INSURANCE REVIEW LECTURE BY DEAN DIVINA
LOSS
OFFER OR
APPLICATION
PERFECTION
NOTICE OF LOSS
REJECTION
FILING OF A
SUIT
PAYMENT
SUBROGATION
CLAIMS
SETTLEMENT
POLICY
RA $%&%'
NO LOSS
A.
CONCEPT OF INSURANCE
INSURANCE – an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event.
Ø
The definition of Insurance suffers from some defects
because it only refers to property insurance.
ELEMENTS OF INSURANCE: IRA SP (Ira, Senior Partner)
A.
B.
C.
D.
E.
Philippine Health Care Providers, Inc., v. CIR
Insurable interest
Risk of loss
Assumption of risk of loss
Scheme
Premium
BAR: Are HMOs (Health Maintenance
considered insurance companies?
Organization)
A: No. Relevant case is Philippine Health Care Providers v. CIR. So
the BIR slapped DST on Maxicare (formerly Philippine Health
Care Providers) because according to BIR, health care
agreement is non-life insurance policy and a non-life insurance
policy is subject to DST. Maxicare and other HMO’s did not
collect the DST. The argument was HMOs are not engaged in
insurance business.
The principal purpose of the HMO – to provide services not to
indemnify in case of illness notwithstanding payment of
premium.
The principal purpose of insurance – to indemnify
Therefore, for tax purposes, HMOs are not considered
insurance business.
In terms of liability, however, Supreme Court said that health
maintenance agreement shall be construed liberally in favor of
the insured and strictly against the insurer. You can find this
principle in Insurance. How come we interpret the health care
maintenance agreement and insurance policy similarly? The
Supreme Court said that the liability of an HMO is akin to a nonlife insurance company.
!
In the case of Fortune Medicare v. Amorin, A was operated in
Hawaii. He had a health maintenance agreement wherein he can
be reimbursed up to 80% of the actual standard charges. For PH,
this is only 20,ooo pesos but in Honolulu, mas mahal. Ano
susundin mo na standard charges? There is now an ambiguity.
The Supreme Court said that the ambiguity should be resolved
in favor of the insured, the principle similar to that of an
insurance policy.
One test in order to determine whether one is engaged in
insurance business 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. In this
case, Health Maintenance Organizations (HMOs) are not
insurance business
Qua Chee Gan v. Law Union
The contract of insurance is one of perfect good faith (uferrimal
fidei) not for the insured alone, but equally so for the insurer; in
fact, it is mere so for the latter, since its dominant bargaining
position carries with it stricter responsibility.
Philamcare Health System v. Court of Appeals
Being a contract of adhesion, terms of a policy are to be
construed strictly against the party which prepared the contract
- the insurer. By reason of exclusive control of insurance
contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid
forfeiture.
Lalican v. Insular Life Assurance Company
The cardinal principle in Insurance Law is that a policy or
contract of insurance is to be construed liberally in favor of the
insured and strictly as against the insurance company, yet,
contracts of insurance, like other contracts, are to be construed
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INSURANCE REVIEW LECTURE BY DEAN DIVINA
according to the sense and meaning of the terms, which the
parties themselves have used.
payment of premium on its application for
reinstatement? SC said yes because of Estoppel.
It has been the practice by the insurer to give a
time for the insured to pay the premium; it is
the practice between the parties that premium
is paid belatedly by the insured. That is why
this is a bad case. But there is a recent case
reiterating this doctrine that will be discussed
in Premium Payment.
Alpha Insurance and Surety Co. v. Castor
Contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain,
ordinary and popular sense. Accordingly, in interpreting the
exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as
understood in common speech. A contract of insurance is a
contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from noncompliance with his obligation.
B. ELEMENTS OF AN INSURANCE CONTRACT:
(Ira, Senior Partner)
1.
2.
3.
4.
5.
Insurable interest
Risk of loss
Assumption of risk of loss
Scheme
Premium
Ø Cash and carry rule – no payment of premium, no
valid insurance contract.
RA $%&%'
When is the contract of insurance perfected?
There are two theories regarding the perfection of a contract
of insurance: the manifestation theory and cognition theory.
a.
b.
Manifestation theory – the contract is perfected the
moment of acceptance by the insured.
Cognition theory – it is the knowledge of the insured of
the acceptance of the offer by the insurer that perfects a
contract of insurance.
What theory do we apply in the Philippines?
Cognition theory – insurance contract is perfected upon
knowledge of insured of the acceptance of offer by the insurer.
So supposedly, it is perfected upon meeting of the minds of
the cause, consideration, and object but we follow the
cognition theory.
EXCEPTIONS: LIA-S-ICE
If before the acceptance of the insurer is made known to the
insured and the loss occurs, the insurer is not liable.
(despite non-payment of premium, there is a valid
insurance contract)
Perfected by mere consent but such consent must be first
made known to the insurer.
1.
2.
3.
4.
5.
6.
7.
#
L – life (when grace period applies)
I – Industrial life (when grace period applies)
A – acknowledgment of receipt of premium by
the insurer when in fact no payment of
premium has been paid. This is called
fictionalized payment in insurance.
S – Suretyship. In a suretyship, without a
premium payment, no valid contract BUT if the
bond is furnished and is accepted by the
obligee, then suretyship is perfected even
though no premium payment is given by the
insured.
I – Installment payment (read: Makati Tuscany
v. CA)
C – Credit extension
E – Estoppel (read: UCPB v. Masagana
Telemart)
In this case, Masagana Telemart procured fire
insurance on its property. The policy expired.
Before it could be reinstated, nasunog yung
property. After three months, Masagana
Telemart tendered payment. Can Masagana
Telemart recover notwithstanding non-
BAR: June 1 – Juan dela Cruz applied for Fire Insurance. June
5 – it was accepted but not made known yet to Juan dela Cruz.
June 10 – the acceptance was mailed. June 15 – fire destroyed
the property. June 20 – the insured learned the acceptance of
the insurer. Can the insured recover?
He cannot because of the cognition theory.
This is the correct answer in the bar because this is how the
question was framed. This is the expected answer from the
standpoint of the examiner, the answer given by the UPLC. But
this should be modified by the rules on premium payment. So
it is not enough to say that the contract of insurance is
perfected once the insured learned the acceptance of the offer
by the insurer. It is premised on the payment of premium. So
no amount of acceptance would make it perfected if there is
no premium payment unless it falls under the exception.
SECTION 77 – An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril
insured against. 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, except in the case of a life or
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INSURANCE REVIEW LECTURE BY DEAN DIVINA
an industrial life policy whenever the grace period provision
applies.
the extent agreed upon under the contract. Limitations as to
liability must be distinctly specified and clearly reflected in the
extent of coverage which the company voluntary assume,
otherwise, any ambiguity arising therein shall be construed in
favor of the member. Being a contract of adhesion, the terms of
an insurance contract are to be construed strictly against the
party which prepared the contract - the insurer. This is equally
applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as “standard
charges,” must be liberally construed in favor of the subscriber,
and if doubtful or reasonably susceptible of two interpretations
the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly
construed against the provider. Thus, if the member, while on
vacation, underwent a procedure in the USA, the standard
charges referred to in the contract should mean standard
charges in USA and not the cost had the procedure been
conducted in the Philippines.
We have to take to account section 77 of the Insurance Code on
Premium. It is perfected by mere consent but subject to the
payment of premium. Under the Cash and Carry Rule, without the
premium there is no valid insurance contract.
What is the capital requirement for insurance companies?
Under the new law, it is 1 billion.
Going back to HMOs, it was said that they are not engaged in
insurance business even though the elements of insurance
contract may be present. Why?
Because the Supreme Court adopted the principal purpose
and object test. Even though there is a feature of indemnity
and the assumption of risk of loss, if the principal purpose is
to provide services to the members for them to avail of the
various services that HMOs offer to prevent illness, injury,
medical services, etc.
However, insofar as their liability is concerned, their liability
to their members is akin to insurance business. This is why
health maintenance agreements are not subject to
documentary stamp tax but their liability is akin to liability of
insurance company, in a case of non-life insurance. The rule
in interpretation is to rule strictly against the HMO company
and in favor of the insurer. In Fortune Care v. Amorin, the
Supreme Court said that any doubt shall be resolved strictly
against HMOs and liberally in favor of the member. This rule
is appropriate for insurance policy but adopted by the
Supreme Court in HMO agreement because in terms of
liability, it is akin to insurance business. So two things. As a
business, HMOs are not insurance business. As to their
liability, akin to insurance business.
C.
CHARACTERISTICS
CONTRACTS
1.
Risk distributing device – the device serves to distribute the
risk of economic loos among as many as possible to those who
are subject to the same kind of risk.
Contract of utmost good faith – requirement of good faith
on the part of both parties. It requires that both parties must
disclose conditions affecting the risk of which he is aware, or
material fact, which the applicant knows and those which he
ought to know. This is best exemplified by the rules on
concealment. This has been asked in the BAR so many times
– the facts concealed need not be the cause of the loss.
Example:
•
In a contract of life insurance, A did not disclose that
he was suffering from a renal failure. Then he died
of food poisoning. The beneficiaries cannot recover
although there was no connection between renal
failure and food poisoning, the disease should have
been disclosed because it is a contract of utmost
good faith. If that fact is disclosed to the insurer,
then the insurer could have changed the estimate
risk involved and asked for a higher amount of
premium.
•
The child is mongoloid but it was not disclosed. He
died due to plane crash. No relation but the Supreme
Court said that he cannot recover because there is
should be disclosure of the fact because it is material
and could have changed the estimate of the
premium, the insurer could have decided whether
or not to accept the offer of insurance.
Contract of indemnity –The insured is entitled only to
recover the actual loss he sustained. Nothing more. He cannot
enrich himself by procuring the insurance. This is true in
property insurance because in life, no indemnity. So in life,
2.
Philamcare Health System v. Court of Appeals
Under Sec. 2(a) of the Insurance Code, an insurance contract is
an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from
an unknown or contingent event, and with the following
elements: 1.) Insured has an insurable interest; 2.) Insured is
subject to a risk of loss by the happening of the designated peril;
3.) Insurer assumes 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
Fortune Medicare Inc. v. Amorin
For purposes of determining the liability of a health care
provider to its members, a health care agreement is in the
nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to
$
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3.
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OR
NATURE
OF
INSURANCE
INSURANCE REVIEW LECTURE BY DEAN DIVINA
4.
there is no indemnity except if it is an insurance taken by the
creditor on the life of the debtor, then creditor is limited to the
amount of the obligation.
Contract of Adhesion – the insurer prepares the terms and
conditions of the contract and the insured simply adheres on
the terms and conditions.
Are contracts of adhesion valid?
Yes, as long as there is consent voluntarily given or it
does not take away the option of the insured not to sign.
BAR: In resolving ambiguity and the contract is adhesion,
what do you mean by the rule that doubts shall be resolved in
favor of the insured? Does it mean that the doubt shall be
resolved strictly in accordance with the contract, does it mean
that the insurance policy is avoided, or does it mean that the
doubts shall be resolved in favor of the insured and against
the insurer.
It does not invalidate the contract. It only means that all
doubts that may arise shall be resolved in favor of the insured
and against the insurer. So any interpretation that would
preclude the obligation of the insurer should be avoided if
there is doubt on its interpretation. Remember the case of
Fortune Care v. Amorin on the definition of standard charges.
If there is no doubt or ambiguity the terms and conditions in
the contract must be given plain meaning. No need to resort
on the rule of interpretation.
In one case, in Casualty Insurance covering loss brought about
by robbery. So the policy does not allow recovery if the robbery
is perpetrated by the insured or any of his authorized
representatives. In this case, the robbery was perpetrated by
the security guards and drivers hired by the agency in___
recommended by the insured. Can the insured recover?
The Supreme Court said that the insured cannot recover since
he chose the agency that provided for the security guards and
drivers who are considered his authorized representatives,
therefore he cannot recover based on the terms and
conditions of the policy which shall be given literal and plain
interpretation since there was no doubt or ambiguity.
Loss of hand is defined in the policy as amputation of hand to
the bones of the wrist. Di na-amputate, di rin nya magalaw, it
is paralyzed. Can he recover?
No, because loss means the hand must be amputated. If it has
been defined thoroughly, it must be applied accordingly.
Paralyzed is different from amputation. If the Supreme Court
were to define amputation, it certainly would not include
paralysis. He cannot recover. But I don’t care. If I were the
insured, I’d rather not recover, at least my hand is not
amputated.
In the case of Qua Chee Gan v. Law Union, there is a provision in
the insurance policy which prohibits the storage of oil, animal
%
RA $%&%'
and/or vegetable, mineral or any liquid products. He store
gasoline. Nagkaroon ng sunog. Is that a violation of the
agreement. Can he recover?
The SC said he can recover because prohibition is limited to
oil animal and/or vegetable, mineral or any liquid products, it
does not include gasoline.
Fortune Medicare Inc. vs Amorin.
“Standard charges,” must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should
be strictly construed against the provider. Thus, if the
member, while on vacation, underwent a procedure in the
USA, the standard charges referred to in the contract should
mean standard charges in USA and not the cost had the
procedure been conducted in the Philippines.
Lalican v. Life Insurance
The policy lapsed due to non-payment of premium. He
applied for reinstatement. The premium was received by the
agent on the same day. Thereafter, he died. Supreme Court
said that the fact that the insured was issued a binding slip,
such binding slip does not mean a valid insurance
reinstatement policy if the application indicates that it is
subject to processing by the head office. So when the
insurance agent received the premium, it was indicated in the
application for reinstatement that it is subject to processing
by the head office, and since the same has not yet been
processed yet before the risk occurs, the insured’s
beneficiaries cannot recover.
Alpha Insurance and Surety Co. v. Castor
There is a motor vehicle liability insurance containing various
clauses, there is a clause for malicious damage and clause for
theft. The clause for malicious damage provides that the
insurer shall not be liable for the malicious damage on the
property caused by the insured or relatives or employees.
Then there is a theft clause that makes the insurer liable in
case of loss of the vehicle without any distinction or
qualification as to who causes the loss. The driver of the
insured brought the car to the repair shop in Banawe, it did
not return the anymore. He stole the car. So the insured wants
to recover based on the insurance contract, the insurer
refused citing the malicious damage clause that it was caused
by the employee of the insured so the insurer is not liable.
What is applicable, malicious damage clause or loss due to the
theft clause? The SC said damage is different from loss.
Damage means deterioration, destruction of this case. Loss
means the fact of losing. So what should be applied in this case
is the literal meaning. It is not the malicious damage clause
but loss due to the theft clause which does not provide for any
qualification so as to entitle the insured to recover.
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INSURANCE REVIEW LECTURE BY DEAN DIVINA
5.
Aleatory
Can the common law spouse recover?
BAR: What does it mean the aleatory feature of an insurance
contract?
It means that the policy shall be paid subject to the happening
of an uncertain event.
6.
7.
Voluntary – it is not compulsory. So the parties may
incorporate terms and conditions acceptable to them. So it is
a contract of adhesion but the parties may incorporate other
terms and conditions. No one can be compelled.
XPN: Motor vehicle liability insurance – otherwise, you will
not be allowed to operate your vehicle.
No. As a general rule, the insured can designate any
beneficiary except those who are not qualified to receive
donation under Article 739 of the Civil Code.
Can the legitimate children recover? Can they get the share
that was supposedly given to the common law spouse?
The proceeds should be payable to the common law children.
All of it shall be given to the common law children because
there is no prohibition in designation common law children in
a life insurance.
Why is the lawful spouse cannot recover?
Because of the personal characteristic of insurance – she is
not the one for whose benefit the contract of insurance was
given.
Personal – you agree to be bound so the parties took into
account the character and the qualifications of each other.
BAR: (Cha v. CA) A lessor prohibited a lessee from obtaining
insurance on goods, merchandise, properties stored in the
leased premises and in case the lessee obtains an insurance
coverage, the proceeds of the insurance are deemed assigned
or transferred to the lessor. The lessee obtains a fire
insurance on the goods, chattels, merchandise stored in the
leased premises and they were gutted by fire.
BAR: (Dean: there was this question in the bar that was given
a wrong answer by the UPLC that’s why we have a footnote for
this.) The insured designated the common law spouse as his
beneficiary then he died. Who can recover?
UPLC: The lawful wife.
Which is wrong because it is NOT the lawful wife but the
estate of the insured.
Can the lessor obtain the proceeds of the policy on the basis of
the provision in the lease contract?
The SC said the lessor cannot because he does not have
insurable interest since he does not own the personal effects
torn in the leased premises. Also, the personal characteristic
of insurance, it is the lessee in whose favor the insurance
contract was extended by the insurer – so when the insurer
extended the fire insurance, he took it into account the
qualifications of the lessee not that of the lessor.
Can the lessee recover?
Yes because he has insurable interest and it is in his favor that
the contract of insurance was issued.
Who can recover in a contract of insurance?
Insured or beneficiary or a third party
BAR: Maramag v. Maramag, in the life insurance procured, he
designated his common-law spouse and his illegitimate
children as beneficiaries. He died. He was survived with the
common-law spouse, the legitimate spouse, and illegitimate
children. The legitimate spouse wanted to obtain the
proceeds.
What if the beneficiary is an accessory, accomplice, or a
principal in willfully bringing about the death of the insured,
who can recover? Is it the estate, or is the insurance policy
avoided, or nearest relative of the insurer?
The nearest relative of the insurer and not the estate of the
insured.
This is something that is quite different. So if there is a designation
of the beneficiary which is wrong – the policy is not avoided.
Instead, the proceeds will form the estate of the insured.
But if the beneficiary is the principal, accomplice, or accessory
willfully (not negligently) bring about the death of the insured –
the law says that the proceeds will not form part of the estate of
the insured. It goes to the nearest relative of the insured.
PARTIES TO A CONTRACT OF INSURANCE:
1.
Insurer – the one who assumed the risk of loss in
consideration of payment of premium
Who can be an insurer?
Only corporations/juridical persons are allowed to be insurer
as long as they have been issued certificate of authority by the
Insurance Commission – under the new amendment (before
natural person may be an insurer)
Is the policy insurance avoided?
No. The wrongful designation of the beneficiary does not
invalidate the contract of insurance.
2.
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Insured – the person whose loss the obligation of payment is
given.
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Who can be insured?
Any person who has the capacity to enter into a contract and
he is not a public enemy.
Can a leader of Abu Sayyaf be an insured?
Yes, because a public enemy is a citizen or a national of a
country which the Philippines is at war. Abu Sayyaf members
are not citizens or national of a country with whom the
Philippine is at war. They are citizens of the Philippines
What about ISIS? Can a member of ISIS be insured?
Well, the Philippines is not at war against Iran and Iraq.
Hence, members of ISIS can be an insured.
3.
4.
Assured- the insured who will receive the proceeds. Assured
and insured can be interchanged.
Beneficiary- the third person designated by the insured to
receive the proceeds of the policy.
C is a creditor of D for 1 million pesos. D took out a life insurance
policy over his life and designated C as beneficiary. The face
value of the policy is 5 million pesos. D died. How much C can
recover on the policy?
5 million because if the insured took out an insurance on his
own life he can designate any one as his beneficiary.
What about if C took out the insurance on the life of D?
1 Million. The insurable interest of the creditor over the life of
his debtor is limited to 1 million pesos the amount of the debt.
Mortgagor took out life insurance over the mortgaged property
mortgaged property and the property was gutted by fire and
the mortgagee received the proceeds of the policy. Does the
mortgagee have a lien on the proceeds of the insurance?
There is no doubt that the mortgagee cannot recover or
obtain the insurance proceeds from the insurance company
because he is not a party to the insurance.
The mortgagee cannot recover but does he have a lien, at least,
on the proceeds of the insurance in lieu of the mortgaged
property? Is he entitled to it?
Yes, there is a lien under the Civil Code. Under Insurance, no
doubt he cannot recover, right, because he is not a party to the
contract, he did not take out a separate insurance policy. But
under the Civil Code he is entitled to the proceeds because
that would take the place of the mortgaged property.
Can the mortgagee take out another insurance policy on the
same property?
Yes, of course.
What is the insurable interest of the mortgagor on the
property?
'
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The value of the property. And For the mortgagee it would be
the amount of the debt.
BAR: Both of them can take out separate insurance policies. Is
there double insurance?
None. There is no double insurance because you have
different insured.
BAR: Mortgagor A obtained a loan from the mortgagee and
then took out a fire insurance on the mortgaged property. The
loan was not paid so the creditor-mortgagee B foreclosed the
mortgage. After foreclosure, the mortgagee obtained
insurance coverage and we know that he can. Before and after
the loan, he can procure separate insurance coverage on the
property. During the redemption period, the mortgagor
obtained a loan from C and then assigned the property in
favor of C. Do A, B and C have insurable interest over the
mortgaged property? If the loss occurs within the redemption
period, does A still have insurable interest on the property?
Does the mortgagor lose his insurable interest on the
property if the property, in case of loss, property gutted by
fire, during the redemption period?
No. He still has insurable interest. So if the loss occurs during
the redemption period he can still recover.
The mortgagor can take out a separate fire insurance during
the redemption period because he has an inchoate interest
founded on an existing interest. Inchoate interest because it
can ripen into full ownership, right? The property may not be
redeemed so that gives him inchoate interest based on an
existing interest. In fact, we said, even before the nonpayment of the loan, he can take out separately a fire
insurance. His insurable interest is to the extent of the amount
of the indebtedness. For this reason, he can obtain insurance.
