CHAPTER 1 – INTRODUCTION
2. Development of insurance
I. Origin and Growth of Insurance
1. Early maritime or marine insurance
Vance:
Origin of the modern commercial contract of
insurance
Maritime transportation practices;
 Bottomry loan – loan obtained for the value of
the vessel on a voyage and the lender was
repaid only if the vessel subject of the loan
arrived safely at its destination
 Respondentia loan – loan obtained as security
for the value of the cargo t o be transported and
the lender was repaid only f cargo arrives safely
at destination
 General average contribution – owners of
cargo who benefited from the deliberate
sacrifice of some goods to save the others from
a sea peril, contribute to pay the loss suffered by
the sacrifice
Real and Hypothecary Nature of Maritime Law
- The real and hypothecary nature refers to this
relationship with the property attached. Real refers
to a property relationship and hypothecary means
to pledge
- Ship-owner’s liability is limited to the value of the
ship w/c is deemed pledged to answer for the
liability
- Risk-distributing scheme – pooling of resources of
a big group to spread in an equitable manner the
loss w/c would normally fall upon a single individual
exposed to the same risks
-confine liability of owner, agent arising from
operation of ship to the vessel, equipment, and
freight or insurance, if any so that if ship owner or
agent abandoned ship, equipment, and freight, his
liability is extinguished.
--
Aboitiz Shipping v New India Insurance
The doctrine of limited liability limits the amount of
interest in a vessel to its pro rata share in the loss
because of the real and hypothecary nature of
maritime law. Before it could be invoke, carrier has
to show that it exercised extraordinary diligence in
transporting its goods.
 Carale Barks 
Limited liability – insurance proceeds will take
the place of the vessel
Q: If the value of the vessel is less than the voyage
of goods
A: vessel is no longer liable for the excess
The real and hypothecary nature does not apply
when another law applies – i.e. diligence of
common carrier
(refer to D2009 reviewer)
3. Insurance business in the Philippines
(refer to D2009 reviewer)
4. Office of the Insurance Commission
Sec. 414. The Insurance Commissioner shall have
the duty to see that all laws relating to
insurance, insurance companies and other
insurance matters, mutual benefit associations,
and trusts for charitable uses are faithfully
executed and to perform the duties imposed
upon him by this Code, and shall,
notwithstanding any existing laws to the
contrary, have sole and exclusive authority
to regulate the issuance and sale of
variable contracts as defined in section two
hundred thirty-two and to provide for the
licensing of persons selling such contracts,
and to issue such reasonable rules and
regulations governing the same.
The Commissioner may issue such rulings,
instructions, circulars, orders and decision
as he may deem necessary to secure the
enforcement of the provisions of this Code,
subject to the approval of the Secretary of
Finance. Except as otherwise specified, decisions
made by the Commissioner shall be appealable
to the Secretary of Finance.
Sec. 415. In addition to the administrative
sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at
his discretion, to impose upon the insurance
companies,
PhilAm their directors and/or officers
v Arnaldo
The Insurance Commissioner has administrative
power over insurance businesses. He has quasi-
judicial power over relations bet insurance
companies and the insured public. Agents of
insurance companies do not fall under this.
--
Republic v Del Monte Motors
It is the duty of the Insurance Commissioner to hold
the security deposits under the Insurance
Commission for the protection of the public. The
security deposits are, under the law, exempt from
execution.
II. Laws Governing Insurance
Insurance Code as amended preceded by the
Insurance Act (Act 2427; Dec 11, 1914; copied from
California Insurance Act)
- Regardless of what law governs, the deficiencies
in the law will have to be supplemented by the
 general principles prevailing on the subject in
American jurisprudence. Using the prevailing
principles the court ruled that the beneficiary
cannot be changed without his/her consent.
(Gercio v Sunlife; 1925)
- As the Philippine law was taken verbatim from the
law of California, in accordance with well settled
canons of statutory construction, the court should
follow in fundamental points, at least, the
construction placed by California courts on a
California law. (Ang Giok Chip v Springfield;
1931)
- US jurisprudence is persuasive in the construction
of the Insurance Code. (Philippine Health Care
Providers v Commissioner of Internal
Revenue; 2009)
The Civil Code
Art 2011 provides that NCC is suppletory to special
laws which govern insurance contracts
Special Laws (GSIS, SSS, PDIC, etc)
CHAPTER 2 – THE CONTRACT OF INSURANCE
A. Definitions
Sec 2.1 A contract of insurance is an agreement
whereby one undertakes for a consideration to
indemnify another against loss, damage, or
liability arising from an unknown or contingent
event.
A contract of suretyship shall be deemed to be
an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as
such, is doing an insurance business as
hereinafter provided.
Sec 175 defines surety as a guaranty of the
performance of an obligation
Sec 2.2 The term “doing an insurance business”
or “transacting an insurance business” means:
a) making or proposing to make, as insurer, any
insurance contract
 Carale Barks 
b) making or proposing to make, as surety, any
• Important to find out why an establishment
contract of suretyship as a vocation and not as
is doing the business of insurance or not
merely
Why? incidental to any other legitimate
For purpose of determining what “doing an
insurance business” means, we have to scrutinize
the operations of the business as a whole. This is
prudent and appropriate, taking into account the
burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in
the insurance business (Phil. Health Care
Providers v CIR)
Example:
• SECURITY FUND – Chapter 5 - Sec 365
• Only licensed companies and agents
B. Elements (IRDCR)
1. Insurable interest
- interest in life or thing capable of pecuniary
estimation
2. Risk of loss or damage
- insured is subjected to risk through the
destruction or
impairment of that interest by the happening of
designated
peril
3. Designated peril as cause (risk
coverage/qualifiers)
- cause of damage or loss must be caused by the
designated
perils stated in the contract
4. Consideration: premium
- insurer undertakes to assume the risk of loss
for a
consideration(premium)
- premium is a ratable contribution to a general
insurance fund
5. Risk distributing scheme (because of definition of
insurance business)
- not risk-transferring scheme, the assumption of
risk is a part
of the general schemes to distribute actual
losses among a
large group of persons bearing similar risks
C. Characteristics (SPACCIE)
1. Synallagmatic – Rights and obligations of the
parties correlate and mutually correspond. Insurer
assumes the risk of loss w/c insured might suffer in
consideration of payments under a risk-distributing
scheme. Pooling of resources, legal reserve.
2. Personal and uberrimae fides
Personal – each party has in view character, credit
and conduct of other
Uberrimae fides – highest degree of good faith
enjoined by law
3. Aleatory – liability of insurer depends upon some
event w/c is uncertain, or w/c though certain, is to
occur at some future undetermined time
4. Consensual and voluntary – meeting of mind of
parties
5. Contract of adhesion – “take it or leave it”
6. Indemnity
for non-life: you can’t recover more than the value
of your loss
for life: investment – measure of economic security
for the insured during his lifetime and for the
beneficiaries during his death
7. Executory and conditional – insurer has no
obligation to pay until and unless the peril insured
against takes place

D. Contracts for Contingent Services

I. Health Maintenance Organizations
- Org where members pay an annual fee and
are entitled to preventive, diagnostic, and
curative medical services provided by its
duly licensed physicians, etc

Health Care Agreement is non-life insurance since

it satisfies all the elements, and also by virtue of  Carale Barks 
Sec 10 (which actually refers to life insurance). And - No express stipulation that pre-need is
also for fraud to be a ground of rescission under insurance
Sec 27, there must be intent to defraud and not - It is placed under insurance commission.
done in good faith and also rescission must be Does it make it an establishment doing
made before an action is filed. (PhilamCare v CA; insurance?
2002) - Insurance based on phrase “mobilization of
savings” in the declaration of policy
In Philamcare Health Systems, Inc. v. CA, 19 we
ruled that a health care agreement is in the nature III. Warranties covering goods sold/services
of a non-life insurance. It is an established rule in rendered
insurance contracts that when their terms contain Warranty refers to the INHERENT QUALITY of the
limitations on liability, they should be construed goods/service
strictly against the insurer. These are contracts of - Can be foreseen
adhesion the terms of which must be interpreted Insurance has nothing to do with the goods
and enforced stringently against the insurer which purchased or its quality
prepared the contract. This doctrine is equally
applicable to health care agreements. 21 (Blue
Cross v Olivares; 2008) E. General Classification of Insurance
1. Life
HMO not doing the business of insurance a) Individual life; pure endowment
Arguments:
1. Primary object and purpose test (service vs. Sec 179 Life insurance is insurance on human
indemnity) lives and insurance appertaining thereto or
2.
RA History
9829 of HMOs (development
– Pre-Need Code of American connected therewith.
jurisprudence and also it helps make healthcare
more
Sec 4affordable) – HMO
(b) “pre-need already
plans” are came but the law
contracts, Sec 180 An insurance upon life may be payable
remained the same
agreements, deeds, or plans for the benefit of on the death of the person, or on his surviving a
Also not in conflict with Philam Care and Blue Cross
the planholders specified period, or otherwise contingently on the
because this is a which provide
tax case for the
and does not involve
performance of future services, payment of continuance or cessation of life.
liability between member and HMO. (Philippine Every contract or pledge for the payment of
monetary considerations or delivery
Health Care Providers v Commission of of other
endowments or annuities shall be considered a
Internal
benefits atRevenue;
the time 2009)
of actual need or agreed life insurance contract for purposes of this code.
maturity date, as specified therein, in exchange
II.
forPre-Need
cash or installment amounts with or without b) Group life
interest or insurance coverage…
Sec 50 …Group insurance and group annuity
policies, however, may be typewritten and need
(c) “pre-need company” refers to any
not be in printed form.
corporation registered with the Commission and Sec 228 …If a group life policy is on a plan of
authorized/licensed to sell or offer to sell pre- insurance other than term, it shall contain a non-
need plans… forfeiture provision or provisions which in the
opinion of the Commissioner is or are equitable
Sec 5 All pre-need companies, as defined under to the insured or the policyholder: Provided, That
this act, shall be under the primary and exclusive nothing herein contained shall be so construed
supervision and regulation of the Insurance as to require group life policies to contain the
Commission… same non-forfeiture provisions as are required of

Pineda v CA & Insular Life
Group insurance is essentially a single insurance
contract that provides coverage for many
individuals. In its original and most common form,
group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually
stated in a master agreement issued by the insurer
to an employer. The employer acts as a functionary
in the collection and payment of premiums and in
performing related duties.
Although the employer may be the titular or named
insured, the insurance is actually related to the life
and health of the employee. EE is in the position of
a real party to the master policy, and even in a
non-contributory plan, the payment by the
employer of the entire premium is a part of the
total compensation paid for the services of the
employee.
Group insurance traces its roots to insurance for
the employees of an employer. There is
contributory and non-contributory plan. Because of
the control test, the employer is actually an agent
of the insurer and not an agent of the employees.
 Carale Barks 
No medical exams needed usually
Requires a certain number of people to be included
in the policy based on law of averages – a
determinable % of members of group would die
w/in contemplated period
c) Industrial Life Insurance
Sec 229 …that form of life insurance under
which the premiums are payable either
monthly or oftener, if the face amount of
insurance provided in any policy is not more
than five hundred times that of the current
statutory minimum daily wage in the City of
Manila, and if the words “industrial policy” are
printed upon the policy as part of the descriptive
matter… [it] shall not lapse for non-payment of
premium if such non-payment was due to the
failure of the company to send its representative
or agent to the insured at the residence of the
insured or at some other place indicated by him
for the purpose of collecting such premium:
Provided, That the provisions of this paragraph
shall not apply when the premium on the policy
2. Non-life
a) Marine insurance:
Sec 99: all kinds of property and interests
therein in connection with any and all risks of
navigation, transit or transportation, preparation
for shipping, while awaiting shipment, or during
delays, storage, transhipment, or reshipment.
-persons or property in connection with or
appertaining to marine, inland marine, transit or
transportation insurance, including liability for
loss of or damage
-bridges, tunnels and other instrumentalities of
transportation and communication, piers,
wharves, docks and slips, and other aids to
navigation and transportation, including dry
docks and marine railways, dams and
appurtenant facilities for the control of the
waterways.
-legal liability of the insured for loss, damage, or
expense incident to ownership, operation,
chartering, maintenance, use, repair, or
construction of any vessel, craft or
instrumentality in use of ocean or inland
waterways, including liability of the insured for
b) Fire
Sec 167 As used in this Code, the term “fire
insurance” shall include insurance against loss
by fire, lightning, windstorm, tornado or
earthquake and other allied risks, when such
risks are covered by extension to fire insurance
policies or under separate policies.
c) Casualty/liability
Sec 174 …is insurance covering loss or liability
arising from accident or mishap, excluding
certain types of loss which by law or custom are
considered as falling exclusively within the scope
of other types of insurance… It includes but is
not limited to: employer’s liability, motor vehicle
d) Suretyship
Sec 175 A contract of surety shipis an
agreement whereby a party called the surety
guarantees the performance of another party
called the principal or obligor of an obligation or
undertaking in favor of a third party called the
3. Other Modes of Classification
a) Private v public (voluntary and compulsory)
 Carale Barks 
- public – compulsory GSIS coverage, SSS
coverage
- private – ordinary insurance companies
b) First party insurance and third party insurance
 Carale Barks 
- 1st party – it is the insured who suffers the loss or
damage. He
is the one paid by the insurance company
- 3rd party – insurance is for liability, payment is
made to 3rd
 person for the injury caused by the insured;
casualty
insurance(sec 174)

