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BSAC 3 – ACA
DEFINITION AND CONCEPTS
1. Basic concept of insurance
An agreement whereby one undertakes for a
consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event.
A contract of suretyship shall be deemed to be
an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as
such, is doing an insurance business as
hereinafter provided.
2. Define contract of insurance
Insurance is a contract whereby one undertakes
for a consideration to indemnify another against
loss, damage, or liability arising from an
unknown or contingent event.
The consideration is the premium, which must
be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy
will lapse and be forfeited by its own terms.
GR: Unless the premium is paid, the insurance
policy is not valid and binding.
3. Explain the term “doing an insurance
business or transacting an insurance
business.”
(1) Making or proposing to make, as insurer,
any insurance contract;
(2) Making or proposing to make, as surety,
any contract of suretyship as a vocation
and not as merely incidental to any other
legitimate business or activity of the
surety;
(3) Doing any kind of business, including a
reinsurance
business,
specifically
recognized as constituting the doing of
an insurance business within the
meaning of this Code;
(4) Doing or proposing to do any business in
substance equivalent to any of the
foregoing in a manner designed to evade
the provisions of this Code.
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4. Events covered by insurance (perils
or risk)
GR: Any contingent or unknown event, whether
past or future, which may damnify a person
having an insurable interest, or create a liability
against him, may be insured against, subject to
the provisions of this chapter.
XPTN:
(1) Most insurance policies do not cover
intentional acts or deliberate damage caused by
the
policyholder.
(2) Insurance may not cover losses caused by
negligence or reckless behavior of the insured.
NOTE:
- The consent of the spouse is not necessary
for the validity of an insurance policy taken out
by a married person in his or her life or that of his
or
her
children.
- All rights, title and interest in the policy of
insurance taken out by an original owner on the
life or health of the person insured shall
automatically vest in the latter upon the death
of the original owner, unless otherwise provided
for in the policy.
5. What are the elements of an insurance
contract?
(1) The insured has an insurable interest;
(2) The insured is subject to a risk of loss by
the happening of the designated peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a
general scheme to distribute actual
losses among large group of persons
bearing a similar risk; and
(5) In consideration of the insurer’s promise,
the insured pays a premium.
6. Characteristics
contracts
of
insurance
Consensual – it is perfected by the meeting of
the minds of the parties.
Voluntary - the parties may incorporate such
terms and conditions as they may deem
convenient.
Aleatory – it depends upon some contingent
event.
Unilateral – imposes legal duties only on the
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insurer who promises to indemnify in case of
loss.
Conditional – It is subject to conditions the
principal one of which is the happening of the
event insured against.
Contract of indemnity – Except life and
accident insurance, a contract of insurance is a
contract of indemnity whereby the insurer
promises to make good only the loss of the
insured.
Personal – each party having in view the
character, credit and conduct of the other.
ADDTL:
Contract of indemnity - except life and accident
insurance, a contract of insurance is a contract
of indemnity whereby the insurer promises to
make good only the loss of the insured.
Contract of adhesion - one which one of the
parties imposes a ready-made form of contract,
which the other party may accept or reject, but
which the latter cannot modify.
Risk Distributing Device - Both insurer and
insured have risks.
Formal - signed and agreed by people involved.
Onerous – burdensome and not for free.
7. Interpretation of insurance contracts
Terms of the contract are to be construed
according to the sense of meaning of the terms
which the parties thereto have used. If clear and
unambiguous, they must be taken and
understood in their plain, ordinary, and popular
sense.
When the terms of the insurance policy are
ambiguous, equivocal, or uncertain, such that
the parties themselves disagree about the
meaning of particular provisions, the policy will
be construed by the courts liberally in favor of the
assured and strictly against the insurer.
8. How
are
construed?
insurance
contracts
When the terms of the insurance policy are
ambiguous, equivocal, or uncertain, such that
the parties themselves disagree about the
meaning of particular provisions, the policy will
be construed by the courts liberally in favor of the
assured and strictly against the insurer.
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INSURANCE POLICY
9. Three types of insurance contracts
Policy
A contract of insurance. A written
instrument and shall be printed from. A certificate
or contract of insurance approved by the
commissioner.
Binding Receipt
A mere acknowledgment on behalf of the
company that its branch office had received from
the applicant the insurance premium and had
accepted the application subject to processing
by the head office.
Cover Note (Ad Interim)
A concise and temporary written contract
issued to the insurer through its duly authorized
agent embodying the principal terms of an
expected policy of insurance. It is intended to
give temporary insurance protection coverage to
the applicant pending the acceptance or
rejection of his application. Not exceeding 60
days unless a longer period is approved by the
Insurance Commissioner.
ADDTL:
Riders
Printed stipulations attached to the policy
because they constitute additional stipulations
between the parties. In case of conflict between
a rider and the printed stipulations in the policy,
the rider prevails, as being a more deliberate
expression of the agreement of the contracting
parties.
Clauses
An agreement between the insurer and
the insured on certain matters relating to the
liability of the insurer in case of loss.
Endorsements
Any provision added to the contract
altering its scope or application.
10. Specific Code provisions relating to
policies
Sec. 50 Policy Form and Completeness
➢ Insurance policies must be in printed
form and may include blank spaces.
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➢ All necessary details to complete the
insurance contract must be written in the
blank spaces.
➢ Any rider, clause, warranty, or
endorsement attached to the policy must
be mentioned on the policy and written in
blank spaces to be binding.
➢ If additional riders, clauses, warranties,
or endorsements are issued after the
original
policy,
they
must
be
countersigned by the insured or owner to
be valid.
➢ Electronic policies are allowed under
certain conditions, as per the 'Electronic
Commerce Act' and regulatory rules.
Sec. 51 Specifications in Insurance Policy
A policy of insurance must specify:
➢ The parties involved in the contract.
➢ The insured amount unless it's an open
or running policy.
➢ Premium details, or if exact premium is
determined later, basis and rates for the
final premium.
➢ The property or life being insured.
➢ The insured's interest in the property if
not the absolute owner.
➢ The risks covered by the policy.
➢ The duration of the insurance coverage.
Sec. 52 Cover Notes and Policies
➢ Cover notes can be issued temporarily to
provide insurance coverage until the
policy is issued.
➢ Within 60 days of issuing a cover note, a
policy must be issued with identical
insurance coverage and premium terms.
➢ Cover notes can be extended or renewed
beyond 60 days with the Commissioner's
approval, provided it doesn't violate the
law.
➢ The Commissioner can establish rules
for extensions without requiring written
approval.
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Sec. 53 Insurance Proceeds
➢ Insurance proceeds must be used for the
benefit of the person named or specified
in the policy, unless stated otherwise.
Sec. 54 Insurance as Agent or Trustee
➢ When an agent or trustee is the insured,
the principal or beneficiary's interest
is implied.
➢ The policy can use terms like "agent" or
"trustee" to indicate the real party in
interest.
Sec. 55 Joint Interest Insurance
➢ For insurance by one partner or partowner to cover others, policy terms must
apply to the joint interest.
Sec. 56 General Description of Insured
➢ If a policy's description of the insured is
broad, only those who can prove they
were intended to be included can
claim policy benefits.
Sec. 57 Policy Beneficiary Changes
➢ A policy can be designated to benefit any
owner of the insured interest during the
policy's coverage.
Sec. 232 Approval
Attachments
of
Policy
Form
and
➢ Insurance policies, certificates, and
contracts cannot be issued unless their
forms have been approved by the
Commissioner.
➢ Any rider, clause, warranty, or
endorsement attached to the policy must
have an approved form.
➢ New riders, clauses, warranties, or
endorsements added after the original
policy must be countersigned by the
insured or owner.
➢ Electronic policies are permitted, subject
to relevant laws and regulations.
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Sec. 233 Conditions for Individual Life or
Endowment Insurance
would place the insurer in violation of R.A.
10607.
