Insurance Notes – Nov.

9 would have definitely affected the

insurer's action on the application,
CONCEALMENT either by approving it with the
corresponding adjustment for a
Section 27. A concealment whether higher premium or rejecting the
intentional or unintentional entitles the same.
injured party to rescind a contract of
insurance. Who really gets to determine if the facts
concealed is material or not?
Why is good faith not a valid defense in - It is ultimately determined by the
concealment? judge (includes justices and quasi-
- Materiality of the information judicial).
withheld does not depend on the
state of mind of the insured. Why is certainty or absolute certainty
Neither does it depend on the that the insurance company was misled
actual or physical events which or deceived not required in concealment?
ensue. Thus, “good faith” is no - Taken from Sec 31 - It is enough
defense in concealment. that the facts concealed might
have probably or reasonably
Why does materiality cannot be influence the insurance company.
determined by subjective belief of one
person? Saturnino v. PhilAm Life
- A man's state of mind or subjective First argument of petitioner is that the
belief is not capable of proof in our facts subject of the representation were
judicial process, except through not material in view of the "non-medical"
proof of external acts or failure to nature of the insurance applied for,
act from which inferences as to his which does away with the usual
subjective belief may be requirement of medical examination
reasonably drawn. before the policy is issued.

Section 31. Materiality is to be The court ruled that the contention is

determined not by the event, but solely without merit. If anything, the waiver of
by the probable and reasonable influence medical examination renders even more
of the facts upon the party to whom the material the information required of the
communication is due, in forming his applicant concerning previous condition
estimate of the disadvantages of the of health and diseases suffered, for such
proposed contract, or in making his information necessarily constitutes an
inquiries. important factor which the insurer takes
into consideration in deciding whether to
How do you determine if the information issue the policy or not. It is logical to
is material or not? assume that if appellee had been
- If the insurance company had properly apprised of the insured's
known the matters concealed, it medical history she would at least have
been made to undergo medical 2) there is an alteration in said use or
examination in order to determine her condition;
insurability. 3) the alteration is without the consent
of the insurer;
Second argument is that the insurer is 4) the alteration is made by means
guilty of negligence for not requiring within the insured’s control; and
appelle to a medical examination. 5) the alteration increases the risk of
loss.
The court ruled that there is no
negligence on the part of the insurer. It *NOTE: even a minimal increase in the
was precisely because the insured had percentage risk rating may translate to
given herself a clean bill of health that substantial differences.
appellee no longer considered an actual
medical checkup necessary. Is fraudulent intent necessary to be
proven by the insurer with regards to
Last argument, there was no fraudulent concealment?
concealment of the truth inasmuch as - in order to avoid a policy it is not
the insured herself did not know, since necessary to show actual fraud on
her doctor never told her, that the the part of the insured.
disease for which she had been operated
on was cancer. Sunlife vs. CA
Must cause of death be related to the
In the first place the concealment of the fact concealed?
fact of the operation itself was - No. It is well settled that the
fraudulent, as there could not have been insured need not die of the disease
any mistake about it, no matter what the he had failed to disclose to the
ailment. Secondly, in order to avoid a insurer. It is sufficient that his non-
policy it is not necessary to show actual disclosure misled the insurer in
fraud on the part of the insured. forming his estimates of the risks
of the proposed insurance policy or
Malayan vs. PAP Co. in making inquiries.
Under Section 168 of the Insurance
Code, the insurer is entitled to rescind
Insurance notes – Nov. 11
the insurance contract in case of an
alteration in the use or condition of the
Two-year incontestability
thing insured. (RA 10607 – Sec. 170)

"Section 48. Whenever a right to rescind

Accordingly, an insurer can exercise its
a contract of insurance is given to the
right to rescind an insurance contract
insurer by any provision of this chapter,
when the following conditions are
such right must be exercised previous to
present, to wit:
the commencement of an action on the
1) the policy limits the use or condition
contract.
of the thing insured;
 Does the 2 year incontestability period
"After a policy of life insurance made award fraud?
payable on the death of the insured shall - No. Public Policy still applies in this
have been in force during the lifetime of case (not condoning fraud). The 2
the insured for a period of two (2) years year incontestability period acts as
from the date of its issue or of its last an exception being only the
reinstatement, the insurer cannot prove legislative solution to regulate the
that the policy is void ab initio or is unscrupulous practices of the
rescindable by reason of the fraudulent insurance companies of accepting
concealment or misrepresentation of the premiums and deny it latter on
insured or his agent. technical grounds.

Rationale of the 2 year period What if the effectivity of the insurance,

- Section 48 serves a noble purpose, upon the death of the insured, is exactly
as it regulates the actions of both 2 years, would you apply Section 48?
the insurer and the insured. - Yes. It expressly stated under sec.
48 that it is for the period of two
How does it regulate the action of the years.
insured and the insurer?
- For insurer Can there be a stipulation that the 2 year
o It regulates the practices of incontestability period be shorten? And
the insurer of not doing may it be extended?
anything or any investigation - For the shortening period, parties
at all on whether or not there may freely stipulate on the matter
was really some concealment of the contract as long as it is not
or misrepresentation. contrary to law, moral, good
o If there is no 2 year period, customs, public order or public
what the insurance company policy. Therefore, the shortening of
would do is to just accept the the period is valid. In fact this is
premiums and eventually more beneficial to the insured.(Art.
denied it upon the death of 1306 of the Civil Code)
the insured. - For the extension, it is not valid
- For insured being that there is already a law
o The insured should know or under Sec 48 which is to be
ought to know, if ever he is construed as the maximum period
committed concealment or thus if this would be extended it
misrepresentation, which would tantamount to violating the
within the two year period law.
his policy can still be revoked
by the insurance company. Emilio Tan vs. CA
Fine print rule
- There is no showing that the
questions in the application form
 for insurance regarding the the information the insured in the
insured's medical history are in act of
smaller print than the rest of the misrepresenting
printed form or that they are something
It more of an More of a positive
designed in such a way as to
omission act
conceal from the applicant their Proof of fraudulent Proof of fraudulent
importance. intent is not intent is necessary
necessary
What is the legislative solution in the
unscrupulous practices of insurance Difference of Manila Bankers case
agent? and Sibya Case
- It is the Two-year incontestability - In Manila Bankers case, the
period. insured died after the lapsed of the
two year period while in Sibya
Insular life vs Paz Khu case, the insured died within the
What is the doubt or ambiguity in this two year period (only 3 months
case? had lapsed from the date of
- When was the effective date of the issuance of policy)
reinstatement - The decision in the Sibya case is
- Petitioner alleged that it is not yet final as it is still subject for
December 27 – date of payment of a motion for reconsideration; and
the additional premium that it is only included in the case
- Respondent alleged that it is June syllabus for academic purposes.
22 – date of the effectivity of the
imposition of additional premium *NOTE: the most proper interpretation of
the phrase "during the lifetime of the
Since there was a doubt or ambiguity insured" found in Section 48, does not
hence it must resolved in favor of the mean that the insurance company should
insured or beneficiaries. rescind the policy during the lifetime of
 It favourable to the insured is the the insured, it simply means that the
earlier date which is June 22 so policy is no longer considered in force or
that the two year incontestability effective after the insured has died. So
period would run from such date. even after the death of the insured,
*Khu became a mayor which is a PEP – insurance companies may well rescind
politically exposed persons – hence it the contract.
would imposed a higher risk.

