knew of the
approval (Enriquez v. SunLife,
41 Phil 629)
contract perfected?
The insured is presumed to
have understood the
application and the contract of
insurance (Tang v. CA, 90 SCRA
236)
Cover Notes v. Binding
Receipt
COVER NOTE: Temporary
insurance policies intended to
cover the insured while
application is being evaluated
Cover Note v. Binding receipt
BINDING RECEIPT:
acknowledgment of receipt of
premium and application subject
to evaluation. NOT the same as
cover note (Great Pacific v.
CA, 89 SCRA 543)
Cover note is a valid
insurance K IF:
Issued and renewed with prior
approval of IC
Valid and binding for not more

than 60 days, unless the
insurance commission has
approved an extension based on
valid grounds
No separate premium is required

insurance K IF:
7-day notice to the other

party is required to cancel the
cover note
Policy must be issued within

60 days from issuance of
cover notes
insurance K IF:
60-day period may be extended

upon written approval of IC
Written approval is dispensed when

president, VP or general manager
that the renewal is not to
circumvent the insurance code (Ins.
Memo Circular 3-75)
PREMIUM
Concept
Agreed price for assuming the risk
The right to premium arises the moment

the property/object is exposed to risk
Cash and carry basis - based on section

77 which provides that the moment the
thing insured is exposed to the peril, the
insurer has the right to payment of
premium.
When is non-payment
excused?
insolvent insured
insurers negligence or
fault
insurer waives the
right to payment
When is non-payment
excused?
war does not suspend the

policy and does not excuse
non-payment of premiums
Constantino vs. Asia
Life, 87 Phil 248
Premium
If insured fails to pay 1st

premium, insurer cannot ask for
specific performance but can
only rescind the contract since
there is no creditor-debtor
relationship
Special Rule in Industrial
Life if premiums are not
paid
If insured failed to pay

because the insurance agent
did not collect in the address
provided in the policy policy
will NOT lapse
Special Rule in Industrial Life
if premiums are not paid
Except: if 12 weeks or 3
months have lapsed from
end of grace period
At a glance
Only the insured must have
insurable interest on the life if the
cestui
Suicide is generally not

compensable unless: mentally ill or
committed after the policy has
existed for more than two years
from issuance
At a glance
If the beneficiary is disqualified

because he participated in the
death of the cestui, the nearest
relatives of the insured will
recover. In all other cases, it is
the estate of the insured which
can recover
At a glance
Ifthe cestui dies during the grace period, there

can be recovery
Ifthe cestui dies during the duration of the

cover notes, there can be recovery
The measure of recovery in life insurance is the

face value of the policy. Except when insurable
interest is capable of pecuniary estimation
Framework

Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
PART THREE
NON-LIFE INSURANCE
Topics
What may be insured
against
Insurable interest
Non-life insurance policy

Topics
Premiums
Parties
Double insurance v reinsurance
Different kinds of non-life insurance

WHAT MAY BE
INSURED AGAINST
Unknown
Contingent
Event-
Event- may
time of
or may not
occurrence
happen
is unknown
Which will
damnify a
person
OR
create a
liability
against him
Requirement for
recovery
Peril insured against must be the PROXIMATE
CAUSE of the loss or damage (sec. 84)
NO liability if insured risk is only a remote cause

or if proximate cause is an excepted peril
Concept of loss - injury, damage, liability, loss of

income or profits sustained by the insured in
consequence of the happening of one or more
perils insured against (Bonifacio Bros. V. Mora, 20
SCRA 261)
Proximate Cause
That which in the natural and continuous

sequence, unbroken by any NEW
INDEPENDENT cause, produces an event
without which the event would not have
occurred.
Also called the EFFICIENT CAUSE, or one

that sets the others in motion
NOT equivalent to IMMEDIATE CAUSE

Proximate Cause:
Examples
Fire causes an explosion which

results in loss. Fire is the
proximate cause of the loss. If
fire is a covered peril, the insurer
is liable.
A house is insured against fire.

The house is destroyed due to
the falling of a wall. The wall fell
due to fire. The insurer is liable
Immediate Cause v.
Proximate Cause
Immediate cause cause or peril which

appears closest in time to the loss
Immediate cause is NOT necessarily

the proximate cause and vice versa
Bar 2007
Alfredo took out a policy to insure his

commercial building against fire. A fire
broke out and destroyed the building.
It was found that the proximate cause
of the fire was explosion but fire was
the immediate cause of the loss. There
is no excepted peril in the policy. Can
there be recovery under the policy.
ANSWER
Alfredo cannot recover from the policy.

Section 84 of the Insurance Code provides
that before there can be recovery under
property insurance, the proximate cause
of the loss must be the covered peril. In
the instant case, the proximate cause of
the loss was not the peril insured against.
Hence, there can be no recovery under
the policy.
Hostile v. Friendly Fire
Friendly - fire burns in a place where it
is intended to burn
Hostile - occurs outside the confines or

begins as a friendly fire and becomes
hostile by escaping from the place
where it ought to be
Hostile fire is the one covered by fire

insurance
Section 85:
Loss in the course of
rescue
Insurer is liable if the thing is
rescued from peril insured
against if in the course of
rescue, the thing is exposed to
a peril not insured against
Illustration
An owner gets fire insurance for his
house and all furniture inside.
In the course of rescuing the furniture

from fire, the furniture is damaged due to
water.
The insurer is liable to the owner

although the damage is not due to fire
since it was in the course of rescuing the
furniture from fire that it suffered some
damage.
If loss due to willful act
or connivance of
insured
Section 87 - insurer is not liable
if insured, through his willful act
or connivance caused the loss
Ex. Arson, owner hiring other

people to rob his property
If loss due to willful act or
connivance of insured
Section 87 - if loss is through SIMPLE
negligence of insured or his agents,
insurer is STILL LIABLE
Insurer
is NOT liable if loss is caused by
GROSS negligence of insured
Bar 2007
If the fire was found to have

been caused by Alfredos own
negligence, can he still recover
from the policy?
ANSWER
I qualify. If the negligence was

simple in nature then Alfredo
can still recover under the
policy. However, if there was
gross negligence on the part of
Alfredo then he is barred from
recovering under the policy.
INSURABLE INTEREST
Concept, Section 13
Every interest in property, whether
real or personal (owner)
Any relation thereto (lessee, agent)
Liability in respect of property

(carrier, depositary)
Which will directly damnify the

insured when a contemplated peril
Forms, Sec. 14
Existing interest (owner)
Inchoate interest founded on an

existing interest (shareholder)
Expectancy coupled with an

existing interest (usufructuary,
expected profit)
Factual Expectation
Mere factual expectation of loss not

arising from any legal right or duty in
connection with the SM does NOT
constitute an insurable interest.
NOTE: Factual expectation is enough

basis in life insurance.
Beneficiary is required to
have insurable interest
Insurable interest is
required before a person
can benefit from a
property insurance (Sec.
18)
Bar 2000
A is an elderly bachelor. He insured

his house against fire. He named
his companion-friend as
beneficiary. A died in a fire which
also destroyed his home. The
insurer refused payment to B due
to absence of insurable interest on
the life of A. Is the insurer correct?
ANSWER
The insurer is correct. The

beneficiary in property insurance
must have insurable interest on
the property. The companion-
friend of A does not have
insurable interest on the house of
A. Hence, he cannot recover from
the fire insurance policy.
Bar 2001
JQ, the owner of a condominium

insured the same against fire
with XYZ Company and made
the loss payable to his brother
MLQ. In case of loss by fire, who
can recover from the policy.
State the reason for your answer
(5%)
ANSWER
JQcan recover since he has

insurable interest over his
own condominium unit.
MLQ cannot recover since it
is required that a
beneficiary must have
insurable interest over the
property.
Insurable interest in a
mortgaged property (Sec. 8)
Both the mortgagor and the mortgagee

have insurable interest on the
mortgaged property
The II of the mortgagor is to the full

value of the SM
The II of the mortgagee is only up to the

extent of the indebtedness
Bar 2012
A house and lot is covered by a real estate mortgage
(REM) in favor of ZZZ Bank. The bank required that
the house be insured. The owner of the policy failed
to endorse nor assign the policy to the bank.
However, the Deed of Real Estate Mortgage has an
express provision which says that the insurance
policy is also endorsed with the signing of the REM.
Will this be sufficient?
A. No, insurance policy must be expressly endorsed
to the bank so that the bank will have a right in the
proceeds of such insurance in the event of loss.
B. The express provision contained in the Deed of
Real Estate Mortgage to the effect that the policy is
also endorsed is sufficient.
C. Endorsement of Insurance Policy in any form is
not legally allowed.
Bar 1999
A businessman obtained a fire insurance

