INSURANCE CODE
INSURANCE CODE
Elements of Insurance
The following are the elements of insurance:
1. The insured has an insurable interest:
2. The insured is subject to a risk of loss by the
happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general
scheme to distribute actual losses among a
large group of persons bearing a similar risk;
and
5. In consideration of the insurer's promise, the
insured pays a premium. (Philamcare Health
Systems, Inc. vs. Court of Appeals, 379 SCRA
356, G.R. No. 125678, 18 March 2002)
What is a Contract of Insurance?
The Insurance Code provides:
(1) A "contract of insurance" is an
agreement whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event.
A contract of suretyship shall be deemed
to be an insurance contract, within the
meaning of this Code, only if made by a surety
who or which, as such, is doing an insurance
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business as hereinafter provided. (Sec.
Insurance Code of the Philippines (ICP))
2,
What does the term "doing an insurance business" or
"transacting an insurance business" mean?
The Insurance Code states:
(2) The term "doing an insurance
business"
or
"transacting
an
insurance
business", within the meaning of this Code,
shall include: (a) making or proposing to make,
as insurer, any insurance contract; (b) 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; (c) doing any kind of
business, including a reinsurance business,
specifically recognized as constituting the
doing of an insurance business within the
meaning of this Code; (d) doing or proposing to
do any business in substance equivalent to any
of the foregoing in a manner designed to evade
the provisions of this Code.
In the application of the provisions of this
Code the fact that no profit is derived from the
making of 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. (Sec. 2,
ICP)
Marine Services, Inc. vs. Pioneer Insurance and Surety
Corporation, G.R. No. 154514, 28 July 2005)
Explain the nature of Suretyship.
Mortgage Redemption Insurance
A contract of suretyship is an agreement whereby a
party called the surety, guarantees the performance by
another party, called the principal or obligor, of an
obligation or undertaking in favor of another party called
the oblige. By its very nature, under the laws regulating
suretyship, the liability of the surety is joint and several
but is limited to the amount of the bond, and its terms
are determined strictly by the terms of the contract of
suretyship in relation to the principal contract between
the obligor and the oblige.
A "Mortgage Redemption Insurance" is a group
insurance policy of mortgagors which is intended as a
device for the protection of both the mortgagee and the
mortgagor.
Although the contract of suretyship is, in essence,
secondary only to a valid principal obligation, the
surety's liability to the creditor is direct, primary, and
absolute; he becomes liable for the debt and duty of
another although he possesses no direct or personal
interest over the obligations nor does he receive any
benefit therefrom. (American Home Insurance Co. of
New York vs. F.F. Cruz & Co., Inc., G.R. No. 174926, 10
August 2011)
Mutual Insurance Company
It is a cooperative enterprise where the members
are both the insurer and insured. In it, members all
contribute, by a system of premiums or assessments, to
the creation of a fund from which all losses and liabilities
are paid, and where the profits are divided among
themselves, in proportion to their interest. (White Gold
On the part of the mortgagee, it has to enter into
such contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying
the obligation. In a similar vein, ample protection is given
to the mortgagor such that in the event of death, the
mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage
indebtedness. Consequently, where the mortgagor pays
the insurance premium under the group insurance
policy, making the loss payable to the mortgagee, the
insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In this
type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the
contract. (Great Pacific Life Assurance Corp vs. Court of
Appeals, 316 SCRA 677)
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Retirement Insurance
Retirement insurance is primarily intended for the
benefit of the employee to provide for his old age, of
incapacity, after rendering service (in the government)
for a required number of years. If the employee reaches
the age of retirement, he gets the retirement benefits
even to the exclusion of the beneficiary or beneficiaries
named in his application for retirement insurance. The
beneficiary of the retirement insurance can only claim
the proceeds of the retirement insurance if the
employee dies before the retirement. (Vda. De
Consuegra vs. GSIS, 37 Phil. 315)
INSURANCE POLICY; INTERPRETATION
Types of insurance policy
1. Open Policy - An open policy is one in which
the value of the thing insured is not agreed
upon, and the amount of insurance merely
represents the insurer's maximum liability. The
value of such thing insured shall be
ascertained at the time of loss. (Sec. 60, 1C)
2. Valued Policy - A valued policy is one which
expresses on its face an agreement that the
thing insured shall be valued at a specific sum.
(Sec. 61, IC) It is one in which the parties
expressly agree on the value of the subject
matter of insurance thereby avoiding the
trouble of ascertaining the actual amount of
loss when it happens.
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NOTE: Life insurance policies are always valued
policies.
3. Running Policy - A running policy is 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. (Sec. 62, 1C)
The obscurity of the language of the policy shall be
construed in favor of the insured.
