POLICY

The written document embodying the terms and stipulations of the

contract of insurance between the insured and the insurer.
In printed form which may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces therein.
Any rider, clause, warranty or endorsement purporting to be a part of the
contract of insurance and which is pasted of the contract of insurance and which
is pasted or attached to said policy is not binding on the insured, unless the
descriptive title or name of the rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the policy. Unless
applied for by the insured or owner, any rider, clause, warranty, or endorsement
issued after the original policy shall be countersigned by the insured or owner,
which countersignature shall be taken as his agreement to the contents of such
rider, clause, warranty or endorsement.
Signed only by the insured need not be signed by the insured except
where express warranties are contained in a separate instrument forming part of
the policy in which case the law requires that the instrument must be signed by
the insured. (sec. 70)
CONTENTS
1. Name of Parties –the mere fact that the name of the insured was
incorrectly spelled is of no importance whatever, provided that the identity
of the party can be sufficiently established. Nor is it essential to the
effectiveness of the contract that the name of the insured should appear
therein, as he may be described therein.
2. Amount of Insurance – necessary in order to easily and exactly determine
the amount of indemnity to be paid the insured in case of loss or damage.
Sum insured is a basis for calculating the premium.
3. Premium – represents the consideration of the contract, what the insured
pays the insurer to assume the risk of loss. Rates of premium are
developed on the basis of the nature and character of the risk assumed.
Rate increases as the risk of loss increases.

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 In life insurance, the premiums are based on the average life span
at any given age, predicted from statistical figures known as mortality
tables; in fire insurance, the factors that affect the rate of a building are its
structure or construction, occupancy or use, location, and loss prevention
or protection facilities and the exposure or proximity to other risks.
4. Property or Life insured – constitutes the subject matter of the contract.
5. Interest of Insured in Property – important esp. in fire insurance to
determine the actual damage suffered by the insured in case of loss.
6. Risk insured against – generally, speaking all foreseeable losses of risks
may be insured against except those the insurance of which would be
repugnant to public policy or positively prohibited, or those which are
occasioned by the insured’s own fraud or misconduct. Almost any
contingent or unknown event, whether past or future may be insured
against. KINDS OF INSURABLE RISK: Personal risk, Property risk and
Liability risk.
7. Term or duration of insurance – important in ascertaining whether the loss
happened during the effectivity of the contract; may be expressed in
numbers. Life of the policy – the period of time during which the insurer
assumes the risk of loss. Annual policies- policies issued for a term of 12
months. Short period policies – those issued for a less period.
*a condition, stipulation, or agreement, in any policy of insurance, limiting the
time for commencing an action thereunder to a period of less than 1 year
from the time when the cause of action accrues is void. (section 63)
*A clause in the 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 if NOT contrary to section 63. So if the period fixed is less than 1 year
from the time the cause of action accrues, the stipulation would be void. In
the case, however, of a policy of industrial life insurance, the period cannot be
less than 6 years after the cause of action accrues.
*the condition in an insurance policy that claims must be presented within a
certain period after rejection is an important matter essential to prompt
settlement of claims against insurance companies, as it demands that

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insurance suits be brought by the insured while the evidence as to the origin
and cause of the loss or destruction has not yet disappeared.
*contractual limitations in insurance policies prevail over the statutory
limitations, as well as over the exception to the latter because the rights of
the parties flow from the contract of insurance. Their contract is the law
between the parties, and their agreement that an action on a claim denied by
the insurer must be brought within one year from the denial governs, not the
rules on the prescription of actions.
*art. 1144. Actions must be brought within 10 years from the time the right of
action accrues: 1. Upon a written contract..xxx
WHEN CAUSE OF ACTION ACCRUES:
The cause of action in an insurance contract does not accrue until the
insured’s claim is finally rejected by the insurer. In other words, the period for
commencing an action under a policy of insurance under section 63 is to be
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.
KINDS OF POLICY
1. Open Policy –one in which the value of the thing insured is not agreed
upon, but is left to be ascertained in case of loss. *maximum limit of the
insurer’s liability; *the amount recoverable is determined by the amount of
the loss but not exceeding the face amount of the policy.
2. Valued Policy – one which expresses on its face an agreement that the
thing insured shall be valued at a specified sum.
3. Running Policy – one which contemplates successive insurances and which
provides that the object of the policy may be from time to time defined,
especially as to the subjects of insurance by additional statements or
indorsements. Intended to provide indemnity for property which cannot
well be covered by a valued policy because of its frequent change of
location and quantity, or for a property of such a nature as not to admit of
a gross valuation. Also denotes insurance which contemplates that the risk
is shifting, fluctuating or varying and which covers a class of property
rather than any particular thing. E.g changing stock of goods, or on a grain
that is being carried to and from in the harbors.

