1|INSURANCE LAW (AQUINO)

CHAPTER ONE :

GENERAL CONCEPTS

CONTRACT OF INSURANCE agreement whereby one undertakes

for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
TEST: (2)
1.
2.

Determined by its purpose, effect, contents and import

Depends on the nature of the promise, act required to be
performed and the exact nature of agreement in the light of
occurrence, contingency or circumstances where performance
becomes a requisite.

SURETYSHIP agreement whereby one binds himself solidarily

with the principal debtor.

for the injury / loss arising out of the wrong / breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer who violated the
contract. If amount paid is not enough, aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or
injury.
ELEMENTS OF INSURANCE CONTRACTS: (5)
1.
2.
3.
4.
5.

Insured has insurable interest

Insured is subject to a risk of loss by the happening of
designated peril
Insurer assumes the risk
Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk (DISTRIBUTION OF LOSSES)
In consideration of the insurers promise, the insured pays a
premium.

REQUISITES OF A VALID CONTRACT: (3)

PRE-NEED PLANS contracts, agreements, deeds or plans for the

benefit of the planholders which provide for the performance of
future service/s, payment of monetary considerations or delivery of
other benefits at the time of actual need or agreed maturity date, in
exchange for cash or installment amounts with or without interest or
insurance coverage and includes life, pension, education, interment,
and other plans, instruments, contracts or deeds.

1.
2.
3.

VARIABLE CONTRACTS any policy on either a group / individual

issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to reflect
investment results of any segregated portfolio of investments or of a
designated separate account in which amounts received in
connection of such contracts shall have been placed and accounted
for separately and apart from other investments and accounts.

REQUIREMENTS OF INSURABLE RISK: (6)

DOING AN INSURANCE BUSINESS: (4)

1.
2.
3.
4.

Making or proposing to make, as insurer, any insurance

contract;
Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
Doing any kind of business, including reinsurance, specifically
recognized as constituting the doing of an insurance business;
Doing or proposing to do any business in substance equivalent
to any of the foregoing in a manner designed to evade the
provisions of this Code.
Fact that no profit is derived from the making of insurance
contracts shall not be deemed conclusive to show that the
making thereof does not constitute doing of insurance
business.

BANCASSURANCE presentation and sale to bank customers by

an insurance company of its insurance products within the premises
of the head office of such bank duly licensed by BSP.
MUTUAL INSURANCE COMPANIES Company owned by
policyholders. Promotes the welfare of its members and the money
collected from among them is solely for their own protection and
member is both the insurer and insured.
APPLICABLE LAWS:
Insurance Code of the PH originally PD 602
Regulatory Provisions: (8)
1.
2.
3.
4.
5.
6.
7.
8.

Increase of the paid-up capital and net-worth requirements for

insurers
New requirements for unimpaired capital or assets and
reserved
New provisions on financial reporting framework
Adoption of corporate governance rules
Changes in the provisions on margin of solvency
Changes in the provisions on investments
Fixing the term of Insurance Commissioner to 6 years
Changes in the jurisdiction of the IC over insurance claims

RIGHT OF SUBROGATION if the plaintiffs property has been

insured, and he has received indemnity from the insurance company

Consent of contracting parties

Object certain which is the subject matter of the contract
Cause of the obligation which is established

RISK any contingent or unknown event, whether past or future,

which may damnify a person having an insurable interest, or create
liability against him, may be insured against..; not the same with
fortuitous event.

1.
2.
3.
4.
5.
6.

There must be a large number of homogenous exposure units

Loss must be accidental or unintentional
Loss must be determinable and measurable
Loss should not be catastrophic
Chance of loss must be calculable
Premium must be economically feasible

PRINCIPLE OF DE MINIMIS NON CURAT LEX while catastrophic

losses are not insurable, the losses should also not be too miniscule
or trivial.
PURE RISK possibility is either the person involved will suffer a
loss or he wont; possibility that ones property may be destroyed /
one may suffer economic loss because of premature death or injury.
SPECULATIVE RISK either result in gain or loss
PERIL specific cause of loss that is insured against
PAST EVENT only applicable in Marine Insurance
HAZARD: (3)
1.
2.
3.

Physical refers to physical condition of the thing / person that

increases the chance of loss
Moral involves dishonesty or character defects in the
individual
Morale includes carelessness / indifference to a loss because
of the existence of the insurance

LOSS end result of the risk insured against; involves diminution of

value or disappearance of value resulting from a risk.
ASSUMPTION OF RISK insurer promises to pay the insured if the
risk insured against occurs; promises to deliver the equivalent of the
property that was lost.
NATURE & PURPOSE OF INSURANCE Insured sacrifices a present
monetary loss in the form of premium payment in order to avoid a
greater loss in the future.
HOW PEOPLE DEAL WITH RISKS: (5)
1.
2.
3.
4.
5.

Risk avoidance
Risk retention
Risk transfer
Loss control
Insurance

HOW INSURANCE DEALS WITH RISK individuals trade present

loss by way of premium payments with future recompense for
greater loss.

2|INSURANCE LAW (AQUINO)

RISK DISTRIBUTING DEVICE risk of loss is not actually transferred
to the insurer but a number of people constituting the clients of the
insurer contribute to a common fund by paying premiums. Insurer
will get the amount to be paid to each insured in case of loss from
this pool or common fund.
LAW OF LARGE NUMBERS the greater the number of exposures,
the more closely will the actual results approach the probable
results that are expected from an infinite number of exposures.
CHARACTERISTICS: (6)
1.

2.
3.

4.

5.
6.
7.

Aleatory one of the parties or both reciprocally bind

themselves to give / do something in consideration of what the
other shall give / do upon the happening of an uncertain event
or which is to occur at an indeterminate time; what the insured
pays is not equal to what he will receive in case of loss.
Commutative what the insured paid for is the equivalent of
what he got, that is, the promise of the insurer to indemnify the
insured in case of loss.
Unilateral payment of premium is not traditionally imposed
as obligation but an event that gives the contract obligatory
force; it is the insurers obligation to pay the proceeds of the
insurance in case of loss.
Personal contract is entered into with due consideration to
the circumstances of the parties; character, credit and conduct
of the person who insures a property are important
considerations; insurer accepts the risk because of the
insurability of the insured.
Consensual perfected by mere consent without the need of
delivery or any formality.
Uberrimae Fidae contract is one of perfect good faith; both
parties must perform obligations in good faith and avoid
material concealment or misrepresentations.
Executory and Conditional contract is executory to the
insurer and is subject to the main condition (among others): the
happening of the event insured against.

KINDS OF INSURANCE (SOCIAL INSURANCE CONTRACTS): (2)

1.
2.

CLASSIFICATIONS: (3)
1.
2.
3.

Gives peace of mind

Keeps families and businesses together
Increases marginal utility of assets
Facilitates credit transactions
Stimulates savings
Provides investment capital
Provides incentive to business / individuals
Helps in loss prevention

PERFECTION contract is perfected by meeting of minds with

respect to the object and consideration of the contract
Art. 1319: Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter offer.
COGNITION THEORY insurance contract is perfected the moment
the offeror learns of the acceptance of his offer by the other party.
INSURED MAKES THE OFFER insured submits application to the
insurer; insurer accepts offer by approving the application and the
contract is perfected upon receipt of notice by the insured of such
approval.
EFFECT OF NON-ACCEPTANCE contract cannot be deemed
perfected if there is only an offer to enter into an insurance contract
through an application; there can be no contract if there is no
meeting of the minds between the parties as to the object and
consideration.

Mere delay by insurer does not estop him to deny the existence
of the contract
Implied acceptance can be established only through other
circumstances that will indicate such acceptance other than
inaction or delay
Even if there is no perfected contract, insurer can be subject to
tort liability for abuse of right / acting contrary to morals and
good customs.

Life / health insurance

Property insurance
Liability insurance

SPECIAL TYPES: (6)

1.
2.
3.
4.
5.
6.

Marine
Casualty
Fire
Life
Compulsory Third Party Liability
Microinsurance

KINDS OF LIFE INSURANCE: (3)

1.
2.
3.

Term temporary basis / for a limited period only

Whole life entire lifetime
Endowment Policy insured is paid a certain amount or the
face value of the policy if the insured survives a certain period
and the beneficiary will get the proceeds if he doesnt survive.

KINDS OF PROPERTY INSURANCE: (4)

1.
2.
3.
4.

Fire
Allied
Marine
Casualty

MICROINSURANCE financial product / service that meets the risk

protection needs of the poor where:
a.

GENERAL BENEFITS OF INSURANCE: (7)

1.
2.
3.
4.
5.
6.
7.
8.

Private insurance SSS

Government insurance GSIS

b.

The amount of contributions, premiums, fees / charges,

computed on a daily basis, doesnt exceed 7.5% of the current
daily minimum wage rate for nonagricultural workers in MM
Maximum sum of guaranteed benefits is not more than 1,000
times of the current daily minimum wage rate for
nonagricultural workers in MM

PRINCIPLE OF INDEMNITY:
GR: insured should not collect more than the actual cash value of
the loss. This is to prevent the insured from unjust compensation
XPNS:
1.
2.

Life insurance because the amount to be paid can never be

equal to the life of the insured
Valued policies under which the insurer will pay the valued fixed
in the policy regardless of the actual cash value in case of total
loss

MANIFESTED THROUGH THE FOLLOWING: (3)

1.
2.
3.
4.

Insurable interest is indispensable

Value of interest destroyed or damage is generally the measure
of indemnity
Co-insurance clause in marine insurance
Subrogation in property insurance

CHAPTER TWO: THE

PARTIES

INSURED person who applied for and to whom an insurance

policy is issued to cover his life, property or the life / property of
other person/s in whose life / property he has insurable interest /
liability to other persons.
ASSURED person who takes out an insurance on the insureds life
OWNER person who obtains the policy
CAPACITY voidable if one of the parties is a minor, insane person
or incapacitated to enter into a contract. A capacitated person
however, can validly enter into a contract insuring the life of any of
the three.

3|INSURANCE LAW (AQUINO)

Spouses the consent of the spouse is not necessary for the

validity of an insurance policy taken out by a married person on
his or her life or that of his or her children (including life of a
child who is not also the child of the other spouse).