Nov. 18
Insular v. Heirs of Alvarez
Distinction between concealment and
REPRESENTATION
misrepresentation
Concealment Misrepresentation
Pacific Banking v CA
More of a failure or There is an active
inaction to disclose part perpetrated by
Generally, a cause of action accrues One of the allegations of the mortgagee
upon the happening of the loss but if bank is that the issue was not alleged in
there is a condition appearing, requiring the pleading and therefore was not
that a claim must first be filed then the covered in the trial and should likewise
cause of action would only be deemed to not be covered in the appeal. The
accrue when the extra-judicial claim is Supreme Court, however, stated that
finally rejected by the insurance such issue with regard to whether or not
company. Upon final rejection, there is a there had been other insurances taken
real necessity in bringing the suit or a by the insured, it has been tried, not
court action against the insurer. with express, but at least with the
implied consent of petitioner mortgagee
Citing the book of Atty. Tolentino, bank. The implied consent is not only
representation of fact is the foundation of due to the failure to promptly object to
an insurance contract without this the presentation of the evidence but
foundation the superstructure would not Pacific banking itself, in the trail,
arise. presented evidence to show that there
was indeed other insurances or additional
Note: The violation of the “other insurances taken out or procured by the
insurance” clause or “additional insured.
insurance clause” is considered as a kind
of fraud or misrepresentation or false THE POLICY
declaration.
Coscolluela v Rico General Insurance
In this case, the mortgagee bank Corporation
invoked one of the clauses in the In this case, the court ruled that there is
insurance contract wherein it alleged that already a cause of action. The elements
it protects the interest of the mortgagee of a valid cause of action are: 1) the
bank. The provision provides that the right of the plaintiff; 2) obligation of the
rights or interest of the mortgagee shall defendant; 3) violation of right of the
not be affected or invalidated by any act plaintiff.
or omission or negligence of the insured
mortgagor. The Supreme Court, Allegation of the plaintiff, wherein the
however, held that the invoked clause is subject vehicle of the insurance, that had
not complete. It is true that there is such been fired upon by the four unidentified
clause, however, to complete such clause armed men, nowhere in the complaint is
the mortgagee bank should likewise it stated with regard to the motive or the
include the exception(when there is reason behind the shooting it is a mere
fraud, misrepresentation or arson). In allegation of having been fire upon by a
this case, a violation of “other insurance group of four unidentified armed men.
clause” is a kind of fraud which thus The court held that the public respondent
would fall under the exceptions. judge committed a reversible error when
it granted the motion to dismiss
considering even though that there is a
rule that whenever a party would file a In this case, the Supreme Court
motion to dismiss based on lack of cause explained how to properly interpret and
of action the movant is deemed to appreciate the pertinent provision of Sec.
hypothetically admitted the allegations in 52 regarding validity and enforceability
the complaint. Additionally, the of cover notes.
hypothetical allegation is only limited to
the complaint and those pleaded but it The very intention of cover notes is that
does not include any conclusions of law it serves as a temporary coverage while
or interpretations of law. In the the more formal policy is not yet issued
complaint there are no conclusions of law As to what happened in this case, in the
but rather just a theory espoused by the meantime that the two formal marine
respondent insurance company that the insurance policy are not yet issued, to
firing of the four unidentified armed men cover immediately the insured logs,
was an indirect consequence of rebellion, particularly at the onset of the loading
insurrection and/or civil commotion. operations, a cover note was issued.

