Insurance Code
money withdrawn. Is PNB liable for the money
lost on the said transaction?
purchased products on credit and issued to SMC,
two (2) BPI checks to cover the said transaction.
During one of his visits to the SMC Paranaque
Sales Office, he allegedly requested to see BPI
Check No. 17657. However, when he got hold of
BPI Check No. 27903 which was attached to a
bond paper together with BPI Check No. 17657,
he allegedly immediately left the office with his
accountant, bringing the checks with them. SMC
sent a letter to Puzon, demanding the return of
the said checks. Puzon ignored the demand
hence SMC filed a complaint against him for
theft.
The
investigating
prosecutor
recommended the dismissal of the case for lack
of evidence. On appeal, the CA agreed with the
prosecutor. Were the prosecutor and the DOJ
correct in finding no probable cause for theft?
A: Yes. The payment of the amounts of checks
without previously clearing them with the drawee
bank especially so where the drawee bank is a
foreign bank and the amounts involved were large
is contrary to normal or ordinary banking practice.
Jurisprudence provides that when the bank allowed
the withdrawal of the value of a check prior to its
clearing, before the check shall have been cleared
for deposit, the collecting bank can only ‘assume’ at
its own risk that the check would be cleared and
paid out (PNB v. Spouses Cheah, G.R. No. 170895 &
170892, April 25, 2012, Del Castillo, J.).
EFFECT OF DELAY
1.
2.
A: Yes. If the subject check was given by Puzon to
SMC in payment of the obligation, the purpose of
giving effect to the instrument is evident thus title
to or ownership of the check was transferred upon
delivery. However, if the check was not given as
payment, there being no intent to give effect to the
instrument, then ownership of the check was not
transferred to SMC (SMC v. Puzon, G.R. No. 167567,
September 22, 2011).
The drawer will be discharged from liability
thereon to the extent of the loss caused by the
delay (Ibid.).
The indorser shall be discharged from liability
(PNB vs. Seeto, G.R. No. L-4388, August 13, 1952)
Q: X and Y are disputing over a property. To
settle the dispute, they entered into a
compromise agreement by which they agreed to
have the property in dispute be sold. X bought
the property and delivered a manager’s check to
Y. Y refused to accept the same, hence it was
consigned with the court. Y later accepted the
check and three years after acceptance, he filed
an action alleging that the check payment did
not amount to legal tender and that he never
even encashed the check. Is the contention of Y
tenable?
INSURANCE CODE
Laws governing contracts of insurance in the
Philippines
1.
2.
3.
A: NO. It is true that a check is not a legal tender and
while delivery of a check produces the effect of
payment only when it is encashed, the rule is
otherwise if the debtor (X) was prejudiced by the
creditor’s (Y) unreasonable delay in presentment.
Acceptance of a check implies an undertaking of due
diligence in presenting it for payment. If no such
presentment was made, the drawer cannot be held
liable irrespective of loss or injury sustained by the
payee. Payment will be deemed effected and the
obligation for which the check was given as
conditional payment will be discharged (Pio
Barretto Realty Development Corp. vs. CA, G.R. No.
132362, June 28, 2001).
CONCEPT OF INSURANCE
Contract of insurance
It is an agreement whereby one undertakes for a
consideration to indemnify another against the loss,
damage or liability arising from an unknown or
contingent event [IC, Sec. 2(a)].
A contract of insurance, to be binding from the date
of application, must have been a completed contract
(Perez vs. CA, GR No. 112329, January 28, 2000).
Thus, it must have all the essential elements of a
valid contract as enumerated in Art. 1318 of the New
Civil Code: (Sm-CoMe)
Q: To ensure payment and as a business
practice, SMC required Puzon to issue postdated
checks equivalent to the value of the products
purchased on credit before the same were
released to him. Said checks were returned to
Puzon when the transactions covered by these
checks were paid or settled in full. Puzon
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
R.A. 10607 (July 23, 2012)
New Civil Code
Special Laws
1.
78
Subject matter in which the insured has an
insurable interest;
Mercantile Law
2.
3.
Consideration, which is the premium paid by the
insured, for the insurer’s promise to indemnify
the former upon the happening of the event or
peril insured against; and
Meeting of minds of the parties.
parties must be determined in accordance with the
general principles of insurance law. Being in the
nature of a non-life insurance contract and
essentially a contract of indemnity, the CBA
provision obligates MMPC to indemnify the covered
employees’ medical expenses incurred by their
dependents but only up to the extent of the
expenses actually incurred. This is consistent with
the principle of indemnity which proscribes the
insured from recovering greater than the loss
(Mitsubishi Motors Philippines Salaried Employees
Union vs. Mitsubishi Motors Corp, G.R. No. 175773,
June 17, 2013, in Divina 2014).
“Doing an insurance business” or “transacting
an insurance business” (ISRA)
The term “doing an insurance business” or
“transacting an insurance business” means:
1.
2.
3.
4.
Making or proposing to make, as Insurer, any
insurance contract;
Making or proposing to make, as Surety, any
contract of suretyship as a vocation and not as
merely incidental to any other legitimate
business or activity of the surety;
Doing any kind of business, including a
Reinsurance business, specifically recognized
as constituting the doing of an insurance
business.
Doing or proposing to do Any business in
substance equivalent to any of the foregoing in
a manner designed to evade the provisions of
the Insurance Code.
Insurance as an Uberrimae Fides contract (1993
Bar)
The contract of insurance is one of perfect good
faith (uberrimae fidei) not for the insured alone, but
equally so for the insurer; in fact, it is more so for
the latter, since its dominant bargaining position
carries with it stricter responsibility (Qua Chee Gan
vs. Law Union and Rock Insurance, Co. Ltd., GR No. L4611, December 17, 1955). It requires the parties to
the contract to communicate that which a party
knows and ought to communicate, that is, the duty
to disclose in good faith all facts material to the
contract. This doctrine is essential on account of the
fact that the full circumstances of the subject matter
of insurance are, as a rule, known to the insured only
and the insurer, in deciding whether or not to accept
a risk, must rely primarily upon the information
supplied to him by the applicant (Sundiang Sr. &
Aquino, 2014).
In the application of the provisions of the Insurance
Code, the fact that no profit is derived from the
making of the insurance contracts, agreements or
transactions or that no separate or direct
consideration is received therefor, shall NOT be
deemed conclusive to show that the making
thereof does not constitute the doing or transacting
of an insurance business [IC, Sec. 2 (b)].
Insurance as contracts of adhesion (Fine Print
Rule)
Q: The parties’ CBA contains the following
provision, “The COMPANY shall obtain group
hospitalization insurance coverage or assume
under a self-insurance basis hospitalization for
the dependents of regular employees”.
Eventually, three members of Mitsubishi Motors
Philippines
Salaried
Employees
Union
(MMPSEU), namely, Ernesto Calida, Hermie Juan
Oabel and Jocelyn Martin, filed claims for
reimbursement of hospitalization expenses of
their dependents. In turn, Mitsubishi Motors
Philippines Corporation (MMPC) paid only a
portion of their hospitalization insurance
claims, not the full amount. However, MMPSEU
insists that MMPC is also liable for the amounts
covered under other insurance policies;
otherwise, MMPC will unjustly profit from the
premiums the employees contribute through
monthly salary deductions. Is MMPSEU’s
contention correct?
While generally, stipulations in a contract come
about after deliberate drafting by the parties
thereto, there are certain contracts in which almost
all the provisions of which have been drafted only
by one party, usually a corporation. Such contracts
are called contracts of adhesion, because the only
participation of the other party is the signing of his
signature or his 'adhesion' thereto. Insurance
contracts fall into this category (Sweet Lines, Inc. vs.
Teves, GR No. L-37750, May 19, 1978). An illustration
of a contract of adhesion is when the insurer used
“fine print” letters in conditions stated in a contract
of insurance (Ibid).
Rules in the construction or interpretation of
insurance contracts
GR: If the terms of the contract clearly show the
intention of the parties, there shall be no room for
interpretation.
A: NO. Since the subject CBA provision is an
insurance contract, the rights and obligations of the
79
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
XPN: If there are ambiguities in the terms of an
insurance contract, they have to be resolved in favor
of the insured and strictly against the insurer
because an insurance contract being a contact of
adhesion, most of its terms is not a product of
mutual negotiation between the parties as they are
prepared by the insurance company in final printed
forms (De Leon, 2014).
b.
Q: Philippine Health Care Providers, Inc. is
engaged in operating a prepaid group practice
health care delivery system or a health
maintenance organization (HMO) to take care of
the sick and disabled persons enrolled in the
health care plan. Individuals enrolled in its
health care programs pay an annual
membership fee and are entitled to various
medical services provided by its duly licensed
physicians, specialists and other professional
technical staff participating in the group
practice health delivery system at a hospital or
clinic operated or accredited by it. Is Philippine
Health Care Providers, Inc. a health
maintenance organization or an insurance
company?
Parties to the contract of insurance
1.
Insurer – party who assumes or accepts the risk
of loss and undertakes for a consideration to
indemnify the insured on the happening of a
specified contingency or event.
2.
Insured – person in whose favor the contract is
operative and is indemnified.
NOTE: The insured is not always the person to
whom the proceeds are paid.
3.
Assured/Beneficiary- a person designated by
the terms of the policy to receive the proceeds
of the insurance. He may be the insured or a
third party in the contract for whose benefit the
policy is issued and to whom the loss is payable.
A: HMOs are not insurance businesses. One test that
they have applied is whether the assumption of risk
and indemnification of loss (which are elements of
an insurance business) are the principal object and
purpose of the organization or whether they are
merely incidental to its business. 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
not insurance.
Insurer
Every corporation, partnership, or association duly
authorized by the Insurance Commission to transact
insurance business may be an insurer (IC, as
amended by RA 10607, Sec. 6).
The term “insurer” no longer includes “individuals”
under RA 10607. Hence, an individual natural
person is no longer allowed to be an insurer.
Philippine Health Care Providers appears to provide
insurance-type benefits to its members (with
respect to its curative medical services), but these
are incidental to the principal activity of providing
them medical care. The "insurance-like" aspect of
Philippine Health Care Providers’ business is
miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health
care services rather than insurance services, it
cannot be considered as being in the insurance
business (Philippine Health Care Providers, Inc., v.
CIR, G.R. No. 167330, September 18, 2009).
However, it includes the following:
1.
2.
3.
Professional reinsurer - any person, partnership,
association or corporation that transacts solely
and exclusively reinsurance business in the
Philippines.
Mutual Insurance Companies - The law also
provides for the procedure for mutualization of
domestic stock life insurance companies. A new
provision on RA 10607 is on demutualization or
conversion of mutual insurance companies into
stock corporations (IC, as amended by RA 10607,
Sec. 280).
Cooperatives are now expressly included in the
term “insurer” or “insurance company.”
However, the cooperative must: (Su-Ca)
a.
Persons who may be insured (2000 Bar)
Anyone except a public enemy may be insured (IC,
Sec. 7).
A public enemy is a nation at war with the
Philippines and every citizen or subject of such
nation. It does not include mobs, thieves or robbers
(Bouvier’s Law Dictionary).
Have a sufficient capital and asset required
under the Insurance Code and the pertinent
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
regulations issued by the Commission (IC,
as amended, Sec. 192).
Have a certificate of authority to operate
issued by the Commission which should be
renewed every year (IC, as amended, Sec.
193, Sundiang Sr. & Aquino, 2014).
80
Mercantile Law
If majority of the stockholders of the corporation
were subjects who became an enemy corporation
upon the outbreak of the war between two states, it
stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public
enemy. Hence, any contingency which may occur
during or after said war cannot be indemnified
under a policy issued before said war. However,
elementary rules of justice and in the absence of
specific provision in the Insurance Law, require that
the premium paid by the insured for the period
covered by its policy should be returned. The
NOTE: Prior to the effectivity of the Insurance Code
of 2013, the term used was “minor” instead of “the
person insured.” A minor cannot enter into any
contract of insurance with any insurance company.
Games of chances cannot be insured
An insurance for or against the drawing of any
lottery, or for or against any chance or ticket in a
lottery drawing a prize is not authorized (IC, Sec. 4).
Void stipulations in an insurance contract
purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its
enemy's property and repay in insurance the
value of what has been so destroyed. (Filipinas
Stipulations in an insurance contract which
provides:
1. For the payment of loss whether the person
insured has or does not have any insurable
interest in the subject-matter of insurance;
2. That the policy shall be received as proof of
such interest;
3. Every policy executed by way of gaming or
wagering (ICC, Sec. 25).
Compaña de Seguros v. Christern, Huenefeld and Co.,
Inc., G.R. No. L- 2294 May 25, 1951).
Subject matter of a contract of insurance
Anything having an appreciable pecuniary value,
which is subject to loss or deterioration, or of which
one may be deprived so that his pecuniary interest
is or may be prejudiced.
NOTE: The Insurance Code provides that a policy
may declare that a violation of specified provisions
thereof shall avoid it. Thus, in fire insurance policies,
which contain provisions that if the claim be in any
respect fraudulent or if any false declaration be
made or used in support thereof, all the benefits
under the policy, shall be forfeited, a fraudulent
discrepancy between the actual loss and that
claimed in the proof of loss voids the insurance
policy. Mere filing of such a claim will exonerate the
insurer (United Merchants Corp. vs. Country Bankers
Insurance Corp, G.R. No. 198588, July 11, 2012).
Event or peril insured against
It is any contingent or unknown event, whether past
or future, which may damnify a person having an
insurable interest, or create a liability against him
subject to the provisions of Chapter I of the
Insurance Code (IC, Sec. 3).
Consent of spouse not necessary
ELEMENTS OF AN INSURANCE CONTRACT
The consent of the spouse is not necessary for the
validity of an insurance policy taken out by a
married person on his or her life or that of his or her
children (IC, Sec. 3).
SPEAR:
1. Scheme to distribute losses – Such assumption of
risk is part of a general scheme to distribute
actual losses among a large group or substantial
number of persons bearing a similar risk.
2. Payment of premium – As consideration for the
insurer’s promise, the insured makes a ratable
contribution called “premium,” to a general
insurance fund.
3. Existence of insurable interest – The insured
possesses an interest of some kind susceptible
of pecuniary estimation, known as “insurable
interest.”
4. Assumption of Risk – The insurer assumes that
risk of loss for a consideration.
5. Risk of loss – The insured is subject to a risk of
loss through the destruction or impairment of
that interest by the happening of designated
peril.
Consent of the person insured is not essential to
the validity of the policy.
So long as it could be proved that the insured has an
insurable interest at the inception of the policy, the
insurance is valid even without such consent (IC,
Sec. 10).
Effect of death of policy’s original owner
All rights, title and interest in the policy of insurance
taken out by an original owner on the life or health
of the person insured shall automatically vest in the
latter upon the death of the original owner, unless
otherwise provided for in the policy (IC, Sec. 3).
81
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Aside from compulsory motor vehicle liability
insurance, the Insurance Code contains no
other provisions applicable to casualty
insurance. Therefore, such casualty insurance
are governed by the general provisions
applicable to all types of insurance, and
outside of such statutory provisions, the rights
and obligations
of the parties must
be determined by their contract, taking
into consideration its purpose and always
in accordance with the general principles of
insurance law
NOTE: The inherent uncertainty of events is
normally described in terms of risk. A contract
possessing only the last three elements enumerated
above is a risk-shifting device, but NOT a contract
of insurance which is a risk-distributing device (De
Leon, 2006).
Moral Hazard Phenomenon
Consequently, however, the existence of insurance
could have the perverse effect of increasing the
probability of loss. This is when the insured, having
in mind the indemnification for loss or damage
caused by the happening of the event insured
against, would have reduced incentive to take steps
to protect himself or his property, subject of
insurance. (Ibid).
6.
7.
CASUALTY INSURANCE
Health and accident insurance are either covered
under life (Sec. 180) or casualty insurance. (Sec.
174)
It is an insurance covering loss or liability arising
from accident or mishap, excluding certain types of
loss which by law or custom are considered as
falling exclusively within the scope of other types of
insurance such as fire or marine (IC, Sec. 176).
8.
2.
3.
4.
5.
Personal accident insurance – a form of
insurance which undertakes to indemnify the
assured against the expense, loss of time, and
suffering resulting from accidents causing him
physical injury, usually by payment at a fixed
rate per week while the consequent disability
lasts, and sometimes including the payment of a
fixed sum to his heirs in case of his death by
accident within the term of the policy.
Public utility insurance – indemnifies against
liability on account of injuries to the person or
property of another. It may extend to
automobiles, elevators, fly wheels, libel,
theaters, and vessels.
Plate glass insurance – an insurance against loss
from accidental breaking of plate-glass
windows, doors, showcases, etc.
Employer's liability and workmen’s insurance –
the risk insured against is the liability of the
assured to make compensation or pay damages
for an accident, injury, or death, occurring to a
servant or other employee, in the course of his
employment under statutes imposing such
liability on employers.
Motor vehicle liability insurance – is a contract
of insurance against passenger and third-party
liability for death or bodily injuries and damage
to property arising from, motor vehicle
accidents.
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
Other substantially similar kinds of insurance
(Perez, 2006).
Two divisions of casualty insurance (AH-3rd
Party)
Coverage of casualty insurance (P3-EMo-BuHO)
1.
Burglary and theft insurance – an insurance
against loss of property by the depredations of
burglars and thieves.
Health insurance – an indemnity to persons for
expense and loss of time occasioned by disease.
1.
2.
Accident or health insurance – Insurance
against specified perils which may affect
the person and/or property of the insured.
(E.g. personal accident, robbery/theft
insurance)
Third party liability insurance– Insurance
against specified perils which may give rise
to liability on the part of the insured of
claims for injuries or damage to property of
others (De Leon, 2010).
“Accidental”
insurance
82
vs.
“Intentional”
as
used
ACCIACCIDENTD
INTENTIONAL
The terms “accident”
and “accidental” have
been taken to mean
that which happens
by
chance
or
fortuitously, without
intention or design,
which is unexpected,
unusual
or
unforeseen. The term
does not, without
qualification, exclude
events resulting in
damage or loss due to
Intentional as used in
an accident policy
excepting intentional
injuries inflicted by
the insured or any
other person, implies
the exercise of the
reasoning faculties,
consciousness,
and
volition. Where a
provision of the policy
excludes intentional
injury, it is the
intention
of
the
in
Mercantile Law
fault, recklessness or
negligence of third
parties (Sundiang Sr.
& Aquino, 2014 citing
Pan
Malayan
Insurance Corp. V. CA,
G.R. No. 81026, April 3,
1990).
person inflicting the
injury
that
is
controlling. If the
injuries suffered by
the insured clearly
resulted from the
intentional act of a
third person, the
insurer is relieved
from
liability
as
stipulated (Sundiang
Sr. & Aquino, 2014
citing Biagtan v. The
Insular Life Assurance
Co. Ltd, G.R. No. L25579, March 29,
1972).
b.
Rules on Third party liability insurance
1.
2.
3.
4.
a.
Insurable interest is based on the interest
of the insured in the safety of the persons,
and their property, who may maintain an
action against him in case of their injury or
destruction respectively (De Leon, 2010).
In a TPL insurance contract, the insurer
assumes the obligation by paying the
injured third party to whom the insured is
liable. Prior payment by the insured to the
injured third person is not necessary in
order that the obligation of the insurer may
arise. The moment the insured becomes
liable to third persons, the insured acquires
an interest in the insurance contract which
may be garnished like any other credit
(Perla Compania de Seguros, Inc. vs.
Ramolete, G.R. No. L-60887, November 13,
1991).
In burglary, robbery and theft insurance,
the opportunity to defraud the insurer
(moral hazard) is so great that insurer
have found it necessary to fill up the
policies with many restrictions designed to
reduce the hazard. The purpose of the
exception is to guard against liability
should theft be committed by one having
unrestricted access to the property
(Fortune Insurance & Surety Co. vs. CA, G.R.
No. 115278, May 23, 1995).
The right of the person injured to sue the
insurer of the party at fault (insured),
depends on whether the contract of
insurance is intended to benefit third
persons also or only the insured (Eulogio vs.
