Framework

General
Concepts

Payment of
Proceeds

Life
Insurance

Non-Life
Insurance

Grounds for
Rescission

Summary of
Amendments
in Insurance
Code

PDIC Law

PART THREE

NON-LIFE INSURANCE

Topics

What may be insured

against
Insurable interest
Non-life insurance policy

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

WHAT MAY BE
INSURED AGAINST

Contingent
Event- may
or may not
happen
Which will
damnify a
person
OR
create a
liability
against him

Unknown
Eventtime of
occurrence
is unknown

Requirement for recovery

Peril insured against must be the PROXIMATE CAUSE
of the loss or damage (sec. 86)
NO liability if insured risk is only a remote cause or
if proximate cause is an excepted peril
Concept of loss - injury, damage, liability, loss of
income or profits sustained by the insured in
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA
261)

Proximate Cause
That which in the natural and continuous
sequence,
unbroken
by
any
NEW
INDEPENDENT cause, produces an event
without which the event would not have
occurred.
Also called the EFFICIENT CAUSE, or one
that sets the others in motion
NOT equivalent to IMMEDIATE CAUSE

Proximate Cause:
Examples
Fire causes an explosion which
results in loss. Fire is the proximate
cause of the loss. If fire is a covered
peril, the insurer is liable.
A house is insured against fire. The
house is destroyed due to the falling
of a wall. The wall fell due to fire.
The insurer is liable

Immediate Cause v. Proximate

Cause
Immediate cause cause or peril which
appears closest in time to the loss

Immediate cause is NOT necessarily

the proximate cause and vice versa

Bar 2007

Alfredo took out a policy to insure his

commercial building against fire. A fire
broke out and destroyed the building.
It was found that the proximate cause
of the fire was explosion but fire was
the immediate cause of the loss. There
is no excepted peril in the policy. Can
there be recovery under the policy.

ANSWER
Alfredo cannot recover from the policy.
Section 84 of the Insurance Code provides
that before there can be recovery under
property insurance, the proximate cause of
the loss must be the covered peril. In the
instant case, the proximate cause of the loss
was not the peril insured against. Hence,
there can be no recovery under the policy.

Hostile v. Friendly Fire

Friendly - fire burns in a place where it
is intended to burn
Hostile - occurs outside the confines or
begins as a friendly fire and becomes
hostile by escaping from the place
where it ought to be
Hostile fire is the one covered by fire
insurance

Section 87:
Loss in the course of
rescue
Insurer is liable if the thing is
rescued from peril insured
against if in the course of
rescue, the thing is exposed to
a peril not insured against

Illustration
An owner gets fire insurance for his
house and all furniture inside.
In the course of rescuing the furniture
from fire, the furniture is damaged due to
water.
The insurer is liable to the owner
although the damage is not due to fire
since it was in the course of rescuing the
furniture from fire that it suffered some
damage.

If loss due to willful act

or connivance of insured
Section 89 - insurer is not liable
if insured, through his willful act
or connivance caused the loss
Ex. Arson, owner hiring other
people to rob his property

If loss due to willful act or

connivance of insured
Section 89 - if loss is through SIMPLE
negligence of insured or his agents,
insurer is STILL LIABLE

Insurer is NOT liable if loss is caused by

GROSS negligence of insured

Bar 2007
If the fire was found to have been
caused
by
Alfredos
own
negligence, can he still recover
from the policy?

ANSWER
I qualify. If the negligence was
simple in nature then Alfredo can
still recover under the policy.
However, if there was gross
negligence on the part of Alfredo
then he is barred from recovering
under the policy.

Bar 2014
On February 21, 2013, Barrack entered into a contract of
insurance with Matino Insurance Company (Matino) involving a
motor vehicle. The policy obligates Matino to pay Barrack the
amount of Six Hundred Thousand Pesos (P600,000.00) in case
of loss or damage to said vehicle during the period covered,
which is from February 26, 2013 to February 26, 2014.
On April 16, 2013, at about 9:00 a.m., Barrack instructed his
driver, JJ, to bring the motor vehicle to a near by auto shop for
tune-up. However, JJno longer returned and despite diligent
efforts to locate the said vehicle, the efforts proved futile.
Resultantly, Barrack promptly notified Matino of the said loss
and demanded payment of the insurance proceeds of
P600,000.00.

Bar 2014
In a letter dated July 5, 2013. Matino
denied the claim, reasoning as stated
in the contract that "the company shall
not be liable for any malicious damage
caused by the insured, any member of
his family or by a person in the
insureds service. Is Matino correct in
denying the claim? (4%)

Suggested Answer
No, Matino is wrong in denying the claim.
Under the Insurance Code, an insurance policy is
intended to cover losses due to acts of simple
negligence. It is only when the insured is guilty of
willfull connivance in bringing about the risk
insured against or gross negligence that an insurer
can deny compensation.
In this case, the act of Barrack of allowing his driver
to bring the car for tune up is simple negligence,
which should be covered by an insurance policy.

