Insurance
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Notes from Atty. Zarah Villanueva...
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro INSURANCE CODE (P.D. 1460 as amended) INTRODUCTION: A. Laws governing Insurance Insurance Code – primary law New Civil Code – applied suppletorily specifically on law on obligations and contracts GSIS Act Property Insurance Law Act 1498 B. General Concept of Insurance Contract of Insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2 par. 2) *It is a contract of assumption of risk Q: Who will take the risk? A: Insurer Q: Who will be exposed to the risk? A: Insured C. Characteristics 1. Risk Distributing Device – the device of insurance serves to distribute the risk of economic loss among as many as possible to those who are subject to the same kind of risk. *The risk is distributed to the group of persons having the same risk. Q: Why is it a risk distribution device? A: Insurer has different policyholders that contribute to a common fund for the same risk. The common fund will indemnify the person who suffers loss for the same risk. Catch: not all policyholders will suffer the same risk at the same time. 2. Contract of Adhesion – Insurance is a contract of adhesion considering that most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may “adhere” if he chooses but which he cannot change. *Insurer always comes up with already made contract.
Q: Is there a contract? A: YES. Importance of knowing whether the contract is one of adhesion: In case of doubt, the contract shall be interpreted strictly against the insurer and liberally in favor of the insured. Q: is this rule unfair? A: NO. Because the contract was already prepared by the insurer, the only thing that the insured can do is either take it wholly or leave it. 3. Aleatory – The obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event which is uncertain, or which is to occur at an indeterminate time. (Article 2010 NCC) *The insurer becomes liable upon the happening of the peril insured against. *One or both parties are reciprocally bound to give or do something for consideration upon the happening of an event which is uncertain or to which is to occur at an indeterminate time. 4. Contract of Indemnity - The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss. *It is the basis of all property insurance. *Life insurance is not a contract of indemnity. Life is not subject to pecuniary estimation; Life is precious. General Rule: Insurance contract is a contract of indemnity. Exception: Life insurance 5. Uberrimae Fides Contract/Utmost Good Faith – The contract of insurance is one of perfect good faith not for the insured alone but equally so for the insurer; in fact, it is more so for the latter since its dominant bargaining position carries with it stricter responsibility. *Since there was an assumption of risk on the part of the insurer, it is their duty to make an intelligent estimates that is the reason why it requires the parties to the 1
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro contract of insurance to disclose conditions affecting the risk of which he is aware, or material fact, which the applicant knows, and those, which he ought to know. *Material facts are facts needed by the insurer for the determination of whether he will assume or not the risk. D. Elements of Insurance 1. Existence of an insurable interest Sec. 12 of the Insurance Code provides that: “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 which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.” Sec. 13 of the Insurance Code provides that: “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. 14 of the Insurance Code provides that: “An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.” 2. Risk of loss Sec. 51 paragraph g of the Insurance Code provides that: “ A policy of insurance must specify: x x x (g) The period during which the insurance is to continue.” 3. Assumption of risks Sec. 2 of the Insurance Code states that: “xxx (1) A “contract of insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.” 4. Scheme to distribute losses
5. Payment of premiums Sec. 77 of the Insurance Code states that: “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 an industrial life policy whenever the grace period provision applies.” E. Right of Subrogation *This principle is a normal incident of indemnity property insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any privity of contract. Payment to the insured makes the insurer an assignee in equity. *The insurer can only recover from the third person what the insured could have recovered. Thus, there can be no recovery if the insurer voluntarily paid even if the loss is not covered by the policy. *The insured can no longer recover from the offending party what was paid to him by the insurer but he can recover any deficiency, that is, if his damages is more than what was paid. The deficiency is not covered by the right of subrogation. Cases when there is no right of subrogation: 1. The insured by his own act releases the wrongdoer/third person liable for the loss 2. Where the insurer pays the insured for a loss or risk not covered by the policy 3. In life insurance 4. For recovery of loss in excess of insurance coverage CONTRACT OF INSURANCE: A. Requisites of a contract of Insurance 1. A subject matter in which the insured has an insurable interest 2. Event or peril insured against which may be any future contingent or unknown event, 2
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro past or future and a duration for the risk thereof 3. A promise to pay or indemnify in a fixed or ascertainable amount 4. A consideration known as premium 5. Meeting of the minds of the parties B. Perfection *An insurance contract is consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. *What is being followed in insurance contracts is what is known as the Cognition Theory. Q: What is the crucial point? A: The point wherein there must be an actual communication to the insured of the approval of the application. *In Great Pacific Life Assurance Corporation v CA, the SC held that the insured is the one making the offer by submitting an application to the insurer and the latter accepts the offer by approving the application. Thus, mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance. C. Parties to a contract of Insurance Sec. 6 of the Insurance Code states that: “Every person, partnership, association, or corporation duly authorized to transact insurance business as elsewhere provided in this code, may be an insurer.” Sec. 7 of the Insurance Code states that: “Anyone except a public enemy may be insured.” Beneficiary – person designated to receive proceeds of policy when risk attaches. General Rule: When one insures his own life, he may designate any person as the beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured. Exceptions: Persons specified in Article 739 in re Article 2012 of the New Civil Code. *The designation of persons mentioned in Article 739 is void but the policy is binding.
*In property insurance, the beneficiary must have insurable interest on the property. Sec. 11 of the Insurance Code states that: “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.” *The designation is revocable unless the right to revoke is expressly waived in the policy. Sec. 12 of the Insurance Code states that: “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 which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.” *In life or health insurance, the insured cannot assign the policy if the designation of the beneficiary is irrevocable. Reason: The irrevocable beneficiary has vested right. *If the insured refuses to pay the premiums, the designated irrevocable beneficiary may continue the policy by paying premiums that are due. (Article 1236 NCC) Q: Despite irrevocable designation, may the insured revoke the beneficiary? A: YES. Under Article 42 of the Family Code, Article 43 (4) of the Family Code, Article 50 of the Family Code and Article 64 of the Family Code. 1. Rule on minors Sec. 3 of the Insurance Code states that: “Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the Philippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor's estate or the minor's father, mother, husband, wife, child, brother or sister.” *This portion is repealed by RA 6809. Under RA 6809, minors are no longer allowed to enter into insurance contracts. This rule is absolute. 2. Rule on married women 3
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Sec. 3 of the Insurance Code provides that: “The married woman or the minor herein allowed to take out an insurance policy may exercise all the rights and privileges of an owner under a policy.” *Under RA 7192, married women can enter into insurance contracts without the assistance of their husbands. D. Subject matter of Insurance Sec. 3 of the Insurance Code states that: “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.” Sec. 4 of the Insurance Code states that: “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.” E. Insurance not a wagering contract Sec. 4 of the Insurance Code states that: “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.” *Wagering contract is not allowed because it is against public policy. Reason: The insured should not be happy because of the loss he suffered. Q: What prevents insurance policy from being a wagering contract? A: Insurable interest. INSURABLE INTEREST: A. Concept of Insurable Interest in General *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.” *Insurable interest does not exist by legal relationship or by virtue of law.