So if the loss occurs during the redemption period, of course,
A, mortgagor can still recover, he does not lose insurable
interest.
What about B? Does he have insurable interest?
Yes.
What about C? Does he have insurable interest on the
property? C, a creditor, a general creditor of the mortgagor.
No. A general creditor has no insurable interest on property.
So there is no basis under the Insurance Code for a general
creditor to have insurable interest on the property. Either the
mortgagor or the mortgagee but not the general creditor.
Can all of them recover in case loss occurs?
Only A and B not C.
ABC Corporation obtained a loan from XYZ Bank secured by a
mortgage on ABC’s property, and as required by the loan
agreement, ABC Corporation secured a fire insurance on the
same mortgaged company from a subsidiary company of XYZ
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INSURANCE REVIEW LECTURE BY DEAN DIVINA
Bank. And XYZ did not find it necessary to obtain insurance
because anyway the proceeds of the policy are assigned to the
mortgagee, proceeds shall be payable to the mortgagee (as
beneficiary). The loan was not paid, the mortgage was
foreclosed extrajudicially. After four months, the
corporation’s mortgaged property was gutted by fire. Can ABC
recover?
a risk: the insurer being compelled upon the happening of the
contingency to pay the entire sum agreed upon; and the insured
of a parting with the amount required as premium, without
receiving anything therefore in case the contingency does not
happen.
D.
I.
No. The redemption period has expired. Insurable interest
must exist at the time of the perfection of the contract and at
the time of loss.
There have been many questions along this line but so far no
question yet on changes of redemption period under the
General Banking Law, in relation to Insurance. In the example
we gave earlier refers to extrajudicial foreclosure of a real
estate mortgage made by a mortgagor corporation to a
mortgagee bank. As we took up in SPCL, the redemption
period is three months from date of the sale, or registration,
whichever comes earlier. So if that would be the question in
the bar, you have to answer accordingly, that the mortgagor
has no more insurable interest because insurable interest for
property must exist at the time of the perfection of the
contract and the time of the loss. So in case of another
question along this line, the principle is simply, if the loss
occurs during the redemption period, then the mortgagor can
still recover because by that time he has not lost his insurable
interest. But if the redemption period expires and the loss
occurs, then he has lost his insurable interest and he cannot
recover from the insurance company.
Heirs Of Loreto c. Maramag v. Eva Verna De Guzman Maramag,
et al.
The only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured
is already deceased, upon the maturation of the policy. The
exception to this rule is a situation where the insurance contract
was intended to benefit third persons who are not parties to the
same in the form of favorable stipulations or indemnity. In such
a case, third parties may directly sue and claim from the insurer.
Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, the shares of
Eva in the insurance proceeds, whether forfeited by the court in
view of the prohibition on donations under Article 739 of the
Civil Code or by the insurers themselves for reasons based on
the insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the
exclusion of heirs.
Tibay v. Court of Appeals
The insurance contract is primarily a risk-distributing device, a
mechanism by which all members of a group exposed to a
particular risk contribute premiums to an insurer. From these
contributory funds are paid whatever losses occur due to
exposure to the peril insured against. Each party therefore takes
(
RA $%&%'
CLASSES OF INSURANCE
MARINE
Ø The concept of marine insurance has been expanded
to mean any perils or risk incidental to navigation,
transit, or transportation.
Ø In one case, in a marine insurance policy, it included
the personal acts of the insured. Example is when
the vessel owner procures insurance in case of
accident, injury caused by the seafarers or crew
members in addition to the insurance against
liability in case of loss, damage on the vessel or the
cargo, included in the insurance policy likewise a
personal accident insurance to cover for death or
injury sustained or inflicted upon or suffered by
seafarers.
Who has insurable interest in marine insurance:
1.
Ship Owner
a.
Over the value of the vessel
Ø
if chartered, what is the extent of insurable
interest of the shipowner? Still the full value of
the vessel.
Just because there is a charterer, it does not
mean that the Ship owner has no more
insurable interest over the vessel. Even if there
is a charter party arrangement, it does not
mean that the owner loses ownership of the
vessel so the owner still retains insurable
interest, except that the law did not liken it to a
mortgagor/mortgagee relationship. So when it
comes to ship owner under the charter party
arrangement, the insurable interest of the
owner is only to that amount not covered or
guaranteed by the charterer. Let’s say that
amount of the value of the vessel is five million
and the charter undertakes to pay only
800,000. In this case only 200.000 will be the
insurable interest of the ship owner. This rule
however, is only applicable to bareboat or
demise charter party arrangement. In other
charter party arrangement, the insurable
interest of the ship owner extends up to the
value of the vessel.
So what the shipowner will recover should be
less than the amount he will recover from the
charterer because he cannot enrich himself at
the expense of another.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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c.
b.
Cargo
Ø
c.
Over the amount of the expected freightage.
Ø
2.
Insurable interest on property (expectancy
based on existing interest)
Charterer
Ø
3.
The shipowner can procure insurance over the
cargo even if it is not owned by him because in
case of loss, damage, or deterioration of the
goods or the cargo, the presumption is that the
carrier is at fault. Now, the carrier may procure
insurance to indemnify it against loss, damage,
or deterioration of the goods.
Cargo Owner/ Shipper
Ø
The shipper or the cargo owner has insurable interest
over expected profit.
What may be insured against?
Only Perils of the Sea, not perils of the ship unless it is an all
risk marine insurance policy.
There is an amendment – even if it’s a marine insurance
policy, it still covers or includes any and all conceivable kind
of losses or risk. Any and all conceivable losses or risk may be
covered by an all risk marine insurance policy except those
losses due to the willful act or misconduct of the insured. But
if the insurance policy is silent on the coverage, it only extends
to those covered by perils of the sea., it does not cover perils
of the ship.
All-risk Marine Insurance
Ø
Insurer is liable whatever may be the cause of the loss or
damage.
EXCEPTIONS:
1. Those exempted by the policy
2. Those due to the willful or fraudulent act of the
insurer.
PERILS OF THE SEA:
BAR: What do you mean by Perils of the Sea?
Casualties or losses due to extraordinary violence or unusual
cause.
So anything other than:
a.
To natural and inevitable action of the sea
b.
Ordinary wear and tear
)
Improper provisioning, meaning lack of equipment and
personnel to carry out the voyage
If the loss was due to causes other than these three, it is perils
of the sea. If it is to natural and inevitable action of the sea,
ordinary wear and tear, Improper provisioning, meaning lack
of equipment and personnel to carry out the voyage, then it is
perils of the ship and therefore not insurable by the insurance
policy.
So during the bar, ask yourself, “What is the cause of the
damage?”
Ø
Ø
Ø
For the charterer, the insurable interest of the charterer
extends up to the amount the charterer is liable to the
ship owner. In case of loss of the vessel, the charterer
shall answer for the same.
RA $%&%'
If the is due to ordinary wear and tear, insurer not liable
If it is due to ordinary and inevitable action of the sea,
insurer not liable
If it is due to lack of seaworthiness, insurer not liable.
Examples of Perils of the ship from bar questions and cases:
If the loss due to improper loading of the logs
Roque v. IAC (asked in the BAR twice)
If the logs are not securely fastened so during the voyage they
rolled from one side to another which resulted to the sinking
of the vessel and the loss of the cargos, the SC said that the
loss was due to perils of the ship because of improper
handling of the cargo. The insurance company was not held
liable.
The captain was inexperienced
The license of the captain had expired which means that the
vessel is not seaworthy. Insurer is not liable.
A vessel is not seaworthy if it is not properly laden, it does
not have a competent master, sufficient number of crew as
well as appurtenances and equipment to carry on with the
voyage.
A vessel is seaworthy if it is properly fit to carry on with the
voyage – if it is adequately manned and properly equipped
which means that the vessel must have a competent master,
sufficient number of crew members, sufficient implement or
equipment to carry out the voyage.
Deep-seated anger of the crew to the captain, the crew
members unbolted the screw as a result, the water seeped into
the vessel.
The goods were lost. The insured tried to recover, the insurer
claims that he is not liable because the vessel is not
seaworthy. Insured said that he was not at fault that his
crewmembers are angry with the captain because he did not
know of such fact. Of course the answer is it does not matter
because it is an implied warranty of the insured that the
vessel is seaworthy – that it was sufficiently manned with
proper and competent crew, and sufficient to carry on with
the voyage.
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Bottles of coca-cola were placed on the roof deck of the ship.
This makes the ship unseaworthy. Insurer is not liable.
Reconfiguration of the roof deck to accommodate more
passengers.
Made the vessel unseaworthy, insurer is not liable.
Sea water entered to the compartment where the cargos are
due to the defective drain pipe machine.
This is peril of the ship, therefore the insurer is not liable. The
engine pipe leaked and therefore the seawater entered into
the cargo compartment. Engine pipe leak is peril of the ship
and therefore, the insurer is not liable unless it is an all risk
insurance policy.
Lack of weather-monitoring equipment
There was no radar or equipment to monitor the weather. SC
said that the vessel is unseaworthy which releases the insurer
from liability.
Engine leaked because of extensive mileage that the ship
accumulated
Peril of the ship, not peril of the sea. Insurer is not liable.
Port hole and it was not secured on the port of depature
Peril of the ship, insurer not liable.
Transimex Co v. Mafre Asian Insurance; September 14, 2016
(beyond the cut-off date for the 2017 Bar but this case is a mere
reiteration of a previous case within the cut-off date. This is just the
recent pronouncement.)
Not all instances of bad weather may be categorized as
"storms" or "perils of the sea" within the meaning of the
provisions of the Civil Code and COGSA on common carriers.
To be considered absolutory causes under either statute, bad
weather conditions must reach a certain threshold of severity.
With respect to storms, this Court has explained the
difference between a storm and ordinary weather conditions
in Central Shipping Co. Inc. v. Insurance Company of North
America:
Nonetheless, to our mind it would not be sufficient to
categorize the weather condition at the time as a "storm"
within the absolutory causes enumerated in the law.
Significantly, no typhoon was observed within the Philippine
area of responsibility during that period.
According to PAGASA, a storm has a wind force of 48 to 55
knots, equivalent to 55 to 63 miles per hour or 10 to 11 in the
Beaufort Scale. The second mate of the vessel stated that the
wind was blowing around force 7 to 8 on the Beaufort
Scale. Consequently, the strong winds accompanying the
southwestern monsoon could not be classified as a "storm."
Such winds are the ordinary vicissitudes of a sea voyage.
*
RA $%&%'
Strong winds and waves are not automatically deemed perils
of the sea, if these conditions are not unusual for that
particular sea area at that specific time, or if they could have
been reasonably anticipated or foreseen.
In this case, the documentary and testimonial evidence cited
by petitioner indicate that M/V Meryem Ana faced winds of
only up to 40 knots while at sea. (Dean: How stupid is he to
testify that, diba? LOL 😂) This wind force clearly fell short of
the 48 to 55 knots required for "storms" under Article
1734(1) of the Civil Code based on the threshold established
by PAGASA. Petitioner also failed to prove that the inclement
weather encountered by the vessel was unusual, unexpected,
or catastrophic. In particular, the strong winds and waves,
which allegedly assaulted the ship, were not shown to be
worse than what should have been expected in that particular
location during that time of the year. Consequently, this Court
cannot consider these weather conditions as "perils of the
sea" that would absolve the carrier from liability.
Examples of Perils of the Sea:
Rusting of steel pipes
In view of the circumstances of the cargo, water, wind, salt
conditions, the Supreme Court considers this as perils of the
sea and therefore insurer is liable.
Storm, typhoon
Considered as perils of the sea.
WARRANTIES:
The insured makes the following warranties in marine
insurance:
a.
Warranty of Seaworthiness.
There was this case; there was a dispute between the
ship crew and the captain. The crew members have deep
resentment against the ship captain and therefore they
performed acts which cause loss and damage to the
cargo. The insured suffered loss. The insurer denied
liability and argued that it is perils of the ship and
therefore it is not liable. The insured argued that he did
not have knowledge that the crew members have
difficulty or disagreement with the ship captain. The SC
said that this goes on the seaworthiness of the vessel. If
the ship is not properly manned with competent officers,
it is a breach of warranty of seaworthiness that would
make the insurer not liable on the policy.
If the vessel is not seaworthy, the insurer is not liable.
A vessel is not seaworthy if it is not properly laden, it
does not have a competent master, sufficient number of
crew as well as appurtenances and equipment to carry
on with the voyage.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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A vessel is seaworthy if it is properly fit to carry on with
the voyage – if it is adequately manned and properly
equipped which means that the vessel must have a
competent master, sufficient number of crew members,
sufficient implement or equipment to carry out the
voyage.
b.
c.
d.
When do we say that the vessel deviates from the bill voyage?
Exceptions: When deviation is considered proper (OWAS)
(improper deviation – insurer is not liable; proper deviation
– insurer is liable)
1.
2.
3.
4.
Outside the control of the captain or the ship owner
If necessary to comply with a warranty
Ø Example: vessel makes the warranty that it
will avoid the lair of privateers or
anywhere occupied by the privateers. So it
is necessary for him to comply with this
warranty.
To avoid a peril, actual or made in good faith to
avoid the peril
Ø Deviation based on dream in not proper
deviation because it is not based on good
faith.
To save human lives or another vessel in distress
e.
BAR: The ship captain had a dream that the vessel was in the
path of a strong typhoon. So as soon as he woke up, he ordered
the crew members to change course. True enough, a tsunami
or typhoon hit that path that he avoided. Was it a proper or
improper deviation?
Obviously, it is based on a dream, not in good faith so in this
case the deviation is not proper.
Warranty of insurable
included in the law)
(implied,
not
General Average – damages and expenses which are deliberately
caused by the master of the vessel or upon his authority, in order
to save the vessel, her cargo, or both at the same time from a real
or known risk. It must be borne equally by all of the interests
concerned in the venture.
Particular Average – includes all damages and expenses caused to
the vessel or to her cargo which have not inured to the common
benefit or profit of all persons interested in the vessel and her
cargo.
LOSS:
When is the insurer liable under Marine Insurance?
The insurer is liable whether there is partial or total loss.
Two kinds of losses within the ambit of total loss:
1.
Actual Total Loss
If there is:
1.
2.
3.
4.
total destruction,
loss by sinking of the vessel, or
if the ship or the cargo became valueless or no
longer fit for human consumption
total deprivation of owner of possession of the thing
insured
BAR: Goods or more specifically, the palays were destroyed by
strong current of water but they can still be used as animal
feeds. Can the insured recover there being no total loss
because palay or rice can still be used for other purpose?
There is total loss in this case because the goods are no longer
fit for the purpose intended by the shipper.
2.
Constructive Total Loss
There is constructive total loss if:
1.
2.
!+
interest
AVERAGES:
BAR: When the vessel left for its voyage, it was given a go
signal that the weather is good but during the course of the
voyage, it met a strong typhoon. To avoid this typhoon the
ship captain was forced to take a different route. Because of
this the cargos suffered loss and damages. Can the insured
recover despite the deviation made by the ship captain?
Yes. The Deviation is proper. It was made to avoid risk to loss
of cargo and also to avoid risk to the lives of the crew manning
the ship.
Warranty of neutrality.
The ship must always carry the documents showing
neutrality of the ship. An example is if the vessel will
transverse to a route controlled by pirates.
The insured guarantees that he will not deviate from the
route during the voyage.
The bill voyage is the beginning and ending of the voyage as
fixed in the policy or fixed by mercantile usage.
Warranty that it will not carry contraband (will not
engage in illegal venture or activity).
Some authors say, warranty that it will not engage in an
illegal venture but to be more specific, it is the warranty
not to carry contraband.
Warranty against deviation.
Any loss, damage arising from the deviation not recoverable
from the insurer.
RA $%&%'
The loss or damage is more the ¾ of the value of the
object
The damage reduced the value of the object for more
than ¾
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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3.
G
Expenses for the repair, refloating or shipment
exceed ¾ of the value of the object
It is not ¾ but more than ¾.
If there is constructive total loss, what does it mean?
It gives the insured the right to abandon his interest. In that
case the owner will be discharged of liabilities. All the
maritime liens will be extinguished if:
1.) there is total loss or
2.) abandonment in case of constructive total loss.
Abandonment means the relinquishment of the insured’s
interest in favor of the insurer.
BAR: There is one single insurance policy but the goods were
loaded on two different barges. One barge contains goods
worth 600k and the second barge 400k.. Worth 1M combined.
The one carrying 400 lost 320 of the goods. Can the insured
recovered as if there is total loss?
No because it is based on a policy not on quantity. So when
you say total loss, it is the number or quantity based or
specified in the policy, not the number of barge or vessel
which carry the goods.
What does the insured need to do to recover from
constructive total loss?
Ø
Must be complimented with abandonment.
ABANDONMENT
Ø
the act of the insured by which, after a constructive total
loss, he declares the relinquishment to the insurer of his
interest in the thing insured. The effect is that owner
relinquishes and the insurer owns the vessel.
Requisites for a valid abandonment:
1.
2.
3.
4.
5.
6.
7.
there must be actual relinquishment by the person
insured of his interest in the thing insured.
There must be constructive total loss
The abandonment be neither partial nor conditional
It must be made within a reasonable time after receipt of
reliable information of the loss
It must be factual
It must be made by giving notice thereof to the insurer
which may be done orally or in writing
The notice of abandonment must be explicit and must
specify the particular cause of abandonment
BAR: Cargo shipping ran aground off the coast in Cebu and lost
all its cargo amounting to 50M. The ship itself suffered
damage of 80M – more than the value of the lost cargo. The
cargo owner filed a suit against the shipping company. The
shipping company invoked the Limited Liability Rule because
the vessel itself suffered damage more than the value of the
cargo. Is he correct in invoking limited liability rule?
!!
RA $%&%'
No, because the vessel did not sink or he did not abandon the
vessel.
To be able to recover from the total loss clause of the marine
insurance policy, either there is a total destruction or sinking
of the vessel or there must be constructive loss coupled with
abandonment on the part of the insured in favor of the
insurer.
BAR: One of the requirements of abandonment in notice to the
insurer. It is a notice that the insured is abandoning his
interest in the vessel in favor of the insurer. Is notice to the
ship agent sufficient?
Yes. Notice to the ship agent is considered a valid notice to the
shipping company and therefore considered a valid notice as
well to the insurer.
JURISPRUDENCE:
Isabela Roque, doing business under the name and style of
Isabela Roque Timber Enterprises, et al., v. The Intermediate
Appellate Court, et al.
The evidence shows that the loss of the cargo was due to the
perils of the ship; that the sinking of the barge was due to
improper loading of the logs on one side so that the barge was
tilting on one side and for that it did not navigate on even keel;
that it was no longer seaworthy that was why it developed leak.
A loss which, in the ordinary course of events, results from the
natural and inevitable action of the sea, from the ordinary wear
and tear of the ship, or from the negligent failure of the ship's
owner to provide the vessel with proper equipment to convey
the cargo under ordinary conditions, is not a peril of the sea but
such a loss is rather due to what has been aptly called the 'peril
of the ship.' The insurer undertakes to insure against perils of
the sea and similar perils, not against perils of the ship.
Cathay Insurance Co., v. The Court of Appeals, et al.
The rusting of steel pipes in the course of a voyage is a “peril of
the sea” in view of the toll on the cargo of wind, water, and salt
conditions.
Philippine Home Assurance Corporation v. Court of Appeals
Fire may not be considered a natural disaster or calamity since
it almost always arises from some act of man or by human
means. It cannot be an act of God unless caused by lightning or
a natural disaster or casualty not attributable to human agency.
In the case at bar, it is not disputed that a small flame was
detected on the acetylene cylinder and that by reason thereof,
the same exploded despite efforts to extinguish the fire. Verily,
the cause of the fire was the fault or negligence of ESLI.
Filipino Merchants Insurance Co., Inc., v. Court Of Appeals
A marine insurance policy providing that the insurance was to
be “against all risks” must be construed as creating a special
insurance and extending to other risks than are usually
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contemplated, and covers all losses except such as arise from the
fraud of the insured. The burden of the insured, therefore, is to
prove merely that the goods he transported have been lost,
destroyed or deteriorated and thereafter, the burden is shifted
to the insurer to prove that the loss was due to excepted perils.
In the present case, there being no showing that the loss was
caused by any of the excepted perils, the insurer is liable under
the policy.
Choa Tiek Seng, doing business under the name and style of
Seng’s Commercial Enterprises v. The Court of Appeals
An “all risks” provision of a marine policy creates a special type
of insurance which extends coverage to risks not usually
contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to peril falling within the
policy’s coverage. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the
loss from coverage but in this case, the damage caused to the
cargo has not been attributed to any of the exceptions provided
for nor is there any pretension to this effect.
II.
Ø
FIRE
Fire, per se, is not a force a force majeure, unless caused
by natural calamities.
In the context of Insurance Code, what do you mean by Fire
Insurance? Is it limited to fire under IC, loss arising from fire,
lightning, windstorm, tornado, earthquake and other allied
risks?
There’s no hurricane in the Philippines. If you look at the
enumeration, there is no typhoon. Typhoon will fall under
tornado. But it depends on how your policy is couched.