Suggested Answer
Further, the act of JJ, Barracks driver in
running away with the vehicle, cannot
be considered as malicious damage. It
is a crime, which is an act covered by
an insurance policy. Hence, Matino
cannot use this exlusionary clause to
defeat payment of proceeds.

INSURABLE INTEREST

Concept, Section 13
Every interest in property, whether
real or personal (owner)
Any relation thereto (lessee, agent)
Liability in respect
(carrier, depositary)

of

property

Which will directly damnify the

insured when a contemplated peril

Forms, Sec. 14
Existing interest (owner)

Inchoate interest founded on

existing interest (shareholder)

an

Expectancy coupled with an existing

interest
(usufructuary,
expected
profit)

Examples of Insurable Inchoate

Right in Property
a.
Contractors
interest
completed
building
for
construction cost;

in
the
unpaid

b.
Lessors
interest
in
improvement made by the lessee;

the

c. Naked owners interest over

property which another person has
beneficial title.

Factual Expectation
Mere factual expectation of loss not
arising from any legal right or duty in
connection with the SM does NOT
constitute an insurable interest.
NOTE: Factual expectation is enough
basis in life insurance.

Beneficiary is required to have

insurable interest

Insurable
interest
is
required before a person
can
benefit
from
a
property insurance (Sec.
18)

Bar 2000
A is an elderly bachelor. He insured
his house against fire. He named his
companion-friend as beneficiary. A
died in a fire which also destroyed
his home. The insurer refused
payment to B due to absence of
insurable interest on the life of A. Is
the insurer correct?

ANSWER
The insurer is correct.
The
beneficiary in property insurance
must have insurable interest on the
property. The companion-friend of A
does not have insurable interest on
the house of A. Hence, he cannot
recover from the fire insurance policy.

Bar 2001
JQ, the owner of a condominium
insured the same against fire
with XYZ Company and made the
loss payable to his brother MLQ.
In case of loss by fire, who can
recover from the policy. State the
reason for your answer (5%)

ANSWER
JQ can recover since he has
insurable interest over his own
condominium unit. MLQ cannot
recover since it is required that
a
beneficiary
must
have
insurable interest over the
property.

Bar 2014
A person is said to have an insurable interest in the
subject matter insured where he has a relation or
connection with, or concern in it that he will derive
pecuniary benefit or advantage from its preservation.
Which among the following subject matters is not
considered insurable? (1%)
(A) A partner in a firm on its future profits
(B) A general creditor on debtors property
(C) A judgment creditor on debtors property
(D) A mortgage creditor on debtors mortgaged
property

Suggested answer
(B) A general
debtors property

creditor

on

Bar 2015
Novette entered into a contract for the
purchase of certain office supplies. The
goods were shipped. While in transit,
the goods were insured by Novette.
Does she have an insurable interest
over the goods even before delivery of
the same to her? Explain. (2%)

Suggested Answer
It depends. If there was already transfer of ownership
to Novette even before the goods were delivered to
her, which may be caused by payment of full
purchase price, then she can insure the goods. The
loss of the goods shall cause damage to Novette.
However, if the goods are still owned by the seller,
Novette cannot insure them.Only an existing interest,
inchoate interest founded on an existing interest or
expectancy coupled with an existing interest shall
justify an insurance policy on the goods.

Insurable
interest
in
a
mortgaged property (Sec. 8)
Both the mortgagor and the mortgagee
have insurable interest on the mortgaged
property
The II of the mortgagor is to the full value
of the SM
The II of the mortgagee is only up to the
extent of the indebtedness

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

Bar 1999
A businessman obtained a fire insurance
policy on his stocks for P5 M. Three months
later, a fire broke out and destroyed the
grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to
another person who also insured the same
stocks for P5 M. May the businessman and
the creditor obtain different insurance
policies on the same stocks?

ANSWER
Yes. The businessman, as the
owner and the creditor, as the
mortgagee
have
insurable
interest over the stocks. Hence,
they
may
obtain
separate
policies on the same stocks.

Measure
Measure of insurable interest is the
extent
the
insured
might
be
damnified by loss or injury (Sec. 17)

Section 25: Void stipulations

payment of loss whether insured has
insurable interest or not or that
policy shall be proof of interest

INSURABLE INTEREST:
jurisprudence
Fire insurance taken on a property
belonging to another is VOID, although
the insurer had full knowledge of fact of
ownership
and
even
if
insured
subsequently acquired insurable interest
(Cha v. CA, 277 SCRA 690)

INSURABLE INTEREST:
jurisprudence
Where the real intention of insured
was to insure his goods for P15,000
but insurer mistakenly insured the
building where the goods were
contained and not owned by
insured, in case of loss of goods
insured was allowed to recover
(Garcia v. Hongkong, 45 Phil
122)

When insurable interest must exist

in
property insurance

Time the insurance takes

effect and when the loss
occurs, but NEED NOT
exist in the meantime

Bar 2002
Distinguish
insurable
interest
in
property
insurance from insurable
interest in life insurance
(5%)

ANSWER
In property insurance, the expectation of benefit must
have a legal basis. In life insurance, insurable interest
can be based on mere factual expectation.
In property insurance, the actual value of the interest is
the limit of the insurance. There is no such limit in life
insurance except if insurable interest is capable of
pecuniary estimation.
In property insurance, insurable interest must exist when
the insurance takes effect and at the time of the loss
but not in the meantime. In life insurance, insurable
interest must exist only at the time the insurance takes
effect.

