Aquino

: chapter 6 ASCERTAINING AND CONTROLLING RISKS 4 primary concerns of insurance parties 1. correct estimation of the risk a. enables the insurer to decide whether he will assume it 2. precise delimitation of the risk a. determines the extent of the contingent duty 3. control of the risk after it is assumed a. for the insurer to guard against the increase of the risk on change of conditions 4. determining whether the loss has occurred and amount of the loss devices to ascertain and control risks 1. concealment 2. representation 3. warranty 4. condition 5. exception the correct estimation of the risk o if all material information are disclosed and the information disclosed can be relied upon delimitation o by using exceptions that are inserted in the policy or stated in the rider control of the risk o resorting to the promissory warranties and conditions that will prevent the occurrence of the risks after the policy has been issued CONCEALMENT (section 26) neglect to communicate that a party knows and ought to communicate o must communicate in good faith all facts within his knowledge which are material to the contract o the obligation of each party the duty to disclose is required because insurance contracts are uberrimae fidae o utmost good faith - insurance is a contract upon speculation MATERIALITY only material facts are required to be disclosed material if it will affect the insurers action on his application o approving with higher premium or rejecting or fixing terms and conditions material if they will affect the decision of the insured to enter into the insurance contracts section 31 determined not by the event o solely on the probable o reasonable influence of the facts upon the party whom the communication is due generally material o relates to physical or moral hazard the test of materiality o is the effect which the knowledge of the fact in question would have on the making of the contract. - if not in the policy that makes it an obligation to disclose during the life of the contract then there is no duty to make a disclosure for the facts occurring after the insurance takes effect the principal question therefore, must be: - was the insurer misled or deceived into entering a contract obligation or fixing the premium of insurance by withholding of material information of facts Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 1

 CAUSATION NOT NECESSARY the matter concealed need not be the cause of the loss the insured need not die of the disease if he had failed to disclose to the insurer the existence of the disease. o It is sufficient that his non disclosure misled the insurer in forming his estimates Requisites on the ground of concealment: 1. party knows the fact concealed. Or at least ought to know 2. material facts 3. no warranty is extended by the party regarding the fact concealed 4. the other party does not have the means of ascertaining KNOWLEDGE OF THE AGENT OF THE INSURED knowledge on the agent of the insured can be imputed to the insured himself o duty of the agent to acquire the communicate info of the facts o possible for the agent (reasonable diligence) to make the communication before the making of the insurance contract the principal-insured is bound with the knowledge of his agent whose duty is to give information WHEN THERE IS NO CONCEALMENT Section 30 1. known by the other party 2. exercise of ordinary care, the other party ought to know and that the other party has no reason to suppose him ignorant 3. waives communication 4. prove or tend to prove the existence of a risk excluded by a warranty 5. risk excepted from the policy Section 32 6. each party to the contract is bound to know all the general causes which are open to his inquiry to each other a. which may affect the political or material perils contemplated Section 33 7. the right to information of material facts waived by the terms of the insurance or by neglect to make inquiry as to such facts, implied in other facts of which information is communicated a. matter is included in the general usage of trade Section 34 8. information of the nature or amount of the insured property, is not disclosed unless in answer to an inquiry Section 35 9. information of the partys own judgment upon the matters in question FACTS THAT NEED NOT BE DISCLOSED he need not be told general topics of speculation the insurer is bound to know every cause o natural perils o difficulty of the voyage o kind of season o probability of lighting o hurricanes o earthquakes insurer is bound to know every cause which may occasion in political perils JUDGMENT OF OPINION opinion od the insured need not be disclosed there must be good faith and no intent to deceive although false, a representation of the expectation intention belief, opinion or judgment will not avoid the policy if there is no actual fraud in inducing the acceptance of risk answers of an applicant who is not a doctor regarding the medical history of his wife largely depends on opinion rather than fact. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 2

SC said no concealment so long as the answers are made in good faith and without intent to deceive even if the answers which are in the nature of opinions are untrue.

KNOWLEDGE OF THE INSURER at the time of the issuance of the policy of insurance, has knowledge of existing facts which if insisted on would invalidate the contract from its very inception o such knowledge constitutes waiver of conditions in the contract inconsistent with the facts and the insurer is estopped from asserting the breach of conditions reason: to allow a company to accept ones money for policy of insurance which it then knows to be void and of no effect that the insured believe it to be valid and binding, is so contrary to the dictates of honesty and fair dealing and so closely related to positive fraud it would allow the company to treat the policy as valid long enough to get the premium on it and leave it at liberty to repudiate it the next moment. execute a binding contract rather than to have deceived the insured into thinking he is insured when un fact he is not and to have taken his money without consideration INTENTIONAL AND UNINTENTIONAL CONCEALMENT Section 27 concealment entitles the party to rescind a contract of insurance - every concealment whether arising from accident, negligence, inadvertence or mistake if material will be equally fatal to the contract as if it were intentional or fraudulent good faith is not a defense in concealment generally intentional or unintentional concealment is superfluous - except - section 29 o intentional or fraudulent omission on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind - there may be material concealment even if the insured has no knowledge of the existence of a duty to disclose. - A man may have acted with good faith in the ordinary term of the phrase yet still be held to have acted in the utmost good faith in the legal sense. KNOWLEDGE OF THE FACT CONCEALED actual knowledge of the insured is not necessary to give the insurance company the right to avoid the policy on the ground of concealment majority view absence of knowledge of the facts concealed will not deprive the insurer of the right to invoke concealment o unintentional concealment is still concealment he took the policy but is not aware of such fact o concealment is not intentional there is concealment even if the party does not know but ought to know the matter presumed knowledge not aware of the nature of the illness by reason of negligence or indifference minority view- the contract cannot be rescinded on the ground of concealment if non-disclosing party does not know the fact involved. one can conceal only if he knows what to conceal mistake, good faith and negligence will not excuse the insured form material concealment exceptions 1. matters allegedly concealed is a matter of opinion a. ex. Medical condition of the insured is a matter of opinion which cannot be invoked so long as there was no intent to deceive 2. when the insurer waived his right to the information as in the case where the insured gave an imperfect answer WAIVER OF INSURER A question was not answered at all or imperfectly answered the but insured and the insurer issues a policy without further inquiry, they waive the imperfection of the answer and render the information immaterial. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 3

Insurer too eager to accept the application and receive the insureds premium. It would be inequitable now to allow the insurer to avoid liability under the circumstances