4. Some life Insurance Plans

a) whole life plan
ordinary - insured agrees to pay premiums while he
lives; insurer agrees to pay face value upon death
of insured
limited payment – insured pays premium only for
specified # of years after which he stops paying at
all. Insurer pays when insured dies.
 Cebu Shipyard v William Lines
single premium – insured pays one premium - ship burned while on repair, fault of
repairer, insurer still pays
joint-life – 2 insured in one policy. Proceeds are
When the terms of a contract are clear its
paid even when only one dies
stipulations control. Since William Lines is the only
universal life – partial is for insurance and partial is one insured then Cebu Shipyard can’t be a co-
for investment insured. On the other hand, contracts of adhesion
must be construed taking in mind the
variable life – performance of investment
circumstances involved as well as equity and fair
- allows you to allocate a portion of your premiums play.
to a separate account comprised of various
instruments and investment funds within the  New Life Enterprises v CA
insurance company's portfolio - same agent but different insurers, violation
of other insurance clause
b) term plan
The provisions of an insurance contract, if clear and
- insurer’s liability arises only upon death of insured
unambiguous, give no room for construction. Such
within agreed term of period
is the case in this other insurer clause even though
- if insured survives, contract terminates
it would be unfair and unjust especially since the
agent of the insurer knew of the double-insurance.
c) modified life – combination of other kinds
First Quezon City Insurance v CA
d) pure endowment plan
- dragged by bus while still boarding; insurer
- if insured survives a period, he is paid proceeds.
paid 12K only
Should he die, insurer free from liability
Illustration of non-construction if clear since
contract provides the limit that only 12k per
e) endowment plan – most common
passenger but no more than 50k per accident.
- if insured outlives specified period, he is paid the
face value. If he dies, beneficiaries get the
Ty v First National
proceeds
Because of definition of partial loss as amputation
- premium is higher
there is no insurance coverage.
F. Construction/Interpretation
Misamis Lumber v Capital
1. Literal/strict interpretation

Art 1370, CC: If the terms of a contract are

- authorized repair limit of P150
clear and leave no doubt upon the intention of Because there is an express stipulation that
the contracting parties, the literal meaning of its consented repair liability is only up to P150 then it
stipulations shall control. is only up to that that insurer is liable.

If the words appear to be contrary to the evident Sun Insurance v CA(1991)

intention
Art. 1305. ofAthe parties,isthe
contract a latter shall of
meeting prevail
minds - insurance claim denied, filed MR.
between two persons whereby one binds himself,
Cardinal rule: interpret in favor of insured only in prescription runs after 1st rejection
with respect to the other, to give something or to Construction of words or terms in their plain and
case of DOUBT, not when intention is clear
render some service. ordinary meaning preclude the construction that
expressed in policy rejection refers to the final rejection of a claim and
Art. 1306. The contracting parties may establish therefore the contractual prescriptive period begins
Rationale:
such stipulations, clauses, terms and conditions during the initial rejection.
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public  Fortune Insurance v CA
order, or public policy.

Art. 1308. The contract must bind both

 - money, security, & payroll robbery
insurance; done by guard “authorized
representatives”
A contract of insurance is a contract of adhesion,
thus any ambiguity therein should be resolved
against the insurer, or it should be construed
liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be
regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer
from non-compliance with its obligation. It goes
without saying then that if the terms of the
contract are clear and unambiguous, there is no
room for construction and such terms cannot be
enlarged or diminished by judicial construction.
Because provisions cover both employees and
authorized representatives, it covers contractual
employees.
Perla v CA
- bus figured in accident, passenger sued,
insurer paid 12K, injured wants 50K
Insurance policy is the law between the parties and
the clear provision that consent of the insurer need
be obtained before paying any claims to entitle her
to reimbursement is binding upon them.
Oriental Assurance v CA
- logs boarded in 2 ships, 1 sank, not total
loss
The clear words that the insurance covers only
total loss is binding. Also Sec 139 covers an
indivisible unit per policy and since only one of the
two barges resulted in the destruction of the logs
the total ratio is only less than ½ and does not
reach the required ¾ for total loss.
2. Liberal Interpretation
Art 1377 The interpretation of obscure words or
stipulations in a contract shall not favor the party
who caused the obscurity.
Cardinal Rule: any obscurities or ambiguities in
an insurance contract must be strictly construed
against insurer, the party who made it
Rationale:
Carry out the purpose of the contract which is to
insure against risk of loss, damage, or liability
Art. 1373. If some stipulation of any contract
should admit of several meanings, it shall be
understood as bearing that import which is most
adequate to render it effectual.
Malayan Insurance v CA
- arrest of civil authority in south africa
Because ambiguities are strictly construed against
those who have caused them and also because
exceptions against liability are strictly construed
against insurer then arrest shall cover civil arrest
as well.
 Western Guaranty v CA
- 3rd party liability, “all sums necessary for
discharge liability of insured in respect of
events”
Limitations on certain liabilities is not exhaustive if
not expressly stipulated and will not preclude
claims of other forms of damages. This is because
limitations in liability are strictly construed against
insurer and contracts of adhesion construed strictly
against maker.
Qua Chee Gan v Law Union
- Contract prohibits oils, in warehouse there
was gasoline
Ambiguities construed strictly against those
causing ambiguity. The term oils therefore
precludes gasoline since the normal use of the
word refers to lubricants.
Del Rosario v Equitable
- Drowning, no corresponding payment
Though the policy covers death by drowning, it did
not specify the recoverable amount. The only
amount referring to drowning is physical injuries by
drowning. Because there is an ambiguity as to the
recoverable amount, it is construed in favor of the
insured.
Geagonia v CA
- Different insurable interest since 1 is for
mortgagor other is for mortgagee of
property
Ambiguity in other insurance clause construed
against insurer and therefore not covers insurance
for benefit of mortgagee as well as stipulation that
condition only applies to claims for more than
200k.
Sun Insurance v CA(1992)
- Felix the guy who put a bullet on his head
Although there was negligence in the occurrence of
the accident, because of strict construction against
insurer, this does not mean the accident is not
covered unless there is an express exemption.
Rizal Surety v CA
- fire insurance “premises occupied by them
forming part of building”. Annex included.
Limitations of integral part of building and inside
compound of insured is liberally construed because
of ambiguity and also because factual findings of
trial court and CA say so.
CHAPTER 3 – INSURABLE INSTEREST

A. Definition and purpose
Basis:
Sec 2.1 The contract of insurance is an
agreement whereby one undertakes for a
consideration to indemnify another against loss,
damage, or liability arising from an unknown or
contingent event.
 Carale Barks 
Insurable interest is in definition bec how can you
suffer loss when you have no interesy?
Insurable interest to the extent that you are
damnified
Purpose:
1. Prevents wagering
2. Limits liability of insurer
May not be waived
Sec 25 Every stipulation in a policy of insurance
for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering, is
B. Insurable interest in life/health:
Sec 10 Every person has an insurable interest in
the life and health:
a) Of himself, of his spouse and of his children;
b) Of any person on whom he depends wholly or in
part for education or support, or in whom he has a
pecuniary interest
c) Of any person under a legal obligation to him for
the payment of money, or respecting property or
services, of which death or illness might delay or
prevent the performance; and
d) Of any person upon whose life any estate or
interest vested in him depends.
 Carale Barks 
 Insurable interest exists where there is
reasonable ground founded on (1)relations of
the parties either contractual or pecuniary, (2)
or by blood and affinity, to expect some benefit
or advantage from continuance of life of
insured.
 Insurable interest must exist at the time of
inception (life)
Except: (Gercio v Sun Life) husband who took
out life policy for wife is still entitled to
proceeds when she died even when they were
already divorced then
Non –life – insurable interest at inception and
time of loss
(a) own life- one has unlimited in his life so he can
designate anyone to be beneficiary
- beneficiary need not have insurable interest in life
of insured so long as not one of those prohibited in
law
spouse – should be legal, legitimate
- mere love and affection will not be enough
to constitute insurable interest
children – may be illegitimate, legitimate, minors
or of legal age, married or not
(b) life of person whom he depends for
support
Art. 195, FC. Subject to the provisions of the
succeeding articles, the following are obliged to
support each other to the whole extent set forth in
the preceding article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the
legitimate and illegitimate children of the
latter;
(4) Parents and their illegitimate children and the
legitimate and illegitimate children of the
latter; and
(5) Legitimate brothers and sisters, whether of
full or
half-blood
- Child may procure insurance on life of parent
(here not a)
- child taken by person from orphanage – w/
insurable interest bec of expectation of support
- no insurable interest in lives of cousins, nephews,
aunts and other relatives. Not even in-laws.
UNLESS: they have pecuniary interest so they fall
under (c)
(c) person who has legal obligation of which
death or illness might delay or prevent the
performance
Creditor can take life insurance for debtor
- no insurable interest in secured debts
- insurable interest in unsecured debts so if debtor
dies something will still answer for debt
-limit of insurable interest: amount of debt
- insurable interest must exist both at inception and
at time of loss bec dedbt may have already been
paid by then
ER can insure like of EE; if EE has already severed
ties with ER
- El Oriente Fabrica v Posadas: contract is
deemed to indemnify ER for loss suffered due to
death, but ER no longer suffered loss of death since
no more ties!
- the loss was resignation, so should have insured
against resignation!
d) Of any person upon whose life any estate
or interest vested in him depends.
- usufrutory has insurable interest in life of naked
owner
Insurable interest in health:
Philamcare v. CA: the insurable interest of
person in obtaining health care agreement is his
own health
C. Insurable interest in property:
1. Definition
Sec 13 Every interest in property, whether real
or personal, or any relation thereto, or liability in
respect thereof, of such nature that a
contemplated peril might directly damnify the
insured, is an insurable interest.
Sec 18 No contract or policy of insurance on
property shall be enforceable except for the
benefit of some person having an insurable
- interest of such nature that a contemplated peril
might damnify the insured
- he will be benefited by continuing existence of
thing or suffer pecuniary loss by its destruction
2. Amplified by:
Sec 14 An insurable interest in property may
consist in:
a) An existing interest
b) An inchoate interest founded on an existing
interest
c) An expectancy, coupled with an existing
Insurable interest in property may consist in
(a) existing interest
- actual interest
- e.g. interest of the owner, mortgagee or lessee
(b) inchoate interest
- interest exists but it is incomplete or unripe
interest; will ripen upon happening of an event
- must be founded on ACTUAL existing interest
- e.g. interest of stockholders with respect to
dividends in case of profits ad shares in the assets
(c) expectancy coupled with actual interest
Sec 16 A mere contingent or expectant interest
in anything, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
- mere expectancy not enough. It must be coupled
with an actual interest
- e.g. farmer has insurable interest in the yield of
his rice field bec of his existing right since he
planted the rice
- a son has no insurable interest in a property of his
father since he only has mere expectation.
Art 777, CC The rights to the succession are
transmitted from the moment of the death of the
decedent.
Cha v CA
-lessor-lessee. Contract says: “LESSEE shall not
insure against fire the chattels… in the leased
premises without first obtaining the written consent
and approval of the LESSOR. Otherwise policy is
deemed assigned and transferred to the LESSOR
for its own benefit”
-lessor claims proceeds due to contract
- Sec 18, Sec 25, Sec 17
- insurable interest over merchandise remains with
the insured, the lessee. automatic assignment of
the policy to lessor is void. Use sec 25.
- without prejudice to any action of lessor to lessee
for liability for violating their lease contract.
--
Filipino Merchants Insurance v CA
A perfected sales contract is enough to establish an
insurable interest although ownership has yet to be
transferred through delivery.
- consignee has insurable interest in the cargo bec
of the profit it will derive from it (pasok sa c)
--
 Gaisano Cagayan v Insurance Co of North
America
Ownership is not only basis for insurable interest in
property since vendor‘s lien is also considered
insurable interest.
- insurable interest is not title but substantial
economic interest
3. Measure of insurable interest:
Sec 15 A carrier or depository of any kind has an
insurable interest in a thing held by him as such,
to the extent of his liability but not to exceed the
value thereof.
Sec 17 The measure of an insurable interest in
property is the extent to which the insured might
be damnified by loss or injury thereof.
- being a contract of indemnity, measure of
insurable interest in property is the extent to w/c
the insured might be damnified by the loss
- indemnity principle: the insured may not recover
a greater value than that of his actual loss
4. When should insurable interest exist?
Sec 19 An interest in property insured must
exist when the insurance takes effect, and
when the loss occurs, but not exist in the
meantime; and interest in the life or health of a
person insured must exist when the insurance
takes effect, but need not exist thereafter or