EFFECT OF OWNERS DEATH all rights, title and interest in the

policy of insurance taken out by the original owner on the life /
health of the insured will automatically vest in the latter upon the
formers death unless otherwise provided for in the policy.
PUBLIC ENEMY anyone is a state (and its citizens) at war with PH
INSURER every person, partnership, association, or corporation,
government-owned / controlled corporations engaged as principals
in the insurance business, excepting mutual benefit associations.
PROFESSIONAL REINSURER any person, partnership, etc. that
transacts solely and exclusively reinsurance business.
REQUISITES TO BE AN INSURER:
1.
2.

Possess capital and assets required of an insurance

corporation doing the same kind of business in the PH and
invested in the same manner
Commissioner shall have granted him a CERTIFICATE OF
AUTHORITY proving that he has complied with all the
provisions of law (because insurance business involves public
interest).

If there is a named beneficiary and valid designation, he is

entitled to receive the proceeds and not the heirs of the insured.
Proceeds are the separate and individual property of the
beneficiary, not the heirs of the person whose life was insured.
If there is no beneficiary, or when designation is void, laws of
succession are applicable and shall form part of the estate of
the deceased insured.

THIRD PARTIES insurer has no obligation to turn over the

proceeds of the insurance to 3rd persons even if such are immediate
relatives if there is a designated beneficiary.
USE OF CONJUGAL FUNDS if these are used to pay premiums,
proceeds of the policy constitute community property if the policy
was made payable to the deceaseds estate; one half belongs to the
estate and the other half to the surviving spouse.
VESTED INTEREST OF THE BENEFICIARY should be measured on
its full face value because in case of death of the insured, said
beneficiaries are paid on the basis of its face value; beneficiaries
may continue paying it and are entitled to automatic extended term
or paid-up insurance options and that said vested right cannot be
divisible at any given time.

TERM OF CERTIFICATE:

Sec. 11: Insured shall have the right to change the beneficiary he
designated in the policy, unless he has expressly waived this right in
the said policy. Notwithstanding the foregoing, in the event the
insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.

1.

EFFECT IF IRREVOCABLE:

2.

Shall expire on the last day of December, 3 years following its

date of issuance
Renewable every 3 years, subject to the companys continuing
compliance.

GROUNDS FOR DISAPPROVAL OF APPLICATION: (4)

1.
2.
3.

4.

Refusal will best promote the interest of the people

There is evidence that the applicant company is not qualified
Grant of such authority appears to be unjustified in the light of:
a. Economic requirements
b. Direction, administration, integrity and responsibility of the
organizers and administrators
c. Financial organization and the amount of capital
d. Reasonable assurance of the safety of the interests of the
policyholders and the public
Name of applicant belongs to any other known company
transacting a similar business in the PH misleading.

GR: Irrevocable beneficiary cannot be replaced.

XPN: Art. 64, Family Code: after finality of the decree of legal
separation, the innocent spouse may revoke the designation as
beneficiary in any insurance policy, even if stipulated as irrevocable.
Written notification is required.
FORFEITURE OF BENEFICIARYS RIGHTS:
Interest of beneficiary shall be forfeited when he is the principal,
accomplice, or accessory in willfully bringing about the death of the
insured.
Proceeds of insurance shall be paid in accordance with the
following rules: (3)
1.

PROHIBITED ACTS: (9)

2.

1.

3.

2.
3.
4.

5.
6.
7.
8.
9.

To transact in the PH both the business of life and non-life

insurance concurrently unless authorized to do so;
Have equity in an adjustment company;
Negotiate any contract of insurance other than is plainly
expressed in the policy or other written contract issued to or to
be issued as evidence thereof;
Directly / indirectly, by giving or sharing a commission, pay or
allow or offer to pay or allow to the insured or to any employee
of such insured, either as an inducement to the making of such
insurance;
Give or offer to give any valuable consideration or inducement
of any kind, not specified in the policy;
Make an discrimination against any Filipino giving him less
advantageous rates, dividends or policy conditions that are
accorded to other nationals;
Issue or circulate any sort misrepresenting the terms of any
policy issued by any insurance company of the benefits or
advantages promised;
Use any name or title of any policy or class of policies
misrepresenting the true nature thereof;
Make any misleading representation or incomplete comparison
of policies to any person insured for the purpose of inducing
such person to lapse, forfeit or surrender his insurance.

BENEFICIARY can be a 3rd person unless he is the insured himself;

he is not one of the contracting parties

3rd party beneficiary named in the policy has the right to file an
action against the insurer in case of loss
No other party can recover the proceeds other than the
beneficiary.

Forfeited share if the disqualified beneficiary shall pass on to

the other beneficiaries;
If none, proceeds shall be paid in accordance with the policy
contract;
If policy is silent, proceeds will be paid to the estate of the
insured.

GROUNDS FOR DISQUALIFICATION: (3)

1.
2.
3.

Those made between persons who were guilty of adultery or

concubinage at the time of donation (conviction not needed;
illegitimate children are still qualified);
Those made between persons found guilty of the same criminal
offense, in consideration thereof;
Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.

ASSIGNEE OF LIFE INSURANCE can be transferred even without

the consent of the insurer; no formalities required; assignment of
rights should be applied; delivery of policy may transfer ownership of
policy of the insurance; notice is not necessary.
DOUBLE ASSIGNMENT: (2)
1.
2.

English Rule assignee who first gives notice is the one

entitled to the proceeds if he has no notice of any prior
assignment.
American Rule assignee under the first assignment has the
preferable claim; first in time, stronger in right (what applies in
this jurisdiction).

ASSIGNEE OF PROPERTY INSURANCE:

GR: 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 thing insured.

4|INSURANCE LAW (AQUINO)

XPNS:
1.
2.
3.

Insurers consent is not necessary even if successors-ininterest of the insured substitute the latter.
Transfer through will / succession and other instances of
transfer by operation of law
Where there is transfer among partners.

INSURANCE AGENT person who for compensation solicits or

obtains insurance on behalf of an insurance company or transmits
for a person other than himself an application for a policy or
contract of insurance to negotiate for such insurance; represents the
insurer.

INSURANCE BROKER person who for compensation acts in any

manner in soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out insurance on
behalf of an insured other than himself; acts for and in behalf of the
insured.

Insurance company who goes through an insurance agent /

broker shall be deemed to have authorized such agent or broker
to receive on its behalf payment of any premium which is due
on such policy at the time of issuance or delivery.
IC does not cover insurer-agent relationship.

CHAPTER THREE:

2.
3.

One has insurable interest if he is situated with respect to the

property that he will suffer loss as the proximate result of its
damage or destruction.
In sale of goods, unpaid seller retains insurable interest even if
ownership has already been transferred to the vendee upon
delivery.
Vendee or buyer has insurable interest over the goods even
while the goods are in transit.
Insurable interest exists in the ff (person will suffer due to loss
to a peril insured against):
o When insured possess a legal title to the property insured
o When he has equitable title of whatever character in
whatever manner acquired
o When he possesses a qualified property or possessory
right in the subject of the insurance
o When he has mere possession or right of possession
o When he has neither possession of the property nor other
legal interest in it but stands in such a way that he will
suffer from its destruction
Inchoate Interest founded on an existing interest, otherwise,
loss of the property will not directly damnify the insured.
Expectancy coupled with existing interest; heir does not have
insurable interest over the properties of his successor-ininterest.
AS TO:

INSURABLE INTEREST

I.I. IN PROPERTY

I.I. IN LIFE

EXTENT

Only up to value of
property

Unlimited except if
secured by creditor

TIME OF
EXISTENCE

At the time of
perfection, and time
of loss

At
the
perfection

NEED FOR
LEGAL BASIS

Expectation
of
benefit must have
legal basis

Expectation of benefit
need not have legal
basis

BENEFICIARYS
INTEREST

Beneficiary
have i.i.

i.i. not necessary if

insured took out the
policy on his own life
and
designated
another. Beneficiary
must have i.i. if one
took out an insurance
on the life of another.

CLASSES OF INSURABLE INTEREST IN LIFE INSURANCE: (4)

1.
2.

3.
4.

Blood relationship limited to insurable interest over the life of

a spouse or his children. Does not include parents or siblings.
Business relationship any person whom he depends wholly
or in part for education or support, or in whom he has a
pecuniary interest:
Education / support
Pecuniary interest one has insurable interest over the life of
his partner or his employee; pecuniary benefit is derived by
the person who will take out an insurance policy with the
continued preservation of the life of the partner or
employee.
Creditor legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might
delay or prevent the performance.
Mortgage Redemption Insurance:
Debtors may be insured into this group life insurance
Device for the protection of both mortgagee and mortgagor
Mortgagee it has to enter into such form of contract so that
in that in the event of unexpected demise of the mortgagor,
proceeds from such insurance will be applied to the
payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation.
Mortgagor pays the insurance premium, making the loss
payable to the mortgagee, the insurance is on the
mortgagors interest, and he continues to pay the contract.

INSURABLE INTEREST IN PROPERTY INSURANCE:

TEST: (2)
1.

2.

Can be determined by asking if the insured has interest in

property, whether real or personal, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify
the said insured.
Whether one will derive pecuniary benefit or advantage from its
preservation, or will suffer pecuniary loss or damage from its
destruction.

KINDS OF INSURABLE INTEREST: (3)

1.

Existing interest includes the interest of an owner; title or

ownership is not essential.

Following persons have insurable interest:

a.
b.
c.
d.

Lessee
Depositary
Usufructuary
Borrower in commodatum

must

time

of

INSURABLE INTEREST OF BAILEE carrier may be damnified by

the loss of the goods because he may be obligated to pay the
shipper any damage to the property; similar to a depositary.
MORTGAGOR & MORTGAGEE:

Each have independent insurable interest therein and both

interests may be covered by one policy, or each may take out a
separate policy covering his interest, either at the same /
separate time.
Mortgagors interest covers the full value of property
Mortgagees interest is only to the extent of the debt and in
insuring, he is not insuring the property but his interest or lien
thereon.

LOSS PAYABLE CLAUSE any act of the mortgagor which defeats

his right will also defeat the right of the mortgagee.
UNION MORTGAGE CLAUSE there is a transfer of an insurance
from the mortgagor to the mortgagee with the assent insurer.
GR: A thing insured unaccompanied by a corresponding change in
interest in the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and in the insurance (object and
policy) are vested in the same person (already owned by that
person).

5|INSURANCE LAW (AQUINO)

XPNS:
1.
2.

In cases of life, accident, health insurance

When consent is given in advance by the insurer and the policy
will inure to the benefit of anyone to whom the property is
transferred.

CHANGE OF INTEREST will not suspend the insurance in these

cases:
1.
2.
3.
4.