Del Monte, GR No. L-22042, August 17,
1967). If the contract provides for:
Indemnity against third party liability – The
third persons to whom the insured is liable,
can sue directly the insurer upon the
occurrence of the injury or event upon
which the liability depends. The purpose is
to protect the injured person against the
insolvency of the insured who causes such
injury and to give him a certain beneficial
interest in the proceeds of the policy. It is as
if the injured person were especially named
in the policy (Shafer vs. RTC Judge, G.R. No.
78848, November 14, 1988, 1996 Bar).
Indemnity against actual loss or payment –
The third persons cannot proceed against
the insurer, the contract being solely to
reimburse the insured for liability actually
discharged by him through payment to
third persons, said third person’s recourse
being thus limited to the insured alone.
(Guingon vs. Del Monte, G.R. No. L-22042,
August 17, 1967) Prior payment by the
insured is necessary to give rise to the
obligation of the insurer.
Source of liability of third party liability
insurance (1996, 2000 Bar)
The direct liability of the insurer under indemnity
contract against third party liability does not mean
that the insurer can be held solidarily liable with the
insured. The insurer’s liability is based on contract;
that of the insured is based on tort (Figuracion vda.
De Maglana, et. al. v. Hon. Francisco Consolacion, G.R.
No. 60506, August 6, 1992).
Q: Lawrence, a boxer, is a holder of an accident
insurance policy. In a boxing match, he died after
being knocked out by the opponent. Can his
father who is a beneficiary under said insurance
policy successfully claim indemnity from the
insurance company?(1990 Bar)
A: YES. Clearly, the proximate cause of death was
the boxing contest. Death sustained in a boxing
contest is an accident (De la Cruz v. Capital Insurance
& Surety Co., G.R. No. L-21574, June 30, 1966).
Liability of the insurer vs. Liability of the insured
INSURER
The liability is direct but
the insurer cannot be
held solidarily liable
with the insured and
other parties at fault.
Liability is based on
contract.
The third-party liability
is only up to the extent
of the insurance policy
and that required by
law.
83
INSURED
Liability is direct and
can be held liable with
all the parties at fault.
Liability is based on
tort.
The liability extends to
the amount of actual
and other damages
(Heirs Poe v. Malayan
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Insurance, G.R. No.
156302, April 7, 2009).
2.
Q: While driving his car along EDSA, Cesar
sideswiped Roberto, causing injuries to the
latter, Roberto sued Cesar and the third-party
liability insurer for damages and/or insurance
proceeds. The insurance company moved to
dismiss the complaint, contending that the
liability of Cesar has not yet been determined
with finality. Is the contention of the insurer
correct? (1996 Bar)
3.
A: NO, the contention of the insurer is not correct.
There is no need to wait for the decision of the court
determining Cesar’s liability with finality before the
third-party liability insurer could be sued. The
occurrence of the injury to Roberto immediately
gave rise to the liability of the insurer under its
policy. Where an insurance policy insures directly
against liability, the insurer’s liability accrues
immediately upon the occurrence of the injury or
event upon which the liability depends (Shafer vs.
RTC Judge, supra).
Liability of insurer
committing a felony
if
the
insured
SURETYSHIP
Contract of suretyship
It 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”. It is essentially a credit
accommodation
which
includes
official
recognizances, stipulations bonds or undertakings
issued by any company by virtue and under the
provisions of Act No. 536, as amended by Act No.
2206 (IC, Sec. 177).
was
Liabilities arising out of acts of negligence, which
are also criminal, are also insurable on the ground
that such acts are accidental. Thus, a motor
insurance policy covering the insured’s liability for
accidental injury caused by his negligence, even
though gross and attended by criminal
consequences such as homicide through reckless
imprudence, will not be void as against public
policy. But liability consequences of deliberate
criminal acts are not insurable (Sundiang Sr. &
Aquino, 2014).
The extent of surety’s liability is determined by the
language of the suretyship contract or bond itself. It
cannot be extended by implications beyond the
terms of the contract. Having accepted the bond, the
creditor is bound by the recital in the surety bond
that the terms and conditions of distributorship
contract be reduced in writing or at the very least
communicated in writing to the surety. Such noncompliance by the creditor impacts not on the
validity or legality of the surety-contract but on the
creditor’s right to demand performance (First
Lepanto–Taisho Insurance Corporation vs. Chevron
Philippines, G.R. No. 177839, January 18, 2012).
Nature of liability of surety
“No action” clause
It is a requirement in a policy of liability insurance
which provides that suit and final judgment be first
obtained against the insured, that only thereafter
can the person injured recover on the policy. It
expressly disallows suing the insurer as codefendant (Guingon v. Del Monte, supra).
The liability of the surety or sureties shall be:
1.
2.
A “no action” clause must yield to the provisions of
the Rules of Court regarding multiplicity of suits
(Shafer v. RTC Judge, supra).
3.
Rules in accident insurance
1.
For death or injury to be covered by the policy,
such should not be the natural or probable
result of the insured’s voluntary act, or if
something unforeseen occurs in the doing of the
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
act which produces the injury, which may result
to death (Dela Cruz v. Capitol Insurance & Surety
Co., supra).
Suicide and willful exposure to needless peril
are in pari matere because they both signify a
disregard for one’s life. Voluntary exposure to a
known danger is generally held to negate the
accidental character of whatever followed from
the known danger (De Leon, 2010).
The insured’s beneficiary has the burden of
proof in demonstrating that the cause of death
is due to the covered peril. Once that fact is
established, the burden shifts to the insurer to
show any excepted peril that may have been
stipulated by the parties (Vda. De Gabriel v. CA,
G.R. No. 103883, November 14, 1996).
Solidary – Joint and several with the obligor and
Limited or fixed – Limited to the amount of the
bond (It cannot be extended by implication).
Contractual – It is determined strictly by the
terms of the contract of suretyship in relation to
the principal contract between the obligor and
the obligee (IC, Sec. 178).
Suretyship vs. Property Insurance
84
Mercantile Law
SURETYSHIP
It is an accessory
contract.
There
are
three
parties: the surety,
obligor/debtor,
and
the obligee/creditor.
More of a credit
accommodation with
the surety assuming
primary liability
Surety is entitled to
reimbursement from
the principal and his
guarantors for the loss
it may suffer under the
contract.
A bond may be
cancelled by or with
the consent of the
obligee or by the
commissioner or by
the court.
Requires acceptance of
the obligee before it
becomes valid and
enforceable.
A risk-shifting device,
the premium paid
being in the nature of a
service fee.
b.
PROPERTY
INSURANCE
The principal contract
itself.
There are only two
parties: insurer and
insured
3.
2.
Judicial bonds – required in connection with
judicial proceedings (Ibid).
Rules of payment of premiums in suretyship
Generally a contract of
indemnity
1.
No right of recovery for
the loss the insurer
may sustain except
when the insurer is
entitled to subrogation.
2.
3.
May
be
cancelled
unilaterally either by
the insured or by the
insurer on grounds
provided by law.
4.
Does
not
need
acceptance of any third
party.
5.
A
risk-distributing
device, the premium
paid being considered a
ratable contribution to
a common fund. (De
Leon, 2010)
6.
The premium becomes a debt as soon as the
contract of suretyship or bond is perfected and
delivered to the obligor (IC, Sec. 77);
The contract of suretyship or bonding shall not
be valid and binding unless and until the
premium therefor has been paid;
Where the obligee has accepted the bond, it
shall be valid and enforceable notwithstanding
that the premium has not been paid (Philippine
Pryce Assurance Corp. v. CA, G.R.No. 107062,
February 21, 1994);
If the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety
shall collect only a reasonable amount;
If the non-acceptance of the bond be due to the
fault or negligence of the surety, no service fee,
stamps, or taxes imposed shall be collected by
the surety; and
In the case of continuing bond (for a term longer
than one year or with no fixed expiration date),
the obligor shall pay the subsequent annual
premium as it falls due until the contract is
canceled (IC, Sec. 179) (De Leon, 2010).
By law and by the specific contract involved in this
case, the effectivity of the bond required for the
obtention of a license to engage in the business of
receiving rice for storage is determined not alone by
the payment of premiums but principally by the
Administrator of the NFA. A continuing bond, as in
this case where, there is no fixed expiration date,
may be cancelled only by the obligee, which is the
NFA, by the Insurance Commissioner, and by the
court (Country Bankers Insurance Corporation vs.
Lagman, G.R. No. 165487, July 13, 2011, in Divina,
2014).
Types of surety bonds (CoFiJud)
1.
Public official bond – required of public
officers for the faithful performance of their
duties and as a condition of entering upon
the duties of their offices.
Contract bonds – These are connected with
construction and supply contracts. It protects
the owner against a possible default by the
contractor or his possible failure to pay
materials, men, laborers and sub-contractors.
The position of surety, therefore, is to answer
for a failure of the principal to perform in
accordance with the terms and specifications of
the contract. There may be two bonds:
a. Performance bond – covers the faithful
performance of the contract; and
b. Payment bond – covers the payment of
laborers and material men.
Q: Fumitechniks Corporation, represented by
Ma. Lourdes Apostol, had applied for and was
issued a surety bond by First Lepanto-Taisho
Insurance Corporation (First Lepanto-Taisho)
for the amount of P15,700,000.00. As stated in
the attached rider, the bond was in compliance
with the requirement for the grant of a credit
line with the Chevron Philippines, Inc.
(Chevron) to guarantee payment of the cost of
fuel products withdrawn within the stipulated
time in accordance with the terms and
conditions of agreement between Chevron and
Fidelity bonds –They pay an employer for loss
growing out of a dishonest act of his employee.
For the purposes of underwriting, they are
classified as:
a. Industrial bond – required by private
employers to cover loss through dishonesty
of employees; and
85
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Fumitechniks. When Fumitechniks defaulted on
its obligation, Chevron notified First LepantoTaisho of Fumitechniks’ unpaid purchases. First
Lepanto-Taisho thereafter demanded to
Fumitechniks the submission of a copy of the
agreement secured by the bond, together with
copies of documents such as delivery receipts.
Fumitechniks, however, denied that it executed
such an agreement with Chevron, thus no copy
of such agreement could be submitted. Because
of this, Chevron Philippines, Inc. sued First
Lepanto-Taisho for the payment of unpaid oil
and
petroleum
purchases
made
by
Fumitechniks. Is the surety liable to the creditor
in absence of a written contract with the
principal?
life insurance contract under the Insurance Code
(IC, Sec. 182).
Who may exercise any right under the policy
In the absence of a judicial guardian, the father, or in
the latter’s absence or incapacity, the mother, of any
minor, who is an insured or a beneficiary under a
contract of life, health, or accident insurance, may
exercise, in behalf of said minor, any right under the
policy, without necessity of court authority or the
giving of a bond, where the interest of the minor in
the particular act involved does not exceed Five
hundred thousand pesos (P500,000.00) or in
such reasonable amount as may be determined
by the Commissioner. Such right may include, but
shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds of
the Policy, and giving the minor’s consent to any
transaction on the minor’s consent to any
transaction on the policy.
A: NO. Section 176 of the Insurance Code is clear
that a surety contract should be read and
interpreted together with the contract entered into
between the creditor and the principal. A surety
contract is merely a collateral one, its basis is the
principal contract or undertaking which it secures.
Necessarily, the stipulations in such principal
agreement must at least be communicated or made
known to the surety. Having accepted the bond,
Chevron as creditor must be held bound by the
recital in the surety bond that the terms and
conditions of its distributorship contract be reduced
in writing or at the very least communicated in
writing to the surety. Such non-compliance by the
Chevron impacts not on the validity or legality of the
surety contract but on the creditor’s right to
demand performance (First Lepanto-Taisho
Insurance v. Chevron Philippines, Inc., G.R. No.
177839, January 18, 2012).
In the absence or in case of the incapacity of the
father or mother, the grandparent, the eldest
brother or sister at least eighteen (18) years of age,
or any relative who has actual custody of the minor
insured or beneficiary, shall act as a guardian
without need of a court order or judicial
appointment as such guardian, as long as such
person is not otherwise disqualified or
incapacitated. Payment made by the insurer
pursuant to this section shall relieve such insurer of
any liability under the contract (IC, Sec. 182).
Reasons why a Life insurance is also a contract
of indemnity
LIFE INSURANCE
This is because of the following reasons:
It is insurance on human lives and insurance
appertaining thereto or connected therewith (Sec.
181, Insurance Code). It includes every contract or
pledge for the payment of endowments or annuities.
It is made payable on the death of the person, or on
his surviving a specified period, or otherwise
contingently on the continuance or cessation of life
(IC, Sec. 182).
1.
2.
3.
4.
Kinds of life insurance policies (GO LITE)
NOTE: Every contract or undertaking for the
payment of annuities including contracts for the
payment of lump sums under a retirement program
where a life insurance company manages or acts as
a trustee for such retirement program shall be
considered a life insurance contract for purposes of
the Insurance Code (IC, Sec. 181).
1.
2.
Every contract or pledge for the payment of
endowments or annuities shall also be considered a
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
The liability in life insurance is absolutely
certain
Amount of life insurance generally is without
limit
The policy is a valued policy
There is no direct pecuniary loss required (De
Leon, 2010).
3.
86
Group Life - Essentially a single insurance
contract that provides coverage for many
individuals. Example: In favor of employees;
mortgage redemption insurance.
Ordinary life, general life or old-line policy –
Insured pays a premium every year until he
dies.
Limited payment – Insured pays premium for a
limited period. If he dies within the period, his
Mercantile Law
4.
5.
6.
beneficiary is paid; if he outlives the period, he
does not get anything.
Industrial life – entitles the insured to pay
premiums weekly, or where premiums are
payable monthly or oftener
Term insurance – insured pays premium only
once, and he is insured for a specified period. If
he dies within the period, his beneficiaries
benefit. If he outlives the period, no person
benefits from the insurance.
Endowment – insured pays premium for
specified period. If he outlives the period, the
face value of the policy is paid to him; if not, his
beneficiaries receive the benefit. (Sundiang Sr.
& Aquino, 2014).
pointed the gun at her. Startled, she pushed the
gun aside and said that it may be loaded. Thus,
Tan, to assure her that it was not loaded, pointed
it at his temple. The next moment, there was an
explosion and Tan slumped to the floor lifeless.
Beverly, then claimed the proceeds from Sun
Insurance, but the latter rejected her claim on
the ground that the death of Tan was not
accidental. Beverly sued the insurer. Will
Beverly’s claim prosper? (1993, 1994 Bar)
A: Beverly can recover the proceeds of the policy
from the insurer. The death of the insured was not
due to suicide or willful exposure to needless peril
which are excepted risks. The insured’s act was
purely an act of negligence which is covered by the
policy and for which the insured got the insurance
for his protection. In fact, he removed the magazine
from the gun and when he pointed the gun to his
temple he did so because he thought that it 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
(Sun Insurance v CA, G.R. Nos. 79937-38, February 13,
1989).
Contract of life annuity
It is a contract to pay the insured, or a named person
or persons, a sum or sums periodically during life or
certain period (Perez, 2006).
Measure of indemnity under a policy of
insurance upon life or health
GR: The measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the
policy.
Life insurance vs. Fire/Marine insurance
XPN: The interest of a person insured is susceptible
of exact pecuniary measurement (IC, Sec. 186).
LIFE INSURANCE
Liability of the insurer in case of suicide
It is a contract of
investment not contract
of indemnity.
Always regarded as
valued policy.
May be transferred or
assigned to any person
even if he has no
insurable interest.
The consent of the
insurer is not essential
to the validity of the
assignment of a life
policy unless expressly
required.
Insurable interest in the
life or health of the
person insured need not
exist after the insurance
takes effect or when loss
occurs.
The insurer shall be liable in case of suicide by the
insured if: (FISh)
1.
2.
3.
The suicide is committed after the policy has
been in force for a period of 2 years from the
date of its issue or of its last reinstatement.
The suicide is committed within a shorter
period as provided in the policy.
The suicide is committed in the state of insanity
regardless of the date of commission (IC, Sec.
183).
NOTE: Any stipulation extending the 2-year
period is null and void.
Q: Sun Insurance Co. issued to Tan a life policy
having this provision: “the company shall not be
liable in respect of ‘bodily injury’ consequent
upon the insured person who willfully exposes
himself to needless peril except in an attempt to
save human life". Tan designated his wife,
Beverly as beneficiary.
Insurable interest need
not have any legal basis.
Contingency that is
contemplated
is
a
certain event, the only
One evening, Tan, while playing with his hand
gun, suddenly stood in front of his secretary and
87
FIRE/MARINE
INSURANCE
It is a contract of
indemnity.
May be open or
valued.
The transferee or
assignee must have an
insurable interest in
the thing insured.
Consent,
in
the
absence of waiver by
the
insurer,
is
essential
in
the
assignment of the
policy.
Insurable interest in
the property insured
must exist not only
when the insurance
takes effect but also
when the loss occurs.
Insurable
interest
must have a legal
basis.
The
contingency
insured against may
or may not occur.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
uncertainty being the
time when it will take
place.
The liability of the
insurer
to
make
payment is certain, the
only uncertain element
being
when
such
payment must be made.
May be terminated by
the insured but cannot
be cancelled by the
insurer and is usually a
long-term contract.
The “loss” to the
beneficiary caused by
the death of the insured
can
seldom
be
measured accurately in
terms of cash value.
The beneficiary is under
no obligation to prove
actual financial loss as a
result of the death of the
insured in order to
collect the insurance.
responsible for the accident sustained (First
Integrated Bonding Insurance Co., Inc. v. Hernando,
G.R. No. L-51221, July 31, 1991).
Liability is uncertain
because
the
happening of the peril
insured against is
uncertain.
NOTE: The insurer’s liability accrues immediately
upon the occurrence of the injury or event upon
which the liability depends, and does not depend on
the recovery of judgment by the injured party
against the insured (Shafer v. Judge, RTC, supra).
May be cancelled by
either party and is
usually for a term of
one year
Definitions
1.
Any vehicle propelled by any power other than
muscular power using the public highways, but
excepting road rollers, trolleys cars, street
sweepers, sprinklers, lawn mowers, bulldozers,
graders, forklifts, amphibian trucks, and cranes if
not used in public highways, vehicles which run
only on rails or tracks, and tractors, trailers and
traction engines of all kinds used exclusively for
agricultural purposes (Sec. 3[a] of RA 4136).
The
reverse
is
generally true of the
loss of property, i.e., it
is
capable
of
pecuniary estimation.
The
insured
is
required to submit
proof of his actual
pecuniary loss as a
condition precedent
to
collecting
the
insurance.
NOTE: Trailers having any number of wheels, when
propelled or intended to be propelled by
attachment to a motor vehicle shall be classified as
separate motor vehicle with no power rating (Ibid).
COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE
2.
Passenger
Any fare-paying person being transported and
conveyed in and by a motor vehicle for
transportation of passengers for compensation,
including persons expressly authorized by law or by
the vehicle’s operator or his agents to ride without
fare (IC, Sec. 386, [b]).
Motor vehicle liability insurance
It is a protection coverage that will answer for legal
liability for losses and damages for bodily injuries or
property damage that may be sustained by another
arising from the use and operation of a motor
vehicle by its owner (Compulsory Motor Vehicle
Liability Insurance, prepared and distributed by the
Insurance Commission).
3.
Third-party
Any person other than a passenger as defined in this
section (Ibid) and shall also exclude a member of the
household, or a member of the family within the
second degree of consanguinity or affinity, of a
motor vehicle owner or land transportation
operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or
damage to property arising out of and in the course
of employment (Sec. 386, [c], Ibid).
Note: It is the only compulsory insurance coverage
under the Insurance Code.
The Insurance Code makes it unlawful for any land
transportation operator or owner of a motor vehicle
to operate the same in public highways unless there
is an insurance or guaranty to indemnify the death
or bodily injury of a third party or passenger arising
from the use thereof (IC, Sec. 387). Registration of
any vehicle will not be made or renewed without
complying with the requirement (IC, Sec. 389).
4.
Owner or Motor vehicle owner (MVO)
Actual legal owner of a motor vehicle, whose name
such vehicle is duly registered with the Land
Transportation Office (Sec. 386, [d], Ibid).
Purpose of motor vehicle liability insurance
To give immediate financial assistance to victims of
motor vehicle accidents and/or their dependents,
especially if they are poor regardless of financial
capability of motor vehicle owners or operators
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
Motor vehicle
5.