In the Endorsement, the obscurity is patent. In the
first sentence of the Endorsement, it is not entirely clear
whether the phrase "effective June 22, 1999" refers to
the subject or the sentence, namely "the reinstatement
of this policy," or to the subsequent phrase "changes are
made on the policy."
Accordingly, the subject policy is deemed
reinstated
as of June 22, 1999. Thus, the period of
contestability
has lapsed. (The Insular Life
Assurance Company, Ltd.
vs. Khu, 789 SCRA
544, G.R. No. 195176, 18 April
2016)
The policy reads: "The insurance of any eligible Lot
Purchaser shall be effective on the date he contracts
a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not
approved by the Company." It would appear that at the
time of loss, a loan has been contracted with the
Assured but it is not clear whether the Insurer has
approved the insurance application. When did the
policy
take effect?
While one provision appears to state that the
Insurance coverage of the clients of Assured already
became effective upon contracting a loan with the
Assured, another appears to require the Insurer to
approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract
is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the
insurer in order to safeguard the latter's interest. Thus,
the vague contractual provision must be construed in
favor of the insured and in favor or the effectivity of the
insurance contract.
The seemingly conflicting provisions must be
harmonized to mean that upon a party's purchase of a
memorial lot on installment from the Assured, an
insurance contract covering the lot purchaser is created
and the same is effective, valid, and binding until
terminated by the Insurer by disapproving the insurance
application. The second sentence is in the nature of a
resolutory condition which would lead to the cessation of
the insurance contract. Moreover, the mere inaction of
the insurer on the insurance application must not work
to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of
the insurance contract by the insurer must be explicit
and unambiguous. (Eternal Gardens Memorial Park vs.
Philamlife, G.R. No. 166245, 9 April 2008)
What are Cover Notes? What are the limitations on the
issuance of cover notes?
Cover notes are interim or preparatory contracts of
insurance. An Interim coverage may be necessary
because the insurer may need more time to process the
insurance application. The issuance of cover notes is
subject to the following:
(1) Issuance or renewal is upon approval of the
Insurance Commission.
(2) Duration is not more than 60 days from
issuance.
(3) Cancellation by either party is upon prior 7-day
notice to the other.
(4) Main policy to be issued within 60 days after
cover note was issued.
(5) Extension of 60-day coverage is subject to
insurance Commission's approval.
INSURABLE INTEREST
Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss
from its destruction. (Gaisano Cagayan, Inc. vs.
Insurance Company of North America, 490 SCRA 286,
G.R. No. 147839, 8 June 2006).
Basic Concepts:
a) Life Insurance
Every person has an insurable interest in the life
and health :
1. of HIMSELF, his SPOUSE, and of his
CHILDREN;
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2. of any person on whom he depends wholly or in
part for education or support, or in whom he has
PECUNIARY INTEREST;
3. 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;
4. of any person upon whose life any estate or
interest vested in him depends.
Take note: In general, the test is whether or not
the person is interested in the preservation of
the insured life despite the insurance.
INSURABLE INTEREST IN PROPERTY VS INSURABLE
INTEREST IN LIFE:
LIFE
PROPERTY
As to extent
unlimited
Limited to the actual value
of the interest thereon
As to time when insurable interest must exist
Enough that it exists at the
time the policy takes effect
and need not exist at the
time of the loss
It is necessary that it exists
when the insurance takes
effect and when the loss
occurs, but need not exist
in the meantime.
As to expectation of benefit to be derived
Need not have legal basis
There must be legal basis
As to the beneficiary’s interest
b) In what does insurable interest in PROPERTY
consists?
1. It may consist in an existing interest an inchoate
interest founded on an existing interest, or any
expectancy coupled with an existing interest.
2. In general, a person has an insurable interest in the
property, if he derives pecuniary benefit or
advantage from its preservation or would suffer
pecuniary loss, damage or prejudice by its
destruction whether he has or has no title in, or lien
upon, or possession of the property.
3. The existence of insurable interest is a matter of
public policy. Hence the principle of estoppel
cannot be invoked.
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If the insured himself Beneficiary must have
secured the policy- the insurable interest in the
beneficiary need not have property insured.
insurable interest over the
life of the insured;
If the insurance was
obtained by the beneficiary
(not the insured)- the
beneficiary must have
insurable interest over the
life of the insured.
A vendor or seller retains an insurable interest in the
property until full payment of the value of the delivered
goods.
Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but
whether insured has substantial economic interest in the
property. (Id.)
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 insurable interest in
property who derives a benefit from its existence or
would suffer loss from its destruction. Indeed, a vendor
or seller retains an insurable interest in the property sold
so long as he has any interest therein, in other words, so
long as he would suffer by its destruction, as where he
has a vendor’s lien. (Id.)
Does the buyer have insurable interest over the goods
even while the goods are still in transit?