REMEDY - the presence of concealment entitles the insurer o rescind the insurance contract - the right to rescind should be exercised previous to the commencement of an action on the contract note: concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance defense is available even if the insured is unaware of her fatal illness fact is material when it could certainly affect the decision of the insurer to enter into the insurance contract collusion on the part of the insured and the insurance agent and the physician which vitiates the policy. It is a deliberate attempt to defraud the insurer false statement by the insurers agent hence it should be the insurer who should bear the effects of its agents misconduct. (no collusion) materiality is to be determined not by the event but o solely by the probable and reasonable influence of facts upon the party whom the communication is due, in forming his estimate of the proposed contract, or in making his inquiries the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimated of the risks of the proposed insurance policy or in making inquiries. REPRESENTATION statements made to give information to the insurer to induce him to enter into the insurance contract collateral communication made to the other party in writing or by word of mouth TIME OF REPRESENTATION Section 37 at the time or before the issuance of the policy o statements made after the policy takes effect will no longer have any bearing on the decision of the insured to enter into the contract. Exception to the rule Section 47 modification of a contract of insurance as to its original formation. o Representations may also be made at the time of or before the renewal of the policy DISTINCTIONS AND SIMILARITIES CONCEALMENT REPRESENTATION An omission (nondisclosure) Positive assertion Cannot refer to future acts (meaning past acts ni siya) Can pertain to the future because it is promissory Test of materiality applies Test of materiality applies Party can rescind Party can rescind KINDS representation may be as to form o oral o written representation may be as to the nature o affirmative dealing with facts existing at the time the contract is made o promissory statements made by the insured concerning what is to happen at the time the insurance is already effective section 39 as to the future is deemed a promise o unless it appears that is was merely a statement of belief INTERPRETATION rule o construed liberally in favor of the insured and required to be only substantially true Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 4

 section 42 representation is presumed to refer to the date on which the contract goes into effect TEST OF MATERIALITY Section 46 material misrepresentation if the knowledge of one party thereof will affect the insurers action on his application, either buy approving it with the corresponding adjustment for a higher premium or rejecting the same or in fixing the terms and conditions of the policy representation as to age in life insurance any amount payable or benefit accruing under the policy shall be such as to premium paid would have purchased at the correct age. - misstatement as to the age does not avoid the policy o result will be that such premium paid would have been purchased at the correct age o the benefits that will be paid by the insured would have purchased if the age had been correctly states. No person can testify in his own age except from hearsay - So if misstated the amount of the insurance will be adjusted the age of the insured is the chief corner-stone of the life insurance structure. o Birth cert If wala gi require then the insurer merely relied on the representation of the insured, and only recourse is to make an adjustment on the premium if there is misstatement Misstatement should be done in good faith for it not to be a ground to rescind if the intent is to deceive ERRONEOUS DESCRIPTION OF BUILDING IN FIRE INSURANCE without the fault to the insured cannot be considered material representation. The mistake of the agents or employees of the insurance company cannot prejudice the insured. REMEDY Section 44 If the 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 to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission RESCISSION IS UNAVAILABLE 1. when there is estoppel a. insurer accepted the premium payments despite knowledge of the ground for rescission 2. when there is waiver 3. action has already commenced on the contract 4. incontestable clause applies WARRANTIES an affirmation of fact or promise that forms part of the terms and conditions of the policy a warranty is a statement or promise set forth in the policy or by reference incorporated therein, the untruth or nonfulfillment renders the policy voidable by the insurer section 68 a warranty may relate to the part the present and future o safety-valve by which insurer can ensure that an insurance is actually or the character attributed to it. KINDS OF WARRANTIES 1. express a. stated in the policy or attachments 2. implied a. natural element of the contract imposed by law and are part of the policy without need that it be stated i. ex. Implied warranty of seaworthiness in marine insurance 3. affirmative warranty a. exist at the time they are made b. undertaking that some positive allegation of fact is true 4. promissory warranty Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 5

a.

b. RULES ON PROMISSORY WARRANTIES Section 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 what such act or omission shall take place. Section 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. promissory warranty may either be o positive act o omission FORMALITIES OF EXPRESS WARRANTY Section 69 no particular form of words is necessary to create a warranty section 70 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 part of it 2 ways of making an express warranty 1. contained in the policy itself 2. expressed in another instrument provided that the separate instrument is signed by the insured and referred to in the policy EXAMPLES OF EXPRESS WARRANTY Section 71 statement in a policy of a matter relating to the person of thing insured or to the risk as a fact is an express warranty. Example: A statement in the life insurance policy that the insured has not been involved in a ny vehicular accident for the past 10 years or has never been charged with any crime involving moral turpitude is an express warranty. A statement that there is no gasoline in the insured building is a warranty because it relates to the risk insured against BREACH OF WARRANTY BY THE INSURED - renders the contract defeasible o in order to avoid the policy the insurer must prove such breach consistent with the rule that any violation must be established by the person who is making such allegation - the insurer may waive his right to avoid the policy in case of breach by the insured. o Express or implied REMEDY A party may rescind the policy if there is a breach of warranty in the part of the other party. Section 74 violation of a material warranty entitles the other to rescind Section 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 allowed to rescind or avoid only in material breach breach of an immaterial provision does not avoid the policy Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 6

stipulates that certain things are to be done or a specified condition shall exist during the currency of life of the insurance contract one party is bound by the executor stipulation

DISTINCTIONS WARRANTY Part of the contract

Written on the policy or its a rider Presumed to be material There must be Strict compliance risk can also be limited or controlled using o exceptions o exclusions and o conditions CONDITIONS - collateral terms - nature of collateral promises or stipulations 1. promises or obligations regarding claims procedure that are not fundamental to the validity of the contract 2. conditions conferring more rights to the insurer enlarging or repeating the minimum rights provided by law. Terms and conditions constitute the measure of the insurers liability and compliance therewith is a condition precedent to the insureds right to recovery from the insurer The burden in on the insurer to prove that the insured breached the condition that is imposed since breach of condition is a defense that will relieve him in his liability under the policy the onus of proof is on the insurer who will invoke such defense EXCEPTIONS, EXCLUSION OR EXEMPTION The policy should express such limitation in clear and unmistakable language. - if the insurer wants to include the risk of arrest occasioned by ordinary judicial process, it must be expressly so provide in the policy without ambiguity. o If the terms are doubtful or obscure the same must be of necessity be interpreted or resolved against the insured who causes the ambiguity. Exceptions to the general coverage are construed most strongly against the company. - 2 interpretations- the one most favorable to the insured is adopted. - The obligation to prove that the loss is covered by the exception rests upon the insurer. - Personal accident insurance policy specifically enumerated 10 where there is no liability attaches to the insurance company for any injury, disability or loss o The principle of expressio unius est exclusion alterius the mention of one thing implies the exclusion of another thing Contract so insurance should be construed liberally in favor of the insured and strictly against the insurer. Ambiguity in the words of the insurance contract should be interpreted in favor of its beneficiary INCONTESTABLE CLAUSE Section 48 whenever a right to rescind a contract of insurance is given to the insurer such right must be exercised previous to the commencement of an action on the contract. o After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement. o The insurer cannot prove that the policy is void ab initio or rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent MANDATORY INCONTESTABLE CLAUSE Life or endowment policy: incontestable after it shall have been in force during the lifetime if the insured for a period of 2 years from its date of issue as shown in the policy o except for non-payment of premium and o except for violation of the conditions of the policy relating to military or naval service in time of war Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 7

REPRESENTATION Not part of the contract (but a collateral inducement) Oral or in writing Must be established that it is material It must be substantially true.