- insurable interest in property should exist both at
the (1) time the insurance takes effect and (2)
when the loss occurs
- insurable interest does not have to exist in
between inception and occurrence of loss
- in life, insurable interest must exist only at the
time of the inception except in some cases: life of
debtor
- so if insured property is sold and loss occurs when
ownership was on another, then no more insurable
interest at time of loss, unless maybe there is right
of redemption
5. Change of interest
Sec 20 Except in the cases specified in the next
four sections, and in the cases of life, accident,
and health insurance, a change of interest in
any part of a thing insured unaccompanied
by a corresponding change in interest in
the insurance, suspends the insurance to
an equivalent extent, until the interest in the
thing and the interest in the insurance are vested
GR: absolute transfer of ownership (change of
interest in thing) without transfer of interest in
policy SUSPENDS the insurance until ownership of
thing is back in policy holder
EXCEPT:
1. change of interest after loss does not
affect the policy
Sec 21 A change in interest in a thing insured,
after the occurrence of an injury which results in
a loss, does not affect the right of the insured to
indemnity for the loss.
- after the loss occurs, liability of insurer becomes
fixed and subsequent change of interest does not
affect the right of insured to indemnity
- the extent of loss had already been fixed, so you
can definitely transfer it!!!
2. change of interest in policy insuring
several things separately
Sec 22 A change of interest in one or more
several distinct things, separately insured by one
policy, does not avoid the insurance as to the
others.
- application: single policy insures several distinct
Sec. 181. A policy of insurance upon life or health
things separately
may pass by transfer, will or succession to any
- conveyance of one or more of the separate things
person, whether he has an insurable interest or
does not affect the policy in respect to the others
not, and such person may recover upon it
not conveyed
whatever the insured might have recovered.
3. change of interest on death of insured, by
will or succession
Sec 23 A change of interest, by will or
succession, on the death of the insured, does not
avoid an insurance; and his interest in the
insurance passes to the person taking his
interest in the thing insured.
- insured’s interest passes to his legal heirs. The
heir may continue the insurance on the property by
paying the premiums
Art 777, CC The rights to the succession are
transmitted from the moment of the death of the
decedent.
4. transfer of interest by one of several
partners or co-owners
Sec 24 A transfer of interest by one of several
partners, joint owners, or owners in common,
who are jointly insured, to the others, does not
avoid an insurance even though it has been
agreed that the insurance shall cease upon an
alienation of the thing insured.
- any transfer of interest does not avoid the policy
since a co-owner or partner also as insurable
interest in the thing, only that the interest is
increased after the transfer
---
Automatic transfer of interest
Sec 53 The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made
unless otherwise specified in the policy.
Sec 57 A policy may be so framed that it
will inure to the benefit of whomsoever,
during the continuance of the risk, may become
the owner of the interest insured.
- GR: (sec 53 main part) upon maturity, proceeds
given exclusively to proper interest of person in
whose name or for whose benefit it is made
Exception:
- express stipulation in the policy that proceeds will
inure to the benefit of person who may become
owner of interest f insured, and the insurance is
deemed transferred together w/ the property
Property Insurance v Life Insurance
1. Property is strictly indemnity, Life is not
indemnity and is more an investment than
anything else.
2. Life can never be pecuniarily estimated.
3. A lot of consequences:
- in property insurable interest must exist at the
time the insurance takes effect and at the time of
the loss
- in life it must exist only in the beginning
4. Commercial/financial is like property insurance
5. Period of life is longer than property which is
only one year.
D. Double Insurance v Over Insurance
Sec 93 A double insurance exists where the
same person is insured by several insurers
separately in respect to the same subject and
interest.
Requisites:
1. Same person insured
2. Several insurers
3. Subject matter insured is the same
4. Interest insured is the same
5. Risk/peril insured against is also the same
- not prohibited if policy does not contain any
stipulation against double or additional insurance
- additional insurance without insurer’s consent
may void the policy
- Rationale: prevent situation where loss would e
profitable to insured
Overinsurance
Sec 94 Where the insured is overinsured by double
insurance:
a) The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select, up
to the amount for which the insurers are
severally liable under their respective
contracts;
b) Where the policy under which the insured
claims is a valid policy, the insured must
give credit as against the valuation for any
sum received by him under any other policy
without regard to the actual value of the
subject matter involved
c) Where the policy under which the insured
claims is an unvalued policy he must give
credit, as against the full insurable value, for
any sum received by him under any policy
d) Where the insured receives any sum in
excess of the valuation in the case of valued
policies, or of the insurable value in the case
of unvalued policies, he must hold such sum
in trust for the insurers, according to their
right of contribution among themselves
e) Each insurer
- Overinsurance: amountis bound, as between
of insurance himself
is beyond the
value of the insurable interest
Double Interest Over insurance
Several insurer Can only be one, or can
be many
Sum total of policies Amount of insurance is
need not exceed ALWAYS beyond the
insurable interest: value of insurable
VALID interest - VOID
E. Multiple/Several Interests
Sec 8 Unless the policy otherwise provides,
where a mortgagor of property effects insurance
in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is
deemed to be upon the interest of the
mortgagor, who does not cease to be a
party to the original contract, and any act of
his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect,
although the property is in the hands of the
mortgagee, but any act which, under the
contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee
therein named, with the same effect as if it had
been performed by the mortgagor.
Sec 9 If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further
obligation on the assignee, making a new
-mortgagor and mortgagee each have separate
and distinct insurable interest in the mortgaged
property
Insurance taken by mortgagor
Geagonia v CA
As to a mortgaged property, the mortgagor and the
mortgagee have each an independent
insurable interest therein and both interests
may be covered by one policy, or each may
take out a separate policy covering his
interest, either at the same or at separate
times. The mortgagor's insurable interest covers
the full value of the mortgaged property, even
though the mortgage debt is equivalent to the full
value of the property. The mortgagee's
insurable interest is to the extent of the debt,
since the property is relied upon as security
thereof, and in insuring he is not insuring the
property but his interest or lien thereon. His
insurable interest is prima facie the value
mortgaged and extends only the amount of
the debt, not exceeding the value of the
mortgaged property.
Note: Geagonia is an incorrect application of the
principle that it stated and against Sec 8 since it
considered an insurance taken by Mortgagor for
benefit of Mortgagee as insurable interest of
Mortgagee.
Tai Tong Chuache v Insurance Commission
-mortgage creditor obtained insurance for
mortgage property. Mortgagor also procured 3
insurance policies. All shared in payment of loss
- Perfect illustration of distinctiveness of insurable
interest of mortgagor and mortgagee where both
claims were upheld by the court.
CHAPTER 4 – PERFECTION OF CONTRACT OF
INSURANCE
A. Offer and acceptance
- perfection is meeting of the minds between
insured and insurer
- the application of the would-be insured is only an
offer subject to acceptance of insurer
Delay in acceptance – “tort theory”
Art 2176 Whoever by act or omission causes
damage or injury to another, there being fault or
negligence, is obliged to pay for the damage
done.
 Carale Barks 
Tort theory - No contract yet perfected bec
application has not yet been approved due to delay
in insurer’s part
- Damages are paid to the would-be insured
due to delay in insurer’s part
- Why? Bec applicant was deprived of
opportunity to seek insurance from other
sources
Tort theory is an exception to the requirement that
a policy has to be issued before the insured can
recover from an insurer. It is applicable to
circumstances where there is fault or negligence on
the part of the insurer in processing the application
of the would be insured. In such a case the would
be insured may recover on the basis of tort.
 Perez v CA
- Delay in forward of application bec of
agent’s fault
Filing of application is offer and the issuance of a
policy is the acceptance. This case also
contemplates the possibility of a claim through tort
theory however because there was no negligence
in the processing of the application, the insurer
could not be held liable.
 Vda de Sindayen v Insular
- aunt accepted policy and paid premium but
insured already ded
Although there is a receipt of payment clause, the
insurer is bound by the acts of its agent who is
authorized to deliver the policy. Agent considered
that of insured. The court here used in reverse Par
2 Sec 306 of the code.
 Enriquez v Sun Life
- insurer sent letter of acceptance but was
not mailed. Insured died.
Notice of acceptance occurs upon cognition of the
acceptance as provided for in Art 1262 of the civil
code. Acceptance made by letter shall not bind
offeror except from time it came to its knowledge.
B. Premium Payment
Sec 77 An insurer is entitled to payment of the
premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued
by an insurance company is valid and binding
unless and until the premium thereof has been
paid, except in the case of a life or an
industrial life policy whenever the grace period
provision applies.
Sir: 77 is only for property insurance because of the
use of the word “thing” and also because a grace
period will only apply after the payment of the first
premium; but may apply to life insurance if no
payment of first premium made.
Sec 78 An acknowledgment in a policy or
contract of insurance of 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.
Sec 64 No policy of insurance other than life shall
be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based on
the occurrence, after the effective date of the
policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts
increasing the hazard insured against;
(c) discovery of fraud or material
misrepresentation;
(d) discovery of willful or reckless acts or
omissions increasing the hazard insured against;
(e) physical changes in the property insured
which result in the property becoming uninsurable;
or
(f) a determination by the Commissioner that
the continuation of the policy would violate or
would place the insurer in violation of this Code.
Sec 66 In case of insurance other than life, unless
the insurer at least forty-five days in advance of
the end of the policy period mails or delivers to the
named insured at the address shown in the policy
notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or
elimination of coverages, the named insured shall
be entitled to renew the policy upon payment of
the premium due on the effective date of the
renewal. Any policy written for a term of less than
one year shall be considered as if written for a term
of one year. Any policy written for a term longer
than one year or any policy with no fixed expiration
date shall be considered as if written for successive
policy periods or terms of one year.
Sec 306 The premium, or any portion thereof,
which an insurance agent or insurance broker
collects from an insured and which is to be paid to
an insurance company because of the assumption
of liability through the issuance of policies or
contracts of insurance, shall be held by the agent
or broker in a fiduciary capacity and shall not be
misappropriated or converted to his own use or
illegally withheld by the agent or broker.
Any insurance company which delivers to an
insurance agent or insurance broker a policy or
contract of insurance shall be deemed to have
authorized such agent or broker to receive on its
behalf payment of any premium which is due on
such policy or contract of insurance at the time of
its issuance or delivery or which becomes due
thereon.
Velasco v Apostol
- premium paid after accident took place
Illustration of the old Insurance Act which expressly
allowed credit extensions.
Valenzuela v CA
- insurer jealous of agent wants to get a
share. Insurer asks agent to pay premiums
of insured.
Under Section 77 of the Insurance Code, the
remedy for the non-payment of premiums is to put
an end to and render the insurance policy not
binding.
Tibay v CA
- out of 3K,only 600 was paid
Policy is not binding. Phoenix and Tuscany are
implied and express waivers respectively. Phoenix
is implied because it sued for payment of premium
and Tuscany is express because there was express
agreement to pay in installments. Sec 77 is based
on the fact that insurance is a risk-distributing
device.
Makati Tuscany v CA
- Makati Tuscany paid only 2 installments out
of 4.
This is actually a case to collect unpaid premiums
by the insurer after the lapse of the coverage
period. Three years of payment by installment
speaks of intent of insurer to answer for risk even if
payment by installment. This is another exception
to Sec 77.
South Sea Surety v CA
- Insured logs lost when ship capsized. Agent
received payment.
Only two exceptions to Sec 77: 1) Life/Industrial
Life where grace period applies and 2) A written
acknowledgement of the receipt of the premium. It
is also an illustration of Sec 306 par 2.
Areola v CA
- Don’t mess with a lawyer! Company
cancelled contract bec payment was not
received!
Act of employee to receive premium is binding on
the insurer and the insurer must answer for the
malfeasance of employee in appropriating for
himself the premiums. The reinstatement of the
policy does not preclude the recovery of damages
since the injury has already been inflicted and the
damage done.
 UCPB General Insurance v Masagana
Telamart
- Premium not paid before loss occurred in
fire. UCPB has been granting insured 60-90
day credit
Casus omissus of Sec 72 of Insurance Act and Sec
77 of Insurance Code. Exceptions to Sec 77 are:
1) life/industrial life policy when the grace period
applies
2) acknowledgement in policy/contract of the
receipt of premium
3) payment by installment as in Makati Tuscany
4) credit extension granted by insurer
5) estoppel
Sir: Other exceptions are 1) Cover notes as in
Pacific Timber and 2) Oral Contracts
 American Home Assurance v Chua
- Check payment was made but was
encashed after the loss
Payment by check if agent issues receipt is binding
on insurer even if not yet encashed. Also admission
of loss adjuster of prior knowledge of other insurers
will render inutile the “other insurance clause.”
C. Non-default options in life insurance
Sec 227
(f) A provision specifying the options to which the
policyholder is entitled to in the event of default in
a premium payment after three full annual
premiums shall have been paid. Such option shall
consist of:
(1) A cash surrender value payable
upon surrender of the policy which shall not be less
than the reserve on the policy, the basis of which
shall be indicated, for the then current policy year
and any dividend additions thereto, reduced by a
surrender charge which shall not be more than
one-fifth of the entire reserve or two and one-half
per centum of the amount insured and any
dividend additions thereto;
(2) One or more paid-up benefits on a plan
or plans specified in the policy of such value as
may be purchased by the cash surrender value;
(h) A table showing in figures cash surrender
values and paid-up options available under the
policy each year upon default in premium
payments, during at least twenty years of the
policy beginning with the year in which the values
and options first become available, together with a
provision that in the event of the failure of the
policyholder to elect one of the said options within
the time specified in the policy, one of said options
shall automatically take effect and no policyholder
shall ever forfeit his right to same by reason of his
failure to so elect;
def. Cash Surrender Value: is the accumulated
reserve on the policy after at least three full
annual premiums and is payable upon surrender
of the policy.
- it is a portion of the reserve in a life policy
which accumulates from premium
overcharges over the years
- premium payment is uniform all throughout
but the risk is lesser when insured was
younger, thus cost of protection was smaller
and there is an excess amount paid
- The cash surrender value is an amount w/c
the insurance company holds in trust for the
insured to be delivered to him upon
demand. It is therefore a liability of the
company to the insured (Manufacturer’s
Life v Meer)
- To get CSV: surrender policy and contract is
terminated
def. Extended Insurance(shorter period): is a form
of non-default option which uses the CSV as a
SINGLE SINGLE SINGLE premium and extends the
insurance contract until the CSV can afford.
- Face value of insurance remains the same
but only within the term covered by value of
CSV
- During extended period: insured can
recover if he dies or he can reinstate his
policy
- After extended period: contract terminates
and cannot even reinstate
def. Paid-up Insurance (smaller face value): is a
form of non-default option where the total CSV is
treated as a SINGLE SINGLE SINGLE premium and
will cover an entire period that the CSV can
purchase except that it only covers the “paid up
value”.
- obligation to pay premiums is deemed
consummated forever and can reinstate the
policy anytime
- better option if insured is young and then
just reinstate the policy later
def. Automatic Premium Loan: is a form of non-
default option where the CSV is used as payment of
the premium but only as a loan with interest as
illustrated in Manufacturer’s Life Insurance v Meer.
It is also provided for in Sec 227 (g)
- insurer lends/advances to the insured w/o
need of application amount necessary to
pay overdue premium
- insurance continues in force for period
covered by CSV
---
Manufacturer’s Life Insurance v Meer
- BIR wants to tax insurance company during
war.
In applying automatic premium loan, insurer in
effect loaned person the amount due and paid his
premium with it.
The cash surrender value is an amount w/c the
insurance company holds in trust for the insured to
be delivered to him upon demand. It is therefore a
liability of the company to the insured. When the
company’s credit for advances is paid out of the
CSV, that value and the company’s liability is
diminished pro tanto. Net assets of insurer
increased since decrease in liability means
corresponding increase in net assets.