In a thing insured, after the occurrence of an injury which

results in a loss
In one / more several distinct things, separately insured by one
policy (insured separately)
By will or succession, on the death of the insured
Transfer of interest by one of several partners, joint owners, or
owners in common, who are jointly insured, to the others.

INSURABLE INTEREST OF BENEFICIARY IN PROPERTY

INSURANCE beneficiary must have insurable interest in the
property; it will be considered a wagering contract if he will be
allowed to recover it even if he has no insurable interest.

SALARY DEDUCTIONS FOR GOVERNMENT EMPLOYEES

insurance is already binding although premium is paid through
installment by a government employee. There should be
authorization from government employee for the deduction.
SURETY already liable even if there is non-payment of premium if
the obligee has already accepted the bond. Surety is entitled to
payment of the premium as soon as the contract of suretyship is
perfected and delivered to the obligor and no contract of premium
has been paid.
XPN: when obligee has accepted the bond where it becomes valid
and enforceable
VALID TENDER OF PAYMENT still binding if the non-payment was
due to the fault of the insurer.
HOW TO PREVENT LAPSE: (4)
1.
2.

INSURABLE INTEREST OF BENEFICIARY IN LIFE INSURANCE: (2)

1.
2.

When not necessary - if insured takes out an insurance on his

own life and just designate anybody.
When necessary if insured takes out an insurance on the life
of another designating him/herself or a 3rd person as
beneficiary.

3.

ASSIGNEE IN LIFE INSURANCE policy can be transferred even

without the consent or notice of insurer.
ASSIGNEE IN PROPERTY INSURANCE necessary that the
transferee has insurable interest over the thing insured.

4.

A clause in agreement providing for automatic assignment of

policy VOID
If transfer of property insurance is made after loss, insurable
interest of beneficiary is no longer necessary.

CHAPTER FOUR:

PREMIUM

GROUNDS FOR RETURN OF PREMIUM: (6)

1.

PREMIUM REQUIRED FOR POLICY TO BE BINDING insurer is

entitled to payment of premium as soon as the thing insured is
exposed to the peril insured against. Contract is valid and binding
when premium is paid.
EFFECT OF NON-PAYMENT obligation of insurer will not be valid
and binding if 1st premium isnt paid; unpaid subsequent premiums
will have the contract deemed to have lapsed.

Grace period
Automatic policy loan and cash surrender value amount of
money the company agrees to pay to the holder of the policy if
he surrenders it and releases his claims upon it. The more
premiums paid, the greater the surrender value, but surrender
value is always lesser sum than the total amount of premiums
paid.
Dividends may either be:

Participating insured is entitled to the dividends available;

policy must contain a provision that the company shall
periodically ascertain and apportion any divisible surplus
accruing on the policy under conditions specified therein;
dividend shall be applied to the premiums due / payable.

Non-participating
Reinstatement Clause policy must contain a provision that
policyholder is entitled to have a policy reinstated at any time
within 3 years from date of default of premium payment unless
the cash surrender value has been duly paid or extension period
has expired.

Not an absolute right will not be approved by just mere

application; there should be evidence of insurability and
payment of overdue premiums and any indebtedness to
the company.

2.
3.

When the thing was not exposed to the peril insured against
where risk is entire and contract is indivisible however, insured
is not entitled to refund of premiums paid if property insured
was exposed to the risk insured for any period.
Time policy amount paid is actually for the entire period and
is spread to the entire term; premium corresponds to a certain
unit/s of time.
Voidable policy refund is warranted if contract is voidable but
should not be due to the insured or his agent. Should be on the
account of fraud / misrepresentation of the insurer / his agents
(insured acted in good faith).
When by any default of the insured other than actual fraud, the
insurer never incurred liability under the policy.
When there is over-insurance by several insurers.

GR: If insurance is unpaid = not valid = insurer has no liability = he

has no right to demand for unpaid premiums

4.

XPNS: (8)

5.

1.

ADVANCE PAYMENT premium can be paid in advance.

2.
3.
4.

Grace period applies in life and industrial life policy; period

after the date of the premium is due during which the premium
can be paid with no interest charged and the policy remaining in
force.
Acknowledgement conclusive evidence of its payment to
make policy binding, notwithstanding any stipulation therein
that is shall not be binding until premium is actually paid.
Installment basis
Credit extension a 90-day credit extension may be given
under the broker and agency agreements with duly licensed
intermediaries.

REQUISITES:
a.
b.

Credit extension must be provided for under the broker and

agency agreements
Should not exceed 90 days from date of issuance of policy

ESTOPPEL may bar an insurer from taking refuge under sec. 77 if

insured relied in good faith on a practice that they have been
following with the insurer.

CHAPTER FIVE:

THE POLICY

CONSENSUAL insurance contract is perfected by mere consent of

the parties and no formalities is required for its perfection. Absence
of a policy does not bar the contract from coming into existence.
POLICY should be issued by the insurer
1.

2.
3.

In printed form which may contain blank spaces; any word,

phrase, clause, mark, sign, symbol, signature, number or word
necessary to complete the contract of insurance should be
written on the blank spaces provided.
May be an electronic document
Should be approved by the Insurance Commission

6|INSURANCE LAW (AQUINO)

POLICY OF INSURANCE MUST SPECIFY / PARTS OF THE
DECLARATION: (7)
1.
2.
3.
4.
5.
6.
7.

Parties between whom the contract is made;

Amount to be insured except in the cases of open or running
policies;
Premium, or if exact premium is only determinable upon
termination of contract, a statement of the basis and rates upon
which final premium is to be determined;
Property or life insured;
Interest of the insured in the property insured, if he is not the
absolute owner thereof;
Risk insured against;
Period during which the insurance is to continue.

INSURING AGREEMENTS specify what the insurer promises to do;

describes the characteristics of the events covered under the
contract
EXCLUSIONS limit the coverage provided under the insuring
agreements; exclude specified perils, property, sources of liability,
persons, losses, locations and time periods.
CONDITIONS define terms used in the other parts of the contract,
prescribe conditions that must be complied before the insurer can
be made liable and may describe the basis for computing the
premium.
MARINE RISK NOTE acknowledgement confirming the specific
shipment covered by its Marine Open Policy, the valuation of the
cargo, and the chargeable premium. This is not the policy itself.
DESIGNATION OF THE BENEFICIARY:
GR: insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made.

RIDER an endorsement to an insurance policy that modifies

clauses and provisions of the policy, including or excluding
coverage.
RULES IN CASE OF INCONSISTENCY:
1.
2.

CONTRACT OF ADHESION where only one party (insurer)

prepares the written contract while the other party (insured) merely
adheres to the contract.

COVER NOTES interim or preparatory contracts of insurance. It

may be necessary because the insurer may need more time to
process the insurance application.
REQUISITES: (5)
1.
2.
3.
4.
5.

IDENTIFICATION OF THE INSURED:

POLICY FORM insurer is generally free to provide for the terms

and conditions of the policies that it will issue so long as the same
are not contrary to law, moral, customs and public policy; there are
minimum requirements for the approval of insurance plans / forms
for policy, certificate or contract, application, rider, clause, warranty
or indorsements.
POLICIES WITH MINIMUM MANDATORY PROVISIONS: (4)
1.
2.
3.
4.

Individual life
Endowment insurance
Group life
Industrial life

REQUISITES FOR CLAUSE, RIDER, ENDORSEMENT, WARRANTY

(CREW) NOT ORIGINALLY PART OF THE CONTRACT: (3)
1.
2.
3.

The CREW is attached to the policy

The descriptive title or name of CREW is mentioned and written
on the blank spaces provided in the original printed policy form
If not applied for by the insured / owner, CREW shall be
countersigned by the insured.

ENDORSEMENT a written agreement attached to a policy to add

or subtract insurance coverages.

Shall be issued or renewed only upon prior approval of the IC

Shall be valid and binding not more than 60 days from the date
of issuance
May be cancelled by either party upon prior notice to the other
of at least 7 days
Policy should be issued within 60 days after the issuance of the
cover note
The 60 day period may be extended upon written approval of
the IC.

ICs approval can only be dispensed with upon certification

of the president, vice president, or general manager of the
insurer that the risk involved.

No separate premium is required for the cover note.

KINDS OF PROPERTY INSURANCE POLICY: (3)

1.

PARTNER OR CO-OWNERS may have insurable interest of the

property owned in common; terms of the policy should be expressly
provided that the insurance are applicable to the joint or common
interest. Express provision is very necessary.
INSURED IDENTIFIED IN GENERAL TERMS insured is not
specifically identified; may comprehend any person or any class of
persons, only ha who can show that it was intended to include him
can claim the benefit of the policy; it is a question of proof.

Any doubt should be resolved against the insurer

PROOF 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.

XPN: otherwise specified

AGENT OR TRUSTEE principal may be damnified (caused injury

to) by the loss of the property that he owns that is under the care of
a trustee or agent. The agent or trustee who takes care of the
property may also be damnified by propertys loss. Both the
principal and his agent can insure the property under the latters
care.

Between written and printed portions of the policy written

prevails
Between rider and printed clause rider prevails

2.
3.

VALUED POLICY expresses agreed valuation of a thing

insured on the face of the policy.

This valuation is binding on the parties; no party can

establish a different valuation in case of loss.

The amount to be paid by the insurer as indemnity may not

necessarily be related to the actual loss

Measure of indemnity is the agreed valuation and not the

actual loss
OPEN / UNVALUED POLICY no valuation is stipulated;
insured is only entitled to recover the amount of actual loss
RUNNING POLICY extent of the property insured shall be
defined from time to time because of the nature of the business
that is being insured.

PROBLEMS (from the book):

A Owns a house worth 600K, and insured the same with 3 fire
insurance companies: X 400K, Y 200K, Z 600K.
Q: In the absence of any stipulation in the policies, from which
insurance company may A recover in case of fire should destroy his
house completely?
A: He can recover from any, any 2, or from all provided that the total
amount recovered does not exceed his loss.
Q: If each of the policies is an open policy, and it was immediately
determined after the fire that the value of the house was 2.4M, how
much may he collect from X Y and Z?
A: He can recover full amount of coverage from each insurer if all
policies are open policies total of 1.2M.
Q: If each insurance policy is a valued policy, and house was valued
at 1M, how much would he recover from X if he has already obtained
full amount of payment from Y and Z?
A: He can only recover 200k. The valuation of the property is binding
on the parties and is no longer necessary to determine actual value
thereof.