Bar 2012
For both the Life Insurance and Property
Insurance, the insurable interest is required to
be A. existing at the time of perfection of the
contract and at the time of loss.
B. existing at the time of perfection and at the
time of loss for property insurance but only at
the time of perfection for life insurance.
C. existing at the time of perfection for
property insurance but for life insurance both
at the time of perfection and at the time of
loss.

ANSWER
B. existing at the time of perfection and
at the time of loss for property
insurance but only at the time of
perfection for life insurance.

Change of ownership of
property
Section 20 and 58: A change of
interest in any part of a thing
insured unaccompanied by a
corresponding change of interest
suspends the insurance until the
interest in the thing and interest
in the insurance are vested on
the same person

Illustration
A owns a car which is insured against theft
A sells the car to B. The policy was not included in the sale.
If the car is carnapped, neither A nor B can recover under
the policy.
A cannot recover because he does not own the car at the
time of the theft.
B cannot recover because he does not own the policy

Transfer of property
by succession
When the insured dies, and the
subject matter is transferred by
succession, the new owner of the
thing will also own the insurance.
(Sec. 23)

Illustration
A owns a car which has theft
insurance
A bequeath the car to B under his
will
A dies
B now owns the car, together with
the insurance policy

POLICY

NEW

KINDS
Open Value of thing is not
agreed upon but is to be
ascertained at time of loss. The
amount of the insurance
merely
represents
the
insurers maximum liability.

KINDS
Valued expresses on its face an
agreement that the thing shall be
valued at a specific sum
Running successive insurances

TWO KINDS OF VALUES

Face value maximum amount
which may be recovered under the
policy

Valuation- value of the subject

matter agreed on by the parties

Open v. Valued
Open - has a face value but
has NO valuation of the
thing. Valuation is done after
the loss
Valued - has both face value
and valuation of the thing

Illustration: Open

Value of the building: to be determined at time of

loss
Face Value: P100 Million
If the valuation is more than the face value,
recovery is limited to the face value

Illustration: Valued
Valuation of the car : P20 Million
Face Value

: P 10 Million

GENERAL RULE: Recovery will be based on valuation

EXCEPTION: If valuation is obtained through fraud or
misrepresentation. Recovery is limited to the face value or
insurer may deny the claim

Illustration: Running

As of June 1, 2015 value of goods P1

Million
As of June 10, 2015 - value of goods
P500,000

PREMIUM

PREMIUM
Cash and carry basis rule is followed
Section 77 - insurer is entitled to
premium as soon as the thing
insured is exposed to the peril
insured against
Premium - is the agreed price for
assuming and carrying the risk

PREMIUM
General Rule: Cash and carry basis
nonpayment of the first premium
prevents the contract from becoming
binding

Premium must be paid in cash as a

condition
precedent
for
non-life
insurance policy to be valid and
binding

PREMIUM
In Suretyship, payment of premium
is also necessary for the contract to
be binding

EXCEPT: if obligee has accepted the

bond, suretyship is binding even if
premium has not been paid, subject
to the right of the insurer to recover

NEW

Exceptions to Cash and Carry

Basis, Sec. 77
Life/industrial life when the grace
period applies
whenever under the broker and
agency agreements with duly
licensed
intermediaries,
a
ninety (90)-day credit extension
is given. No credit extension to
a duly licensed intermediary
should exceed ninety (90) days
from date of issuance of the
policy.

Exceptions to Cash and Carry

Basis, Sec. 77
An acknowledgment in a policy or contract of
insurance or the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding
until the premium is actually paid.
When the parties have agreed on installment
payment (Makati Tuscany case)
When the insurer has renewed the insurance
over the years under a clear credit term
arrangement (UCPB case)

Exceptions to Cash and Carry

Basis, Sec. 77

In Suretyship where the obligee

accepts the bond even if
premium has not been paid (Sec.
177)

When there is a credit

scheme
UCPB v. Masagana April 4, 2001 insured is entitled to proceeds even if
he has not fully paid premiums when:
for years, insurer has been issuing
fire insurance policies to insured and
the policies were renewed
insurer has been granting 60-90 day

When there is a credit scheme

no valid notice of non-renewal
premium was paid by insured
within credit extension period

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

ANSWER
Alfredo can recover from the policy.
In a decided case by the Supreme
Court, it was held that parties may
agree on a credit extension in paying
the premium. The happening of the
peril during the credit extension will
entitle the insured to proceeds, less
the unpaid premiums.