D. Reinstatement
Sec 227 (j) A provision that the policyholder shall
be entitled to have the policy reinstated at any
time within three years from the date of default of
premium payment unless the cash surrender value
has been duly paid, or the extension period has
expired, upon production of evidence of insurability
satisfactory to the company and upon payment of
all overdue premiums and any indebtedness to the
company upon said policy, with interest rate not
exceeding that which would have been applicable
to said premiums and indebtedness in the policy
years prior to reinstatement.
Andres v Crown Life Insurance
- Was not able to pay all past due premiums
Failure to pay full premium due will result in non-
reinstatement of policy unless there is a clear and
positive waiver on the part of the insurer.
E. REFUND
Sec 79 A person insured is entitled to a return of
premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to
any of the perils insured against;
(b) Where the insurance is made for a definite
period of time and the insured surrenders his
policy, to such portion of the premium as over-insurance by several insurers, the insured is
corresponds with the unexpired time, at a pro rata entitled to a ratable return of the premium,
rate, unless a short period rate has been agreed proportioned to the amount by which the
upon and appears on the face of the policy, after aggregate sum insured in all the policies exceeds
deducting from the whole premium any claim for the insurable value of the thing at risk
loss or damage under the policy which has
previously accrued; Provided, That no holder of a
life insurance policy may avail himself of the
privileges of this paragraph without sufficient cause
as otherwise provided by law. CHAPTER 5 – THE POLICY, THE PARTIES AND
THEIR RIGHTS
Sec 80 If a peril insured against has existed, and
the insurer has been liable for any period, however
short, the insured is not entitled to return of A. Insurance Policy
premiums, so far as that particular risk is
concerned. Sec 49 The written instrument in which a
contract of insurance is set forth, is
Sec 81 A person insured is entitled to return of the
premium when the contract is voidable, on called a policy of insurance.
account of fraud or misrepresentation of the
insurer, or of his agent, or on account of facts, the Sec 50 The policy shall be in printed form
existence of which the insured was ignorant which may contain blank spaces; and any
without his fault; or when by any default of the
insured other than actual fraud, the insurer word, phrase, clause, mark, sign, symbol,
never incurred any liability under the policy. signature, number, or word necessary to
complete the contract of insurance shall
Sec 82 In case of an over-insurance by several
insurers, the insured is entitled to a ratable be written on the blank spaces provided
return of the premium, proportioned to the therein.
amount by which the aggregate sum insured
in all the policies exceeds the insurable value
Any rider, clause, warranty or
of the thing at risk.
--- endorsement purporting to be part of the
Grepalife v CA contract of insurance and which is pasted
- insurer asks for more payment and another or attached to said policy is not binding on
medical exam even after the premium was
paid. Insured asked for refund the insured, unless the descriptive title or
The fact that the policy was inoperative or name of the rider, clause, warranty or
ineffectual from the beginning, the company was
never exposed to the risk hence it is not entitled to
endorsement is also mentioned and
the premium. written on the blank spaces provided in
the policy.
Cases where refund is possible:
1. if no part of his interest in the thing insured
Unless applied for by the insured or owner,
be exposed to any of the perils insured
against, refund whole premium(79) any rider, clause, warranty or
- ex: Grepalife v CA endorsement issued after the original
2. insurance is made for a definite period of
time and the insured surrenders his policy,
policy shall be countersigned by the
to such portion of the premium as insured or owner, which countersignature
corresponds with the unexpired time, at a shall be taken as his agreement to the
pro rata rate(79)
3. contract is voidable, on account of fraud or contents of such rider, clause, warranty or
misrepresentation of the insurer, or of his endorsement.
agent, or on account of facts, the existence
of which the insured was ignorant without Group insurance and group annuity
his fault (81)
- car was already lost at time of insurance
policies, however, may be typewritten and
4. any default of the insured other than actual need not be in printed form.
fraud, the insurer never incurred any
liability under the policy.(81)
Sec 51 A policy of insurance must specify:
(a) The parties between whom the
contract is made;
(b) The amount to be insured except in
the cases of open or running policies;
(c) The premium, or if the insurance is
of a character where the exact premium is
only determinable upon the termination of
the contract, a statement of the basis and
rates upon which the final premium is to
be determined;
(d) The property or life insured;
(e) The interest of the insured in
property insured, if he is not the absolute
owner thereof;
(f) The risks insured against; and
(g) The period during which the
insurance is to continue.
Sec 226 No policy, certificate or contract
of insurance shall be issued or delivered
within the Philippines unless in the form
previously approved by the Commissioner,
and no application form shall be used with,
and no rider, clause, warranty or
endorsement shall be attached to, printed
or stamped upon such policy, certificate or
contract unless the form of such
application, rider, clause, warranty or
endorsement has been approved by the
Commissioner.
Sec 52 Cover notes may be issued to bind
insurance temporarily pending the
issuance of the policy. Within sixty days
after the issue of the cover note, a policy
shall be issued in lieu thereof, including
within its terms the identical insurance
bound under the cover note and the
premium therefore.
Cover notes may be extended or renewed
beyond such sixty days with the written
approval of the Commissioner if he
determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions for
the purpose of preventing such violations
and may by such rules and regulations
dispense with the requirement of written
approval by him in the case of extension in
compliance with such rules and
regulations.
A provisional policy that only acts as a
receipt of premium payment is not enough
to bind the insurer during the interim
period. The provisional policy to be a
binding contract must have been complete
that leaves nothing to be done, nothing to
be completed, nothing to be passed upon,
or determined before it shall take effect.
(Lim v Sun Life Assurance)
A conditional binding receipt cannot bind
the insurer unless the conditions set forth
are met. (Great Pacific Life v CA)
If a loss occurs during the period covered
by a cover note and an insurance policy is
later on given accounting for the loss
during the cover notes, the insurance
company is still liable by virtue of the
cover note. (Pacific Timber Export v
CA)
Types of non-life insurance policies
Sec 59 A policy is either open, valued, or
running.
Sec 60 An open policy is one in which the
value of the thing insured is not agreed
upon, but is left to be ascertained in case
of loss.
Sec 61 A valued policy is one which
expresses on its face an agreement that
the thing insured shall be valued at a
specific sum.
Sec 62 A running policy is one which
contemplates successive insurances, and
which provides that the object of the policy
may be from time to time defined,
especially as to the subjects of insurance,
by additional statements or indorsements.
Sec 156 A valuation in a policy of marine
insurance is conclusive between the
parties thereto in the adjustment of either
a partial or total loss, if the insured has
some interest at risk, and there is no fraud
on his part; except that when a thing has
been hypothecated by bottomry or
respondentia, before its insurance, and
without the knowledge of the person
actually procuring the insurance, he may
show the real value. But a valuation
fraudulent in fact, entitles the insurer to
rescind the contract.
Sec 161 In estimating a loss under an
open policy of marine insurance the
following rules are to be observed:
(a) The value of a ship is its value at
the beginning of the risk, including all
articles or charges which add to its
permanent value or which are necessary
to prepare it for the voyage insured;
(b) The value of the cargo is its actual
cost to the insured, when laden on board,
or where the cost cannot be ascertained,
its market value at the time and place of
lading, adding the charges incurred in
purchasing and placing it on board, but
without reference to any loss incurred in
raising money for its purchase, or to any
drawback on its exportation, or to the
fluctuation of the market at the port of
destination, or to expenses incurred on the
way or on arrival;
(c) The value of freightage is the gross
freightage, exclusive of primage, without
reference to the cost of earning it; and
(d) The cost of insurance is in each
case to be added to the value thus
estimated.
Sec 171 If there is no valuation in the
policy, the measure of indemnity in an
insurance against fire is the expense it
would be to the insured at the time of the
commencement of the fire to replace the
thing lost or injured in the condition in
which at the time of the injury; but if there
is a valuation in a policy of fire insurance,
the effect shall be the same as in a policy
of marine insurance.
Is an illustration of a co-insurance clause
except that in a co-insurance clause it is
necessary to establish the actual value of
the property at the time of the loss. It is
also an illustration of an open insurance
where the liability of the insurer is only
equivalent to the loss at the time of the
loss. (Development Insurance v IAC)
In a valued policy the value is simply the
cost of the property and not necessarily
the cost of acquisition. In the absence of
fraud on the part of the insured, if the
insurer agrees on the value stated then he
shall be bound by it. (Harding v
Commercial Union Assurance)
Parties: Insurer
Sec 6 Every person, partnership,
association, or corporation duly authorized
to transact insurance business as
elsewhere provided in this code, may be
an insurer.
Sec 184 For purposes of this Code, the
term "insurer" or "insurance company"
shall include all individuals, partnerships,
associations, or corporations, including
government-owned or controlled
corporations or entities, engaged as
principals in the insurance business,
excepting mutual benefit associations.
Unless the context otherwise requires, the
terms shall also include professional
reinsurers defined in section two hundred
eighty. "Domestic company" shall include
companies formed, organized or existing
under the laws of the Philippines. "Foreign
company" when used without limitation
shall include companies formed,
organized, or existing under any laws
other than those of the Philippines.
Sec 185 Corporations formed or organized
to save any person or persons or other
corporations harmless from loss, damage,
or liability arising from any unknown or
future or contingent event, or to indemnify
or to compensate any person or persons or
other corporations for any such loss,
damage, or liability, or to guarantee the
performance of or compliance with
contractual obligations or the payment of
debt of others shall be known as
"insurance corporations".
The provisions of the Corporation Law shall
apply to all insurance corporations now or
hereafter engaged in business in the
Philippines insofar as they do not conflict
with the provisions of this chapter.
Parties: Agents and Brokers
Sec 299 requires the licensing of agents
and brokers and prohibits them from
practicing and receiving commissions
without said license.
Sec 300 Any person who for
compensation solicits or obtains insurance
on behalf of any insurance company or
transmits for a person other than himself
an application for a policy or contract of
insurance to or from such company or
offers or assumes to act in the negotiating
of such insurance shall be an insurance
agent within the intent of this section and
shall thereby become liable to all the
duties, requirements, liabilities and
penalties to which an insurance agent is
subject.
Sec 301 Any person who for any
compensation, commission or other thing
of value acts or aids in any manner in
soliciting, negotiating or procuring the
making of any insurance contract or in
placing risk or taking out insurance, on
behalf of an insured other than himself,
shall be an insurance broker within the
intent of this Code, and shall thereby
become liable to all the duties,
requirements, liabilities and penalties to
which an insurance broker is subject.
Sec 306 states that premiums received by
agents shall be held in trust and that if
agent is authorized to deliver a policy then
his receipt of premium payment is receipt
of insurer.
Parties: Insured
Sec 7 Anyone except a public enemy may
be insured.
Sec 54 When an insurance contract is
executed with an agent or trustee as the
insured, the fact that his principal or
beneficiary is the real party in interest may
be indicated by describing the insured as
agent or trustee, or by other general words
in the policy.
Sec 55 To render an insurance effected by
one partner or part-owner, applicable to
the interest of his co-partners or other
part-owners, it is necessary that the terms
of the policy should be such as are
applicable to the joint or common interest.
Sec 56 When the description of the
insured in a policy is so general that it may
comprehend any person or any class of
persons, only he who can show that it was
intended to include him can claim the
benefit of the policy.
Sec 57 A policy may be so framed that it
will inure to the benefit of whomsoever,
during the continuance of the risk, may
become the owner of the interest insured.
RA 6809 Sec 4 Upon the effectivity of this
Act, existing wills, bequests, donations,
grants, insurance policies and similar
instruments containing references and
provisions favorable to minors will not
retroact to their prejudice.
Art 110 FC The spouses retain the
ownership, possession, administration and
enjoyment of their exclusive properties.
Either spouse may, during the marriage,
transfer the administration of his or her
exclusive property to the other by means
of a public instrument, which shall be
recorded in the registry of property of the
place where the property is located.
Art 111 FC A spouse of age may
mortgage, encumber, alienate or
otherwise dispose of his or her exclusive
property, without the consent of the other
spouse, and appear alone in court to
litigate with regard to the same.
Art 1390 NCC The following contracts are
voidable or annullable, even though there
may have been no damage to the
contracting parties:
1) those where one of the parties is
incapable of giving consent to a contract;
2) Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they
are annulled by a proper action.
Corporation where majority stockholders
are public enemies are disqualified from
being insured. (Filipanas Cia de
Seguros v Huenefeld)
Parties: Beneficiaries
Sec 11 The insured shall have the right to
change the beneficiary he designated in
the policy, unless he has expressly waived
this right in said policy.
Art 739 NCC The following donations shall
be void:
1) Those made between persons who were
guilty of adultery or concubinage at the
time of the donation;
2) Those made between persons found
guilty of the same criminal offense, in
consideration thereof;
3) Those made to a public officer or his
wife, descendants and ascendants, by
reason of his office.
In the case referred to in No. 1 the action
for declaration of nullity may be brought
by the spouse of the donor or donee; and
the guilt of the donor and donee may be
proved by preponderance of evidence in
the same action.
Art 2011 NCC The contract of insurance
is governed by special laws. Matters not
expressly provided for in such special laws
shall be regulated by this Code.
Art 2012 NCC Any person who is
forbidden from receiving any donation
under Art 739 cannot be named
beneficiary of a life insurance policy by the
person who cannot make any donation to
him, according to said article.
Illustration of prohibitin in Art 2012 in
relation to Art 739. No criminal conviction
for adultery or concubinage is necessary
as guilt may be established by
preponderance of evidence in the same
proceeding for declaration of nullity as
provided for in the Art 739. Also used
Matabuena v Cervantes. (Insular v
Ebrado)
When second marriage in good faith, the
two spouses split the insurance proceeds.
(Consuegra v GSIS)
There being no proof of knowledge of prior
marriage, there can be no
concubinage/adultery. Proceeds from SSS
do not form part of the estate of the
insured and therefore the beneficiary
stated is the one entitled to the proceeds if
he/she is not disqualified. (SSS v Davac)
Under code of commerce a life insurance
does not form part of the estate. The civil
code is unavailing as it has no provision
specifically for life insurance. A repurchase
under the name of all the heirs is not
enough to establish that the person
repurchasing had the intent to donate the
share of the others to them. (Del Val v
Del Val)
The beneficiary of a life insurance cannot
be changed without the consent of the
beneficiary as the beneficiary has
proprietary rights over the insurance. Of
course this was before the Insurance Code.
(Gercio v Sun Life Assurance)
Under the Insurance Act an insurance
contract can’t be changed from
irrevocable to revocable if:
1) There is a stipulation stating that it is
irrevocable and no contingency is given to
change such stipulation
2) The consent of ALL beneficiaries was
not obtained, and in the case of minor
children with respect to their father, the
father can’t act in behalf of his children as
there is a conflict of interest. (PhilAm Life
v Pineda)
Sec 12 The interest of a beneficiary in a
life insurance policy shall be forfeited
when the beneficiary is the principal,
accomplice, or accessory in willfully
bringing about the death of the insured;
in which event, the nearest relative of the
insured shall receive the proceeds of said
insurance if not otherwise disqualified.
Sir: Bakit kasama ang accessory (after the
fact) kung tapos na ang boxing?
VI. Rescission: concealment,
misrepresentation & breach of
warranties
.
Basis/Rationale
1. Uberrimae fidei
2. Risk management
3. Ground for rescission
Concealment
Sec 26 A neglect to communicate that
which a party knows and ought to
communicate, is called a concealment.
Sec 27 A concealment whether intentional
or unintentional entitles the injured party
to rescind a contract of insurance.
Sec 28 Each party to a contract of
insurance must communicate to the other,
in good faith, all facts within his knowledge
which are material to the contract and as
to which he makes no warranty, and which
the other has not the means of
ascertaining.
Sec 29 An intentional or fraudulent
omission, on the part of the insured, to
Sec 34 Information of the nature or
communicate information of matters
amount of the interest of one insured need
proving or tending to prove the falsity of a
not be communicated unless in answer to
warranty, entitles the insurer to rescind.
an inquiry, except as prescribed by section
fifty-one.