It is clear that Rico Gen is trying to The Supreme Court held that the very
capitalize in the exclusion contained in purpose of the cover note would be
the policy wherein there is an express rendered for naught or nugatory is if we
exclusion, expressly excepting damages follow the argument of the insurance
in the insured vehicle as an indirect company wherein issuance of the cover
consequence of rebellion, insurrection note does not automatically bind.
and/or civil commotion. However, the Supreme Court ruled that
the cover note is binding as it is the very
The respondent judge held that courts purpose or rationale of the cover note
can take cognizance of the fact that behind the issuance is it will temporarily
there can be a civil commotion that can bind the insurance company.
be considered akin to a civil war even
without the necessary executive Should there be a separate consideration
proclamation to that effect. The Supreme for the issuance of cover note? NO.
Court, however, reversed this ruling There need not be any separate
stating that it cannot be immediately consideration. The cover note would
concluded that there is already a civil have to be as part of the policy itself.
commotion simply because there was
indiscriminate firing made by four armed Premium is not expected to be paid
men. The Supreme Court added that the immediately upon the issuance of the
complaint is not a question of law but cover note. The rationale behind this is
rather more of a question of fact. that the cover note does not contain the
specifics of the shipment hence there can
Pacific Timber Export v. CA and be no basis for the computation of the
Workmen’s Ins. premium. The premium would be taken
care of upon the issuance of the more
formal insurance policy.
 other conditions, that Goyu will
Great Pacific Life Assur. Co. vs. CA procure insurance policies and
have it endorsed in favor of RCBC.
Distinction between cover notes for
property insurance or marine insurance Whether or not Malayan is liable for
vis-à-vis a binding receipt with regard to damages for unreasonable delay in
life insurance. Cover notes, under Sec. releasing the proceeds?
52, they automatically bind the insurance - The Supreme Court applied the
company upon issuance whereas a doctrine that an insurer is given
binding slips or receipts, they do not some leeway that it can have an
automatically bind the insurance honest belief as regards as to
company upon issuance because the difference of opinion. Insurance
issuance of a binding receipt or slip companies may entertain honest
would be subject to the final beliefs or opinion as regards in
determination or decision of the approval difference of opinion of its liability
or disapproval of the insurance company more so as in this case, there were
as the principal of the agent who issued many conflicting claimants for the
the binding slip or receipt. insurance proceeds – Goyu, RCBC,
and Goyu’s creditors. So Malayan
RCBC vs. CA and Goyu and Sons was confused as to who should the
proceeds be given.
Who has more right to claim the
proceeds of the fire insurance? RCBC or Dec 2
Goyu or the creditors of Goyu? Heirs of Loreto Maramag, et al. vs.
- The right of RCBC on the proceeds Eva Verna De Guzman Maramag, et.
is only limited to the outstanding al. and Insular Life and Great Pacific
balance of Goyu’s payable to Life
RCBC. Thereafter, the creditors of
Goyu can now claim for the In relation to this case, under Sec. 53
proceeds. the insurance proceeds shall be applied
exclusively to proper interest of the
Whether or not the doctrine of equitable person whose name or for his benefit
estopppel may be applied against Goyu? unless otherwise stated in the policy.
- Yes, it may be applied as Goyu still
continued to receive the benefits
under the credit facility agreement One of the different kinds of policies as
and later on will capitalize on the stated under Sec. 60 (open or unvalued
technicality that it does not have policy), 61 (Valued policy) and 62
any signature on the endorsement (running policy).
where in fact that is the very
intention of the parties that Goyu Open or unvalued policy – it is a kind
will be granted the benefits under of policy wherein the value of the thing
the Credit Facility provided, among
insured is not agreed upon, it is left to be
ascertained at the time of the loss. *do not forget the public policy
consideration that an insured should not
The face value of the policy merely recover more than what was actually loss
represents the maximum amount which or damage. Otherwise, this will be a
the insurer could be held liable. It does wagering policy which is void being
not represent the value of the thing contrary to law and public policy – as
insured. insurance can only be taken out for
purpose of compensating for the actual
Valued policy – there are two amounts damage or loss and nothing more.
that would reflect in the policy. First, the
value of the thing insured and second, Meanwhile, under-insurance is not
face value of the policy just like in an prohibited under the law however it is
open policy which represents the not encourage.
maximum amount of liability of the
insurance company. If we allow under-insurance, it would be
beneficial to the insured as he will pay
Running policy – the location, as well only a small amount of premium instead
as, the quantity covered by the insurance if he insured the whole property (the
is not constant or regular as they are lower the amount insured, the lower the
subject to frequent changes premium to be paid.)