Yes. The buyer’s interest is based on the perfected
contract of sale. The perfected contract of sale between
him and the seller/shipper of the goods operates to vest
in him an equitable title even before delivery or before
he performed the conditions of the sale. The contract of
shipment, whether under “F.O.B.”, “C.I.F.”, or “C & F” is
immaterial in the determination of whether the buyer
has insurable interest or not in the goods in transit.
(Filipino Merchants Insurance Co. vs. Court of Appeals,
G.R. No. 85141, 28 November 1989)
When must interest in the property insured exist?
State the reason for this requirement.
Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time
the loss occurs. The basis of such requirement is based
on sound public policy; to prevent a person from taking
out an insurance policy on property upon which he has
no insurable interest and collecting the proceeds of said
policy in case of loss of the property. (Sps. Cha vs. Court
of Appeals, 277 SCRA 690)
Insurable interest of beneficiary and assignee of the
policy.
a) Property Insurance
The beneficiary and the assignee must have
insurable interest. Consent of the insurer must be
secured before the assignment.
b) Life Insurance
If the insured takes the insurance on his own life,
he can designate anybody who does not have
insurable interest.
If a third person takes the policy, the beneficiary
must have insurable interest.
In case of assignment, the assignee need not have
insurable interest.
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TRANSFER OF POLICY
May the policy be transferred without the consent of the
insurer?
YES in life insurance but NO in property insurance.
What is the effect of the transfer of the property
insurance policy without the consent of the insurer?
The insurance policy is suspended and will not be avoided
until the interest in the thing and the interest in the
insurance are vested in the same person.
As a rule, a change of insurable interest without a
corresponding transfer of the policy, suspends the
insurance. What are the exceptions?
The exceptions are:
1. In life, health and accident insurance;
2. 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 tor the loss. (Sec. 21, 1CP)
3. A change of interest in one or more several
distinct things, separately insured by one
policy, does no avoid the insurance as to the
others. (Sec. 22, ICP)
4. 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
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person taking his interest in the thing insured. (Sec.
23, ICP)
5. 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. (Sec. 24, ICP)
6. A policy may be so framed that it will inure to
the benefit of whomsoever, during the
continuance of the risk, may become the owner
of the interest insured. (Sec. 57, ICP)
Risks Insured Against.
It maybe any contingency or unknown event the
happening of which will damnify a person having insurable
interest or will create liability against him. Even fortuitous
events may be insured against.
General rule: A future event is the only event that can be
covered by an insurance contract.
Exception: A past event may be covered by a marine
insurance- if the loss of the vessel in the past could not
have been known by ordinary means of communication.
PREMIUM
The consideration paid to an insurer for
undertaking to indemnify the insured against a
specific peril.
a) Where parties are barred by estoppel.
Development Insurance and Surety Corp., G.R.
No. 190702, 27 February 2017)
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PREMIUM PAYMENT
General Rule: Cash and Carry Rule
Notwithstanding any agreement to the contrary, no
Policy or contract of insurance issued by an insurance
company is valid and binding unless and until the
premium thereof has been paid.
Exceptions are:
1. In case of life or industrial life policy, whenever
the grace period provision applies as expressly
provided by Section 77 itself;
2. Where the insurer acknowledged in the policy or
contract of insurance itself the receipt of
premium, even premium has not been actually
paid, as expressly provided by Section 79 itself;
3. Where the parties agreed that premium
payment shall be in installments and partial
payment has been made at the time of loss;
4. Where the insurer granted the insured a credit
term for the payment of the premium, and loss
occurs before the expiration of the term;
5. Salary deduction of government employees
under Section 78; and
6. Where the insurer is in estoppel as when it has
consistently granted a 60 to 90-day credit term
for the payment of premiums. (Gaisano vs.
The notice of the availability of the check, by itself,
does not constitute payment of premium.
There is no dispute that the check was delivered to
and was accepted by respondent's agent, Trans-Pacific,
only on September 28, 1996. No payment of premium had
thus been made at the time of the loss of the vehicle on
September 27, 1996. While petitioner claims that TransPacific was informed that the check was ready for pickup
on September 27, 1996, the notice of the availability of the
check, by itself, does not produce the effect of payment of
the premium. TransPacific could not be considered in
delay in accepting the check because when it informed
petitioner that it will only be able to pick up the check the
next day, petitioner did not protest to this, but instead
allowed Trans-Pacific to do so. Thus, at the time or loss,
there was no payment of premium yet to make the
insurance policy effective. (ld.)
When is return of premium required?
Return of premium is warranted in the following
cases:
(1) The thing insured was not exposed to the peril
insured against.
(2) Time policy is surrendered before the stipulated
period lapses.
(3) The contract is voidable due to fault or
misrepresentation of the insurer or default of ne
insured other than actual fraud.