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 COVER NOTES
Rules:
1. Insurance companies doing business in the Phil. May issue cover notes to
bind insurance temporarily pending the issuance of the policy.
2. Deemed to be a contract of insurance within the meaning of section 1 of
the code.
3. No cover note shall be issued or renewed unless in the form previously
approved by the Insurance Commission.
4. Valid and binding for a period not exceeding 60 days from the date of its
issuance, whether or not the premium therefor has been paid, but such
cover note may be cancelled by either party upon at least 7-days notice to
the other party.
5. If a cover note is not so cancelled, a policy of insurance shall within 60
days after the issuance of such cover not be issued in lieu thereof. Such
policy shall include within its terms the identical insurance bound under
the cover note and the premium therefor.
6. May be extended or renewed beyond the period of 60 days with the
written approval of the Insurance Commission, provided that such written
approval, may be dispensed with upon the certification of the president,
vice pres., or general manager of the insurance company concerned that
the risk involved, the values of such risks and/or the premiums therefor
have not as 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 or of any the rulings, instructions,
circulars, orders or decisions of the Insurance Commissioner.
7. Insurance companies may impose on cover notes a deposit premium
equivalent to at least 25% of the estimated premium of the intended
insurance coverage but in no case less than P500.
PERSONS ENTITLED TO RECOVER ON POLICY
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.

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 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. And a policy
may be so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured.
Third persons have no right to the proceeds of the policy unless there be
some contract of trust, express or implied between the insured and third persons.
EFFECT OF TRANSFER OF THING INSURED;
The mere transfer of a thing insured does not transfer the policy but
suspends it until the same person becomes the owner of both the policy and the
thing insured.
CANCELLATION OF NON-LIFE POLICY
Cancellation is regarded as the right to rescind, abandon or cancel a contract of
insurance. It is termination by either the insurer or the insured of a policy of
insurance before its expiration.
CONDITIONS UNDER WHICH THE RIGHT TO CANCEL MAY BE EXERCISED:
1. There must be prior notice of cancellation to the insured;
*purpose: prevent the cancellation of the policy, without allowing the
insured ample opportunity to negotiate for other insurance in its stead for
his own protection.
*notice should be personal to the insured and not to and/or through any
unauthorized person by the policy. Delivery to other person not effective
notice.
*Notice need not be delivered personally , it may be mailed.
2. The notice must be based on the occurrence, after the effective date of
the policy, of one or more of the following grounds:
a. Non-payment of premium;
*refers to a premium subsequent to the first, because it speaks of
non-payment after the effective date of the policy.
b. Conviction of a crime arising out of acts of increasing the hazard
insured against;
c. Discovery of fraud or material representation;

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 d. Discovery of wilful or reckless acts or omissions increasing 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.
3. It must be in writing, mailed, or delivered to the named insurer at the
address shown in the policy; and
4. It must state which of the grounds set forth is relied upon.
*it is the duty of the insurer upon written request of the named insured to
furnish the facts on which the cancellation is based.
CASE: PHIL. PHOENIX SURETY & INSURANCE vs. WOODWORKS:( (IMPLIED
WAIVER of prepayment of premium in full by suing for the balance)
In April 1, 1960, Phoenix issued to woodworks fire policy for the amount of
300k under the condition inter alia (annex A) premiums of the policy as stated
amounted to P6,051.95 xxxx.
Woodworks paid 3k on Sept. 22, 1960. Plaintiff made several demands on
defendant to pay the amount of P3, 522.” Phoenix filed a complaint against
woodworks the sum of P3,522 representing the unpaid balance of the premiums
on the fire insurance policy issued by phoenix to woodworks for a term of 1 year
from april 1960 to april 1961. CFI ordered woordworks to pay P3,522 with
interest. On appeal, woodworks contended that the non-payment of premium
produces the cancellation of the contract of insurance.
HELD: EFFECT OF PARTIAL PAYMENT OF PREMIUMS: where between the insurer
and the insured, there was not only a perfected contract of insurance but a
partially performed one as far as the payment of the agreed premium was
concerned, the obligation of the insurer to pay the insured the amount for which
the policy was issued in case the conditions therefor had been complied with,
arose and became binding upon it, while the obligation of the insured to pay the
remainder of the total amount of premium due became demandable.
Non payment of premium due does not produce the cancellation of the
contract of insurance. Such theory would place exclusively in the hands of one of