B. Reason for the requirement of insurable interest *A policy issued to a person without the requisite insurable interest in the subject matter is a mere wager policy or contract, hence, it is VOID. Evil sought to be avoided: Temptation to destroy the thing insured. Reason: He has nothing to lose but everything to gain. C. Insurable interest in Life Insurance Sec. 10 of the Insurance Code provides that: “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.” Q: May warehouseman insure the goods deposited in his warehouse? A: YES. In case of loss of the goods the warehouseman is liable to the owner of the goods. Q: May bottomry lender insures the hypothecated vessel? A: YES. There is an insurable interest up to the amount covered by the bottomry. Q: Who gets the proceeds of the insurance? A: The insured and the beneficiary. *In life insurance, persons prohibited to make donation to each other are also prohibited to become beneficiaries of each other. *For disqualification purposes, what is needed is only a preponderance of evidence. D. Insurable interest in Property Insurance Sec. 13 of the Insurance Code states that: “Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro contemplated peril might directly damnify the insured, is an insurable interest. “ Sec. 14 of the Insurance Code states that: “An insurable interest in property may consist in: (a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.” *In general, a person has an insurable interest in the property, if he derives pecuniary benefit or advantage from its preservation or would suffer pecuniary loss, damage or prejudice by its destruction whether he has or has no title in, or lien upon, or possession of the property. *Existence of insurable interest is a matter of public policy, hence, the principle of estoppels cannot be invoked. *In order for hope or expectancy to be insurable, it must be coupled with existing interest out of which the expectancy arises. It must be founded on an actual right to the thing or upon a valid contract. Sec. 19 of the Insurance Code states that: “An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but 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 the loss occurs.” Sec. 20 of the Insurance Code states that: “Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.” Sec. 25 of the Insurance Code states that: “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.” 1. Insurable interest in case of mortgaged property Sec. 8 of the Insurance Code states that: “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 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.” a. Standard or Union Mortgage Clause – subsequent acts of the mortgagor cannot affect the rights of the assignee. b. Open or Loss Payable Clause – acts of the mortgagor affect the mortgagee. Reason: Mortgagor does not cease to be a party to the contract. Basis: Sec. 8 of the Insurance Code states that: “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 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 5
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro named, with the same effect as if it had been performed by the mortgagor.” Sec. 9 of the Insurance Code states that: “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 obligation on the assignee, making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee.” 2. Effect of change of interest in the thing insured Sec. 20 of the Insurance Code states that: “Except in the cases specified in the next four sections, and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.” Sec. 21 of the Insurance Code states that: “A change in interest in a thing insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.” Sec. 22 of the Insurance Code states that: “A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others.” *This is a divisible policy. Sec. 23 of the Insurance Code states that: “A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.” *This is by operation of law. Sec. 24 of the Insurance Code states that: “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. 57 of the Insurance Code provides that: “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.” *The policy follows where the interest is. Sec. 58 of the Insurance Code provides that: “The mere transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured.” Article 1306 of the New Civil Code provides that: “The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
As measure
Insurable Interest in Property to Limited to the actual value of the interest in the property.
As to time when insurable interest must exist
The insurable interest exists when the insurance takes effect and when the loss occurs but not need exist in the meantime.
Insurable Interest in Life General Rule: Insurable Interest in life is unlimited. Exception: In life insurance effected by a creditor on the life of the debtor. General Rule: It is enough that the insurable interest exists at the time the policy takes effect and need not exist at the time of the loss. Exception: Obligee 6
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro must have insurable interest at the time the policy took effect and at the time of loss. As to There must The expectation be a legal expectation of benefit to basis. of the be derived benefit to be derived need not have any legal basis. As to the The General beneficiary’s beneficiary Rule: The interest must have beneficiary insurable need not interest have over the insurable thing interest over insured. the life of The policy is the insured still valid, if the only the insured designation himself was avoided secured the because the policy. beneficiary Exception: If has no the life insurable insurance interest. was obtained by the beneficiary, the latter must have insurable interest over the life of the insured. Q: In case where the designated beneficiary cannot claim the proceeds due to the fact that such designation was void, who can claim the proceeds? A: Insured. DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS: *Concealment and representation are devices that are related to the formation of the contract whereas
warranties and condition are devices that are related to the execution of the contract. A. Concealment 1. Concept Q: When is there concealment? Sec. 26 of the Insurance Code provides that: “A neglect to communicate that which a party knows and ought to communicate, is called a concealment.” 2. Duty to Communicate Sec. 28 of the Insurance Code states that: “Each party to a contract of insurance must communicated to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.” 3. Test of Materiality Sec. 31 of the Insurance Code provides that: “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.” *The fact disclosed may not be the proximate cause of the loss still there is breach because there is a vitiation of consent, the contract is voidable. 4. Effect of Concealment Sec. 27 of the Insurance Code provides that: “A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.” Sec. 29 of the Insurance Code provides that: “An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.” *It vitiates the contract and entitles the insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter. 5. Matters which need not be communicated Sec. 30 of the Insurance Code provides that: “Neither party to a contract of 7
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other: (a) Those which the other knows; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the former has no reason to suppose him ignorant; (c) Those of which the other waives communication; (d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and (e) Those which relate to a risk excepted from the policy and which are not otherwise material.” *Things need not be disclosed. Sec. 32 of the Insurance Code provides that: “Each party to a contract of insurance is bound to know all the general causes which are open to his inquiry, equally with that of the other, and which may affect the political or material perils contemplated; and all general usages of trade.” Sec. 34 of the Insurance Code provides that: “Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section fifty-one.” Sec. 35 of the Insurance Code provides that: “Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question. “ 6. Waiver of Information Sec. 33 of the Insurance Code provides that: “The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which information is communicated.” B. Representation 1. Concept
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Representations are factual statements made by the insured at the time of or prior to the issuance of the policy to give information to the insurer and otherwise induce him to enter into the insurance contract. *Representation per se is not wrong as long as such representation is true. *The false representation may still be corrected as long as it is made before the issuance of the policy. Kinds of Representation Sec. 36 of the Insurance Code provides that: “A representation may be oral or written.” Sec. 37 of the Insurance Code provides that: “representation may be made at the time of, or before, issuance of the policy.” Sec. 39 of the Insurance Code provides that: “A representation as to the future is to be deemed a promise, unless it appears that it was merely a statement of belief or expectation. “ Sec. 42 of the Insurance Code provides that: “. A representation must be presumed to refer to the date on which the contract goes into effect.” Test of Materiality Sec. 46 of the Insurance Code provides that: “The materiality of a representation is determined by the same rules as the materiality of a concealment.” *Facts that may probably and reasonably influence the other party in forming his estimate. Effect of Alteration or Withdrawal Sec. 41 of the Insurance Code provides that: “A representation may be altered or withdrawn before the insurance is effected, but not afterwards.” Time to which representation refers Sec. 42 of the Insurance Code states that: “A representation must be presumed to refer to the date on which the contract goes into effect.” Effect when representation is obtained from third persons
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Sec. 43 of the Insurance Code provides that: “When a person insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.” 7. When presumed false; effect of falsity Sec. 44 of the Insurance Code provides that: “A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.” Sec. 45 of the Insurance Code states that: “If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time when the representation becomes false. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission.” C. Remedies available in case of Concealment or False Representation 1. When rescission by the insurer may be exercised Sec. 48 of the Insurance Code states that: “Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.”