7|INSURANCE LAW (AQUINO)

Q: If in Q1, A was able to collect from Y and Z, may he keep the entire
amount he was able to collect from said 2 companies?
A: No. He can only be indemnified for his loss. A must hold the
excess amount of his insurable interest in the house, 200k, in trust
for the insurers Y and Z.
Q: in Q1, what is the extent of the liability of the insurance
companies among themselves?
A: Each insurer is bound to contribute pro-rata to the loss, in
proportion to the amount for which he is liable under his contract.
(Amount of policy / Total insurance taken x loss = liability of insurer)
1.
2.
3.

X = 200K (400K/1.2M x 600K)

Y = 100K (200K/1.2M x 600K)
Z = 300K (600K/1.2M x 600K)

CANCELLATION:

TEST OF MATERIALITY only material facts are required to be

disclosed those that will affect insurers action on his application,
either by approving it with higher premium, or rejecting the policy;
those that will affect the decision of the insured to enter into the
contract (probable and reasonable influence of the facts).
CAUSATION NOT NECESSARY matters concealed need not be the
cause of loss facts concealed need not have a bearing on the
cause of death of insured.
REQUISITES FOR CONCEALMENT: (4)
1.

GR: No property insurance policy shall be cancelled by the insurer

the contract and as to which he makes no warranty, and which

the other has no means of ascertaining (uberrimae fidae).
REMEDY: Whether intentional or unintentional entitles the
injured party to RESCIND a contract of insurance.
There would still be concealment even if the insured had no
knowledge of the duty to disclose.

Party involved must know the fact concealed or at least he

ought to know the same.
Fact concealed should be material.
No warranty is extended by the party regarding the fact
concealed.
The other party doesnt have the means of ascertaining.

XPN: upon prior notice to the insured

2.
3.

GR: No notice of cancellation shall be effective

4.

XPN: on the following grounds: (6)

KNOWLEDGE OF THE AGENT OF INSURED can only be imputed to

the insured on the following circumstances:

1.
2.
3.
4.
5.
6.
7.

Non-payment of premium
Conviction of a crime arising out of acts increasing the hazard
insured against
Discovery of fraud or material representation
Discovery of willful / reckless acts / omissions increasing the
hazard insured against
Physical changes in the property insured which result in the
property becoming uninsurable
Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured.
Commissioner determines that continuation of the policy would
violate the Code.

1.
2.

NO MATERIAL CONCEALMENT WHEN: (9)

1.
2.

REQUISITES OF CANCELLATION: (4)

3.
4.

1.
2.

5.

3.
4.

Prior notice of cancellation to insured

Notice must be based on the occurrence after effective date of
the policy of one or more grounds
Must be in writing, mailed or delivered to named insured at the
address shown in the policy or to his authorized broker actual
receipt is necessary.
Must state grounds

RENEWAL OF POLICY insured has the right to renew non-life

policy by simply paying the premium due on the effective date of the
renewal. He however, will not have the right to renew if notice of the
intention not to renew is given by the insurer at least 45 days prior to
expiration of the policy.
REFORMATION OF POLICY can happen when what was agreed
upon is different from what is written in the policy. Court has the
power to reform the contracts and give effect to them in the sense
which the parties intended to be bound. It must be made clearly
though that the minds of the contracting parties did actually meet in
agreement to begin with.

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 if there

was a mistake, not necessary that there be reformation of the policy.

ASCERTAINING &
CONTROLLING RISKS

CHAPTER SIX:

CONCEALMENT a neglect to communicate that which a party

knows and ought to communicate/

Each party to a contract must communicate to the other, in

good faith, all facts within his knowledge which are material to

It was the duty of the agent to acquire and communicate

information of the facts in question
It was possible for the agent, in the exercise of reasonable
diligence, to have made such communication before the making
of the insurance contract.

6.
7.
8.
9.

Matters are known to the other party.

In the exercise of ordinary care, one party ought to know, and of
which the other party has no reason to suppose him ignorant.
When there is waiver of communication.
When matters are those which prove / tend to prove the
existence of risk excluded by a warranty and which are not
material.
When matters are those which relate to a risk accepted from
the policy and which are not material.
When the matter involves general causes that are open to
inquiry of each party and which may affect the political or
material perils.
When matter is included in general usages of trade
Information of the nature or amount of the insured property is
not disclosed unless in answer to an inquiry.
When what is involved is information of the partys own
judgment upon the matters in question.

JUDGMENT OR OPINION neither party is bound to disclose

information of his own judgment upon matters in question. Opinions
need not be communicated.
KNOWLEDGE OF THE INSURER when the insurer at the time of
issuance of policy, had knowledge of existing facts which would
actually invalidate the contract from its very inception, such
knowledge constitutes a waiver of conditions in the contract
inconsistent with the facts, and the insurer is estopped from
asserting breach of such conditions.
KNOWLEDGE OF THE FACT CONCEALED actual knowledge of the
insured is not necessary to give the insurer the right to avoid the
policy on the ground of concealment.
WAIVER OF INSURER when upon the face of the application a
question appears to be not answered at all or be imperfectly
answered and the insurers issue a policy without any further inquiry,
they waive the imperfection of the answer and render the omission
to answer more fully immaterial.
REPRESENTATION statements made to give information to the
insurer to induce him to enter into the insurance contract. It is a
collateral communication made to the other party in writing / word
of mouth.

REMEDY: in case of misrepresentation or false representation,

aggrieved party can rescind.

8|INSURANCE LAW (AQUINO)

XPNS: (3)
o When there is a waiver
o When an action has already been commenced on the
contract
o When the incontestable clause applies
o Insurer can still rescind the policy even if it accepted the
premium despite knowledge of the ground for rescission
provided that other defenses are not available like the
incontestability clause.

TIME OF REPRESENTATION made at the time of, or before,

issuance of the policy.
NATURE OF REPRESENTATION: (2)
1.
2.

Affirmative
Promissory

Written
Oral

REPRESENTATION AS TO AGE a misstatement of age of the

insured does not avoid the policy. The only result is that benefits
that will be paid will be equal to what the premium paid by the
insured would have purchased if the aged has been correctly stated.

Written on the policy / rider

Presumed to be material
There must be strict compliance

CONDITIONS in the nature of collateral terms. They do not relate

to the risk covered or statement of facts but are in the nature of
collateral promises or stipulations

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, the insurer cannot prove that the policy is void ab
initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent (fuck this shit. I dont
understand.)

REPRESENTATION

1.
2.

Involves positive assertion /

affirmation

3.

Concealment cannot refer to

future acts

Can pertain to the future

because it can be promissory

Test of materiality applies

Same test applies

Remedy: rescind

Remedy: rescind

Involves
omission
nondisclosure

Must be established to be
material
Must be substantially true

WHEN NOT APPLICABLE: (3)

DISTINCTIONS & SIMILARITIES:

CONCEALMENT

REPRESENTATION
Not part of the contract but
a collateral inducement
Can be oral / in writing

INCONTESTABLE CLAUSE 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.

KINDS OF REPRESENTATION: (2)

1.
2.

WARRANTY
Part of the contract

Non-payment of premium
Violation of conditions of the policy relating to military or naval
service in times of war
Property insurance

DEFENSES OF INSURED AGAINST REVOCATION: (4)

1.
2.
3.
4.

Guaranteed insurability clause

Failure to invoke before commencement of the action
Waiver
Estoppel

CHAPTER SEVEN:

INTERPRETATION representations are construed liberally in favor

of the insured and are required to be only substantially true.
WARRANTIES an affirmation of fact or promise that forms part of
the terms and conditions of the policy. It may relate to the past,
present, future.

LOSS AND NOTICE OF

LOSS

KINDS OF WARRANTIES: (4)

LOSS injury or damage sustained by the insured in consequence

of the happening of one or more of the accidents or misfortune
against which the insurer, in consideration of the premium, has
undertaken to indemnify the insured.

1.

2.
3.
4.

Express 2 ways:
a. Must be contained in the policy itself
b. May be expressed in another instrument provided
that the separate instrument is signed by the insured
and referred to in the policy.
Implied natural element of the contract imposed by law and
are part of the policy without the need to be stated in the policy.
Affirmative affirmation of the fact that exist at the time they
are made; undertaking that some positive allegation of fact is
true.
Promissory stipulates that certain things shall be done or
specified conditions shall exist during the currency of life of the
insurance contract. One party is bound by executory stipulation.

Pecuniary detriment consisting of the total cash value of the

property in case of total loss or the reduction of the value
thereof in case of partial loss. (Property insurance)
In life insurance, loss is when the person insured dies; in health
insurance, loss occurs in case of injury to or disability of the
insured.

PROXIMATE CAUSE that cause which, in natural and continuous

sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred.
REMOTE CAUSE that cause which some independent force
merely took advantage of to accomplish something which is not the
natural effect thereof.

BREACH OF WARRANTY BY THE INSURED renders the contract

defeasible. 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.

EFFICIENT CAUSE the proximate cause of the loss is that cause

proximate to the loss, not necessarily in time, but in efficiency

RULES UNDER THE IC:

REMEDY: Rescission

BREACH WITHOUT FRAUD merely exonerates an insurer from the

time that it occurs, or where it is broken in its inception, prevents the
policy from attaching to the risk.

IMMEDIATE CAUSE suggests proximity in time to the loss.

1.

2.
3.

Insurer is liable if the peril insured against is the proximate

cause of the loss; the liability is present even if it is
accompanied by a remote cause or an immediate cause and
whether or not such causes (R & I) are excepted perils.
Insurer in not liable if the peril insured against is the remote
cause.
Insurer is liable if the thing insured is damaged because it was
being rescued from the peril insured against.

9|INSURANCE LAW (AQUINO)

4.
5.
6.

Insurer is liable for damages cause by a peril not insured

against to which the thing was exposed while the same was
being rescued from a peril insured against.
Insurer is liable if the peril insured against is the immediate
cause of the loss if the proximate cause is not an exempted
peril.
Insurer is not liable if the peril insured against is the immediate
cause but the proximate cause is an excepted peril.

CHAPTER EIGHT:

CLAIMS SETTLEMENT
AND SUBROGATION

CLAIMS SETTLEMENT: The liability of the insurer attaches the

moment the risk insured against causes loss to the insured.

CONCURRENT CAUSES the issue is whether the insurer is liable if

the peril insured against is only one of the concurrent causes. When
the insurance policy provides coverage for losses produced by some
causes, and excludes coverage for losses from other causes, courts
frequently hold that coverage extends to the loss even though an
excluded element is a contributory cause.

