Insurance Law and the bank.

Here, the bank itself will not engage in

PD No. 1460, as amended by RA 10607 insurance business because it is prohibited under the
GBL to engage in insurance business.
□ Governing Laws
a) Insurance Code (PD 1460, as amended by R.A. 10607) □ Characteristics of Insurance
b) Civil Code, Article 2011, and other relevant articles 1. Risk Distributing Device - it serves to distribute the
c) Family Code risk of economic loss among as many as possible of
d) Other special laws those who are subject to the same kind of risk.

□ Contract of Insurance 2. Contract of Adhesion ("Fine Print Rule") - Most of the

● An agreement whereby one undertakes for a terms of the contract do not result from mutual
consideration to indemnify another against loss, negotiations between the parties as they are prescribed
damage or liability arising from an unknown or by the insurer in printed form to which the Insured may
contingent event. (Sec. 2. part. 2) adhere if he chooses but which he cannot change. Such
contracts are called contracts of adhesion, because the
□ Contract of Suretyship only participation of the other party is the signing of his
● An agreement whereby a party called the surety signature or his 'adhesion' thereto.
guarantees the performance by another called the ◦ Note: In case of doubt, the contract shall be
principal or obligor of an obligation or undertaking in interpreted strictly against the insurer and
favor of a third party called the obligee. liberally in favor of the insured. (Rizal Surety
● Note: It shall be deemed to be an insurance contract and Insurance Co. V. CA, 336 SCRA 12, 2000).
if made by a surety who or which, as such, is doing an
Insurance business. (Sec. 175 and Sec. 2, par. 3) 3. Aleatory- The obligation of the insurer to pay the
proceeds of the Insurance arises only upon the
□ When is a person considered doing an Insurance or happening of an event which is uncertain, or which is to
transacting an Insurance business? occur at any indeterminate time.
● If he performs any of the following:
1) making or proposing to make as insurer, any 4. Commutative - To a certain extent; there is still
insurance contract; exchange of equivalents, le., the amount paid by the
2) making or proposing to make, as surety any insurer is deemed the equivalent of the protection
contract of suretyship as a vocation, not as a given by the insured based on the Insurance contract.
mere incident to any other legitimate business
of a surety: 5. Contract of Indemnity -It is the basis of all property
3) doing any insurance business like insurance, i.e., the insured who has Insurable interest
reinsurance and similar acts; and over a property is only entitled to recover the amount
4) doing or proposing to do any business of actual loss sustained and the burden is upon him to
equivalent to the foregoing. (Sec. 2, par. 4). establish the amount of such loss.
◦ Note:
□ Are Mutual Insurance Companies considered "engaged in a) This applies ONLY to property
Insurance business”? Insurance, except creditor insuring
● YES. An entity owned by the policyholders that caters the life of his debtor.
only to the insurance needs of the same b) Life insurance is NOT a contract of
policyholders/members, has no capital stock, and indemnity. No over-insurance in life
where the contributions of members are the only
sources of funds to meet losses and expenses, is still 6. Uberrimae Fidae Contract - traditionally considered
engaged in Insurance business. (Republic v. Sunlife Ins. as contracts of utmost good faith: one of perfect good
Co., G.R. NO. 158085, 2005) faith not for the insured alone, but equally so for the
insurer.
□ Is bancassurance offered at the premises of banks allowed?
● YES. Bancassurance is cross-selling of insurance 7. Personal Contract - The law presumes that the
products within the premises of the head office of a insurer considered the personal qualifications of the
bank duly licensed by the Bangko Sentral ng Pilipinas or insured in approving the insurance application.
any of its branches. Under the relevant Rules issued by
the IC, the selling of insurance products, including □ Elements of Insurance:
variable life insurance products, within the premises of a) existence of an insurable interest (Secs. 12-14):
a bank is only allowed after the Insurance Commission b) risk of loss (Sec. 51. par. 9);
(IC) has approved the bancassurance agreement c) assumption of risks (Sec. 2):
entered into by and between the insurance company d) scheme to distribute losses; and
 e) payment of premiums (Seo. 77). (Phllamcare Health
Systems, Inc. v. CA, G.R. No. 125678, 2002) ● Contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend
□ What may be covered by an Insurance Contract? a physician against all suits for damages for
● Any contingent or unknown event, whether past or malpractice.
future, which may damnify a person having an ○ YES. (Philippine Health Care Providers)
insurable Interest, or create a liability against him.
● Provision in a CBA whereby the employer agreed to
□ What cannot be covered by an Insurance Contract? assume under a self-insurance basis, hospitalization
● Drawing of any lottery, or for or against any chance or fixed expenses for the dependents of regular
ticket in a lottery drawing a prize. employees.
○ YES. (Mitsubishi Motors Philippines Salaried
□ Problem: Employees Union v. MMPC, G. R. No. 175773,
● X Health Care Providers Corporation maintains, 2013)
conducts, and operates a prepaid group practice health ● Nissan motor vehicle (cargoes) were loaded on board
care delivery system or a health maintenance a carrier in Japan to be shipped to Manila. Upon arrival
organization to take care of persons enrolled in the in Manila. part of the shipment was missing and some
health care plan. Individuals enrolled in its health care items were broken. The insurer paid the insured the
programs pay an annual membership fee and are value of the lost/damage and the insurer, in turn, sued
entitled to various preventive, diagnostic, and curative the carrier for reimbursement. During trial, the insurer
medical services provided by its duly licensed presented a marine cargo risk note and a subrogation
physicians, specialists and other professional technical receipt, but not a copy of the insurance policy. May the
staff participating in the group practice health delivery marine risk be considered an insurance contract?
system at a hospital or clinic owned, operated or ○ NO. It is only an acknowledgment or
accredited by it. The BIR assessed it for documentary declaration of the insurer confirming the
stamps, contending that the health care agreement was specific shipment covered by its marine open
a contract of insurance subject to DST. Is the BIR policy, the evaluation of the cargo and the
correct? chargeable premium. (Eastern Shipping Lines
○ NO. The HCA does not partake the nature of v. Prudential Guarantee and Assurance Inc.
an insurance contract. Not all the necessary 599 SCRA 565)
elements of a contract are present. There is no
loss, damage, or liability on the part of the □ When is an Insurance Contract perfected?
member that should be indemnified by the ● The moment there is a meeting of minds with respect
HMO. There is nothing in the agreement that to the object and the cause or consideration.
gives rise to a monetary liability on the part of
the member to any third-party provider of □ What theory is applied to Insurance contracts- Cognition or
medical services which might in turn Manifestation?
necessitate indemnification from the HMO. ● Cognition Theory. The contract is perfected from the
The Indemnity of the member was not the moment the offeror (insured) learns about the
focal point of the agreement, but the acceptance of his offer by the offeree (insurer). (Art.
extension of medical services to the member 1409, Civil Code)
at an affordable cost. (Philippine Health Care ● Who is the offeror?
Providers v. CIR, 600 SCRA 413) ○ INSURED
● Who is the offeree?
● Are HMOs considered engaged in the insurance ○ INSURER
business?
○ NO. HMOs are not in the insurance business □ What is the “Principal object and Purpose Test”?
and are not part of the insurance industry. It is ● Whether the assumption of risk and indemnification
not supervised by the Insurance Commission of loss (which are elements of an insurance business)
but by the DOH. (Philippine Health Care are the principal object and purpose of the organization
Providers) or whether they are merely incidental to its business. If
these are the principal objectives, the business is that
□ Are the following considered Insurance Contracts? of insurance, but if they are merely incidental and
● Contracts of law firm with clients whereby in service is the principal purpose, then the business is not
consideration of periodical payments, the law firm insurance. (Philippine Health Care Providers)
promises to represent such clients in all suits for or
against them. □ Problem
○ NO. (Philippine Health Care Providers v. CIR, ● AB accomplished an application for Insurance and
G.R. No. 167330. 2009) submitted the same to his agent. The agent held on to
the application without forwarding the same to the truth no such approval can be expected. Under
insurance company. AB figured in an accident and the Civil Code, an agent is liable to third
eventually died. His heirs are now claiming the benefits persons if they are unaware of the limit of the
against the insurance company. The insurance company authority of the agent and they have been
argued that there was no perfected contract of deceived by the non-disclosure thereof by the
Insurance because it has not received and approved the agent. (DBP v. CA, 231 SCRA 370)
policy. Is the insurance company correct?
○ YES. Mere submission of the application □ How can you get protection even before the perfection of
without the corresponding approval of the the Insurance contract?
policy does not result in the perfection of the ● By securing a Cover Note.
contract of insurance. (Great Pacific Life
Assurance Corp. v. CA, 89 SCRA 543) □ What is a Cover Note?
● A temporary document issued by an insurance
● AB applied for a life insurance policy with TillDeath company that provides insurance coverage until a final
Insurance Co. AB submitted the application to the Insurance policy can be issued. A cover note is different
branch manager of TilDeath and paid the required from a certificate of insurance or an insurance policy
premium. The manager then forwarded the application document. The note features the name of the insured,
to the head office for approval. TINDeath's head office the insurer, the coverage, and what is being covered by
sent a notice of acceptance to AB. However, AB died the insurance.
before receiving the notice of acceptance. AB's heirs ● It is considered an insurance contract subject to
now want to recover the premium that was paid. Can certain rules.
they recover the premium?
○ YES. Although no insurance contract was □ Rules governing Cover Note
perfect, the heirs may recover the premium 1.) Issued or renewed only upon prior approval of the
because no contract of Insurance was Insurance Commission (IC);
perfected. Art. 1319, CC provides that 2.) Valid and binding for not more than 60 days from
acceptance of an offer by letter does not bind the date of its issuance;
the offeror except from the time it came to his 3.) No separate premium (separate from the policy or
knowledge. AB did not receive the notice of main contract) is required for the cover note (Pacific
acceptance. But TuIDeath is bound to return Timber Export Corp. V. CA, 112 SCRA 199):
the consideration that it received from AB. 4.) May be cancelled by either party upon prior notice
(Enriquez v. Sun Life Assurance. 11. Phil. 289) to the other of at least 7 days;
5.) Policy should be issued within 60 days after the
● XYZ Bank extended a loan in favor of AB secured by a issuance of the cover note;
real estate mortgage. One of the Bank's requirements 6.) The 60-day period may be extended upon written
was for AB to obtain a MRI with the Bank MRI Pool, approval of the IC; and
hence, AB filed the corresponding application. Although 7.) Written approval of the IC is dispensed with upon
AB was more than 60 years of age at that time, the the certification of the president, vice president or
Bank accepted the application for the Pool, without general manager of the insurer that the risk involved,
disclosing to AB the fact that it is authorized to accept the value of such risks and premium therefor, have not
an application for the Pool only if the applicant is not as yet been determined or established and the
more than 60 years. When the loan was released, the extension or renewal is not contrary to or is not for the
bank already deducted the premium from the loan purpose of violation ICP or any rule. (Ins. Memo Circ.
proceeds. The premium was credited to the savings No. 3-75)
account of the Bank and the Pool was advised
accordingly. No approval of the insurance application □ Policy of Insurance / Insurance Policy
had been received by AB as of said date. AB died of ● A written instrument where the terms and conditions
cardiac arrest 20 days thereafter. When the of the contract of insurance are set forth. (Sec. 49)
beneficiaries tried to recover from the Pool, the latter
refused to pay. The beneficiaries then sued the Pool □ Is the Policy necessary for the perfection of the Insurance
and the Bank. Will the action prosper? contract?
○ NO, against the Pool. The power to approve ● NO. But, no policy of insurance shall be issued or
the insurance application rests with the Pool, delivered unless in the form previously approved by the
who did not approve the same, hence, no IC. (Sec. 232)
insurance contract was perfect. ● Note: The law does not provide for prescribed forms
○ YES, against the Bank. It was wearing two but requires instead certain = provisions to be included
hats in the transactions- lender and insurance in the policy.
agent. AB was made to believe that the
approval is already impending although in □ Basic Contents of a Policy
 1.) Parties; c) notice must be in writing and mailed, or delivered to
2.) Amount of insurance, except in open or running the named insured at the address shown in the policy
policies; or his broker, provided, that the broker is authorized in
3.) Rate of premium; writing by the policy owner to receive the notice on his
4.) Property or life insured: behalf; and
5.) Interest of the insured in the property if he is not d) notice must state the grounds relied upon provided
the absolute owner, in Sec. 64, ICP and upon request of insured, to furnish
6.) Risk insured against; and facts on which the cancellation is based. (Sec. 65, ICP:
7.) The period during which the insurance is to PhilAmCare Health Systems v. CA, G.R. No. 125678,
continue. (Sec. 51) 2002).