policy on his stocks for P5 M. Three
months later, a fire broke out and
destroyed the grocery and stocks. The
insurer denied the claim since the stocks
were mortgaged to another person who
also insured the same stocks for P5 M.
May the businessman and the creditor
obtain different insurance policies on the
same stocks?
ANSWER
Yes.The businessman, as
the owner and the creditor,
as the mortgagee have
insurable interest over the
stocks. Hence, they may
obtain separate policies on
the same stocks.
Measure
Measure of insurable interest is

the extent the insured might be
damnified by loss or injury (Sec.
17)
Section25: Void stipulations

payment of loss whether insured
has insurable interest or not or
INSURABLE INTEREST:
jurisprudence
Fire insurance taken on a property

belonging to another is VOID, although
the insurer had full knowledge of fact of
ownership and even if insured
subsequently acquired insurable interest
(Cha v. CA, 277 SCRA 690)
INSURABLE INTEREST:
jurisprudence
Where the real intention of insured
was to insure his goods for P15,000
but insurer mistakenly insured the
building where the goods were
contained and not owned by
insured, in case of loss of goods
insured was allowed to recover
(Garcia v. Hongkong, 45 Phil
122)
When insurable interest must exist
in
property insurance
Time the insurance takes

effect and when the loss
occurs, but NEED NOT
exist in the meantime
Bar 2002
Distinguish insurable
interest in property
insurance from insurable
interest in life insurance
(5%)
ANSWER
In
property insurance, the expectation of benefit must
have a legal basis. In life insurance, insurable
interest can be based on mere factual expectation.
In property insurance, the actual value of the
interest is the limit of the insurance. There is no such

limit in life insurance except if insurable interest is
capable of pecuniary estimation.
In property insurance, insurable interest must exist
when the insurance takes effect and at the time of

the loss but not in the meantime. In life insurance,
insurable interest must exist only at the time the
insurance takes effect.
Bar 2012
For both the Life Insurance and Property
Insurance, the insurable interest is
required to be -
A. existing at the time of perfection of the
contract and at the time of loss.
B. existing at the time of perfection and at
the time of loss for property insurance but
only at the time of perfection for life
insurance.
C. existing at the time of perfection for
property insurance but for life insurance
both at the time of perfection and at the
ANSWER
B.existing at the time of
perfection and at the time of loss
for property insurance but only at
the time of perfection for life
insurance.
Change of ownership of
property
Section 20 and 58: A change of

interest in any part of a thing
insured unaccompanied by a
corresponding change of interest
suspends the insurance until the
interest in the thing and interest
in the insurance are vested on
the same person
Illustration
A
owns a car which is insured against theft
A sells the car to B. The policy was not
included in the sale.

If the car is carnapped, neither A nor B can
recover under the policy.

A cannot recover because he does not own
the car at the time of the theft.

B cannot recover because he does not own
the policy
Transfer of property
by succession
When the insured dies, and the

subject matter is transferred by
succession, the new owner of the
thing will also own the insurance.
(Sec. 23)
Illustration
A owns a car which has theft

insurance
A bequeath the car to B under
his will
A dies
B now owns the car, together
with the insurance policy
POLICY
KINDS
Open Value of thing is not

agreed upon but is to be
ascertained at time of loss
Valued expresses on its face
an agreement that the thing
shall be valued at a specific
sum
TWO KINDS OF VALUES
Face value maximum
amount which may be
recovered under the policy
Valuation- value of the

subject matter agreed on by
the parties
Open v. Valued
Open - has a face value

but has NO valuation of the
thing. Valuation is done
after the loss
Valued - has both face

value and valuation of the
thing
Illustration: Open
Value of a
building: to be
determined at
time of loss
Face Value: P10

Million
If the valuation is
more than the face
value, recovery is
limited to the face
value
Illustration: Valued
Valuation of a building :
P1.5 Million
Face Value : P1
Million
GENERAL RULE: Recovery
will be based on
valuation
EXCEPTION: If valuation
is obtained through fraud
or misrepresentation.
Recovery is limited to the
face value or insurer may
deny the claim
Illustration: Running
As of June 12, 2013 value of goods P1 Million

As of July 12, 2013 - value of goods P500,000
PREMIUM
PREMIUM
Cash and carry basis rule is
followed
Section 77 - insurer is entitled to

premium as soon as the thing
insured is exposed to the peril
insured against
Premium - is the agreed price for

PREMIUM
General Rule: Cash and carry
basis nonpayment of the
first premium prevents the
contract from becoming
binding
Premium must be paid in cash

as a condition precedent for
non-life insurance policy to be
PREMIUM
In Suretyship, payment of
premium is also necessary for the
contract to be binding
EXCEPT: if obligee has accepted

the bond, suretyship is binding
even if premium has not been
paid, subject to the right of the
Exceptions to Cash and Carry
Basis, Sec. 77
Life/industrial life when the grace
period applies
When the policy contains an

acknowledgment of receipt of
premium, this is conclusive proof
of payment
Basis, Sec. 77
When the parties have agreed on
installment payment (Makati
Tuscany case)
When the insurer has renewed

the insurance over the years
under a clear credit term
arrangement (UCPB case)
Basis, Sec. 77
In Suretyship where the

obligee accepts the bond even
if premium has not been paid
(Sec. 177)
When there is a
credit scheme
UCPB v. Masagana April 4, 2001 - insured
is entitled to proceeds even if he has not
fully paid premiums when:
for years, insurer has been issuing fire

insurance policies to insured and the
policies were renewed
insurer has been granting 60-90 day

credit extension
When there is a
credit scheme
no valid notice of non-renewal
premium was paid by insured within

credit extension period
Bar 2007
Alfredo took out a policy to insure
his commercial building. The
broker agreed to give a 15-day
credit to Alfredo within which to
pay the premium. Upon delivery
of the policy on May 15, 2006,
Alfredo issued a postdated check
dated May 30, 2006. On May 28,
2006, fire destroyed the building.
May Alfredo recover from the
policy?
ANSWER
Alfredo can recover from the

policy. In a decided case by the
Supreme Court, it was held that
parties may agree on a credit
extension in paying the premium.
The happening of the peril during
the credit extension will entitle
the insured to proceeds, less the
unpaid premiums.
Premium by installment:
Makati Tuscany v. CA
Makati and American Assurance

agreed that premiums will be
paid via three installments
Makati paid premiums for 3
consecutive years in three
installments
On the 4th year, Makati paid
only the 1st 2 installments.
American collected the 3rd
installment
Makatis defense: Section 77

provides that no policy will be
effective unless the premium has
been paid. Since premiums were
paid on installments, there was no
valid policy.
Makati and American Assurance agreed
that premiums will be paid on three
installments
Afterpaying premiums for 3 consecutive

years, Makati refused to pay the third
installment on the 4th year
Americansought to collect the balance

from Makati
SC: Section 77 merely precludes the parties

from stipulating that the policy is valid even if
premiums are not paid, but does not expressly
prohibit an agreement granting credit
extension, and such an agreement is not
contrary to morals, good customs, public order
or public policy (De Leon, the Insurance Code,
at p. 175). So is an understanding to allow
insured to pay premiums in installments not so
proscribed. At the very least, both parties
should be deemed in estoppel to question the
arrangement they have voluntarily accepted
Bar 2006
A Insurance Company issued an policy

on the new car of B. The premium of
P60,000 was to be paid in 6 months. B
paid only the 1st two months
installments. Despite demands, B
failed to pay the rest of the
installments. Five months after the
issuance of the policy, the vehicle was
carnapped. A denied the claim of B
since B did not pay the premium
resulting to cancellation of the policy.
Can B recover from A?
ANSWER
B can recover from A the proceeds of the

policy less the unpaid premiums. In a
decided case by the Supreme Court, it was
held that when the parties agreed on
payment of premiums by installment, the
policy becomes effective upon payment of
first installment. Absent any provision that
non-payment of subsequent installments will
cause cancellation, the policy between A and
B continue to exist.
Bar 2010
Enrique obtained from Seguro Insurance

Company a comprehensive motor
vehicle insurance to cover his top of the
line Aston Martin. The policy was issued
on March 31, 2010 and, on even date,
Enrique paid the premium with a
personal check postdated April 6, 2010.
On April 5, 2010, the car was involved in
an accident that resulted in its total loss.
Bar 2010
On April 10, 2010, the drawee bank returned