Section 247 No insurance company doing business in the

Philippines shall refuse, without just cause, to pay or settle claims
arising under coverages provided by its policies, nor shall any such
company engage in unfair claim settlement practices.

ADJUSTER

Employed by the insurer to settle in behalf of the insurer the

claim of the insured.

Evaluates the insurance claim and makes the proper

recommendation to the insurer.

Does not assume personal liability.

Independent Adjuster any person, partnership, association or

corporation which, for money, commission or any other thing of
value, acts for or on behalf of an insurer in the adjusting of
claims arising under insurance contracts or policies issued by
such insurer.

Public Adjuster - any person, partnership, association or

corporation which, for money, commission or any other thing of
value, acts for or on behalf of an insured in negotiating for, or
effecting, the settlement of a claim or claims of the said insured
arising under insurance contracts or policies, or which
advertises for or solicits employment as an adjuster of such
claims.

Recovery may be allowed where the insured risk was the last
step in the chain of causation set in motion by an uninsured
peril, or where the insured risk itself set into operation a chain of
causation in which the last step may have been excepted risk.
Where two proximate causes join in causing an injury one of
which is insured against, the insurer is liable under the policy
irrespective of the eventuality that there is another concurrent
proximate cause which constitutes an uncovered risk.

NEGLIGENT AND INTENTIONAL ACTS OR OMISSIONS

Insurer is not liable for losses caused by intentional acts of the

insured
Insurer is liable if the loss was caused through negligence.
Such negligence or recklessness must be of such gross
character as to amount to misconduct or wrongful acts;
otherwise, such negligence shall release the insurer from
liability under the insurance contract.

NOTICE OF LOSS parties may agree on a stipulation in the policy

that notice should be given within a certain period from the time of
the loss. Parties may agree that the absence of notice of loss within
the period agreed upon will extinguish the loss.

A claim within the period of giving notice is already deemed

compliance with the requirement.
In fire insurance, notice of loss is mandatory.
Notice may be given by the insured or the beneficiary.
Notice will be considered immediate if given as soon as
circumstances permitted the insured, in the exercise of
reasonable diligence, to communicate it. (within a reasonable
time)
It is sufficient that there is substantial compliance.

PROOF OF LOSS it is not required for the insured to submit a

preliminary proof of loss unless there is a stipulation in the policy
requiring submission of proof of loss.

Give the best evidence which he has in his power to submit at

that time.
If the claim is denied and the insured is constrained to file a
case in court, the burden of proof is on the insured to prove his
loss because the same is art of his cause of action.
(preponderance of evidence)

INSURANCE ADJUSTING the function of loss payment.

UNFAIR CLAIMS SETTLEMENT PRACTICES any of the following, if

committed by an insurance company without just cause and
performed with such frequency as to indicate general business
practice, may result in the suspension or revocation of their
Certificate of Authority:
1.
2.
3.
4.
5.

LIFE INSURANCE POLICY

DEFECTS IN NOTICE AND PROOF

All defects in a notice of loss or in preliminary proof thereof,

which the insured might remedy, and which the insurer omits to
specify to him, without unnecessary delay, as grounds of
objection, are waived.

3 CASES WHEN DELAY IS EXCUSED:

1.
2.
3.

Knowingly misrepresenting to claimants pertinent facts or

policy provisions relating to coverage at issue;
Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its
policies;
Failing to adopt and implement reasonable standards for the
prompt investigation of claims arising under its policies;
Not attempting in good faith to effectuate prompt, fair and
equitable settlement of claims submitted in which liability has
become reasonably clear; or
Compelling policyholders to institute suits to recover amounts
due under its policies by offering without justifiable reason
substantially less than the amounts ultimately recovered in
suits brought by them.

Delay is attributable to the insurer

No prompt objection
There was objection but not specifically on the ground that
there was delay of notice or proof of loss.

Proceeds shall be paid immediately upon maturity of the policy;

except when the policy provides that the proceeds are payable
in instalments or as an annuity, in which case, they may be paid
as they become due.
Policy maturing by the death of the insured proceeds shall be
paid within 60 days after presentation of claim and filing of the
proof of the insureds death; shall include the discounted value
of all premiums paid in advance of their due dates, but are not
due and payable at maturity.
Refusal or failure to pay the claim within the time prescribed
Beneficiary may collect interest on the proceeds of the policy
for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal
is based on the ground that claim is fraudulent.

NON-LIFE INSURANCE POLICY

Paid within 30 days after proof of loss is received by the insurer

and ascertainment of loss or damage is made either by
agreement between the insured and the insurer or by
arbitration.

10 | I N S U R A N C E L A W ( A Q U I N O )

If ascertainment of loss is not made within 60 days after such

receipt by the insurer of the proof of loss loss or damage shall
be paid within 90 days after receipt of proof of loss.
Unreasonable refusal or failure to pay loss or damage
assured may collect interest on the proceeds of the policy for
the duration of the delay at the rate of twice the ceiling
prescribed by the MB, unless such failure or refusal is based on
the ground that claim is fraudulent.
Double interest 12% (double the legal interest of 6%)
Insurer must settle the claim even without the participation of
an adjuster. Assessment of adjusters is not a prerequisite in the
settlement of the insurance claim.

may have against the third party whose negligence or wrongful

act caused the loss. (Article 2207, NCC)
The insurer, upon payment to the assured, will be subrogated to
the rights of the assured to recover from the wrongdoer to the
extent that the insurer has been obligated to pay.

REQUISITES OF SUBROGATION:
1)
2)
3)
4)

Insurance involved is property insurance;

There is a loss arising from the risk insured against;
Insured received indemnity from the insurer for the loss;
Indemnity is covered by the face value of the policy.

UNREASONABLE DENIAL OR WITHHOLDING OF CLAIM

NO SUBROGATION in the following instances:

1.

Prima facie evidence of unreasonable delay in payment

Failure to pay any such claim within the time prescribed.
Interest and Damages insurance company shall be adjudged
to pay attorneys fees, other expenses incurred by the insured
by reason of such unreasonable denial or withholding of
payment, interest of 12%, and the amount of the claim.
The delay must be wanton, oppressive, or malevolent.
Evidences and circumstances must show that the refusal was
wilful and without reasonable cause as the facts appear to a
reasonable and prudent man.
No unreasonable or unjustified delay or refusal interest is 6%
per annum from the time of demand.
Mere denial of the claim does not warrant of the award of moral
and exemplary damages and attorneys fees.

2.
3.
4.
5.

2)

FRAUDULENT CLAIM

Insurer may justifiably reject a claim that is fraudulent. Denial of

the claim is also justified if the loss is grossly overvalued.
o Insurer is not obligated to pay the insured or beneficiary
who submitted such fraudulent claim.
Criminally liable under Sec 251:
o Person who presented the fraudulent claim;
o Caused the filing of the fraudulent claim;
o Prepared or made the fraudulent claim with intent to
present or use the same, or allow it to be presented in
support of any such claim;
o Subscribed any writing with intent to present or use the
same, or to allow it to be presented in support of any such
claim.
Insured is not entitled to a return of premium. (Sec 82 of IC, as
amended by RA10607)
Padding a claim = fraud (United Merchants Corp vs. Country
Bankers Insurance Corp)

PRESCRIPTIVE PERIOD

IC does not provide for a prescriptive period for the filing of a

complaint for the recovery of proceeds of the insurance.
In the case of Compulsory Third Party Liability Insurance 1
year
Parties may stipulate a prescriptive period in the policy, subject
to the limitation under Sec 63: A condition, stipulation or
agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period to a period of
less than 1 year from the time when the cause of action
accrues, is void.
The right of the insured to the payment of his loss accrues from
the happening of the loss. The cause of action in an insurance
contract does not accrue until the insureds claim is finally
rejected by the insurer.
Prescriptive period stipulated is not tolled if the insured sends a
letter to the insurer asking for clarification of the grounds for
cancellation of policy.
If no prescriptive period is provided for in the policy, the
prescriptive period is 10 years from the rejection of the claim by
the insurer. (Article 1144 of the NCC)

SUBROGATION

Subrogation is an arm of equity that may guide or even force

one to pay a debt for which an obligation was incurred but
which was in whole or in party paid by another.
Payment by the assurer to the assured operates as an equitable
assignment to the assurer of all remedies which the assured

3)
4)

The assured by his own act releases the wrongdoer, or third

party liable for the loss or damage, from liability.
Insurer pays the assured the value of the lost goods without
notifying the carrier who has in good faith settled the assureds
claim for loss.
Insurer pays the assured for a loss which is not a risk covered
by the policy.
Life insurance
If the claim of the insured against a third party is limited, the
right of subrogation of the insurer is likewise limited. (e.g. cases
where the assured is limited by a bill of lading in common
carriers)
If the amount recoverable by the insured from the person who
caused the loss is more than the face value of the policy, the
insurer can only recover from the person who caused the loss
the amount that it actually paid to the insured.
If the claim of the insured is subject to a prescriptive period, the
claim of the insurer is also subject to the same prescriptive
period.
Whether or not the insurer should exercise the rights of the
insured to which it had been subrogated lies solely within the
formers sound discretion.

CHAPTER NINE :

DOUBLE INSURANCE

DOUBLE INSURANCE exists where the same person is insured by

several insurers separately in respect to the same subject and
interest.
REQUISITES
1.
2.
3.
4.
5.

Same person is insured;

Two or more insurers insured the person separately;
Insurance is over the same subject
Same interest is involved;
Same peril is insured against.

There can be double insurance in life insurance, but there can

never be over-insurance. Any amount would be inadequate
because of the intrinsic value of life.

NO GENERAL PROHIBITION AGAINST DOUBLE INSURANCE

XPN: The insurance policy can be rescinded upon discovery of

other insurance coverage that makes the total insurance in
excess of the value of the property insured. (Section 64(f), IC, as
amended by RA 10607)

Taking other insurance coverage is not prohibited provided that

the total insurance is not in excess of the value of the property
insured.

Taking of another insurance policy over the same property may

also be prohibited by stipulation in the Other Insurance
Clause. It may appear in different forms, including:
o A condition that states that procurement of additional
insurance without the consent of the insurer renders void
the policy ipso facto.
o A provision that requires the insured to disclose the
existence of any other insurance on the property.
Otherwise, the contract may be avoided for material
concealment.

11 | I N S U R A N C E L A W ( A Q U I N O )
o

A warranty that there is no other existing insurance over

the same property.

