Insurance Memory Aid Cay

GENERAL CONCEPTS: Sec. 1. Name of Decree: The Insurance Code of 1978 Laws Governing Insurance: 1.) PD 1460: Insurance Code of 1978 Construction of Insurance Code follows that of the law of California (except for Ch. 5 was taken from the law of New York).

w/c

2.) Arts. 2011 to 2012, CC: Insurance Hot tip: Art. 2012, CC: Any person forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him. 3.) Arts. 2021 to 2027, CC: Life Annuity 4.) Art. 2186, CC: Compulsory Motor Vehicle Liability Insurance 5.) Arts. 43, par. 4, 50, 64, Family Code: Revocation of irrevocable beneficiaries in terminated marriages. RELATED CASES and JURISPRUDENCE: • •

•

•

Constantino v. Asia Life: Non-payment of premiums voids policy even if due to war. We follow the US Rule. Punctual payments important since insurer calculates on the basis of prompt payments. Time is of the essence. No premium, no insurance. Insular Life v. Ebrado: Person forbidden from receiving donation cannot be named beneficiary. Donations between persons guilty of adultery/concubinage void. Common-law spouse barred from receiving proceeds. Interpretation of Insurance Contracts: Strictly against insurer, liberally in favor of insured. Qua Chee Gan v. Law Union: Gasoline not specifically mentioned in prohibited articles. “Oils” usually means lubricants. Ambiguities or obscurities must be strictly interpreted against the party that caused them. K of insurance is a K of adhesion. Construed strictly against insurer, liberally in favor of insured. Ty v. Filipinas Cia de Seguros: Where insurance co. defines “partial disability” as loss of either hand by amputation, insured cannot recover for temporary disability. No ambiguity, literal meaning must apply.

• Sec. 2. Definition of Terms: A.) CONTRACT OF INSURANCE  An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2 of the Insurance Code)  A contract of insurance is an agreement by which one party (insurer) for a consideration (premium) paid by the other party (insured), promises to pay money or its equivalent or to do some act valuable to the latter (or his nominee), upon the happening of a loss, damage, liability, or disability arising from an unknown or contingent event. (Vance, op. cit., p. 83)

Elements of insurance contract: 1.) Consent of parties CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 1

2.) 3.) 4.)

a.) Insurer b.) Insured Object: Transfer or distribute risk of loss, damage, liability or disability from insured to insurer Cause/consideration: Premiums INSURABLE INTEREST: Insured possesses an interest of some kind susceptible of pecuniary estimation.

Classifications of insurance contracts: 1.) Life a.) Individual b.) Group life c.) Industrial life 2.) Non-life a.) Marine b.) Fire c.) Casualty 3.)

Contracts of suretyship and bonding

B.) “DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS” (Sec. 2, par. 4) 1. Making or proposing to make, as insurer, any insurance contract; 2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety; 3. Doing any insurance business, including a reinsurance business; 4. Doing or proposing to do any business in substance equivalent to any of the foregoing NOTE: Fact that no profit derived from contract/transaction is not deemed conclusive to show that no insurance business was transacted. C.) Commissioner: • The Insurance Commissioner. •

Philamlife v. Ansaldo: The insurance commissioner has the authority to regulate the business of insurance (see definition above). The contract of agency is not include w/in the meaning of the insurance business and so the insurance commissioner has no jurisidiction. NOTE: The quasi-judicial power of the Commissioner is limited by law to claims and complaints involving any loss, damage or liability for w/c an insurer may be answerable under any kind of policy or contract of insurance. Hence, this power does not cover the relationship affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company.

•

Philamcare v. CA: Health care agreement is a contract of insurance. It has the following elements: 1. The insured has an insurable interest (his own health); 2. The insured is subject to a risk of loss by the happening of the designated peril (incurs expenses of hospitalization/out-patient services); 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer’s promise, the insured pays a premium.