88
Land transportation operator (LTO)
Mercantile Law
The owner or owners of motor vehicles for
transportation of passengers for compensation,
including school buses (Sec. 386, [e], Ibid).
2.
3.
Persons required to maintain a compulsory
motor vehicle liability insurance (CMVLI) policy
to operate motor vehicle/s in public highways
1.
2.
Motor vehicle owner (MVO)
Land transportation operator (LTO) (Sec.
387, Ibid).
Limitations with respect to compulsory motor
vehicle liability insurance over solicitation
Scope of coverage required for compulsory
motor vehicle liability insurance
1.
2.
1.
For MVOs, the coverage must be comprehensive
against third party liability for death or bodily
injuries. If the private motor vehicle is being
used to transport passengers for compensation,
the coverage shall include passenger liability.
For LTOs, coverage must be comprehensive
against both passenger and third-party
liabilities for death or bodily injuries (Ins.
Memo. Cir. No. 3-81).
2.
3.
Substitutes for a compulsory motor vehicle
liability insurance policy
2.
No government office or agency having the duty
of implementing the provisions of the Insurance
Code on CMVLI shall act as agent in procuring
the insurance policy or surety bond required;
No official or employee of such office or agency
shall similarly act as such agent; and
The commission of an agent procuring the
corresponding insurance policy or surety bond
shall in no case exceed 10% of the amount of
premiums therefore (IC, Sec. 400).
Effects of the cancellation of the policy
GR: Upon receipt of the notice of such cancellation,
the Land Transportation Office shall order the
immediate confiscation of the plates of the motor
vehicle concerned.
Instead of a CMVLI policy, MVOs or LTOs may either:
1.
Secure, before the insurance policy or surety
bond ceases to be effective, another similar
policy or bond to replace that one canceled;
Without making any replacement, make a cash
deposit in sufficient amount with the Insurance
Commissioner and secure a certification from
the Insurance Commissioner regarding the
deposit made for presentation to and filing with
the Land Transportation Office (CMVLI, supra)
(IC, Sec. 393-394).
Post a surety bond with the Insurance
Commissioner who shall be made the obligee or
creditor in the bond in such amount or amounts
required as limits of indemnity to answer for
the same losses sought to be covered by a
CMLVI policy; or
Make a cash deposit with the Insurance
Commission in such amount or amounts
required as limits of indemnity for the same
purpose (Sec. 390, Ibid)
XPNs: No confiscation will be ordered if said Office
receives any of the following:
1.
2.
After the cash deposit or surety bond has been
proceeded against by the Insurance Commissioner,
such cash deposit shall be replenished or such
surety bond shall be restored by the MVO or LTO in
the right amount/s required as limit of liability
within 60 days after impairment or expiry,
otherwise, he shall secure a CMLVI required (Ibid).
3.
An evidence or proof of a new and valid CMVLI
cover which may be either an insurance policy
or guaranty in cash or surety bond;
A signed duplicate of an endorsement or
addendum issued by the insurance company
concerned showing revival or continuance of
the CMVLI cover; or
A certification issued by the Insurance
Commissioner to the effect that a cash deposit
in the amount required as limit of indemnity
has been made with him by the MVO or LTO
(CMVLI, supra, IC, Sec. 393).
“Own damage” coverage
Duties of motor vehicle owner or land
transportation operator in contemplation of the
cancellation of the policy
It simply meant that the insurer had assumed to
reimburse the costs for repairing the damage to the
insured vehicle, as opposed to damage to third party
vehicle/property. The phrase “own damage” does
not mean damage to the insured car caused by the
assured itself, instead, of third parties (Pan Malayan
Insurance Corporation v. Court of Appeals, supra).
Contemplating the cancellation of the policy, the
MVO or LTO shall:
1.
Give to the insurance or surety company
concerned a written notice of his intention to
cancel;
No fault indemnity clause (1994 Bar)
89
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
It is a clause where the insurer is required to pay a
third party injured or killed in an accident without
the necessity of proving fault or negligence on
the part of the insured. There is a stipulated
maximum amount to be recovered.
Q: X is a passenger of a jeepney for hire being
driven by Y. The jeepney collided with another
passenger jeepney being driven by Z who was
driving recklessly. As a result of the collision, X
suffered injuries. Both passenger jeepneys are
covered by Comprehensive Motor Vehicular
Insurance Coverage. If X wants to claim under
the "no fault indemnity clause", his claim will lie
(2012 Bar)
It is a clause that gives the victim (injured person or
heirs of the deceased) an option to file a claim for
death or injury without the necessity of proving
fault or negligence of any kind to guarantee
compensation or indemnity to injured persons in
motor vehicle accidents.
A: Against the insurer of the passenger jeepney
driven by Y because X was his passenger. The
Insurance Code states that in the case of an occupant
of a vehicle, the claim shall lie against the insurer of
the vehicle in which the occupant is riding,
mounting or dismounting from.
Rules under the “no fault indemnity clause”
1.
2.
3.
4.
5.
6.
The total indemnity in respect of any one
person shall not exceed P15,000 for all motor
vehicles (Ins. Memo. Circ. No. 4-2006).
Proof of loss:
a. Police report of accident
b. Death certificate and evidence sufficient to
establish proper payee
c. Medical report and evidence of medical or
hospital disbursement (IC, Sec. 391 [3]).
Authorized driver clause
It indemnifies the insured owner against loss or
damage to the car but limits the use of the insured
vehicle to:
1.
Claim may be made against one motor vehicle
only (Sec. 391 [c], Ibid).
In case injury of an occupant of a vehicle, the
claim shall lie against the insurer of the vehicle
in which the occupant is riding, mounting or
dismounting from (Ibid).
In any other case (not an occupant), claim shall
lie against the insurer of the directly offending
vehicle (Ibid).
In all cases, the right of the party paying the
claim to recover against the owner of the
vehicle responsible for the accident shall be
maintained (Ibid).
2.
The insured need not prove that he has a
driver’s license at the time of the accident if he
was the driver (Sundiang Sr. & Aquino, 2014).
Any person who drives on his order or with his
permission; provided, that the person driving is
permitted to drive the motor vehicle in
accordance with the law, and is not disqualified
(Villacorta v. Insurance Commissioner, G.R. No.
54171, October 28, 1980).
The main purpose of this clause is to require a
person other than the insured, who drives the
car on the insured’s order or with his
permission, to be duly licensed drivers and
have no disqualification to drive a motor
vehicle.
The claimant is not free to choose from which
insurer he will claim the "no fault indemnity," as the
law, by using the word "shall”, makes it mandatory
that the claim be made against the insurer of the
vehicle in which the occupant is riding, mounting or
dismounting from. That said vehicle might not be
the one that caused the accident is of no moment
since the law itself provides that the party paying
may recover against the owner of the vehicle
responsible for the accident (Perla Compania de
Seguros, Inc. v. Ancheta, G.R. No. L-49599, August 8,
1988).
An Irish citizen whose 90-day tourist visa had
expired, cannot recover on his car insurance policy,
not being authorized to drive a motor vehicle
without a Philippine driver’s license (Stokes v.
Malayan Insurance Co., Inc. G.R. No. L-34768,
February 24, 1984).
A driver with an expired Traffic Violation Receipt or
expired Temporary Operator’s permit is not
considered an authorized driver within the meaning
of the insurance policy. The Traffic Violation Receipt
is coterminous with a confiscated license under the
Motor Vehicle Law (Gutierrez v. Capital Insurance &
Surety Co., Inc., G.R. No. L-26287, June 29, 1984).
This no-fault claim does NOT apply to property
damage. If the total indemnity claim exceeds P15,
000 and there is controversy in respect thereto, the
finding of fault may be availed of by the insurer only
as to the excess. The first P15, 000 shall be paid
without regard to the fault (CMVLI, supra).
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
The insured himself; or
Theft clause
90
Mercantile Law
It is that which includes theft as among the risks
insured against. Where a car is unlawfully and
wrongfully taken without the knowledge and
consent of the owner, such taking constitutes “theft”
and it is the theft clause, not the authorized driver
clause which should apply (Perla Compania de
Seguros, Inc. v. CA, supra).
A: NO, Jack Insurance is not correct. Ric Silat was
merely given physical possession of the car. He did
not have juridical possession over the same. It is
also apparent that the taking by Silat of the car of
Jess is without the consent or authority of the latter.
Thus, the act of Silat in depriving Jess of his car, soon
after the transfer of physical possession of the same
to him, constitutes theft under the insurance policy
that is compensable (Paramount Insurance v.
Spouses Remonduelaz, G.R. No. 173773, November 8,
2012).
The “Theft Clause” of a comprehensive motor
vehicle insurance policy has been interpreted by the
Court in several cases to cover situations like (1)
when one takes the motor vehicle of another
without the latter’s consent even if the motor
vehicle is later returned, there is theft- there being
intent to gain as the use of the 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 (Paramount
Insurance vs. Spouses Remondeulaz, G.R. No. 173773,
November 28, 2012).
Q: On February 21, 2013, Barrack entered into a
contract of insurance with Matino Insurance
Company (Matino) involving a motor vehicle.
The policy obligates Matino to pay Barrack the
amount of P600,000 in case of loss or damage to
said vehicle during the period covered, which is
from February 26,2013 to February 26,2014.
On April 16,2013, at about 9:00 am, Barrack
instructed his driver, JJ, to bring the motor
vehicle to a nearby auto shop for tune-up.
However, JJ no longer despite and 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 of P600,000.
In a letter dated July 5,2013, Matino denied the
claim, reasoning as stated in the contract that
“the company shall not be liable for any
malicious damage caused by the insured, any
member of his family or by a person in the
insured’s service. Is Matino correct in denying
the claim? (2014 Bar)
Theft
There is theft if the vehicle is taken with intent to
gain without the consent of the insured-owner.
Thus, there is theft even if:
1.
2.
3.
The vehicle is returned;
The vehicle was stolen by the driver of the
insured (Alpha Insurance and Surety Company v.
Castor, G.R. 198174, September 2, 2013);
The vehicle was taken to the owner of a repair
shop for the purpose of repair and in order to
attach accessories (Paramount Insurance v.
Spouses Remondeulaz, G.R. No. 173773,
November 28, 2012) (Sundiang Sr. & Aquino,
2014).
A: Matino Insurance is not correct in denying the
claim. The loss of the motor vehicle is not excluded
under the insurance policy as the loss was due to
theft, not malicious damage.
The “malicious
damage” clause under the policy is not applicable
but rather the “theft” clause. Thus, the provision
under the policy that "the company shall not be
liable for any malicious damage caused by the
insured, any member of his family or by a person in
the insured’s service” is not applicable (Alpha
Insurance and Surety Co. v. Castor, G.R. No. 198174,
September 2,2003).
Q: On May 26, 2014, Jess insured with Jack
Insurance (Jack) his 2014 Toyota Corolla sedan
under a comprehensive motor vehicle insurance
policy for one year. On July 1, 2014, Jess’ car was
unlawfully taken.
Hence, he immediately
reported the theft to the traffic Management
Command (TMC) of the Philippine National
Police (PNP), which made Jess accomplish a
complaint sheet as part of its procedure. In the
complaint sheet, Jess alleged that a certain Ric
Silat (Silat) took possession of the subject
vehicle to add accessories and improvements
thereon. However, Silat failed to return the
subject vehicle within the agreed three- day
period. As a result, Jess notified Jack of his claim
for reimbursement of the value of the lost
vehicle under the insurance policy. Jack refused
to pay claiming that there is no theft as Jess gave
Silat lawful possession of the car. Is Jack
correct? (2014 Bar)
Q: When a passenger jeepney, insured but with
an authorized driver’s clause and was driven by
a driver who only holds a Traffic Violation
Report (TVR) because his license was
confiscated, met an accident, may the owner of
the jeepney claim from the insurance company?
(2003 Bar)
A: YES. The fact that the driver was merely holding
a TVR does not violate the condition that the driver
91
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
should have a valid and existing driver’s license.
Besides, such a condition should be disregarded
because what is involved is a passenger jeepney, and
what is involved here is not own damage insurance
but third party liability where the injured party is a
third party not privy to the contract of insurance.
him as sole beneficiary, given that he did not
have a steady source of income and he always
depended on Bianca both emotionally and
financially. During the term of the insurance,
Bianca died of what appeared to be a mysterious
cause so that which led Carlo to immediately
requested for an autopsy to be conducted. It was
established that Bianca was transgender all
along – a fact unknown to Carlo. Can Carlo claim
the insurance benefit? (2014 Bar)
INSURABLE INTEREST
An insurable interest is that interest which a person
is deemed to have in the subject matter insured,
where he has a relation or connection with or
concern in it, such that the person will derive
pecuniary benefit or advantage from the
preservation of the subject matter insured and will
suffer pecuniary loss or damage from its
destruction, termination, or injury by the happening
of the event insured against.
A: YES, Carlo can claim the insurance benefit. He
had insurable interest on Bianca’s life under Section
10(b) of the Insurance Code as the problem states
that Carlo “always depended on Bianca both
emotionally and financially.” The insurable interest
upon the life of another under the aforesaid
provision need not be based on kinship or legal
obligation to give support. The fact that their
marriage may be void is irrelevant.
NOTE: The existence of insurable interest is a
matter of public policy and is not susceptible to the
principle of estoppel. The existence of an insurable
interest gives a person the legal right to insure the
subject matter of the policy of insurance (Violeta R.
Lalican vs. The Insular Life Assurance Co. Ltd., G.R. No.
183526, August 25, 2009).
Insurable interest in life insurance vs. Insurable
interest in property insurance (2002 Bar)
LIFE
As to extent
GR: Every person has
an unlimited insurable
interest in his own life
Mere hope or expectancy is not insurable
Limited to the actual
value of the property
XPN:
Where
life
insurance is taken out
by a creditor on the life
of the debtor, insurable
interest is limited to
the amount of debt
When must insurable interest exist
GR: Must exist twice,
i.e, both at the time the
policy takes effect and
the time of loss, but
need not exist in the
period in between (IC,
Sec. 19).
A mere contingent or expectant interest in anything,
not founded on an actual right to the thing, nor upon
any valid contract for it, is not insurable (ICC, Sec.
16).
When does a person have insurable interest?
GR: A person is deemed to have an insurable
interest in the subject matter insured when a person
has a relation or connection with or concern in the
subject matter, such that he will derive pecuniary
benefit or advantage from its preservation and will
suffer pecuniary loss from its destruction or injury
by the happening of the event insured against.
However, in some cases, expectation of benefit from
the continued life of that person need not
necessarily be of pecuniary nature to have an
insurable interest in the life of a person (De Leon,
2010).
Must exist at the time
the policy takes effect
and need not exist
thereafter (IC, Sec. 19).
Q: Carlo and Bianca met in the La Boracay
festivities. Immediately, they fell in love with
each other and got married soon after. They
have been cohabiting blissfully as husband and
wife, but they did not have any offspring. As the
years passed by, Carlo decided to take out
insurance on Bianca’s life for P1 million with
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
PROPERTY
XPN: IC, Secs. 21-24;
25, 57.
1. A change in interest
in a thing insured, after
the occurrence of an
injury which results in
a loss, does not affect
the right of the insured
to indemnity for the
loss (IC, Sec. 21).
2. A change of interest
in one or more several
92
Mercantile Law
distinct
things,
separately insured by
one policy, does not
avoid the insurance as
to the others (IC, Sec.
22).
interest over the life of
the insured.
(De Leon, 2010; Sundiang Sr. & Aquino, 2014)
3. A change on interest,
by will or succession,
on the death of the
insured, does not avoid
an insurance; and his
interest
in
the
insurance passes to the
person taking his
interest in the thing
insured (IC, Sec. 23).
For both life and property insurance, the insurable
interest is required to exist at the time of perfection
of the policy. For property insurance, the insurable
interest must also exist at the time of loss, however,
in case of life insurance, the insurable interest need
to exist only at the time of perfection and not
thereafter (IC, Sec. 19).
Existence of insurable interest in life and
property insurance
Change of beneficiary
GR: The insured shall have the right to change the
beneficiary he designated in the policy
4. A transfer of interest
by one of several
partners, joint owners,
or owners in common,
who
are
jointly
insured, to the others,
does not avoid an
insurance even though
it has been agreed that
the insurance shall
cease
upon
an
alienation of the thing
insured (IC, Sec. 24).
XPN: If the insured expressly waived this right in
the said policy.
Notwithstanding the foregoing, in the event the
insured does not change the beneficiary during his
lifetime, the designation shall be deemed
irrevocable (IC, Sec. 11).
NOTE: Under Sec. 64 of the Family Code, the
innocent spouse is allowed to revoke the
designation of the other spouse as irrevocable
beneficiary after legal separation.
5. Every stipulation in a
policy of insurance for
the payment of loss
whether the person
insured has or has not
any interest in the
property insured, or
that the policy shall be
received as proof of
such interest, and
every policy executed
by way of gaming or
wagering, is void (IC,
Sec. 25).
As to the beneficiary’s interest
GR: The beneficiary The beneficiary must
need
not
have have insurable interest
insurable interest over over the thing insured.
the life of the insured if
the insured himself NOTE:
Insurable
secured the policy.
interest
is
an
indispensable
XPN: However, if the requirement.
life insurance was
obtained
by
the
beneficiary, the latter
must have insurable
Effects of Irrevocable
Beneficiary:
a.
b.
c.
d.
e.
Designation
a
The insured cannot assign the policy if the
designation of the beneficiary is irrevocable.
The irrevocable beneficiary has a vested right
(2005 Bar; Sundiang Sr. & Aquino, 2014).
The beneficiary designated in a life insurance
contract cannot be changed without the consent
of the beneficiary (Gercio v. Sun Life Assurance
of Canada, 48 Phil. 53, 28 September 1925).
A new beneficiary cannot be added to the
irrevocably designated beneficiary for this
would in effect reduce the latter’s vested rights
(Go v. Redfern, 72 Phil. 71, 25 April 1941).
The irrevocably designated beneficiary may
obtain a policy loan to the extent stated in the
schedule of values attached to the policy (Gercio
v. Sun Life Assurance of Canada, 48 Phl. 53, 28
September 1925).
The insured cannot take the cash surrender
value assign or even borrow on said policy
without the consent of the beneficiary.
IN LIFE/ HEALTH
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Two general classes of life policies
1.
Sotero validly designate
beneficiary? (2014 Bar)
Insurance upon one’s life – are those taken out
by the insured upon his own life for the benefit:
(HET)
a. Of himself;
b. Of his estate, in case it matures only at his
death;
c. Of third person who may be designated as
beneficiary.
a.
b.
c.
d.
Persons prohibited from being designated as
beneficiaries (1998 Bar)
Under the Article 739 in relation to Art. 2012 of the
New Civil Code, the following are prohibited
designation of beneficiaries:
On April 10, 1996, Sotero died. Aban filed a
claim for the insurance proceeds on July 9, 1996,
Ilocos Life conducted an investigation into the
claim and came out with the following findings:
5.
1.
Sotero did not personally apply for
insurance coverage, as she was illiterate.
Sotero was sickly since 1990.
Sotero did not have the financial capability
to pay the premium on the policy.
Sotero did not sign the application for
insurance
Alban was the one who filed the insurance
application and designated herself as the
beneficiary.
Those made between persons who were guilty
of adultery or concubinage at the time of
donation.
NOTE: The guilt of the donor and done may be
proved by preponderance of evidence in the
same civil action. Criminal conviction is not
necessary.
2.
3.
For the above reasons and claiming fraud, Ilocos
Life denied Aban’s claim on April 16, 1997 but
refunded the premium paid on the policy. May
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
His spouse and of his children.
Any person on whom he depends wholly
or in part for education or support, or in
whom he has a pecuniary interest.
Of any person under a legal obligation to
him for the payment of money, or
respecting property or services, of which
death or illness might delay or prevent
the performance.
Of any person upon whose life any estate
or interest vested in him depends (IC, Sec.
10).
NOTE: In paragraph (a) of Section 10 of the
Insurance Code, mere relationship is sufficient
while the rest (pars. b, c, and d) requires pecuniary
interest. Thus, the interest of the creditor over the
life of the debtor ceases upon full payment
(Sundiang Sr. & Aquino, 2009).