OVER-INSURANCE

There is over-insurance if the insured takes out an insurance

over the property insured in an amount which is in excess of the
value of his insurable interest.
It may exist even if there is only one insurer and one policy, or
even in double insurance.
It doesnt follow, however, that there will be over-insurance if
there is double insurance.

The original insured may be allowed to directly sue the reinsurer if

the reinsurance policy contains a stipulation pour autrui in favor of
the original insured.
Reinsurer not a party in an action against the insurer.
The original insured may likewise directly sue the reinsurer if the
insurer-reinsured assigns the proceeds of the reinsurance policies
to the original insured.
DOUBLE INSURANCE VS. REINSURANCE

RULES IN CASE OF OVER-INSURANCE BY DOUBLE INSURANCE

It is necessary to determine from whom and how much can the

insured recover and the rights of the insurers inter se.
Insured cannot recover more than what he lost.
This is true only with respect to property insurance.
Section 96 of the IC provides:
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, any sum received by him under any other
policy shall be deducted from the value of the policy
without regard to the actual value of the subject matter
insured;
c) Where the policy under which the insured claims is an
unvalued policy, any sum received by him under any policy
shall be deducted against the full insurable value, for any
sum received by him under any policy;
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 ratable to the loss in proportion to
the amount for which he is liable under his contract.
Section 96 applies if there was prior consent of the insurers in
taking the insurance or double insurance; not prohibited in the
policy even if the total coverage is in excess of the value of the
property.
Where the policy under which the insured claims is an unvalued
policy, any sum received by him under any policy shall be
deducted against the full insurable value, for any sum received
by him under any policy. (modification for 96(b))

CHAPTER TEN :

REINSURANCE

REINSURANCE

One by which an insurer procures a third person to insure him

against loss or liability by reason of such original insurance.
An agreement between two parties, called the reinsured and
reinsurer, respectively, whereby the reinsurer agrees to accept a
certain fixed share of the reinsureds risk upon terms set out in
the agreement.
Presumed to be a contract of indemnity against liability, and not
merely against damage.

PARTIES

Reinsured original insurer; ceding company; direct-writing

company
Reinsurer

ORIGINAL INSURED HAS NO INTEREST IN A CONTRACT OF

REINSURANCE:

Original insured cannot file an action to recover from the

reinsurer even if he has difficulty in recovering from the original
insurer.

DOUBLE INSURANCE
The insurer remains in
such capacity only.

1.

2.
3.

Only one insured.

Subject matter
property insured.

2. Two separate insured.

3. Subject matter is the
liability of the insured.

4.

Same interest as insured.

5.

Same peril is insured

against
in
separate
policies.

1.

is

the

REINSURANCE
Insurer becomes an
insured.

4.
Involves
separate
interests.
5. Different perils are
insured against in separate
policies.

REINSURANCE VS. CO-INSURANCE

REINSURANCE
Two
separate
contracts
are
involved.
The liability is fixed in
a separate contract
between
different
parties.
Insured
will
not
shoulder part of the
loss contemplated by
the
reinsurance
contract.
Not mandated by law
in marine insurance.

1.
2.

3.

4.

CO-INSURANCE
1. Only one contract.
2. Obligation on the part of the
insured is fixed by law or in a
clause stipulated upon.
3. Insured will share in the loss
contemplated by the original
contract.
4. Co-insurance is provided by
law in marine insurance.

KINDS
1. Facultative Reinsurance an optional, case-by-case method
used when the ceding company receives an application for
insurance. The reinsurer is under no obligation to accept the
insurance.
Advantage: flexibility, since the reinsurance contract can be made to
fit a particular case.
Facultative used to define the right of the reinsurer to accept or
not to accept participation in the risk insured. Once the share is
accepted, the obligation is absolute and the liability can be
discharged only by payment of the share of the losses.
Insurer must communicate: 1. Representations of the original
insured, and 2. Knowledge and information he possesses whether
previously or subsequently acquired.
2. Automatic Treaty

Involves a prior agreement between the insurer and the

reinsurer that the reinsurer is compelled to accept what is being
ceded by the insurer.
The reinsurer will no longer decide whether to accept the
insurance or not. Hence, representations or other information
need not be disclosed by the insurer because the reinsurer is
compelled to accept what is being ceded.
a)
b)

Quotashare Treaty insurer and reinsurer agree to

share losses and premiums based on some proportion.
Surplus-share Treaty reinsurer accepts in excess of the
ceding companys retention limit up to a maximum
amount.

12 | I N S U R A N C E L A W ( A Q U I N O )
c)
d)

Excess-of-loss Treaty losses in excess of the retention

limit are paid by the reinsurer up to some maximum limit.
Often used for catastrophic loss.
Reinsurance Pool it is an organization of insurers that
underwrites reinsurance on a joint basis.

which is the limit of liability under the real and

hypothecary nature of maritime law and its
consequent limited liability rule. This includes when
ship owner itself was negligent.
iv.
Water Pollution Liability
3. Insurance over the cargo insure that goods are being
shipped against loss or damages.
i. Trip or Single Risk Cargo Policy particular shipment
of goods
ii. Open Cargo Policy insures all its shipments
described in the policy, irrespective of route, time of
shipment or class of approved vessel.

Before entering into a treaty, the reinsured must give

information on:
a)
b)
c)
d)
e)

The standing and reputation of the reinsured;

Experience and quality of its management;
General underwriting policy of the reinsured;
Companys limit of retention and their relationship with the
total premium income;
Different areas from which the business is derived.

INSURABLE INTEREST The reinsured has no interest in the

property or life that is originally insured. Insurable interest is
complied with by the fact that the reinsured has issued the original
policy and accepted liability to its original insured.

6.

OBLIGATION AND MEASURE OF LIABILITY:

The reinsurer is obligated to pay the insurer the moment the latter is
exposed to liability. The extent of the liability of the reinsurer is
measured by the extent of the liability of the reinsured under the
original policy and the amount of the reinsurance.
GOOD FAITH:
The foundation of reinsurance are the following:
1.
2.

Full information, so far as possessed by the reinsured as to the

risk on which the reinsurance is requested;
Full information as to the amount retained by the reinsured on
the identical property which the reinsurance is requested.

KINDS OF MARINE INSURANCE:

1.

OCEAN MARINE INSURANCE

Defines MI as an insurance against risks connected with
navigation, to which a ship, cargo, freightage, profits or other
insurable interest in movable property, may be exposed during a
certain voyage or a fixed period of time.

KINDS OF OCEAN MARINE INSURANCE:

5.

Compulsory Passenger and Cargo Liability Insurance

MARINA RULES compulsory insurance of P200, 000 for each

passenger is imposed on ship-owners/ operators. In addition,
an insurance coverage for each survivor of a maritime accident
of P500, 000 is likewise required.

CLAIMS SETTLEMENT the insurance company shall pay any

claim for death or bodily injury sustained by a manifested passenger
without the necessity of proving fault or negligence on the part of
the car carrier. Immediate payment upon presentation of the ff
proofs:
a.
b.

CANCELLATION same grounds as ordinary insurance policies.

INSURANCE

Insurance over freightage and income may cover loss of

freightage for failure to complete the voyage or delivery of
the goods.

PERIOD COVERED attaches from the time the passenger sets foot
on the boarding gangway or ladder leading to the deck, continues
during the entire course of the voyage covered by the ticket until the
passenger shall have left the disembarking gangway at the port of
destination.

BORDEREAU the policy form shows loss history and premium

history with respect to specific risks.

CHAPTER ELEVEN: MARINE

4.

7.

Death death certificate and sufficient evidence to

establish the proper payee.
Bodily injury resulting in permanent disability certification
from a licensed physician.

INLAND MARINE INSURANCE

MI may likewise cover risks that do not relate to navigation itself
or transit of goods and passengers.
a. Insurance policies over goods that are being imported or
exported
i. Goods being assembled, packed, crated, baled,
compressed or similarly prepared for shipment or while
awaiting shipment;
ii. Bailee policies for goods in storage.
b. Insurance over means of and infrastructure for
transportation and communications
c. Personal property floaters protection follows the insured
properties wherever they may be found or located.

8. AVIATION INSURANCE insurance over an aircraft is included

Insurance over the vessel, craft and other conveyances
in Marine Insurance.
a. Aircraft Hull Policy covers all risks ground and flight

Different policies over the vessel include:

Hull policies for the loss/damage to the vessel;

PERIOD COVERED MI policies must state the period covered by
further classified according to vessel/nature of
the insurance.
water being navigated.

Builders risk policy relates to construction, 1. Warehouse to Warehouse Clause

conversion, and repair of the hull.
2. Lost or not lost clause covered even if they may have been

Port risk only policy covers perils to which the

destroyed already at the time of the issuance of the policy.
vessel might be exposed while in port.
3. At and from clause effective while the vessel is at and from

Fleet Policies fleet of ships

a designated port.

Full form policy total and partial loss

Total loss only policy total loss only and is 9. RISKS INSURED AGAINST
resorted to for obtaining favorable premium rate.
a. All Risk Policy insures against all conceivable causes of
loss or damage except as otherwise excluded in the policy
2. Insurance against liability protects the owner against
or one due to fraud or intentional misconduct on the part of
liability to other persons.
the insured. It covers all losses during voyage whether
i. Running down clause insures liability for collision
arising from a marine peril or not.
ii. Marine protection and indemnity insurance against
i.
USUAL EXCLUSIONS:
legal liability of the insured for loss, damage, or
1. Free of Capture and Seizure (FC&S) clause
expense, including liability of the insured for personal
losses caused by war, piracy, or any lawful or
injury, illness or death or for loss/damage to the
unlawful taking/seizure of the vessel/cargo.
property of another.
2. Strikes, riots and civil commotion (SR&CC) clause
iii. Excess protection and indemnity insurance
damage/liability in excess of the value of the ship
1.

13 | I N S U R A N C E L A W ( A Q U I N O )
b.

Named Perils Policy - specifies the perils insured against

in the Perils Clause
i.
Perils of the sea refers only to fortuitous accidents
or casualties of the seas; do not include the natural
and ordinary action of the sea or wave which may
result in what may be described as wear and tear;
restricted to accidents/misfortunes only as proceed
from mere sea-damage.
ii.
Perils of the ship results from the natural and
inevitable action of the sea, from the ordinary wear
and tear of the ship, or from the negligent failure of the
ships owner to provide the vessel with proper
equipment.
iii.
Perils:
1. Fire and related perils
2. Jettison where the goods are thrown overboard
to save other cargoes/the ship.
3. Barratry an act committed by the master o crew
of the ship for some unlawful or fraudulent
purpose contrary to their duty to the ship owner.
4. Assailing Thieves theft of cargo committed by
force and does not include clandestine (done
secretly) theft, pilferage (stealing things of little
value), or theft by passengers or crew.
5. All other like perils

CLAUSES THAT MODIFY COVERAGE:

1.