□ What is a "Rider”? □ Kinds of Policies

● An attachment to an insurance policy that modifies ● Open Policy - value of the thing insured is not agreed
the conditions of the policy by expanding or restricting upon, but left to be ascertained at time of loss. The
its benefits or excluding certain conditions from the amount of the insurance merely represents the
coverage. insurer's maximum liability. (Sec. 60)
● Valued Policy - definite valuation is agreed by both
□ Are riders and other attachments (e.g. clause, warranty, and parties, and written on the face of policy. (Sec.61)
endorsement) binding on the Insured? ● Running Policy - contemplates successive Insurances
● NO, unless the descriptive title or name thereof is and which provides that the subject of the policy may
mentioned and written on the blank spaces provided in from time to time be defined. (Sec. 62)
the policy. (Sec. 50)
q Does a Reinstatement Clause give the Insured the right to
□ Does a rider need to be countersigned by the Insured or such reinstatement by the  mere filing of an application? 
owner?  NO. Such stipulation in a life insurance policy giving the
●NO, unless he was the one who applied for the rider, insured the privilege to reinstatement does not give
clause, warranty, etc. (Sec. 50) him or her absolute right to such reinstatement by
mere filing of an application. The insurer has the right
□ Is a Rider containing an "automatic Increase clause" to deny the reinstatement. After the death of the
(Increases the coverage subject to the attainment of a certain insured, the insurance company cannot be compelled
age of the Insured) considered a separate contract? to entertain an application for reinstatement of the
● NO. When the requirements for a rider are complied policy because the conditions precedent to
with, it is considered part of the policy. It is part of the reinstatement can no longer be determined and
original policy which is in the nature of a conditional satisfied. (Lalican v. The Insurance Life Assurance Co.,
obligation. (CIR V. Lincoln Philippine Life Insurance G.R. No. 183526, 2009) 
Company, G.R. No. 119176. 2002)
q Types of Insurance Contracts Life Insurance.
□ Grounds for Cancellation of Non-Life Policy (marine, fire,  Life Insurance
casualty, suretyship etc) 1) Individual Life - insurance on human lives and
1) non-payment of premium; insurance appertaining thereto or connected
2) conviction of a crime out of acts increasing the therewith (Sec. 181)
hazard Insured against; 2) Group Life - a blanket policy covering a number of
3) fraud or material misrepresentation; individuals. Most common form is life or health
4) willful or reckless acts or omissions increasing the insurance coverage for the employees of a single
risk Insured against; employer. 
5) physical changes in the property Insured making it o Note: 
uninsurable; a) Policy need not be in printed form and
6) discovery of other insurance coverage that makes may be in electronic form (Sec. 50) but
the total insurance in excess of the value of the must comply still with the contents
property insured; and prescribed by law (Sec. 234)
7) determination by the IC that the policy would violate b) Must contain a provision that if the group
the ICP. (Sec. 64) policy terminates or is amended so as to
terminate the insurance of any class of
□ Requisites for Cancellation insured persons, every person insured at
a) prior notice of cancellation to insured termination date whose insurance
b) notice must be based on the occurrence after terminates and who has been insured for
effective date of the policy of one or more of the 5 years prior to such termination shall be
grounds mentioned: entitled to have issued to him by the
 insurer an Individual life Insurance policy, 1) Professional re-insurer - any person,
but the group policy may provide that the partnership, association, or corporation
amount of such individual policy shall not that transacts solely and exclusively
exceed the amount of the person's life reinsurance business in the Philippines.
insurance protection ceasing. (Sec. 234) 2) Mutual Insurance Companies (Sec. 280)
3) Industrial Life - form of life insurance where 3) Cooperatives - subject to these conditions:
premiums are payable either monthly or oftener, if (i) must have sufficient capital and assets
the face amount of insurance provided in any required under the Insurance Code and
policy is not more than 500 times that of the the regulations; and (ii) must have a
current statutory minimum daily wage in the City certificate of authority to operate issued
of Manila and if the words "industrial policy are by the IC which should be
printed upon the policy as part of the descriptive renewed annually. (Sec. 193)
matter. (Sec. 235)  o Are foreign Insurance corporations allowed to
do Insurance business in the Philippines? 
q Types of Insurance Contracts Non-Life Insurance   YES. They may be authorized by the IC
 Non-Life Insurance subject to the following requirements: 
1) Marine - policies that cover risks connected 1) appointment of a resident in the
with navigation, to which a ship, cargo, Philippines as resident agent for
freightage, profits, or other insurable movable service of notice and summons
property, may be exposed during a certain purposes;
voyage or a fixed period of time. It also 2) must possess paid-up unimpaired
includes inland marine insurance. (See Sec. 99 assets or capital and reserve not less
for complete definition). than PhP1 Billion;
2) Fire - a contract of indemnity by which the 3) must deposit for the benefit and
insurer for a consideration agrees to Indemnify security of the policyholders,
the insured against loss of, or damage to securities satisfactory to the IC; and
property by fire, but may include loss by 4) its Investments should not exceed
lightning, windstorm, tornado or earthquake 20% of the net worth of the
and other allied risks, when such risks are foreign corporation or 20% of the
covered by extension to fire Insurance policies capital of the registered enterprise. 
or under separate policies. (Sec. 167).
3) Casualty - an insurance covering loss or liability q Parties to an Insurance Contract 
arising from accident of mishap excluding  Insurer 
those falling under other types of insurance as o What certificate must be procured by the
fire or marine. (Sec. 174) Insurer to validly engage in Insurance 
business?
 Contract of Suretyship – See definition in earlier slide.  Certificate of Authority, which is obtained
from the IC. It is valid for 3 years and
 Micro-insurance - a financial product or service that expires on the last day of December, three
meets the risk protection needs of the poor where:  years following its date of issuance. (Sec.
1) the amount of contributions, premiums, fees or 193)
charges, computed on a daily basis, does not
exceed 7.5% of the current daily minimum wage  Insured- the person with capacity to contract and
rate for non-agricultural workers in Metro Manila; having an insurable Interest in the life or property of
and the insured: 
2) the maximum sum of guaranteed benefits is not o Can a public enemy be insured? 
more than 1,000 times of the current daily  NO. (Sec. 7)
minimum wage for non-agricultural workers in
Metro Manila. (Sec. 187. amended by R.A. No. o What Is a Public Enemy? 
10607)   A nation, Including its citizens or subjects,
with whom the Philippines is at war.
q Parties to an Insurance Contract 
 Insurer- person who undertakes to indemnify another; o How do you determine the nationality with
may be partnerships, associations or corporations who respect to corporation for purposes of Public
are duly authorized by the IC to engage in Insurance Enemy? 
business. (Secs. 190 193)   By the controlling stockholders
o does not include Individuals or natural Irrespective of the place of incorporation.
persons. (under R.A. 10607), BUT includes: 
 o Effect of property Insurance entered into the premiums of the policy which the
before the war when an Insurer becomes a insured pays out of liberality, the
public enemy?  beneficiary will receive the proceeds of
 It automatically loses its binding effect the the insurance. (Insular Life Assurance
moment the insurer becomes a public v. Ebrado, 80 SCRA 181. 1977)
enemy.
o What is the effect of designation of persons
o Can minors enter into an Insurance contract? mentioned in Article 739, Civil Code?
 YES. But under the Civil Code, the  The designation is void, BUT the policy is
insurance contract is considered voidable.  binding. The estate will get the proceeds.

q Parties to an insurance Contract  o When is the interest of a beneficiary in a life

 Insured— insurance policy forfeited? 
o With respect to spouses, Is consent of the  When the beneficiary is the principal,
other spouse necessary?  accomplice, or accessory in
 NO. The consent of the spouse is not willfully bringing about the death of the
necessary for the validity of an insurance insured.
policy taken out by a married person on
the life of the spouses themselves or o In such a case, to whom shall the forfeited
his or her children. (Sec. 3) share pass on? 
1) Other beneficiaries, unless otherwise
o What is the effect of death of the owner of disqualified: or
the policy?  2) In the absence of other beneficiaries—
 All rights, title, and Interest in the policy of paid in accordance with the
Insurance taken out by an original owner policy contract; or
on the life or health of the person Insured 3) If the policy is silent-paid to the estate of
shall automatically vest in the latter upon the insured
the death of the original owner, unless
otherwise provided in the policy. (Sec. 3)  o What is the requirement of a person who will
 This applies now even if the person insure the life of another with the proceeds
insured is a minor under R.A. 10607. payable to himself?
 He must have an insurable Interest on the
 Beneficiary – persons designated to receive proceeds of life of the person whose life he is insuring. 
policy when risk attaches.
o Who may be designated as beneficiary by one o How about when a person Insures a
who insures his own life?  property? 
 Any person, whether or not the  The beneficiary must have insurable
beneficiary has an insurable Interest in the interest on the property.
life of  the insured.
o Is the designation of the beneficiary generally
o Who may NOT be designated as beneficiary?  revocable? In other words, has the Insured
1) Those made between persons who were the right to change the beneficiary in the
guilty of adultery or concubinage at policy secured by him? 
the time of donation;   YES. Unless the right to revoke is expressly
O Note: Conviction Is NOT necessary. waived in the policy. (Sec. 11) 
2) Those made between persons found guilty  Note: Under the Family Code, the
of the same criminal offense, in  innocent spouse may revoke
consideration thereof; the designation of the other spouses as
3) Those made to a public officer or his wife, irrevocable after legal separation.
descendants or ascendants by reason of
his office. (Art. [Link] Code ) o Can the insured assign the policy If the
designation is Irrevocable? 
q Parties to an Insurance Contract   NO. In such a case, the beneficiary has a
 Beneficiary – vested right.
o Is life insurance akin to a donation Insofar as
the beneficiary is concerned? o What Is the effect if there is no waiver of the
 YES. Both are founded on liberality. A right to revoke? 
beneficiary is like a donee because from
  The assignment of the policy may be Marawag vs. Marawag, GR 181132,
deemed as implied revocation. 2009)

o What is the effect If the insured refuses to q Insurable Interest 

pay the premiums?   Life Insurance –  
 The designated irrevocable beneficiary o Every person has an Insurable interest in the
may continue the policy by life and health: 
paying premiums that are due. 1) of himself, of his spouse, and of his
children;
o What is the effect If premiums are paid out of 2) of any person on whom he depends
the conjugal funds?  wholly or in part for education or support,
 The proceeds are considered conjugal. If or in whom he has a pecuniary interest;
the beneficiary is other than the insured's 3) of any person under a legal obligation to
estate, the source of premiums would not him for the payment of money,
be relevant. (Del Val V. Del Val, 29 Phil. or respecting property or services,
534; BPI V. Posadas, 56 Phil. 215)  4) of which death or illness might delay or
prevent the performance; and of any
o Rule in case the insured or beneficiary in a person upon whose life any estate or
life, health, or accident Insurance is a Minor  interest vested in him depends. (Sec. 10)
 In the absence of a judicial guardian, the
father, or in the latter's absence o What is the test? 
or incapacity, the mother, may exercise, in  Whether the person is interested in the
behalf of said minor any right under the preservation of the insured despite the
policy without necessity of court authority insurance.
or the giving of a bond, where the interest
of the minor in the particular act involved o Do you need a pecuniary interest in the above
does not exceed PhP500,000 or in such enumeration? 
reasonable amount as may be determined  NO, with respect to item 1. YES, with
by the IC. (Sec. 182) respect to items 2, 3 and 4. 