group life insurance validity of the policy shall not be contested o except for nonpayment of premiums after it has been in force for 2 years from its date of issue, industrial life insurance policy incontestable after it has been in force during the lifetime of the insured for a specified period nor more than 2 years from its date of issue o except non-payment of premium o except for violation of conditions of policy relation to naval or military service o except provisions relating to benefits in the event of disability RATIONALE Incontestable clause is upheld in law not for the purpose of upholding fraud but for the purpose of shutting off harvesting defenses. The clause is designed to induce the insurer to investigate and act with reasonable promptness if it wishes to avoid the policy. - it is unfair for the insurer to wait for the death of the insured who obviously can no longer defend his claim. after 2 years the defenses of concealment or misrepresentation , no matter how patent or well founded no longer lie o congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability the insured dies before the expiration of the 2 year period, the beneficiaries contended that the insurance company no longer had the right to rescind the contract of insurance as rescission must allegedly done during the lifetime of the insured within 2 years and prior to commencement of action. - the SC rejected the contention because petitioners interpretation would give rise to the incongruous situation where the beneficiaries of an insured who dies after taking out and paying for a life insurance policy would be allowed to collect on the policy even if the insured fraudulently concealed material facts the incontestable clause cannot be invoked in the ff cases: 1. non-payment of premiums 2. violation of the condition of the policy relating to military or naval service in times of war 3. property insurance WAR LIMITATION RIDER OR WAR CLAUSE - not in the insurance code o but the moment the parties include a war clause in the policy, the beneficiaries can no longer invoke the incontestable clause if the war clause is violated. - The war rider clause limits the liability of the insurer in the event that the insured looses his line as a result of war. DEFENSES OF INSURED AGAISNT REVOCATION 1. guaranteed insurability clause a. statement that tend to show that the insured is uninsurable cannot be used against him in the ff case: i. insurance has been in force prior to the contest for a period of 2 years during the persons lifetime ii. if the statement is not in writing and or not signed by the insured 2. failure to invoke before commencement of the action 3. waiver 4. estoppel TIMELINESS OF THE RESCISSION Previous to the commencement of an action on the contract WAIVER Intentional relinquishment of a known right - express - implied . the right to information of material facts may be waived wither by the terms of the insurance or neglect to make inquiry. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 8

ESTOPPEL Admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as the person relying thereon. - estoppel in pais - estoppel by deed no element of consent one can no longer rescind the policy if he accepted the payment of premium although he is already aware of the existence of the ground to rescind the said policy. De Leon: TITLE 4 CONCEALMENT Section 26 neglect to communicate that which a party knows and ought to communicate called concealment 4 primary concerns of parties 1. correct estimation of the risk a. insurer to decide whether he is willing to assume 2. precise delimitation of the risk a. determines the extent of contingent duty 3. control of the risk after it is assumed a. insurer to guard against the increase of the risk in change of conditions 4. determining whether a loss occurred and amount of the loss devises for ascertaining and controlling risk 1. concealment 2. representation 3. warranty 4. condition 5. exceptions concealment and representation to secure the same information with the applicant warranties and conditions- dealing with conditions existing at the inception of the contract exceptions- for the purpose if making more definite and certain the general words used to describe the risk the insurer undertook to bear. - making more definite the coverage indicated by the general description of the risk by excluding certain specified risks. General description of the risk concerned has 2 parts: 1. specific property 2. specification of such perils to which that property interest would be exposed REQUISITES OF CONCEALMENT 1. party knows the fact which he neglects to communicate 2. such party concealing is duty bound to disclose such fact 3. party concealing makes no warranty 4. the other party does not have the means of ascertaining the fact concealed warranty is made of the fact concealed, the non-disclosure of such fact is not concealment but constitutes a violation of the warranty Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 9

section 27 intentional or unintentional concealment entitles the injured party to rescind the contract of insurance EFFECT OF CONCEALMENT makes the contract voidable at the insurers option o contracts are uberrimae fidae contract of utmost good faith not only the material facts which the applicant knows but extends to those which he ought to know being necessary for the insurer to evaluate the risk, either to charge a higher premium or refuse to issue a policy altogether. It is no defense to plead mistake or forgetfulness PROOF OF FRAUD IN CONCEALMENT - the insurer need not prove fraud in order to rescind a contract on the ground of concealment. Existence of fraud is not required0 the duty of communication is independent of the intention and is violated by the fact of concealment the legal effect of concealment whether intentional or unintentional is the same o it entitles the insurer to rescind the contract of insurance o concealment defined as negligence to communicate that which a party knows and ought to communicate. REASON - impossible for the insurer to protect itself and its honest policyholders against fraudulent and improper claims SECTION 27 SECTION 29 A concealment wither intentional or unintentional entitled the an intentional and fraudulent omission on the part of one injured party to rescind a contract of insurance insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. Basis of the provision misleads or deceives the insurer into accepting the risk or accepting it at the rate of premium agreed upon. o The principal question Was the insurer misled tor deceived into entering a contract obligation or fixing the premium of insurance by a withholding of material information or facts within the assureds knowledge or presumed knowledge? aware of the ailment but honestly believed that it was not material o the concealment is not fraudulent or intentional aware of the ailment o there is fraudulent concealment where the ailment was material to the contract and d knew or believed that is was material RULES IN MARINE INSURANCE fraud is not essential in order that the insured may be guilty of concealment. The presence or absence of intent is immaterial SECTION 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 which the other has not the means of ascertaining and as to which he makes no warranty. Matters that must be communicated even in the absence of inquiry: 1. material to the contract 2. the other has no means of ascertaining the facts 3. the party has the duty to communicate 4. makes no warranty the test is: if the applicant is aware of the existence of some circumstances which he knows would influence the insurer in acting upon his application, good faith requires him to disclose that circumstances, though unasked. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 10

 Effect of failure of insurer to verify - the insurance company has the right to rely on the statements of the insured as to material facts such as to his previous sickness - the effect of material concealment cannot be avoided by the allegation that the insurer could have known and discovered the illness or disease which the insured had concealed. Section 29 concealment must be intentional and farudulent intentional of fraudulent omission on the part of the insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind. dapat daw intentional and fraudulent ang concealment para ma apply ang section 29 o kai if wala siya kabalo gyud no knowledge then good faith may be a defense when there is no intent to deceive the insurer section 31 test of materiality test of materiality - test is the effect which the knowledge of the fact in question would have on the making of the contract. - Knowledge would influence the parties in making the contract. From the stand point of the insurer - probable and reasonable influence upon the insurer in assessing the risk involved and in making or omitting further inquiries. - It is sufficient that the non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. The policy is avoided although the cause of death be totally unconnected with the material fact concealed or misrepresented. - it is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. When concealment is regarded as intentional - the nature of the facts not conveyed to the insurer may be such that the failure of the insured to communicate must have been intentional rather than inadvertent when facts concealed not material - normal ra siya sa iyang ecg nya gi ask siya og naka pa ecg na ba siya ingun siya wala siya mag pa test. (failure of the insured to reveal the fact did not amount to concealment as would vitiate the contract) o kai negative man ang ang test it would not affect the decision of the insured time when information acquired - the concealment must take place at the time the contract is enters into in order that the policy may be avoided and not afterwards. - The duty of disclosure ends with the completion and effectivity of the contract It should be made before the contract becomes effective. Section 32. no concealment in general usages of trade and bound to know all general causes which are open to his inquiry section 33 the right to information of material facts may be waived. (terms of the insurance or neglect or impliedly) - waiver is a type of estoppel - Notes: the insurer had every means to ascertain the truth of the matter alleged in the application. The failure of the insurer to make inquiry constituted a waiver of its rights to information of the facts In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish between peptic ulcer and a tumor his statement that said tumor was associated with peptic ulcer of the stomach should be construed as an expression made in good faith of his belief as to the nature of his ailment and operation. Such statement must be presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead the insurer. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 11