Q: On July 3, 1993, Delia Sotero (Sotero) took out
a life insurance policy from Ilocos Bankers Life
Insurance Corporation (Ilocos Life) designating
Creencia Aban (Aban) her niece, as her
beneficiary. Ilocos Life issued Policy No. 747,
with a face value of P100,000, in Sotero’s favor
on August 30,1993, after the requisite medical
examination and payment of the premium.
4.
as
2. Insurance upon life of another – are those taken
out by the insured upon the life of another. Where a
person names himself beneficiary in a policy he
takes on the life of another, he must have insurable
interest in the life of the latter. This class includes
the following: (SELD)
Q: X is the common-law wife of Y. Y loves X so
much that he took out a life insurance on his own
life and made her the sole beneficiary. Y did this
to ensure that X will be financially comfortable
when he is gone. Upon the death of Y, who should
be entitled to the proceeds? (2012 Bar)
A: X as sole beneficiary under the life insurance
policy on the life of Y will be entitled to the proceeds
of the life insurance.
2.
3.
niece
A: YES. Sotero may validly designate her niece as
beneficiary. The same is not prohibited under the
Insurance Code or any other laws pertinent to the
problem.
The question of insurable interest is immaterial
where the policy is procured by the person whose
life is insured. A person who insures his own life can
designate any person as his beneficiary, whether or
not the beneficiary has an insurable interest in the
life of the insured subject to the limits under Article
2012 in relation to Article 739 of the New Civil Code
(De Leon, 2010).
1.
her
94
Those made between persons found guilty of
the same criminal offense, in consideration
thereof.
Those made to a public officer or his wife,
descendants or ascendants by reason of his
office.
Mercantile Law
The designation of the above-enumerated persons
is void but the policy is binding. The estate will get
the proceeds (Sundiang Sr. & Aquino, 2009).
A: The estate is entitled to claim for the proceeds of
the insurance policy. As a general rule, the insured
may designate anyone he wishes to be his/her
beneficiary. However, Art. 2012 of the Civil Code,
which applies suppletorily to the Insurance Code,
provides that any person who is forbidden from
receiving any donation under Art. 739 cannot be
named beneficiary of a life insurance policy by the
person who cannot make any donation to him,
according to said article. Art. 739 specifically bars
the donations as between persons who were guilty
of adultery or concubinage. Since Purita is a
common-law wife of Juan, she falls squarely in to
this category therefore she is disqualified to receive
insurance proceeds and when this happens, the
estate of the deceased is the one entitled to the
proceeds (Insular Life Assurance Company, Ltd. vs.
Capronia Ebrado, supra).
Art. 2012. Any person who is forbidden from
receiving any donation under Art. 739 cannot be
named beneficiary of a life insurance policy by the
person who cannot make any donation to him,
according to said article.
NOTE: A beneficiary in a life insurance policy is no
different from a donee. Both are recipients of pure
beneficence. So long as marriage remains the
threshold of family laws, reason and morality
dictate that the impediments imposed upon
married couple should likewise be imposed upon
extra-marital relationship. If legitimate relationship
is circumscribed by these legal disabilities, with
more reason should an illicit relationship be
restricted by these disabilities. (Insular Life v.
Ebrado G.R. No. L-44059 October 28, 1977)
Q: Loreto designated Eva, his common-law wife,
and illegitimate children as beneficiaries in his
life insurance policies. Loreto was killed and
Eva was the prime suspect in his death. The
legitimate wife and children of Loreto asked for
the insurance proceeds contending that
illegitimate family is disqualified from being
beneficiaries and that the insurance benefits
must redound to the benefit of the estate of
Loreto. Will the claim of the legitimate family
prosper?
Beneficiary willfully brought about the death of
the insured (2008 Bar)
GR: The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully
bringing about the death of the insured. In such a
case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the
absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid
to the estate of the insured (IC, Sec. 12).
A: NO. The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy.
XPNs: (IUD)
1. Insanity of the beneficiary at the time he killed
the insured
2. The insured’s death was unintentionally caused
(e.g., thru accident);
3. The beneficiary acted in self-defense;
While the share of Eva must be forfeited, the
designation of the illegitimate children as
beneficiaries remains valid. There is no proscription
in naming illegitimate children as beneficiaries. It is
only in cases where the insured has not designated
beneficiary or when the designated beneficiary is
disqualified by law to receive the proceeds, that the
policy proceeds shall redound to the benefit of the
estate of the insured. Thus, the proceeds of the
policy must be awarded to the illegitimate children,
to the exclusion of the legitimate family (Heirs of
Loreto Maramag vs. Maramag, G.R. No. 181132, June
5, 2009).
Q: Juan de la Cruz was issued Policy No. 8888 of
the Midland Life Insurance Co. on a whole life
plan for P20,000 on August 19, 1989. Juan is
married to Cynthia with whom he has three
legitimate children. He, however, designated
Purita, his common-law wife, as the revocable
beneficiary. Juan referred to Purita in his
application and policy as the legal wife. Three
(3) years later, Juan died. Purita filed her claim
for the proceeds of the policy as the designated
beneficiary therein. The widow, Cynthia, also
filed a claim as the legal wife. To whom should
the proceeds of the insurance policy be
awarded? (1998 Bar)
IN PROPERTY
Every interest in property, whether real or
personal, or any relation thereto, or liability in
respect thereof, of such nature that contemplated
peril might directly damnify the insured, is
insurable interest (IC, Sec. 13).
95
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Insurable interest in property may consist of the
following (1991 Bar): (ExInEx)
A common carrier or depository’s extent of
insurable interest in a thing held by him
1.
A carrier or depositary has an insurable interest in
a thing held by him as such, to the extent of his
liability but not to exceed the value thereof, because
the loss of the thing by the carrier or depository may
cause liability against him to the extent of its value
(IC, Sec. 15).
An existing interest – The existing interest in the
property may be legal or equitable title.
Examples of insurable interest arising from
legal title:
a. Trustee, as in the case of the seller of
property not yet delivered;
b. Mortgagor of the property mortgaged; or
c. Lessor of the property leased (De Leon,
supra).
Change of interest in any part of a thing insured
“Change of interest” contemplated by law is an
absolute transfer of the insured’s entire interest in
the property insured to one not previously
interested or insured (Perez, 2006).
Examples of insurable interest arising from
equitable title:
a. Purchaser of property before delivery or
before he has performed the conditions of
the sale;
b. Mortgagee of property mortgaged; or
c. Mortgagor, after foreclosure but before the
expiration of the redemption period. (De
Leon, 2010).
2.
GR: A change of interest in any part of a thing
insured unaccompanied by a corresponding change
in interest in the insurance suspends the insurance
to an equivalent extent, until the interest in the thing
and the interest in the insurance are vested in the
same person (IC, Sec. 20; Sec.58).
An inchoate interest founded on an existing
interest.
XPNs: (PLADS-JOF)
1. When there is a prohibition against alienation
or change of interest without the consent of the
insurer in which case the policy is not merely
suspended but avoided (Sundiang & Aquino,
2014., citing Curtis vs. Girard Fire and Marine
Ins., 11 SE 3, 190 Ga. 954).
2. In life, accident, and health insurance. (IC, Sec.
20)
3. A change of interest in a thing insured, after the
occurrence of an injury which results in a loss
does NOT affect the right of the insured to
indemnity for loss (IC, Sec. 21).
Example: A stockholder has an inchoate interest
in the property of the corporation of which he is
a stockholder, which is founded on an existing
interest arising from his ownership of shares in
the corporation (De Leon, 2014).
3.
An expectancy coupled with an existing interest
in that out of which the expectancy arises.
NOTE: Existence of insurable interest is a matter of
public policy. Hence, the principle of estoppel
cannot be invoked (Sundiang Sr. & Aquino, 2014).
NOTE: After the occurrence of the peril insured
against, the insured acquired a vested right over
the proceeds of the policy.
Measure of insurable interest in property (2000
Bar)
4.
Under Sec. 17, the measure of insurable interest in
property is the extent to which the insured might be
damnified by loss or injury thereof. Insurable
interest in property does not necessarily imply a
property interest in, or lien upon, or possession of,
the subject matter of the insurance, and neither title
nor a beneficial interest is requisite to the existence
thereof. It is sufficient that the insured is so situated
with reference to the property that he would be
liable to loss should it be injured or destroyed by the
peril against which it is insured. Anyone has an
insurable interest in property who derives a benefit
from its existence or would suffer loss from its
destruction (Gaisano Cagayan, Inc. v. Insurance
Company of North America, G.R. No. 147839, June 8,
2006).
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
5.
6.
7.
96
A change of interest in one or more distinct
things, separately insured by one policy does
NOT avoid the insurance as to the others (IC,
Sec. 22).
A change of interest by will or succession, on
the death of the insured, does NOT avoid an
insurance; and his interest in the insurance
passes to the person taking his interest in the
thing insured (IC, Sec. 23).
A transfer of interest by one of several partners,
joint owners, or owners in common, who are
jointly insured, to the others does NOT avoid an
insurance even though it has been agreed that
the insurance shall cease upon an alienation of
the thing insured (IC, Sec. 24).
When the policy is so framed that it will inure to
the benefit of whomsoever, during the
Mercantile Law
continuance of the risk, may become the owner
of the interest insured (IC, Sec. 57).
DOUBLE INSURANCE AND OVER INSURANCE
Double insurance
Double insurance exists where the same person is
insured by several insurers separately, in respect to
the same subject and interest (IC, Sec. 95).
Requisites of double insurance (STRIP)
1.
2.
3.
4.
5.
Subject matter is the same
Two or more insurers insuring separately
Risk or peril insured against is the same
Interest insured is the same
Person insured is the same
When the amount of
the
insurance
is
beyond the value of the
insured’s
insurable
interest.
There are two or more
insurers insuring the
same subject matter.
There may be only one
insurer, with whom the
insured
takes
insurance beyond the
value of his insurable
interest.
Rules when the insured in a policy other than
life is over insured by double insurance
1. The insured, unless the policy otherwise
provides, may claim payment from the insurers
in such order as he may select, up to the amount
which the insurers are severally liable under
their respective contracts.
2. Where the policy under which the insured
claims is a valued policy, any sum received by
him under any other policy shall be deducted
from the value of the policy without regard to
the actual value of the subject matter insured.
3. Where the policy under which the insured
claims is an unvalued policy, any sum received
by him under any policy shall be deducted
against the full insurable value, for any sum
received by him under any policy.
4. Where the insured receives any sum in excess
of the valuation in the case of valued policies, or
of the insurable value in the case of unvalued
policies, he must hold such sum in trust for the
insurers, according to their right of
contribution among themselves.
5. Each insurer and the other insurers, to
contribute ratably to the loss in proportion to
the amount for which he is liable under his
contract (IC, Sec. 96).
There is no double insurance even though two
policies were both issued over the same subject
matter and both covered the same peril insured
against if the two policies were issued to two
different entities (Malayan Insurance Co. vs.
Philippine First Insurance Co., G.R. No. 184300, July
11, 2012).
Double insurance is not prohibited by law
It is not contrary to law and hence, in case of double
insurance, the insurers may still be made liable up
to the extent of the value of the thing insured but not
to exceed the amount of the policies issued.
A provision in the policy that prohibits double
insurance is valid. However, in the absence of such
prohibition, double insurance is allowed (Perez,
2006).
Nature of the liability of the several insurers in
double insurance (2005 Bar)
In double insurance, the insurers are considered as
co-insurers. Each one is bound to contribute ratably
to the loss in proportion to the amount for which he
is liable under his contract. This is known as the
“principle of contribution” or “contribution clause”
[IC, Sec. 96(e)].
Additional or other insurance clause (2008 Bar)
A clause in the policy that provides that the policy
shall be void if the insured procures additional
insurance without the consent of the insurer
(Pioneer Insurance and Surety Corp vs. Yap, G.R. No.
L-36232, December 19, 1974).
Over insurance
The insurer may insert an “other insurance clause”
to prevent the danger that the insured will over
insure his property and thus avert the possibility of
perpetration of fraud. It is lawful and specifically
allowed under Sec. 75 of the Insurance Code which
provides that “a policy may declare that a violation
or a specified provision thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid it.”
There is over insurance whenever the insured
obtains a policy in an amount exceeding the value of
his insurable interest (Perez, 2006).
Double Insurance vs. Over Insurance
DOUBLE INSURANCE
There may be no over
insurance as when the
sum total of the
amounts of the policies
issued does not exceed
the insurable interest
of the insured.
OVER INSURANCE
97
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Waiver of violation
Absence of notice of existence of other insurance
constitutes fraud
When the insurer, with the knowledge of the
existence of other insurances, which the insurer
deemed a violation of the contract, preferred to
continue the policy, its action amounted to a waiver
of annulment of the contract (Perez, 2006 citing
Gonzales Lao v. Yek Tong Lin Fire & Marine Ins. Co.,
G.R. No. L-33131, December 13, 1930).
When the insurance policy specifically requires that
notice should be given by the insured of the
existence of other insurance policies upon the same
property, the total absence of such notice nullifies
the policy. Such failure to give notice of the
existence of other insurance on the same property
when required to do so constitutes deception and it
could be inferred that had the insurer known that
there were many other insurance policies on the
same property, it could have hesitated or plainly
desisted from entering into such contract (Perez,
2006).
Q: Wyeth Philippines, Inc. (Wyeth) procured a
marine policy from Philippines First Insurance
Co., Inc. (PFIC) to secure its interest over its own
products while the same were being
transported or shipped in the Philippines.
Thereafter, Wyeth executed its annual contract
of carriage with Reputable Forwarder Services,
Inc. (Reputable). Under the contract, Reputable
undertook to answer for all risks with respect to
the goods and shall be liable to Wyeth, for the
loss, destruction, or damage of the
goods/products due to any and all causes
whatsoever, including theft, robbery, flood,
storm, earthquakes, lightning, and other force
majeure while the goods/products are in transit
and until actual delivery to the customers,
salesmen, and dealers. The contract also
required Reputable to secure an insurance
policy on Wyeth’s goods. Thus, Reputable signed
a Special Risk Insurance Policy (SR Policy) with
Malayan Insurance Co., Inc., (Malayan) for the
amount of P1,000,000.00. Is there is double
insurance (as prohibited in Section 5 of the SR
policy between Malayan and Reputable) so as to
preclude PFIC from claiming indemnity from
Malayan?
No policy of insurance shall be cancelled except
upon notice thereof to the insured
Q: The Peninsula Insurance Company offered to
insure Francis' brand new car against all risks in
the sum of P1 Million for 1 year. The policy was
issued with the premium fixed at P60,000.00
payable in 6 months. Francis only paid the first
two months installments. Despite demands, he
failed to pay the subsequent installments. Five
months after the issuance of the policy, the
vehicle was carnapped. Francis filed with the
insurance company a claim for its value.
However, the company denied his claim on the
ground that he failed to pay the premium
resulting in the cancellation of the policy. Can
Francis recover from the Peninsula Insurance
Company? (2006 Bar)
A: YES. As a general rule, no policy is binding unless
the premiums thereof have been paid. However, one
of the exceptions is when there is an agreement
allowing the insured to pay the premium in
installments and partial payment has been made at
the time of loss. In the case at hand Francis already
paid two installments at the time of the loss and as
such may recover on the policy (Makati Tuscany
Condominium Corp. v. CA, G.R. No. 95546, Nov. 6,
1992). Furthermore, the contention of the insurer
that the failure to pay premium resulted in the
cancellation of the policy is not tenable since no
policy of insurance shall be cancelled except upon
notice thereof to the insured (IC, Sec. 64).
A: NO. The interest of Wyeth over the property
subject matter of both insurance contracts is
different and distinct from that of Reputable’s. The
policy issued by PFIC was in consideration of the
legal and/or equitable interest of Wyeth over its
own goods. On the other hand, what was issued by
Malayan to Reputable was over the latter’s
insurable interest over the safety of the goods,
which may become the basis of the latter’s liability
in case of loss or damage to the property and falls
within the contemplation of Section 15 of the IC.
Therefore, even though the two concerned
insurance policies were issued over the same goods
and cover the same risk, there arises no double
insurance since they were issued to two different
persons/entities having distinct insurable interests.
Necessarily, over insurance by double insurance
cannot likewise exist (Malayan Insurance Co., Inc., v.
Philippine First Insurance Co., Inc. and Reputable
Forwarder Services, Inc., G.R. No. 184300, July 11,
2012).
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
Cancellation of policy of insurance by reason of
over insurance
Sec. 64 of the IC provides that upon discovery of
other insurance coverage that makes the total
insurance in excess of the value of the property
insured, the insurer may cancel such policy of
insurance; provided there is prior notice and such
98
Mercantile Law
circumstance occurred after the effective date of the
policy.
Q: To secure a loan of P10 million, Mario
mortgaged his building to Armando. In
accordance with the loan arrangements, Mario
had the building insured with First Insurance
Com for P10 million, designating Armando as
the beneficiary.
Armando also took an
insurance on the building upon his own interest
with Second Insurance Company for P5 million.
The building was totally destroyed by fire, a
peril insured against under both insurance
policies. It was subsequently determined that
the fire had been intentionally started by Mario
and that in violation of the loan agreement, he
had been storing inflammable materials in the
building.
MULTIPLE OR SEVERAL INTERESTS
ON SAME PROPERTY
Instances where more than one insurable
interest may exist in the same property
1.
2.
3.
4.
5.
6.
Trust - both trust or and trustee have insurable
interest over the property in trust.
Corporation - both the corporation and its
stockholders have insurable interest over the
assets.
Partnership - both the firm and partners have
insurable interest over its assets.
Assignment - both the assignor and assignee
have insurable interest over the property
assigned.
Lease - the lessor, lessee and sub-lessees have
insurable interest over the property in lease.
Mortgage - both the mortgagor and mortgagee
have insurable interest over the property
mortgaged.
a.
How much, if any, can Armando recover
from either or both insurance companies?
b. What happens to the P10 million debt of
Mario to Armando? Explain. (2010 Bar)
A:
a. Armando can receive P5 million from Second
Insurance Company. As mortgagee, he had an
insurable interest in the building. Armando
cannot collect anything from First Insurance
Co., since the latter is not liable for the loss of
the building. First, it was due to a willful act of
Mario, who committed arson. Second, fire
insurance policies contain a warranty that the
insured will not store hazardous materials
within the insured premises. Mario breached
this warranty when he stored inflammable
materials in the building. These two factors
exonerate First Insurance Co. from liability to
Armando as mortgagee even though it was
Mario who committed them (IC, Sec. 8; Sec. 87).
b. Since Armando would have collected P5 million
from Second Insurance Company, this amount
should be considered as partial payment of the
loan. Armando can only collect the balance of P5
million. Second Insurance Co. can recover from
Mario the amount of P5 million it paid, because
it became subrogated to the rights of Armando.
Insurable interest of mortgagor and mortgagee
in case of a mortgaged property are NOT the
same (1999, 2010 Bar)
Each has an insurable interest in the property
mortgaged and this interest is separate and distinct
from the other. Therefore, insurance taken by one in
his name only and in his favor alone does not inure
to the benefit of the other. The same is not open to
objection that there is double insurance (RCBC vs.
CA, 289 G.R. Nos. 128833-34, 128866, April 20, 1998;
IC, Sec. 8).
Extent of insurable interest of mortgagor and
mortgagee (1999 Bar)
1.
2.
Mortgagor – The mortgagor of property, as
owner, has an insurable interest to the
extent of its value even though the
mortgage debt equals such value.
Mortgagee – The mortgagee as such has an
insurable interest in the mortgaged
property to the extent of the debt secured;
such interest continues until the mortgage
debt is extinguished (Sundiang Sr. & Aquino,
2014).
Standard or union mortgage clause
It is a clause that states that the acts of the
mortgagor do not affect the mortgagee. The purpose
of the clause is to make a separate and distinct
contract of insurance on the interest of the
mortgagee (De Leon, 2010).
NOTE: In case of an insurance taken by the
mortgagee alone and for his benefit, the mortgagee,
after recovery from the insurer, is not allowed to
retain his claim against the mortgagor but it passes
by subrogation to the insurer to the extent of the
insurance money paid (De Leon, 2010).
Open or loss-payable mortgage clause
It is a clause which provides for the payment of loss,
if any, to the mortgagee as his interest may appear
and under it, the acts of the mortgagor affect the
mortgagee (De Leon, 2010).