(4) Over-insurance by several insurers.
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(5) Insurer never incurred liability
(6) When recission is granted due to the insurer’s
breach of contract
How to prevent the lapse of life insurance policy
Test of materiality: determined not by the event, but
solely by the probable and reasonable influence of
the facts upon the party to whom the
communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in
making his inquiries or in fixing the premium rate.
The insured may avail of:
a) Grace period
b) Automatic policy loan from the policies’ cash
surrender value
c) Application of dividend
d) Reinstatement clause
DEVICES
USED
FOR
ASCERTAINING
CONTROLLING RISK AND LOSS
AND
Effect of concealment: It vitiates the contract and
entitles the insurer to rescind, EVEN IF THE
DEATH OR LOSS IS DUE TO A CAUSE NOT
RELATED TO THE CONCEALED MATTER.
Is “GOOD FAITH” a defense?
NO. Concealment whether intentional or
unintentional entitles the insurer to rescind the
insurance contract.
The Primary Concerns of the Insurer:
a)
b)
c)
d)
Correct estimation of risk
Delimitation of the risk
Control of risk
Determine if loss occurs and if so, the amount
thereof
Devices used by Insurer for ascertaining and
controlling risks and loss
1) Concealment
- A neglect to communicate that which a party knows
and ought to communicate
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2) Representation
- Factual statements made by the insured at the time
of or prior to the issuance of the policy to give
information to the insurer and otherwise induce him
to enter into the insurance contract
Test of Materiality: It is determined by the
probable and reasonable influence of the facts on
the party on whom communication is due, in
forming his estimate of the contract, risks and
premium.
Effects of Misrepresentation: The injured party is
entitled to rescind from the time when the
representation becomes false.
3) Warranty
- 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
nonfulfillment render the policy voidable by the
insurer.
Kinds:
a)
b)
c)
d)
Express
Implied
Affirmative
promissory
Effect of breach of warranty: It gives the insurer
the right to rescind.
Exceptions:
1) loss occurs before the time of performance of
the warranty
2) the performance becomes unlawful
3) performance becomes impossible
4) Condition
- The insurer, to also protect itself from fraudulent
claims of loss, insets conditions which take the form
of either conditions precedent or subsequent.
5) Exception
- Make more definite the coverage indicated by the
general descriptions of the risk by excluding certain
specified risks that otherwise would be included
under the general language describing the risks
assumed.
RESCISSION OF INSURANCE CONTRACT
Test of Materiality
Materiality 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 communication is due, in forming
his estimate of the disadvantages of the proposed
contract, or in making his inquiries. (Sec. 31, ICP)
Other Insurance Clause
It is a provision in the policy to the effect that the policy
shall be void if the insured has, or subsequently procures,
any other insurance on the property or any part thereof
without the insurer's consent. The purpose is to prevent
over-insurance and thus avert the perpetration of fraud.
What is the Incontestability Rule?
The insurer has two (2) years from the date of issuance of
the insurance contract or of its last reinstatement within
which to contest the policy, whether or not, the insured still
lives within such period.
What are the defenses that are not barred by the
incontestability rule?
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a) The person taking the insurancelacked insurable
interest
b) The cause of the death of the insured is an
excepted risk
c) The conditions of the policy relating to military or
naval services have been violated
d) The fraud is of a particularly viscios type
e) Beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy
after the loss has happened
f) The action was not brought within the time specified
DOUBLE INSURANCE
Double insurance exists where the same person is insured
by several insurers separately in respect to the same
subject and interest. Thee requisites in order for double
insurance to arise are as follows: the person insured is the
same, two or more insurers insuring separately; there is
identity of subject matter; there is identity of interest
insured; and there is identity of the
risk or peril insured
against. (Malayan Insurance Co., Inc. vs. Philippines First
Insurance Co., Inc. and Reputable Forwarder Services,
G.R. No. 184300, July 11, 2012)
Two different policies were respectively obtained by the
consignee and the forwarder on the same goods. Discuss
whether this constitutes double insurance.
There is none. By the express provision of Section 93 of
the Insurance Code, double insurance exists where the
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same person is insured by several insurers
separately in respect to the same subject and interest.
The policies here were issued to two different persons or
entities. Further, the interest of the consignee over the
cargo is different from that of the insurer. The policy
secured by the consignee was in consideration of
its legal and/or equitable interest over its own goods. On
the other hand, the one issued to the forwarder 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.
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. (Malayan Insurance Co., Inc.
vs. Philippines First Insurance Co., Inc. and Reputable
Forwarder Services, G.R. No. 184300, 11 July 2012)
REINSURANCE
Concept
A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or
liability by reason of such original insurance. (Sec. 97, ICP)
It is presumed to be a contract of indemnity against liability,
and not merely against damage. (Sec. 99, ICP)
Original insured's right to recover from reinsurer
The original insured has no interest in a contract of
reinsurance. (Sec 100, 1CP) There is no privity of contract
between the original insured and the reinsurer. In
reinsurance, there are two existing contracts of insurance.