The information communicated was imperfect the insurer should have made further inquiries about the ailment and operation of the insured. Imperfectly answered and the insurer issues a policy without any further inquiry, it waives the imperfection of the answer and renders the omission to answer more fully immaterial Section 34- information on the nature and amount need not be communicated unless an answer to an inquiry. disclosure of nature and extent of interest of insured. o Specify the interest if he is not the owner a mortgagee must disclose the interest even if no inquiry is made by the insurer o so that the insurer may determine the extent of the insureds insurable interest BUT THERE IS NO NEED TO DISCLOSE THE INTEREST IN THE PROPERTY INSURED IF IT IS ABSOLUTE. Section 35 neither party is bound to communicate, even upon inquiry information of his own judgment there is no duty to disclose mere opinion, speculation , intention or expectations even if the insured is asked. WHEN THERE IS NO CONCEALMENT (no duty to make communication) Section 30 1. known by the other party 2. exercise of ordinary care, the other party ought to know and that the other party has no reason to suppose him ignorant 3. waives communication 4. prove or tend to prove the existence of a risk excluded by a warranty 5. risk excepted from the policy Section 32 6. each party to the contract is bound to know all the general causes which are open to his inquiry to each other a. which may affect the political or material perils contemplated Section 33 7. the right to information of material facts waived by the terms of the insurance or by neglect to make inquiry as to such facts, implied in other facts of which information is communicated a. matter is included in the general usage of trade Section 34 8. information of the nature or amount of the insured property, is not disclosed unless in answer to an inquiry Section 35 9. information of the partys own judgment upon the matters in question DE LEON; TITLE 5 REPRESENTATION Section 36 representation may be oral or written statement made by the insured at the time of or prior to the issuance of the policy. o Past, future or present To induce the insurer to enter into the insurance contract. Misrepresentation in insurance is a statement 1. something which is untrue 2. which the insured stated with knowledge that it is untrue and with an intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead 3. where such fact is either case is material to the risk Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 12

misrepresentation by the insured renders the insurance contract voidable at the option of the insurer (even though innocently made and without wrongful intent) misrepresentation is the active form of concealment. Material representations relied on by the insurer will avoid the contract, ( whether innocent or fraudulent) Representations intended as collateral inducements- made to influence the insurer to accept the risk Section 37 representation may be made at the time of or before, issuance of the policy. - precede the execution of the contract - at the time or before section 38 interpreted in favor of the insured (only substantially true) warranties must be true otherwise the contract will fail. Section 39 Representation as to future is deemed a promise unless it is merely a statement of belief or expectation Kind of representation 1. oral 2. written 3. affirmative a. existence or non-existence of a fact when the contract begins. 4. Promissory a. Promise to be fulfilled after the contract has come into existence Promissory representation used in 2 senses: 1. oral promise not incorporated in the policy a. fraudulent intent will defeat the insurance b. pero nonperformance cannot be shown by the insurer in defense to an action on the policy 2. inserted in the policy but not made a warranty a. promissory representation i. merely an executor term of contract promissory representation is therefore substantially a condition or warranty. Effect of policy of expressions of opinion or expectation 1. good faith or bad faith of the insured. a. Will not avoid a policy of insurance if there is no actual fraud in inducing the acceptance of the risk. b. Although the statement is material to the risk, the insurer is not justified in relying upon such statement but is obliged to make further inquiry 2. Liability of the insurer a. False only when the intention, opinion or belief as stated is not honestly entertained. b. To avoid liability the insurer must prove materiality of the insureds opinion and the latters intent to deceive i. If ang representation is one of fact the insurer need to prove is its falsity and materiality. The intent to deceive is presumed. When representation is deemed a mere expression of opinion. - an oral representation as to a future event or condition, over which the insured has no control o property or life insured - deemed a mere expression of opinion which will avoid a contract only when made in bad faith. Section 40 representation cannot qualify an express provision of a contract of insurance but may qualify as an implied warranty representation is not part of the contract but only a collateral inducement to it o may qualify an implied warranty Section 41 representation may be altered or withdrawn before the insurance is effected but not after Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 13

Section 42 presumed to the date on which the contract goes in effect statements promissory of conditions to exist subsequent to the completion of the contract may be conditions or warranties o cannot be representation representation that are untrue may be withdrawn prior to the completion of the contract but not afterwards no false representation if it is true at the time the contract takes effect although false at the time it was made o there is false representation if it is true at the time it was made but false at the time the contract takes effect section 43 person insured has no personal knowledge of the fact, and believes to be true, and in the information of others , the insured is not responsible. . - unless information came from the agent of the insured effect when information obtained from third person - insured is not responsible effect where information was obtained from agent of insured/ insurer - agent of the insured o exercise of due diligence to have made such communication before the making of the contract o if the agent failed to communicate the truth to the insured. o the insured will be liable for the truth - agent of the insurer o same principle applies to the insurer section 44 representation is deemed false when the facts fail to correspond with its assertions or stipulations representations are not required to be literally true; they need only be substantially true. o representation partly fails but is true or is complied with so far as is essential to the risk insured against, the policy remains in force in marine insurance o substantial truth of a representation is not sufficient o the insured is required to state the exact and whole truth in relation to all matters that he represents or upon inquiry discloses or assumes to disclose it shall be construed when possible, as an affirmative representation of a present fact in order to save the policy from avoidance. Section 45 if representation is false in a material point the injured party is entitled to rescind the contract from the time when the representation becomes false. the right to rescind is waived by the acceptance of premium payments despite knowledge of the ground for rescission fraud or intent to misrepresent facts is not essential to entitle the injured party to rescind a contract of insurance in the ground of false representation deemed false when it fails to correspond to the facts in a material point. Effect of collusion or fraud of agent of the insurer collusion with the insured o vitiate the policy even though the agent is acting within the apparent scope of his authority o when there is collusion, the agent ceases to represent his principal and represents himself; so the insurer is not estopped from avoiding the policy principal of agent o insured merely signed the application form and made the agent the insurer fill the same for him, the insured made the agent of the insurer his own agent o when the insurer required its medical examiner to put the questions and fill out the answers in his own handwriting, the writer of the application is not the agent of the insured. The insurer is liable when its agent writes a false answer into the application without the knowledge of the insured. Section 46 materiality of a representation same rules as the materiality of a concealment determined not by the event o but by the reasonable and probable influence of facts upon the party to whom the representation is made. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 14

Who determines the materiality of the representation? o A judicial question o The determination cannot be left solely to the company. o The matter misrepresented must be of that character which the court can say would reasonably affect the insurers judgment.

CONCEALMENT Insured withholds information of material fact

REPRESENTATION Makes erroneous statements of facts with the intent of inducing the insurer to enter into the insurance contract Test of material fact (reasonable and probable influence of Test of material fact (reasonable and probable influence of facts) facts) Gives the insurer a right to rescind the contract Gives the insurer a right to rescind the contract Whether intentional or not the injured party is entitled to Whether intentional or not the injured party is entitled to rescind rescind Rules also apply to the insurer Rules also apply to the insurer Section 47 modification of a contract of insurance as to its original formation where the insurer is induced to modify the insurance policy as to the rate of premium by a misrepresentation on the part of the insured in a material point, the insurer is entitled to rescind such modification. Section 48 the right to rescind is given to the insurer such right must be exercised previous to the commencement of an action on the contract o policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove the policy to be void ab initio or rescindable by reason of concealment or misrepresentation - general rule o a contract of insurance may be rescinded on the ground of concealment or false representation or breach of warranty o there is no time limit in interposing a defense - in non-life policy o the right must be exercised prior to the commencement of an action on the contract o the insurer is not longer entitle to rescind a contract of insurance after the insured has filed an action to collect the amount of the insurance. However, where any of the material representation is false, the insurers tender of the premiums and notice that the policy is cancelled before the commencement of the suit thereon, operates to rescind a contract of insurance - In life policy o The defenses are available only during the first two years of a life insurance policy. clause in life insurance policies known as incontestable clause stipulating that the policy shall be incontestable after a stated period are in general use. Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from contesting the policy or setting up any defense, o Except on the ground of public policy Theory and object of the incontestable clause - as to the insurer o insurer should have a reasonable opportunity to investigate the statements which the applicant makes in procuring his policy and that after a definite period the insurer should not be permitted to question the validity of the policy - as to the insured Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 15

o o

the assurance that his beneficiaries would receive payment without question as to the validity of the policy or the existence of the coverage once the period of contestability passes. To protect the policy holder and the beneficiary from a lawsuit contesting the validity of the policy after a considerable time has passed and evidence of the facts surrounding the purchase may be unavailable