Sec 30 Neither party to a contract of

insurance is bound to communicate
Sec 35 Neither party to a contract of
information of the matters following,
insurance is bound to communicate, even
except in answer to the inquiries of the
upon inquiry, information of his own
other:
judgment upon the matters in question.
a) Those which the other knows

b) Those which, in the exercise of ordinary

care, the other ought to know, and of
which the former has no reason to
suppose him ignorant
c) Those of which the other waives
communication
d) Those which prove or tend to prove the
existence of a risk excluded by a warranty,
and which are not otherwise material; and
e) Those which relate to a risk excepted
from the policy and which are not
otherwise material.
Sec 32 Each party to a contract of
insurance is bound to know all the general
causes which are open to his inquiry,
equally with that of the other, and which
may affect the political or material perils
contemplated,
Sec 31 Materiality is to be determined not
by the event, but solely by the probable
and reasonable influence of the facts upon
the party to whom the communication is
due, in forming his estimate of the
disadvantages of the proposed contract, or
in making his inquiries.
The interim between 1978 and 1985 still
does not require that concealment be
made intentionally. Intentional and
unintentional cancel each other out
leading to just concealment. As such sinus
tachycardia should have been revealed.
(Canilang v CA)
Fact of being a mongoloid is a material
fact that needs to be stated. (Great
Pacific Life v CA ‘79)

Sec 33 The rights of information of Mere possibility of previous hypertension

material facts may be waived, either by
the terms of the insurance or by neglect to
make inquiry as to such facts, where they
are distinctly implied in other facts of
which information is communicated.
not enough to establish that there was
concealment. (Great Pacific Life v CA
‘99)
Misrepresentation
Sec 36 A representation may be oral or
written.
Sec 37 A representation made may be at
the time of, or before, issuance of the
policy.
Sec 41 A representation may be altered or
withdrawn before the insurance is
effected, but not afterwards.
Sec 42 A representation must be
presumed to refer to the date on which the
contract goes into effect.
Sec 39 A representation as to the future is
to be deemed a promise, unless it appears
that it was merely a statement of belief or
expectation.
Sec 43 When a person insured has no
personal knowledge of a fact, he may
nevertheless repeat information which he
has upon the subject, and which he
believes to be true, with the explanation
that he does so on the information of
others; or he may submit the information,
in its whole extent, to the insurer; and in
neither case is he responsible for its truth,
unless it proceeds from an agent of the
insured, whose duty is to give the
information.
Sec 44 A representation is to be deemed
false when the facts fail to correspond with
its assertions or stipulations.
Sec 45 If a representation is false in a
material point, whether affirmative or
promissory, the injured party is entitled to
rescind the contract from the time when
the representation becomes false. The
right to rescind granted by this Code to the
insurer is waived by the acceptance of
premium payments despite knowledge of
the ground for rescission.
Sec 227(d) A provision that if the age of
the insured is considered in determining
the premium and the benefits accruing
under the policy, and the age of the
insured has been misstated, the amount
payable under the policy shall be such as
the premium would have purchased at the
correct age
Sec 46 The materiality of a representation
is determined by the same rules as the
materiality of a concealment.
If policy requires that they be informed of
other insurers in writing then violation of
this would be tantamount to fraud.
(Pacific Banking v CA)
Posing as someone for medical exam is
misrepresentation… DUH! (Equaras v
Great Eastern)
Intent to defraud necessary for there to be
misrepresentation. Overstatement by 20%
of price on 70% of stocks done in good
faith. (Qua v Law Union)
The insurer is not entitled to rescission for
misrepresentation of age if the birth date
on the policy leads to the conclusion that
the insured is beyond the age covered by
policy in which case the insurer is deemd
to have waived any requirement. (Edillon
v Manila Bankers)
No misrepresentation as to the price of the
Studebaker because it was based on
opinion of dealer. Also no
misrepresentation as to cost because
although it was acquired free it doesn’t
mean there was no cost. (Harding v
Commercial Union)
The incontestable clause
Sec 48 Whenever a right to rescind a
contract of insurance is given to the
insurer by any provision of this chapter,
such right must be exercised previous to
the commencement of an action on the
contract.
Sec 227(b) A provision that the policy
shall be incontestable after it shall have
been in force during the lifetime of the
insured for a period of two years from its
date of issue as shown in the policy, or
date of approval of last reinstatement,
except for non-payment of premium and
except for violation of the conditions of the
policy relating to military or naval service
in time of war
The incontestability clause is construed as
two years from creation of policy or
reinstatement. Disregard provision on life.
(Tan v CA)
This case is no longer applicable because
of the amendment in 227 that it also
applies to void whereas in Tan Chay it
does not. (Tan Chay v West Coast Life)
Warranties
Kinds
1. Express
Sec 71 A statement in a policy of
matter relating to the person or thing
insured, or to the risk, as a fact, is an
express warranty thereof.
2. Implied (marine only)
3. Affirmative
Sec 68 A warranty may relate to the
past, the present, the future, or to any or
all of these.
4. Promissory
Sec 72 A statement in a policy
which imparts that it is intended to do or
not to do a thing which materially affects
the risk, is a warranty that such act or
omission shall take place.
Sec 73 When, before the time
arrives for the performance of a warranty
relating to the future, a loss insured
against happens, or performance becomes
unlawful at the place of the contract, or
impossible, the omission to fulfill the
warranty does not avoid the policy.
Sec 69 No particular form of words is
necessary to create a warranty.
Sec 70 Without prejudice to section fifty-
one, every express warranty, made at or
before the execution of a policy, must be
contained in the policy itself, or in another
instrument signed by the insured and
referred to in the policy as making a part
of it.
Sec 74 The violation of a material
warranty, or other material provision of a
policy, on the part of either party thereto,
entitles the other to rescind.
Sec 75 A policy may declare that a
violation of specified provisions thereof
shall avoid it, otherwise the breach of an
immaterial provision does not avoid the
policy.
Sec 76 A breach of warranty without fraud
merely exonerates an insurer from the
time that it occurs, or where it is broken in
its inception, prevents the policy from
attaching to the risk.
Warranties in fire insurance
Sec 168 An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy made
without the consent of the insurer, by
means within the control of the insured,
and increasing the risks, entitles an insurer
to rescind a contract of life insurance.
Sec 169 An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy, which
does not increase the risk, does not affect
a contract of fire insurance.
Sec 170 A contract of fire insurance is not
affected by any act of the insured
subsequent to the execution of the policy,
which does not violate its provisions, even
though it increases the risk and is the
cause of the loss.
Storage of hazardous materials
Alteration in use or condition
Sole ownership clause
Other insurance clause
Violation of the other insurer clause avoids
contract without further action if provided
for. (Pioneer v Yap)
With regard to other insurer clause,
notification to the agent is not notification
to the insurer. (New Life Enterprises v
CA)
Condition that filing of claim before filing
of case is valid and binding upon parties.
(Pacific Banking v CA)