The first one is between the original insured and the
original insurer and the second one is between the original
insurer and the reinsured. Both contracts are independent
of the other.
Thus, as a rule, the insured cannot directly recover from
the reinsurer nor is the latter directly liable to the former.
However, if the reinsurance was taken for the benefit of
the insured under the first contract of insurance,
(stipulation pour autrui), the insured, as beneficiary, may
directly pursue the reinsurer. Also, where the reinsurance
amounts to a novation of the original insurance by virtue
of which the reinsurer undertakes to indemnify the insured,
then direct recourse against the reinsurer by the insured is
permissible.
The reinstatement of an insurance policy should be
reckoned from the date when the same was approved
by the insurer.
To reinstate a policy means to restore the same to
premium-paying status after it has been permitted to
lapse. In the instant case, Eulogio's death rendered
impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for
Reinstatement and deposit the amount for payment of
his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be
considered reinstated after the Application for
Reinstatement had been processed and approved by
Insular Life during Eulogio's lifetime and good health.
Thus, it is settled that the reinstatement of an insurance
policy should be reckoned from the date when the same
was approved by the insurer. (The Insular Life Assurance
Company, Ltd. vs. Khu, 789 SCRA 544, G.R. No.
195176, 18 April 2016)
CLAIMS SETTLEMENT
Is non-presentation of the policy fatal to an insurance
claim?
Non-presentation of the insurance contract or policy is not
necessarily fatal. In Delsan Transport Lines, Inc. v. Court
of Appeals, the Court stated that the presentation of the
insurance policy was not fatal because the loss of the
cargo undoubtedly occurred while on board the petitioner's
vessel.
Even though it was not offered in evidence, it still can be
considered by the court as long as they have been
properly identified by testimony duly recorded and they
have themselves been incorporated in the records of the
case.
The subrogation receipt, by itself, is sufficient to establish
not only the relationship of herein private respondent as
insurer and Caltex, as the assured
shipper of the
lost cargo of industrial fuel oil, but also
the amount
paid to settle the insurance claim. The right
of
subrogation accrues simply upon payment by the
insurance company of the insurance claim. (Asian
Terminals, Inc. vs. Malayan Insurance, Co., Inc., G.R.
No. 171406, 4 April 2011)
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Under the policy, disabilities which existed before the
commencement of the agreement are excluded if they
become manifest within one year from its effectivity.
The insured allegedly prevented presentment by the
insurer of the doctor who will testify on her medical
condition because of the doctor-patient privilege. The
insurer thus assumed that the testimony would be
adverse as it was willfully suppressed by the insured.
Decide whether the insurer is liable.
It is an established rule in insurance contracts that when
their terms contain limitations on liability, they should be
construed strictly against the insurer. These
are
contracts of adhesion the terms of which much be
interpreted and enforced stringently against the insurer
which prepared the contract. (Blue Cross Health Care, Inc.
vs. Olivares, G.R. No. 169737, 12 February 2008)
The insurer never presented any evidence to prove that
the insured's stroke was due to a pre-existing condition. It
merely speculated that the doctor's report would be
adverse to the insured based on her invocation of doctorpatient privilege. This was a disputable presumption at
best. (ld.)
In a third party liability insurance, could the insurer be
sued directly by the victim? Could the insurer be made
solidarity liable with the insured or the wrongdoer?
The victim may proceed directly against the insurer for
indemnity. The insurance is intended to provide
compensation for death or bodily injuries suffered by
innocent third parties or passengers as a result of the
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negligent operation of motor vehicles. The victims and
their dependents are assured of immediate financial
assistance, regardless of the financial capacity of vehicle
owners.
Be that as it may, the direct liability of the insurer under
indemnity contracts against third party liability
does
not mean that the insurer can be held liable in solidum with
the insured and/or the other parties found
at fault.
For the liability of the insurer is based on
contract,
that of the insured carrier is based on tort. (Tiu vs.
Arriesgado, G.R. No. 138060, 1 September 2004)
Interest on insurance proceeds
The interest on the proceeds of the policy for the duration
of the delay at the rate of twice the ceiling prescribed by
the Monetary Board under Sections 243 and 244 (now,
Sections 248-249) of the Insurance Code apply only when
the court finds an unreasonable delay
or refusal in the
payment of the claims. (Tio Khe Chio vs. Court of Appeals,
202 SCRA 119, G.R. Nos. 76101-02, 30 September 1991)
The ruling above does apply in this case as what here is
involved is an order for petitioner to refund to respondents
the insurance premium paid as a consequence of the
rescission of the insurance contract on account of the
latter’s concealment of material information in his
insurance application. Moreover, petitioner did not
unreasonably deny or withhold the insurance proceeds as
it was satisfactorily established that Norberto was guilty
of concealment. (Sun Life of Canada [Philippines], Inc. vs.