General Rule: Prescriptive period: Any time before the commencement of a court action on the contract. Exception: In case of life insurance made payable on the death of the insured. Q: How rescission is made? A: By sending notice of cancellation or rescission to the insured. Even if there is a court action, the insurer may raise concealment or representation as an affirmative defense. 2. When Life insurance policy becomes incontestable Sec. 48 of the Insurance Code states that: “Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent.” a. Requisites for incontestability 1. The insurance is a life insurance policy payable on the death of the insured. 2. It 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. The period of 2 years may be shortened but it cannot be extended by stipulation. *The defense should be misrepresentation or concealment only. *If the insured dies within 2 year period, the insurer may still rescind the contract. If the insured died after the 2 year period, the insurer cannot rescind the contract. b. Theory and Object of incontestability After a policy of life insurance made payable on the death of the insured 9
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro shall have been in force during the lifetime of the insured for a period of 2 years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. c. Defenses not barred by incontestability 1. The person taking the insurance lacked insurable interest as required by law 2. The cause of the death of the insured is an excepted risk 3. The premiums have not been paid 4. The conditions of the policy relating to military or naval service have been violated 5. The fraud is of a particularly vicious type 6. The beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened 7. The action was not brought within the time specified. 8. D. Warranties 1. Concept; distinguished from representation Warranty is a statement or promise set forth in the policy or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or nonfulfillment , renders the policy voidable. Condition is a provision wherein certain things are mandated by the insurer to be complied with by the insured in order for the latter to recover. Examples: 1. Filing of the claim on time 2. Notice of loss 3. Proof of loss
*The condition may be complied with before or after the loss. Warranty Part of the contract
Representation A collateral inducement Written on the Need not be written policy or in a valid rider or attachment Generally Should be conclusively established to be presumed to be material material The fact warranted Requires only to be must be strictly substantially true complied with 2. Kinds of Warranties 1. Express 2. Implied – warranties that are deemed included in the contract although not expressly mentioned. 3. Affirmative – asserts the existence of a fact or condition at the time it is made. 4. Promissory – the insured stipulates that certain facts or conditions shall exists or thing shall be done or omitted. 3. Time to which warranty refers Sec. 68 of the Insurance Code provides that: “A warranty may relate to the past, the present, the future, or to any or all of these.” 4. Effect of Breach Sec. 74 of the Insurance Code states that: “The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.” Sec. 75 of the Insurance Code states that: “A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.” Sec. 76 of the Insurance Code states that: “A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.” 10
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro POLICY OF INSURANCE: A. Definition and Form Sec. 49 of the Insurance Code states that: “The written instrument in which a contract of insurance is set forth, is called a policy of insurance.” Sec. 50 of the Insurance Code provides that: “The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement. Group insurance and group annuity policies, however, may be typewritten and need not be in printed form.” *Contract of insurance may be made in any form but the policy of insurance must be in writing. B. Fine Print Rule Insurance is a contract of adhesion considering that most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may “adhere” if he chooses but which he cannot change. C. Contents of the Policy Sec. 51 of the Insurance Code provides that: “A policy of insurance must specify: (a) The parties between whom the contract is made; (b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; (d) The property or life insured; (e) The interest of the insured in property insured, if he is not the absolute owner thereof; (f) The risks insured against; and (g) The period during which the insurance is to continue.” D. Papers attached to the policy and their binding effect (rider, warranties, clause, endorsement) Rider is an attachment to an insurance policy that modifies the conditions of the policy by expanding or restricting its benefits or excluding certain conditions from the coverage. *Riders, together with other attachments to the policy like clause, warranty or endorsements, are not binding on the insured unless the descriptive title or name thereof is mentioned and written on the blank spaces provided in the policy. Purpose: To modify the conditions or provisions. Interpretation: In case of doubt, riders prevail over the policy. *Riders and the like shall be countersigned by the insured or owner unless he was the one who applied for the rider, clause, and warranty. *When the requirements for a rider are complied with including clause, warranty or endorsement, it is considered part of the policy. *It is a part of the original policy which is in the nature of a conditional obligation. E. Kinds of Policy 1. Open Sec. 60 of the Insurance Code states that: “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.” *To put a threshold for purposes of premium. Advantage: actual valuation; the final valuation is accurate value of the property 11
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Disadvantage: hassle Example: Warehouse valued for P1M At the time of loss the actual valuation of the warehouse is P800,000 The insured can only recover P800,000 2. Valued Sec. 61 of the Insurance Code provides that: “A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.” Example: a. Warehouse valued for P1M Agreed valuation is P1M The insured can recover the whole P1M without proving the actual value of the property. b. Warehouse valued for P1.5M Agreed valuation is P1M The insurer can only recover P1M 3. Running Sec. 62 of the Insurance Code provides that: “A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.” *Usually covers stock and goods in warehouse Purpose: Avoidance of over and under insurance. F. Cover Notes Sec. 52 of the Insurance Code provides that: “Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the cover note and the premium therefor. Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations. “ *This is a preliminary contract of insurance. *The protection is temporary; limited to 60 days only *In Pacific Timber Export Corporation v CA, the SC held that no separate premium is required for the cover note. As an exception, the parties may agree otherwise. G. Cancellation of Policy Sec. 64 of the Insurance Code states that: “No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; (d) discovery of willful or reckless acts or omissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.” Prescriptive Period: Oral = 6 years; written= 10 years Sec. 65 of the Insurance Code states that: “All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.” 12