o What are the rights Included appertaining to q Insurable Interest 

the rule involving minors?  Life Insurance - Problems: 
a) Obtaining a policy loan o AB took an insurance policy on the life of his
b) Surrendering the policy girlfriend, CD. In the insurance application. AB
c) Receiving the proceeds of the policy  misrepresented that CD was in perfect health
d) Giving the minor's consent to any although he knew all the time that CD was
transaction on the policy. (Sec. 182) afflicted with AIDS. AB filed her Insurance
claim. Should the insurer pay? 
o Rule in case parents are incapacitated?   NO. A person has an insurable interest
 The grandparent, the eldest brother or over the life of another only if he has
sister at least 18 years of age, or any pecuniary Interest over the life of such
relative who has actual custody of the person, except if the person insured is his
minor insured or beneficiary shall act as spouse or child. Friendship alone is not
guardian without need of a court order or the insurable Interest contemplated in
judicial appointment as long as such life Insurance.
person is not otherwise disqualified or
incapacitated. Payment made by the o Can a parent insure the life of his son who is
insurer shall relieve such insurer of any no longer a minor and who is now married? 
liability under the contract. (Sec. 182)   YES. The parent has an insurable interest
over the life of his child. The law does not
o Rule in case illegitimate children are distinguish between a married child or a
designated as beneficiaries in the deceased minor child. o Mr. Smith insured the life of
father’s insurance policy? his wife, Mrs. Smith. Later, they were
 The policy is valid. No legal legally separated pursuant to a judgment
proscription exists in naming as of a court.
beneficiaries the children of illicit
relationships by the insured. (Heirs of o If Mrs. Smith dies after the legal separation,
can Mr. Smith recover? 
  YES. He can recover because he has an parents, Wyn gave him the sum of PhP5,000
insurable interest over the life of Mrs. monthly for meeting his expenses. Even the
Smith at the time he obtained the engagement ring which Mark gave to Wyn
insurance. One has insurable interest over came from the money which he reæived from
the life of one's wife. (Sec. 10) her. Mark secured a life insurance policy
covering the life of Wyn and making himself
o Can Mr. Smith still recover If he obtained the the beneficiary. Mark paid for his premium.
insurance after the legal separation?  Unfortunately, Wyn died in an accident. Can
 YES. A decree of legal separation does not Mark recover the proceeds?
remove the insurable interest of a spouse ▪ YES. He had an insurable interest in
over the other. The law does not the life of Wyn. By her death, Mark
distinguish.  suffered pecuniary loss as he would
be deprived of the monthly assistance
o Mr. T insured the life of his debtor, Mr. Rex, of PhP5,000. Note that his insurable
for PhP1 Million for a period of 1 year. At the interest is based on pecuniary interest
time he took the policy. Mr. Rex owes him and not by mere relationship.
PhP1 Million payable 1 year from loan release.
Mr. Rex paid his debt to Mr. T in full 3 months ○ Jason took an accident insurance covering
before the maturity date. Mr. Rex died 2 days himself. As a gift to his girlfriend, Mary, for the
before the maturity date.  forthcoming Christmas, he named her as the
a) Can Mr. T recover the insurance beneficiary in the policy. While driving his car
proceeds?  one evening, after a party where he got drunk,
 NO. He no longer has insurable interest at Jason met an accident and eventually died. Is
the time of Mr. Rex's death as the amount Mary entitled to the proceeds?
owed to him was already fully paid.  ● YES. She was the named beneficiary
b) Can the heirs of Mr. Rex recover from the in the policy in question or issue since
insurer? it was Jason himself who took the
 NO. There is no privity of connect insurance policy covering him. Where
between them and the insurer. a person procures an insurance and
naming himself as the insured and
o Alex took an insurance policy covering his life another person as beneficiary, he
and made Sandra, his wife, as the sole need not have an insurable interest in
beneficiary. Because of his financial problems, the life of the beneficiary.
Alex committed suicide. Can Sandra recover
the proceeds of the insurance policy covering □ Insurable Interest
the life of Alex?  ● Property Insurance —
 NO. The beneficiary cannot recover the o What does insurable interest in property
proceeds from the life insurance policy. It consist of?
was the insured who brought about his ▪ any interest therein, or liability in
death by committing suicide. However, respect thereof, and it may consist in:
answer would be different if the suicide a.) an existing interest —
took place after 2 years from the issuance interest of the owner in the
of the policy.  property insured;
b.) an inchoate interest
o Alex took an insurance policy covering his life founded on an existing
and Sandra, his wife, as the sole beneficiary. interest — must be founded
Due to many problems bothering him, Alex on an existing interest, not
became insane. Later on. Alex shot himself to on a mere expectancy.
death. Can Sandra recover the proceeds?  Example: inchoate interest of
 YES. Alex did not take his life intentionally. the sales agent in the
Since he was insane, he did not know commission; or
what he was doing.  c.) any expectancy coupled
with an existing interest —
○ Mark came from an average family in the such as the profits which a
province, while Wyn was the only child of a person expects in the sale of
wealth couple in the city. They met In college his goods. (Secs. 13 and 14)
and became sweethearts. Realizing that Mark
always got short of his allowance from his o When can you say that one has an insurable
interest in the property?
 ▪ If he derives pecuniary benefit or ▪ YES. Even if the title is retained by
advantage from its preservation or the financial lessor. (Vicente Ong Lim
would suffer pecuniary loss, damage Sing v. FEB Leasing, G.R. No. 168115,
or prejudice by its destruction 2007)
whether he has or has not title in, or
lien upon, or possession of the ○ Certain goods were shipped to Professor X
property. (Filipino Merchants on the basis of CIF Manila. Professor X insured
Insurance v. CA, 179 SCRA 638) said machinery with the Justice League
Insurance Corp (JLIC) for loss or damage during
o Is pecuniary interest over the property the voyage. The vessel sank en route to
always necessary? Manila. Professor X then filed a claim with JLIC
▪ YES. And even though the interest is which was denied because prior to the
not limited to the interest of an delivery, Professor X had no insurable interest.
owner. Is the denial justified?
▪ NO. Professor X had an insurable
○ Does mere right of possession give a person interest over the goods even before
the right to insure the property? actual receipt of the goods. Although
▪ YES. Such person may insure its full the delivery is a mode of transferring
value in his own name, even when he ownership in a contract of sale, it
is not responsible for its safekeeping does not mean that the buyer had no
and even if he is not paying rentals. existing insurable interest over the
He stands to benefit from its goods that he purchased. A purchaser
continued existence or to be of goods under a perfected contract
prejudiced by its destruction, of sale already acquires interest on
(Harvardian Colleges of San Fernando the property pending delivery.
V. Country Bakers Ins, Corp., CA-G.R (Filipino Merchants Insurance Co.)
No. 03771, 1986)
○ Is mere hope or expectancy insurable?
○ Does an heir have an insurable interest over ▪ NO. It must be coupled with existing
properties that he will inherit? interest out of which the expectancy
▪ NO. The execution of a last will and arises. It must be founded on an
testament does not vest to an heir, actual right to the thing or upon a
even a compulsory heir, insurable valid contract.
over the property that he will inherit
as stipulated in the will. ○ Can a depositary insure the things
deposited to him?
○ Does an owner whose property was levied ▪ YES. A depositary has an insurable
upon by a judgment creditor and lost the interest over the thing deposited
same in an execution sale retain insurable because he will be damnified by its
interest thereon during the redemption loss. (Sec. 15) He is responsible for the
period? property deposited to him and he will
▪ YES. He is still the owner of the be liable in case of damage or
property during such period. But the destruction to the thing.
buyer during the auction sale also has
an interest over the property subject ○ Jennifer is the only child of Brad who is a
to the condition that the property will widower. Brad has a beautiful house which has
not be redeemed. The purchaser become a favorite resting place of Jennifer.
acquires insurable interest at the time While Brad was dying, Jennifer secured an
of purchase. insurance policy covering the house, making
herself the beneficiary. Jennifer wanted to be
○ Does a carrier have an insurable interest sure that in case something untoward happens
over the goods that are being shipped? to the house, she will be in a position to build
▪ YES. (Malayan Insurance Co. v. another in its place. Before Brad died, the
Philippine First Ins. Co., 2012) house got burned. Having paid all the
necessary premiums, Jennifer filed a daim for
○ Does the lessee in a financial lease have an the Joss to recover the proceeds under the
insurable interest over the property (like a policy. Will the claim of Jennifer prosper?
vehicle) which is the subject of the lease? ▪ NO. At the time when the policy was
issued, Jennifer had no insurable
 interest in the house. Her right as the insured himself
only heir of Brad was only inchoate secured the policy;
and founded upon an expectancy of must have insurable
becoming an heir upon the death of interest if the policy
Brad. Not having an insurable interest was obtained by the
in the property the policy was void ab beneficiary.
initio.
□ Insurable Interest
○ Chris is the owner of a warehouse which he ● Problems:
leased to Miley. The lease contract stipulates ○ A obtains a fire insurance on his house and
that the policy of insurance to be secured by as a generous gesture names B, his neighbor as
Miley covering the latter's merchandise stored the beneficiary. If A's house is destroyed by
in the warehouse shall be automatically fire, can B successfully claim against the
assigned to Chris as beneficiary of the policy?
proceeds thereof in the event that the ▪ NO. B has no insurable interest in
merchandise be lost or destroyed. Due to fire the house of A which is the property
of unknown origin, the merchandise got lost. Is insured in this case.
Chris entitled to the proceeds?
▪ NO. Chris has no insurable interest ○ A bought a car on January 2, 2017. On the
in the merchandise of Miley. Chris as same date, he secured a comprehensive
lessor cannot validly be a beneficiary insurance policy covering the car. On January
of a fire insurance policy taken by the 5, 2017, A sold the car to B. On January 10,
lessee. Further, the provision 2017, the car got totally lost or destroyed.
pertaining to automatic assignment is Who can recover under the insurance policy?
void for being contrary to public ▪ NEITHER A NOR B. A cannot recover
policy. (Cha v. CA, 277 SCRA 690, because while he had insurable
1997) interest at the time the insurance
takes effect, he no longer has
Insurable Interest in Life vs. Insurable Interest in Property insurable interest at the time of the
loss which occurred after the car was
Insurable Interest in Insurable Interest sold to B. B also cannot recover
Life in Property because he had no insurable interest
As to Unlimited (save in Limited to the at the time the insurance took effect
extent life insurance Limited actual value of the and he was not privy to the contract
to the actual value of interest on the of insurance obtained by A.
the effected by a property.
creditor on the life of ○ A obtains insurance over his life and names
interest on the his neighbor B the beneficiary because of A's
property the debtor). secret love for B. If A dies, can B successfully
As to It is enough that the It is necessary that claim against the policy?
time insurable interest the insurable ▪ YES. It was A, the insured, who took
when exists at the time the interest exists the policy on his own life. It is not
insurable policy takes effect when the required that the beneficiary must
interest and need not exist at insurance takes have insurable interest in the life of
must the time of loss. effect and when the insured.
exist the loss occurs, but
need not exist in □ Insurable Interest
the mean time. ● Mortgage—
As to Expectation of There must be a ○ Who has insurable interest over a property
expectati benefit need not legal basis. subject of a mortgage?
on of have any legal basis. • Both the mortgagor and mortgagee
benefit have an insurable Interest in the
to be property mortgaged and this interest
derived is separate and distinct from the
As to Beneficiary need not Beneficiary must other. They may take out separate
beneficia have insurable have insurable policies at the same or at separate
ry’s interest over the life interest over the times. (RCBC v. CA, 289 SCRA 292,
interest of the insured if the thing insured. 1998)
 for a loss instead of the named
○ What is the extent of the insurable interest insured or beneficiary. The loss
of the mortgagor? payable provision limits the rights of
• To the extent of its value, even the loss payee to be no higher than
though the mortgage debt equals the rights guaranteed to the insured.
such value. The loss or destruction of ▪ In the policy obtained by the
the property insured will not mortgagor with loss payable clause in
extinguish his mortgage debt. favor of the mortgagee as his interest
may appear, the mortgagee is only a
○ In what ways may the mortgagee be made beneficiary under the contract, and
the beneficial payee in a situation where the recognized as such by the insurer but
mortgagor secures the insurance? not made a party to the contract
1.) Assignee of the policy with the himself. Hence, any act of the
consent of the insurer; mortgagor which defeats his right will
2.) Pledgee without the consent of also defeat the right of the
the insurer; mortgagee. This kind of policy covers
3.) Original policy may contain a only such interest as the mortgagee
mortgage clause; has at the issuing of the policy.
4.) Rider making the policy payable to
the mortgagee, as his interest may □ Insurable Interest
appear, may be attached (loss ● Mortgage-
payable clause); ○ Loss Payable Clause - One method by which a
5.) Standard mortgage clause mortgagee protects its property interest.
containing a collateral independent ▪ Two types:
contract between the mmgage and
the insurer, may be attached; and
6.) Policy, though by its terms is Standard or Union Clause Open Loss Payable Clause
absolutely payable to the mortgagor, ○ The subsequent acts of ○ The mortgagor does
may have been procured by a the mortgagor cannot cease to be a party to the
mortgagor under a contract duty to affect the rights of the contract.
insure for the mortgagee's benefit, in mortgagee. ○ Simply states that “loss
which case the mortgagee acquires an ○ It provides a language if any, is payable to X as
equitable lien upon the goods. (in addition to the his interest shall appear”
standard language in an or other equivalent words,
○ What is the extent of the insurable interest open loss payable) to the merely identifying the
of the mortgagee? effect that “the person who may collect
▪ To the extent of the debt secured; owner/mortgagor’s acts or the proceeds.
such interest continues until the neglect will not invalidate
mortgage debt is extinguished. the insurance provided
that if the
○ Policy relating to Mortgage with Loss owner/mortgagor fails to
Payable Clause pay the premiums due,
▪ In the policy obtained by the the mortgagee shall on
mortgagor with loss payable clause in demand pay the
favor of the mortgagee as his interest premiums”
may appear, the mortgagee is only a
beneficiary under the contract, and
recognized as such by the insurer but ● Mortgage - Problems:
not made a party to the contract ○ To secure the payment of a loan of PhP5 Million, A
itself. This kind of policy covers only mortgaged his house worth PhP8 Million in favor of B,
such interest as the mortgagee has at the creditor.
the issuance of the policy. (Armando ▪ Who has an insurable interest in the house?
Geagonia v. CA, 241 SCRA 152, 1995) What is the extent of the insurable interest?
ꙮ BOTH THE MORTGAGOR
○ Loss Payable Clause AND THE MORTGAGEE have
▪ One method by which a mortgagee insurable interest in the house.
protects Its property interest. ꙮ A's insurable interest will be up to
▪ An insurance contract endorsement the value of the house, i.e., PhP8
where an insurer pays a third party
 Million. B's Insurable interest is PhP5 ○ Example:
Million which is the amount of the ▪ A group insurance policy (MRI)
loan and the extent he shall be whereby the insurer insured the lives
damnified by the loan of the house. of the eligible housing loan
(Secs. 8 and 17) mortgagors of the DBP. The
mortgagors paid the premium, but
▪ Will an insurance of said house procured by the losses were made payable to the
A in his own name and for his own benefit mortgagee, DBP. Hence, the
inure to the benefit of B? insurance policies were held to be on
ꙮ NO. An Insurance procured by the mortgagors’ interest and the
either the mortgagor or mortgagee mortgagors continue to be a parties
will not inure to the benefit of the to the contract. So, if DBP already
other. Insurance is a personal recovered the total amount of the
contract and takes effect only obligation by resorting to foreclosure,
between the contracting parties, their it can no longer recover under the
heirs, successors and assignees, MRI. But the heirs of the mortgagors
unless it contains a stipulation in can recover because the mortgagors
favor of a third person. (Art. 1311, did not cease to be parties to the
NCC and Sec. 53) contact. (Grepalife Assurance Corp. v
ꙮ But the mortgagee has a lien on CA, 316 SCRA 677)
the proceeds of the policy under Art.
2127 NCC. ● What happens If the mortgagor takes out an
insurance over the mortgaged property and endorsed
○ To secure the payment of a loan of PhP5 Million, A the same to the mortgagee?
mortgaged his house worth PhP8 Million in favor of B, ○ The insurance proceeds of the endorsed