For example, the warehouse would But still why is under-insurance be

contain 100,000 units of insured discourage, on its face it looks like it will
property and in another day there woud benefit the insured but in its totality or in
be a delivery and thus the inventory the long run it will not really benefit the
would whittle down to 50,000 and so on insured. Why is that so? The insured
and so forth. So the very purpose of the would be deemed a co-insurer of the
running policy is to prevent over- uninsured portion. The insurer then
insurance and under-insurance policy. would not be able to collect the actual
value of the loss.
Development Ins. Corp. vs. IAC and
Phil. Union Realty; and Aboitiz Difference of other insurance clause
Shipping Corp. vs. Phil. American and co-insurance clause
Gen. Ins. Other insurance clause – requires the
insured to disclose to the insurer other
With regards to the Continuing open insurances taken covering the same
insurance policy, the intention of the property. The purpose of this clause is to
parties in this kind of policy so that it will prevent over-insurance and avert the
continue to cover the goods subject of perpetration of fraud.
the insurance. So in terms of the value it
will be ascertained at the time of the
loss.
Co-insurance clause – the insured who - It cannot be shortened as it is
would under-insure shall be considered strictly expressed in the wording of
as a co-insurer of the uninsured portion. the law that such is void. However,
Example: Juan has a property it can be extended.
worth P1,000 which he insured only - Remember in case of doubt always
P500. Juan should have known or ought ask yourself if such stipulation
to know that he will take the burden would be beneficial to the insured.
being a co-insurer. In the event of partial If it is beneficial then such
loss say the loss is P500, how much is stipulation is allowed otherwise
Juan able to collect to the insurance such stipulation may not be
company? allowed.
- Only 50% of the loss can be
recovered P250 as he only The prescriptive period should be
insured only 50% of the counted from the time the cause of
property and Juan being a co- action accrues
insurer, he insures the Requisites of a valid cause of action
uninsured portion - 50%. This is 1. There must be a right of plaintiff
how the law discourages under- 2. There is collative duty on the part of
insurance. the defendant
- Note that co-insurance clause 3. There must be an act or omission on
only applies to partial loss if the part of the defendant resulting in the
there is total loss then Juan can violation of the right of the plaintiff.
claim for the entire proceeds –
P500. When can you say the defendant
(Insurance company) had already
Requisites of when co-insurance committed a violation of the right of the
would apply plaintiff to collect the claim?
1. there is under-insurance - Upon rejection of the claim.
2. the loss happened or transpired was - Before final rejection of the claim
merely a partial loss there is no real necessity in
bringing a suit.
PRESCRIPTIVE PERIOD
Eagle Star Ins., Kurr Steamship, et
Under Sec 63, no condition, stipulation or al. vs. Chia Yu
agreement limiting the time within which The court held that requiring the insured
to commence the action within the period to fully comply to all the terms and
of less than one year from the time the condition would necessary result in the
cause of action accrues such condition, shortening of the one-year period.
stipulation or agreement would be void.
ACCFA vs. Alpha Ins. and Ricardo
Would it be possible that a stipulation Ladines, et al.
regarding the prescriptive period be The one-year period does not start from
shortened or extended? the date of the actual loss, not from the
date of filing of the loss but it starts from The court in these two cases that the two
the time of the accrual of the cause of prescriptive period need not concur, the
action – final rejection of the claim by claim must be filed within 6 months
the insurance company. from the time the date of accident and in
proper cases within 1 year from the date
Sun Life Ins. vs. CA and Emilio Tan; of the accident.
and H.H. Hollero Construction, Inc.
vs. GSIS and Pool of Machinery With regard to the one-year period within
Insurers which to file an action or suit should be
When do you start counting the one-year more properly be counted from the time
period? Would it be rejection in the first of the denial of the claim. It is to prevent
instance or rejection on the second the insurance company to use such
instance acting on the letter for period to the prejudice of the insured.
reconsideration?
- The final rejection contemplated is Dec 5
that it is final rejection at the Section 19. An interest in property
FIRST instance. Even if the insured insured must exist when the insurance
filed for a letter for reconsideration takes effect, and when the loss occurs,
but need not exist in the meantime; and
the one-year period would not
interest in the life or health of a person
count from the rejection of the
insured must exist when the insurance
letter of reconsideration. takes effect, but need not exist
- The rationale behind that the thereafter or when the loss occurs
counting of the one-year period
from the date of rejection in the Sec 19. Gives us the rules when
first instance is that with regards to insurable interest must exist first in
evidence it is still fresh and thus property insurance and second in life
such period cannot be extended. If insurance.
such extension is allowed then the
insured might take advantage of Insurable interest in Life insurance
such extension. The law is less stricter with regard to the
rules applicable or governing life
Summit Guaranty and Insurance Co. insurance. First, whether or not the
vs. Hon. Jose de Guzman, et. al.; & beneficiary designated needs to have an
Country Bankers Insurance Corp. vs. insurable interest.
Traveler’s Insurance and Surety Co.,
et. al. In life insurance as long as a person
insures his own life the insured
To avoid the situation wherein the insuring himself can designated just
insurance company would take about anybody as his beneficiary,
advantage of using the prescriptive whether or not the said beneficiary has
period as a defense under sec. 397. an insurable interest over the life of the
insured.
Any person has an insurable interest What consist of insurable interest over
over his own life. the property?
- Sec 13 – 16
Life insurance is only subject to statutory - Any kind or relationship on the
limitation – provision of art. 2012 and property in such a manner that
739 of the NCC. a contemplated peril might
damnify a person. It need not
*Art. 2012 Prohibition on donation and need that there is an absolute
Art 739 persons who cannot give/receive title or ownership over the title.
donation. It is enough that any
relationship to the property that
It suffice that the insurable interest exist there would be possible
at the time the insurance takes effect but damnification or exposure to
need not exist at the time of the loss. liability.
Example: if you procure an
insurance over the life of your uncle who Difference of Sec 10 to Sec 19.
you are dependent upon for support.
After a few months, your uncle stop Sec 10. When is a person deemed to
giving you support, it does not matter as have an insurance interest over the life
sec 19 is not strict. of another.
- Exception to this is the debtor-
creditor relationship – Sec. This is a situation wherein a person
10(c) applies in this case. would like or intend to insure the life of
- In case of the property of the another person.
debtor, the creditor does not
automatically acquire insurable Note that: even if you insured the life of
interest over the property of his your own uncle it does not necessarily
debtor if it is not yet mortgaged mean that you have an insurable interest
or that the creditor has over the life of your uncle. Under the
monetary judgement or upon family code, under the provisions of
death of debtor as his claim is person who are obligated and entitled to
against the estate. give or receive support – uncle is not
included therein. Thus, the provision of
Insurable interest in property Sec 10 should govern (example: if it can
The law is much stricter in property than be shown that you are dependent either
in life. The insurable interest must exist wholly or in part for education or support
two times: first, when the insurance or has pecuniary interest over the life of
takes effect; and second, at the time of your uncle)
the loss. The two must concur and failure
to comply with those twin requirements Section 20. Except in the cases
would result in the forfeiture of the specified in the next four sections, and in
proceeds and benefits. the cases of life, accident, and health
insurance, a change of interest in any
part of a thing insured unaccompanied time the insurance policy took
by a corresponding change of interest in effect.
the insurance, suspends the insurance to
an equivalent extent, until the interest in Exceptions - Sec 21 to 25
the thing and the interest in the
Section 21. A change of interest in a
insurance are vested in the same person.
thing insured, after the occurrence of an
injury which results in a loss, does not
Corollary rule of sec 20 is Sec 58 - The affect the right of the insured to
mere transfer of a thing insured does not indemnity for the loss.
transfer the policy, but suspends it until
the same person becomes the owner of Example: In the example above, If Mr.
both the policy and the thing insured. A had sold the property after the fire
occurred then Mr. A can still claim for
Example: Mr. A owns a house and lot. He proceeds.
insured the said property against fire for
1 year. During the effectivity of the Corollary rule of Sec 21 is Sec 85 - An
policy, Mr. A sold the property to Mr. B. agreement not to transfer the claim of
After the sale and during the effectivity the insured against the insurer after the
of the policy, the house was gutted by loss has happened, is void if made before
fire. Who can successfully a claim for the the loss except as otherwise provided in
proceed of the insurance proceeds? the case of life insurance.
- Neither of them can claim for
the proceeds for the simple The rationale of sec 85 with regards