2.
3.
4.
5.
6.
7.

Inch Maree Clause included in a hull policy to cover loss or

damage through the bursting of the boiler, breaking of shafts or
through latent defects of the machinery and equipment, hull or
its appurtenances and faults or errors in the navigation or
management of the vessel. Must be expressly provided for.
Running Down Clause makes insurer liable in collision cases.
Delay Clause exempts insurer from liability if there was delay
in the voyage.
Sue and Labor (S&L) clause requires insured and his
representative to take all reasonable steps that are necessary to
limit or reduce an imminent loss.
Protection & Indemnity (P&I) Clause insures the ship owner
from liability for damages cause by the ship to wharves, piers &
other harbor installations.
Institute War Clause (IWC) insurance covers risks covered by
FC&S.
Memorandum Clause list of goods for which insurer will be
liable unless damage exceeds a stated percentage of total
value.

freightage in advance & without obligation to refund the same in

case of loss.
PROFITS one who has interest in the thing from which profits are
expected has an insurable interest in the profits.

CONCEALMENT

EXCEPTIONS:
Sec. 112: A concealment in a Marine Insurance, in respect to any of
the ff matters, does not vitiate the entire contract, but merely
exonerates the insurer from a loss resulting from the risk concealed:
1.
2.
3.
4.
5.

A.
B.
C.
D.

Ship owner because of ownership

Charterer to the extent that he is liable to be damnified by its
loss.
Lender on Bottomry up to the extent of the loan.
Mortgagee because he will be damnified by its loss.

Goods in transit buyer or consignee has insurable interest

over the goods even if there still is no transfer of ownership
while in transit.

INSURANCE OVER FREIGHTAGE AND INCOME ship owner has an

insurable interest over the expected freightage, and the charterer
may likewise have the same.

Ordinary Insurance
Belief and expectations of
third persons need not be
disclosed

Marine Insurance
Beliefs and expectations of
third persons as to material
facts should be disclosed.

General rule is that the

insurer
is
always
exonerated even if the
matter concealed is not the
cause of the loss.

In cases enumerated in
Sec112, the insurer is
exonerated only if the same
are the causes of the loss.

REPRESENTATION statements made to give information to the

insurer and otherwise induce him to enter in the insurance contract.

INSURANCE OVER CARGO both ship owner and shipper have

insurable interest.
A.

National character of the insured

Liability of the thing insured to capture and detention
Liability to seizure from breach of foreign laws of trade
Want of necessary documents
Use of false and simulated papers

Concealment in ordinary insurance vs. Concealment in marine

insurance

INSURABLE INTEREST IN MARINE INSURANCE consistent with

the general rule on insurable interest.
INSURABLE INTEREST OVER THE SHIP:

Each party is bound to communicate all the information which

he possesses material to the risk.
Information of the belief or expectation of a third person, in
reference to a material fact, is material. (Sec 110)

Example: if a third person believes there is something

wrong with the engine, the insured is bound to disclose the
same belief because it has reference to a material fact.
Presumption a person insured by a contract of MI is
presumed to have knowledge, at the time of insuring, of a prior
loss, if the information might possibly have reached him in the
usual mode of transmission and at the usual rate of
communication.
General rule: the insurer may rescind the insurance contract
even if the risk concealed is not the cause of the loss.

Representation in marine insurance is material if it will affect

the decision of the insurer to take the risk or to fix the premium
and other terms and conditions of the policy.
Section 113. If a representation by a person insured by a
contract of MI, is intentionally false in any material respect, or in
respect of any fact on which the character and nature of the risk
depends, the insurer may rescind the entire contract.
Expectations of the insured are not material unless it will
amount to a promissory representation. It is true if it is made in
good faith; the contract will be avoided if there is fraud.

IMPLIED WARRANTIES

When interest exists insurable interest over expected freightage

arises:

WARRANTY OF SEAWORTHINESS
a. Able to withstand the rigors of the voyage and that it has
been properly laden, provided with competent crew and
equipped with appropriate appurtenances and equipment.

b.

Reasonably fit to perform the service and to encounter the

ordinary perils of the voyage contemplated by the parties to
the policy. (Sec 116)

c.

Cargo worthiness A ship, seaworthy for the purpose of

insurance upon the ship may, nevertheless, by reason of
being unfitted to receive the cargo, be unseaworthy for the
purpose of the insurance upon the cargo. (Sec 121)

If there is a charter party ship has broken ground on the

chartered voyage.
In carriage of goods goods are actually on board or there is
some contract for putting them on board, and both ship and
goods are ready for voyage.

ADVANCE FREIGHTAGE ship owner has no insurable interest over

the freightage if the shipper or chatterer had already paid the

1.

14 | I N S U R A N C E L A W ( A Q U I N O )
c.
d.

e.

Waiver warranty of seaworthiness is waived if the insurer

paid the insured the value of the lost cargoes. But this
waiver does not mean that the insurer can no longer raise
the fact that the vessel is not seaworthy when said insurer
will exercise its right of subrogation against the party who
is at fault.
When must the ship be seaworthy
1. Voyage policy at the commencement of the voyage.
2. Time policy at the commencement of every voyage
commenced during the stipulated time.
3. Voyage in stages at the commencement of each
portion or stage.
4. Port policy at the time vessel is exposed to any risk
at the port.
5. Cargo policy and the goods are to be transshipped
at the commencement of each particular voyage.

d.

GR: only the commencement of the voyage is the reckoning point to

determine if the implied warranty of seaworthiness was complied
with. If the vessel becomes unseaworthy after the commencement
of the voyage, there is no breach of warranty. Exception: When the
ship becomes unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in repairing the defect
exonerates the insurer on ship or ship owners interest from liability
from any loss arising therefrom. (Sec 120)
2.

DOCUMENTS OF NATIONALITY OR NEUTRALITY

a. The vessel has the requisite documents of nationality or
neutrality if nationality or neutrality is expressly warranted;
b. The vessel will not carry documents that will cause
reasonable suspicion on its nationality or neutrality if
nationality or neutrality is expressly warranted.
c. It is the presence and absence of these documents that will
case suspicion that are impliedly warranted.

3.

4.

LEGALITY
There is an implied warranty that the adventure is a lawful
one and that so far as the insured can control the matter,
the adventure shall be carried out in a lawful matter.

VOYAGE & DEVIATION

The course of the voyage shall be determined in the ff
order:

Course agreed upon by the parties;

If nothing was agreed upon, one which conforms to

the course of sailing fixed by mercantile usage;

If there is no mercantile usage, one which a master of

ordinary skill and discretion would find to be the most
natural, direct and advantageous.

Deviation departure from the course of voyage insured;

or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage. In case of
improper deviation, insurer will not be liable.

Proper deviation (Sec126)

Caused by circumstances over which neither the

master nor ship owner has any control;

Necessary to comply with a warranty, to avoid a

peril, whether or not the peril is insured against;

Made in good faith and upon reasonable grounds

of belief in its necessity to avoid a peril;

Made in good faith for the purpose of saving

human life or relieving another vessel in distress.

LOSS injury or damage sustained by the insured in consequence

of the happening of one or more of the accidents/misfortune insured
against by the marine insurer.
KINDS OF LOSS
1. TOTAL LOSS
A.

Actual Total Loss if the subject-matter is destroyed or so

damaged as to cease to be a thing of the kind insured or
where the insured is irretrievably deprived thereof. Actual
total loss is caused by:
a. Total destruction of the thing insured;
b. Irretrievable loss of the thing by sinking or by being
broken up;

Any damage to the thing which renders it valueless to

the owner for the purpose for which he held it;
Any other event which effectively deprives the owner of
the possession, at the port of destination, of the thing
insured.

B.

Constructive Total Loss (Commercial total loss or

conventional total loss) the thing insured has been
reduced to such a state or placed in such a position by the
perils insured against as to make its total destruction or
annihilation though not inevitable, yet highly imminent or its
ultimate arrival under the terms of the policy, though not
utterly hopeless, yet exceedingly doubtful.

C.

Presumed Actual Total Loss

a. Continued absence of the ship for a considerable length
of time;
b. The vessel has not been heard of.

D.

Reshipment
a. If the goods are reshipped, the insurance over the goods
continue when they are thus reshipped;
b. The insurer may require the additional premium if the
hazard is increased by this extension of liability;
c. The marine insurer is bound to pay for damages,
expenses of discharging, storage, reshipment, extra
freightage, and all other expenses incurred in saving
cargo reshipped pursuant to the last section, up to the
amount insured; and
d. The marine insurer shall not be liable for any amount in
excess of the insured value or, if there be none, of the
insurable value.

ABANDONMENT the act of the insured by which, after a

constructive total loss, he declares the relinquishment to the insurer
of his interest in the thing insured.
REQUISITES FOR A VALID ABANDONMENT:
1. There must be actual relinquishment by the person insured of his
interest in the thing insured;
2. There must be constructive total loss;
3. Abandonment be neither partial nor conditional;
4. Made within a reasonable time after receipt of reliable
information of the loss;
5. Factual;
6. Made by giving notice thereof to the insurer which may be done
orally or in writing; and
7. Notice of abandonment must be explicit and must specify the
particular cause of abandonment.
EFFECTS OF ABANDONMENT:

Equivalent to a transfer by the insured of his interest to the

insurer, with all the chances of recovery and indemnity.
If a marine insurer pays for a loss as if it were an actual total
loss, he is entitled to whatever may remain of the thing insured,
or its proceeds or salvage, as if there had been formal
abandonment.
Acts done in good faith by those who were agents of the
insured in respect to the thing insured, subsequent to the loss,
are at the risk of the insurer and for his benefit.
On an accepted abandonment of a ship, freightage earned
previous to the loss belongs to the insurer of said freightage;
but freightage subsequently earned belongs to the insurer of
the ship.