the creditor. policy shall be applied exclusively to the
▪ If B insures the house for PhP 5 Million, in his proper interest of the person for whose
own name and for his own interest only and benefit it was made (the mortgagee). Thus, the
the loss occurs after the full payment of the creditors of the mortgagor cannot gamish or
loan, who can recover under the policy? levy upon the proceeds up to the extent of the
ꙮ NEITHER A NOR B. B cannot recover debt to the mortgagee. (RCBC v. CA, 289 SCRA
because the law requires that insurable 292, 1998)
Interest in property must exist when the
Insurance takes effect and when the loss □ Insurable Interest
occurs. While B had an insurable interest in ● Beneficiary and Assignee of the Policy –
the house when the insurance took effect, he a.) Property Insurance
did not have the interest when the loss ○ The beneficiary and the assignee
occurred, the loan having been paid in full. A must have insurable interest. Consent
cannot recover because he was not privy to of the insurer must be secured before
the contract. the assignment.
b.) Life Insurance
□ Insurable Interest ○ If the insured takes the insurance
● When is interest retained by the Mortgagor? on his own life, he can designate
○ Unless the policy otherwise provides, where anybody who does not have insurable
a mortgagor effects insurance in his Own name interest.
providing that the loss shall be payable to the ○ If a third person takes the policy,
mortgagee, or assigns a policy of insurance to the beneficiary must have insurable
a mortgagee, the insurance is deemed to be interest.
upon the interest of the mortgagor, who does ○ In case of assignment, the assignee
not cease to be a party to the original contract need not have insurable interest.
and any act of his, prior to the loss, which
would otherwise avoid the insurance. will have ● Beneficiary and Assignee of the Policy – Problems:
the same effect, although the property is in ○ Spouses AB and CD leased the property of
the hands of the mortgagee. but any act XYZ. The lease contract provides that the
which, under the contract of insurance, is to lessees (Spouses AB and CD) shall not insure
be performed by the mortgagor, may be against fire the goods placed at the leased
performed by the mortgagee therein named, premises without the consent of XYZ and if an
with the same effect as if it had been Insurance is obtained without the consent of
performed by the mortgagor. (Sec. 8) XYZ, the policy is deemed assigned and
 transferred to the lessor (XYZ). The spouses change of interest in the insurance suspends
Insured their goods without the consent of the insurance to an equivalent extent, until the
XYZ. On the day the lease contract was to interest in the thing and the interest in the
expire, fire broke out inside the leased insurance are vested in the same person. (Sec.
premises destroying the goods of the spouses. 20)
XYZ learned about the insurance and promptly
demanded that the insurer pay the proceeds ● Exceptions:
directly to XYZ. The insurer refused to pay. 1.) in life, health and accident insurance (Sec.
Does XYZ have the right to demand payment 20);
of the proceeds? 2.) a change of interest in the thing insured
▪ NO. XYZ cannot demand payment of after the occurrence of an injury which results
the insurance proceeds from the in a loss (Sec. 21);
insurer. XYZ cannot be validly a 3.) a change of interest in one or more of
beneficiary of the fire insurance policy several distinct things, separately insured by
because he did not have insurable one policy (Sec. 22);
Interest over the goods. The 4.) a change of interest by will or succession on
automatic assignment of the policy to the death of the insured (Sec. 23);
XYZ under the provision of the lease 5.) a transfer of interest by one of several
contract is void for being contrary to partners. Joint owners, or owners in common,
law and/or public policy. (Chu V. CA, who are jointly insured, to the others. (Sec.
277 SCRA 690. 1997) 24); and
6.) when a policy is so framed that it will inure
○ Johanna took out a PhP5 Million life to the benefit of whomsoever, during the
insurance policy naming his friend and continuance of the risk, may become the
creditor, Gustavo, as her beneficiary. When owner of the interest insured (Sec. 57).
Johanna died, her outstanding loan to Gustavo
was only PhP1 Million. Johanna's executor □ What is the effect if there is an express prohibition against
contended that only PhP1 Million out of the alienation in the policy?
insurance proceeds should be paid to Gustavo ● The insurance contract is not merely suspended but
and the balance of PhP4 Million should be paid avoided. (Art. 1306, NCC)
to Johanna's estate. Is the executor's
contention correct? □ What Risks may be Insured Against?
▪ NO. The insured took out an
insurance policy over her own life. ● Any contingency or unknown event the happening of
Hence, she can designate any person which will damnify a person having insurable
as his beneficiary. The conclusion interest or will create liability against him. (Sec. 3)
would have been different had it been ● Fortuitous events may be Insured against.
Gustavo who took out the life
insurance policy on the life of □ Is a future event the only event that can be covered by an
Johanna because a creditor's Insurance contract?
insurable interest extends only up to ● General Rule –
the amount of the credit. ○ YES. A future event is the only event that can
be covered by an insurance contract.
□ Expectancy ● Exception –
● Is expectancy Insurable? ○ A past event may be covered by marine
○ NO. Unless it is coupled with interest in the Insurance if the loss of the vessel in the past
thing from which it shall arise. could not have been known by ordinary means
of communication.
● Can an owner of a business Insure against a
contingency which may cause loss of profits resulting □ PREMIUM
from the cessation or Interruption of his business? ● What Is a Premium?
○ YES. It is an expectancy coupled with an ○ The consideration paid to an insurer for
interest. undertaking to indemnify the insured against a
specified peril.
□ Effect of Change of Interest in the Thing Insured
Unaccompanied by a Change of Interest in Insurance ● Can there be a valid Insurance contract if premium is
● General Rule not actually paid?
○ A change of interest in any part of a thing ○ General Rule – No insurance policy issued or
insured unaccompanied by a corresponding renewed is valid and binding until actual
 payment of the premium. Any agreement to ● Rule with respect to Future Premiums/Advance
the contrary is void. (Sec. 77) Payment
○ Exceptions – ○ An insurer may contract and accept
1.) In case of life and Industrial life payments, in addition to regular premium, for
whenever the grace period provision the purpose of paying future premiums on the
applies. (Sec. 77) policy or to increase the benefits thereof. (Sec.
2.) Where there is an 84)
acknowledgment in the contract or
policy of insurance that the premium ● What is the effect of the payment of the premium
had already been paid. (Sec.78) by a post-dated check?
3.) Payment of the premium in ○ Maturity date indicated is subsequent to the
installments. loss – insufficient to put the insurance into
4.) Where a credit term was agreed effect.
upon and the insurer granted a credit ○ Check or note bearing a date prior to the loss
term for the payment of the and accepted by the insurer – assuming an
premiums despite full awareness of availability of funds, sufficient to put the
Sec. 77. insurance into effect even if it remains un
5.) Where the parties are barred by encashed at the time of the loss. The
estoppel. subsequent effects of encashment would
retroact to the date of the instrument and its
□ Rule in case of Credit Extension acceptance by the creditor.
● A 90-day credit extension may be given whenever
credit extension is given under the broker and agency ● When is the Insured Entitled to the Return of
agreements with duly licensed intermediaries. Premiums?
1.) If the thing insured was never exposed to
● Requisites: the risks Insured against. (Sec. 80)
a.) The credit extension must be provided for 2.) When the insurance is for a definite period
under the broker and agency and the insured surrenders his policy before
agreements; and the termination thereof. (Sec. 80)
b.) The credit extension to a duly licensed 3.) The contract is voidable and subsequently
intermediary should not exceed 90 days from annulled under the provisions of the Civil
the date of Issuance of the policy. (Sec. 77, as Code. (Sec. 82)
amended by R.A. No. 10607) 4.) The contract is voidable due to the fraud or
misrepresentation of insurer or his agent. (Sec.
□ PREMIUM 82)
● Rule with respect to Salary Deductions for 5.) When the contract is annulled on account
Government Employees of the fraud or misrepresentation of the
○ Employees of the Government, including its insurer or of his agent or on account of facts,
political subdivisions and instrumentalities, or the existence of which the insured was
and GOCCs may pay their insurance premiums ignorant of without his fault. (Sec. 82)
and loan obligations through salary deduction. 6.) When by any default of the insured other
The treasurer, cashier, paymaster, or official of than actual fraud, the insurer never incurred
the entity employing the government any liability. (Sec. 82)
employee is authorized to make such 7.) When there is over-insurance. (Sec. 83)
deductions pursuant to an agreement 8.) When the rescission is granted due to the
between the insurer and the government insurer’s breach of contract.
employee. (R.A. 10607)
● What is the Effect of Fraud?
● Rules with respect to insurance agent or broker ○ A person insured is not entitled to a return
○ Where an insurer authorizes an insurance of premium if the policy is annulled, rescinded,
agent or broker to deliver a policy to the or if a claim Is denied by reason of fraud. (Sec.
insured, it is deemed to have authorized said 82)
agent to receive the premium in its behalf.
(Sec. 315) ● Is Premium Necessary for Suretyship Contract to be
○ The insurer is bound by its agent's Binding?
acknowledgment or receipt of payment of ○ YES. Except where the obligee has accepted
premium. (American Home Assurance Co. v. the bond it is binding even if the premium has
Chua) not been paid subject to the right of the
insurer to recover the premium from its
 principal. (Sec. 179; Phil. Pryce Assurance 1) Concealment- Neglect to communicate that
Corp. v. CA. 230 SCRA 164. 1994) which a party knows and ought
to communicate. (Sec. 26)
● How does an insurer prevent the lapse of life 2) Representation - Oral or written statement of a
insurance policy (non-default options)? fact or condition affecting the risk made by
○ The insurer may avail of: insured to insurer, tending to induce insurer to
1.) Grace Period assume risk. (Sec. 46)
2.) Automatic policy loan from the 3) Warranty - Statements or promises by the
policies' cash surrender value; insured set forth in the policy itself or
3.) Application of dividend; and Incorporated to it by proper reference, the
4.) Reinstatement clause. untruth or non-fulfillment of which in any
respect, and without reference to whether the
● Reinstatement of a Lapsed Policy of Life Insurance insurer was in fact prejudiced by such untruth
○ Policyholders may reinstate the policy at any or non-fulfillment render the policy voidable
time within 3 years from the date of default of by the insurer.
premium payment, unless the cash surrender 4) Condition—Takes the form of either conditions
value has been duly paid to the insurer or the precedent or subsequent inserted by the
extension period has lapsed. insurer to protect himself against fraudulent
○ Conditions: There must be claims of loss and attempts to do so.
a.) proof of Insurability; and 5) Exception - Certain specified risks excluded
b.) Payment of overdue premiums from the coverage of the contract. 
and any indebtedness plus interest.
(Sec. 233(i))  Who has the burden of proving that the loss was
caused by an except peril? 
q TRANSFER OF POLICY  o The burden rests with the insurers. 
 May the Policy be Transferred Without the
Consent of the Insurer?   Concealment –
o YES, in Life Insurance. Such transfer is allowed o Test of Materiality 
even without the consent of the insured. (Sec.  Determined solely by the probable
184) and reasonable influence of the facts
o NO, in Property Insurance. Transfer must have upon the party to whom the
the consent of the insurer because the insurer communication is due, in forming his
approved the policy based on the personal estimate of the disadvantages of the
qualification and the insurable interest of the proposed contract, or in making his
insured.  inquiries or in fixing the premium
rate. (Sec. 31; Vda. De Canilang v. CA,
 What is the Effect of the Transfer of the Property 223 SCRA 443. 1993)
Insurance Policy Without the Consent of the
Insurer?  o Are matters relating to the health of the
o The insurance policy is suspended and will not insured material and relevant? 
be avoided until the interest in the thing and  YES. Thus, waiver of a medical
the interest in the insurance are vested in the examination in a non-medical
same person.  insurance contract renders even more
material the information required of
q DEVICES USED FOR ASCERTAINING AND CONTROLLING the applicant concerning previous
RISK AND LOSS  conditions of health and diseases
 What are the four primary concerns of the suffered. (Sun life Assurance
insurer?  Company of Canada v. CA, 246 SCRA
1) Correct estimation of risk. 268)
2) Delimitation of the risk.
3) Control of risk to guard against increase of risk. o Rule with respect to matters of opinion or
4) Determine if loss occurs, and if so, the amount judgment? 
thereof.   Where matters of opinion or
judgment are called for, answers
 What are the devices used by the insurer for made in good faith and without intent
ascertaining and controlling risks and loss?  to deceive will not avoid the policy
even though they are untrue. Thus,
answers of the applicant, who is not a
 doctor, regarding the medical history o When is an Insurer not estopped from raising
of his wife largely depends on opinion concealment as a defense?
rather than fact. (Philamcare Health  If there was connivance between the
Systems Inc.)  insured and the soliciting insurance
agent as well as the medical
o Effects of Concealment  examiner.
 It vitiates the contract and entites the  In a case, the insured suffering from
insured to rescind, even if the death an advanced state of pulmonary
or loss is due to a cause related to the tuberculosis answered in the negative
concealed matter. (Sec. 27) when asked in the policy whether he
suffered any ailment of the lungs and
o Should the matter concealed be the cause of then signed the application in blank.
the loss?  The false answer was supplied by the
 NO. The fact that the matter insurance agent in collusion with the
concealed had no bearing to the medical examiner. Court held that
cause of death of the insured is not when the insured signed the
important because the insured need application in blank and authorized
not die of the disease he had failed to the agent and/or the medical
disclose to the insurer. It is sufficient examiner to write for him. he made
that his non-disclosure misled the them his own agents for that purpose
insurer in forming his estimates of the and he was responsible for their acts
risks of the proposed Insurance policy in that connection. (Insular Lite Ltd. v.
or in making inquiries. (Sunlife Feliciano, 74 Phil. 468, 1943) 
Assurance)
 Representation—
o Is good faith a defense in concealment?  o Kinds: 
 NO. The concealment whether a)Affirmative affirmation of a fact when the
intentional or unintentional entitles contract begins.
the injured party to rescind a contract b)Promissory— promise to be performed after
of insurance. (Sec. 27) The materiality the policy was issued.
of the facts concealed does not
depend on the state of mind of the o Test of Materiality 
insured, but to the probable and  Determined by the probable and
reasonable influence of the facts reasonable influence of the facts on the
upon the party to whom party on whom communication is due, in
communication should have been forming his estimate of the contract, risks
made. (Vda de Canilang) and premium. (Secs. 31 & 46)
o What is the Effect of Misrepresentation? 
o When may an Insurer be deemed estopped  The injured party is entitled to rescind
from raising concealment (as well from the time when the representation
as exclusionary conditions or warranties)?  becomes false. 
 If it accepts the premium payments
and issued the policy even if the  Warranty—
insured already supplied the insurer o Kinds: 
such facts or information which could 1) Express
hardly be overlooked in the 2) Implied-warranties that are deemed
application form considering its included in the contract, although
prominence and its materiality to the not expressly mentioned. (Note: only in
coverage applied for. (Edilion V. MBLI Marine Insurance)
Co.,117 SCRA 187, 1982)  3) Affirmative- asserts the existence of a fact
or condition at the time it is made.
o May an insurer be deemed estopped if the 4) Promissory—the insured stipulates that
insured already supplied the relevant certain facts or conditions shall exist or thing
Information that requires further inquiries shall be done or omitted.
from the Insurer but failed to do so? 
 YES. o What is the Effect of Warranty? 
 General Rule: It gives the insurer the right
to rescind. (Secs. 74-76) 
  Exceptions:  forfeited. The face of the policy bore the
a) loss occurs before the time of annotation "Co-insurance declared." The
performance of the warranty. things insured were burned. it turned out that
b) performance becomes unlawful. several insurance were obtained on the same
c) performance becomes Impossible goods for the same term. The insurer refused
(Sac. 73) to pay on the ground of concealment. May the
Insured recover? 
o What is the Effect of Immaterial Provisions?   YES. There was no violation of the
 General Rule: Do not avoid the policy other insurance clause". The face of
(Sec. 75) the policy contains a notation "Co-
 Exception: When the parties stipulate that insurance declared". This means that
violation of particular provision, though the insurer is deemed notified of the
normally Immaterial, shall avoid the existence of other insurance contracts
policy: converted into material provisions. on the property insured. (General
Insurance and Surety Corp. v. Ng. G.R.
□ Distinctions between Warranty and Representation No. L-14373, 1960) 