➢ The policy must include provisions for a
grace period for premium payment (30
days or one month).
➢ The policy becomes incontestable after
two years from issuance (except for
certain cases).
➢ The policy constitutes the entire contract
between the parties.
➢ If the insured's age affects premium and
benefits, misstated age will adjust the
payable amount.
➢ Participating policies involve periodic
surplus distribution by the company.
➢ Defaulted premium payment options
include cash surrender value and paid-up
benefits.
➢ The company can provide policy loans at
an approved interest rate.
➢ A table of cash surrender values and
options upon premium default must be
included.
➢ If the policy provides installments or
annuity payments, a table of minimum
amounts is required.
➢ Reinstatement within three years of
default is allowed with evidence of
insurability and payment of overdue
premiums.
Prescription Period for Actions:
(1) The insurer at least forty-five (45) days in
advance of the end of the policy period mails
or delivers to the named insured at the address
shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages,
the named insured shall be entitled to renew the
policy upon payment of the premium due on the
effective date of the renewal.
(2) Any policy written for a term of less than one
(1) year shall be considered as if written for a
term of one (1) year.
(3) Any policy written for a term longer than one
(1) year or any policy with no fixed expiration
date shall be considered as if written for
successive policy periods or terms of one (1)
year.
11. Unilateral Cancellation of Non-Life
Policy
A. By the INSURER
Grounds:
(1) Nonpayment of premium.
(2) Conviction of a crime arising out of acts
increasing the hazard insured against.
(3) Discovery of willful or reckless acts or
omissions increasing the hazard insured
against.
(4) Physical changes in the property insured
which result in the property becoming
uninsurable.
(5) Discovery of other insurance coverage that
makes the total insurance in excess of the value
of the property insured.
(6) A determination by the Commissioner that
the continuation of the policy would violate or
Note:
(1) Prior notice of cancellation to insured.
(2) Notice must be based on the occurrence
after an effective date of the policy of one or
more
grounds
mentioned.
(3) Must be in writing, mailed or delivered to
the insured at the address shown in the policy.
(4) Must state the grounds relied upon provided
in Sec. 64 of the Insurance Code and upon
request of the insured, the insurer will furnish the
facts on which the cancellation is based.
B. By the INSURED – short period rate
scale
➢ Non-renewal/option to allow lapse in life
insurance.
➢ Non-renewal of property insurance.
C. Variable Contracts
Any policy or contract on either a group or
individual basis issued by an insurance company
providing for benefits or other contractual
payments or values thereunder to vary so as to
reflect investment results of any segregated
portfolio of investment.
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BSAC 3 – ACA
12. Premium, defined
It is the consideration paid by an insurer
for undertaking to indemnify the insured against
a specified peril. In fire, casualty, and marine
insurance, the premium payable becomes a debt
as soon as the risk attaches.
a) Rule on premium payment
GR: Unless the premium is paid, the insurance
policy is not valid and binding.
XPTN:
(1) In case of life or an industrial life policy
whenever the grace period provision applies, or
whenever under the broker and agency
agreements with duly licensed intermediaries, a
ninety (90)-day credit extension is given.
(2) Where the insurer acknowledged in the
policy or contract of insurance itself the receipt of
premium, even if premium has not been actually
paid.
(3) Where the parties agreed that premium
payment shall be in installments and partial
payment has been made at the time of loss.
(4) Where the insurer granted the insured a
credit term for the payment of the premium, and
loss occurs before the expiration of the term .
(5) Where the insurer is in estoppel as when it
has consistently granted a 60 to 90-day credit
term for the payment of premiums.
Basis for Full Payment
Acknowledgement in a policy or contract
of insurance or the receipt of premium is
conclusive evidence of its payment.
Payment by Check
Payment by check is not a legal tender of
the Philippines. Hence, payment by check will
only result in payment of premium once it is
encashed in the bank.
b) Non-payment
Non-payment of premium puts an end to
an insurance contract since the time of the
payment is peculiarly of the essence of the
contract.
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c) Return of premium to the insured
(a) To the whole premium if no part of his
interest in the thing insured be exposed to
any of the perils insured against;
(b) Where the insurance is made for a definite
period of time and the insured surrenders his
policy, to such portion of the premium as
corresponds with the unexpired time, at a
pro rata rate, unless a short period rate has
been agreed upon and appears on the face
of the policy, after deducting from the whole
premium any claim for loss or damage under
the policy which has previously accrued:
Provided, That no holder of a life insurance
policy may avail himself of the privileges of
this paragraph without sufficient cause as
otherwise provided by law.
d) Payment received by insurer other
than premium
An insurer may contract and accept payments,
in addition to regular premiums, for the purpose
of paying future premiums on the policy or to
increase the benefits thereof.
e) When
is
perfected?
insurance
contract
An insurance contract is a consensual
contract and is therefore perfected the moment
there is a meeting of minds with respect to the
object and the cause or consideration. So, if an
application for insurance has not been either
accepted or rejected, there is no contract yet.
PARTIES TO INSURANCE CONTRACT
13. Parties to the insurance contract
INSURER
Person who undertakes to indemnify
another.
Note: For a person to be called an insurance
agent, it is necessary that he should perform the
function for compensation. The term shall
include
all
partnerships,
associations,
cooperatives,
or
corporations,
including
government-owned or -controlled corporations
or entities, engaged as principals in the
insurance business, excepting mutual benefit
associations.
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INSURED
The party to be indemnified upon the
occurrence of the loss. He must have capacity
to contract, must possess an insurable
interest in the subject of the insurance and must
not be a public enemy.
Note: A nation with whom the Philippines is at
war and it includes every citizen or subject of
such nation is considered a public enemy.
BENEFICIARY
A person designated to receive proceeds
of policy when risk attaches.
14. What are the requisites in order that a
person may be insured in a contract of
insurance?
(a) He must be competent to enter into a
contract;
(b) He must possess an insurable interest
in the subject of insurance; and
(c) He must not be a public enemy.
15. What is a beneficiary?
A person designated to receive proceeds of
policy when risk attaches.
BENEFICIARY DESIGNATION
GR: It can be any person, charity, trust, or estate.
XPTN:
1) Any person who is forbidden from
receiving any donation under Art. 739.
Specifically: (a) those made between
persons who were guilty of adultery or
concubinage at the time of the donation;
(b) those made between persons found
guilty of the same criminal offense, in
consideration thereof; (c) those made to
a public officer or his wife, descendants
and ascendants, by reason of his office.
2) Public enemy
NATURE OF DESIGNATION
The insured shall have the right to
change the beneficiary he designated in the
policy unless he has expressly waived this right
in said policy. Notwithstanding the foregoing, in
the event the insured does not change the
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beneficiary during his lifetime, the designation
shall be deemed irrevocable.
GROUNDS FOR DESIGNATION
The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or
accessory in willfully bringing about the death of
the insured. In such a case, the share forfeited
shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in
accordance with the policy contract. If the policy
contract is silent, the proceeds shall be paid to
the estate of the insured.
CLASSIFICATION OF INSURANCE
CONTRACTS
16. Classes of insurance contracts
a. Marine
b. Fire
c. Casualty
d. Life
e. Suretyship
f. Microinsurance
g. Compulsory Motor Vehicle Liability
LIFE INSURANCE
17. Definition
Insurance on human lives and insurance
appertaining thereto or connected therewith. It is
type of insurance that pays out a sum of money
after the death of the insured or a benefit on a
specified date.
18. Types of life insurance contracts
a. Individual Life
Individual life insurance is a type of insurance
policy that provides coverage for a single
person’s life. It is purchased by an individual to
provide financial protection for their beneficiaries
in case of their death.
b. Group Life
a policy that covers a group of individuals,
usually employees of a company or members of
an organization. This type of insurance is
typically offered as an employee benefit by
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employers to provide financial security to their
employees’ families in case of death.
c. Industrial Life
a type of small whole life insurance policy. It
is designed to provide a small amount of
coverage to cover final expenses, such as
funeral costs and other related expenses.
cash value
as security.