Because there is no hurricane, we have habagat, it has to be
clearly spelled out in the policy to be sure. So even though the
fire insurance includes loss from fire, lightning, earthquake,
etc., so if to include earthquake, it must be specified in the
policy and limited to fire. You can extend the coverage to
include all of these items so long as the policy is clear.
What kind of fire can be insured against?
Insurer is liable for loss due to hostile fire.
It is not liable if loss is due to friendly fire (but tell me, is there
a fire that is friendly? 😂)
Friendly fire v. Hostile Fire
Friendly – If it originated in the place where it should be, and
stays or is confined there. If it did not originate from the place
where it should be, then it is not insurable.
Hostile – if it does not originated in the place where it is
intended to be and becomes uncontrollable.
BAR: U lives in Baguio with a fire furnace. The servant placed
lumber materials in the furnace so smoke was emitted from
the furnace and destroyed the furnishings and curtains. Can
!#
RA $%&%'
he recover? Is it friendly or hostile? Take note that the loss
was not due to fire but due to the smoke emitted from the
furnace.
It is a friendly fire, not hostile fire. Thus, insured cannot
recover.
Unless he obtains a marine all-risk insurance policy. As you all
know, marine insurance is not limited to marine
transportation. It can be any or all conceivable loss or damage.
But if it is only fire insurance, the damage has to be due to a
hostile fire, not a friendly fire.
Example from old books still applicable: Damage caused from
smoke from a kerosene lamp where there is an ignition that
occurred outside the lamp. That is a friendly fire because it
originated from the place where it should be.
BAR: If the insured obtains 3 insurance coverage from 3 fire
insurance companies. How much can he recover? The value of
the house is 100M. He obtained insurance policies for it from
A- 100M, B-50M, and C-50M. So total value is 100M.
Can the insurer rescind the policy because insured procures
additional insurance coverage.
It depends.
Remember the concept – additional insurance avoids the
policy only if prohibited by the party. So if any of the insurers
prohibits additional policy, then the obtention of the
insurance policy entitles the insurer to rescind the policy.
But if there is no prohibition, this is a case of double insurance
which is not prohibited by law. There is double insurance in
this case because there is one person insured by two or more
insurers with respect to the same subject matter, same risk
and interest.
From whom can the insured recover?
From any one of them. He can recover from A the entire
amount of 100M.
From the standpoint of the insured, he can recover from any
one of the insurer so long as it does not exceed the face value
of the policy of the insurer.
Example: For Insurance A, he can recover 100M or if he
decides to recover only 50M from A, he can recover 50M from
Insurance B, and zero from Insurance C. Or from Insurance A,
25M; from Insurance B, 25M; and from insurance C, 50M. as
long as it does not exceed the face value of the policy and the
value of the property.
Among the insurers, what is their liability?
In proportion to their liability. So in the case, A would be liable
for 50M, B is 25M, C is 25M. The formula is 300M divided by
200 x 100.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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What if the insured claims from the first insurer? He claimed
the entire amount from insurer A. That is within his right to
claim the proceeds of the insurance coverage, from which he
shall enforce the insurance policy?
The personal properties were transferred from one building
to another both in the PEZA zone but the first building was
devoted to automobile parts, second building was devoted to
acetylene materials. Again, same locality. No change in the city
but change from one building to another. The alteration was
done without the consent of the insurer. The adjuster was
presented by the insurer to prove that the change increased
the risk of insurance, the Supreme Court said that the insurer
is not liable because all the elements are present.
The paying insurer has the right to claim reimbursement from
the other insurance companies.
DIFFERENT KINDS OF POLICY IN FIRE INSURANCE:
VALUED POLICY – the value of the property is fixed by the parties.
The value is conclusive to the parties. There is no need to ascertain
it at the time of the loss as long as it does not exceed the face and
actual value of the property. It has to be construed not to exceed
the actual value. If it is valued beyond the real value, it is void
because the insurable interest is limited only to the value of the
property.
Ø
Ø
JURISPRUDENCE:
Development Insurance
Appellate Court
Measure of indemnity: replacement cost to restore the
thing to its original state before the risk insured against
Is it correct to say that there is no limit on the liability of the
insurer? That whatever is the value at the time of the loss is the
measure of liability?
III.
Ø
RUNNING OR SUCCESSIVE POLICY – successive policies that can
change from time to time
Without consent of the insurer – any alteration in the use or
condition of the thing insured entitles the insurer to rescind
the policy
2.
3.
4.
The use or condition of the thing must specified in the
policy. So there is no basis to talk about alteration in use
or condition of thing insured unless the policy specifies
the use and condition to the insured.
Use or condition was altered.
Without the consent of the insurer.
Change or alteration increased the risk of the insurance.
Intermediate
CASUALTY
Insurance covering loss or liability arising from accident or
mishap not covered or excluded by Fire or Marine Insurance
Contracts.
1.
Motor vehicle
2.
Liability insurance coverage
3.
Personal accidents insurance
4.
Insurance against theft
COMPULSORY MOTOR VEHICLE INSURANCE
What is required of operator and owner of land transportation
vehicle in highways?
They must procure a compulsory motor vehicle insurance
coverage against deaths, injury to a third party and/or
damage to the latter’s property.
Under what conditions can insurer rescind the policy?
1.
vs.
Examples:
No. The insurance liability must not also exceed the face value
of the policy.
EFFECT OF ALTERATION IN THE USE OR CONDITION OF THE
THING INSURED:
Corporation
As defined by Section 60 of the Insurance Code, an open policy
is one in which the value of the thing insured is not agreed upon
but is left to be ascertained in case of loss. This means that the
actual loss, as determined, will represent the total indemnity
due the insured from the insurer except only that the total
indemnity shall not exceed the face value of the policy. Where
the actual loss in an open policy has been ascertained, the factual
determination should be respected in the absence of proof that
it was arrived at arbitrarily.
Measure of indemnity: Face value of the policy
OPEN POLICY – The value of the loss is not ascertained but is
possibly ascertained at the time of loss. There is no amount as to
the value of the property specified in the policy. So the value is to
be determined by the parties at the time of loss. So the liability of
the insurer is based on the value ascertained by the parties at the
time of loss but not to exceed the face value of the policy.
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Is it compulsory on the part of the operator and owner of land
transportation vehicle to procure insurance covering damage
or is it limited to deaths or injuries caused to third persons?
If it does not increase the risk of the insurer, the insurer is not
entitled to rescind except if the policy provides that any
violation in the policy will avoid the same.
Malayan Insurance v. PAP Co.
!$ Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
The phrase used was and/or. Deaths, injury to third persons
and/or damage to the latter’s property. It means it is not
compulsory. What is compulsory is the third party liability in
case of death or injury to third persons.
XPN to the characteristic of an insurance contract which is
that it is personal and voluntary. Voluntary – based on the
agreement of the parties.
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Public highway or city highway? In general, all highways. You
cannot operate in highways unless you procured a
compulsory motor vehicle insurance coverage.
What is the purpose of this third party liability insurance
coverage?
To assure the victim and their dependents of financial
assistance from the insurers even if the motor vehicle
owner/operator is insolvent. It is intended to benefit third
persons.
May the injured party directly sue the insurer of the offending
vehicle despite lack of privity of contract? The driver was
negligent, figured in a collision resulting in injury to another.
Can the passenger or third party sideswiped sue the insurer
directly?
Yes. That is the concept of third party liability insurance
coverage. For the benefit of a third party. He may sue despite
lack of privity of contract. It is akin to stipulation pour atrui.
The stipulation binds the insurer having been accepted by the
third-party beneficiary.
When does the liability of the insurer accrue? Is it a defense that
there is no judgment yet finding the insurer liable? Driver
bumped vehicle resulting in injury to another?
Immediately upon occurrence of the injury or the event that
gave rise to the injury, not upon court action or court
judgment. It does not require any judgment against the
insurer. (Maglana vs. Consolacion)
Is a third party liability insurer liable solidarily with the
insured? A is a passenger of a vehicle operated by X. The vehicle
was hit from behind by a vehicle owned by Y, which was in turn
was also hit from behind by vehicle of Z. The injured party is A,
the passenger of X. What is the cause of action of A in this case?
Suppose each one of X, Y and Z has insurers.
Breach of contract against X where he is a passenger. Tort
against operator and driver of vehicle Y and Z.
Is the liability of insurer solidary with tortfeasor and common
carrier for breach of contract of carriage?
No. The liability of the insurer is not solidary with tortfeasor
and common carrier because its liability is based on the
amount set forth in the policy.
Arresgado vs. Tiu
The liability of the carrier and the tortfeasor is joint and
several. Liability of the owner/operator of vehicle X where A
was a passenger is solidary with the operator/driver of
vehicle X (breach of contract) and Y (tort).
The obligation of the insurer is based on the terms and
conditions set forth in the policy and not based on breach of
contract of carriage or tort as the case may be.
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Heirs of Poe vs. Malayan Insurance
It is settled that where the insurance contract provides for
indemnity against liability to third persons, 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 solidarily 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. The third-party liability of the insurer is only up to the
extent of the insurance policy and that required by law; and it
cannot be held solidarily liable for anything beyond that
amount. Any award beyond the insurance coverage would
already be the sole liability of the insured and/or the other
parties at fault.
DIFFERENT CLAUSES IN A COMPULSORY MOTOR VEHICLE
INSURANCE POLICY:
NO FAULT INDEMNITY CLAUSE
Ø
Any claim for the death or injury of a passenger may be
made without the need to establish fault or negligence on
the part of the insured/third party. It allows recovery up
to P15,000.
BAR: Against whom can you recover? For example, Vehicle A
was driven by A which collided with a gas tanker which in turn
hit Vehicle C where the injured passengers were onboard.
The injured passengers can claim from the insurer of the
vehicle where they were onboard. The insurer of the said
vehicle, in turn, may claim from the insurer of the offending
vehicle.
To whom can the injured party file a claim?
If the injured PASSENGER is a passenger or occupant or is
embarking/disembarking from a vehicle, then he can only sue
the vehicle where he is a passenger or he is embarking or
disembarking.
If the injured party is a PEDESTRIAN, he should file a claim
against the insurer of the offending vehicle.
What is the recourse of the insurer of the vehicle where the
passenger was embarking/disembarking?
It can proceed against the insurer of the offending vehicle.
A is a passenger of a vehicle owned by X, which was hit from
behind by vehicle Y, which was hit from behind by vehicle Z.
Injured party is A. So A filed a case against all of them. Can the
court order that each of the insurer to pay P15,000 to A?
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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No. If the injured PASSENGER is a passenger or occupant or is
embarking/disembarking from a vehicle, then he can only sue
the vehicle where he is a passenger or he is embarking or
disembarking. – against INSURER OF VEHICLE X only
c.
d.
e.
What is the recourse of the insurer of vehicle X?
It can proceed against the insurer of vehicle Y and Z.
f.
Perla Compania De Seguros, Inc. vs. Ancheta
In a collision between the IH Scout in which private
respondents were riding and a Superlines bus along the
national highway in Sta. Elena, Camarines Norte, private
respondents sustained physics injuries in varying degrees of
gravity. Thus, they filed with the Court of First Instance of
Camarines Norte a complaint for damages against Superlines,
the bus driver and petitioner, the insurer of the bus. The bus
was insured with petitioner for the amount of P50,000.00 as
and for passenger liability and P50,000.00 as and for third
party liability. The vehicle in which private respondents were
riding was insured with Malayan Insurance Co.
Irrespective of whether or not fault or negligence lies with the
driver of the Superlines bus, as private respondents were not
occupants of the bus, they cannot claim the "no fault
indemnity" provided in Sec. 378 from petitioner. The claim
should be made against the insurer of the vehicle they were
riding. This is very clear from the law. Undoubtedly, in
ordering petitioner to pay private respondents the 'no fault
indemnity,' respondent judge gravely abused his discretion in
a manner that amounts to lack of jurisdiction.
REQUIREMENTS BEFORE THE AGGRIEVED PARTY CAN
RECOVER IN NO FAULT INDEMNITY CLAUSE:
BAR 1989: What do you understand by the “no fault
indemnity” provision in the Insurance Code? What are the
rules on claims under said provision?
The “no fault indemnity” in the Insurance Code provides that
any claim for death or injury to a passenger or to a third party
should be paid without the necessity of proving fault or
negligence of any kind, subject to the following rule:
a.
b.
The total indemnity in respect of any person shall
not exceed P15,000 for all motor vehicles;
The following proofs of loss, when submitted under
oath, shall be sufficient evidence to substantiate the
claim:
b.1. Police report of accident; and
b.2. Death certificate and evidence sufficient to
establish the proper payee; or
b.3. Medical report and evidence of medical or
hospital disbursement in respect of which refund
is claimed.
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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.
BAR 1981: “X” owns and operates several passenger jeepneys
in Metro Manila. He entered into a contract with Gold Mine
Insurance & Surety Co., insuring the operation of his jeepneys
against accidents with third party-liability. During the
effectivity of the insurance, one of his jeepneys bumped “B”,
who had just alighted from another passenger jeepney whose
driver unloaded passengers in the middle of the street. “B”
suffered bodily injury as a consequence and filed a claim
against the insurance company. The latter refused to pay on
the ground that the driver of the jeepney from which
passenger “B” alighted was guilty of negligence in unloading
in the middle of the street, and that the driver of the insured
operator was not at fault. Can passenger “B” recover from the
insurance company? Explain.
Yes, passenger “B” may recover from the insurance company.
The insurance covers the operation of “X’s” jeepneys against
accidents with third parties; therefore, the insurance covers
the liability for death or body injuries of third persons, like
what happened to “B”, and the claim shall be against the
insurer of the directly offending vehicle (X’s vehicle).
Furthermore, any claim of this nature shall be paid without
necessity of proving fault or negligence of any kind, provided
that the total indemnity in respect of any person shall be in
accordance as provided under the law.
What right does the insured party has when his claim exceeds
P15,000?
He can recover the difference or excess from the wrongdoer
or the one who caused the death or injury.
Does it mean that he cannot recover more than P15,000?
He can recover but he has to prove all the damages. Limit in
No Fault Indemnity Clause: P15,000 (but without prejudice to
his claim against the wrongdoer)
AUTHORIZED DRIVER CLAUSE:
Ø
The driver at the time of the accident must be authorized
by a license to drive. The insurer is liable on the policy
only if the vehicle at the time of the accident is driven by
a person authorized by a license to drive.
It is not enough that it is a license, it must be a PROPER
LICENSE.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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License to drive a 10 wheeler truck is different from a license
to drive a 4 wheeler vehicle.
Stokes vs. Malayan Insurance
For the terms of the contract constitute the measure of the
insurer’s liability, and compliance therewith is a condition
precedent to the right of recovery. At the time of the accident,
Stokes had been in the Philippines for more than 90 days.
Hence, under the law, he could not drive a motor vehicle
without a Philippine driver’s license. He was therefore not an
“authorized driver” under the terms of the insurance policy in
question, and Malayan was right in denying the claim of the
insured.
Dean: Holders of Philippine license can drive the highways of
California or any city or state in USA for a period of 30 days
only. There is no need for an international license within that
period only. It also applies to foreigners in the Philippines.
Must the driver of the vehicle insured be a licensed driver?
If it is the insured himself who drives the car, he need not be
a licensed driver (without prejudice to his liability under the
Land Transportation Code), he can still claim from the insurer
– the insurer is liable.
But the driver is under the employ of the insured, if he is not
licensed, in case of injury, damage, or loss, the insurer will not
be liable.
For purpose of liability of the insurer, the authorized driver
clause found in compulsory motor vehicle insurance only
applies if the driver is a person other than the insured.
If the person is not insured, under what conditions may the
insurer be held liable under the compulsory motor vehicle
insurance policy?
1.
The driver must be permitted by the insured to drive the
motor vehicle
2.
The driver, other than the insured is in possession of a
valid driver’s license to operate the vehicle
Palermo vs. Pyramid Insurance
There is no merit in the appellant's allegation that the plaintiff
was not authorized to drive the insured motor vehicle
because his driver's license had expired. The driver of the
insured motor vehicle at the time of the accident was, the
insured himself, hence an "authorized driver" under the
policy. While the Motor Vehicle Law prohibits a person from
operating a motor vehicle on the highway without a license or
with an expired license, an infraction of the Motor Vehicle
Law on the part of the insured, is not a bar to recovery under
the insurance contract. It however renders him subject to the
penal sanctions of the Motor Vehicle Law. The requirement
that the driver be "permitted in accordance with the licensing
or other laws or regulations to drive the Motor Vehicle and is
!'
RA $%&%'
not disqualified from driving such motor vehicle by order of a
Court of Law or by reason of any enactment or regulation in
that behalf," applies only when the driver" is driving on the
insured's order or with his permission." It does not apply
when the person driving is the insured himself. The main
purpose of the "authorized driver" clause, as may be seen
from its text, is that a person other than the insured owner,
who drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of
the family or the employees of a car service or repair shop,
must be duly licensed drivers and have no disqualification to
drive a motor vehicle.
Under the Anti-Drunk and Drug Driving Act, is the insurer liable
for private motor vehicle policy or third party injury if the
insured or the driver is drunk or under the influence of drugs?
Sec. 5 provides that the insurer shall not be liable for private
motor vehicle policy or third party injury if the driver is under
the influence of alcohol, drugs or similar substances. Even the
injured third party cannot claim from the insurers.
Lao v. Standard Insurance:
If the license of the third party driving the private motor
vehicle prohibits him from driving a vehicle exceeding the
weight of 4,500, the insurer is not liable if the weight exceeds
4,500kg. The license provides for the extent of authority. To
clarify, the insurer is not liable only when the driver is not the
insured because if it is the insured who is driving, the claim
cannot be tolled.
THEFT CLAUSE
Ø
If the vehicle was unlawfully taken or taken without the
knowledge of the insured, the insurer is liable under the
theft clause. The authorized driver clause does not apply
if there is such a provision as to the theft clause. Even
though the thief has no driver’s license, the insured can
recover.
BAR: The car was taken for a joy ride and returned after 3
days. Will that trigger the application of the theft clause? Or
pinahiram tapos di na binalik? Will there be theft or estafa in
that case? (2014)
As long as the owner was deprived of possession, whether it
was taken for a joyride or for repairs but was used for another
purpose, as long as there was unlawful taking, theft clause will
apply. Theft does not only mean stolen but also deprivation of
possession without the consent of the insured.
People v. Austria: Even if the vehicle was returned, the theft will
trigger the application of the theft clause.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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Distinction between Theft Clause and Damage Clause
The insurer is liable to “A” under the “Theft Clause”. The
taking of a car even though temporary and only for a joy ride,
without the car owner’s consent is theft; and, therefore,
insurer is liable for total loss due to car accident of insured’s
car wrongfully taken, without the insured’s consent, from the
repair shop entrusted for repairs. (Villacorta v. Insurance
Commission, Oct. 28, 1980)
Case of Insurance v. Castor: Damage is different from loss.
Loss means to lose while damage means deterioration and
injury to the property.
Remember that there were two clauses, damage and theft
clause. The damage clause provided that the insurer is not
liable for damage caused to the vehicle if caused by the
insured, his family, employees and relatives. The theft clause
provided that the insurer is liable for the loss of the vehicle
regardless who caused it. The car was taken for repairs but
was stolen by the driver of the insured. The insurer denied the
liability by invoking the damage clause stating that the
damage was caused by the employee of the insured, therefore
an excepting circumstance in the policy. The SC said that it is
not the damage clause that should apply but theft clause.
Damage means deterioration or injury while theft means the
act of taking.
JURISPRUDENCE:
Fortune Insurance and Surety Co., Inc. vs. Court of Appeals and
Producers Bank of the Philippines
It should be noted that the insurance policy entered into by the
parties is a theft or robbery insurance policy which is a form of
casualty insurance. Except with respect to compulsory motor
vehicle liability insurance, the Insurance Code contains no other
provisions applicable to casualty insurance or to robbery
insurance in particular. These contracts are, therefore, governed
by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the
general principles of insurance law.
Villacorta vs. Insurance Commission
A car owner who entrusts his car to an established car service
and repair shop necessarily entrusts his car key to the shop
owner and employees who are presumed to have the
insured's permission to drive the car for legitimate purposes
of checking or road-testing the car. The mere happenstance
that the employee(s) of the shop owner diverts the use of the
car to his own illicit or unauthorized purpose in violation of
the trust reposed in the shop by the insured car owner does
not mean that the "authorized driver" clause has been
violated such as to bar recovery, provided that such employee
is duly qualified to drive under a valid driver's license. It is the
“theft clause”, not the “authorized driver” clause, that applies.
The situation is no different from the regular or family driver,
who instead of carrying out the owner's order to fetch the
children from school takes out his girlfriend instead for a joy
ride and instead wrecks the car. There is no question of his
being an "authorized driver" which allows recovery of the loss
although his trip was for a personal or illicit purpose without
the owner's authorization.
BAR 1981: “A” was the owner of a car insured with Fortune
Insurance Company for “Own Damage”, “Theft”, and “ThirdParty-Liability” effective May 16, 1977 to May 16, 1978. On
May 9, 1978, the car was brought to a machine shop for
repairs. On May 11, 1978, while in the custody of the machine
shop, the car was taken by one of the employees to be driven
out to a certain place. While travelling along the highway, the
car smashed into parked truck and suffered extensive
damage. “A” filed a claim for recovery under the policy but
was refused payment. The insurance company averred that
the car was not stolen and, therefore, was not covered by the
“Theft Clause.” Decide the merits of the insurer’s contention,
with reasons.