reason that both of them failed to sec 21
to comply with the requirement Upon the loss or damage occurred the
that the insurable interest must right to claim under the policy already
exist two times – at the time becomes vested, acquired and absolute.
the insurance takes effect and Thus, it can be considered or deemed as
at the time of the loss. money claimed subject to compliance of
- In case of Mr. A, he owns that the requirements.
house at the time he procured
the insurance policy the fact Before the happening of the peril insured
remains that he is no longer the against, the right to claim of the insured
owner, thus he no longer have under the policy at most is merely
insurable interest, at the time of inchoate, contingent.
the loss.
- In case of Mr. B, even though at Why is the stipulation void if the insured
the time of the loss, he has an is prohibited from transferring his money
insurable interest over the claim which is a property right?
property being the owner of the - As it would convert it to a mere
house. However, he did not yet wagering policy
have an insurable interest at the - Violates free transmission of
rights
 agreement that would show the intention
Section 23. A change of interest, by will of the parties is really to treat the things
or succession, on the death of the insured as separately insured albeit they
insured, does not avoid an insurance; are insured only by one policy.
and his interest in the insurance passes
to the person taking his interest in the
Example: there are two separate
thing insured.
vehicles insured in one policy. However,
Example: Juan’s father insured his there is a stipulation that in the event
house during his lifetime. During the one of the vehicle is sold the insurance in
effectivity of the policy, Juan’s father the unsold vehicle would still continue.
died. After death, the house was gutted
by fire. Juan then filed a claim but the Very good example: if the premium of
insurer denied it invoking Sec 19 – twin two vehicles under one policy is paid,
requirement. Is the insurance company computed separately.
correct?
- No. as an exception to sec 19. Section 24. A transfer of interest by one
of several partners, joint owners, or
Sec 23 that the change of
owners in common, who are jointly
interest over the subject matter insured, to the others, does not avoid an
happened by virtue of the death insurance even though it has been
of the father. Upon death, the agreed that the insurance shall cease
right to succeed is transmitted upon an alienation of the thing insured.
to the son and has deemed to
acquired ownership over the In Sec 22 it needs to be separately
house. insured whereas in Sec 24 it needs to be
jointly insured.
What if the contention of the insurer is
that they did not paid Juan due to the The change of interest in Sec 24 should
fact that ownership is not yet transferred not involve third person or stranger. It
to him? would only transpire from one co-owner
- Insurer is still not correct to another co-owner.
because of Art 777 of NCC -
The rights to the succession are Representation
transmitted from the moment of Pacific banking corp v. CA and oriental
the death of the decedent. assurance
Nature of representation –
Section 22. A change of interest in one representation of facts are the very
or more of several distinct things, foundation of contracts. If there is
separately insured by one policy, does misrepresentation or fraud, then there
not avoid the insurance as to the others. would be no resulting valid contract.
Whenever the foundation does not exist,
Do not immediately conclude that several the super-structure would not arise.
distinct things in the policy is separately
insured. There must be some kind of
Representations come in the form of provisions – riders, warranties and so on
statements or answers given out by the and so forth.
applicant in the application form.
Insular life v. Heirs of Alvarez
Representations are collateral Difference in the rule in whether or not
inducements. first, it is inducement there is required proof of intentional
because representations are primarily fraud or intent to deceive or fraud.
intended to induce the insurance
company to accept the application for In concealment, whether intentional or
insurance being submitted by the unintentional entitles the injured party to
applicant. Second, it is collateral because rescind a contract of insurance.
by their nature representations are not
considered as part of the insurance In misrepresentation, representation is
policy itself – it is contained in the deemed false when the facts fail to
application form not the policy itself. correspond with its assertions or
stipulations. There needs to have an
The fact that representations are overt act – intent to defraud.
collateral, in the event that there is
discrepancy or conflict between A mere statement of one’s belief,
representation, on one hand, and an expectation or opinion would not bind the
express provision or warranty contained insured. Later on, if this opinion or
in the policy, on the other, the express expectation would be found not to be
policy would prevail. (Sec .40) true or accurate then the same cannot
be used against the insured.
Section 50. xxx Any rider, clause,
warranty or endorsement… xxx
An endorsement is a mere form that is POLICY
filled up subsequent to the issuance of Grepa life v. CA
the policy for some changes and Difference of effectivity or validity of
amendments to the policy. It may be a binding slip in life insurance vis-a-vis
simple change in the address of the cover notes in property insurance,
insured or contact numbers. It may be
also a technical change – warranties or Binding receipt or slip does not
exclusions. Once a policy has been automatically bind itself since it is
issued, a new policy would not be issued subject to the final decision, whether
but rather the insurer would just issue an approval or rejection, by the insurance
endorsement that would be attached to company. Premiums paid is deemed as
the policy. deposit only pending the final judgement
which is subject to refund.
Even if the contract of insurance is a
contract of adhesion, an insured can still The purpose of Cover notes is to bind the
bargain with the insurance company to insurance company pending the issuance
have some changes in the policy the of the more formal insurance policy
contract. There is no need for a separate whole premium if no part of his
premium. (Philippine Timber case) interest in the thing insured be
exposed to any of the perils
PREMIUM insured against.
An insurance contract is deemed - In the event that the insurer
perfected upon meeting of the minds. never incurred any liability
under the policy then the
When is insurance contract becomes insured is likewise entitled to a
valid, effective and binding? refund of premium.
- Sec. 77 An insurer is entitled to
payment of the premium as In marine insurance policy, the event or
soon as the thing insured is peril insured against is the perils of
exposed to the peril insured navigation but from day one when the
against. Notwithstanding any vessel was schedule for voyage, it was
agreement to the contrary, no not able to do so due to some facts other
policy or contract of insurance than the fault of the insured. Thus, as
issued by an insurance company the vessel was not exposed to the perils
is valid and binding unless and of navigation for a long time due to some
until the premium thereof has facts that stopped it from voyage, the
been paid. insured cancelled the policy. Is the
insured entitled to a refund? How much,
Cash and carry rule partial or full?
- No premium; no effective policy - Insured is entitled to a full
refund as no part of his interest
Exception to cash and carry rule in the thing has been exposed
1. In case, as provided in sec. 77, of life to any peril insured against.
or an industrial life policy whenever the
grace period provision applies When is an insured entitled only to a
- The minimum grace period for life partial refund?
insurance policy is 1 month or 30 - Sec 80(b) Where the insurance
days which can be extended by is made for a definite period of
stipulation time and the insured surrenders
his policy, to such portion of the
2. Provided in Sec 79, An premium as corresponds with
acknowledgment in a policy or contract the unexpired time, at a pro
of insurance or the receipt of premium is rata rate, unless a short period
conclusive evidence of its payment, so rate has been agreed upon and
far as to make the policy binding appears on the face of the
policy, after deducting from the
What if no part of the thing insured whole premium any claim for
is exposed to peril insured against? loss or damage under the policy
- Sec 80(a) insured is entitled to which has previously accrued:
a return of premium, To the Provided, That no holder of a
 life insurance policy may avail granted. So even if there is no premium
himself of the privileges of this paid it is ok.
paragraph without sufficient
cause as otherwise provided by Makati Tuscany Condo. Corp. vs. CA
law. Rule pertaining to instalment
- If the effective duration of the By way of practice, the insurer had
policy is 1 year and the insured allowed payment of premium by
pre-terminated before the instalment. Equitable doctrine of estoppel
lapsed of 1 year then the can be applied against the insurance
insured is only entitled to a company wherein even though at the
partial refund. time of the happening of the peril insured
against the premium had not yet been
Insured not entitled to refund fully paid as long as there is already an
Sec 82. A person insured is not entitled agreement by paying by way of
to a return of premium if the policy is instalment then the insurance policy is
annulled, rescinded or if a claim is denied binding.
by reason of fraud.
Difference of UCPB case and Makati
Exception even when there is fraud, Tuscany case.
a party can still claim proceed In UCPB, even if there has not yet been
- Two-year incontestability period a single centavo paid by the insured as
o Insurer is not allowed to long as at the time of the happening of
contest the contract even the peril insured against it is within the
when there is fraud upon grace period, the policy is binding. No
lapsed of the said period. need for prepayment or downpayment.