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 2

CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. Consensual – it is perfected by the meeting of the minds of the parties. 2. Voluntary – the parties may incorporate such terms and conditions as they may deem convenient. 3. Aleatory – it depends upon some contingent event. 4. Unilateral – imposes legal duties only on the insurer who promises to indemnify in case of loss. 5. Conditional – It is subject to conditions the principal one of which is the happening of the event insured against. 6. Contract of indemnity – Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured. 7. Personal – each party having in view the character, credit and conduct of the other. 8. Property in Legal Contemplation- they are in nature of property and do not represent a personal agreement between the insurer and the insured. REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. A subject matter which the insured has an insurable interest. 2. Event or peril insured against which may be any future contingent or unknown event, past or future and 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. Principle of Utmost Good Faith  An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health. III. Contract of Indemnity  It is the basis of all property insurance. 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 (Reviewer on Commercial Law, Professors Sundiang and Aquino) Rules: 1. Applies only to property insurance except when the creditor insures the life of his debtor. 2. Life insurance is not a contract of indemnity. 3. Insurance contracts are not wagering contracts. (Sec. 4) Contract of Adhesion (Fine Print Rule)

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 3

 Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12) Principle of Subrogation  It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latter’s rights against the wrongdoer at the time of loss.  The principle of subrogation is a normal incident of indemnity 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 private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC) Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. To make the person who caused the loss legally responsible for it. 2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer. 3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. Rules: 1. Applicable only to property insurance. 2. The insurer can only recover from the third person what the insured could have recovered. There can be no subrogation in cases: 1. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage; 2. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured’s claim for loss; 3. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54) 4. In life insurance 5. For recovery of loss in excess of insurance coverage CONSTRUCTION OF INSURANCE CONTRACT  The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79) DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT 1. The insured possesses an insurable interest susceptible of pecuniary estimation; 2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3. The insurer assumes that risk of loss; 4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 4

5. The insured makes a ratable contribution (premium) to a general insurance fund. NOTE: A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing device. PERFECTION OF AN INSURANCE CONTRACT  An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. NOTE: What is being followed in insurance contracts is what is known as the “cognition theory”. Thus, “an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge”. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269) Binding  Receipt- A mere acknowledgment on behalf of the company that its branch office had received from the applicant the insurance premium and had accepted the application subject to processing by the head office.  Cover Note (Ad Interim)- A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application.  Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52). 

Riders- Printed stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)

NOTE: In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines, 1968 ed.)  Clauses- An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. De Leon, p.188)  Endorsements- Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)  POLICY OF INSURANCE- The written instrument in which a contract of insurance is set forth. (Sec. 49) Contents: (Sec. 51) 1. Parties 2. Amount of insurance, except in open or running policies; 3. Rate of premium; 4. Property or life insured; 5. Interest of the insured in the property if he is not the absolute owner; 6. Risk insured against; and 7. Duration of the insurance Persons entitled to recover on the policy (sec. 53):

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 5

 The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy. Kinds: 1. OPEN POLICY – value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60) The actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62) 2. VALUED POLICY – definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. 61) In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount. 3. RUNNING POLICY – contemplates successive insurances and which provides that the object of the policy may from time to time be defined (Sec. 62) TYPES OF INSURANCE CONTRACTSLife insurance 1) Individual life (Secs. 179–183, 227) 2) Group life (Secs. 50, last par., 228) 3) Industrial life (Secs. 229–231) 4) Non-life insurance 5) Marine (Secs. 99–166) 6) Fire (Secs. 167–173) 7) Casualty (Sec. 174) 8) Contracts of bonding or suretyship (Secs. 175–178) Note: Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174). Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance. PARTIES TO INSURANCE CONTRACT 1) Insurer - Person who undertakes to indemnify another. For a person to be called an insurance agent, it is necessary that he should perform the function compensation. (Aisporna vs. CA, 113 SCRA 459)

for

2) Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to contract, must possess an insurable interest in the subject of the insurance and must not be a public enemy. subject

A public enemy- a nation with whom the Philippines is at war and it includes every citizen or of such nation.