!(
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It has been aptly observed that in burglary, robbery, and theft
insurance, the opportunity to defraud the insurer—the moral
hazard—is so great that insurers have found it necessary to fill
up their policies with countless restrictions, many designed to
reduce this hazard. Seldom does the insurer assume the risk of
all losses due to the hazards insured against. Persons frequently
excluded under such provisions are those in the insured’s
service and employment. The purpose of the exception is to
guard against liability should the theft be committed by one
having unrestricted access to the property.
IV.
SURETYSHIP
Ø
Agreement whereby a party called the surety undertakes to
perform or secures the performance of the obligation of the
obligor in favor of the obligee.
Ø
Surety is liable solidarily with the obligor. Obligee may
proceed against anyone of the surety and the obligor. Same
concept in civil law except that in this case, in insurance law,
the surety is a bonding company or engaged in the business
of insurance, but principle wise, it is the same.
BAR: Can the obligee file a case against the insurer and can the
latter argue that the obligee must first seek recourse against
the obligor?
The obligee can choose between the obligor and surety of the
bonding company. The liability is joint and several.
Philippine Pryce Assurance Corp. vs. CA
The insured issued a premium in favor of a bonding company
and the check bounced (insufficient funds). But the bond has
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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been given to the obligee and the obligee accepted the bond. Is
the surety liable on the bond despite non-payment of premium?
work of the transmission line of the NPC by the contractor FEEI
was within the effective date of the contract and the surety bond.
Such abandonment gave rise to the continuing liability of the
bond as provided for in the contract which is deemed
incorporated in the surety bond executed for its completion.
Yes, because of the acceptance of the bond by the obligee.
Sec. 177 (IC): The surety is entitled to payment of the
premium as soon as the contract of suretyship or bond is
perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the
obligee has accepted the bond, in which case the bond
becomes valid and enforceable irrespective of whether or not
the premium has been paid by the obligor to the surety.
Finman General Assurance Corporation vs. William Inocencio,
et al.
Under Section 176 of the Insurance Code, as amended, the
liability of a surety in a surety bond is joint and several with the
principal obligor. Finman's bond was posted by Pan Pacific in
compliance with the requirements of Article 31 of the Labor
Code in order to guarantee compliance with prescribed
recruitment procedures, rules and regulations, and terms and,
conditions of employment as appropriate. While Finman has
refrained from attaching a copy of the bond it had issued to its
Petition for Certiorari, there can be no question that the
conditions of the surety bond include the POEA Rules and
Regulation. It is settled doctrine that the conditions of a bond
specified and required in the provisions of the statute or
regulation providing for the submission of the bond, are
incorporated or built into all bonds tendered under that statute
or regulation, even though not there set out in printer's ink.
When it is binding: The surety is liable even there is non-payment
of premium if the obligee accepts the bond. If for whatever reason
the bond was released by the surety and it was accepted by the
obligee, it shall be binding despite non-payment.
Liability of the surety: It depends on the terms and conditions of
the bond.
The basis of liability of surety is the principal contract itself. The
surety is liable/not liable if the obligor is liable/not liable based on
the principal contract.
CONTINUING BOND
Country Bankers Insurance Corporation vs. Antonio Lagman
A bond that does not expire or has no term. This is especially
true for NFA, warehouse operators. They are required to put
up a continuing bond in consideration for the authority or
license to store palay or rice in their warehouses.
Section 177 of the Insurance Code states that the surety is
entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding
unless and until the premium therefor has been paid, except
where the obligee has accepted the bond, in which case the bond
becomes valid and enforceable irrespective of whether or not
the premium has been paid by the obligor to the surety. A
continuing bond, as in this case where there is no fixed
expiration date, may be canceled only by the obligee, which is
the NFA, by the Insurance Commissioner, and by the court. 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.
Supposing the rice was lost, so the surety is liable to pay. When
can that bond be cancelled? What about future transactions? Is
the surety is liable? If the bond is continuing, how can it be
revoked?
It can be revoked by the consent of the obligee, the Insurance
Commission or the court.
The bonding company cannot cancel the continuing bond
without the consent of the obligee.
JURISPRUDENCE
First Lepanto-Taisho Insurance Corporation vs. Chevron
Philippines, Inc
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.
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First Lepanto-Taisho Insurance Corporation vs Chevron
Philippines
National Power Corporation vs. Court of Appeals, et al.
The surety bond must be read in its entirety and together with
the contract between NPC and the contractors. The provisions
must be construed together to arrive at their true meaning.
Certain stipulations cannot be segregated and then made to
control. In the case at bar, it cannot be denied that the breach of
contract in this case, that is, the abandonment of the unfinished
!) Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
The extent of the 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 its 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.
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V.
LIFE
Insurance relating to life or appertaining thereto or
connected therewith.
Ex: PERSONAL ACCIDENT INSURANCE
-
In case of death caused by accident to the insured, the
beneficiary is entitled to the proceeds of the policy
Finman vs. CA
There is no “accident” in the context of an accident policy, if it
is the natural result of the insured’s voluntary act,
unaccompanied by anything unforeseen except the injury.
There is no accident when a deliberate act is performed,
unless some additional and unforeseen happening occurs that
brings about the injury. This element of deliberateness is not
clearly shown from the facts of the case, especially
considering the fact that boy is a minor, and the injured
parties are also children.
A procured a personal accident insurance. He was murdered.
Can the beneficiary recover on that personal accident policy?
Yes. As long as the death was not due to the insured’s
wrongful or voluntary act, then it falls within the term
“accident”.
Insured participated in a boxing competition and a mortal blow
was received by him from his opponent. The insured died. Can
the beneficiary recover?
Yes. It was an accident and not a deliberate attack.
A was playing with a gun and he thought it was empty. He
placed the gun on his temple and it fired. Can the beneficiary
recover?
Yes. For as long as it was not due to the voluntary act of then
it falls within the term “accident”.
What happened if it was deliberate or intentional?
It will depend whether or not he committed suicide and
within what period the suicide was committed.
In suicide, within what period can the insurer be held liable to
pay the beneficiary?
If the insured commits suicide within 2 years from the
issuance of the policy or reinstatement, the insurer is not
liable.
EXCEPTION: When suicide is committed in the state of
mental illness/insanity, it shall be compensable regardless of
the date of commission, hence, the insurer is liable.
If the insured commits suicide after the policy has been in
force for a period of 2 years or more from the date of issue or
its last reinstatement, insurer is liable, unless the policy
provides a shorter period.
!*
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BAR 1995: Sun-Moon Insurance issued a Personal Accident Policy
to Henry Dy with a face value of P500,000. A provision in the policy
states that “the company shall not be liable in respect of bodily
injury consequent upon the insured person attempting to commit
suicide or willfully exposing himself to needless peril except in an
attempt to save human life”. 6 months later, Henry died of a bullet
wound in his head. Investigation showed that one evening Henry
was in a happy mood although he was not drunk. He was playing
with his handgun from which he had previously removed its
magazine. He pointed the gun at his sister who got scared. He
assured her it was not loaded. He then pointed the gun at his
temple and pulled the trigger. The gun fires and Henry slumped
dead on the floor. Henry’s wife, Beverly, as the designated
beneficiary, sought to collect under the policy. Sun-Moon rejected
her claim on the ground that the death of Henry was not accidental.
Beverly sued the insurer. Decide. Discuss fully.
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 the 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.
Is the insurer liable for life insurance if the insured was
executed for a crime?
The law does not insure the life of the insured against legal
execution even if he was in fact executed. It is against public
policy. Death penalty, if restored, is something that can be
insured against.
Is it possible for a life insurance policy to exclude suicide as
cause of death?
Yes. But if it is not excluded, and the insured committed
suicide, then the insured is liable.
Up to what period?
If the insured commits suicide after the policy has been in
force for a period of 2 years or more from the date of issue or
its last reinstatement
If the insured was killed or murdered and the insurance
company pays the beneficiary, can the insurance company be
subrogated to the rights of the insured? Can the insurer run
after the one who caused the death of the insured?
No, there is no subrogation in life insurance.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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How do we distinguish annuity from life insurance?
Annuity is payable during the lifetime of the person while life
insurance is payable upon the death of the insured.
In annuity, only a single premium is paid while in life
insurance, it is payable on installments.
In annuity, the insurer pays the admitant every year during
his lifetime, whereas in life insurance, the insurer pays upon
the death of the insured.
DIFFERENT KINDS OF LIFE INSURANCE:
Is it correct to say that the proceeds of life insurance are always
payable to the beneficiary? Is it correct to say that the insured and
the beneficiary can be one and the same person or are two
different persons when it comes to life insurance policy?
As you all know, in property insurance, the insured can be a
beneficiary. (ASSURED)
In life insurance, the insured is different from beneficiary. If
the insured dies, the proceeds go to the beneficiary. What are
the EXCEPTIONS (where the insured is also the beneficiary)?
1.
Annuity contract
2.
Endowment policy
ANNUITY CONTRACT – insured pays premium lump sum and
every year, the insurer pays annuity under the term of the policy.
The obligation to pay is extinguished upon the death of the
annuitant. The insured is also the beneficiary. He is the one
entitled to receive the annuity every year.
ENDOWMENT POLICY – just like in savings and investment. The
insured pays premium every so often depending on the terms of
the policy and it has a period/term, let’s say it’s good for 10 years,
every month or every quarter, the insured pays. If the insured
provides for the period, then the proceeds or the lump sum are
payable to him. The insured pays premium for a specified period.
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INDUSTRIAL LIFE POLICY – this insurance provides insurance
coverage to industrial workers – those who cannot afford to pay
premiums. Premiums are payable either weekly, monthly or every
2 months, etc. There is printed on the face of the policy “Industrial
Life Policy” and the amount of the policy is not to exceed 500x the
current daily minimum wage of Metro Manila.
It’s a form of insurance wherein premiums are paid weekly or
monthly or oftener, if the face value of the insurance is not more
than 500x the current statutory daily wage in Manila, and more
importantly, the words Industrial Policy are printed on the face of
the insurance contract. That’s what makes it Industrial Life
Insurance. The face amount or the value of the policy not more
than 500x the current daily wage in Manila and the words
Industrial Policy are printed or reflected on the policy itself.
What is the measure of indemnity in life insurance?
There’s no measure because there’s no price tag for one’s life,
except of course, insurance policy taken on the life of the debtor,
in this case, limited to the amount of the debt.
Hence, it is only the face value of the policy – the amount indicated
in the policy.
NON-FORFEITURE OPTION IN LIFE INSURANCE
A provision in the life insurance policy that allows the insured
to enjoy the benefits of his policy even though he has not paid
his premium under the grace period. The premium he has
paid is not forfeited despite the fact that he has not paid his
premium under the grace period to enjoy the benefit of his
policy.
Ex: Cash surrender value – usually after 3 years of the term
of the policy, it will have Cash surrender value in taking into
account what the insured pays. It is paid by the insurer upon
the surrender of the policy despite the non-payment of the
premium, it is not forfeited and it can be converted to cash.
Instead of forfeiting completely, it will be applied for payment
of premium up to certain term.
If the insured dies before the period of the policy ends, then the
beneficiary will be the one entitled to the proceeds of the
endowment policy. But if the insured does not die or survives the
term of the policy, then he is the one entitled to the lump sum
amount of the policy, in that case, he is also deemed beneficiary.
If it is an ordinary life insurance (term or whole life, not
annuity or not endowment policy) and the insured dies,
meaning it is payable upon the death of the insured, to whom
shall the proceeds be payable?
So, other than annuity contract or endowment policy, the proceeds
are payable to the beneficiary.
To the beneficiary, unless the beneficiary is wrongfully
designated, then proceeds will go to the estate of the insured
TERM LIFE INSURANCE – payable upon the death of the insured
but only if the death occurs within a certain period or term
WHOLE LIFE INSURANCE – no term; payable upon the death of
the insured
GROUP LIFE INSURANCE – insurance procured by a number of
persons; one policy covering various persons; they are issued
certificates of entitlement describing the details of the policy
Can life insurance policy be transferred?
Yes, by assignment, will or succession.
Is notice to the insurer necessary for transfer of life insurance
policy?
Not necessarily, unless the policy so requires.
Eg. Group life insurance covering the employees
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Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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JURISPRUDENCE:
Re: Claims for Benefits of the Heirs of the Late Mario vs.
Chanliongco, Adm. Matter No. I90-RET
Where a GSIS member failed to state his beneficiary or
beneficiaries in his application for membership, the proceeds of
the retirement benefits shall accrue to his estate and will be
distributed among his legal heirs in accordance with the law on
intestate succession.
The Insular Life Assurance Company, Ltd., vs. Carponia T.
Ebrado And Pascuala Vda. De Ebrado
A life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned for both are founded
upon the same consideration: liberality. A beneficiary is like a
donee, because from the premiums of the policy which the
insured pays, out of liberality, the beneficiary will receive the
proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally
operate in life insurance contracts. The conviction for adultery
or concubinage is not necessary before the disabilities
mentioned in Article 739 may effectuate. It would be sufficient
if evidence preponderates upon the guilt of the consort for the
offense indicated.
Sun Insurance Office, Ltd., vs. The Court of Appeals
There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most
accidents are caused by negligence. Lim was unquestionably
negligent and that negligence cost him his own life. But it should
not prevent his widow from recovering from the insurance
policy he obtained precisely against accident.
Heirs of Loreto C. Maramag vs. Maramag
The legitimate heirs of the insured who were not designated as
beneficiaries in the life insurance policies are considered third
parties to the insurance contracts and, thus are not entitled to
the proceeds thereof. The insurance companies have no legal
obligation to turn over the insurance proceeds to them. The
revocation of the common law spouse of the insured as a
beneficiary in one policy and her disqualification as such in
another are of no moment considering that the designation of
the illegitimate children as beneficiaries in the Insurance
Policies remains valid. Because no legal proscription exists in
naming as beneficiaries children of illicit relationships by the
insured, the shares of the common-law spouse in the insurance
proceeds, whether forfeited by the Court in view of the
prohibition on donation under Article 739 of the Civil Code or
by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of the legitimate heirs.
It is only in cases where the insured has not designated any
beneficiary, or when the designated beneficiary is disqualified
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by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the
insured.
VI.
COMPULSORY
INSURANCE
MOTOR
VEHICLE
LIABILITY
(see discussion on Casualty Insurance)
JURISPRUDENCE
Vda. De Maglana vs. Hon. Cosolacion
Insurer’s liability under Third Party Liability coverage accrues
immediately upon occurrence of injury or event upon which the
liability depends and does not depend on the recovery of
judgment by the injured party against the insured. Therefore,
insurer can be sued and held directly liable by the injured party
to the extent of the coverage
Heirs of George Y. Poe vs. Malayan Insurance Company, Inc.
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. The third-party liability of the insurer is only
up to the extent of the insurance policy and that required by law;
and it cannot be held solidarily liable for anything beyond that
amount.
Jewel Villacorta vs. The Insurance Commission
The main purpose of the “authorized driver” clause is that a
person other than the insured owner, who drives the car on the
insured’s order, such as his regular driver, or with his
permission, such as a friend or member of the family or the
employees of a car service or repair shop must be duly licensed
drivers and have no disqualification to drive a motor vehicle.
The mere happenstance that the employee(s) of the shop owner
diverts the use of the car to his own illicit or unauthorized
purpose in violation of the trust reposed in the shop by the
insured car owner does not mean that the “authorized driver”
clause has been violated such as to bar recovery, provided that
such employee is duly qualified to drive under a valid driver’s
license. It is the theft clause, not the “authorized driver” clause,
that applies.
James Stokes, as Attorney-in-Fact of Daniel Stephen Adolfson v.
Malayan Insurance Co.
Under the “authorized driver” clause, an authorized driver must
not only be permitted to drive by the insured but it is also
essential that he is permitted under the law and regulations to
drive the motor vehicle and is not disqualified from so doing
under any enactment or regulation. At the time of the accident,
Stokes had been in the Philippines for more than 90 days and
under the law, he could not drive a motor vehicle without a
Philippine driver’s license. He was therefore not an “authorized
driver” under the terms of the insurance policy in question, and
MALAYAN was right in denying the claim of the insured.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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Andrew Palermo vs. Pyramid Insurance Co., Inc
The requirement under the “authorized driver clause” that the
driver be “permitted in accordance with the licensing or other
laws or regulations to drive the Motor Vehicle and is not
disqualified from driving such motor vehicle by order of a Court
of Law or by reason of any enactment or regulation in that
behalf,” applies only when the driver “is driving on the insured’s
order or with his permission.” It does not apply when the person
driving is the insured himself.
Agapito Gutierrez vs. Capital Insurance & Surety Co
Where the driver’s temporary operator’s permit had expired,
and the insurance policy states that 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 policy, the expiration of the same bars recovery
under the policy. In liability insurance, the parties are bound by
the terms of the policy and the right of insured to recover is
governed thereby.
Perla Compania De Seguros, Inc., vs. Hon. Constante A. Ancheta
From a reading Section 378, the following rules on claims under
the “no fault indemnity” provision, where proof of fault or
negligence is not necessary for payment of any claim for death
or injury to a passenger or a third party, are established: 1.) A
claim may be made against one motor vehicle only. 2.) If the
victim is an occupant of a vehicle, the claim shall lie against the
insurer of the vehicle in which he is riding, mounting or
dismounting from. 3.) In any other case (i.e. if the victim is not
an occupant of a vehicle), the claim shall lie against the insurer
of the directly offending vehicle. 4.) 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.
E.
F.
INSURABLE INTEREST
There is insurable interest if the person is interested in
the preservation of the subject matter of the insurance.
Ø
I.
Ø
IN LIFE/HEALTH
Insurable interest in life, a person can take out an
insurance on his own life and designate anyone as his
beneficiary. And the beneficiary need not have insurable
interest on the life of the insured for as long as the
insurance is procured by the insured himself. The only
limitation on the power of the insured on the designation
is that it cannot designate as beneficiary those
disqualified to received donation under Art. 739 of the
Civil Code (NCC).
Section 10: Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
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(b) Of any person on whom he depends wholly or in part
for education or support, or in whom he has a pecuniary
interest;
(c) 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; and
(d) Of any person upon whose life any estate or interest
vested in him depends.
(a) Of himself, of his spouse and of his children;
Can the insured take out an insurance policy on his life and
designate his nephew, his niece, his gay friend, homosexual,
illegitimate children as beneficiary?
The answer, to all of them, YES. Anyone can be a beneficiary
as long as they are not disqualified under Art. 739.
Who are disqualified under 739?
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery
or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same
criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee;
and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action.
Why is there a distinction between number 1 and number 2?
In the first, there is no need for conviction; if they are in
adultery or concubinage, committing it without conviction,
they are disqualified. And the 2nd one, with conviction.
Actually there is no need for the 2nd one, pag sinabi in adultery
or concubinage, they should be disqualified.
BAR: Insured took out a life insurance on his own life and
designate his common law spouse as the beneficiary.
Indicated in the insurance policy, is that his common law
spouse is his legitimate spouse, and the insured dies. Who can
recover? Can common law spouse recover because the
insurance policy designates her as the legitimate spouse?
This is NOT allowed. It is not the designation in the policy that
is important. It is whether or not she a concubine or guilty of
concubinage with the insured, that makes her disqualified
from receiving the proceeds of the policy.
Is it correct to say that the policy is void?
NO. It is ONLY the designation that is void but NOT the policy.
Notes updated and arranged by: Dinty Dizon & Hazel Navarez (2017)
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Therefore, who can recover? Is it the lawful spouse or is it the
estate?
The correct answer is, if the designation is void, the proceeds
shall go to the estate of the insured in which case it will be
shared by his heirs.
In some other bar questions, the choices are simply between
the common law spouse and the lawful spouse. The insured
took out a life insurance policy on his own life and designated
his common law spouse as beneficiary, and the insured dies.
Can the common law spouse recovery? No. the other question
is who can recover? Who can retain the proceeds, the
common law spouse or the legitimate spouse? Legitimate
spouse even though she was not designated. The reason why
the lawful spouse who can recover based on that question is
that the proceeds will form part of the estate and the lawful
spouse is an heir of the insured.
Can the insured designate a cat as his beneficiary?
No, because it does not have the capacity to enter into a
contract.
What about a charitable institution? What about the society for
pets?
Yes. It is actually common to designate as beneficiary
charitable institutions and society or groups, with legal
personality.
It is a different story if a person takes out a life insurance over
the life of another and makes himself as the beneficiary. In this
case, he must have insurable interest on the life of the insured.
If it is on his own life, anyone can be a beneficiary except those
excluded by 739. If he takes out insurance policy to the life of
another, he must have insurable interest on the life of the
insured.
Under the law, insurable interest in life is the interest a person
has in his own life, his spouse and ascendants, children. That
is why the husband can take an insurance policy on his
spouse, his children because of his insurable interest on the
life of the spouse and the children.
Now on insurable interest over the life of his parents, having
taken out a life insurance policy over the life his mother? No.
Unless they fall under the other classification –that is, if he
relies on them for education and support.
Why are parents not included?
Because it is the parents that take out insurance policy on
their lives and designate their children as beneficiary. It is not
common for a child to take out an insurance policy on the life
of their parents and make them beneficiary. Because you do
not want to wish the death of your parents. So if you take out
a life insurance policy, it is as if you are asking them that they
die early, so that they could obtain the proceeds. That is why
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they are not included unless they would fall under the other
classification – that is, if they rely on their parents for
education or support.