Enriques check with the notation
"Insufficient Funds." Upon notification,
Enrique immediately deposited additional
funds with the bank and asked the insurer to
redeposit the check.
Enriquethereupon claimed indemnity from

the insurer. Is the insurer liable under the
insurance coverage? Why or why not? (3%)
Suggested Answer
Enrique cannot recover. In a decided case, the
Supreme Court said that an insurer and the
insured may agree on a credit scheme for
payment of premiums, which will give rise to a
perfected contract of insurance. However, the
insurer must make payment within the period
agreed on (UCPB v. Masagana).
In this case, Enriques check bounced on April 6.
He only funded the check on April 10 or 4 days
late than the date of the check. Thus, there was
no perfected contract of insurance which can
cover the April 5 accident. Enrique cannot
recover under the policy.
When is insured
entitled to return of premium?
Whole premium if object was

never exposed to peril, unless it is
an indivisible policy
E.g. insured pays in advance the

annual premium, loss occurs before
date of effectivity. Insured is
entitled to reimbursement of whole
premium
When is insured
Pro-rated premium surrender

policy before period is up
E.g.A insures his house for 1

year but returns the policy after
3 months. A is entitled to of
the premiums.
When is insured
If the contract is voidable on
account of fraud / misrepresentation
of insure/agent, facts insured was
ignorant of, default of insured other
than fraud
E.g.Agent represents that A can be

insured even if his age disqualifies
him. Insured is entitled to return of
premium.
When is insured
Over insurance by several

insurers ratable return of
premium
RATABLE RETURN OF
PREMIUM IN CASE OF
OVERINSURANCE
Sec. 82 premiums to be
returned when there is over
insurance by several insurers
shall be proportioned to the
amount by which the aggregate
sum insured in all policies
exceeds the insurable value of the
thing at risk
Illustration: P1.5M house
Insurer Amount of Premiums
insurance Paid
A company P1,200,000.00 P24,000.00
B company P600,000.00 P12,000.00
TOTAL P1,800,000.00 P36,000.00

How to compute:
STEP 1: Determine amount

overinsured
Amount overinsured =
Amount of insurance value of property
P1.8 P1.5M = P300,000

How to compute
Get the ratio of overinsurance
with the total amount of
insurance
P300,000/P1,800,000.00
= 1/6
Ratable Return
STEP 3: Multiply the ratio to the

amount of premium paid to
every insurer
A= 1/6 of P24,000 = P4,000 from A

Company
B= 1/6 of P12,000 = P2,000 from B

Company
Bar 2000
Name at least three
instances when an insured
is entitled to a return of the
premium paid.
PARTIES
Insurer
Insured Beneficiary
The beneficiary
Section 18 - no contract or
policy on property shall be
enforceable except for the
benefit of some person having
an insurable interest in the
property insured
Compare with Life
Insurance
Where the beneficiary is not
required to have insurable interest
over the cestui que vie
It is only the insured who must

have insurable interest over the
cestui que vie
Double Insurance v. Over-
insurance
Double Insurance
Same person is insured by

several insurers in respect
of the same subject and
interest (Sec. 93)
Double Insurance
Requisites:
1. insured is the same

2. two or more insurers insuring
separately
3. same subject matter
4. interest insured is the same
5. risk or peril insured against is
the same
Bar 2005
When does double
insurance exist? (2%)
Bar 1999
A businessman obtained a fire
insurance policy on his stocks for
P5 M. Three months later, a fire
broke out and destroyed the
grocery and stocks. The insurer
refused to pay claiming that
double insurance is contrary to
law. Is this contention tenable?
ANSWER
The contention of the insurer is
untenable. First, there is no law
prohibiting double insurance.
Second, there was no double
insurance here because the
insured in the two policies are
different. The two insured also
have different interests on the
property.
Bar 2012
X borrowed from CCC Bank. She
mortgaged her house and lot in favor of
the bank. X insured her house. Tt1e
bank also got the house insured.
A. Is this double insurance? Explain your
answer. (3%)
B. Is this legally valid? Explain your
answer. (3%)
C. In case of damage, can X and CCC Bank
separately claim for the insurance
proceeds? (4%)
Answer
1. No, this is not double insurance.
Double insurance exists when the
same person is insured by several
insurers in respect of the same subject
and interest The insured in the two
policies are different and they have
different interests. Xs interest is as the
owner of the house and lot while CCCs
interest is as the mortgagee and is
limited to the amount of the debt.
Answer
2. Yes, this is legally valid. Both the
mortgagee and the owner have
insurable interests over the
property. Either party may obtain a
property insurance policy on the
same property because both stand
to suffer loss in case the house and
lot is destroyed or damaged.
Answer
3.Yes, both X and CCC can
claim under their insurance
policies. X can claim to the
extent of the value of the
property. CCC can claim to the
extent of the unpaid debt in
favor of X, that is secured by
the property.
Over-insurance
OVER- INSURANCE
amount of insurance is
beyond the value of
insureds insurable
interest
How to collect in case of over-
insurance by double insurance,
Sec. 94
Insured may claim payment from
insurers in such order he may
select up to the amount they are
severally liable
When policy is a valued policy,

insurer must give credit as against
the valuation for any sum he
receives without regard to actual
value of the SM
How to collect in case of over-
insurance by double insurance,
Sec. 94
Policy is unvalued, determine actual loss
and collect from insurance in such order
as he may select
If insured receives amount more than

loss, hold sum in trust according to the
right of contribution
Each insurer must contribute ratably to

the loss in proportion to the amount for
which he is liable
Bar 2005
What is the nature of
liability of several
insurers in double
insurance (2%)
ANSWER
In double insurance, the
insurers are considered as
co-insurers. Each one is
bound to contribute ratably
to the loss in proportion to
the amount for which he is
liable under his contract
(sec. 94e)
Bar 2012
X insured the building she owns with two (2)
insurance companies for the same amount. In case
of damage, -
A. X can not claim from any of the two (2) insurers
because with the double insurance, the insurance
coverage becomes automatically void.
B. the two (2) insurers will be solidarily liable to the
extent of the loss.
C. the two (2) insurers will be proportionately liable.
D. X can choose who he wants to claim against.
ANSWER: D
Reinsurance
Contract by which an
insurer procures a third
person to insure him against
loss or liability by reason of
an original insurance
Illustration
A gets B to insure his building
against fire for P10 Million.
B (insurer) can get C (reinsurer) to

reinsure him for P5 Million out of the
P10 Million insurance in favor of A.
Thus, Bs liability shall be limited to
P5 Million. While C, the reinsurer
has to give the insurer the other P5
M.
Reinsurance v. Double
Insurance
insurer becomes the Insurer remains the
insured insurer
subject of insurance subject of insurance

is the original is property
insurers risk
Insurance
insurance of a insurance of the
different interest same interest
original insured is insured is the party

not a party in interest in all
contracts
Insurance
consent of original Insured has to give

insured is not his consent
necessary
Kinds of Non-Life
Insurance
MARINE
Marine
Sections 99 and 100 concept
Peril covered perils of the sea or

perils of navigation casualties due
to unusual violence or extraordinary
action of wind and wave or other
extraordinary causes connected
with navigation must be the
PROXIMATE CAUSE
Peril of the Ship v. Peril of the Sea
Roque v. IAC sinking of barge without

extra-ordinary circumstances (SHIP)
Go Tiaco v. Union loss results from natural

and inevitable action of the sea, from the
ordinary wear and tear of the ship or from
negligence of owner to provide with proper
equipment (SHIP)
Cathay v. CA rusting of steel pipes in the

course of the voyage in view of the toll on
cargo of wind, water and salt conditions
(SEA)
Bar 2011
Perilsof the ship, under marine insurance
law, refer to loss which in the ordinary
course of events results from
A. natural and inevitable actions of the
sea.
B. natural and ordinary actions of the sea.
C. unnatural and inevitable actions of the

sea.
D. unnatural and ordinary actions of the
sea.
Answer
A. natural and inevitable
actions of the sea.
Is ship owners insurer liable in
case of loss if:
vessel is chartered (Sec. 100)
YES. liable only for part of the loss which
insured cannot recover from charterer
Insurance of owner full value of property but

recovery shall be limited to amount not paid
by charterer
Insurance of charterer extent of his liability

in case of loss
Illustration
A and B enter into a charter agreement.
A's vessel is valued at P1 Million.
Per agreement, Bs insurer shall be liable
up to P500,000 in case of loss. A has an
insurance of P1 M.
In case of loss:
As insurer = P500,000
Bs insurer = P500,000
Can ship owner get insurance for:
Expected freightage (Sec. 103)

Expected freightage which in the ordinary and
probably course of things he would have
earned but for the intervention of the peril
insured against
Important that insured must have an inchoate

right to freightage which cannot be defeated
Expected profits (Sec. 105) YES.