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Sec. 66 of the Insurance Code states that: “In case of insurance other than life, unless the insurer at least forty-five 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. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.” H. Time to commence action on the policy; effect of stipulation Q: When cause of action accrues? A: From the denial of the claim. Sec. 63 of the Insurance Code provides that: “A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.” PREMIUM: A. Concept Premium is the consideration paid to an insurer for undertaking to indemnify the insured against a specified peril. Q: Who pays the premium? A: Insured Q: What is the consideration? A: Insured: premium; Insurer: Assumption of risk B. Effect of non-payment of premium; exceptions Sec. 77 of the Insurance Code states that: “. 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 an industrial life policy whenever the grace period provision applies.” *This is called as Cash and Carry Rule Sec. 78 of the Insurance Code states that: “An acknowledgment in a policy or contract of insurance or 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 the premium is actually paid.” General Rule: No insurance policy issued or renewal is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Cash and Carry Rule) Exceptions: 1. In case of life and industrial life whenever the grace period provision applies (Sec. 77); Requisites: a. Life and industrial life insurance b. There is a grace period c. Grace period still exists 2. Where there is an acknowledgment in the contract or policy of insurance that the premium had already been paid (Sec. 78); Conclusive effect: the validity of the contract/policy and its binding effect. *No conclusive effect as to the payment of premium. *Acknowledgment results to estoppel 3. The rule laid down in Makati Tuscany Condominium v CA to the effect that Sec. 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss; *By express agreement Q: What was agreed upon? A: Payment by instalment plan 4. Where a credit term was agreed upon like the agreement in UCPB General Insurance, Inc. v Masagana Telemart where the insurer granted a 60-90 day credit term for the payment of the premiums despite full awareness of Sec.77; *By previous conduct/practice *Insured = principle of equity; insurer = estoppel. 13
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro 5. Where the parties are barred by estoppels Article 1306 of the : “New Civil Code states that: “The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.” C. When insured entitled to return of premiums Sec. 79 of the Insurance Code states that: “A person insured is entitled to a return of premium, as follows: (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.” Sec. 80 of the Insurance Code states that: “If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.” Sec. 81 of the Insurance Code states that: “A person insured is entitled to return of the premium when the contract is voidable, on account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, the existence of which the insured was ignorant without his fault; or when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.” Sec. 82 of the Insurance Code states that: “In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which
the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.” PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO RECOVERY: A. Beneficiary Sec. 11 of the Insurance Code provides that: “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.” Sec. 12 of the Insurance Code provides that: “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 which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.” Sec. 53 of the Insurance Code states that: “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. 56 of the Insurance Code states that: “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.” Sec. 57 of the Insurance Code provides that: “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.” Q: Who receives the proceeds? A: General Rule: Beneficiary Exception: In case the designated beneficiary is disqualified, it is the insured who receive the proceeds. General Rule: The designation of the beneficiary is revocable. Exception: Irrevocable In irrevocable designation, the general rule is that the designated beneficiary cannot be changed. Exceptions: 1. The beneficiary consented to the change 14
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro 2. Under Art. 45 of the Family Code which substantially provides that the innocent spouse has the authority to revoke the designation of his beneficiary 3. In cases where the marriage is declared void ab initio 4. In cases of annulment 5. In cases of legal separation B. Limitations on the appointment of beneficiary Article 2012 of the New Civil Code states that: “Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him, according to said article.” *The prohibition applies only to life insurance policy. *Under Article 1236 of the New Civil Code, the beneficiary may pay the premium even against the will of the insurer. Reason: Beneficiary has interest over the insurance policy. Article 739 of the New Civil Code states that: ”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.” C. Rule where insurance is made by an agent or trustee Sec. 54 of the Insurance Code provides that: “When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the
insured as agent or trustee, or by other general words in the policy.” D. Rule where insurance if made by partner or part owner Sec. 55 of the Insurance Code provides that: “To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. “ E. Notice and proof of loss Sec. 88 of the Insurance Code states that: “In case of loss upon an insurance against fire, an insurer is exonerated, if notice thereof be not given to him by an insured, or some person entitled to the benefit of the insurance, without unnecessary delay.” Sec. 89 of the Insurance Code states that: “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.” Sec. 90 of the Insurance Code provides that: “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.” Sec. 91 of the Insurance Code provides that: “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. 92 of the Insurance Code provides that: “If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured, it is sufficient for the insured to use reasonable diligence to procure it, and in case of the refusal of such person to give it, then to furnish reasonable evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary to be certified or testified.” DOUBLE INSURANCE: 15
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro A. Definition and requisites Sec. 93 of the Insurance Code provides that: “A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.” Requisites: 1. The person insured is the same 2. There are two or more insurers insuring separately 3. The subject matter is the same 4. The interest insured is also the same 5. The risk or peril insured against is likewise the same B. Distinguished from Over-insurance Distinctions: Double Insurance
Over-Insurance When the amount of the insurance is beyond the value of the insured’s insurable interest
There may be no overinsurance as when the sum total of the amounts of the policies issued does not exceed the insurable interest of the insured There are always There may only be one several insurers insurer involved
*There is over-insurance if the total amount exceeds the value of the thing insured. Example: In Fire Insurance, A insured his property to X for 500,000, to Y for 1M and to Z for 1M totalling to P2.5M. The property valued only for 1M. In this situation there is over-insurance. C. Stipulation against double insurance Q: Is double insurance legally prohibited? A: General Rule: NO. Exception: If prohibited by an “other insurance clause.” Basis: Sec. 75 of the Insurance Code which provides that: “A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.”