UCPB Gen v. Masagana Telamart In Makati Tuscany, if the payment if by

At the time of the loss or destruction of way of instalment, it is important that at
Masagana’s property, the renewal the time of the peril insured against
premium had not yet been paid. The SC there must have been an initial payment
however found that in UCPB’s practice it or downpayment made by the insured.
grants a grace period of a 90 day credit
term extension. Thus if the peril insured Dec. 12
against happened within the credit term DOUBLE INSURANCE
extension or grace period then the policy
is deemed binding and the insurance Multiple insurances covering the same
company is liable to pay. property wherein there is a possibility
that there may be multiple interests.
To apply the exception, at the time of
the happening of the peril insured Example: Multiple insurances covering a
against such happening transpired during mortgaged property wherein, the
or within the credit term extension mortgagor as the owner has undoubtedly
has an insurable interest over that
mortgaged property which he or she 1. Two or more insurers insuring
owns and then, in the same vein, the separately.
mortgagee also, which capacity as the 2. Identity of the person insured.
mortgagee, is given its own separate, 3. Identity of the subject matter insured.
distinct and independent insurable 4. Identity of the insurable interest
interest as such mortgagee covering the insured.
same mortgage property. Each may 5. Identity of the event or peril insured
obtained its own insurance covering the against.
same property and it will not necessarily
result in double insurance. Note: that the 2, 3, 4, and 5 requisites
are the similarities. All the elements
In RCBC vs. CA and Goyu and Sons, the must concur otherwise it will not result in
SC laid out the doctrine regarding the double insurance.
separate and distinct independent
insurable interest which the mortgagee There could only be a violation of the so
has independent of the mortgagor. called “other insurance clause” where in
the first place there is double insurance.
Double insurance is not prohibited by law (Geagonia vs. CA and Country Bankers
but it is discourage and logic would Ins. Corp; and Malayan Insurance Co. vs.
likewise remind us simply on why it is Philippines First Insurance Co.)
discourage is because of the fact that if
there would be double insurance then Malayan Insurance Co. vs.
there would be more probability that the Philippines First Insurance Co.
same might result in over-insurance. In Malayan there are two elements that
- It is over-insurance which is are lacking namely, identity of the
expressly prohibited under the law insurable interest and identity of the
for being contrary to law and public person insured. There is no identity of
policy. the person insured because the
o The insurer as well as the forwarder of the goods of Wyeth
public is interested in (Reputable Forwarder Services) procured
avoiding the situation an insurance to cover its risk of liability
wherein for example fire as such forwarder because in the
would be profitable to the contract of carriage entered by the
insured. We would like to be Reputable Forwarder vis-à-vis the owner
reminded again that there is of the goods to be transported which is
a common clause inserted in Wyeth, Reputable Forwarder undertook
every fire insurance policy to be liable to pay any loss or damage
which clause is again called resulting from either any fault,
the “other insurance” clause negligence or hijacking and so on and so
or additional insurance clause forth. It is clear in this case that
or double insurance clause. Reputable has an insurable interest over
the goods which again has insurable
Requisites of double insurance interest which is separate and distinct
from that of Wyeth as the owner of the of the risk or peril insured against
goods. or at the time of the loss the
remaining debt is only ₱500,000.
So true enough as they both have Thus, the significance of the phrase
insurable interest Reputable, as “shall be payable to the mortgagee
forwarder, procured insurance with in so far as the interest may
Malayan while Wyeth, as owner of the appear” simply means that the
goods, also procured an insurance with mortgagee is entitled to the
Philippines First. proceeds in case the loss is
payable but only up to the extent
One of the issues in this case is whether of the amount represented by the
or not there is double insurance. Clearly, remaining balance of the loan at
there is none. Again, there is no similar the time of the loss. This would call
identity of the persons insured and for the application of the
insurable interest. characteristic of insurance
contract, more so in property
Geagonia vs. CA and Country insurance, being called contract of
Bankers Ins. Corp. indemnity, whatever proceeds that
In Geagonia, the multiple insurances that will be given out would only be that
had been taken covering the goods which would be represented by the
owned by Geagonia inside Norman’s actual amount of the value of the
Mart, also owned by Geagonia. There is loss or damage suffered by the
another insurance that had been taken insured or in this case by the
with Philippines First naming Geagonia as beneficiary.
the person insured covering the goods
owned by Geagonia but there is a Going back to the main topic: the
mortgagee clause. mortgagee clause in the other insurance
taken out with Philippines First meaning
Sidetrack: what is again the mortgagee therefore there is no identity of insurable
clause? It is a clause which makes the interest even though it can be said that
loss payable in favor of the mortgagee in there is identity of the person insured
so far as its interest may appear. considering that it is Geagonia which is
- The significance of the phrase “in the very same person insured in those
so far as its interest may appear” insurances taken out the fact remains
is that it merely enunciates or that in the insurance taken out with
emphasizes that with regard to the Philippines First, there is a mortgagee
extent of the insurable interest of clause therefore the insurable interest
the mortgagee over the mortgage that was insured in that insurance is
property it is only limited to the precisely the insurable interest of the
remaining balance of the secured mortgagee which is named therein Cebu
loan at the time of the loss. Tesing Textiles.
- Example: face value of the policy
is ₱1,000,000 however at the time
The SC said that there were on double Multiple insurable interest
insurance that resulted and that reason There may be multiple insurable interest
alone Geagonia cannot be deemed guilty covering the same property. There are
of violating the “other insurance” clause. numerous examples that would illustrate
- As a review the “other insurance” the separation of the legal title to the
clause is a clause that basically equitable title.
requires the insured to disclose to
the insurer all other insurances In case of a mortgagor-mortgagee, the
taken covering the same insured mortgagor is the owner who retains the
property. legal title while the mortgagee would
possess the beneficial title.
What was the SC added for Geagonia to
be allowed to collect the proceeds? The In case of a lessor-lessee, the lessor
SC added the provision of the “other which is the owner of the leased
insurance” clause which states, “the premises holds the legal title and the
condition referring to the other insurance lessee is the one benefiting from the
clause would not be applicable as long as lease would be the one holding then
that total insurance taken or enforced at beneficial title.
the time of the loss would not exceed
₱200,000.” The SC held that in this In case of a Trustor-trustee, the trustor
provision there is an ambiguity thus it holds the equitable title and the trustee
applied the basic rule, that in cases of hold the legal title.
ambiguity the same would have to be
resolved liberally in favor of the insured Rules that would apply in case there
and strictly against the insurer wherein is double insurance resulting in over-
the interpretation made in the phrase insurance (Sec 96 of R.A. 10607)
“this condition or other insurance clause In Sec 96(a) to (d), the bottom-line rule
would not apply in case that total is that the insured would not be allowed
insurances enforce at the time of the to collect proceeds in excess of the
time loss would not exceed ₱200,000” actual value of the loss or actual face
the SC held that the insurer had agreed value as the case may be and if ever the
that it will pay out the insurance up to insured would be able to collect in excess
the extent of ₱200,000. True enough, thereof then the insured is bound to hold
the total insurance taken out in this case the excess in trust for the insurer.
did not exceed ₱200,000.
In Sec 96(e), this provision is known as
The SC held that there is no double the principle of contribution, it is where
insurance and there is not violation of there are several insurers among
that additional proviso which states “it themselves shall be liable to only
shall not applicable as long as the total wherein they contribute in proportion to
insurances taken would not exceed the amount of its liability under its own
₱200,000.” contract.
 BACKTRACT: TOPIC OF LOSSES obvious reason of public policy the
Title 9 Loss insurer is not liable.