3) Beneficiary - A person designated to receive proceeds of policy when risk attaches. Rules in the designation of the beneficiary:

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 6

LIFE: A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of the NCC.

vs.

Reason: in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life Ebrado, 80 SCRA 181)

an

A person who insures the life of another person and name himself as the beneficiary must have insurable interest in such life. (Sec. 10)

waived

As a general rule, the designation of a beneficiary is revocable unless the insured expressly the right to revoke in the policy. (Sec. 11)

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. 12) PROPERTY: The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18). Effects of Irrevocable Designation Of Beneficiary Insured cannot: 1) Assign the policy 2) Take the cash surrender value of the policy 3) Allow his creditors to attach or execute on the policy; 4) Add new beneficiary; or 5) Change the irrevocable designation to revocable, even though the change is just and reasonable. NOTE: The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.) INSURABLE INTEREST A. 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. B. Life Every person has an insurable interest in the life and health: of himself, of his spouse and of his children; of any person on whom he depends wholly or in part for education or support; of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance; and of any person upon whose life any estate or interest vested in him depends. (Sec. 10) When it should exist: When the insurance takes effect; not thereafter or when the loss occurs. Amount: GENERAL RULE: There is no limit in the amount the insured can insure his life. CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 7

EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, limit of insurable interest is equal to the amount of the debt.

the

Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies. C. Property Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in: an existing interest; any inchoate interest founded on an existing interest; or an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec. 14) When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the meantime. Amount: The measure of insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. (Sec. 17) INSURABLE INTEREST IN LIFE

INSURABLE INTEREST IN PROPERTY

Must exist only at the time the policy takes effect and need not Must exist at the time the policy exist takes at the time of loss

effect and when the loss occurs

Unlimited except in life insurance effected by creditor on life of Limited to actual value of interest in debtor.

property insured.

The expectation of benefit to be derived from the continued

An expectation of a benefit to be

existence of life need not have any legal basis whatever. derived from the continued A existence reasonable probability is sufficient without more.

of the property insured must have a legal basis.

The beneficiary need not have an insurable interest over the life of The beneficiary must have insurable the insured if the insured himself secured the policy. However, if the interest over the thing insured. life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.

SPECIAL CASES 1) In case of a carrier or depositary : A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 15)

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 8

2) In case of a mortgaged property: The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other.  Mortgagor – As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not extinguish the mortgage debt.  Mortgagee – His interest is only up to the extent of the debt. Such interest continues until the mortgage debt is extinguished.  The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690) STANDARD OR UNION MORTGAGE CLAUSE

OPEN OR LOSS PAYABLE MORTGAGE CLAUSE Acts of the mortgagor affect the mortgagee.

Subsequent acts of the mortgagor cannot affect the rights of the assignee

Reason: Mortgagor does not cease to be a party to the contract. (Secs. 8 and 9)

Effects of Loss Payable Clause 1) The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract. 2) Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee. 3) Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit. 4) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. 5) In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio) RISK: What may be insured against: 1) Future contingent event resulting in loss or damage – Ex. Possible future fire 2) Past unknown event resulting in loss or damage – Ex. Fact of past sinking of a vessel unknown to the parties 3) Contingent liability – Ex. Reinsurance PREMIUM PAYMENTS  Consideration paid an insurer for undertaking to indemnify the insured against a specified peril. Basis of the right of the insurer to collect premiums: Assumption of risk. GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec. 77) EXCEPTIONS: 1) In case of life or industrial life insurance, when the grace periods applies; (Sec. 77) CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 9

2) When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78) NOTE: Section 77 may not apply if the parties have agreed to the payment of the premium in instalments and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) 3) Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259) 4) Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307) NOTE: Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) Effect of Acknowledgment of Receipt of Premium in Policy:  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. (Sec. 78) ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID Whole:

1.) If the thing insured was never exposed to the risks insured against; (Sec. 79) 2.) If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81) 3.) If contract is voidable because of the existence of facts of which the insured was ignorant without his fault; (Sec. 81) 4.) When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81)