Premium
Loan
Not allowed
19. Types of life insurance coverages
a. Term Insurance
It has a limited or fixed number of years of
coverage which is the “term.” The death benefit
will be paid to the beneficiary when the insured
person passes away while the policy is active.
b. Endowment Insurance
Life insurance that is payable either to the
insured at the end of the policy period or to the
insured’s beneficiary if the insured dies before
the period ends. If you die before the policy
maturity date, your heirs receive the life
insurance payout. However, if you live until the
target date, you’ll receive a guaranteed lump
sum payment called the endowment.
c. Payment of Annuities
An agreement to pay the insured for a stated
period or for life. The insured or beneficiary
receives the benefit payout in the form of annuity.
Instead of receiving a lump-sum payment, they
would receive regular payments over a specified
period or for the rest of their life.
d. Term v. Endowment
Purpose
Term
provide
financial
protection for
a specific
period,
known as the
term.
Endowment
serves a dual
purpose: it
provides both
life insurance
coverage and
a savings or
investment
component.
CSV
No.
Yes.
Borrowing
Not allowed
Allowed
using
accumulated
If holder
unable to
pay, cash
value can be
collateral to
cover
premium
amount.
20. Group Insurance
A comparatively new form of insurance. It is
essentially a single insurance contract that
provides coverage for many individuals. An
example is health and life insurance coverage for
the employees of one employer.
21. Industrial Life insurance
A form of life insurance under which the
premiums are payable either monthly or oftener,
if the face amount of insurance provided in any
policy is not more than five hundred times that
of the current statutory minimum daily wage in
the City of Manila, and if the words industrial
policy is printed upon the policy as part of the
descriptive matter.
An industrial life policy shall not lapse for
nonpayment of premium if such nonpayment
was due to the failure of the company to send its
representative or agent to the insured at the
residence of the insured or at some other place
indicated by him for the purpose of collecting
such premium: Provided, That the provisions of
this paragraph shall not apply when the premium
on the policy remains unpaid for a period of three
(3) months or twelve (12) weeks after the grace
period has expired.
22. Insurable interest in life insurance
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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BSAC 3 – ACA
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.
Q. Is the consent of the spouse needed?
A. No, the consent of the spouse is not
necessary for the validity of an insurance policy
taken out by a married person in his or her life or
that of his or her children.
Q. When will the rights of the deceased
insured vests in the person whose life is
insured?
A. Upon the death of the original owner, unless
otherwise provided for in the policy. When
someone takes out an insurance policy on
another person's life or health, the ownership of
that policy will shift to the insured person upon
the death of the person who originally purchased
the policy.
Q. When should insurable interest be
present?
A. Interest in life or health must exist when the
insurance takes effect, but need not exist
thereafter or when the loss occurs. Interest in
property insured must exist when the insurance
takes effect, and when the loss occurs, but need
not exist in the meantime.
Q. Is there a limit of value of insurance
interest?
A. No. Spouses and civil partners are presumed
by law to have an unlimited insurable interest
in the lives of each other.
23. Mandatory
provisions
insurance policies
a) Grace Period
in
life
The policyholder is entitled to a grace period
either of thirty (30) days or of one (1) month
within which the payment of any premium after
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the first may be made, subject at the option of
the insurer to an interest charge not in excess of
six percent (6%) per annum for the number of
days of grace elapsing before the payment of the
premium, during which period of grace the policy
shall continue in full force, but in case the policy
becomes a claim during the said period of grace
before the overdue premium is paid, the amount
of such premium with interest may be deducted
from the amount payable under the policy in
settlement.
b) Incontestability clause
GR: A provision that the policy shall be
incontestable after it shall have been in force
during the lifetime of the insured for a period of
two (2) years from its date of issue as shown in
the policy.
XPTN:
a. Nonpayment of premium and except for
violation of the conditions of the policy
relating to military or naval service in time
of war (Individual Life);
b. Nonpayment of premiums after it has
been in force for two (2) years from its
date of issue (Group Life);
c. Nonpayment of premiums and for
violation of the conditions of the policy
relating to naval or military service, or
services auxiliary thereto, and as to
provisions relating to benefits in the event
of disability as defined in the policy, and
those granting additional insurance
specifically against death by accident or
by accidental means, or to additional
insurance against loss of, or loss of use
of, specific members of the body.
Note: The period of 2 years may be shortened
but it cannot be extended by stipulation.
24. Cash Surrender Value
In case of default, it is the amount the
insured, after payment of at least 3 full annual
premiums, is entitled to receive if he/she
surrenders the policy and releases his claims
upon it.
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Surrender
To surrender the insurance policy is to
cancel the insurance policy. In other words, there
is withdrawal.
Loan
Life insurance policy loan is money that
is borrowed by a policy owner from the cash
value accumulated in a life insurance policy.
Extended term insurance / paid-up insurance
Paid-up insurance is when a life
insurance policy is already paid in full, and
premiums no longer need to be paid. In
extended term insurance, the policyholder
ceases to pay the premiums but keeps the full
amount of the policy in force for whatever term
the cash value permits.
25. When insured or beneficiary is a
minor
In the absence of a judicial guardian, the
father, or in the latter’s absence or incapacity, the
mother, of any minor, who is an insured or a
beneficiary under a contract of life, health, or
accident insurance, may exercise, in behalf of
said minor, any right under the policy, without
necessity of court authority or the giving of a
bond, where the interest of the minor in the
particular act involved does not exceed Five
hundred thousand pesos (P500,000.00) or in
such reasonable amount as may be determined
by the Commissioner. Such right may include,
but shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds
of the policy, and giving the minor’s consent to
any transaction on the policy.
In the absence or in case of the
incapacity of the father or mother, the
grandparent, the eldest brother, or sister at least
eighteen (18) years of age, or any relative who
has actual custody of the minor insured or
beneficiary, shall act as a guardian without
need of a court order or judicial appointment
as such guardian, as long as such person is not
otherwise disqualified or incapacitated. Payment
made by the insurer pursuant to this section shall
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relieve such an insurer of any liability under the
contract.
Valued Policy
A valued policy is one which expresses
on its face an agreement that the thing insured
shall be valued at a specific sum.
Running Policy
One which contemplates successive
insurances, and which provides that the object of
the policy may be from time to time defined,
especially as to the subjects of insurance, by
additional statements or endorsements.
FIRE INSURANCE
Fire insurance shall include insurance
against loss by fire, lightning, windstorm, tornado
or earthquake and other allied risks, when such
risks are covered by extension to fire insurance
policies or under separate policies.
26. Alteration in the thing insured
Most fire insurance policies require the
policyholder to notify the insurance company of
any substantial alterations or changes to the
insured property. This is typically done to ensure
that the insurance coverage remains adequate
and appropriate after the alterations.
Insurance companies need to assess the
risk associated with the altered property.
Alterations can change the value of the property,
the materials used, the fire safety measures in
place, and other factors that impact the risk of
fire damage.
Depending on the nature and scope of
the alterations, the insurance company may
adjust the premium to reflect the changes in risk.
Certain alterations might increase the risk of fire
damage, leading to a potential increase in the
premium.
Alterations may lead to changes in the
terms and conditions of the policy. The insurance
company may specify requirements related to
fire safety measures, materials used, and other
factors to mitigate the increased risk.
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27. Alteration in the use of the thing
insured
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.
An alteration in the use or condition of a
thing insured from that to which it is limited by the
policy, which does not increase the risk, does not
affect a contract of fire insurance.
28. Acts of the insured subsequent to the
policy
A contract of fire insurance is not
affected by any act of the insured
subsequent to the execution of the policy,
which does not violate its provisions, even
though it increases the risk and is the cause of a
loss.