Premium by installment:
Makati Tuscany v. CA

Makati and American Assurance

agreed that premiums will be paid
via three installments
Makati paid premiums for 3
consecutive
years
in
three
installments
On the 4th year, Makati paid only
the 1st 2 installments.

Premium by installment:
Makati Tuscany v. CA
American collected the 3rd installment
Makatis defense:
Section 77
provides that no policy will be
effective unless the premium has
been paid.
Since premiums were
paid on installments, there was no
valid policy.

Premium by installment:
Makati Tuscany v. CA
Makati and American Assurance agreed that
premiums will be paid on three installments
After paying premiums for 3 consecutive
years, Makati refused to pay the third
installment on the 4th year
American sought to collect the balance from
Makati

Premium by installment:
Makati Tuscany v. CA
SC: Section 77 merely precludes the parties from
stipulating that the policy is valid even if
premiums are not paid, but does not expressly
prohibit an agreement granting credit extension,
and such an agreement is not contrary to morals,
good customs, public order or public policy (De
Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums
in installments not so proscribed. At the very
least, both parties should be deemed in estoppel
to question the arrangement they have
voluntarily accepted

Bar 2006
A Insurance Company issued an policy on
the new car of B.
The premium of
P60,000 was to be paid in 6 months. B
paid only the 1st two months installments.
Despite demands, B failed to pay the rest
of the installments. Five months after the
issuance of the policy, the vehicle was
carnapped. A denied the claim of B since
B did not pay the premium resulting to
cancellation of the policy. Can B recover
from A?

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

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

Bar 2010
On April 10, 2010, the drawee bank returned
Enriques check with the notation "Insufficient
Funds." Upon notification, Enrique immediately
deposited additional funds with the bank and
asked the insurer to redeposit the check.
Enrique thereupon claimed indemnity from the
insurer. Is the insurer liable under the
insurance coverage? Why or why not? (3%)

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

Bar 2014
On September 25, 2013, Danny Marcial
(Danny) procured an insurance on his
life with a face value of P5,000,000.00
from RN Insurance Company (RN), with
his wife Tina Marcial(Tina) as sole
beneficiary. On the same day, Danny
issued an undated check to RN for the
full amount of the premium.

Bar 2014
On October 5, 2013, Danny met a tragic
accident and died. Tina claimed the
insurance benefit, but RN was quick to deny
the claim because at the time of Dannys
death, the check was not yet encashed and
therefore the premium remained unpaid.
Is RN correct? Will your answer be the same
if the check is dated October 15, 2013?
(4%)

Suggested Answer
RN is correct in denying the claim.
Based on jurisprudence, an insurer can be held liable for
loss if the insurer and the insured agreed on a credit
scheme where is a definite period when premium should
be fully paid.
In this case, there was no clear credit extension period
or scheme since the check issue by Danny was undated.
Since there was no payment of premiums or even a
definite time when payment should be made, there was
no valid insurance policy at the time of Dannys death.
Hence, there can be no recovery of proceeds.

Suggested Answer
My answer will not be the same if the
check was dated October 15, 2014.
If the check was properly dated, this
means that there was a valid credit
extension scheme or period between
the parties. Hence, there was a valid
policy and there should be payment of
proceeds, less the amount of premiums.

Bar 2015
Will an insurance policy be binding
even if the premium is unpaid?
What if it were a partially paid
premium? (3%)

Suggested Answer
No. The general rule is the cash and carry rule. This means that an
insurance policy will only be effective when premium has been paid.
However, there are exceptions to this rule. These are:
Life/industrial life when the grace period applies
whenever under the broker and agency agreements with
duly licensed intermediaries, a ninety (90)-day credit
extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of
issuance of the policy.
An acknowledgment in a policy or contract of insurance or the
receipt of premium is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until the premium is actually paid.

Suggested Answer
When the parties have agreed on installment
payment (Makati Tuscany case)
When the insurer has renewed the insurance over
the years under a clear credit term arrangement
(UCPB case)

Unless any of these exceptions is

present, a policy without the payment
of premium shall have no legal effect.

When is insured
entitled to return of premium?
Whole premium if object was
never exposed to peril, unless it is
an indivisible policy
E.g. insured pays in advance the
annual premium, loss occurs before
date of effectivity.
Insured is
entitled to reimbursement of whole
premium

When is insured
entitled to return of premium?
Pro- rated premium
policy before period is up

surrender

E.g. A insures his house for 1 year

but returns the policy after 3
months. A is entitled to of the
premiums.

NEW

When is insured
entitled to return of premium?
If the contract is voidable and
subsequently annulled under the
provisions of the Civil Code or on
account of fraud / misrepresentation
of insure/agent, facts insured was
ignorant of, default of insured other
than fraud
E.g. Agent represents that A can be
insured even if his age disqualifies
him. Insured is entitled to return of
premium.

NEW

When is insured
entitled to return of premium?