Requisites of incontestability 1. life insurance policy 2. payable on the death of the insured 3. it has been in force during the lifetime of the insured for at least 2 years from the date of issue or last reinstatement. a. The 2 years may be shortened but it cannot be extended by stipulation b. During the lifetime simply means that the policy is no longer considered in force after the insured has died Effect when the policy becomes incontestable ( the insurer may not refuse to pay by claiming) 1. the policy is void ad initio 2. rescindable by reason of the fraudulent concealment, no matter how patent or well-founded 3. by reason of fraudulent misrepresentation of the insured or his agent a policy of insurance, after it has lapsed or become forfeited, as for nonpayment or premiums or breach of a warranty or condition, may be revived or reinstated pursuant to a provision contained in the policy or the agreement of the parties. The incontestability of a policy under the law is not absolute - the insurer may still contest the policy only on the ff grounds o lack of insurable interest o cause of death of the insured is an excepted risk o premiums have not been paid o conditions of the policy relating to military or naval service have been violated o the fraud is of a particularly a vicious type a scheme to murder the insured insured substitutes another person for the medical examination the beneficiary feloniously kills the insured. o The beneficiary failed to furnish proof of death or to comply with any condition imposed in the policy o The action was brought within the time specified DE LEON; TITLE 6 THE POLICY Section 49 the written instrument of the contract of insurance called a policy of insurance Section 50 the policy shall be printed from which may contain blank spaces - the blank spaces shall be filled necessary to complete the contract - any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured. o Unless the descriptive title or name of the rider is also mentioned and written on the blank spaces provided in the policy - Unless applied for by the insured or owner, any rider, clause or warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of the rider - Group insurance and group annuity policies o May be typewritten and need not be in a printed form Policy- a written document embodying the terms and stipulations of the contract of insurance between the insured and the insurer. The policy is signed only by the insurer or his duly authorized need not be signed by the insured o except o where express warranties are contained in a separate instrument forming part of the policy then the policy should be signed by the insured the standard practice is that the prospective insured will fill out and sign an application prepared by the insurer the policy controls the terms of insurance contract - the terms constitute the measure of the insurers liability Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 16

- -

to create an enforceable agreement, all the requisites necessary in order that there will be a valid contract of insurance must be presented insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy

policy a contract of adhesion adhesion contract is essentially a description of the manner by which the contract is formed o one party has superior bargaining power imposes its choice of terms on the other party. o Although the insured can choose from a variety of available coverages, he cannot negotiate the substance of the contract with the insurer. Ambiguity resolved against insurer, liberally in favor of the insured. o Applies to surety ship agreements The courts will only rule out blind adherence where the facts and circumstances will show that they are basically one- sided. o The fine print rule or the contract of adhesion ruled does not apply where the petitioner is an acute businessman of experience who is presumed to have assented to the assailed provisions of the policy with full knowledge cannot claim that he did not know its terms if the terms of the contract are clear and unambiguous, there is no room for construction and such term cannot be enlarged or diminished by judicial construction Policy of insurance Contract of insurance Formal written instrument evidencing the contract of insurance entered into between the insured and insurer . it is the law between them Every insurance contract must be evidenced by a policy and that policy must be in the form previously approved by the insurance commissioner. In case of conflict between the written and printed portions of a policy, the written potion prevails. Perfection of insurance contracts - assent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. o The mere signing of an application for life insurance and the payment of the first premium do not bind the insurer to issue a policy where there is no evidence of any contract between the parties that such acts should constitute a contract of insurance The contract to be binding must be complete, nothing to be completed, nothing to be passed upon or determined, before it shall take effect. o Contract is not perfected where the applicant for life insurance dies before the approval, or came to the knowledge of the insured. o The acceptance of the policy must be unconditional, but it need not be by formal act. There is no valid and binding insurance contract unless premium is paid. If premium is previously paid the insurance contract will be binding upon the approval of the application although the policy has not yet been issued. In life insurance, a binding slip or binding receipt does not insure by itself. Offer and acceptance of insurance contracts - the applicant makes the offer to the insurer through an application for insurance which is usually attached to policy and made a part of the insurance contract. o Property or liability insurance. It is the insured who offers to the insurer who accepts the offer o Life and health insurance. Depends upon whether the insured pays the premium at the time he applies for insurance Does not pay the premium- application is considered an invitation to the insurer to make an offer o He must accept before the contract goes into effect If he pays premium with his application, his application will be considered an offer o if the application for insurance constitutes an offer by the insured, a policy issued in accordance with the offer is an acceptance of the offer that perfect the contract. If the policy issued does not conform to the insureds application, it is an offer which he may accept or reject. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 17

Importance of delivery or policy. (2 ways) 1. evidence of the making of a contract and of its terms 2. communication of the insurers acceptance of the insureds offer absence of delivery is not however a prerequisite to a valid contract of insurance. - but delivery still has significance as the decisive act that ordinarily marks the end of the insurers opportunity to decline coverage. Modes of delivery of policy 1. actual/ constructive delivery a. no contract is no meeting of the minds b. actual valid transfer is not a prerequisite to its validity unless the parties have agreed in clear language. c. Delivery may be made to the insured or his duly constituted agent or some person for the benefit of the insured d. Where no further conditions are to be fulfilled, a policy of insurance may be constructively delivered when it is deposited in the mail directed to the insured or his agent 2. Delivery primarily a mater of intention a. Whether or not the policy was delivered after its issuance, depends on the intention of the parties which may be shown by their acts or words. b. If the application contains a provision that the insurance shall not be effective until the delivery of the policy, delivery is essential to the consummation of the contract. Delivery of the insurers agent as delivery to insured. 2 conflicting view 1. beneficiary cannot recover a. the insurance agent is not his agent 2. beneficiary can recover a. the contract is to be deemed complete when the policy has been delivered to the insurance agent i. insured complied with every condition, actual delivery is not essential to give the policy the binding effect ii. the insurer can simply consider the contract perfected upon actual delivery of the policy to the agent. Effect of delivery of policy 1. where delivery is conditional a. non-performance of the condition precedent prevents the contract from taking effect i. a stipulation that the policy shall not become operative unless the applicant is in good health at the time of the delivery of the policy is valid, binding and enforceable. 1. Good health does not mean perfect health 2. Where delivery is unconditional a. The terms of the application ordinarily consummates the contract, and the policy as delivered becomes the final contract between the parties. 3. Where premium still unpaid after unconditional delivery. a. Insurer cannot be presumed to extend credit from the mere fact of unconditional delivery of the insurance without the prepayment of the premium. b. There must be a clear and express acceptance by the insured of the insurers offer to extend credit. Rider in a contract of insurance Rider is a small printed or typed stipulation contained on a slip of paper to the policy and forming an integral part of the policy. usually attached to the policy because they constitute additional stipulations between the parties. o Same effect as if actually embodied in the policy Riders become necessary to add a new provision to a policy, or to modify or waive an existing provision. Saves the trouble and expense of making an entirely new contract Conflict sa rider and printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement. o The rider becomes a part of the policy and supersedes any part of the policy in conflict Attached papers in insurance policy General rule- a rider or other paper becomes part of a contract of policy of insurance if properly and sufficiently attached or referred to therein in a manner as to leave no doubt as to the intention of the parties Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 18