99
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
In a policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as
such by the insurer but not made a party to the
contract itself. This kind of policy covers only such
interest as the mortgagee has at the issuance of the
policy (Sundiang Sr. & Aquino, 2014, Geagonia v. CA,
supra).
The assignment is merely to afford the mortgagee a
greater security for the settlement of the
mortgagor’s obligation and should not be construed
as payment in just the same way that delivery of
negotiable instruments does not constitute
payment until the proceeds are realized or collected
(Perez, 2006).
Note: The exception of this rule is the “Mortgage
Redemption Insurance”
The mortgagee may be made a beneficial payee
through any of the following:
Effects of “mortgage redemption” insurance
procured by the mortgagor
1.
A “mortgage redemption insurance” is simply a kind
of life insurance procured by the mortgagor, with
the mortgagee as beneficiary, up to the extent of the
mortgage indebtedness. Its rationale is to give
protection to both the mortgagee and the
mortgagor. In case the mortgagor-insured dies, the
proceeds of such insurance will be applied to the
payment of the mortgage debt to the mortgagee,
thereby relieving the heirs of the mortgagor of the
burden of paying the debt (Great Pacific Assur. Corp.
v. CA, et. al., G.R. No. 113899, October 13, 1999).
2.
3.
4.
He may become the assignee of the policy with
the consent of the insurer;
He may be the pledgee without such consent of
the insurer;
A rider making the policy payable to the
mortgagee “as his interest may appear” may be
attached; or
A “standard mortgage clause” containing a
collateral independent contract between the
mortgagee and the insurer may be attached.
The policy, though, by its terms payable absolutely
to the mortgagor; may have been procured by a
mortgagor under a contract duty to insure for the
mortgagee’s benefit, in which case the mortgagee
acquires an equitable lien upon the proceeds (Ibid.).
PERFECTION OF THE
CONTRACT OF INSURANCE
Effects if the insurance is procured by
mortgagor for benefit of mortgagee, or policy
assigned to mortgagee
1.
2.
3.
4.
5.
Policy of insurance
It is the written instrument in which the contract of
insurance is set forth (IC, Sec. 49). It is the written
document embodying the terms and stipulations of
the contract of insurance between the insured and
insurer.
The contract is deemed to be upon the interest
of the mortgagor; hence he does not cease to be
party to the contract.
Any act of the mortgagor prior to the loss, which
would otherwise avoid the insurance affects the
mortgagee even if the property is in the hands
of the mortgagee.
Any act which under the contract of insurance
is to be performed by the mortgagor may be
performed by the mortgagee with the same
effect.
In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit at the time
of loss and.
The debt is extinguished upon recovery by the
mortgagee to the extent of his credit (Sundiang
Sr. & Aquino, 2014, citing IC, Sec. 8).
The policy is not necessary for the perfection of the
contract (Sundiang Sr. & Aquino, 2014).
Form of an insurance contract
1.
2.
NOTE: The rule on subrogation by the insurer to the
right of the mortgagee does not apply in this case.
3.
Assignment of policy to mortgagee is not a
payment
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
100
The policy shall be in printed form which may
contain blank spaces to be filled in.
Any rider, clause, warranty or endorsement
purporting to be part of the contract of
insurance and which is pasted or attached to
said policy is not binding on the insured, unless
the descriptive title or name of the rider, clause,
warranty or endorsement is also mentioned
and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any
rider, clause, warranty or endorsement issued
after the original policy shall be countersigned
by the insured or owner.
Mercantile Law
NOTE: Notwithstanding the foregoing, the policy
may be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise
known as the ‘Electronic Commerce Act’ and to such
rules and regulations as may be prescribed by the
Commissioner (IC, Sec. 50).
contemplated under Section 1(1) of the Insurance
Code subject to the following rules:
1.
2.
Types of policy of insurance (OVaR)
1.
2.
3.
Open – one in which the value of the thing
insured is not agreed upon, and the amount of
the insurance merely represents the insurer’s
maximum liability. The value of such thing
insured shall be ascertained at the time of the
loss (IC, Sec. 60).
Valued – is one which expresses on its face an
agreement that the thing insured shall be
valued at a specific sum (IC, Sec. 61).
Running – one which contemplates successive
insurances, and which provides that the object
of the policy may be from time to time defined,
especially as to the subjects of insurance, by
additional statements or indorsements (IC, Sec.
62).
3.
4.
5.
6.
7.
Basic contents of a policy (P3AIR2)
1.
2.
3.
4.
5.
6.
7.
Parties
Period during which the insurance is to
continue
Property or life insured
Amount of insurance, except in open or running
policies
Interest of the insured in the property if he is
not the absolute owner
Risk insured against
Rate of premium (IC, Sec. 51)
The cover note shall be issued or renewed only
upon prior approval of the Insurance
Commission;
The cover note shall be valid and binding for not
more than sixty (60) days from the date of its
issuance;
No separate premium (separate from the policy
or main contract) is required for the cover note;
The cover note may be canceled by either party
upon prior notice to the other of at least seven
(7) days;
The policy should be issued within sixty (60)
days after the issuance of the cover note;
The sixty (60)-day period may be extended
upon written approval of the Insurance
Commission; and
The written approval of the Insurance
Commission is dispensed with upon the
certification of the president, vice-president or
general manager of the insurer that the risk
involved, the values of such risks and premium
therefor, have not as yet been determined or
established and the extension or renewal is not
contrary to or is not for the purpose of violating
the Insurance Code or any rule
OFFER AND ACCEPTANCE/CONSENSUAL
Perfection of an insurance contract
The contract of insurance is perfected when the
assent or consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. Mere
offer or proposal is not contemplated (De Lim v. Sun
Life Assurance Co., G.R. No. L-15774, November 29,
1920).
Rider
An attachment to an insurance policy that modifies
the conditions of the policy by expanding or
restricting its benefits or excluding certain
conditions from the coverage (Black’s Law
Dictionary).
Cognition Theory
Mere submission of the application without the
corresponding approval of the policy does not result
in the perfection of the contract of insurance.
Riders are not binding on the insured unless the
descriptive title or name thereof is mentioned and
written on the blank spaces provided in the policy.
It should be countersigned by the insured or owner
unless he was the one who applied for the same (IC,
Sec. 50).
Insurance contracts through correspondence follow
the “cognition theory” wherein an acceptance made
by letter shall not bind the person making the offer
except from the time it came to his knowledge
(Enriquez v. Sun Life Assurance Co., GR No. L-15774,
Nov. 29, 1920).
Cover notes
Q: On June 1, 2011, X mailed to Y Insurance Co.
his application for life insurance. On July 21,
2011, the insurance company accepted the
application and mailed, on the same day, its
acceptance plus the cover note. It reached X's
Persons who wish to be insured may get protection
before the perfection of the insurance contract by
securing a cover note. The cover note issued by the
insurer shall be deemed an insurance contract as
101
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
residence on August 11. On August 4, 2011, X
figured in a car accident. He died a day later. May
X's heirs recover on the insurance policy? (2011
Bar)
2.
If he pays the premium with his application, his
application will be considered an offer (De Leon,
2010).
DELAY IN ISSUANCE OF POLICY
A: NO, since X had no knowledge of the insurer's
acceptance of his application before he died. What is
being followed in insurance contracts is what is
known as the “cognition theory”. Where the
applicant died before he received notice of the
acceptance of his application for the insurance,
there is no perfected contract (Perez v. Court of
Appeals, G.R. No. 112329, January 28, 2000).
Delivery of policy
Delivery is not necessary in the formation of the
contract of insurance since the contract of insurance
is consensual (Sundiang Sr. & Aquino, 2014).
The mere delivery of an insurance policy to
someone does not give rise to the formation of a
contract in the absence of proof that he had agreed
to be insured.
Q: Jason is the proud owner of a newly-built
house worth PS million. As a protection against
any possible loss or damage to his house, Jason
applied for a fire insurance policy thereon with
Shure Insurance Corporation (Shure) on
October 11, 2016 and paid the premium in cash.
It took the company a week to approve Jason's
application. On October 18, 2016, Shure mailed
the approved policy to Jason which the latter
received five (5) days later. However, Jason's
house had been razed by fire which transpired a
day before his receipt of the approved policy.
Jason filed a written claim with Shure under the
insurance policy. Shure prays for the denial of
the claim on the ground that the theory of
cognition applies to contracts of insurance.
Decide Jason's claim with reasons. (2016 Bar)
The contract may be completed prior to delivery of
the policy or even without the delivery of the policy
depending upon the intention of the parties. The
policy may contain a provision that states that the
insurance is not effective until the delivery of the
policy. (De Leon, 2010)
Two types of delivery
1.
2.
A: Jason’s claim should be denied. What governs
insurance contract is the cognition theory whereby
the insurance contract is perfected only from the
time the applicant came to know of the acceptance
of the offer by the insurer. In this case, the loss
occurred a day prior to Jason’s knowledge of the
acceptance by Shure of Janson’s application. There
being no perfected insurance contact, Jason is not
entitled to recover from Shure.
Actual – delivery to the person of the insured.
Constructive
a. By mail –If policy was mailed already and
premium was paid and nothing is left to be
done by the insured, the policy is
considered constructively delivered if
insured died before receiving the policy.
b. By agent –If delivered to the agent of the
insurer, whose duty is ministerial, or
delivered to the agent of the insured, the
policy is considered constructively
delivered (De Leon, 2010).
PREMIUM PAYMENT
Premium
Offer in property and liability insurance
It is an agreed price for assuming and carrying the
risk – that is, the consideration paid to an insurer for
undertaking to indemnify the insured against a
specified peril (De Leon, 2010).
It is the insured who makes an offer to the insurer,
who accepts the offer, rejects it, or makes a counteroffer. The offer is usually accepted by an insurance
agent on behalf of the insurer (De Leon, 2010).
The burden is on an insured to keep a policy in force
by the payment of premiums, rather than on the
insurer to exert every effort to prevent the insured
from allowing a policy to elapse through a failure to
make premium payments. The continuance of the
insurer's obligation is conditional upon the
payment of premiums, so that no recovery can be
had upon a lapsed policy, the contractual relation
between the parties having ceased (Philippine
Phoenix Surety & Insurance Company vs.Woodworks,
Inc. G.R. No. L-25317 August 6, 1979).
Offer in life and health insurance
It depends upon whether the insured pays the
premium at the time he applies for insurance.
1.
If he does not pay the premium, his application is
considered an invitation to the insurer to make
an offer, which he must then accept before the
contract goes into effect.
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
102
Mercantile Law
Premium vs. Assessment
PREMIUM
Levied and paid to
meet
anticipated
losses
Premium is not a debt
ASSESSMENT
Collected to
actual losses
meet
5.
Assessment
when
properly levied is a
debt, unless otherwise
expressly agreed
6.
Acceptance of premium
Acceptance of premium within the stipulated period
for payment thereof, including the agreed grace
period, merely assures continued effectivity of the
insurance policy in accordance with its terms (Stoke
v. Malayan Insurance Co., Inc., G.R. No. L-34768,
February 28, 1984).
Example: In compulsory motor vehicle
insurance, if the policy was issued without
payment of premium by the vehicle owner, the
insurer will still be held liable. To rule
otherwise would prejudice the 3rd party victim.
1. Payment in installments
Payment of the premium to agent of the insurance
company is binding on it (Malayan Insurance v.
Arnaldo G.R. No. L-67835, October 12, 1987 and
Areola v. CA G.R. No. 95641, September 22, 1994).
Q: American Home Assurance Co. (AHAC) ,
issued
in
favor
of
Makati
Tuscany
Condominium Corporation insurance policies
for 2 years. The premiums were paid by Tuscany
on installments. The policy was again renewed,
however, Tuscany thereafter refused to pay the
balance of the premium. AHAC filed an action to
recover the unpaid balance. Tuscany contended
that payment by installment of the premiums
due on an insurance policy invalidates the
contract of insurance and no risk attached to the
policy. The policy was never binding and valid,
and no risk attached to the policy. Is the
contention of Tuscany valid?
NOTE: An insurance company which delivers a
policy to an insurance broker, is deemed to have
authorized the latter to receive the payment of the
premium (IC, Sec. 306).
“Cash and carry” rule (2003 Bar)
GR: No policy or contract of insurance issued by an
insurance company is valid and binding unless and
until the premium thereof has been paid. Any
agreement to the contrary is void.
A: NO. The subject policies are valid even if the
premiums were paid on installments. The records
clearly show that Tuscany and AHAC intended the
subject insurance policies to be binding and
effective notwithstanding the staggered payment of
the premiums. For 3 years, the insurer accepted all
the installment payments. Such acceptance of
payments speaks loudly of the insurer’s intention to
honor the policies it issued to Tuscany.
XPN: (ICE GAP)
A policy is valid and binding even when there is nonpayment of premium:
1.
2.
3.
4.
duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to
a duly licensed intermediary should exceed
ninety (90) days from date of issuance of the
policy (IC, Sec. 77).
When there is acknowledgment in a policy of a
receipt of premium, which the law declares to be
conclusive evidence of payment, even if there is
stipulation therein that it shall not be binding
until the premium is actually paid. This is
without prejudice however to right of insurer to
collect corresponding premium (IC, Sec. 77).
When the public interest so requires, as
determined by the Insurance Commissioner
When there is an agreement allowing the
insured to pay the premium in installments and
partial payment has been made at the time of
loss (Makati Tuscany Condominium Corp. v. CA,
G.R. No. 95546, Nov. 6, 1992).
When there is an agreement to grant the
insured credit extension for the payment of the
premium and loss occurs before the expiration
of the credit term (2007 Bar; NCC, Art. 1306;
UCPB General Insurance v. Masagana Telemart,
G.R. No. 137172, Apr. 4, 2001).
When estoppel bars the insurer to invoke nonrecovery on the policy.
In case of life or industrial life policy whenever
the grace period provision applies, or whenever
under the broker and agency agreements with
While the import of Section 77 is that
prepayment of premiums is strictly required as
a condition to the validity of the contract, Section
78 of the Insurance Code in effect allows waiver
by the insurer of the condition prepayment by
making an acknowledgment in the insurance
policy of receipt of premium as conclusive
evidence of payment so far as to make the policy
binding despite the fact that premium is actually
unpaid (Makati Tuscany Condominium Corp. vs. CA
G.R. No. 95546, November 6, 1992).
103
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Q:The Peninsula Insurance Company offered to
insure Francis' brand new car against all risks in
the sum of PI Million for 1 year. The policy was
issued with the premium fixed at 160,000.00
payable in 6 months. Francis only paid the first
two months installments. Despite demands, he
failed to pay the subsequent installments. Five
months after the issuance of the policy, the
vehicle was carnapped. Francis filed with the
insurance company a claim for its value.
However, the company denied his claim on the
ground that he failed to pay the premium
resulting in the cancellation of the policy. Can
Francis recover from the Peninsula Insurance
Company? (2006 Bar)
of the premiums SPMC had paid, and denied
SPMC's claim on the ground that under the "cash
and carry" principle governing fire insurance,
no coverage existed at the time the fire occurred
because the insurance premium had not been
paid. Is SPMC entitled to recover for the loss
from SIC? (2003, 2013 Bar)
A: YES. St. Peter Manufacturing Company is entitled
to recover for the loss from Stable Insurance
Company. Stable Insurance Company granted a
credit term to pay the premiums. This is not against
the law, because the standing business practice of
allowing St. Peter Manufacturing Company to pay
the premiums after 60 or 90 days, was relied upon
in good faith by SPMC. Stable Insurance Company is
in estoppel (UCPB General Insurance Company, Inc.
v. Masagana Telemart, Inc., G.R. No. 137172, April 4,
2001).
A: YES, when insured and insurer have agreed to the
payment of premium by installments and partial
payment has been made at the time of loss, then the
insurer becomes liable. When the car loss happened
on the 5th month, the six months agreed period of
payment had not yet elapsed. The owner may
recover from Peninsula Insurance Company, but the
latter has the right to deduct the amount of unpaid
premium from the insurance proceeds.
3. Estoppel
Q: Maxilite and Marques entered into a trust
receipt transaction with FEBTC for the shipment
of various high-technology equipment. FEBIBI,
upon the advice of FEBTC, facilitated the
procurement and processing from Makati
Insurance Company of four separate and
independent fire insurance policies over the
merchandise. Maxilite agreed that FEBTC would
debit Maxilite’s account for the premium
payments. However, said premiums were not
paid. A fire gutted Maxilite’s office and
warehouse. As a result, Maxilite suffered losses
amounting to at least P2.1 million, which
Maxilite claimed against the fire insurance
policy with Makati Insurance Company. Makati
Insurance Company denied the fire loss claim on
the ground of non-payment of premium. FEBTC
and FEBIBI disclaimed any responsibility for the
denial of the claim. Will the claim of Maxilite
prosper?
2. Credit Extension
Under Sec. 77 as amended by RA 10607, a ninety
(90)-day credit extension may be given whenever
credit extension is given under the broker and
agency
agreements
with
duly
licensed
intermediaries. The requisites are as follows:
1.
2.
The credit extension must be provided for
under the broker and agency agreements; and
The credit extension to a duly licensed
intermediary should not exceed ninety (90)
days from date of issuance of the policy
(Sundiang Sr. & Aquino, 2014).
Q: Stable Insurance Co. (SIC) and St. Peter
Manufacturing Co. (SPMC) have had a longstanding insurance relationship with each
other; SPMC secures the comprehensive fire
insurance on its plant and facilities from SIC.
The standing business practice between them
has been to allow SPMC a credit period of 90
days from the renewal of the policy within which
to pay the premium.
A: YES. The claim of Maxilite will prosper. FEBTC is
estopped from claiming that the insurance premium
has been unpaid. That FEBTC induced Maxilite to
believe that the insurance premium has in fact been
debited from Maxilite’s account is grounded on the
following facts: (1) FEBTC represented and
committed to handle Maxilite’s financing and capital
requirements, including the insurance of the trust
receipted merchandise; (2)the premiums of prior
insurance policies had been paid through automatic
debit arrangement; (3) FEBIBI sent FEBTC, not
Maxilite, to debit Maxilite’s account; (4) there was
no written demand from FEBTC or Makati
Insurance Company for Maxilite to pay the
insurance premium; (5) the subject insurance policy
remained uncancelled despite the alleged non-
Soon after the new policy was issued and before
premium payments could be made, a fire gutted
the covered plant and facilities to the ground.
The day after the fire, SPMC issued a manager's
check to SIC for the fire insurance premium, for
which it was issued a receipt; a week later SPMC
issued its notice of loss. SIC responded by
issuing its own manager's check for the amount
UNIVERSITY OF SANTO TOMAS
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payment of the premium, making it appear that the
insurance policy remained in force and binding.
Thus, Maxilite can still claim from FEBTC (Jose
Marques and Maxilite Technologies, Inc. vs FEBTC, GR
No. 171379, January 10, 2011).
collect such reasonable fee for its services (IC, Sec.
78).
Payment of premium by post-dated check
Delivery of a promissory note or a check will not be
sufficient to make the policy binding until the said
note or check has been converted into cash. This is
consistent with Article 1249 of the New Civil Code.
4. Grace Period
In case of individual life or endowment insurance
and group life insurance, the policyholder is entitled
to a grace period of either 30 days or 1 month within
which the payment of any premium after the first
may be made [IC, Secs. 233 (a) and 234 (a)].
Note: Payment by means of a check or note,
accepted by the insurer, bearing a date prior to the
loss, assuming availability of the funds thereof,
would be sufficient even if it remains unencashed at
the time of the loss. The subsequent effects of
encashment would retroact to the date of the
instrument and its acceptance by the creditor
(2007 Bar).
In case of industrial life insurance, the grace period
is 4 weeks, where premiums are payable monthly,
either 30 days or 1 month [IC, Secs. 236 (a)].
5. Acknowledgment of receipt of premium
NOTE: This is not applicable in case of Post dated
checks, The payment of a promissory note or
postdated check at a stated maturity subsequent to
the loss, is insufficient to put the insurance into
effect (Vitug, Commercial Laws and Jurisprudence,
2006, Vol. I, p. 250).
Acknowledgment of receipt of premium is
conclusive evidence of its payment, in so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until
the premium is actually paid (IC, Sec. 79).
Q: If the applicant failed to pay premium and
instead executed a promissory note in favor of
the insurer payable within 30 days which was
accepted by the latter, is the insurer liable in
case of loss?