Over insurance by several

insurers, other than life
ratable return of premium

NEW

ADDITIONAL PREMIUMS

Section 84. An insurer may contract

and accept payments, in addition to
regular premium, for the purpose of
paying future premiums on the policy
or to increase the benefits thereof.

NEW

NOTE!

A person insured is not entitled to

a return of premium if the policy is
annulled, rescinded or if a claim is
denied by reason of fraud.

RATABLE RETURN OF PREMIUM

IN CASE OF OVERINSURANCE
Sec. 82 premiums to be
returned when there is over
insurance by several insurers
shall be proportioned to the
amount by which the aggregate
sum insured in all policies
exceeds the insurable value of the
thing at risk

Illustration: P1.5M house

Insurer

Amount of
insurance

Premiums
Paid

A company

P1,200,000.00

P24,000.00

B company

P600,000.00

P12,000.00

TOTAL

P1,800,000.00

P36,000.00

How to compute:
STEP 1: Determine amount overinsured
Amount overinsured =
Amount of insurance value of
property
P1.8 P1.5M = P300,000

How to compute
Get the ratio of overinsurance with the
total amount of insurance
P300,000/P1,800,000.00
= 1/6

Ratable Return
STEP 3: Multiply the ratio to the
amount of premium paid to
every insurer
A= 1/6 of P24,000 = P4,000 from A
Company
B= 1/6 of P12,000 = P2,000 from B
Company

Bar 2000
Name at least three instances when an
insured is entitled to a return of the
premium paid.

Answer
Whole premium if object was never exposed
to peril, unless it is an indivisible policy
Pro- rated premium surrender policy before
period is up
If the contract is voidable and subsequently
annulled under the provisions of the Civil Code
or on account of fraud / misrepresentation of
insure/agent, facts insured was ignorant of,
default of insured other than fraud
Overinsurance by several insurers

PARTIES

Insurer

Beneficia
Insured
ry

The beneficiary
Section 18 - no contract or
policy on property shall be
enforceable except for the
benefit of some person having
an insurable interest in the
property insured

Compare with Life

Insurance
Where the beneficiary is not required
to have insurable interest over the
cestui que vie
It is only the insured who must have
insurable interest over the cestui que
vie

NEW

Insurer

Before issuing such certificate of authority,

the Commissioner must be satisfied that
the name of the company is not that of any
other known company transacting a similar
business in the Philippines, or a name so
similar as to be calculated to mislead the
public. The Commissioner may issue
rules and regulations on the use of
names of insurance companies and
other supervised persons or entities.

NEW

Insurer- Bancassurance

Section 375. The term bancassurance shall mean the

presentation and sale to bank customers by an insurance
company of its insurance products within the premises of the
head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and
regulations which the Commissioner and the Bangko Sentral
ng Pilipinas may promulgate.

To engage in bancassurance arrangement, a bank is not

required to have equity ownership of the insurance company.
No insurance company shall enter into a bancassurance
arrangement unless it possesses all the requirements as may
be prescribed by the Commissioner and the Bangko Sentral ng
Pilipinas.

NEW

Insurer

No insurance product under this section, whether life

or non-life, shall be issued or delivered unless in the
form previously approved by the Commissioner.
Section 376. Personnel tasked to present and sell
insurance products within the bank premises shall be
duly licensed by the Commissioner and shall be
subject to the rules and regulations of this Act.
"Section 377. The Commissioner and the Bangko
Sentral ng Pilipinas shall promulgate rules and
regulations to effectively supervise the business of
bancassurance.

NEW

Insurer-Mutual Benefit Association and Trusts

for Charitable Uses
Section 403. Any society, association or corporation, without
capital stock, formed or organized not for profit but mainly for
the purpose of paying sick benefits to members, or of furnishing
financial support to members while out of employment, or of
paying to relatives of deceased members of fixed or any sum of
money, irrespective of whether such aim or purpose is carried out
by means of fixed dues or assessments collected regularly from
the members, or of providing, by the issuance of certificates of
insurance, payment of its members of accident or life insurance
benefits out of such fixed and regular dues or assessments, but in
no case shall include any society, association, or corporation with
such mutual benefit features and which shall be carried out purely
from voluntary contributions collected not regularly and /or no
fixed amount from whomsoever may contribute, shall be known
as a mutual benefit association within the intent of this Code.

Mutualization and
Demutualization

Mutualization A a shareholder-owned
company is converted into a mutual
organization, typically through takeover by
an existing mutual organization. A mutual
organization is customer-owned.
Demutualization -customer-owned mutual
organization or cooperative changes form to
a joint, stock company, sometimes called
stocking for privatization.

NEW

Mutualization

Section 280. A domestic mutual life insurance company doing

business in the Philippines may convert itself into an incorporated
stock life insurance company by demutualization. To that end, it may
provide and carry out a plan for the conversion by complying with
the requirements of this title.
"The conversion of a domestic mutual life insurance company to an
incorporated stock life insurance company shall be carried out
pursuant to a conversion plan duly approved by the Commissioner.
"The Commissioner shall promulgate such rules and regulations as
he or she may deem necessary to carry out the provisions of this
title, after due consultation with representatives of the insurance
industry.
"All converted insurers under the provisions of this title shall be
subject to all other applicable provisions of this Code. The provisions
of the Corporation Code shall apply in a suppletory manner.