Warranty Representation q INCONTESTABILITY CLAUSE 

Part of the contract Collateral inducement  What is the Rule on incontestability Clause? 
Written on the policy or in Need not be written o After a policy of LIFE INSURANCE made
a valid rider or attachment payable on the death of the insured shall have
Fact warranted must be Requires only be been in force during the time of the insured
strictly complied with substantially true for a period of 2 years from the date of its
issue or of its last reinstatement, the insurer
q Other Insurance Clause  cannot prove that the policy is void ab initio or
 Procurement of Additional Insurance Without the is rescindable by reason of the fraudulent
Consent of the Insurer  concealment or misrepresentation of the
o A provision stating that the policy shall be void insured or his agent (Sec 48) 
if the insured procures additional insurance
without the consent of the insurer is valid. The  Requisites 
purpose is to prevent over insurance and thus a) Insurance is a life insurance policy payable on
avert the possibility of perpetuation of fraud. the death of the insured, and 
(Pioneer Insurance and Surety Corp. V. Yap, 61  Note: Health or accident insurance is
SCRA 426, 1974)  included within the purview of
life insurance for the purpose of the
 May the "other Insurance clause" be subject to incontestability clause, provided that
waiver?  under such health or accident
o YES. But the waiver must be express or if it is insurance policy, the proceeds are
to be implied from the conduct mainly. said payable in the event of death of the
conduct must be clearly indicative of a clear insured.
intent to waive such right. There must be clear b) It has been in force during the lifetime of the
showing that the insurer knew about the insured for at least 2 years from its date of
violation of the clause. (Pioneer Insurance)  issue or of its last reinstatement. 
 Note: The period may be shortened,
 What would be a ground to rescind the policy In but it cannot be extended. 
property Insurance? 
o Upon discovery of other insurance coverage  Problem
that makes the total insurance in excess of the o A life insurance policy was issued in favor of M.
value of the property insured. (Sec. 64)  X on October 6, 2013 and the insured died on
March 26, 2014. The insurer rescinded the
 Problem  contact on the ground of material
o A fire Insurance policy in favor of the insured concealment and returned the premium on
contained a stipulation that the insured shall August 11, 2014. The beneficiary claims that
give notice to the company of any insurance the insurance policy can no longer be
already effected or which may subsequently rescinded under the incontestability clause
be effected, covering the property Insured, because the insured died within the 2 year
and unless such notice be given before the period without the insurer having rescinded
occurrence of any loss, all benefits shall be
 the same, is the argument of the beneficiary 4) The conditions of the policy relating to military
tenable?  or naval service have been violated [Secs.
 NO. The insurer has 2 years from the 233(6), 234(B)]
date of issuance of the insurance 5) The fraud is of a particular vicious type
contract or of its last reinstatement 6) The beneficiary failed to furnish proof d death
within which b contest the policy or to comply with any condition imposed by
whether or not, the insured still lives the policy after the loss has happened
within such period. The phrase during 7) The action was not brought within the time
the lifetime simply means that the specified by law.
policy is no longer considered in force
der the insured has died (Tanv. CA.  What is "vicious fraud? 
174 SCRA 403. 1989) o One which is shocking to the Conscience of
man .
o Note that in Manila Barker Lite Insurance
Corporation : Cresencia Aban. G.R. No 175666,  Problem
the Court held: "After the two-year period o Marco had been suffering from advanced
lapses, or when the insured dies within the tuberculosis. Only one-fourth of his lungs was
period, the insurer must make good on the left due to the onslaught of the disease. He
policy, even though the policy was obtained by applied for a life insurance with XYZ Corp.
fraud, concealment, or misrepresentation. This When he was asked to submit to a physical
is not to say that insurance fraud must be and medical examination, he had Peter, a very
rewarded, but that insurers who recklessly and healthy person, take his place, especially in the
indiscriminately solicit and obtain business X-ray examination. As a result, he was issued a
must be penalized, for such recklessness and life insurance policy: 3 years later Marco died.
lack of discrimination ultimately work to the Can his beneficiary recover? 
detriment of bona fide takers of Insurance and  NO. Marco was guilty of vicious fraud
the public in general."  and thus the incontestability clause
does not apply.
 Problem
o Marco was issued a life insurance policy on  Problem
January 2, 2000. He concealed the fact that 3 o The assured answers "No to the question in
years prior to the issuance of his life insurance the application for a life policy. Are you
policy, he had been seeing a doctor about his suffering from any form of heart illness? In
heart ailment. On March 1, 2002. Marco died fact, the assured has been a heart patient for
of heart failure. May the heirs file a claim on many years. On September 9, 2011, the
the proceeds of the life insurance policy of assured is killed in a plane crash. The insurance
Marco? company denies the claim for insurance
 YES. The life insurance policy s issued proceeds and returns the premium paid. Is the
on January 2, 2000 and Renaldo died decision of the insurance company justified?
on March 1, 2002. i.e. after the lapse  YES, if the incontestability clause does
of 2 years. The policy is a life not apply. This is so if the life
insurance policy and was in force for insurance policy has been in force for
more than 2 years during the lifetime at least 2 years from the issuance of
of the insured. Under the rule, the the policy or its last reinstatement,
insurer cannot prove that such policy during the lifetime of the assured. The
is void ab initio or is rescindable by "No answer of the insured to the
reason of the fraudulent concealment question constitutes fraudulent
or misrepresentation of the insured. concealment, the truth being that the
insured was a heart patient for many
 Defenses Not Barred by Incontestability Clause  years.
1) The person taking the insurance lacked  NO, the incontestability cause applies,
insurable interest as required by low ie, the life policy has been in force for
2) The cause of the death of the insured is an at least 2 years from the issuance or
excepted risk the last reinstatement, during the
3) The premiums have not been paid [Sec. 77. lifetime of the assured, even if there
233(b), 234(b), 236(b)] was concealment.
 
q DOUBLE INSURANCE
  When is there Double Insurance?   What is the nature of a Reinsurance Contract? 
o Where the same person is insured by several o Presumed to be a contract of indemnity
insurers separately in respect to the same against liability and not merely
subject and interest. (Sec. 95) against damage. 
o It is not prohibited by law, but it may be
prohibited by other insurance clause.  How is Reinsurance undertaken? 
o Through a Treaty-where there is a prior
 Requisites  agreement for the reinsurer to accept the
1) Person insured is the same, insurance ceded by the reinsured original
2) Two or more insurers insuring separately. insurer 
3) Subject matter is the same; o Facultative-where the insurer may refuse to
4) Interest insured is also the same; and accept the ceded policy. 
5) Risk or peril insured against is likewise the
same.  Is there privity between the original insured and
the reinsurer? 
 Effects of Double Insurance and Over-insurance  o NO. The original insured has no interest in a
o Unless the policy otherwise provides, the contract of reinsurance. (Sec. 100)
insured may claim payment from
the insurers in such order as he may  Can the original insured file an action to recover
select, up to the amount for which the from the reinsurer? 
insurers are severally liable under their o NO. Even if he has difficulty in recovering from
respective contracts. the original insurer.
o Each insurer is bound, as between the o Exception: 
insured and other insurers, to contribute  If the reinsurance policy contains a
ratably to the loss in proportion to the stipulation pour autrui in favor of
amount for which the insurer is liable the original insured. 
under its contract.
□ Distinctions between Ordinary Insurance and Reinsurance 
 Effects of Double Insurance and Over-insurance 
o If a Valued Policy – Any sum received by the ORDINARY INSURANCE REINSURANCE
insured under any other policy shall be Written document Any contract by which the
deducted from the value of the policy without embodying the terms and insurer procures a third
regard to the actual value of the subject stipulations of the person to injured him
matter insured. contract of insurance against loss or liability by
o If a Non-Valued Policy Any sum received by the between the insured and reason of an original
insured under any policy shall be deducted the insurer. insurance.
against the full insurable value, for any sum There is no original There must be an original
received by the insured under any policy. insurance. insurance.
The insured is not an The insured is generally an
o What happens if the insured receives any sum insurer. original insurer.
in excess of the valuation in case of valued
policy or the insurable value in case of non- □ Distinctions between Double Insurance and Reinsurance
valued policy? 
 The insured must hold the sum DOUBLE INSURANCE REINSURANCE
received in trust for the insurers, Involves the same interest Insures different interests.
according to their right of
Insurer remains in such Insurer becomes an
contribution among themselves. 
capacity insured in relation to the
reinsurer
q REINSURANCE 
Insured in the first Original insured has no
 What is Reinsurance or "Reinsurance Cession"? 
contract is a party in interest in the contract
o A contract through which the insurer procures
interest in the second interest in the second
a third person to insure him against loss or contract contract
liability by reason of such original insurance.
Subject of insurance is Subject of insurance is the
The original contract of insurance and the
property original insurer's risk
contract of reinsurance are separate and
Insured has to give his Consent of the original
distinct from each other and covered by
consent insured is not necessary
separate policies. 
q DOUBLE INSURANCE AND REINSURANCE 
  Problems: 
o Suppose that Lucky owns a house valued at ● Under what cases is the insurer not liable?
PhP 1 Million and insured the same against fire 1) loss by insured's willful act or gross
with 3 insurance companies as indicated negligence.
below. In the absence of any stipulation in the
2) loss due to connivance of the insured. (Sec.
policies, from which insurance company or
companies may Lucky recover in case fire 89)
should destroy his house completely? 3) loss where the excepted peril is the
A- PhP 800,000, B - PhP 200,000: C-PHP proximate cause.
500,000 
 From any two or all of the insurers □ NOTICE AND PROOF IN FIRE INSURANCE
provided that the total amount that ● What is the effect of failure to give notice of loss to
he will recover does not exceed his
the insure in case of fire?
loss.
◦ The insurer will be exonerated. (Sec. 90)
o If each of the policies obtained by Lucky is an
open policy and it was ● What type of proof is needed in case proof is
immediately determined after the fire that the required under the policy?
value of the house was PhP2 Million, how ◦ It is sufficient that the insured give the best
much may he collect from A, B, and C? 
evidence he has in his power to present and
 The full amount of the coverage from
each insurer. Since the total amount need not submit proof that is necessary in
of the insurance coverage is less than court. (Sec. 91)
the actual loss, Lucky may recover ◦ Substantial compliance is sufficient even if
the full amount covered by the there is a provision in the policy specifying the
respective insurance covered by A, B, kind of proof needed.
and C.
● Is a stipulation in a policy of insurance requiring that
o If each of the policies obtained by Lucky in
problem 2 is a valued policy and the value of the consent of the insurer must first be obtained
the house was fixed in each policies at PhP1.3 before any payment by the person responsible for the
Million, how much may he recover from B if loss in the settlement of the claim against the insured
he fully collected from A and C? can be made valid?
 None, since the total amount ◦ YES. The stipulation is valid, the purpose of
collected would be PhP 1.3 Million which is to avoid collusion between the
which is equivalent to the value of the
insured and the claimant. (Peda Compania De
house fixed in each policies.
Seguros v. CA, 185 SCRA 741)

□ CLAIMS SETTLEMENT
□ LOSS AND CLAIMS SETTLEMENT ● Rules in case of Life Insurance—
● Under what cases is the insurer liable? ◦ If there is a maturity date, the proceeds shall
1) loss, the proximate cause of which is the be paid immediately upon the maturity of the
peril insured against. (Sec. 86) policy.
2) loss, the immediate cause of which is the ◦ If the policy matures by the death of the
peril insured against except where the insured, within 60 days after presentation of
proximate cause is an excepted peril. (Sec. 88) the claim and filing of the proof of death of the
3) loss through negligence of the insured insured. (Sec.248)
except where there was gross negligence
amounting to willful act. ● Rules in case of Property Insurance—
4) loss caused by efforts to rescue the thing ◦ Proceeds shall be paid within 30 days after
from the peril insured against— if during the proof of loss is received by the insurer and
course of rescue. the thing is exposed to a peril ascertainment of the loss or damage is made
not insured against, which permanently either by agreement or by arbitration.
deprives the insured of its possession, in whole ◦ If no ascertainment is made within 60 days
or in part. (Sec. 87) after receipt of the proof of loss, the loss shall
 be paid within 90 days after such receipt. (Sec.
249) ● When does the cause of action accrue?
◦ From the final rejection of the claim of the
● Effects of Delay in Payment by the Insurer insured; NOT from the time of the loss.
◦ The beneficiary is entitled to payment of:
a) interest for the duration of the delay at the ● Where an insurance policy provides for a
rate of twice the legal interest; prescriptive period of 1 year from the time the cause
b) attorney's fees and other litigation of action accrues, when should the I-year period
expenses; commence to run if the insured files a MR upon the
c) appropriate damages under the Civil Code initial denial of his claim?
(e.g., moral and exemplary damages) when ◦ From the denial of the claim, NOT from the
warranted. (Sec. 250; Tio Kho Chio v. CA, 202 resolution of the MR. (Sun Insurance Office
SCRA 119, 1991) Ltd. v. CA, 195 SCRA 193)