When the policy contains such written
acknowledgment, it is presumed that the insurer
has waived the condition of prepayment. It hereby
creates a legal fiction of payment. The presumption
is however, extended only to the question of the
binding effect of the policy.
A: YES, the insurer is liable because there has been
a perfected insurance contract. The insurer
accepted the promise of the applicant to pay the
insurance premium within thirty 30 days from the
effective date of policy. By so doing, it has implicitly
agreed to modify the tenor of the insurance policy
and in effect, waived any provision therein that it
would only pay for the loss or damage in case the
same occurs after the payment of the premium.
As far as the payment of the premium itself is
concerned, the acknowledgment is only a prima
facie evidence of the fact of such payment. The
insurer may still dispute its acknowledgment but
only for the purpose of recovering the premium due
and unpaid. Whether payment was indeed made is
a question of fact.
Payment through salary deduction
Considering that the insurance policy is silent as to
the mode of payment, insurer is deemed to have
accepted the promissory note in payment of the
premium. This rendered the policy immediately
operative on the date it was delivered (Capital
Insurance & Surety Co. Inc. v. Plastic Era Co., Inc. G.R.
No. L-22375, July 18, 1975).
Employees of the Republic of the Philippines,
including
its
political
subdivisions
and
instrumentalities, and government-owned or
controlled corporations, may pay their insurance
premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier,
paymaster or official of the entity employing the
government
employee
is
authorized,
notwithstanding the provisions of any existing law,
rules and regulations to the contrary, to make
deductions from the salary, wage or income of the
latter pursuant to the agreement between the
insurer and the government employee and to remit
such deductions to the insurer concerned, and
Q: On September 25, 2013, Danny Marcial
(Danny) procured an insurance on his life with a
face value of P5 million from RN Insurance
Company (RN), with his wife Tina Marcial (Tina)
as sole beneficiary. On the same day, Danny
issued an undated check to RN for the full
amount of the premium. On October 1, 2013, RN
issued the policy covering Danny’s life
insurance. On October 5, 2013, Danny met a
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tragic accident and died. Tina claimed the
insurance benefit, but RN was quick to deny the
claim because at the time of Danny’s death, the
check was not yet encashed and therefore the
premium remained unpaid.
a date prior to the loss, would be sufficient. The
subsequent effects of encashment retroact to the
date of the check (UCPB General Insurance Co., Inc. v.
Masagana Telamart, Inc., 356 SCRA 307 [2001]).
Non-payment of premiums
a. Is RN correct?
b. Will your answer be the same if the check is
dated October 15, 2013? (2014 Bar)
Non-payment of the premium will not entitle the
insured to recover the premium from the insurer.
The continuance of the insurer’s obligation is
conditioned upon the payment of the premium, so
that no recovery can be had upon a lapsed policy,
the contractual relation between the parties having
ceased. If the peril insured against had occurred, the
insurer would have had a valid defense against
recovery under the policy.
A:
a. NO. RN Insurance is not correct. The facts of the
case show that Danny procured insurance on
his life on September 25, 2013, with his wife
Tina as beneficiary, and on that same day, he
issued an undated check to RN for the full
amount of the premium. Since the undated
check was issued to RN on September 25, 2013,
it will be considered dated as of the same day.
Non-payment of the first premium prevents the
contract from becoming binding notwithstanding
the acceptance of the application or the issuance of
the policy, unless waived. But nonpayment of the
balance of the premium due does not produce the
cancellation of the contract.
RN Insurance denied the claim of Tina because
at the time of Danny’s death, the check was not
yet encashed, therefore, the premium remained
unpaid. The payment by means of a check or
note, accepted by the insurer, bearing a date
prior to the loss, assuming the availability of the
funds thereof, would be sufficient even if it
remains unencashed at the time of the loss. The
subsequent effects of encashment would
retroact to the date of the mercantile
instrument.
b.
With respect to subsequent premiums, non-payment
does not affect the validity of the contracts unless,
by express stipulation, it is provided that the policy
shall in that event be suspended or shall lapse (De
Leon, 2010).
Non-payment of premiums by reason of the
circumstances or conduct of the insurer
The answer would not be the same if the check
were dated October 15, 2013. The payment of
a promissory note or postdated check at a
stated maturity subsequent to the loss, is
insufficient to put the insurance into effect
(Vitug, Commercial Laws and Jurisprudence,
2006, Vol. I, p. 250).
GR: Non-payment of premiums does not merely
suspend but put an end to an insurance contract
since the time of the payment is peculiarly of the
essence of the contract (De Leon, 2010).
XPN: (IWW)
1. The insurer has become insolvent and has
suspended business, or has refused without
justification a valid tender of premiums
(Gonzales v. Asia Life Ins. Co., G.R. No. L-5188, Oct.
29, 1952).
2. Failure to pay was due to the wrongful conduct
of the insurer.
3. The insurer has waived his right to demand
payment
If it were RN Insurance who dated the check
October 15, 2013, then my answer would be the
same as my answer to the first question.
Q: Alfredo took out a policy to insure his
commercial building from fire. The broker for
the insurance company agreed to give a 15-day
credit within which to pay the insurance
premium. Upon delivery of the policy on May 15,
2006, Alfredo issued a postdated check payable
on May 30, 2006. On May 28, 2006, a fire broke
out and destroyed the building owned by
Alfredo. May Alfredo recover on the insurance
policy? (2007 Bar)
Fortuitous events will not prevent forfeiture of the
policy when the premium remains unpaid. Hence,
non-payment of premium by reason of a fortuitous
event is not an excuse.
Non-payment of premiums occasioned by war
causes complete abrogation of the insurance. Hence,
war does not excuse non-payment (Constantino vs.
Asia Life Isurance Company 1950).
A: YES. Alfredo may recover on the policy. It is valid
to stipulate that the insured will be granted credit
term for payment of premium. Payment by means of
a check which was accepted by the insurer, bearing
UNIVERSITY OF SANTO TOMAS
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Mercantile Law
Instances when payment of premium becomes a
debt or obligation
1.
2.
In fire, casualty and marine insurance, the
premium payable becomes a debt as soon as the
risk attaches.
In life insurance, the premium becomes a debt
only when, in the case of the first premium, the
contract has become binding, and in the case of
subsequent premiums, when the insurer has
continued the insurance after maturity of the
premium, in consideration of the insured’s
express or implied promise to pay (De Leon,
2010).
6.
Payments in addition to regular premium
An insurer may contract and accept payments, in
addition to regular premium, for the purpose of
paying future premiums on the policy or to increase
the benefits thereof (IC, Sec. 84).
REINSTATEMENT OF A LAPSED POLICY
OF LIFE INSURANCE
Purpose of the reinstatement provision
NON-DEFAULT OPTIONS IN LIFE INSURANCE
The purpose of the provision is to clarify the
requirements for restoring a policy to premiumpaying status after it has been permitted to lapse.
Devices used to prevent the forfeiture of a life
insurance after the payment of the first
premium (C-PAGER)
1.
2.
3.
4.
5.
least three full annual premiums [IC, Sec. 233
(f)] to have the policy continued in force from
the date of default for a time either stated or
equal to the amount as the net value of the
policy taken as a single premium, will purchase
(De Leon, 2010).
Reinstatement – Provision that the holder of the
policy shall be entitled to reinstatement of the
contract at any time within 3 years from the
date of default in the payment of premium,
unless the cash surrender value has been paid,
or the extension period expired, upon
production of evidence of insurability
satisfactory to the company and the payment of
all overdue premiums and any indebtedness to
the company upon said policy [IC, Sec. 233 (j)].
The law requires that the policy owner be
permitted to reinstate the policy, subject to the
violations specified, any time within three (3)
years from the date of default of premium
payment. A longer period, being more favorable to
the insured, may be used.
Cash surrender value – The amount the insurer
agrees to pay to the holder of the policy if he
surrenders it and releases his claim upon it.
(Cyclopedia Law Dictionary, 3rd ed.). Note: the
policyholder is entitled to the CSV in the event of
default in a premium payment after three full
annual premiums shall have been paid.
Paid up Insurance – The insured is given a right,
upon default, after the payment of at least three
annual premiums to have the policy continued
in force from the date of default for the whole
period of the insurance without further
payment of premiums. It results to a reduction
of the original amount of insurance, but for the
same period originally stipulated (6 Couch 2d.,
355; 37 C.J.S. 364).
Automatic Loan Clause – A stipulation in the
policy providing that upon default in payment
of premium, the same shall be paid from the
loan value of the policy until that value is
consumed. In such a case, the policy is
continued in force as fully and effectively as
though the premiums had been paid by the
insured from funds derived from other sources
(6 Couch 2d., 383).
Grace period – After the payment of the first
premium, the insured is entitled to a grace
period of 30 days within which to pay the
succeeding premiums [IC, Sec. 233 (a)].
Extended insurance – It is where the insured is
given a right, upon default, after payment of at
Reinstatement is not an absolute right of the
insured, but discretionary on the part of the
insurer, which has the right to deny reinstatement
if it were not satisfied as to the insurability of the
insured, and if the latter did not pay all overdue
premiums and other indebtedness to the insurer
(McGuire vs. Manufacturer’s Life Ins. Co., G.R. No. L3581, September 21, 1950).
Q: A life insurance policy lapsed. The insured
applied for reinstatement of the policy and paid
only a part of the overdue premiums.
Subsequently, the insured died. Was the insurer
liable?
A: The insurer is not liable as the policy was not
reinstated. The failure to pay the balance of the
overdue premiums prevented reinstatement and
recovery of the face value of the policy (Andres vs.
Crown Life Ins. Co., 55 O.G. 3483).
Q: Eulogio took out a life insurance policy which
contained a provision which allows for
reinstatement any time within three years after
it lapsed. Eulogio paid the premiums due on the
first two months. However, he failed to pay
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subsequent premiums. One month after the
policy lapsed, he filed an application for the
reinstatement of his policy. He deposited the
overdue premiums and signed a reinstatement
policy stating that the payment deposit only
and shall not bind the Company until this
application is finally approved. Hours later,
Eulogio died of electrocution. The insurance
company denied the claim of his beneficiaries
stating that the policy was never approved. Is
the contention of the insurance company valid?
2.
b.
A: YES. The stipulation in a life insurance policy
giving the insured the privilege to reinstate it upon
written application does not give the insured
absolute right to such reinstatement by the mere
filing of an application. The insurer has the right to
deny the reinstatement if it is not satisfied as to the
insurability of the insured and if the latter does not
pay all overdue premium and all other
indebtedness to the insurer. After the death of the
insured, the Insurance Company cannot be
compelled to entertain an application for
reinstatement of the policy because the conditions
precedent to reinstatement can no longer be
determined and satisfied (Violeta R. Lalican vs. The
Insular Life Assurance Company Limited, supra).
REFUND OF PREMIUMS
Instances when the insured entitled to recover
premiums already paid or a portion thereof
(2000 Bar)
1. Whole (EFIDe)
a. When no part of the thing insured has been
exposed to any of the perils insured against
(IC, Sec. 80).
b. When the contract is voidable because of
the fraud or misrepresentations of the
insurer of his agent (IC, Sec. 82).
c. When the insurance is voidable because of
the existence of facts of which the insured
was ignorant without his fault (IC, Sec. 82).
d. When the insurer never incurred any
liability under the policy because of the
default of the insured other than actual
fraud (IC, Sec. 82).
e. When rescission is granted due to insurer’s
breach of contract (IC, Sec. 74).
NOTE: When the contract is voidable, a person
insured is entitled to a return of the premium
when such contract is subsequently annulled
under the provisions of the New Civil Code.
When there is over-insurance. The
premiums to be returned shall be
proportioned to the amount by which the
aggregate sum insured in all the policies
exceeds the insurable value of the thing at
risk (IC, Sec. 83).
i.
In case of over-insurance by double
insurance, the insurer is not liable for
the total amount of the insurance
taken, his liability being limited to
the property insured. Hence, the
insurer is not entitled to that portion
of the premium corresponding to the
excess of the insurance over the
insurable interest of the insured.
(1990 Bar)
ii.
In case of over-insurance by several
insurers, the insured is entitled to a
ratable return of the premium,
proportioned to the amount by
which the aggregate sum insured in
all the policies exceeds the insurable
value of the thing insured (IC, Sec.
83).
Illustration:
Where there is a total over insurance of
P500,000.00 in an aggregate P2,000,000.00
policy (P1,500,000.00 is only the insurable
value), 25% (proportion of P500k to P2M)
of the premiums paid to the several
insurers should be returned.
When the insured is not entitled to return of
premiums paid (LI2FE)
1.
2.
3.
4.
A person insured is not entitled to a return of
premium if the policy is annulled, rescinded or if a
claim is denied by reason of fraud (IC, Sec. 82).
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
Pro rata:
a. When the insurance is for a definite period
and the insured surrenders his policy
before the termination thereof; except:
i.
Policy not made for a definite period
of time;
ii.
Short period rate is agreed upon; or
iii.
In life insurance policy.
In life insurance policies (IC, Sec. 80 [b])
If contract is illegal and the parties are in pari
delicto.
If the policy is annulled, rescinded or if a claim
is denied by reason of fraud (IC, Sec. 82)
If the peril insured against has existed, and the
insurer has been liable for any period, the peril
being entire and indivisible (IC, Sec. 81)
Q: Teodoro Cortez, applied for a 20-year
endowment policy with Great Pacific Insurance
Corporation (Great Pacific). His application,
with the requisite medical examination, was
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Mercantile Law
accepted and approved by the Great Pacific and
in due course, an endowment policy was issued
in his name. Thereafter, Great Pacific advised
Cortez that the policy was not in force. To make
it enforceable and operative, Cortez was asked
to remit the balance to complete his initial
annual premium and to see Dr. Felipe V. Remollo
for another full medical examination at his own
expense. Because of this, Cortez informed that it
that he was cancelling the policy and he
demanded the return of his premium plus
damages. Great Pacific ignored his demand. Is
Cortez entitled to a refund of his premium?
7.
Discovery of willful or omissions or reckless
acts increasing the hazard insured against (IC,
Sec. 64)
A: YES. Great Pacific should have informed Cortez of
the deadline for paying the first premium before or
at least upon delivery of the policy to him, so he
could have complied with what was needful and
would not have been misled into believing that his
life and his family were protected by the policy,
when actually they were not. And, if the premium
paid by Cortez was unacceptable for being late, it
was the company's duty to return it. Since his policy
was in fact inoperative or ineffectual from the
beginning, the company was never at risk, hence, it
is not entitled to keep the premium (Great Pacific
Life Insurance Corp. v. CA, et al., G.R. No. L-57308,
April 23, 1990).
All notices of cancellation shall be in writing, mailed
or delivered to the named insured at the address
shown in the policy, or to his broker provided the
broker is authorized in writing by the policy owner
to receive the notice of cancellation on his behalf,
and shall state:
No policy of insurance other than life shall be
canceled by the insurer except upon prior notice
thereof to the insured, and no notice of cancellation
shall be effective unless it is based on the
occurrence, after the effective date of the policy, of
one or more of the abovementioned instances (Sec.
64, Ibid).
Notice of cancellation of the contract
1. Which of the grounds set forth in Section 64 is
relied upon; and
2. That, upon written request of the named
insured, the insurer will furnish the facts on
which the cancellation is based (IC, Sec. 65).
CONCEALMENT
Concealment
RESCISSION OF INSURANCE CONTRACTS
Concealment is a neglect to communicate that which
a party knows and ought to communicate (IC, Sec.
26).
Instances wherein a contract of insurance may
be rescinded (1991, 1994, 1996 - 1998 Bar)
1.
2.
3.
Under Section 27 of the Insurance Code, “a
concealment entitles the injured party to rescind a
contract of insurance.” Moreover, under Section 168
of the Insurance Code, the insurer is entitled to
rescind the insurance contract in case of an
alteration in the use or condition of the thing
insured (Malayan Insurance Company vs. PAP Co.,
G.R. No. 200784, August 7, 2013, in Divina 2014).
Concealment
Misrepresentation/ omission
Breach of warranties
Instances wherein a contract of insurance may
be canceled by the insurer
(NCDP - Discovery of FraME WOR)
1.
2.
3.
4.
5.
6.
Requisites: (NeD-NoW-NomMa)
1. A party knows a fact which he neglects to
communicate or disclose to the other party;
2. Such party concealing is duty bound to disclose
such fact to the other;
3. Such party concealing makes no warranty as to
the fact concealed;
4. The other party has no means of ascertaining
the fact concealed; and
5. The fact must be material.
Nonpayment of premium
Conviction of a crime arising out of acts
increasing the hazard insured against
A determination by the Commissioner that the
continuation of the policy would violate or
would place the insurer in violation of the
Insurance Code
Physical changes in the property insured which
result in the property becoming uninsurable
Discovery
of
fraud
or
material
misrepresentation
Discovery of other insurance coverage that
makes the total insurance in excess of the value
of the property insured
Test of materiality (2000 Bar)
It is determined not by the event, but solely by the
probable and reasonable influence of the facts upon
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the party to whom the communication is due, in
forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries (IC,
Sec. 31).
XPN: In answer to inquiries of the other (IC, Sec. 30)
NOTE: Neither party is bound to communicate, even
upon inquiry, information of his own judgment,
because such would add nothing to the appraisal of
the application (IC, Sec. 35).
NOTE: As long as the facts concealed are material,
concealment, whether intentional or not, entitles
the injured party to rescind (IC, Sec. 27).
Matters that must be disclosed even in the
absence of inquiry
Facts not conveyed to the insurer raises
presumption that the failure of the insured to
communicate must have been intentional rather
than inadvertent. Goodfaith is not a defense because
of the Uberrimae Fidei Doctrine.
1.
2.
3.
Those material to the contract
Those which the other has no means of
ascertaining
Those as to which the party with the duty to
communicate makes no warranty
Concealment in marine insurance
NOTE: Matters relating to the health of the insured
are material and relevant to the approval of the
issuance of the life insurance policy as these
definitely affect the insurer’s action to the
application. It is well-settled that the insured need
not die of the disease he had failed to disclose to the
insurer, as it is sufficient that his non-disclosure
misled the insurer in forming his estimates of the
risks of the proposed insurance policy or in making
inquiries (Sunlife Assurance Co. of Canada v. CA, G.R.
No. 105135, June 22, 1995).
Rules on concealment are stricter in marine
insurance since the insurer would have to depend
almost entirely on the matters communicated by the
insured. Thus, in addition to material facts, each
party must disclose all the information he possesses
which are material or the information of the belief
or expectation of a third person, in reference to a
material fact. But concealment in a marine
insurance in any of the following matters
enumerated under Section 112 Insurance Code does
not vitiate the entire contract, but merely
exonerates the insurer from a loss resulting from
the risk concealed.
Test in ascertaining
concealment
the
existence
Information as to the nature of interest need not be
disclosed except in property insurance, if the
insured is not the owner. If somebody is insuring
properties of which he is not the owner, he must
disclose why he has insurable interest that would
entitle him to ensure it, and the extent thereof [IC,
Secs. 34 and 51 (e)].
of
If the applicant is aware of the existence of some
circumstances which he knows would probably
influence the insurer in acting upon his application,
good faith requires him to disclose that
circumstance, though unasked.
Q: X insured his life for P20 million. X, plays golf
and regularly exercises everyday, hence is
considered in good health. He did not know,
however, that his frequent headache is really
caused by his being hypertensive. In his
application form for a life insurance for himself,
he did not put a check to the question if he is
suffering from hypertension, believing that
because of his active lifestyle, being
hypertensive is a remote possibility. While
playing golf one day, X collapsed at the fairway
and was declared dead on arrival at the
hospital. His death certificate stated that X
suffered a massive heart attack. (2016, BAR)
(a) Will the beneficiary of X be entitled to the
proceeds of the life insurance under the
circumstances, despite the non-disclosure that
he is hypertensive at the time of application?
(b) If X died in an accident instead of a heart
attack, would the fact of X's failure to disclose
that he is hypertensive be considered as
material information?
Matters that need not be disclosed
GR: The parties are not bound to communicate
information of the following matters: (OWKERI)
1. Those which, in the exercise of ordinary care,
the other ought to know and of which, the
former has no reason to suppose him ignorant;
2. Those
of which the other
waives
communication;
3. Those which the other knows;
4. Those which prove or tend to prove the
existence of a risk excluded by a warranty, and
which are not otherwise material;
5. Those which relate to a risk excepted from the
policy and which are not otherwise material;
and
6. The nature or amount of the interest of one
insured, except if he is not the owner of the
property insured (IC, Sec. 34).