Knowing that there are only 2 fire
extinguishers despite the warranty of 11
and yet issuing the policy nonetheless
constitutes a waiver on the part of the
insurer. (Qua Chee Gan v Law Union)
Storing excludes small quantities intended
for daily use or consumption. To place 3
boxes of fireworks in the bodega for future
sale is storing. The fact that the fireworks
did not cause the fire does not affect the
right to rescind the contract. (Young v
Midland Textile Insurance)
Grounds & exercises of rights
Sec 63 A condition, stipulation, or
agreement in any policy of insurance,
limiting the time for commencing an action
thereunder to a period of less than one
year from the time when the cause of
action accrues, is void.
Sec 64 No policy of insurance other than
life shall be cancelled by the insurer
except upon prior notice thereof to the
insured, and no notice of cancellation shall
be effective unless it is based on the
occurrence, after the effective date of the
policy, of one or more of the following:
a) non-payment of premium
b) conviction of a crime arising out of acts
increasing the hazard insured against
c) discovery of fraud or material
misrepresentation
d) discovery of willful or reckless acts or
omissions increasing the hazard insured
against
e) physical changes in the property
insured which result in the property
becoming uninsurable
f) a determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
voilation of this Code
Sec 65 All notices of cancellation
mentioned in the preceding section shall
be in writing, mailed or delivered to the
named insured at the address shown in
the policy, and shall state (a) which of the
grounds set forth in section sixty-four is
relied upon and (b) that, upon written
request of the named insured, the insurer
will furnish the facts on which the
cancellation is based.
Sec 170 A contract of fire insurance is not
affected by any act of the insured
subsequent to the execution of the policy,
which does not violate its provisions, even
though it increases the risk and is the
cause of the loss.
Sec 380 No cancellation of the policy shall
be valid unless written notice thereof is
given to the land transportation operator
or owner of the vehicle and to the Land
Transportation Commission at least fifteen
days prior to the intended effective date
thereof.
Upon receipt of such notice, the Land
Transportation Commission, unless it
receives evidence of a new valid insurance
or guaranty in cash or surety bond as
prescribed in this chapter, or an
endorsement of revival of the cancelled
one, shall order the immediate
confiscation of the plates of the motor
vehicle covered by such cancelled policy.
The same may be re-issued only upon
presentation of a new insurance policy or
that a guaranty in cash or surety bond has
been made or posted with the
Commissioner and which meets the
requirement of this chapter, or an
endorsement or revival of the cancelled
one.
Refusal to grant a loan to an insured is a
valid ground of rescission and entitles the
insured to a return of the premiums since
the insurer had the benefit of using the
financial resources to earn some money.
(Filipinas Life Assurance v Nava)
___________________________________________
__
VII. Risks and Coverages
.
In general
Sec 3 Any contingent or unknown event,
whether past or future, which may damnify
a person having an insurable interest, or
create a liability against him, may be
insured against, subject to the provisions
of this chapter.
The consent of a husband is not necessary
for the validity of an insurance policy
taken out by a married woman on her life
or that of her children.
Any minor of the age of nineteen years or
more, may, notwithstanding such minority,
contract for life, health and accident
insurance, with any insurance company
duly authorized to do business in the
Philippines, provided the insurance is
taken on his own life and the beneficiary
appointed is the minor’s estate or the
minor’s father, mother, husband, wife,
child, brother, or sister.
The married woman or the minor herein
allowed to take out an insurance policy
may exercise all the rights and privileges
of an owner under a policy.
All rights, title and interest in the policy of
insurance taken out by an original owner
on the life or health of a minor shall
automatically vest in the minor upon the
death of the original owner, unless
otherwise provided for in the policy.
Sec 84 Unless otherwise provided by the
policy, an insurer is liable for a loss of
which a peril insured against was the
proximate cause, although a peril not
contemplated by the contract may have
been a remote cause of the loss; but he is
not liable for a loss which the peril insured
against was only a remote cause.
Sec 86 Where a peril is especially
excepted in a contract of insurance, a loss,
which would not have occurred but for
such peril, is thereby excepted although
the immediate cause of the loss was a
peril which was not expected.
 Sec 180 An insurance upon life may be
made payable on the death of the person,
Def. proximate cause: that cause, which,
or on his surviving a specified period, or
in natural and continuous sequence,
otherwise contingently on the continuance
unbroken by an efficient intervening
or cessation of life.
cause, produces the injury, and without
which the result would not have occurred.
(Bataclan v Medina)
Ever contract or pledge for the payment of
endowments or annuities shall be
considered a life insurance contract for
Sec 85 An insurer is liable where the thing
purposes of this Code.
insured is rescued from a peril insured
against that would otherwise have caused
a loss, if, in the course of such rescue, the
In the absence of a judicial guardian, the
thing is exposed to a peril not insured
father, or in the latter’s absence or
against, which permanently deprives the
incapacity, the mother, or any minor, who
insured of its possession, in whole or in
is an insured or a beneficiary under a
part; or where a loss is caused by efforts
contract of life, health or accident
to rescue the thing insured from a peril
insurance, may exercise, in behalf of said
insured against.
minor, any right under the policy, without
necessity of court authority or the giving of
a bond, where the interest of the minor in
Sec 87 An insurer is not liable for a loss
the particular act involved does not
caused by the willful act or through the
exceed twenty thousand pesos. Such right
connivance of the insured; but he is not
may include, but shall not be limited to,
exonerated by the negligence of the
obtaining a policy loan, surrendering the
insured, or of the insurance agents or
policy, receiving the proceeds of the
others.
policy, and giving the minor’s consent to
any transaction on the policy.

The carrier’s insurer albeit liable even for

the ordinary negligence of the insured
Sec 180-A The insurer in a life insurance
cannot be held liable for acts of gross
contract shall be liable in case of suicides
negligence. Leaving a barge at the wharf
only when it is committed after the policy
in the middle of a storm is gross
has been in force for a period of two years
negligence. (FGU v CA)
from the date of its issue or of its last
reinstatement, unless the policy provides
for a shorter period: Provided, however,
Life insurance That suicide is committed in the state of
insanity shall be compensable regardless
Sec 179 Life insurance is insurance on
of the date of commission. (cf. Sec 87)
human lives and insurance appertaining
thereto or connected therewith.
A personal accident insurance policy
covers death through homicide. Homicide
Sec 228 last par The provisions of par (f)
after attending maskara festival is an
and (j) shall not apply to policies issued to
accident in that it occurs without
a creditor to insure his debtors. If a group
expectation and without intent or design
life policy is on a plan of insurance other
on part of the insured. Also since it is not
than term, it shall contain a non-forfeiture
expressly included then it cannot bar
provision or provisions which in the opinion
recovery. (Finman v CA)
of the Commissioner is or are equitable to
the insured or the policyholder: Provided,
That nothing therein contained shall be so
Expressly excluding death caused by
construed as to require group life policies
intentional acts of third persons excludes
to contain the same non-forfeiture
robbery with homicide from coverage. Of
provisions as are required of individual life
course Teehankee dissents and cites
policies.
Calanoc v CA which interpreted a similar
provision oppositely. (Biagtan v Insular)

The employer, although the insured, is

considered the agent of the insurer and
Pointing a gun to your head when the
any acts prejudicial to his employees shall
magazine is removed is not a suicidal act
not be binding on the employees in a
and a death resulting there from is
group life insurance. (Pineda v CA)
accidental and covered by an insurance
policy. It’s not suicidal. (Sun Insurance v
CA)
Provision that insurance is immediately
effective upon approval of loan and at the
same time subject to insurer’s approval
Current jurisprudence removes any
means that insurance is valid until denied
delineation between accidental death and
by insurer. As such any delay in the
accidental means. Assuming there is a
approval/disapproval of the claim means
difference slipping and then being
the policy is valid and binding. (Eternal
punched in a boxing competition still falls
Gardens v Philamlife)
within the definition of accidental means
because the slipping being the cause was
accidental. (De la cruz v capital
Mortgage redemption insurance is in the
insurance)
interest of both mortgagee and mortgagor.
(GREPALIFE v CA)