Tan Kit, 738 SCRA 371, G.R. No. 183272, 15 October
2014)
Company and Philam Insurance Company, Inc., G.R. No.
150094, 18 August 2004)
SUBROGATION
Exceptions to subrogation
Subrogation is the substitution of one person by
another with reference to a lawful claim of right, so that
he who is substituted succeeds to the rights of the other
in relation to a debt of claim, including its remedies or
securities. The principle covers a situation wherein an
insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution
such that it places the party subrogated in the shoes of
the creditor, and he may use all means that the creditor
could employ to enforce payment.
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. The
doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice; and is the
mode that equity adopts to compel the ultimate payment
of a debt by one who, in justice, equity, and good
conscience, ought to pay. (Malayan Insurance Co., Inc. vs.
Alberto, G.R. No.194320, 1 February 2012) In the exercise
of its subrogatory right, an insurer may proceed against an
erring carrier. To all intents and purposes, it stands in
the place and in substitution of the consignee. (Federal
Express Corporation vs. American Home Assurance
There is no subrogation in the following cases:
(1) When the insured, by his own act, releases
the party at fault from liability.
(2) When the insurer pays the insured without
nothing the carrier who has in good faith settled
the insured’s claim for loss.
(3) When the insurer pays the insured for a loss
excepted from the policy.
(4) When life insurance is involved.
INSURANCE CODE
MARINE INSURANCE
What is a marine insurance?
ship is HYPOTHECATED by a BOTTOMRY
LOAN, the insurable interest is only up to the
excess of the value of the vessel over the loan.
It is an insurance that covers risks connected with
navigation, to which a ship, cargo, freightage, profits or
other insurable interest in movable property, may be
exposed during a certain voyage or a fixed period of
time.
b) Cargo owner/Shipper has insurable interest over
the cargo and expected profits.
What is Marine Protection and Indemnity Insurance?
c) Charterer has insurable interest over:
This is an insurance against the legal liability of the
insured for loss damage, or expense incident to the
ownership, chartering, use or repair of a vessel or
instrumentality in use in oceans and/or sea.
The fact that the seaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine
insurance, and may not be used by him as a defense in
order to recover on the marine insurance policy. It
therefore becomes the obligation of a cargo to look for a
reliable common carrier which keeps its vessels in a
seaworthy condition. The shipper of the cargo may have
no control over the vessel, but he has full control in the
choice of the common carrier that will transport his goods.
Insurable Interest in Marine Insurance
a) Shipowner has insurable interest over the
1. Value of the vessel (even if chartered and the
charterer agreed to pay the shipowner the value
of the vessel in case of loss, however, the
shipowner can only recover the amount not
recoverable from the charterer. However, if the
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2. Over expected freightage
1. the vessel up to the extent of the amount he is
liable to the shipowner, if the ship is lost or
damaged during the voyage
2. His expected profits or freightage if he accepts
cargoes from other persons for a fee
3. His own cargo or his client’s cargo.
Special Marine Insurance Contracts
a) Insurance Against All Risks
It covers all losses during the voyage, whether arising
from a marine peril or not including pilferage losses
during the war, But, it does not cover loss through the
willful and fraudulent act of the insured.
An "All Risks" insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the
insured. (Mayer Steel Pipe vs. Court of Appeals, 274
SCRA 432)
b) Inchamaree Clause
This is a clause included in a hull policy to cover the
loss or damage through the bursting of the boiler, breaking
of shafts or through latent defects of the machinery or
equipment, hull or its appurtenances and faults or errors in
navigation or management of the vessel. (Cebu Shipyard
Engineering Works, Inc. vs. William Lines, Inc., G.R. No.
132607, 5 May 1999) The clause should be expressly
provided for because damage of this sort are not included
in the term "perils of the sea." (ld.)
What is Concealment?
It is the failure to disclose any material fact or circumstance
which is within or ought to be within the knowledge of one
party, and of which the other has no actual or presumptive
knowledge.
Effect of Concealment:
If material, the concealment entitles the innocent party to
rescind.
What are the Implied Warranties in Marine Insurance?
a. The ship is seaworthy at the inception of the
insurance
b. The ship will not deviate from the agreed voyage
unless deviation is proper.
c. The ship will not engage in an illegal venture
d. Possession of documents of neutrality – that the
ship will carry the requisite documents of nationality
or neutrality of the ship or cargo where such
nationality or neutrality is expressly warranted.
e. Presence of insurable interest.