BAR (2014): Maria and Juan met each other in Boracay, after
whirlwind romance, they got married. Juan took out a life
insurance policy on his spouse making himself as the
beneficiary; it turns out, that Maria is a transgender. If Maria
dies, can Juan obtain the proceeds of the policy?
If the question is limited on whether or not you can designate
a transgender or you can take out a life insurance on a
transgender, thinking that she is your spouse and make
yourself the beneficiary, the answer is NO, because the law
says “SPOUSE”. We do not recognized same-sex marriage in
the Philippines. Except that in 2014 question, it includes other
facts, like Juan relies on Maria for support, psychological
support (affection and love). The committee gave an answer
that the designation is valid – not because of the spouse but
because Juan relies on Maria for support.
Can an insured take out a life insurance policy on his boyfriend
who is a homosexual?
NO, because he has no insurable interest on the life of his
friend.
What about if the insured takes out a life insurance policy over
his own life and designates his homosexual friend as
beneficiary?
Yes, because we can designate anyone as beneficiary except
those qualified under Art. 739.
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
Persons whom he depends on education and support
As I said earlier, support is NOT limited to money. We included
psychological support – insurable interest exists.
(c) 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
Obligation
Any person who has legal obligation – obligation to pay money,
delivery property or render services. That is why the creditor can
take out a life insurance policy on the life of his debtor to the
amount of his debt.
BAR: Can a company or corporation take out a life insurance
policy on its General Manager?
Yes, because General Manager is under legal obligation to
render services to the company.
Keyman Insurance – basically an insurance you obtain on the life
of the “keyman” of the company – the most important person in
the company is the keyman; and it is because he renders service to
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the company. (Example: Divina Law as the beneficiary of a 50
Million Insurance Coverage)
(d) Of any person upon whose life any estate or interest vested
in him depends.
Pecuniary Interest
He has insurable interest on the life on a person on whom he
has pecuniary interest (Example: Usufractuary – Usufruct,
Can the usufractuary get a life insurance policy on the life of
the usufruct? Yes, because he has insurable interest over the
life of that person. The moment the person dies then loses all
the benefits that go with the usufruct,
BAR QUESTION (Maramag v. Maramag): The insured took out
an insurance policy on his life designating his common-law
spouse and illegitimate children as beneficiaries, and the
insured dies. Who is entitled to obtain the proceeds of the
policy? Is it the lawful spouse or is it the illegitimate children?
The illegitimate children – NOT the lawful spouse. The
designation of the common law spouse is void but not the
designation of the illegitimate children. There is no
prohibition on naming the illegitimate children as
beneficiaries and they are not disqualified by Art. 739.
What if the beneficiary predeceases the insured?
The proceeds shall form part of the estate of the insured if the
designation is REVOCABLE. If the designation is
IRREVOCABLE, it goes to the representatives of the
beneficiary.
Who can obtain the cash surrender value (CSV) of an
insurance policy?
Irrevocable – Beneficiary
Revocable – insured
JURISPRUDENCE
Philamcare Health System vs. Court of Appeals
Every person has an insurable interest in the life and health of:
1.) Himself, or his spouse and of his children; 2.) Any person: (a)
on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest; (b) under legal
obligation to him for the payment of money, respecting property
or service, of which death or illness might delay or prevent the
performance; and (c) upon whom whose life any estate or
interest vested in him depends.
Lalican vs. Insular Life Assurance Company Ltd
The existence of an insurance interest gives a person the legal
right to insure the subject matter of the policy of insurance.
Section 19 of the Insurance Code states that an interest in the
life or health of a person insured must exist when the insurance
takes effect, but need not exist thereafter or when the loss
occurs.
El Oriente Fabrica de Tabacos vs. Posada
An employer corporation has an insurable interest on its
manager where the death of the manager will be detrimental to
the corporation’s operations.
II.
DESIGNATION OF BENEFICIARY:
Unless otherwise provided, the designation of the beneficiary
is revocable. It being revocable, he can always be changed by
the insured. If it is revocable, as you know, another
beneficiary may be designated together with the 1st
beneficiary. So the beneficiary cannot claim vested right over
the designation if it is revocable.
BAR: Husband took out a life insurance policy on his own life
and designated his spouse as beneficiary. He suspected that
his spouse is having illicit relationship, having an affair. So
because of that, he changed his beneficiary from his spouse to
his children, and the insured dies. It only turns out that it was
only a suspicion – it was not true. The beneficiary spouse was
not, after all, having illicit relationship. Is she entitled to the
proceeds of the policy because the change was brought about
by mistake?
No, because the designation was revocable. It can be changed
anytime by the insured regardless of the reason. If it is
irrevocable, then it cannot be changed anymore or another
beneficiary can be added. The addition of beneficiary is void;
the change of beneficiary is void if the designation is
irrevocable.
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IN PROPERTY
What does insurable interest in property consist of?
a.
b.
c.
an existing interest;
inchoate interest founded on an existing interest;
expectancy coupled with an existing interest
BAR: Buyer purchase a property, made a down payment. Do
the buyer and seller have insurable interest on the property?
Buyer made a down payment; seller, of course, has not parted
with the ownership of the property because it only a contract
to sell. Do the buyer and the seller have insurable interest on
the property?
Seller - Yes. There is an existing interest.
Buyer – Yes. Inchoate interest found on existing interest –
becomes full interest once he pays the balance of the purchase
price.
What about a shareholder – Can the stockholder insure the
property of the corporation even though the properties are in
the name of the corporation?
Under the Doctrine of Separate Legal Entity, the corporation
has a personality separate and distinct from the stockholders
– and stockholders have no right to specific corporate
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property BUT for insurance purposes, the stockholder (SH)
can insure the property of the corporation. The SH has
inchoate interest founded on existing interest – its existing
interest is his shareholding in the corporation and the
inchoate interest is in ____ with the dissolution and liquidation
he will participate in the residual assets of the corporation.
Does the son have insurable interest on the property of his
father?
Mere expectancy not coupled with existing interest, hence NO
insurable interest in this case.
BAR: Does a shipowner have insurable interest on freightage?
Yes. Freightage – binabayaran ng cargo owner or shipper in
consideration of loading the cargo in the vessel.
Crops expected to be harvested – can the owner take out an
insurance policy on crops to be harvested?
Yes, he has insurable interest.
Crops just growing or about to grow?
Just the same, yes. He has insurable interest over the
property.
What is the measure of insurance interest on property?
To the extent that the insured will be damnified by the loss or
injury.
Let’s say, the maximum amount that you will recover from the
PDIC is 500K for individual accounts and 500K for your joint
accounts and the money he has deposited in the bank is more
than the limit provided for in the law, can he pay insurance
for the amount not covered by the PDIC? Yes. So if the bank
collapses, he will be damnified, if he will incur losses, he will
only recover X amount from the PDIC.
When must insurable interest exists?
For life, it must exists at the time of the perfection of the
contract and need not exist at the time of loss.
For property, it must exists at the time of perfection of the
contract and at the time of the loss.
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loss it being purchased by the President. The President on the
other hand, did not take out any fire insurance policy
therefore he is NOT entitled to recover anything from the
insurer. One step further, what if the President dies after his
term expired, can the corporation recover the proceeds of the
life insurance policy? Yes because it had insurable interest on
the life of the President at the time of the perfection of the
contract, and insurable interest in life insurance need not
exist at the time of the loss. The corporation is entitled to avail
of the proceeds of the life insurance policy even though the
President is no longer connected to it at the time of the loss
because that’s what the law says – insurable interest must
exist only at the time of the perfection of the contract in life
insurance policy.
Mortgagor took out an insurance policy on the mortgaged
property and of course, without designating the mortgagee as
the beneficiary and then the property was gutted by fire. Who
is entitled to the proceeds?
Only the mortgagor because the mortgagee is not a party to
the policy. But the me can claim on the proceeds of the
insurance because it stands by taking the place of the
mortgaged property.
So this time, the mortgagor designated the me as the one
entitled to receive the proceeds of the policy, the beneficiary of
the property, and then the loss occurs. Can the me recover from
the insurance?
NO because he is not a party to the insurance policy, he was
just named as the beneficiary in the policy but he has a lien on
the proceeds of the insurance. He can recover the same from
the mr but not directly from the insurer.
What if the policy is assigned to the mortgagee. He is
designated as the beneficiary but the policy is assigned to the
beneficiary and the loss occurs, can the me now recover?
Transfer/ assignment of the policy is allowed after the loss.
After the loss, he has a vested right to the proceeds of the
policy and hence, he can simply assign it in favor of anyone, in
this case, the me.
The mortgagor and the mortgagee take out separate insurance
Let’s say X corp hired Juan Dela Cruz as its President, being
policies. We all know it’s allowed. The mortgagor has insurable
the President he was given perks and other benefits. One of
interest to the extent of the value of the property, mortgagee
the perks of being the President is to have his own house,
has insurable interest to the extent of the amount of
purchased for him by the corporation and it also took out a
indebtedness. mortgagor committed arson, does that affect the
life insurance policy on his life and made the corporation as
right of the mortgagee?
the beneficiary. At the same time, the corporation took out a
The mortgagee can recover despite the acts of the mortgagor.
fire insurance policy on the property where he is staying.
on his own insurance policy. He can avail of the proceeds of
After his term as President, he was not renewed by the
such insurance regardless of the acts of the mortgagor.
corporation, he decided to purchase the property and then
the loss occurs. Who is entitled to the proceeds of the fire
If the mortgagee was designated as beneficiary, or the policy
insurance policy, is it the corporation or the President?
was assigned to the me, in that case the acts of the mortgagor
NEITHER, because the corporation cannot recover because it
has no insurable interest on the property at the time of the
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will affect the me. But it’s a different story all together if the
me take out a separate insurance policy.
Me foreclosed the mortgage and thereafter, me took a fire
insurance policy and then the mortgagor obtained a loan from
C who pay off the me. Who of them has insurable interest?
A- yes, B-yes, C-No because a creditor has no insurable
interest on the property of the debtor.
The loss occurs. The mr and me can recover on their own
separate insurance policies. C cannot recover for lack of
insurable interest
Be careful with regard to redemption period
If the loss occurs during the redemption period, the insured (ID)
can still recover because he has not lost insurable interest.
If the loss occurs after the expiration of the redemption period, he
can no longer recover the proceeds of the policy because he has
lost insurable interest. It is consistent with what we said that in
property insurance, insurable interest must exist at the time of the
perfection of the contract and at the time of the loss.
Be mindful of the dates in the question
Judgment Debtor
Dr obtains a loan from the CR, no mortage. Can the cr get fire
insurance policy on the property of the dr?
No. he can take out an insurance on the life of his dr to the
extent of the debt but he cannot obtain insurance on the
property of his dr for lack of insurable interest.
What if he obtains a judgment, he levies on a specific property
of the dr, can he now obtain insurance policy on that property
levied on execution?
This time the answer is yes because he has now inchoate
interest (founded on existing interest) on the property. That
interest will be a full interest if redemption is not exercised by
the judgment debtor.
Let’s say the dr was able to obtain insurance on those
properties and then the loss occurs. of course, the general
creditor cannot recover on that policy because it was
procured by the dr. if the loss occurs, during the redemption
period then the dr can still recover. And redemption period as
you all know is one year from the date of the registration of
the sale.
Beyond that, no more insurable interest. (know the periods
and the principles regarding redemption period)
How do we distinguish insurable interest in life from insurable
interest in property?
Life
Basis
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Property
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At the time of the
perfection of the
contract and need
Not exist on the
time of the loss
As to when it
shall exists
At the time of
perfection of
contract and at
the time of the
loss
There is no price
tag to one’s life, so
therefore,
the
amount indicated
on the policy.
As to extent
Up to the
extent that the
insured will be
indemnified.
Exception:
insurance on the
life of the debtor,
limited to the
amount of the
indebtedness
It depends. If the
person takes out
an insurance on
his own life, he
can
designate
anyone
as
beneficiary
As
beneficiary’s
interest
to
The Insured
must
have
insurable
interest on the
property
No exception
EXPN: 739, NCC
And
the
beneficiary need
not
have
insurable interest
in the life of the
insured
But if a person
takes out a life
insurance policy
on the life of
another
and
designates
himself as the
beneficiary, then
he must have
insurable interest
on the life of the
insured.
BAR (3x-the last one 2 years ago): Regarding post-dated
check, what is the effect regarding payment of post-dated
check? Does it produce the effects of payment, if not
encashed? Can the insured recover if the loss occurs even
though he only issued a post-dated check?
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Well if the loss occurs before the date appearing on the check,
then the insurer is liable. If the loss occurs after the date of the
check, then the insured cannot recover.
What if the check is funded or not funded? Is that a
consideration? Meaning, is it important to consider that the
check is funded or not?
What is important is the date of the post-dated check. So if it
bears a date prior to the loss but remains unencashed, then
the insurer is liable. So if there is a date prior to the loss, then
the insured may recover.
What if it turns out anyhow that the check is not funded?
Although this is not the case mentioned in American Home vs.
Chua, what if the check is not funded and the loss occurs
already? The loss occurs already before it could be enchased
or before the payee can determine if the cash is funded or not?
As I said, in that case, there was no mention of whether or not
the check was funded. It was only a post-dated check and the
loss occurs before the date appearing on the post-dated check.
Insured allowed to recover. Let’s go one step further, what if
when presented for payment, the check turns out to be
unfunded? So can the insured still recover? Or if he recovers,
can he be obliged to return what he received from the
insurance company? Well, we likened this to credit extension.
If credit extension is allowed, with more reason that a two day
difference from the time of the presentment of the check or
from the date the check was presented will not matter. So in
other words, if it is not funded, it will amount basically to a
credit extension granted to the insured and if the loss occurs
during the credit extension, then the insured, as we said
earlier, can recover.
Just to correlate also, although we will discuss this in policy,
there is a term or concept called cover note, provisional slip,
provisional receipt.
Spouses Nilo Cha and Stella Uy Cha vs. Court of Appeals
A non-life insurance policy such as the fire insurance policy
taken by spouses Cha over their merchandise is primarily a
contract of indemnity. 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 of insurable
interest in property insured 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. In such
a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code.
Malayan Insurance Company vs. PAP Co. Philippine Branch
With the transfer of the location of the subject properties,
without notice and without the insurer’s consent, after the
renewal of the policy, the insured clearly committed
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concealment, misrepresentation and a breach of a material
warranty. Section 26 of the Insurance Code provides that a
neglect to communicate that which a party knows and ought to
communicate, is called a concealment. 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. Section 168 of the Insurance Code provides,
as follows: An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control
of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
III.
DOUBLE INSURANCE AND OVERINSURANCE
DOUBLE INSURANCE, CO-INSURANCE, OVERINSURANCE
Double insurance is not void. Double insurance is in fact, allowed
by law. What is not allowed is over insurance. So you can have as
many insurers as you want on the same property, as long as there
is no over insurance.
What about additional or co-insurance?
As you all know, there is a case in your outline, likewise asked
in the bar many times. If the policy prohibits the insured from
obtaining additional insurance, a co-insurance without the
consent of the insurer, and the insured procured accordingly
then the insurer is not liable. It’s not a question of double
insurance, it’s a question of violation of the policy that
prohibits a second insurance without the consent of the
insurer.
We’re clear that double insurance is not a void policy as long
as there is no over insurance. Over insurance defeats the
indemnity feature of a contract of insurance. However, if the
policy prohibits the second or subsequent insurance, and the
same is procured then the insurer is not liable.
ELEMENTS OF DOUBLE INSURANCE: (PT-SIR)
1.
2.
3.
4.
5.
Same person
Two or more insurers
Same Subject matter
Same interest
Same risk
Ex: There is no double insurance of the mortgagor procures a
fire insurance on the property independently of the fire
insurance procured by the mortgagee. For the simple reason
that, they are not the same person; and the interest are
different. The interest of the mortgagor corresponds to the
value of the property while the mortgagee is on the payment
of the obligation.
BAR (Malayan v. Wyeth): Wyeth procured all-risk marine
insurance policy against ABC insurance, covering all risks on
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the products of Wyeth. And these products are delivered to
various customers so Wyeth engaged the transportation
company, a CC and condition on the contract of carriage that
the CC, Equitable in that case, will procure an insurance
coverage likewise to cover for any loss or damage to the goods
while they are delivered to various customers of Wyeth. One
of the containers was hijacked before they could be delivered
so Wyeth filed a claim against the insurance company. The
insurance company paid Wyeth and then ABC company
sought reimbursement from Equitable Transportation
Company (ETC), ETC filed a claim for indemnity from XYZ
Company. XYZ Insurance Company refused to pay on the
ground that there is double insurance. Is there a double
insurance in this case?
There is no double insurance in this case because there are 2
persons, NOT just one, person procuring the insurance
coverage and the risk insured against is different. So in case
Wyeth, insurance covers its title to the goods whereas the risk
insured against by ETC is the safety of the goods. They may
have the same subject matter but it is not the only element in
double insurance. Here we have two persons and different
interests. Wyeth’s is over the goods while the interest of the
forwarder is the possible liability in case the goods are lost.
As to a mortgaged property, the mortgagor and the mortgagee
have each an independent insurable interest therein and both
interests may be covered by one policy, or each may take out a
separate policy covering his interest, either at the same or at
separate times. The mortgagor's insurable interest covers the
full value of the mortgaged property, even though the mortgage
debt is equivalent to the full value of the property. The
mortgagee's insurable interest is to the extent of the debt, since
the property is relied upon as security thereof, and in insuring
he is not insuring the property but his interest or lien thereon.
Great Pacific Life vs. Court of Appeals
Where a mortgagor pays insurance premium under group
insurance policy (Mortgage Redemption Insurance), making
loss payable to mortgagee, the insurance is on mortgagor’s
interest, and mortgagor continues to be a party to the contract.
In this type of policy insurance, mortgagee is simply an
appointee of the insurance fund, such loss-payable clause does
not make mortgagee a party to the contract.
F.
PERFECTION OF THE CONTRACT OF INSURANCE
Application – the insured has the duty to disclose all material facts
known to the insured. Material facts pertain to facts known and
ought to be known as of date or before the effectivity of the policy.
Armando Geagonia vs. Court of Appeals
A double insurance exists where the same person is insured by
several insurers separately in respect of the same subject and
interest. Since, the insurable interests of a mortgagor and a
mortgagee on the mortgaged property are distinct and separate,
the two policies of the PFIC do not cover the same interest as
that covered by the policy of the private respondent, no double
insurance exists.
Malayan Insurance Co., Inc., vs. Philippine First Insurance Co.,
Inc. and Reputable Forwarder Services, Inc.,
By the express provision of Section 93 of the Insurance Code,
double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and
interest. The requisites in order for double insurance to arise
are as follows: 1.) The person insured is the same; 2.) Two or
more insurers insuring separately; 3.) There is identity of
subject matter; 4.) There is identity of interest insured; and 5.)
There is identity of the risk or peril insured against. In the
present case, even though the two 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.
IV.
MULTIPLE/SEVERAL INTERESTS ON THE SAME
PROPERTY
Armando Geagonia vs. Court of Appeals
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I.
OFFER AND ACCEPTANCE (CONSENSUAL)
BAR (3x): The prevailing rule in our jurisdiction is the cognition
theory – the insurance contract is perfected not so much by the
meeting of the minds of the parties but only upon knowledge by
the insured that the insurer has accepted his offer for insurance
coverage.
June 1 – Juan dela Cruz applied for Fire Insurance. June 5 – it
was accepted but not made known yet to Juan dela Cruz. June
10 – the acceptance was mailed. June 15 – fire destroyed the
property. June 20 – the insured learned the acceptance of the
insurer. Can the insured recover?
He cannot because of the cognition theory.
This is the correct answer in the bar because this is how the
question was framed. This is the expected answer from the
standpoint of the examiner, the answer given by the UPLC. But
this should be modified by the rules on premium payment. So
it is not enough to say that the contract of insurance is
perfected once the insured learned the acceptance of the offer
by the insurer. It is premised on the payment of premium. So
no amount of acceptance would make it perfected if there is
no premium payment unless it falls under the exception.
Is the insurer obliged to discuss the terms and conditions of the
contract to the insured?
No.
Even if the insured is illiterate, there is still no obligation
because he signed the contract, he signed the terms and
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condition. The presumption is if he signs, he understands,
adheres to the terms and conditions of the contract.
What happens in case of transfer of interest in the property
without corresponding transfer in the policy?
The contract of insurance is suspended.
If the owner of the insured property sells, and then the risk
insured against occurs, neither the seller-owner or transferee
will recover or is entitled to the proceeds of the fire insurance.
Why is the seller-owner (the original insured) cannot recover
from the proceeds of the insurance?
Because he has no more insurable interest on the property
when the loss occur. The insurable interest on property must
exist in both when the policy took effect and at the time of the
loss. In this case, the seller-owner has insurable interest when
the policy took effect but no insurable interest at the time of
the loss.
What about the transferee?
No. He has insurable interest in the property because he is the
owner but he is not the owner as specified in the policy. It is
not enough to have insurable interest in the subject matter of
the insurance. It is also important that your insurable interest
is specified to be protected in the policy itself.
He can only recover when there is corresponding transfer of
interest in the policy itself in favor of the transferee.