D. Rules for payment where there is overinsurance by double insurance Sec. 94 of the Insurance Code states that: “Where the insured is over-insured by double insurance: (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, the insured must give credit as against the valuation for any sum received by him under any other 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 he must give credit, as 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 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.” Formula: Insurance Policy --------------------------- x Amount of loss Total of Policy taken
X =
500000 --------- x 1M = 200,000 2.5M
Y =
1M -------- x 1M = 400,000 2.5M
Z =
1M -------- x 1M = 400,000 2.5M
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro *The balance shall be returned. *As far as the excess payment is concern, the excess shall be held in trust by the insured. REINSURANCE: *This is called a Liability Insurance A. Definition Sec. 95 of the Insurance Code provides that: “A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.” Example: In fire insurance, A insured his property against fire to X, X reinsured his obligation to Y. Q: Can A recover to the reinsurer? A: General Rule: NO Reason: No privity of contract Exception: Stipulation stating that the policy is taken for the benefit of the insured of the first contract of insurance. (Stipulation pour autrui) Q: Can X recover from Y even if X has not yet pay A? A: YES. Immediately arises from the time the liability of X has occur. B. Nature Sec. 97 of the Insurance Code states that: “A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.” Sec. 98 of the Insurance Code provides that: “The original insured has no interest in a contract of reinsurance.” Q: Is reinsurance mandatory? A: General Rule: NO Exceptions: 1. Sec. 215 of the Insurance Code which provides that: “No insurance company other than life, whether foreign or domestic, shall retain any risk on any one subject of insurance in an amount exceeding twenty per centum of its net worth. For purposes of this section, the term "subject of insurance" shall include all properties or risks insured by the same insurer that customarily are considered by
non-life company underwriters to be subject to loss or damage from the same occurrence of any hazard insured against. Reinsurance ceded as authorized under the succeeding title shall be deducted in determining the risk retained. As to surety risk, deduction shall also be made of the amount assumed by any other company authorized to transact surety business and the value of any security mortgage, pledged, or held subject to the surety's control and for the surety's protection.” 2. Sec. 275 of the Insurance Code which provides that: “Every foreign insurance company desiring to withdraw from the Philippines shall, prior to such withdrawal, discharge its liabilities to policyholders and creditors in this country. In case of its policies insuring residents of the Philippines, it shall cause the primary liabilities under such policies to be reinsured and assumed by another insurance company authorized to transact business in the Philippines. In the case of such policies as are subject to cancellation by the withdrawing company, it may cancel such policies pursuant to the terms thereof in lieu of such reinsurance and assumption of liabilities.” C. Distinguished from double insurance Distinctions: Reinsurance Double Insurance Insurance of different Involves same interest interests Insurer becomes an Insurer remains in insured in relation to such capacity reinsurer Original insured has no Insured in the 1st interest in reinsurance contract is a party in contract interest in the 2nd contract Subject of insurance is Subject of insurance is the original insurer’s property risk Consent of original Insured has to give his insured, not necessary consent D. Duty of reinsured to disclose facts
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Sec. 96 of the Insurance Code provides that: “Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.“ MARINE INSURANCE: A. Definition Marine Insurance includes policies that covers risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. Basis: Sec. 99 of the Insurance Code. B. Scope of marine insurance Sec. 99 of the Insurance Code provides that: “Marine Insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builder's risks, and all personal property floater risks; (b) 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); (c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; (d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (2) "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 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.” *In Roque v IAC, the SC held that cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not. Although he has no control over the vessel, the shipper has control in the choice of vessel. C. Risks or losses covered in marine insurance 1. Perils of the sea vs. perils of the ship Perils of the Sea Perils of the Ship Include only those Is a loss which is in casualties due to the ordinary course the unusual of events, results: violence or 1. From the extraordinary ordinary, causes connected natural and with navigation. It inevitable has been said to action of the include only such sea; losses as are of 2. From extraordinary ordinary nature or arise wear and from some tear of the overwhelming ship; and 18
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro power which 3. From the cannot be guarded negligent against by the failure of the ordinary exertion of ship’s owner human skill or to provide prudence, as the vessel distinguished from with the the ordinary wear proper and tear of the equipment to voyage and from convey the injuries suffered by cargo under the vessel in ordinary consequence of her conditions. not being unseaworthy. Extraordinary perils Usual perils attendant to navigation *Only perils of the sea are assumed by the insurer. 2. “all risks” marine insurance policy means that all risks are covered unless expressly excepted. The burden rests on the insurer to prove that the loss is caused by a risk that is excluded. D. Insurable interest in marine insurance 1. Ship owner’s insurable interest Sec. 100 of the Insurance Code provides that: “The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer.“ *The insurable interest of the shipowner is over the value of the vessel and over expected freightage. Measurement: Ownership *It does not matter whether the ship was mortgaged or chartered. a. Rule where vessel is chartered Sec. 100 of the Insurance Code states that: “The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, That in this case the insurer shall be liable for only that part
of the loss which the insured cannot recover from the charterer.” Q: What is a charter party? A: A contract where the owner lends his whole vessel to a charterer for a particular voyage. *Indemnity Principle applies b. Rule where vessel hypothecated by bottomry Sec. 101 of the Insurance Code which provides that: “The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry.” *Principle of Indemnity applies. Q: What is bottomry? A: it is a contract of loan which said loan is used for the repair of the vessel. The payment of which is conditional. *The owner’s insurable interest is the amount in excess of the value of the ship over the amount secured by the bottomry *Owner incurs loss due to the damage of the vessel but at the same time he receives gain due to the extinguishment of his loan obligation. c. Insurable interest in freightage Sec. 102 of the Insurance Code states that: “Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others.” Sec. 103 of the Insurance Code provides that: “The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage.” *Supposed earnings may be subject to marine insurance. 2. Charterer’s insurable Sec. 106 of the Insurance Code provides that: “The charterer of a ship has an 19
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro insurable interest in it, to the extent that he is liable to be damnified by its loss.” E. Concealment 1. Meaning of concealment in marine insurance *Definition of concealment in marine insurance is the same as what defined in Sec. 26 of the Insurance Code. *However, concealment under the marine insurance is more strict than the ordinary insurance Reason: Unpredictable risk *In marine insurance, opinions and expectations of third persons are considered, whereas in ordinary insurance as a general rule, opinions of third persons are not necessary. Exception: expert opinion. 2. Duty to communicate Sec. 107 of the Insurance Code which provides that: “In marine insurance each party is bound to communicate, in addition to what is required by section twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in Section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose.” 3. Opinions or expectations of third persons Sec. 108 of the Insurance Code which provides that: “In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material.” 4. When concealment does not vitiate the entire contract Sec. 110 of the Insurance Code states that: “A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed: (a) The national character of the insured; (b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade; (d) The want of necessary documents; (e) The use of false and simulated papers.” F. Representations 1. Effect of false representation by the insured Sec. 111 of the Insurance Code states that: “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.” 2. Effect of false representation as to expectation Sec. 112 of the Insurance Code provides that: “The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of marine insurance.” G. Implied warranties in marine insurance 1. Seaworthiness Sec. 113 of the Insurance Code provides that: “In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.” *Charterer is also subject to warranty on seaworthiness because he has control in the selection of the ship to be leased. *Bottomry lender is also subject to warranty on seaworthiness because he has also the control in the selection of the vessel. a. What constitutes seaworthiness Sec. 114 of the Insurance Code states that: “A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties to the policy.” Q: What makes a vessel seaworthy? A: Sec. 114. Fitness of the vessel is the general test. 20