29. Unvalued fire insurance policy
It differentiates from valued fire insurance
policy in terms of measure of indemnity. If there
is no valuation in the policy, the measure of
indemnity in an insurance against fire is the
expense it would be to the insured at the time of
the commencement of the fire to replace the
thing lost or injured in the condition in which it
was at the time of the injury. In other words, only
the expense necessary to replace the thing lost
or injured in the condition it was at the time of the
injury.
30. Valued fire insurance policy
Parties are bound by the valuation, in the
absence of fraud or mistake. The valuation in the
policy is conclusive between the parties thereto
in the adjustment of either a partial or total loss,
if the insured has some interest at risk, and there
is no fraud on his part; except that when a thing
has been hypothecated by bottomry or
respondentia, before its insurance, and without
the knowledge of the person actually procuring
the insurance, he may show the real value.
INSURANCE CODE
31. Valuation in the fire insurance policy
Whenever the insured desires to have a
valuation named in his policy, insuring any
building or structure against fire, he may require
such building or structure to be examined by an
independent appraiser and the value of the
insured’s interest therein may then be fixed as
between the insurer and the insured. The cost of
such an examination shall be paid for by the
insured. A clause shall be inserted in such policy
stating substantially that the value of the
insured’s interest in such building or structure
has been thus fixed. In the absence of any
change increasing the risk without the consent of
the insurer or of fraud on the part of the insured,
then in case of a total loss under such policy, the
whole amount so insured upon the insured’s
interest in such building or structure, as stated in
the policy upon which the insurers have received
a premium, shall be paid, and in case of a partial
loss the full amount of the partial loss shall be so
paid, and in case there are two (2) or more
policies covering the insured’s interest therein,
each policy shall contribute pro rata to the
payment of such whole or partial loss. But in no
case shall the insurer be required to pay more
than the amount thus stated in such policy. This
section shall not prevent the parties from
stipulating in such policies concerning the
repairing, rebuilding or replacing of buildings or
structures wholly or partially damaged or
destroyed.
32. Non-pledging of policy
No policy of fire insurance shall be
pledged, hypothecated, or transferred to any
person, firm or company who acts as agent for
or otherwise represents the issuing company,
and any such pledge, hypothecation, or transfer
hereafter made shall be void and of no effect
insofar as it may affect other creditors of the
insured.
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CASUALTY INSURANCE
33. Life v. Accident
Amount
Life
GR: There is
no limit in the
amount the
insured can
insure his
life.
XPTN: In a
creditordebtor
relationship
where the
creditor
insures the
life of his
debtor, the
limit of
insurable
interest is
equal to the
amount of
the debt.
Legal Basis
Time of
Insurable
Interest
Accident
The
Insurance
Code
contains no
other
provisions
applicable to
casualty
insurance.
Covers death
due to
accident.
Always has a
coveragelimit.
pre-existing
health
conditions,
pregnancy, without charging more.
including
Types of Coverage
a) Medical Expenses
The policy covers a portion of, or all,
medical expenses, including doctor visits,
hospital
stays,
surgeries,
prescription
medications, and medical tests.
b) Preventive Care
Many policies include coverage for
preventive
services
like
vaccinations,
screenings, and wellness check-ups.
c) Emergency Care
Coverage for urgent medical care, often
including ambulance services and emergency
room visits.
d) Specialist Care
Coverage for visits to specialists, such as
dermatologists or cardiologists.
Title 5 (Sec. Section 176,
3, Title I)
Title 3
Must
exist
when the
insurance
takes effect,
and need not
exist
thereafter or
when the
loss occurs.
INSURANCE CODE
An interest in
property
insured must
exist when
the insurance
takes effect,
and when the
loss occurs,
but need not
exist in the
meantime.
HEALTH CARE
Defined
A contract between an individual and an
insurance company that provides coverage for
medical expenses and healthcare services.
Requires insurance plans to cover people with
e) Prescription Drugs
Some
plans
cover
prescription
medications, either partially or fully.
SURETYSHIP
Defined
An agreement whereby a surety
guarantees the performance by the principal or
obligor of an obligation or undertaking in favor of
an
obligee.
It
is
essentially
credit
accommodation.
It is considered an insurance contract if it
is executed by the surety as a vocation, and not
incidentally.
When the contract is primarily drawn up
by 1 party, the benefit of doubt goes to the other
party (insured/obligee) in case of an ambiguity
following the rule in contracts of adhesion.
Suretyship, especially in fidelity bonding, is thus
treated like non-life insurance in some respects.
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Note:
INSURANCE CODE
36. In non-life insurance
a)
b)
c)
d)
e)
Accessory contract;
3 parties: surety, obligor, and obligee;
Credit accommodation;
Surety can recover from principal;
Bond can be cancelled only with consent
of obligee, the Commissioner or court;
f) Requires acceptance of obligee to be
valid;
g) Risk-shifting device; premium paid being
in the nature of a service fee.
Nature of liability
1) Solidary;
2) Limited to the amount of the bond;
3) It is determined strictly by the terms of the
contract of suretyship in relation to the
principal contract between the obligor
and the obligee.
INSURABLE INTEREST
34. What is insurable interest?
A person has an insurable interest in the
subject matter if he is so connected, so situated,
so circumstanced, so related, that by the
preservation of the same he shall derive
pecuniary benefit, and by its destruction he
shall suffer pecuniary loss, damage, or
prejudice.
35. Why must there be an insurable
interest?
➢ It is the most basic and essential
requirement in an insurance contract.
➢ It is essential for validity and
enforceability of the contract or policy. A
policy issued to a person without interest
in the subject matter is a mere wager
policy or contract.
➢ The existence of an insurable interest
gives a person the legal right to insure
the subject matter of the policy of
insurance.
Sec. 13
Every interest in property, whether real or
personal, or any relation thereto, or liability in
respect thereof, of such nature that a
contemplated peril might directly damnify the
insured, is an insurable interest.
Sec. 17
The measure of an insurable interest in
property is to the extent to which the insured
might be damnified by loss or injury thereof.
37. In property
Every interest in property whether real or
personal, or any relation thereto, or liability in
respect thereof, of such nature that the
contemplated peril might directly damnify the
insured (Sec. 13), which may consist in:
1) an existing interest;
2) any inchoate interest founded on an
existing interest; or
3) an expectancy coupled with an existing
interest in that out of which the
expectancy arises.
➢ When it should exist?
When the insurance takes effect and
when the loss occurs but need not exist in the
meantime.
➢ Amount
The measure of insurable interest in
property is the extent to which the insured might
be damnified by loss or injury thereof.
38. On lottery (Sec.
wagering (Sec. 25)
4);
gaming
or
Sec. 4
The preceding section does not authorize
an insurance for or against the drawing of any
lottery, or for or against any chance or ticket in a
lottery drawing a prize.
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INSURANCE CODE
Sec. 25
XPTN:
Every stipulation in a policy of insurance
for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering,
is void.
Interest in the life or health of a person
insured must exist when the insurance takes
effect, but need not exist thereafter or when loss
occurs. (Sec. 19)
39. Carrier or depositary (Sec. 15)
A carrier or depositary of any kind has an
insurable interest in a thing held by him as such,
to the extent of his liability but not to exceed the
value thereof.
40. Contingent (Sec. 16)
A mere contingent or expectant interest
in anything, not founded on an actual right to the
thing, nor upon any valid contract for it, is not
insurable.
41. Contract or policy of insurance (Sec.
18)
No contract or policy of insurance on
property shall be enforceable except for the
benefit of some person having an insurable
interest in the property insured.
42. When should II exist?
43. In the health of a person (Sec. 19)
An interest in property insured must exist
when the insurance takes effect, and when the
loss occurs, but need not exist in the meantime;
and interest in the life or health of a person
insured must exist when the insurance takes
effect, but need not exist thereafter or when loss
occurs.
GR: A change of interest in any part of a thing
insured unaccompanied by a corresponding
change of interest in the insurance, suspends
the insurance to an equivalent extent, until the
interest in the thing and the interest in the
insurance are vested in the same person.