● When is the insurer liable to pay damages and ● When does the 10-year period under the Civil Code
interest under Secs. 249 and 250? apply?
◦ Only when the Court finds that there was a) If the policy is silent as to the prescriptive
unreasonably delay or refused by the insurer period; or
in the payment of the claim. b) when there is a stipulation which is void.
◦ The legal rate is 6%. (Art. 2209, NCC)
● When should a notice of claim under the CMVLI
● Collateral Source Rule policy be made? What is the effect if no such notice is
◦ If an injured person receives compensation filed?
for his injuries from a source wholly ◦ Within 6 months from the date of accident;
independent of the tortfeasor, the payment otherwise it shall be deemed waived.
should not be deducted from the damages
which he would otherwise collect from the ● When should an action involving a CMVLI policy be
tortfeasor. instituted? What effect no such action is filed?
◦ Within 1 year from the denial of the claim;
● When is the Collateral Source Rule Not Applicable? otherwise the right of action shall prescribe.
◦ Cases involving no-fault insurances where the ◦ The action must be filed with the Commission
insured is indemnified or losses by insurance or the courts, as the case may be (Jacqueline
companies, regardless of who was at fault in Jimenez Vda. De Gabriel v. CA, G.R. No.
the incident generating the losses. 103883, 1996)
◦ Thus, a no-fault insurer cannot be obliged to
pay the hospitalization expenses of the insured □ RIGHT OF SUBROGATION
which had already been paid by separate
health insurance providers of the insured. ● What is the principle of subrogation under insurance
(Mitsubishi Motors Philippines Salaried law? When does the right of subrogation accrue?
Employees Union) ◦ It is a normal incident of indemnity of
property insurance as a legal effect of
□ PRESCRIPTIVE PERIOD payment; it inures to the insurer without any
formal assignment or any express stipulation
● What is the prescriptive period to file an action to that effect in the policy.
based on the insurance contract? ◦ It accrues upon payment by the insurer of
◦ 10 years, in the absence of an express the insurance claim. It is not dependent upon,
stipulation in the policy. nor does it grow out of any privity Of contract.
Payment to the insured makes the insurer an
● Can the parties agree on a shorter period? assignee in equity. (Art. 2207, NCC; Pan
◦ YES. Provided it is not less than I year from Malayan Ins. v. CA, 184 SCRA 54, 1990)
the time the cause of action accrues. (Sec. 63)
 ● What can the insurer recover from the third person? against loss by reason of bodily injury
◦ Only what the insured could have recovered to any person arising out of
from the third person. Hence, it cannot ownership, maintenance. or use of
recover if the insurer voluntarily paid even if automobiles
the loss is not covered by the policy.
3) Precious stones, jewels, jewelry, precious
● What must the insurer present to prove the extent metals, whether in course of transportation or
of its coverage? otherwise;
◦ The insurance policy. (Wallen Phil. Shipping
Inc. v. Prudential Guarantee Assurance, G.R. 4) Bridges, tunnels and other instrumentalities
No. 152158, 2003) of transportation and communication
(excluding buildings, their furniture and
● When is there NO Right of Subrogation? furnishings, fixed contents and supplies held in
1) The insured by his own act releases the storage); piers, wharves, docks and ships, and
wrongdoer/third person liable for the loss. other aids to navigation and transportation,
2) Where the insurer pays the insured for a including dry docks and marine railways, dams
loss or risk not covered by the policy. (Pan and appurtenant facilities for the control of
Malayan Insurance) waterways.
3) In life insurance.
4) For recovery of loss in excess of the ● What does "Marine Protection and Indemnity
insurance coverage. Insurance" mean?
◦ Insurance against, or against legal liability of
□ MARINE INSURANCE the insured for loss, damage, or expense
incident to ownership, operation, chartering,
● What does Marine Insurance include? maintenance, use, repair, or construction of
1) Vessels, craft, aircraft, vehicles, goods, any vessel, craft or instrumentality in use of
freights, cargoes. merchandise, effects, ocean or inland waterways, including liability
disbursements, profits, moneys, securities, of the insured for personal injury, illness or
choses in action, evidences of debts, valuable death or for loss of or damage to the property
papers, bottomry, and respondentia interests of another person.
and all other kinds of property and interests
therein, in respect to, appertaining to or in ● Can cargoes be the subject of marine insurance?
connection with any and all risks or perils of ◦ YES. Once it is entered into, the implied
navigation, transit or transportation, or while warranty of seaworthiness immediately
being assembled, packed, crated, baled, attaches to whoever is insuring the cargo,
compressed or similarly prepared for shipment whether he be the ship owner or not.
or while awaiting shipment, or during any Although he has no control over the vessel, the
delays, storage, transshipment, or reshipment shipper has control in the choice of vessel.
incident thereto, including war risks, marine (Roque v. mc, 139 SCRA 596)
builder's risks, and all personal property
floater risks: ● What are the Implied Warranties in marine
insurance?
2) Person or property in connection with or ◦ The ship is seaworthy at the inception of the
appertaining to a marine, inland marine, insurance. (Sec. 115)
transit or transportation insurance, including ◦ The ship will not deviate from the agreed
liability for loss of or damage arising out of or voyage unless deviation is proper. (Secs. 123-
in connection with the construction, repair, 136)
operation, maintenance, or use of the subject ◦ The ship will not engage in an illegal venture.
matter of such insurance; ◦ Warranty of possession of documents of
◦ Note: Does not include life neutrality. (Sec. 122)
insurance or surety bonds, insurance ◦ Presence of insurable interest.
 Those due to the influence Inherent in or arising out
● What is the nature of Implied Warranties in marine or effect of the forces of of the nature and
insurance? nature on the vessel structure of the vessel.
◦ These are warranties which are expressly and/or the cargo like
strong winds, big waves,
provided by the Insurance Code. They are
storm, typhoon, tornado
implied in the sense that even if nothing is and similar natural
mentioned about them in the marine calamities.
insurance policy, they are said to be part and
parcel of or incorporated in the policy. Include only such losses as Loss which in the ordinary
are extraordinary nature course of events, results
● What does "warranty of possess of documents of or arise from some from:
overwhelming power (a) the ordinary, natural,
neutrality" mean?
which cannot be guarded and inevitable action of
◦ That the ship will carry the requisite against by the ordinary the sea;
documents of nationality or neutrality of the execution of human skill (b) ordinary wear and tear
ship or cargo where such nationality or or prudence as of the ship; and
neutrality is expressly warranted. (Sec. 122) distinguished from the (c) the negligent failure of
ordinary wear and tear of the ship's owner to
the voyage and from provide the vessel with
● What is the insurable interest in marine insurance?
injuries suffered by the the proper equipment to
◦ Shipowner—
vessel in consequence of convey the cargo under
a) Over the value of the vessel (even if her not being ordinary conditions.
chartered and the charterer agreed to pay the unseaworthy.
shipowner the value of the vessel in case of
loss).
▪ Note: But the shipowner can ● What risks are insured against in the absence of
recover only the amount not express stipulation?
recoverable from the charterer. (Sec. ◦ Only perils of the sea. (Go Tiaco Y Hermanos
102) vs. Union Insurance Society of Canton, 40 Phil
▪ What if the ship is hypothecated by 40)
a bottomry loan?
Insurable interest is only up to the ● What is an "All-Risks Policy"?
excess of the value of the vessel over ◦ A policy that covers all risks, unless expressly
the loan. (Sec. 103) excepted, just like a comprehensive insurance
b) Over expected freightage. policy. Hence, no need to distinguish between
perils of the sea and perils of the ship. The
◦ Cargo owner / Shipper— burden rests on the insurer to prove that the
a) Over the cargo. loss is caused by a risk that is excluded.
b) Over the expected profits. (Sec. 107) (Filipino Merchants Ins. Co.)

◦ Charterer— ● What is "Barratry"?

a) Over the vessel up to the extent of the ◦ It is the willful misconduct on the part of the
amount he is liable to the shipowner if the ship master or crew in pursuance of some unlawful
is lost or damaged during the voyage. (Sec. or fraudulent purpose without the consent of
108) the owners, and to the prejudice of owner's
b) Over his expected profits or freightage if he interest. This may be expressly covered by the
accepts cargoes from other persons for a fee. policy.
c) Over his own cargo or his clients cargo. ◦ No honest error of judgment or mere
negligence, unless criminally gross, can be
● Distinction between Perils of the Sea vs. Perils of the barratry. (Roque v. IAC, 139 SCRA 596, 1985)
Ship
● What is the rule on Opinions and Beliefs in relation
Perils of the Sea / Perils of Perils of the Ship
Navigation to Marine Insurance?
 ◦ Belief and expectation of a third person in 5) It must be successful, i.e., resulted in the
reference to a material fact is material and saving of the vessel; and
must be disclosed in marine insurance. (Sec. 6) It must be necessary.
109)
● What is the extent of the marine insurer's liability in
● What are those matters, although concealed, case of partial loss?
ordinarily will not vitiate the contract unless they ◦ A marine insurer is liable upon a partial loss
caused the loss: only for such proportion of the amount
◦ national character of the insured; insured by him as the loss bears to the value of
◦ liability of insured thing to capture or the whole interest of the insured in the
detention; property insured.
◦ liability to seizure from breach of foreign
laws; ● Problem:
◦ want of necessary documents; and ◦ The vessel owned by "X" valued at PhP10 Million, is on
◦ use of false or simulated papers. the way to Indonesia to deliver the goods belonging to
A, B, and C. The value of the cargoes belonging to each
● Distinctions between General Average Loss and of them are valued at PhP3 Million each (a total of PhP
Particular Average Loss 9 Million worth of cargoes are on board the vessel).
Later, a strong typhoon placed the vessel at peril
General Average Loss Particular Average Loss
forcing the captain and its crew to lighten its load by
Includes damages and Includes all damages and
expenses which are expenses caused to the jettisoning the cargoes belonging to A. As a result, the
deliberately caused by the vessel or to her cargo vessel and the cargoes of B and C safely reached
master of the vessel or which have not inured to Indonesia. The vessel is insured with Avengers
upon his authority, in the common benefit and Insurance company for its full value while the cargoes
order to save the vessel, profit of all persons of C are fully insured with Marvel Insurance company.
her cargo, or both at the interested in the vessel Can A recover from Avengers and Marvel?
same time from a real or and her cargo.
▪ YES. A can recover from Avengers and Marvel
known risk.
Insurer of the vessel or Insurer of the vessel or because the circumstances involve a general
cargo saved is liable cargo saved is not liable, average, hence, those who benefited from the
unless covered by the loss incurred by A are liable for the general
policy. average contribution. Since the cargoes of B
The general average loss is Unfortunate owners are and C were saved, the insurers of X and C are
borne equally by all of the not entitled to receive also liable.
interests concerned in the contributions from the
venture. owners concerned in the
venture where a vessel ● What is a Co-insurance Clause?
accidentally runs aground ◦ It arises where the property is insured for less
and goes to pieces after than its value, thus, the insured is considered a
the cargo is saved. co-insurer for the difference between the
amount of insurance and the value of the
property.
● Requisites to the Right to Claim General Average
Contribution: ● When is there Co-insurance in marine insurance?
1) There must be a common danger to the ◦ There is co-insurance in marine insurance if
vessel or cargo; the following requisites are present:
2) Part of the vessel or cargo was sacrificed a.) the loss is partial; and
deliberately; b.) the amount of insurance is less
3) The sacrifice must be for the common safety than the value of the property
or for the benefit of all; insured.
4) It must be made by the master or upon his
authority; ● When is there Co-insurance in fire insurance?
 ◦ When there is an express stipulation relating ◦ Except:
to co-insurance. ▪ Time policy (when the insurance is
made for a specified length of time)—
● Problem: at the commencement of every
◦ A vessel valued at PhP 10 Million owned by B was voyage it undertakes during that time.
insured for only PhP8 Million with X Insurance Corp. (Sec.117[a])
The vessel was damaged because of a storm and the
extent of the damage was determined to be PhP2 ▪ Insurance is upon the cargo, which
Million. How much can B recover from X Insurance by the terms of the policy, description
Corp.? of the voyage, or established custom
of the trade, or is to be transhipped at
▪ Only PhP1.6 Million computed as follows:
an intermediate port- at the
▫ Actual Damage / Total Value x commencement of each particular
Amount of Insurance Coverage voyage. (Sec. 1176)
▫ (PhP 2/ PhP 10) X PhP 8 = PhP 1.6
Million ▪ Where different portions of the
▪ The co-insurance clause operates because voyage contemplated by the policy
the vessel was insured for less than the value differ in respect to the things
requisite to make the ship seaworthy
of the property and there was only partial loss.
at the commencement of each
Under the law, a marine insurer is liable upon portion, the ship is seaworthy with
a partial loss, only for such proportion of the reference to that portion. (Sec. 119)
amount insured by him as the loss bears to the
value of the whole interest of the insured in ▪ When the ship was seaworthy at the
the property insured. (Sec. 159) commencement of the voyage but
◦ What if the vessel above was totally destroyed? How becomes unseaworthy during the
voyage which an insurance relates
much will be recovered?
unreasonable delay in repairing the
▪ The FULL AMOUNT. defect exonerates the insurer on ship
or shipowner's interest from liability
● When is a ship considered seaworthy? from any loss arising therefrom. (Sec.
◦ When reasonably fit to perform the service, 120
and to encounter the ordinary perils of the
voyage, contemplated by the parties to the ● If the vessel is unseaworthy, is the insurer of the
policy. (Sec. 116) cargo liable even if the owner of the cargo was not
even aware of the unseaworthiness of the vessel?
◦ There should be due consideration to the
◦ NO. It is immaterial if the unseaworthiness of
nature of the ship, the voyage and the service the ship was unknown to the insured and the
to be performed. (Caltex [Phils.] Inc. v. Sulpicio insured may not use such defense to recover
Lines Inc., 315 SCRA 709) on the marine insurance policy. It is the
obligation of the cargo owner to look for a
● What does "seaworthiness of the vessel" consist of? common carrier which keeps its vessel in
seaworthy condition. The shipper of the cargo
◦ The ship should be in good condition as to its
may have no control over the vessel, but it has
structure, must be properly laden, and full control in the choice of the common
provided with a competent master, a sufficient control that will transport his goods. (Roque v.
number of competent officers and seamen, CA, 139 SCRA 596)
and the requisite appurtenances and
equipment such as ballast, cabin, and anchors, ● What is the effect of payment made by the insurer
to the insured for the latter's lost cargo? What is the
cordage and sails, food, water, fuel and lights,
extent of such affect?
and other necessary or proper stores and
◦ It operates as waiver of the insurer's right to
implements for the voyage. (Sec. 118) enforce the implied warranty of
seaworthiness.
● When should a ship be seaworthy? ◦ But the waiver extends only in favor of the
◦ At the time of the commencement of the insured. There is no waiver in favor of the
risk. camer that transported the cargo. The insurer
 can still claim payment against the carrier for reasonable grounds of belief in the
breach of contract based on the insurer's right necessity to avoid peril.
of subrogation. (Delsan Transport Lines, Inc. K.
CA, GR No. 127897. 2001) ● Loss
◦ What are the different funds of Losses?
● What is a "Deviation"? a.) Actual Total Loss (Sec. 132):
◦ It is the departure of vessel from course of 1. Total destruction:
voyage, or an unreasonable delay in pursuing 2. Loss by sinking.
voyage, or the commencement of an entirely 3. Damage rendering the thing
different voyage. (Sec. 125) valueless; or
4. Total deprivation of owner of the
● When is Deviation Proper? possession of the thing insured.
1) If due to circumstances outside the control
of the ship captain or ship owner, b.) Constructive Total Loss (Sec. 133. in rel. to
2) If done to comply with a warranty or to Sec 141)
avoid a peril whether or not the peril is insured 1. Actual loss of more than 74 of the
against; value of the object
3) If made in good faith and upon reasonable 2. Damage reducing value by more
grounds of belief in its necessity to avoid a than % of the value of the vessel and
peril; or of cargo, and
4) If made to save human life or relieve 3. Expenses of shipment exceed % of
another vessel in distress. value of cargo.