Sec 50 The policy shall be in printed

form…
Group insurance and group annuity
policies, however, may be typewritten and
need not be in printed form.
Def. industrial life insurance: life insurance
under which the premiums are payable
either monthly or oftener, if the face
amount of insurance provided in any policy
is not more than five hundred times that of
the current statutory minimum daily wage
in Manila. (Sec 229)
Sec 229 An industrial life policy shall not
lapse for non-payment of premium if such
non-payment was due to the failure of the
company to send its representative or
agent to the insured at the residence of
the insured or at some other place
indicated by him for the purpose of
collecting such premium: Provided, That
the provisions of this paragraph shall not
apply when the premium on the policy
remains unpaid for a period of three
months or twelve weeks after the grace
period has expired.
Sec 262 Any domestic stock life insurance
company doing business in the Philippines
may convert itself into an incorporated
mutual life insurer. To that end it may
provide and carry out a plan for the
acquisition of the outstanding shares of its
capital stock for the benefit of its
policholders, or any class or classes of its
policyholders, by complying with the
requirements of this chapter.
A stock life insurance company that has
converted itself into a mutual life insurer is
tax exempted. (Republic v Sunlife)
Fire Insurance
Sec 167 As used in this Code, the term
“fire insurance” shall include insurance
against loss by fire, lightning, windstorm,
tornado or earthquake and other allied
risks, when such risks are covered by
extension to fire insurance policies or
under separate policies.
Fire in our jurisdiction is not considered a
fortuitous event unless caused by
lightning, natural disaster, or causality
independent of human agency. More often
it is caused by some act of man or human
means. In this case, the acetylene cylinder
caught fire due to the crew’s negligent
acts. Nonetheless, the carrier could have
still asked for general averages had it
complied with the notice requirements
under Art 813 and 814 of Code of
Commerce. (Phil Home Assurance v CA)
Sec 168 An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy made
without the consent of the insurer, by
means within the control of the insured,
and increasing the risks, entitles an insurer
to rescind a contract of fire insurance.
Sec 169 An alteration in the use or
condition of a thing insured from that to
which it is limited by the policy, which
does not increase the risk, does not affect
a contract of fire insurance.
Sec 170 A contract of fire insurance is not
affected by any act of the insured
subsequent to the execution of the policy,
which does not violate its provisions, even
though it increases the risk and is the
cause of the loss.
Sec 171 If there is no valuation in the
policy, the measure of indemnity in an
insurance against fire is the expense it
would be to the insured at the time of the
commencement of the fire to replace the
thing lost or injured in the condition in
which at the time of the injury; but if there
is a valuation in a policy of fire insurance,
the effect shall be the same as in a policy
of marine insurance.
Sec 172 Whenever the insured desires to have a
valuation named in his policy, insuring any building or
structure against fire, he may require such building or
structure to be examined by an independent
appraiser and the value of the insured's interest
therein may then be fixed as between the insurer and
the insured… in case of a total loss under such
policy, the whole amount so insured upon the
insured's interest in such building or structure, as
stated in the policy upon which the insurers have
received a premium, shall be paid, and in case of a
partial loss the full amount of the partial loss shall be
so paid, and in case there are two or more policies
covering the insured's interest therein, each policy
shall contribute pro rata to the payment of such
whole or partial loss. But in no case shall the insurer
be required to pay more than the amount thus stated
in such policy.
Casualty/Liability insurance
Sec 174 Casualty insurance is insurance
covering loss or liability arising from
accident or mishap, excluding certain
types of loss which by law or custom are
considered as falling exclusively within the
scope of other types of insurance such as
fire or marine. It includes, but is not
limited to, employer’s liability insurance,
motor vehicle liability insurance, plate
glass insurance, burglary and theft
insurance, personal accident and health
insurance as written by non-life insurance
companies, and other substantially similar
kinds of insurance.
Supra case on construction of “authorized
representatives.” Something about moral
hazard and shit. (Fortune Insurance v
CA)
Suretyship
Sec 175 A contract of surety ship is an
agreement whereby a party called the
surety guarantees the performance by
another party called the principal or
obligor of an obligation or undertaking in
favor of a third party called the obligee. It
includes official recognizances,
stipulations, bonds or undertakings issued
by any company by virtue of and under
the provisions of Act No 536 as amended
by Act No 2206
Sec 176 The liability of the sureties shall
be joint and several with the obligor and
shall be limited to the amount of the bond.
It is determined strictly by the terms of the
contracts of suretyship in relation to the
principal contract between the obligor and
the obligee.
Jurisdiction over the person of the issuer of
a counter-bond is acquired upon filing of
the bond in court. (Zaragoza v Fidelino)
Liability in a surety bond is not determined
by abstract nature, caption, or title but by
its particular terms and conditions.
Execution constructed in its common use
involves not only entering into a contract
but also the performance of the obligations
in the contract. (Eastern Assurance v
IAC)
Surety is automatically liable for damages
in replevin suit arising from acts of party
obtaining counter bond unless he raises
defenses not previously raised by his
principal. (Stronghold Insurance v CA)
Invoking the jurisdiction of a quasi-judicial
body in the trial court and actively
participating in the quasi-judicial body’s
proceedings estops a party from
subsequently questioning the quasi-
judicial body’s jurisdiction. The surety is
considered the same party as the obligor.
The liability of the surety is direct and
primary although the contract of
suretyship is merely an accessory
contract. (Prudential v Equinox)
In suretyship there are two relationships
that are independent from each other.
Notice to the surety as to withdrawal of
items subject to duties by government not
required as the government being the
creditor has no obligation to the surety.
The surety has unilateral obligation to
government. Any requirement of notice is
between debtor and surety. (Intra-Strata
v Republic)
Sec 177 The surety is entitled to a
payment of the premium as soon as the
contract of suretyship or bond is perfected
and delivered to the obligor. No contract of
surety ship or bonding shall be valid and
binding unless and until the premium
therefor has been paid, except where the
obligee has accepted the bond, in which
case the bond becomes valid and
enforceable irrespective of whether or not
the premium has been paid by the obligor
to the surety… [but if the suretyship/bond
is not accepted then the surety is only
entitled to at most 50% of the premium
and only if the non acceptance is not the
surety’s fault.]
As long as surety is liable it can ask for the
payment of premiums even during trial.
(Reparations Commission v Universal
Deep Sea)
Even if there is non-payment of premium,
acceptance by the creditor of the surety
contract already binds the surety. Had it
been true that they issued a surety
contract without authority, it is an act
done in fraud and a party cannot benefit
from its fraudulent acts. (Philippine
Pryce Assurance v CA)
Sec 178 Pertinent provisions of the Civil
Code of the Philippines shall be applied in
a suppletory character whenever
necessary in interpreting the provisions of
a contract of suretyship.
Motor Vehicle Insurance
All vehicles must have insurance against
death, bodily injury, and/or damage to
property of a third-party or passenger
arising from the vehicles use. (Sec 374)
The authorized driver clause is not
applicable to the theft clause and the
absence of a valid license is immaterial to
the payment of a claim grounded on theft.
There is an unjust refusal on the part of
Perla for denying the claim making them
liable for moral and exemplary damages.
(Perla Compania de Seguros v CA)
Motor vehicle liability insurer may be
impleaded as third-party defendant in a
criminal case because the cause of action
against it arises from the moment of injury
and also the civil aspect being instituted in
the criminal action: the criminal case
involves matters related to the policy.
(Shafer v Judge)
The liability of the insurer is direct and
primary as to the victim but it cannot be
held solidarily liable with the insured. (Vda
de Maglana v Consolacion)
Taxi company liable for damages due to
estoppel because of sign on cabs that says
passengers are insured from accident.
However the insurer cannot be held liable
because there was no physical damage
caused by the use of the taxi since it was
the gravel trucks fault. (Far Eastern
Surety v Misa)
The validity of the confiscation of the
driver’s license is immaterial to the
authorized driver clause since at the time
of the accident the driver did not have a
license and his temporary operators
permit had already expired. (Peza v
Alikpala)
Supra case, refer to previous entry.
(Western Guaranty v CA)
A claim in motor vehicle liability insurance
for death or physical injury need not prove
fault or negligence if:
1. Claim is below P5,000
2. The following proofs are submitted:
-police report
-death certificate and evidence
sufficient to establish proper payee
-medical report or medical/hospital
disbursement in respect of which refund is
claimed
3. The claim is only for one motor vehicle.
The passenger sues insurer of vehicle he’s
riding, for all else claim with the insurer of
the vehicle at fault. (Sec 378)
There is no option of insurer to claim no-
fault liability from. The use of the word
shall means that the
passengers/occupants can only sue the
insurer of the vehicle they were riding.
(Perla v Ancheta)
Reinsurance
Def. reinsurane: a contract where an
insurer procures an insurance to insure
him against loss or liability by reason of
such original insurance. (Sec 95)
Sec 96 Where an insurer obtains a
reinsurance, except under automatic
reinsurance treaties, he must
communicate all the representations of the
original insured, and also all the
knowledge and information he possesses,
whether previously or subsequently
acquired, which are material to the risk.
A reinsurance is a liability insurance. (Sec
97)
Sec 98 The original insured has no
interest in a contract of reinsurance.
A reinsurance policy is a contract of
insurance and is for indemnity from
liability. A reinsurance treaty on the other
hand is a contract for insurance where one
cedes and the other accepts reinsurance.
(Philam v Auditor)
Cancellation of reinsurance
treaty/agreement does not meant
cancellation of individual policies ceded to
the reinsurer. (Fieldmens v Asian
Surety)
Def. facultative reinsurance: is a
reinsurance where the reinsurer has the
right to accept or not accept participation
in the risk insured. But once share is
accepted, the obligation is absolute and
there is no other prestation which can be
substituted for the payment of indemnity.
(Equitable Insurance v Rural
Insurance)
There is no privity of contract between the
insured and the insurer’s reinsurers. It is
therefore no defense on the part of the
insurer that he has procured reinsurances
since the insured cannot go after these
reinsurers unless there is a stipulation
pour autrui. (Artex Development v
Wellington)
___________________________________________
__
VIII. Marine Insurance
.
Def. Marine Insurance: is insurance
against…
1. Loss or damage to:
-vessels, crafts, aircraft, vehicles,
goods, freights, cargoes, marchandise,
effects disbursements, profits, moneys,
securities… bottomries, respondentas, and
all other kinds of property and interests
therein, in respect to… or in connection
with any and all risks or perils of
navigation, transit, or transportation… or
being prepared for shipment or while
awaiting shipment, or during any delays…
-person or property in connection
with… a marine, inland marine, transit or
transportation insurance, including liability
for loss of or damage arising out of or in
connection with the construction, repair,
operation, maintenance or use of the
subject matter…
-precious stones, jewels, jewelry,
precious metals, whether in course of
transportation or otherwise
-bridges, tunnels and other
instrumentalities of transportation and
communication… piers, wharves, docks…
and other aids to navigation and
transportation…
2. Legal liability of the insured for loss,
damage, or expense incident to ownership,
operation, chartering… including liability of
the insured for personal injury, illness or
death or for loss of or damage to the
property of another person. (Sec 99)
Def. Averages: the following are
considered averages:
1. All extraordinary or accidental expenses
which may be incurred during the voyage
in order to preserve the vessel or cargo or
both.
2. All damages or deterioration the vessel
may suffer from the time she puts to sea
from the port of departure until she casts
anchor in the port of destination, and
those suffered by the merchandise from
the time it is loaded in the port of
shipment until it is unloaded in the port to
which it is consigned. (Art 806 CoC)
Averages does not include ordinary
expenses of navigation such as pilot age,
lighter age and towage, anchorage,
inspection, health, qurantine, etc. (Art
807 CoC)
Simple or particular averages shall be, as a
general rule, all the expenses and
damages caused to the vessel or to her
cargo which have not inured to the benefit
and common profit of all (Art 809 CoC).
The owner of the goods which gave rise to
the expense or suffered the damage shall
bear the simple or particular averages (Art
810 CoC).
General or gross averages shall be, as a
general rule, all the damages and
expenses which are deliberately caused in
order to save the vessel, her cargo, or
both at the same time, from a real and
known risk (Art 811 CoC). All persons
having an interest in the vessel and cargo
therein at the time of the occurrence of
the average shall contribute (Art 812
CoC). However, in order for there to be
gross or general average it is necessary
that the Captain with the crew and
interested parties onboard should
deliberate on the matter. After such
deliberation the captain shall pass a
resolution on the matter (Art 813 CoC).
This resolution, the meeting, and the
objections to the resolution and reasons
thereof must be entered in the logbook
(Art 814 CoC).
If particular average is excluded in the
coverage then the insurer shall not be
liable even if the subject matter of the
insurance is damaged as long as the
insured is not deprived of the whole of
such thing. But the insurer shall still be
liable for general averages (Sec 136).
The insurer shall be liable for general
average if it was brought about by a peril
insured against limited by the co-insurance
between him and the insured (Sec 164).
If the subject matter of insurance is what
was sacrificed, the insured may claim the
loss from the insurer thus subrogating the
insurer in the insured’s rights to collect
contribution from the others. However this
can no longer be exercised after
separation of the interests liable to the
Supra, see previous entry. (Phil Home
contribution or when the insured has
Assurance v CA)
neglected or waived the right to
contribution (Sec 165).

Perils of the sea and perils of the ship

Requisites for general average (by
Tolentino):
1. Common danger that is imminent
2. For common safety, part of the vessel,
cargo, or both is sacrificed deliberately
3. The vessel or cargo is successfully
saved
4. Taking proper legal steps and authority
Rusting of steel pipes in the course of a
voyage is a "peril of the sea" in view of the
toll on the cargo of wind, water, and salt
conditions. This is in line with the cardinal
rule that any ambiguity therein should be
construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the
precise purpose of insuring cargo during a
voyage would be rendered fruitless.
(Cathay insurance v CA)

Running aground in the mouth of a river in

fine weather due to shifting sand bars
The provisions of a marine insurance
does not fall under par 6 of Art 811 of the
policy cover only perils of the sea limited
CoC. It is also not an imminent danger but
to sea damage or by violence of elements.
a distant peril. The cost of floating
Perils of the sea are not covered unless
therefore must be born exclusively by the
expressly stated. A violation of the
carrier. (A Magsaysay v Agan)
warranty of sea-worthiness is a peril of the
ship. The implied warranty of sea-
worthiness also applies to consignees and
Marine policy usually covers: the shippers. It is their responsibility to make
adventures and perils of the Seas, Men-of- sure that the carrier’s vessel is reliable
War, Fire, Pirates, Rovers, Thieves, and seaworthy. (Roque v IAC)
Jettison, Letters of Mart and Countermart,
Surprisals, and Takings at Sea. Arrest,
Restraint and Detainments, of all Kings
Def. barratry: is any willful misconduct on
Princes and People of what Nation,
the part of the master or crew in
Condition or Quality so ever; Barratry of
pursuance of some unlawful or fraudulent
the Master and Marines, and of all other
purpose without the consent of the
Perils, Losses and Misfortunes, that have
owners, and to the prejudice of the
or shall come to the Hurt, Detriment, or
owner’s interest. It is a willful and
Damage of the said Vessel or any part
intentional act that precludes negligence
thereof. This is also the case to cite if one
or honest error of judgment. (Roque v
wishes to make liable the insurer for total
IAC)
loss only for general averages using Art
859 of the CoC. (Jarque v Smith Bell)
The words "all other perils, losses, and
misfortunes" are to be interpreted as
covering risks which are of like kind
(ejusdem generis) with the particular risks
which are enumerated in the preceding
part of the same clause of the contract. It
must be considered to be settled,
furthermore, that a loss which, in the
ordinary course of events, results from the
natural and inevitable action of the sea,
from the ordinary wear and tear of the
ship, or from the negligent failure of the
ship's owner to provide the vessel with
proper equipment to convey the cargo
under ordinary conditions, is not a peril of
the sea. Such a loss is rather due to what
has been aptly called the "peril of the
ship." Impliedly binds implied warranty of
sea-worthiness to shipper/consignee. (La
Razon v Union Insurance)
The Standard Form of English Marine
Policy does not cover arrests by ordinary
judicial process. However since there was
an express stipulation covering risks
excluded from SFEMP, ordinary judicial
process is covered. (Malayan Insurance
v CA)
Insurable Interest
Persons having insurable interest:
1. The owner of the ship with respect to
the ship even if the ship has been
chartered by one who covenants to pay for
the loss as long as the insurer is liable only
for irrecoverable sum. (Sec 100)
2. The owner of a ship hypothecated by
bottomry with respect to the ship but only
in excess of the amount secured by
bottomry. (Sec 101)
3. The owner of the ship with respect to
expected freightage (Sec 103). However if
the ship is chartered the interest will only
exist from the time the ship has broken
ground. For the carriage of goods, it exists
at the time the goods are on the vessel or,
if there is a contract for putting them on
board, when the ship and goods are ready
for the voyage (Sec 104).
4. One who has an interest in the thing
(vessel or cargo). If there are expected
profits from the thing, then there is also an
insurable interest over said profits. (Sec
105)
5. The charterer has an interest to the
extent that he will be damnified by the
loss. (Sec 106)
Def. freightage: is all the benefits derived
by the owner, either from chartering or
from carrying his own goods or those of
others.
Def. bareboat/demise charter party: is an
agreement where the charterer is
considered the owner of the vessel for the
specified voyage. The vessel is manned by
the charterer’s people. (Coastwise v CA
citing Puromines v CA)
Def. contract of affreightment: is the
second kind of charter party. In this
contract the owner of the vessel leases
part or all of its space to haul goods for
others. It is a contract of special service
where possession, command, and
navigation of the vessel is retained by its
owner. (Coastwise v CA citing
Puromines v CA)