EXCEPTIONS: Cases where despite transfer of interest in the
policy and property, the contract is not suspended. (LASWIC)
1.
2.
3.
4.
5.
6.
Life, Accident, Health Insurance – because this principle
of suspension in connection with transfer of property,
only applies transfer insurance.
After the occurrence of the loss – because there is vested
right in favor of the insured.
One or several things insured in one policy – example is
when there are, say, three properties insured in the same
policy, and only one was sold, when the insured against
occurs, the insured may recover with respect to the
unsold property.
Wills and succession – because transfer takes effect by
operation of law
Inure – the policy is framed ins such a way that the
benefits inured to whoever may be the beneficiary
designated in the policy regardless of the period of the
loss
If it is assigned to transfer to a co-owner or a partner
JURISPRUDENCE:
People of the Philippines vs. Yip Wai Ming
an application form for insurance, fill it up at home before
filing it with the insurance company. In fact, the very first
sentence of the form states that it merely “forms the basis of
a contract between you and NZILife.” There was no contract
yet. Furthermore, there is no proof that the insurance
company approved the proposal, no proof that any premium
payments were made, and no proof from the record of
exhibits as to the date it was accomplished. It appearing that
no insurance was issued to Lam Po Chun with accusedappellant as the beneficiary, the motive capitalized upon by
the trial court vanishes.
Great Pacific Life Assurance Company vs. Honorable Court of
Appeals
Where the provisions in the binding deposit receipt shows
that it is intended to be merely a provisional or temporary
insurance contract and the same is merely an
acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance
premium and had accepted the application subject for
processing by the insurance company, the acceptance thereof
is merely conditional and is subordinated to the act of the
company in approving or rejecting the application. Since
Pacific Life disapproved the insurance application, the
binding deposit receipt in question never become in force at
any time since in life insurance, a "binding slip" or "binding
receipt" does not insure by itself.
Malayan Insurance Co., Inc. vs. Gregoria Cruz Arnaldo, in her
capacity as the Insurance Commissioner, et al.
For a valid cancellation of the policy,the following requisites
must concur: 1.) There must be prior notice of cancellation to
the insured; 2.) The notice must be based on the occurrence,
after the effective date of the policy, of one or more of the
grounds mentioned; 3.) The notice must be (a) in writing, (b)
mailed, or delivered to the named insured, (c) at the address
shown in the policy; 4. It must state (a) which of the grounds
mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the
facts on which the cancellation is based. MICO claims it
canceled the policy in question for non-payment of premium.
However, there is no proof that the notice, assuming it
complied with the other requisites, was actually mailed to and
received by Pinca.
II.
a. Delay in Acceptance
b. Delay of Policy
PREMIUM PAYMENT
Premium is the consideration received by the insurer on
undertaking to indemnify the insured against loss, damage, or
liability arising from an unknown or contingent event.
It needs not much emphasis to say that an application form
does not prove that insurance was secured. Anybody can get
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The insurance contact is not in effect if there’s no insurance
payment or not paid in full, then the insurance is deemed
abrogated not just suspended.
Case not yet asked in the Bar: Jose Marques and Maxilite
Technologies, Inc., vs. Far East Bank And Trust Company
The bank granted er (?) facility and credit accommodation to
the entrustee. The entrustee insured the good against fire and
the fire insurance coverage was provided by Manila Bankers
Insurance and the broker that facilitated the insurance policy
was Far East Bank brokers. So the bank is the entruster and
therefore, the beneficiary of the fire insurance. The fire
insurance was procured by the entruster in favor of the
entrustee bank and insurance coverage was supposed to be
afforded by Manila Bankers. The broker was Far East Bank
broker. The insurance company had been made to believe
that premium had been paid and the payment had been
deducted from the account of the entrustee. When in truth
and in fact no such payment was deducted from the entrustee.
So there was representation made that premium had been
deducted from the account of the entrustee but not received
by the insurer.
The Supreme Court said that despite the estoppel or
representation that premium has been paid when there was
no premium that has actually been paid, then there is no
insurance coverage. The insured cannot recover.
Who is liable?
It is also the fault of the entrustee insured that his account has
been deducted all along he thought that the account had been
deducted over the monthly premium. He was led to believe
that premium has been paid but it was not so. So n valid
insurance contract, the insured cannot recover, however, Far
East Bank who made the representation that account had
been deducted should be held liable.
From the standpoint of the insurer, no insurance liability
because premium had not been actually remitted.
So the one who made the representation that premium had
been paid was the one made liable.
Cash-and-carry rule – no premium payment, no valid insurance
policy.
EXCEPTIONS: (LIA-S-ICE)
1.
2.
3.
4.
5.
6.
7.
Life
Industrial Insurance
Acknowledgment
Suretyship – the obligee has already accepted the bond
which makes the contract of suretyship perfected even if
no premium has been paid. Philippine Pryce v. CA
Installment Payment – Makati Tuscany v. CA
Credit Extension
Estoppel
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Installment payment
We said this is allowed. So in case of four installment
payments and the loss occurs after the second installment
payment, the insured can recover the full amount without the
condition to pay the balance of the premium. This is if
installment is allowed or stipulated by the parties.
Credit Extension
Let’s say the policy had been issued but the premium has not
been paid yet because the insurer gave the insured 90-day
credit. Under the amendment of Insurance Code, RA 10607,
the maximum period allowed in credit extension is not more
than 90 days.
BAR: So it is possible for the insurer to give the insured a
period to pay the premium. What happens if the loss occurs
during that credit period (premium had not been actually
paid)?
If payment of premium is allowed on credit basis and no
premium has been actually paid, the insured can recover
provided the loss occurs during the credit period.
BAR: What If during that period, insured issued a promissory
note? The loss occurs during the credit period. Can the
insured recover on the strength of mere promissory note?
Yes. If credit extension is allowed, any mode of payment
will be accepted by the parties so long as the loss occurs
during the credit period.
BAR: What about checks? or PDC?
As long as the loss occurs during the credit period, the
insured may recover. Payment of PDC is tantamount to
credit basis. So in effect, by agreeing to accept payment
through Post-dated checks, the insurer gives the insured
a credit extension as long as the PDC is not longer than
90 days from the issuance of the policy.
What if the check turns out unfunded? Check was dishonored
for being unfunded or insufficient funds. Can insured recover?
The correct answer based on Capital Insurance v. CA is
even though the PDC was being dishonored for
insufficient funds, as long as the loss occurs during the
credit period, then the insured may recover.
Always look at the period when the loss happened.
What is a cover note?
A cover note is a temporary insurance protection.
If the loss occurs during the period of the cover note, can the
insured recover?
The answer is, as you all know, yes, right?
Can he recover even though no premium is paid during that 60day period of the cover note?
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And the answer again is yes.
Cover note – 60 days
Now why am I bringing this up even though we’re supposed
to take this up under policy? Because this has to be taken in
relation to our discussion on the exceptions to non-payment
of premium. So is it not enumerated, the cases wherein the
insurer is liable despite non-receipt of premium? So where
does cover note come into the picture?
Credit Extension – 90 days
Let’s repeat. Under the Insurance Code, the insurer issued a
cover note the insured and cover note means temporary
insurance protection coverage. If the loss occurs during the
60-day period of the cover note, insured may recover from the
insurer even though no premium is actually paid. The
expectation is, after 60 days, the policy will be issued by the
insurer to the insured and then that’s the time that he can pay
the premium. So if the loss occurs during the 60-day period,
what happens now? Can he still recover? We said yes. So how
do you construe this in relation to our discussion on
exceptions? So cover note should be akin to a credit extension.
It’s similar to a credit extension if the loss occurs during that
period.
In the course of your readings also of the cases, I’m sure you
have read… there’s one case where there was
acknowledgement of the policy by the agent subject to
approval by the head office and the agent issued a provisional
receipt or policy.
Is a provisional receipt similar to a cover note?
A cover note is different from provisional slip or receipt.
Cover note is allowed by law. In that case that I was
mentioning, if the agent issues a provisional slip that says
subject to the approval of the head office and the loss occurs
before the same can be approved by head office, can the
insured recover? And the Supreme Court said no because a
provisional receipt is not tantamount or similar to a cover
note. It does not extend or give protection to the insured.
What if the acknowledgment of the policy is coupled with
acknowledgement of receipt of premium by the agent but no
premium was actually paid? Then it becomes an exception
right? An exception under the 3rd or 4th that we covered
earlier. So if there’s acknowledgement of receipt of premium,
not just the policy but the premium itself, then it becomes a
binding contract on the insurer. So just take note of the
terminologies. Provisional slip is different from a cover note
and acknowledgement of the policy is different from
acknowledgement of the receipt of the premium.
Relate cover note to Cash carry rule
Cover note is essentially a credit extension. It is akin to credit
extension except that there is a provision in the credit
extension that it should not exceed 90 days. The concept is the
same, if loss occurs during the period then the insured may
recover.
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Binding slip and acknowledgement of premium
Binding slip does not bind the insurer. A provisional policy
does not bind the insurer. This is different from a cover note.
Acknowledgement of receipt of premium
Post-dated check- the loss must occur prior to PDC date so
that the insured can recover.
What about the binding receipt? If the agent of the insurance
company receives the premium but issues a binding receipt or
binding slip and he knows that it is subject to processing by the
head office, is there a valid insurance contract?
Supreme Court said that if it is a binding slip accompanied by
receipt of premium by the insurance agent but clear that
subject to processing by the head office, the issuance of
binding slip or receipt does not perfect the insurance contract.
What about the cover note?
The insured can recover by express provision of the law, if the
loss occurs during the period of cover note and no premium
had been actually paid.
To summarize,
Cover note – good for 60 days but can be extended upon approval
of the Insurance Commission. So even if non-payment of premium
and the loss occurs during the period of cover note, insured may
recover
Binding receipt or binding slip – not tantamount to a cover note. It
is just an acknowledgment of receipt of premium but subject to
processing by head office, if this was issued then insurance
contract is not valid.
If the insurance company has acknowledged the receipt of
premium not subject to any qualification – acknowledgment of
receipt of premium without any qualification, the insurance
contract becomes effective.
Estoppel
UCPB v. Masagana Telemart
In this case, Masagana Telemart procured fire insurance over
its property. The policy had lapsed so it applied for renewal of
the policy. Before the premium can be paid on the renewal
policy, the property was destroyed by fire. After one month
from the incident, the insurer tendered payment on form of
Manager’s check. The insurer refused to accept the manager’s
check citing that the policy has lapsed without insurance
coverage being given by the insurer and therefore, insured
cannot recover and the insurer had made known to the agent
of the insured that the policy will not be reinstated. Can the
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insured recover if the loss occurs at the time when the
reinstatement policy was not covered by premium payment?
The Supreme Court said that there was estoppel. The parties
have been accustomed to the practice of the insured making
delayed payments after expiration of the policy. Because of
estoppel, the insured can recover on the condition of tender
of payment of premium. So the insurer must accept the
premium payment then provide insurance coverage to the
insured.
When does the insurance agent an agent of the insured and
when is he an agent of the insurer?
In the case of Philam v. Parete, the agent himself was the one
who accomplished the insurance policy.
By the theory of Imputed Knowledge under the law on
insurance, the Supreme Court said that if the information was
furnished by the insured and insurance agent fills out the
details based on the information given by the insured, then
the insurance agent is deemed the agent of the insured, not of
the insurer.
Therefore, any omission or concealment binds the insured.
JURISPRUDENCE:
Capital Insurance & Surety Co., Inc., vs. Plastic Era Co., Inc.
By accepting the promise of Plastic Era to pay the insurance
premium within thirty (30) days from the effective date of
policy, Capital Insurance has implicitly agreed to modify the
tenor of the insurance policy and in effect, waived the
provision therein that it would only pay for the loss or damage
in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode
of payment, Capital Insurance 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.
By accepting its promise to pay, Capital Insurance had in
effect extended credit to Plastic Era. Therefore, Capital
Insurance did not have the right to cancel the policy for
nonpayment of the premium except by putting Plastic Era in
default and giving it personal notice to that effect.
Philippine Phoenix Surety & Insurance Company vs. Woodwork,
Inc.
It is explicit in the policy that PSIC's agreement to indemnify
Woodwork for loss by fire only arises "after payment of
premium,". Compliance by the insured with the terms of the
contract is a condition precedent to the right of recovery.
Since the premium had not been paid, the policy must be
deemed to have lapsed. The 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.
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Pacific Timber Export Corporation vs. Court of Appeals, et al
The non-payment of premium on the cover note is no cause
for Pacific to lose what is due it as if there had been payment
of premium, for non-payment by it was not chargeable against
its fault. Had all the logs been lost during the loading
operations, but after the issuance of the cover note, liability
on the note would have already arisen even before payment
of premium. This is how the cover note as a "binder" should
legally operate otherwise, it would serve no practical purpose
in the realm of commerce, and is supported by the doctrine
that where a policy is delivered without requiring payment of
the premium, the presumption is that a credit was intended
and policy is valid.
Pedro Arce vs. Capital Insurance & Surety Co., Inc.,
It is obvious from both the Insurance Act and the stipulation
of the parties that time is of the essence in respect of the
payment of the insurance premium so that if it is not paid the
contract does not take effect unless there is still another
stipulation to the contrary. In the instant case, Arce was given
a grace period to pay the premium but the period having
expired with no payment made, he cannot insist that Capital
is nonetheless obligated to him.
Arturo Valenzuela, et al. vs. Court of Appeals
Under Section 77 of the Insurance Code, the remedy for the
non-payment of premiums is to put an end to and render the
insurance policy not binding. The non-payment of premium
does not merely suspend but puts an end to an insurance
contract since the time of the payment is peculiarly of the
essence of the contract. Unless premium is paid, an insurance
contract does not take effect. Since admittedly the premiums
have not been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not continue
and the obligation of Philamgen as insurer ceased.
Philippine Pryce Assurance Corporation vs. Court Of Appeals, et
al.
Section 177 of the Insurance Code states that the surety is
entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor.
No contract of suretyship or bonding shall be valid and
binding unless and until the premium therefor has been paid,
except where the obligee has accepted the bond, in which case
the bond becomes valid and enforceable irrespective of
whether or not the premium has been paid by the obligor to
the surety.
American Homes Assurance vs. Antonio Chua
Section 78 of the Insurance Code explicitly provides that an
acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any
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stipulation therein that it shall not be binding until the
premium is actually paid. This Section establishes a legal
fiction of payment and should be interpreted as an exception
to Section 77.
UCPB General Insurance Co. Inc., vs. Masagana Telemart, Inc.,
Section 77 of the Insurance Code of 1978 provides that an
insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. The first
exception is provided by Section 77 itself, and that is, in case
of a life or industrial life policy whenever the grace period
provision applies. The second is that covered by Section 78 of
the Insurance Code, which provides that any
acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium
is actually paid. A third exception was laid down in Makati
Tuscany Condominium Corporation vs. Court of Appeals,
wherein the Court ruled that Section 77 may not apply if the
parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of
loss. Tuscany has also provided a fourth exception, namely,
that the insurer may grant credit extension for the payment
of the premium. This simply means that if the insurer has
granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term,
recovery on the policy should be allowed even though the
premium is paid after the loss but within the credit term.
Moreover, as a fifth exception, estoppel bars it from taking
refuge under said Section, since Masagana relied in good faith
on such practice.
Jose Marques and Maxilite Technologies, Inc., vs. Far East Bank
And Trust Company
FEBTC is estopped from claiming that the insurance premium
has been unpaid. FEBTC induced Maxilite and Marques to
believe that the insurance premium has in fact been debited
from Maxilite’s account. However, FEBTC failed to do so.
FEBTC’s conduct clearly constitutes gross negligence in
handling Maxilite’s and Marques’ accounts. As a consequence,
FEBTC must be held liable for damages pursuant to Article
2176 of the Civil Code.
Constantino vs. Asia Life
In life insurance, even though insured may have obtained an
endowment policy, payment of premiums is not a debt or
obligation, but an exercise of a right on the part of the insured.
If insured wants to keep policy alive, he may pay premium.
But the insurer may not compel him to pay the premium if
insured desires to let the policy lapse.
Regina Edillon vs. Manila Bankers Life Insurance
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The age of the insured was not concealed to the insurance
company for her application for insurance coverage which
was on a printed form furnished by Manila Bankers and which
contained very few items of information clearly indicated her
age of the time of filing the same to be almost 65 years of age.
Despite such information which could hardly be overlooked
in the application form, Manila Bankers received her payment
of premium and issued the corresponding certificate of
insurance without question. As there was sufficient time (45
days) for the Manila Bankers to process the application and
issue notice that the applicant was over 60 years of age and
thereby cancel the policy on that ground if it was minded to
do so, Manila Bankers’ failure to act, is therefore either
attributable to its willingness to waive such disqualification;
or, through the negligence or to the incompetence of its
employees for which it has only itself to blame.
III.
IV.
NON-DEFAULT OPTIONS IN LIFE INSURANCE
REINSTATEMENT OF A LAPSED POLICY OF LIFE
INSURANCE
JURISPRUDENCE:
James McGuire v. The Manufacturers Life Insurance Co
The stipulation in a life insurance policy giving the insured the
privilege to reinstate it upon written application within three
years from the date it lapses and upon of evidence of
insurability satisfactory to the insurance company and the
payment of all overdue premiums and any other
indebtedness to the company, does not give the insured
absolute right to such reinstatement by the mere filing of an
application therefor. The company has the right to deny the
reinstatement if it is not satisfied as to the insurability of the
insured and of the latter does not pay all overdue premiums
and all other indebtedness to the company. 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.
Andres vs. Crown Life Ins. Co.,
Where a life insurance policy lapsed, and as compliance with
the conditions for reinstatement of the policy, the insured
paid only part of the overdue premium, the failure to pay the
balance of the overdue premium prevented the reinstatement
said policy and thereafter the recovery therefrom.
V.
REFUND OF PREMIUMS
JURISPRUDENCE:
Great Pacific Life Insurance Corporation vs. Court of Appeals, et
al
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
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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. By accepting his premiums without giving him the
corresponding protection, Great Pacific acted in bad faith and
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.
G.
RESCISSION OF THE INSURANCE CONTRACS
I.
CONCEALMENT
Distinction between misrepresentation and concealment:
Misrepresentation is statement of facts relating to a risk or
condition that induced the insurer to enter into a contract. It
is the duty of the insured to disclose to the insurer all the
material facts.
Concealment is the failure to communicate that which a
party knows and ought to be communicated.
Concealment and misrepresentation are grounds to rescind the
contract.
BAR: What is the test of materiality?
It is the probable and reasonable facts upon the party to
whom the communication is due, in forming his estimate of
the disadvantages of the contract or in making his inquiries or
in fixing the premium rate.
The bottom line is, will this affect the decision of the insurer to
assume the risk and/or charge a higher premium?
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Facts concealed need not be the cause of the loss, death or
injury.
BAR: Should concealment be intentional or unintentional?
There is no distinction. Good faith is not a defense.
JURISPRUDENCE:
Great Pacific Life Assurance Company vs. Honorable Court of
Appeals
Where the applicant, in apparent bad faith, withheld the fact
material to the risk to be assumed by the insurance company,
the latter is entitled to rescind the contract of insurance. The
contract of insurance is one of perfect good faith, not for the
insured alone but equally so for the insurer. Where there is
concealment or a neglect to communicate that which a party
knows and ought to communicate, whether intentional or
unintentional, rescission is available as a remedy to the insurer.
Ng Gan Zee vs. Asian Crusader Life Assurance Corporation
designedly and intentionally withholds the same. In the absence
of evidence that the insured had sufficient medical knowledge
as to enable him to distinguish between "peptic ulcer" and "a
tumor", his statement that said tumor was "associated with
ulcer of the stomach, " should be construed as an expression
made in good faith of his belief as to the nature of his ailment
and operation.
New Life Enterprises and Julian Sy vs. Court of Appeals
Where the insured is specifically required to disclose to the
insurer any other insurance and its particulars which he may
have effected on the same subject matter, the knowledge of such
insurance by the insurer's agents, even assuming the acquisition
thereof by the former, is not the "notice" that would estop the
insurers from denying the claim. Obligations arising from
contracts have the force of law between the contracting parties
and should be complied with in good faith.
Sunlife Assurance Company of Canada vs. The Court of Appeals
Where the insured is specifically required to disclose to the
insurer matters relating to his health, the insured's failure to
disclose the fact that he was hospitalized for two weeks prior to
filing his application for insurance, raises grave doubts about his
bona fides. 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 communication is due, in forming his
estimate of the disadvantages of the proposed contract or in
making his inquiries.
Saturnino v. Phil-Am Life
In group insurance, there is no medical examination required.
But if in group insurance an application form requires an
answer to previous sickness, and that is falsely denied, then
there is concealment.
Soliman v. U.S. Life
One who solicits insurance is an underwriter and not an agent
of the insurance company. If insurer appoints a general agent,
then such agent can bind the company by virtue of the written
appointment. On the other hand, an underwriter who fills up a
policy with false answers and later insured signs the policy, the
false answers become the insured’s own answer because he
signed the policy.
II.
MISREPRESENTATION/OMISSIONS
Warranty is part of the contract.
Misrepresentation need not be part of the contract.
But the essence or effect is the same. Misrepresentation and
breach of warranty entitles the insurer to rescind the contract.
Concealment exists where the assured had knowledge of a fact
material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assurer, but he
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Disclosure of information by the insured to the agent. When is
the insurer is bound?