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro *Warranty on the condition of the ship Example: Shipowner insured his vessel with X insurer. On the part of the insurer, the inured warrants that his vessel is ship worthy. The burden falls on the shipowner/insured of proving otherwise. *Seaworthiness depends on the transaction entered into or undertaken by the ship. Sec. 116 of the Insurance Code states that: “A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but requires that it be properly laden, and provided with a competent master, a sufficient number of competent officers and seamen, and the requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights, and other necessary or proper stores and implements for the voyage.” Requisites: 1. Condition of the structure of the ship 2. Properly laden and provided with a competent master 3. Sufficient number of competent officers and seamen 4. Requisite appurtenances and equipment *In Delsan Transport case, the SC held that the issuance of certificate of seaworthiness is not enough to prove seaworthiness of the ship. Example: Cargo owner insured his cargo Q: Does that implied warranty on seaworthiness apply to cargo owner? A: YES. The cargo owner has the control in the selection of the vessel where his cargoes to be shipped. Sec. 119 of the Insurance Code provides that: “A ship which is seaworthy for the purpose of an
insurance upon the ship may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of the insurance upon the cargo.” b. When complied with; exceptions Sec. 115 of the Insurance Code provides that: “An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the of commencement of the risk, except in the following cases: (a) When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time; (Time Policy) Example: The transaction is covered for one year from January 1, 2007 to December 31, 2007. The ship will undertake 5 different voyages. The ship must be seaworthy at the commencement of each and every voyage. (b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage, or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage. (Cargo Policy)” Controlling: There must be transhipment *The ship must be seaworthy in each particular voyage. Sec. 117 of the Insurance Code provides that: “Where different portions of the voyage contemplated by a policy differ in respect to the things 21
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion.” (Voyage Policy) *There is a single ship that completes the voyage however, the ship will undergo different degree of perils. *The ship must be seaworthy upon commencement of each level of peril. General Rule: The ship must be seaworthy at the time of the commencement of the risk. Exceptions: 1. Time policy 2. Cargo policy 3. Voyage policy *In time policy, seaworthiness commenced in every voyage. *In voyage policy, no transhipment. The voyage has different stages to go through. Every stage of voyage the ship must be seaworthy. c. Rule where ship becomes unseaworthy in the course of the voyage Sec. 118 of the Insurance Code provides that: “When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner's interest from liability from any loss arising therefrom.” 2. Warranty that necessary documents are carried Sec. 120 of the Insurance Code states that: “Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.” 3. Warranty against improper deviation a. Meaning of deviation Sec. 123 of the Insurance Code states that: “Deviation is a departure from the
course of the voyage insured, mentioned in the last two sections, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage.” *Deviation is either proper or improper. *There is breach of warranty if the deviation is improper. b. When proper Sec. 124 of the Insurance Code provides that: “A deviation is proper: (a) When caused by circumstances over which neither the master nor the owner of the ship has any control; (b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; *Whether or not the peril is covered by the policy is immaterial. (c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or (d) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.” *Warranty is against improper deviation. *Whether or not improper deviation contributed to the loss is immaterial because there was already a breach of implied warranty. Sec. 126 of the Insurance Code states that: “An insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation.” H. Loss 1. Kinds of losses a. Actual Sec. 130 of the Insurance Code provides that: “An actual total loss is cause by: (a) A total destruction of the thing insured; (b) The irretrievable loss of the thing by sinking, or by being broken up;
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro (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.” Sec. 132 of the Insurance Code states that: “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.” b. Constructive Sec. 131 of the Insurance Code provides that: “A constructive total loss is one which gives to a person insured a right to abandon, under Section one hundred thirty-nine. “ 2. Right to payment upon an actual total loss Sec. 135 of the Insurance Code states that: “Upon an actual total loss, a person insured is entitled to payment without notice of abandonment.” 3. Scope of insurance against actual total loss Sec. 137 of the Insurance Code states that: “An insurance confined in terms to an actual loss does not cover a constructive total loss, but covers any loss, which necessarily results in depriving the insured of the possession, at the port of destination, of the entire thing insured.” 4. When constructive total loss/partial loss exists Sec. 139 of the Insurance Code 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) If more than three-fourths 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;
(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 threefourths 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.” Test: The loss is more than ¾ but less than 1. *If there is partial loss, only partial can be claimed. *The extent of damage in constructive loss is so severe. *This is not automatic. *There is an option either to abandon it or to recover only the partial loss. 5. Concept of abandonment and its requisites Definition: Sec. 138 of the Insurance Code states that: “Abandonment, in marine insurance, is 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.” *It is necessary to abandon the surviving part of the thing. Formula: Constructive total loss + Abandonment = Total loss If there is only constructive total loss there is only partial loss. Requisites: 1. There must be an actual relinquishment by the person insured of his interest in the thing insured. 2. There must be a constructive total loss 3. The abandonment be neither partial nor conditional 23
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro 4. It must be made within a reasonable time after receipt of reliable information of the loss 5. It must be factual and reasonable 6. It must be made by giving notice thereof to the insurer which may be done orally or in writing 7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment *The residual part is abandoned. Reason: Principle of Indemnity *If the requisites are satisfied the insurance company cannot refuse to accept the abandonment. 6. Average Average is 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. *Expenses for maritime transaction. a. Kinds of average: i. Particular Sec. 136 of the Insurance Code provides that: “Where it has been agreed that an insurance upon a particular thing, or class of things, shall be free from particular average, 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.” - Includes all damages and expenses caused to the vessel or to her cargo which have not inured to the