A change of interest in a thing insured,
after the occurrence of an injury which results in
a loss, does not affect the right of the insured to
indemnity for the loss. (Sec. 21)
A change of interest in one or more of
several distinct things, separately insured by one
policy, does not avoid the insurance as to the
others. (Sec. 22)
A change of interest, by will or
succession, on the death of the insured, does not
avoid an insurance; and his interest in the
insurance passes to the person taking his
interest in the thing insured. (Sec. 23)
A transfer of interest by one of several
partners, joint owners, or owners in common,
who are jointly insured, to the others, does not
avoid an insurance even though it has been
agreed that the insurance shall cease upon an
alienation of the thing insured. (Sec. 24)
44. Void stipulations (Sec. 25)
Every stipulation in a policy of insurance
for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering,
is void.
45. In loan and mortgages
Sec. 8
Unless the policy otherwise provides,
where a mortgagor of property effects insurance
in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor,
who does not cease to be a party to the original
contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will
have the same effect, although the property is in
Magsalay, Jave Clouie R.
BSAC 3 – ACA
the hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be performed
by the mortgagee therein named, with the same
effect as if it had been performed by the
mortgagor.
Sec. 9
If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further
obligations on the assignee, making a new
contract with him, the acts of the mortgagor
cannot affect the rights of said assignee.
Sec. 10
Every person has an insurable interest in
the life and health:
a) Of himself, of his spouse, and of his
children;
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.
46. Exceptions to the Requirement for
Insurable Interest
Sec. 22
A change of interest in one or more of
several distinct things, separately insured by one
policy, does not avoid the insurance as to the
others.
Sec. 23
A change of interest, by will or
succession, on the death of the insured, does not
avoid an insurance; and his interest in the
insurance passes to the person taking his
interest in the thing insured.
INSURANCE CODE
Sec. 24
A transfer of interest by one of several
partners, joint owners, or owners in common,
who are jointly insured, to the others, does not
avoid an insurance even though it has been
agreed that the insurance shall cease upon an
alienation of the thing insured.
COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE
47. Third party liability
Concept
Provide compensation for the death or
bodily injuries suffered by innocent third parties
or passengers as a result of a negligent
operation and use of motor vehicles.
Third Parties, defined
Any person other than a passenger.
Excludes the following:
•
•
•
Member of the household; or
A member of the family within the second
degree of consanguinity or affinity of a
motor
vehicle
owner
or
land
transportation operator; or
His employee in respect of death, bodily
injury, or damage to property arising out
of and in the course of employment.
Passengers, defined
Refers to any fare paying person being
transported and conveyed in and by a motor
vehicle for transportation of passengers for
compensation, including persons expressly
authorized by law or by the vehicle’s operator or
his agents to ride without fare.
Coverage of insurance
Anyone outside the car or motor vehicle:
•
•
any unsuspecting pedestrian who is
caught in the accident;
those riding with you who aren’t your
employees or a family member within the
second degree of consanguinity or
affinity are also considered third party
persons.
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BSAC 3 – ACA
Compensation or indemnity
Only the expenses of third-party victims
are covered. Does not cover expenses for
personal injuries, damage to the insured motor
vehicle, or damage to the property of any third
party.
48. No fault clause (Sec. 391)
Proving fault or negligence on the part of
the land transportation operator which was
involved in an accident is not necessary in
claiming indemnification for death or injury to any
passenger/s or third parties.
MARINE INSURANCE
49. Coverage (Sec. 101)
Insurance against loss of or damage to:
1. Vessels,
goods,
freight,
cargo,
merchandise, profits, money, valuable
papers, bottomry and respondentia, and
interest in respect to all risks or perils of
navigation;
2. Person or property in connection with or
appertaining to a marine, inland marine,
transit, or transportation insurance,
including liability for loss of or damage
arising out of or in connection with the
construction,
repair,
operation,
maintenance or use of the subject matter
of such insurance (but not including life
insurance or surety bonds nor insurance
against loss by reason of bodily injury to
any person arising out of ownership,
maintenance, or use of automobiles);
3. Precious stones,
jewels,
jewelry,
precious metals, whether in course of
transportation or otherwise; and
4. Bridges, tunnels, piers, docks and other
aids to navigation and transportation.
Marine protection and indemnity
insurance, meaning insurance against, or
against legal liability of the insured for loss,
damage, or expense incident to ownership,
operation, chartering, maintenance, use, repair,
or construction of any vessel, craft, or
INSURANCE CODE
instrumentality in use of ocean or inland
waterways, including liability of the insured for
personal injury, illness or death or for loss of or
damage to the property of another person.
50. Insurable interest in marine insurance
Part I
a) Shipowner
Over the vessel to the extent of its value,
except that if chartered, the insurance is only up
to the amount not recoverable from the charterer.
b) Cargo owner
Over the cargo and expected profits.
c) Charterer
A person or company that contracts (by
charterparty) with a shipowner for the
transportation of passengers or cargo for a
specified voyage or period of time.
Over the amount he is liable to the
shipowner if the ship is lost or damaged during
the voyage.
Part II
In loans on bottomry (a system of merchant
insurance in which a ship is used as security
against a loan to finance a voyage, the lender
losing the investment if the ship sinks) and
respondentia (a loan where a ship’s cargo is the
security):
Repayment of the loan is subject to the
condition that the vessel or goods, respectively,
given as a security, shall arrive safely at the port
of destination.
a) Owner/Debtor
Difference between the value of vessel or
goods and the amount of loan.
b) Creditor/Lender
Amount of the loan.
Note: If a vessel is hypothecated by bottomry,
only the excess is insurable, since a loan on
bottomry partakes of the nature of an insurance
coverage to the extent of the loan
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BSAC 3 – ACA
accommodation. The same rule would apply to
the hypothecation of the cargo by respondentia.
51. Seaworthiness (Secs. 115-122)
Defined
A relative term depending upon the
nature of the ship, voyage, service and goods,
denoting in general a ship’s fitness to perform the
service and to encounter the ordinary perils of
the voyage, contemplated by the parties to the
policy.
GR: The warranty of seaworthiness is complied
with if the ship be seaworthy at the time of the
commencement of the risk. Prior or
subsequent unseaworthiness is not a breach of
the warranty nor is it material that the vessel
arrives in safety at the end of her voyage.
XPTN:
a) In the case of a time policy, the ship must
be seaworthy at the commencement of
every voyage she may undertake;
b) In the case of cargo policy, each vessel
upon which the cargo is shipped or
transshipped, must be seaworthy at the
commencement of each particular
voyage;
c) In the case of a voyage policy
contemplating a voyage in different
stages, the ship must be seaworthy at the
commencement of each portion.
➢ Applicability of implied warranty of
seaworthiness to cargo owners:
It becomes the obligation of a cargo
owner to look for a reliable common carrier,
which keeps its vessels in seaworthy conditions.
The shipper may have no control over the vessel
but he has control in the choice of the common
carrier that will transport his goods.
52. Measure of indemnity (loss)
Valued marine insurance policy (Sec. 158)
GR: A valuation in a policy of marine insurance
is conclusive between the parties thereto in the
adjustment of either a partial or total loss, if the
INSURANCE CODE
insured has some interest at risk, and there is no
fraud on his part.
XPTN: When a thing has been hypothecated by
bottomry or respondentia, before its insurance,
and without the knowledge of the person actually
procuring the insurance, he may show the real
value.
Partial Loss (Sec. 159)
A marine insurer is liable upon a partial
loss, only for such proportion of the amount
insured by him as the loss bears to the value of
the whole interest of the insured in the property
insured.
Separate Insurance Coverage for Profits
(Sec. 160)
Where profits are separately insured in a
contract of marine insurance, the insured is
entitled to recover, in case of loss, a proportion
of such profits equivalent to the proportion which
the value of the property lost bears to the value
of the whole.