Florendo vs. Philam Plans: Since the insured supplied the
information and asked the agent to fill up the application, the
agent becomes an agent of the insured. Any material fact
disclosed by the insured to the agent but the latter failed to
indicate such in the application, the insured is bound by the
negligence of the agent since he signed the application.
Whatever information not disclosed in the application binds
the insured.
Is the insured bound by the entries made by the agent?
Yes. By affixing his signature on the policy, he adheres or
confirms the condition, information or data provided for or
not disclosed.
Insurer is not under any obligation to explain the terms or
conditions to the insured.
When does knowledge of the agent become knowledge of the
insurer?
The Supreme Court made a distinction between an
underwriter and an agent. If the underwriter is under the
employ of the insurer, the knowledge of the underwriter is
imputed upon the knowledge of the insurer.
What if the agent answered differently? Can the insured
recover?
The Supreme Court said yes if there is connivance.
JURISPRUDENCE:
Ma. Lourdes s. Florendo vs. Philam Plans, Inc.,
When the insured signed the pension plan application, he
adopted as his own the written representations and
declarations embodied in it. It is clear from these
representations that he concealed his chronic heart ailment and
diabetes. He cannot sign the application and disown the
responsibility for having it filled up. Thus, the insurance
company had every right to act on the faith of that Certification.
Tan vs. The Court of Appeals
By virtue of the “incontestability clause”, the insurer has two
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. After
two years, the defenses of concealment or misrepresentation, no
matter how patent or well founded, no longer lie. Considering
that the insured died before the two-year period had lapsed,
Phil-Am Insurance is not, therefore, barred from proving that
the policy is void ab initio by reason of the insured’s fraudulent
concealment or misrepresentation.
Manila Bankers Life Insurance Corporation vs. Cresencia p.
Aban
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The "Incontestability Clause" under Section 48 of the Insurance
Code provides that 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 twoyear 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.
Florendo vs. Philam Plans
The incontestability clause precludes the insurer from
disowning liability under the policy it issued on the ground of
concealment or misrepresentation regarding the health of the
insured after a year of its issuance. Since insured died on the 11th
month following the issuance of his plan, the incontestability
period has not yet set in. Consequently, the insurer was not
barred from questioning the beneficiary’s entitlement to the
benefits of the pension plan.
III.
BREACH OF WARRANTIES
WARRANTY – a statement or promise set forth in the policy or by
reference incorporated therein, 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, renders
the policy voidable.
Breach of warranty gives the insurer the right to rescind.
Except if:
1.
2.
3.
the loss occurs before the time of performance of the
warranty
the performance become unlawful
performance becomes impossible
JURISPRUDENCE:
Qua Chee Gan v. Law Union
The insurance company is barred by waiver (or rather estoppel)
to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the
insurance company nevertheless issued the policies in question
subject to such warranty, and received the corresponding
premiums. It would be perilously close to conniving at fraud
upon the insured to allow insurance company to claim now as
void ab initio the policies that it had issued to the plaintiff
without warning of their fatal defect, of which it was informed,
and after it had misled the defendant into believing that the
policies were effective.
Malayan Insurance Company, Inc. vs. Pap Co
An alteration in the use or condition of a thing insured from that
to which it is limited by the policy made without the consent of
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the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of
fire insurance.
INCONTESTABILITY CLAUSE
Ø
Ø
Ø
Ø
Incontestability clause means the insurer is precluded
from invoking the defense of concealment,
misrepresentation if the policy has been in effect for at
least 2 years from the date of its issue or its last
reinstatement.
Do not ever, ever, ever apply this to property insurance!!!
It must be the date of the policy as appearing in the policy
and not the date of receipt by the insured.
Rescission must be done before any legal action is filed
against the insurer. It does not matter whether the
rescission was done judicially or extra judicially.
Requisites
1.
2.
The insurance is a life insurance policy payable on the
death of the insured.
The policy has been in force during the lifetime of the
insured for at least 2 years from its date of issue or of its
last reinstatement.
Does this apply to annuity insurance?
No, because in annuity insurance, the insurer does not pay
upon death. The first requirement is absent. On the contrary,
it stops paying upon death of the insured.
RATIONALE: As you all know it has a two-pronged purpose. For
the protection of the insurer, at the same time, for the protection
of the insured. Protection of the insurer in the sense that it compels
the insurer to provide coverage only to legitimate and bona fide
clients, from those who cannot contract loss or injury. At the same
time it protects the insured against delay from the processing of
the claim under the guise that there was concealment or
misrepresentation. As you all know, without this clause, the
insurer may delay the processing of the claim, it can always find a
reason not to process because of concealment or
misrepresentation. So it protects the insured against unwarranted
delays in the processing of the claim.
May the 2 year period be shortened?
As you all know, it may be shortened but cannot be extended
by stipulation. Can be shortened by stipulation but cannot be
extended by stipulation. That stipulation to extend is contrary
to law and public policy.
2 years from the date of the policy or receipt by the policy of the
insured?
The two year period is counted from the date appearing in the
policy. Two years had lapsed from the issuance of the policy
or last reinstatement, then the insurer cannot rescind the
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policy anymore on
misrepresentation.
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concealment
or
Cases of Tan, Aban, and Sibya:
Tan v. CA
The insured died of hepatoma. The insurer rescinded the
policy on account of concealment. The insured died after one
year and five months after the issuance of the policy. He did
not disclose certain ailment in the policy. Can the
beneficiaries recover the proceeds? Can the insurer rescind
the policy on account of concealment notwithstanding the
death of the insured? What happened to the phrase “during
the lifetime of the insured?”
Supreme Court said that if the insured dies within two years
from the issuance of the policy, then the insurer can still
rescind the policy on account of concealment and
misrepresentation.
Subsequently, in
Manila Bankers v. Aban
The insured designated to his niece as the beneficiary of the
life insurance policy. The niece accomplished the policy
because insured was illiterate. Insured died three years,
seven months, 24 days from issuance of the policy so more
than two years. If two years had lapsed, the insurer cannot
rescind anymore the policy because of incontestability clause.
But then, we have an obiter dictum which says when the
insured dies within two years or the policy was enforced for
two years from issuance or last reinstatement, the insurer is
precluded to rescind the policy.
So in Aban, there are two cases where the insurer is precluded
from rescinding the policy.
1.
2.
When the insured dies within two years (regardless
of the date).
OR
If the insured did not die within two years, if the
insurance enforced for two years from the issuance
or last reinstatement, then the insurer cannot
rescind the policy anymore.
This is an obiter because the SC need not address the
issue since the insured dies after three years, seven
months, 24 days after issuance of the policy.
This is why this is confusing to many bar examinees two
years ago.
Sunlife v. Sibya (June 8, 2016)
The insured indicated in his application, he sought advice for
kidney problems. He died of gunshot wounds. He died within
three months from the issuance of the policy. The insurance
conducted an investigation and discovered that he was
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confined in the NKI as opposed to what he provided in the
application where he stated he only sought the advice. It is
considered a concealment. Supreme Court said, not anymore
because he died within two years – three months after
issuance of the policy. So in this case, if the insured dies within
two years, the insurer must make good of its promise to pay
the insured.
To repeat,
notice of claim, submission of proof of loss, and the
period to file suit against the insurer.
OTHER DEFENSES INSURER MAY INVOKE:
1.
Breach of warranty – as we said earlier, same effect as
misrepresentation. If there is breach of warranty as to a
material fact, then it entitles the insurer to rescind the policy.
2.
Violation of the policy – the Insurance Code provides that a
violation of the policy may entitle the insurer to rescind.
There are now two cases where the insured cannot rescind the
policy on account of concealment or misrepresentation.
1.
2.
And there are two cases in your outline, one of them has
been asked in the bar: discrepancy in the value and the
amount claimed by the insured.
The insured dies within two years; or
The policy enforced for two years from
issuance or last reinstatement.
The insured says it’s worth P1 Million but the amount of
the property or the value of the goods lost, let’s say
P500,000. And the policy says that “any violation of the
policy entitles the insurer to rescind.”
Tan is not controlling.
Also, in Sibya, Supreme Court said, even if
incontestability clause is not applicable, there was no
concealment because the insured authorized the insurer
to conduct an investigation in reference to his kidney
ailment so this amounts to substantial compliance. There
was no concealment since insurer was authorized to
conduct investigation on the medical history of the
insured.
SC said discrepancy in the amount claimed and the value
of the goods loss is a ground to rescind the policy. If it is
provided for in the contract of insurance, that
discrepancy in the value of the claim is provided for as a
ground not to pay, then it is considered valid (I’m not
sure if sir said valid or violation of the policy).
What is the test? How discrepant should it be? What if it’s
only 10% discrepant? Let’s say P1 Million and the value
of the goods lost only P900,000.
BAR: What probable defenses are not barred by the
incontestability clause?
Only the defenses of concealment or misrepresentation are barred
but there are other defenses not barred by the incontestability
clause. (IPE FCT)
1.
There’s no hard and fast rule. There’s one case in your
outline, it’s more than 50%. More than 50% that makes
it a fraudulent discrepancy that makes the insurer
released or relieved from liability.
Insurable interest – so as we said earlier, the first defense
of any insurer lack of insurable interest. So no matter
how long the policy is in effect, this can always be raised.
2.
Premiums not paid – as we said last time, the nonpayment of premiums puts an end and does not only
suspend the contract of insurance.
3.
Excepted risk – the loss is due to excepted risk.
4.
Vicious Fraud – example of vicious fraud, is there any
other kind? It says, the fraud is of a vicious character. E.g.
somebody else took the medical examination for you or
you took the insurance and killed the insured so you can
claim the proceeds. You can only proceed by examples.
5.
Failure to comply with conditions imposed by the policy
to recover – as we will see, there are conditions under the
policy for the insured to recover. If the conditions are not
complied with, it goes without saying that the insured
cannot recover.
6.
Time bound – meaning the period prescribed by the
policy are not complied with like processing or filing of
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Another one, also about violation of policy. A case in your
outline: Sanyo case. A transfer of property of the insured
from one building to another, even If located in the same
compound, the SC said, alteration of the use of the thing,
without the consent of the insurer, entitles the insurer to
rescind the contract.
In United Merchants v. Country Bankers, the claim was
25x the actual claim proved. The Supreme Court said
there is fraud in the discrepancy that entitles the insurer
to rescind the policy.
Also in Malayan Insurance v. PAP Co., the insured
transferred the goods from one building to another in the
same EPZA Zone so not much of a distance. The transfer
was made without the consent of the insurer, without its
knowledge. Supreme Court cited Section 168 of the
Insurance Code – duty on the disclosure. So the change in
the use or condition of the goods without the knowledge
of the insurer entitles the insurer to rescind the contract.
3.
Premium not paid – lack of payment puts an end to the
contract of insurance
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Exceptions: LIA-S-ICE
4.
Other Insurance Clause –
Ex: If the insurance policy prohibits the insured from
procuring or securing additional insurance without the
consent of the insurer and the insured procured such
additional insurance without the insurer’s consent
entitles the insurer to cancel the policy.
What if there’s no prohibition? Is Double Insurance contrary to
law?
If you procure another insurance that’s basically double
insurance. Double insurance is not prohibited. What is
prohibited is over recovery.
Double insurance entitles the insurer to rescind only if there
is a prohibition in the policy for procuring additional
insurance without the consent of the insurer and such
insurance was procured without the consent. Other than this,
double insurance is allowed.
(see discussion in Double Insurance)
H.
4.
CLAIMS SETTLEMENT AND SUBROGATION
LOSS
Loss is the happening of the event that indemnifies the insured in
case of liability against him or the happening of the risk insured
against.
What kind of loss will entitle the insured to recover? PINE
1.
2.
loss, proximate cause of which is the risk insured against;
Immediate cause of which is the risk insured against
except where the proximate cause is an excepted peril;
Fire insurance – the proximate cause should be the
fire. Fire should not be the proximate cause of the
loss for the insurer to recover.
If there is a fire, merchandise is stored in building B,
a fire occurred in building A. The fire was so
explosive that it spill over in building B. Can the
insured recover if the proximate cause of the loss
was not the fire but the explosion?
Yes, except if explosion is an excepted risk
Exception : all risk marine insurance – not limited
to loss arising from perils of the sea or perils of the
ship. It includes any all inconceivable kinds or
causes of loss except those caused by willful act on
the part of the insured or gross negligence.
3.
loss through the negligence of insured
except where there was gross negligence amounting to
willful act;
•
The insured can recover as long as it is not
willful act or gross negligence.
$)
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loss caused by efforts to rescue the thing from peril
insured against if during the course of rescue, the thing
is exposed to a peril not insured against, which
permanently deprives the insured of its possession, in
whole or in part;
Loss when the insurer is not liable: (GEC)
1.
loss by insured’s willful act or gross negligence;
2.
loss due to connivance of the insured
3.
loss where the excepted peril is the proximate cause
What happens if an insured property is sold by the insured but
no corresponding assignment of policy.
Well, you know the rule, in case of change of interest in the
thing insured without a corresponding change of interest in
the insurance, the insurance contract is deemed suspended.
By example, if the insured sells the insured property to a
buyer and then the loss occurs, who can recover? Can the
seller-insured recover? And the answer is no, right? Because
the interest in the property must coincide with the interest in
the insurance. So in case of transfer of property without
transfer of interest, the insurance, as we said earlier, is
suspended. So it’s not revoked, not forfeited, but only
suspended until such time that the interest in the property
and the interest in the insurance are merged in favor of the
same person.
How can the buyer recover on the proceeds of the policy?
Only if the policy is assigned to him together with the change
or transfer of interest in the property.
EXCEPTIONS: In what cases can the insured still recover?
Ø
Mortgagor before foreclosure
Ø
Judgement debtor before the expiration of the
redemption period
In case of mortgage, the loss occurs, do we apply the rule that there
is transfer of interest? Of course, basic noh? So there is no transfer
of interest in mortgage, there is no transfer of interest in levy on
execution during the redemption period. There is transfer only if
the mortgagor or debtor does not exercise his right during the
redemption period. So when the law talks about transfer of
interest in the property, it’s transfer of ownership, absolute
ownership is transferred to another. So not just encumbrance or
not just levy on property.
What about lease?
If the property is on lease, of course, that’s basic, there is no
transfer of interest in case of lease.
What are the cases wherein there is transfer and yet the insurance
coverage is not suspended, it remains?
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Despite transfer of interest in the property, the insurance is
not suspended: (LAWS-IC)
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Is it required that the insurer fully complies with the
requirements under the policy?
1.
In case of life, insdustrial policy insurance – because in
these cases, it is not a contract of indemnity
No. Supreme Court, in Finman v. CA, said that substantial
compliance suffices.
2.
Transfer is made after the loss – because by that time
there is already a vested interest in the policy
3.
In case of several properties or things insured – e.g. there
are three houses, separately insured, one of the houses
or properties was sold, that does not mean that the
insurance coverage with the other two properties is
suspended, several properties insured, only one of them
was sold, coverage stays or remains with the other
properties
Also in this case, there was estoppel. The insured was
estopped from allowing recovery because his finance
manager signed a document acknowledging the amount due
in favor of the insured.
4.
In case of transfer brought about by will and succession
– if the insured dies, the heir takes his/her place
5.
In case of transfer of property to a co-owner, or a partner
Inures to the benefit of whoever may be the owner of the property
under the policy – if the policy is so framed that whoever is the
owner of the property is entitled to recover the proceeds of the
policy
There’s one case involving San Miguel, the policy was so framed
accordingly, that whoever may be the owner of the property at the
time of the loss is entitled to the proceeds. So therefore, even
though there is transfer of interest, sale of the property, it would
not matter, whoever is the ultimate owner at the time of the loss
would be the one who can recover.
Perla Compania De Seguros, Inc. vs. Court of Appeals
Where the insurance policy clearly and categorically placed
PCSI's liability for all damages arising out of death or bodily
injury sustained by one person as a result of any one accident at
P12,000.00 and under the law prevailing, P.D. 612, the minimum
liability is P12,000 per passenger, the stipulation regarding
PCSI’s liability under the insurance contract not being less than
P12,000.00, and therefore not contrary to law, morals, good
customs, public order or public policy, must be upheld as
effective, valid and binding as between the parties.
Malayan Insurance Co vs. Alberto
The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. When it is not
disputed that the insurance company indeed paid, then there is
valid subrogation in its favor.
I.
NOTICE AND PROOF OF LOSS
Submission of notice of loss and statement of claim with the
insurer is a condition precedent for the insured to be able to
recover. So it stand to reason that the insurer shall be notified of
the loss, the proof of loss as well as the statement of claim.
$*
PROBABLE BAR: BPI v. Laingo (MARCH 2016)
BPI offered a two-in-one product – a depositor is
automatically entitled to an insurance coverage. The
insurance is of course not provided by the BPI but by its
affiliate company – FGU Insurance – because BPI, as a bank,
cannot engage in insurance business. The beneficiary
informed the BPI about the death of the insured but the BPI
did not notify FGU Insurance. The Supreme Court said that
there was valid notice of loss because it was made known to
BPI acting as agent of FGU Insurance by the doctrine of
representation which basically entails that notice to the agent
is considered notice to the principal. In this case, BPI acted as
the agent of the FGU Insurance. Communication of FGU
coursed through BPI under its two-in-one deposit product.
Within what period should notice of loss be submitted?
90 days unless otherwise prescribed in the policy. So submit
your proof of loss within 90 days unless a different period was
provided in the policy.
What happens when you don’t submit notice of loss within this
period?
The claim will be barred.
Within what period should the notice of claim be filed?
The date provided for in the policy.
Can the policy provide that notice of claim must be filed within
6 months from the loss, otherwise, the insurer is not liable?
Yes, it is valid. The insurance policy may limit the period for
the insured to file a claim to submit proof of loss
1 year period from the time of loss to file a suit-valid
prescriptive period if it is provided in the policy.
When does the cause of action of the insured against the insurer
accrue?
It accrues from rejection of the claim by the insurer.
Summit Guaranty And Insurance Company, Inc. vs. Hon. Jose C.
De Guzman
The insurer did not act on the claim of the insured. It sat on
the claim. Because of the inaction of the insurer, the insured
filed a case before the Insurance Commission. The Supreme
Court said that unless rejected by the insurer, the insurer has
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no cause of action. This is the reason why under RA 10607, in
case of delay in the processing of the claim, it will earn twice
the rate of interest as prescribed by the monetary board.
Were it not for the amendment, the insurer will take time – he
may wait forever.
Unless rejected, the insurer cannot file claim – not anymore in
case of delay. The amount supposed to be paid by the insured
earns interest twice the rate of the ceiling prescribed by the
monetary board.
Stronghold v. Pamana (June 2016)
Before CB Circular No. 799 – took effect on July 1, 2013, it is
12%.
The Supreme Court said that claim of insurance benefit is akin
to loan, forebearance of money – they earn 12% interest prior
to CB 799. After CB 799, BSP reduced the interest rate from
12% to 6%.
In the case of Nakar, Supreme Court said that CB 799
operates prospectively and not retroactively. Therefore, the
interest that the insured might recover is 12% because it is
twice the rate prescribed by Monetary Board.
Before it is 24% because twice 12%.
DEFENSES THAT INSURER MAY RAISE AGAINST THE INSURED:
1.
2.
3.
No insurable interest
The presence of insurable interest is indispensable
for the validity and enforceability of the contract of
insurance. If no insurable interest, the insurer is not
liable but the premium must be returned.
Wrong claimant
A building contractor insured his interest in the
building the he is constructing. Fire insurance.
Can the owner claim the proceeds of the policy?
Building owner cannot recover because he is not the
one who procure the insurance nor he was
designated as the beneficiary.
XPN: even if no insurable interest you can still claimThird party claim
Concealment,
misrepresentation,
breach
of
warranty
In case of concealment, misrepresentation or breach
of warranty, the insurer is not liable.
United Merchants Corporation vs. Country Bankers Insurance
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 such as
Condition No. 15 of the insurance policy, 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.
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Finman Gen. Assurance vs. Court of Appeals
A perusal of the records shows that Usiphil Incorporated, after
the occurrence of the fire, immediately notified Finman Gen.
Assurance thereof. Thereafter, Usiphil Incorporated submitted
the following documents: (1) Sworn Statement of Loss and
Formal Claim and; (2) Proof of Loss. The submission of these
documents, constitutes substantial compliance. Indeed, as
regards the submission of documents to prove loss, substantial,
not strict as urged by Finman Gen. Assurance, compliance with
the requirements will always be deemed sufficient.
Tan It v. Sun Insurance
Plaintiff's verified claim totalled P31,860.85, of which, in
accordance with the terms of the policy, three-fourths was
asked, or P23,895.64. Dependant's inventory of the goods found
after the fire came to P13,113. The difference between plaintiff's
claim and defendant's estimate of the loss, which was confirmed
in the trial court, was P18,747.85. In connection with these
figures plaintiff suggests too low a valuation by the
representatives of the defendant. Computed at plaintiff's
valuation, the goods inventoried by the defendant's committee
would amount to P19,346.30. There would, however, still
remain a considerable void between the two amounts, of
P12.514.55. In this case, the difference under one hypothesis is
about 50 per cent, and under another hypothesis, about 25 per
cent. Still that constitutes a serious discrepancy between the
true value of the property and that sworn to in the proofs of loss,
and is an outstanding fact to be considered as bearing upon the
presence of fraud. It is more than an honest misstatement, more
than inadvertence or mistake, more than a mere error in
opinion, more than a slight exaggeration, and in connection with
all the surrounding circumstances, discloses a material
overvaluation made intentionally and willfully. The insured
cannot therefore recover.