NEW

Mutual Benefit Association

Section 408. "A mutual benefit association shall only
maintain free and unassigned surplus of not more than
twenty percent (20%) of its total liabilities as verified
by the Commissioner. Any amount in excess shall be
returned to the members by way of dividends,
enhancing the equity value or providing benefits in
kind and other relevant services. In addition, subject to
the approval of the Commissioner, a mutual benefit
association may allocate a portion for capacity
building and research and development such as
developing new products and services, upgrading and
improving operating systems and equipment and
continuing member education.

NEW

Trust Business
TRUST BUSINESS IN GENERAL
"Section 429. An insurance company may
engage in limited trust business, consisting of
managing funds pertaining only to retirement
and pre-need plans, provided it has secured a
license to do so from the Bangko Sentral ng
Pilipinas. This trust business shall be separate
and distinct from the general business of the
insurance company and shall be subject to rules
and regulations as may be promulgated by the
Bangko Sentral ng Pilipinas in consultation with
the Commissioner.

NEW

Self-Regulatory Organizations

CHAPTER IX REGISTRATION, RESPONSIBILITIES AND

OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS
Section 430. The Commissioner shall have the power
to register as a self-regulatory organization, or
otherwise grant licenses, and to regulate,
supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of
organizations whose operations are related to or
connected with the insurance market such as, but not
limited to, associations of insurance companies,
whether life or non-life, reinsurers, actuaries, agents,
brokers, dealers, mutual benefit associations, trusts,
rating agencies, and other persons regulated by the
Commissioner, which are engaged in the business
regulated by this Code.

NEW

Self-Regulatory Organizations
The Commissioner may prescribe rules and
regulations which are necessary or
appropriate in the public interest or for the
protection of investors to govern selfregulatory
organizations
and
other
organizations
licensed
or
regulated
pursuant
to
the
authority
granted
hereunder including, but not limited to, the
requirement of cooperation within and
among all participants in the insurance
market to ensure transparency and
facilitate exchange of information.

Double Insurance v. Overinsurance

Double Insurance
Same person is insured by
several insurers in respect
of the same subject and
interest (Sec. 95)

Double Insurance
Requisites:

1.

insured is the same

2. two or more insurers insuring

separately
3.

same subject matter

4.

interest insured is the same

5. risk or peril insured against is

the same

Bar 2005
When
does
double
insurance exist? (2%)

Bar 1999
A businessman obtained a fire
insurance policy on his stocks for P5 M.
Three months later, a fire broke out
and destroyed the grocery and stocks.
The insurer refused to pay claiming
that double insurance is contrary to
law. Is this contention tenable?

ANSWER
The contention of the insurer is
untenable. First, there is no law
prohibiting double insurance.
Second, there was no double
insurance here because the insured
in the two policies are different.
The two insured also have different
interests on the property.

Bar 2012
X borrowed from CCC Bank. She
mortgaged her house and lot in favor
of the bank. X insured her house. Tt1e
bank also got the house insured.
A. Is this double insurance? Explain your
answer. (3%)
B. Is this legally valid? Explain your
answer. (3%)
C. In case of damage, can X and CCC
Bank separately claim for the insurance

Answer
1. No, this is not double insurance.
Double insurance exists when the same
person is insured by several insurers in
respect of the same subject and interest
The insured in the two policies are
different and they have different
interests. Xs interest is as the owner of
the house and lot while CCCs interest is
as the mortgagee and is limited to the
amount of the debt.

Answer
2. Yes, this is legally valid. Both the
mortgagee
and
the
owner
have
insurable interests over the property.
Either party may obtain a property
insurance policy on the same property
because both stand to suffer loss in case
the house and lot is destroyed or
damaged.

Answer
3.Yes, both X and CCC can claim
under their insurance policies. X can
claim to the extent of the value of
the property. CCC can claim to the
extent of the unpaid debt in favor of
X, that is secured by the property.

Over-insurance
OVERINSURANCE

amount of insurance is
beyond
the
value
of
insureds
insurable
interest

How to collect in case of overinsurance by double insurance,

Sec. 96
The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select,
up to the amount for which the insurers
are
severally
liable
under
their
respective contracts;

How to collect in case of overinsurance by double insurance,

Sec. 96

Valued Policy- any sum received by him

under any other policy shall be
deducted from the value of the policy
without regard to the actual value of the
subject matter insured;
Unvalued Policy- any sum received by
him under any policy shall be deducted
against the full insurable value, for any
sum received by him under any policy;

How to collect in case of overinsurance by double insurance, Sec.