Fire
Fire Insurance
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
Firemust be the proximate cause,

and must be hostile in nature
Measure of Indemnity
Ifthere is a valuation shall be

conclusive as between parties in
adjusting partial or total loss in the
absence of FRAUD
If there is NO valuation - the
expense it would be to the insured
to REPLACE the thing lost or injured
in the condition in which it was at
the time of injury
Loss and its amount may be
determined on the basis of such
proof as may be offered by insured
which need not be of such
persuasiveness as is required in
judicial proceedings (Malayan v.
Cruz Arnaldo)
How valuation is made
Sec. 172 independent
appraiser examines the
property and fixes the value
Valuation shall be inserted in

the policy
GENERAL RULE: Valuation shall be
the basis for indemnity in case of
total loss
EXCEPT: If there is a change

increasing the risk without the
consent of insurer or if there's fraud
on the part of insured.
Partial loss full amount of the
partial loss
Parties may agree that instead of

payment, insurer may repair,
rebuild or replace property
Illustration
Subject matter is a
house
Independent
appraiser values it at
P5 Million
The valuation is
attached to the
policy
Illustration
If house is totally destroyed by
fire, the valuation of P5 M will
be given
If the house is half-destroyed,

the indemnity will be half of P5
Million or P2.5 M.
Illustration
If the valuation is based on some
fraud on the part of the insured, e.g.
adding fixtures which are not part of
the house OR there is an alteration
increasing the hazard such as
converting in to an ammunition
factory, the valuation is not used.
Illustration
Parties may agree that instead of
paying the amount, insurer will
rebuild the house.
Casualty Insurance
Casualty Insurance
Sec. 174 insurance covering
loss or liability arising from
accident or mishap excluding
certain types of loss which fall
exclusively within the scope of
other types of insurance such
as fire or marine
Casualty Insurance
Employers liability
Workmens Compensation
Public Liability
Plate glass insurance
Burglary and theft insurance
Personal accident and health
insurance (when death is NOT one
of the risks insured against)
Insurance
Motor vehicle any vehicle
propelled by any power other
than muscular power using the
public highways, with certain
exceptions
Insurance
Section 374 unlawful for any
land transportation owner or
operator to operate the same in
public highways unless there is
a policy of insurance or
guaranty in cash or bond to
indemnify the death or bodily
injury of a third party or
passenger
At a glance
Insurable interest is property
insurance must exist at the time
of the issuance and at the time
of the loss although it need not
exist in between these times
A beneficiary in property
insurance must have insurable
interest over the property
At a glance
It is possible that two or more
persons may have insurable interest
over the same object. As in the case
of owner and lessee, mortgagor and
mortgagee.
In such cases, two or more separate

insurance policies may be obtained.
This is not double insurance since
they dont have the same insured and
they have different interests.
At a glance
The covered peril must be the
proximate cause before there
can be recovery under the policy.
Instances when there can be

return of premiums.
At a glance
Payment of premiums must be on
cash and carry basis.
Important exceptions to cash and

carry: credit extension and
installment payment
At a glance
Marine insurance covers only
perils of the sea and NOT perils
of the ship.
In marine, the ff persons can get

insurance policies: owner,
charterer, for freightage, for
expected profits.
At a glance
Fire insurance covers hostile fire
Failureto give notice of loss in

fire without unreasonable
delay will exonerate the insurer.
Indemnity in fire may either be

based on valuation OR payment
of cost to restore the object at
the time of loss
Framework

Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
PART FOUR:
PAYMENT OF PROCEEDS
AND FILING OF CLAIMS
Basic Rule in Recovery
Sec. 87. An insurer is not
liable for a loss caused by
the willful act or through the
connivance of the insured;
but he is not exonerated by
the negligence of the
insured, or of the insurance
agents or others.
Bar 2010
To secure a loan of P10 million, Mario
mortgaged his building to Armando. In
accordance with the loan
arrangements, Mario had the building
insured with First Insurance Company
for P10 million, designating Armando
as the beneficiary.
Armando also took an insurance on the
building upon his own interest with
Second Insurance Company for P5
million.
Bar 2010
The building was totally destroyed by fire, a
peril insured against under both insurance
policies. It was subsequently determined
that the fire had been intentionally started
by Mario and that in violation of the loan
agreement, he had been storing
inflammable materials in the building.
How much, if any, can Armando recover
from either or both insurance companies?
(2%)
What happens to the P10 million debt of
Mario to Armando? Explain. (3%)
Suggested Answer
Armando cannot recover from
either policy. Under Section 87 of
the Insurance Code, an insurer is
exonerated when the loss is
caused by the willful act of the
insured.
The loan will remain, but it will be

considered as unsecured.
In Life Insurance
WHEN
General Rule: Paid immediately upon
maturity of the policy (death,
survival, cessation or continuance of
life)
Exceptions:
proceeds are payable in

installments
annuity
If maturity is due to
death
Proceeds are paid within 60
days from presentation of the
claim and proof of death
Delay = interest unless

due to fraudulent claim
Proof of death v. Notice of Death
Notice of death is not
enough, there must be
proof of death
Proof of death - death

certificate
TO WHOM
General rule: paid to
designated beneficiaries
Exception: Facility of
payment clause in group life
and industrial life
Facility of Payment :
Group Life
There is no designated
beneficiary
pay not exceeding P500.00
to any person equitably
entitled for incurring funeral
or other expenses incident to
the last illness or death of
Facility of Payment:
Industrial
Ifbeneficiary:
does not surrender policy with
proof of death during period
stated in the policy OR
is the estate of insured OR
is a minor OR
dies before the insured OR
is legally incompetent to give
valid release
Facility of Payment: Industrial
proceedsmay be given to:
the executor or
administrator of insured OR
any of insureds relative by

blood as legal adoption or by
marriage OR
any person who incurred

expenses for maintenance,
medical attention or burial
NON-LIFE INSURANCE
WHEN
within 30 days after proof of
loss is received by insurer
and ascertainment of loss is
made
Ascertainment of loss
made either by agreement
between parties or by
arbitration
WHEN
If no ascertainment is made
or can be had within 60 days
from receipt of proof of loss,
insurer must pay within 90
days after receipt of proof
Refusal to pay within period

unless due to a fraudulent
claim = interest
ILLUSTRATION
A presents proof of loss of car
by theft and insurer ascertains
amount of loss on January 1,
2000
Proceeds must be paid 30 days

after January 1, 2000.
Otherwise, interest must be
ILLUSTRATION
A presents proof of theft on
January 1, 2000 but parties
cannot agree on amount of loss
by March 1, 2000 (within 60 days
from Jan.1).
Proceeds must be paid within 90

days from January 1, 2000.
Otherwise, interest will accrue.
MOTOR VEHICLE LIABILITY
Procedure for filing claims
Within six months, file written notice of claim.
Filed after six months = waived claim
Notice must contain nature, extent, duration of injuries certified by
Accident a licensed physician
Ascertain nature and truth of claim

Insurer If parties agree, pay claim within 5
gets
notice calendar days
Insurer must pay under no-fault