 Except section 226 that no rider shall be attached, printed or stamped upon a policy of insurance unless the form of such rider has been approved by the insurance commissioner rider is not binding on the insured unless the descriptive title or name of the rider is also mentioned and written in the blank spaces provided in the policy a clause is an agreement between the insurer and the insured in certain matter relating to the liability of the insurer in case of loss. An endorsement is an y provision added to an insurance contract altering its scope or application. example o extending the peril covered o nature of a permit such as one authorizing the removal of the insured property and providing for coverage in another location merely typewritten additions to the contract changing the amount, rate or term. Errors may be corrected in the same manner If the endorsement is attached to the policy at the time of its issue, it is not an endorsement, strictly speaking. General rule where a rider is physically attached to a policy of insurance contemporaneously with its execution and delivered to the insured o even without signature of the insurer or the insured will not prevent its inclusion and construction as a part of the insurance contract Effect of failure of insured to read policy Majority rule insured person to accept policies without reading is judicially recognized. It is not negligence per se because the insureds acceptance and retention of the policy unread is not much laches as will defeat his right of reformation. They are contracts of adhesion and not of bargaining Minority rule one who accepts a contractual instrument is conclusively presumed, in the absence of fraud or mistake to know and assent to its contents insured has the duty to read his policy and is bound by his contract as written whether he reads it or not. o Exception to the minority rule Where the insured could not have discovered the erroneous statement by such reading Containing the false statement was not attached to the policy or where the copy attached was illegible The insured cannot be charged with any duty to read the application. Induced by fraud of the agent of the insurer not to read the policy If the insured is illiterate or unable to read English Contracts are long and complicated, difficult to understand even if read Insurers duty to explain the policy If the terms are clear, the insurer has no affirmative duty to explain the policy or its exclusions to the insured. The doctrine of reasonable expectations can operate to impose de facto a duty on the insurer to explain the policys coverage to the insured. Options available to the insured Information available to insured Information expected by insured from insurers agent Contractual rights of insured after denial of coverage Group insurance is the coverage of a number of individuals by means of a single or blanket policy, thereby effecting economies which frequently enable the insurer to sell its services at lower premium rates than are ordinarily obtainable for the same type of insurance protection on life policies sold to individuals. Form and nature Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 19

o Essentially a single insurance contract that provides coverage for many individuals Group insurance affects 4 parties o Insurer o Employer o Insurer o Beneficiary Group insurance is contributory, each member pays all or some part of the premium and non-contributory if the representative pays all of the premiums. o The employer, as representative of group or administrator of the insurance program, acts as a functionary in the collection and payment of premiums and in performing related duties such as the disbursement of insurance payment of the employees When group insurance is effected, a group or master policy is customarily issued by the insurer to the employer or analogous policyholder and certificates of participation are issued to the individual employees or participants. o The individual certificate being no part of such contract but only on an instrument reciting the employees right to protection under the terms of the group policy. Both the master policy and the certificate are to be considered together as part of the same contract. Employer act as agent of the insurer Employees are real parties in interest o The primary aim is protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enable the employees to carry a large amount of insurance then they could otherwise, and helps to attract and hold a permanent class of employees.

Section 51 a policy of insurance must specify (must contain) a. parties between whom the contract is made b. amount to be insured except open or running policies c. the premium, a statement of the basis and rates upon which the final premium is to be determined. d. The property of life insured e. The interest of the insured in property insured (if he is not the absolute owner) f. The risk insured against g. The period during which the insurance is to continue

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 Contents of a policy 1. name of parties 2. amount of insurance

name incorrectly spelled out is immaterial a. in order to easily exactly determine the amount of indemnity to be paid the insured in case of loss or damage especially if it is only partial and not total b. the amount of insurance is the maximum limit on the insurers liability for loss or damage suffered by the insured. c. I life health or accident insurance the fixed sum is payable d. Workmens compensation insurance i. The amount is not specified in the policy by the law imposing liability upon the employer e. The amount insured is the amount fixed in the policy f. The deductible is the state amount to be deducted from any loss which is shouldered by the insured making the insurer liable only for the excess of said amount Premium represents the consideration of the contract the subject matter of the contract to determine the actual damage suffered by the insured in case of loss of the property covered by the policy if he is not the absolute owner any contingent or unknown event, whether past or future may be insured against the period during which the insurance is to continue the life of the policy 12 months are annual policy shorter period is short period policy

3. 4. 5.

Premium property or life insured interest of insured in property

6.

risk insured against term or duration of insurance

7.

Kinds of insurable risk 1. personal risk

2. property risks

3. liability risks

Chiefly concerned with the time of death or disability Risk of incapacity through accidental injury or illness or old age - often divided into life and health risks Loss or damage to property. Arises from the destruction of property - direct loss or indirect loss Involving liability for the injury to the person or property of others - the liability risks includes both bodily injury and property damage risks

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Peril - - -

contingent or unknown event which may cause a loss it is the contingency that one insures against the existence creates the risk and its occurrence results in loss.

Risk - -

The chance of loss Possibility of the occurrence of a loss based on known or unknown factors

Hazard - condition or factor, tangible or intangible, which may create or increase the chance of loss from a given peril. - The sum total of the hazards constitute the perils which causes the risk - 2 major classification of hazard - physical hazard- everything relating t location, structure occupancy exposure - moral hazard- dishonesty, insanity, carelessness, indifference

Requirements for risk to be insurable 1. importance 2. calculability 3. definiteness of the loss 4. no catastrophic loss 5. accidental in nature the requirements are not absolute - insurability is best described as a relative matter. Insurers deal with the problem, trying to improve the insurability of a peril by such method as limitations on the amount of coverage and locations, specific contract - insurable varies among insurers and may change over time section 52 cover notes may be issued to bind insurance temporarily pending the issuance of the policy within 60 days after issue of a cover notes cover notes may be extended or renewed beyond such sixty days within the written approval of the commissioner the commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing violations o requirements for the issuance and extension or renewal of cover notes 2kinds of preliminary contract of insurance preliminary contract of present insurance preliminary contract of executor insurance preliminary contract of present insurance insurer insures the subject matter usually by what is known as the binding slip, binder or cover note, the contract to be effective until the formal policy is issued or risk is rejected binder- actually a temporary contract of insurance and is usually issued after the applicant pays the first premium in life insurance, a binding slip or binding receipt does not insure by itself binders or cover notes serve the needs of commercial convenience and yet are more definite and reliable than oral agreement. o conclusive evidence of the making of a contract preliminary executor contract of insurance the right acquired by the insured is merely to demand the delivery of a policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver such policy cover notes (also called a binder) may be issued to afford immediate provisional protection to the insured until the insurer can inspect or evaluate the risk in question and issue the proper policy, or until the risk is declined and notice thereof given