Meaning of Seaworthiness/Cargoworthiness.
For a vessel to be seaworthy, it must be adequately
equipped for the voyage and manned with a sufficient
number of competent officers and crew. It is also the
sufficiency of the vessel in materials, construction,
equipment, officers, men, and outfit, for the trade or
service in which it is employed. It includes the fitness of a
ship for a particular voyage with reference to its physical
and mechanical condition, the extent of its fuel and
provisions supply, the quality of its officers and crew, and
its adaptability for the time of voyage proposed.
How is the Implied Warranty of seaworthiness
applied?
The fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in
order to recover on the policy.
What is Deviation?
Departure of vessel from course of voyage, or an
unreasonable delay in pursuing voyage, or the
commencement of an entirely different voyage.
When is Deviation proper?
a. If due to circumstances outside the control of the
ship captain or ship owner
b. If done to comply with a warranty
c. If made in good faith to avoid a peril
INSURANCE CODE
d. If made to save human life or another distressed
vessel.
FPA or Free from Particular Average clause limits the
liability of the insurer in case of partial loss. (Sec. 136, ICP)
Loss and Abandonment?
1. Total Loss
a. Actual total loss
i.
Total destruction
ii.
Loss by sinking
iii.
Damage rendering the thing valueless
iv.
Total deprivation of owner of possession
of thing insured
b. Constructive total loss
i.
Actual loss of more than ¾ of the value
of the object
ii.
Damage reducing value by more than ¾
of the value of the vessel and of cargo
iii.
Expenses of shipment exceed ¾ of value
of cargo.
State the requisites of Co-Insurance in marine
insurance.
Co-insurance in marine insurance is subject to the
following requisites: (a) there must be partial loss; and (b)
the insurance coverage is less than the value of the
property insured.
Explain the FPA Clause.
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LIFE INSURANCE
In what cases is the designation of beneficiary in life
insurance void due to disqualifications under the law?
In the following
beneficiary is void:
cases,
the
designation
of
(a) Those made between persons who were guilty
of adultery or concubinage at the time of the
donation;
(b) Those made between persons found guilty of
the same criminal offense, in consideration
thereof,
(c) Those made to public officer or his wife,
descendants and ascendants, by reason of his
office.
(NOTE: The disqualification applies to life
insurance (Article 2012, NCC) and the insurance contract
itself remains valid, only the designation of beneficiary is
void.)
Devices used to prevent lapse of life insurance policy
To prevent lapse of life insurance policy, the
following devices are used: (a) grace period; (b)
automatic policy loan; (c) application of dividend; and (d)
restatement clause. (Aquino, Essentials of Insurance
Law, p. 80)
Non-default options in life insurance
In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions, among other things:
A provision specifying the options to which the
policyholder is entitled to in the event of default in a
premium payment after three (3) full annual premiums
shall have been paid. Such option shall consist of:
(1) A cash surrender value payable upon
surrender of the policy which shall not be less
than the reserve on the policy, the basis of
which shall be indicated, for the then current
policy year and any dividend additions thereto,
reduced by a surrender charge which shall not
be more than one-fifth (1/5) of the entire
reserve or two and one-half percent (2½%) of
the amount insured and any dividend additions
thereto; and
(2) One or more paid-up benefits on a
plan or plans specified in the policy of such
value as may be purchased by the cash
surrender value. (Sec. 233[f], ICP)
Industrial Life insurance
An industrial life insurance Is one where the
premiums are payable either monthly or oftener, if the
face amount of the insurance provided in any policy is
not more than 500 times that of the current statutory
minimum daily wage in the City of Manila, and if the
words "industrial policy" are printed upon the policy as
part of the descriptive matter. (Sec. 229, 1CP)
Explain the Incontestability Rule on life insurance.
For a life insurance policy to be incontestable, the
requisites are: (a) The insurance is a life insurance policy
payable on the death of the insured; and (b) It has been
in force during the lifetime of the insured for at least two
(2) years from its date of Issue or of its last
reinstatement. The period of two (2) years may be
shortened but it cannot de extended by stipulation. If the
insured dies after the two (2) year period, the insurer
cannot rescind the contract due to his misrepresentation
or concealment. (Sec. 48, 1CP)
Two-year period to contest a life insurance policy due
to concealment/misrepresentation; Effect of death of
the insured within the two-year period of contest
Under Section 48 of the Insurance Code, an insurer
is given two years - from the effectivity of a life
insurance contract and while the insured is alive - to
discover or 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. After the
two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy
even though the policy was obtained by fraud,
concealment, or misrepresentation. (Manila Bankers
Life Insurance Corporation vs. Aban, 702 SCRA 417, G.R.