Sec 21 if one of the exception to the In case of negligence, gross negligence is

general rule that when there is a change wherein there is entirely lack of diligence
in the interest in the insurance in taking care of the thing that somehow
unaccompanied by the corresponding can already be equated to an intentional
change in the interest in the insured then act. It is a case to case basis wherein if it
it will suspend the insurance. In Sec 21, would already be considered as an
it is contemplated wherein there would extraordinary or gross negligence then
be change in the interest of title only general rule then insurer is not liable.
after the peril insured against happen.
Sec 86, 87 and 88.
Sec 85 involves the same rationale as What kind of loss that would make the
that of sec 21. Sec. 85 is a provision of insurer liable?
law which declares void any stipulation - It is the immediate cause or
that would prohibit the insured from proximate cause
transferring his claim against the insurer
after the happening of the loss. In the Immediate cause – the cause that which
happening of the loss, the merely directly cause the loss or damage; it is
speculative or contingent right to claim is immediately close to the resulting loss
thereby transformed into a vested
acquired or absolute right to claim. The Proximate cause – it is such cause which
moment the event of peril had transpired in the natural sequence of events
then the right to claim can be deemed to unbroken by any new independent cause
have already become or considered a resulted in the loss or damage that
property right or ordinary money claim without which the loss or damage would
that again can be transferred pursuant to not occurred in the first place; it is the
the rules on the law of property. cause of the immediate cause.