If no indemnity clause
agreement is
reached
No fault Indemnity Clause:
Section 378
death or injury of 3 rd
party
without necessity of
proving fault or
negligence of any kind
iftotal indemnity of one

person shall not exceed
No fault Indemnity Clause
Proofs of loss are submitted
under oath.
police report of accident ;
and
Death certificate and
evidence to establish
payee OR medical report
and evidence of medical
and hospital
No fault Indemnity Clause
Claim against one motor

vehicle only
if occupant of a vehicle,
claim against insurance of
vehicle
otherwise, claim against
offending vehicle
Bar 2012
X is a passenger of a jeepney for hire being driven by Y.
The jeepney collided with another passenger jeepney
being driven by Z who was driving recklessly. As a result
of the collision, X suffered injuries. Both passenger
jeepneys are covered by Comprehensive Motor Vehicular
Insurance Coverage. If X wants to claim under the "no
fault indemnity clause", his claim will lie -
A. against the insurer of the jeepney being driven by Z
who was the one at fault.
B. the claim shall lie against the insurer of the passenger
jeepney driven by Y because X was his passenger.
C. X has a choice against whom he wants to make his
claim.
D.None of the above.
Delay, Proof, Subrogation
Reasonable Delay
in Payment
delaydue to investigation to
ascertain the truth of
information it received that
insured was not insurable at
time of application (Chuy v.
Philamlife)
delaycaused by determination
of actual beneficiary and
Preliminary Proof of Loss
best evidence which insured has
not evidence in ordinary courts
purpose : Apprise insurer of
loss and make proper
investigation while evidence is
still fresh and to prevent further
loss
Notice of Loss in Fire
Insurance
mustbe given without

unnecessary delay
otherwise, the
insurer is exonerated
Subrogation
when insurer pays for the loss
payment to insured operates as an
equitable assignment to the insurer of
all remedies which insured may have for
the recovery
subrogation is limited to the amount
recoverable by the insured
Marine
What may be insured
against
Only covers loss due to perils of the
sea and not perils of the ship
In case there is a bottomry,

insurable interest of the ship owner
is limited to excess of its value over
the amount secured by bottomry.
(101)
Bar 2010
Paolo, the owner of an ocean-going vessel,
offered to transport the logs of Constantino from
Manila to Nagoya. Constantino accepted the
offer, not knowing that the vessel was manned
by an irresponsible crew with deep-seated
resentments against Paolo, their employer.
Constantino insured the cargo of logs against
both perils of the sea and barratry. The logs
were improperly loaded on one side, thereby
causing the vessel to tilt on one side. On the
way to Nagoya, the crew unbolted the sea
valves of the vessel causing water to flood the
ship hold. The vessel sank.
Bar 2010
Constantino tried to collect from the
insurance company which denied liability,
given the unworthiness of both the vessel
and its crew.
Constantino countered that he was not the
owner of the vessel and he could therefore
not be responsible for conditions about
which he was innocent.
Is the insurance company liable? Why or
why not? (3%)
What is "barratry" in marine insurance?
(2%)
Suggested Answer
The insurer is not liable because the
vessel violated the implied warranty
of seaworthiness. The loss was also
caused by a peril of the ship and not
peril of the sea.
Barratry includes every wrongful act

committed by a vessel master or
crew, to the prejudice of the owner
or the charterer.
Bar 2011
T Shipping, Co. insured all of its
vessels with R Insurance, Co. The
insurance policies stated that the
insurer shall answer for all damages
due to perils of the sea. One of the
insured's ship, the MV Dona Priscilla,
ran aground in the Panama Canal
when its engine pipes leaked and the
oil seeped into the cargo
compartment. The leakage was
caused by the extensive mileage that
the ship had accumulated. May the
Bar 2011
A.Yes, because the insurance policy covered
any or all damage arising from perils of the sea.
B.Yes, since there appears to have been no

fault on the part of the shipowner and
shipcaptain.
C. No, since the proximate cause of the damage
was the breach of warranty of seaworthiness of
the ship.
D.
No, since the proximate cause of the damage
was due to ordinary usage of the ship, and thus
not due to a peril of the sea.
Answer
D. No, since the proximate
cause of the damage was due
to ordinary usage of the ship,
and thus not due to a peril of
the sea.
Who can insure?
Freightage all benefits derived by the
owner either from chartering the ship or
its employment for the carriage of his
own goods or those of others (102)
Charterer of the ship has insurable

interest on the ship to the extent that he
is damnified by the loss (106)
Average
General insurer is liable for
proportion of the loss assessed
(136)
Particular insurer is liable

unless there is a stipulation
exempting the insurer (136)
General Average
Goods of A valued at 1 M are
disposed
Disposition saves the goods
of B (1 M) and C (1 M)
The 1 M loss of A will be
shared by B and C in
proportion to the value of the
goods belonging to them
which are saved. The 1 M
loss will be divided by three
Particular Average
Ifthe goods of A are disposed

But disposition did not inure to the
common benefit of other owners of
goods
Only A and his insurer will suffer the
loss
Other owners and their insurers will
not contribute in As loss
Reshipment
Insured peril prevents a ship

from completing voyage at an
intermediate port, liability of the
marine insurer continues after
reshipment without prejudice to
insurer's right to collect more
premiums (133)
Reshipment
In case of reshipment, the
insurer of goods is liable for
damages, expenses of
discharging, storage,
reshipment and other
expenses (134)
Kinds of loss in marine
Loss in
marine
Total Partial
Constructi
Actual
ve
Total v Partial Loss
Every loss which is not total is partial
(128)
Total loss may either be actual or

constructive
Actual loss may be presumed from

the continued absence of a ship
without being heard of (132)
Actual Loss, 130
total destruction of the thing
irretrievable loss of thing by sinking
or being broken up
damage which renders thing
valueless for the purpose it is held
other event which effectively
deprives owner of possession of the
thing at the port of destination
Constructive Total Loss,
131
Also called technical total loss
Loss which gives the person

the right to abandon under
Section 139
When there can be
abandonment - SECTION 139
>3/4 of the value is actually
lost or would have to be spent
to recover it from peril
Ifthe vessel is injured to such

an extent as to reduce its
value to >3/4
When there can be
abandonment - SECTION 139
If the thing is a ship, and the voyage
cannot be performed without incurring
either expense to the insured of >3/4 the
value of the thing abandoned or a risk
which a prudent man would not take under
the circumstances
If the thing is cargo or freightage, voyage

cannot be performed, nor another ship be
procured within a reasonable time and
with reasonable diligence to forward the
cargo, without incurring like expenses or
risk >3/4 of the value of the vessel.
Abandonment
Neither partial nor conditional (140)
Must be made within a reasonable

time after receipt of reliable
information of loss (141)
If information on loss is incorrect or

thing is restored and there is no total
loss, abandonment is ineffectual
(141)
Bar 2011
For a constructive total loss to exist in
marine insurance, it is required that the
person insured relinquish his interest in the
thing insured. This relinquishment must be
A. actual.
B. constructive first and if it fails, then

actual.
C. either actual or constructive.
D. constructive.
Answer
A. actual.
Abandonment
It is made orally or in writing. If
orally, written notice shall be
submitted within 7 days from oral
notice (143)
Has the effect of transferring by the

insured of his interest, to the insurer
with all chances of recovery and
indemnity (146)
Bar 2011
X Shipping, Co., insured its vessel MV Don
Teodoro for Php100 Million with ABC
Insurance, Co. through T, an agent of X
Shipping. During a voyage, the vessel
accidentally caught fire and suffered
damages estimated at Php80 Million. T
personally informed ABC Insurance that X
Shipping was abandoning the ship.
Later, ABC insurance denied X Shippings
claim for loss on the ground that a notice of
abandonment through its agent was
improper. Is ABC Insurance right?
Bar 2011
A. Yes, since X Shipping should have ratified
its agents action.
B.No, since T, as agent of X Shipping who

procured the insurance, can also give notice
of abandonment for his principal.
C.Yes, since only the agent of X Shipping

relayed the fact of abandonment.
D.
No, since in the first place, the damage
was more than 34 of the ship's value.
Answer
B. No, since T, as agent of X
Shipping who procured the
insurance, can also give
notice of abandonment for his
principal.
Abandonment
If insurer pays for loss as if there

was actual total loss
BUT there was no formal
abandonment
Insurer is entitled to whatever
may remain of the thing insured
or its proceeds of salvage (147)
Who is entitled to freightage
in case of abandonment?
freightage earned before the loss
belongs to the insurer of the
freightage
Freightage earned after the loss

belngs to the insurer of the ship
Insurer refuses valid
abandonment
the rights of the insured are not
prejudiced by refusal of insurer to
accept abandonment (149)
Insurer is still liable for actual total

loss deducting any amount given to
the insured (Sec. 154).
Acceptance of abandonment may be

express or implied. Mere silence is
Insured refuses to
abandon
If insured fails to abandon, he can

recover actual loss (Sec. 155).
Illustration
A insures a vessel with B for
P1 Million
The vessel's value is reduced

to P200,000 due to a peril of
the SEA
TWO CHOICES OF A: Abandon

or claim actual loss
If A abandons
A must immediately give a

written notice of abandonment
to B
If
B accepts the abandonment, it
must give A P1 Million
If A abandons
B now has all the right with
respect to the vessel
HOWEVER, freightage earned

before loss will belong to the
insurer of the goods
Freightage earned after the loss

will belong to the insurer of the
If A does not abandon BUT
B still gives A P1 Million
B will now have the right over

the vessel, what remains of it
and proceeds of salvage
If A does not abandon
A can recover ACTUAL loss or