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Rules on cover notes 1. insurance companies doing business here in the Philippines may issue cover notes to bind insurance temporarily pending the issuance of the policy 2. shall be deemed to be a contract of insurance 3. no cover note shall be issued or renewed unless in the form previously approved by the insurance commission 4. cover note shall be valid and binding for a period of 60 days from the date of issuance a. whether or not premium has been paid b. but the cover note may be cancelled by either party upon at least 7 days notice to the other party 5. 6. if the cover note is not cancelled, a policy shall be issued within 60 days a cover note may be extended or renewed beyond the 60 day period with the written approval of the insurance commission, a. provided that such written approval may be dispensed with upon the certification of the pres, v-pres, gen manager of the insurance company concerned that the risk involved or value has not yet been determined or established and that such extension or renewal is not contrary to and is not for the purpose of violating any provisions of the insurance code

temporary nature, sufficient that the cover notes shows by necessary implication an agreement to pay whatever rate may be fixed. No separate premium paid on the cover note before the loss insured against occurred, does not militate against its binding effect as an insurance contract. o Does not contain particulars that would serve as basis for the computation of the premiums

7.

insurance companies may impose on a cover note a deposit premium of 25% of the estimated premium of the intended insurance coverage but is no case less than 500

section 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 provided persons entitled to recover under the policy third persons have no right either in a court of equity or in a court of law to the proceeds of the policy unless there be some contract of trust, express or implied, between the insured and third persons a third person in the absence of any provision in the policy has also no right to the proceeds thereof o a policy of insurance is a distinct and independent contract between the insured, and the insurer only the insured, if still alive, or the beneficiary, if the insured is already deceased, is entitled to claim the insurance proceeds upon the maturation of the policy. o Ex. The repairman is not entitled to collect the cost of repair out of the insurance proceeds who was authorized by the insured to make the repairs clause in the insurance policy authorizing the owner of the damaged vehicle to contract for its repair does not mean that the repair is entitled to collect the cost of repair out of the proceeds of the insurance. o Ex. Wife being the person in whose name and for whose benefit the insurance policy in question was insured, has in the absence of proof to the contrary. Section 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 be describing the insured as agent or trustee or by other general word in the policy An insurance may be taken by a person personally or through his agent or trustee Agent or trustee when making an insurance contract for or on behalf of his principal should indicate that he is merely acting in a representative capacity by signing as agent or trustee Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 23

Section 55 to render an insurance effected by one partner of part owner, applicable to the interest of his co-partners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest but a partner who insures partnership property in his own name limits the contract to his individual share unless the terms of the policy clearly show that the insurance was meant to cover also the shares of other partners. Section 63- a condition 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 General rule- a clause in an insurance policy to the effect that an action upon the policy by the insured must be brought within a certain period is valid and will prevail over the general law on limitations of actions as prescribed by the civil code ( which is 10 years) a period fixed which is less than 1 year from the time the cause of action accrues, would be void. The period cannot be less than 6 years in an industrial life insurance after the cause of action accrues. Claims must be presented within a certain period after rejection is not merely a procedural requirement. It is important matter essential to prompt settlement of claims against insurance companies. Cause of action accrues from the happening of the loss o however, the cause of action is an insurance contract does not accrues until ethe insureds claim is finally rejected by the insurer o the cause of action does not accrue until the party obligated refuses, expressly or impliedly o computed not from the time when the loss actually occurs but from the time when the insured has a right to bring an action against the insurer 1. stipulated prescriptive period begins from happening of the loss 2. stipulated prescriptive period begins from rejection of claim 3. stipulated prescriptive period begins from filing of claim prior notice of cancellation to insured 1. notice given to insured himself 2. notice delivered personally or sent by mail AQUINO; CHAPTER 5; POLICY A clearly readable and understandable insurance policy is important for the protection of the general public. Consensual perfected by mere consent of the parties and no formality is required for its perfection. Absence of a policy does not bar the contract from coming into existence Statue of frauds inapplicable argument o insurance contract (with a term of 1 year) cannot be performed within one year because the loss may occur after one year. However insurance contracts my be performed within one year although it is contingent upon the happening of an event. Life insurance contracts may remain in force for decades, the obligation of the insurance company to pay the proceeds may likewise be performed within one year because the further event (death of the insured) may occur within one year. Hence, the insurance contracts are not covered with the statute of frauds. Policy although formalities are not required it is mandated by law that written policies should be issued by the insurer. Section 49 that a policy of insurance is the written instrument in which a contract of insurance is set forth o Printed form Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 24

Section 50 shall be in printed form which may contain blank spaces and any word, phrase , clause, mark, sign, symbol or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. Except o Group insurance o Group annuity policies (which may be typewritten and need not be in printed form) Approval of insurance commission All policies issued by the insurance companied are approved by the insurance commission

Section 51 a policy of insurance must specify (must contain) a. parties between whom the contract is made b. amount to be insured except open or running policies c. the premium, a statement of the basis and rates upon which the final premium is to be determined. d. The property of life insured e. The interest of the insured in property insured (if he is not the absolute owner) f. The risk insured against g. The period during which the insurance is to continue Marine risk notes is an acknowledgement or declaration confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium. Such note is not the policy itself. Riders Section 50 the policy shall be printed from which may contain blank spaces the blank spaces shall be filled necessary to complete the contract any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured. o Unless the descriptive title or name of the rider is also mentioned and written on the blank spaces provided in the policy Unless applied for by the insured or owner, any rider, clause or warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of the rider Group insurance and group annuity policies o May be typewritten and need not be in a printed form REQUISITES A rider, clause warranty or endorsement that are not part of the original printed form are binding provided that: 1. the rider is attached to the policy 2. the descriptive title or name of the rider is mentioned or written on the blank spaces provided in the original policy form. 3. If not applied for by the insured or owner, the rider shall be countersigned by the insured. An endorsement is a written agreement attached to a policy to add or subtract insurance coverages. A rider is an endorsement to an insurance policy that modifies clauses and provisions of the policy including or excluding coverage. if the requirements if section 50 are complied with they take precedence over the original policy provisions. o They are deemed integral part of the original policy o In case repugnance exist between the written and printed portions of a policy, the written portion prevails. The rider prevails over the printed clause it covers. Insurance partly of written words and partly of a printed form and the 2 are inconsistent, the written words controls the latter. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 25

 Contract of adhesion insurance polices are contracts of adhesion because only one party (insurer) prepares the written contract while the other party (insured) merely adheres to the contract. Usually the insured cannot change the written policy imposed by the insurer o It is still equally binding as any other contract. o A party is not relieved of the duty to exercise the ordinary care and prudence by adherence. The conformity of the insured to the terms of the policy is implied from his failure to express any disagreement with what is provided therein o Without reading the policy is not negligence per se. It is incumbent upon the insured to read the insurance contract is this can be reasonably expected of him considering that he has been a businessman for a long period of time and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same. Interpretation and proof when in doubt should be resolved against the insurer (since contract of adhesion man) o against he insurer whose lawyer or managers drafted the insurance policy contract. Art 1377. The interpretation of obscure words of stipulations in a contract shall not favor the party who caused the obscurity. The insured has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by and acting exclusively in the interest of the insurance company. Such contracts obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition and prevent their becoming traps for the unwary. Cardinal principle in insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, yet contracts of insurance like other contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Proof The party who seeks to prove such terms and conditions must present the policy during trial and formally offer it as evidence. any person who relies on the policy as the basis of his cause of action must also attach the same to the complaint as an actionable document the obligation to attach the policy to the complaint as an actionable document and to present and offer the same applies even if the plaintiff is an insurance company that is trying to recover on its right of subrogation no legal impediment to the production of the insurance application and the insurance policy pursuant to subpoena issued by the court The policy cannot be construed piecemeal An insurance premium is the consideration paid by the insured to the insurer for undertaking to indemnify the former against a specified peril Cover notes are interim or preparatory contracts of insurance o interim coverage may be necessary because the insurer may need more time to process the insurance may need more time to process the insurance application 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. rules on cover notes (supra) no separate premium is required for the cover note Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 26