Valued Marine Insurance on Freightage or
Cargo (Sec. 161 and 162)
In case of a valued policy of marine
insurance on freightage or cargo, if a part only of
the subject is exposed to risk, the valuation
applies only in proportion to such part.
When profits are valued and insured by a
contract of marine insurance, a loss of them is
conclusively presumed from a loss of the
property out of which they are expected to arise,
and the valuation fixes their amount.
Open Marine Policy (Sec. 163)
The value of a ship is its value at the
beginning of the risk, including all articles or
charges which add to its permanent value or
which are necessary to prepare it for the voyage
insured;
The value of the cargo is its actual cost to
the insured, when laden on board, or where the
cost cannot be ascertained, its market value at
the time and place of lading, adding the charges
incurred in purchasing and placing it on board,
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INSURANCE CODE
but without reference to any loss incurred in
raising money for its purchase, or to any
drawback on its exportation, or to the fluctuation
of the market at the port of destination, or to
expenses incurred on the way or on arrival;
upon the insurer after the separation of the
interests liable to contribution, nor when the
insured, having the right and opportunity to
enforce contribution from others, has neglected
or waived the exercise of that right.
The value of freightage is the gross
freightage, exclusive of primage, without
reference to the cost of earning it; and
In the case of a partial loss of ship or its
equipment, the old materials are to be applied
towards payment for the new. Unless otherwise
stipulated in the policy, a marine insurer is liable
for only two-thirds (2/3) of the remaining cost of
repairs after such deduction, except that anchors
must be paid in full.
The cost of insurance is in each case to
be added to the value thus estimated.
Partial Loss of Cargo at Port of Destination
(Sec. 164)
If cargo insured against partial loss
arrives at the port of destination in a damaged
condition, the loss of the insured is deemed to
be the same proportion of the value which the
market price at that port, of the thing so
damaged, bears to the market price it would
have brought if sound.
Expenses on Repair of Ship (Sec. 165)
A marine insurer is liable for all the
expenses attendant upon a loss which forces the
ship into port to be repaired; and where it is
stipulated in the policy that the insured shall
labor for the recovery of the property, the insurer
is liable for the expense incurred thereby, such
expense, in either case, being in addition to a
total loss, if that afterwards occurs.
General Average Loss (Sec. 166)
A marine insurer is liable for a loss falling
upon the insured, through a contribution in
respect to the thing insured, required to be made
by him towards a general average loss called for
by a peril insured against: Provided, That the
liability of the insurer shall be limited to the
proportion of contribution attaching to his policy
value where this is less than the contributing
value of the thing insured.
Claims of Insure
When a person insured by a contract of
marine insurance has a demand against others
for contribution, he may claim the whole loss
from the insurer, subrogating him to his own right
to contribution. But no such claim can be made
53. Voyage insured and deviation
Voyage insured
When the voyage contemplated by a
marine insurance policy is described by the
places of beginning and ending, the voyage
insured is one which conforms to the course of
sailing fixed by mercantile usage between those
places. (Sec. 123)
If the course of sailing is not fixed by
mercantile usage, the voyage insured by a
marine insurance policy is that way between the
places specified, which to a master of ordinary
skill and discretion, would mean the most
natural, direct, and advantageous. (Sec. 124)
Deviation, proper
a) When caused by circumstances outside
the control of the ship captain or ship
owner;
b) When necessary to comply with a
warranty or to avoid a peril;
c) When made in good faith to avoid a peril;
d) When made in good faith to save human
life or to relieve another vessel in
distress.
Effect: In case of loss, the insurer is still liable.
Deviation, improper
Every deviation not specified above is
improper.
Effect: In case of loss or damage, the insurer is
not liable.
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54. Abandonment
Nature
The act of the insured by which, after a
constructive total loss, he declared the
relinquishment to the insurer of his interest in the
thing insured.
Grounds
A person insured by a contract of marine
insurance may abandon the thing insured, or any
particular portion thereof separately valued by
the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause
of the loss is a peril insured against:
a) If more than three-fourths (¾) thereof in
value is actually lost, or would have to be
expended to recover it from the peril;
b) If it is injured to such an extent as to
reduce its value more than three-fourths
(¾);
c) If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than
three-fourths (¾) the value of the thing
abandoned or a risk which a prudent man
would not take under the circumstances;
or
d) If the thing insured, being cargo or
freightage, and the voyage cannot be
performed, nor another ship procured by
the master, within a reasonable time and
with reasonable diligence, to forward the
cargo, without incurring the like expense
or risk mentioned in the preceding
subparagraph. But freightage cannot in
any case be abandoned unless the ship
is also abandoned.
Requisites for validity
a) There must be an actual relinquishment
by the person insured of his interest in
the thing insured;
b) There must be a constructive total loss;
c) The abandonment is neither partial nor
conditional;
INSURANCE CODE
d) It must be made within a reasonable time
after receipt of reliable information of the
loss;
e) It must be factual;
f) It must be made by giving notice thereof
to the insurer which may be done orally
or in writing; and
g) The notice of abandonment must be
explicit and must specify the particular
cause of the abandonment.
How effected?
Abandonment is made by giving notice
thereof to the insurer, which may be done orally,
or in writing: Provided, That if the notice be
done orally, a written notice of such
abandonment shall be submitted within seven
(7) days from such oral notice.
A notice of abandonment must be
explicit, and must specify the particular cause of
the abandonment, but need state only enough to
show that there is probable cause therefor and
need not be accompanied with proof of interest
or of loss.
Legal effects of abandonment
It is equivalent to a transfer by the
insured of his interest to the insurer with all the
chances of recovery and indemnity.
Acts done in good faith by those who
were agents of the insured in respect to the thing
insured, subsequent to the loss, are at the risk of
the insurer and for his benefit.
On an accepted abandonment of a ship,
freightage earned previous to the loss belongs to
the insurer of said freightage; but freightage
subsequently earned belongs to the insurer of
the ship.
Legal effect of failure to abandonment
If an insurer refuses to accept a valid
abandonment, he is liable as upon an actual total
loss, deducting from the amount any proceeds of
the thing insured which may have come to the
hands of the insured. If a person insured omits to
abandon, he may nevertheless recover his
actual loss.
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CONCEALMENT AND
MISREPRESENTATION
55. Definitions
Concealment, defined
A neglect to communicate that which a
party knows and ought to communicate.
Representation, defined
Factual statements made by the insured
at the time of, or prior to, the issuance of the
policy to give information to the insurer and
induce him to enter into the insurance contract.
They are considered an active form of
concealment.
Misrepresentation, requisites
a) The insured stated a fact which is untrue.
b) Such fact was stated with knowledge that
it is untrue and with intent to deceive or
which he states positively as true without
knowing it to be true and which has a
tendency to mislead.
c) Such fact in either case is material to the
risk.
56. Common rules on concealment and
misrepresentation
INSURANCE CODE
e) Fraud is of a particularly vicious type, as
where the policy was taken out in
furtherance of a scheme to murder the
insured, or where the insured substitutes
another person for the medical
examination, or where the beneficiary
feloniously killed the insured.
f) That the beneficiary failed to furnish proof
of death or to comply with any condition
imposed by the policy after the loss has
happened.
g) The action was not brought within the
time specified.
Other Common Rules:
•
•
•
GR: Whether intentional or not intentional, the
insurer is entitled to rescind the contract of
insurance on grounds of concealment or
misrepresentation.
XPTN: Incontestability clause, insurer is no
longer allowed to raise a defense on fraud or
misrepresentation after 2 years.
XPTN to XPTN: Defenses not barred by
Incontestability:
a) The person taking the insurance lacked
insurable interest.
b) The cause of death of the insured is an
excepted risk.
c) Premiums have not been paid.
d) The conditions of the policy relating to
military or naval service have been
violated.