II.
GUIDELINES ON CLAIMS AND SETTLEMENT
a. Unfair claims settlement; sanctions
b. Prescription of action
REJECTION
Other defenses available to the insured, is beyond the period –
either the filing of the notice of claim or the period to file a suit
against the insurer – to be discussed later.
In case of rejection, what is the next step available to the
insured?
TO FILE AN ACTION – file an action against the insurer
What is the prescriptive period to file an action against the
insurer?
10 years. 10 years from the date the cause of action accrued.
Can the parties however reduced the period to file a suit?
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General Rule, 10 years from the date the cause of action
accrued. As far the insured is concerned, the cause of action
accrued from the date of the contract. For the Insurer, it
accrues from the date of payment to the insured.
The date that the cause of action accrues is different for the
insured and the insurer.
Insured – from the date of effectivity of the contract- 10 year
period to file a suit against the insurer unless the contract of
insurance provides for a shorter period. As you all know a
stipulation reducing the period to file a suit against the
insurer is valid for as long as it is not less than 1 year. 1 year
from when? 1 year from the contract takes effect or 1 year
from accrual of cause of action? It is 1 year from accrual of
cause of action NOT from the date of the policy.
The period may be reduced so long as it is not shorter than
one year from the date the cause of action accrued. It has
become the practice that the period to file a suit against the
insurer is one year from the date the cause of action accrues.
The one year period is not under the law but by practice,
enshrined in every insurance policy.
When does the cause of action accrue?
From rejection of the claim by the insurer. Without the
rejection of the claim, as held in Summit Guarantee v.
Guzman, the cause of action does not accrue.
BAR: When do you count the one year period, from rejection
of the request for reconsideration OR the first rejection made
by the insurer?
The Supreme Court said from the first rejection. Not the
rejection after the request for reconsideration
Hollero Construction v. GSIS
1 year period starts from accrual of the cause of action that is
rejection of the claim by the insurer or the first time it was
rejected by the insured.
What if the insurer requires submission of more proof. Do this,
do that, and the insured makes a request for reconsideration.
Does that toll the running of 1 year period to file suit against
the insurer?
The SC said it does not. So don’t be misled or fooled by the
insurer. When it says submit more documents, submit more
proof, comply with conditions, don’t, because it does not toll
the running of the 1 year period to file suit against the insurer.
Once the claim is rejected, right away, file an action against
the insurer within 1 year otherwise the insurer is not liable.
And this 1 year period is already customary, it’s a common
provision, a standard provision in all insurance contracts. The
Law says 10 years but it’s a standard clause in all insurance
policies that the period 1 year. There are many cases in your
outline but that’s the principle, a request for consideration,
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submission of documents necessitating a request for
consideration do not toll or suspend the running of the 1 year
period.
JURISPRUDENCE:
Summit Guaranty And Insurance Company, Inc. vs. Hon. Jose C.
De Guzman
There is absolutely nothing in the law which mandates that the
two periods prescribed in Section 384 of the Insurance Code—
that is, the six-month period for filing the notice of claim and the
one-year period for bringing an action or suit must always
concur. On the contrary, it is very clear that the one-year period
is only required “in proper cases.” The one-year period should
instead be counted from the date of rejection by the insurer as
this is the time when the cause of action accrues. Since in the
case at hand, there has yet been no accrual of cause of action,
prescription has not yet set in. This is because, before such final
rejection, there was no real necessity for bringing suit.
Sun Life Office, Ltd. vs. Court of Appeals
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
by the insurance company and not from the denial of the
reconsideration.
Country Bankers Insurance Corp., vs. The Travellers Insurance
and Surety Corp.
Where the delay in bringing the suit against the insurance
company was not caused by the insured or its subrogee but by
the insurance company itself, it is unfair to penalize the insured
or its subrogee by dismissing its action against the insurance
company on the ground of prescription. To prevent the
insurance company from evading its responsibility to the
insured through this clever scheme, and to protect the insuring
public against similar acts by other insurance companies, the
one-year period under Section 384 should be counted not from
the date of the accident but from the date of the rejection of the
claim by the insurer. It is only from the rejection of the claim by
the insurer that the insured’s cause of action accrued since a
cause of action does not accrue until the party obligated refuse,
expressly or impliedly, to comply with its duty.
PAYMENT
When should the insurer pay?
In life insurance
IT DEPENDS upon maturity. If the policy matures by
expiration of term, it should be paid on maturity of the
term/maturity of the policy.
The whole proceeds of the policy will be paid
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XPN: if it is payable on installment/on annuity, in which case,
IR shall pay on due date.
If the policy matures upon the death of the ID, then the law
says, 60 days from the submission of the proof of loss.
Property Insurance
30 days from submission of the proof of loss in case the loss
can be ascertained by agreement or by arbitration
If the loss cannot be ascertained, if there is a
disagreement between the insurer and the insured on
the amount of loss, they have 60 days to decide to agree.
If they did not agree, in which case, within 90 days from the
submission of the proof of loss, the insurer must pay the
insured.
Otherwise, IR will be liable for payment of interest imposed
at twice the rate as determined by the COC.
In other words,
3O DAYS – after proof of loss is received by the insurer and
the ascertainment of loss or damage is made either by
agreement or arbitration.
90 DAYS – If no ascertainment is made within 60 days after
the receipt of proof of loss, the loss shall be paid within 90
days after such receipt of loss.
Ø
Ø
c. Subrogation
recover against the wrongdoer.
Basis: 2207 of the Civil Code. Not the Insurance Code.
When you talk about indemnity, it can only be in property
insurance. THERE IS NO SUBROGATION IN LIFE INSURANCE!!!
The concept of subrogation is the insurer is subrogated to the
rights of the insured therefore, acquires all the rights or remedies
available to insured against the wrongdoer (the one who caused
the injury or loss, or breached the contract).
St. Paul Fire Insurance v. Macondray
There is a limitation of the amount in the liability of the
common carrier under a bill of lading unless the shipper
declares higher valuation. The insurer claimed from the
insured. Nothing to account the limitation in the bill of lading.
How much can the insurer recover from the common
carrier? The total amount paid by the insured or only the
amount of liability by the common carrier to the insured
under the bill of lading?
Only the amount of the bill of lading under the bill of
lading. So whatever the insured is entitled to recover,
that is only amount likewise that the insurer may recover
from the wrongdoer because insurer only steps into the
shoes of the insured. It cannot acquire a right or title
better than that of the insured.
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Loadstar Shipping v. Malayan Insurance
Copper concentrate was contaminated by water. There was
only partial loss. The insurer paid as if there is total loss. The
insurer can only recover from the common carrier only the
value of the partial loss and not the total loss. The insured is
not entitled to payment on the total loss under the policy.
Consequently, the insurer cannot also recover the total loss. It
cannot acquire a better right or title than that of the insured.
Can subrogation take effect without the consent of the
wrongdoer?
Obviously, it can. Subrogation applies by operation of law.
Can subrogation take effect without the knowledge or the
consent of the insured?
Yes. Because subrogation takes effect by the fact of payment
by the insurer to the insured. So equitable right of remedy is
made available by law to the insurer is triggered upon
payment by the insurer to the insured. It does not depend on
knowledge or consent of the insured or wrongdoer.
In Marine Insurance, is it necessary to present the marine
insurance policy in the complaint?
In Eastern Shipping Lines v. Prudential Guarantee, the
Supreme Court said that without the marine insurance policy
attached to the complaint, such omission is fatal to the cause
of subrogation. So the insurer must present the marine
insurance policy ___ to complain. Otherwise, there will be no
basis for subrogation. While subrogation does not depend on
the consent of the wrongdoer or the insured, however, the
basis of the contract of insurance is itself that is paid by the
insurer.
Asian Terminal v. First Lepanto
If the wrongdoer did not object to the non-presentation of the
marine insurance policy, then it need not be presented.
Dapat pag walang pinresent na policy yung insurer, magobject na yung wrongdoer. Pag hindi nag-object, the claim for
the right of subrogation exists even without the presentation
of the marine insurance policy.
What is the prescriptive period to enforce the right of
subrogation?
Caltex case - 10 years from accrual of cause of action
When does subrogation accrue?
It accrues from date of payment by the IR to the ID. Not the
date of the contract. Not the injury that gave rise to the
damage of the ID
What if it is based on tort?
Is it 6 years or 4 years as the case may be? SC said NO, it’s not
the cause of loss or damage but the fact of payment by the IR
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to the ID that you count the 10-yr period for the IR to invoke
the right of subrogation
What if the release was made after the insurer has paid the
insured?
What is the basis when the SC said 10 years from the date of
payment?
If before payment, insurer is released from liability because
he cannot be subrogated to the rights of the insured;
SC said subrogation is based on law. It’s not based on
agreement. As you all know, it does not require the ID. It does
not require the consent of the wrongdoer, obviously, It is an
equitable assignment brought by the fact of payment.
Subrogation takes effect even without assignment of such
right by the ID to the IR. It takes effect even if there is no
assignment of policy.
If the insured releases the wrong doer after he has received
payment from the insurer. SC said the insurer may recover
what he paid from the insured (Mahogany Case). NOT from
the wrong doer but from the insured.
Based on the law, the period to enforce a right based on law is
10 years.
BAR: Can the insured still recover from the wrong doer
despite payment by the insurer?
It depends.
If the insured received the full amount to cover the loss
against the insurer, then the insured cannot recover from the
wrong doer otherwise it would amount to unjust enrichment.
It would defeat the concept of insurance contract as an
indemnity contract.
However, by express provision of law, Art. 2207, if the amount
received by the insured from the insurer is not enough to
cover the loss, he can recover the deficiency against the wrong
doer.
What are the cases where there is no subrogation?
1.
Life Insurance – it exists only when the insurance is a
contract of indemnity and as such, it would refer to
property insurance. (BAR)
2.
If the proximate cause of the damage is the insured
himself – when there is negligence on the part of the
insured himself.
3.
Insurer pays to the insured and loss was NOT covered or
exempted by the policy – it can happen that the insurer
pays even though the loss was due to a risk exempted or
NOT covered by the policy. The insurer wants to
preserve its relationship, its goodwill with the insured.
In case of voluntary payment, voluntary because it
is NOT an obligation, a risk NOT covered by the
policy then there is no right of subrogation.
4.
When the insured releases the wrongdoer (Mahogany
Case) – What is the consequence if the insured released
the wrong doer? The insurer cannot be subrogated to the
rights of the insured. If the insured himself, released the
wrong doer then he cannot recover from the insurer, in
which case, there is no subrogation.
%$
Bottom line: any act that would defeat the rights of the insurer to
recover what he has paid to the insured against the wrong doer, he
could either releases the insured from liability or entitled to
recover what the insured received.
Remember the case when we were discussing COGSA, the period
to file a suit against the carrier, 1 year to file a suit against the
carrier in case of loss or damage – 1 year from the date the goods
were delivered or should have been delivered. Remember the
various case we discussed regarding insurance, when should the
insurer file its claims against the ship owner. We said that the if the
insurer pays the insured, then remaining period to file a suit
against the CC unless the CC is released from liability. If the insured
demands from the insurer from 6 months from the arrival of the
goods, then the insured pays on the 7th month, we said that the
insurer has the remaining 5-month period of the 12-month period
to file a suit against the CC otherwise the CC is released from
liability. We said however that if it is a case by the insured against
the insurance, the 1-year period does not apply, instead the 10year period under the law unless there is a 1-year period under the
insurance.
And then, remember we cited a case where the Court said,
however, if the insurer cannot be subrogated to the rights of the
insured because the insured did not file a suit against the CC, then
the insurer is released from liability. That is consistent with what
we have said, if the insurer cannot be subrogated to the rights of
the insured, then the insurer is released from liability.
BAR QUESTIONS:
A helicopter of ABC Co. collided with XYZ’s tramway steel
cables in its logging area in Surigao resulting in the
destruction of the helicopter and death of two pilots. ABC Co.
insured at its expense the helicopter and death of two pilots.
ABC Co. insured at its expense the helicopter for P80,000.00
and the two pilots (life insurance) for P50,000.00 each, and as
a result of the crash, the insurer paid ABC Co. a total indemnity
of P180,000.00. Nevertheless, ABC Co sustained additional
damages of about P100,000.00 which were not covered by
insurance.
A. ABC Co. sued XYZ to recover not only the additional
damages, but also the P180,000 which was already
compensated by the insurer. Decide. Give reasons.
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B. What right/recourse, if any, has the insurer in order to be
reimbursed for the amount it paid to ABC Co? Give reasons.
Answer:
A. ABC Co may bring the action against XYZ for its claim for the
additional damages not covered by insurance, but not for the
P180,000 covered by the insurance. If a property is insured and
the owner received indemnity from the insurer, the latter is
deemed subrogated to the rights of the insured against the
wrongdoer, and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to
recover the deficiency.
B. The insurer is deemed subrogated to the rights of ABC Co
against XYZ to the extent of P80,000 insurance paid for the
helicopter only, but not for the life insurance of the two dead
pilots, since subrogation in the New Civil Code refers only to
property, and not to the life insurance. (Philippine Air Lines, Inc.
v. Herald Lumber Co., G.R. L-11497, August 16, 1957; for both 1
and 2 answers.) (BAR 1978)
“L” borrows P50,000 from “M” payable 360 days after date, at
12% interest per annum. To secure the loan, “L” mortgages
his house and lot in favor of “M”. To protect himself from
certain contingencies, “M” insures the house for the full
amount of the loan with Rock Insurance Company. A fire
breaks out and burns the house and “M” collects from the
insurance company the full value of the insurance.
Upon maturity of the loan, the insurance company demands
payment from “L”. The latter refuses to pay on the ground that
the loan had been extinguished by the insurance payment
which “M” received from the insurance company. He argues
that he has not entered into any loan or contract of whatever
nature with the insurance company. He further contends that
it is bad enough to lose a house but it is worse if one has to pay
off a paid obligation to somebody who has not extended any
loan to him. Besides, he states, that the insurance payment
should inure to his benefit because he owns the house.
Pass upon the merits of “L’s” contentions.
creates legal subrogation and makes the insurer an assignee on
equity to run after the mortgagor, L. Said right of the insurer is
not dependent upon nor does it grow out of, any privity of
contract, or upon written assignment of claim, and payment to
insured makes the insurer an assignee in equity; thus, L’s
consent to said subrogation is not necessary. (Art. 2207, N.C.C.;
Fireman’s Fund Insurance Co. v. Jamila & Co., April 7, 1976; 70
SCRA 323) (BAR 1980)
Raul’s truck bumped the car owned by Luz. The car was
insured by Cala Insurance. For the damage caused, Cala paid
Luz P5,000 in amicable settlement. Luz executed a release
claim, subrogating Cala to all her rights against Raul. When
Cala demanded reimbursement from Raul, the latter refused
saying that he had already paid Luz P4,500 for the damage to
the car as evidenced by a release of claim executed by Luz
discharging Raul.
So Cala demanded reimbursement from Luz, who refused to
pay, saying that the total damage to the car was P9,500. Since
Cala paid P5,000 only, Luz contends that she was entitled to
go after Raul to claim the additional P4,500.
A. Is Cala, as subrogee of Luz, entitled to reimbursement from
Raul? B. May Cala recover what it has paid Luz?
Answer:
A. No. Luz executed a release in favor of Raul. B. Yes. Cala lost
its right against Raul because of the release executed by Luz.
Since the release was made without the consent of Cala, Cala
may recover the amount of P5,000. (BAR 1994)
Where the insurer was made to pay the insured for a loss
covered by the insurance contract, such insurer can run after
the third person who caused the loss through subrogation.
What is the basis for conferring the right of subrogation to the
insurer?
a.
Their express stipulation in the contract of
insurance.
b.
The equitable assignment that results from the
insurer’s payment of the insured.
c.
The insured’s formal assignment of his right to
indemnification to the insurer.
d.
The insured’s endorsement of its claim to the
insurer.
Answer:
Neither the loan of L was extinguished by the insurance
payment which M received from the insurance company; nor
the insurance payment inures to L’s benefit; what was then
insured was the interest of M, the secured creditor, and not the
interest of L, so the proceeds shall be applied exclusively to the
proper interest of M.
L’s argument that he has not entered into any loan or contract
of whatever nature with the insurance company is also
untenable. When the secured creditor’s interest in the
mortgaged property of the mortgagor, L, was insured and said
property would be burned, the insurance company had to pay
the insured, M, and payment by the insurer to the insured
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Answer: b. The equitable assignment that results from the
insurer’s payment of the insured. (BAR 2011)
ELP Insurance, Inc. issued a Marine Policy No. 888 in favor of
FCL Corp. to insure the shipment of 132 bundles of electric
copper cathodes against all risks. Subsequently, the cargoes
were shipped on board the vessel “M/V Menchu” from Leyte
to Pier 10, North Harbor, Manila.
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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 warehouses/plants in
Valenzuela City. The goods were loaded on board 12 trucks
owned by CGM, Inc., driven by its employed drivers and
accompanied by its employed truck helpers. Of the 12 trucks
en route to Valenzuela City, only 11 reached the destination.
One truck, loaded with 11 bundles of copper cathodes, failed
to deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance,
Inc. a claim for insurance indemnity in the amount of P1.5 M.
After the requisite investigation and adjustment, ELP
Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as
insurance indemnity.
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 therefor. If
you are the judge, how will you decide the case?
Answer:
CGM, Inc. should be held liable for damages against ELP
Insurance, Inc. The insurer, upon happening of the risk insured
against and after payment to the insured is subrogated to the
rights and cause of action of the latter. As such, the insurer has
the right to seek reimbursement for all the expenses paid. (BAR
2014)
JURISPRUDENCE:
Pan Malayan Insurance Corporation vs. Court Of Appeals
Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act
caused the loss. There are a few recognized exceptions to this
rule. For instance, if the assured by his own act releases the
wrongdoer or third party liable for the loss or damage, from
liability, the insurer’s right of subrogation is defeated. Similarly,
where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
assured’s claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation . And where the
insurer pays the assured for a loss which is not a risk covered by
the policy, thereby effecting “voluntary payment”, the former
has no right of subrogation against the third party liable for the
loss.
Aboitiz Shipping Corporation v. Insurance Company Of North
America
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The payment by the insurer to the assured operates as an
equitable assignment of all remedies the assured may have
against the third party who caused the damage. Subrogation is
not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.
The Philippine American General Insurance Company, Inc., vs.
Court of Appeals
The proximate cause of the sinking of the vessel was her
condition of unseaworthiness arising from her having been topheavy when she departed from the Port of Zamboanga. Since the
vessel was unseaworthy with reference to the cargo, there was
therefore a breach of warranty of seaworthiness that rendered
the assured not entitled to the payment of its claim under the
policy. Hence, when PhilAmGen paid the claim of the bottling
firm there was in effect a “voluntary payment” and no right of
subrogation accrued in its favor. In other words, when
PhilAmGen paid it did so at its own risk.
Fireman’s Fund Insurance Copany vs. Jamila & Company, Inc.
As the insurer, Fireman's Fund is entitled to go after the person
or entity that violated its contractual commitment to answer for
the loss insured against..
Upon payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured
may have against the third person whose negligence or
wrongful act caused the loss. When the insurance company pays
for the loss, such payment operates as an equitable assignment
to the insurer of the property and all remedies which the
insured may have for the recovery thereof.
St. Paul Fire & Marine Insurance Co. vs. Macondray & Co., Inc.,
et al.
St. Paul, as insurer, after paying the claim of the insured for
damages under the insurance, is subrogated merely to the rights
of the assured. As subrogee, it can recover only the amount that
is recoverable by the latter. Since the right of the assured, in case
of loss or damage to the goods, is limited or restricted by the
provisions in the bill of lading, a suit by the insurer as subrogee
necessarily is subject to like limitations and restrictions.
Manila Mahogany Manufacturing Corporation vs. Court of
Appeals
When Manila Mahogany executed a release claim discharging
San Miguel Corporation from all actions, claims, demands and
rights of action arising out of or as a consequence of the accident
after the insurer had paid the proceeds of the policy, the insurer
is entitled to recover from the insured the amount of insurance
money paid. 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
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wrongdoer. 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.
Delsan Transport Lines, Inc. vs. Court of Appeals
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 subrogation receipt, by
itself, is sufficient to establish not only the relationship of
American Home 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.
Eastern Shipping Lines, Inc. vs. Prudential Guarantee and
Assurance, Inc.
The insurer, upon happening of the risk "insured" against and
after payment to the insured, is subrogated to the rights and
cause of action of the latter. As such, the insurer has the right to
seek reimbursement for all the expenses paid. However, in a
contract of carriage involving the shipment of knock-down auto
parts of Nissan motor vehicles which were allegedly lost and
destroyed, the insurer was not properly subrogated because of
the non-presentation of any marine insurance policy. The
submission of a marine risk note instead of the insurance policy
doesn't satisfy the requirement for subrogation. The marine risk
note is not an insurance policy. It is only an acknowledgment or
declaration of the insurer confirming the specific shipment
covered by its marine open policy, the evaluation of the cargo
and the chargeable premium.
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