P800,000 since the vessel is
reduced to 20% of its former
value of P1 Million
>3/4 rule
Constructive
Insured must
abandon to
get full
Total
amount
Actual Insured gets

full amount
Valuation is conclusive between
parties in determining total or
partial loss EXCEPT if there is fraud
(156)
Marine insurer is liable for partial

loss only for such proportion of the
amount insured by him as the loss
bears to the value of the whole
interest.
How to estimate loss in
open policy (161)
Value of the ship value at
the beginning of risk including
articles which adds to its
value or to prepare it for the
voyage
open policy(161)
Value of the cargo
actual cost to insured
when laden on board OR
market value at the time
and place of lading
case of open policy (161)
Value of the freightage is the
gross freightage, exclusive of
primage
Cost of insurance shall be added

to the estimated value
Effect of an Other Insurance
Policy Clause
Generally allowed
Only subject to possible

stipulation that insurer must
be informed or must consent
to additional insurance
policies on the same property
Bar 2011
Ifan insurance policy prohibits additional
insurance on the property insured without
the insurer's consent, such provision being
valid and reasonable, a violation by the
insured
A. reduces the value of the policy.
B. avoids the policy.
C. offsets the value of the policy with the

additional insurancess value.
D. forfeits premiums already paid.
Answer
B. avoids the policy.
Litigation of Claims
Ifsingle claim is P100,000 or BELOW
(excluding cost, interest and
attorneys fees) concurrent
jurisdiction of insurance commission
and trial courts
If more than P100,000- Trial Courts

Powers of the
Commissioner
Administrat
ive
Adjudicatory
Adjudicatory Powers
Single claims of P100,000
or below (excluding cost,
attorneys fees and
interest)
This jurisdiction is
concurrent with the
regular courts
Administrative Powers
Grant certificates of authority to
engage in insurance business
Require any insurance company

to keep its records in a manner
that will allow IC's authorized
representatives to verify the
solvency of the insurer and has
complied with IC and circulars
(Sec. 245)
At least once a year to examine

the affairs, financial condition
and method of business of
insurers (Sec. 246)
To issue
licenses/registrations/
authority to the ff:
Domestic or foreign insurer
(247)
Reinsurance Broker (license)
(Sec. 310)
Insurance Agent and Broker
(license) (Sec. 299)
To issue
licenses/registrations/authorit
y to the ff:
Resident agent of a foreign
insurer (certificate of
registration) (Sec. 315)
Non-life company underwriter
(certificate of registration) (Sec.
318)
Adjusters (Sec. 323)
Actuary (Sec. 335)
Suspension or Revocation of
certificate of authority on the ff
grounds:
Insurer is in an unsound
condition
Insurer failed to comply with the
provisions of law or regulations
obligatory upon it
Insurer's condition or method of

business is hazardous to the public or
its policyholders
Insurer's paid up capital or available
assets or security deposits is impaired
or is deficient
Margin of solvency is deficient
Commission of any of unfair
settlement practices (Sec. 241)
Unfair Claims Settlement
Practices (241)
Knowingly misrepresenting to
claimants pertinent facts or
policy provisions relating to
coverage at issue
Failing to acknowledge with

reasonable promptness
pertinent communications with
respect to claims arising under
its policies
Practices (241)
Failing to adopt and

implement reasonable
standards for the prompt
investigation of claims arising
under its policies
Practices (241)
Not attempting in good faith to

effectuate prompt, fair and
equitable settlement of claims
submitted in which liability has
become reasonably clean; or
Practices (241)
Compelling policyholders to
institute suit to recover
amounts due under its policies
by offering without justifiable
reason substantially less than
the amounts ultimately
recovered in suits brought by
them
Appeal of Insurance
Commission cases
IfAdministrative functions- File a
Memorandum of Appeal within 15
days to the Secretary of Finance
(Rule IX, Section 1 of Insurance
Memorandum Circular 1-93)
IfAdjudicatory functions- Court of

Appeals (depending on mode of
appeal)
At a glance
Period to pay claims in life
and non-life (60 days; 30-60-
90 rule)
Facility of payment clause
Notice of loss in fire insurance

At a glance
Actual loss
Constructive
loss- > rule
on abandonment
At a glance
Jurisdictionof the insurance
commissioner
Jurisdiction of regular courts
Unfair claims settlement practices

Framework

Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
PART FIVE
GROUNDS FOR RESCISSION

PDIC LAW
GROUNDS
Concealment
Misrepresentation
Breach of warranty, express or

implied
Other grounds - Section 64-65

CONCEALMENT
CONCEALMENT
neglect to
communicate that
which a party knows
and ought to
communicate.
Requisites of
Concealment
(a)party knows the fact which
he neglects to
communicate or disclose
(b) party concealing is duty

bound to disclose such
fact to the other
Requisites of
Concealment
c) party concealing makes no
warranty as to concealed
fact
d) other party has no means

of ascertaining the fact
concealed
WHAT MUST BE
COMMUNICATED
All facts within his
knowledge
Material to the contract
Other party has no means
of ascertaining
He makes no warranty
Information which prove or
tend to prove falsity of
WHAT NEED NOT BE
COMMUNICATED
Those which the other
knows
Those which, in the

exercise of ordinary case,
the other ought to know
and which the other has no
reason to suppose him
ignorant
WHAT NEED NOT BE
COMMUNICATED
Those
of which the other waives
communication
Those which prove or tend to prove

the existence of a risk excluded by a
warranty, and which are not
otherwise material; and
Thosewhich relate to a risk excepted

from the policy, and which are not
otherwise material
What need not be
communicated
General causes open to his
inquiry which may affect the
political or material perils
contemplated (32)
General usages of trade (32)

What need not be
communicated
Nature or amount of
interest, except in answer
to an inquiry (34)
Information of his own

judgment (35)
TEST OF MATERIALITY
Determined not by event
Probable and reasonable

influence of facts upon the
party to whom
communication is due in
forming his estimate of the
disadvantages of the
proposed contract OR in
TEST OF MATERIALITY
Assessment of risk, in
making/omitting further
inquiries, cause him to
reject the risk or accept it
at higher premium
rate/different terms
Materiality
Sunlife v. CA, 245 SCRA 268 -
where the applicant concealed
prior medical history and he
died in a plane crash, there
was still concealment
notwithstanding the apparent
lack of relation between the
fact concealed and the cause
of death
Bar 2001
A applied for non-medical life
insurance. He did not inform the
insurer that he was examined and
confined at St. Lukes Hospital
where he was diagnosed for lung
cancer. A died in a plane crash. Is
the insurer liable considering that
the fact concealed had no bearing
with the cause of death of A?
Answer
The insurer is not liable. The concealed
fact is material to the approval and
issuance of the policy. According to a
decided case, the insured need not die
of the disease he failed to disclose to
the insurer. It is sufficient that his non-
disclosure misled the insurer in forming
his estimate of the risks of the
proposed insurance policy or in making
further inquiries.
Bar 2011
An insured, who gains knowledge
of a material fact already after
the effectivity of the insurance
policy, is not obliged to divulge it.
The reason for this is that the test
of concealment of material fact is
determined
Bar 2011
A. at the time of the issuance of
the policy.
B. at any time before the
payment of premium.
C. at the time of the payment of
the premium.
D. at any time before the policy
becomes effective.
Answer
D. at any time before the
policy becomes effective.
WAIVER OF RIGHT TO
INFORMATION
By terms of insurance OR
Neglect to make inquiries
concealment entitles the

unguilty party to rescind
CONCEALMENT
In Marine Insurance
in addition to Section 28
all information he possesses

material to the risk except
those in Section 30
CONCEALMENT
In Marine Insurance
state exact and whole truth in
relation to all matters that he
represents
information of belief or
expectation of a third person
as to a material fact is
MATERIAL
insured is presumed to know

prior loss at time of insuring
Concealment in Marine
Insurance
General Rule: Concealment
entitles the innocent party
to rescind
Exception: Section 110