UNIVERSITY OF SANTO TOMAS
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Mercantile Law
A:
(a) No, the beneficiary of X is not entitled to the
proceeds of the life insurance. The hypertension of
X is a material fact that should have been disclosed
to the insurer. The concealment of such material
fact entitles the insurer to rescind the insurance
policy.
application and issued an insurance policy
effective Nov. 6, 2008. Benny named his children
as his beneficiaries. On April 6, 2010, Benny died
of hepatoma, a liver ailment.
The insurance company denied the children's
claim for the proceeds of the insurance policy on
the ground that Benny failed to disclose in his
application two previous consultations with his
doctors for diabetes and hypertension, and that
he had been diagnosed to be suffering from
hepatoma. The insurance company also
rescinded the policy and refunded the
premiums paid.
(b) It is still a material information. It is settled that
the insured cannot recover even though the
material fact not disclosed is not the cause of the
loss.
Evidence of insurability
Evidence of Insurability is a broader phrase than
“Evidence of Good Health” and includes such other
factors as the insured’s occupation, habits, financial
condition, and other risk selection factors.
Was the insurance company correct? (2013 Bar)
A: YES. The insurance company correctly rescinded
the policy because of concealment. Benny did not
disclose that he was suffering from diabetes,
hypertension, and hepatoma. The concealment is
material, because these are serious ailments. Also,
Benny died less than two years from the date of the
issuance of the policy, hence rescission is still
possible (IC, Sec. 26; Sec. 48).
Q: Ngo Hing filed an application with the Great
Pacific Life Assurance Company (Pacific Life) for
a twenty-year endowment policy on the life of
his one-year old daughter Helen Go. Ngo Hing
supplied the essential data and filed the
application to Mondragon, the branch manager.
After sometime, Helen Go died of influenza with
complication
of
bronchopneumonia.
Thereupon, Ngo Hing sought the payment of the
proceeds of the insurance, but having failed in
his effort, he filed the action for the recovery of
the same. Did Ngo Hing conceal the state of
health and physical condition of Helen Go, which
rendered void the binding receipt?
Right to information of material facts may be
waived
1.
2.
A: YES. Ngo Hing intentionally concealed the state
of health of his daughter Helen Go. He was fully
aware that his child was a typical mongoloid child
upon filling out the application form. It is evident
that he withheld a fact material to the risk to be
assumed by the insurance company had the plan be
approved.
Expressly by the terms of the contract
Impliedly the failure to make an inquiry as to
such facts, where they are distinctly implied in
other facts from which information is
communicated (IC, Sec. 33).
Rules on concealment
1.
2.
The contract of insurance is one of perfect good
faith, uberrima fides, absolute and perfect candor;
the absence of any concealment or demotion.
Concealment is a neglect to communicate that which
needs to be communicated whether intentional or
unintentional. In case of concealment, the insurer is
entitled to rescind the contract of insurance. In the
case at bar, the respondent is guilty of such
concealment. Ultimately, there was no perfected
contract of insurance since the conditions in the
binding receipt were not complied with by the
applicant (Great Pacific Life Assurance Company v.
CA, G.R. No. L-31845, April 30, 1979).
3.
4.
5.
If there is concealment under Section 27, the
remedy of the insurer is rescission since
concealment vitiates the contract of insurance.
(1996 Bar)
The party claiming the existence of
concealment must prove that there was
knowledge of the fact concealed on the part of
the party charged with concealment.
Good faith is not a defense in concealment.
Concealment,
whether
intentional
or
unintentional entitles the injured party to
rescind the contract of insurance (IC, Sec. 27).
The matter concealed need not be the cause of
loss (IC, Sec. 31).
To be guilty of concealment, a party must have
knowledge of the fact concealed at the time of
the effectivity of the policy.
In order for concealment to produce the effect of
avoiding the policy, it should take place at the
time the contract is entered into
Q: Benny applied for life insurance for Php 1.5
Million. The insurance company approved his
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Concealment should take place at the time the
contract is entered into and not afterwards in order
that the policy may be avoided. The duty of
disclosure ends with the completion of the contract.
Waiver of medical examination in a non-medical
insurance contract renders even more material the
information required of the applicant concerning
previous condition of health and diseases suffered,
for such information necessarily constitutes an
important factor which the insurer takes into
consideration in deciding whether to issue the
policy or not. Failure to communicate information
acquired after the effectivity of the policy will not be
a ground to rescind the contract.
Representation
An oral or written statement of a fact or condition
affecting the risk made by the insured to the
insurance company, tending to induce the insurer to
assume the risk.
Under Sec. 37, representation should be made,
altered or withdrawn at the time of or before the
issuance of the policy. It may be altered or
withdrawn before the insurance is effected, but not
afterwards (IC, Sec. 34).
Characteristics of representation
(COW-DAW-BA)
NOTE: The rationale for this rule is that if
concealment should take place after the contract is
entered into, the information concealed is no longer
material as it will no longer influence the other
party to enter into such contract.
1.
2.
3.
Q: Joanna applied for a non-medical life
insurance. Joanna did not inform the insurer
that one week prior to her application for
insurance, she was examined and confined at St.
Luke’s Hospital where she was diagnosed for
lung cancer. The insured soon thereafter died in
a plane crash. Is the insurer liable considering
that the fact concealed had no bearing with the
cause of death of the insured? Why? (2001 Bar)
4.
5.
Similarities of concealment and representation
1.
2.
A: NO. The insurer is not liable. The concealed fact
is material to the approval and issuance of the
insurance policy. It is well settled that the insured
need not die of the disease she failed to disclose to
the insurer. It is sufficient that his nondisclosure
misled the insurer in forming his estimate of the
risks of the proposed insurance policy or in making
inquiries (Sun Life v. CA, supra).
3.
4.
5.
Instances whereby concealment made by an
agent procuring the insurance binds the
principal
1.
2.
6.
Where it was the duty of the agent to acquire
and communicate information of the facts in
question.
Where it was possible for the agent, in the
exercise of reasonable diligence to have made
such communication before the making of the
insurance contract.
Both refer to the same subject matter and both
take place before the contract is entered.
Concealment or representation prior to loss or
death gives rise to the same remedy; that is
rescission or cancellation.
The test of materiality is the same (IC, Secs. 31,
46).
The rules of concealment and representation
are the same with life and non-life insurance.
Whether intentional or not, the injured party is
entitled to rescind a contract of insurance on
ground of concealment or false representation.
Since the contract of insurance is said to be one
of utmost good faith on the part of both parties
to the agreement, the rules on concealment and
representation apply likewise to the insurer.
Kinds of representation
1. Oral or written (Sec. 36, Ibid)
2. Affirmative (Sec. 42, Ibid)
3. Promissory (Sec. 39, Ibid)
Affirmative representation
NOTE: Failure on the part of the insured to disclose
such facts known to his agent, or wholly due to the
fault of the agent, will avoid the policy, despite the
good faith of the insured.
Any allegation as to the existence or non-existence
of a fact when the contract begins (e.g. the statement
of the insured that the house to be insured is used
only for residential purposes is an affirmative
representation).
MISREPRESENTATION/OMISSION
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
Not a part of the contract but merely a collateral
inducement to it
Oral or written
Must be presumed to refer to the date the
contract goes into effect
Altered or withdrawn before the insurance is
effected but not afterwards
Made before or at the time of issuing the policy
and not after (IC, Sec. 42).
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Mercantile Law
Promissory representation
A representation cannot qualify an express
provision in a contract of insurance but it may
qualify an implied warranty (IC, Sec. 40).
Any promise to be fulfilled after the contract has
come into existence or any statement concerning
what is to happen during the existence of the
insurance.
Test of materiality
It is to be determined not by the event, but solely by
the probable and reasonable influence of the facts
upon the party to whom the representation is made,
in forming his estimates of the disadvantages of the
proposed contract or in making his inquiries (IC,
Sec. 46).
Representation as to a future undertaking
A representation as to the future is to be deemed a
promise unless it appears that it was merely a
statement of belief or an expectation that is
susceptible to present, actual knowledge (IC, Sec.
39).
Effects of misrepresentation
An erroneous opinion or belief will not avoid the
insurance policy
1.
The statement of an erroneous opinion, belief or
information, or of an unfulfilled intention, per se,
will not avoid the contract of insurance, unless
fraudulent.
2.
To avoid liability, the insurer must prove both
materiality of the insured’s opinion and the latter’s
intention to deceive.
Effect of collusion between the insurer’s agent
and the insured
Misrepresentation
It vitiates the policy even though the agent is acting
within the apparent scope of his authority. The
agent ceases to represent his principal. He, thus,
represents himself; so, the insurer is not estopped
from avoiding the policy.
Concealment vs. Misrepresentation
It occurs when the facts fail to correspond with
its assertions or stipulations. Misrepresentation
is an affirmative defense. To avoid liability, the
insurer has the duty to establish such a defense by
satisfactory and convincing evidence (IC, Sec. 44; Ng
Gan Zee v. Asian Crusader Life Assn. Corp., G.R. No. L30685, May 30, 1983).
Concealment
The insured withholds
the information of
material facts from the
insurer
NOTE: In the absence of evidence that the insured
has sufficient medical knowledge to enable him to
distinguish between “peptic ulcer” and “tumor”, the
statement of deceased that said tumor was
“associated with ulcer of the stomach” should be
considered an expression in good faith. Fraudulent
intent of insured must be established to entitle
insurer to rescind the insurance contract.
Misrepresentation, as a defense of insurer, is an
affirmative defense which must be proved (Ng Gan
Zee v. Asian Crusader Life Assn. Corp., G.R. No. L30685, May 30, 1983).
3.
Misrepresentation
The insured makes
erroneous statements
of facts with the intent
of inducing the insurer
to enter into the
insurance contract
Application
of
concealment
misrepresentation in case of loss or death
and
GR: If the concealment or misrepresentation is
discovered before loss or death, the insurer can
cancel the policy. If the discovery is after loss or
death, the insurer can refuse to pay.
Requisites of misrepresentation (UKMa)
1.
2.
It renders the insurance contract voidable at
the option of the insurer, although the policy is
not thereby rendered void ab initio. The injured
party entitled to rescind from the time when the
representation becomes false.
When the insurer accepted the payment of
premium with the knowledge of the ground for
rescission, there is waiver of right of rescission.
XPN: The incontestability clause under paragraph 2
of Section 48.
The insured stated a fact which is untrue;
Such fact was stated with knowledge that it is
untrue and with intent to deceive or which he
states positively as true without knowing it to
be true and which has a tendency to mislead;
and
Such fact in either case is material to the risk.
Incontestability clause (1991, 1994, 1996, 1998
Bar)
After the policy of life insurance made payable on
the death of the insured shall have been in force
during the lifetime of the insured for a period of two
113
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
(2) years from the date of its issue or its last
reinstatement, the insurer cannot prove that the
policy is void ab initio (construed as voidable) or is
rescindible by reason of the fraudulent concealment
or misrepresentation of the insured or his agent
(Sundiang Sr. & Aquino, 2014, citing IC, Sec. 48;
Florendo v. Philam Plans, G.R. No. 186983, February
22, 2012).
insurance. It gives insurers enough time to inquire
whether the policy was obtained by fraud,
concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their
attempts at insurance fraud would be timely
uncovered. Legitimate policy holders are absolutely
protected from unwarranted denial of their claims
or delay in the collection of insurance proceeds
occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may
no longer be set up after the two-year period
expires.
The “Incontestability Clause” under Section 48 of the
Insurance Code regulates both the actions of the
insurers and prospective takers of life insurance. It
gives insurers enough time to inquire whether the
policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it
forewarns scheming individuals that their attempts
at insurance fraud would be timely uncovered –
thus deterring them from venturing into such
nefarious enterprise (Manila Bankers Life Insurance
Corporation vs. Cresencia-Aban, G.R. No. 175666, July
29, 2013).
Section 48 prevents a situation where the insurer
knowingly continues to accept annual premium
payments, only to later on deny a claim on the policy
on specious claims of fraudulent concealment or
misrepresentation (Manila Bankers Life Insurance
Corp. v. Aban, G.R. No. 175666, July 29, 2013).
Q: The life insurance policy has been in force for
more than three years, when Sotero, the
insured, died. Thereafter, Aban, as the
beneficiary designated in the policy, filed a
claim for the insurance proceeds. However,
Bankers Life denied the claim and refunded the
premiums paid based on their findings that
Sotero did not personally apply for the policy as
she was illiterate and it was Aban who filed the
insurance application and designated herself as
the beneficiary. Can Bankers Life validly deny
said claim on the ground of fraud, concealment
and/or misrepresentation?
Note: The period of two years may be shortened but
it cannot be extended by stipulation.
Q: On July 3, 1993, Delia Sotero (Sotero) took out
a life insurance policy from Ilocos Bankers Life
Insurance Corporation (Ilocos Life) designating
Creencia Aban (Aban) her niece, as her
beneficiary. Ilocos Life issued Policy No. 747,
with a face value of P100, 000, in Sotero’s favor
on August 30, 1993, after the requisite medical
examination and payment of the premium.
On April 10, 1996, Sotero died. Aban filed a
claim for the insurance proceeds on July 9, 1996,
Ilocos Life conducted an investigation into the
claim and came out with the following findings:
1.
2.
3.
4.
5.
A: NO. Under Sec. 48 of the IC or the Incontestability
Clause, an insurer is precluded from raising the
defenses of false representations or concealment of
material facts insofar as health and previous
diseases are concerned if the insurance has been in
force for at least two years during the insured’s
lifetime. Considering that the insured died after the
two-year period, the Bankers Life is, therefore,
barred from proving that the policy is void ab initio
by reason of the insured’s fraudulent concealment
or misrepresentation or want of insurable interest
on the part of the beneficiary Aban (Manila Bankers
Life Insurance Corp. v. Aban, G.R. No. 175666, July 29,
2013, Del Castillo, J.).
Sotero did not personally apply for
insurance coverage, as she was illiterate.
Sotero was sickly since 1990.
Sotero did not have the financial capability
to pay the premium on the policy.
Sotero did not sign the application for
insurance
Alban was the one who filed the insurance
application and designated herself as the
beneficiary.
Q. Felipe applied for the reinstatement of his life
insurance policy. Insular Life advised Felipe that
his application for reinstatement may only be
considered if he agreed to certain conditions.
Felipe agreed and paid additional premium on
December 27, 1999 and as a result, the Letter of
Acceptance was given to him which indicated
that the reinstated policy will be effective on
June 22, 1999. On January 7, 2000, Insular Life
issued an Endorsement regarding the policy.
For the above reasons and claiming fraud, Ilocos
Life denied Aban’s claim on April 16, 1997 but
refunded the premium paid on the policy. May
the incontestability period set in even in cases of
fraud as alleged in this case? (2014, Bar)
A: YES. The incontestability period applies even in
cases of fraud. Section 48 regulates both the actions
of the insurers and prospective takers of the life
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
114
Mercantile Law
On September 22, 2001, Felipe died.
Subsequently, Felipe’s beneficiaries filed with
Insular Life a claim for benefit under the
reinstated policy. This claim was denied.
Instead,
Insular
Life
advised
Felipe’s
beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment
and misrepresentation by Felipe. However, the
respondents contend that policy cannot be
rescinded as it is already incontestable. Is
Felipe’s reinstated life insurance policy already
incontestable at the time of his death?
In non-life insurance policy, it must be exercised
previous to the commencement of an action on the
contract, -the action referred to is that to collect a
claim on the contract (IC, Sec.48, par.1).
In life insurance policy, the defenses mentioned in
the second paragraph of section 48 of the IC are
available only within the 2-year incontestability
period (De Leon, 2014).
BREACH OF WARRANTIES
Warranties (1993 Bar)
A: YES. Under Sec. 48 of the Insurance Code, after a
policy of life insurance made payable on the death
of the insured shall have been in force during the
lifetime of the insured for a period of two years from
the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio
or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or
his agent. The reinstatement of the insured’s policy
is to be reckoned from the date when the application
was processed and approved by the insurer. To
reinstate a policy means to restore the same to
premium-paying status after it has been permitted
to lapse (The Insular Life Assurance Company, Ltd. v.
Khu, G.R. No. 195176, April 18, 2016, Del Castillo, J.).
Statements or promises by the insured set forth in
the policy itself or incorporated in it by proper
reference, the untruth or non-fulfillment of which in
any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or
non-fulfillment render the policy voidable by the
insurer.
Purpose of warranties
To eliminate potentially increasing moral or
physical hazards which may either be due to the acts
of the insured or to the change of the condition of
the property.
Defenses that are not barred by incontestability
clause (PIPE-TFC)
Basis of warranties
The insurer took into consideration the condition of
the property at the time of effectivity of the policy.
The following defenses are not barred by the
incontestability clause:
1. That the person taking the insurance lacked
insurable interest as required by law;
2. That the cause of the death of the insured is an
excepted risk;
3. That the premiums have not been paid (IC, Secs.
77, 233[b], 236[b]);
4. That the conditions of the policy relating to
military or naval service have been violated (IC,
Secs. 233[b], 234[b]);
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of
death or to comply with any condition imposed
by the policy after the loss has happened; or
7. That the action was not brought within the time
specified (Sundiang Sr. & Aquino, 2014).
Kinds of warranties (APIE)
1.
2.
3.
4.
Remedy of the injured party in case of
misrepresentation
Affirmative warranty – one which relates to
matters which exist at or before the issuance of
the policy.
Promissory warranty – one in which the insured
undertakes that something shall be done or
omitted after the policy takes effect and during
its continuance.
Express warranty – a statement in a policy, of a
matter relating to the person or thing insured,
or to the risk, as a fact.
Implied warranty – an agreement or stipulation
not expressed in the policy but the existence of
which is admitted or presumed from the fact
that the contract of insurance has been
executed.
Warranty vs. Representation
If there is misrepresentation, the injured party is
entitled to rescind from the time when the
representation becomes false.
WARRANTY
Considered parts of the
contract.
Exercise of the right to rescind the contract
115
REPRESENTATION
Collateral inducement
to the contract.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Always written on the
face of the policy,
actually
or
by
reference.
Must
be
strictly
complied with.
Its falsity or nonfulfillment operates as
a breach of contract.
Presumed material.
fire broke out at the Pace Factory which totally
burned the insured properties.
May be written in a
totally disconnected
paper or may be oral.
The policy forbade the removal of the insured
properties unless sanctioned by Ilocano.
Condition 9 (c) of the policy provides that “the
insurance ceases to attach as regards the
property affected unless the insured, before the
occurrence of any loss or damage, obtains the
sanction of the company signified by
endorsement upon the policy… (c) if the
property insured is removed to any building or
place other than in which is herein stated to be
insured.” PAM claims that it has substantially
complied with notifying Ilocano through its
sister company, the RBC which in fact, referred
PAM to Ilocano for the insurance coverage. Is
Ilocano liable under the policy? (2014 Bar)
Only substantial proof
is required.
Its falsity renders the
policy void on the
ground of fraud.
Insurer must show its
materiality in order to
defeat an action on the
policy.
Effects of breach of warranty
1.
Material
GR: Violation of material warranty or of
material provision of a policy will entitle the
other party to rescind the contract.
A: NO. Ilocano Insurance is not liable under the
policy. By the clear and express condition in the
renewal policy, the removal of the insured property
to any building or place required the consent of
Ilocano. Any transfer effected by PAM, Inc. without
Ilocano’s consent would free the latter from any
liability (Malayan Insurance Company, Inc v. PAPCO,
Ltd., G.R. No. 200784, August 7, 2013).
XPN: (with regard to “promissory” warranties)
a. Loss occurs before the time of performance
of the warranty;
b. The performance becomes unlawful at the
place of the contract; or
c. Performance becomes impossible (IC, Sec.
73).
2.
Effect of a breach of warranty without fraud
The policy is avoided only from the time of breach
and the insured is entitled:
Immaterial
GR: It will not avoid the policy.
1.
XPN: When the policy expressly provides, or
declares that a violation thereof will avoid it.
2.