kinds of property insurance policy open valued running open no valuation of the property is stipulated in an open policy. The insurer is only entitled to recover the amount of the actual loss sustained by him as he may be able to establish. Judgment may be entered against the insurer for lack of satisfactory proof of the amount of his loss. An open policy is sometimes called an unvalued policy because it is one which the value is not fixed, but is left to be definitely determined on case of loss. o The actual loss as determined will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy Valued policy expresses the agreed valuation of the thing insured on the face of the policy this policy is binding on the parties; no party can establish different valuation in case of loss o the measure of indemnity is the agreed valuation and not the actual loss. o The valued policy is the exception to the principle of indemnity A life insurance is always a valued policy because the amount fixed in the policy is always not related to the actual loss. o Agree on the valuation which is not equivalent to the value of the life lost Running policy a fire insurance policy may be entered into that covers stock of rice and palay, the property assured or held by him in trust, on commission or on joint account with others and/or for which he is responsible in case of loss, while contained during the currency if the policies in the building. Where the extent of the property will be defined from time to time because of the nature of the business being insured. Cancellation 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. 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. Requisites of cancellation 1. prior notice of cancellation to the insured 2. the notice of cancellation must be based on the occurrence after effective date of the policy of one or more of the grounds in section 64 3. notice must be in writing, mailed or delivered, to the insured at the address shown in the policy 4. the notice must state the grounds relied upon, and facts which the cancellation is based Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 27

 section 64 applies only to property insurance it does not apply to life insurance o but a life insurance may also be cancelled for: non-payment of premium fraud material misrepresentation reason for notice requirement the purpose of provisions or stipulations for notice to the insured is to prevent the cancellation of the policy without allowing the insured ample opportunity to negotiate for other insurance in its stead contents of notice state the grounds relied upon need not be in a particular form in order to form the basis for the cancellation of a policy o sufficient so long as it positively an unequivocally indicates to the insured, that it is the intention of the company that the policy shall cease to be binding. actual receipt is necessary essential to the cancellation under the provision for cancellation by notice. Actual receipt by the insured of a notice of cancellation is universally recognized as a condition precedent to a cancellation of the policy by the insurer. o Mailed by the insurer but not received by the insured is ineffective as cancellation Receipt of notice by broker not binding on the insured. The authority of the broker to represent the insured ends with the completion of the contract, and any notice thereafter given to the broker will not affect the rights of the insured. Cancellation by the insured this right is implicit in section 79 of the insurance code which provides that the insured is entitled to the return of the premium o no holder of an insurance policy may avail himself of the privileges of this paragraph without sufficient cause. Renewal of the policy the insured has the right to renew a non-life insurance policy o by paying the premium due on the effective date of the renewal the insured no right to renew if the notice of intention not to renew is given by the insurer at least 45 days prior to the expiration of the policy 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. Reformation of the policy agreed upon was different from what was written in the policy o the court has the power to reform the contracts and give effect to them in the sense in which the parties intended to be bound. To justify the reformation, the proof must be of the most satisfactory character and it must clearly appear that the contract failed to express the real agreement between the parties Mistake it is also possible for the insured to recover even of there was a mistake. o Not necessary that there be a reformation of the policy Designation of the beneficiary should be made in unequivocal terms. Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 28

 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. 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. Policy form the insurer is generally free to provide for the terms and conditions of the policies that it will issue so long as the same provisions are not contrary to law, moral customs and public policy. The law prescribes mandatory provisions for the ff policies: 1. individual life 2. endowment policies 3. group life 4. industrial life DE LEON; TITLE 7 WARRANTIES Warranty is a statement or promise by the insured set forth in the policy itself or incorporated in it by proper reference, the untruth or nonfulfillment of which in any respect and without reference to whether the insurer was in fact prejudiced renders the policy voidable by the insurer warranty in general in the case of a promissory warranty, the same may refer only to future events warranty used in an insurance contract does not necessarily constitute a warranty nor is the use of such word necessary to constitute a warranty. A statement will be construed as a representation rather than a warranty especially if such statement is contained in any instrument other than the policy like an application, which in itself collateral merely to the contract of insurance. Answers written in the application, answers not responsive to any questions asked are not warranties. WARRANTIES REPRESENTATION Part of the contract Collateral inducement Warranties are always written on the face of the policy May be written in a totally disconnected paper or may be oral Strictly complied with Substantial truth only is required The falsity of a warranty operates as a breach of contract Renders the policy void on the ground of fraud Presumed material The insurer must show the materiality of a representation in order to defeat an action on the policy Before a representation be considered as a warranty, it must be expressly included or incorporated by clear reference in the policy and the contract must clearly show that the parties intended that the rights of the insured would depend on the truth or fulfillment of the warranty. In order that a stipulation may be considered a warranty, it must not only be clearly shown that the parties intended it as such but it must also form part of the contract itself, or if contained in another instrument it must be signed by the insured and referred to in the policy as making a part of it mere reference alone is not sufficient to give this effect it must be a fact to constitute an express warranty Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 29

if the statement is a nature of an opinion, is not strictly speaking, a warranty of its truthfulness. Such a statement, if deemed a warranty at all is merely a limited warranty as to the honesty and good faith of the insured

section 72 refers to a promissory warranty breach of promises or agreements as to future acts will not avoid a policy unless the promises are material to the risk. o The act or omission is material to the risk if it increases the risk and under the law only substantial increase of risk works a forfeiture of the policy which is avoided increases the hazard General rule- a violation of a warranty avoids a contract of insurance (section 73 refers to future warranties) Except: 1. when loss occurs before the time of the performance 2. when performance becomes unlawful 3. when performance becomes impossible. Violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind. 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. Effects of breach of warranty by insured 1. without fraud a. the policy is avoided only from the time of breach and b. the insured is entitled to the return of the premium paid at a pro rata rate from the time of breach if it occurs after the inception of the contract i. entitled to all the premiums if it is broken during the inception of the contract (void ab initio) 2. with fraud a. the policy is avoided ab initio b. the insured is not entitled to the return of the premium paid. Conditions in an insurance policy 1. condition precedent a. calls for the happening of some event or the performance of some act after the terms of the contract have been agreed upon, before the contract shall be binding 2. condition subsequent a. contract of insurance after the risk has attached and during the existence thereof, such as the condition requiring notice and proof of loss in case of loss upon an insurance against fire. WARRANTIES CONDITION Effect Does not suspend or defeat the operation of the contract Without the performance of which the contract although in form executed by the parties and delivered, does not spring into life. A limitation to the attachment of the risk, whereas a warranty does not necessarily have that effect Nature Not true then the policy shall be null and void Promissory warranties are usually regarded as conditions Not condition precedent but rather of the nature of a subsequent to be performed after the policy has become valid defeasance contract, non-performance of which will work a defeasance Exceptions in insurance policy inserted in a contract of insurance for the purpose of withdrawing from the coverage of the policy, as delimited by the general language describing the risk assumed, some specific risks which the insurer declares himself unwilling to undertake Blue Sapphires Notes in Insurance| Midterms 2013| Concealment| Representation| Policy| Warranties 30

EXCEPTIONS Examples This company shall not be liable for any loss while the insured building is vacant or unoccupied

WARRANTIES if the policy contains warranted statement that the insured building is occupied, we have undoubted warranty.

CONDITIONS The entire policy shall be void if the insured building be or becomes vacant or unoccupied and so remained for more than 10 days

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