Section 110
Concealment as to following
does NOT vitiate the entire
contract but exonerates the
insurer from loss resulting
from risk concealed.
(a) national character of
insured
(b) liability of thing insured
to capture and detention
Section 110
c) liability to seizure from
breach of foreign laws of
trade
(d) the want of necessary
document
(e) the use of false and
simulated papers
INCONTESTABILITY
CLAUSE IN LIFE INSURANCE
Section 48, 2nd par if life
insurance has been in force during
the lifetime of the insured for a
period of 2 years from DATE OF
ISSUE or LAST REINSTATEMENT
the insurer cannot prove that the
policy is void ab initio or is
rescindible
by reason of fraudulent
concealment or misrepresentation
of the insured or his agent.
Illustration
A is issued a life insurance policy on
April 2, 2000
He conceals the fact that he has
tuberculosis
A dies on April 3, 2002.
Insurance company must pay.
Although there was concealment, the
policy has been in force during the
lifetime of A for 2 years from April 2,
2000.
When Incontestability
Clause DOES NOT apply
Person has no insurable interest
Cause of death is an excepted

peril
Premiums have not been paid
Conditions of the policy relating to

military or naval service have been
When Incontestability
Clause
DOES NOT apply
Fraud of a vicious type is present
when policy was taken out
Beneficiary failed to furnish proof

of death or to comply with any
condition imposed by the policy
after the loss has happened
Bar 2012
The "incontestability clause" in a Life Insurance Policy
means ---
A. that life insurance proceeds cannot be claimed two
(2) years after the death of the insured.
B. that two (2) years after date of issuance or
reinstatement of the life insurance policy, the insurer
cannot anymore prove that the policy is void ab initio or
rescindable by reason of fraudulent concealment or
misrepresentation of the insured.
C. that the insured can still claim from the insurance
policy after two (2) years even though premium is not
paid.
D.that the insured can only claim proceeds in a life
insurance policy two (2) years after death.
MISREPRESENTATION
MISREPRESENTATION
Representations
factual statements made
by the insured at the
time of, or prior to the
issuance of the policy
MISREPRESENTATION
Statement
(a)as a fact of something which is

untrue
(b) which the insured stated with

knowledge that it 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
(c) where such fact in either case is

Test of Falsity &
Materiality
Sec. 44 when the facts
fail to correspond with
its assertion or
stipulations
Sec. 45 materiality is
determined using the
same test in
Misrepresentation as a
ground to rescind
entitled to rescind from the
time the representation
becomes false
right to rescind by insurer is

waived by acceptance of
premiums despite knowledge
of ground to rescind
Misrepresentations as to Age
in Life Insurance
no rescission
proceeds shall be such

as the premium would
have purchased at the
correct age
Misrepresentation
in Marine Insurance
entitles the insurer to
rescind
eventual falsity of a
representation as to
expectation without
fraud, does NOT avoid a
marine insurance
Bar 2011
Shipowner X, in applying for a
marine insurance policy from ABC,
Co., stated that his vessel usually
sails middle of August and with
normally 100 tons of cargo. It
turned out later that the vessel
departed on the first week of
September and with only 10 tons
of cargo. Will this avoid the policy
that was issued?
Bar 2011
A. Yes, because there was breach
of implied warranty.
B. No, because there was no
intent to breach an implied
warranty. C. Yes, because it
relates to a material
representation.
D. No, because there was only
representation of intention.
Answer
D. No, because there was
only representation of
intention.
Breach of Warranty
Warranty
Either express or implied
May relate to the past, present

or future
Implied Warranties in
Marine Insurance
Seaworthiness - 113
Nationality or neutrality
120
Improper deviation -121
Illegal ventures
Bar 2000
What warranties are implied
in marine insurance? (2%)
Seaworthiness
Section 114 - a ship is
seaworthy if reasonable
fit to perform the service,
and to encounter the
ordinary perils of the
voyage contemplated by
the parties to the policy
Seaworthiness
Section 116 - extends not only to
the seaworthiness of the ship itself
but requires that it be properly
laden, provided with competent
master, sufficient number of
competent officers and seamen,
requisite appurtenances and
equipment and other implements
for the voyage
Improper Deviation
Section 123 - deviation is a
departure from the course of
the voyage insured or
unreasonable delay in pursuing
the voyage or the
commencement of an entirely
different voyage
Proper Deviation, 124
caused by circumstances
outside the control of the
master or owner
when necessary to comply

with a warranty or to avoid
peril
Proper Deviation, 124
when made in good faith upon
reasonable grounds to avoid a
peril
in good faith to save human life

or to relieve another vessel
Bar 2011
T, the captain of MV Don Alan,
while asleep in his cabin, dreamt
of an Intensity 8 earthquake
along the path of his ship. On
waking up, he immediately
ordered the ship to return to port.
True enough, the earthquake and
tsunami struck three days later
and his ship was saved. Was the
deviation proper?
Bar 2011
A.Yes, because the deviation was made in good
faith and on a reasonable ground for believing
that it was necessary to avoid a peril.
B. No, because no reasonable ground for

avoiding a peril existed at the time of the
deviation.
C. No, because T relied merely on his supposed

gift of prophecy.
D.Yes, because the deviation took place based

on a reasonable belief of the captain.
Answer
B. No, because no reasonable
ground for avoiding a peril
existed at the time of the
deviation.
Nationality
Section 120 - where the
nationality or neutrality of the
ship is expressly warranted, it
is impliedly warrantied that the
ship will carry the requisite
documents to show such
nationality or neutrality and it
will not carry any document
which will cast suspicion
Other Ground for Rescission
in
non life insurance
non- payment of premium
conviction of a crime
arising out of acts
increasing the hazard
insured against
discovery of fraud /
material
Other Ground for Rescission
in non life insurance
discovery of willful or reckless
acts or omissions increasing the
hazard insured against
physical changes in the property

becoming uninsurable
determination by Insurance
Commissioner that continuation
of the policy would violate or
would place the insurer in
Notice of Cancellation
In writing
Mailed or delivered to
named insured at address
shown in the policy
Shall state
grounds relied on
upon written request,
insurer will furnish fact
on which cancellation is
Rescission must be exercised
Before the commencement of

any action on the contract
In which motor vehicle liability

insurance notice of
cancellation must be sent to
the land transportation
owner/operator and the LTO at
least 15 days before date of
effectivity
Framework

Grounds
Payment
for
of PDIC Law
Rescissio
Proceeds
n
REPUBLIC ACT NO. 9576
April 29, 2009
An Act increasing the maximum deposit

insurance coverage, Amending RA 3591,
Insured Deposit,
Concept
deposit" means the unpaid
balance of money or its
equivalent received by a bank in
the usual course of business and
for which it has given or is
obliged to give credit to a
commercial, checking, savings,
time or thrift account, or issued
in accordance with Bangko
Sentral rules and regulations and
other applicable laws
EXCLUDED IN THE
CONCEPT
any obligation of a bank which is payable at
the office of the bank located outside of the
Philippines shall not be a deposit for any of
the purposes of this Act or included as part
of the total deposits or of insured deposits:
Subject to the approval of the Board of

Directors, any insured bank which is
incorporated under the laws of the
Philippines which maintains a branch
outside the Philippines may elect to
include for insurance its deposit
obligations payable only at such
branch.
EXCLUDED IN THE
CONCEPT
The corporation shall not pay deposit
insurance for the following accounts or
transactions, whether denominated,
documented, recorded or booked as
deposit by the bank:
(1) Investment products such as bonds
and securities, trust accounts, and other
similar instruments;
(2) Deposit accounts or transactions
which are unfunded, or that are fictitious
or fraudulent;
EXCLUDED IN THE
CONCEPT
(3) Deposits accounts or transactions
constituting, and/or emanating from,
unsage and unsound banking
practice/s, as determined by the
Corporation, in consultation with the
BSP, after due notice and hearing, and
publication of a cease and desist order
issued by the Corporation against
such deposit accounts or transactions;
and
EXCLUDED IN THE
CONCEPT
(4) Deposits that are determined
to be the proceeds of an unlawful
activity as defined under RA
9160, as amended.
RA 9160- Anti Money Laundering

Act
What to do with PDIC
Exclusions?
Exclusions of transactions from
coverage is final and executory
may not be restrained or set

aside by the court
except on appropriate petition for

certiorari
What to do with PDIC
Exclusions?
Grounds for Petition for
Certiorari: excess of jurisdiction
or with such grave abuse of
discretion as to amount to a lack
or excess of jurisdiction.
petition for certiorari may only be

filed within thirty (30) days from
notice of denial of claim for
deposit insurance.
INSURED DEPOSITS
amount due to any bona fide
depositor for legitimate
deposits in an insured bank
net of any obligation of the
depositor to the insured bank
as of date of closure, but not
to exceed Five hundred
thousand pesos
(P500,000.00).
INSURED DEPOSIT
add together all deposits
in the bank maintained in
the same right and
capacity for his benefits
either in his own name or
in the name of others.
INSURED DEPOSIT
A joint account regardless of whether the
conjunction 'and,' 'or,' 'and/or' is used,
shall be insured separately from any
individually-owned deposit account:
Provided, That (1) If the account is held jointly

by two or more natural persons, or by two or
more juridical persons or entities, the
maximum insured deposit shall be divided into
as many equal shares as there are individuals,
juridical persons or entities, unless a different
sharing is stipulated in the document of
deposit, and
Joint Account
Account # Account Holder Balance
#1 Pedro & Maria P800,000
#2 Juan &/or Pedro P900,000