For instance, an “Other Insurance Clause” which
is a condition in the policy requiring the insured
to inform the insurer of any other insurance
coverage of the property. A violation of the
clause by the insured will not constitute a
breach unless there is an additional provision
stating that the violation thereof will avoid the
policy (IC, Sec. 75).
Effect of breach of warranty with fraud:
1.
2.
Policy is avoided ab initio and never
became binding.
Insured is not entitled to the return of the
premium
Omission
Q: On May 13, 1996 PAM Inc. obtained a P15
million fire insurance policy from Ilocano
Insurance covering its machineries and
equipment effective for one year or until May 14,
1997. The policy expressly stated that the
insured properties were located at “Sanyo
Precision Phils. Building Phase III Lots 4 and 6
Block 15 PEZA, Rosario, Cavite.” Before its
expiration, the policy was renewed on “as is”
basis for another year or until May 13 1998. The
subject properties were later transferred to
Pace Factory also in PEZA. On October 12, 1997
during the effectivity of the renewed policy, a
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
To the return of the premium paid at a pro rata
from the time of breach or if it occurs after the
inception of the contract; or
To all premiums if it is broken during the
inception of the contract.
The failure to communicate information on matters
proving or tending to prove the falsity of warranty.
In case of omission, the aggrieved party may rescind
the contract of insurance.
CLAIMS SETTLEMENT AND SUBROGATION
NOTICE AND PROOF OF LOSS
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Mercantile Law
Loss in insurance
Instances when the defects in the notice or proof
of loss are considered waived (MaJoR-DeW)
The injury, damage or liability sustained by the
insured in consequence of the happening of one or
more of the perils against which the insurer, in
consideration of the premium, has undertaken to
indemnify the insured. It may be total, partial, or
constructive, in case of marine insurance.
When the insurer:
1. Writes to the insured that he considers the
policy null and void as the furnishing of notice
or proof of loss would be useless;
2. Recognizes his liability to pay the claim;
3. Denies all liability under the policy
4. Joins in the proceedings for determining the
amount of the loss by arbitration, making no
objections on account of notice and preliminary
proof; or
5. Makes Objection on any ground other than the
formal defect in the preliminary proof.
Conditions before the insured may recover on
the policy after the loss
1.
The insured or some person entitled to the
benefit of the insurance, without unnecessary
delay, must give written notice to the insurer
(IC, Sec. 90).
2. When required by the policy, insured must
present a preliminary proof loss which is the
best evidence he has in his power at the time
(IC, Sec. 91).
NOTE: For other non-life insurance, the
Commissioner may specify the period for the
submission of the notice of loss (IC, Sec. 90).
Instances when delay in the presentation of
notice or proof of loss deemed waived
If caused by:
1. Any act of the insurer; or
2. By failure to take objection promptly and
specifically upon that ground (IC, Sec. 93).
In some life and accident policies, a provision
included, requiring certificate of the attending
physician of the insured, be furnished as part of the
proof of death. (de Leon, de Leon jr., 2017)
Proof of loss
It is the more or less formal evidence given the
company by the insured or claimant under a policy
of the occurrence of the loss, the particulars thereof
and the data necessary to enable the company to
determine its liability and the amount thereof.
Notice of loss
It is the more or less formal notice given to the
insurer by the insured or claimant under a policy, of
the occurrence of the loss insured against.
Time for payment of claims
LIFE POLICIES
1. Maturing upon the
expiration of the term–
the
proceeds
are
immediately payable to
the insured, except if
proceeds are payable in
installments
or
annuities which shall be
paid as they become
due.
Purposes of notice of loss (InDEx)
1.
2.
3.
To give insurer Information by which he may
determine the extent of his liability
To afford the insurer a means of detecting any
Fraud that may have been practiced upon him
To operate as a Check upon extravagant claims
Effect of failure to give notice of loss
FIRE INSURANCE
Failure to give notice
defeats the right of the
insured to recover.
OTHER TYPES OF
INSURANCE
Failure to give notice
will not exonerate the
insurer, unless there is a
stipulation in the policy
requiring the insured to
do so.
2. Maturing at the death
of the insured, occurring
prior to the expiration of
the term stipulated – the
proceeds are payable to
the beneficiaries within
60
days
after
presentation of claim
and filing of proof of
death (IC, Sec. 248).
The law does not require any form in which the
notice of loss must be given. In absence of any
stipulation in the policy, notice may be given orally
or in writing. (de Leon, de Leon jr., 2017)
NON-LIFE POLICIES
The proceeds shall be
paid within 30 days
after the receipt by the
insurer of proof of loss
and ascertainment of
the loss or damage by
agreement
of
the
parties or by arbitration
but not later than 90
days from such receipt
of proof of loss, whether
or not ascertainment is
had or made (IC, Sec.
249).
GUIDELINES ON CLAIMS SETTLEMENT
117
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FACULTY OF CIVIL LAW
Insurance Code
Claim Settlement
The following constitutes unfair settlement
practices:
1. Not attempting in good faith to effectuate
prompt, fair and equitable settlement of claims
submitted in which liability has become
reasonably clear.
2. Knowingly misrepresenting to claimant’s
pertinent facts or policy provisions relating to
coverage at issue;
3. Failing to acknowledge with reasonable
promptness pertinent communications with
respect to claims arising under its policies;
4. Failing to adopt and implement reasonable
standards for the prompt investigation of
claims arising under its policies;
5. Compelling policyholders to institute suits to
recover amounts due under its policies by
offering without justifiable reason substantially
less than the amounts ultimately recovered in
suits brought by them.
Claim settlement is the indemnification of that
suffered by the insured.
The claimant may be the:
1. Insured;
2. Reinsured, the insurer who is entitled to
subrogation; or
3. A third party who has a claim against the
insured.
Purpose of the rule
To eliminate unfair claim settlement practices.
Rules in claim settlement
1.
2.
No insurance company doing business in the
Philippines shall refuse, without justifiable
cause, to pay or settle claims arising under
coverage provided by its policies, nor shall any
such company engage in unfair claim
settlement practices.
Evidence as to numbers and types of valid and
justifiable complaints to the Commissioner
against an insurance company, and the
Commissioner’s complaint experience with
other insurance companies writing similar lines
of insurance shall be admissible in evidence in
an administrative or judicial proceeding
brought under this section [IC, Sec. 247(b)].
Sanction for the insurance companies which
engaged to unfair settlement practices
The sanction for insurance companies engaged in
unfair settlement practices can either be [a]
suspension; or [b] revocation of an insurance
company’s certificate of authority (IC, Sec 247).
Effect of refusal or failure to pay the claim within
the time prescribed
The insurer shall be liable to pay interest twice the
ceiling prescribed by the Monetary Board on the
proceeds of the insurance from the date following
the time prescribed under the Insurance Code, until
the claim is fully satisfied (Prudential Guarantee and
Assurance, Inc. v. Trans-Asia Shipping Lines, Inc. G. R.
No. 151890, June 20, 2006).
Claims settlement in life insurance
1.
2.
The proceeds shall be paid immediately upon
the maturity of the policy if there is such a
maturity date.
If the policy matures by the death of the insured,
within sixty (60) days after presentation of the
claim and filing of the proof of the death of the
insured (Sundiang Sr. & Aquino, 2014; IC, Section
248).
NOTE: Refusal or failure to pay the loss or damage
will entitle the assured to collect interest UNLESS
such refusal or failure to pay is based on the ground
that the claim is fraudulent.
Claims settlement in property insurance
1.
2.
Where the mortgagor and the mortgagee were, both
claiming the proceeds of a fire insurance policy and
the creditors of the mortgagor also attached the
proceeds, the insurance company cannot be held
liable for damages for withholding payment since
the delay was not malevolent (RCBC v. CA, supra).
Proceeds shall be paid within thirty (30) days
after proof of loss is received by the insurer and
ascertainment of the loss or damage is made
either by agreement or by arbitration.
If no ascertainment is made within sixty (60)
days after receipt of proof of loss, it shall be paid
within ninety (90) days after such receipt
(Sundiang Sr. & Aquino, 2014; IC, Sec. 249).
A prima facie evidence of unreasonable delay in
payment of the claim is created by the failure of the
insurer to pay the claim within the time fixed in the
Insurance Code. (Tio Khe Chio v. Court of Appeals,
202 SCRA 119, 1991)
UNFAIR CLAIMS SETTLEMENT; SANCTIONS
Unfair settlement practices (GMAIL)
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
118
Mercantile Law
PRESCRIPTION OF ACTIONS
Right of Subrogation
Rules on the prescriptive period for filing an
insurance claim
1.
2.
3.
4.
A process of legal substitution; the insurer, after
paying the amount covered by the insurance policy,
stepping into the shoes of the insured, as it were,
and availing himself of the latter’s rights that exist
against the wrongdoer at the time of the loss.
The parties to a contract of insurance may
validly agree that an action on the policy should
be brought within a limited period of time,
provided such period is not less than 1 year from
the time the cause of action accrues. If the period
agreed upon is less than 1 year from the time
the cause of action accrues, such agreement is
void (IC, Sec. 63, 1996 Bar).
a. The stipulated prescriptive period shall
begin to run from the date of the insurer’s
rejection of the claim filed by the insured
or beneficiary and not from the time of
loss.
b. In case the claim was denied by the insurer
but the insured filed a petition for
reconsideration, the prescriptive period
should be counted from the date the claim
was denied at the first instance and not
from the denial of the reconsideration. To
rule otherwise would give the insured a
scheme or devise to waste time until any
evidence which may be considered against
him is destroyed (1996 Bar; Sun Life
Office, Ltd. vs. CA, supra).
Principle of Subrogation
If the plaintiff’s property has been insured, and he
has received indemnity from the insurance
company for the injury or loss arising out of wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who
has violated the contract (NCC, Art. 2207).
The payment by the insurer to the insured operates
as an equitable assignment to the insurer of all the
remedies that the insured may have against the
third party whose negligence or wrongful act
caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity
of contract. It accrues simply upon payment by the
insurance company of the insurance claim (Malayan
Insurance Co., Inc., vs. Alberto, et al., G.R. No. 194320,
February 1, 2012).
NOTE: Incapacity of the insured will not affect the
capacity of the subrogee because capacity is
personal to the holder (Lorenzo Shipping v. Chub and
Sons, Inc., G.R. No. 147724, June 8, 2004).
If there is no stipulation or the stipulation is
void, the insured may bring the action within 10
years in case the contract is written.
In a comprehensive motor vehicle liability
insurance (CMVLI), the written notice of claim
must be filed within 6 months from the date of
the accident; otherwise, the claim is deemed
waived even if the same is brought within 1
year from its rejection (Vda. De Gabriel vs. CA,
GR No. 103883, Nov 14, 1996).
The suit for damages, either with the proper
court or with the Insurance Commissioner,
should be filed within 1 year from the date of
the denial of the claim by the insurer, otherwise,
claimant’s right of action shall prescribe (IC, Sec.
397).
Q: Under a Marine Risk Note, Malayan Insurance
Co., Inc. insured 60, 000 plastic bags of soda ash
dense which were shipped on a vessel of Asian
Terminals, Inc. (ATI) from China to Manila.
When the bags were unloaded in the
warehouses of the consignee, a total of 2,881
bags were in bad order. Malayan Insurance paid
the value of the lost/damaged cargoes to the
consignee and as subrogee of the consignee,
filed before the RTC a Complaint for damages
When the case reached the Supreme Court, ATI
raised for the first time the issue that Malayan
Insurance is not entitled to the relief granted as
it failed to establish its cause of action since, as
the alleged subrogee, it never presented any
valid, existing, enforceable insurance policy or
any copy thereof in court. Can Malayan
Insurance, as subrogee, recover from ATI even
though it never presented the insurance
contract or policy covering the subject
shipment?
NOTE: Notwithstanding the fact that the case was
filed beyond the one-year prescriptive period
provided for under COGSA, the suit will not be
dismissed if the delay was not due to the claimant’s
fault. The insurer therefore should bear the loss
with interest on account of such delay (New World
International Development Phils. Inc. vs. NYKFILJAPAN Shipping Corp., G.R. No. 171468, August 24,
2011, in Divina, 2014).
A:
YES.
Non-presentation of the insurance
contract or policy is not necessarily fatal. As an
exception to the general rule, Court ruled in Delsan
SUBROGATION
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
Insurance Code
Transport Lines, Inc. v. CA that the presentation in
evidence of the marine insurance policy is not
indispensable before the insurer may recover from
the common carrier the insured value of the lost
cargo in the exercise of its subrogatory right. The
right of subrogation accrues simply upon payment
by the insurance company of the insurance claim.
Moreover, since there was no issue regarding the
validity of the insurance contract or policy, or any
provision thereof by reason of ATI’s failure to
dispute the coverage of the insurance contract or
policy, Malayan Insurance had no reason to present
the insurance contract or policy as evidence during
the trial (Asian Terminals, Inc. v. Malayan Insurance
Co., Inc., G.R. No. 171406, April 4, 2011, Del Castillo,
J.).
insurance company for the injury or loss arising out
of the wrong or breach of the contract complained
of, the insurance company shall be subrogated to
the rights of the insured against the wrong-doer.
Since ELP Insurance is subrogated to the rights of
FCL Corp. to the extent of the amount it paid, it has
the right to seek reimbursement from CGM, Inc.
(Loadmaster Customs Services Inc. v. Glodel
Brokerage Corporation and R&B Insurance
Corporation, G.R. No. 179446, January 10, 2011).
Q: ELP Insurance, Inc. issued Marine Policy No.
888 in favor of FCL Corp. to insure the shipment
of 132 bundles of electronic copper cathodes
against all risks. Subsequently, the cargoes
were shipped on board the vessel “M/V Menchu”
from Leyte to Pier 1, North Harbor, Manila.
3.
Purposes of subrogation
1.
2.
Rules on subrogation
1.
Upon arrival, FCL Corp. engaged the services of
CGM Inc. for the release and withdrawal of the
cargoes from the pier and the subsequent
delivery to its warehouse or plants in
Valenzuela City. The goods were loaded on
board twelve trucks owned by CGM, Inc. driven
by its employed drivers and accompanied by its
employed truck helpers. Of the twelve trucks en
route to Valenzuela City, only eleven reached the
destination. One truck loaded with eleven
bundles of copper cathodes, failed to deliver its
cargo.
2.
Applicable only to property insurance – the value
of human life is regarded as unlimited and
therefore, no recovery from a third party can be
deemed adequate to compensate the insured’s
beneficiary.
The right of insurer against a third party is
limited to the amount recoverable from latter
by the insured.
Rules on indemnity
1.
Because of this incident, FCL Corp. filed with ELP
Insurance, Inc. a claim for insurance indemnity
in the amount of P1.5 million. After the requisite
investigation and adjustment, ELP Insurance,
Inc. paid FCL Corp. the amount of P1,350,000 as
insurance indemnity.
2.
Applies only to property insurance
except when the creditor insures the life
of his debtor.
Insurance contracts are not wagering
contracts or gambling contracts.
NOTE: Under the collateral source rule, if an
injured person receives compensation for his
injuries from a source wholly independent of the
tortfeasor, the payment should not be deducted
from the damages which he would otherwise collect
from the tortfeasor. It finds no application to cases
involving no-fault insurances under which the
insured is indemnified for losses by insurance
companies, regardless of who was at fault in the
incident generating the losses. Here, it is clear that
MMPC is a no-fault insurer. Hence, it cannot be
obliged to pay hospitalization expenses of the
dependents of its employees which had already
been paid by separate health insurance providers of
said dependents (Mitsubishi Motors Philippines
Salaried Employees Union vs. Mitsubishi Motors Corp
G.R. No. 175773, June 17, 2013, in Divina, 2014).
ELP Insurance, Inc. thereafter filed a complaint
for damages against CGM, Inc. before the RTC,
seeking reimbursement of the amount it had
paid to FCL Corp. for the loss of the subject cargo.
CGM, Inc. denied the claim on the basis that it is
not privy to the contract entered into by and
between FCL Corp. and ELP Insurance, Inc., and
hence, it is not liable thereof. If you are the
judge, how will you decide the case? (2014 Bar)
A: I will decide the case in favor of ELP Insurance.
Even if CGM, Inc. is not privy to the contract between
FCL Corp. and ELP Insurance, it is still liable for the
loss of the cargo. If the plaintiff’s property has been
insured and he has received indemnity from the
UNIVERSITY OF SANTO TOMAS
2019 GOLDEN NOTES
To make the person who caused the loss legally
responsible for it.
To prevent the insured from receiving double
recovery from the wrongdoer and the insurer.
To prevent the tortfeasors from being free from
liability and is thus founded on consideration of
public policy.
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Mercantile Law
When amount paid by the insurance company
does not fully cover the injury or loss
(Ci-Co-Spec)
NOTE: In case of international carriage in air
transportation, (i) the Montreal Convention as
ratified by the Philippines in 2015; (ii) the Warsaw
Convention (iii) Civil Aviation Authority Act, may be
applicable.
The aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury
(NCC, Art. 2207).
Instances where the right of subrogation does
not apply (RRL-No LoCo)
1.
2.
3.
4.
5.
6.
If the goods are to be transported from the
Philippines to a foreign country, the law of the latter
country shall govern the transportation contract
(CC, Art. 1753; NDC. v. CA, G.R. No. L-49407, August
19, 1988).
Where the insured by his own act releases the
wrongdoer or third party liable for loss or
damage from liability
The insurer loses his rights against the
wrongdoer since the insurer can only be
subrogated to only such rights as the insured
may have
Where the insurer pays the insured the value of
the loss without notifying the carrier who has
in good faith settled the insured claim for loss
Where the insurer pays the insured for a loss or
risk not covered by the policy
Life insurance
For recovery of loss in excess of insurance
coverage
COMMON CARRIER
Requisites for an entity to be classified as a
common carrier (1996, 1997, 2000, 2002 Bar)
(PecofaB-LAW-FP)
1.
2.
NOTE: Since the insurer can be subrogated to only
such rights as the insured may have, should the
insured, after receiving payment from the insurer,
release the wrongdoer who caused the loss, the
insurer loses his rights against the latter. But in such
a case, the insurer will be entitled to recover from
the insured whatever it has paid to the latter, unless
the release was made with the consent of the
insurer (Manila Mahogany Manufacturing Corp. v.
CA, G.R. No. L-52756, October 12, 1987).
3.
4.
5.
NOTE: A pipeline operator who carries oil and other
petroleum products through pipes/pipelines is a
common carrier. The law does not distinguish as to
the means by which transportation is carried out, as
long as it is by land, water, or air. Neither does the
law require that transportation be through a motor
vehicle (First Phil. Industrial Corp. v. CA, G.R. No.
125948, December 29, 1998).
TRANSPORTATION LAW
Q: The Pereñas were engaged in the business of
transporting students from their respective
residences in Parañaque City to Don Bosco in
Pasong Tamo, Makati City and back. They
employed Alfaro as driver of the van. The
Zarates contracted the Pereñas to transport
their son, Aaron, to and from Don Bosco.
However, a train hit the rear end of the van
driven by Alfaro, and the impact threw nine (9)
students in the rear, including Aaron, out of the
van. Aaron landed on the path of the train, which
dragged his body and severed his head,
instantaneously killing him.
Laws that govern contracts of transportation
Contracts of transportation, whether by land, sea, or
air, [i] if within the Philippines; or [ii] if the
transportation of goods be from a foreign country to
the Philippines, shall be governed by the following
laws, arranged by order of application:
1.
2.
3.
Must be a Person, corporation, firm or
association;
Engaged in the Business of carrying or
transporting passengers or goods or both;
The carriage or transport must either be by
Land, water or air;
The service is for a Fee; and
The service is offered to the Public (Art. 1732,
NCC)
Provisions of the New Civil Code on Common
Carriers;
Code of Commerce; and
Special laws such as Carriage of Goods by the
Sea (COGSA); Salvage Law; Public Service Act;
Land Transportation and Traffic Code; Tariff
and Customs Code; and Civil Aeronautics Act
(Art. 1735 and 1766, NCC; American President
Lines, Ltd. v. Klepper, G.R. No. L-15671, November
29, 1960).
The Zarates commenced an action for damages
against Alfaro, the Pereñas, PNR, and Alano. The
Zarates’ claim against the Pereñas was based on
breach of the contract of carriage and based on
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UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW