1

INSURANCE

(2023 EDITION)

CONCEPT

Insurance is essentially a contract by which one party (the insurer), for a consideration that The “principal object and purpose test”
is usually paid in money, either in a lump sum or at different times during the continuance
of the risk, promises to make a certain payment, usually of money, upon the destruction or Determines:
injury of ―something‖ in which the other party (the insured) has an interest [Carale, The
Philippine Insurance Law (2014)].  - Whether the assumption of risk and indemnification of loss are the principal object and
purpose of the organization; or - Whether they are merely incidental to its business.
4BLUE 95: On August 15, 2013, RA 10607 was signed into law. It is a restatement of the
Insurance Code (PD 612), with amendments. From such determination, it concludes that:
The section numbers hereinafter generally pertain to RA 10607, unless otherwise indicated. -If these are the principal objectives, the business is that of insurance.
-But if they are merely incidental and service is the principal purpose, then the business is
Contract of Insurance not insurance.

A contract of insurance is an agreement whereby one undertakes for a consideration to Governing Law
indemnify another against loss, damage or liability arising from an unknown or contingent
event. [Sec. 2(a)] General Rule: The Insurance Code primarily governs insurance contracts.

Exception: When there is a special law which specifically governs (e.g., insurance contract
under R.A. 1161 or the Social Security Act), in which case, the Insurance Code governs
subsidiarily.

Matters not expressly provided for in the Insurance Code and special laws are regulated by
the Civil Code.

Other special laws:

a. National Health Insurance Act of 2013 (RA 10606, amending RA 7875) b. The Revised
General Rule: A past event cannot be a designated event in an insurance contract. Government Service Insurance Act of 1997 (RA 8291) c. The Social Security Act (RA
8282) d. The Property Insurance Law (RA 656, as amended by PD 245) e. The Philippine
Exception: It may be a designated event only in cases where it has happened already but the Deposit Insurance Act of 1963 (RA 3591)
parties do not know about it e.g., prior loss of a ship at sea (applicable only to marine
insurance) [de Leon, The Insurance Code of the Philippines Annotated (2014)].

The unknown event may be past or future. Even if the proximate cause of the loss is a
fortuitous event, the insurer may still be liable if it is the event or peril insured against [de
Leon]. Parties to an Insurance Contract

Two Parties to a Contract of Insurance:

FORM
a. Insurer or the party who assumes or accepts the risk of loss and undertakes for
consideration to indemnify the insured or to pay a certain lump sum on the happening of the
event or peril insured against. May be any person, partnership, association, or corporation
There is no particular form required for a contract of insurance. The Insurance Code has no [Sec. 6]; and
provision requiring a particular form for the validity of an insurance contract. In our
jurisdiction, the SupremeCourt has not made a categorical ruling against the validity of an b. Insured or the person in whose favor the contract is operative and whose loss is the
oral contract of insurance [Carale]. occasion for the payment of the insurance proceeds by the insurer. [Carale]

An insurance policy is different from the contract of insurance. The policy is the formal May be any person except a public enemy [Sec. 7]
written instrument evidencing the contract of insurance entered into between the insured 4BLUE 95: There is no definition of what a ―public enemy‖ is, but a definition that is
and the insurer. [Sec. 232] generally accepted and in keeping with the nature of an insurance contract is one where a
person possesses the nationality of the state which another is at war. [Carale]
Doing or Transacting Insurance Business

The term ―doing an insurance business or transacting an insurance business‖ includes:

1. Making or proposing to make, as insurer, any insurance contract;

2. 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;
3. Doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of the Insurance Code;
4. Doing or proposing to do any business in substance equivalent to any of the foregoing in
a manner designed toevade the provisions of the Insurance Code. [Sec. 2(b)]

General rule: An insurance business consists in undertaking, for a consideration, to

indemnify another against loss, damage or liability arising from an unknown or contingent
event.

Exception: Those not formally designated as insurance businesses but are deemed ―doing or
transacting an insurance business‖ as listed in Sec. 2(b).
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NATURE & CHARACTERISTIC

a. Consensual
h. Uberrimae fides Contract
General Rule: An insurance contract is perfected by the meeting of the minds of the parties.
There must be concurrence of offer and acceptance. The insurance policy merely evidences Each party is required to:
the terms and conditions thereof. 1. Deal with each other in utmost good faith;
2. Disclose conditions affecting the risk, of which he is aware;
Exception: It is stipulated that the policy is essential to the existence of the contract. 3. Disclose any material fact which the applicant knows and those which he ought to know.
[Campos, Insurance (1983)].
Violation of this duty gives the aggrieved party the right to rescind the contract. Where the
b. Aleatory aggrieved party is the insured, the bad faith of the insurer will preclude it from denying
liability on the policy based on breach of warranty. [Campos]
It is aleatory because it depends upon some contingent event. The obligation of the insurer
to pay depends on the happening of an event which is uncertain, or though certain, is to
occur at an indeterminate time [Art. 2010, NCC].
Being an aleatory contract does not necessarily mean that it is a ―contract of chance‖
because in a contract of insurance, the parties seek to distribute possible loss by reason of
mischance, unlike a wagering contract [Carale]. NATURE AND CHARACTERISTICS For Specific Kinds of Insurance Contracts

c. Voluntary a. For Non-Life Insurance

General rule: Contracts of Insurance are not compulsory and the parties are free to Contract of Indemnity
incorporate such terms and conditions they may deem convenient provided they are not
contrary to law, morals, good customs, public order, or public policy [de Leon]. The insured who has insurable interest over the property is only entitled to recover the
amount of actual loss sustained. The burden is upon him to establish the amount of such
Exceptions: Insurance contracts particularly liability insurance, may be required by law in loss. Property insurance is personal in the sense that it is the damage to the personal interest
certain instances: not the property that is being reimbursed.

1. For motor vehicles [Compulsory Motor Vehicle Liability Insurance, Secs 386-402, General rule: Only non-life insurance or property insurance contracts are contracts of
Insurance Code]; indemnity. Life insurance contracts are not contracts of indemnity because the value of a
life is immeasurable.
2. For employees [Compulsory Coverage in State Insurance Fund, Articles 168-184, Labor
Code]; Exception: Where the basis of the insurable interest of the policy owner on the life of the
insured is a commercial relationship (e.g., creditor-debtor, mortgagor/guarantormortgagee),
3. As a condition to granting a license to conduct business or calling affecting the public then such contract of life insurance is an indemnity contract.
safety or welfare [de Leon];

4. Social Insurance for members of the Government Service Insurance System (GSIS) and
for the employees of the private Sector covered by the Social Security System (SSS). b. For Life Insurance

d. Executory and Unilateral but Synallagmatic Nature of property Life insurance policies, unlike property insurance, are generally
assignable or transferrable [Sec. 81] as they are in the nature of property.
Once the insured pays the premium, the contract already takes effect. After the payment of
premiums, the insurance imposes a unilateral obligation on the insurer who promises to
indemnify in case of loss.
It is also synallagmatic and reciprocal such that even if the contingent event or designated
peril does not occur, the insurer has still provided protection against the risk for the period
covered by the insurance contract.

e. Conditional

It is conditional because the insurer incurs liability only upon the happening of the event
insured against. However, many other conditions are usually required (e.g. payments of
premium or performance of other act) as precedent to the right of the insured to claim
benefit under the insurance.

f. Contract of Adhesion (Fine Print Rule)

Insurance contracts are already presented to the insured in its printed form on a ―take it or
leave it‖ basis. The insured merely has to agree to its terms. Such contracts of adhesion are
valid.

General Rule: When the terms of the contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control [Art.
1370, NCC].
Exception: Where the terms of the insurance contract are ambiguous and susceptible to
various interpretations, the issue is to be resolved against the insurer, being the party that
prepared the contract [Art 1377, NCC]. Thus, ambiguity shall be interpreted liberally in
favor of the insured and strictly against the insurer who prepared the same.

g. Personal Contract

The contract of insurance is basically between the insurer and the insured.
The insured cannot assign, before the happening of the loss, his rights under a property
policy to others without the consentof the insurer [Sec. 20, 58, and 83].
 3

ELEMENTS
BAR: May a member of the MILF or its breakaway group, the Abu Sayyaf, be insured with
a company licensed to do business under the Insurance Code of the Philippines? Explain.
1. Cause refers to an event or peril insured against. (2000 BAR)
A: YES. A member of the MILF or the Abu Sayyaf may be insured with a company
2. Consideration : An insurance premium is the agreed pricefor assuming and carrying the licensed to do business under the Insurance Code of the Philippines. What is prohibited to
risk. It is the consideration paid to the insurer for undertaking to indemnify the insured be insured is a public enemy. A public enemy is a citizen or national of a country with
against a designated peril. It is based on probability of loss and extent of liability [43 Am. which the Philippines is at war. Such member of the MILF or the Abu Sayyaf is not a
Jur. 2d326]. citizen or national of another country, but of the Philippines.

BAR: On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping
Company (CSC), sank on her voyage from Hongkong to Manila. Empire Assurance Company
(Empire) is the insurer of the lost cargoes loaded on board the vessel which were consigned to
Debenhams company. After it indemnified Debenhams, Empire as subrogee filed an action for
damages against CSC.
a. Assume that the vessel was seaworthy. Before departing, the vessel was advised by the
Japanese Meteorological Center that it was safe to travel to its destination. But while at sea,
the vessel received a report of a typhoon moving within its general path. To avoid the
typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon
when it was repeatedly hit by huge waves, foundered and eventually sank. The captain and
the crew were saved except three (3) who perished. Is CSC liable to empire? What principle
of maritime law is applicable? Explain.
The principle of limited liability will apply because the exclusively real and hypothecary
nature of maritime law operates to limit the liability of the ship owner to the value of the
3. Risk of Loss or Damage
vessel, earned freightage and proceeds of the insurance, if any ―No vessel, No liability,‖
expresses in a nutshell the limited liability rule. (Monarch Ins. Co v. CA, June 2008) The
Peril is the contingent or unknown event which may cause a loss. Its existence creates a risk total destruction of the vessel extinguishes maritime lien as there is no longer any res to
and its occurrence results in loss. which it can attach. In this case, the ship was seaworthy. It exercised extraordinary diligence
The event or peril insured against must be such that its happening will: when it changed its course to avoid the typhoon but unfortunately, it was hit by huge waves
a. Damnify or cause loss to a person; or and sank. Since the vessel sank at no fault by CSC, it cannot be held liable by virtue of ―No
b. Create liability against him [Sec. 3] vessel, no liability rule.‖

4. Risk-Distributing Scheme
b. Assume the vessel was not seaworthy as in fact its hull had leaked, causing flooding in the
vessel, will your answer be the same? Explain.
Insurance contracts serve to distribute the risk of economic loss, damage or liability among
NO. The insurance company is not liable for loss if the vessel is not seaworthy [Madrigal,
as many as possible of those who are subject to the same kind of risk.
Tiangco Company v. Hanson, Orth, and Stevenson, Inc. (1958) 103 Phil.345, at p.350] A ship
is seaworthy if it is reasonably fit to perform the service and to encounter the ordinary perils
Scheme: of the voyage contemplated by the parties to the policy (Sec. 114, ICP). In this case, there
was a leak in the hull of the ship making it unseaworthy; thereby, insurance company is
i. The payment of premiums by all will inure to a general fund, out of which payment exempt from liability.
will be made for anyone who has suffered an economic loss.
c. Assume the facts in question
ii. Hence, each member contributes to a small degree toward compensation for losses
suffered by any member of the group. YES. Although the proximate cause of death of the crew members is their negligence in not
attending to the ship’s seaworthiness which is their duty to do so and the company cannot be
5. Insurable Interest is the interest which the law requires the owner of an insurance blamed for the acts imputable to its employees’ negligence; however, they can claim against
the employee’s compensation because the accident causing their death occurred during the
policy to have in the person or thing insured [Carale].
course of employment and there was no notorious negligence on the part of the crew
members as to exempt the heirs from claiming under the employee’s compensation. The fund
In terms of the event insured against, it is the relation between the insurer and the risk
used for payment of claims is derived from the State Insurance Fund, which, upon payment,
insured, such that the occurrence of the risk will cause substantial loss or harm of some kind will be reimbursed by the employer.
to the insured [Carale].

4BLUE 95: Under the Code, the following are void: . Stipulation in a policy for the BAR: Paolo, the owner of an ocean-going vessel, offered to transport the logs of Constantino from
payment of loss whether the person insured has or has not any interest in the property Manila to Nagoya. Constantino accepted the offer, not knowing that the vessel was manned by an
insured; irresponsible crew with deep-seated resentments against Paolo, their employer. Constantino insured
i. Stipulation that the policy shall be received as proof of such interest; the cargo of logs against both perils of the sea and barratry. The logs were improperly loaded on
ii. Policy executed by way of gaming or wagering. [Sec. 25] one side, thereby causing the vessel to tilt on one side. On the way to Nagoya, the crew unbolted
the sea valve of the vessel causing water to flood the ship hold. The vessel sank. Constantino tried
to collect from the insurance company which denied liability, given the unworthiness of both the
2023 Note: Insurable interest is not required in industrial life insurance [Sec. 235-237].
vessel and its crew. Constantino countered that he was not the owner of the vessel and he could
therefore not be responsible for conditions about which he was innocent. Is the insurance company
6.Meeting of the Minds liable? (2010 BAR)
A: NO, the insurance company is not liable because there is an implied warranty in every marine
The two parties to a contract of insurance whose minds need to meet regarding the essential insurance that the ship is seaworthy whoever is insuring the cargo, whether it be the shipowner or
elements are: not. There was a breach of warranty, because the logs were improperly loaded and the crew was
irresponsible. It is the obligation of the owner of the cargo to look for a reliable common carrier
a. Insurer or the party who assumes or accepts the risk of loss and undertakes which keeps its vessel in seaworthy condition.
foonsideration to indemnify the insured or to pay a certain lump sum on the happening
of the event or peril insured against; and BAR: What is ―barratry‖ in marine insurance? (2010 BAR) A: Barratry is any willful misconduct
on the part of the master or the crew in pursuance of some unlawful or fraudulent purpose without
b. Insured or the person in whose favor the contract is operative and whose loss is the the consent of the owner and to the prejudice of the interest of the owner. Q: What warranties are
implied in marine insurance? (2000 BAR)
occasion for the payment of the insurance proceeds by the insurer [de Leon].
A: The following warranties are implied in marine insurance: (DeDoCS) 1. That the ship is
seaworthy to make the voyage and/or to take in certain cargoes; 2. That the ship shall not deviate
The insured is not always the person whom the proceeds are paid. Such person is the
from the voyage insured; 3. That the ship shall carry the necessary documents to show nationality
beneficiary [Vance]. or neutrality and that it will not carry document which will cast reasonable suspicion thereon; 4.
That the ship shall not carry contraband, especially if it is making voyage through belligerent
waters.
 4

CLASSES OF INSURANCE

MARINE INSURANCE
RULE ON ALL RISKS COVERED
Marine insurance is a type of transportation insurance which is concerned with the perils of
property in, or incidental to transit, as opposed to property perils at a generally fixed location. General Rule: In the absence of stipulation, the risks insured against are only perils of the sea, and
does not embrace all losses happening at sea. [Go Tiaco y Hermanos v. Union Ins. Society of
Marine insurance includes: Canton, G.R. No. 13983 (1919)]

1. Loss or damage to: Exception: However, in an all risk policy, all risks are covered unless expressly excepted. The
a. Vessels, cargo, freightage, profits, and all kinds of property and interests therein, in burden rests on the insurer to prove that the loss is caused by a risk that is excluded. [Filipino
connection with any and all risks or perils of navigation; Merchants Ins. Co. v. CA, G.R. No. 85141(1989)]
b. Person or property appertaining to a marine, inland marine, transit or transportation
insurance;
c. Precious stones, jewels, jewelry, precious metals, whether in course of transportation or
otherwise;
d. Instrumentalities of transportation and communication, excluding buildings, aids to
navigation and transportation, and appurtenant facilities for the control of waterways.

2. Marine protection and indemnity insurance against liability incidental to ownership, operation,
maintenance or construction of vessels and facilities therefore. [Sec. 101; Carale]

MARINE INSURANCE HAS TWO MAJOR DIVISIONS: BAR: A marine insurance policy on a cargo states that ―the insurer shall be liable for losses
incident to perils of the sea‖. During the voyage, seawater entered the compartment where the cargo
1. Ocean marine insurance insures against risk connected with navigation to which a ship, cargo, was stored due to the defective drainpipe of the ship. The insured filed an action on the policy for
freightage, profits or other insurable interest in movable property, may be exposed during a certain recovery of the damages caused to the cargo. May the insured recover damages? (1998 BAR)
voyage or a fixed period of time. Its scope includes: A: NO. The proximate cause of the damage to the cargo insured was the defective drainpipe of the
a. Ships or hulls; ship. This is peril of the ship, and not peril of the sea. The defect in the drainpipe was the result of
b. Goods or cargoes; the ordinary use of the ship. To recover under a marine insurance policy, the proximate cause of the
c. Earnings such as freight, passage money, commissions, or profits; and loss or damage must be peril of the sea.
d. Liability (protection and indemnity insurance).
BAR: An insurance company issued a marine insurance policy covering a shipment by sea from
2. Inland marine insurance covers the land or over-the-land transportation perils of property Mindoro to Batangas of 1,000 pieces of Mindoro garden stones against ―total loss only‖. The stones
shipped by railroads, motor trucks, airplanes, and other means of transportation. It also covers risks were loaded in two lighters, the first with 600 pieces and the second with 400 pieces. Because of
of lake, river or other inland waterway transportation and other waterborne perils outside those rough seas, damage was caused the second lighter resulting in the loss of 325 out of the 400 pieces.
covered by ocean marine insurance. The owner of the shipment filed claims against the insurance company on the ground of
constructive total loss inasmuch as more than ¾ of the value of the stones had been lost in one of
the lighter. Is the insurance company liable under its policy? Why? (1992 BAR)
LOAN: A: The insurance company is not liable under its policy covering against ―total loss only‖ the
shipment of 1,000 pieces of Mindoro garden stones. There is no constructive total loss that can be
claimed since the ¾ rule is to be computed on the total 1,000 pieces of Mindoro garden stones
covered by the single policy coverage.

In a bottomry loan, the insurable interest of a ship owner on its bottomed boat is the difference
between the amount of the loan and the value of the boat. Thus, if the amount of the loan does not BAR: On a clear weather, M/V Sundo, carrying insured cargo, left the port of Manila bound for
cover the total value of the boat, the owner can still insure the boat. Cebu. While at sea, the vessel encountered a strong typhoon forcing the captain to steer the vessel
Both loans depend on upon the safe conclusion of the voyage. to the nearest island where it stayed for seven days. The vessel ran out of provisions for its
passengers. Consequently, the vessel proceeded to Leyte to replenish its supplies.

a. Assuming that the cargo was damaged because of such deviation, who between the
TWO KINDS OF RISKS insurance company and the owner of the cargo bears the loss? Explain.
The insurance company is liable. It is an instance of a valid deviation because the strong
typhoon is a fortuitous event over which neither the master nor the owner has any control.
i. PERILS OF THE SEA Deviation is likewise proper in order to avoid a peril. [Sec. 124 (b)] Art. 1734 of the New
Civil Code further provides that common carriers are responsible for the loss, destruction,
Ocean marine insurance protects ships at sea and the cargo or freight on such ships from deterioration of the goods unless the same is due to any of the following causes only, among
standard ―perils of the sea‖ or ―perils of navigation‖. Includes: others is when there is flood, storm, earthquake, lightning or other natural disaster or
calamities. Moreover, a common carrier is bound to transport cargo and passengers with
i. Losses caused by sea damage, or by the violence of the elements; extraordinary diligence. Such deviation is just proper in its exercise of extraordinary
ii. Losses from extraordinaryoccurrences or those which cannot be guarded against by the diligence.
ordinary exertion of human skill or prudence;
iii. Barratry or the willful and intentional act on the part of the master or the crew, in b. Under what circumstances can a vessel properly proceed to a port other than its port of
pursuance of some unlawful or fraudulent purpose, without the consent of the owner, and to destination? Explain. (2005 BAR)
the prejudice of his interest (e.g., burning the ship, unlawfully selling the cargo). Sec. 124 of the Insurance Code provides that a deviation is proper when: i. When caused by
the circumstances over which neither the master nor the owner of the ship has any control; ii.
Excludes When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
Ordinary wear and tear of the voyage and from injuries suffered by the vessel in consequence insured against; iii. When made in good faith, and upon reasonable grounds of belief in its
of not being Unseaworthy. necessity to avoid a peril; or iv. When made in good faith, for the purpose of saving human
life or relieving another vessel in distress.

ii. PERILS OF THE SHIP

Perils of the ship are those which cause a loss which in the ordinary course of events, results:
1. From the ordinary, natural and inevitable action of the sea;
2. From ordinary wear and tear of the ship; and
3. From the negligent failure of the ship’s owner to provide the vessel with the proper
equipment to convey the cargo under ordinary conditions. [de Leon]
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LOSS ABANDONMENT

Loss may be total or partial. act of the insured by which, after a constructive total loss, he declares the relinquishment to
Total loss may be actual or constructive. the insurer of his interest in the thing insured. [Sec. 140]

Conditions
TOTAL LOSS
Aside from the requirement under Sec. 141 already mentioned above:
1. Actual loss exists when the subject matter of the insurance is wholly destroyed or lost or
when it is so damaged that it no longer exists in its original character. [Vance] 1. An abandonment must be neither partial nor conditional [Sec. 142];
2. An abandonment must be made within a reasonable time after receipt of reliable
It is caused by: information of the loss, but where the information is of a doubtful character, the insured is
entitled to a reasonable time to make inquiry [Sec. 143];
a. A total destruction of the thing insured; 3. Abandonment is made by giving notice thereof to the insurer, which may be done orally,
b. The irretrievable loss of the thing by sinking, or by being broken up; or in writing: Provided, That if the notice be done orally, a written notice of such
c. Any damage to the thing which renders it valueless to the owner for the abandonment shall be submitted within seven days from such oral notice [Sec. 145];
purpose for which he held it; 4. Abandonment must be absolute and total.
d. Any other event which effectively deprives the owner of the possession, at the
port of destination of the thing insured. [Sec. 132] 4blue 95: No notice of abandonment is required for recovery of loss in cases of actual total
loss.
An actual loss may be presumed from the continued absence of a ship without
being heard of. The length of time which is sufficient to raise this presumption 2023 notes: Where the information upon which an abandonment has been made proves
depends on the circumstances of the case. [Sec. 134] incorrect, or the thing insured was so far restored when the abandonment was made that
there was in fact no total loss, the abandonment becomes ineffectual.
2. Constructive total loss or “technical total loss” is one in which the loss, although not
actually total, is of such character that the insured is entitled, if he thinks fit, to treat it
as total by abandonment. [45 CJS 1150]

A constructive total loss is one which gives to a person insured a right to abandon. Characteristics
[Sec. 133]
A valid abandonment has the following characteristics:
As to when a constructive total loss exists, three rules exist:
1. English rule: there is constructive total loss when the subject matter of the insurance, 1. There must be an actual relinquishment by the person insured of his interest in the thing
while still existent in specie, is so damaged as not to be worth, when repaired, the cost of insured;
the repairs; 2. There must be a constructive total loss;
2. American rule: there is constructive total loss when it is so damaged that the costs of 3. It must be factual [Sec. 144];
repairs would exceed one-half of the value of the thing as acquired (also known as the ―fifty 4. The notice of abandonment must be explicit and must specify the particular cause of the
percent rule‖); abandonment. [Sec. 146]
3. Philippine rule: the insured may not abandon the thing insured unless the loss or damage
is more than ¾ of its value. [de Leon] Effects
1. An abandonment is equivalent to a transfer by the insured of his interest to the insurer,
A person insured by a contract of marine insurance may abandon the thing insured and with all the chances of recovery and indemnity [Sec. 148];
recover for a total loss thereof when the cause of the loss is a peril insured against – 2. 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 a
1. If more than ¾ thereof in value is actually lost, or would have to be expended to recover formal abandonment [Sec. 149];
it from the peril; 3. Upon an abandonment, acts done in good faith by those who were agents of the insured
2. If it is injured to such an extent as to reduce its value by more than ¾; in respect to the thing insured, subsequent to the loss, are at the risk of the insurer, and for
3. If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed his benefit [Sec. 150].
without incurring either an expense to the insured of more than ¾ the value of the thing
abandoned or a risk which a prudent man would not take under the circumstances; or
4. If the thing insured is cargo or freightage, and the voyage cannot be performed, nor
another ship procured by the master, within a reasonable time and with reasonable
diligence, to forward the cargo without incurring either an expense to the insured of more
than ¾ the value of the thing abandoned or a risk which a prudent man would not take
under the circumstances [Sec. 141].

2023 Note: Freightage cannot in any case be abandoned unless the ship is also abandoned.
 6

AVERAGE WARRANTIES

extraordinary or accidental expense incurred during the voyage for the preservation of the 1. IMPLIED WARRANTY OF SEAWORTHINESS
vessel, cargo or both and all the damages to the vessel and cargo from the time it is loaded
and the voyage commenced until it ends and the cargo is unloaded. [Art. 806, Code of In every marine insurance upon a ship or freight, or freightage, or upon anything which is
Commerce] the subject of marine insurance, a warranty is implied that the ship is seaworthy. [Sec. 115]

There are two kinds of averages: A vessel is seaworthy if:

1. Gross or general averages; and 1. It is fit to perform the service and to encounter the ordinary perils of thevoyage
2. Simple or particular averages. contemplated by the parties to the policy [Sec. 116];
2. It is properly laden;
3. It is provided with a competent master;
4. It is provided with a sufficient number of competent officers and seamen;
5. It is provided with the requisite appurtenances and equipment;
6. It is provided with other necessary or proper stores and implements for voyage. [Sec.118]

A vessel should be seaworthy at the time commencement of the risk or start of the voyage,
except:
1. When the insurance is made for a specified length of time, the implied warranty is not
complied with unless the ship be seaworthy at the commencement of every voyage it
undertakes during that time (Time Policy);
2. When the insurance is upon the cargo which, by the terms of the policy, description of
the voyage, or established custom of the trade, is to be transhippedat an intermediate port,
the implied warranty is not complied with unless each vessel upon which the cargo is
shipped, or transhipped, be seaworthy at the commencement of each particular voyage
(Cargo Policy). [Sec. 117]

Where different portions of the voyage contemplated by a policy differ in respect to the
things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is
complied with if, at the commencement of each portion, the ship is seaworthy with
reference to that portion. [Sec. 119]

4BLUE 95: The insurer is not liable despite breach of warranty when the ship becomes
unseaworthy during the voyage to which an insurance relates, but there is an unreasonable
delay in repairing the defect. [Sec. 120]

2. IMPLIED WARRANTY AGAINST IMPROPER DEVIATION

A deviation is a departure from the course of the voyage insured, or an unreasonable delay
in pursuing the voyage or the commencement of an entirely different voyage. [Sec.125]

Deviation is proper (Insurer remains liable):

1. When caused by circumstances over which neither the master nor the owner of the ship
has any control;
2. When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against;
3. When made in good faith, and upon reasonable grounds of belief in its necessity to avoid
a peril; or
4. When made in good faith, for the purpose of saving human life or relieving another
To claim general average contributions, the requisites are:
vessel in distress. [Sec. 126]
1. There must be a common danger to the vessel or cargo;
2. The sacrifice must be for the common safety or for the benefit of all;
Every deviation not specified in the last section is improper [Sec. 127]. Effect of any loss
3. It must be successful (i.e., resulted in the saving of the vessel and/or cargo);
subsequent to an improper deviation: Insurer is not liable. [Sec. 128]
4. Expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority. [Magsaysay v. Agan, G.R. No. L-6393 (1955)]

Vance, however, includes as part of the requisites:

3. IMPLIED WARRANTY OF PROPER DOCUMENTATION
1. Sacrifice was made by the master or upon his authority; and
2. That it was not caused by any fault of the party asking for the contribution. [Carale]
Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to show such nationality or neutrality and
An example of particular average loss would be the wages of the crew when the vessel is
that it will not carry any documents which cast reasonable suspicion thereon. [Sec. 122]
detained by reason of force majeure. In such a case, the loss is only partial and must be
borne by the owner of the vessel alone. [Carale]

Rule on averages in marine insurance

Where it has been agreed that an insurance upon a particular thing, or class of things, shall
be free from particular average:

i. A marine insurer is NOT liable for any particular average loss not depriving the insured
of the possession of the whole of such thing, or class of things at the port of destination
(even though it becomes entirely worthless);

ii. HOWEVER, such insurer is liable for his proportion of all general average loss assessed
upon the thing insured. [Sec. 138]
 7

FIRE INSURANCE

Fire Insurance is a contract of indemnity by which the insurer, for a stipulated Measure of Indemnity
premium, agrees to indemnify the insured against loss by:
i. Fire, lightning, windstorm, tornado or earthquake; and 1. In an open policy, only the expense necessary to replace the thing lost or injured in the
ii. Other allied risks, when such risks are covered by extension to fire insurance condition it was at the time of the injury will be paid;
policies or under separate policies. [Sec. 169]
Open policy: In the absence of express valuation in a fire insurance policy, the insured
Fire is oxidation which is so rapid as to produce either a flame or a glow. Spontaneous is only entitled to recover the amount of actual loss sustained and the burden of proof
combustion is usually rapid oxidation. Fire is always caused by combustion, but is upon him to establish the amount of such loss by preponderance of evidence.
combustion does not always cause fire. [Western Woolen Mills Co. v. Northern Assurance In an open policy, the actual loss, as determined, will represent the total indemnity due
Co., 139 Fed 637 (1905)] the insured except only that the total indemnity shall not exceed the total value of the
policy. [Development. Ins. Corp. v. IAC, G.R. No. 71360 (1986)]
Fire cannot be considered a natural disasteror calamity since it almost always arises from
some acts of man or by human means. It cannot be an act of God unless caused by lightning 2. In a valued policy, the parties are bound by the valuation, in the absence of fraud or
or a natural disaster or casualty not attributable to human agency. [Phil. Home Assurance mistake [Sec. 173];
Corp. v. CA, G.R. No. 106999 (1996)]
Valued policy: If there is a valuation, the effect shall be similar to a marine insurance
Fire or other so-called ―allied risks‖ enumerated in Sec. 169 must be the proximate cause of policy wherein the valuation is conclusive between the parties in adjusting the loss.
the damage or loss. [Sec. 158]

The presence of heat, steam, or even smoke is evidence of fire, but taken by itself will not
prove the existence of fire. 3. The parties may provide for an option-torebuild clause concerning the repairing,
rebuilding, or replacing of buildings or structures wholly or partially damages. [Sec. 174]
RISKS
Open to rebuild clause : Whenever the insured desires to have a valuation named in
Rule: The risk assumed by the insurer is the loss and damage caused by hostile fire and not his policy, insuring any building or structure against fire, he may require such building
friendly fire. or structure to be examined by an independent appraiser and the value of the insured’s
interest therein may then be fixed as between the insurer and the insured. The cost of
such examination shall be paid for by the insured. A clause shall be inserted in such
policy stating substantially that the value of the insured’s interest in such building or
structure has been thus fixed. [Sec. 174]

BAR: Queens Insurance Company insured X, a resident of Baguio City, ―against all direct
loss and damage by fire.‖ X lived in a house heated by a furnace. His servant built a fire in
the furnace using material that was highly flammable. The furnace fire caused intense heat
and great volumes of smoke and soot that damaged the furnishings in the rooms of X. When
X tried to collect on the policy, Queens Insurance refused to pay contending that the
damage is not covered by the policy, where the fire is confined within the furnace. Decide.
(1989 BAR)
A: The refusal of Queens to pay is justified. The damage is not covered by the policy which
only insures ―against all direct loss and damage by fire.‖ The damage being claimed by X
was caused by intense heat and great volumes of smoke and soot, and not directly by fire.
stipulation in the policy is paramount, not being contrary to law.

BAR: Robin insured his building against fire with EFG Assurance. The insurance policy
The principle underling this distinction is that the policy shall not be construed to protect contained the usual stipulation that any action or suit must be filed within 1 year after the
the insured from injury consequent upon his negligent use or management of fire, so long as rejection of the claim. After his building burned down, Robin filed his claim for fire loss
it burns in the place where it ought to be. [Carale] with EFG. On February 28, 1994, EFG denied Robin’s claim. On April 3, 1994, Robin
sought reconsideration of the denial, but EFG reiterated its position. On March 20, 1995,
Robin commenced judicial action against EFG. Should Robin’s action be given due course?
ALTERATIONS IN USE OR CONDITION Explain. (1996 BAR)
A: NO. Robin’s action should not be given due course. His filing of the request for
An alteration in the use or condition of a thing insured from that to which it is limited by the reconsideration did not suspend the running of the prescriptive period of 1 year stipulated in
policy: the insurance policy. Thus, when Robin commenced judicial action against EFG on March
1. Entitles an insurer to rescind a contract of fire insurance if such alteration: a. 20, 1995, his ability to do so had already prescribed.
Increases the risks, and b. Was made: The 1-year period is counted from February 28, 1994, when EFG denied Robin’s claim, not
(i) Without the consent of the insurer, and from the date (presumably after April 3, 1994) when EFG reiterated its position denying
(ii) By means within the control of the insured; Robin’s claim. The reason for this rule is to insure that claims against insurance companies
are promptly settled and that insurance suits are brought by the insured while the evidence
2. Does not affect a contract of fire insurance if the alteration does not increase the as to the origin and cause of the destruction has not yet disappeared.
risk. [Sec. 170-171]

4BLUE 95 Note: 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 therisk and is the cause of the loss. [Sec. 172]

Transferring machinery to another location, despite a provision in the policy stating that the
machine cannot be transferred without the consent of the insurer, is considered an alteration
in the condition and location of the thing insured. [Malayan Insurance Co, Ltd v. PAP Co.,
Ltd., G.R. No. 200784 (2013)]
 8

\CASUALTY INSURANCE

insurance covering loss or liability arising from accident or mishap. No Action Clause

Including, but not limited to: A no action clause is a requirement in a policy of liability insurance which provides that a
i. Employer’s liability insurance, suit must first be instituted, and a final judgmentbe first obtained against the insured before
ii. Motor vehicle liability insurance, the person injured can recover on the policy. However, a no-action clause cannot prevail
iii. Plate glass insurance, over the Rules of Court provisions which are aimed at avoiding multiplicity of suits. Parties
iv. Burglary and theft insurance, (i.e. the insured and the insurer) may bejoined as defendants in a case commenced by the
v. Personal accident and health insurance, as written by non-life insurance companies, third party claiming under a liability insurance, as the right to relief in respect to the same
and transactions is alleged to exist. [Sec. 5, Rule 2 and Sec. 6, Rule 3, 1997 Rules of Civil
vi. Other substantially similar kinds of insurance. Procedure

Excluding: BAR: HL insured his brand-new car with P Insurance Company for comprehensive
coverage wherein the insurance company undertook to indemnify him against loss or
Certain types of loss which by law or custom are considered as falling exclusively within damage to the car (a) by accidental collision xxx (b) by fire, external explosion, burglary, or
the scope of other types of insurance, such as fire or marine. [Sec. 176] theft, and (c) malicious act. After a month, the car was carnapped while parked in the
parking space in front of the Intercontinental Hotel in Makati. HL’s wife who was driving
the said car when it was carnapped was in possession of an expired driver’s license, a
violation of the ―authorized driver‖ clause of the insurance company.
a. May the insurance company be held liable to indemnify HL for the loss of the insured
vehicle? Explain.
b. Supposing that the car was brought by HL on installment basis and there were
installments due and payable before the loss of the car, the vendor demanded from HL the
unpaid balance of the promissory note. HL resisted the demand and claimed that he was
only liable for the installments due and payable before the loss of the car but no longer
liable for the other installments not yet due at the time of the loss of the car. Decide. (1993
BAR)
:
a. YES. The car was lost due to theft. What applies in this case is the ―theft‖ clause, and not
the ―authorized driver‖ clause. It is immaterial that HL’s wife was driving the car with an
expired driver’s license at the time it was carnapped.
b. The promissory note is not affected by whatever befalls the subject matter of the
accessory contract. The unpaid balance on the promissory note should be paid and not only
the installments due and payable before the loss of the car.

SURETYSHIP

A Contract of Suretyship is an agreement whereby a party, called the surety,

guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of a third party called the obligee. [Sec. 177]

It includes official recognizances, stipulations, bonds or undertakings issued by any

company by virtue of and under the provisions of Act. No 536, as amended by 2206.
[Sec. 177]

Casualty insurance has two general divisions: Nature of Contract

1. Liability Insurance - against specified perils which may give rise to liability on the part of It shall be deemed as insurance contract ifthe surety’s main business is that of suretyship,
the insured; and not where the contract is merely incidental to any other legitimate business or activity
of the surety.
Liability Insurance : The insurer assumes the obligation to pay the third party It is an accessory contract unlike a contract of insurance which is the principal contract
in whose favor the liability of the insured arises. The liability of the insurer itself.
attaches as soon as the liability of the insured to the third party is established. The contract of a surety is evidenced by a document called surety bond which is essentially
It covers liability incurred from quasi-delict or criminal negligence but cannot a promise to guarantee the obligation of the obligor. In turn, the obligor executes an
cover deliberate criminal acts [DE LEON]. indemnity agreement in favor of the insurer [de Leon].

When the obligee accepts the bond, the bond becomes valid and enforceable, whether or not
2. Indemnity insurance – against specified perils which may affect the persons. the premium has been paid by the obligor, unlike in an insurance contract where payment of
premium is necessary for the contract to be valid. If the obligee has not yet accepted, then
Indemnity Insurance : Under this kind of insurance, no action will lie against payment of premium is still necessary for the contract of suretyship to be valid.
the insurer unless brought by the insured for loss actually sustained and paid
by him. Liability of the insurer attaches only after the insured has paid his
liability to the third party [DE LEON]. Liability of Surety

The liability of the surety or sureties under a bond is joint and several, or solidary [Sec.
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code 178]. This means that upon the default of the principal obligor, the surety becomes
contains no other provisions applicable to casualty insurance or to robbery insurance in primarily liable. Unlike a guarantor, a surety is not entitled to the benefit of exhaustion of
particular. These contracts are, therefore, governed by the general provisions applicableto the principal obligor’s assets and assumes a regular party to the undertaking.
all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always Said liability is limited or fixed to the amount of the bond.
in accordance with the general principles of insurance law [Fortune Insurance & Surety Co.
v. CA, G.R. No. 115278 (1995)].
 9

LIFE INSURANCE 5. Accidental Death

insurance on human lives and insurance appertaining thereto or connected therewith. The terms accident and accidental means have been taken to mean that they happen by
The ff. shall be considered a life insurance contract for purposes of the Insurance chance or fortuitously, without intention and design and are unexpected, unusual, and
Code: unforeseen.

1. Every contract or undertaking for the payment of annuities; Including contracts for the Where the death or injury is not the natural or probable result of the insured’s voluntary act,
payment of lump sums under a retirementprogram where a life insurance company or if something unforeseen occurs in the doing of the act which produces the injury, the
manages or acts as a trustee for such retirement program resulting death is within the protection of the policies insuring against death or injury from
accident. [Carale]
2. Every contract or pledge for the payment of endowments or annuities. [Sec. 181-182]
An event is not an accident if it is due to a voluntary and intentional act on the part of
An insurance upon life may be made payable: anyone, including third parties. In the absence of proof that the incident was intentional, the
1. On the death of the person, or insurer shall pay the beneficiary the value of the supplemental policy covering death by
2. On his surviving a specified period, or accident. [Calanoc v. CA, G.R. No. L-8151 (1955)]
3. On the continuance or cessation of life. [Sec. 182]
The fact that there were nine wounds in totalis proof that the victim was killed intentionally,
as this cannot be considered accidental. Thus, the incident is not covered by the
supplemental insurance on death by accident. [Biagtan v. Insular [G.R. No. L-25579
(1972)]

TYPES

1. Individual Life

Insurance on human lives and insurance appertaining thereto or connected therewith. It may
There are also cases wherein there may be one person only for all three parties. be made payable on the death of the person, or after his surviving a specified period (as an
annuity or endowment), or otherwise contingently on the continuation or cessation of life.

FIVE IMPORTANT RISKS: 2. Group Life

1. Death or Survival It is a blanket policy covering a number of individuals who are usually a cohesive group
Life insurance may be made payable on the death of the person, or on his surviving a (e.g., employees of a company) and subjected to a common risk. No medical examination is
specified period, or otherwise contingently on the continuation or cessation of life. usually required of each person insured (in contrast to individual life insurance).
Death of the insured must be proven by the beneficiary before the insurer can be made to Group insurance is a single insurance contract that provides coverage for many individuals.
pay. The employer-policy holder is the agent of the insurer in collecting the premium. [Pineda v.
CA, G.R. No. 105562 (1993)]
2. Suicide Typically, the policy owner is an employer and the policy covers the employees or
Insurer is liable in any of the following cases: members of the group, with one master contract kept by the employer. Where the employee
1. If committed after 2 years from the date of the policy’s issue or its last is required to pay a portion of the premium, the arrangement is called a contributory plan,
reinstatement unless the policy provides for a shorter period. wherein his share is deducted from his wages. [Carale]

4BLUE 95 Note: Any stipulation extending the 2-year period is void. 3. Industrial Life

2. If committed in a state of insanity, regardless of the date of the commission, unless Industrial life insurance refers to an insurance policy under which the premiums are payable
suicide is an excepted peril. [Sec. 183] either monthly or oftener, if:
1. The face amount of insurance provided in any policy is not more than 500 times
Since suicide is contrary to the laws of nature and the ordinary rules of conduct, it is that of the current statutory minimum daily wage in the City of Manila; and
never presumed. The burden of proving lies with the insurer, who seeks to avoid 2. The words ―industrial policy‖ are printed upon the policy as part of the descriptive
liability under a life policy, excepting it from coverage. [Campos] matter. [Sec. 235]

3. Death at the hands of the law It provides insurance coverage to industrial workers or people who are unable to afford
(e.g., legal execution) is one of the risks assumed by the insurer under a life insurance insurance for bigger amounts. It shall not lapse after non-payment of premiums in 3 months
policy in the absence of a valid policy exception. [Campos] after the expiration of the grace period, if such non-payment is due to the failure of the
company to send its representatives to the insured to collect premium. [Sec. 235]
4. Killing by the beneficiary

General rule: The interest of a beneficiary ina life insurance policy shall be forfeited 4. Microinsurance
whenthe beneficiary is the principal, accomplice or accessory in willfully bringing about the
death of the insured. In such event, the other beneficiaries so named shall receive their share Microinsurance is a financial product or service that meets the risk protection needs of the
and divide among them the forfeited share of the ―guilty‖ beneficiary. In the absence of poor, where:
other beneficiaries, proceeds shall be paid according to the policy contract, and if silent, it 1. The amount of contributions, premiums, fees or charges, computed on a daily basis,
shall be paid to the estate of the insured. [Sec. 12] does not exceed 7.5% of the current daily minimum wage rate for nonagricultural
workers in Metro Manila; and
Exceptions 2. The maximum sum of guaranteed benefits is not more than 1,000 times of the said
1. Accidental killing current daily minimum wage rate. [Sec. 187]
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured No insurance company or mutual benefit association shall engage in the business of
4. Negligence Microinsurance UNLESS it possesses all the requirements as may be prescribed by the
Commissioner. [Sec. 188]
2023 Note: Conviction of the beneficiary is necessary before his interest in the insurance
policy is forfeited in favor of the others indicated in Sec. 12
 10

Other Classifications of Life Insurance Policies

BAR MATTER 2023
1. Ordinary or whole life policy, where the insurer agrees to pay the face value of the policy
upon the death of the insured;
VARIABLE CONTRACT refers to any policy or contract, on either a group or on an
Distinct variations of Whole Life Policy: individual basis, issued by an insurance company providing:

a. Ordinary Life Insurance – Premiums are paid throughout the lifetime of the 1. Benefits or other contractual paymentsor values thereunder to vary, so as to reflect
person insured or until the person reaches a predetermined specified age at which investment results of:
point the coverage continues without the payment of additional premiums. a. Any segregated portfolio of investments; or
b. A designated separate account in which amounts received, in connection with such
b. Limited Payment Life Insurance – Premiums are paid only during a specified contracts shall have been placed and accounted for separately and apart from other
number of years or untila specified event occurs. investments and accounts; AND/OR

c. Single Premium Life Insurance – the coverage is acquired by the payment of a 2. Benefits or values incidental thereto payable in fixed or variable amounts, or both.
single premium.
It shall not be deemed to be a security or securities as defined in The Securities Act, as
d. Joint Life Insurance – coverage is payable upon the first death among two or amended, or in the Investment Company Act, as amended, nor subject to regulations under
more insured (normally purchased by business partners or spouses) and paid to said Acts. [Sec.238(b)]
the survivor.
No insurance company authorized to transact business in the Philippines shall issue, deliver,
e. Universal Life Insurance – emphasizes the separation of the portion of the sell or use any variable contract in the Philippines, unless and until such company shall
premium that is used to cover the insurance protection from the portion of the have satisfied the Commissioner that:
premium allocated to an investment. a. Its financial and general condition; and
b. Its methods of operations, including the issue and sale of variable contracts, are not
f. Variable Life Insurance – some amount of death benefit provided by a variable and will not be hazardous to the public or to its policy and contract owners. [Sec.
life insurance policy is guaranteed by the insurer, but the total death benefit and 238(a)]
the cash value of the insurance before death depend on the investment
performance of that portion of the premium which is allocated to a separate fund. No foreign insurance company shall be authorized to issue, deliver or sell any variable
contract in the Philippines, unless it is likewise authorized to do so by the laws of its
g. Pure endowment policy –where the insurer pays the insured if the insured domicile. [Sec. 238(a)]
survives a specified period. If the insured dies within the period, the insurer is
released from liability and unless the contract otherwise provides, need not In determining the qualifications of a company requesting authority to issue, deliver, sell or
reimburse any part of the premiums paid. use variable contracts, the Commissionershall always consider the following:

h. Endowment policy – where the insured is paid the face value of the policy if 1. The history, financial and general condition of the company: Provided, That such
he outlives the designated period. If he dies within said period, the insurer pays company, if a foreign company, must have deposited with the Commissioner for the
the proceeds to the beneficiary. This is a combination of term policy and pure benefit and security of its variable contract owners in the Philippines, securities
endowment policy. satisfactory to the Commissioner consisting of bonds of the Government of the
Philippines or its instrumentalities with an actual market value of Two million pesos
(P2,000,000.00);
2. Term Life Insurance, which provides for the payment of a specified amount if death
occurs within the time period designated in the policy, usually for periods of one to five 2. The character, responsibility and fitness of the officers and directors of the
years. company; and

3. The law and regulation under which the company is authorized in the state of
3. Modified Life Insurance, which is apolicy that combines term and whole life insurance domicile to issue such contracts. [Sec. 238(c)]
into a single insurance policy. Premiums paid by the insured are substantially less during
the first few years then later on increases during the remaining term of the policy If after notice and hearing, the Commissioner shall find that the company is qualified to
issue, deliver, sell or use variable contracts in accordance with this Code and the regulations
and rules issued thereunder, the corresponding order of authorization shall be issued.