96
Policy is unvalued, determine actual loss
and collect from insurance in such order
as he may select
If insured receives amount more than
loss, hold sum in trust according to the
right of contribution
Each insurer must contribute ratably to
the loss in proportion to the amount for
which he is liable

Bar 2005
What is the nature of
liability of several insurers in
double insurance (2%)

ANSWER
In double insurance, the
insurers are considered as coinsurers. Each one is bound
to contribute ratably to the
loss in proportion to the
amount for which he is liable
under his contract (Sec. 96e)

Bar 2012
X insured the building she owns with two (2) insurance
companies for the same amount. In case of damage, A. X can not claim from any of the two (2) insurers because
with the double insurance, the insurance coverage becomes
automatically void.
B. the two (2) insurers will be solidarily liable to the extent of
the loss.
C. the two (2) insurers will be proportionately liable.
D. X can choose who he wants to claim against.
ANSWER: D

Reinsurance
Contract

by which an insurer
procures a third person to insure
him against loss or liability by
reason of an original insurance

Illustration
A gets B to insure his building against fire for

P10 Million.
B (insurer) can get C (reinsurer) to reinsure him

for P5 Million out of the P10 Million insurance in

favor of A. Thus, Bs liability shall be limited to
P5 Million. While C, the reinsurer has to give the
insurer the other P5 M.

Bar 1994
Distingush Co-Insurance from Reinsurance
CO-INSURANCE is the percentage in the value of the

insured property which the insured himself assumes or

undertakes to act as insurer to the extent of the deficiency
in the insurance of the insured property. In case of loss or
damage, the insurer will be liable only for such proportion
of the loss or damage as the amount of insurance bears
to the designated percentage of the full value of the
property insured.

Bar 1994
REINSURANCE is where the insurer procures a third

party, called the reinsurer, to insure him against liability by

reason of such original insurance.
Basically, a reinsurance is an insurance against liability

which the original insurer may incur in favor of the original

insured.

Reinsurance
Insurance

v.

Double

insurer becomes the Insurer remains the

insured
insurer

subject of insurance subject of insurance

is the original
is property
insurers risk

Reinsurance
Insurance

v.

Double

insurance of a
different interest

insurance of the
same interest

original insured is
not a party

insured is the party

in interest in all
contracts

Reinsurance
Insurance

v.

Double

consent of original
insured is not
necessary

Insured has to give

his consent

Kinds of Non-Life Insurance

MARINE

Marine
Sections 99 and 100 concept
Peril covered perils of the sea or perils of navigation

casualties due to unusual violence or extraordinary

action of wind and wave or other extraordinary causes
connected with navigation must be the PROXIMATE
CAUSE
Peril of the ship is NOT covered

Peril of the Ship v. Peril of the Sea

Roque v. IAC sinking of barge

ordinary circumstances (SHIP)

without extra-

Go Tiaco v. Union loss results from natural and

inevitable action of the sea, from the ordinary wear

and tear of the ship or from negligence of owner to
provide with proper equipment (SHIP)

Cathay v. CA rusting of steel pipes in the course

of the voyage in view of the toll on cargo of wind,

water and salt conditions (SEA)

Bar 2011
Perils of the ship, under marine insurance law, refer to loss

which in the ordinary course of events results from

A. natural and inevitable actions of the sea.
B. natural and ordinary actions of the sea.
C. unnatural and inevitable actions of the sea.
D. unnatural and ordinary actions of the sea.

Answer
A. natural and inevitable actions of

the sea.

Is ship owners insurer liable in case of loss

if:
vessel is chartered (Sec. 102)
YES. liable only for part of the loss which insured

cannot recover from charterer

Insurance of owner full value of property but

recovery shall be limited to amount not paid by

charterer
Insurance of charterer extent of his liability in case of

loss

Illustration
A and B enter into a charter agreement.
A's vessel is valued at P1 Million.
Per agreement, Bs insurer shall be liable up to

P500,000 in case of loss. A has an insurance of

P1 M.

In case of loss:
As insurer = P500,000
Bs insurer = P500,000

Can ship owner get insurance for:

Expected freightage (Sec. 105)
Expected

freightage which in the ordinary and

probably course of things he would have earned but
for the intervention of the peril insured against

Important that insured must have an inchoate right to

freightage which cannot be defeated

Expected profits (Sec. 107) YES.

Fire

Fire Insurance

insurance against loss by fire, lightning,

windstorm, tornado or earthquake and other
allied risks, when such risks are covered by
extension to fire insurance policies or under
separate policies

Fire must be the proximate cause, and must be

hostile in nature

Measure of Indemnity
If

there is a valuation shall be

conclusive as between parties in
adjusting partial or total loss in the
absence of FRAUD

Measure of Indemnity
If there is NO valuation - the expense it

would be to the insured to REPLACE the

thing lost or injured in the condition in
which it was at the time of injury

Measure of Indemnity
Loss and its amount may be determined

on the basis of such proof as may be

offered by insured which need not be of
such persuasiveness as is required in
judicial proceedings (Malayan v. Cruz
Arnaldo)

How valuation is made

Sec. 174 independent appraiser

examines the property and fixes the

value

Valuation shall be inserted in the

policy

How valuation is made

GENERAL RULE: Valuation shall be the

basis for indemnity in case of total loss

EXCEPT: If there is a change increasing

the risk without the consent of insurer or if

there's fraud on the part of insured.