Joint Account
Account Number Insured Share Uninsured
Pedro - #1 P250,000 P150,000
Pedro - #2 P250,000 P200,000
Total deposits P500,000 Total: P350,000
Insured deposits P500,000
Maria - #2 P250,000 P150,000
Juan - #2 P250,000 P200,000

INSURED DEPOSIT
If the account is held by a
juridical person or entity jointly
with one or more natural persons,
the maximum insured deposits
shall be presumed to belong
entirely to such juridical person
or entity
Institutional Account
Account No. Account Holder Balance
#1 ABC Co. P600,000
#2 ABC Co. &/or P800,000

Pedro Cruz
ABC Co. #1 P600,000
ABC Co. #2 P800,00
Pedro Cruz NONE NONE
Total for ABC Insured: P500,000

Total balance: for both accounts
P1.4 Million already
Institutional Account
Joint accounts held by a juridical
person with natural person will be
presumed to belong to the juridical
person. Thus, Accounts #1 and #2
will be consolidated in the name of
ABC Co. Total amount of insured
deposits will be P500,000.
Who will pay P500,000
1st3 years of RA 9576, P250,000 shall be
paid by PDIC, P250,000 by the national
government
Congress shall annually appropriate the

necessary funding to reimburse the
Corporation for any payment to insured
depositors paid in excess of P250,000.00.
After 3 years, solely by PDIC

Right to examine PDIC
members
PDIC may examine banks with
prior approval of the Monetary
Board
No examination can be
conducted within twelve months
from the last examination date
In case of threated or
impending closure of bank
PDIC, in coordination with the

Bangko Sentral, may conduct
a special examination as the
Board of Directors, by an
affirmative vote of a majority
of all of its members
In case of unsafe or unsound
banking practice
PDIC and/or Bangko

Sentral may inquire into or
examine deposit accounts
and all information related
thereto
Sanctions against unsafe and
unsound bank practices
When insured bank or its directors have
committed or are committing or about to commit
unsafe practices in conducting the business of the
bank, or have violated or about to violate the
provisions of any law to which the bank if subject
Board of Directors of PDIC shall submit

the report to the monetary board for
purposes of corrective action
Sanctions against unsafe and
unsound bank practices
If no corrective action by monetary board
within 45 days from submission of report,
PDIC board shall take corrective action
PDIC Board may issue cease and desist order

and correct practices within 45 days, may
impose fine
If practice will cause insolvency or dissipate

assets, period to correct is 15 days
Role of PDIC in closed
banks
Shall act as receiver
Shall control, manage and

administer the affairs of the
closed bank.
banks
Effective immediately upon
takeover as receiver of such
bank, the powers, functions and
duties, as well as all allowances,
remunerations and perquisites of
the directors, officers, and
stockholders of such bank are
suspended, and the relevant
provisions of the Articles of
Incorporation and By-laws of the
closed bank are likewise deemed
banks
The assets of the closed bank
under receivership shall be
deemed in custodia legis in the
hands of the receiver.
Assets shall not be subject to

attachment, garnishment,
execution, levy or any other court
processes
banks
A judge, officer of the court or
any person who shall issue,
order, process or cause the
issuance or implementation of
the writ of garnishment, levy,
attachment or execution shall be
liable under Section 21 hereof.
PDIC directors and officers
have NO liability
PDIC, its directors, officers, employees and
agents are held free and harmless to the
fullest extent permitted by law from any
liability
They shall be indemnified for any and all

liabilities, losses, claims, demands,
damages, deficiencies, costs and expenses
of whatsoever kind and nature that may
arise in connection with the performance of
their functions, without prejudice to any
criminal liability under existing laws.
PDIC directors and officers
have NO liability
EXCEPTION: If the actions
of PDIC or any of its officers
and employees are found
to be in willful violation of
this Act, performed in bad
faith, with malice and/or
gross negligence,
Tax obligations of PDIC
Alltax obligations of PDIC for a period
of five (5) years reckoned from the
date of effectivity of this Act shall be
chargeable to the Tax Expenditure
Fund (TEF) in the annual General
Appropriation Act
On the 6th year and thereafter -
exempted from income tax, final
withholding tax, value-added tax on
assessments collected from member
banks and local taxes
Splitting of Deposits
A deposit account with an
outstanding balance of more that the
statutory maximum amount of
insured deposit maintained under the
name of natural or juridical persons is
broken down and transferred into two
(2) or more accounts in the name/s of
natural or juridical persons or entities
who have no beneficial ownership on
transferred deposits in their names
Splitting of Deposits
Transfer is made within 120 days
immediately preceding or during
a bank-declared bank holiday, or
immediately preceding a closure
order issued by the Monetary
Board of the Bangko Sentral ng
Pilipinas for the purpose of
availing of the maximum deposit
insurance coverage.
Bar 2000
BD has a bank deposit of half a
million pesos. Since the PDIC
limit is P250,000, BD would like
some protection for the excess
by taking out an insurance
against all risks arising from
unsound bank practices. Does
BD have insurable interest
under the Insurance Code?
ANSWER
Yes, BD has insurable interest
in his bank deposit. In case of
loss to the extent of the
amount not covered by PDIC,
BD will be damnified. He will
suffer pecuniary loss of
P250,000 since PDIC Law only
covers accounts up to
P250,000.
Bar 2010
When OCCIDENTAL Bank folded
up due to insolvency, Manuel had
the following separate deposits in
his name: P200,000 in savings
deposit; P250,000 in time
deposit; P50,000 in a current
account; P1 million in a trust
account; and P3 million in money
market placement. Under the
Philippine Deposit Insurance
Corporation Act, how much could
Suggested Answer
Manuel can only recover up to a
total of P500,000 for his savings
deposit, time deposit and current
account. Under the PDIC Law, a
single depositor can only recover
a maximum of P500,000 for
these kinds of accounts. The
trust account and money market
placement are excluded from the
coverage of the PDIC Law.
GOD BLESS YOU ALL!

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INSURANCE BAR REVIEW

General Life Non-Life

Motor Vehicle Liability Insurance

Rescission of insurance contracts

A contract of suretyship is deemed

The insured is subject to a risk

FACTS: Individuals enrolled in its health care

The DST under Section 185 of the 1997 Tax Code

RULING: The health care agreement is primarily a

The insurer, after paying

Insurer avails of the

Insured CANNOT recover

Applicable only in non-

B.The equitable assignment that results

C. The insureds formal assignment of his

ANSWER: B. The obligation of the

Since a contract of insurance is a

Exception: Period may

Inindustrial life: cannot

in all other kinds of

If there was no denial of the

making or proposing to make,

doing or proposing to do any

An entity can still be deemed

The public must be protected

Required Paid-Up Capital Date of compliance

P600 Million On or before December 31, 2016

P800 Million On or before December 31, 2018

P1 Billion On or before December 31, 2020

Required Paid-Up Capital Date of compliance

P1.4 Billion On or before December 31,

P1.7 Billion On or before December 31,

P2 Billion On or before December 31,

New insurance or reinsurance

B.Yes, since there is substantial compliance

D.No, since an insurance company should be

An event which may or may not

Example: Fire, accident, sinking

An event which is certain to happen

Create a liability - expose the

May take out an insurance on

May take out insurance on

If contract is not disaffirmed,

Insurance on human lives

Covers loss or liability arising

Required before an owner or

If public utility vehicle = P200,000

Insurance Memorandum Circular

vessels, craft, aircraft, vehicles, goods, freights,

person or property in connection with or

bridges, tunnels and other

Includes official recognizances,

Any contingent or unknown event

The two main kinds of insurance are life

A person can sue based on an insurance

10-year period may be longer or shorter but

Doubts in interpreting insurance contracts are

General Life Non-Life

Agent offers a person a life

In case the contingency happens, either the

survival of a specific period

continuance or cessation of life

Best proof of death: death certificate