● When is Deviation Improper? ● In what situation may the insured abandon the
◦ When made not under any of the situations goods or vessel and how is it done?
considered as proper deviation ◦ In case of Constructive Total Loss.
◦ It is done by:
● When is the effect of an Improper Deviation? 1.) abandoning the goods or vessel to
◦ An insurer is not liable for any loss happening the insurer and claiming for the whole
to the thing insured subsequent to an insured value, or
improper deviation. 2.) without abandoning the vessel, by
claiming for partial actual loss.
● Problems:
◦ In a voyage insured from Manila to Cebu, the ● Abandonment
usual route of the vessel is between Batangas ◦ What is "Abandonment"
and Mindoro. However, when the vessel got ▪ The act of the insured by which,
out of Manila Bay, it was forced by strong after a constructive total loss, he
currents to drift into China Sea, thereby declares the relinquishment to the
compelling the vessel to take the route to the insurer of his interest in the thing
western side of Mindoro. Was the deviation insured. (Sec. 140)
proper? ▪ In other words, the insured ship
▪ YES. Because it was caused by owner is actually telling the insurer
circumstances over which neither the that he is leaving to the insurer to
captain nor the ship owner had any recover whatever remains of the
control. thing insured and he only wants to be
paid for the whole value of the vessel.
◦ In making the voyage insured from Manila to
Cebu, the usual route of the vessel is between ● Requisites for Valid Abandonment
Batangas and Mindoro. However, when the 1) There must be an actual relinquishment by
vessel got out of Manila Bay, the captain the person insured of his interest in the thing
ordered the vessel to take the route west of insured. (Sec. 40)
Mindoro in order to avoid a tornado between 2) There must be a constructive total loss.
Batangas and Mindoro. Was the deviation (Sec. 141)
proper? 3) The abandonment be neither partial nor
▪ YES. In this case, the deviation was conditional (Sec. 142)
anchored not on the actual existence 4) It must be made within a reasonable time
of the peril being avoided, but on the after receipt of reliable information of the loss.
good faith of the captain and upon his (Sec 143)
5) It must be factual. (Sec. 144)
 6) It must be made by giving notice thereof to the value of the chimney under the fire
the insurer which may be done orally or in Insurance policy?
writing. (Sec. 145) ▪ NO. The fire which was the
7) The notice of abandonment must be explicit proximate cause of the damage was a
and must specify the particular cause of the friendly fire, not a hostile fire. The fire
abandonment. (Sec. 146) was found under the oven where it
was supposed to be and it was useful
● In what situation where abandonment, although to Pedro in helping him bake the
considered absolute and irrevocable, would have no bread in the oven. The heat that
effect whatsoever? destroyed the chimney came from
◦ When the basis of the abandonment is false, that friendly fire under the oven.
e.g., when the abandonment was made on the
basis of the information that the vessel sank, ◦ Alex insured his bakery, together with the
when in truth and in fact nothing happened to building where the bakery was located under a
the vessel. fire insurance policy. The building beside the
bakery building of Alex got burned and the fire
● What is the effect of when there is no actual total transferred to Alex's building, thereby burning
loss and the insured fails to abandon? the same. Is Alex entitled to recover under the
◦ The insured is entitle to recover the actual fire insurance policy for the loss of the building
partial loss, but not the constructive total loss. and the bakery?
▪ YES. The proximate cause of the loss
□ FIRE INSURANCE: was a hostile fire, and not a friendly
● What is a Fire Insurance? fire. Since the proximate cause of the
◦ It is a contract of indemnity by which the loss of the building and the bakery
insurer for a consideration agrees to indemnify was hostile fire, the insured is entitled
the insured against loss of, or damage to, to recover for the loss of the building
property by fire. and the bakery under the fire
◦ It may include insurance against loss by insurance policy.
lightning, windstorm, tornado, or earthquake
and other allied risks when such risks are ◦ Suppose X constructed a house in 2013 at a
covered by extension to fire insurance policies cost of PhP5 Million, which he insured against
or under separate policies. fire for the said amount. The policy for PhP
Million was renewed every year. This year,
● Kinds of Fire: when the the said house was already PhP 10
a) Friendly fire- one which is found in the place Milion, one half of the house was destroyed by
where it is supposed to be and is useful to fire. How much can X recover form the
man, insurer?
b) Hostile Fire- one which is found in the place ▪ PhP2.5 Million if the policy is a
where it not supposed to be and is harmful to valued policy.
man. ▪ PhP5 Million if the policy is an open
policy
● What kind of fire, causing loss or damage to the
thing insured, entitles the insured to recover the ● What is the effect of an “Alteration” in the use or
proceeds under a fire insurance policy? condition of a thing insured from that to which is
◦ HOSTILE FIRE. limited by the policy?
◦ If made without the consent of the insurer,
● What is the extent of liability of an insurer under an by means within the control of the insured,
open policy? and increasing the risk, it entitles the insurer
◦ The actual loss, as determined, will represent to rescind a contract of fire insurance. (Sec.
the total indemnity due to the insured, except 170)
only that the total indemnity shall not exceed
the total value of the policy. (Development ● Requisites to entitle the insured to a Claim?
Insurance Corporation v IAC, 143 SCRA 62) a) The use or condition of the thing insured is
specially limited or stipulated in the policy;
● Problems: b) Such use or condition is altered;
◦ Pedro insured his bakery under a fire c) The alteration is made without the consent
insurance policy. Due to the heat generated by of the insurer;
the fire under the oven, the chimney was d) The alteration is made by means within the
destroyed and it fell. Is Jose entitled to recover control of the insured;
 e) The alteration increases the risk; and excluded. The house eventually was burned
f) There must be a violation of a material with fire as the proximate cause. While the
policy provision. house was burning, Alex, with the help of
some friends, was able to remove the
● Examples of Material Alteration furniture from the house and brought it to the
◦ Converting an insured residential house to a yard to be safe from fire. After doing this, Alex
factory. and his friends returned to help put out the
◦ Transfer of the insured machineries and fire and to save the house. The fire was put
equipment from one building to another was out on time and the house was saved. When
not stipulated in the policy without the Alex went back to the yard to look after the
consent of the insurer because such transfer furniture, he found out that the furniture was
changes the condition of the thing insured. gone. Can Alex recover the proceeds under
(Malayan Insurance Company v PAP Co. Ltd., the fire insurance policy for the value of the
2013) furniture?
▪ YES. The right to recover is based on
● Problems: the doctrine of the extension of the
◦ Monica insured his residential house against doctrine of proximate cause. The
fire. The use of the house for residential furniture was saved from the fire
purposes is stated in the policy. Induced by the which was the risk insured against,
amount of rental which the operator of a but in the process of saving the
gambling casino offered to him for the lease of furniture, the insured was deprived of
the house, Monica entered into a contract of the possession of the furniture due to
lease of the house with the operator of theft which is not the risk insured
gambling casino for the house to be used for against
the said purpose. Is the insurer entitled to
rescind the contract of fire insurance? □ CASUALTY INSURANCE

▪ YES. The use of the thing insured ● What Is a Casualty Insurance?

was altered from that to which it is ◦ An insurance covering loss or ability arising
limited by the policy without the from accident or mishap, excluding those
consent of the insurer, by means falling under other types of insurance such as
within the control of the insured, and fire or marine. (Sec. 176)
increasing the risk thereby. When the
house was converted into a gambling ● Rules in case of Third-Party Liability covered by a
casino, the risk of fire was increased Casualty Insurance
because it is now exposed to the ◦ Casualty Insurance may provide for third-
public and the gamblers do not care if party liability in the nature of stipulation pour
the house would catch fire so much autrui for personal injury and even damage to
so that they are not careful in property), in which case, the third party may
throwing their cigarette butts which directly sue the insurer upon the occurrence of
certainly increases the risk. the loss. But the insurer is not solidaniy liable
with the insured or the tortfeasor for the
● What is the Role of Proximate Cause in Fire latter's obligation. (First Integrated Bonding
Insurance? and Ins. Co. v. Hernando, 199 SCRA 769, 1991)
◦ The insured can recover for the loss or If the insurer pays the third person, the right of
damage suffered by the property insured ONLY subrogation operates.
when the proximate cause of the loss or
damage is the risk insured against ● If there is no stipulation pour autrui but the
insurance is an insurance against liability to third
● What is Proximate Cause? persons, can a third person who might be injured may
◦ The cause, uninterrupted by another sue the insurer?
independent cause, without which the loss or ◦ NO. Only the insured (sought to be held
damage would not have taken place. liable by the third person) can recover from
the insurer. (Guingon v. Del Monte, 20 SCRA
● Doctrine of the Extension of the Doctrine of 1043, 1991)
Proximate Cause
◦ Alex took a fire insurance policy covering his ● What is the rule on liability of insurer if the insured
house and furniture. In the policy, storm, committed a felony?
lightning, earthquake and typhoon were
 ◦ Liabilities arising out of acts of negligence, ◦ The owner or owners of motor vehicles for
which are also criminal, are also insurable on transportation of passengers for
the ground that such acts are accidental. compensation, including school buses. "
▪ Example: Motor insurance policy
covering the insured's liability for ● “Passenger”
accidental injury caused by his ◦ Any fare paying person being transported
negligence, even though gross and and conveyed in and by a motor vehicle for
attended by criminal consequences transportation of passengers for
(e.g., homicide through reckless compensation, including persons expressly
imprudence) will not be void as authorized by law or by the vehicle operator's
against public policy. or his agents to ride without fare.
◦ Liability Consequences of deliberate criminal
acts are not insurable. ● Purpose of Compulsory Third-Party Liability
Insurance (CTPL)
□ COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE ◦ To give immediate financial assistance to
(CMVLI) victims of motor vehicle accidents and/or their
dependents, especially if they are poor
● Mandatory Insurance Rule regardless of the financial capability of motor
◦ It is unlawful for any land transportation vehicle owners or operators responsible for
operator at owner of a motor vehicle to the accident sustained. (Shafer v. Judge, RTC,
operate the same in public highways, unless 167 SCRA 386; First Integrated Bonding and
there is an insurance or guaranty to indemnify Ins. Co., Inc. Hemando, 199 SCRA 746)
the death or bodily injury of a third party or
passenger arising from the use thereof (Sec. ● "No-Fault" Clause
387) ◦ Injured party or passenger is given option to
file a claim for death or injury without the
● Mechanisms to Ensure compliance necessity of proving fault or negligence of any
◦ Registration of any vehicle will not be made kind under the following conditions:
or renewed without complying with the a) The total indemnity in respect of any
requirement. persons shall not exceed PHP15,000; (Sec.
May be complied with using: (a) an insurance 391; Ins. Memo Circ. 4-2006)
policy. (b) surety bond, or (c) cash bond. b) The following proofs of loss, when
submitted under oath, shall be sufficient
● "Passenger evidence to substantiate the claim.
◦ Any fare paying person being transported 1.) Police report of the accident; and
and conveyed in and by a motor vehicle for 2.) Death certificate and evidence
transportation of passengers for sufficient to establish the proper
compensation, including persons expressly payee; or
authorized by law or by the vehicle operator's 3.) Medical report and evidence of
or his agents to ride without fare. medical or hospital disbursement in
respect of which refund is claimed;
● "Third-Party" and
◦ Any person other than a passenger, excludes c) Claim may be made against motor vehicle
a member of the household, or a member of only
the family within the second degree of
consanguinity or affinity of a motor vehicle ● From whom should the injured recover?
owner or land transportation operator, or his ◦ In the case of an occupant of a vehicle – from
employee in respect of death, bodily injury, or the insurer of the vehicle in which the
damage to property arising out of and in the occupant is riding, mounting or dismounting.
course of employment. ◦ If not an occupant – from the insurer of the
directly offending vehicle.
● "Owner" or "Motor Vehicle Owner" ◦ Note: In all cases, the right of the party
◦ The actual legal owner of a motor vehide, in paying the claim to recover against the owner
whose name such vehicle is duly registered of the vehicle responsible for the accident shall
with the LTO. " be maintained.

● “Land Transportation Operator” ● Period to File Notice

 ◦ Within 6 months from the date of the ◦ NO. The writ of garnishment is enough. By
accident, otherwise the claim is deemed such service, the garnishee becomes a “virtual
waived party” or a “forced intervenor". (Perla
(Sec. 397. ICP: Traveller's Insurance Surety Campania de Seguros, Inc. v. Ramolete, 203
Corporation v. CA, 272 SCRA 536. 1997) SCRA 487)