How valuation is made

Partial loss full amount of the partial loss

Parties

may agree that instead of

payment, insurer may repair, rebuild or
replace property

Illustration
Subject

house

matter

is

Independent

appraiser
values it at P20 Million

The

valuation
is
attached to the policy

Illustration
If house is totally destroyed by fire,

the valuation of P20 M will be given

If the house is half-destroyed, the

indemnity will be half of P20 Million or

P10M.

Illustration
If the valuation is based on some fraud on

the part of the insured, e.g. adding fixtures

which are not part of the house OR there
is an alteration increasing the hazard
such as converting in to an ammunition
factory, the valuation is not used.

Illustration
Parties may agree that instead of paying

the amount, insurer will rebuild the house.

When alteration can exonerate insurer

The use or condition of a thing is altered
Policy prohibits or limits the alteration
Made without the consent of the insurer, by

means within the control of the insured

increasing the risks = Insurer can rescind the

When alteration does not affect policy

The use or condition of a thing insured is

altered
Policy prohibits it or limits it
It does not increase the risk

Act which does not violate the policy

any act of the insured subsequent to the execution

of the policy
Act does not violate its provisions, even though it

increases the risk and is the cause of the loss

No effect on policy

Bar 2014
On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire

insurance policy from Ilocano Insurance covering its

machineries and equipment effective for one (1) yearor until
May 14, 1997. The policy expressly stated that the insured
properties were located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite."
Before its expiration, the policy was renewed on "as is" basis
for another year or until May 13, 1998. The subject
properties were later transferred to Pace Factory also in
PEZA. On October 12, 1997, during the effectivity of the
renewed policy, a fire broke out at the Pace Factory which
totally burned the insured properties.

Bar 2014
The policy forbade the removal of the insured properties

unless sanctioned by Ilocano. Condition 9(c) of the

policy provides that "the insurance ceases to attach as
regards the property affected unless the insured, before
the occurrence of any loss or damage, obtains the
sanction of the company signified by endorsement upon
the policy x x x (c) if the property insured is removed to
any building or place other than in that which is herein
stated to be insured." PAM claims that it has
substantially complied with notifying Ilocano through its
sister company, the RBC, which, in fact, referred PAM to
Ilocano for the insurance coverage. Is Ilocano liable
under the policy? (4%)

Suggested Answer
Ilocano is liable under the policy.

use or
condition of a thing insured which is limited by the
policy, but does not increase the risk will not affect
the validity of the policy.

Under the Insurance Code, any alteration in the

In this case, although the policy forbade the transfer

of the goods without the consent of the insurer, the

transfer of the goods did not increase the risk of fire.
Hence, the transfer will not exonerate Ilocano.

Suggested Answer
Further, PAM should be deemed to have substantially

complied with the consent requirement when it notified

the agent of Ilocano. Hence, Ilocano was wrong in
denying the claim.

Casualty Insurance

Casualty Insurance
Sec. 176 insurance covering loss or

liability arising from accident or

mishap excluding certain types of
loss which fall exclusively within the
scope of other types of insurance
such as fire or marine

Casualty Insurance
Employers liability
Motor Vehicle Liability
Plate glass insurance
Burglary and theft insurance
Personal accident and health insurance (when

death is NOT one of the risks insured against)

Motor Vehicle Liability Insurance

Motor vehicle any vehicle propelled

by any power other than muscular

power using the public highways,
with certain exceptions

Motor Vehicle Liability Insurance

Section 387 unlawful for any land

transportation owner or operator to

operate the same in public highways
unless there is a policy of insurance
or guaranty in cash or bond to
indemnify the death or bodily injury of
a third party or passenger

At a glance
Insurable interest is property insurance must exist

at the time of the issuance and at the time of the

loss although it need not exist in between these
times

A beneficiary in property insurance must have

insurable interest over the property

At a glance
It is possible that two or more persons may have

insurable interest over the same object. As in the

case of owner and lessee, mortgagor and
mortgagee.

In such cases, two or more separate insurance

policies may be obtained. This is not double

insurance since they dont have the same insured
and they have different interests.

At a glance
The covered peril must be the proximate

cause before there can be recovery under

the policy.
Instances when there can be return of

premiums.

At a glance
Payment of premiums must be on cash and

carry basis.
Important exceptions to cash and carry:

credit extension and installment payment

At a glance
Marine insurance covers only perils of the

sea and NOT perils of the ship.

In marine, the following persons can get

insurance policies:
owner, charterer, for
freightage, for expected profits.

At a glance
Fire insurance covers hostile fire
Failure to give written notice of loss in

fire with unreasonable

exonerate the insurer.

delay

will

Indemnity in fire may either be based on

valuation OR payment of cost to restore

the object at the time of loss