Any decision or order denying authority to issue, deliver, sell or use variable contracts shall
clearly and distinctly state the reasons and grounds on which it is based. [Sec.238(d)]

Any insurance company issuing variable contracts pursuant to this Code may, in its
discretion, issue contracts providing a combination of fixed amount and variable amount of
benefits, and for option lump-sum payment of benefits. [Sec. 239]
 11

BAR: Manpower Company obtained a group life insurance policy for its employees from BAR: Juan de la Cruz was issued Policy No. 8888 of the Midland Life Insurance Co. on a
Phoenix Insurance Company. The master policy issued by Phoenix on June 1, 1986 whole life plan for P20,000 on August 19, 1989. Juan is married to Cynthia with whom he
contained a provision that eligible employees for insurance coverage were all full time has three legitimate children. He, however, designated Purita, his common-law wife, as the
employees of Manpower regularly working at least 30 hours per week. The policy had also revocable beneficiary. Juan referred to Purita in his application and policy as the legal wife.
an incontestable clause. Beforehand, Phoenix sent enrollment cards to Manpower for Three (3) years later, Juan died. Purita filed her claim for the proceeds of the policy as the
distribution to its eligible employees. X filled out the card which contained a printed clause: designated beneficiary therein. The widow, Cynthia, also filed a claim as the legal wife. To
―I request the insurance for which I may become eligible under said Group Policy.‖ The whom should the proceeds of the insurance policy be awarded? (1998 BAR)
cards were then sent to Phoenix and X was among the employees of Manpower who was A: The estate is entitled to claim for the proceeds of the insurance policy. As a general rule,
issued a certificate of coverage by Phoenix. On July 3, 1988, X was killed on the occasion the insured may designate anyone he wishes to be his/her beneficiary. However, Art. 2012
of a robbery in their house. While processing the claim of X’s beneficiary, Phoenix found of the Civil Code, which applies suppletorily to the Insurance Code, provides that any
out that X was not an eligible employee as defined in the group policy since he has not been person who is forbidden from receiving any donation under Art. 739 cannot be named
employed 30 hours a week by Manpower. Phoenix refused to pay. May X’s beneficiary beneficiary of a life insurance policy by the person who cannot make any donation to him.
invoke the incontestability clause against Phoenix? Reasons. (1989 BAR) Art. 739 specifically bars the donations as between persons who were guilty of adultery or
A: YES, the beneficiary of X may validly invoke the incontestability clause. If the concubinage. Since Purita is a common-law wife of Juan, she falls squarely into this
incontestability clause can apply even to cases of intentional concealment and category, therefore she is disqualified to receive insurance proceeds and when this happens,
misrepresentation, there would be no cogent reason for denying such application where the the estate of the deceased is the one entitled to the proceeds. (Insular Life Assurance
insured had not been guilty thereof. When X filled out the card containing the printed clause Company, Ltd. v. Capronia Ebrado, G.R. No. L-44059, Oct. 28, 1977)
―I request the insurance for which I may become eligible under said Group Policy‖, it
behooved the insurer to look into the qualifications of X whether he can thus be covered or
not by the group life insurance policy. In issuing the certificate of coverage to X, Phoenix
may, in fact, be said to have waived the 30-hour per week requirement.
BAR: Jacob obtained a life insurance policy for P1M designating irrevocably Diwata, a
friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his
BAR: The policy of insurance upon his life, with a face value of P100,000, was assigned by other friends, to be included as beneficiaries considering that the proceeds of the policy are
Jose, a married man with 2 legitimate children, to his nephew, Y, as security for a loan of sufficient for the three friends. Can Jacob still add Yob and Jojo as his beneficiaries? (2005
P50,000. He did not give the insurer any written notice of such assignment despite the BAR)
explicit provision to that effect in the policy. Jose died. Commercial Law 4 Upon the claim A: NO. Jacob cannot add other beneficiaries as this would diminish the interest of Diwata
on the policy by the assignee, the insurer refused to pay on the ground that it was not who is the irrevocably designated beneficiary. The insured can only do so with the consent
notified of the assignment. Upon the other hand, the heirs of Jose contended that Y is not of Diwata.
entitled to any amount under the policy because the assignment without due notice to the
insurer was void. Resolve the issues. (1991 BAR)
A: A life insurance is assignable. A provision, however, in the policy stating that written \
notice of such an assignment should be given to the insurer is valid. The failure of the
notice of assignment would thus preclude the assignee from claiming rights under the
policy. The failure of notice did not, however, avoid the policy; hence, upon the death of
Jose, the proceeds would, in the absence of a designated beneficiary, go to the estate of the BAR: What are the effects of an irrevocable designation of a beneficiary under the
insured. The estate, in turn, would be liable for the loan of P50,000 owing in favor of Y. Insurance Code? (2005 BAR) A: The irrevocable beneficiary is deemed to have acquired a
vested interest in the policy so much so that the insured or policy owner cannot exercise any
BAR: Sun-Moon Insurance issued a Personal Accident Policy to Henry Dy with a face right or benefit under the policy, like changing or adding a new beneficiary, obtaining a
value of P500,000. A provision in the policy states that ―the company shall not be liable in policy loan or making a partial or full withdrawal of the cash surrender value, without the
respect of bodily injury consequent upon the insured person attempting to commit suicide express written consent of the irrevocable beneficiary. Q: On January 1, 2000, Antonio
or willfully exposing himself to needless peril except in an attempt to save human life.‖ Six Rivera secured a life insurance from SOS Insurance Corp. for P1M with Gemma Rivera, his
(6) months later, Henry died of a bullet wound in his head. Investigation showed that one adopted daughter, as the beneficiary. Antonio Rivera died on March 4, 2005, and in the
evening Henry was in a happy mood although he was not drunk. He was playing with his police investigation, it was ascertained that Gemma Rivera participated as an accessory in
handgun from which he had previously removed its magazine. He pointed the gun at his the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting up as a
sister who got scared. He assured her it was not loaded. He then pointed the gun at his defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with
temple and pulled the trigger. The gun fires and Henry slumped dead on the floor. Henry’s reasons. (2008 BAR)
wife, Beverly, as the designated beneficiary, sought to collect under the policy. Sun-Moon A: NO. SOS cannot avoid liability under the policy. While Gemma’s interest as beneficiary
rejected her claim on the ground that the death of Henry was not accidental. Beverly sued in the policy is considered forfeited since she is an accessory to the killing of Antonio, the
the insurer. Decide. Discuss fully. (1995 BAR) proceeds of the policy should be paid to the nearest relative of Antonio (if not otherwise
A: Beverly can recover the proceeds of the policy from the insurer. The death of the insured disqualified). The Insurance Code provides that the interest of a beneficiary in a life
was not due to suicide or willful exposure to needless peril which are the excepted risks. insurance policy shall be forfeited when the beneficiary is the principal, accomplice, or
The insured’s act was purely an act of negligence which is covered by the policy and for accessory in willfully bringing about the death of the insured; in which event, the nearest
which the insured got the insurance for his protection. In fact, he removed the magazine relative of the insured shall receive the proceeds of said insurance if not otherwise
from the gun and when he pointed the gun to his temple he did so because he thought that it disqualified.
was safe for him to do so. He did so to assure his sister that the gun was harmless. There is
none in the policy that would relieve the insurer of liability for the death of the insured
since the death was an accident.