● Prescriptive Period ● Coverage of Liability

◦ The action must be filed in court or the IC ◦ PHP100,000 (plus additional PhP 100,000 if
within 1 year from the denial of the claim (Sec what is involved is used as public utility) (Ins.
397) Memo Circ. 4-2006)
◦ PHP70,000 plus PhP30,000 funeral expenses
● Processing and Payment Period Death Indemnity
◦ If there is an agreement – insurance
company shall ascertain the truth and extent ● Limit of Liability
of the claim and make payment within 5 ◦ The SC previously ruled that the insurer's
working days after reaching an agreement. maximum liability will not exceed PhP100,000
(Sec. 398) (plus another PHP100,000 if common carrier
◦ If no agreement is reached – the insurance or PHP200,000) regardless of the number of
company shall pay only the "no-fault” passengers killed or injured. (First Quezon City
indemnity without prejudice to the claimant Co., Inc. v. Ca, 218 SCRA 525)
from pursuing his claim further, in which case, ◦ But LTFRB M.C. No. 2014-02, dated January
he shall not be required or compelled by the 23, 2014 provides that THE LIMIT IS NOW PER
insurance company to execute any quit claim PERSON/INJURY.
or document releasing it from liability under
the policy of insurance or surety bond issued. ● Authorized Driver Clause
(Sec. 398) ◦ A stipulation in a motor vehicle insurance
which prohibits that the driver, other than the
● May the Third Person sue the insurer directly? insured owner, must be duly licensed to drive
◦ YES, if the policy provides for indemnity the motor vehicle, otherwise the insurer is
against the liability. excused from liability. (Villacorta v. IC. 100
◦ NO, if the policy provides for SCRA 467, 1980)
“reimbursement after actual payment by the
insured," or for the indemnity against loss. ● What is the legal effect of an Authorized Driver
(Sec. 53. Bonifacio Brothers v Mora, 20 SCRA Clause?
261) ◦ The insurer will indemnify the insured owner
against loss or damage to the car provided that
● Is the Insurer Solidarily liable with the Insured? the use of the insured vehicle is limited to the
◦ NO. While the insurer's liability may be insured himself or any person who drives on
direct, it does not mean that the insurer can his order or with his permission.
be held solidarily liable with the insured. The
insurer's liability is based on contract that of ● Does the insured need to prove that he had a
the insured is based on torts. Further, the driver's license at the time of accident if he was the
insurer's liability is limited to the amount of driver?
the insurance coverage. (Pan Malayan ◦ NO.
Insurance Corporation v. CA. 184 SCRA 54)
● Is a Driver (not the insured) who holds an expired
● May the proceeds of a TPLI be garnished? driver's license considered an authorized driver?
◦ YES. In a TPLI, the insurer assumes the ◦ NO. (Gutierrez v. Capital Ins. Co., 130 SCRA
obligation of paying the injured party to whom 618)
the insured is liable. The insurer becomes
liable as soon as the liability of the insured ● Theft Clause
attaches. From the moment the insured ◦ Where the risks insured against in the policy
becomes table to the third person, the insured includes theft and the vehicle was unlawfully
acquires Interest in the insurance contract, taken, the insurer is liable and the authorized
which interest may be garnished just like any driver clause does not apply. The injured can
other credit. recover if the thief has no driver's license.
(Perla Compania de Seguros)
● Should summons be served upon the insurer for ◦ Hence, where the motor vehicle is unlawfully
liability purposes? and wrongfully taken without the owner’s
 consent or knowledge, such taking constitutes o NO. It shall not be deemed a security or
theft, and it is the THEFT CLAUSE and NOT the securities defined in The Securities Act, as
Authorized Driver Clause that should apply. amended, or in the Investment Company Act,
The fact that the driver using the car before it as amended, nor subject to regulations under
was carnapped had an expired license does said Acts. (lbid.)
not matter. (Perla Campania de Seguros)
● What may insurance company cover under the
● Does the Theft Clause apply in the following cases? variable contracts?
◦ An employee (or any person without juridical o Any insurance company issuing variable
possession) took the vehicle of his employer contracts may in its discretion issue contracts
without the latter's consent and the employee providing a combination of fixed amount and
did not have a driver's license. variable amount of benefits and for option
▪ YES. (Villacorta) lump-sum payment of benefits. (Sec. 239)
◦ Vehicle which was taken with intent to gain
without the consent of the insured was ● Are foreign insurance companies authorized to issue
returned and the vehicle was stolen by the variable contracts in the Philippines?
driver of the insured. o YES, if they are likewise authorized to do so
▪ YES. (Alpha Insurance and Surely by the laws of their domicile. (Sec. 238(a))
Company v Castor, G.R. No. 198174,
2013) ● What is the rule on separate variable accounts?
◦ Vehicle was taken to the owner of a repair o All amounts received by the company in
shop for the purpose of repair and in order to connection with any variable contract which
attach accessories. are required by the terms thereof, to be
▪ YES. (Paramount Insurance vs Sps. allocated or applied to one or more designated
Remondeulaz. G.R. No 173773, 2012) separate variable accounts shall be placed in
such designated account or accounts. The
● Is Theft covered by the Malicious Damage Clause? assets and liabilities of each such separate
◦ NO. variable account shall at all times be clearly
identifiable and distinguishable from the
● Malicious Damage Clause assets and liabilities in all other accounts of the
◦ Clause excluding malicious damage from the company. Notwithstanding any provision of
risk insured against, or that which is the direct law to the contrary, the assets held in any such
result from the deliberate or willful act of the separate variable account shall not be
insured, members of his family, and any chargeable with liabilities arising out of any
person in the insured's service, whose clear other business the company may conduct but
plan or purpose was to cause damage to the shall be held and applied exclusively for the
insured vehicle for purposes of defrauding the benefit of thee owners or beneficiaries of the
insurer, (Alpha Ins.) variable contracts applicable thereto. (Sec.
243)
□ VARIABLE CONTRACTS
● What is a variable contract? ● Who has preference over such accounts in case of
o Any policy or contract on either a group or insolvency of the company?
on an individual basis issued by an insurance o The owners or beneficiaries of the variable
company providing for benefits or other contracts. In the event of the insolvency of the
contractual payments or values thereunder to company, the assets of each such separate
vary so as to reflect investment results of any variable account shall be applied to the
segregated portfolio of investments or of a contractual claims of the owners or
designated separate account in which amounts beneficiaries of the variable contracts
received in connection with such contracts applicable thereto.
shall have been placed and accounted for
separately and apart from other investments ● What is the limitation on sale, exchange or other
and accounts. (Sec. 238(6), RA 10607, transfer of assets of the company?
amending old Insurance Code) o Except as otherwise specifically provided by
o It may also provide benefits or values the contract, no sale, exchange or other
incidental thereto payable in fixed or variable transfer of assets may be made by a company,
amounts, or both. between any of its separate accounts or
between any other investment account and
● Are variable contracts considered "security"? one or more of its separate accounts, unless in
the case of a transfer into a separate account,
 such transfer is made solely to establish the a) the suicide was committed after the policy
account or to support the operation of the has been in force for a period of 2 years from
contracts with respect to the separate account the date of its issue or its last reinstatement,
to which the transfer is made, or in case of a unless the policy provides a shorter period, or
transfer from a separate account, such b) the suicide was committed while in a state
transfer would not cause the remaining assets of insanity.
of the account to become less than the ▪ Under item (b), the insurer is liable
reserves and other contract liabilities with regardless of the date of the
respect to such separate account. Such commission of the offense. (Sec. 183)
transfer, whether into or from a separate
account, shall be made by a transfer of cash, or ● Kinds of Life Insurance
by a transfer of securities having a valuation a) Ordinary Life, General Life or Old Line Policy
which could be readily determined in the – insured pays a premium every year until he
market place AND approved by the Insurance dies. Surrender value is after 3 years.
Commissioner. b) Limited Payment Policy – insured pays
premium for a limited period. If he dies within
● May an insurance company invest and reinvest all or the period, his beneficiary is paid; if he outlives
any part of the assets allocated to any variable the period, he does not get anything.
account in certain securities and investments? c) Endowment Policy – insured pays premium
o YES. Provided that in case of investment in for a specified period. If he outlives the period,
common stocks, it shall not invest in excess of the face value of the policy is paid to him; if
10% of the assets of any such separate variable not, his beneficiaries receive the benefit.
accounts in any one corporation issuing such d) Term Insurance – insured pays premium
common stock. only once, and he is insured for a specified
period. If he dies within the period, his
□ SURETYSHIP beneficiaries receive the benefit; if he outlives
● What is Suretyship? the period, no person benefits from the
o Agreement whereby the surety guarantees insurance.
the performance by another of an undertaking e) Industrial Life – life insurance entitling the
or an obligation in favor of a third party. (Sec. insured to pay premiums weekly; or where
177) premiums are payable monthly or oftener

● Kinds of Suretyship Contracts under Insurance Law □ VARIABLE CONTRACT

1) Fidelity Bond – contract of insurance against ● Any policy or contract on either a group or individual
loss from misconduct. basis issued by an insurance company providing for
2) Fidelity Guaranty Insurance – a contract benefits or other contractual payments or values
whereby one, for a consideration, agrees to themselves thereunder to vary so as to reflect
indemnify the assured against loss arising from investment results of any segregated portfolio of
the want of integrity, fidelity, or honesty of investment.
employees or other persons holding positions
of trust. □ INSURANCE COMMISSION
● Vested with power to regulate insurance companies.
□ LIFE INSURANCE
● What is a Life Insurance? □ Jurisdiction of ICE
o Insurance on human life and insurance ● Concurrent jurisdiction (with regular civil courts) –
appertaining thereto or connected therewith cases where any single claim does not exceed PhP 5
which includes every contract or undertaking Million involving liability arising from:
for the payment of endowments or annuities. a) insurance contract,
(Sec. 181) b) contract of suretyship;
c) reinsurance contract; and
● Are contracts of the payment of annuities or d) membership certificate issued by members
payment of lump sum under a retirement program of mutual benefit associations. (Sec. 439)
managed by a life insurance company as trustee ● Primary and exclusive jurisdiction – claim for benefits
considered insurance contract? involving pre-need plans where the amount of the
o YES. (Sec.181) benefits does not exceed PhP100,000. (Sec. 55)

● What is the Effect of Death of Insured through □ Does the IC have jurisdiction to decide the legality of a
Suicide? contract of agency entered into between an insurance
o The insurer is not liable, except when: company and its agent?
 ● NO. It is not covered by the term "doing or ● Pre-need plan may only be sold to prospective plan
transacting insurance business". It is not also covered holders if IC-approved information brochure has been
by Sec. 439 which grants the IC adjudicatory powers. provided to the purchaser.

□ Grounds to Revoke the Certificate of Authority issued to the □ Rule on Registration of Pre-need Contracts/Plans
Domestic or Foreign Company by the lC: ● Pre-need company must file a registration statement
1) Company is in an unsound condition; within 45 days after the grant of a license to do
2) Company has failed to comply with the provisions of business as a pre-need company, and for every pre-
law or regulations obligatory upon it; need plan which the pre-need company intends to offer
3) Its condition or method of business is such as to for sale to the public.
render its proceedings hazardous to the public or to its
policyholders; □ Registration Requirements
4) It's paid-up capital stock, in the case of a domestic 1) duly accomplished Registration Statements
stock corporation, or its available cash assets, in the 2) Board resolution authorizing the registration;
case of a domestic mutual company, or its security 3) Opinion of independent counsel on legality of the
deposits, in the case of a foreign company, is impaired issue;
or deficient; 4) Audited financial statements
5) The margin of solvency required of such company is 5) Viability study with certification, under oath, of
deficient. accredited pre-need actuary
6) Copy of the proposed pre-need plan
□ When can the IC order the liquidation of an insurance 7) Sample of sales materials.
company?
● If the company is determined by the IC to be □ Disclosures to Prospective Planholders
insolvent or cannot resume business and public interest ● No registered pre-need plan shall be sold to
so requires. prospective planholders, unless an information
brochure, which has been filed with the Commission,
has been provided to the purchaser.
● Information brochure shall contain: (a) an
Pre-Need Code explanation of the principal features of the pre-need
RA 9829 (Pertinent Provisions of Securities Regulation Code) plan, (b) a statement that the planholder may avail of a
default or reinstatement within which to reinstate his
□ "Pre-Need Plans" lapsed plan, (c) the conditions of the same and the
● Contracts which provide for the performance of rates of return for scheduled benefit plans and
future services or the payment of future monetary illustrative yields for contingent benefit plans; and (d)
considerations at the time of actual need, for which such other information that the Commission shall
plan holders pay in cash or installment as stated prices, require by rule.
with or without interest or insurance coverage, and
includes life pension, education, interment, and other □ Licensing of Sales Counselors and General Agents
plans which the IC may from time to time approve. ● Sales counselors and general agents must be licensed
by the IC before they can solicit, sell, or offer to sell pre-
□ Jurisdiction need plans.
● Jurisdiction over the regulation of pre-need plans has ● License will expire every 30h day of June of each year.
been transferred from the SEC to the Insurance
Commission. □ Qualifications:
1) must be of good moral character and not have been
□ Requirements for Voluntary Cancellation of Registration convicted of any crime involving moral turpitude;
● A pre-need company that has applied for voluntary 2) has undergone an IC-approved training program and
cancellation of registration or suspension of permit to such fact has been certified under oath by duly
sell must: authorized representative of the pre-need company;
1) state and prove the reasons for doing so; and
2) prove that stockholders, investors and 3) passed a written examination administered by the lC.
planholders were properly informed of such
move; and □ Default and Temination by Planholders
3) it has sufficient funds to cover payment of ● All pre-need contracts must contain a grace period of
outstanding liabilities to planholders. 60 days within which to pay accrued installments
reckoned from the date of the first unpaid installment.
□ Requirement for Sale of Pre-Need Plans ● Reinstatement of a lapsed plan is allowed within 2
years from the lapse of the grace period.
 ● Within thirty (30) days from the expiration of the ● YES. Pre-need companies are required to elect into
grace period and within 30 days from the expiration of their Board at least 2 independent directors or 20%
the reinstatement period, the pre-need company shall thereof, whichever is higher.
give written notice to the planholder that his plan will
be cancelled if not reinstated within 2 years. □ What is the Rule on Prohibited Conflict Situations?
Failure to give elther of the required notices shall ● To avoid conflicts of interest, directors and officers, in
preclude the pre-need company from treating the plans their personal capacity or acting as agents, are
as cancelled. prohibited from having direct or indirect investments in
● Planholder may terminate his pre-need plan at any excess of PhP6 Milion in any corporation or undertaking
time upon notice to the issuer in which the pre-need company's trust fund has an
investment or financial interest.
□ Claims Settlement ● What is the extent of the prohibition?
● Rule: No pre-need company shall refuse, without just o Applies to relatives within the fourth degree
cause, to pay or settle claims arising under coverages of consanguinity or affinity while the director
provided by its plans nor shall any such company or officer concerned holds that position in the
engage in unfair claim settlement practices. company.

□ Unfair Claims Settlement Practices □ What is the rule against Self-Dealings?

1) Knowing misrepresenting to claimants pertinent ● Directors and officers of pre-need companies are
facts or plan provisions relating to coverages at issue; prohibited from engaging in self- dealing or related
2) Failing to acknowledge with reasonable promptness party transactions unless the legal requirements are
pertinent communications with respect to claims satisfied, i.e., material contracts are approved by at
arising under its plan least 2/3 of the entire membership of the Board, with
3) Failing to adopt and implement reasonable standards at least a majority of he independent directors voting to
for the prompt investigation of claims arising under its approve the material contracts. In case of an officer,
plan; the contract has been previously authorized by the
4) Failing to provide prompt, fair and equitable Board.
settlement of claims submitted in which liability has ● If first three conditions are met, must be ratified by at
become reasonably clear, or least 2/3 of the outstanding capital stock+ full
5) Compelling planholders to institute suits or recover disclosure of the adverse interest of the directors is
amounts due under its plan by offering, without made at such meeting and the contract is fair and
justifiable reason, substantially less than the amounts reasonable under the circumstances.
ultimately recovered in suits brought by them.
□ What are "Trust Funds" under the law on Pre-Need Plans?
□ Declaration of Dividends ● It is the fund created from the planholders' premium
● Pre-need company may declared dividend, provided payments to pay for the cost of benefits and services,
the following remain unimpaired: termination values payable to planholders, and other
a) 100% of capital stock costs necessary to ensure the delivery of benefits of
b) Amount sufficient to pay all net losses services as provided for in the pre-need plan.
reported, or in the course of settlement, and
all liabilities for expenses and taxes; and □ How should the Trust Fund be managed?
c) Trust fund ● A separate trust fund is required to be created for
each type of pre-need plan that the company may be
□ What is the required capital structure of a Pre-Need authorized to sell to ensure the delivery of the benefits
Company? and services provided under the pre-need contract.
● It must have a minimum paid-up capital of PhP100
Million. □ Can the management of the Trust Fund be entrusted to a
reputable bank's Trust Department a Trust Company, or similar
□ Fit and Proper Rule entity?
● Similar to the "Fit and Proper Rule" applied to bank ● YES
directors and officers, the IC has the authority to
prescribe, pass upon, and review the qualifications and □ Rule on Transparency
disqualification of directors and officers of pre-need ● Pre-need companies are required to publish in 2
companies to maintain the quality of management of newspapers its yearly financial statements showing
pre-need companies and afford better protection to fully the conditions of its business and disclosing its
plan holders and beneficiaries. resources and liabilities in a standardized format
prescribed by the IC.
□ Is Election of Independent Directors necessary?
□ Restrictions on the Use of Assets of the Trust Fund
 a) The assets of the Trust Fund shall at all times remain
for the sole benefit of the planholders.
b) No part of the assets can be used for or diverted to
any purpose other than for the exclusive benefit of the
investors.
c) None of the assets of the Trust Fund can:
i. be used to satisfy the claims of the pre-need
company's creditors; nor
ii. can be considered part of the assets of the
pre-need company which are subject to
distribution in case the company files for
insolvency.
d) Contributions to the trust funds shall not form part
of the income or gross receipts of the pre-need
company and therefore shall not be available for
dividend declaration.

□ Mechanisms to Protect Planholders

● If a pre-need company refuses or fails to pay the
claim within 15 days from maturity or due date, the
beneficiary will be entitled to collect interest on the
proceeds of the plan for the duration of the delay at the
rate twice the legal interest.
◦ Except when the claim is fraudulent
● Planholders are allowed to file an action in court to
recover their investments in case the pre-need
company files for insolvency or bankruptcy.
● If the insolvency or bankruptcy is a mere cover-up for
fraud or illegality, the planholders may file legal action
directly against directors and officers, including the
company's controlling stockholders.