No. 175666, 29 July 2013)
The insurer has two years from its issuance to
investigate and verify whether the policy was obtained by
fraud, concealment, or misrepresentation. Upon the
death of the insured within the two-year period from the
issuance of the policy, the insurer loses its right to
rescind the policy. (Sun Life of Canada (Philippines), Inc.
vs. Ma. Daisy's Sibya, G.R. No. 211212, 8 June 2016)
INSURANCE CODE
FIRE INSURANCE
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
Friendly vs. Hostile Fire
No-Fault Indemnity Claim
Friendly fire is one that burns in a place where it
was intended and ought to burn. Fire is hostile when it
occurs outside of the usual confines or begins as a
friendly fire and becomes hostile by escaping from the
place where it should be or one that becomes
uncontrollable or breaks out from where it was intended
to be. The general rule is that the insurer will only be
liable in cases of hostile fire. The policy should not be so
construed to the insured form injury consequent upon
his negligent use or management of fire, so long as it is
confined to the place where it ought to be. (American
Towing Co. vs. German Fire Ins. Co., 21 A. 553)
The no-fault indemnity clause of the Compulsory
Motor Vehicle Liability Insurance (CMVLI) allows the
victim of a vehicular incident to recover indemnity from
the insurer of the relevant insurer without the necessity
of showing fault.
Distinguish between: Loss Payable Clause and
Standard or Union Mortgage Clause.
Under a Loss Payable Cause, the mortgagee is
made merely a beneficiary under the contract. Any
default on the part of the mortgagor, which by the terms
of the policy defeat his rights, will also defeat all rights of
the mortgagee under the contract, even though the
latter may not have been in any fault.
On the other hand, a Standard or Union Mortgage
Clause create collateral independent contracts between
the insurer and the mortgagee and provide that the
rights of the mortgagee shall not be defeated by the acts
or defaults of the mortgagor. (Vance, pp. 654-655)
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Claim may be made against one motor vehicle only.
In the case of an occupant of a vehicle, claim, shall lie
against the insurer of the vehicle in which the occupant
is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly
offending vehicle. 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
(Sec. 391, 1CP)
In a third-party liability insurance, could the insurer be
sued directly by the victim? Could the insurer be made
solidarity liable with the insured or the wrongdoer?
The victim may proceed directly against the insurer
or indemnity. The insurance is intended to provide
compensation for death or bodily injuries suffered by
innocent third parties or passengers as a result of the
negligent operation of motor vehicles. The victims and
their dependents are assured of immediate financial
assistance, regardless of the financial capacity of vehicle
owners.
Be that as it may, the direct liability of the insurer
under indemnity contracts against third party liability does
not mean that the insurer can be held liable in
solidum with the insured and/or the other parties found
at fault. For the liability of the insurer is based on
contract, that of the insured carrier is based on tort. (Tiu
vs. Arriesgado, G.R. No. 138060, 1 September 2004)
Can the carrier and insurer be held solidarity liable for
the loss of the cargo?
Where the insurance contract provides for
indemnity against liability to third person, the liability of
the insurer is direct and such third persons can directly
sue the insurer. The direct liability of the insurer under
indemnity contracts against third party-liability does not
mean, however, that the insurer can be held solidarity
liable with the insured and/or the other parties found at
fault, since they are being held liable under different
obligations. The liability of the insured carrier or vehicle
owner is based on tort, in accordance with the provisions
of the Civil Code: while that of the insurer arises from
contract, particularly, the insurance policy. (Malayan
Insurance Co., Inc. vs. Philippines First insurance Co.
Inc. and Reputable Forwarder Services, G.R. No.
184300, 11 July 2012)
Against whom no-fault claim may be made in a CMVL
Claim may be made against one motor vehicle only.
In the case of an occupant of a vehicle, claim, shall lie
against the insurer of the vehicle in which the occupant
is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly
offending vehicle. 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
(Sec. 391/C, TCP)
No-fault claim; Proofs required
Claim for death or injury to any passenger or thirdparty shall be paid without the necessity of proving fault
or negligence of any kind. Proofs of loss are: (1) Police
report of accident; and (2) Death certificate and
evidence sufficient to establish the proper payee; or (3)
Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed.
(Sec. 391, 1CP)
Entitlement to no-fault claim
Passengers and third parties may claim as defined
below:
"(b) Passenger is 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.
(d) Third party is any person other than a
passenger as defined in this section 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 or
employment. (Sec. 386, ICP)
INSURANCE CODE
Period to claim/tile legal action under the CMVLI
xxx Notice of claim must be filed within six (6)
months from the date of accident, otherwise the claim
shall be deemed waived. Action or suit for recovery of
damage due to loss or injury must be brought, in proper
cases, with the Commissioner or the courts within one
(1) year from denial of the claim, otherwise, the
claimant's right of action shall prescribe. (Sec. 397, ICP)
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