A bareboat/demise charter converts a
common carrier into a private carrier.
However a contract of affreightment does
not affect the carrier’s nature as a
common carrier. As such the presumption
of negligence is present when goods are
given in good order but are delivered in
bad order as in the case of the molasses.
(Coastwise v CA)
Private carriers are governed by the
stipulations between the parties whereas
common carriers are governed by the law
on common carriers. The presumption of
negligence can only be rebutted by:
1. Flood, storm, earthquake, lightning, or
other natural disaster/calamity
2. Act of public enemy (whether
international or civil)
3. Act of omission of shipper
4. Inherent vice or defect in packaging of
goods
5. Order/act of competent public authority
Absent any explanation or showing of the
causes eliminating their liability, the
carrier is liable for the silica sand lost.
(Leamer v Malayan Insurance)
Same same but this time as applied to
cement. (Loadstar Shipping v Pioneer)
Even if common carrier used a vessel not
owned by it, its nature as a common
carrier does not change. It is also the party
privy to the contract of carriage and not
the owner of the vessel used. The voyage
charter trumps the bill of lading and is
then limited to a receipt of the goods.
Carrier liable for loss of silica quartz.
(Cebu Salvage v Phil Home Assurance)
(Tabacalera)
(North Front Shipping)
Concealment and misrepresentation
A party in marine insurance is required to
communicate all that is required in Sec 28.
In addition, he must mention all
information in his possession material to
the risk except those in Sec 20 (Sec 107).
This includes information on the belief or
expectation of a third person in reference
to a material fact (Sec 108).
The insured is also presumed to know of a
prior loss at the time of insuring if the
information might possibly reach him in
the usual mode of transmission and usual
rate of communication. (Sec 109)
A concealment in a marine insurance
generally vitiates the entire contract (Sec
27). However, a concealment as to any of
the following merely exonerates the
insurer from the loss resulting from them:
1. National character of insured
2. Liability of thing to capture and
detention
3. Liability to seizure from breach of
foreign laws and trades
4. Want of necessary documents
5. Use of false and simulated papers (Sec
110)
An intentionally false misrepresentation in
any material respect, or in respect of any
fact on which the character and nature of
the risk depends, entitles the insurer to
rescission. (Sec 111)
Without fraud, the eventual falsity of a
representation as to expectation does not
avoid the insurance contract. (Sec 112)
Implied warranties
1. Seaworthiness of vessel
Def. seaworthiness: is the reasonable
fitness to perform the service and to
encounter the ordinary perils of the
voyage contemplated in the policy (Sec
114). It covers the ship itself, it must be
properly laden, with a competent master,
sufficient number of competent seamen,
required equipment, and other necessary
or proper stores and implements for the
voyage (Sec 116).
Every insurance on ship or freight, or
freightage, or upon any thing which is the
subject of marine insurance has an implied
arranty of seaworthiness (Sec 113).
If the ship is seaworthy at the time of the
commencement of the risk then there is
compliance with the warranty except:
a) If the policy covers a period then the
warranty must be complied with at every
commencement of a voyage.
b) If the policy covers cargo which will
pass through an intermediate port then
ship must be seaworthy at every port.
(Sec 115)
If a voyage has different portions, each
one requiring a different standard of
seaworthiness. It is complied with if at the
commencement of each portion the ship is
seaworthy (Sec 117).
HOWEVER if the ship becomes
unseaworthy in the middle of the voyage,
an unreasonable delay in repairing it
exonerates the insurer of the ship or ship
owner’s interest (Sec 118).
ALBEIT, a ship is seaworthy in general, it
may be deemed unseaworthy with respect
to cargo it is unfitted to receive (Sec 119).
See previous note (Roque v IAC)
Payment of proceeds, although
constituting a waiver of the enforcement
of the implied warranty against
seaworthiness, it is not an automatic
admission of the vessel’s seaworthiness.
(Delsan Transport v CA)
2. Warranty against improper deviation
Def. deviation: is a departure from the
course of the voyage or an unreasonable
delay in pursuing the voyage or the
commencement of an entirely different
one (Sec 123).
The proper course of a journey set by
beginning and end is determined by the
following respectively:
a) Mercantile usage (Sec 121)
b) The most natural, direct, and
advantageous course to a master of
ordinary skill and discretion (Sec 122)
Def. proper deviation: is there if
a) it is caused by circumstances beyond
the master or ship owner’s control
b) it is necessary to comply with warranty
or to avoid any peril (whether covered or
not)
c) when done in good faith upon
reasonable grounds that it is necessary to
avoid a peril
d) when done in good faith to save human
life or a vessel in distress (Sec 124)
Def. improper deviation: is a deviation
that is not proper (Sec 125).
An insurer is not liable for any loss
happening after an improper deviation
(Sec 126).
3. Warranty of proper documentation
With an express warranty of nationality or
neutrality comes an implied warranty that:
a) the ship will carry the required
documents to show such nationality or
neutrality
b) the ship will not carry any documents
that will cast doubt as to its
nationality/neutrality (Sec 120)
Kinds of losses
Def. actual total loss: exists when…
a) there is a total destruction of thing
insured
b) the irretrievable loss of the thing by
sinking or breaking up
c) damage that renders the thing valueless
for the purpose of owner
d) any other event which effectively
deprives the insured the possession of the
thing insured at the port of destination
(Sec 130).
The insured suffering an actual total loss is
entitled to payment without notice of
abandonment (Sec 135).
If a ship is continuously absent without
being heard from, it raises the
presumption of its actual total loss. The
length of time to raise the presumption
depends upon the circumstances (Sec
132).
If an insurance policy covering actual total
loss does not cover constructive total loss
(Sec 137).
If a ship is prevented from completing the
voyage at an intermediate port due to the
perils insured against, the insurer’s liability
subsists upon reshipment. However if the
delay increases the hazard the insurer
may ask for an increase in the premium
(Sec 133). The insurer shall also be liable
for the expenses of discharging, storage,
reshipment, extra freightage, and all other
expenses in saving the reshipped cargo up
to the amount insured (Sec 134).
Def. constructive total loss: entitles the
insured to abandon the thing insured (Sec
131). It exists when…
a) more than ¾ of the thing’s value is lost
or would have to be expended to recover it
from peril
b) if it’s injury diminishes its value by more
than ¾
c) the thing insured is a ship and its
voyage can’t continue without spending
more than ¾ its value or by taking a risk a
prudent man wouldn’t take
d) the thing insured is cargo or freightage
and the voyage can’t be performed nor
another ship procured by the master
without incurring the expense or risk
mentioned in (c) and freightage can’t be
abandoned unless the ship is abandoned
(Sec 139).
Def. abandonment: is the declaration of
the insured to relinquish all his rights in
the thing insured to the insurer. It may
only be exercised after a constructive total
loss (Sec 138). It is equivalent to a
transfer by the insured of his interest to
the insurer, with all chances of recovery
and indemnity (Sec 146).
How done?
By giving notice of abandonment to the
insurer, either written or oral. However a
written notice of abandonment must be
given within 7 days from the oral notice
(Sec 143).
The notice must be explicit and must
specify the ground for abandonment and
show that there is probable cause
therefore. It need not be accompanied by
proof of interest or loss (Sec 144).
It must also be made within a reasonable
time after receiving reliable information of
the loss. If the information is doubtful, the
insured is entitled to a reasonable time to
make inquiry (Sec 141).
Abandonment can’t be partial or
conditional (Sec 140).
After abandonment, acts done in good
faith by the agents of the insured in
respect to the thing insured after the loss
are at the risk of the insurer or for his
benefit (Sec 148).
An abandonment can only be sustained
upon the case specified in the notice (Sec
145).
If the information on which the
abandonment is based proves to be
wrong, and there was no total loss, the
abandonment is ineffectual (Sec 142).
An abandonment is subject to insurer’s
acceptance. The insurer’s acceptance may
be express or implied. The insurer’s
silence for an unreasonable length of time
is construed as acceptance (Sec 150).
The acceptance of the abandonment is
conclusive upon the parties and admits of
the loss and the sufficiency of
abandonment (Sec 151). It is also
irrevocable; BUT if the ground upon which
it is based proves untrue it can be revoked
(Sec 152).
On an accepted abandonment, freightage
earned prior to the loss belongs to the
insured while those earned after pertain to
the insurer (Sec 153).
If the abandonment is refused by the
insurer, it will not prejudice the rights of
the insured (Sec 149).
Sec 154 If an insurer refuses to accept a
valid abandonment, he is liable as upon
actual total loss, deducting from the
amount any proceeds of the thing insured
which may have come to the hands of the
insured.
If insurer pays for actual total loss, he is
entitled to whatever may remain of the
thing insured, or its proceeds or salvage,
as if there had been a formal
abandonment (Sec 147).
The omission of an abandonment shall not
be a bar to recover actual losses (Sec
155).
Def. partial loss: is a loss that is not total
(Sec 128).
Alam mo na dapat ito! (Oriental
Assurance v CA)
This is a case of actual total loss. Although
out of the 34,000 bags shipped only 6,000
remain in the carrier’s warehouse the fact
is that all the seeds have been drenched
and as such have begun germinating. It is
a destruction of the form and specie of the
thing. The rice can no longer be used for
its original intended purpose to feed
Vietnam. Also no payment has been made
by the carrier for the bags and no bags
have been returned either (Pan Malayan
v CA).
All risk policies cover everything except
those excluded in the policy or due to
fraud or intentional misconduct by the
insured. In this case only inherent vice and
delay were excluded and so the
destruction of the lactose crystals is
covered (Choa v CA).
The purpose of an all-risk policy is to give
protection to the insured in those cases
where difficulties of logical explanation or
some mystery surround the loss or
damage to property. The onus probandi of
the insured is simply to establish that the
cargo was in good condition when shipped
but damaged when unloaded. From there
the burden shifts to the insurer to prove
that the loss was caused by a peril not
covered by the policy. As such the insurer
is liable for the fishmeal (Filipino
Merchants v CA).
Measure of indemnity
The policy’s valuation is binding upon the
parties. BUT if the item insured was
hypothecated by bottomry or respondentia
before the insurance and without the
knowledge of the insured then the insured
may show the value of the thing based on
the hypothecation. A fraudulent valuation
entitles the insurer to rescission (Sec
156).
In case of partial loss, the insurer is only
liable to a proportion of the amount
insured as the loss bears to the value of
the property insured (Sec 157). In other
words, all marine insurers have an implicit
co-insurance clause.
However if profits are separately insured
then a partial loss would entitle the
insured to a proportion of the expected
profits as the loss bears to value of the
thing insured (Sec 158). In this case there
is no longer an implicit co-insurance
clause.
Sec 159 In case of a valued policy of
marine insurance on freightage or cargo, if
a part only of the subject is exposed to the
risk, the evaluation applies only in
proportion to such part.
Profits that are valued and insured are
conclusively presumed to be lost upon the
loss of the property from which they are
expected to arise and the valuation fixes
their amount (Sec 160).
Rules on open policy valuation does not
matter according to dean so disregard Sec
161...
Sec 162 If cargo insured against partial
loss arrives at the port of destination in a
damaged condition, the loss of the insured
is deemed to be the same proportion of
the value which the market price at that
port, of the thing so damaged, bears to the
market price it would have brought if
sound.
Sec 163 A marine insurer is liable for all
the expenses attendant upon a loss which
forces the ship into port to be repaired;
and where it is stipulated in the policy that
the insured shall labor for the recovery of
the property, the insurer is liable for the
expense incurred thereby, such expense,
in either case, being in addition to a total
loss, if that afterwards occurs.
Sec 166 In the case of a partial loss of
ship or its equipment, the old materials are
to be applied towards payment for the
new. Unless otherwise stipulated in the
policy, a marine insurer is liable for only
two-thirds of the remaining cost of repairs
after such deduction, except that anchors
must be paid in full.

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IX. Claims Settlement & Subrogation

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Notice and proof of loss

Guideliness on claims setttlement

Prescription

Subrogation