5.) When rescission is granted due to the insurer’s breach of contract. (Sec. 74) before

Pro rata: When the insurance is for a definite period and the insured surrenders his policy the termination thereof; Exceptions:

1. Policy not made for a definite period of time 2. Short period rate is agreed upon life insurance policy 3. When there is over-insurance (Sec. 82); Instances when premiums are not recoverable: 1) When the risk has already attached and the risk is entire and indivisible. 2) In life insurance. 3) When the contract is rescindable or rendered void ab initio by the fraud of the insured. When the contract is illegal and the parties are in pari delicto. PREMIUM

ASSESSMENT

Levied and paid to meet anticipated losses.

Collected to meet actual losses.

Payment is not enforceable against

Payment is enforceable once

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 10

the insured.

levied unless otherwise agreed upon.

Not a debt.

It becomes a debt once properly levied unless otherwise agreed.

TRANSFER OF POLICY 1. Life Insurance: It can be transferred even without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before transfer. (Sec. 181) Reason: The policy does not represent a personal agreement between the insured and the insurer. 2. Property insurance: It cannot be transferred without the consent of the insurer. Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the insured. 3. Casualty insurance : It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82) Reason: The moral hazards are as great as those of property insurance. CHANGE OF INTEREST IN THE THING INSURED  The mere (absolute) transfer of the 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. (Sec. 58) Reason: Insurance contract is personal. GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20) EXCEPTIONS: 1) In life, health and accident insurance.(Sec. 20); 2) Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21); 3) Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22); 4) Change of interest, by will or succession, on the death of the insured. (Sec. 23); 5) Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec. 24); 6) When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57); 7) When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. 1306, NCC). CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 11

ASCERTAINMENT AND CONTROL OF RISK AND LOSS A. Four Primary Concerns of the Parties: 1) Correct estimation of the risk; 2) Precise delimitation of the risk; 3) Control of the risk; 4) Determining whether a loss occurred and if so, the amount of such loss. B. Devices used for ascertaining and controlling risk and loss: 1. Concealment – A neglect to communicate that which a party knows and ought to communicate (Sec. 26) Requisites: 1) A party knows a fact which he neglects to communicate or disclose to the other. 2) Such party concealing is duty bound to disclose such fact to the other. 3) Such party concealing makes no warranty as to the fact concealed. 4) The other party has not the means of ascertaining the fact concealed. Material Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, “the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance.”

of

Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate the advantages of the proposed contract, or in making his inquiries (Sec. 31). Exception to Sec. 31: 1) Incontestability clause 2) Matters under Sec.110 (marine insurance)

NOTE: The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268). The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33) Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002). 2. Representations – Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. They are considered an active form of concealment. Requisites of a false representation (misrepresentation): CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 12

1) The insured stated a fact which is untrue. 2) Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead. 3) Such fact in either case is material to the risk. Characteristics: •

It is not a part of the contract but merely a collateral inducement to it.

•

It may be oral or written.

•

It is made at the same time of issuing the policy or before but not after.

•

It may be altered or withdrawn before the insurance is effected but not afterwards.

•

It always refers to the date the contract goes into effect.

Kinds: 1) AFFIRMATIVE – affirmation of a fact when the contract begins; and 2) PROMISSORY – promise to be performed after policy was issued. Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation becomes false. Test of Materiality: Same as that in concealment. Where the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469) 3. Warranties – Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property. Kinds: a. EXPRESS – an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done. b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel. Effects of breach of warranty: a. Material the

GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle other party to rescind the contract. (Sec. 74) EXCEPTIONS: 1) Loss occurs before the time of performance of the warranty. 2) The performances become unlawful at the place of the contract.

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 13

3) Performance becomes impossible. (Sec. 73) b. Immaterial (ex. Other insurance clause) GENERAL RULE: It will not avoid the policy. EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75.)

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 14

CAYEN CERVANCIA CABIGUEN, PSU SCHOOL OF LAW

Page 15