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the contracting parties the right to decide whether the contract should stand or
not.
As the contract had become perfected, the parties could demand from
each other the performance of whatever obligations they had assumed. In the
case of the insurer, it is obvious that it had the right to demand from the insured
the completion of the payment of the premium due or sue for rescission of the
contract. As it chose to demand specific performance of the insured’s obligation
to pay the balance of the premium, the latter’s duty to pay is indubitable.
VS.
TIBAY VS. CA, 257 SCRA 126
The insurer and the insured expressly stipulated that “this policy including
any renewal thereof and/or any indorsement thereon is not in force until the
premium has been fully paid and duly receipted by the Company xxx and that
this policy shall be deemed effective, valid and binding upon the Company only
when the premiums therefor have actually been paid in full and duly
acknowledged.”
HELD: when the parties expressly stipulated that the policy is not in force until
the premium has been fully paid, the payment of the partial payment by the
assured should not be considered the payment required by law and the
stipulation of the parties, rather must be taken in the concept of a deposit to be
held in trust by the insurer until such time that the full amount has been
tendered and duly receipted for. As expressly agreed upon in the contract, full
payment must be made before the risk occurs for the policy to be considered
effective and in force.
The payment of premium is requisite to keep the policy of insurance in
force. If the premium is not paid in the manner prescribed in the policy as
intended by the parties the policy is ineffective. Partial payment even when
accepted as partial payment will not keep the policy alive even for such fractional
part of the year as the part payment bears to the whole payment.
Under sec. 77 and 78, until the premium is paid and the law has not
expressly excepted partial payments, there is no valid and binding contract.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the
insured cannot collect on the proceeds of the policy.

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*factual scenario in Phoenix case is different. In Phoenix it was the insurance
company who sued for payment for the balance of the premium..it recognized
and admitted the existence of the contract with the insured. In Tibay there is an
express stipulation that xxx. It is correct to say that in Phoenix a contract was
perfected upon partial payment of the premium since the parties had not
otherwise stipulated that prepayment of premium in full was a condition
precedent to the existence of the contract. In phoenix, by accepting the partial
payment and demanding for the remainder without any precondition to its
enforceability as in the instant case, the insurer had in effect had shown its
intention to continue with the existing contract of insurance.
RIDER
A printed or typed stipulation contained on a slip of paper attached to the
policy and forming part as an integral part of the policy. When there is an
inconsistency between a rider and the printed stipulations in the policy , the rider
prevails, as being a more deliberate expression of the agreement of the
contracting parties. Any rider, properly attached to a policy is a part of the
contract to the same extent and with like effect as if actually embodied in the
policy.
Necessity: necessary to add a new term to a policy or to modify or waive
an existing term. Saves the trouble and expense of making an entirely new
contract.
GR: a rider, slip or other paper becomes a part of a contract 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 in such respect. Otherwise, not
binding. Lack of description will not affect the other provisions of the policy
except where without such rider, etc. the contract would be incomplete.
EFFECT OF LACK OF SIGNATURE: GR: where the rider is physically attached to a
policy of insurance contemporaneously with its execution and delivered to the
insured so attached and sufficient reference is made in the policy, the fact that it
is without the signature of the insurer or of the insured will not prevent its
inclusion and construction as a part of the insurance contract.
RENEWAL OF NON-LIFE INSURANCE POLICY

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GR: renewal of insurance by the payment of a new premium and the issuance of
a receipt therefor where there is no provision in the policy for its renewal, is a
new contract on the same terms as the old one. But where the renewal is in
pursuance of a provision to that effect, it is not a new contract but an extension
of the old one. The resolution of the question depends primarily on the intention
of the parties as ascertained from the instrument itself.
RIGHT OF THE PARTIES
The insured is given the right to renew upon the same terms and conditions the
original policy upon payment of the premium due on the effective date of the
renewal unless the insurer at least 45 days in advance of the end of the period
mails or delivers to the insured notice of its intention not to renew the policy or
to condition its renewal upon reduction of its amount or elimination of some
coverages.
For the purpose of determining whether or not the insurer has given such
notice within the period prescribed, a policy written for a term of less than 1 year
is considered as if written for a term 1 year, while a policy written for a longer
term or with no expiration date is considered as if written for successive policy
periods of 1 year. Thus, where the term of the policy is 5 years the notice must
be given at least 45 days before the anniversary date of any given policy year. If
the 45 days rule is not complied with, the insurer may not refuse to renew a
policy upon payment of the premium due.

DOUBLE INSURANCE
Exist where the same person is insured by several insurers separately in
respect to the same subject and interest.
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same; and
5. Risk or peril insured against is likewise the same.