The statement of an erroneous opinion,
belief or information or of an unfulfilled
intention will not avoid the contract of
insurance, unless fraudulent. To avoid
liability, the insurer must prove both the
materiality of the insured’s opinion and
the latter’s intention to deceive.
Good Faith is not a defense in
concealment because of this provision
from Section 27.
Materiality is to be determined not by the
event, but solely by the probable and
reasonable influence of the facts upon
the party to whom the communication is
due, in forming his estimate of the
disadvantages of the proposed contract,
or in making his inquiries. Exception to
the test of materiality is the
incontestability clause and matters under
Sec. 110 which provides that, “In marine
insurance, information of the belief or
expectation of a third person, in
reference to a material fact, is material.”
Notes:
➢ Requisites for Concealment
a. A party knows a fact which he neglects to
communicate or disclose to the other.
b. Such party concealing is duty bound to
disclose such fact to the other.
c. Such party concealing makes no
warranty as to the fact concealed.
Magsalay, Jave Clouie R.
BSAC 3 – ACA
INSURANCE CODE
d. The other party does not have the means
of ascertaining the fact concealed.
e. Material
Sec. 114
➢ On Test of Materiality
a) The waiver of medical examination in a
non-medical insurance contract renders
even more material the information
required of the applicant concerning the
previous conditions of health and
diseases suffered.
b) The right to information of material facts
may be waived, either by the terms of
the insurance or by neglect to make
inquiries as to such facts where they are
distinctly implied in other facts of which
information is communicated.
c) Where matters of opinion or judgment
are called for, answers made in good
faith and without intent to deceive will not
avoid the policy even though they are
untrue. Reason: The insurer cannot rely
on those statements. He must make an
inquiry.
Misrepresentation, requisites
57. Concealment
and
meaning
“material information”
Effect
of
Material information, defined
A material fact or information are those
that are relevant to the transaction or event in
question and that would have influenced the
decision of the other party if it had been
disclosed.
58. Particular Rules on Misrepresentation
Sec. 113
If a representation by a person insured by
a contract of marine insurance, is intentionally
false in any material respect, or in respect of any
fact on which the character and nature of the risk
depends, the insurer may rescind the entire
contract.
The eventual falsity of a representation
as to expectation does not, in the absence of
fraud, avoid a contract of marine insurance.
a) The insured stated a fact which is untrue.
b) Such fact was stated with knowledge that
it is untrue and with intent to deceive or
which he states positively as true without
knowing it to be true and which has a
tendency to mislead.
c) Such fact in either case is material to the
risk.
Characteristics
a) It is not a part of the contract but merely
a collateral inducement to it.
b) It may be oral or written.
c) It is made at the same time of issuing the
policy or before but not after.
d) It may be altered or withdrawn before the
insurance is effected but not afterwards.
e) It always refers to the date the contract
goes into effect.
The injured party is entitled to rescind
from the time when the representation becomes
false.
WARRANTIES
59. Definition
Warranties, defined
Statement or promise by the insured 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
insurer was in fact prejudiced by such untruth or
non-fulfillment, renders the policy voidable by the
insurer.
Warranties, purpose
To eliminate potentially increasing
hazards which may either be due to the acts of
the insured or to the change to the condition of
the property.
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Warranties, kinds
LOSSES, CLAIMS AND PROCEEDS
a. Express - an agreement expressed in a
policy whereby the insured stipulates that
certain facts relating to the risk are or
shall be true, or certain acts relating to
the same subject have been or shall be
done.
b. Implied - it is deemed included in the
contract
although
not
expressly
mentioned.
60. Specific
warranty
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provisions
relating
to
Effects of Breach, if MATERIAL
GR: Violation of material warranty or of a
material provision of a policy will entitle the other
party to rescind the contract. (Sec. 74)
XPTN:
a) Loss occurs before the time of
performance of the warranty.
b) The performances becomes unlawful at
the place of the contract.
c) Performance becomes impossible.
Effects of Breach, if IMMATERIAL
GR: It will not avoid the policy.
XPTN: When the policy expressly provides or
declares that a violation thereof will avoid it.
Notes (Title 7):
➢ Warranty may relate to the past, the
present, the future, or to any or all of
these. (Sec. 68)
➢ No particular form of words is necessary
to create a warranty. (Sec. 69)
➢ A breach of warranty without fraud
merely exonerates (absolves) an insurer
from the time that it occurs, or where it is
broken in its inception, prevents the
policy from attaching to the risk. (Sec. 76)
61. Losses
Losses in insurance, defined
The injury or damage sustained by the
insured in consequence of the happening of one
or more of the accidents or misfortune against
which the insurer in consideration of the
premium, has undertaken to indemnify the
insured.
An agreement not to transfer claim (Sec. 85)
An agreement not to transfer the claim of
the insured against the insurer after the loss has
happened, is void if made before the loss except
as otherwise provided in the case of life
insurance.
When insurer is liable for loss (Sec. 86)
Unless otherwise provided by the policy,
an insurer is liable for a loss of which a peril
insured against was the proximate cause,
although a peril not contemplated by the contract
may have been a remote cause of the loss; but
he is not liable for a loss of which the peril
insured against was only a remote cause.
Proximate cause - An event that sets all other
events in motion without any intervening or
independent case, without which the injury or
loss would not have occurred.
When thing rescued from peril insured
against (Sec. 87)
An insurer is liable where the thing
insured is rescued from a peril insured against
that would otherwise have caused a loss, if, in
the course of such rescue, the thing is exposed
to a peril not insured against, which permanently
deprives the insured of its possession, in whole
or in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured
against.
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BSAC 3 – ACA
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Types of Losses Compensable in Marine
Insurance
cargo, without incurring the like expense
or risk mentioned in the preceding
subparagraph. But freightage cannot in
any case be abandoned unless the ship
is also abandoned.
Actual Total Loss (Secs. 132; 134; 137)
An actual total loss is caused by:
a) A total destruction of the thing insured;
b) The irretrievable loss of the thing by
sinking, or by being broken up;
c) Any damage to the thing which
renders it valueless to the owner for the
purpose for which he held it; or
d) Any other event which effectively
deprives the owner of the possession,
at the port of destination, of the thing
insured.
An actual loss may be presumed from
the continued absence of a ship without being
heard of. The length of time which is sufficient to
raise this presumption depends on the
circumstances of the case.
Upon an actual total loss, a person
insured is entitled to payment without notice of
abandonment.
Constructive Total Loss (Sec. 133)
A constructive total loss is one which
gives to a person insured a right to abandon,
under Section 141.
Sec. 141 provides that “a person insured by a
contract of marine insurance may abandon the
thing insured, or any particular portion thereof
separately valued by the policy, or otherwise
separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril
insured against:
a) Actual loss of more than ¾ of the value of
the object;
b) Damage reducing value by more than ¾
of the value of the vessel and of cargo;
c) Expense of transshipment exceed ¾ of
value of cargo; and
d) If the thing insured, being cargo or
freightage, and the voyage cannot be
performed, nor another ship procured by
the master, within a reasonable time and
with reasonable diligence, to forward the
Notes:
➢ In case of constructive total loss, insured
may:
a) Abandon goods or vessel to the insurer
and claim for whole insured value; or
b) Without abandoning vessel, claim for
partial actual loss.
Partial Loss (Sec. 130)
Every loss which is not total is partial.
Expected Particular Averages (Sec. 138)
Where it has been agreed that an
insurance upon a particular thing, or class of
things, shall be free from particular average (FPA
Clause), a marine insurer is not liable for any
particular average loss not depriving the insured
of the possession, at the port of destination, of
the whole of such thing, or class of things, even
though it becomes entirely worthless; but such
insurer is liable for his proportion of all
general average loss assessed upon the thing
insured.
Q. What is Average?
A. Any extraordinary or accidental expense
incurred during the voyage for the preservation
of the vessel, cargo, or both, and all damages to
the vessel and cargo from the time it is loaded
and the voyage commenced until it ends and the
cargo unloaded.