Sec 89 would remind us that there is an Remote cause – it is the cause that is
insurance taken out not for the insured farthest away from the resulting loss
to intentionally cause the loss or damage
that he or she can collect but more of so Exception
that there may be something that may Sec 88 simply means if there is an
compensate or reimbursed the insured immediate cause and proximate cause
for any loss or damage that might ensue but the proximate cause is expressly
from the happening of the loss or peril exempted from the policy or excluded in
insured against. In other words, if there the policy then the insurer is not liable.
would be a situation wherein the cause of
the loss or damage is due to the Example: In a fire insurance policy there
intentional act, wilful act or with the is a stipulation which provides, “in the
connivance of the insured then for event that it is found out that the
proximate cause of the fire is explosion In other words, the reinsurer is not only
then the insurer is not liable”. (This is allowed but it is required in certain
allowed under Sec. 88.) The immediate instances to enter into a treaty of
cause of the loss is fire which is reinsurance or contract of reinsurance
obviously covered by the fire insurance wherein the original insurer would
policy however in the investigation reinsure its risk of liability under the
conducted the proximate cause of the original insurance.
fire was explosion then the insurer is not
liable. It must be shown in the There are two separate insurances taken
investigation that there was no first the original insurance taken out by
intervening cause. the original insured with the original
insurer and second the contract of
Sec 87 it is wherein the immediate cause reinsurance taken out by the original
is not covered by the policy. insurer, thereby becomes the reinsured,
with the reinsurer.
Example: In a fire insurance the risk
insured is fire but upon looking at the A contract of reinsurance is separate and
property insured the cause of damage distinct from the original insurance.
was water not fire. The water damage
resulted in the fire fighters extinguishing Sec 100 The original insured has no
the fire. The fire was successfully interest in a contract of reinsurance.
extinguish before it could damage that You can interpret as such case that the
property insured however the water was original insured has no cause of action
the one which damage the property against the reinsurer for lack of privity in
insured. In this case, the insurer is still the contract and lack of interest in the
liable under Sec 87 as such damage was reinsurance. (relativity of contract)
done in the course of the rescue from the Exception in Sec 100 if there is a
peril insured against. stipulation inserted, either in the original
insurance or the reinsurance, giving the
REINSURANCE original insured the right to proceed
directly to the reinsurer.
Sec. 97
It is a kind of insurance wherein the The reinsurer is allowed to interpose the
insured is the original insurer. same defenses as that of the original
insurer with regard to any claim that is
For example: there is an original filed by the original insured. This
insurance taken out by the original presupposes however that there is a
insured with the insurer. Under the stipulation allowing the original insured
insurance law, the insurer is not only to sue directly the reinsurer. (Ivor
allowed but in some certain instances is Gibson vs. Hon. Revilla and Lepanto
required to reinsure its risk of being Consolidated Mining Co)
liable as the insurer to another party
which the latter is called as the reinsurer.
 MOTOR VEHICLE LIABILITY Hence, for the reason of different sources
INSURANCE of obligation they are cannot be held in
solidarily liable.
May the victim in a vehicular accident
allowed to sue directly the insurer? General rule: being a contract of
indemnity the terms and condition of the
If yes, is there need to wait for the final insurance policy contract dictates the
judgement adjudging the liability of the measure of the liability of the insurer
insurer or no need? which cannot go beyond the amount of
liability stipulated in the insurance policy
Significance of this 3rd party liability in contract.
motor vehicle insurance is that by its
very nature it is an insurance against Exception.
liability. Simply means, the victim need In Heirs of George Y. Poe, there is no
not need to wait for the final judgment proof presented to establish the
adjudging the liability of the insurer for existence of the alleged provision limited
the victim to collect directly from the liability of the insurer. Hence, the SC
insurer. concluded that the insurance company
had undertaken to be liable for any
In the first place, with regard to the amount if there is no stipulation limiting
issue on whether or not the victim has a its liability in the policy.
direct cause of action against the insurer
of the vehicle which caused injury to the Theft clause
victim or death to the victim’s relatives It is a clause that covers the loss of the
then the answer to the issue is yes, the vehicle insured arising from theft.
victim has direct cause of action against
the insurer of the vehicle which has In Paramount Insurance vs. Spouses
caused the injury, damage, or death. Remondeulaz, it is not stolen but
delivered to the repair shop but it was
In Vda. De Maglana, even though it is not returned by the repair shop. The SC
quite clear that the liability of the insurer held that such act can still be considered
is direct, meaning the victim can directly as theft resulting in the application of the
sue the insurer, it does not necessarily theft clause wherein it is more of the
mean that its liability is solidary with that taking of the vehicle insured without
of the insured. consent of the owner thereof after
transferring the material possession and
Why is it not solidary? Because there is a it was not returned then it can be
different cause of action or source of considered covered by the anti-theft
obligation with regard to the insurer the clause.
liability is based on contract (culpa-
contractual) while as regard to the The same thing happened in Jewel
insured the cause of action is based on Villacorta vs. Insurance Commission
tort or culpa-aquiliana or quasi-delict. wherein the vehicle was inside a repair
shop to be repaired and was taken out authorized by the owner; and 2) that the
for a joy ride. The SC held that there was one driving at the time of the accident
some benefit that had been derived from must be duly authorized or licensed to
the use of the vehicle without the drive. The 2nd requirement would not
consent of the owner would constitute apply if the one driving at the time of the
theft calling for the application of the accident is the insured himself or herself.
anti-theft clause in the policy. Thus, it is material to determine who is
the one driving at the time of the
Authorized driver clause accident. If at the time of the accident
In James Stokes vs. Malayan Insurance the one driving is the insured himself
Co, it is the clause that requires not only then there is no 2nd requirement. Without
that the one driving must have been prejudice to any sanction or violation to
expressly permitted or authorized to other laws, the insurer cannot exonerate
drive the vehicle by the owner but that himself from liability if at the time of the
the one driving other than the insured accident the insured was not duly
must have been duly authorized under licensed as again the 2nd requirement
the law and rules and regulations to would not apply.
drive the vehicle not otherwise
disqualified. In Agapito Gutierrez vs. Capital
Insurance & Surety Co., Inc., the one
Pursuant to the treaty, whenever there is driving is a jeepney driver which is other
a tourist who would like to drive a than the insured who happens to be the
vehicle here in the Philippines, he or she operator thus the 2nd requisite would
is allowed to do so even without apply in this case.
Philippines driver license as long as he or
she is duly licensed in his or her own At the time of the accident the jeepney
country for a period of 90 days. driver is a holder of an expired
However, in this case James Stokes, at temporary operators permit. Thus, at the
the time of the accident, was in the time of the accident the jeepney driver is
Philippines for more than 90 days thus no longer considered as duly qualified or
he cannot be considered as an authorized to drive a motor vehicle. So
authorized driver. the insurer is adjudged not liable.

When does the 2 requirement “that the No fault indemnity clause

one driving at the time of the accident In a no fault indemnity clause or
must be duly licensed to drive under the provision the proof of fault or negligence
law? is not necessary for the payment of any
The SC held that if the one driving is a claim for the death or injury of a
person other than the insured. passenger or third-party arising from a
vehicular accident. (Sec. 391)
Comparing to the case of Andrew
Palermo vs. Pyramid Insurance Co., Inc., Rationale – it is intended to provide for
the two requirements: 1) that is an immediate compensation and
assistance to those who have been
victims of a vehicular accident.

Conditions that must be complied with:

1. there can only be one claim against
the owner of the vehicle
2. if the victim happens to be one of the
occupant of the vehicles involved in the
accident then the victim has no choice
but to file his or her claim with the
insurer of the vehicle in which the victim
is riding/mounting/mounting from at the
time of the accident. (Perla Compania De
Seguros, Inc. vs. Hon. Constante
Ancheta, et. al.)
3. without prejudice to right to seek
reimbursement from the owner of the
vehicle who is directly responsible for the
accident.

In Perla Compania De Seguros, Inc. vs.

Hon. Constante Ancheta, et. al., the
issue in this case is whether or not the
victim may proceed against the insurer
of the bus company however the victim,
at the time of the accident was not an
occupant of the bus but rather an
occupant of the other vehicle.

The SC held that it is clear in the

provision of the law, no fault indemnity
clause, “the claimant SHALL file claim
against the insurer of the vehicle in
which the claimant is
riding/mounting/mounting from at the
time of the accident.” Also, again in Sec.
391, in the event that the claimant is not
an occupant, for example a 3rd party who
happens to be at the wrong place, at the
wrong time, he shall file his claim directly
to the insurer of the offending vehicle.