BAR: S Insurance Company issued a Personal Accident Policy to Bob Tan with a face
value of P500,000. In the evening of September 5, 1992, after his birthday party, Tan was in
a happy mood but not drunk. He was playing with his handgun, from which he previously
removed the magazine. As his secretary was watching television, he stood in front of her
and pointed the gun at her. She pushed it aside and said that it may be loaded. He assured
her that it was not and then pointed it at his temple. The next moment, there was an
explosion and Tan slumped to the floor lifeless. The wife of the deceased sought payment
on the policy but her claim was rejected. The insurance company agreed that there was no
suicide. However, it was the submission of the insurance company that there was no
accident. In support thereof, it contended (a) that there was no accident when a deliberated
act was performed unless some additional, unexpected, independent and unforeseen BAR: TRUE or FALSE. The law on life insurance prohibits double insurance. (2017 BAR)
happening occur which produces or brings about the injury or death; and (b) that the insured A: FALSE, double insurance only applies to property insurance.
willfully exposed himself to needless peril and thus removed himself from the coverage of
the insurance policy. Are the two contentions of the insurance company tenable? Explain.
(1993 BAR)
A: NO. These 2 contentions of the insurance company are not tenable. The insurer is liable
for injury or death even due to the insured’s gross negligence. The fact that the insured
removed the magazine from the handgun means that the insured did not willfully expose
himself to needless peril. At most, the insured is only guilty of negligence.
 12

BAR: On July 3, 1993, Delia Sotero took out a life insurance policy from Ilocos Life BAR: In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co.,
designating Aban, her niece, as her beneficiary. Ilocos Life issued Policy No. 747, with a wherein his wife, Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ
face value of P100,000, in Sotero’s favor on August 30, 1993, after the requisite medical Insurance Co., however, Mr. H had been previously diagnosed with colon cancer, the fact
examination and payment of the premium. On April 10, 1996, Sotero died. Aban filed a of which Mr. H had concealed during the entire time his insurance policy was being
claim for the insurance proceeds on July 9, 1996. Ilocos Life conducted an investigation processed. In January 2019, Mr. H unfortunately committed suicide. Due to her husband's
into the claim and came out with the following findings: death, Mrs. W, as beneficiary, filed a claim with XYZ Insurance Co. to recover the
1. Sotero did not personally apply for insurance coverage, as she was illiterate. proceeds of the late Mr. H's life insurance policy. However, XYZ Insurance Co. resisted the
2. Sotero was sickly since 1990. claim, contending that: (1) the policy is void ab initio because Mr. H fraudulently concealed
3. Sotero did not have the financial capability to pay the premium on the policy. or misrepresented his medical condition, i.e., his colon cancer; and (2) as an insurer in a life
4. Sotero did not sign the application for insurance. insurance policy, it cannot be held liable in case of suicide. Rule on each of XYZ Insurance
5. Aban was the one who filed the insurance application and designated herself as the Co.’s contentions (2019 BAR)
beneficiary. For the above reasons and claiming fraud, Ilocos Life denied Aban’s claim on A: The first contention is not tenable. Under the incontestability clause, after a policy of life
April 16, 1997, but refunded the premium paid on the policy. insurance made payable upon the death of the insured shall have been in force during the
lifetime of the insured for a period of two years from the issuance of the policy or last
a. May the incontestability period set in even in cases of fraud as alleged in this case? reinstatement, the insurer must make good on the policy even though the policy was
YES. The ―incontestability clause‖ is a provision in law that after a policy of life obtained through fraud, concealment or misrepresentation (Section 48 Insurance Code;
insurance made payable on the death of the insured shall have been in force during the Manila Bankers v. Aban, G.R. No. 175666, July 29, 2013; Sun Life of Canada v. Sibya,
lifetime of the insured for a period of 2 years from the date of its issue or of its last G.R. No. 211212, June 08, 2016) Even if Mr. H had concealed or misrepresented that he
reinstatement, the insurer cannot prove that the policy is void ab initio or is was previously diagnosed with colon cancer, XYZ can no longer rescind the policy since it
rescindable by reason of fraudulent concealment or misrepresentation of the insured or has been in force already for three years. On the second contention, XYZ Insurance is liable
his agent. In this case, the policy was issued on August 30, 1993, and the insured died despite the suicide of Mr. H. Under the Insurance Code, the insurer is liable when suicide is
on April 10, 1996. The insurance policy was thus in force for a period of 3 years, 7 committed after the policy has been in force for a period of two years from the date of issue
months, and 24 days. Considering that the insured died after the 2-year period, Ilocos or its last reinstatement. (Section 180- A, Insurance Code)
is, therefore, barred from proving that the policy is void ab initio by reason of the In this case, Mr. H committed suicide three years after issuance of the policy; thus, XYZ
insured’s fraudulent concealment or misrepresentation or want of insurable interest on should be liable to the beneficiary of Mr. H.
the part of the beneficiary

b. Is Aban entitled to claim the proceeds under the policy? (2014 BAR) YES. Aban is CMVL
entitled to claim the proceeds. After the 2-year period lapse, or when the insured dies
within the period, the insurer must make good on the policy, even though the policy BAR: Mr. Gonzales was the owner of a car insured with Masagana Insurance Company for ―Own
was obtained by fraud, concealment, or misrepresentation, as in this case, when the Damage‖, ―Theft‖, and ―Third Party Liability‖ effective May 14, 1986 to May 14, 1987. On May 2,
insured did not personally apply for the policy as she was illiterate and that it was the 1987, the car was brought to a machine shop for repairs. On May 11, 1987, while in the custody of
beneficiary who filled up the insurance application designating herself as beneficiary. the machine shop, the car was taken by one of the employees (of the machine shop) to show off to
his girlfriend. While on the way to his girlfriend’s house, the car smashed into a parked truck and
was extensively damaged. Mr. Gonzales filed a claim for recovery under the policy but was refused
payment. The insurance company averred that the car was not stolen, and therefore was not covered
by the ―Theft Clause‖. Decide the merits of the insurer’s contention with reasons. (1988 BAR)
BAR: Shortly after Yin and Yang were wed, they each took out separate life insurance A: I would decide in favor of the insured. The coverage of the policy was rather comprehensive in
policies on their lives, and mutually designated one another as sole beneficiary. Both life scope. The Theft Clause particularly, at least by intendment, should cover situations of the loss of
insurance policies provided for a double indemnity clause, the cost for which was added to the property occasioned by the taking or use by another without the authority of the insured.
the premium rate. During the last 10 years of their marriage, the spouses had faithfully paid Furthermore, doubts on the insurance, being a ―contract by adherence‖ must be construed against
for the annual premiums over the life policies from both their salaries. Unfortunately, Yin the insurer.
fell in love with his officemate, Yessel, and they carried on an affair. After two years, their
relationship bore them a daughter named Yinsel. Without the knowledge of Yang, Yin BAR: On May 26, 2001, Jess insured with Jack Insurance his 2014 Toyota Corolla sedan under a
changed the designation of the beneficiary to an "irrevocable designation" of Yinsel and comprehensive motor vehicle insurance policy for one year. On July 1, 2014, Jess’ car was
Yessel jointly. When Yang learned of the affair, she was so despondent that, having unlawfully taken. Hence, he immediately reported the theft to the Traffic Management Command
(TMC) of the PNP, which made Jess accomplish a complaint sheet as part of its procedure. In the
chanced upon Yin and Yessel on a date, she rammed them down with the car she was
complaint sheet, Jess alleged that a certain Silat took possession of the subject vehicle to add
driving, resulting in Yin's death and Yessel's complete loss of mobilization. Yang was sued
accessories and improvements thereon. However, Silat failed to return the subject vehicle within
for parricide, and while the case was pending, she filed a claim on the proceeds of the life
the agreed 3-day period. As a result, Jess notified Jack of his claim for reimbursement of the value
insurance of Yin as irrevocable beneficiary, or at least his legal heir, and opposed the claims of the vehicle under the insurance policy. Jack refused to pay claiming that there is no theft as Jess
on Commercial Law 6 behalf of Yessel and her daughter Yinsel. Yang claimed that her gave Silat lawful possession of the car. Is Jack correct? (2014 BAR)
designation as beneficiary in Yin's life insurance policy was irrevocable, in the nature of A: NO. Jack is not correct. The ―theft clause‖ of a comprehensive motor vehicle insurance
one "coupled with interest," since it was made in accordance with their mutual agreement to policy has been interpreted by the Court in several cases to cover situations like (1) when one
designate one another as sole beneficiary in their respective life policies. She also claimed takes the motor vehicle of another without the latter’s consent even if the motor vehicle is
that the beneficiary designation of Yessel and the illegitimate minor child Yinsel was void later returned, there is theft — there being Commercial Law 8 intent to gain as the use of the
being the product of an illicit relationship, and therefore without "insurable interest." thing unlawfully taken constitutes gain, or (2) when there is taking of a vehicle by another
person without the permission or authority from the owner thereof.
a. Is Yang correct in saying that her designation as beneficiary was irrevocable?
b. Do Yessel and Yinsel have ―insurance interest‖ on the life of Yin? (2018 BAR)
BAR: On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance
A:
Company involving a motor vehicle. The policy obligates Matino to pay Barrack the amount of
a. Yang is not correct. The insured shall have the right to change the beneficiary he P600,000 in case of loss or damage to said vehicle during the period covered, which is from
designated in the policy, unless he has expressly waived this right in the policy. There is February 26, 2013 to February 26, 2014. On April 16, 2013, at about 9:00am, Barrack instructed
nothing in the life insurance policy taken by Yang which indicated that the designation of his driver, JJ, to bring the motor vehicle to a nearby auto shop for tune-up. However, JJ no longer
Yin is irrevocable. As such, it is deemed to be revocable. returned and despite diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly,
Barrack promptly notified Matino of the said loss and demanded payment of the insurance proceeds
b. Yessel has no insurable interest on the life of Yin, because she cannot be lawfully of P600,000. In a letter dated July 5, 2013, Matino denied the claim, reasoning as stated in the
designated as beneficiary. Persons who are proscribed to become donees under the rules on contract that ―the company shall not be liable for any malicious damage caused by the insured, any
donation cannot be designated as beneficiary in life insurance. These include persons in member of his family or by a person in the insured’s service. Is Matino correct in denying the
illicit relations as in the case of Yin and Yessel. Yinsel, however, has insurable interest on claim? (2014 BAR)
A: NO. Matino is not correct in denying the claim. An insurance company cannot deny a claim by
the life of Yin. There is no proscription in naming an illegitimate child as a beneficiary
the owner of a motor vehicle who insured it against loss or damage because the driver he employed
(Heirs of Loreta Maramag v. Maramag, G.R. No. 181132, June 5, 2009)
stole it. Matino cannot invoke the provision excluding malicious damages caused by a person in the
service of the insured. In common ordinary usage, loss means failure to keep possession, while
malicious damage is damage resulting from the willful act of the driver. Words which have
different meanings shall be understood in the sense which is most in keeping with the nature and
object of the insurance contract. If a stipulation admits several meanings, it should be understood as
bearing the meaning which is most adequate to render it effectual. It may be shown that the words
have a local, technical or peculiar meaning and were so used and understood by the parties.
 13