Q. Differentiate between
Particular Average
General
and
GENERAL
Has inured to the
common benefit and
profit of all persons
interested in the
vessel and cargo
PARTICULAR
Has not inured to the
common benefit and
profit of all persons
interested in the
vessel and her cargo.
To be borne equally
by all of the interests
To be borne alone by
the owner of the
Magsalay, Jave Clouie R.
concerned in the
venture.
BSAC 3 – ACA
cargo or the vessel,
as the case may be
Notes:
➢ Right of Insured in case of General
Average
GR: The insured may either hold the insurer
directly liable for the whole of the insured value
of the property sacrificed for the general benefit,
subrogating him to his own right of contribution
or demand contribution from the other interested
parties as soon as the vessel arrives at her
destination
XPTN:
a) After the separation of interests liable to
contribution
b) When the insured has neglected or
waived his right to contribution.
Ship Prevented from Completing Voyage
(Sec. 135)
When a ship is prevented, at an
intermediate port, from completing the voyage,
by the perils insured against, the liability of a
marine insurer on the cargo continues after
they are thus reshipped.
Nothing in this section shall prevent an
insurer from requiring an additional premium if
the hazard be increased by this extension of
liability.
Excepted Perils (Sec. 88)
Where a peril is especially excepted in a
contract of insurance, a loss, which would not
have occurred but for such peril, is thereby
excepted although the immediate cause of the
loss was a peril which was not excepted.
Willful act or connivance of
negligence of insured (Sec. 89)
insured;
An insurer is not liable for a loss caused
by the willful act or through the connivance of the
insured; but he is not exonerated (absolved)
by the negligence of the insured, or of the
insurance agents or others. However, when the
INSURANCE CODE
negligence is so gross that it is tantamount to
misconduct, or willful, or wrongful act, the
insurer is not liable.
62. Notice of Loss
a) In Fire Insurance
An insurer is exonerated (absolved), if
written notice thereof be not given to him by an
insured, or some person entitled to the benefit of
the insurance, without unnecessary delay.
b) All Other Non-Life Insurance
An insurer is exonerated (absolved), if
written notice thereof be not given to him by an
insured, or some person entitled to the benefit of
the insurance, without unnecessary delay. The
Commissioner may specify the period for the
submission of the notice of loss.
c) When preliminary period of loss
required by the policy
When a preliminary proof of loss is
required by a policy, the insured is not bound
to give such proof as would be necessary in a
court of justice; but it is sufficient for him to give
the best evidence which he has in his power at
the time.
d) Defects in notice of loss
All defects in a notice of loss, or in
preliminary proof thereof, which the insured
might remedy, and which the insurer omits to
specify to him, without unnecessary delay, as
grounds of objection, are waived.
Notes:
➢ Delay in the presentation to an insurer of
notice or proof of loss is waived if caused
by any act of him, or if he omits to take
objection promptly and specifically upon
that ground. (Sec. 93)
63. Over-insurance
Defined
Results when the insured insures the
same property for an amount greater than the
value of the property with the same insurance
company.
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Effect in case of loss
a) The insurer is bound only to pay to the
extent of the real value of the property
lost;
b) The insured is entitled to recover the
amount of premium corresponding to the
excess in value of the property.
64. Double Insurance
Defined
Exists where same person is insured by
several insurers separately in respect to same
subject and interest.
Requisites
a)
b)
c)
d)
e)
Person insured is the same;
Two or more insurers insuring separately;
Subject matter is the same;
Interest insured is also the same;
Risk or peril insured against is likewise
the same.
Effects
Where double insurance is allowed, but
over insurance results:
a) The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select,
up to the amount for which the insurers
are severally liable under their respective
contracts;
b) Where the policy under which the insured
claims is a valued policy, any sum
received by him under any other policy
shall be deducted from the value of the
policy without regard to the actual value
of the subject matter insured;
c) Where the policy under which the insured
claims is an unvalued policy, any sum
received by him under any policy shall be
deducted against the full insurable value,
for any sum received by him under any
policy;
d) Where the insured receives any sum in
excess of the valuation in the case of
valued policies, or of the insurable value
in the case of unvalued policies, he must
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hold such sum in trust for the insurers,
according to their right of contribution
among themselves;
e) Each insurer is bound, as between
himself and the other insurers, to
contribute ratably to the loss in proportion
to the amount for which he is liable under
his contract.
Additional or “Other Insurance” Clause
A condition in the policy requiring the
insured to inform the insurer of any other
insurance coverage of the property insured. A
stipulation against double insurance. The
purpose is to prevent an increase in moral
hazard, and to prevent over-insurance and fraud.
CLAIMS SETTLEMENT AND SUBROGATION
Sec. 56
When the description of the insured in a
policy is so general that it may comprehend any
person or any class of persons, only he who can
show that it was intended to include him, can
claim the benefit of the policy.
65. Fraudulent Claim
A fraudulent claim is when the person
making the claim intentionally leaves out,
misrepresents, alters or hides vital information
relating to the claim. This is with the intention of
getting payment under the policy that they would
not be otherwise entitled to.
66. Under Claim Settlement Practices
(Sec. 247)
No insurance company doing business in
the Philippines shall refuse, without just cause,
to pay or settle claims arising under coverages
provided by its policies, nor shall any such
company engage in unfair claim settlement
practices. Any of the following acts by an
insurance company, if committed without just
cause, and performed with such frequency as to
indicate a general business practice, shall
constitute unfair claim settlement practices:
a) Knowingly misrepresenting to claimants
pertinent facts or policy provisions
relating to coverage at issue;
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BSAC 3 – ACA
b) Failing to acknowledge with reasonable
promptness pertinent communications
with respect to claims arising under its
policies;
c) Failing to adopt and implement
reasonable standards for the prompt
investigation of claims arising under its
policies;
d) Not attempting in good faith to effectuate
prompt, fair and equitable settlement of
claims submitted in which liability has
become reasonably clear; or
e) Compelling policyholders to institute
suits to recover amounts due under its
policies by offering without justifiable
reason substantially less than the
amounts ultimately recovered in suits
brought by them.
Evidence as to numbers and types of
valid and justifiable complaints to the
Commissioner against an insurance company,
and the Commissioner’s complaint experience
with other insurance companies writing similar
lines of insurance shall be admissible in
evidence in an administrative or judicial
proceeding brought under this section.
If it is found, after notice and an
opportunity to be heard, that an insurance
company has violated this section, each instance
of noncompliance with paragraph (a) may be
treated as a separate violation of this section and
shall be considered sufficient cause for the
suspension or revocation of the company’s
certificate of authority.
PAYMENT OF CLAIMS
LIFE
a. Maturing upon the
expiration of the
term – The proceeds
are immediately
payable to the
insured, unless they
are made payable in
installments or as
annuity, in which
case, the installments
or annuities shall be
NON-LIFE
The proceeds shall
be paid within 30 days
after the
receipt by the
insurer of proof of
loss, and
ascertainment of the
loss or damage by
agreement of the
parties or by
arbitration but not
later than 90 days
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paid as they become
due.
b. Maturing at
the death of the
insured, occurring
prior to the
expiration of the
term stipulated –
The proceeds are
payable to the
beneficiaries
within 60 days
after presentation
and filing of proof
of death.
from such receipt of
proof of loss
whether or not
ascertainment is
had or made.
Notes:
➢ In case of an unreasonable delay in the
payment of the insured’s claim by the
insurer, the insured can recover:
a) attorney’s fees;
b) expenses incurred by reason of the
unreasonable withholding;
c) interest at double the legal interest rate
fixed by the Monetary Board; and
d) the amount of the claim.
PROCEEDS
Sec. 53
The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made
unless otherwise specified in the policy.
Sec. 57
A policy may be so framed that it will inure
to the benefit of whomsoever, during the
continuance of the risk, may become the owner
of the interest insured.