ACCEPTANCE OF ABANDONMENT:

If all requisites for a valid abandonment are present, the insurer

may not reject the abandonment.
The insured would still be entitled to compensation for total loss
despite the refusal of the insurer to accept.
Acceptance may be express or implied. Mere silence of the
insurer for an unreasonable length of time after notice shall be
construed as acceptance.
Once made and accepted, it is irrevocable, unless the ground
upon which it was made proves to be unfounded.

EFFECT OF FAILURE TO ABANDON if a person insured omits to

abandon, he may nevertheless recover his actual loss.

15 | I N S U R A N C E L A W ( A Q U I N O )
MEASURE OF INDEMNITY affected by the type of policy involved.
a)
b)

Valued Policy conclusive upon the parties except when there

is fraud when the valuation was fixed.
Open Policy the determination of the value is governed by the
ff:
a. Value of the ship is its value at the beginning of the risk;
b. Value of the cargo is its actual cost to the insured, or where
the cost cannot be ascertained, its market value at the time
and place of lading;
c. Value of freightage is the gross freightage, exclusive of
primage, without reference to the cost of earning it;
d. Cost of insurance is in each case to be added to the value
thus estimated.

CO-INSURANCE CLAUSE

WHO WILL PAY GENERAL AVERAGE shall be borne by those who

benefited from the sacrifice. Art 859 of the Commerce Code
imposes a statutory obligation on the part of the marine insurer to
shoulder the share pertaining to the property that it insured. Insurer
of the vessel is obliged to pay the general average contribution
pertaining to the vessel.
SUBROGATION the insured cannot claim from the insurer the
amount of his loss if the said insurer cannot be subrogated to the
rights of the insured.
INSURED CANNOT CLAIM IN THE FF INSTANCES:
1.
2.
3.

There is already separation of interest liable to the contribution;

Insured neglects to claim contribution although he has
opportunity to enforce the same;
Insured waives the right to claim contribution.

Requisites for the application of co-insurance in marine insurance:

1.
2.

There must be partial loss;

There is under-insurance, meaning the insurance coverage is
less than the value of the property insured.

FREIGHTAGE OR CARGO if a part only of the subject is exposed to

the risk, the valuation applies only in proportion to such part.
PROFITS when profits are valued and insured by a contract of MI,
a loss of them is conclusively presumed from a loss of the property
out of which they are expected to arise, and the valuation fixes their
amount.

When profits are separately insured in a contract of MI, the

insured is entitled to recover, in case of loss, a proportion of
such profits equivalent to the proportion which the value of the
property lost bears to the value of the whole.

PARTIAL LOSS OF CARGO the loss of the insured is deemed to be

the same proportion of the value which the market price at that port,
of the thing so damaged, bears to the market price it would have
brought if sound.
SUE AND LABOR CLAUSE requires the insured and his
representative to take all reasonable steps necessary to limit or
reduce an imminent loss.
AVERAGES all extraordinary or accidental expenses which may be
incurred during the voyage in order to preserve the vessel, cargo or
both and any damage or deterioration which the vessel may suffer
from the time it puts to sea from port of departure until it casts
anchor in the port of destination, as well as those suffered by the
merchandise from the time they are loaded in the port of shipment
until they are loaded of consignment.
FREE FROM PARTICULAR AVERAGE (FPA) CLAUSE limits liability
in case of partial loss.
Two basic types of FPA Clauses:

CHAPTER TWELVE:

FIRE INSURANCE includes insurance against loss by fire,

lightning, windstorm, tornado, earthquake, and other allied risks,
when such risks are covered by extension to fire insurance policies
or under separate policies.
FIRE oxidation of a degree that is sufficient to produce a visible
flame.
Liability of the insurer will only ensue if there is a hostile fire, and not
a friendly fire.
b.
c.

a.
b.
c.
d.
e.

MEASURE OF INDEMNITY
1.
-

B. FPA-English Conditions PA not payable unless the carrying

vessel has been stranded, sunk, burnt, or in collision.

2.

REQUISITES:
1.
2.
3.
4.

There must be a common danger;

For the common safety part of the vessel or of the cargo or
both is sacrificed deliberately;
From the expenses or damages caused follows the successful
saving of the vessel and cargo;
The expenses or damages should have been incurred or
inflicted after taking proper legal steps and authority.

Alteration is on the use or condition of the thing insured;

Use or condition of the thing insured is limited in the policy;
Alteration is without the consent of the insurer;
Alteration is within the control of the insured;
Alteration increases the risk.

A contract of fire insurance is not affected by any act of the insured

subsequent to the execution of the policy, which does not violate its
provisions, even though it increases the risk and is the cause of the
loss.

GENERAL AVERAGE includes all the damages and expenses

which are deliberately caused in order to save the vessel, its cargo,
or both at the same time, from real and known risk.

Hostile fire uncontrolled; passed outside the limits

assigned to it.
Friendly fire one that is contained in its proper receptacle.

ALTERATION will prevent recovery on the policy only if the ff

requisites are present:

A. FPA-American Conditions PA not payable unless loss is

caused by the vessels being stranded, sunk, burnt, on fire or in
collision.

SIMPLE OR PARTICULAR AVERAGE all the expenses and

damages caused to the vessel or to her cargo which have not inured
to the common benefit and profit of all the persons interested in the
vessel and her cargo.

FIRE INSURANCE

Valued Policy valuation fixed on the policy shall be binding on

the parties.
An independent appraiser may be required to fix the value of the
thing insured.
Option to rebuild clause parties may stipulate that the insurer
may cause the repair, rebuilding, or replacement of the buildings
or structures wholly or partially destroyed or damaged.
Open Policy the measure of indemnity in an insurance
against fire is the expense it would be to the insured at the time
of the commencement of the fire to replace the thing lost or
injured in the condition in which at the time of the injury.

LOSSES PRODUCED BY THE OCCURRENCE OF FIRE AND ALLIED

PERILS:
1.
2.

Financial loss due to the direct physical damage of physical

property;
The indirect or consequential losses arising out of the loss of
use of the property.

Consequential losses may be covered by insurance that involve time

element, including:
a. Business interruption insurance consists of loss of earnings
comprising of the net profits that could have been realized had
the business continued and expenses that continue despite the
interruption of business.
b. Extra Expense insurance extraordinary expenses incurred in
an effort to avoid any interruption of service.

16 | I N S U R A N C E L A W ( A Q U I N O )
c. Rent insurance

MINOR AS INSURED

PROHIBITION no policy of fire insurance shall be pledged,

hypothecated, or transferred to any person, firm or company who
acts as agent for or otherwise represents the issuing company, and
any such pledge, hypothecation, or transfer hereafter made shall be
void and of no effect insofar as it may affect other creditors of the
insured.

CO-INSURANCE There will be no co-insurance without such

express stipulation.
The insurance may exclude different perils from the coverage of the
policy, including: War and related risks and intentional acts of the
insured.
WARRANTY the policy may expressly warrant that the insured
property cannot be used for stroage of inflammable substances.

SUICIDE CLAUSE the policy may provide for suicide as an

excepted peril or as a peril insured against. However, a stipulation in
the policy is not necessary for the insurer to be liable even in the
case of suicide provided that the policy has been in for period of 2
years from the date of issue or last reinstatement.

CHAPTER THIRTEEN :

LIFE INSURANCE

LIFE INSURANCE insurance on human lives and insurance

appertaining thereto or connected therewith.

Contract whereby one party insures a person against loss by

the death of another.
Contract by which the insurer, for a stipulated sum, engages to
pay a certain amount of money if another dies within the time
limited by the policy.
Contracted for insurance for one year in consideration of an
advanced premium, with the right of assured to continue it from
year to year upon payment of a premium stipulated.

VALUED POLICY LI is not a contract of indemnity. The interest of

a person insured in his or anothers life is generally not susceptible
of pecuniary measurement. Hence, measure of indemnity is
whatever is fixed in the policy.
KINDS
1.

Whole Life Insurance offers permanent protection. The life of

the person is covered for life.

Single Premium

Continuous Premium

Limited Payment Period

2.

Term Insurance insurer promises to pay the fact amount of

the policy to the beneficiary if the insured dies within a specified
period.

Contract expires without value if the insured survives the

period.

Short-term
insurance;
Long-term
insurance;
Renewable insurance; Convertible insurance

Used for short term need.

3.

Endowment Policy proceeds shall be payable to the assured,

if he lives to a certain date, and in case of his death before that
date, then they shall be payable to the beneficiary designated.

4.

Industrial Life Insurance premiums are payable either

monthly or oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of the
current statutory minimum daily wage in the City of Manila, and
if the words :industrial policy is printed upon the policy as part
of the descriptive matter.

ANNUITY IC provides that every contract or pledge for the

payment of endowments or annuities shall be considered a life
insurance for purposes of this code.

An investment, rather than a specie of insurance.

Provides protection for excessive longevity.
The person designated as the recipient is the person paying the
money. He pays in a fixed sum at one time, in return for which
the company must then perform a series of obligations over a
period of years, at designated times.

the following can exercise the rights of the minor under a life
insurance policy where he is an insured or beneficiary:
Father
Mother, but only in the absence or incapacity of the father
In the absence of the father or mother, the ff may exercise the
right without need of court appointment:
Grandparent
Eldest brother or sister at least 18 years of age
Any relative who has actual custody of the minor

Insurer is liable in case of suicide even before the 2 year period

in any of the ff cases:
a) When a shorter period is provided for in the policy;
b) Suicide was committed in the state of insanity.

ACCIDENTAL DEATH BENEFIT CLAUSE may be provided for in the

insurance policy, giving the beneficiaries additional benefits if the
death of the insured is through accidental means.
TRANSFER OF POLICY the policy of life insurance may be the
object of voluntary and involuntary transfer. Insurable interest on the
part of the transferee is not necessary. Notice to the insurer is not
even necessary.
EXEMPT FROM EXECUTION proceeds of life insurance policies
are exempt from execution under the Rules of Civil Procedure.
INSOLVENCY the assignee acquires no beneficial interest in
insurance effected on the life of the insolvent, except to the extent
that such insurance contains assets which can be realized upon as
of the date when the petition of insolvency is filed.
CONTENTS OF POLICY mandatory provision for individual life
insurance and endowment policy is provided for in Sec 233 of the IC.
GROUP LIFE INSURANCE a group of individuals are covered by
one master contract. Policyholder may be an employer who obtains
a group insurance coverage over the lives of his employees.
Mandatory provisions for GLI are in Sec 228 of the IC.
INDUSTRIAL LIFE INSURANCE mandatory provisions are in Sec
236 of the IC, and prohibited provisions are in Sec 237.