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

COMPULSORY INSURANCE COVERAGE FOR AGENCY-HIRED WORKERS

a policy of insurance or guaranty in cash or surety bond to indemnify the death, bodily
injury, and/or damage to property of a third-party or passenger arising from the use of a
motor vehicle. an insurance mechanism made available by the law to provide insurance protection for
OFWs.
It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the
same in the public highways unless there is in force, a policy of insurance or guaranty in cash or Each migrant worker to be deployed by a recruitment/manning agency shall be covered by a
surety bond: compulsory insurance contract which shall be secured at no cost to the said worker.
1. Issued in accordance with the provisions of this chapter;
2. To indemnity the death, bodily injury and/or damage to property of a thirdparty or Basis: It is the policy of the State to provide adequate protection to the overseas Filipino workers
passenger, as the case may be, arising from the use thereof. [Sec. 387] by ensuring coverage under the compulsory insurance requirement in Section 37-A of the Migrant
Workers and Overseas Filipinos Act of 1995, as amended. [Sec. 1(b), Insurance Guidelines on Rule
It is a requisite for registration or renewal of registration of a motor vehicle by every land XVI of the Omnibus Rules and Regulations Implementing RA 8042]
transportation operator or owner. [Sec. 390] It is the only type of compulsory insurance provided
for under the Insurance Code.
Qualifications
It applies to all vehicles whether public or private vehicles.
To the extent that motor vehicle insurance is compulsory, it must be a liability policy, and the To be qualified to provide for the Migrant Workers’ Compulsory Insurance Coverage, the
provision making it merely an indemnity insurance contract cannot have any effect. [Campos] insurance company must:
The insurer’s liability is direct and primary so the insurer need not wait for final judgment in the
criminal case to be liable. The purpose is to give immediate financial assistance to victims of motor 1. Be a reputable private life, non-life and composite insurance company;
vehicle accidents and/or their dependents, regardless of the financial capability of motor vehicle 2. Be duly licensed by IC;
owners oroperators responsible for the accident sustained. [Shafer v. Judge, RTC Olongapo, G.R. 3. Be in existence and operational for at least five (5) years;
No. 78848 (1988)] 4. Have a net worth of at least Php 500,000,000 based on the audited financial statements for
the immediately preceding year;
The claimants/victims may be a passenger or a third party. The insured may be the party at fault as 5. Have a current year certificate of authority; and
against claims of third parties (i.e. thirdparty liability) or the victim of the contingent event. 6. Have an IC-approved standard policy. [Sec. 1, Insurance Guidelines on Rule XVI of the
Omnibus Rules and Regulations Implementing RA 8042]
The following clauses are relevant to compulsory motor vehicle liability insurance:

1. Authorized Driver Clause is a stipulation in a motor vehicle insurance policy which

provides that the driver, other than the insured owner, must be duly licensed to drive the Disqualifications
motor vehicle, otherwise the insurer is excused from liability;
Insurance companies who have directors, partners, officers, employees, or agents with
2. Theft Clause is a stipulation including theft as one of the risks insured against. If there is relatives within the fourth civil degree of consanguinity or affinity who work or have interest
such a provision and the vehicle was unlawfully taken, the insurer is liable under the theft in any of the licensed recruitment/manning agencies or in any of the government agencies
clause and the authorized driver clause does not apply. The insured can recover even if the involved in the overseas employment program shall be disqualified from providing the
thief has no driver’s license. migrant worker’s insurance coverage.

3. No Fault Clause is a provision required in every compulsory motor vehicle liability It shall be the duty of the said directors, partners, officers, employees or agents to disclose
insurance regarding claims for death or injury to a passenger or third party on a liability any such interest to the IC and POEA. [Sec. 2, Insurance Guidelines on Rule XVI of the
insurance policy covering the vehicle. Omnibus Rules and Regulations Implementing RA 8042]

Any claim for death or injury to any passenger or third party shall be paid without the
necessity of proving fault or negligence of any kind, provided the total indemnity in respect
of any person shall not exceed P15,000.
The claim shall be made against only one motor vehicle. It shall lie against the insurer of the
vehicle in which the occupant is riding, and no other. The claimant is not free to choose from
which insurer he will claim the no fault indemnity. [Perla Compania de Seguros v. Ancheta,
G.R. No. L-49699 (1988)]
BAR: X was riding a suburban utility vehicle (SUV) covered by a comprehensive motor vehicle
liability insurance (CMVLI) underwritten by FastPay Insurance Company when it collided with a
BAR: What is your understanding of a ―no fault indemnity‖ clause found in an insurance policy? speeding bus owned by RM Travel, Inc. The collision resulted in serious injuries to X; Y, a
(1994, 1989 BAR) passenger of the bus; and Z, a pedestrian waiting for a ride at the scene of the collision. The police
A: Under the ―no fault indemnity‖ clause, any claim for the death or injury of any passenger or report established that the bus was the offending vehicle. The bus had a CMVLI policy issued by
third party shall be paid without the necessity of proving fault or negligence of any kind. The Dragon Insurance Corporation. X, Y and Z jointly sued RM Travel and Dragon Insurance for
indemnity in respect of any one person shall not exceed P15,000, provided they are under oath. The indemnity under the Insurance Code of the Philippines. The lower court applied the ―no-fault‖
following proofs shall be sufficient: a. Police report of the accident; b. Death certificate and indemnity policy of the statute, dismissed the suit against RM Travel, and ordered Dragon
evidence sufficient to establish the proper payee; c. Medical report and evidence of medical or insurance to pay indemnity to all three plaintiffs. Do you agree with the court’s judgment? Explain.
hospital disbursement in respect of which refund is claimed. Claim may be made against one motor (2000 BAR)
vehicle only. A: NO. The cause of action of Y is based on the contract of carriage, while that of X and Z is based
on torts. The court should not have dismissed the suit against RM Travel. The court should have
BAR: While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter. ordered Dragon Insurance to pay each of X, Y, and Z to the extent of the insurance coverage, but
Roberto sued Cesar and the third-party liability insurer for damages and/or insurance proceeds. The whatever amount is agreed upon in the policy should be answered first by RM Travel and the
insurance company moved to dismiss the complaint contending that the liability of Cesar has not succeeding amount should be paid by Dragon Insurance up to the amount of the insurance
yet been determined with finality. a. Is the contention of the insurer correct? Explain. b. May the coverage. The excess of the claims of X, Y and Z, over and above such insurance coverage, if any,
insurer be held liable with Cesar? (1996 BAR) should be answered or paid by RM Travel.

a. NO, the contention of the insurer is not correct. There is no need to wait for the decision of
the court in determining Cesar’s liability with finality before the third-party liability insurer BAR: Sheryl insured her newly acquired car, a NISSAN Maxima against any loss or damage for
could be sued. The occurrence of the injury to Roberto immediately gave rise to the liability P50,000 and against third party liability for P20,000 with the XYZ Insurance Corp. (XYZ). Under
of the insurer under its policy. In other words, where an insurance policy insures directly the policy, the car must be driven only by an authorized driver who is either: (1) the insured, or (2)
against liability, the insurer’s liability accrues immediately upon the occurrence of the injury any person driving on the insured’s order or with his permission: provided that the person driving is
or event upon which the liability depends. permitted in accordance with the licensing or other laws or regulations to drive the motor vehicle
and is not disqualified from driving such motor vehicle by order of a court. During the effectivity of
b. The insurer cannot be held solidarily liable with Cesar. The liability of the insurer is based the policy, the car, then driven by Sheryl herself, who had no driver’s license, met an accident and
on contract while that of Cesar is based on tort. If the insurer were solidarily liable with was extensively damaged. The estimated cost of the repair was P40,000. Sheryl immediately
Cesar, it could be made to pay more than the amount stated in the policy. This would, notified XYZ, but the latter refused to pay on the policy alleging that Sheryl violated the terms
however, be contrary to the principles underlying insurance contracts. On the other hand, if thereof when she drove it without a driver’s license. Is the insurer correct? (1991 BAR)
the insurer were solidarily liable with Cesar and it is made to pay only up to the amount A: NO, the insurer is not correct in denying the claim since the proviso ―that the person driving is
stated in the insurance policy, the principles underlying solidary obligations would be permitted in accordance with the licensing etc.‖ qualifies only a person driving the vehicle, other
violated. than the insured, at the time of the accident.