common benefit and profit of all persons interested in the vessel and her cargo. It refers to those losses which occur under such circumstances as do not entitle the unfortunate owners to receive contribution from other owners concerned in the venture as where a vessel accidentally runs aground and goes to pieces after the cargo is saved. Recourse: Go after the insurer *Stipulation exempting the insurer for a particular average loss is possible and valid. ii. General - Includes 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. b. Requisites of general average 1. There must be a common danger to the vessel or cargo 2. Part of the vessel or cargo was sacrificed deliberately 3. The sacrifice must be for the common safety of for the benefit of all 4. It must be made by the master or upon his authority 5. It must be successful, i.e., resulted in the saving of the vessel or cargo 6. It must be necessary c. Insurer’s liability for general average The insurer of the vessel or cargo that are saved is liable for general average contribution and not for particular 24
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro average. Only the insurer of the damaged cargo or vessel is liable for particular average if covered by the policy. Q: If there is a stipulation exempting the insurer for a particular average loss, does it extend to general average loss? A: NO. Basis: Article 859 of the Code of Commerce; Article 812 of the Code of Commerce Reason: Equity Q: Are there a mandatory co-insurance in marine insurance? A: YES. Basis: Sec. 157 of the Insurance Code provides that: “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.” *There is a co-insurance when the property is insured for less than its value, the insured is considered a coinsurer for the difference between the amount of insurance and the value of the property. Requisites: 1. The loss is partial 2. The amount of insurance is less than the value of the property insured. Formula: Loss ------- x Insurance = Insurer’s Liability Value Example: A’s insurable interest = P500,000 Insured Amount = P300,000 Loss = P300,000 Q: Would the whole P300,000 be recovered from the insurer? A: NO. Only 180,000 will be recovered and the balance of 120,000 will be suffered by the insured as a coinsurer. Computation: 300,000 ----------- x 300,000 = 180,000 500,000 If the loss is 500,000, the insured can recover the whole 300,000 because there is a total loss and not partial loss.
*In fire insurance, there has to be an express stipulation to that effect. FIRE INSURANCE: A. Definition and scope of fire insurance Sec. 167 of the Insurance Code provides that: “As used in this Code, the term "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.” B. Risks or losses covered Q: What are allied risks? A: lightning, windstorm, tornado or earthquake, tsunami. Q: What are direct losses? A: Direct losses are losses that pertain to the physical destruction of the thing insured. Q: What are indirect losses? A: Indirect losses pertain to consequential losses. Q: Are consequential losses compensable? A: General Rule: NO in standard fire policy Except: If there is an agreement *The liability of the insurer is to pay for direct losses only Friendly Fire – fire that burns in a place where it is supposed to burn. Hostile Fire – fire that escapes and burns in a place where it is not supposed to be. C. Effect of alteration in the thing Sec. 168 of the Insurance Code provides that: “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.” Sec. 169 of the Insurance Code states that: “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.”
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro Q: If the policy is silent as to the use or condition of the thing insured, are there implied warranty in fire insurance? A: General Rule: YES. The insured has the insurable interest in the thing insured. Exception: If the policy expressly provides for the use of condition of the thing insured. D. Measure of indemnity Sec. 171 of the Insurance Code provides that: “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 at the time of the injury; but if there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of marine insurance.” 1. Open Policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury. 2. Valued Policy: the parties are bound by the valuation, in the absence of fraud or mistake. E. Co-insurance clause General Rule: Applies primarily to marine insurance. Exception: Co-insurance applies to fire insurance if expressly agreed upon. CASUALTY INSURANCE: A. Concept Sec. 174 of the Insurance Code states that: “Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.”
Q: What is the subject matter of the casualty insurance? A: Life, property, liability and health brought by accident. B. Third Party Liability Insurance *Casualty insurance ay provide for third party liability in the nature of stipulation pour autrui for personal injury and even damage to property, in which case, the third party may directly sue the insurer upon the occurrence of the loss. However, the insurer is not solidarily liable with the insured or the tortfeasor for the latter’s obligation. *Insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to or damage to property of others. *If there is no stipulation in favor of third person but the insurance is an insurance against liability to third persons, any third person who might be injured may not sue the insurer. - Liable for actual loss, the third party has no direct recourse with the insurer but only to the insured. The insured has recourse to the insurer. C. Insurable interest *Insurable interest is based on the interest of the insured in the safety of persons and their property, who may maintain an action against him in case of their injury or destruction, respectively. D. Meaning of “accident” and “accidental” in casualty insurance *The terms “accident” and “accidental” as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in the ordinary and common acceptation. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen. The terms do not, without qualification, exclude events resulting in damage or loss due to fault, recklessness or negligence of third parties.
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Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro *It is something that the insured did not foresee or though foreseen cannot be avoided. *Accident or not, it must be taken from the viewpoint of the victim. E. Basis and extent of insurer’s liability *The beneficiary is not designated, the proceeds will be given to the victims. *The third party has direct recourse against the insurer. The insurer is purely liable. SURETYSHIP: A. Definition Sec. 175 of the Insurance Code states that: “A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.” B. Nature of Liability of surety Sec. 176 of the Insurance Code provides that: “The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.” C. Distinctions between suretyship and property insurance Suretyship Property Insurance Accessory contract Principal Contract There are three There are two parties: parties: surety, obligor insurer and insured and oblige Credit accommodation Contract of indemnity Surety can recover Insurer has no such from principal right; only right of subrogation Bond can be cancelled May be cancelled only with consent of unilaterally either by obligee, Commissioner, insured or insurer on or court grounds provided by law
Requires acceptance of No need of obligee to be valid acceptance by any third party Risk-shifting device, Risk-distributing premium paid being in device, premium paid the nature of a service as a ratable fee contribution to a common fund
LIFE INSURANCE: A. Definition Sec. 179 of the Insurance Code provides that: “. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.” Sec. 180 of the Insurance Code states that: “An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code. In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or 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 twenty thousand pesos. 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.” B. Kinds of Life Insurance 1. Ordinary Life, General Life or Old Line Policy – insured pays a fixed premium every year until he dies. Surrender value after 3 years. 2. Group Life – essentially a single insurance contract that provides courage for money individuals. 3. Limited Payment Policy – insured pays premium for a limited period. If he dies 27
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro within the period, his beneficiary is paid; if he outlives the period, he does not get anything. 4. Endowment Policy – pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. 5. Term Insurance – insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. 6. Industrial Life – life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener. C. Liability of insurer in case of suicide Sec. 180-A of the Insurance Code states that: “The insurer in a life insurance contract shall be liable in case of suicides only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission.” *Recovery of the proceeds depends on the commission of the suicide. *In case of suicide, the insured may recover only after two years from the date the policy was issued or last reinstatement. *In case of suicide committed in the state of insanity, it is compensable regardless of the date of the commission. D. Right to assign life insurance policy Sec. 181 of the Insurance Code states that: “A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. “ Sec. 182 of the Insurance Code states that: “Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health, unless thereby expressly required.“
E.