DOUBLE INSURANCE VS. OVER-INSURANCE

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 1. OI- when the amount of the insurance is beyond the value of the insured’s
insurable interest. DI- there may be no OI as when the sum total of the
amounts of the policies issued does not exceed the insurable interest of
the insured.
2. While in DI there are always several insurers, in OI there may be only one
insurer involved.
OI and DI may exist at the same time or neither may exist at all.
PURPOSE OF PROHIBITION:
To prevent OI and thus avert the perpetration of fraud. There is a great
temptation upon dishonest person, whose property is insured up to its full value
or above it, to bring about its destruction and the same considerations
undoubtedly tend to lessen the care that may be exercised by the honest in
preventing loss.
RULES FOR PAYMENT OF CLAIMS WHERE THERE IS OI BY DI
As the contract of insurance is a contract of indemnity the insured can
recover no more than the amount of his insurable interest whether the insurance
is contained in one policy or several policies.
PRINCIPLE OF CONTRIBUTION – requires each insurer to contribute ratably
to the loss or damage considering that the several insurances cover the same
subject matter and interest against the same peril. Apply only when there is OI
by DI, that is the insurance is contained in several policies the total amount of
which is in excess of insurable interest of the insured.
Contribution Clause – stipulates that the insurance company shall not be liable to
pay or contribute more than its ratable proportion of the loss or damage.
Sec. 94. Where the insured is overinsured by double
insurance:chanroblesvirtuallawlibrary
(a) The insured, unless the policy otherwise provides, may claim payment from
the insurers in such order as he may select, up to the amount for which the
insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, the
insured must give credit as against the valuation for any sum received by him
under any other policy without regard to the actual value of the subject matter
insured;

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(c) Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by him
under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case of
valued policies, or of the insurable value in the case of unvalued policies, he
must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is liable
under his contract.
CASE: GEAGONIA VS.CA, 247 SCRA 152
Condition 3 of the private respondents policy no. F-14622 is a condition
which is not proscribed by law. Its incorporation in the policy is allowed by
section 75 of the IC which provides that “a policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provisions thereof shall avoid it, otherwise the breach of an immaterial provision
does not avoid the policy. It is commonly known as the additional or “other
insurance” clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation the other insurance must be upon the same subject matter,
the same interest therein and the same risk.
The insurable interests of a mortgagor and mortgagee on the mortgaged
property are distinct and separate. Since the two policies of the PFIC do not
cover the same interests as that covered policy of the private respondent, no
double insurance exists. The non-disclosure then of the former policies was not
fatal to the petitioner’s right to recover on the private respondent’s policy. The
rationale behind the incorporation of “other insurance” clause in fire policies is to
prevent OI and thus avert the perpetration of fraud.
LOSS- the injury, damage or liability sustained by the insured in consequence of
the happening of one or more of the perils against which the insurer, in
consideration of the premium has undertaken to indemnify the insured. May be
total, partial or constructive total. Satisfied by payment of the loss, reinstatement
of the property lost or damaged or tis replacement with another similar property.

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Scope: embraces bodily injury including death or property damage or
destruction. Also includes loss of income or profits and legal liability to a third
person.
LIABILITY OF INSURER FOR LOSS
Extent of Loss – depends upon whether the insured suffers a loss and the extent
of that loss.
* In determining the liability of the insurer against damage by fire, it is necessary
to make a rather subtle distinction between fires: hostile and friendly.
Friendly fire: so long as a fire burns in a place where it is intended to burn and
ought to be, it is to be regarded as merely as an agency for the accomplishment
of some purpose and not as a hostile peril.
Hostile fire – when it occurs outside of the usual confines or begins as a friendly
fire and becomes hostile by escaping from the place where it ought to be to
some place where it ought not to be.
Cause of Loss – the insurer assumes liability only for a loss proximately caused by
the perils insured against although a peril not insured against may have been
remote cause of the loss. But the insurer is still liable even if the proximate cause
is not the peril insured against if the immediate cause is the peril insured against.
Proximate Cause – that which in a natural and continuous sequence, unbroken by
any new independent cause, produces an event and without which the event
would not have occurred. It is to be observed that the proximate cause is the
efficient cause – the one that sets others in motion- to which the loss is to be
attributed, although other and incidental causes may be nearer in time to the
result and operate more immediately in producing the loss.
EXTENSION OF PRINCIPLE OF PROXIMATE CAUSE – under section 85, the insurer
is liable in two cases: 1. Where the loss took place while being rescued from the
peril insured against.; 2. Where the loss is caused by efforts to rescue the thing
insured from a peril insured against.
WHERE PROXIMATE CAUSE IS AN EXCEPTED PERIL: The insurer is not liable if the
proximate cause of the loss is peril excepted from the policy although the
immediate cause is a peril not excepted.

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Burden of proof where loss has occurred – insurer has the burden of proof to
show that he is not liable.

The insured has an absolute right to transfer his claim against the insurer after a
loss has occurred. A stipulation which attempts to prohibit such transfer of a
policy is void as against public policy for it hinders the free transmission of
property from one person to another. After the loss has been suffered, the policy
or right thereunder may be assigned without the consent of or notice to the
insurer for in such case it is not the personal contract which is being assigned
but a money claim under or a right of action on the policy. Such assignment of
the right to collect from the insurer involves no question of moral hazard
because it cannot increase the insurer’s risk for a loss that has already occurred.

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