Measure of indemnity Sec. 183 of the Insurance Code states that: “Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy.” General Rule: Life policy is always valued Exception: If the creditor insured the life of the debtor.
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE: A. Reason for the requirement Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained. Q: What is the mandatory reason for this type of insurance? A: To allow the registration or renewal of registration of any motor vehicle. B. Scope of coverage required Sec. 374 of the Insurance Code states that: “It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger, as the case may be, arising from the use thereof.” Sec. 376 of the Insurance Code states that: “The Land Transportation Commission shall not allow the registration or renewal of registration of any motor vehicle without first requiring from the land transportation operator or motor vehicle owner concerned the presentation and filing of a substantiating documentation in a form approved by the Commissioner evidencing that the policy of insurance or guaranty in cash or surety bond required by this chapter is in effect.” 28
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro
C. Persons subject to the requirement Sec. 377 of the Insurance Code provides that: “Every land transportation operator and every owner of a motor vehicle shall, before applying for the registration or renewal of registration of any motor vehicle, at his option, either secure an insurance policy or surety bond issued by any insurance company authorized by the Commissioner or make a cash deposit in such amount as herein required as limit of liability for purposes specified in section three hundred seventy-four. (1) In the case of a land transportation operator, the insurance guaranty in cash or surety bond shall cover liability for death or bodily injuries of third-parties and/or passengers arising out of the use of such vehicle in the amount not less than twelve thousand pesos per passenger or third party and an amount, for each of such categories, in any one accident of not less than that set forth in the following scale: (a) Motor vehicles with an authorized capacity of twenty-six or more passengers: Fifty thousand pesos; (b) Motor vehicles with an authorized capacity of from twelve to twenty-five passengers: Forty thousand pesos; (c) Motor vehicles with an authorized capacity of from six to eleven passengers: Thirty thousand pesos; (d) Motor vehicles with an authorized capacity of five or less passengers: Five thousand pesos multiplied by the authorized capacity. Provided, however, That such cash deposit made to, or surety bond posted with, the Commissioner shall be resorted to by him in cases of accidents the indemnities for which to third-parties and/or passengers are not settled accordingly by the land transportation operator and, in that event, the said cash deposit shall be replenished or such surety bond shall be restored with sixty days after impairment or expiry, as the case may be, by such land transportation operator, otherwise, he shall secure the insurance policy required by this chapter. The aforesaid cash deposit may be
invested by the Commissioner in readily marketable government bonds and/or securities. (2) In the case of an owner of a motor vehicle, the insurance or guaranty in cash or surety bond shall cover liability for death or injury to third parties in an amount not less than that set forth in the following scale in any one accident: I. Private Cars (a) Bantam : Twenty thousand pesos; (b) Light : Twenty thousand pesos; (c) Heavy : Thirty thousand pesos; II. Other Private Vehicles (a) Tricycles, motorcyles, and scooters : Twelve thousand pesos; (b) Vehicles with an unladen weight of 2,600 kilos or less : Twenty thousand pesos; (c) Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos : Thirty thousand pesos; (d) Vehicles with an unladen weight over 3,930 kilos : Fifty thousand pesos. The Commissioner may, if warranted, set forth schedule of indemnities for the payment of claims for death or bodily injuries with the coverages set forth herein.” D. No-Fault indemnity claim Sec. 378 of the Insurance Code provides that: “Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section: (i) The total indemnity in respect of any person shall not exceed fifteen thousand pesos; (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident; and (b) Death certificate and evidence sufficient to establish the proper payee; or (c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against one motor vehicle only. In the case of an occupant 29
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro 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.“ Q: How does the law protects the victim? A: By the provision under the NO FAULT INDEMNITY CLAUSE. *No fault clause applies only to bodily physical injuries or death not to property damage. Q: From whom should the injured recover? A: (a) 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; (b) If not an occupant, claim shall lie against the insurer of the directly offending vehicle; (c) 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. Examples: a. A passenger rode Y taxi cab. The taxi cab is insured by X company under the compulsory motor vehicle liability insurance. The taxi collided against a MERALCO post. The passenger can claim against X company without proving fault or negligence. Only documents that prove the happening of the incident. b. Passenger 1 received P15,000 under the no fault clause. His actual expenses amount to P50,000. Q: Can he still recover the balance? From whom? A: YES. Against the offending vehicle but this time he is required to prove fault or negligence. E. Notice of claim Sec. 384 of the Insurance Code states that: “Any person having any claim upon the policy issued pursuant to this Chapter shall, without
any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe.” CLAIMS SETTLEMENT: A. Unfair claim settlement practices Sec. 241 of the Insurance Code states that: “(1) 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; (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. (2) 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 30
Commercial Law Review Law on Insurance Maria Zarah Villanueva - Castro other insurance companies writing similar lines of insurance shall be admissible in evidence in an administrative or judicial proceeding brought under this section. (3) 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 (1) 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.” General Rule: Upon maturity of the policy Exception: Annuities payment
damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.”
B. Claims for life insurance policies Sec. 242 of the Insurance Code provides that: “The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy, unless such proceeds are made payable in installments or as an annuity, in which case the installments, or annuities shall be paid as they become due: Provided, however, That in the case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty days after presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall include the discounted value of all premiums paid in advance of their due dates, but are not due and payable at maturity.”
D. Delay in payment of claims Sec. 244 of the Insurance Code provides that: “In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment.”
C. Claims for non-life insurance policies Sec. 243 of the Insurance Code states that: “The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof loss is received by the insurer and ascertainment of the loss or 31
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